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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10/A
(AMENDMENT NO. 2)
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OCTEL CORP.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
DELAWARE 98-0181725
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
P.O. BOX 17, OIL SITES ROAD
ELLESMERE PORT, SOUTH WIRRAL
UNITED KINGDOM L65 4HF
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: 011-44-151-355-3611
Securities to be registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Common Stock New York Stock Exchange
par value $0.01 per share
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities to be registered pursuant to Section 12(G) of the Act:
None.
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OCTEL CORP.
INFORMATION REQUIRED IN REGISTRATION STATEMENT:
CROSS-REFERENCE BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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ITEM NUMBER CAPTION LOCATION IN INFORMATION STATEMENT
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Item 1. Business............................... Summary; Introduction; The
Distribution; Risk Factors;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Combined
Financial Statements.
Item 2. Financial Information.................. Summary; Risk Factors; Pro Forma
Capitalization; Pro Forma Combined
Financial Statements; Selected
Historical Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Combined Financial Statements.
Item 3. Properties............................. Business.
Item 4. Security Ownership of Certain
Beneficial Owners and Management....... Security Ownership of Certain
Beneficial Owners; Beneficial Ownership
of Management.
Item 5. Directors and Executive Officers....... Management; Liability and
Indemnification of Directors and
Officers.
Item 6. Executive Compensation................. Management; Security Ownership of
Certain Beneficial Owners.
Item 7. Certain Relationships and Related
Transactions........................... Summary; The Distribution; Relationship
Between Great Lakes and the Company
after the Distribution; Certain
Relationships and Related Transactions.
Item 8. Legal Proceedings...................... Business.
Item 9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.................... Summary; The Distribution; Risk
Factors; Management; Security Ownership
of Certain Beneficial Owners;
Beneficial Ownership of Management;
Description of Company Capital Stock.
Item 10. Recent Sales of Unregistered
Securities............................. Not Applicable.
Item 11. Description of Registrant's Securities
to Be Registered....................... Description of Company Capital Stock.
Item 12. Indemnification of Directors and
Officers............................... Liability and Indemnification of
Directors and Officers.
Item 13. Financial Statements and Supplementary
Data................................... Summary; Pro Forma Combined Financial
Statements; Selected Historical
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Financial
Statements.
Item 14. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. Not Applicable.
Item 15. Financial Statements and Exhibits...... Index to Combined Financial Statements;
Exhibit Index.
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GREAT LAKES LETTERHEAD
May , 1998
Dear Stockholder:
I am pleased to inform you that the Board of Directors of Great Lakes
Chemical Corporation has approved a distribution to our stockholders of all of
the outstanding shares of common stock of Octel Corp. ("Octel"). The stock
distribution will be made to holders of record of Great Lakes common stock on
May 15, 1998. You will receive one share of Octel common stock for every four
shares of Great Lakes common stock you hold on such date.
Following completion of the distribution, Octel and its affiliates will own
and operate substantially all of the businesses which presently comprise Great
Lakes' Petroleum Additives Business Unit, including the lead alkyls, petroleum
specialties and performance chemicals businesses.
Your Board of Directors believes that the distribution will enable Great
Lakes and Octel to focus their respective management teams on enhancing each
company's competitive position in its respective industries with a view towards
increasing the value of each of its businesses, thereby producing greater total
stockholder value over the long term. In addition, the implementation of an
Octel equity-based incentive plan will better enable Octel to attract, retain
and motivate the employees necessary to achieve its business objectives by
offering additional economic rewards tied directly to Octel's performance.
The enclosed Information Statement explains the proposed distribution in
greater detail and provides financial and other important information regarding
Octel. We urge you to read it carefully. Holders of Great Lakes common stock are
not required to take any action to participate in the distribution. A
stockholder vote is not required in connection with this matter and,
accordingly, your proxy is not being sought.
We are enthusiastic about the distribution and look forward to the future
success of Great Lakes and Octel as highly focused, independent publicly traded
companies.
Sincerely,
Mark P. Bulriss
President and Chief Executive Officer
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OCTEL LETTERHEAD
May , 1998
Dear Stockholder:
I am very pleased that you will soon be a stockholder of Octel Corp.
("Octel"), and I want to take this opportunity to introduce you to your company.
Octel is predominantly the business which was historically the Petroleum
Additives Business Unit of Great Lakes Chemical Corporation.
The Company is a global leader in the production and marketing of
tetraethyl lead (TEL), an octane enhancer in gasoline. Additionally, it
develops, manufactures and markets specialized chemicals used as fuel additives
and performance chemicals.
Going forward, Octel will strive to maintain its leadership position in TEL
through service differentiation, product stewardship and customer satisfaction.
I believe that, as a free-standing entity, Octel can more effectively focus
on and better manage its business during what is expected to be a period of
declining global demand for TEL. We plan to manage and optimize the cash
generation from the TEL business to pay down debt and return value to our
stockholders through the repurchase of stock and/or the payment of cash
dividends, as and when appropriate, and through the profitable growth of our
non-TEL related businesses.
Particular attention will be given to improving efficiency and controlling
costs as we implement plans to downsize the manufacturing units.
The shares of Octel common stock have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance, under the symbol
"OTL."
Your Board, our management and our employees are excited about our future
as an independent company and look forward to your participation in our success.
Sincerely,
Dennis J. Kerrison
President and Chief Executive Officer
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INFORMATION STATEMENT
OCTEL CORP.
COMMON STOCK
OCTEL LOGO PAR VALUE $0.01 PER SHARE
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by Great Lakes Chemical Corporation ("Great
Lakes") to holders of record of Great Lakes common stock, par value $1.00 per
share (the "Great Lakes Common Stock"), at the close of business on May 15, 1998
(the "Record Date"), of one share of common stock, par value $0.01 per share
(the "Octel Common Stock"), of Octel Corp. ("Octel" or the "Company") for every
four shares of Great Lakes Common Stock owned on the Record Date. The
Distribution will result in 100% of the outstanding shares of Octel Common Stock
being distributed to holders of Great Lakes Common Stock on a pro rata basis.
The Distribution will be effective on May 22, 1998 (the "Distribution Date").
The Company is a newly formed company which, as a result of transactions
entered into in connection with the Distribution, will own substantially all of
the businesses and assets of, and will be responsible for substantially all of
the liabilities associated with, Great Lakes' lead alkyls, petroleum
specialities and performance chemicals businesses, as more fully described
herein.
No consideration will be paid by Great Lakes' stockholders for the shares
of Octel Common Stock. There is no current public trading market for the shares
of Octel Common Stock, although it is expected that a "when-issued" trading
market will develop on or about the Record Date. The Octel Common Stock has been
approved for listing on the New York Stock Exchange, subject to official notice
of issuance, under the symbol "OTL."
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "Risk Factors."
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Statement is May , 1998.
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TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 1
INTRODUCTION................................................ 7
THE DISTRIBUTION............................................ 7
Reasons for the Distribution................................ 7
Manner of Effecting the Distribution........................ 8
Certain Federal Income Tax Consequences..................... 9
Listing and Trading of Octel Common Stock................... 9
RISK FACTORS................................................ 11
Contracting Demand for TEL Products......................... 11
Competition................................................. 11
Substantial Leverage and Restrictive Covenants.............. 12
Absence of Great Lakes Financial Support.................... 12
Environmental Matters and Plant Closures.................... 13
International Operations.................................... 13
Operating History and Future Prospects; Transition to an
Independent Public Company................................ 13
Dependence on Key Personnel................................. 14
Absence of Prior Trading Market for Octel Common Stock...... 14
Dividends and Share Repurchases............................. 14
Possible Anti-takeover Effects of Certain Charter and By-Law
Provisions and Other Matters.............................. 14
FTC Investigation........................................... 15
RELATIONSHIP BETWEEN GREAT LAKES AND THE COMPANY AFTER THE
DISTRIBUTION.............................................. 16
Distribution Agreement...................................... 16
Tax Disaffiliation Agreement................................ 16
Corporate Services Transition Agreement..................... 17
Supply and Toll Manufacturing Agreements.................... 17
DESCRIPTION OF FINANCINGS................................... 17
PRO FORMA CAPITALIZATION.................................... 20
PRO FORMA COMBINED FINANCIAL STATEMENTS..................... 21
SELECTED HISTORICAL COMBINED FINANCIAL DATA................. 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 27
BUSINESS.................................................... 35
Description of the Company.................................. 35
Reasons for the Distribution................................ 35
Cost Reduction Initiatives.................................. 36
Lead Alkyls Business........................................ 36
Petroleum Specialties Business.............................. 38
Performance Chemicals Business.............................. 39
Raw Materials............................................... 39
Technology.................................................. 39
Patents and Intellectual Property........................... 40
Health, Safety and Environmental Matters.................... 40
Human Resources............................................. 40
Properties.................................................. 41
Legal Proceedings........................................... 41
MANAGEMENT.................................................. 42
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PAGE
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Directors................................................... 42
Classified Board of Directors............................... 43
Committees of the Board of Directors........................ 43
Compensation of Directors................................... 44
Executive Officers.......................................... 44
Compensation of Executive Officers.......................... 45
Stock Options Table......................................... 46
Option Exercises and Year-End Value Table................... 47
Employment Agreements....................................... 47
Compensation Under Retirement Plans......................... 47
Stock Plans................................................. 48
TREATMENT OF GREAT LAKES EMPLOYEE STOCK OPTIONS IN THE
DISTRIBUTION.............................................. 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............. 51
BENEFICIAL OWNERSHIP OF MANAGEMENT.......................... 51
DESCRIPTION OF COMPANY CAPITAL STOCK........................ 51
Common Stock................................................ 51
Preferred Stock............................................. 52
No Preemptive Rights........................................ 52
Transfer Agent and Registrar................................ 52
Certain Provisions of the Certificate of Incorporation and
By-Laws................................................... 52
Preferred Stock Purchase Rights............................. 54
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..... 56
INDEPENDENT AUDITORS........................................ 57
ADDITIONAL INFORMATION...................................... 57
INDEX TO COMBINED FINANCIAL STATEMENTS...................... F-1
</TABLE>
ii
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
by, the more detailed information set forth in this Information Statement, which
should be read in its entirety. Unless the context otherwise requires, (i)
references in this Information Statement to Great Lakes or the Company shall
include Great Lakes' or the Company's respective subsidiaries, (ii) references
in this Information Statement to the Company prior to the Distribution Date
shall refer to the Octel Businesses as operated as part of the Petroleum
Additives Business Unit of Great Lakes and (iii) references in this Information
Statement to the Distribution shall, unless the context indicates otherwise,
include the Financings (as defined) and the Special Payments (as defined). See
"Description of Financings."
THE COMPANY
The Company is an international chemical company specializing in the
manufacture, distribution and marketing of fuel additives. The Company is
comprised of three primary operating businesses: Lead Alkyls, Petroleum
Specialties and Performance Chemicals. The Lead Alkyls business, which accounted
for 82% of the Company's 1997 sales, is the world's leading producer of
tetraethyl lead antiknock compounds, or "TEL," that are used by oil refineries
worldwide to boost the octane levels in gasoline, allowing fuel to burn more
efficiently and preventing engine knock during the combustion cycle. The Company
manufactures approximately 80% of TEL used worldwide. The Petroleum Specialties
business, which accounted for 12% of the Company's 1997 sales, supplies a broad
range of petroleum additives, including combustion improvers, fuel detergents
and functional performance products (such as corrosion inhibitors and
conductivity improvers). The Performance Chemicals business, which accounted for
6% of the Company's 1997 sales, manufactures and distributes a range of
chemicals including sodium, chlor-alkali and Octaquest(R), a biodegradable
chelating agent supplied to Procter & Gamble, which is used in several European
laundry products.
Worldwide use of TEL has declined since 1973 following the enactment of the
U.S. Clean Air Act in 1970 and increasing health and environmental concerns and
political pressures to increase the usage of unleaded gasoline and reduce the
lead content of leaded fuels. Usage of TEL is expected to continue to decline
and the Company's corporate objective is to optimize the cash flows from sales
of TEL to pay down debt and return value to its stockholders by (a) the
repurchase of stock and/or the payment of cash dividends and (b) the development
of its Petroleum Specialties and Performance Chemicals businesses. To achieve
its corporate objective, the Company's strategy is to: (i) manage profitably the
decline of the TEL market through the implementation of cost control initiatives
and the provision of additional technical and environmental support for
customers; (ii) expand the Petroleum Specialties and Performance Chemical
businesses through the development of core competencies, product innovation and
enhanced focus on satisfying customers and market needs; (iii) efficiently
manage its operations and manufacturing sites consistent with the decline of TEL
demand and the growth of specialty and performance products, and (iv) seek,
where feasible, synergistic opportunities through joint ventures, alliances,
collaborative arrangements or acquisitions.
In 1997, the Company had net sales of $539.1 million and an operating
income of $194.7 million. The Company has its administrative headquarters and
principal manufacturing site in Ellesmere Port (Cheshire, U.K.) with
subsidiaries in Europe, Africa and North America. The Company employed 1,419
employees worldwide as of December 31, 1997.
The Company was formed in January 1998 for the purpose of effecting the
Distribution and, prior to the Distribution, was a wholly owned subsidiary of
Great Lakes. As a result of the Distribution, Great Lakes will own no shares of
Octel Common Stock, and the Company will operate as an independent publicly
traded company. The Company's principal executive offices are located in the
United Kingdom at Oil Sites Road, Ellesmere Port, South Wirral L65 4HF, and its
telephone number is 011-44-151-355-3611.
1
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RECENT DEVELOPMENTS
Management expects TEL sales volumes to decrease for the full year 1998,
and TEL sales volumes in the first quarter of 1998 declined approximately 7.0%
from the first quarter of 1997. Operating income for the first quarter of 1998
was $41.0 million, which was comparable to the $41.5 million of the first
quarter of 1997 due to a higher percentage of retail TEL sales versus wholesale
TEL sales in the first quarter of 1998. Retail selling prices in the first
quarter of 1998 declined slightly as compared to the first quarter of 1997.
THE DISTRIBUTION
DISTRIBUTING CORPORATION...... Great Lakes Chemical Corporation, a Delaware
corporation ("Great Lakes").
DISTRIBUTED CORPORATION....... Octel Corp., a Delaware corporation ("Octel" or
the "Company"), which, as of the Distribution
Date, will have transferred to it substantially
all of the businesses and assets of, and will
be responsible for substantially all of the
liabilities associated with, Great Lakes' lead
alkyls, petroleum specialties and performance
chemicals businesses, as more fully described
herein (the "Octel Businesses").
PRINCIPAL BUSINESSES TO BE
RETAINED BY GREAT LAKES....... Great Lakes will retain its other businesses,
consisting of all of its current businesses
other than the Octel Businesses (the "Core
Businesses").
PRIMARY PURPOSE OF THE
DISTRIBUTION.................. To separate the Octel Businesses from the Core
Businesses so that each can (i) adopt
strategies and pursue objectives appropriate to
its specific businesses and the industries in
which it operates; (ii) be recognized and
appropriately valued by the financial community
as a separate and distinct business; and (iii)
implement more focused incentive compensation
arrangements that are tied more directly to the
results of its operations.
SHARES TO BE DISTRIBUTED...... Approximately 14,736,075 shares of Octel Common
Stock, based on the number of shares of Great
Lakes Common Stock outstanding on December 31,
1997. The shares to be distributed will
constitute 100% of the outstanding shares of
Octel Common Stock on the Distribution Date.
DISTRIBUTION RATIO............ Each Great Lakes stockholder will receive one
share of Octel Common Stock for every four
shares of Great Lakes Common Stock held on the
Record Date.
RELATED FINANCINGS............ In connection with the Distribution, certain of
the Company's subsidiaries have entered into a
$300 million senior credit facility (the
"Credit Facility"), consisting of a revolving
credit facility (the "Revolving Facility") of
$20 million and a term loan facility (the "Term
Facility") of $280 million, and prior to the
Distribution, a subsidiary of the Company
issued $150 million of senior notes (the
"Notes") (collectively, the "Financings").
Proceeds from the Financings will be used to
make the Special Payments (as defined herein)
to Great Lakes and to pay approximately $16
million, including $12 million in transaction
fees associated with the Distribution and the
Financings and $4 million of associated costs
for certain interest rate swaps related to the
Financings. The $20
2
<PAGE> 10
million Revolving Facility will be available to
the Company for working capital and general
corporate purposes. See "Risk Factors
--Substantial Leverage and Restrictive
Covenants" and "Description of Financings."
SPECIAL PAYMENTS TO GREAT
LAKES......................... Prior to the Distribution, the Company will use
the proceeds of the Financings, together with
$53.7 million of available cash at December 31,
1997 and cash generated by Octel between
January 1, 1998 and the Distribution Date, to
make a $467.7 million payment to Great Lakes,
consisting of $116.8 million for the repayment
of a loan used to purchase a 10.65% interest in
subsidiaries of the Company held by Chevron
Chemical Company ("Chevron") and $350.9 million
as a special dividend (the "Special Dividend"
and, collectively, the "Special Payments").
LISTING AND TRADING MARKET.... The Octel Common Stock has been approved for
listing on the New York Stock Exchange, Inc.
(the "NYSE"), subject to official notice of
issuance, under the symbol "OTL."
RECORD DATE................... Close of business on May 15, 1998.
DISTRIBUTION DATE............. May 22, 1998.
MANNER OF EFFECTING THE
DISTRIBUTION.................. The Company will use a direct registration
system to implement the distribution of shares
of Octel Common Stock. On the Distribution
Date, a certificate representing all issued and
outstanding shares of Octel Common Stock will
be delivered to the Distribution Agent (as
defined). An account statement will be mailed
to each Great Lakes stockholder as soon as
practicable thereafter stating the number of
shares of Octel Common Stock received by such
stockholder in the Distribution.
FRACTIONAL SHARE INTERESTS.... If a stockholder owns fewer than four shares of
Great Lakes Common Stock, such stockholder will
receive cash in lieu of a fractional share. The
account of each Great Lakes stockholder owning
more than four shares of Great Lakes Common
Stock will be credited with all whole and
fractional shares of Octel Common Stock such
stockholder is entitled to receive, unless a
stockholder requests and receives physical
certificates (in which case a stockholder will
receive physical certificates for all whole
shares which such stockholder is entitled to
receive and cash in lieu of fractional shares).
DISTRIBUTION AGENT............ First Chicago Trust Company of New York (the
"Distribution Agent").
TAX CONSEQUENCES.............. Great Lakes has received a private letter
ruling from the U.S. Internal Revenue Service
to the effect that, among other things, the
Distribution will qualify as a tax-free
distribution under Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code").
See "The Distribution--Certain Federal Income
Tax Consequences."
DIVIDEND AND SHARE
REPURCHASE POLICY............. The payment and amount of cash dividends and/or
share repurchases, if any, on or with respect
to, the Octel Common Stock after
3
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the Distribution will be subject to the
discretion of the Company's Board of Directors.
The Company's policy will be determined and
reviewed by the Company's Board of Directors at
such future times as may be appropriate, and
payment of dividends, if any, on Octel Common
Stock will depend upon the Company's ongoing
financial position, capital requirements,
profitability, cash flow, restrictive covenants
contained in the Credit Facility and the Notes
and such other factors as the Company's Board
of Directors deems relevant.
RELATIONSHIP WITH GREAT LAKES
AFTER THE DISTRIBUTION........ Following the Distribution, Great Lakes and the
Company will be operated as independent
publicly traded companies. Great Lakes and the
Company will, however, continue to have a
relationship as a result of the various
agreements being entered into between Great
Lakes and the Company in connection with the
Distribution, including the Distribution
Agreement, the Tax Disaffiliation Agreement,
the Corporate Services Transition Agreement and
the Supply and Toll Manufacturing Agreements
(each as defined). Except as referred to above
or as otherwise described herein, Great Lakes
and the Company will cease to have any material
contractual or other material relationships
with each other. See "Relationship Between
Great Lakes and the Company After the
Distribution."
RISK FACTORS
Stockholders should carefully consider the matters discussed under the
section entitled "Risk Factors" beginning on page 11 of this Information
Statement.
4
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The following tables set forth summary historical statement of income data
and balance sheet data and corresponding pro forma data for the Company. The
historical financial data for the three years ended December 31, 1997 are
derived from the audited Combined Financial Statements of the Company, all of
which are included elsewhere in this Information Statement. This historical
financial data relate to the Octel Businesses as they were operated as part of
the Petroleum Additives Business Unit of Great Lakes and have been adjusted for
those parts of the Petroleum Additives Business Unit which are to remain under
Great Lakes' ownership and management after the Distribution.
The pro forma financial data were derived from the "Pro Forma Combined
Financial Statements" that give pro forma effect to the Distribution. The pro
forma adjustments are based upon available information and certain assumptions
that management believes are reasonable. The pro forma statement of income data
(i) for the year ended December 31, 1997 give effect to the Distribution as if
it had occurred as of January 1, 1997. The pro forma balance sheet data give
effect to the Distribution as if it had occurred as of December 31, 1997. The
pro forma financial data do not purport to represent what the financial position
or results of operations of the Company would actually have been had the
Distribution in fact occurred on the assumed dates or to project the financial
position or results of operations of the Company for any future period or date.
These tables should be read in conjunction with "Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements included elsewhere herein.
5
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(IN MILLIONS)
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UNAUDITED YEARS ENDED DECEMBER 31,
PRO FORMA -----------------------------------------------------
1997 1997 1996 1995 1994 1993
--------- ---- ---- ---- ---- ----
(UNAUDITED)
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INCOME STATEMENT DATA:
Net sales.............................. $539.1 $539.1 $597.4 $628.3 $603.1 $569.9
Cost of goods sold..................... 274.4 274.4 298.8 307.0 296.0 260.5
------ ------ ------ ------ ------ ------
Gross profit........................... 264.7 264.7 298.6 321.3 307.1 309.4
Selling, general and administrative.... 41.6 38.6 40.2 42.1 37.5 38.1
Research and development............... 3.8 3.8 5.6 5.6 6.7 9.6
Amortization of intangible assets...... 37.2 27.6 26.7 19.0 16.7 15.0
------ ------ ------ ------ ------ ------
Operating income....................... 182.1 194.7 226.1 254.6 246.2 246.7
Interest expense....................... 34.8 2.2 1.6 10.3 12.5 17.4
Other expenses......................... 5.6 5.6 7.5 4.4 (1.4) 3.4
Interest income........................ (0.1) (3.9) (3.5) (5.1) (4.2) (5.8)
Other income........................... (7.9) (7.9) (1.2) (4.1) (7.9) (3.3)
------ ------ ------ ------ ------ ------
Income before income taxes and minority
interest............................. 149.7 198.7 221.7 249.1 247.2 235.0
Minority interest...................... -- 24.3 29.6 32.3 32.4 31.1
------ ------ ------ ------ ------ ------
Income before income taxes............. 149.7 174.4 192.1 216.8 214.8 203.9
Income taxes........................... 48.9 56.7 63.8 71.7 72.4 40.0
------ ------ ------ ------ ------ ------
Net income............................. $100.8 $117.7 $128.3 $145.1 $142.4 $163.9
====== ====== ====== ====== ====== ======
BALANCE SHEET DATA (AS OF END OF YEAR):
Total working capital.................. $206.2 $179.9 $216.1 $175.8 $190.8 $154.5
Property, plant and equipment, net..... 106.0 106.0 113.4 107.3 84.0 67.1
Total assets........................... 819.2 832.9 841.0 798.4 732.6 634.3
Total debt............................. 430.0 -- -- -- -- --
Total liabilities...................... 540.4 180.1 256.4 267.6 244.2 226.7
Total equity........................... 278.8 652.8 584.6 530.8 488.4 416.6
STATEMENT OF CASH FLOWS DATA:
EBITDA(1).............................. $240.8 $243.8 $262.7 $287.0 $285.1 $272.5
Depreciation........................... 19.2 19.2 16.2 13.7 12.9 10.8
Net cash provided by operating
activities........................... -- 167.5 127.8 175.8 161.9 180.4
Capital expenditures................... -- 17.8 20.6 31.5 22.6 11.7
Business combinations net of cash
acquired............................. -- 130.8(2) 17.0 18.8 66.7 20.8
Other investing activities............. -- (1.6) 14.9 31.1 (2.1) 13.3
------ ------ ------ ------ ------ ------
Net cash used in investing
activities........................... -- $147.0 $ 52.5 $ 81.4 $ 87.2 $ 45.8
Net cash paid to Great Lakes........... -- 31.4 103.0 104.6 83.0 140.9
</TABLE>
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(1) EBITDA represents income before income taxes and minority interest plus
depreciation, amortization of intangible assets and interest expense, less
interest income. EBITDA is not a substitute for operating income, net
earnings and cash flow from operating activities as determined in accordance
with generally accepted accounting principles as a measure of profitability
or liquidity. EBITDA is presented as additional information because
management believes it to be a useful indicator of the Company's ability to
service and/or incur indebtedness. EBITDA amounts may not be fully available
for management's discretionary use, due to certain requirements to conserve
funds for capital replacement, debt service and other commitments.
(2) Includes $116.8 million for the purchase of Chevron's 10.65% interest in
subsidiaries of the Company. See "The Distribution--Special Payments to
Great Lakes."
6
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INTRODUCTION
On May 6, 1998, the Board of Directors of Great Lakes declared a dividend
payable to holders of record of Great Lakes Common Stock at the close of
business on the Record Date of one share of Octel Common Stock for every four
shares of Great Lakes Common Stock held on the Record Date. The Distribution
will be effective on May 22, 1998. An account statement will be mailed to each
Great Lakes stockholder as soon as practicable thereafter stating the number of
shares of Octel Common Stock received by such stockholder in the Distribution.
As a result of the Distribution, 100% of the outstanding shares of Octel Common
Stock will be distributed to Great Lakes stockholders.
The Company was formed for the purpose of effecting the Distribution. On or
prior to the Distribution Date, Great Lakes will have transferred to the Company
substantially all of the assets and liabilities of the Octel Businesses. Prior
to the Distribution, Great Lakes generally operated the Octel Businesses as part
of its Petroleum Additives Business Unit.
If you have questions relating to the Distribution, please contact the
Distribution Agent at (800) 317-4445.
For other information relating to Great Lakes, please contact: Great Lakes
Investor Relations Department, Great Lakes Chemical Corporation, One Great Lakes
Boulevard, West Lafayette, Indiana 47996-2220 (telephone: (765) 497-6100). For
questions related specifically to Octel, please contact: Octel Corp. Investor
Relations Department, P.O. Box 17, Oil Sites Road, Ellesmere Port, South Wirral,
United Kingdom (telephone: 011-44-151-356-6100).
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Board of Directors of Great Lakes has determined that it is in the best
interest of Great Lakes and its stockholders to undertake the Distribution,
thereby separating the Octel Businesses from Great Lakes, for the reasons
described herein.
The Distribution will permit management of each of the Company and Great
Lakes to focus its exclusive attention on its respective core businesses. In
addition, the Distribution will allow each of the Company and Great Lakes to
allocate its financial resources to address its particular business needs and
capitalize on its business opportunities. With respect to the Company, the
Distribution is designed to establish Octel as a stand alone independent company
that can adopt strategies and pursue objectives appropriate to its specific
businesses. In 1997 approximately 82% of the Company's revenues were derived
from the sale of tetraethyl lead antiknock compounds ("TEL"), a specialized
commodity utilized primarily as an octane enhancer for automobile gasoline.
Businesses, such as the Company, that sell specialized commodity chemical
products must meet certain marketplace standard specifications. Since the
Company is not generally able to increase prices, the Company's ability to
succeed and maintain or increase earnings is dependent primarily upon its
ability to control and/or reduce costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview." As an
independent company, the Company's management should be better able to structure
and operate the Company in a manner more directly and appropriately tailored to
meet the business opportunities and challenges presented by the competitive TEL
environment in which the Company operates.
Great Lakes believes that the separation of the Octel Businesses from its
specialty chemicals businesses will allow the two entities to be recognized and
appropriately valued by the financial community as distinct businesses with
different investment risk and return profiles. As a result of the Distribution,
Great Lakes should develop and enhance its following in the financial community
primarily as a diversified global specialty chemicals business while the Company
should develop its following primarily as a petroleum additives and performance
chemicals business. In this regard, investors will be better able to evaluate
the merits and future prospects of the businesses of Great Lakes and the
Company, enhancing the likelihood that each will achieve appropriate market
recognition and valuation for its performance and potential. In addition,
current
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stockholders and potential investors will be better able to direct their
investments to their specific areas of interest. The Distribution will also
enable the Company, as and when appropriate, to explore the possibility of
engaging in strategic acquisitions, joint ventures and other collaborative
arrangements.
The Distribution is also designed to allow the Company and Great Lakes to
each establish and tailor its own equity-based compensation plans so that there
will be a more direct alignment between the performance of each business and the
compensation of its management. Among other things, the implementation of a
separate Octel equity-based compensation plan is intended to strengthen and
enhance the Company's ability to achieve cost savings, enhance efficiencies and
better leverage sales opportunities. Following the Distribution, the Company's
management will receive equity-based incentives which will be more closely
aligned with the financial results of the Company, thereby linking each
employee's financial success more directly to the financial success of the
Company. See "Management."
For the reasons stated above, the Great Lakes Board of Directors believes
that the Distribution is in the best interest of Great Lakes and the Company.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in a Transfer and Distribution Agreement, dated as of April 24, 1998 (the
"Distribution Agreement"), between Great Lakes and the Company.
The Distribution will be made on the basis of one share of Octel Common
Stock for every four shares of Great Lakes Common Stock held on the Record Date.
The actual total number of shares of Octel Common Stock to be distributed will
depend on the number of shares of Great Lakes Common Stock outstanding on the
Record Date. Based upon the shares of Great Lakes Common Stock outstanding on
December 31, 1997, approximately 14,736,075 shares of Octel Common Stock will be
distributed to Great Lakes stockholders. The shares of Octel Common Stock will
be fully paid and nonassessable and the holders thereof will not be entitled to
preemptive rights. See "Description of Company Capital Stock."
Since the Company will use a direct registration system to implement the
Distribution, the Distribution Agent will credit the shares of Octel Common
Stock distributed on the Distribution Date, including fractional interests for
those stockholders who receive at least one whole share of Octel Common Stock,
to book-entry accounts established for all Company stockholders and will mail an
account statement to each stockholder stating the number of shares of Octel
Common Stock, including such fractional interests, received by such stockholder
in the Distribution. Following the Distribution, stockholders may request the
transfer of their interests to a brokerage or other account or may request
delivery of physical stock certificates for their shares of Octel Common Stock.
If a stockholder owns fewer than four shares of Great Lakes Common Stock
and therefore is entitled to receive less than one whole share of Octel Common
Stock, such stockholder will receive cash instead of a fractional share of Octel
Common Stock. If a stockholder requests physical certificates for shares of
Octel Common Stock, such stockholder will receive physical certificates for all
whole shares of Octel Common Stock and cash instead of any fractional share
interest. The Distribution Agent will, promptly after the Distribution Date,
aggregate all such fractional share interests in Octel Common Stock with those
of other similarly situated stockholders and sell such fractional share
interests in Octel Common Stock at then-prevailing prices. The Distribution
Agent will distribute the cash proceeds to stockholders entitled to such
proceeds pro rata based upon their fractional interests in Octel Common Stock.
No interest will be paid on any cash distributed in lieu of fractional shares.
No holder of Great Lakes Common Stock will be required to pay any cash or
other consideration for the shares of Octel Common Stock received in the
Distribution or to surrender or exchange shares of Great Lakes Common Stock in
order to receive shares of Octel Common Stock.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the Distribution to Great Lakes' stockholders. Great Lakes has
received a private letter ruling (the "Private Letter Ruling") from the U.S.
Internal Revenue Service (the "Service") to the effect that, among other things,
the Distribution will qualify as a tax-free spin-off to Great Lakes and its
stockholders under Section 355 of the Code and therefore that for U.S. federal
income tax purposes:
1. A Great Lakes stockholder will not recognize any income, gain or
loss as a result of the Distribution, except, as described below, in
connection with cash received in lieu of fractional shares of Octel Common
Stock.
2. A Great Lakes stockholder will apportion his tax basis for his
Great Lakes Common Stock on which Octel Common Stock is distributed between
Great Lakes Common Stock and the Octel Common Stock received in the
Distribution (including any fractional shares of Octel Common Stock deemed
received) in proportion to the relative fair market values of such Great
Lakes Common Stock and Octel Common Stock on the Distribution Date.
3. A Great Lakes stockholder's holding period for the Octel Common
Stock received in the Distribution will include the period during which
such stockholder held the Great Lakes Common Stock, provided that such
Great Lakes Common Stock is held as a capital asset by such stockholder as
of the Distribution Date.
4. A Great Lakes stockholder who requests physical certificates for
shares of Octel Common Stock and who receives cash in lieu of fractional
shares of Octel Common Stock as a result of the sale of such shares by the
Distribution Agent will be treated as if such fractional shares had been
received by the stockholder as part of the Distribution and then sold by
such stockholder. Accordingly, such stockholder will recognize a gain or
loss equal to the difference between the cash so received and the portion
of the tax basis in the Octel Common Stock that is allocable to such
fractional shares. Also, a stockholder who owns fewer than four shares of
Great Lakes Common Stock will receive cash for such stock and will
recognize a gain or loss equal to the difference between the cash so
received and his tax basis in such stock. In either circumstance, such gain
or loss will be capital gain or loss, provided that such fractional shares
were held by such stockholder as a capital asset at the time of the
Distribution.
The Private Letter Ruling is based on certain representations made by Great
Lakes with respect to itself and the Company. The failure of any such
representation to be true and correct in any material respect could alter the
tax consequences described herein. Neither Great Lakes nor the Company is aware
of any present facts or circumstances that would cause any such representations
to be untrue in any material respect.
Current Treasury regulations require each Great Lakes stockholder who
receives Octel Common Stock pursuant to the Distribution to attach to his
federal income tax return for the year in which the Distribution occurs a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 of the Code to the Distribution. Great
Lakes will convey the appropriate information to each stockholder of record as
of the Record Date.
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO STOCKHOLDERS WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES, CORPORATIONS (OR OTHER ENTITIES
TAXABLE AS CORPORATIONS) ORGANIZED UNDER THE LAWS OF THE UNITED STATES OR ANY
STATE THEREIN (INCLUDING THE DISTRICT OF COLUMBIA) OR WHO ARE OTHERWISE SUBJECT
TO SPECIAL TREATMENT UNDER THE CODE. ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
LISTING AND TRADING OF OCTEL COMMON STOCK
The shares of Octel Common Stock have been approved for listing on the
NYSE, subject to official notice of issuance, under the symbol "OTL." The
Company is expected to have initially approximately 3,591 holders of record,
based on the number of stockholders of record of Great Lakes on April 1, 1998.
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A "when-issued" trading market is expected to develop on or about the
Record Date. The term "when-issued" means that shares can be traded prior to the
time certificates are actually available or issued. Prices at which the shares
of Octel Common Stock may trade on a "when-issued" basis or after the
Distribution cannot be predicted. See "Risk Factors--Absence of Prior Trading
Market for Octel Common Stock."
The shares of Octel Common Stock distributed to Great Lakes stockholders
will be freely transferable, except for shares received by persons who may be
deemed to be "affiliates" of the Company within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"). Persons who may be deemed to be
affiliates of the Company after the Distribution generally include individuals
or entities that control, are controlled by, or are under common control with
the Company and may include the directors and principal executive officers of
the Company as well as any principal stockholder of the Company. Persons who are
affiliates of the Company will be permitted to sell their shares of Octel Common
Stock only pursuant to an effective registration statement under the Securities
Act or an exemption from the registration requirements of the Securities Act,
such as the exemptions afforded by Section 4(2) of the Securities Act and Rule
144 thereunder.
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RISK FACTORS
CONTRACTING DEMAND FOR TEL PRODUCTS
In 1997, approximately 82% of the Company's revenues were derived from the
sale of TEL antiknock compounds, a specialized commodity utilized primarily as
an octane enhancer for automobile gasoline. The Company's Lead Alkyls business
operates in a gasoline market characterized by contracting demand for TEL
products. The market for TEL products is contracting primarily as a result of
health and environmental concerns and political pressures to increase the usage
of unleaded gasoline and reduce the lead content of leaded fuels. Global demand
for TEL has decreased and is expected to continue to decrease as a result of
various regulatory initiatives around the world to phase out the use of gasoline
containing TEL ("leaded gasoline"). From 1990 to 1997, total annual sales volume
in the global TEL market decreased from approximately 230,000 metric tons to
approximately 100,000 metric tons as many industrialized countries either banned
TEL or limited allowable TEL levels in gasoline in response to concerns over
health-related issues surrounding TEL. Demand for TEL has also been depressed by
the incompatibility of leaded gasoline and catalytic converters, which have been
increasingly used to minimize automobile exhaust emissions. The Company believes
that the rate of TEL volume decline over the next four to five years will be
between 10% and 15% per year; however, there can be no assurance that such rate
of decline will not be more than the Company's current estimates. The United
States began phasing out the use of TEL in the early 1970s and the use of leaded
gasoline in the United States is now restricted to piston-engined aircraft and
certain other vehicles. Similarly, other industrialized countries, including,
among others, Germany, Switzerland, South Korea, Sweden and New Zealand, have
banned the use of leaded gasoline. In addition, some other countries have
limited the level of TEL in gasoline and are considering initiatives to phase
out the use of leaded gasoline completely.
As a result of contracting world demand for TEL, the Company's primary
product, the Company intends to develop new sources of revenue and growth
through the internal development of new products or through acquisitions, joint
ventures or other collaborative arrangements. The Company does not believe that
the revenues from sales of new products will fully offset the decline in TEL
sales and earnings in the foreseeable future. There can be no assurance that the
Company will be successful in developing and marketing new products that achieve
market acceptance or that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
such new products. Further, there can be no assurance that the Company's
competitors will not succeed in developing or marketing products that are more
effective or commercially attractive than any that are being developed by the
Company, or that such competitors will not succeed in obtaining any required
regulatory approvals for introducing or commercializing any such products before
the Company is able to do so. Additionally, there can be no assurance that the
Company will be able to identify and successfully consummate any acquisitions,
joint ventures or collaborative arrangements, or that revenues, if any, from
such acquisitions, joint ventures or other collaborative arrangements would
offset the decline in TEL sales and earnings in the foreseeable future.
COMPETITION
The Company's Lead Alkyls business operates in a contracting market. See
"--Contracting Demand for TEL Products." The Company competes in the sale of TEL
primarily with Alcor Chemie Vertriebs AG ("Alcor"), Ethyl Corporation ("Ethyl")
and Syntez. See "Business--Lead Alkyls Business--Competition." In recent years,
competition has intensified as the demand for TEL has declined, price increases
have slowed and existing competitors have aggressively engaged in price
competition. Although the Company currently has a worldwide TEL market share of
approximately 60% with respect to retail TEL sales, there can be no assurance
that it will be able to maintain such market share or its current level of gross
margins and profitability as the market for TEL products continues to contract
and/or its competitors continue to compete aggressively based on price. In
addition to the above retail sales, the Company supplies Ethyl with substantial
quantities of TEL under two long-term wholesale agreements, which also limit the
Company's ability to improve gross margins. See "Business--Lead Alkyls
Business--Ethyl Agreements."
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The Company's Petroleum Specialties and Performance Chemicals businesses
operate in highly competitive markets, with many competitors which are larger
than the Company in terms of resources and market share. The Company's ability
to compete effectively in those markets in the future will depend upon, among
other things, its ability to continue to finance research and development of new
products and technologies, and its ability to improve existing products and
technologies. See "Business."
SUBSTANTIAL LEVERAGE AND RESTRICTIVE COVENANTS
In connection with the Distribution, certain of the Company's subsidiaries
entered into a $300 million Credit Facility (including a $20 million Revolving
Facility). Prior to the Distribution, a subsidiary of the Company also issued
$150 million of Notes. As of December 31, 1997, on a pro forma basis after
giving effect to the Distribution, the Company would have had $430 million
principal amount of long-term indebtedness and total common stockholders' equity
of $278.8 million. See "Pro Forma Capitalization."
The degree to which the Company is leveraged could have important
consequences to the holders of Octel Common Stock, including the following: (i)
the Company will have significant cash interest expense and principal repayment
obligations with respect to outstanding indebtedness, including the Credit
Facility and the Notes, with the result that a substantial portion of the
Company's cash flow from operations will be required to meet these obligations,
thereby reducing funds available to the Company for other purposes, (ii) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions or other purposes could be adversely affected and
(iii) the Company's substantial degree of leverage could hinder its flexibility
in planning for or reacting to changes in market conditions. In addition,
pursuant to the terms of the Credit Facility and the Indenture with respect to
the Notes (the "Indenture"), the ability of the Company to sell assets will be
restricted. See "Description of Financings."
The U.K. has enacted legislation (contained within the 1996 Finance Act)
altering the rules concerning the deductibility of interest for corporate tax
purposes. Under this new legislation the U.K. tax authorities may disallow the
deductibility of interest for tax purposes with respect to any loan that is
found not to have been entered into for a business purpose. The Company and
Great Lakes believe that the Financings have been entered into for a valid
business purpose. Moreover, the Company and Great Lakes have received advice
from their tax advisers that the U.K. tax authorities are unlikely to seek to
apply this legislation to the Financings. However limited experience and
precedent are available to determine how such legislation might impact on the
deductibility of interest incurred in connection with the Financings. If the
legislation was found to limit the deductibility of interest incurred in
connection with the Financings, it could have an adverse effect on the Company's
cash flow or its ability to pay its debts. See "Description of Financings."
The Credit Facility requires the Company to, among other things, achieve
and maintain certain financial ratios. In addition, the Credit Facility contains
financial and operating covenants, including restrictions on the ability of the
Company to incur indebtedness, merge, consolidate or transfer all or
substantially all of its assets, to make certain sales of assets, to create,
incur or permit the existence of certain liens and to pay dividends. The failure
to maintain the required ratios or to comply with the covenants would result in
a default under the Credit Facility and permit the lenders under the Credit
Facility to accelerate the maturity of the indebtedness governed by such
instrument. The Indenture also contains restrictive covenants, including
restrictions, under certain circumstances, on the ability of the Company to pay
dividends and repurchase shares. See "Description of Financings."
ABSENCE OF GREAT LAKES FINANCIAL SUPPORT
Following the Distribution, the Company will be responsible for obtaining
its own financing and will experience a higher cost of capital than was
historically available to the Company as a subsidiary of Great Lakes. In
addition, the Company will not be able to draw upon the resources, financial or
otherwise, generally available to it prior to the Distribution as a subsidiary
of Great Lakes. See "Description of Financings."
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ENVIRONMENTAL MATTERS AND PLANT CLOSURES
The Company is subject to laws, regulations and legal requirements relating
to the use, storage, handling, generation, transportation, emission, discharge,
disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes in all of the countries in which it does business. The
nature of the Company's existing and historical operations exposes it to the
risk of liabilities or claims with respect to environmental matters, including
on-site and off-site releases and emissions of hazardous and non-hazardous
substances and wastes. Such liabilities or claims include costs associated with
environmental investigations and remediation activities, as well as plant
closure and restoration projects, at closed manufacturing sites in France, Italy
and Germany, and, ultimately, at the Company's existing manufacturing facility
in Ellesmere Port, U.K. (the "Ellesmere Port Facility"). Such liabilities or
claims also include capital and other costs associated with environmental
compliance matters at the Ellesmere Port Facility.
There can be no assurance that material costs will not be incurred in
connection with such liabilities or claims. Changes in existing laws or
regulations, or the discovery of additional environmental liabilities associated
with the Company's existing or historical operations, could require the Company
to incur material costs or could otherwise have a material adverse effect on the
Company's business, results of operations, or financial condition. See
"--Contracting Demand for TEL Products," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Environmental Matters and
Plant Closures" and "Business--Health, Safety and Environmental Matters."
INTERNATIONAL OPERATIONS
Approximately 94% of the Company's sales in 1997 were derived from
operations outside the United States. A substantial portion of the Company's
international sales is to developing nations in which the TEL market is expected
to decline at a slower rate than in developed countries. See "Business--Lead
Alkyls Business--Industry Overview." Sales outside the United States,
particularly sales to these developing nations, may be subject to various risks
which are not present in the United States market, including political and
economic instability, governmental embargos and foreign exchange risks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Derivative and Other Financial Instruments" for a more detailed
discussion of the Company's exposure to foreign currency fluctuations.
OPERATING HISTORY AND FUTURE PROSPECTS; TRANSITION TO AN INDEPENDENT PUBLIC
COMPANY
The Company was formed for the purpose of effecting the Distribution and
does not have any operating history as an independent public company.
Accordingly, the financial statements included herein may not necessarily
reflect the results of operations, financial condition and cash flows that would
have been achieved had the Octel Businesses been operated independently during
the periods presented. Such information has also been adjusted for the parts of
Great Lakes' Petroleum Additives Business Unit that will remain under Great
Lakes ownership and management following the Distribution. The Company has
historically provided substantially all of its own corporate services. However,
following the Distribution, the Company will also be responsible for the
additional costs associated with being an independent public company, including
costs related to corporate governance, listed and registered securities and
investor relations issues.
The financial statements included herein do not reflect many changes that
may occur in the operations of the Company as a result of the Company's future
business strategies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview" and "Business." The Company
believes that these changes, when implemented, will make a positive contribution
to the results of operations of the Company. However, there can be no assurance
as to the timing or amount of any positive contribution which may be realized or
that these changes might not result in material adverse consequences.
The Company's future results of operations will also depend upon a number
of factors and events, including the following: (i) the levels of demand for the
Company's existing products, the Company's ability to develop new products and
to adapt existing products to new uses to offset declining TEL sales, the
Company's ability to maintain acceptable margins on product sales and the
Company's ability to control its costs and repay its indebtedness (see
"--Contracting Market for TEL Products," "--Competition" and
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"--Substantial Leverage and Restrictive Covenants"); (ii) the substantial
competition encountered by the Company in all of its lines of business (see
"--Competition"); (iii) the effect of future regulatory changes; (iv) the
Company's transition to an independent public company and the costs associated
therewith; and (v) possible changes in economic and political conditions
affecting foreign sales (see "--International Operations"). The Company does not
believe that sales attributable to newly developed products and other
operational changes will be sufficient to offset the decline in TEL sales and
earnings for the foreseeable future.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the abilities and continued efforts of its senior management to execute its
business strategy. The loss of the services of any of such individuals could
have a material adverse effect upon the Company's results of operations and
financial condition. See "Management--Executive Officers."
ABSENCE OF PRIOR TRADING MARKET FOR OCTEL COMMON STOCK
There has not been any established public trading market for Octel Common
Stock, although it is expected that a "when-issued" trading market will develop
on or about the Record Date. The shares of Octel Common Stock have been approved
for listing on the NYSE, subject to official notice of issuance, under the
symbol "OTL." However, there can be no assurance either as to the prices at
which shares of Octel Common Stock will trade before or after the Distribution
Date. Until the Octel Common Stock is fully distributed and an orderly market
for those shares develops, the prices at which such shares trade may fluctuate
significantly. Prices for shares of Octel Common Stock will be determined in the
marketplace and may be influenced by many factors, including the nature and
liquidity of the market for the shares, investor perception of the Company, the
competitive environment of the industries in which the Company participates, and
general economic and market conditions.
DIVIDENDS AND SHARE REPURCHASES
The payment and amount of cash dividends or share repurchases, if any, on
the Octel Common Stock after the Distribution will be subject to the discretion
of the Company's Board of Directors. The Company's policy will be reviewed by
the Company's Board of Directors at such future times as may be appropriate, and
payment of dividends on, or share repurchases with respect to, the Octel Common
Stock will depend upon the Company's financial position, capital requirements,
profitability, cash flows, restrictive covenants contained in the Credit
Facility and the Indenture and such other factors as the Company's Board of
Directors deems relevant.
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND
OTHER MATTERS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
By-Laws (the "By-Laws"), including provisions classifying the Board of
Directors, prohibiting stockholder action by written consent, governing business
transactions with certain stockholders and requiring advance notice for
nomination of directors and stockholder proposals, may inhibit changes of
control of the Company that are not approved by the Company's Board of
Directors. In addition, preferred stock purchase rights which will attach to the
Octel Common Stock could have similar effects. Such Certificate of Incorporation
and By-Law provisions and preferred stock purchase rights could diminish the
opportunities for a stockholder to participate in certain tender offers,
including tender offers at prices above the then-current fair market value of
the Octel Common Stock, and may also inhibit fluctuations in the market price of
the Octel Common Stock that could result from takeover attempts. In addition,
the Company's Board of Directors, without further stockholder approval, may
issue preferred stock that could have the effect of delaying, deferring or
preventing a change in control of the Company. The issuance of preferred stock
could also adversely affect the voting power of the holders of Octel Common
Stock, including the loss of voting control to others. The Company has no
present plans to issue any preferred stock. The provisions of the Certificate of
Incorporation and By-Laws and the preferred stock purchase rights may have the
effect of discouraging or preventing an acquisition of the Company or a
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disposition of certain of the Company's businesses. See "Description of Company
Capital Stock--Certain Provisions of the Certificate of Incorporation and
By-Laws" and "--Preferred Stock Purchase Rights."
Furthermore, for a period of two years following the Distribution, the
Company will be prohibited under the terms of the Tax Disaffiliation Agreement
from engaging in certain transactions that may result in a change of control
unless it obtains a supplemental ruling from the Internal Revenue Service,
reasonably satisfactory to Great Lakes in form and content, that such actions
will not adversely affect the qualification of the Distribution as a tax-free
transaction. See "Relationship Between Great Lakes and the Company After the
Distribution--Tax Disaffiliation Agreement."
FTC INVESTIGATION
In December 1997, the Company, Great Lakes and the United States Federal
Trade Commission ("FTC") staff reached an agreement with respect to a consent
decree governing sales of TEL by the Company to Ethyl for resale in the United
States. The agreement was provisionally approved by the FTC on March 30, 1998,
subject to the FTC's discretion to review and modify the agreement following a
sixty (60) day public comment period. If the consent decree is not finally
accepted by the FTC after the public comment period, the agency could continue
its investigation and, if after completion of its investigation the FTC has
reason to believe that a violation of law has occurred, it could issue an
administrative complaint alleging violation of Section 5 of the Federal Trade
Commission Act. Although the proposed order is not yet effective, the Company
has taken steps to comply with its provisions by negotiating and putting into
effect a new long term supply contract with Ethyl governing the supply of TEL to
Ethyl for resale in the U.S. market. It should be noted that the entire U.S. TEL
market is relatively small (approximately 1,500 metric tons per annum) and only
a small portion of the Company's sales to Ethyl are directed at the U.S. market.
Neither the terms of the proposed consent decree nor the execution of the new
contract with Ethyl is expected to have a material adverse effect on the
Company's business, results of operation or financial condition. See
"Business--Legal Proceedings."
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RELATIONSHIP BETWEEN GREAT LAKES
AND THE COMPANY AFTER THE DISTRIBUTION
For purposes of facilitating an orderly transfer on the Distribution Date
of the Octel Businesses to the Company and an orderly transition to the status
of two separate independent companies, Great Lakes and the Company, and various
of their respective subsidiaries, have entered or will enter into various
agreements and relationships, including those described in this section. The
agreements summarized in this section are included as exhibits to the
Registration Statement of which this Information Statement forms a part. For
purposes of agreements described below, the term "Great Lakes" refers to Great
Lakes and its respective subsidiaries and the term "Company" refers to Octel
Corp. and its respective subsidiaries.
DISTRIBUTION AGREEMENT
Great Lakes and the Company have entered into the Distribution Agreement,
providing for, among other things, the amount of Octel Common Stock to be issued
in connection with the Distribution, the transfer to the Company of the Octel
Businesses, the transfer to Great Lakes of the Company's Amlwch and Palmer
Research Laboratories facilities, the allocation between Great Lakes and the
Company of certain obligations and liabilities relating to the Octel Businesses
and the businesses being retained by or transferred to Great Lakes and the
execution of certain other agreements governing the relationship between Great
Lakes and the Company following the Distribution. The Distribution Agreement
generally provides for the transfer by Great Lakes to the Company of the assets
used in the Octel Businesses, and for the assumption by the Company of
substantially all of the liabilities relating to the Octel Businesses for
periods before, on or after the Distribution Date. The Company will also remain
responsible, up to a maximum aggregate amount of $5 million, for liabilities
relating to the Amlwch and Palmer Research Laboratories facilities to be
transferred to Great Lakes in connection with the Distribution to the extent
that such liabilities arise from acts or omissions occurring on or prior to
January 1, 1998.
TAX DISAFFILIATION AGREEMENT
Great Lakes and the Company have entered into a Tax Disaffiliation
Agreement (the "Tax Disaffiliation Agreement") effective as of the Distribution
Date detailing their respective obligations concerning various tax liabilities.
The Tax Disaffiliation Agreement generally will require Great Lakes to pay, and
indemnify the Company against, all federal, state, local and foreign taxes
relating to the businesses conducted by Great Lakes or its subsidiaries for any
taxable period, other than the following taxes which will be paid by the Company
and against which the Company will indemnify Great Lakes:
(i) taxes relating to the Company and its U.S. subsidiaries for
periods after the Distribution Date;
(ii) taxes relating to the Company's non-U.S. subsidiaries or any
predecessor or successor thereof for all periods before and after the
Distribution Date (other than with respect to certain restructuring
transactions incident to the Distribution);
(iii) taxes arising out of certain actions taken by, or in respect of,
the Company or any of its subsidiaries that adversely affect the tax
consequences to Great Lakes, the Company or their respective subsidiaries
with respect to the Distribution or the transactions related thereto,
provided, however, that under certain limited circumstances the Company's
indemnification obligation described in this paragraph (iii) may be
reduced; and
(iv) taxes due and payable by Great Lakes or its subsidiaries with
respect to their interests in Octel Associates for the period from January
1, 1998 to the Distribution Date.
The Tax Disaffiliation Agreement will further provide for cooperation with
respect to certain tax matters, the exchange of information and retention of
records which may affect the tax liability of either party. In addition, the Tax
Disaffiliation Agreement will require that the Company refrain from certain
actions during the two-year period commencing on the day after the Distribution
Date, unless it obtains a supplemental ruling from the Internal Revenue Service,
reasonably satisfactory to Great Lakes in form and content, that such actions
will not adversely affect the qualification of the Distribution as a tax-free
distribution under Section 355 of the
16
<PAGE> 24
Code. These actions include (i) a discontinuation of any material portion of the
Company's or its subsidiaries' business and (ii) participation in any
transaction within such two-year period which results in one or more persons
owning 50% or more of the stock of the Company or any of its subsidiaries.
CORPORATE SERVICES TRANSITION AGREEMENT
Great Lakes and the Company have entered into a Corporate Services
Transition Agreement, effective as of the Distribution Date, pursuant to which
the Company agrees to provide to Great Lakes certain services for a transitional
period following the Distribution Date. The services to be provided by the
Company include accounting, payroll, treasury, management information systems,
engineering, regulatory and medical. The services will be provided for varying
periods of time, provided that no services will be undertaken after December 31,
1999. The Company will be compensated by Great Lakes on an arm's length basis
for the provision of such services.
SUPPLY AND TOLL MANUFACTURING AGREEMENTS
Great Lakes and the Company have entered into agreements (the "Supply and
Toll Manufacturing Agreements") providing for the supply by Great Lakes to the
Company of dibromoethane ("DBE"), hydrogen bromide ("HBR") and the toll
manufacture by Great Lakes for the Company of Stadis(R) products and the supply
by the Company to Great Lakes of caustic soda.
Each of the Supply and Toll Manufacturing Agreements contains
representations, warranties, covenants and agreements and are on terms that are
customary for similar agreements in the chemical industry. The Supply and Toll
Manufacturing Agreements provide for, among other things, the following:
(i) Great Lakes will supply certain specified quantities of DBE to the
Company for three years. The Company has the right to extend the agreement
for two additional one year periods. Pursuant to the agreement, Great Lakes
has certain rights to acquire the Company's chlorine membrane plant if the
Company decides to either sell or shut-down the plant. During the first
eighteen months of the agreement, Great Lakes has agreed to make certain
payments to subsidize the Company's operation of the chlorine membrane
plant;
(ii) Subject only to the Company's obligation to purchase certain
minimum quantities based upon the Company's forecasts, Great Lakes is
required to supply HBR to the Company in quantities determined by the
Company. The agreement has an initial four year term with automatic renewal
for subsequent one year periods until canceled by either party with one
year's prior notice;
(iii) The Company will supply caustic soda to Great Lakes on an
on-going basis, subject to either party's right to terminate the agreement
on six months' prior notice or, at Great Lakes' option, at any time subject
only to an obligation for Great Lakes to acquire all then existing
inventory and work-in-process; and
(iv) Great Lakes will toll manufacture Stadis(R) 425 and Stadis(R)450
(Enhanced) for the Company. The agreement may be terminated by either party
after December 31, 2001 on one year's prior notice. The Company is
obligated, subject to certain exceptions, to purchase certain specified
minimum amounts of Stadis(R) products from Great Lakes.
DESCRIPTION OF FINANCINGS
On April 27, 1998, certain subsidiaries of the Company (the "Borrowers")
entered into a $300 million Credit Facility pursuant to which Goldman Sachs
Credit Partners, L.P. and Barclay Bank (the "Lenders") have agreed to provide
(i) a senior secured Term Facility of up to $280 million and (ii) a senior
secured Revolving Facility of up to $20 million. Additionally, prior to the
Distribution Date, a subsidiary of the Company issued $150 million of Notes.
Proceeds from the $280 Term Facility and the net proceeds from sale of the
Notes, together with available cash, will be used by the Company to make the
Special Payments to Great Lakes and to pay approximately $16 million, including
$12 million in transaction fees associated with
17
<PAGE> 25
the Distribution and the Financings and $4 million of associated costs for
certain interest rate swaps related to the Financings. The $20 million Revolving
Facility will be used for working capital and general corporate purposes of the
Company following the Distribution.
The obligations of the Borrowers under the Credit Facility are
unconditionally guaranteed by the Company and certain subsidiaries of the
Company. The Credit Facility and the guarantees are secured by substantially all
of the assets of the Borrowers and certain U.K. subsidiaries of the Borrowers,
including real property not subject to other mortgages and personal property
(including inventory), and also is secured by the capital stock of the
Borrowers. The obligations of the Borrowers are also secured by an interest,
granted by the Company, in the benefits of the agreements entered into in
connection with the Distribution.
The Credit Facility will mature on December 31, 2001, and the Term Facility
will amortize in quarterly installments commencing on June 30, 1998. The Company
will be required to repay $115 million, $60 million, $60 million and $45 million
in 1998, 1999, 2000 and 2001, respectively. In addition, the Company will be
required to prepay the Credit Facility with 50% of surplus cash flow on a
quarterly basis.
The loans under the Credit Facility will bear interest at LIBOR (as defined
in the Credit Facility) plus 1.75%, subject to adjustment under certain
circumstances. The interest rate, under certain circumstances, will adjust to
1.25% over LIBOR when the outstanding balance under the Credit Facility has been
reduced to $140 million. Following the occurrence and during the continuance of
an event of default under the Credit Facility, the loans will bear interest at
LIBOR plus 2.75%.
The Credit Facility contains a number of covenants that, among other
things, restricts the ability of the Company and its subsidiaries to engage in
amalgamations, mergers or consolidations, engage in certain transactions with
subsidiaries and affiliates, amend or waive terms of the agreements entered into
in connection with the Distribution, dispose of assets, create liens on assets,
incur additional indebtedness, incur guarantee obligations, make loans, enter
into leases, make investments, issue or acquire its shares, pay dividends or
make capital distributions, repay the Notes and otherwise restrict corporate
activities. In addition, the Credit Facility will require compliance with
certain financial covenants, including (i) an EBITDA to net interest coverage
ratio (commencing at 4.5 to 1.0, increasing to 6.5 to 1.0), (ii) a fixed charge
coverage ratio (1.05 to 1.0) and (iii) a total debt to EBITDA ratio (commencing
at 2.0 to 1.0 and decreasing to 1.25 to 1.0).
The Credit Facility contains customary events of default including the
failure to pay principal when due or any interest or other amount that becomes
due within one business day after the due date, a default in the performance of
certain covenants, any representation or warranty being incorrect, invalidity of
any guarantee or security document, certain insolvency events, cross default and
certain change of control events.
Also, in connection with the Distribution, a subsidiary of the Company has
issued $150 million in aggregate principal amount of Notes in a private
placement pursuant to Rule 144A and Regulation S under the Securities Act. The
Notes are general, unsecured obligations of the Company and rank pari passu in
right of payment with all existing and future unsecured senior indebtedness of
the Company and senior in right of payment to all existing and future
subordinated indebtedness of the Company. The issuer of the Notes is a
wholly-owned subsidiary of the Company, which will fully and unconditionally
guarantee the Notes on a senior basis. The Notes are subject to limited payment
blockage provisions exercisable by the lenders under the Credit Facility in the
event of certain defaults under the Credit Facility.
The Indenture contains certain covenants which will limit or preclude,
among other things, (i) the incurrence of additional indebtedness, (ii) the
making of restricted payments, (iii) the incurrence of liens, (iv) certain asset
sales, (v) the issuance and sale of subsidiary stock, (vi) transactions with
affiliates, (vii) mergers, consolidations and sales and transfers of all or
substantially all the assets of the Company and (viii) engaging in unrelated
lines of business. The Indenture also contains customary events of default.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after the fourth anniversary of issuance at stated redemption
prices plus accrued and unpaid interest and Additional Interest (as defined in
the Indenture), if any, thereon to the date of repurchase. Prior to 2002, the
Notes will be redeemable, in whole or in part, at the option of the Company on
any date, at a redemption price equal to the greater of (i) 100% of the
principal amount of the Notes to be redeemed and (ii) the sum of the present
18
<PAGE> 26
values of (A) the redemption price of such Note in 2002, and (B) the remaining
scheduled payments of principal and interest thereon to 2002 (exclusive of
interest accrued to such redemption date) discounted to such redemption date on
a semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate (as defined in the Indenture) plus 50 basis points, plus,
in either case, accrued and unpaid interest on the principal amount being
redeemed to such redemption date. The Company is required to redeem $37.5
million principal amount of the Notes in each of 2003, 2004 and 2005, in each
case at a redemption price equal to 100% of the principal amount thereof, plus
accrued interest to the redemption date, subject to the Company's right to
credit against any such redemption Notes acquired by it otherwise than through
such redemption. Such redemptions are calculated to retire approximately 75% of
the principal amount of the Notes prior to maturity.
19
<PAGE> 27
PRO FORMA CAPITALIZATION
(DOLLARS IN MILLIONS)
(UNAUDITED)
The following table sets forth the unaudited pro forma capitalization of
the Company at December 31, 1997. This data should be read in conjunction with
the pro forma balance sheet and the introduction to the pro forma financial
statements appearing elsewhere in this Information Statement. The pro forma
information may not reflect the capitalization of the Company in the future or
as it would have been had the Company been a separate, independent company on
December 31, 1997. Assumptions regarding the number of shares of Octel Common
Stock may not reflect the actual number of shares at the Distribution Date. See
"Pro Forma Combined Financial Statements."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Total debt
Credit Facility(a)....................................... -- $ 280.0(b) $280.0
Senior Notes............................................. -- 150.0(b) 150.0
------ ------- ------
Total debt............................................ -- 430.0(b) 430.0
Equity
Great Lakes investment................................... 652.8 (443.7)(c) --
69.7(d)
(278.8)(e)
Common stock............................................... 0.1(e) 0.1
Additional paid-in capital................................. 278.7(e) 278.7
------- ------
Total equity............................................... 652.8 (374.0) 278.8
Total capitalization....................................... $652.8 $ 56.0 $708.8
====== ======= ======
</TABLE>
NOTES TO PRO FORMA CAPITALIZATION TABLE
(a) As of the Distribution Date, the Company estimates that $20.0 million will
be available to the Company under the Revolving Facility. In addition,
management estimates that between January 1, 1998 and the Distribution Date,
the Company will have generated approximately $50.0 million of cash, $24.0
million of which will be utilized for the Special Dividend, with the
remaining $26.0 million available to the Company.
(b) Reflects an estimated $430.0 million of debt the Company expects to incur on
or before the Distribution Date. Approximately $116.8 million of the $430.0
million to be borrowed will be used to repay Great Lakes for amounts
borrowed to complete the acquisition of Chevron's 10.65% interest in
subsidiaries of the Company. An additional $16.0 million is expected to be
used to pay $12.0 million in transaction fees associated with the
Distribution and the Financings and $4.0 million of associated costs for
certain interest rate swaps related to the Financings. The balance of the
borrowing, together with $29.7 million of available cash at December 31,
1997, will be used to fund $326.9 million of the Special Dividend to Great
Lakes. The remaining $24 million of the $350.9 million Special Dividend will
be funded out of cash generated by the Company between January 1, 1998 and
the Distribution Date.
(c) Payment to Great Lakes, consisting of $116.8 million for the repayment of a
loan used to acquire Chevron's 10.65% interest in subsidiaries of the
Company and $326.9 million to partially fund the Special Dividend.
(d) Transfer of the income tax liabilities to the Great Lakes investment.
(e) Reflects the issuance of an estimated 14.7 million shares of Octel Common
Stock, par value $0.01 per share. This is based on approximately 58.9
million shares of Great Lakes Common Stock outstanding at December 31, 1997
and an assumed distribution of one share of the Company's common stock for
every four shares of Great Lakes Common Stock outstanding. Additional
paid-in capital represents the excess of the historical carrying values of
the Company's net assets at the Distribution Date over the amount reflected
as Common Stock.
20
<PAGE> 28
PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The Company was formed by Great Lakes for the purpose of effecting the
Distribution and has no operating history as a separate, independent company.
The historical financial statements of the Company reflect periods during which
the Company did not operate as a separate, independent company, and certain
assumptions were made in preparing such financial statements. Therefore, such
historical financial statements may not reflect the results of operations or
financial position that would have been achieved had the Company been a
separate, independent company.
The following unaudited pro forma combined financial statements (the "Pro
Forma Financial Statements") are based on the historical financial statements of
the Company for and as of the year ended December 31, 1997 included elsewhere in
this Information Statement, adjusted to give effect to the Distribution, which
includes (i) the Financings and (ii) the Special Payments. The Unaudited Pro
Forma Combined Statement of Income for the year ended December 31, 1997 gives
effect to the Distribution as if it had occurred as of January 1, 1997 and the
Unaudited Pro Forma Combined Balance Sheet gives effect to the Distribution as
if it had occurred as of December 31, 1997. The Distribution and the related
adjustments are described in the accompanying notes. The Pro Forma Financial
Statements are based upon available information and certain assumptions that
management believes are reasonable. The Pro Forma Financial Statements do not
purport to represent what the Company's results of operations or financial
condition would actually have been had the Distribution in fact occurred on such
dates or to project the Company's results of operations or financial condition
for any future period or date. The Pro Forma Financial Statements should be read
in conjunction with the historical financial statements of the Company included
elsewhere in this Information Statement and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Pro Forma Financial Statements assume the completion of the
transactions contemplated by the Distribution Agreement and the agreements to be
entered into pursuant to the Distribution Agreement including the completion of
all the asset transfers and contract assignments contemplated thereby.
Assumptions regarding the number of shares of Octel Common Stock may not reflect
the actual numbers at the Distribution Date.
21
<PAGE> 29
PRO FORMA STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- -----
<S> <C> <C> <C>
Net sales................................................... $539.1 $ $539.1
Cost of goods sold.......................................... 274.4 274.4
------ ------
Gross profit................................................ 264.7 264.7
Operating expenses:
Selling, general and administrative......................... 38.6 3.0(a) 41.6
Research and development.................................... 3.8 3.8
------ ------ ------
42.4 3.0 45.4
Amortization of intangible assets........................... 27.6 8.1(c) 37.2
1.5(d)
------ ------ ------
Operating income............................................ 194.7 (12.6) 182.1
Interest expense............................................ 2.2 32.6(b) 34.8
Other expenses.............................................. 5.6 5.6
Interest income............................................. (3.9) 3.8(e) (0.1)
Other income................................................ (7.9) (7.9)
------ ------ ------
Income before income taxes and minority interest............ 198.7 (49.0) 149.7
Minority interest........................................... 24.3 (24.3)(c) --
------ ------ ------
Income before income taxes.................................. 174.4 (24.7) 149.7
Income taxes................................................ 56.7 (7.8)(f) 48.9
------ ------ ------
Net income.................................................. $117.7 $(16.9) $100.8
====== ====== ======
Net income per share supplemental (g)....................... $ 7.84 -- --
====== ====== ======
Net income per share (h).................................... $ 6.90
======
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE> 30
NOTES TO PRO FORMA STATEMENTS OF INCOME
(a) Represents an estimate of the additional annual costs to be incurred by the
Company with respect to U.S. corporate governance and securities-related
issues, including issues relating to publicly-traded stock, Board of
Directors' responsibilities, and other related costs.
(b) Represents the estimated interest expense the Company would have experienced
during the periods with respect to the $280 million outstanding under the
Credit Facility and the $150 million of Notes. The interest rates assumed
were 8.6% and 10.0% with respect to the Credit Facility and the Notes,
respectively, for both periods. Interest previously paid to Great Lakes on
borrowings is replaced by the Credit Facility and the Notes. In determining
the pro forma interest expense, the Company has assumed a $112 million
repayment of the Credit Facility.
(c) Represents the following effects of the Company's purchase of Chevron's
interest in subsidiaries of the Company: (i) amortization of $81.1 million
over 10 years and (ii) elimination of Chevron's minority interest in the
earnings of such subsidiaries.
(d) Represents the additional amortization of the estimated $12 million
transaction fees relating to the Distribution and the Financings, amortized
over eight years.
(e) Represents the estimated reduction in interest income due to reduced cash
balances.
(f) Represents the adjustments to the income tax provision to reflect the
additional expenses and the elimination of the minority interest.
(g) Assumes approximately 15.0 million average shares of Octel Common Stock
outstanding. See Note 1 to Combined Financial Statements.
(h) Assumes approximately 14.7 million shares of Octel Common Stock outstanding.
\
23
<PAGE> 31
PRO FORMA BALANCE SHEET
(AS OF DECEMBER 31, 1997)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets
Cash and cash items.................................... $ 29.7 $ 430.0(a) $ --
(12.0)(b)
(443.7)(c)
(4.0)(d)
Accounts receivable.................................... 169.8 -- 169.8
Inventories............................................ 78.8 -- 78.8
Prepaid expenses....................................... 4.4 -- 4.4
------ ------- ------
Total current assets........................... 282.7 (29.7) 253.0
Property, plant and equipment............................ 106.0 106.0
Goodwill and other intangible assets..................... 379.3 12.0(b) 395.3
4.0(d)
Other assets............................................. 64.9 -- 64.9
------ ------- ------
Total assets................................... $832.9 $ (13.7) $819.2
====== ======= ======
LIABILITIES AND EQUITY:
Current liabilities
Accounts payable....................................... $ 40.0 $ -- $ 40.0
Accrued expenses....................................... 9.0 -- 9.0
Accrued income taxes................................... 53.8 (56.0)(e) (2.2)
------ ------- ------
Total current liabilities...................... 102.8 (56.0) 46.8
Other liabilities........................................ 57.2 57.2
Deferred income taxes.................................... 20.1 (13.7)(e) 6.4
Long-term debt
Credit facility........................................ -- 280.0(a) 280.0
Notes.................................................. -- 150.0(a) 150.0
------ ------- ------
Total debt..................................... -- 430.0(a) 430.0
Equity:
Great Lakes investment................................. 652.8 (443.7)(c) --
69.7(e)
(278.8)(f)
Common stock........................................... 0.1(f) 0.1
Additional paid-in capital............................. 278.7(f) 278.7
------ ------- ------
Total equity................................... 652.8 (374.0) 278.8
------ ------- ------
Total liabilities and equity................... $832.9 $ (13.7) $819.2
====== ======= ======
</TABLE>
The accompanying notes are an integral part of this statement.
24
<PAGE> 32
NOTES TO PRO FORMA BALANCE SHEET
(a) Reflects an estimated $430.0 million of debt the Company expects to incur on
or before the Distribution Date. Approximately $116.8 million of the $430.0
million to be borrowed will be used to repay Great Lakes for amounts
borrowed to complete the acquisition of Chevron's 10.65% minority interest
in subsidiaries of the Company. An additional $16.0 million is expected to
be used to pay $12.0 million of transaction fees associated with the
Distribution and the Financings and $4.0 million of associated costs for
certain interest rate swaps related to the Financings. The balance of the
borrowing, together with $29.7 million of available cash at December 31,
1997, will be used to fund $326.9 million of the Special Dividend. The
remaining $24.0 million of the $350.9 million Special Dividend will be
funded out of cash generated by the Company between January 1, 1998 and the
Distribution Date.
(b) Estimated transaction fees of $12 million associated with the Distribution
and Financings. Transaction fees will be amortized over the term of the
borrowings, eight years.
(c) Payment to Great Lakes, consisting of $116.8 million for the repayment of a
loan used to acquire Chevron's interest in subsidiaries of the Company and
$326.9 million to partially fund the Special Dividend.
(d) Reflects the cost of interest rate swaps arranged to fix a portion of the
interest rate on the borrowing described in (a) above.
(e) Transfer of the income tax liabilities to the Great Lakes investment.
(f) Reflects the issuance of an estimated 14.7 million shares of Octel Common
Stock, par value $0.01 per share. This is based on approximately 58.9
million shares of Great Lakes Common Stock outstanding at December 31, 1997
and an assumed distribution of one share of the Company's common stock for
every four shares of Great Lakes Common Stock outstanding. Additional
paid-in capital represents the excess of the historical carrying values of
the Company's net assets at the Distribution Date over the amount reflected
as Common Stock.
25
<PAGE> 33
SELECTED HISTORICAL COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
The following selected historical financial data of the Company should be
read in conjunction with the historical financial statements and notes thereto
included elsewhere in this Information Statement. The selected historical
financial data relates to the Octel Businesses as they were operated as part of
the Petroleum Additives Business Unit of Great Lakes and as described in Note 1
to the historical financial statements. The following selected historical
financial data are derived from the historical financial statements of the
Company. The annual historical financial information has been adjusted for those
parts of the Petroleum Additives Business Unit which are to remain under Great
Lakes ownership and management after the Distribution. The selected historical
financial data that relate to the four year period ended December 31, 1997 have
been derived from the historical financial statements audited by Ernst & Young
L.L.P., independent auditors. The selected historical financial data for the
year 1993 has been derived from unaudited historical financial statements. In
the opinion of management, the unaudited historical financial statements reflect
all normal recurring adjustments necessary to present fairly the financial
position of the Company for 1993.
The historical financial data of the Company may not reflect the results of
operations or financial position that would have been achieved had the Company
been a separate, independent company for the years presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................... $539.1 $597.4 $628.3 $603.1 $569.9
Gross profit................................. 264.7 298.6 321.3 307.1 309.4
Selling, general and administrative
expenses.................................. 38.6 40.2 42.1 37.5 38.1
Research and development..................... 3.8 5.6 5.6 6.7 9.6
Amortization of intangible assets............ 27.6 26.7 19.0 16.7 15.0
Operating income............................. 194.7 226.1 254.6 246.2 246.7
Income before income taxes and minority
interest.................................. 198.7 221.7 249.1 247.2 235.0
Net income................................... 117.7 128.3 145.1 142.4 163.9
Net income per share supplemental............ 7.84 8.08 8.88 8.18 9.19
BALANCE SHEET DATA (AT END OF YEAR):
Total working capital........................ $179.9 $216.1 $175.8 $190.8 $154.5
Property, plant and equipment, net........... 106.0 113.4 107.3 84.0 67.1
Total assets................................. 832.9 841.0 798.4 732.6 643.3
Total liabilities............................ 180.1 256.4 267.6 244.2 226.7
Total equity................................. 652.8 584.6 530.8 488.4 416.6
</TABLE>
26
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Combined Financial Statements of
the Company, including the notes thereto, appearing elsewhere in this
Information Statement.
OVERVIEW
The following discussion is based upon the separate financial statements of
the Company, which present the Company's results of operations, financial
position and cash flows. These financial statements include the assets,
liabilities, income and expenses that were related to the Octel Businesses as
they were operated as a part of the Petroleum Additives Business Unit of Great
Lakes, and the Company's statement of income includes all the related costs of
doing business, including charges for the use of facilities and for employee
benefits. The financial information included herein, however, may not
necessarily reflect the results of operations, financial position and cash flows
of the Company as it will operate in the future or the results of operations,
financial position and cash flows that would have been achieved if the Company
had been an independent company during the periods presented. The historical
financial information included herein also does not reflect the changes in the
Company's operations that may occur following the Distribution.
The Company has three businesses--Lead Alkyls (TEL), Petroleum Specialties
and Performance Chemicals. TEL is the Company's principal product, and the
Company is the world's leading manufacturer of TEL. Over the last few years,
approximately 70% of the Company's TEL production has been sold on a retail
basis to oil refineries, and the remaining 30% has been sold to distributors,
principally Ethyl, under long-term wholesale contracts. Pricing to distributor
customers is substantially below pricing to retail refinery customers. See
"Description of Business."
From 1989 to 1995, the Company was able to substantially offset the
financial effects of the declining demand for TEL through higher TEL pricing.
The magnitude of these price increases reflected the cost effectiveness of TEL
as an octane enhancer as well as the high cost of converting refineries to
produce higher octane grades of fuel. More recently, however, as the optimum TEL
levels in gasoline have been reached, and as competition has intensified due to
the decline in demand for TEL, it has been increasingly difficult for the
Company to secure general price increases. The Company expects that this trend
will continue in the foreseeable future.
As world demand for TEL has declined, the Company has been reducing its
cost base in an attempt to maintain its margins. In 1989, the Company closed its
German manufacturing facility. In 1996, the Company ceased production at its
Italian and French manufacturing facilities. The closure of the Italian and
French facilities has reduced the Company's workforce by 166 employees as of
December 31, 1997 and will result in a further reduction of 59 employees upon
substantial completion of site remediation activities in France. All of the
Company's current TEL requirements are now produced at its sole remaining TEL
manufacturing facility which is located in Ellesmere Port in the United Kingdom.
Since 1996, the Company's cost reduction efforts and operating improvement
programs in the U.K. have reduced the workforce by 525 people resulting in
annual payroll savings of approximately $25 million which have been used to
maintain margins. The Company will continue to downsize its manufacturing and
operating cost base and restructure its operations as the TEL market continues
to decline. See "--Future Outlook."
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<PAGE> 35
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's statement
of income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 50.9 50.0 48.9
----- ----- -----
Gross profit................................................ 49.1 50.0 51.1
Operating expenses
Selling, general and administrative expenses.............. 7.2 6.7 6.7
Research and development.................................. 0.7 1.0 0.9
----- ----- -----
Total operating expenses.................................... 7.9 7.7 7.6
Amortization of intangible assets........................... 5.1 4.5 3.0
Operating income............................................ 36.1 37.8 40.5
Interest and other expenses................................. 1.4 1.5 2.3
Other income................................................ (2.2) (0.8) (1.5)
----- ----- -----
Income before income taxes and minority interests........... 36.9 37.1 39.7
Minority interests.......................................... 4.5 4.9 5.2
----- ----- -----
Income before income taxes.................................. 32.4 32.2 34.5
Income taxes................................................ 10.6 10.7 11.4
----- ----- -----
Net income.................................................. 21.8% 21.5% 23.1%
===== ===== =====
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales decreased $58.3 million (or 10%) in 1997 to $539.1 million from
$597.4 million in 1996. Net sales by business are set forth in the following
table ($ in millions):
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
TEL.................................................. $442.0 82% $505.1 85% (12)%
Petroleum Specialties................................ 62.6 12 70.9 12 (12)
Performance Chemicals................................ 34.5 6 21.4 3 61
------ --- ------ ---
Total........................................... $539.1 100% $597.4 100% (10)%
====== === ====== ===
</TABLE>
This total decrease was primarily attributable to a decline in TEL sales
volumes of $67.9 million, which was partly offset by a price increase of $8.7
million and foreign exchange gains of $0.9 million. In 1997 the retail volume of
TEL sold was 55.8 thousand metric tons as compared to 63.8 thousand metric tons
in 1996, a decline of approximately 12% which was slightly improved from the 13%
annual volume decline experienced in 1996. Reduced retail sales in Western
Europe, the Middle East and Australia were partly offset by increases in Eastern
Europe and Central America, but the Company believes it maintained its share of
the worldwide retail TEL market during this period. Retail sales prices of TEL
increased by approximately 2% in 1997 as compared to 1996. Product pricing
reflects (i) the Company's strategy to extend the life of TEL by reducing or
foregoing price increases, (ii) changing refinery economics related to achieving
octane ratings by using different production processes, (iii) a changing mix of
customers and regions of the world where TEL is sold (e.g., TEL demand in higher
priced regions declined at a faster rate than in other regions), and (iv)
aggressive pricing by competitors. Sales of TEL on a wholesale basis decreased
by approximately 20% in 1997 as compared to 1996, declining from 30.2 thousand
metric tons in 1996 to 24.2 thousand metric tons in 1997. This higher than
normal rate of decline mainly resulted from a Mexican phaseout of leaded
gasoline, which market had been supplied by E.I. du Pont de Nemours & Company
("DuPont") with TEL purchased from the Company. The ratio of the Company's
retail TEL sales to wholesale TEL sales was 70/30 in 1997 as compared to 68/32
in 1996. Net sales of Petroleum Specialties declined 12% in 1997 as compared to
1996
28
<PAGE> 36
because of the loss of a major customer, while net sales of Performance
Chemicals increased 61% in 1997 as compared to 1996 because of increased demand
for Octaquest(R), a biodegradable chelating agent used in laundry products.
Gross profit decreased $33.9 million (or 11%) in 1997 to $264.7 million
from $298.6 million in 1996 because lower TEL volumes and adverse currency
effects offset selling price gains and cost improvements. As a percentage of net
sales, gross profit decreased to 49.1% in 1997 as compared to 50% in 1996. This
decrease reflects TEL being a lower percentage of total sales in 1997.
Operating expenses decreased $3.4 million (or 7%) in 1997 to $42.4 million
from $45.8 million in 1996 primarily as a result of cost reduction programs,
including a decrease in research and development expenses of $1.8 million, net
of unfavorable currency translations. As a percentage of net sales, operating
expense increased slightly in 1997 to 7.9% as compared to 7.7% in 1996.
Other income increased $6.7 million to $7.9 million in 1997 from $1.2
million in 1996 mainly due to foreign currency gains of $6.8 million.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales decreased $30.9 million (or 4.9%) in 1996 to $597.4 million from
$628.3 million in 1995. Net sales by business are set forth in the following
table ($ in millions):
<TABLE>
<CAPTION>
INCREASE
1996 1995 (DECREASE)
------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
TEL.................................................. $505.1 85% $547.1 87% (8)%
Petroleum Specialties................................ 70.9 12 65.0 10 9
Performance Chemicals................................ 21.4 3 16.2 3 32
------ --- ------ ---
Total........................................... $597.4 100% $628.3 100% (5)%
====== === ====== ===
</TABLE>
This decrease was primarily attributable to a decline in sales volumes of
$47.6 million, which was partly offset by a price increase of $19.4 million. In
addition, foreign exchange losses totaled $2.7 million. In 1996, the retail
volume of TEL sold was 63.8 thousand metric tons as compared to 73.5 thousand
metric tons in 1995, a decline of approximately 13% which was higher than the
average 8% to 10% decline experienced over the previous four years. No single
factor accounted for the decline, and the Company believes it maintained its
share of the worldwide retail TEL market during this period. Retail sales prices
of TEL increased by approximately 4% in 1996 as compared to 1995, which is lower
than the rate of increase in 1995. Product pricing reflects (i) the Company's
strategy to extend the life of TEL by reducing or foregoing price increases,
(ii) changing refinery economics related to achieving octane ratings by using
different production processes, (iii) a changing mix of customers and regions of
the world where TEL is sold (e.g., TEL demand in higher priced regions declined
at a faster rate than in other regions), and (iv) aggressive pricing by
competitors. Sales of TEL on a wholesale basis increased approximately 5% in
1996 as compared to 1995, growing from 28.7 thousand metric tons in 1995 to 30.2
thousand metric tons in 1996. The ratio between the Company's retail TEL sales
and wholesale TEL sales was 68/32 in 1996 as compared to 72/28 in 1995. Finally,
net sales of Petroleum Specialties increased 9% in 1996 because of a 7% increase
in sales quantities combined with an improvement in the average prices of
detergent formulations. Net sales of Performance Chemicals increased 32% in 1996
because of the successful introduction of Octaquest(R) during 1996, which was
offset in part by lower sales of chlor-alkali products.
Gross profit decreased $22.7 million (or 7%) in 1996 to $298.6 million from
$321.3 million in 1995 because lower TEL volumes were only partially offset by
increased sales prices. As a percentage of net sales, gross profit decreased in
1996 to 50% as compared to 51.1% in 1995. The decline was also attributable to
an increase of approximately $10 million in the provision for the future closure
of TEL manufacturing plants and an increase in raw materials prices, especially
lead and ethylene. No benefits from plant closures or the staff reductions in
the United Kingdom are reflected in this period.
29
<PAGE> 37
Operating expenses decreased $1.9 million (or 4%) in 1996 to $45.8 million
from $47.7 million in 1995 primarily as a result of cost reduction programs and
foreign exchange gains. Research and development expenses in 1996 remained
unchanged from 1995 at $5.6 million. As a percentage of net sales, operating
expense increased slightly in 1996 to 7.7% as compared to 7.6% in 1995.
Interest and other expenses in the aggregate decreased $5.6 million in 1996
to $9.1 million from $14.7 million in 1995 as loans from Great Lakes were
repaid. This gain was partially offset by unrealized foreign exchange losses.
Amortization of goodwill increased $7.7 million to $26.7 million in 1996
from $19.0 million in 1995 as the Company accelerated amortization in line with
the anticipated decline of the TEL business.
FINANCIAL CONDITION AND LIQUIDITY
Historically, the Company has not required financing and has transferred
significant amounts of cash to Great Lakes as described in Note 6 to the
Combined Financial Statements. Cash provided by operating activities was $167.5
million in 1997, $127.8 million in 1996 and $175.8 million in 1995. The $39.7
million increase in 1997 compared to 1996 was primarily attributable to reduced
working capital requirements, offset in part by lower net income and increased
spending on plant closure costs. The $48.0 million decrease in 1996 compared to
1995 was primarily attributable to lower income, increased investment in working
capital and higher spending on plant closures, which were partially offset by
increased non-cash charges for depreciation and amortization.
Accounts receivable at December 31, 1997 decreased $26.6 million to $169.8
million from $196.4 million at December 31, 1996. This reduction was
attributable to lower sales in 1997 compared to 1996 and a weaker pound sterling
vis-a-vis the U.S. dollar. Days sales outstanding were 109 at the end of 1997, a
slight increase from 107 days in 1996. Accounts receivable at December 31, 1996
increased $1.8 million to $196.4 million from $194.6 million at December 31,
1995. This slight increase resulted from a $7.5 million increase in trade
accounts receivable and a $5.7 million decrease in other receivables because of
the recovery of insurance claims. In addition, days sales outstanding were 107
days at the end of 1996 compared to 98 days in 1995. The increase in days sales
outstanding reflected the greater number of large bulk customers that received
extended payment terms.
Inventories at December 31, 1997 were $78.8 million, a decrease of $5.2
million from December 31, 1996. Approximately $3.4 million of this decrease was
attributable to currency translation, with the balance attributable to lower
lead costs offset by quantity increases. Inventory turnover for 1997 was 3.5
times, which was consistent with 1996 at 3.6 times. Inventories as at December
31, 1996 were $84 million, an increase of $21.9 million from December 31, 1995.
Approximately $6.5 million of this increase were attributable to currency
translation with the balance attributable to increased lead costs and stocking
levels. Inventory turnover for 1996 was 3.6 times, down from 4.9 times the prior
year, reflecting the build-up of raw materials.
Investing activities include capital expenditures and acquisitions. Capital
expenditures decreased $2.8 million to $17.8 million in 1997 as compared to
$20.6 million in 1996. Capital spending in 1997 was primarily for capacity
maintenance, whereas in 1996 and 1995 capital expenditures also included the
construction of facilities for the production of Octaquest(R). Capital spending
for environmental projects in 1997, 1996 and 1995 was $0.6 million, $1.0 million
and $0.8 million respectively. Capital expenditures for 1998 and 1999 are
expected to be approximately $20 million in each year, including approximately
$8.0 million, in the aggregate, for environmental compliance. In 1997 the
Company completed the acquisition of the outstanding minority interest in the
Company's subsidiaries previously owned by Chevron Chemical Company for $116.8
million. The remainder of investment spending for 1997 and all of the spending
for 1996 and 1995, was related to the payment of profit participation payments
required to be made as part of the 1989 acquisition of a majority interest in
Octel Associates. See Note 4 to the Combined Financial Statements.
Total current liabilities have varied with the volume of business. There is
a reduction of approximately $8.0 million in accrued expenses from 1996 to 1997
following the determination of the profit participation payments in 1997 as
described in Note 4 of the Combined Financial Statements.
30
<PAGE> 38
Other noncurrent liabilities in 1997 represented a reserve of $57.2 million
for expected future plant closures and related personnel reductions and
decontamination costs at the Company's TEL plants in the U.K., France, Italy and
Germany as demand for TEL diminishes. Approximately $35 million was spent in
1997, as compared to $20 million in 1996. The closures, coupled with staff
reductions in the U.K., were primarily responsible for the increased spending
levels in 1997. Management believes that production at the U.K. plant should
continue well into the next century based on the current rate of market decline.
As part of the Distribution, the Company is expected to incur approximately
$430 million of indebtedness. $116.8 million of the borrowings will be used to
repay the loan from Great Lakes utilized to acquire the Chevron interest and
approximately $16 million will be used to pay fees and expenses related to the
Distribution and the Financings, including $4 million of associated costs for
certain interest rate swaps related to the Financings. The remainder of the
borrowing, together with $29.7 million of available cash at December 31, 1997
and additional cash generated by the Company between January 1, 1998 and the
date of the Distribution, will be distributed to Great Lakes in the form of the
Special Payments.
The Company believes that cash generated by operating activities and funds
available to it through the Revolving Facility of $20 million provided under the
Credit Facility will be sufficient to meet the Company's anticipated funding
requirements.
DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
Between 50% and 60% of the Company's sales are in U.S. dollars. Foreign
currency sales, primarily in U.K. pounds sterling, offset most of the Company's
costs, which are also in U.K. pounds sterling. To the extent required by the
Company, dollars are sold forward to cover local currency needs. The instruments
utilized by the Company in its hedging activities are considered risk management
tools, and are not used for trading or speculative purposes. The Company
diversifies the counterparties used and monitors the concentration of risk to
limit its counterparty exposure.
Historically, management of foreign currency exposures has been coordinated
by Great Lakes. The Company forecasts foreign currency denominated cash flow for
12-month periods and aggregates these flows by currency to determine the amount
of exposure. Hedging decisions are made based on the amount of exposure and the
near-term outlook for each currency. Hedges are set to mature coincident with
the estimated timing of the underlying transactions. The Company does not hedge
foreign currency net asset positions currently. Considering the Company's
operating profile, a uniform 10% change in the value of the dollar from December
31, 1997 would result in approximately a $6 million change in annual net income.
This calculation assumes that each exchange rate would change in the same
direction relative to the U.S. dollar, and does not factor in any potential
changes in sales levels or local currency prices which may result from changes
in exchange rates.
FUTURE OUTLOOK
The Company is, and for the next several years is likely to remain, highly
dependent on its principal product, TEL. Over the last three years, TEL has
represented more than 80% of the Company's net sales and has provided
essentially all the Company's profits and cash flow. The Company expects that
its strong, although declining, cash flow in the foreseeable future will be
adequate to fund the Company's future capital and operating needs. In addition,
the Company will have access to the $20 million Revolving Facility.
World demand for TEL has been in decline since the 1970s, and this trend is
expected to continue. Through the mid-1990's the Company was able, in part, to
offset the effects of declining volumes with selling price increases. More
recently, however, the Company has reduced or forgone price increases in order
to extend the life of the product and to remain competitive with other TEL
marketers and alternate methods of achieving higher octane levels in gasoline.
The Company expects a competitive pricing environment to continue which will
increasingly limit the ability of the Company to partially offset the effects of
future declines in TEL volumes with price increases.
31
<PAGE> 39
The Company has and will continue to downsize and restructure its
operations consistent with declining demand for TEL. The recent cessation of TEL
production in France and Italy and the restructuring of the U.K. operations have
reduced total employment by 689 employees between January 1, 1996 and December
31, 1997 and reduced the cost base to maintain operating margins.
Notwithstanding the Company's continuing downsizing and productivity improvement
programs, management expects the fixed cost per ton of TEL, which currently
represents 27% of total cost per ton, to increase in the future as cost
reductions are not expected to keep pace with declining TEL sales volume.
Raw materials, particularly lead, ethylene and salt, account for a
substantial portion of total manufacturing costs of TEL. These materials are
commodities and are subject to significant price fluctuations over time. While
the Company may or may not be able to pass through to its customers the impact
of any such fluctuations in raw material prices in the future, management does
not believe any such fluctuations will have a material effect on the Company's
results of operations.
A strong, although declining, cash flow is expected in future years. The
Company does not anticipate any significant capital expenditures, other than
maintenance and environmental compliance costs in the foreseeable future. See
"--Environmental Matters and Plant Closures." Capital expenditures were $17.8
million in 1997, $20.6 million in 1996 and $31.5 million in 1995.
Although the Company anticipates significant sales growth from the
Petroleum Specialties business and the Performance Chemicals business in the
future, earnings from these businesses will not be sufficient to fully offset
the projected decline in TEL sales and earnings at least over the next several
years.
Management has considered the current economic conditions in the
Asia-Pacific region and does not believe that they will have a material impact
on the Company or its operations.
ENVIRONMENTAL MATTERS AND PLANT CLOSURES
The Company is subject to laws, regulations and legal requirements relating
to the use, storage, handling, generation, transportation, emission, discharge,
disposal and remediation of, and exposure to, hazardous and non-hazardous
substances and wastes ("Environmental Laws") in all of the countries in which it
does business. Under certain Environmental Laws, the Company is responsible for
the remediation of hazardous substances or wastes at currently or formerly-owned
or operated properties. Although the Company believes that it is in material
compliance with all applicable Environmental Laws, there can be no assurance
that the Company will not incur costs in the future relating to Environmental
Laws that will have a material adverse effect on the Company's business, results
of operations or financial condition.
The manufacturing operations of the Company have been conducted entirely
outside the United States and, therefore, any liability of the Company
pertaining to the investigation and remediation of contaminated properties is
likely to be determined under non-U.S. law.
The Company is conducting environmental and remediation activities to
address soil and groundwater contamination at its manufacturing facility in
Ellesmere Port, U.K. (the "Ellesmere Port Facility"), and at its closed
manufacturing sites in France, Italy and Germany ("Remediation Projects").
Although the Company has developed estimates for the costs of the Remediation
Projects which management believes to be reasonable (based upon its internal
review and its review of the reports of recognized independent experts), there
can be no assurance that the actual costs will not materially exceed the
Company's estimates. The Company incurred costs of approximately $0.6 million in
1997, $0.1 million in 1996 and a negligible amount in 1995 relating to the
Remediation Projects, and anticipates that it will incur costs of approximately
$3.0 million and $3.6 million in 1998 and 1999, respectively, in connection with
the Remediation Projects.
Management believes (based upon its internal review and its review of the
reports of recognized independent experts) that the Company is in material
compliance with all applicable Environmental Laws. The Company makes capital
expenditures and incurs other expenses at the Ellesmere Port Facility to
maintain compliance with Environmental Law, and the Company expects that it will
be required to continue to incur such costs and expenses in the future. The
Company made environmental capital expenditures of $0.6 million in 1997, $1.0
million in 1996 and $0.8 million in 1995 and other expenditures of approximately
$9.8 million in
32
<PAGE> 40
1997, approximately $9.7 million in 1996 and approximately $8.2 million in 1995.
The Company estimates that other expenses related to these matters will amount
to approximately $10 million in 1998 and approximately $10 million in 1999 and
environmental capital expenditures are estimated to be none in 1998 and $7.6
million in 1999. There can be no assurance, however, that these estimates will
prove accurate or that the Company will not incur costs materially in excess of
these estimates. Additionally, there can be no assurance that changes in
existing laws or regulations, or the discovery of additional environmental
liabilities associated with the Company's current or historical operations, will
not require the Company to incur material costs or will not otherwise materially
and adversely affect the Company's business, results of operations, or financial
condition.
The Health and Safety Executive and the Environment Agency in the U.K. are
investigating a July 1997 bromine emission from the Company's bromine
manufacturing facility in Amlwch, U.K., which facility is being transferred to
Great Lakes in connection with the Distribution. Although neither agency has
indicated whether enforcement action will be initiated against the Company, such
an action could result in monetary penalties being imposed upon the Company
which are not likely to exceed $100,000. Although it cannot predict the severity
of any such penalties, management believes that the release was accidental and
therefore that the Company is not likely to incur material penalties or costs in
connection with this matter.
In addition to the Remediation Projects, the Company is engaged in plant
closure and restoration programs to dismantle and decontaminate process
equipment, perform building demolition, and generally decommission
("Decontamination and Decommissioning Projects") closed manufacturing facilities
in France, Italy, and Germany. The Decontamination and Decommissioning Projects
are necessary to facilitate the ultimate disposition of these sites.
The Company has also developed a two-phase Decontamination and
Decommissioning Project for the Ellesmere Port Facility. The first phase of the
Ellesmere Port Decontamination and Decommissioning Project involves the
dismantling, decontamination, and removal of TEL process equipment over time as
volumes of TEL decline. The second phase of the Ellesmere Port Decontamination
and Decommissioning Project will involve final dismantling and decontamination
of process equipment, building demolition, and general decommissioning of the
Ellesmere Port Facility if, and when, all manufacturing operations there cease.
The Company estimates that the Decontamination and Decommissioning Projects
(both at the closed sites in France, Italy and Germany and at the Ellesmere Port
Facility) will cost approximately $52 million. This amount includes
approximately $33 million, the estimated cost of phase two of the Company's
Decontamination and Decommissioning Project at Ellesmere Port (final
dismantling, building demolition, and general decommissioning), which will not
be incurred until and unless all manufacturing operations at Ellesmere Port
cease. The Company incurred costs associated with the Decontamination and
Decommissioning Projects at the closed sites in France, Italy and Germany of
approximately $12.4 million in 1997, $2.8 million in 1996 and $2.8 million in
1995. To date, the Company has incurred costs at the Ellesmere Port Facility,
mainly related to the decommissioning of bulk ships, totaling approximately $0.4
million in 1997, $0.9 million in 1996 and $1.8 million in 1995. The Company does
not anticipate making any material expenditures in 1998 or 1999 on the first
phase of the Ellesmere Port Decontamination and Decommissioning Project.
During the process of reducing production capacity, the Company has also
significantly reduced the number of personnel employed. The costs of personnel
severance were approximately $21.8 million in 1997, $16 million in 1996 and $0.8
million in 1995. The Company estimates further costs of this nature of
approximately $7.6 million in 1998 and $2.3 million in 1999.
The Company estimates a total cost of $124 million for Environmental
Matters and Plant Closures consisting of Remediation Projects ($17 million),
Decontamination and Decommissioning Projects ($52 million), site management
during the final closure phase ($5 million) and personnel severance ($50
million) plus a $20 million capital expenditure relating to compliance matters.
As of December 31, 1997, the Company had accrued $57.2 million on the balance
sheet for such costs and is providing for the difference over the remaining life
of the TEL business. These estimates do not take into account future inflation
and have not been reduced to present value. The Company estimates that the total
spending on Environmental Matters and Plant Closures will be approximately $15
million in 1998 and $9 million in 1999.
33
<PAGE> 41
INFLATION
Inflation has not been a significant factor for the Company over the last
several years. Management believes that inflation will continue to be moderate
over the next several years.
YEAR 2000
The Company is aware of the computer systems issues associated with the
transition of dates from 1999 to 2000. The Company has retained consultants to
assist in the evaluation of the impact of these issues on the Company's
operations in order to ensure that all issues are addressed in a timely manner.
On the basis of its preliminary evaluation, the Company does not believe that
the transition to the Year 2000 or the cost of addressing this transition will
have a material impact on its results of operations.
SINGLE EUROPEAN CURRENCY
In 1999, certain European countries will begin the transition to the Euro.
The transition to the Euro will have both internal recordkeeping and external
commercial aspects, neither of which are expected to have a material effect on
the Company's business, results of operations or financial condition.
34
<PAGE> 42
BUSINESS
DESCRIPTION OF THE COMPANY
The Associated Octel Company Limited ("AOC"), the Company's principal
subsidiary, was formed in 1938 to manufacture and market TEL as an antiknock
additive for gasoline. The Company is an international chemical company
specializing in the manufacture, distribution and marketing of fuel additives.
The Company is comprised of three primary operating businesses: Lead Alkyls,
Petroleum Specialties and Performance Chemicals. The Lead Alkyls business, which
accounted for approximately 82% of the Company's 1997 sales, is the world's
leading producer of TEL that is used by oil refineries worldwide to boost the
octane levels in gasoline which allows fuel to burn more efficiently and
prevents engine knock during the combustion cycle. The Company manufactures
approximately 80% of TEL used worldwide. The Petroleum Specialties business,
which accounted for approximately 12% of the Company's 1997 sales, supplies a
broad range of petroleum additives, including combustion improvers, fuel
detergents and functional performance products (such as corrosion inhibitors and
conductivity improvers). The Performance Chemicals business, which accounted for
approximately 6% of the Company's 1997 sales, manufactures and distributes a
range of chemicals including sodium, chlor-alkali and Octaquest(R), a
biodegradable chelating agent supplied to Procter & Gamble, which is used in
several European laundry products.
Worldwide use of TEL has declined since 1973 following the enactment of the
U.S. Clean Air Act in 1970 and similar legislation in other countries and
increasing pressure from legislators and environmental groups. Usage of TEL is
expected to continue to decline and the Company's corporate objective is to
optimize the cash flows from sales of TEL in order to repay debt and return
value to its stockholders by (a) the repurchase of stock and/or the payment of
cash dividends and (b) the development of its Petroleum Specialties and
Performance Chemicals businesses. To achieve its corporate objective, the
Company's strategy is to: (i) manage profitably the decline of the TEL market
through the implementation of cost control initiatives and the provision of
additional technical and environmental support for customers; (ii) expand the
Petroleum Specialties and Performance Chemical businesses through the
development of core competencies, product innovation and enhanced focus on
satisfying customers and market needs; (iii) efficiently manage its operations
and manufacturing sites consistent with the decline of TEL demand and the growth
of petroleum specialty and performance chemicals products, and (iv) seek, where
feasible, synergistic opportunities through joint ventures, alliances,
collaborative arrangements or acquisitions. The Company is required by the terms
of the Financings to utilize approximately $175 million of the Company's cash
flow over the next two years to repay debt. Under the terms of the Financings,
the Company is permitted, subject to certain conditions, to use up to $15
million per year for dividends and/or share repurchases. The balance of the
Company's cash flow will be used for general corporate purposes.
In 1997, the Company had net sales of $539.1 million and an operating
income of $194.7 million. The Company has its administrative headquarters and
principal manufacturing site in Ellesmere Port (Cheshire, U.K.) with
subsidiaries in Europe, Africa and North America. The Company employed 1,419
employees worldwide as of December 31, 1997.
REASONS FOR THE DISTRIBUTION
In July 1997, Great Lakes announced its intention to spin off its Petroleum
Additives Business Unit to its stockholders, thereby creating the Company as a
new independent public company.
Management believes that, as an independent company, the Company will be
able to anticipate and respond to its market conditions faster and more
effectively and will also be able to better motivate its employees to execute
its business strategies by more closely aligning its compensation and incentive
programs with the unique opportunities and challenges presented by its business.
Consequently, it is believed that the Company's management team will be better
able to develop and implement a plan to maximize cash flow and earnings from the
TEL business and also to grow the non-TEL portions of the Company. See "The
Distribution--Reasons for the Distribution."
35
<PAGE> 43
COST REDUCTION INITIATIVES
Since January 1, 1996, the Company has assembled an experienced senior
management team (see "Management--Executive Officers") which has effectively
implemented a number of cost-reduction measures focused on maintaining profit
margins of TEL, including (i) a 29% reduction of the work force in the U.K.
resulting in estimated annual payroll savings of $25 million, (ii) the closure
of two foreign manufacturing facilities and (iii) an improved safety record
evidenced by a 40% reduction in lost time accidents. The Company has established
an integrated Supply Chain Department to improve customer service, to utilize
its purchasing power to improve terms and conditions from suppliers and to
improve quality and inventory control.
The Company has developed a plan for downsizing manufacturing capacity at
its Ellesmere Port facility as demand for TEL continues to decline. The TEL
manufacturing plant consists of multiple parallel autoclaves housed in three
discrete buildings. This design lends itself to the sequential shutdown of
operating plants and the progressive reduction of fixed costs as demand
declines. The shutdown plan capitalizes on the experience gained by management
from prior plant closures.
LEAD ALKYLS BUSINESS
Industry Overview
TEL, the most significant of the Company's products, accounted for
approximately 82% (or $442 million) of the Company's 1997 sales. TEL was first
developed in 1928 and introduced into the European market for internal
combustion engines to boost octane levels in gasoline allowing it to burn more
efficiently and eliminating engine knock. TEL remains the most cost-effective
octane enhancer for motor gasoline and has the added benefit of acting as a
lubricity aid, reducing engine wear. This product is supplied to customers in
various blends. TEL is used as a gasoline additive in various concentrations,
usually between 0.1 and 0.4 gPb/liter dosage, depending on the intrinsic nature
of the base fuel and the targeted octane number.
While TEL remains the most cost-effective and energy-efficient additive
from an octane-boosting perspective, management expects a steady decline in
worldwide demand for TEL on the basis of increasing pressure from regulators and
environmental groups regarding the alleged harmful effects on human health of
leaded gasoline. Additionally, leaded gasoline undermines the effectiveness of
catalytic converters, which are increasingly being used to reduce automobile
exhaust emissions. Environmental agencies and the World Bank are also advocating
the elimination of TEL in automotive gasoline. As a result, many countries have
passed legislation which has resulted in either the complete phaseout of leaded
automotive gasoline or the establishment of a timetable for its phaseout. An
exception to the overall declining consumption of TEL is for piston engine
aviation gasoline, where only TEL provides the necessary performance levels for
this small market.
The following chart sets forth estimated annual worldwide use of gasoline
and leaded gasoline, respectively, for the periods noted based on an analysis by
a recognized industry expert (in millions of metric tons):
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Gasoline Demand......... 739 741 737 745 751 768 784 805
Leaded Gasoline............... 317 300 271 249 228 209 183 166
TEL equivalent usage.......... 0.23 0.20 0.18 0.17 0.14 0.13 0.11 0.10
</TABLE>
- -------------------------
Source: Chem Systems, Ltd.
Despite regulatory pressures to reduce the use of TEL, the Company believes
there are a number of factors which may prolong the use of leaded gasoline, and
therefore the market for TEL. First, it is costly for refineries to switch their
gasoline production process to unleaded gasoline. Studies undertaken by the
World Bank and others estimate that upgrading an average refinery to nonleaded
gasoline production would require approximately $100 million in capital
expenditures, which equals approximately $.03-.08 per gallon. Because
36
<PAGE> 44
upgrading some refineries may not be economically justifiable, these refineries
may decide to continue operating until reduced demand for leaded gasoline forces
their closure. Second, there are significant costs and delays in converting
automobiles and gasoline stations to accommodate the increased use of unleaded
fuels.
The Company believes these factors may slow the rate of decline in the
consumption of leaded gasoline, especially in the Middle East, Southeast Asia
and Africa where the proportion of unleaded gasoline to leaded gasoline is very
low and where TEL phaseout legislation has not generally been introduced.
Moreover, even in Western Europe, where legislation mandating a leaded gasoline
phaseout by year 2000 exists, extensions have been applied for by Italy, Greece,
Spain and Portugal.
The following chart shows the decline of leaded gasoline sales as a
percentage of total automobile gasoline sales by region from 1990 to 1996:
<TABLE>
<CAPTION>
ESTIMATE OF LEADED
GASOLINE SALES AS
PERCENTAGE OF TOTAL
GASOLINE SALES
--------------------
1990 1996
---- ----
<S> <C> <C>
Europe..................................................... 80 41
Latin America.............................................. 71 35
Asia....................................................... 53 30
Africa..................................................... 100 93
Middle East................................................ 100 94
</TABLE>
- -------------------------
Source: Chem Systems, Ltd.
The decline in TEL volume since 1990 has averaged approximately 12% per
annum, and management believes that TEL volume will continue to decline at a
rate of between 10% and 15% per year, although, because of the uncertain
regulatory environment surrounding TEL, the Company is unable to estimate with
any degree of certainty the rate at which TEL is likely to decline in the
future.
While management believes that TEL is the most cost-effective octane
enhancer, the Company is currently exploring, both through its own research
efforts and in collaborative ventures, other octane enhancing additives for
motor gasoline. Although these alternatives, to date, have proven less effective
and more expensive than TEL, they do not present the environmental problems
associated with TEL.
Competition
The Company has three primary competitors. Alcor and Syntez also
manufacture TEL, while Ethyl purchases its requirements principally from the
Company pursuant to two long-term wholesale supply contracts. See "--Ethyl
Agreements." Management estimates the current market shares of the Company and
its principal competitors in 1997 were as follows:
<TABLE>
<CAPTION>
SALES TO REFINERIES TEL MANUFACTURE
------------------- ---------------
<S> <C> <C>
Octel........................................... 59% 80%
Ethyl........................................... 21 --
Alcor........................................... 11 11
Syntez.......................................... 9 9
</TABLE>
Factors influencing TEL customers' purchasing decisions include price,
quality, reliability and service. While the Company competes on each factor,
management believes the Company has the following advantages: (i) the Company is
the only manufacturer of TEL which markets and distributes on a global basis
(e.g., the Company can supply in bulk, ISO containers and drums globally), which
is important for multisited global oil companies, (ii) the Company has a full
set of support and auxiliary services for environmental, decommissioning and
refinery assistance, which is not offered by all of its competitors, and (iii)
the Company provides technical support to oil companies and individual
refineries evaluating the economics of dosage levels of TEL and alternative
octane enhancers tied to specific refinery streams and blends.
37
<PAGE> 45
Customers
Sales of TEL by the Company are made either to the retail refinery market
or to Ethyl pursuant to two long-term wholesale supply agreements. In 1997, 70%
of Octel's sales volume was directed to retail refinery customers, with the
remaining 30% of its sales being made to Ethyl. The Company's retail customers
consist of approximately 200 independent, state or major oil company-owned
refineries located throughout the world. Within the retail market, refineries
owned or managed by British Petroleum, Mobil Oil and Texaco Oil, three former
partners in Octel Associates and former shareholders of AOC (the "Vendor
Partners"), are entitled to profit-participation payments under the terms of the
Octel Sale and Purchase Agreement, dated February 21, 1989, based upon their
ongoing purchases of TEL from the Company. See Note 4 to Combined Financial
Statements. Selling prices to other refineries are principally negotiated under
long-term supply agreements, with varying prices and terms of payment.
Ethyl Agreements
The Company supplies Ethyl on a wholesale basis with substantial quantities
of TEL for resale to customers under two separate long-term supply agreements at
prices adjusted annually through agreed formulas. Under one of these agreements
(the "U.S. TEL Supply Agreement"), effective January 1, 1998, Ethyl purchases
its requirements for resale to its customers in the United States from the
Company. In the other agreement, dated December 22, 1993, Ethyl purchases TEL
for resale to customers located outside the United States. The maximum
quantities of TEL Ethyl can purchase under the non-U.S. agreement is 35,000
metric tons per year through 1998 and, thereafter, is set at a fixed percentage
of the Company's annual production capacity. Pursuant to a Bulk Transportation
Agreement, dated March 25, 1994, Ethyl supplies the Company with all of its bulk
transportation requirements for TEL. The Company, Ethyl and Great Lakes recently
reached an agreement with FTC staff with respect to the terms of a consent
decree governing sales of TEL by the Company to Ethyl for resale in the United
States market. The agreement was provisionally approved by the FTC on March 30,
1998, subject to the FTC's discretion to review and modify the agreement
following a sixty (60) day public comment period. Although the proposed order is
not yet effective, the Company has taken steps to comply with its provisions by
negotiating and putting into effect a new long term supply contract with Ethyl
governing the supply of TEL to Ethyl for resale in the U.S. market. It should be
noted that the entire U.S. TEL market is relatively small (approximately 1,500
metric tons per annum) and only a small portion of the Company's sales to Ethyl
are directed at the U.S. market. Neither the terms of the proposed consent
decree nor the execution of the new contract with Ethyl is expected to have a
material adverse effect on the Company's business, results of operations or
financial condition. See "Risk Factors--FTC Proceeding" and "Legal Proceedings."
PETROLEUM SPECIALTIES BUSINESS
The Company's Petroleum Specialties business, with revenues in 1997 of
$62.6 million, develops, produces and markets a range of specialty products used
as fuel additives. These fuel additives fall into three main product groups
within the Petroleum Specialties business. Diesel cetane improvers aid the
efficient combustion of fuel in diesel engines. Detergent-based packages for
both gasoline and diesel fuels inhibit formation of deposits in engines,
improving engine efficiency. Functional products, such as corrosion inhibitors,
improve the physical and/or chemical properties of fuels allowing refineries to
be operated safely and efficiently and fuel marketers to meet market
specifications.
The global market for fuel additives (excluding TEL) is approximately $1
billion. Usage of fuel additives is expected to grow over the next five to ten
years driven primarily by legislation placing increasingly stringent limitations
on exhaust emissions. The Company's strategy is to grow this business over time,
utilizing its global sales and distribution network, its strong technical
development capability and its knowledge of current and future customer needs.
The customers of the Petroleum Specialties business are comprised of
multinational oil companies and fuel retailers. Traditionally, a large portion
of the total market was captive to oil companies which had fuel additives
divisions providing supplies directly to their respective refinery customers. As
a result of recent
38
<PAGE> 46
corporate restructurings and various mergers, joint ventures and other
collaborative arrangements involving downstream refining and marketing
operations, the tied supply arrangements between oil companies and their captive
fuel additive divisions have been weakened and many refineries are increasingly
looking to purchase their fuel additive requirements on the open market. This
trend is creating new opportunities for independent additive marketers such as
the Company.
The business operates in a competitive environment with its main
competitors being large oil and chemical companies, such as Lubrizol, Ethyl,
BASF, Chevron and Exxon. No one company holds a dominant overall market share.
The Company considers its competitive strengths are in its strong technical
development capability, independence from the major oil companies and its
strong, long-term relationships with refinery customers in the TEL market which
provide synergies with the Petroleum Additives business.
PERFORMANCE CHEMICALS BUSINESS
The Company's Performance Chemicals business, with 1997 sales of $34.5
million, is comprised of the following two distinct product lines:
Industrial and Intermediate Chemicals, which accounted for approximately
35% of total Performance Chemical sales in 1997, consists of a small range of
industrial chemicals comprising metallic sodium and chlorine derivatives
(caustic liquor, chlorine, sodium hypochlorite). These products are either
precursors or by-products of the TEL manufacture and are expected to be phased
down consistent with the phase down of TEL. The Company's strategy with respect
to these industrial chemicals is to optimize profits consistent with maximizing
overall corporate financial performance at its Ellesmere Port facility.
Specialty Chemicals, which accounted for approximately 65% of total sales
of Performance Chemicals in 1997, is currently comprised of Octaquest(R). The
Company, in conjunction with Proctor & Gamble, its primary customer, has
developed and patented a manufacturing process for Octaquest(R), a biodegradable
chelating agent developed for use in laundry products. The Company believes that
Octaquest(R) has potential for wider application in pulp and paper, cosmetics,
personal care, photographic and other industries. The Company is seeking to
expand its Specialty Chemicals business and is currently evaluating
opportunities to implement this strategy. Growth will be sought from a
combination of internal and external sources, including the in-house development
of new products through research and development, exploitation of current
products into new markets, licensing agreements, custom synthesis of specialty
products and acquisitions of products and/or businesses.
RAW MATERIALS
The Company's major purchased raw materials are lead, ethylene and salt,
all of which are commodities that can be readily obtained from a number of
different sources. While changes in the prices of raw materials will have an
impact on the Company's costs, which the Company may or may not be able to
reflect fully in its pricing structure, they are unlikely to have a significant
impact on the profitability of its operations.
TECHNOLOGY
The Company's research and development facilities are located at Ellesmere
Port, U.K., while its advanced fuel testing facility to support the Lead Alkyls
and Petroleum Specialties businesses is located at Bletchley, U.K. The Company's
research and development activity has been, and will continue to be, focused
primarily on development of new products and formulations for the Petroleum
Specialties and the Performance Chemicals businesses. Technical customer support
is also provided for the TEL business. Expenditures to support research,
product/application development and technical support services to customers were
$3.8 million, $5.6 million and $5.6 million in 1997, 1996 and 1995,
respectively. The Company considers that its strong technical capability
provides it with a significant competitive advantage. In the last three years,
the Petroleum Specialties business has developed new detergent, lubricity and
combustion improver products, in addition to the introduction of several new
cost effective fuel additive packages. A new patented process for manufacturing
Octaquest(R) has enabled the Company to enter into a new market in the
performance chemicals area.
39
<PAGE> 47
PATENTS AND INTELLECTUAL PROPERTY
The Company has a portfolio of trademarks and patents, granted and in the
application stage, covering products and processes. These trademarks and patents
relate primarily to the Petroleum Specialties and the Performance Chemicals
businesses, in which intellectual property forms a significant part of the
Company's competitive strength. The majority of these patents were developed by
the Company. Most patents have more than ten years life remaining. The Company
also holds a license for the manufacture of fuel detergents. The Company has
trademark registrations for the use of the name "Octel(R)" and for the Octagon
device in Classes 1 and 4 of the "International Classification of Goods and
Services for the Purposes of the Registration of Marks" in all countries in
which its has a significant market presence except for the U.S. in respect of
which the appropriate applications have been made. Octel also has trademark
registrations for Octaquest(R).
Octel America Inc., a subsidiary of the Company, has trademarks for
Stadis(R), an aviation and ground fuel conductivity improver, Ortholeum(R), a
lube oil additive antioxidant and metal deactivator, Ocenol(R), an antifoam for
refinery use, and Valve Master(R), a valve seat recession additive. The Company
does not consider its business as a whole to be dependent on any one trademark,
patent or licence.
HEALTH, SAFETY AND ENVIRONMENTAL MATTERS
The Company is subject to Environmental Laws in all of the countries in
which it does business. The principal Environmental Laws to which the Company is
subject in the U.K. are the Environmental Protection Act 1990, the Water
Resources Act 1991, the Health and Safety at Work Act 1974 and regulations and
amendments thereto. Management believes that the Company is in material
compliance with all applicable Environmental Laws, and does not anticipate that
the continued costs of compliance with Environmental Laws will be material.
Nevertheless, there can be no assurance that changes in existing Environmental
Laws, or the discovery of additional liabilities associated with the Company's
current or former operations will not have a material adverse effect on the
Company's business, results of operations or financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Matters and Plant Closures."
HUMAN RESOURCES
The Company's workforce at December 31, 1997 consisted of 1,419 employees,
of which 1,279 were in the U.K. Approximately half of the Company's employees in
the U.K. are represented by unions, including the Transport and General Workers
Union and the Amalgamated Engineering and Electrical Union.
The Company has a major employee communication program to help its
employees understand the business issues surrounding the Company, the TEL
business and the corporate downsizing program that has been implemented to
respond to declining TEL demand. Regular monthly briefings are conducted by line
managers where Company-wide and departmental issues are discussed. More formal
communication takes place with the trade unions which the Company recognizes for
negotiating and consultative purposes.
Management believes that the communication program has been highly
successful and has contributed to maintaining maximum output at Ellesmere Port
while at the same time achieving a reduction of 525 employees in the Company's
U.K. workforce since January 1, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Environmental Matters and
Plant Closures." The Company has implemented an extensive retraining program
which will enable further improvements in the productivity and flexibility of
the Company's U.K. workforce. A major change in working practices was introduced
during 1996 whereby the workforce began an annualized hours contract, monthly
pay and staff status. This program reflects the cooperative employee relations
climate which exists at Ellesmere Port. A further example of the positive
working relationship is the signing of a two-year salary contract on January 1,
1998, which fixes wage rates and gives predictability of employment costs
through January 1, 2000.
40
<PAGE> 48
PROPERTIES
A summary of the Company's principal facilities is shown in the following
table. Each of these properties is owned by the Company, except where otherwise
noted:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL OPERATIONS
-------- --------------------
<S> <C>
Newark, Delaware, U.S.*................................ Octel Corp. Headquarters; Petroleum
Specialties regional office
London, U.K.*.......................................... Sales & Marketing
Ellesmere Port, U.K.................................... AOC Headquarters; Business Teams;
Manufacturing; Research & Development;
Administration
Bletchley, U.K......................................... Fuel Technology Center
</TABLE>
- -------------------------
* Leased property
The Ellesmere Port facility, which includes 94 acres of land, houses the
administrative headquarters and offices for AOC, Research and Development
laboratories and all the Company's manufacturing facilities. These manufacturing
facilities consist of a chlorine plant (capacity-40,000 metric tons per annum),
a sodium plant (capacity-24,000 metric tons per annum), an ethyl chloride plant
(capacity-44,000 metric tons per annum), an EDDS plant for the manufacture of
Octaquest(R) (capacity-2,200 metric tons per annum), a detergents plant for the
Petroleum Specialties Business (capacity-5,000 metric tons per annum) and lead
alkyls plants for the manufacture of TEL (capacity-90,000 metric tons per
annum).
LEGAL PROCEEDINGS
In December 1997, the Company, Great Lakes and the U.S. Federal Trade
Commission (the "FTC") staff reached an agreement with respect to the terms of a
consent decree governing sales of TEL by the Company to Ethyl for resale in the
United States market, which agreement was provisionally approved by the FTC on
March 30, 1998, subject to the FTC's discretion to review and modify the
agreement following a sixty (60) day public comment period. The proposed consent
decree, if finally approved by the FTC, will not constitute an admission of
wrongdoing on Great Lakes' or the Company's part and will provide, among other
things, that the Company will continue to supply Ethyl with its requirements of
TEL for resale in the United States market in accordance with the U.S. TEL
Supply Agreement, effective January 1, 1998. Under the proposed order, both the
Company and Ethyl will be required to provide prior notice to the FTC with
respect to any changes or modifications to the U.S. TEL Supply Agreement, as
well as with respect to certain transactions. Although the proposed order is not
yet effective, the Company has taken steps to comply with its provisions by
negotiating and putting into effect a new long term supply contract with Ethyl
governing the supply of TEL to Ethyl for resale in the U.S. market. It should be
noted that the entire U.S. TEL market is relatively small (approximately 1,500
metric tons per annum) and only a small portion of the Company's sales to Ethyl
are directed at the U.S. market. Neither the terms of the proposed consent
decree nor the execution of the new contract with Ethyl is expected to have a
material adverse effect on the Company's business, results of operations or
financial condition. See "--Lead Alkyls Business--Ethyl Agreements" and "Risk
Factors--FTC Investigation."
Other than the above-referenced FTC investigation, the Company is not party
to any legal proceedings or administrative actions. In the opinion of the
Company's management, there are no legal proceedings, pending or threatened,
which could have any material adverse effect on the results of operations or
financial condition of the Company or its ability to conduct its operations as
presently conducted.
41
<PAGE> 49
MANAGEMENT
DIRECTORS
Currently, the Board of Directors of the Company is comprised of Dennis J.
Kerrison, Martin M. Hale and Thomas J. Fulton. As of the Distribution Date, the
Board of Directors of the Company will consist of the seven persons listed
below, each of whom will be elected for a term expiring at the annual meeting of
stockholders indicated below and until his successor shall have been elected and
qualified. Each of the persons designated not currently a Board member, is
expected to be elected as a director of the Company prior to the Distribution
Date.
The following table sets forth information concerning the individuals who
will serve as directors of the Company following the Distribution:
<TABLE>
<CAPTION>
TERM EXPIRES AT
NAME AGE ANNUAL MEETING IN
---- --- -----------------
<S> <C> <C>
Dr. Robert E. Bew................................... 61 2001
Dennis J. Kerrison.................................. 53 2001
Martin M. Hale...................................... 57 2001
Thomas M. Fulton.................................... 64 1999
James Puckridge..................................... 62 2000
Dr. Benito Fiore.................................... 60 2000
Charles M. Hale..................................... 62 1999
</TABLE>
Set forth below is a brief description of the present and past business
experience of each of the persons who will serve as directors of the Company:
DR. ROBERT E. BEW will serve as Non-Executive Chairman of Octel Corp. He is
currently Chairman of both European Process Industries Competitiveness Centre
Ltd., an organization specializing in increasing competitiveness in process
industries, and The Teesside Chemical Initiative (TCI) Ltd., which focuses on
building and improving investment and competitiveness of the Chemical sector in
the region. He spent 35 years with ICI most recently as CEO of ICI's Chemicals &
Polymer division in Teesside U.K. Previously he served as head of Corporate
Planning and between 1995 and 1997 was Chairman of Phillips Imperial Petroleum
Ltd., a refinery JV between ICI and Phillips Petroleum.
DENNIS J. KERRISON will serve as President and Chief Executive Officer of
Octel Corp. and Managing Director, AOC. From May 1996 to the Distribution Date,
Mr. Kerrison was the Managing Director of AOC and Octel Developments PLC and a
Group Vice President and Officer of Great Lakes. Between 1992 and 1996 he was a
Director and Officer of Hickson International plc, lastly as Chief Executive
Officer. Prior to this he worked in senior management roles for Specialty
Chemical Companies, in Europe and the United States notably, Rhone Poulenc,
Rohm & Haas and RTZ Chemicals.
MARTIN M. HALE has been the Executive Vice President and Director of
Hellman, Jordan Management Co., Inc., a registered investment advisor
specializing in asset management and a wholly owned subsidiary of United Asset
Management Company since 1983. Prior to 1983, he was President and Chief
Executive Officer of Marsh & McClennan Asset Management Company. He also serves
as a Director of the Student Conservation Association; as Chairman of the Board
of Governors of the School of The Museum of Fine Arts, Boston; and as a Trustee
of The Museum of Fine Arts. Mr. Hale has been Chairman of the Board of Directors
of Great Lakes since 1995 and has served on the Great Lakes Board of Directors
since 1978.
THOMAS M. FULTON serves as President and Chief Executive Officer of
Landauer, Inc., a provider of radiation monitoring services. Prior to joining
Landauer in 1978, his career included various management positions at Union
Carbide Corporation, BASF Corporation and ICN Pharmaceuticals, Inc. Mr. Fulton
serves on the Boards of The Advocate South Suburban Hospital and the Bethel
Community Facility and as Chairman of the Board of Directors of the Chicago
Theological Seminary. Mr. Fulton is currently a Director of Great Lakes and has
served on the Great Lakes Board of Directors since 1995.
42
<PAGE> 50
JAMES PUCKRIDGE is Chairman of Elf Atochem UK Ltd., a position he assumed
in 1990. Prior to that he was Managing Director of the same organization. He is
also Chairman of Ato Findley UK Limited and Non-Executive Director of Thomas
Swan & Co. Ltd., a UK specialty chemical company. He serves as a Member of
Council for both the British Plastic Federation and the Chemical Industry
Association where he is Chairman of the General Purpose and Finance Committee.
DR. BENITO FIORE is a Director of A.T. Kearney, the consultancy company
specializing in the chemical industry. Between 1990 and 1995 he was Chief
Executive Officer of Enichem UK Ltd. Prior to this he held a number of
directorships in the Montedison Group working in Denmark, Canada, Italy and the
USA. He is a Member of Council of the Italian Chamber of Commerce and a member
of the Accademia Italian della Cucina.
CHARLES M. HALE is Chairman of Donaldson, Lufkin & Jenrette International,
the London based subsidiary of Donaldson, Lufkin & Jenrette Inc., a major New
York based investment bank. Prior to 1984, he was a general partner of Lehman
Brothers Kuhn Leob and Managing Director of A.G. Becker International. Mr. Hale
is a graduate of Stanford University and Harvard Business School.
Following the Distribution, the Company may expand the Board of Directors
to include additional independent directors. The identities of such additional
independent directors have not yet been determined and will not be determined
prior to the Distribution.
CLASSIFIED BOARD OF DIRECTORS
The Company's Certificate of Incorporation will provide for a classified
Board of Directors consisting of three classes as nearly equal in number as
possible with the directors in each class serving staggered three-year terms.
Initially, the Class I directors will be Thomas M. Fulton and Charles M. Hale;
the Class II directors will be Dr. Benito Fiore and James Puckridge; and the
Class III directors will be Dr. Robert E. Bew, Dennis Kerrison and Martin M.
Hale. The terms of the Class I, Class II and Class III Directors will expire
initially in 1999, 2000 and 2001, respectively. At each annual meeting of the
stockholders of the Company, the successors to the class of directors whose term
expires will be elected to hold office for a term expiring at the annual meeting
of stockholders held in the third year following their election. See
"Description of Company Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company currently intends to establish an
Executive Committee, an Audit Committee, a Finance Committee, a Compensation
Committee and an Environmental, Safety and Health Committee.
The Executive Committee will have all the powers and authority of the Board
of Directors except those powers specifically reserved to the Board of Directors
by Delaware law, the Certificate of Incorporation or the By-laws of the Company.
The Audit Committee will, among other things, recommend independent
certified public accountants; review the scope of the audit examination,
including fees and staffing; review the independence of the auditors; review and
approve non-audit services provided by the auditors; review findings and
recommendations of auditors and management's response; review the internal audit
and control function; and review compliance with the Company's ethical business
practices policy.
The Finance Committee will review and assess the financial affairs of the
Company and present recommendations for action to the Board of Directors.
The Compensation Committee will review management compensation programs,
approve compensation changes for senior executive officers, review compensation
changes for senior management, and administer management stock plans.
43
<PAGE> 51
The Environmental, Safety and Health Committee will assess the Company's
environmental, safety and health policies and performance, and will make
recommendations to the Board of Directors regarding the promotion and
maintenance of standards of compliance and performance.
COMPENSATION OF DIRECTORS
Following the Distribution, non-employee directors will receive an annual
fee of $23,000. The Chairman of the Board, who is not employed by the Company,
will receive an annual fee of $110,500. Committee chairman, not employed by the
Company, will receive an additional fee of $5,000 per year. Non-employee
directors will be paid $1,650 for attendance at each meeting of the Board of
Directors and $825 for attendance at each Committee meeting. A percentage of the
annual fee may be paid in the form of a stock grant, as determined by the
Compensation Committee.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who will serve as executive officers of the Company and its principal subsidiary
following the Distribution Date. Each such person will be elected to the
indicated office with the Company on or prior to the Distribution Date and will
serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Dennis J. Kerrison............. 53 President and Chief Executive Officer, Octel
Corp. and Managing Director of AOC and Octel
Developments PLC
Alan G. Jarvis................. 48 Chief Financial Officer, Octel Corp. and
Finance Director of AOC and Octel Developments
PLC
Graham M. Leathes.............. 48 Company Secretary and General Counsel, Octel
Corp., AOC and Octel Developments PLC
Steve W. Williams.............. 42 Operations Director, AOC
Robert A. Lee.................. 50 Commercial Director, Lead Alkyls, AOC
Geoff J. Hignett............... 47 Commercial Directors, Specialty Chemicals, AOC
H. Alan Hanslip................ 50 Human Resources Director, AOC
Richard T. Shone............... 49 Safety, Health & Environment Director, AOC
</TABLE>
Set forth below is a description of the position presently held with the
Company or its subsidiaries by each executive officer as well as positions held
prior to the Distribution Date.
DENNIS J. KERRISON -- See description above under the heading
"--Directors."
ALAN G. JARVIS will serve as Chief Financial Officer of Octel Corp. and
Finance Director of AOC and Octel Developments PLC. From October 1997 until the
Distribution Date, Mr. Jarvis served as Finance Director for AOC. Prior to his
tenure with AOC, Mr. Jarvis served from 1995 to 1997 as Group Finance Director
of the Power Plant Group of GEC Alsthom, an Anglo-French joint venture in the
power generation business worldwide. From 1987 to 1994, Mr. Jarvis served at
different times as Property Director, Group Finance Director and Group Financial
Controller for Simon Engineering PLC, a British engineering company specializing
in hydraulic platforms, process plant contracting and chemical storage.
GRAHAM M. LEATHES will serve as Corporate Secretary and General Counsel for
Octel Corp., AOC and Octel Developments PLC. From July 1989 until the
Distribution Date, Mr. Leathes served in this position for AOC.
STEVE W. WILLIAMS will serve as Operations Director of AOC. From November
1995 to the Distribution Date, Mr. Williams served as Director of Manufacturing
for AOC. Prior to his tenure with AOC,
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<PAGE> 52
Mr. Williams served for 18 years at the Fawley Oil Refinery of Exxon/Esso, most
recently as Operations Manager.
H. ALAN HANSLIP will serve as Human Resources Director of AOC. From
November 1996 to the Distribution Date, Mr. Hanslip served as Director, Human
Resources, for AOC. Prior to his tenure with AOC, Mr. Hanslip served from 1991
to 1996 as Director of Human Resources for British Nuclear Fuels plc.
ROBERT A. LEE will serve as Commercial Director, Lead Alkyls of AOC. From
February 1997 to the Distribution Date, Mr. Lee served as Director, Supply
Chain, for AOC. Prior to his tenure with AOC, Mr. Lee spent 27 years with Dow
Chemical Corporation, a multinational chemical and petrochemical manufacturer
most recently as Marketing and Sales Director of its worldwide hydrocarbon
business based in Zurich, Switzerland.
GEOFF J. HIGNETT will serve as Commercial Director, Specialty Chemicals of
AOC. From February 1997 to the Distribution Date, Dr. Hignett served as
Director--Petroleum Specialties and Acting Director--Corporate Development for
AOC. Prior to his tenure with AOC, Dr. Hignett served from 1992 to 1997 as
Director of Technology & Business and Director of Water Additives for the
Process Additives Division of FMC Corporation, a multinational engineering,
manufacturing and chemicals concern.
RICHARD T. SHONE will serve as Safety, Health & Environment Director of
AOC. From May 1997 until the Distribution Date, Mr. Shone served in this
position for AOC. Prior to his tenure with AOC, Mr. Shone was employed from 1986
to 1997 by Laporte PLC, an international speciality chemicals company where he
served as General Manager--Group Safety, Hazards & Environment.
COMPENSATION OF EXECUTIVE OFFICERS
All of the information set forth in the following tables reflects
compensation earned based upon services rendered to Great Lakes by the Company's
Chief Executive Officer and the four other most highly paid executive officers
of the Company. The services rendered by such individuals to Great Lakes were,
in some instances, in capacities not equivalent to those positions in which they
will serve for the Company or its subsidiaries. Therefore, these tables do not
reflect the compensation which will be paid to the executive officers of the
Company. The following tabulation shows compensation for services rendered in
all capacities to the Petroleum Additives Business Unit of Great Lakes and its
subsidiaries during 1997 by the Chief Executive Officer and the next four
highest paid executive officers (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------- -----------------------
NAME AND PROFIT SHARING CASH OTHER ANNUAL OPTIONS GRANTED
PRINCIPAL POSITION SALARY(1) (BONUS)(1)(2) COMPENSATION(3) (# -- NUMBER OF SHARES)
------------------ --------- ------------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Dennis J. Kerrison............. $287,966 $129,665 -- 10,000
Steve W. Williams.............. 152,212 44,848 -- 2,000
Geoff J. Hignett............... 137,264 31,598 $46,897(4) 1,200
Graham M. Leathes.............. 130,106 25,299 -- 1,000
Robert A. Lee.................. 114,090 26,534 -- 1,000
</TABLE>
- -------------------------
(1) Converted from pounds sterling to U.S. dollars based on an exchange rate of
$1.6455:L1.00 on December 31, 1997.
(2) Bonus paid in 1998 for services rendered in 1997.
(3) Amounts paid do not exceed $50,000 or 10% of salary plus bonus for any of
the Named Executive Officers, except Mr. Hignett.
(4) Payment of starting bonus.
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<PAGE> 53
STOCK OPTIONS TABLE
The following table shows for the Named Executive Officers the specified
information with respect to grants of options to purchase Great Lakes Common
Stock ("Great Lakes Options") during 1997.
OPTION GRANTS IN 1997*
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL VALUE AT ASSUMED
GRANTS % OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(3)(4)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ------- ------------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Kerrison................ 10,000 2.18% $42.50 2/10/07 267,750 675,750
Steve W. Williams................. 2,000 .44% 42.50 2/10/07 53,550 135,150
Geoff J. Hignett.................. 1,200 .26% 42.50 2/10/07 32,130 81,090
Graham M. Leathes................. 1,000 .22% 42.50 2/10/07 26,775 67,575
Robert A. Lee..................... 1,000 .22% 42.50 2/10/07 26,775 67,575
</TABLE>
- -------------------------
* See "Treatment of Great Lakes Employee Stock Options in the Distribution"
for a description of the effect of the Distribution on such options.
(1) All options were granted pursuant to the 1993 Great Lakes Employee Stock
Compensation Plan and have a term of 10 years. Each Named Executive Officer
received one option grant in 1997. These options vest and become exercisable
in cumulative 33% installments commencing no less than one year from date of
grant, with full vesting occurring on the earlier of the third anniversary
date or on the retirement of an employee over 62 years of age.
(2) The exercise price may be paid for by remitting cash or already owned shares
of Great Lakes Common Stock, or by a combination thereof.
(3) The potential realizable value portion of the foregoing table indicates the
value that might be realized upon exercise of options immediately prior to
the expiration of their term, assuming the specified amount of compounded
rates of appreciation on Great Lakes Common Stock over the term of the
options. This calculation does not take into account that any shortfall
between the current stock price and the option exercise price will have to
be made up before any value can be realized.
(4) Absent an appreciation in stock price over the option exercise price, the
optionee will not realize any gain. A 0% increase in stock price will result
in an option value of $0.
46
<PAGE> 54
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows for each Named Executive Officer the specified
information with respect to exercises of Great Lakes Options during 1997 and the
value of unexercised options at the end of 1997.
AGGREGATED GREAT LAKES OPTION EXERCISES DURING 1997
AND 1997 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY AT
SHARE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END($)
ACQUIRED ON VALUE --------------------------- ----------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE*
---- ----------- ----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Dennis J. Kerrison....... -- -- -- 17,000 -- $23,750
Steve W. Williams........ -- -- -- 3,600 -- $ 4,750
Geoff J. Hignett......... -- -- -- 1,200 -- $ 2,850
Graham M. Leathes........ -- -- 1,370 1,760 -- $ 2,375
Robert A. Lee............ -- -- -- 1,000 -- $ 2,375
</TABLE>
- -------------------------
* Based on a closing price of $44.875 as reported on the NYSE on December 31,
1997 and after deduction of the exercise price of each such option multiplied
by the number of shares covered by each such option.
EMPLOYMENT AGREEMENTS
Currently, each of the Named Executive Officers is party to a contract of
employment between such officer and AOC. The contracts provide for salary,
holidays and vacations and perquisites. Each of the Named Executive Officers is
entitled to 30 days of annual vacation, private health insurance, permanent
health insurance and a car. Additionally, other than with respect to Mr.
Kerrison, each agreement provides that in the event of a takeover or fundamental
restructuring of the business which results in a loss of the officer's position,
such officer is entitled to two years' salary plus 25% plus approximately U.S.
$49,365. In the event of a qualifying termination following a change of control,
Messrs. Williams, Hignett, Leathes and Lee would be entitled to receive
$616,200, $572,600, $440,171 and $594,400, respectively, pursuant to such
agreements.
Prior to the Distribution, the Company and AOC expect to enter into
employment agreements (the "Agreements") with Messrs. Kerrison, Williams,
Hignett, Leathes, and Lee, as well as with three other senior executives. Mr.
Kerrison's contract will provide generally for a guaranteed employment term of
two years. The remaining Agreements provide for a guaranteed employment term of
one year. These contracts will be extended annually unless either the executive
or AOC elects otherwise. In addition, these contracts will provide a minimum
annual salary, participation in AOC's bonus plan with a minimum annual bonus
equal to 35% of base salary (50% in the case of Mr. Kerrison), and participation
in AOC's other benefit plans and programs for senior executives. In addition,
the Agreements will provide for an additional guaranteed employment term of
three years following a "change of control" of either the Company or AOC.
COMPENSATION UNDER RETIREMENT PLANS
The following table sets forth the estimated annual benefits payable upon
retirement to Messrs. Williams, Hignett, Leathes and Lee, for the specified
compensation and years of service classifications, under the combined formulas
of the Octel Pension Plan, the Octel Top Hat and the Octel Funded Unapproved
Retirement Benefit Plan. The pension benefits are calculated based upon years of
service and "Final Earnings," which is calculated as final base salary or, if
higher, the average base salary for the last three years of service. Mr.
Kerrison's benefits payable under such plans are calculated on the same basis,
but at a 33%
47
<PAGE> 55
higher rate. The amounts shown have been converted from pounds sterling to U.S.
dollars based on an exchange rate of $1.6455:L1.00 on December 31, 1997.
<TABLE>
<CAPTION>
FINAL
EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS
- -------- ------- -------- -------- -------- --------
<C> <S> <C> <C> <C> <C> <C>
$164,550 ..................... $20,569 $ 41,138 $ 61,706 $ 82,275 $102,844
246,825 ..................... 30,853 61,706 92,971 123,413 154,266
329,100 ..................... 41,138 82,275 123,413 164,550 205,688
411,375 ..................... 51,422 102,844 154,266 205,688 257,109
493,650 ..................... 61,706 123,413 185,119 246,825 308,531
</TABLE>
As of January 1, 1998, the final base salary (converted to U.S. dollars
using the same exchange rate as specified above) and the eligible years of
credited service for each of the Named Executive Officers were as follows: Mr.
Kerrison, $287,963 -- 1 year; Mr. Williams, $162,485 -- 1 year; Dr. Hignett,
$156,745 -- 0 years; Mr. Leathes, $135,309 -- 8 years; and Mr. Lee, $137,240 --
0 years.
STOCK PLANS
Prior to the Distribution Date, the Company may adopt (i) the Octel Corp.
Approved Company Share Option Plan, (ii) Octel Corp. Performance Related Stock
Awards Scheme, (iii) Octel Corp. Time Restricted Stock Option Plan, (iv) the
Octel Corp. Savings Related Share Option Scheme and (v) the Octel Corp. Profit
Sharing Share Scheme (the "Stock Plans"), which, if adopted, will provide for
the grant of various types of equity-based compensation to employees of the
Company. The Stock Plans may be submitted for approval to Great Lakes, as sole
stockholder of the Company, prior to the Distribution Date. The Stock Plans are
designed to promote the success of the Company's business by more closely
aligning the interests of management and the Company's stockholders through the
provision of equity-based incentives to those individuals who are or will be
responsible for such success.
The total number of shares of Common Stock that may be issued or awarded
under the Stock Plans may not exceed 1,175,000 in the aggregate, subject to
adjustment as described below.
The Stock Plans provide for the granting of options, including "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Code and
non-qualified stock options, and the granting of other stock-based awards
(collectively, "Awards"). All Awards will be evidenced by an award agreement
setting forth the terms and conditions applicable thereto.
Awards may generally be granted to individuals who are (a) executive
officers, (b) other key employees (including those who are also directors) or
(c) non-employee directors, in each case of the Company or any of its
subsidiaries.
The Stock Plans will be administered by the Board of Directors of the
Company, which may act through its Compensation Committee (such Board of
Directors or committee is referred to herein as the "Plan Administrator").
Eligibility criteria, the number of participants, and the number of shares
subject to Awards and all other terms and conditions of Awards will be
determined by the Plan Administrator.
The option price payable for the shares of Common Stock subject to each ISO
or non-qualified stock option shall not be less than the fair market value of
the Common Stock on the date such option is granted.
48
<PAGE> 56
The following table sets forth the estimated number of restricted stock
units to be granted to certain employees under the Stock Plans within six months
of the Distribution:
<TABLE>
<CAPTION>
NUMBER OF RESTRICTED
NAME STOCK UNITS
---- --------------------
<S> <C>
Dennis J. Kerrison.......................................... 115,071
Alan G. Jarvis.............................................. 50,873
Steve W. Williams........................................... 44,090
Geoff J. Hignett............................................ 40,699
Robert A. Lee............................................... 42,394
H. Alan Hanslip............................................. 32,559
Richard T. Shone............................................ 30,396
Graham M. Leathes........................................... 30,396
All executive officers as a group (8 persons)............... 386,478
All other employees......................................... 46,851
</TABLE>
The restricted stock grant described above has been estimated based on a
multiple of the proposed salaries to be paid to such persons following the
Distribution Date, which salaries will be reviewed and approved by the Board of
Directors of Octel at the time of the Distribution. The actual number of
restricted stock units granted will change depending upon the price of Octel
Common Stock at the time of such grant.
49
<PAGE> 57
TREATMENT OF GREAT LAKES EMPLOYEE STOCK OPTIONS IN THE DISTRIBUTION
Certain employees of Great Lakes (including certain employees who, as a
result of the Distribution, will become employees of the Company) currently hold
Great Lakes Options pursuant to the Great Lakes 1984 Employee Stock Option Plan
and the Great Lakes 1993 Employee Stock Compensation Plan (collectively, the
"Great Lakes Stock Plans").
In connection with the Distribution, and pursuant to the Great Lakes Stock
Plans and the related option agreements, the number of shares subject to each
Great Lakes Option and the exercise prices thereof will be equitably adjusted to
reflect the Distribution. Great Lakes will remain solely responsible for
satisfying all exercises of Great Lakes Options. All Great Lakes Options held by
employees who are or will become employees of Octel will be immediately vested
as of the Distribution Date.
In addition, the option agreements with respect to Great Lakes Options held
by certain executive officers of Octel will be amended to extend the period
during which such options may be exercised following the Distribution from three
months to three years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The businesses to be conducted by the Company have in the past engaged in
transactions with Great Lakes and its businesses. Following the Distribution,
Great Lakes will continue to have a significant relationship with the Company as
a result of the agreements being entered into by Great Lakes and the Company in
connection with the Distribution. Except as referred to above or as otherwise
described in this Information Statement, Great Lakes and the Company will cease
to have any material contractual or other material relationships with each
other. See "Relationship Between Great Lakes and the Company After the
Distribution."
50
<PAGE> 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on information which has been obtained from Great Lakes' records and
a review of statements filed with the Securities and Exchange Commission
pursuant to Sections 13(d) and 13(g) of the Exchange Act with respect to Great
Lakes Common Stock, the following persons will be the beneficial owner of more
than 5% of the outstanding voting securities of any class of the Company upon
completion of the Distribution:
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS COMMON STOCK
OF BENEFICIAL OWNER NUMBER OF SHARES OUTSTANDING
------------------- ---------------- ------------
<S> <C> <C>
T. Rowe Price Associates, Inc.(1)........................... 1,675,646 11.2%
100 East Pratt Street
Baltimore, Maryland 21202
State Farm Mutual Automobile Insurance...................... 1,135,900 7.6%
Company and Related Entities(2)
One State Farm Plaza
Bloomington, Illinois 61710-0001
</TABLE>
- -------------------------
(1) Based on a Schedule 13G, dated February 12, 1998, filed with the Securities
and Exchange Commission by T. Rowe Price Associates, Inc. ("Price
Associates"). These securities are owned by various individual and
institutional investors for which Price Associates serves as investment
advisor with power to direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of such securities.
(2) Based on a Schedule 13G, dated January 22, 1998, filed with the Securities
and Exchange Commission by State Farm Mutual Automobile Insurance Company.
Each of the following State Farm entities has reported sole voting power and
sole disposition power and disclaims "beneficial ownership" as to all shares
as to which each has no right to receive the proceeds of sale of the
security and disclaims that it is part of a group: State Farm Mutual
Automobile Insurance Company; State Farm Life Insurance Company; State Farm
Investment Management Corporation; and State Farm Insurance Companies
Savings and Thrift Plan for U.S. Employees. State Farm Life Insurance
Company is a wholly owned subsidiary of State Farm Mutual Automobile
Insurance Company. State Farm Investment Management Corporation is a wholly
owned subsidiary of State Farm Fire and Casualty Company which, in turn, is
a wholly owned subsidiary of State Farm Life Insurance Company.
BENEFICIAL OWNERSHIP OF MANAGEMENT
Based upon their respective holdings of Great Lakes Common Stock as of
April 1, 1998, and excluding restricted stock to be granted in connection with
the Distribution, no director or officer will own beneficially, as of the
Distribution Date, any shares of Octel Common Stock at such date and all
directors and executive officers as a group will beneficially own less than 1%
of the Octel Common Stock outstanding at such date.
DESCRIPTION OF COMPANY CAPITAL STOCK
Under the Certificate of Incorporation, the total number of shares of all
classes of stock that the Company has authority to issue is 50 million,
consisting of 10 million shares of preferred stock, par value $.01 per share
("Preferred Stock") and 40 million shares of Octel Common Stock. Based on the
number of shares of Great Lakes Common Stock outstanding at December 31, 1997,
approximately 14,736,075 shares of Octel Common Stock will be issued to
stockholders of Great Lakes.
COMMON STOCK
The holders of Octel Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, and the holders of such shares
will possess all voting power, except as otherwise required by law
51
<PAGE> 59
or provided in any resolution adopted by the Board of Directors of the Company
with respect to any series of Preferred Stock. It is currently expected that the
first annual meeting of stockholders of the Company will be held in May of 1999.
Subject to any preferential or other rights of any outstanding series of Company
preferred stock that may be designated by the Board of Directors of the Company,
the holders of Octel Common Stock will be entitled to such dividends as may be
declared from time to time by the Board of Directors of the Company from funds
available therefor, and upon liquidation will be entitled to receive pro rata
all assets of the Company available for distribution to such holders. See "Risk
Factors--Dividend Policy."
PREFERRED STOCK
The Board of Directors of the Company will be authorized to provide for the
issuance of shares of Preferred Stock, in one or more series, and to determine,
with respect to any series, the terms and rights of such series, including the
following: (i) the designation of such series; (ii) the rate and time of, and
conditions and preferences with respect to, dividends, and whether such
dividends are cumulative; (iii) the voting rights, if any, of shares of such
series; (iv) the price, timing and conditions regarding the redemption of shares
of such series and whether a sinking fund should be established for such series;
(v) the rights and preferences of shares of such series in the event of
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; and (vi) the right, if any, to convert or exchange shares of
such series into or for stock or securities of any other series or class.
The Company believes that the availability of the Preferred Stock will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs which might
arise. Having such authorized shares available for issuance will allow the
Company to issue shares of Preferred Stock without the expense and delay of a
special stockholders' meeting. The authorized shares of Preferred Stock, as well
as shares of Octel Common Stock, will be available for issuance without further
action by the Company's stockholders, unless action is required by applicable
law or the rules of any stock exchange on which the Company's securities may be
listed or unless the Company is restricted by the Preferred Stock.
NO PREEMPTIVE RIGHTS
No holder of any stock of the Company of any class authorized at the
Distribution Date will then have any preemptive right to subscribe to any
securities of the Company of any kind or class.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Octel Common Stock will be First
Chicago Trust Company of New York.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation and By-laws will contain certain
provisions that could make more difficult the acquisition of control of the
Company by means of a tender offer, open market purchases, a proxy contest or
otherwise. Set forth below is a description of such provisions contained in the
Certificate of Incorporation and By-laws. Such description is intended as a
summary only and is qualified in its entirety by reference to the Certificate of
Incorporation and By-laws, the forms of which are included as exhibits to the
Registration Statement of which this Information Statement forms a part.
Classified Board of Directors. The Certificate of Incorporation will
provide that the number of directors shall be fixed from time to time by the
Board of Directors of the Company. The directors shall be divided into three
classes, as nearly equal in number as is reasonably possible, serving staggered
terms so that directors' initial terms will expire either at the 1999, 2000 or
2001 annual meeting of the Company stockholders. Starting with the 1999 annual
meeting of the Company stockholders, one class of directors will be elected each
year for a three-year term. See "Management--Directors of the Company."
52
<PAGE> 60
The Company believes that a classified Board of Directors will help to
assure the continuity and stability of the Company's Board of Directors and the
Company's business strategies and policies as determined by the Board of
Directors of the Company, since a majority of the directors at any given time
will have had prior experience as directors of the Company. The Company believes
that this, in turn, will permit the Board of Directors to more effectively
represent the interests of stockholders.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. As a result, a classified Board of Directors
of the Company may discourage proxy contests for the election of directors or
purchases of a substantial block of Octel Common Stock because its provisions
could operate to prevent obtaining control of the Board of Directors of the
Company in a relatively short period of time. The classification provisions
could also have the effect of discouraging a third party from making a tender
offer or otherwise attempting to obtain control of the Company. In addition,
because Section 141(k)(1) of the Delaware General Corporation Law (the "DGCL")
provides that a director serving on a classified Board of Directors may be
removed only for cause, a classified Board of Directors would delay stockholders
who do not agree with the policies of the Board of Directors from replacing a
majority of the Board of Directors for two years unless they can demonstrate
that the directors should be removed for cause and obtain the requisite vote.
Such a delay may help ensure that the Board of Directors of the Company, if
confronted by a holder conducting a proxy contest or an extraordinary corporate
transaction, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to act in what it believes is the best
interests of the Company's stockholders.
Special Meetings of Stockholders; Action by Written Consent; Advance Notice
Provisions. The By-laws will provide that special meetings of stockholders of
the Company may be called only by the Board of Directors of the Company or the
Chairman of the Board. The Certificate of Incorporation also requires that
stockholder action be taken at a meeting of stockholders and prohibits action by
written consent.
Stockholder Nominations. The By-Laws will establish procedures that must be
followed for a stockholder to nominate individuals for election to the Company's
Board of Directors. Nominations of persons for election to the Board will be
required to be made by delivering written notice to the Secretary of the Company
not less than 60 nor more than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, however, that in
the event that the annual meeting is called for a date that is not within 10
days before or after such anniversary date, notice by the stockholder to be
timely will be required to be so received before the later of the close of
business on the 10th day following the day on which such annual notice was made,
whichever first occurs and the close of business on the day which is 60 days
prior to the date of the annual meeting. The nomination notice will be required
to set forth certain background information about the persons to be nominated,
including the nominees' principal occupation or employment and the class and
number of shares of capital stock of the Company that are beneficially owned by
such person. If the presiding officer at the annual meeting determines that a
nomination was not made in accordance with these procedures, he may so declare
at the meeting and the nomination may be disregarded.
Stockholder Proposals. The By-Laws establish procedures that must be
followed for a stockholder to submit a proposal at an annual meeting of the
stockholders of the Company. Under these procedures, no proposal for a
stockholder vote will be able to be submitted to the stockholders unless the
submitting stockholder has timely filed with the Secretary of the Company a
written statement setting forth specified information, including the names and
addresses of the persons making the proposal, the class and number of shares of
capital stock of the Company beneficially owned by such persons, a description
of the proposal and the reasons for bringing such business before the annual
meeting and any material interest of the stockholder in such business. If the
presiding officer at any stockholder meeting determines that any such proposal
was not made in accordance with these procedures or is otherwise not in
accordance with applicable law, he may so declare at the meeting and such
defective proposal may be disregarded.
Certain Business Combination Transactions. The Certificate of Incorporation
generally provides that, whether or not a vote of the stockholders is otherwise
required, the affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding shares of Octel Common Stock shall be required for the
approval or authorization of any Business Transaction with a Related Person, or
any Business Transaction in
53
<PAGE> 61
which a Related Person has an interest; provided, however, that the eighty
percent (80%) voting requirement shall not be applicable if (1) the Business
Transaction is approved by the Continuing Directors, or (2) all of the following
conditions are satisfied:
(a) the Business Transaction is a merger or consolidation or sale of
substantially all of the assets of the Company, and the aggregate amount of
cash to be received per share by holders of Octel Common Stock in
connection with such Business Transaction is at least equal in value to the
highest amount of consideration paid by such related person for a share of
Octel Common Stock in the transaction in which such person became a Related
Person, or within one year prior to the date such related Person became a
Related Person, whichever is higher; and
(b) after such Related Person has become the beneficial owner of not
less than ten percent (10%) of the voting power of the stock of the Company
entitled to vote generally in the election of directors, and prior to the
consummation of such Business Transaction, such Related Person shall not
have become the Beneficial Owner of any additional shares of voting stock
or securities convertible into voting stock, except (i) as a part of the
transaction which resulted in such Related Person becoming the beneficial
owner of not less than ten percent (10%) of the voting power of the voting
stock or (ii) as a result of a pro rata stock dividend or stock split; and
(c) prior to the consummation of such Business Transaction, such
Related Person shall not have, directly or indirectly, (i) received the
benefit (other than only a proportionate benefit as a stockholder of the
Company) of any loans, advances, guarantees, pledges, or other financial
assistance or tax credits provided by the Company or any of its
subsidiaries, (ii) caused any material change in the Company's business or
equity capital structure, including, without limitation, the issuance of
shares of capital stock of the Company, or (iii) except as approved by the
Continuing Directors, caused the Company to fail to declare and pay (y) at
the regular date therefor any full quarterly dividends on any outstanding
preferred stock or (z) quarterly cash dividends on the outstanding Octel
Common Stock on a per share basis at least equal to the cash dividends
being paid thereon by the corporation immediately prior to the date on
which the Related Person became a Related Person.
The term "Business Transaction" is generally defined as: (a) any merger or
consolidation involving the Company or a subsidiary of the Company; (b) any
sale, lease, exchange, transfer, or other disposition (in one transaction or a
series of related transactions), including, without limitation, a mortgage or
any other security device, of all or any substantial part of the assets either
of the Company or of a subsidiary of the Company; (c) any sale, lease, exchange,
transfer, or other disposition (in one transaction or a series of related
transactions) of all or any substantial part of the assets of an entity to the
Company; (d) the issuance, sale, exchange, transfer, or other disposition (in
one transaction or a series of related transactions) by the Company or a
subsidiary of the Company of any securities of the Company or any subsidiary of
the Company; (e) any recapitalization or reclassification of the securities of
the Company or other transaction that would have the effect of increasing the
voting power of a Related Person or reducing the number of shares of each class
of voting stock outstanding; (f) any liquidation, spin-off, split-off, split-up,
or dissolution of the Company; and (g) any agreement, contract, or other
arrangement providing for any of the transactions described in this definition
of Business Transaction. "Continuing Director" is generally defined as a member
of the Board of Directors on the Distribution Date and any member of the Board
of Directors whose election was approved by the Continuing Directors. "Related
Person" generally is defined as any individual or entity which, together with
its affiliates and associates owns not less than 10% of the voting power of the
voting stock of the Company.
PREFERRED STOCK PURCHASE RIGHTS
Prior to the Distribution Date, the Board of Directors of the Company will
declare a dividend distribution of one right (a "Right") to purchase one
one-thousandth of a share of Series A Junior Participating Preferred Stock for
each outstanding share of Octel Common Stock to stockholders of record of the
Company on the Record Date. The description and terms of the Rights will be set
forth in a Rights Agreement to be entered into between the Company and First
Chicago Trust Company of New York (the "Rights Agreement").
54
<PAGE> 62
The Rights will remain non-exercisable, nontransferable and non-separable
from Octel Common Stock until the earlier of (i) 10 days after the first date
(such date being the "Stock Acquisition Date") of public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of Octel Common Stock, or (ii) 10 business days (or
such later date as may be determined by the Board of Directors) after the
commencement of a tender offer or exchange offer for 15% or more of the Octel
Common Stock or (iii) 10 business days after the Board of Directors determines
that a person is an Adverse Person (to make such a determination the Board of
Directors must determine that a substantial shareholder intends to cause the
Company to repurchase its shares or to take action intended to provide such
person with short-term financial gain inconsistent with the best long-term
interest of the Company, or ownership of shares by such person is reasonable
likely to cause a material adverse impact on the Company) (the earliest of such
dates being referred as the "Distribution Date").
Each Right, when exercisable, currently entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock at a price to be determined prior to the adoption
of the Rights Plan, subject to adjustment. After the Declaration Date, in the
event that a person becomes an Acquiring Person (except pursuant to an offer for
all outstanding shares of Octel Common Stock that the independent directors of
the Company determine to be fair to and otherwise in the best interests of the
Company and its stockholders (a "Qualifying Offer") or an Adverse Person, each
holder of a Right will thereafter have the right to receive (in lieu of Series A
Junior Participating Preferred Stock), upon exercise, shares of Common Stock
(or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the Rights. In
the event that, at any time following the Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger that
follows a Qualifying Offer and meets certain other requirements), or (ii) a
person consolidates with, or mergers into, the Company, and although the Company
is the continuing or surviving corporation, all or part of the outstanding
shares of Common Stock are changed into or exchanged for stock or securities of
such other person, or cash or any other property, or (iii) more than 50% of the
Company's assets or earning power is sold or transferred, each holder of a Right
shall thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
In general, at any time prior to their expiration in 2008 or until 15 days
following the Stock Acquisition Date, the Board of Directors in its discretion
may redeem the Rights in whole, but not in part, at a price of $.01 per Right;
provided, however, that the Rights may not be redeemed following a determination
that any person is an Adverse Person. Moreover, the Board of Directors may, at
its option, at any time after any person becomes an Acquiring Person or is
determined to be an Adverse Person exchange all or part of the then outstanding
Rights for shares of Common Stock at an exchange ratio of one share of Common
Stock per Right; provided, however, that the Rights may not be so exchanged at
any time after any person becomes a beneficial owner of 50% or more of the
Company's Common Stock then outstanding. In the event any person becomes an
Acquiring Person (except pursuant to a Qualifying Offer) or an Adverse Person,
Rights beneficially owned by such person shall become null and void.
Each share of Series A Junior Participating Preferred Stock, when issued,
will be nonredeemable and entitled to cumulative dividends and will rank junior
to any series of Preferred Stock senior to it. Quarterly dividends are payable
on the Series A Junior Participating Preferred Stock in an amount equal to the
greater of (i) $1.00 per share or (ii) 1,000 times the aggregate per share
amount of all cash and noncash dividends (other than dividends payable in Common
Stock) declared on the Common Stock since the last quarterly dividend payment
date or, with respect to the first such date, since the first issuance of the
Series A Junior Participating Preferred Stock.
Each share of Series A Junior Participating Preferred Stock will entitle
the holder (subject to adjustment) to 1,000 votes on all matters submitted to a
vote of the stockholders of the Company. If at any time dividends on any Series
A Junior Participating Preferred Stock shall be in arrears for six quarters or
more, all holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) voting as a class, shall have the right to elect
two directors until all such accrued and unpaid dividends have
55
<PAGE> 63
been declared and paid. Upon liquidation, dissolution or winding up of the
Company, no distribution may be made to holders of the Common Stock unless,
prior thereto, holders of the Series A Junior Participating Preferred Stock
shall have received an amount equal to 1,000 times the Purchase Price, plus
accrued and unpaid dividends to the date of such payment. The number of shares
constituting the series of Series A Junior Participating Preferred Stock will be
1,000,000.
The Rights may have certain anti-takeover effects, including deterring
someone from acquiring control of the Company in a manner or on terms not
approved by the Board of Directors. The Rights should not interfere with any
merger or other business combination approved by the Board of Directors, since
the Rights generally may be redeemed at any time by the Company as set forth
above.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Officers and directors of the Company are covered by certain provisions of
the DGCL, the Certificate of Incorporation, the By-laws and insurance policies
which serve to limit, and, in certain instances, to indemnify them against,
certain liabilities which they may incur in such capacities. None of such
provisions would have retroactive effect for periods prior to the Distribution
Date, and the Company is not aware of any claim or proceeding in the last three
years, or any threatened claim, which would have been or would be covered by
these provisions. These various provisions are described below.
Elimination of Liability in Certain Circumstances. In June 1986, Delaware
enacted legislation which authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. This duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations now authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting negligence or gross negligence in
the exercise of their duty of care. Although the statute does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors to the Company or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by such legislation. Specifically, the
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as director, except for liability: (i) for
any breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) for unlawful payments of
dividends or unlawful share repurchases or redemptions as provided in Section
174 of the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit.
Indemnification and Insurance. As a Delaware corporation, the Company has
the power, under specified circumstances generally requiring the director or
officer to act in good faith and in a manner he reasonably believes to be in or
not opposed to the Company's best interests, to indemnify its directors and
officers in connection with actions, suits or proceedings brought against them
by a third party or in the name of the Company, by reason of the fact that they
were or are such directors or officers, against expenses, judgments, fines and
amounts paid in settlement in connection with any such action, suit or
proceeding. The By-laws generally provide for mandatory indemnification of the
Company's directors and officers to the full extent provided by Delaware
corporate law.
The Company intends to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Company, or is or was a
director or officer of the Company serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Company would have the power or
obligation to indemnify him against such liability under the provisions of the
By-laws.
56
<PAGE> 64
INDEPENDENT AUDITORS
The Company has appointed Ernst & Young L.L.P. as the Company's independent
auditors to audit the Company's financial statements as of and for the year
ending December 31, 1997. Ernst & Young L.L.P. has audited the Company's
historical financial statements as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
10 (the "Registration Statement," which term shall include any amendments or
supplements thereto) under the Exchange Act with respect to the shares of Octel
Common Stock being received by Great Lakes stockholders in the Distribution.
This Information Statement does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. With respect to each contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, 13th
Floor, New York, New York 10048. The Commission maintains a web site that
contains reports, proxy statements, registration statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
Following the Distribution, the Company intends to furnish to its
stockholders annual reports containing consolidated financial statements audited
by an independent public accounting firm accompanied by an opinion expressed by
such independent public accounting firm and quarterly reports for the first
three quarters of each fiscal year containing unaudited consolidated financial
information, in each case prepared in accordance with generally accepted
accounting principles.
57
<PAGE> 65
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Combined Statements of Income for each of the three years in
the period ended December 31, 1997........................ F-3
Combined Balance Sheets as of December 31, 1997 and 1996.... F-4
Combined Statements of Cash Flows for each of the three
years in the period ended December 31, 1997............... F-5
Notes to Combined Financial Statements...................... F-6
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
Octel Corp.
We have audited the accompanying combined balance sheets of the businesses
that comprise Octel Corp. as of December 31, 1997 and 1996, and the related
combined statements of income and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the businesses that
comprise Octel Corp. at December 31, 1997 and 1996, and the combined results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
April 4, 1998
F-2
<PAGE> 67
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
(IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $539.1 $597.4 $628.3
Cost of goods sold.......................................... 274.4 298.8 307.0
------ ------ ------
Gross profit.............................................. 264.7 298.6 321.3
Operating expenses:
Selling, general and administrative....................... 38.6 40.2 42.1
Research and development.................................. 3.8 5.6 5.6
------ ------ ------
Total.................................................. 42.4 45.8 47.7
Amortization of intangible assets........................... 27.6 26.7 19.0
Operating income............................................ 194.7 226.1 254.6
Interest expense............................................ 2.2 1.6 10.3
Other expenses.............................................. 5.6 7.5 4.4
Interest income............................................. (3.9) (3.5) (5.1)
Other income................................................ (7.9) (1.2) (4.1)
------ ------ ------
Income before income taxes and minority interest............ 198.7 221.7 249.1
Minority interest........................................... 24.3 29.6 32.3
------ ------ ------
Income before income taxes.................................. 174.4 192.1 216.8
Income taxes................................................ 56.7 63.8 71.7
------ ------ ------
Net income.................................................. $117.7 $128.3 $145.1
====== ====== ======
Net income per share supplemental........................... $ 7.84 $ 8.08 $ 8.88
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 68
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 29.7 $ 54.9
Accounts receivable....................................... 169.8 196.4
Inventories............................................... 78.8 84.0
Prepaid expenses.......................................... 4.4 4.3
------ ------
Total current assets........................................ 282.7 339.6
Property, plant and equipment............................... 106.0 113.4
Goodwill.................................................... 379.3 319.0
Other assets................................................ 64.9 69.0
------ ------
$832.9 $841.0
====== ======
LIABILITIES AND GREAT LAKES INVESTMENT
Current liabilities
Accounts payable.......................................... $ 40.0 $ 37.6
Accrued expenses.......................................... 9.0 20.5
Accrued income taxes...................................... 53.8 65.4
------ ------
Total current liabilities................................... 102.8 123.5
Other liabilities........................................... 57.2 90.3
Deferred income taxes....................................... 20.1 7.5
Minority interest........................................... -- 35.1
Great Lakes investment...................................... 652.8 584.6
------ ------
$832.9 $841.0
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 69
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 117.7 $ 128.3 $ 145.1
Non-cash items included in net income:
Depreciation.............................................. 19.2 16.2 13.7
Amortization.............................................. 27.6 26.7 19.0
Deferred income taxes..................................... 13.3 4.0 6.0
Other..................................................... 0.5 1.3 (0.5)
Changes in operating assets and liabilities:
Accounts receivable....................................... 26.6 9.2 (16.9)
Inventories............................................... 1.6 (12.4) (5.1)
Accounts payable and accrued expenses..................... (2.6) (19.0) 19.3
Income taxes and other current liabilities................ (11.6) (9.8) 3.0
Other non-current liabilities............................. (24.8) (16.7) (7.8)
------- ------- -------
Net cash provided by operating activities................... 167.5 127.8 175.8
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................................ (17.8) (20.6) (31.5)
Business combinations, net of cash acquired................. (130.8) (17.0) (18.8)
Other....................................................... 1.6 (14.9) (31.1)
------- ------- -------
Net cash used in investing activities....................... (147.0) (52.5) (81.4)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash paid to Great Lakes................................ (31.4) (103.0) (104.6)
Minority interest........................................... 3.3 7.1 4.8
------- ------- -------
Net cash used in financing activities....................... (28.1) (95.9) (99.8)
Effect of exchange rate changes on cash..................... (17.6) 21.1 (6.8)
------- ------- -------
Net change in cash and cash equivalents..................... (25.2) 0.5 (12.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 54.9 54.4 66.6
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 29.7 $ 54.9 $ 54.4
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 70
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BACKGROUND & BASIS OF PRESENTATION
Octel Corp. ("the Company") is a recently-formed Delaware corporation,
which prior to the Distribution was a wholly-owned subsidiary of Great Lakes
Chemical Corporation ("Great Lakes"). In July 1997, the Board of Directors
approved a plan to spin off the Company's petroleum additives business as an
independent, publicly owned company. The transaction will be effected through
the distribution of shares in the Company to the Great Lakes' stockholders and
is expected to be tax free to stockholders. The transaction is subject to the
receipt of a favorable tax ruling from the Internal Revenue Service, which was
received on March 13, 1998, and the final approval by the Great Lakes Board of
Directors of the structure and financing of the Company.
Prior to the Distribution, the Company anticipates that certain of its
subsidiaries will enter into a $300 million senior secured credit facility (the
"Credit Facility") and issue $150 million of Senior Notes due 2006 (the
"Notes"). The Credit Facility will consist of a $280 million senior secured term
loan and a $20 million senior secured revolving credit facility. The Credit
Facility will mature on December 31, 2001, with the term loan amortizing in
quarterly installments. The loans under the Credit Facility will bear interest
at LIBOR plus 1.75%, subject to adjustment under certain circumstances. The
Notes will mature in 2006. The Company is required to redeem $37.5 million
principal amount of Notes in each of 2003, 2004 and 2005. Both the Credit
Facility and the Notes will be guaranteed by the Company and will contain
substantial restrictions on the Company's operations. The proceeds of the
borrowings, along with cash available at the Distribution Date, will be used to
repay $116.8 million of intercompany loans and pay a special dividend to Great
Lakes of $350.9 million.
BASIS OF PRESENTATION
The combined financial statements reflect the assets, liabilities, revenues
and expenses of the Petroleum Additives Business Unit ("Petroleum Additives") of
Great Lakes, adjusted only for those parts of Petroleum Additives Business Unit
which are to remain part of Great Lakes after the Distribution. The financial
statements are prepared using the historical cost of Great Lakes.
The Company's combined statements of income include all material costs of
doing business including costs related to Great Lakes services. Charges for such
services are based on a number of factors including time and effort which
Management believes to be reasonable.
The Company has not presented historical earnings per share information
since it was not a separate operating company with a capital structure of its
own during the periods presented. Net income per share supplemental represents
the earnings per share of the Company based on the average number of shares of
Great Lakes Common Stock outstanding for each year at the distribution ratio of
one share of Octel Common Stock for every four shares of Great Lakes Common
Stock. Based on the preceding, the average shares outstanding amounted to 15.0
million, 15.9 million and 16.3 million for the years 1997, 1996 and 1995,
respectively.
The financial information included herein may not necessarily be indicative
of the financial position, results of operations or cash flows of the Company in
the future or the financial position, results of operations or cash flows that
would have been achieved if the Company had been a separate, independent company
during the periods presented.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a major manufacturer and distributor of TEL, Petroleum
Specialties and Performance Chemicals. Its primary manufacturing operation is
located at Ellesmere Port in the United Kingdom. The Company's products are sold
globally, primarily to oil refineries. Principal product lines are lead alkyl
antiknock compounds (TEL), other petroleum additives and performance chemicals.
F-6
<PAGE> 71
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PRINCIPLES OF COMBINATION
The combined financial statements include all subsidiaries of the Company
after elimination of significant intercompany accounts and transactions.
USE OF ESTIMATES
The preparation of the combined financial statements requires management to
make estimates and assumptions that affect the amount reported in the combined
financial statements and accompanying notes. Actual results could differ from
those estimates.
REVENUE RECOGNITION
Revenue from sales of products is recognized at the time products are
shipped to the customer or, in the case of bulk shipments, at the time of
delivery to the customer.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses various derivative instruments including forward contracts
and options to manage certain foreign currency exposures. These instruments are
entered into under the Company's corporate risk management policy to minimize
exposure and are not for speculative trading purposes. Management periodically
reviews the effectiveness of the use of the derivative instruments.
Derivatives used for hedging purposes must be designed as, and effective
as, a hedge of the identified risk exposure at the inception of the contract.
Accordingly, changes in the market value of the derivative contract must be
highly correlated with changes in the market value of the underlying hedged item
at inception of the hedge and over the life of the hedge contract. Any
derivative instrument designated but no longer effective as a hedge would be
reported at market value and the related gains and losses would be recognized in
earnings.
Derivatives that are designated as, and effective as, a hedge of firm
foreign currency commitments are accounted for using the deferral method. Gains
and losses from instruments that hedge firm commitments are deferred and
recognized as part of the economic basis of the transactions underlying the
commitments when the associated hedged transaction occurs. Gains and losses from
instruments that hedge foreign-currency-denominated receivables, payables and
debt instruments are reported in earnings and offset the effects of foreign
exchange gains and losses from the associated hedged items.
CASH EQUIVALENTS
Investment securities with maturities of three months or less when
purchased are considered to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (FIFO method) or market price.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets using the straight-line method.
GOODWILL
Goodwill, the excess of investment over net assets of subsidiaries
acquired, is amortized over periods of up to 40 years. The majority of the
goodwill relates to the TEL business and is being amortized over approximately
10 years, the expected remaining life of the business. The Company regularly
evaluates the realizability of goodwill based on projected undiscounted cash
flows and operating income for each business having material goodwill balances.
Based on its most recent analysis, the Company believes that no impairment of
goodwill exists at December 31, 1997.
F-7
<PAGE> 72
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental compliance costs include ongoing maintenance, monitoring and
similar costs. Such costs are expensed as incurred. Environmental remediation
costs are accrued when environmental assessments or remedial efforts are
probable and the cost can be reasonably estimated.
MINORITY INTEREST
Minority interest represents income before income taxes as earnings is
predominantly from a partnership; therefore, taxes are paid by each partner
individually.
NOTE 3 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable......................................... $170.7 $197.3
Less allowances............................................. 0.9 0.9
------ ------
$169.8 $196.4
====== ======
INVENTORIES
Finished goods.............................................. $ 35.7 $ 35.8
Work in progress............................................ 10.2 11.3
Raw materials and supplies.................................. 32.9 36.9
------ ------
$ 78.8 $ 84.0
====== ======
PROPERTY, PLANT AND EQUIPMENT
Land........................................................ $ 2.8 $ 3.0
Buildings................................................... 0.6 2.2
Equipment................................................... 101.0 117.1
Construction in progress (estimated additional cost to
complete at
December 31, 1997, $17.6)................................. 18.4 12.8
------ ------
122.8 135.1
Less accumulated depreciation............................... 16.8 21.7
------ ------
$106.0 $113.4
====== ======
The estimated useful lives for purposes of computing
depreciation are:
buildings, 7-25 years; equipment, 3-10 years.
GOODWILL
Goodwill.................................................... $496.9 $411.8
Less accumulated amortization............................... 117.6 92.8
------ ------
$379.3 $319.0
====== ======
OTHER ASSETS
Prepaid pension cost........................................ $ 63.3 $ 67.5
Other....................................................... 1.6 1.5
------ ------
$ 64.9 $ 69.0
====== ======
OTHER LIABILITIES
Provisions for estimated closure costs of TEL manufacturing
facilities................................................ $ 57.2 $ 90.3
====== ======
</TABLE>
F-8
<PAGE> 73
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The liability for estimated closure costs of Octel's TEL manufacturing
facilities includes costs for personnel reductions, decontamination and
environmental remediation activities when demand for TEL diminishes. Estimated
closing costs are regularly evaluated. Adjustments to the liability are prorated
over the estimated remaining life of the business in proportion to the expected
rate of the TEL market decline. Closure costs as of December 31, 1997 were
estimated to be approximately $124 million.
NOTE 4 -- ACQUISITIONS
The Company's 100% ownership interest in Octel Associates and the
Associated Octel Company Limited ("AOC") was acquired in three transactions. The
Company acquired a 51.15% interest in 1989, a further 36.67% interest in 1992,
with the balance acquired in 1997. The 1989 acquisition agreement provides for
profit participation payments to be made to certain former owners through 2006.
Such profit participation payments are treated as an adjustment to the purchase
price. Profit participation payments for 1997 amounted to $14 million. In 1997
the Company completed the determination of the profit participation payments for
the years 1989 through 1995 resulting in an addition to purchase price of
approximately $30 million. Total profit participation payments amount to
approximately $230 million since inception. On November 20, 1997, the Company
completed the acquisition of the outstanding minority interest in the Company's
subsidiaries previously owned by Chevron Chemical Company for $116.8 million.
The excess of purchase price over the value of net assets acquired totaled
approximately $81 million and this amount has been added to goodwill and is to
be amortized over a ten year period with effect from January 1, 1998.
On October 31, 1997, the Company acquired certain fractional interests in
the Company's subsidiaries held by British Petroleum, plc., Texaco, Inc. and
Mobil Corporation for a nominal amount.
All acquisitions have been accounted for as purchases and the results of
operations of the acquired businesses are included in the combined financial
statements from the dates of acquisition. The unaudited pro forma net income for
1997 and 1996, as if the Chevron acquisition had occurred at the beginning of
the respective year would have been $123.8 million and $137.9 million
respectively. The pro forma results do not represent the Company's actual
operating results had the acquisition been made at the beginning of the
respective years, or the results which may be expected in future.
NOTE 5 -- INCOME TAXES
The following is a summary of domestic and foreign income before income
taxes, the components of the provisions for income taxes and deferred income
taxes, a reconciliation of the U.S. statutory income tax rate to the effective
income tax rate, and the components of deferred tax assets and liabilities.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES:
Domestic........................................... $ (1.2) $ 1.7 $ (0.6)
Foreign............................................ 175.6 190.4 217.4
------ ------ ------
$174.4 $192.1 $216.8
====== ====== ======
</TABLE>
F-9
<PAGE> 74
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
PROVISIONS FOR INCOME TAXES:
Current:
Federal.......................................... $ 0.1 $ 0.1 $ --
Foreign.......................................... 43.3 59.6 65.7
------ ------ ------
43.4 59.7 65.7
Deferred:
Domestic......................................... -- 0.4 0.3
Foreign.......................................... 13.3 3.7 5.7
------ ------ ------
13.3 4.1 6.0
------ ------ ------
$ 56.7 $ 63.8 $ 71.7
====== ====== ======
PROVISIONS (CREDITS) FOR DEFERRED INCOME TAXES:
Pension costs...................................... $ (3.7) $ 1.5 $ 2.0
Amortization of goodwill........................... 0.9 0.8 1.1
Plant closure costs................................ 12.1 1.2 3.2
Other.............................................. 4.0 0.6 (0.3)
------ ------ ------
$ 13.3 $ 4.1 $ 6.0
====== ====== ======
EFFECTIVE INCOME TAX RATE RECONCILIATION:
U.S. statutory income tax rate..................... 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
Foreign tax rate differential.................... (3.5) (2.9) (1.4)
Amortization of goodwill......................... 2.1 1.3 (0.3)
Other............................................ (1.1) (0.2) (0.2)
------ ------ ------
Effective income tax rate.......................... 32.5% 33.2% 33.1%
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES:
Deferred tax assets -- closure costs........................ $17.7 $29.8
----- -----
Deferred tax liabilities:
Pension costs............................................. $18.6 $22.3
Amortization of goodwill.................................. 4.1 3.2
Other..................................................... 15.1 11.8
----- -----
Total................................................ $37.8 $37.3
===== =====
</TABLE>
Cash payments for income taxes were $62.0 million, $58.0 million and $69.0
million in 1997, 1996 and 1995, respectively.
F-10
<PAGE> 75
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- GREAT LAKES INVESTMENT
Changes in Great Lakes Investment during each of the years ended December
31 were as follows:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
BALANCE AT DECEMBER 31, 1994................................ $488.4
Net income................................................ 145.1
Net amount paid to GLCC including exchange effect of
$7.9................................................... (96.7)
Net change in cumulative translation...................... (6.0)
------
BALANCE AT DECEMBER 31, 1995................................ 530.8
Net income................................................ 128.3
Net amount paid to GLCC including exchange effect of
$0.7................................................... (102.3)
Net change in cumulative translation...................... 27.8
------
BALANCE AT DECEMBER 31, 1996................................ 584.6
Net income................................................ 117.7
Net amount paid to GLCC including exchange effect of
$0.4................................................... (31.0)
Net change in cumulative translation...................... (18.5)
------
BALANCE AT DECEMBER 31, 1997................................ $652.8
======
</TABLE>
The net amount of $31.0 million paid to Great Lakes in 1997 includes the
receipt of a short term loan from Great Lakes of $116.8 million used to fund the
acquisition of the Chevron interest described in Note 4: Acquisitions.
F-11
<PAGE> 76
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
The Company's operations consist of one dominant industry segment:
petroleum additives. Net sales, income before income taxes and minority interest
and identifiable assets by geographic areas are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS (BY ORIGIN):
United States......................................... $ 32.1 $ 36.3 $ 33.9
United Kingdom........................................ 441.1 477.5 484.9
Rest of Europe........................................ 65.9 83.6 109.5
------ ------ ------
Total............................................ $539.1 $597.4 $628.3
====== ====== ======
INTERCOMPANY SALES BETWEEN GEOGRAPHIC AREAS:
United States......................................... $ 6.9 $ 7.3 $ 7.3
United Kingdom........................................ 71.1 49.8 53.9
Rest of Europe........................................ 37.6 54.9 72.2
------ ------ ------
Total............................................ $115.6 $112.0 $133.4
====== ====== ======
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY
INTEREST:
United States......................................... $ (1.2) $ 1.7 $ (0.6)
United Kingdom........................................ 198.1 208.3 222.7
Rest of Europe........................................ 1.8 11.7 27.0
------ ------ ------
Total............................................ $198.7 $221.7 $249.1
====== ====== ======
IDENTIFIABLE ASSETS AT YEAR-END:
United States......................................... $ 30.8 $ 34.8 $ 31.0
United Kingdom........................................ 741.2 717.3 663.0
Rest of Europe........................................ 60.9 88.9 104.4
------ ------ ------
Total............................................ $832.9 $841.0 $798.4
====== ====== ======
</TABLE>
The majority of the Company's operations are conducted by its U.K.
enterprises. Sales are reported in the geographic area where the transaction
originates, rather than where the final sale to customers is made. Inter-
company sales are priced to recover cost plus an appropriate mark-up for profit
and are eliminated in the combined financial statements.
NOTE 8 -- RETIREMENT PLANS
The Company maintains a contributory defined benefit pension plan (the
"Octel Pension Plan") covering substantially all U.K. employees. Benefits are
based on final salary and years of credited service, reduced by social security
benefits according to a plan formula. Normal retirement age is 65, but
provisions are made for early retirement. The Company's funding policy is to
contribute amounts to the plans to cover service costs to date as recommended by
the Company's actuary. The plan's assets are invested by two investment
management companies in funds holding U.K. and overseas equities, U.K. and
overseas fixed interest securities, index linked securities, property unit
trusts and cash or cash equivalents.
F-12
<PAGE> 77
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the components of net periodic pension cost for the U.K.
pension plan is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost...................................... $ 13.4 $ 12.0 $ 10.9
Interest cost on projected benefit obligation..... 39.7 35.2 33.5
Actual return on plan assets...................... (103.4) (60.6) (66.3)
Net amortization and deferral..................... 50.8 14.1 23.6
------- ------ ------
Net pension cost.................................. $ 0.5 $ 0.7 $ 1.7
======= ====== ======
</TABLE>
The funded status and prepaid pension cost for the U.K. pension plan is as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
---------------------------------
1997 1996 1995
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Actuarial present value of accumulated plan
benefits, all vested.......................... $ 455.8 $ 446.1 $ 368.9
Additional amounts related to projected salary
increases..................................... 38.8 49.5 38.6
------- ------- -------
Total projected benefit obligation.............. 494.6 495.6 407.5
Plan assets at fair value....................... 708.2 644.2 525.5
------- ------- -------
Plan assets in excess of projected benefit
obligation.................................... 213.6 148.6 118.0
Unrecognized net gain........................... (151.3) (83.2) (69.1)
Unrecognized prior service cost................. 8.0 9.6 9.4
------- ------- -------
Prepaid pension cost............................ 70.3 75.0 58.3
Estimated transfer.............................. (7.0) (7.5) (5.8)
------- ------- -------
$ 63.3 $ 67.5 $ 52.5
======= ======= =======
</TABLE>
The estimated transfer represents prepaid pension cost attributable to
employees who participate in the Octel retirement plans that will remain with
Great Lakes. Final determination of the transfer is subject to, among other
things, a final actuarial evaluation and election of the employee.
Assumptions used in determining the actuarial present value of the
projected benefit obligations are set forth below. Assumptions used in 1997 are
consistent with the prior year. The weighted average discount rate, rate of
increase in compensation levels and expected long-term return on assets were
assumed to be 7.75%, 5.5% and 8.5%, respectively.
NOTE 9 -- EMPLOYEE STOCK PLANS
In October 1995, the Financial Accounting Standards Board issued
"Accounting for Stock-Based Compensation" (SFAS 123). The statement is effective
for fiscal years beginning after December 1995. Under SFAS 123, stock-based
compensation expense is measured using either the intrinsic-value method as
prescribed by Accounting Principle Board Opinion No. 25 (APB 25) or the
fair-value method described in SFAS 123. The Company intends to follow APB 25.
Prior to the Distribution, certain employees of the Company participated in
the Great Lakes 1984 Employee Stock Option Plan and the Great Lakes 1993
Employee Stock Compensation Plan which cover officers and key employees of Great
Lakes. The Company intends to grant to its employees who would otherwise have
been eligible to receive grants under such plans, restricted stock units under
the Stock Plan of the Company, which is to be approved by Great Lakes, as the
sole stockholder of the Company, prior to Distribution.
It is anticipated that the Octel Corp. 1998 Stock Compensation Plan, when
approved, will provide for the grant of various types of equity-based
compensation to key employees and non-employee directors of the Company. The
total number of shares of the Company's common stock that may be issued or
awarded will not exceed 1,175,000, subject to adjustment. Awards granted under
the plan are expected to be at market value at
F-13
<PAGE> 78
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the date of grant, become exercisable over three years from date of grant and
expire ten years from date of grant.
NOTE 10 -- FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK
The carrying amounts of cash and cash equivalents reported in the balance
sheet do not materially differ from their fair value at December 31, 1997.
The Company hedges certain portions of its exposure to foreign currency
fluctuations in revenues through the use of forward exchange contracts. The
Company invoices between 50% and 60% of its sales in U.S. dollars; the balance
of the Company's billing is invoiced in pound sterling in an effort to match the
Company's pound sterling costs. Foreign exchange contracts are taken out with
both Great Lakes and, prior to November 20, 1997, Chevron Chemical Company to
hedge the dollar income and thereby hedge the quarterly dollar profit
distributions made to both parties. At December 31, 1997 and 1996, open foreign
exchange contracts totaled $53.4 million and $55.3 million, respectively. If
valued at year-end rates of exchange, the contracts would have been valued at
$53.5 million and $57.3 million respectively. Gains and losses arising from the
use of such instruments are recorded in the income statement concurrently with
gains and losses arising from the underlying hedged transactions.
In October 1997, the Company entered into interest rate swaps to fix a
portion of the interest rate relative to the Notes. The notional amount of the
debt to which the interest rate swaps apply is $125 million. The notional amount
of the agreements are used to measure interest to be paid or received and do not
represent an exposure to the Company. For interest rate instruments that
effectively hedge interest rate exposures the net cash paid or received on the
agreements are accrued and recognized as an adjustment to interest expense over
the term of the loan. If the contracts were closed at December 31, 1997, the
Company would incur a cash cost of about $2.8 million.
The Company sells a range of petroleum additives, including significant
quantities of TEL, to major oil refineries throughout the world. Significant
sales of TEL are also made to Ethyl Corporation on wholesale terms, and in 1997
these accounted for 11.4% of net revenues. At December 31, 1997 amounts owing by
Ethyl Corporation to the Company were less than 5% of accounts receivable.
Credit limits, ongoing credit evaluation and account monitoring procedures are
utilized to minimize the risk of loss. Generally, collateral is not required.
Approximately 60% of the Company's labor force are covered by a collective
bargaining agreement, which expires on January 1, 2000.
NOTE 11 -- RELATED PARTY TRANSACTIONS
The Company sells significant quantities of TEL to refineries wholly or
partially owned by British Petroleum, plc., Texaco Inc. and Mobil Corporation
(the Vendor Partners) and Chevron Chemical Company, who ceased to be related
parties on October 31, 1997 and November 20, 1997, respectively. Such sales are
made at arm's length and at prices which vary according to individual customers
and the markets in which they operate. In the years 1997, 1996 and 1995 such
sales amounted to $80.2 million, $94.7 million and $116.2 million respectively.
Amounts due in respect of these sales amounted to $26.3 million and $35.0
million at December 31, 1997 and December 31, 1996, respectively.
Sales of product between the Company and Great Lakes are reported in the
financial statements at estimated market value. In the years 1997, 1996 and 1995
the value of sales from the Company to Great Lakes amounted to $7.4 million,
$6.4 million and $5.8 million, respectively, and the value of purchases by the
Company from Great Lakes amounted to $18.5 million, $15.7 million and $12.1
million respectively.
Interest charges from Great Lakes in respect of funding provided for
acquisitions amounted to $2.1 million, $1.5 million and $9.9 million in the
years 1997, 1996 and 1995, respectively. At December 31, 1997, the balance owing
to Great Lakes was $141.2 million.
F-14
<PAGE> 79
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- FUTURE ACCOUNTING CHANGES
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
The statement must be adopted in the first quarter of 1998. Under provisions of
this statement, the Company will be required to change the financial statement
presentation of comprehensive income and its components to conform to these new
requirements. As a consequence of this change, certain reclassifications will be
necessary for previously reported amounts to achieve the required presentation
of comprehensive income.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. Under provisions of this statement, the
Company will be required to provide financial statement disclosures for
operating segments, products and services, and geographic areas beginning in
1998.
In December 1997, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," was issued and is effective for the Company's
1998 fiscal year. The statement revises current disclosure requirements for
employers' pension and other retiree benefits.
Implementation of these disclosure standards will not affect the Company's
financial position or results of operations.
F-15
<PAGE> 80
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
OCTEL CORP.
By: /s/ DENNIS J. KERRISON
------------------------------------
Name: Dennis J. Kerrison
Title: President and Chief Executive
Officer
May 4, 1998
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Form of Transfer and Distribution Agreement, dated as of
April 24, 1998, between Great Lakes Chemical Corporation
("Great Lakes") and the Registrant.
3.1* Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Form of Common Stock Certificate
4.2* Form of Rights Agreement between the Registrant and First
Chicago Trust Company of New York, as Rights Agent.
4.3* Form of Certificate of Designations, Rights and Preferences
of Series A Junior Participating Preferred Stock of the
Registrant (included as Exhibit A to Exhibit 4.2 hereof).
10.1 Form of Tax Disaffiliation Agreement between Great Lakes and
the Registrant.
10.2* Form of Corporate Services Transition Agreement between
Great Lakes and the Registrant.
10.3* Form of Supply Agreement between Great Lakes and the
Registrant for the supply of ethylene dibromide.
10.4* Form of Supply Agreement between Great Lakes and the
Registrant for the Supply of anhydious hydrogen bromide.
10.5* Form of Supply Agreement for the Supply of 10% sodium
hydroxide solution.
10.6 Intentionally left blank.
10.7 Intentionally left blank.
10.8* Form of Employment Agreement between Associated Octel
Limited and Steve W. Williams, Geoff J. Hignett, Graham M.
Leathes and Robert A. Lee.
10.9* Form of Employment Agreement between Associated Octel
Limited and Dennis J. Kerrison.
10.10* Form of Agreement between Great Lakes and the Registrant for
the Toll Manufacture of Stadis Product.
10.11 Octel Corp. Time Restricted Share Plan.
10.12 Octel Corp. Performance Related Stock Awards Scheme.
10.13 Octel Corp. Savings-Related Share Option Plan.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Ernst & Young LLP, Independent Auditors
27.1* Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed.
<PAGE> 1
Exhibit 2.1
- -------------------------------------------------------------------------------
TRANSFER AND DISTRIBUTION AGREEMENT
Dated as of April 24, 1998
between
GREAT LAKES CHEMICAL CORPORATION
and
OCTEL CORP.
- -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.1 General..................................................................... 3
ARTICLE II
REORGANIZATION AND RELATED TRANSACTIONS
Section 2.1 The Reorganization.......................................................... 17
Section 2.2 Assumption of Certain Liabilities; Issuance of Octel Common Stock........... 19
Section 2.3 Foreign Exchange Rates...................................................... 19
Section 2.4 Great Lakes Approval........................................................ 19
ARTICLE III
ASSUMPTION AND RETENTION OF LIABILITIES
Section 3.1 Assumed Liabilities......................................................... 20
Section 3.2 Retained Liabilities........................................................ 20
ARTICLE IV
THE DISTRIBUTION
Section 4.1 The Distribution............................................................ 20
Section 4.2 Fractional Shares........................................................... 21
Section 4.3 Actions by Great Lakes Board and Octel Board................................ 21
ARTICLE V
INDEMNIFICATION, CLAIMS AND OTHER MATTERS
Section 5.1 Release and Indemnification................................................. 22
Section 5.2 Procedure for Indemnification............................................... 24
Section 5.3 Indemnifiable Losses under Sections 5.1(b)(ii) and 5.1(c)(ii)............... 27
Section 5.4 Indemnifiable Losses under Sections 5.1(b)(iii), 5.1(b)(v), 5.1(c)(iii) and
5.1(c)(iv)(B)............................................................... 27
Section 5.5 No Beneficiaries............................................................ 28
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 5.6 Named Parties.............................................................. 28
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.1 Conveyancing and Assumption Instruments.................................... 28
Section 6.2 Representations or Warranties.............................................. 28
Section 6.3 Further Assurances; Subsequent Transfers................................... 33
Section 6.4 Octel Officers and Directors............................................... 37
Section 6.5 Resignations............................................................... 37
Section 6.6 Certain Intercompany Arrangements.......................................... 37
Section 6.7 Related Agreements......................................................... 37
Section 6.8 Signs; Use of Corporate Names.............................................. 37
Section 6.9 Supplies and Documents..................................................... 38
Section 6.10 Letters of Credit.......................................................... 39
Section 6.11 Partnership Agreement..................................................... 39
Section 6.12 DBE Storage Tank........................................................... 39
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.1 Provision of Corporate Records............................................. 40
Section 7.2 Access to Information...................................................... 41
Section 7.3 Production of Witnesses and Individuals.................................... 41
Section 7.4 Retention of Records....................................................... 41
Section 7.5 Confidentiality............................................................ 42
Section 7.6 Privileged Matters......................................................... 44
Section 7.7 Mail and Other Communications.............................................. 46
ARTICLE VIII
EMPLOYEE MATTERS AND BENEFITS
Section 8.1 Benefit Plans.............................................................. 46
Section 8.2 Assumption of Benefit Plans................................................ 46
Section 8.3 Service Credit............................................................. 47
Section 8.4 Transfer and Vesting of Savings Plan Balances; Vesting
of Pension Plan Benefits................................................... 47
Section 8.5 Certain Transfers from U.K. Pension Plans.................................. 48
Section 8.6 Transferred Octel Employees................................................ 49
</TABLE>
iii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IX
ENVIRONMENTAL MATTERS
Section 9.1 Octel Responsibility....................................................... 51
Section 9.2 Great Lakes Responsibility................................................. 52
ARTICLE X
INSURANCE
Section 10.1 General.................................................................... 52
Section 10.2 Octel's Insurance.......................................................... 53
Section 10.3 Access to Great Lakes' Insurance Program................................... 55
Section 10.4 Insurance Recoveries....................................................... 56
Section 10.5 Assignment................................................................. 58
ARTICLE XI
DISPUTE RESOLUTION
Section 11.1 Mediation and Binding Arbitration.......................................... 58
Section 11.2 Initiation................................................................. 58
Section 11.3 Submission to Mediation.................................................... 59
Section 11.4 Selection of Mediator...................................................... 59
Section 11.5 Mediation and Arbitration.................................................. 59
Section 11.6 Selection of Arbitrator.................................................... 59
Section 11.7 Cost of Arbitration........................................................ 59
Section 11.8 Arbitration Period......................................................... 60
Section 11.9 Treatment of Negotiation and Mediation..................................... 60
Section 11.10 Confidentiality............................................................ 60
Section 11.11 Equitable Relief........................................................... 60
Section 11.12 Notices.................................................................... 60
Section 11.13 Consolidation.............................................................. 60
Section 11.14 Powers of Arbitrator....................................................... 60
</TABLE>
iv
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE XII
MISCELLANEOUS
Section 12.1 Complete Agreement.......................................................... 61
Section 12.2 Expenses.................................................................... 61
Section 12.3 Governing Law............................................................... 63
Section 12.4 Notices..................................................................... 63
Section 12.5 Amendment and Modification.................................................. 64
Section 12.6 Termination................................................................. 64
Section 12.7 Successors and Assigns...................................................... 64
Section 12.8 No Third Party Beneficiaries................................................ 65
Section 12.9 Counterparts................................................................ 65
Section 12.10 Interpretation.............................................................. 65
Section 12.11 Annexes, Etc................................................................ 65
Section 12.12 Construction of Agreements.................................................. 66
Section 12.13 Legal Enforceability........................................................ 66
Section 12.14 Survival.................................................................... 66
Section 12.15 Guaranty........................................................ ........... 66
</TABLE>
v
<PAGE> 6
Annexes:
ANNEX I Assumed Liabilities
ANNEX II Transferred Assets
ANNEX III Excluded Assets
Exhibits:
Exhibit A - Corporate Services Transition Agreement
Exhibit B - Joint Representation and Defense Agreement
Exhibit C - Tax Disaffiliation Agreement
Exhibit D - Supply Agreements
Exhibit E - Ellesmere Port Lease Agreement
Exhibit F - Toll Manufacturing Agreement
Schedules:
Schedule 1.1A - Transferred Businesses
Schedule 1.1B - Transferred Great Lakes Employees
Schedule 1.1C - Transferred Octel Employees
Schedule 5.1(b) - Great Lakes Information in Information Statement
Schedule 6.2 - Great Lakes Intellectual Property
Schedule 8.1 - Benefit Plans
Schedule 8.5 - Pension Schedule
vi
<PAGE> 7
TRANSFER AND DISTRIBUTION AGREEMENT
TRANSFER AND DISTRIBUTION AGREEMENT, dated as of April 24, 1998,
by and between Great Lakes Chemical Corporation, a Delaware corporation ("Great
Lakes"), and Octel Corp., a Delaware corporation and a wholly-owned direct
subsidiary of Great Lakes ("Octel").
RECITALS
WHEREAS, Great Lakes has, among other endeavors, been engaged,
through its subsidiaries, in the research, manufacturing and marketing of
products in the lead alkyls business (the "Lead Alkyls Business"), petroleum
specialties business (the "Petroleum Specialties Business") and performance
chemicals business (the "Performance Chemicals Business") (which businesses
shall collectively include, but not be limited to, the current and former plants
and facilities set forth on Schedule 1.1A hereto and shall specifically exclude
the Excluded Assets (as hereinafter defined) (such Lead Alkyls Business,
Petroleum Specialties Business and Performance Chemicals Business to be
collectively hereinafter referred to as the "Transferred Businesses"));
WHEREAS, the Board of Directors of Great Lakes has determined
that the interests of Great Lakes' businesses and shareholders would be best
served by separating its businesses into two separate companies, one consisting
of the Transferred Businesses and the other consisting of (i) the Excluded
Assets and (ii) Great Lakes' businesses other than the Lead Alkyls Business, the
Petroleum Specialties Business and the Performance Chemicals Business (such
other businesses of Great Lakes as referred to in this clause (ii) to be
collectively referred to herein as the "Non-Transferred Businesses");
WHEREAS, in furtherance of the foregoing, Great Lakes wishes to
transfer and assign to Octel all of the assets and properties of the Transferred
Businesses specified in this Agreement in exchange for (a) the assumption by
Octel of all of the Liabilities and obligations of Great Lakes and any Great
Lakes Entity (as defined herein), relating to, arising out of, or incurred in
connection with (i) the acquisition on or prior to the Distribution Date of all,
or any portion of, the Transferred Businesses and the Transferred Assets,
including, without limitation, any Liabilities or obligations arising under the
agreements listed on Annex I, Schedule 1, (ii) the operational or structural
documents relating to the Transferred Businesses or
<PAGE> 8
Transferred Assets (whether such Liabilities and obligations relate to Great
Lakes or any Great Lakes Entity as partner, shareholder or otherwise),
including, without limitation, the documents listed on Annex I, Schedule 3;
(iii) the ownership or operation of the Transferred Businesses or the
Transferred Assets before, on or after the Distribution Date and (iv) the Octel
Liabilities (as hereinafter defined), (b) the assignment to Great Lakes by Octel
of all of Octel's right, title and interest in and to the Excluded Businesses
and the Excluded Assets and (c) the issuance to Great Lakes by Octel of shares
of its common stock, par value $.01 per share (the "Octel Common Stock");
WHEREAS, in exchange for the transfers by Octel of the Excluded
Businesses and the Excluded Assets, Great Lakes shall assume all Liabilities and
obligations relating to, arising out of or incurred in connection with the
operation of the Excluded Assets or the Excluded Businesses, other than the
Octel Liabilities;
WHEREAS, Octel is willing to assign the Excluded Businesses and
the Excluded Assets, assume the aforementioned Liabilities and obligations and
issue the shares of Octel Common Stock to Great Lakes in exchange for the assets
and properties of the Transferred Businesses and the assumption by Great Lakes
of the aforementioned Liabilities and obligations;
WHEREAS, Great Lakes intends to distribute all of the outstanding
shares of Octel Common Stock, on a pro rata basis, to the holders of the common
stock of Great Lakes, par value $1.00 per share (the "Great Lakes Common Stock")
(such distribution of Octel Common Stock hereinafter referred to as the
"Distribution"); and
WHEREAS, Great Lakes and Octel have determined that it is
necessary and desirable to set forth the principal corporate transactions
required to effect the Distribution and to set forth other agreements that shall
govern certain other matters in connection with the Distribution.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, Great Lakes and Octel hereby agree as follows:
2
<PAGE> 9
ARTICLE I
DEFINITIONS
Section 1.1 General. As used in this Agreement, capitalized terms
defined immediately after their use shall have the respective meanings thereby
provided and the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
Action: any action, claim, suit, arbitration, inquiry, subpoena,
discovery request, proceeding or investigation by or before any court or grand
jury, any governmental or other regulatory or administrative agency or
commission or any arbitration tribunal.
Adjusted Guaranteed Amount: shall have the meaning set forth in
Schedule 8.5 hereof.
Affiliate: with respect to any specified person, a person that,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such specified person; provided,
however, that Great Lakes and Octel shall not be deemed to be Affiliates of each
other for purposes of this Agreement.
Agent: First Chicago Trust Company of New York, the distribution
agent appointed by Great Lakes to distribute shares of Octel Common Stock
pursuant to the Distribution.
Asset and Liability Transfer: shall have the meaning set forth in
Section 2.1(a) hereof.
Assumed Environmental Liabilities: all actual or alleged
Liabilities and obligations (regardless of whether any claims with respect to
such Liabilities and obligations are asserted prior to, on or after the
Distribution Date) relating to Environmental Matters or arising under any
Environmental Laws (including all claims for death, bodily injury, personal
injury and property damage relating to Environmental Matters or arising under
any Environmental Laws) which relate to, arise out of or are incurred in
connection with:
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(i) the activities, operations, acts or omissions
at, from or with respect to the Transferred Businesses or the
Transferred Assets before, on or after the Distribution Date;
(ii) Remediation of any Release arising out of or
resulting from activities, operations, acts or omissions at, from or
with respect to the Transferred Businesses or the Transferred Assets
before, on or after the Distribution Date wherever such Remediation may
be performed; and
(iii) after the Distribution Date, any activities,
operations, acts or omissions at, from or with respect to any
businesses of Octel or its Affiliates, including, but not limited to,
the Transferred Businesses or the Transferred Assets.
Assumed Liabilities: collectively, all of the actual or alleged
Liabilities and other obligations (regardless of whether any claims with
respect to such Liabilities and obligations are asserted prior to, on or after
the Distribution Date) which relate to, arise out of, or are incurred in
connection with (i) the acquisition by Great Lakes or any Great Lakes Entity on
or prior to the Distribution Date of all, or any portion, of an interest in
Octel Corp., Octel Associates, The Associated Octel Company Limited, Octel
America, Inc. and any other corporation, partnership or other entity that is or
was engaged in the Transferred Businesses, including, without limitation, any
Liabilities or obligations under the agreements listed on Annex I, Schedule 1,
(ii) the ownership, operation or use of the Transferred Businesses or the
Transferred Assets prior to, on or after the Distribution Date, including,
without limitation, any Liabilities or obligations arising under the agreements
listed on Annex I, Schedule 2, (iii) the Octel Liabilities, (iv) (A) the
formation, structure and operation of The Associated Octel Company Limited or
Octel Associates or (B) the status of, or conduct of the businesses by Great
Lakes or any Great Lakes Entity, as an owner, shareholder or partner (other than
if Great Lakes or any of its Affiliates becomes an owner, shareholder or partner
following the Distribution Date), as the case may be, of The Associated Octel
Company Limited or Octel Associates, including, without limitation, any
Liabilities and obligations arising under or relating to the agreements set
forth on Annex I, Schedule 3, (v) the Assumed Environmental Liabilities and
Product Liabilities, (vi) Octel's or its Affiliates' operations and activities
after the Distribution Date in the conduct of its businesses, including but not
limited to the Transferred Businesses and (vii) (A) the acquisition, ownership,
operation, divestiture or sale of Societe Mediterraneene du Brome, S.A. by Great
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<PAGE> 11
Lakes or any Great Lakes Entity on or prior to the Distribution Date or (B) the
status of, or conduct of the business by Great Lakes or any Great Lakes Entity
as owner, shareholder or partner (other than if Great Lakes or any of its
Affiliates becomes an owner, shareholder or partner following the Distribution
Date), as the case may be, of Societe Mediterraneene du Brome, S.A. The term
"Assumed Liabilities" shall be deemed to include, but shall not be limited to,
the Liabilities listed on Annex I hereto.
Benefit Plans: shall have the meaning set forth in Section 8.1
hereof.
Bids, Quotations and Proposals: the bids, quotations or proposals
which have been submitted or made by the Transferred Businesses or Great Lakes
or any Great Lakes Entity on behalf of the Transferred Businesses which are
outstanding as of the Distribution Date.
Code: the Internal Revenue Code of 1986, as amended.
Confidential Information: shall have the meaning set forth in
Section 7.5(b) hereof.
Conveyancing and Assumption Instruments: collectively, the
various agreements, instruments and other documents to be entered into to effect
(i) the transfer to Octel of the Transferred Businesses and the Transferred
Assets, (ii) the assumption by Octel of the Assumed Liabilities and (iii) the
transfer to Great Lakes of the Excluded Businesses and the Excluded Assets, all
in the manner contemplated by this Agreement.
Corporate Services Transition Agreement: the Corporate Services
Transition Agreement, substantially in the form set forth as Exhibit A hereto,
pursuant to which Octel or its Affiliates shall provide to Great Lakes or its
Affiliates certain corporate services specified therein.
DBE Lease: the agreement referred to as such in clause (e) of
Annex III.
DBE Storage Tank: shall have the meaning set forth in Section
6.12 hereof.
Dispute: shall have the meaning set forth in Section 11.1
hereof.
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Distribution: the distribution as a dividend to holders of Great
Lakes Common Stock of Octel Common Stock on the basis provided in Section 4.1
hereof, which shall be effective on the date specified for the dividend by the
Great Lakes Board of Directors.
Distribution Date: the date as of which the Distribution shall be
effected as determined by the Great Lakes Board of Directors.
Ellesmere Port Lease Agreement: the agreement, substantially in
the form of Exhibit E hereto, which may be entered into by Great Lakes or any of
its Affiliates as lessee and Octel or any of its Affiliates as lessor with
respect to the leasing of certain office space located at Ellesmere Port, United
Kingdom.
Environmental Law: any international (e.g., European Union),
national, state, provincial, regional and local statute, ordinance, rule,
regulation, any principle established by decisional law, any judicial or
administrative order, any judicial or administrative consent decree or judgment,
and all provisions and conditions of permits, licenses and other operating
authorizations, as any of the foregoing are in effect at any time (whether prior
to, on or after the Distribution Date) and as they may be amended from time to
time, relating to: (a) pollution or protection of the environment, including
natural resources, disposal of toxic, hazardous, or other waste, atmospheric
emissions and discharge and treatment of stormwater or sanitary and industrial
wastewater, (b) human health and safety, including exposure of persons,
including employees, to toxic, hazardous or dangerous materials or substances,
(c) protection of the public health or welfare from the effect of by-products,
wastes, emissions, discharges or releases of any chemical or other substances
from industrial or commercial activities or (d) regulation of the manufacture,
use or introduction into commerce of chemical or other substances, including,
without limitation, their manufacture, importation, exportation, formulation,
labeling, distribution, transportation, handling, storage, treatment, recycling,
removal and disposal.
Environmental Matters: all matters relating in any way to (a)
soil, air and water and groundwater pollution or contamination, including
without limitation, any on-site or off-site pollution or contamination; (b)
damages to the natural environment or natural resources; (c) Releases or
discharges of wastes, Hazardous Materials, or pollutants or contaminants; (c)
occupational health and safety; or (d) the generation, transport, storage,
recycling or disposal of Hazardous Materials or wastes (including, without
limitation, garbage, refuse, slag, sludge and other dis-
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carded materials, whether solid, liquid, semisolid or gaseous and whether
on-site or off-site).
ERISA: shall have the meaning set forth in Section 8.1(b)
hereof.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Excluded Assets: collectively, all of the assets and properties
identified on Annex III hereto.
Excluded Bids, Quotations and Proposals: the bids, quotations or
proposals which have been included as part of the Excluded Assets, or which have
been submitted or made in connection with the operations and business of the
Excluded Assets or the Excluded Businesses, which are outstanding as of the
Distribution Date.
Excluded Books and Records: the books and records of Great Lakes
or any Great Lakes Entity (or true and complete copies thereof) as of the
Distribution Date, including all computerized books and records, which relate
principally to the Excluded Businesses and the Excluded Assets, including,
without limitation, all such books and records relating to (i) technical and
research and development information, (ii) the Transferred Octel Employees,
(iii) the purchase of materials, supplies and services for and to the Excluded
Assets or the Excluded Businesses, (iv) the manufacture and sale of products by
the Excluded Businesses and (v) dealings with customers of the Excluded
Businesses.
Excluded Businesses: collectively, all of the assets and
properties referred to as such on Annex III hereto.
Financings: shall have the meaning set forth in the Form 10.
First Party: shall have the meaning set forth in Section 7.5(b)
hereof.
Form 10: the registration statement on Form 10, as amended, filed
by Octel with the SEC to effect the registration of the Octel Common Stock
pursuant to the Exchange Act, including the Information Statement contained
therein.
Fuel Detergent Plant: the real property and personal property
acquired by Great Lakes or any Great Lakes Entity pursuant to that certain
Asset Sale
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Agreement, made November 20, 1991, between Shell U.K. Limited, GHC Properties,
Inc., The Associated Octel Company Limited and Associated Octel Company (Plant)
Limited, and all other transactions, contracts, agreements, deeds, assignments
and undertakings entered into pursuant thereto.
Great Lakes Common Stock: the common stock referred to as such in
the Recitals.
Great Lakes Entity: Great Lakes and Octel and any foreign or
domestic predecessor, subsidiary, division, affiliate, joint venture,
partnership or associated company of Great Lakes and Octel including, without
limitation, The Associated Octel Company Limited, Octel Associates, Octel
America, Inc., the Transferred Business and the Excluded Business and any
foreign or domestic predecessor, subsidiary, division, affiliate, joint venture,
partnership or associated company thereof, whether or not any of the
aforementioned entities were sold, terminated, liquidated, closed or dissolved
before, on or after the Distribution Date.
Great Lakes Product: (i) any goods manufactured, processed, sold
or distributed on or before the Distribution Date by the Excluded Business or
utilizing the Excluded Assets; (ii) any goods manufactured, processed, sold or
distributed on or before the Distribution Date by the Non-Transferred Businesses
and (iii) any goods manufactured, processed, sold or distributed after the
Distribution Date by Great Lakes or its Affiliates.
Great Lakes Product Liability: any actual or alleged Liability of
Great Lakes or any Great Lakes Entity to third parties (regardless of whether
any claim with respect to such Liability is asserted prior to, on or after the
Distribution Date) arising from or relating to the transportation, handling,
possession, processing, treatment, storage, disposal, manufacture, further
manufacture, use, reuse, sale or resale of the Great Lakes Products, including
all such Liability for personal injury, bodily injury (including death or
aggravation of previously existing illness, injury, disability or condition) or
property damages, provided, however, the Octel Liabilities shall not constitute
Great Lakes Product Liabilities.
Great Lakes Party: shall have the meaning set forth in Section
5.3 hereof.
Great Lakes Releasees: shall have the meaning set forth in
Section 6.11 hereof.
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Great Lakes Transfer Date: with respect to a particular asset
(including capital stock), the date that such asset was transferred from Great
Lakes or its Affiliates to Octel or its Affiliates in furtherance of the
transactions contemplated by this Agreement.
Hazardous Materials: those elements, compounds and substances
identified in any of the Environmental Laws as "hazardous materials," "hazardous
substances," or "hazardous wastes," as well as any other elements, compounds or
substances which are listed or identified as "pollutants," "contaminants,"
"hazardous" or "toxic" (or by other terms of similar meaning) under any
Environmental Law. The term "Hazardous Materials" specifically includes, without
limitation, radioactive materials, petroleum products and asbestos.
Indemnifiable Losses: with respect to any claim by an Indemnified
Party for indemnification authorized pursuant to Article V hereof, any and all
losses, Liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable attorneys' fees and expenses in connection therewith) suffered by
such Indemnified Party with respect to such claim.
Indemnification Claimant: shall have the meaning set forth in
Section 5.2(c) hereof.
Indemnified Party: any party who is entitled to receive payment
from an Indemnifying Party pursuant to Article V hereof.
Indemnifying Party: any party who is required to pay any other
person pursuant to Article V hereof.
Indemnity Payment: the amount an Indemnifying Party is required
to pay an Indemnified Party pursuant to Article V hereof.
Information: shall have the meaning set forth in Section 7.2
hereof.
Information Statement: the information statement to be sent to
the holders of Great Lakes Common Stock in connection with the Distribution.
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Insurance Program: collectively, the series of policies pursuant
to which, from time to time, various insurance carriers provide, have provided
or will provide, insurance coverage to Great Lakes and the Great Lakes Entities
in respect of claims or occurrences relating to, without limitation, property
damage, manufacturer's output, business interruption, transit, fire, extended
coverage, fiduciary, fidelity, environmental impairment, employee crime, general
liability, products' liability, automobile liability, employer's liability,
umbrella/excess liability, directors & officers/corporate reimbursement,
employee benefits programs, professional liability, aviation products liability,
surety bonds and ocean marine. Nothing in this definition shall be construed to
imply that every Great Lakes Entity is, has been or will be, covered under each
policy contained in the Insurance Program. Whether a particular Great Lakes
Entity is, was or will be covered under a particular policy at a particular time
shall be governed by the specific terms of such policy.
Investor Roadshow: all actions, written and oral, taken by Octel
and its financial and other advisors in connection with the marketing effort
conducted by Octel and such advisors relating to the Octel Common Stock and any
other securities of Octel to be offered in connection with the Distribution
(including, but not limited to, the Senior Notes due 2006 to be issued by Octel
Developments PLC), including, without limitation, the presentations of certain
financial information and managerial outlooks to financial analysts, fund
managers and other potential investors.
Joint Representation and Defense Agreement: any agreement,
substantially in the form of Exhibit B hereto, which may be entered into by
Great Lakes and Octel with respect to representation and defense of certain
matters.
Lead Alkyls Business: the business referred to in the Recitals as
such, and which shall be that business which is described as such in the Form
10.
Lenders' Liens: any and all liens now or hereafter placed on any
of the Transferred Assets in connection with the senior credit facility
(including the revolving credit facility and the term loan facility) entered
into by Octel or one or more of its Affiliates in connection with the
Distribution or the Financings (including any refinancings thereof) and as more
specifically described in the Form 10.
Liabilities: any and all debts, damages, liabilities, claims,
causes of action and obligations, whether or not accrued, contingent (known or
unknown) or reflected on a balance sheet, including, without limitation, those
arising under any law, rule, regulation, Action, order or consent decree of any
governmental entity or
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any judgment of any court of any kind or any award of any arbitrator of any
kind, and those arising under any contract, commitment or undertaking. The term
"Liabilities" shall include all damages of any kind, including, without
limitation, consequential, incidental, exemplary and punitive damages.
March Insurance: shall have the meaning set forth in Section
10.1.
Material Adverse Effect: with respect to any party, an effect
that (i) is material and adverse to such party's business, assets, properties,
results of operations, financial condition, or (insofar as can be reasonably
foreseen) prospects, taken as a whole or (ii) materially impairs the ability of
such party to consummate the transactions contemplated by this Agreement and
the Related Agreements; provided, however, that the term "Material Adverse
Effect" shall not be deemed to include (a) actions contemplated by this
Agreement or the Related Agreements, (b) changes in laws and regulations or
interpretations thereof, or changes in generally accepted accounting principles,
that are generally applicable to the industry or industries in which such party
conducts business, (c) reasonable expenses incurred in connection with the
transactions contemplated by this Agreement and the Related Agreements and (d)
changes attributable to or resulting from changes in general economic conditions
generally effecting the industry or industries in which such party conducts
business.
Non-Transferred Businesses: the businesses referred to as such in
the Recitals and any and all operations and activities on or prior to the
Distribution Date of Great Lakes or any Great Lakes Entity (other than the
Excluded Assets, the Excluded Businesses, the Transferred Businesses and the
Transferred Assets).
Octel Common Stock: the common stock referred to as such in the
Recitals.
Octel Liabilities: shall mean (regardless of whether any claim
with respect to the Liabilities in (i) and (ii) below is asserted prior to, on
or after the Distribution Date) the (i) Liabilities, including reasonable
attorneys' fees, professional fees and expenses incurred in connection with the
investigation and defense of any matter encompassed herein, in an aggregate
amount up to a maximum of $5 million for (A) Third Party Claims for (x) bodily
injury, death, personal injury or property damage, (y) Remediation required by a
government authority of on-site soil or groundwater contamination or off-site
contamination of soil or groundwater caused by Hazardous Materials to the extent
that such Remediation would be
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required by laws in effect on January 1, 1998, arising out of (1) the operation
of the Excluded Businesses or the Excluded Assets on or prior to January 1,
1998, (2) off-site disposal on or prior to January 1, 1998 of Hazardous
Materials produced by the Excluded Businesses or the Excluded Assets, (3)
on-site soil or groundwater contamination on or prior to January 1, 1998 caused
by Hazardous Materials or (4) products manufactured or sold by the Excluded
Businesses or the Excluded Assets on or prior to January 1, 1998, provided,
however, that Octel shall only be responsible for Remediation of on-site soil or
groundwater contamination caused by Hazardous Materials so long as Great Lakes
or any of its Affiliates continues to operate the Excluded Businesses or any
chemical manufacturing operations on the property where the Remediation is
required and provided further, that under no circumstances shall Octel be
responsible for replacements, repairs or upgrades in relation to any facilities
at the Excluded Business sites and (z) government fines for violation of
Environmental Law in the operation of the Excluded Businesses or the Excluded
Assets arising in respect of acts or omissions occurring on or before January 1,
1998, and (B) the cost of containing imminent off-site migration of Hazardous
Materials in soil or groundwater resulting from the conduct of the Excluded
Businesses or the Excluded Assets on or prior to January 1, 1998 if such
migration of Hazardous Materials would be required to be contained pursuant to
Environmental Laws in effect on January 1, 1998, provided, however, that, except
as provided in clause (A) of this definition, Octel shall not be responsible for
any on-site Remediation undertaken by Great Lakes or any of its Affiliates to
the extent such Remediation is not required to prevent such imminent off-site
migration; and (ii) Liabilities incurred by Octel in connection with its
obligation to make the payments described in Section 8.6(d) of this Agreement
(Transferred Octel Employees) or for the matters set forth in clauses (d) or (e)
of Annex I.
Octel Party: shall have the meaning set forth in Section 5.4
hereof.
Octel Transfer Date: with respect to a particular asset
(including capital stock), the date that such asset was transferred from Octel
or its Affiliates to Great Lakes or its Affiliates in furtherance of the
transactions contemplated by this Agreement.
Offering Circular: any preliminary or final offering circular
with respect to the issuance and sale of debt securities by Octel Developments
PLC in connection with the Distribution.
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Partnership Agreement: the agreement, dated April 15, 1966,
between Shell U.K. Limited, BP Trading Limited, Caltex (U.K.) Limited and Mobil
Transportation Company Limited under which a partnership was formed under the
name "Octel Associates" (as amended from time to time prior to the Distribution
Date).
Partnership Releasors: shall have the meaning set forth in
Section 6.11 hereof.
Performance Chemicals Business: the business referred to as such
in the Recitals, and which shall be that business which is described as such in
the Form 10.
Petroleum Specialties Business: the business referred to as such
in the Recitals, and which shall be that business which is described as such in
the Form 10.
Privilege(s): shall have the meaning set forth in Section 7.6(a)
hereof.
Privileged Information: shall have the meaning set forth in
Section 7.6(a) hereof.
Products: (i) any goods manufactured, processed, sold or
distributed at any time on or prior to the Distribution Date by the Transferred
Businesses or utilizing the Transferred Assets and (ii) any goods, including,
but not limited to, lead alkyls, petroleum specialty products and performance
chemicals manufactured, processed, sold or distributed by Octel or its
Affiliates after the Distribution Date.
Product Liability: any actual or alleged Liability of Great Lakes
or any Great Lakes Entity to third parties (regardless of whether any claim with
respect to such Liability is asserted prior to, on or after the Distribution
Date) arising from or relating to the transportation, handling, possession,
processing, treatment, storage, disposal, manufacture, further manufacture, use,
reuse, sale or resale of the Products, including all such Liability for personal
injury, bodily injury (including death or aggravation of previously existing
illness, injury, disability or condition) or property damages.
Record Date: the date determined by the Board of Directors of
Great Lakes as the record date for the Distribution.
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Recovery: the amount obtained pursuant to a claim under an
insurance policy in the Insurance Program.
Related Agreements: the Conveyancing and Assumption Instruments,
Corporate Services Transition Agreement, Tax Disaffiliation Agreement, the
Supply Agreements, Toll Manufacturing Agreement, Joint Representation and
Defense Agreement, the Ellesmere Port Lease Agreement and the various service,
supply and other agreements to be entered into between Great Lakes and its
Affiliates, on the one hand, and Octel and its Affiliates, on the other hand, in
connection with the Distribution and the other transactions contemplated hereby.
Release: any spilling, leaking, pumping, pouring, emitting,
discharging, injecting, escaping, leaching, dumping or disposing into the
environment of any Hazardous Material, including the abandonment or discarding
of barrels, containers, and other receptacles containing any Hazardous Material,
and any passive migration of any Hazardous Material.
Releasee(s): shall have the meaning set forth in Section 5.1(a)
hereof.
Releasors: shall have the meaning set forth in Section 5.1(a)
hereof.
Remediation: any investigation, remediation, prevention,
containment or abatement of releases or threatened releases of materials into
the workplace or the environment and the assessment and mitigation of risks
and/or restoration of any harm arising therefrom, and any related actions.
Retained Environmental Liabilities: all actual or alleged
Liabilities and obligations (regardless of whether any claim with respect to
such Liabilities and obligations is asserted prior to, on or after the
Distribution Date) relating to Environmental Matters or arising under any
Environmental Laws (including all claims for death, bodily injury, personal
injury and property damage relating to Environmental Matters or arising under
any Environmental Laws) which relate to, arise out of or are incurred in
connection with:
(i) the activities, operations, acts or omissions
at, from or with respect to the Non-Transferred Businesses, the
Excluded Businesses or the Excluded Assets before, on or after the
Distribution Date (other than the Octel Liabilities);
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(ii) Remediation of any Release arising out of or
resulting from activities, operations, acts or omissions at, from or
with respect to the Non-Transferred Businesses, the Excluded Businesses
or the Excluded Assets before, on or after the Distribution Date (other
than the Octel Liabilities) wherever such Remediation may be performed;
and
(iii) any activities, operations, acts or omissions
at, from or with respect to any businesses of Great Lakes or its
Affiliates following the Distribution Date.
Retained Liabilities: collectively, all of the actual or alleged
Liabilities and other obligations (regardless of whether any claim with respect
to such Liabilities and obligations is asserted prior to, on or after the
Distribution Date) which relate to, arise out of, or are incurred in connection
with (i) the acquisition by Great Lakes or any Great Lakes Entity on or prior to
the Distribution Date of all, or any portion of, any corporation, partnership or
other entity that is or was engaged in the Non-Transferred Businesses or the
Excluded Businesses, (ii) the ownership or operation of the Non-Transferred
Businesses, Excluded Businesses or Excluded Assets prior to, on or after the
Distribution Date, (iii) the Retained Environmental Liabilities and Great Lakes
Product Liabilities and (iv) Great Lakes' or its Affiliates' operations and
activities after the Distribution Date in the conduct of its businesses,
including but not limited to the Non-Transferred Businesses or Excluded
Businesses; provided, that the Octel Liabilities shall not constitute Retained
Liabilities.
Run-Off Policies: shall have the meaning set forth in Section
10.2(b).
Savings Plan: shall have the meaning set forth in Section 8.2
hereof.
SEC: the United States Securities and Exchange Commission.
Successor Savings Plan: shall have the meaning set forth in
Section 8.4(a) hereof.
Supply Agreements: the Supply Agreements, in the form of the
agreements attached as Exhibit D hereto, pursuant to which Great Lakes or its
Affiliates and Octel or its Affiliates shall provide certain products to each
other.
Taxes: shall have the meaning set forth in Section 12.12.
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Tax Disaffiliation Agreement: the Tax Disaffiliation Agreement,
in the form of Exhibit C hereto, pursuant to which Great Lakes and Octel have
provided for certain tax matters.
Third Party Claim: shall have the meaning set forth in Section
5.2(a) hereof.
Toll Manufacturing Agreement: the Toll Manufacturing Agreement,
substantially in the form set forth as Exhibit F hereto, relating to the toll
manufacture by Great Lakes of Stadis(R) 425 and Stadis(R) 450 (Enhanced).
Transfer Amount: shall have the meaning set forth in Schedule 8.5
hereof.
Transfer Date: shall have the meaning set forth in Section 8.4
hereof.
Transferred Assets: collectively, all of the assets and
properties of Great Lakes or any Great Lakes Entity used principally in the
Transferred Businesses on or prior to, and in existence as of, the Distribution
Date, including, but not limited to, those assets and properties identified on
Annex II hereto, but specifically excluding the Excluded Assets.
Transferred Businesses: the businesses referred to as such in the
Recitals, including any businesses or products of Great Lakes or any Great Lakes
Entity that were discontinued or otherwise terminated prior to the Distribution
Date, to the extent that such businesses were conducted or such products were
manufactured or sold as part of the businesses referred to as part of the
Transferred Businesses in the Recitals. For the avoidance of doubt, the
facilities of Great Lakes and its Affiliates at Halebank, Widnes, Cheshire,
United Kingdom and Aycliffe Industrial Estate, Newton, Aycliffe, Durham, United
Kingdom shall be deemed not to be Transferred Businesses or Transferred Assets
under this Agreement.
Transferred Businesses Books and Records: the books and records
of Great Lakes or any Great Lakes Entity (or true and complete copies thereof)
as of the Distribution Date, including all computerized books and records, which
relate principally to the Transferred Businesses, including, without limitation,
all such books and records relating to (i) technical and research and
development information, (ii) Transferred Great Lakes Employees, (iii) the
purchase of materials, supplies and services, (iv) the manufacture and sale of
products by the Transferred Businesses, (v)
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dealings with customers of the Transferred Businesses, (vi) the Assumed
Liabilities and (vii) all files relating to any Action being assumed by Octel as
part of the Assumed Liabilities.
Transferred Great Lakes Employee: (i) any employee of Great Lakes
or its Affiliates or Octel or its Affiliates who, as of the Distribution Date,
is employed either (A) by any of the Transferred Businesses or (B) at the
locations listed on Annex II, Schedule 1, (ii) for purposes of Article VIII
only, any former employee of Great Lakes or any Great Lakes Entity who, for
periods on or prior to the Distribution Date, was employed by any of the
Transferred Businesses, or any of the plants listed on Schedule 1.1A, (iii) any
employee of Great Lakes or its Affiliates or Octel or its Affiliates from such
entity's staff organizations, such as engineering, controllers, human resources
or legal affairs, who is assigned full-time to any of the Transferred
Businesses as of the Distribution Date or (iv) any person who is listed on
Schedule 1.1B and who is employed by the Transferred Businesses as of the
Distribution Date.
Transferred Octel Employee: any employee of Great Lakes or its
Affiliates or Octel or its Affiliates who, as of the U.K. Transfer Date, (i) is
employed by the Excluded Businesses, at (A) the Palmer Research Laboratories
facility located on Mostyn Road, Holywell, Flintshire, North Wales, United
Kingdom, (B) the facility located at Amlwch, Anglesey, Gwynedd, United Kingdom
or (C) Oil Sites Road, Ellesmere Port, United Kingdom, and (D) is listed on
Schedule 1.1C, or (ii) is employed by the Excluded Businesses at (A) the Palmer
Research Laboratories facilities located on Mostyn Road, Holywell, Flintshire,
North Wales, United Kingdom, (B) the facility located at Amlwch, Anglesey,
Gwynedd, United Kingdom or (C) Oil Sites Road, Ellesmere Port, United Kingdom.
U.K. Transfer Date: April 1, 1998.
Welfare Plan: shall have the meaning set forth in Section 8.1(b)
hereof.
ARTICLE II
REORGANIZATION AND RELATED TRANSACTIONS
Section 2.1 The Reorganization.
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(a) Subject to the terms and conditions of this Agreement,
Great Lakes and Octel shall cause, on or before the Distribution Date, (i) all
of Great Lakes' and its Affiliates' right, title and interest in and to the
Transferred Businesses, including, but not limited to, the Transferred Assets,
to be conveyed, assigned, transferred and delivered to Octel or any of its
Affiliates, (ii) all of Octel's and its Affiliates' right, title and interest in
and to the Excluded Assets, including, but not limited to the Excluded
Businesses, to be conveyed, assigned and transferred and delivered to Great
Lakes or any of its Affiliates, (iii) all duties, obligations and
responsibilities with respect to the Assumed Liabilities to be assumed by Octel
or any of its Affiliates and (iv) all duties, obligations and responsibilities
with respect to Retained Liabilities to be assumed or retained by Great Lakes or
its Affiliates (the transfers set forth in this subsection (a) to be hereinafter
referred to as the "Asset and Liability Transfer").
(b) Subject to Section 6.3 hereof, to the extent that any
such conveyances, assignments, transfers and deliveries shall not have been so
consummated on the Distribution Date, Great Lakes and Octel shall cooperate to
effect such consummation as promptly thereafter as shall be practicable, it
nonetheless being understood and agreed by Great Lakes and Octel that, subject
to the Lenders' Liens, neither shall be liable in any manner to any person who
is not a party to this Agreement for any failure of any of the transfers
contemplated by this Article II to be consummated on or subsequent to the
Distribution Date. Whether or not the Asset and Liability Transfer shall have
occurred as of the Distribution Date, Great Lakes and Octel agree that, as of
the Distribution Date, (i) Octel shall have, and shall be deemed to have,
acquired complete and sole beneficial ownership of the Transferred Businesses,
including, without limitation, the Transferred Assets, except as described
herein with respect to assets which are non-assignable, together with all of
Great Lakes' rights, powers and privileges (except as provided in Section 7.6
hereto) and any other benefits relating thereto, and shall be deemed to have
assumed in accordance with the terms of this Agreement all of the Assumed
Liabilities, and all of Great Lakes' and any Great Lakes Entity's duties,
obligations and responsibilities relating thereto, (ii) Great Lakes shall have,
and shall be deemed to have, acquired complete and sole beneficial ownership of
the Excluded Assets, including, without limitation, the Excluded Businesses,
except as described herein with respect to assets which are non-assignable,
together with all of Octel's rights, powers and privileges (except as provided
in Section 7.6 hereto) and any other benefits relating thereto, and, except for
the Octel Liabilities, shall be deemed to have assumed all duties, obligations
and responsibilities relating to the operation of the Excluded Assets and the
Excluded Businesses and any duties, obligations and responsibilities relating
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thereto of any Great Lakes Entity and (iii) (A) Octel shall transfer to Great
Lakes any of the Excluded Assets which cannot be transferred as of the
Distribution Date if and when such transfer becomes possible and (B) Great Lakes
shall transfer to Octel any of the Transferred Assets which cannot be
transferred as of the Distribution Date if and when such transfer becomes
possible.
Section 2.2 Assumption of Certain Liabilities; Issuance of Octel
Common Stock. In consideration of the conveyance, assignment, transfer and
delivery of the Transferred Businesses, including, without limitation, the
Transferred Assets, being made pursuant to Section 2.1 hereof, Octel agrees to
(a) assume the Assumed Liabilities, and (b) issue and deliver to the Agent for
delivery to stockholders of Great Lakes as of the Record Date a certificate
representing the number of shares of Octel Common Stock as provided for in
Section 4.1 hereof. In consideration of the conveyance, assignment, transfer
and delivery of the Excluded Assets, including, without limitation, the Excluded
Businesses, being made pursuant to Section 2.1 hereof, Great Lakes agrees to
assume the Retained Liabilities.
Section 2.3 Foreign Exchange Rates. Except as agreed upon by
Great Lakes and Octel or as otherwise provided in this Agreement, all payments
to each other shall be in U.S. dollars and all amounts represented on the books
of Great Lakes or Octel as a foreign currency obligation shall be converted into
U.S. dollars based on the exchange rate quoted in The Wall Street Journal on the
last business day preceding the Distribution Date (or as of such other day as
may be agreed to by Octel and Great Lakes) or, with respect to payments to be
made on a date other than the Distribution Date, the last business day preceding
the respective applicable date (or as of such other day as may be agreed to by
Octel and Great Lakes). Great Lakes and Octel shall cooperate with each other to
facilitate the prompt transfer of funds so as to minimize the potential effect
of any changes in exchange rates.
Section 2.4 Great Lakes Approval. Great Lakes shall cooperate
with Octel in effecting, and if so requested by Octel, Great Lakes shall, as the
sole stockholder of Octel, ratify any actions which are reasonably necessary or
desirable to be taken by Octel to effectuate the transactions contemplated by
this Agreement in a manner consistent with the terms of this Agreement,
including, without limitation, the election or appointment of directors and
officers of Octel to serve in such capacities following the Distribution Date
(if not so appointed by the Board of Directors of Octel).
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ARTICLE III
ASSUMPTION AND RETENTION OF LIABILITIES
Section 3.1 Assumed Liabilities. Upon the terms and subject to
the conditions set forth in this Agreement and in addition to any other
Liabilities otherwise expressly assumed by Octel pursuant to this Agreement, the
Related Agreements or any other agreement contemplated by this Agreement, Octel
hereby agrees with Great Lakes that Octel shall assume, pay, perform and
discharge (or to cause the appropriate Affiliate of Octel to pay, perform and
discharge) when due, any and all Assumed Liabilities.
Section 3.2 Retained Liabilities. Upon the terms and subject to
the conditions set forth in this Agreement and in addition to any other
Liabilities otherwise expressly assumed or retained by Great Lakes pursuant to
this Agreement, the Related Agreements or any other agreement contemplated by
this Agreement, Great Lakes hereby agrees with Octel that Great Lakes shall
assume, pay, perform and discharge (or to cause the appropriate Affiliate of
Great Lakes to pay, perform and discharge) when due, any and all Retained
Liabilities.
ARTICLE IV
THE DISTRIBUTION
Section 4.1 The Distribution. On or prior to the Distribution
Date, Great Lakes shall deliver to the Agent the certificate for all of the
issued and out standing shares of Octel Common Stock which were owned by Great
Lakes prior to the Distribution. Upon receipt from Great Lakes of a certificate
as to the number of shares of Great Lakes Common Stock outstanding on the Record
Date, Octel shall deliver to the Agent, for the benefit of holders of record of
Great Lakes Common Stock on the Record Date, a stock certificate or stock
certificates representing, in the aggregate (and rounded down to the nearest
whole share), a number of shares representing one (1) share of Octel Common
Stock for every four (4) shares of Great Lakes Common Stock outstanding on the
Record Date (less all of the issued and outstanding shares of Octel Common Stock
owned prior to the Distribution by Great Lakes), and shall instruct the Agent to
distribute as promptly as practicable following the Distribution Date to holders
of record of Great Lakes Common Stock on the Record Date one (1) share of Octel
Common Stock for every four (4) shares of Great Lakes Common Stock and cash in
lieu of fractional shares of Octel Common Stock obtained in the manner provided
in Section 4.2 hereof. Octel agrees to provide to the
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Agent such documentation as the Agent may request in order to effect the
Distribution. All of the shares of Octel Common Stock issued in the
Distribution shall be fully paid, nonassessable and free of preemptive rights.
Section 4.2 Fractional Shares. Except as described below, each
stockholder that receives at least one share of Octel Common Stock in the
Distribution will also receive credit for any fractional interest. If a
stockholder owns fewer than four shares of Great Lakes Common Stock, fractional
shares of Octel Common Stock shall not be issued as part of the Distribution. If
a stockholder owns fewer than four shares of Great Lakes Common Stock, such
stockholder will receive cash in lieu of a fractional share. If a stockholder
requests physical certificates for shares of Octel Common Stock, such
stockholder will receive physical certificates for all whole shares of Octel
Common Stock and cash in lieu of any fractional share interest. Great Lakes and
Octel agree that Great Lakes shall instruct the Agent to determine the number of
whole shares and fractional shares of Octel Common Stock allocable to each
holder of record of Great Lakes Common Stock as of the Record Date and to
aggregate all such fractional share interests for which holders are entitled to
receive cash pursuant to this Section 4.2 into whole shares and sell the whole
shares obtained thereby in the open market at then prevailing prices and to
distribute to each such holder such holder's ratable share of the total proceeds
of such sales (net of any commissions incurred in connection with such sales),
net of any amount required to be withheld under applicable law.
Section 4.3 Actions by Great Lakes and Octel Board.
(a) This Agreement and the Related Agreements are subject
to, and the consummation of the transactions provided for herein or therein
shall only be effected after, (i) approval by the Board of Directors of Great
Lakes and Octel and (ii) the declaration of the Distribution by the Board of
Directors of Great Lakes.
(b) The Board of Directors of Great Lakes, in its sole
discretion, shall establish the Record Date and the Distribution Date and all
appropriate procedures in connection with the Distribution.
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ARTICLE V
INDEMNIFICATION, CLAIMS AND OTHER MATTERS
Section 5.1 Release and Indemnification.
(a) To the extent that the same is lawful, each of Great
Lakes and Octel, on behalf of itself and each of its Affiliates (the
"Releasors"), hereby unconditionally releases and forever discharges the other
party and each of its Affiliates, stockholders, successors and assigns
(individually, a "Releasee" and collectively, "Releasees") from any and all
claims, suits, demands, proceedings, causes of action, orders, obligations,
contracts, agreements, debts, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, controversies, promises, variances, trespasses, damages,
judgments, executions, claims and liabilities whatsoever, whether known or
unknown, suspected or unsuspected, both at law and in equity, which any of the
Releasors now have, have ever had or may hereafter have against the respective
Releasees arising contemporaneously with or prior to the Distribution Date, or
on account of or arising out of any matter, cause or event occurring
contemporaneously with or prior to the Distribution Date; provided, however,
that nothing contained herein shall operate to release any obligations of the
parties arising under this Agreement (including, but not limited to, the
indemnity provisions set forth in Sections 5.1(b) and 5.1(c) hereof), any of the
Related Agreements or any ongoing commercial agreements in existence as of the
date hereof between Great Lakes or its Affiliates and Octel or its Affiliates.
In addition, each party hereby irrevocably covenants to, and to cause its
Affiliates to, refrain from, directly or indirectly, asserting any claim or
demand, or commencing, instituting or causing to be commenced, any proceeding of
any kind against any Releasee, based upon any matter purported to be released in
this Section 5.1(a).
(b) Great Lakes shall indemnify, defend and hold harmless
Octel and each of its directors, officers, employees, agents and Affiliates from
and against any and all Indemnifiable Losses of Octel or any of its Affiliates
arising out of or due to, directly or indirectly, (i) Third Party Claims (as
defined in Section 5.2) in connection with any of the Retained Liabilities, (ii)
Third Party Claims that the information relating to Great Lakes included in the
Information Statement and the Form 10 or the Offering Circular under the
captions set forth on Schedule 5.1(b) hereto or any statements made by Great
Lakes or its Affiliates in any Investor Roadshow or to third parties in
connection with the Distribution or the Financings is false or misleading with
respect to any material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein,
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in light of the circumstances under which they were made, not misleading, (iii)
Third Party Claims that Great Lakes or its Affiliates breached or failed to
perform, or violated, any provision of this Agreement or any of the Related
Agreements which is to be performed or complied with by Great Lakes or its
Affiliates, (iv) any Retained Liability, (v) any breach or failure to perform,
or violation of, any covenant, agreement, assumption, or responsibility of
Great Lakes or any of its Affiliates under this Agreement or any of the Related
Agreements and (vi) any Liabilities incurred by, resulting to or imposed on such
Indemnified Parties relating in any way to Environmental Matters or obligations
under Environmental Laws with respect to which Great Lakes or its Affiliates is
required to be substituted for Octel or its Affiliates after the Distribution
Date as set forth in Section 9.2 hereof.
(c) Octel shall indemnify, defend and hold harmless Great
Lakes and each of its directors, officers, employees, agents and Affiliates from
and against any and all Indemnifiable Losses of Great Lakes or any of its
Affiliates arising out of or due to, directly or indirectly, (i) Third Party
Claims in connection with any of the Assumed Liabilities, (ii) Third Party
Claims that the information included in the Information Statement, the Form 10
or the Offering Circular, other than under the captions set forth on Schedule
5.1(b) hereto, or the information provided, or statements made, by Octel or its
Affiliates in connection with any Investor Roadshow or to third parties in
connection with the Distribution or the Financings, is false or misleading with
respect to any material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, (iii) Third Party
Claims that Octel or its Affiliates breached or failed to perform, or violated,
any provision of this Agreement or any of the Related Agreements which is to be
performed or complied with by Octel or its Affiliates or (iv) (A) any of the
Assumed Liabilities, (B) any breach or failure to perform, or violation of, any
covenant, agreement, assumption, or responsibility of Octel or any of its
Affiliates under this Agreement or any of the Related Agreements or (C) any
Liabilities incurred by, resulting to or imposed on such Indemnified Parties
relating in any way to Environmental Matters or obligations under Environmental
Laws with respect to which Octel or its Affiliates is required to be substituted
for Great Lakes or its Affiliates after the Distribution Date as set forth in
Section 9.1 hereof.
(d) Amounts required to be paid pursuant to this Article V
are hereinafter sometimes collectively called "Indemnity Payments" and
individually called an "Indemnity Payment." The amount which any party (an
"Indemnifying Party") is required to pay to any other party (an "Indemnified
Party") pursuant to
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Section 5.1(b), Section 5.1(c) or any other applicable indemnity provision
contained in this Agreement shall be reduced (including, without limitation,
retroactively) by any insurance proceeds and other amounts actually recovered by
such Indemnified Party in reduction of the related Indemnifiable Loss. The
foregoing notwithstanding, nothing in this Section 5.1(d) shall grant to Octel
or its Affiliates any direct or indirect rights or benefits to insurance
coverage with respect to which Octel is not otherwise entitled under Article X
hereof nor require Great Lakes or its Affiliates to make any claim for insurance
coverage unless and to the extent that Octel would otherwise be entitled to have
Great Lakes make a claim under Article X hereof.
(e) Indemnification obligations contained elsewhere in
this Agreement shall be subject to the provisions of this Article V.
Section 5.2 Procedure for Indemnification.
(a) If either party shall receive notice of any claim or
Action brought, asserted, commenced or pursued by any person or entity not a
party to this Agreement or an Affiliate thereof (a "Third Party Claim"), with
respect to which the other party is or may be obligated to make an Indemnity
Payment, it shall give such other party prompt notice thereof (including any
pleadings relating thereto) after becoming aware of such Third Party Claim,
specifying in such reasonable detail as is known to it, the nature of such Third
Party Claim and the amount or estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
claim); provided, however, that the failure of a party to give notice as
provided in this Section 5.2 shall not relieve the other party of its
indemnification obligations under this Article V, except and only to the
extent that such other party is actually prejudiced by such failure to give
notice.
(b) (i) For any Third Party Claim concerning which notice
is required to be given, and, in fact, given, under subparagraph (a) of this
Section 5.2, other than a Third Party Claim that constitutes the Octel
Liabilities, the Indemnifying Party shall defend in a timely manner, to the
extent permitted by law, such Third Party Claim through counsel appointed by the
Indemnifying Party and reasonably acceptable to the Indemnified Party. Once an
Indemnifying Party has commenced its defense of an Indemnified Party, it cannot
withdraw from such defense until conclusion of the matter, unless the
Indemnified Party consents to the withdrawal.
(ii) For any Third Party Claim concerning
which notice is required to be given under subparagraph (a) of this
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Section 5.2 and that constitutes Octel Liabilities, Great Lakes shall
have the right, but not the obligation, to defend such claim as if it
were an "Indemnifying Party" as set forth in this Section 5.2(b) and, if
Great Lakes exercises such rights, Octel shall have the rights of an
"Indemnified Party" as set forth in this Section 5.2(b) and Section
5.2(c); provided, however, that Octel shall remain responsible for
payment of the Octel Liabilities with respect to any such claim.
(c) If a party responds to a notice of a Third Party Claim
by denying its obligation to indemnify the person or entity claiming a right of
defense and indemnification under this Agreement ("Indemnification Claimant"),
or if the Indemnifying Party fails to defend in a timely and competent manner,
the Indemnified Party shall be entitled to defend such Third Party Claim through
counsel appointed by it. In addition, if it is later determined, through
procedures referenced in Article XI of this Agreement, or agreement of the
parties, that said party wrongfully denied such claim, or the Indemnifying Party
failed to timely defend, then the Indemnifying Party shall (i) reimburse the
Indemnified Party for all costs and expenses (other than salaries of officers
and employees) incurred reasonably by the Indemnified Party in connection with
its defense of such Third Party Claim and pay the Indemnified Party interest at
the prime rate, as published by a national banking institution, with respect to
any amounts paid by the Indemnified Party in satisfaction of such Third Party
Claim and (ii) be estopped from challenging a judgment, order, settlement,
compromise, or consent judgment resolving the Third Party Claim entered into in
good faith by the Indemnified Party (if such claim has been resolved prior to
the conclusion of the proceeding between the Indemnified Party and Indemnifying
Party). An Indemnifying Party, after initially rejecting a claim for defense or
indemnification by an Indemnification Claimant, may defend and indemnify the
Indemnification Claimant, at any time prior to the resolution of said Third
Party Claim, for such claim; provided, however, that (x) the Indemnifying Party,
upon assuming the defense, reimburses the Indemnified Party for all costs and
expenses (other than salaries of officers and employees) incurred reasonably by
the Indemnified Party in connection with its defense of such Third Party Claim
up to the time the Indemnifying Party assumes control of the defense of such
claim (including costs incurred in the transition of the defense from the
Indemnified Party to the Indemnifying Party) and (y) the assumption of the
defense of the Third Party Claim shall not prejudice or cause harm to the
Indemnified Party.
(d) With respect to any Third Party Claim relating to any
matter subject to a claim for indemnification hereunder, no party shall enter
into any
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compromise or settlement or consent to the entry of any judgment which (i) does
not include as a term thereof the giving by the third party of a release to the
Indemnifying Party from all further liability concerning such Third Party Claim
on terms no less favorable than those obtained by the Indemnified Party or (ii)
imposes any obligation on the Indemnified Party without said Indemnified Party's
written consent (such consent not to be unreasonably withheld), except an
obligation to pay money which the Indemnifying Party has agreed to pay on behalf
of the Indemnified Party. In the event that an Indemnified Party enters into any
such compromise, settlement or consent without the written consent (such consent
not to be unreasonably withheld) of the Indemnifying Party (other than as
contemplated by Section 5.2(c)), the entry of such compromise, settlement or
consent shall relieve the Indemnifying Party of its indemnification obligation
related to the claims underlying such compromise, settlement or consent.
(e) Upon final judgment, determination, settlement or
compromise of any Third Party Claim, and unless otherwise agreed by the parties
in writing, the Indemnifying Party shall pay promptly on behalf of the
Indemnified Party, or to the Indemnified Party in reimbursement of any amount
theretofore required to be paid by it, the amount so determined by final
judgment, determination, settlement or compromise. Upon the payment in full by
the Indemnifying Party of such amount, the Indemnifying Party shall succeed to
the rights of such Indemnified Party to the extent not waived in settlement,
against the third party who made such Third Party Claim and any other person who
may have been liable to the Indemnified Party with respect to the indemnified
matter.
(f) In connection with defending against Third Party
Claims, the parties shall cooperate with and assist each other by making
available all employees, books, records, communications, documents, items and
matters within their knowledge, possession or control that are necessary,
appropriate or reasonably deemed relevant with respect to defense of such
claims; provided, however, that nothing in this subparagraph (f) shall be deemed
to require the waiver of any privilege, including the attorney-client privilege,
or protection afforded by the attorney work product doctrine. In addition,
regardless of the party actually defending a Third Party Claim for which there
is an indemnity obligation under Section 5.1 of this Agreement, the parties
shall give each other regular status reports relating to such action with detail
sufficient to permit the other party to assert and protect its rights and
obligations under this Agreement.
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(g) The provisions of this Section 5.2 shall survive in
perpetuity and shall be the exclusive procedures for any claims subject to the
provisions of Section 5.1(b), (c) or (e) hereof.
Section 5.3 Indemnifiable Losses under Sections 5.1(b)(ii) and
5.1(c)(ii). If the indemnification provided for in Sections 5.1(b)(ii) and
5.1(c)(ii) is unavailable under law or SEC policy to an Indemnified Party in
respect of any Indemnifiable Loss arising out of or related to information
contained in the Information Statement, the Form 10, the Offering Circular or
statements made in any Investor Roadshow or to third parties in connection with
the Distribution or the Financings, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Indemnifiable Loss, in
such proportion as is appropriate to reflect the relative fault of Octel, each
of its directors, each of its officers who has signed any registration statement
and each Affiliate of Octel (an "Octel Party") on the one hand and Great Lakes
and each Affiliate of Great Lakes (a "Great Lakes Party") on the other hand in
connection with the information, statements or omissions which resulted in such
Indemnifiable Loss. The relative fault of an Octel Party on the one hand and of
a Great Lakes Party on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by an Octel Party on the one hand or a Great Lakes Party on
the other hand.
Section 5.4 Indemnifiable Losses under Sections 5.1(b)(iii),
5.1(b)(v), 5.1(c)(iii) and 5.1(c)(iv)(B). Under Sections 5.1(b)(iii), 5.1(b)(v),
5.1(c)(iii) and 5.1(c)(iv)(B), any claim on account of an Indemnifiable Loss
which results from a breach of this Agreement or any of the Related Agreements
shall be asserted promptly by written notice from the Indemnified Party to the
Indemnifying Party. To the extent that the Indemnifying Party does not receive
such prompt notice, the Indemnifying Party shall not be responsible for that
portion (but only that portion) of such Indemnifiable Loss, if any, which shall
have resulted from such delay. The Indemnified Party's written notice shall
contain such information as the Indemnified Party has regarding the alleged
breach. Such Indemnifying Party shall have a period of sixty (60) days (or such
shorter time period as may be required by law as indicated by the Indemnified
Party in the written notice) within which to respond thereto. If such
Indemnifying Party does not respond within such 60-day (or lesser) period, such
Indemnifying Party shall be deemed to have accepted responsibility to make
payment for the amount of the Indemnifiable Loss and shall have no further right
to contest the validity of such claim. If such Indemnifying Party does
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respond within such 60-day (or lesser) period and rejects such claim in whole or
in part, such Indemnified Party shall be free to pursue resolution as provided
in Article XI hereof.
Section 5.5 No Beneficiaries. Except to the extent expressly
provided otherwise in this Article V, and except with respect to the holders of
the Lenders' Liens, the indemnification provided for by this Article V shall not
inure to the benefit of any third party or parties and shall not relieve any
insurer who would otherwise be obligated to pay any claim of the responsibility
with respect thereto or, solely by virtue of the indemnification provisions
hereof, provide any subrogation rights with respect thereto and each party
agrees to waive such rights against the other to the fullest extent permitted.
Section 5.6 Named Parties. The parties hereto acknowledge that it
may not be feasible to substitute Octel (or one of its Affiliates) or Great
Lakes (or one of its Affiliates), as the case may be, for the other as a named
party in Actions, whether domestic or foreign, constituting Assumed Liabilities
or Retained Liabilities, as the case may be. In such event, Great Lakes (or one
of its Affiliates) or Octel (or one of its Affiliates), as the case may be,
shall remain as a named party, but, following the Distribution Date, Octel (or
one of its Affiliates) or Great Lakes (or one of its Affiliates), as the case
may be, shall assume the defense of any such Action in accordance with the
provisions of Section 5.2 hereof and the parties and their Affiliates shall
cooperate as contemplated by such Section 5.2 and Article VII hereof.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
Section 6.1 Conveyancing and Assumption Instruments. In
connection with the transfer, conveyance, assignment and delivery of the
Transferred Businesses (including, without limitation, the Transferred Assets),
the Excluded Assets (including, without limitation, the Excluded Businesses) and
the assumption of Assumed Liabilities contemplated by this Agreement, Great
Lakes and Octel agree to execute or cause to be executed by the appropriate
parties and to deliver to each other, as appropriate, the Conveyancing and
Assumption Instruments.
Section 6.2 Representations and Warranties.
(a) Great Lakes represents and warrants to Octel that:
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(i) as of the Great Lakes Transfer Date, the
authorized capital stock of Octel America, Inc. consisted of 1,000
shares of common stock, no par value, of which 1,000 shares were
issued and outstanding;
(ii) as of the Great Lakes Transfer Date,
Great Lakes or its Affiliates was the record and beneficial owner of all
of the issued and outstanding shares of Octel America, Inc. and The
Associated Octel Company Limited (other than those shares of The
Associated Octel Company Limited held by Octel America, Inc.) and had
good and marketable title thereto, free and clear of all liens, claims,
charges, pledges or encumbrances and had the absolute right to assign,
transfer and deliver such shares (other than those shares of The
Associated Octel Company Limited held by Octel America, Inc.), and had
not pledged or encumbered its interest in Octel Associates; and Great
Lakes delivered or, prior to the Distribution Date, shall deliver, to
Octel a true, complete, accurate and up-to-date copy of the certificate
of incorporation, by-laws, minutes and stock ledger of Octel America,
Inc;
(iii) as of the Great Lakes Transfer Date,
there were no outstanding options, warrants, conversion or other rights
or other agreements of any kind (other than this Agreement) for the
purchase or acquisition from, or the sale or issuance by, Great Lakes or
Octel America, Inc. of any shares of capital stock of Octel America,
Inc.;
(iv) as of the Great Lakes Transfer Date,
Great Lakes or a Great Lakes Entity was the record and beneficial owner
of the Fuel Detergent Plant and had good and marketable title thereto,
free and clear of all material liens, claims, charges, pledges or
encumbrances, other than restrictions on title contained in the title
documents relating thereto, and had the absolute right to assign,
transfer and deliver the Fuel Detergent Plant;
(v) as of the date hereof, Great Lakes has,
and on the Distribution Date Great Lakes will have full corporate power
and authority to execute and deliver each of this Agreement
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and, to the extent it is a party thereto, the Related Agreements and to
consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Related Agreements to
be entered into prior to the Distribution Date by Great Lakes has been
duly and validly approved by the Board of Directors of Great Lakes. This
Agreement and each of the Related Agreements has been duly and validly
executed and constitutes (assuming due authorization, execution and
delivery by Octel) a valid and binding obligation of Great Lakes,
enforceable against Great Lakes in accordance with their respective
terms, except as enforcement may be limited by any bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies
generally;
(vi) as of the date hereof and the Distribution
Date, neither the execution and delivery of this Agreement or any
of the Related Agreements, nor the consummation by Great Lakes of the
transactions contemplated hereby or thereby, nor compliance by Great
Lakes with any of the terms hereof or thereof, will (A) violate any
provisions of the Restated Certificate of Incorporation or By-Laws of
Great Lakes, or (B) (1) violate any statute, code, ordinance, rule,
regulation, decree or injunction, or published judgment, order or writ,
applicable to Great Lakes or any of its properties or assets, or (2)
violate, conflict with, result in a breach of any provision of or the
loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default under),
result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation
of any lien, pledge, security interest, charge or other encumbrance upon
any of the properties or assets of Great Lakes under the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to
which Great Lakes is a party, or by which it or any of its properties or
assets may be bound or affected, except, in the case of clause (B)
above, for such violations, conflicts, breaches or defaults which either
individually or in the aggregate will not have a Material Adverse Effect
on Great Lakes; and
(vii) as of the date hereof, to the best of
Great Lakes' knowledge, neither Great Lakes nor any of its Affiliates
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is in breach of any material obligation under any agreement listed on
Annex I, Schedule 1 hereto nor have they received notice of any breach
which is currently outstanding.
(b) Octel represents and warrants to Great Lakes that:
(i) as of the Octel Transfer Date, Octel or
its Affiliates was the record and beneficial owner of the Excluded
Assets and had good and marketable title thereto, free and clear of all
material liens, claims, charges, pledges or encumbrances (other than
restrictions on title contained in the title documents with respect
thereto), and had the absolute right to assign, transfer and deliver the
Excluded Assets;
(ii) as of the date hereof, Octel has, and on
the Distribution Date Octel will have full corporate power and upon
stockholder approval authority to execute and deliver each of this
Agreement and the Related Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the Related Agreements to be executed on or prior to the
Distribution Date by Octel has been duly and validly approved by the
Board of Directors of Octel. This Agreement and each of the Related
Agreements has been duly and validly executed and constitutes (assuming
due authorization, execution and delivery by Great Lakes) a valid and
binding obligation of Octel, enforceable against Octel in accordance
with their respective terms, except as enforcement may be limited by any
bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally; and
(iii) as of the date hereof and the Distribution
Date, neither the execution and delivery of this Agreement or any
of the Related Agreements, nor the consummation by Octel of the
transactions contemplated hereby or thereby, nor compliance by Octel
with any of the terms hereof or thereof, will (A) violate any provisions
of the Certificate of Incorporation or By-Laws of Octel, or (B) (1)
violate any statute, code, ordinance, rule, regulation, decree or
injunction, or published judgment, order or writ, applicable to Octel or
any of its properties or assets, or (2) violate, conflict with, result
in a
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breach of any provision of or the loss of any benefit under, constitute
a default (or an event which, with notice or lapse of time, or both,
would constitute a default under), result in the termination of or a
right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or
assets of Octel under the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Octel or any of its Affiliates
is a party, or by which it or any of its properties or assets may be
bound or affected, except, in the case of clause (B) above, for such
violations, conflicts, breaches or defaults which either individually
or in the aggregate will not have a Material Adverse Effect on Octel.
(c) Except as provided in Section 6.2(a) hereof, Octel
understands and agrees that Great Lakes is not in this Agreement or in any other
agreement or document contemplated by this Agreement representing or warranting
in any way (i) as to the condition, value or freedom from encumbrance of, or any
other matter concerning, the Transferred Businesses or any Transferred Assets or
(ii) as to the legal sufficiency to convey title to any Transferred Assets or
the execution, delivery and filing of the Conveyancing Instruments, IT BEING
AGREED AND UNDERSTOOD THAT THE TRANSFERRED BUSINESSES AND THE TRANSFERRED
ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and without any representation or
warranty of any kind (express or implied) and that Octel shall bear the economic
and legal risk that any conveyances of such assets or businesses shall prove to
be insufficient or that Octel's title to any such assets shall be other than
good and marketable and free from encumbrances. Similarly, Octel understands and
agrees that Great Lakes is not in this Agreement or in any other agreement or
document contemplated by this Agreement, representing or warranting in any way
that the obtaining of the consents or approvals, the execution and delivery of
any amendatory agreements and the making of the filings and applications
contemplated by this Agreement shall satisfy the provisions of all applicable
agreements or the requirements of all applicable laws or judgments, it being
understood and agreed that, subject to Section 6.3 hereof, Octel shall bear the
economic and legal risk that any necessary consents or approvals are not
obtained or that any requirements of law or judgments are not complied with. The
foregoing, however, shall not limit any responsibilities which Great Lakes may
have to use its commercially reasonable efforts to effect the transfer of the
Transferred Businesses, includ-
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ing, without limitation, the Transferred Assets, pursuant to the terms of this
Agreement.
(d) Except as provided in Section 6.2(b) hereof, and
except with respect to the Octel Liabilities, Great Lakes understands and agrees
that Octel is not in this Agreement or in any other agreement or document
contemplated by this Agreement representing or warranting in any way (i) as to
the condition, value or freedom from encumbrance of, or any other matter
concerning, the Excluded Businesses or any Excluded Assets or (ii) as to the
legal sufficiency to convey title to any Excluded Assets or the execution,
delivery and filing of the Conveyancing Instruments, IT BEING AGREED AND
UNDERSTOOD THAT THE EXCLUDED BUSINESSES AND THE EXCLUDED ASSETS ARE BEING
TRANSFERRED "AS IS, WHERE IS" and without any representation or warranty of any
kind (express or implied) and that Great Lakes shall bear the economic and legal
risk that any conveyances of such assets or businesses shall prove to be
insufficient or that Great Lakes' title to any such assets shall be other than
good and marketable and free from encumbrances. Similarly, Great Lakes
understands and agrees that Octel is not in this Agreement or in any other
agreement or document contemplated by this Agreement, representing or warranting
in any way that the obtaining of the consents or approvals, the execution and
delivery of any amendatory agreements and the making of the filings and
applications contemplated by this Agreement shall satisfy the provisions of all
applicable agreements or the requirements of all applicable laws or judgments,
it being understood and agreed that, subject to Section 6.3 hereof, Great Lakes
shall bear the economic and legal risk that any necessary consents or approvals
are not obtained or that any requirements of law or judgments are not complied
with. The foregoing, however, shall not limit any responsibilities which Octel
may have to use its commercially reasonable efforts to effect the transfer of
the Excluded Businesses, including, without limitation, the Excluded Assets,
pursuant to the terms of this Agreement.
Section 6.3 Further Assurances; Subsequent Transfers.
(a) Each of Great Lakes and Octel shall execute and
deliver such further instruments of conveyance, transfer and assignment and
shall take such other actions as each of them may reasonably request of the
other, both before and after the Distribution Date, in order to effectuate the
purposes of this Agreement and to carry out the terms hereof. Without limiting
the generality of the foregoing, at any time and from time to time after the
Distribution Date, at the request of Octel and without further consideration,
Great Lakes shall execute and
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deliver to Octel such other instruments of transfer, conveyance, assignment and
confirmation and take such action as Octel may reasonably deem necessary or
desirable in order to more effectively transfer, convey and assign to Octel and
to confirm Octel's title to all of the Transferred Businesses and the
Transferred Assets, to put Octel in actual possession and operating control
thereof and to permit Octel to exercise all rights with respect thereto
(including, without limitation, rights under contracts and other arrangements as
to which the consent of any third party to the transfer thereof shall not have
previously been obtained). Octel shall execute and deliver to Great Lakes all
instruments, undertakings or other documents and take such other action as Great
Lakes may reasonably deem necessary or desirable in order to have Octel fully
assume and discharge the Assumed Liabilities and relieve Great Lakes of any
Liability or obligations with respect thereto and evidence the same to third
parties. In addition, at any time and from time to time after the Distribution
Date, at the request of Great Lakes and without further consideration, Octel
shall execute and deliver to Great Lakes such other instruments of transfer,
conveyance, assignment and confirmation and take such action as Great Lakes may
reasonably deem necessary or desirable in order to more effectively transfer,
convey and assign to Great Lakes and to confirm Great Lakes' title to all of the
Excluded Businesses and the Excluded Assets, to put Great Lakes in actual
possession and operating control thereof and to permit Great Lakes to exercise
all rights with respect thereto (including, without limitation, rights under
contracts and other arrangements as to which the consent of any third party to
the transfer thereof shall not have previously been obtained). Great Lakes shall
execute and deliver all instruments, undertakings or other documents and take
such other action as Octel may reasonably deem necessary in order to have Great
Lakes fully assume and discharge the Retained Liabilities, and to relieve Octel
of any Liability or obligation with respect thereto and evidence the same to
third parties. Notwithstanding the foregoing, Great Lakes and Octel shall not be
obligated, in connection with the foregoing, to expend monies other than
reasonable out-of-pocket expenses and attorneys' fees.
(b) Great Lakes and Octel shall use their commercially
reasonable efforts to obtain any consent, approval or amendment required to
novate and/or assign all agreements, leases, licenses and other rights of any
nature whatsoever relating to the Transferred Businesses, including, without
limitation, the Transferred Assets, to Octel or Affiliates of Octel; provided,
however, that Great Lakes and its Affiliates shall not be obligated to pay any
consideration therefor (except for filing fees and other administrative charges
and except as otherwise specifically provided herein) to the third party from
whom such consents, approvals and amendments are requested. In the event and to
the extent that Great Lakes or
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any of its Affiliates is unable to obtain any such required consent, approval or
amendment, (i) Great Lakes or any such Affiliate shall continue to be bound
thereby and (ii) unless not permitted by law or the terms thereof, Octel or any
of its Affiliates shall pay, perform and discharge fully all the obligations of
Great Lakes or its Affiliate thereunder after the Distribution Date and
indemnify Great Lakes or its Affiliate for all Indemnifiable Losses arising out
of such performance by Octel or its Affiliates or any claims by third parties
thereunder. Great Lakes or its Affiliate shall, without further consideration
therefor, pay and remit to Octel or its Affiliates promptly all monies, rights
and other considerations received in respect of such performance. Great Lakes or
any of its Affiliates shall exercise or exploit its rights and options under all
such agreements, leases, licenses and other rights and commitments referred to
in this Section 6.3(b) only as reasonably directed by Octel and at Octel's
expense. If and when any such consent shall be obtained or such agreement,
lease, license or other right shall otherwise become assignable or able to be
novated, Great Lakes or any of its Affiliates shall promptly assign and novate
all its rights and obligations thereunder to Octel or any of its Affiliates
without payment of further consideration and Octel or any of its Affiliates
shall, without the payment of any further consideration therefor, assume such
rights and obligations. To the extent that the assignment or novation of any
contract or agreement (or their proceeds) pursuant to this Section 6.3 is
prohibited by law, the assignment and novation provisions of this Section shall
operate to create a subcontract with Octel or any of its Affiliates to perform
each relevant unassignable contract or agreement of Great Lakes or any of its
Affiliates at a subcontract price equal to the monies, rights and other
considerations received by Great Lakes or its Affiliates with respect to the
performance by Octel or any of its Affiliates under such subcontract.
(c) Great Lakes and Octel shall use their commercially
reasonable efforts to obtain any consent, approval or amendment required to
novate and/or assign all agreements, leases, licenses and other rights of any
nature whatsoever relating to the Excluded Assets, including, without
limitation, the Excluded Businesses, to Great Lakes or Affiliates of Great
Lakes; provided, however, that Octel and its Affiliates shall not be obligated
to pay any consideration therefor (except for filing fees and other
administrative charges and except as otherwise specifically provided herein) to
the third party from whom such consents, approvals and amendments are requested.
In the event and to the extent that Octel or its Affiliates is unable to obtain
any such required consent, approval or amendment, (i) Octel or its Affiliates
shall continue to be bound thereby and (ii) unless not permitted by law or the
terms thereof, Great Lakes or its Affiliates shall pay, perform and discharge
fully all the obligations of Octel or its Affiliates thereunder after the
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Distribution Date and indemnify Octel or its Affiliates for all Indemnifiable
Losses arising out of such performance by Great Lakes or its Affiliates or any
claims by third parties thereunder (other than the Octel Liabilities). Octel
shall, without further consideration therefor, pay and remit to Great Lakes
promptly all monies, rights and other considerations received in respect of such
performance. Octel or its Affiliates shall exercise or exploit its rights and
options under all such agreements, leases, licenses and other rights and
commitments referred to in this Section 6.3(c) only as reasonably directed by
Great Lakes and at Great Lakes' expense. If and when any such consent shall be
obtained or such agreement, lease, license or other right shall otherwise become
assignable or able to be novated, Octel or its Affiliates shall promptly assign
and novate all its rights and obligations thereunder to Great Lakes or its
Affiliates without payment of further consideration and Great Lakes or its
Affiliates shall, without the payment of any further consideration therefor,
assume such rights and obligations. To the extent that the assignment of any
contract or agreement (or their proceeds) pursuant to this Section 6.3 is
prohibited by law, the assignment provisions of this Section shall operate to
create a subcontract with Great Lakes or its Affiliates to perform each relevant
unassignable contract or agreement of Octel or its Affiliates at a subcontract
price equal to the monies, rights and other considerations received by Octel
with respect to the performance by Great Lakes or its Affiliates under such
subcontract.
(d) (i) All Bids, Quotations and Proposals included in the
Transferred Businesses or Transferred Assets shall be transferred to Octel to
the extent permitted by law. Great Lakes and Octel shall work together and use
all reasonable efforts to preserve such Bids, Quotations and Proposals and
facilitate the award of contracts pursuant thereto consistent with applicable
laws and regulations. Any contracts awarded pursuant to an outstanding Bid,
Quotation or Proposal shall be considered an agreement and treated in the same
manner as provided for in the last two sentences of Section 6.3(b) hereof.
(ii) All Excluded Bids, Quotations and
included in the Excluded Businesses or Excluded Assets shall be
transferred to Great Lakes to the extent permitted by law. Great Lakes
and Octel will work together and use all reasonable efforts to preserve
such Excluded Bids, Quotations and Proposals and facilitate the award of
contracts pursuant thereto consistent with applicable laws and
regulations. Any contacts awarded pursuant to an outstanding Excluded
Bid, Quotation or Proposal shall be considered an
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agreement and treated in the same manner as provided for in the last two
sentences of Section 6.3(c) hereof.
Section 6.4 Octel Officers and Directors. Octel and Great Lakes
shall take all actions which may be required to elect or otherwise appoint, as
of the Distribution Date, those individuals designated in the Information
Statement to be directors or officers of Octel.
Section 6.5 Resignations. On or prior to the Distribution Date,
Great Lakes shall cause all directors, officers and employees of Great Lakes or
its Affiliates who are not designated in the Information Statement to be
directors and officers of Octel following the Distribution Date to resign from
their positions as directors or officers of Octel.
Section 6.6 Certain Intercompany Arrangements. Following the
Distribution Date, the parties shall discuss in good faith the provision of any
services and products to be provided by the other, but which inadvertently were
not the subject of a written agreement. Nothing in this Section 6.6, however,
shall require or authorize Great Lakes or Octel to provide and charge each other
for any services other than on the terms and conditions specified in the
Corporate Services Transition Agreement or the other Related Agreements.
Section 6.7 Related Agreements. At or prior to the Distribution
Date, Great Lakes and Octel shall enter, and shall cause their respective
Affiliates to enter (if applicable), into the Related Agreements.
Section 6.8 Signs; Use of Corporate Names.
(a) Within 90 days after the Distribution Date, Octel, at
its own expense, shall remove (or, if necessary, cover up) any and all exterior
and interior signs and identifiers which refer or pertain to Great Lakes at the
Transferred Businesses. After such 90-day period, Octel shall not, without the
prior written consent of Great Lakes, use or display the name "Great Lakes" or
other trademarks, trade names or their identifiers owned by or licensed to Great
Lakes except to the extent such marks, names and identifiers have been assigned
or licensed to Octel. Octel shall indemnify and hold harmless Great Lakes for
any Liabilities incurred by Great Lakes as a result of the use of such
trademarks, trade names and identifiers by Octel, which indemnification
obligation shall be governed by Article V hereof.
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(b) Within 90 days after the Distribution Date, Great
Lakes, at its own expense, shall remove (or, if necessary, cover up) any and all
exterior and interior signs and identifiers which refer or pertain to Octel at
the Excluded Businesses. After such 90-day period, Great Lakes shall not,
without the prior written consent of Octel, use or display the name "Octel" or
other trademarks, trade names or their identifiers owned by or licensed to Octel
except to the extent such marks, names and identifiers have been assigned or
licensed to Great Lakes. Great Lakes shall indemnify and hold harmless Octel for
any Liabilities incurred by Octel as a result of the use of such trademarks,
trade names and identifiers by Great Lakes, which indemnification obligation
shall be governed by Article V hereof.
Section 6.9 Supplies and Documents.
(a) For a period of six months following the Distribution
Date, Octel shall have the right to use existing supplies and documents
(including, but not limited to forms, labels, shipping materials, packaging
materials, catalogues, sales brochures, operating manuals, instructional
documents and similar materials, and advertising material) being transferred to
it pursuant to this Agreement which have imprinted thereon the name "Great
Lakes" or trademarks, logotypes or variations comprising the name "Great
Lakes." At the end of such time period, Octel shall destroy all such remaining
supplies and documents. In addition, Octel shall cause the name of any of its
subsidiaries or Affiliates containing the phrase "Great Lakes" to be changed to
delete any such reference. Octel shall indemnify and hold harmless Great Lakes
for any Liabilities incurred by Great Lakes as a result of the use of such
supplies and documents by Octel, which indemnification obligations shall be
governed by Article V hereof.
(b) For a period of six months following the Distribution
Date, Great Lakes shall have the right to use existing supplies and documents
(including, but not limited to forms, labels, shipping materials, packaging
materials, catalogues, sales brochures, operating manuals, instructional
documents and similar materials, and advertising material) being transferred to
it pursuant to this Agreement which have imprinted thereon the name "Octel" or
trademarks, logotypes or variations comprising the name "Octel." At the end of
such time period, Great Lakes shall destroy all such remaining supplies and
documents. In addition, Great Lakes shall cause the name of any of its
subsidiaries or Affiliates containing the phrase "Octel" to be changed to delete
any such reference. Great Lakes shall indemnify and hold harmless Octel for any
Liabilities incurred by Octel as a result of the use of such
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supplies and documents by Great Lakes, which indemnification obligations shall
be governed by Article V hereof.
Section 6.10 Letters of Credit.
(a) Octel shall use its commercially reasonable efforts to
substitute Octel letters of credit for the Great Lakes letters of credit, if
any, and obtain the release of any Great Lakes guarantees, outstanding on the
Distribution Date with respect to obligations of the Transferred Businesses. In
addition, Octel shall reimburse Great Lakes for any costs incurred or funds
advanced by Great Lakes with respect to any such letters of credit within thirty
(30) days following the date of such incurrence.
(b) Great Lakes shall use its commercially reasonable
efforts to substitute Great Lakes letters of credit for the Octel letters of
credit, if any, and obtain the release of any Octel guarantees, outstanding on
the Distribution Date with respect to obligations of the Excluded Businesses. In
addition, Great Lakes shall reimburse Octel for any costs incurred or funds
advanced by Octel with respect to any such letters of credit within thirty (30)
days following the date of such incurrence.
Section 6.11 Partnership Agreement. Octel, on behalf of itself
and each of its Affiliates (the "Partnership Releasors"), hereby agrees that
Great Lakes and each of its Affiliates, stockholders, successors and assigns
(the "Great Lakes Releasees") shall not be liable to any of the Partnership
Releasors for any claims, suits, demands, proceedings, causes of action or any
other Liabilities whatsoever, whether arising directly or indirectly before, on
or after the Distribution Date that would not have arisen but for any amendment,
alteration, modification or other change whatsoever to (a) the Partnership
Agreement, or any waiver of the terms thereof by any party thereto, or (b) the
capital and/or current accounts of the partners in Octel Associates or their
predecessors or successors in title consequent upon any revaluation of the
goodwill of Octel Associates effected pursuant to the terms of the Partnership
Agreement.
Section 6.12 DBE Storage Tank. Prior to the date that the
dedicated dibromoethane storage tank which is the subject of the DBE Lease (the
"DBE Storage Tank") is delivered to Great Lakes (such date to be as soon as
reasonably practicable taking into account Octel's available dibromoethane
storage capacity at its Ellesmere Port facility), Octel shall take, or shall
cause to be taken, at its own
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expense, any and all such measures as shall be necessary to ensure that DBE
Storage Tank has been properly drained of Octel's off-specification
dibromoethane and cleaned to the extent necessary for use by Great Lakes for
storage of on-specification dibromoethane.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
Section 7.1 Provision of Corporate Records.
(a) As soon as practicable after the Distribution Date,
Great Lakes shall deliver to Octel all Transferred Businesses Books and Records
in its possession. Upon such delivery, such Transferred Businesses Books and
Records shall become the property of Octel, but shall be retained and made
available (upon reasonable notice during normal business hours) to Great Lakes
for review and duplication and Great Lakes shall have the right to retain copies
of all or any portion of such Transferred Businesses Books and Records from and
after the Distribution Date as it shall deem necessary or appropriate. The costs
of duplicating any Transferred Businesses Books and Records shall be borne by
Great Lakes. At such time as Octel decides to dispose of any Transferred
Businesses Books and Records, it shall provide Great Lakes with reasonable
notice of such decision and provide Great Lakes the opportunity to assume
control of or duplicate any Transferred Businesses Books and Records which it
determines are necessary. The foregoing notwithstanding, technical notebooks and
other Transferred Businesses Books and Records subject to the Tax Disaffiliation
Agreement shall be governed by the terms of such agreement.
(b) As soon as practicable after the Distribution Date,
Octel shall deliver to Great Lakes all Excluded Books and Records in its
possession. Upon such delivery, such Excluded Books and Records shall become the
property of Great Lakes, but shall be retained and made available (upon
reasonable notice during normal business hours) to Octel for review and
duplication and Octel shall have the right to retain copies of all or any
portion of such Excluded Books and Records from and after the Distribution Date
as it shall deem necessary or appropriate. The costs of duplicating any Excluded
Books and Records shall be borne by Octel. At such time as Great Lakes decides
to dispose of any Excluded Books and Records, it shall provide Octel with
reasonable notice of such decision and provide Octel the opportunity to assume
control of or duplicate any Excluded Books and Records which it determines are
necessary. The foregoing notwithstanding, technical notebooks and
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other Excluded Books and Records subject to the Tax Disaffiliation Agreement
shall be governed by the terms of such agreement.
Section 7.2 Access to Information. From and after the
Distribution Date, Great Lakes and Octel shall afford to each other and to each
other's authorized accountants, counsel and other designated representatives
reasonable access and duplicating rights (with copying costs to be borne by the
requesting party) during normal business hours to all Transferred Businesses
Books and Records, all Excluded Books and Records and all documents,
communications, items and matters (collectively, "Information") within each
other's knowledge, possession or control relating to the Transferred Assets, the
Transferred Businesses, the Assumed Liabilities, the Retained Liabilities, the
Excluded Businesses, the Excluded Assets, the Transferred Great Lakes Employees
and the Transferred Octel Employees, insofar as such access is reasonably
required by Great Lakes or Octel, as the case may be (and shall use reasonable
efforts to cause persons or firms possessing relevant Information to give
similar access). Information may be requested under this Article VII for,
without limitation, audit, accounting, claims, Actions and tax purposes, as well
as for purposes of fulfilling disclosure and reporting obligations, but not for
competitive purposes.
Section 7.3 Production of Witnesses and Individuals. From and
after the Distribution Date, Great Lakes and Octel shall use reasonable efforts
to make available to each other, upon written request, its officers, directors,
employees and agents for fact finding, consultation and interviews and as
witnesses to the extent that any such person may reasonably be required in
connection with any Actions in which the requesting party may from time to time
be involved relating to the conduct of the Transferred Businesses, the
Non-Transferred Businesses and the Excluded Businesses. Except as otherwise
agreed between the parties or as provided in Article V hereof or pursuant to the
Joint Representation and Defense Agreement, Great Lakes and Octel agree to
reimburse each other for reasonable out-of-pocket expenses, labor charges and
salary payments incurred by the other in connection with providing individuals
and witnesses pursuant to this Section 7.3.
Section 7.4 Retention of Records. Except when a longer retention
period is otherwise required by law or agreed to by both parties in writing,
Great Lakes and Octel shall retain, for a period of seven (7) years from the
later of the Distribution Date and the date such Information is created, all
material Information relating to the Transferred Businesses, the Transferred
Assets, the Excluded Businesses, the Excluded Assets, the Assumed Liabilities,
the Retained Liabilities, the
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Transferred Great Lakes Employees and the Transferred Octel Employees.
Notwithstanding the foregoing, in lieu of retaining any specific Information,
Great Lakes or Octel may offer in writing to deliver such Information to the
other and, if such offer is not accepted within 90 days, the offered Information
may be destroyed or other wise disposed of at any time. If a recipient of such
offer shall request in writing prior to the scheduled date for such destruction
or disposal that any of the Information proposed to be destroyed or disposed of
be delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the Information as
was requested (at the cost of the requesting party).
Section 7.5 Confidentiality.
(a) Each of Great Lakes and Octel shall, and shall cause
its officers, employees, agents, contractors, consultants, advisors and
Affiliates to, hold, in strict confidence, and not disclose to another,
Confidential Information concerning the other party, except (i) for purposes of
fulfilling its obligations under this Agreement or the Related Agreements or
(ii) as compelled to disclose by any stock exchange on which such party's equity
is traded, by judicial or administrative process or, in the opinion of its
independent legal counsel, by other requirements of law.
(b) For purposes of this Section 7.5, Confidential
Information about a particular party (referred to herein as the "First Party")
shall mean information known by the other party on the Distribution Date and
reasonably understood by the other party to be confidential and related to the
First Party's business interests (including, but not limited to, technical and
research and development information), or disclosed confidentially by the First
Party to the other party after the Distribution Date under the terms and for
purposes of this Agreement or any of the Related Agreements except for:
(i) information learned by the other party
for the first time after the Distribution Date, but prior to any
disclosure by the First Party;
(ii) information which is or becomes publicly
available through no act of the other party, from and after the
date of public availability;
(iii) information disclosed to the other party
by a third party, provided (A) under the circumstances of disclosure
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the other party does not have a duty of non-disclosure owed to such
third party, (B) the third party's disclosure is not violative of a duty
of non-disclosure owed to another, including the First Party, and (C)
the disclosure by the third party is not otherwise unlawful;
(iv) information developed by the other
party independent of any Confidential Information of the First Party
which is known by the other party on the Distribution Date and/or
disclosed by the First Party thereafter; and
(v) subject to compliance with clause (f) of
this Section 7.5, information which is required to be disclosed in
connection with any legal proceedings or ongoing Remediation
obligations.
(c) The foregoing restrictions shall expire with respect
to Confidential Information ten (10) years after the date of disclosure of such
information, unless and to the extent Great Lakes and Octel agree to a longer
period for the foregoing restrictions, in which case the foregoing restrictions
shall expire with respect to such information on the expiration of such longer
period. The date of disclosure in the case of Confidential Information of Great
Lakes known by Octel or Confidential Information of Octel known by Great Lakes
on the Distribution Date shall be considered to be the Distribution Date.
(d) Each party shall protect Confidential Information of
the other party by using the same degree of care, but no less than a reasonable
degree of care, to prevent the unauthorized disclosure of the other party's
Confidential Information as the party uses to protect its own Confidential
Information of a like nature.
(e) Each party shall insure that its Affiliates,
sublicensees and other transferees (such as advisors, attorneys and other
consultants) agree in writing to be bound by the same restrictions on use and
disclosure of Confidential Information as bind the party in advance of the
disclosure of Confidential Information to them.
(f) Upon receipt by any party or its Affiliates of any
subpoena, discovery or other request which calls for the production or
disclosure of Confidential Information of the other party and whenever any party
obtains knowl-
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edge that any current or former employee of such party or its Affiliates has
received any subpoena, discovery or other request which arguably calls for the
production or disclosure of Confidential Information, such party shall promptly
notify the other party of the existence of the request and shall provide the
other party a reasonable opportunity to review the Confidential Information and
to assert any rights it may have under this Section 7.5 or otherwise to prevent
the production or disclosure of Confidential Information. Each party and its
Affiliates shall not produce or disclose any Confidential Information unless (i)
the other party has provided its express written consent to such production or
disclosure, or (ii) a court of competent jurisdiction has entered a final,
non-appealable order finding that the Confidential Information is not entitled
to protection.
(g) Great Lakes has provided or, prior to the Distribution
Date, shall provide to Octel copies of all effective confidentiality agreements
in its possession entered into since January 1, 1996 which relate to the
Transferred Businesses or the Transferred Assets.
Section 7.6 Privileged Matters.
(a) Octel and Great Lakes agree to maintain, preserve and
assert all privileges that either party may have that exist on or before the
Distribution Date, and regardless of when such privileges would ultimately be
asserted, including without limitation, any privilege or protection arising
under or relating to any attorney-client relationship ("Privilege" or
"Privileges"). Great Lakes and Octel shall be entitled in perpetuity to require
the assertion or decide whether to consent to the waiver of any and all
Privileges which, in the case of Octel, relate to the Transferred Businesses,
the Transferred Assets and/or Assumed Liabilities and, in the case of Great
Lakes, relate to the Excluded Businesses, the Excluded Assets, the
Non-Transferred Businesses and the Retained Liabilities. Octel and Great Lakes
shall each use the same degree of care as it would with respect to itself so as
not to waive any Privilege which could be asserted under applicable law without
the prior written consent of the other party. The rights and obligations created
by this Section 7.6 shall apply to all Information as to which, but for the
Distribution, Great Lakes or its Affiliates or Octel or its Affiliates would
have been entitled to assert or did assert the protection of a Privilege
("Privileged Information"), including but not limited to (i) all Information
generated on or prior to the Distribution Date but which, after the
Distribution, is in the possession of the other party or its Affiliates; (ii)
all communications subject to a Privilege occurring on or prior to the
Distribution Date between counsel for Great Lakes or its Affiliates and any
person who, at the time of the
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communication, was an employee of Great Lakes or its Affiliates, regardless of
whether such employee is or becomes an Octel employee or an employee of any of
Octel's Affiliates; (iii) all communications subject to a Privilege occurring on
or prior to the Distribution Date between counsel for Octel or its Affiliates,
and any person who, at the time of the communication, was an employee of Octel,
Octel Associates, The Associated Octel Company, Octel America, Inc. or any
Affiliate thereof or was an employee of the Transferred Businesses or the
Excluded Businesses, regardless of whether such employee is or becomes a Great
Lakes employee or an employee of any of Great Lakes' Affiliates; and (iv) all
Information generated, received or arising after the Distribution Date that
consists of Privileged Information generated, received or arising on or prior to
the Distribution Date but which, after the Distribution Date, is in the
possession of the other party or its Affiliates.
(b) Upon receipt by any party or its Affiliates of any
subpoena, discovery or other request which calls for the production or
disclosure of Privileged Information of the other party and whenever any party
obtains knowledge that any current or former employee of such party or its
Affiliates has received any subpoena, discovery or other request which arguably
calls for the production or disclosure of Privileged Information, such party
shall promptly notify the other party of the existence of the request and shall
provide the other party a reasonable opportunity to review the Privileged
Information and to assert any rights it may have under this Section 7.6 or
otherwise to prevent the production or disclosure of Privileged Information.
Each party and its Affiliates shall not produce or disclose any Information
covered by a Privilege of the other party under this Section 7.6 unless (i) the
other party has provided its express written consent to such production or
disclosure, or (ii) a court of competent jurisdiction has entered a final,
non-appealable order finding that the Information is not entitled to protection
under any applicable Privilege.
(c) Great Lakes' transfer of the Transferred Businesses
Books and Records and any other Information to Octel, Octel's transfer of
Excluded Books and Records and any other Information to Great Lakes and the
agreement of Great Lakes and Octel to permit the other to possess Privileged
Information occur ring or generated on or prior to the Distribution Date, are
made in reliance on the agreement of Octel and Great Lakes, as set forth in this
Section 7.6, to maintain the confidentiality of Privileged Information and to
maintain, preserve and assert all applicable Privileges. The access to
Information granted or permitted by this Agreement, the agreement to provide
witnesses and individuals pursuant to Section 7.3 hereof and transfer of
Privileged Information to Octel and to Great Lakes
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pursuant to this Agreement shall not be deemed a waiver of any Privilege that
has been or may be asserted under this Section 7.6 or otherwise. Nothing in this
Agreement shall operate to reduce, minimize or condition the rights granted to
either party in, or the obligations imposed upon either party by, this Section
7.6.
Section 7.7 Mail and Other Communications. Each of Great Lakes
and Octel agrees to forward or direct (as appropriate) to the other party any
mail or other communications of such other party which is received by it or its
Affiliates.
ARTICLE VIII
EMPLOYEE MATTERS AND BENEFITS
Section 8.1 Benefit Plans. Schedule 8.1 contains a true and
complete list of (a) each deferred compensation and each incentive compensation
plan, program, agreement or arrangement, (b) each "welfare" plan, fund or
program (within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) (each, a "Welfare Plan"), (c) each
"pension" plan, fund or program (within the meaning of section 3(2) of ERISA),
(d) each employment, termination or severance agreement, and (e) each other
employee benefit plan, fund, program, agreement or arrangement; in each case,
that is sponsored, maintained or contributed to or required to be contributed to
by Great Lakes or its Affiliates for the benefit of any Transferred Great Lakes
Employee (the documents listed on Schedule 8.1, the "Benefit Plans").
Section 8.2 Assumption of Benefit Plans. Octel or its Affiliates
shall assume (or retain, as the case may be) and be solely responsible for, and
Octel shall indemnify Great Lakes with respect to, all Liabilities under the
Benefit Plans relating to any Transferred Great Lakes Employees, including, but
not limited to, any Liabilities under the Great Lakes Supplemental Savings Plan,
any accrued vacation and payroll taxes, and any severance arrangements, with
respect to all periods of service with Octel or Great Lakes or their respective
Affiliates, whether prior to, on or following the Distribution, except: (i)
Liabilities for benefits accrued as of the Distribution Date with respect to the
Transferred Great Lakes Employees under the Retirement Plan for Certain Members
of Great Lakes Chemical Corporation; (ii) except as described in Section 8.4
below, Liabilities for benefits accrued as of the Distribution Date with respect
to the Transferred Great Lakes Employees under the Great Lakes Savings Plan (the
"Savings Plan"); and (iii) Liabilities with respect to
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claims incurred prior to the Distribution Date under any Benefit Plan that is a
Welfare Plan.
Section 8.3 Service Credit. The Transferred Great Lakes Employees
shall receive credit for service prior to the Distribution Date with Great
Lakes or any Great Lakes Entity for purposes of participation, eligibility,
vesting and benefit accrual and entitlement under any employee benefit plans
maintained by Octel or its Affiliates, including but not limited to satisfaction
of any pre-existing condition under any such plan, provided, however, that no
such service shall be credited with respect to a Transferred Great Lakes
Employee under an employee benefit plan if the crediting of such service would
result in duplication of benefits with respect to such Transferred Great Lakes
Employee under such employee benefit plan.
Section 8.4 Transfer and Vesting of Savings Plan Balances;
Vesting of Pension Plan Benefits. (a) Prior to the Distribution Date, Great
Lakes shall take all such actions as shall be necessary or appropriate to cause
the account balances of the Transferred Great Lakes Employees (other than any
Transferred Great Lakes Employee described in clause (ii) of the definition of
Transferred Great Lakes Employee) under the Savings Plan to be fully vested as
of the Distribution Date. As soon as practicable after the Distribution Date,
Octel shall establish or designate an individual account plan for the benefit of
the Transferred Great Lakes Employees (the "Successor Savings Plan"), shall take
all necessary action, if any, to qualify such plan under the applicable
provisions of the Code and shall make any and all filings and submissions to the
appropriate governmental agencies required to be made by it in connection with
the transfer of assets described below. As soon as practicable following the
establishment or designation of the Successor Savings Plan, Great Lakes shall
cause the trustee of the Savings Plan to transfer (such date of transfer being
referred to herein as the "Transfer Date") in the form of cash the full account
balances of the Transferred Great Lakes Employees under the Savings Plan as of
the Distribution Date (which account balances will have been credited with
appropriate earnings attributable to the period from the Distribution Date to
the Transfer Date and reduced by any benefit or withdrawal payments to or in
respect of the Transferred Great Lakes Employees occurring during the period
from the Distribution Date to the Transfer Date) to the appropriate trustee as
designated by Octel under the trust agreement forming a part of the Successor
Savings Plan.
(b) In consideration for the transfer of assets described
herein, Octel shall, effective as of the Transfer Date, (i) cause the Successor
Savings Plan to assume all of the obligations of Great Lakes and any of its
Affiliates in
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respect of the account balances accumulated by the Transferred Great Lakes
Employees under the Savings Plan on or prior to the Transfer Date and (ii)
indemnify Great Lakes and its Affiliates and each officer, employee and director
of Great Lakes and its Affiliates and each fiduciary of the Savings Plan from
any and all losses, claims, damages and liabilities incurred or suffered by them
arising out of, in respect of, or in connection with, the qualified status of
the Successor Savings Plan. Neither Octel nor any of its Affiliates shall assume
any other obligations or liabilities arising under or attributable to the
Savings Plan.
(c) Prior to the Distribution Date, Great Lakes shall take
all such actions as shall be necessary or appropriate to cause the accrued
benefits of the Transferred Great Lakes Employees (other than any Transferred
Great Lakes Employee described in clause (ii) of the definition of Transferred
Great Lakes Employee) under the Retirement Plan for Certain Employees of Great
Lakes Chemical Corporation to be fully vested as of the Distribution Date.
Section 8.5 Certain Transfers from U.K. Pension Plans. With
respect to the transfer of any assets and Liabilities in relation to the
Transferred Octel Employees from any U.K. pension plan sponsored by Octel or its
Affiliates to any such arrangements sponsored by Great Lakes or its Affiliates
the following provisions shall apply:
(a) Any transfer of past service entitlements for any
Transferred Octel Employee shall only occur after the consent of the Transferred
Octel Employee concerned has been obtained;
(b) Octel shall procure that transfer payments made to a
pension plan sponsored by Great Lakes or its Affiliates from any U.K. pension
plan sponsored by Octel or its Affiliates are calculated on the ongoing
actuarial method and assumptions as set out in the draft report dated December
12, 1997 by J Mason of Watson Wyatt Partners in relation to The Associated Octel
Company Limited Pension Plan, provided that the Transfer Amount shall not be
less than the Adjusted Guaranteed Amount.
In the event that there is a shortfall in the amount of that
transfer payment actually made then Octel shall be responsible for making good
any such deficit within 14 days of the amount in question becoming due.
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(c) The period of temporary participation by Great Lakes
or its Affiliates in a U.K. pension plan sponsored by Octel or its Affiliates
shall be a period not to exceed 6 months from the U.K. Transfer Date.
(d) Octel and Great Lakes shall use their best endeavours
to assist each other as necessary in any reorganization of their U.K. pension
arrangements.
(e) Octel and Great Lakes shall comply, and shall cause
their Affiliates to comply with the terms and conditions of Schedule 8.5.
Section 8.6 Transferred Octel Employees.
(a) The parties agree that the transfer to Great Lakes
pursuant to this Agreement of the Excluded Assets and the Excluded Businesses
constitute relevant transfers within the meanings of the Transfer of
Undertakings (Protection of Employment) Regulation 1981 ("TUPE").
(b) With effect from the U.K. Transfer Date the contract
of employment of each of the Transferred Octel Employees (save insofar as such
contract relates in either case to any occupational pension scheme) shall be
transferred to Great Lakes or one of its Affiliates.
(c) Great Lakes or its relevant Affiliate will, so far as
possible, replicate the terms of employment enjoyed by the Transferred Octel
Employees immediately prior to the U.K. Transfer Date and will recognize the
prior continuous service of the Transferred Octel Employees with Octel or any of
its Affiliates for all purposes.
(d) All wages, salaries, withholding taxes, payroll taxes
and employment taxes and other costs and expenses of, and all other obligations
in respect of the Transferred Octel Employees in respect of the period up to and
including the U.K. Transfer Date shall be discharged by Octel. Octel will
indemnify and keep indemnified Great Lakes against all losses, Liabilities,
costs, claims and expenses incurred by Great Lakes or any of its Affiliates
arising from any failure by Octel to so discharge. Great Lakes or its relevant
Affiliate will be responsible for all such wages, salaries, withholding taxes,
payroll taxes and employment taxes and other costs and expenses in respect of
the period after the U.K. Transfer Date.
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(e) Octel will indemnify and hold harmless Great Lakes
against any and all losses, Liabilities, costs, claims and expenses which Great
Lakes or its Affiliates may incur arising out of or in connection with any act
or omission by Octel or its Affiliates in relation to any Transferred Octel
Employee on or prior to the U.K. Transfer Date, including without limitation:
(i) the termination of employment of (or
the giving notice of such termination to) any Transferred Octel
Employee;
(ii) any act of unlawful discrimination;
(iii) any personal injury or other harm
suffered in the course of his/her employment with Octel or its
Affiliates; and
(iv) any failure by Octel or its Affiliates to
comply with the provisions of Regulation 10 of TUPE.
(f) Octel will further indemnify and hold harmless Great
Lakes against any wages, salaries, withholding taxes, payroll taxes and
employment taxes and other costs and expenses incurred by Great Lakes or any of
its Affiliates arising in respect of any person who is not a Transferred Octel
Employee but whose contract of employment is nonetheless transferred to Great
Lakes or any of its Affiliates by virtue of TUPE as a result of this Agreement.
(g) Great Lakes will indemnify and hold harmless Octel
against any and all losses, Liabilities, costs, claims and expenses which Octel
may incur arising out of or in connection with any act or omission by Great
Lakes or any of its Affiliates in relation to any Transferred Octel Employee
after the U.K. Transfer Date, including without limitation:
(i) the termination of employment of any
Transferred Octel Employee;
(ii) any act of unlawful discrimination;
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(iii) any personal injury or other harm
suffered by any Transferred Octel Employee in course of his/her
employment with Great Lakes or any of its Affiliates;
(iv) the application to any Transferred Octel
Employee of terms of employment different from those which he/she
enjoyed with Octel immediately prior to the Distribution Date.
(h) (i) Forthwith upon the U.K. Transfer Date or at such
date as mutually agreed after the U.K. Transfer Date, Octel will deliver to
Great Lakes (or to its order) the full personnel, tax and payroll records of all
the Transferred Octel Employees, including, without limitation, details of any
health and safety matters affecting any such Transferred Octel Employee and
his/her disciplinary, sickness and appraisal records and (ii) forthwith upon
the Distribution Date or at such date as mutually agreed after the Distribution
Date, Great Lakes will deliver to Octel (or to its order) the full personnel,
tax and payroll records of all the Transferred Great Lakes Employees, including,
without limitation, details of any health and safety matters affecting any such
Transferred Great Lakes Employee and his/her disciplinary, sickness and
appraisal records.
ARTICLE IX
ENVIRONMENTAL MATTERS
Section 9.1 Octel Responsibility. At the Distribution Date, Octel
shall, and shall cause its Affiliates to, assume and be responsible for the
Assumed Environmental Liabilities. Without limiting the foregoing, Octel, or an
Affiliate of Octel, as the case may be, shall, promptly after the Distribution
Date, execute and obtain to the extent it is necessary and possible to do so,
and assist Great Lakes to execute and obtain, any consents, transfers,
assignments, assumptions, waivers, and other legally effective instruments to
cause Octel, or an Affiliate of Octel, as the case may be, to be substituted for
Great Lakes and its Affiliates with respect to all decrees and orders (whether
administrative or judicial and whether unilateral or by consent), permits,
licenses, registrations, financial assurances (including letters of credit),
other orders and decrees and any other obligations with respect to Environmental
Matters or arising under Environmental Laws relating to (i) the Assumed
Environmental Liabilities and (ii) the past, present and future operations of
the Transferred Businesses.
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Section 9.2 Great Lakes Responsibility. At the Distribution Date,
Great Lakes shall assume and/or remain responsible for the Retained
Environmental Liabilities. Without limiting the foregoing, Great Lakes, or an
Affiliate of Great Lakes, as the case may be, shall, promptly after the
Distribution Date, execute and obtain to the extent it is necessary and possible
to do so, and assist Octel to execute and obtain, any consents, transfers,
assignments, assumptions, waivers, and other legally effective instruments to
cause Great Lakes, or an Affiliate of Great Lakes, as the case may be, to be
substituted for Octel and its Affiliates with respect to all decrees and orders
(whether administrative or judicial and whether unilateral or by consent),
permits, licenses, registrations, financial assurances (including letters of
credit), other orders and decrees and any other obligations with respect to
Environmental Matters or arising under Environmental Laws relating to (i) the
Retained Environmental Liabilities and (ii) the past, present and future
operations of the Excluded Businesses (other than the Octel Liabilities).
ARTICLE X
INSURANCE
Section 10.1 General.
(a) Great Lakes shall continue all global insurance
coverage under the Great Lakes Insurance Program that was in effect as of March
1, 1998 insuring the Transferred Assets and operations of the Transferred
Businesses until 12:00 midnight New York time on the day before the Distribution
Date, except for property/business interruption and transit coverages (the
"March Insurance"), which shall have expired at 12:00 midnight London, U.K. time
on March 31, 1998. Except as provided in Section 10.1(b) and 10.3(a)(iii),
beginning at 12:01 a.m. New York time on the Distribution Date (or 12:01 a.m.
London, U.K. time on April 1, 1998 with respect to the March Insurance), Octel
and its Affiliates shall cease to be named insureds on a worldwide basis under
all global insurance policies in Great Lakes' Insurance Program. Except as
otherwise specifically stated in Sections 10.1(b) and 10.3, Octel, for itself
and its Affiliates, understands and agrees that the effect of these actions
shall be to eliminate insurance coverage not only for future claims and
occurrences but also for prior claims and occurrences which might have given or
may give rise to liabilities for which Octel or its Affiliates would be
responsible.
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(b) Octel and Great Lakes acknowledge the existence, in
certain policy periods prior to the Distribution Date, of occurrence-based
liability and casualty policies, including but not limited to crime, U.K.
employers' liability, U.S. worker's compensation, public and products liability
and U.K. motor liability, which policies named Octel, Great Lakes or various
Great Lake Entities as insureds. Nothing in this Agreement shall in any way
preclude any of the insureds from accessing any applicable occurrence-based
insurance with respect to occurrences prior to the Distribution Date. Octel and
Great Lakes shall not, and shall cause their respective Affiliates not to,
remove Octel or Great Lakes or any Great Lakes Entity as an insured, additional
insured or additional named insured or reduce their status as such with respect
to occurrence-based coverage for periods prior to the Distribution Date. Octel
and Great Lakes shall use reasonable efforts to obtain for Octel and Great
Lakes, or any applicable Great Lakes Entity, the benefit of all occurrence-based
insurance coverage described herein, and the party receiving the benefit of such
insurance shall reimburse the other for its reasonable out of pocket costs and
expenses incurred in connection therewith.
Section 10.2 Octel's Insurance.
(a) (i) Prior to the Distribution Date, Octel shall have
obtained and shall maintain for a one (1) year period from and after 12:01 A.M.
London, U.K. time on April 1, 1998 with respect to the March Insurance and 12:01
A.M. New York time on the Distribution Date with respect to all other insurance
(x) liability insurance substantially the same in scope as the insurance
provided to Octel and its Affiliates as of March 1, 1998 under the Great Lakes
Insurance Program, to cover, inter alia, Octel's indemnity obligations set
forth in this Agreement and in the Related Agreements, which insurance shall
have such limits as confirmed in a separate side letter signed by the parties,
shall provide coverage from and after April 1, 1994 and in all other respects
shall be reasonably satisfactory to Great Lakes and Octel, and (y) such other
insurance coverages in addition to that provided in clause (x) that are
substantially the same in scope as that provided to Octel and its Affiliates as
of March 1, 1998 under the Great Lakes Insurance Program, with such other
insurance coverages to be reasonably satisfactory to Great Lakes.
(ii) For all periods after the one (1) year
period specified in Section 10.2(a)(i), Octel shall obtain liability
insurance with such limits as confirmed in a separate side letter signed
by the parties, property/business interruption and directors' and
officers' liability insurance all substantially the same in scope (but
not
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necessary in financial limit) as that provided to Octel and its
Affiliates as of March 1, 1998 under the Great Lakes Insurance Program.
The insurance required by this Section 10.2(a)(ii) shall be maintained
by Octel until Great Lakes and Octel agree in writing that this
requirement is no longer needed.
(iii) If Octel does not obtain the coverages it
is obligated to obtain under this Agreement by the Distribution Date,
Great Lakes may, but shall not be required to, obtain them on behalf of
Octel and for Octel's account. Within thirty (30) days of the date of an
invoice from Great Lakes, Octel will reimburse Great Lakes for the
costs, if any, incurred by Great Lakes to purchase on Octel's behalf any
insurance coverage required by this Section 10.2(a). The insurance
coverage to be obtained by Octel pursuant to this Section 10.2(a) shall
be evidenced to Great Lakes by either: (x) broker's certificates of
insurance, with a minimum notice of cancellation or material change in
said coverage of sixty (60) days or such shorter period not being less
than thirty (30) days as the relevant insurers are willing to provide,
or (y) other documentation of coverage reasonably acceptable to Great
Lakes in either case to be delivered to Great Lakes prior to the
Distribution Date and each subsequent policy renewal date. The public
and product liability insurance coverages (including associated excess
liability insurance coverage) required by this Section 10.2(a) shall
name Great Lakes and its Affiliates additional insureds with respect
only to any liabilities of Octel or its Affiliates arising out of this
Distribution Agreement, contain a waiver of insurer's subrogation rights
and be primary and respond before any other applicable insurance of
Great Lakes.
(iv) Octel shall reimburse Great Lakes for
any reasonable costs or expenses incurred by Great Lakes or its
Affiliates after January 1, 1998 under the Great Lakes Insurance Program
that relate to the Transferred Businesses including, without limitation,
insurance policy deductible amounts or any costs incurred
by Niagara Insurance Company Ltd.
(b) Prior to the Distribution Date Great Lakes shall have
obtained directors' and officers' liability insurance coverage acceptable to
both Great Lakes and Octel in scope of coverage, limits, and cost to each and
confirmed in a
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separate side letter signed by each (the "Run-Off Policies") for Great Lakes and
Octel, their Affiliates and their officers and directors for acts and omissions
prior to the Distribution Date. Within thirty (30) days of the date of an
invoice from Great Lakes, Octel will reimburse Great Lakes for all agreed costs
incurred by Great Lakes with respect to coverage attributable to Octel under the
Run-Off Policies. The deductible amounts under the Run-Off Policies shall be
borne equally by Octel and Great Lakes under the circumstance where acts or
omissions of officers or directors of both Great Lakes and Octel are alleged in
the claim.
(c) Octel agrees that Great Lakes has made no warranty,
express or implied, and no representation that the scope of coverage or policy
limits of the insurance described in Section 10.1, 10.2 or 10.3 is, or shall be,
adequate or sufficient to meet Octel's, its Affiliates or their officers' and
directors' current or future insurance needs.
Section 10.3 Access to Great Lakes' Insurance Program.
(a) (i) On and after the Distribution Date, in addition to
any occurrence-based coverages available under Section 10.1(b) and coverages
available under Section 10.3 (a)(iii), Octel and its Affiliates shall have
access through Great Lakes to such global coverages and limits as may be
available under Great Lakes' pre-Distribution Date Insurance Program only for:
(x) covered claims under claims-made insurance policies (other than those under
the Run-Off Policies, which are subject to clause (y) below) that occurred prior
to the Distribution Date and which claims are notified to Great Lakes prior to
the Distribution Date pursuant to the applicable procedures under the Great
Lakes Insurance Program (provided, however, with respect to covered claims under
the March Insurance, such covered claims must have occurred prior to April 1,
1998 and must have been notified to Great Lakes pursuant to the applicable
procedures under the Great Lakes Insurance Program), and (y) the Run-Off
Policies for covered claims arising from acts or omissions prior to the
Distribution Date which: (A) are made against the directors and/or officers of
Octel or its Affiliates, and (B) are legally indemnifiable and which have been
indemnified by Octel or its Affiliates.
(ii) The officers and directors of Octel and
its Affiliates shall have access to such coverages and limits as may be
available under the Run-Off Policies for covered claims arising from
acts or omissions prior to the Distribution Date which: (A) are made
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against them, or any of them, and (B) are not legally indemnifiable and
which have not been indemnified by Octel or its Affiliates.
(iii) Great Lakes shall include Octel or its
Affiliates as an additional insured on its post-Distribution Date public
and products liability policies (also known as commercial general
liability) and associated excess liability policies, but only with
respect to any liabilities of Great Lakes or its Affiliates arising out
of this Distribution Agreement, until Great Lakes and Octel shall agree
in writing that this requirement is no longer needed. The insurance
coverage to be provided by Great Lakes pursuant to the immediately
preceding sentence shall: (1) be evidenced to Octel by either (x)
broker's certificates of insurance, with a minimum notice of
cancellation or material change in said coverage of sixty (60) days or
such shorter period not being less than thirty (30) days as the relevant
insurers are willing to provide, or (y) other documentation of coverage
reasonably acceptable to Octel in either case to be delivered to Octel
prior to the Distribution Date and each subsequent policy renewal date;
(2) contain a waiver of insurer's subrogation rights, and (3) be
primary, and respond before any other applicable insurance of Octel.
(b) Octel, for itself and its Affiliates, understands and
agrees that: (i) except as provided in Sections 10.1(b), 10.3(a)(i)(x),
10.3(a)(i)(y) and 10.3(a)(iii) with respect to Octel and its Affiliates, and
Section 10.3(a)(ii) with respect to officers and directors of Octel and its
Affiliates, no coverage shall be available under Great Lakes' Insurance Program;
(ii) any access to Great Lakes' Insurance Program including, without limitation,
the Run-Off Policies, shall be subject to available coverage and to all of the
terms, conditions, exclusions, retentions/deductibles and limits of such
policies; and, (iii) Great Lakes has made no warranty or representation of any
insurance Recovery from, or insurance coverage under, Great Lakes' Insurance
Program.
Section 10.4 Insurance Recoveries.
(a) Subject to the provisions of this Article X, Great
Lakes shall use its reasonable efforts to obtain Recoveries for Octel and its
Affiliates from Great Lakes' insurance carriers for coverage available under
Sections 10.1(b) and 10.3 hereof and shall keep Octel reasonably informed of
Great Lakes' efforts under this Section 10.4(a). Great Lakes shall reimburse
Octel for any Recovery obtained
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by it pursuant to such claims; provided, however, that notwithstanding the
foregoing, if Great Lakes has made a claim or claims under an insurance policy
which is not to be paid to Octel pursuant to Section 10.1(b) or 10.3 and a claim
or claims which are to be paid to Octel pursuant to Section 10.1(b) or 10.3 and
the amount of the Recovery for such claims is limited by the amount of coverage
provided by such policy, Great Lakes may reasonably allocate the Recovery
between it and Octel for such claims. Octel shall pay all out of pocket costs
incurred by Great Lakes in making any claim on behalf of Octel pursuant to this
Section 10.4(a) (and for claims made by Great Lakes under an insurance policy
where the Recovery would be paid in part to Great Lakes and in part to Octel,
Octel shall pay the out of pocket costs incurred by Great Lakes in connection
with the Octel Recovery), and such out of pocket costs incurred in pursuing a
claim may be deducted from any Recovery for such claim. Octel shall also pay the
salaries of Great Lakes' officers and employees based on their time spent
pursing such recoveries on behalf of Octel. Octel agrees to make available to
Great Lakes such of its employees and the employees of its Affiliates as Great
Lakes may reasonably request as witnesses or deponents in connection with Great
Lakes' management of claims, at Octel's sole cost and expense. Octel agrees
that, if Great Lakes has paid a Recovery to Octel for such a claim and Octel or
its Affiliates receives proceeds from any other person with respect to such
Recovery, Octel shall pay to Great Lakes the amount of such proceeds it has
received.
(b) Subject to the provisions of this Article X, Octel
shall use its reasonable efforts to obtain Recoveries for Great Lakes and its
Affiliates for coverage available under Section 10.1(b) or 10.2 hereof and shall
keep Great Lakes reasonably informed of Octel's efforts under this Section
10.4(b). Octel shall reimburse Great Lakes for any Recovery obtained by it
pursuant to such claims, provided, however, that notwithstanding the foregoing,
if Octel has made a claim or claims under an insurance policy which is not to be
paid to Great Lakes pursuant to Section 10.1(b) or 10.2 and a claim or claims
which are to be paid to Great Lakes pursuant to Section 10.1(b) or 10.2 and the
amount of the Recovery for such claims is limited by the amount of coverage
provided by such policy, Octel may reasonably allocate the Recovery between it
and Great Lakes for such claims. Great Lakes shall pay all out of pocket costs
incurred by Octel in making any claim on behalf of Great Lakes pursuant to this
Section 10.4(b) (and for claims made by Octel under an insurance policy where
the Recovery would be paid in part to Octel and in part to Great Lakes, Great
Lakes shall pay the out of pocket costs incurred by Octel in connection with the
Great Lakes Recovery), and such out of pocket costs incurred in pursuing a claim
may be deducted from any Recovery for such claim. Great Lakes shall also pay the
salaries of Octel's officers and employees based on their time spent
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on pursuing such recoveries on behalf of Great Lakes. Great Lakes agrees to make
available to Octel such of its employees and the employees of its Affiliates as
Octel may reasonably request as witnesses or deponents in connection with
Octel's management of claims, at Great Lakes' sole cost and expense. Great Lakes
agrees that, if Octel has paid a Recovery to Great Lakes for such a claim and
Great Lakes or its Affiliates receives proceeds from any other person with
respect to such Recovery, Great Lakes shall pay to Octel the amount of such
proceeds it has received.
Section 10.5 Assignment. Nothing in this Agreement shall be
deemed to constitute (or to reflect) an assignment of any insurance policy or
insurance benefit.
ARTICLE XI
DISPUTE RESOLUTION
Section 11.1 Mediation and Binding Arbitration. Except as may be
otherwise expressly provided in this Agreement, the Related Agreements, or any
other agreements entered into in connection with this transaction, if any
dispute, controversy or claim (collectively, a "Dispute") between Great Lakes
and Octel or any of their respective Affiliates arises out of or relates to this
Agreement, the Related Agreements or any other agreement entered into pursuant
hereto or thereto, including, without limitation, the breach, interpretation or
validity of any such agreement or any matter involving an Indemnifiable Loss,
Great Lakes and Octel agree to use the following procedures, in lieu of either
party pursuing other available remedies and as the sole remedy (except as
provided in Section 11.11 below), to resolve the Dispute. As provided in Section
12.3 hereof, the laws of New York shall apply to any such Dispute.
Section 11.2 Initiation. A party seeking to initiate the
procedures shall give written notice to the other party, describing briefly the
nature of the Dispute. After notice of a Dispute has been provided, the parties
shall for a period of not less than 30 days seek to resolve the Dispute through
good faith negotiations. Where practicable, a meeting shall be held between the
parties within 10 days of the receipt of such notice, attended by individuals
with decision-making authority regarding the Dispute, to attempt in good faith
to negotiate a resolution of the Dispute.
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Section 11.3 Submission to Mediation. If, within 30 days after
such meeting, the parties have not succeeded in negotiating a resolution of the
Dispute, the Dispute shall be submitted to mediation at the earliest possible
date in accordance with the Center for Public Resources Model ADR Procedure -
Mediation of Business Disputes, as modified herein, and the parties shall bear
equally the costs of the mediation.
Section 11.4 Selection of Mediator. The parties shall jointly
appoint a mutually acceptable mediator. If they are unable to agree upon such
appointment within 10 days from the conclusion of the negotiation period, either
party may request the Center for Public Resources or another mutually
agreed-upon organization to appoint the mediator.
Section 11.5 Mediation and Arbitration. The parties agree to
participate in good faith in the mediation process for a period of 30 days after
the mediator has been selected or such longer period as they may mutually agree;
provided, however, that in the event that one party fails to participate in
mediation, the Dispute may be referred immediately by either party to
arbitration and the time of such failure shall constitute the end of the
mediation period. After 30 days from the appointment of the mediator, either
party may submit the Dispute to binding arbitration in accordance with the
International Rules for Arbitration of the American Arbitration Association. The
arbitration shall be held in London, England, and judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The award shall be final and binding upon the parties, and shall be the
sole and exclusive remedy between the parties regarding any claims,
counterclaims, issues or accounting presented to the arbitral tribunal. The
parties expressly agree that leave to appeal under Section 45 or Section 69 of
the English Arbitration Act of 1996 may not be sought with respect to any
question of law arising in the course of the arbitration or with respect to any
award made.
Section 11.6 Selection of Arbitrator. The parties shall have 10
days from the end of the mediation period to agree upon a mutually acceptable
person to act as arbitrator. The arbitrator shall be a person who is both
independent and neutral (i.e., a person not affiliated with either of the
parties), and shall be a person who is knowledgeable in the subject matter of
the Dispute. If the parties are unable to agree on the selection of an
arbitrator, the appointment of the arbitrator shall be made in accordance with
the rules of the American Arbitration Association.
Section 11.7 Cost of Arbitration. The costs of arbitration shall
be apportioned between Great Lakes and Octel as determined by the arbitrator in
such
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manner as the arbitrator deems reasonable taking into account the circumstances
of the case, the conduct of the parties during the proceeding, and the result of
the arbitration.
Section 11.8 Arbitration Period. Any arbitration proceeding shall
be concluded in a maximum of one (1) year from written notice from one party to
the other party initiating the procedures under this Article XI and requesting
arbitration after having participated, to the extent contemplated herein, in
negotiation and mediation under this Article XI.
Section 11.9 Treatment of Negotiation and Mediation. All
negotiations and mediations pursuant to this Article XI shall be treated as
privileged compromise and settlement negotiations.
Section 11.10 Confidentiality. All negotiation, mediation and
arbitration proceedings under this Article XI shall be treated as Confidential
Information in accordance with the provisions of Section 7.5 hereof. Any
mediator or arbitrator shall be bound by an agreement containing confidentiality
provisions at least as restrictive as those contained in Section 7.5 hereof.
Section 11.11 Interim Relief. Either party may seek from a court
of competent jurisdiction interim or provisional relief in order to maintain the
status quo during the pendency of the dispute resolution provisions of this
section. Upon commencement of arbitration, such interim or provisional relief
may be subsequently vacated, continued or modified by the arbitrator on
application of either party.
Section 11.12 Notices. All notices by one party to the other
party in connection with the dispute resolution provisions set forth in this
Article XI shall be in accordance with the provisions of Section 12.4.
Section 11.13 Consolidation. The arbitrator shall have the power
in appropriate circumstances to provide for consolidation of arbitration claims
between the parties.
Section 11.14 Powers of Arbitrator. Notwithstanding any contrary
provision of this Agreement or the governing law, the arbitrator shall have no
authority to award punitive or exemplary damages or any other monetary damages
not measured by the prevailing party's actual damages, except in connection with
an indemnification claim to the extent an Indemnified Party has paid or becomes
liable to pay an Indemnifiable Loss in connection with a Third Party Claim which
includes
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punitive, exemplary or other damages not measured by the third party's actual
damages.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Complete Agreement. This Agreement, including the
Schedules, Annexes and Exhibits and the agreements and other documents referred
to herein, shall constitute the entire agreement between Great Lakes and Octel
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Section 12.2 Expenses. (a) Great Lakes or Octel (as the case may
be) shall pay the following fees and expenses, including those fees and expenses
of their respective Affiliates, incurred in connection with this Agreement, the
Distribution, the Information Statement, the Form 10, the Financings, the
Offering Circular, and the transactions contemplated herein and therein,
regardless of whether such fees and expenses are payable before, on or after the
Distribution Date:
(i) Great Lakes shall be responsible for the
payment of: (a) the advisory fee and expenses of Goldman, Sachs & Co.
relating to the Distribution and other financial advice; (b) all fees
and expenses of Ernst & Young LLP, except to the extent such fees and
expenses are to be paid by Octel pursuant to clause (a)(ii)(c); (c) all
fees and expenses of Skadden, Arps, Slate, Meagher & Flom, except to the
extent such fees and expenses are to be paid by Octel pursuant to clause
(a)(ii)(c) or clause (a)(ii)(e); (d) all fees and expenses of Hammond
Suddards, except to the extent such fees and expenses are to be paid by
Octel pursuant to clause (a)(ii)(c) or clause (a)(ii)(d); (e) $554,000
in fees and expenses of Kirkland & Ellis; (f) $375,000 in fees and
expenses of Price Waterhouse LLP; (g) $65,000 in fees and expenses of
Sabrelance; (h) $120,000 in fees and expenses of Linklaters & Paines;
(i) the costs of printing and mailing the Form 10, the Information
Statement, the Offering Circular and the Octel stock certificates; (j)
all fees and expenses in connection with the Credit Facility, the
Offering Circular and the Notes to the extent that such fees and
expenses exceed the obligation assumed by Octel under clauses
(a)(ii)(a), (b) and (c); and (k) any other fees and expenses not
expressly listed in clause (a)(i) to the extent that Great Lakes
retained
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the person or entity that provided the services that are the subject of
such fee or expense.
(ii) Octel shall be responsible for the payment
of: (a) the $4,800,000 fee of Goldman, Sachs & Co. relating to the
Credit Facility (as defined in the Form 10); (b) the $4,500,000 fee of
Goldman, Sachs & Co. relating to the Offering Circular and the Notes (as
defined in the Form 10); (c) all fees and expenses (in addition to the
$4,800,000 fee and $4,500,000 fee of Goldman, Sachs & Co. as specified
in (a)(ii)(a) and (a)(ii)(b) above) in connection with the Credit
Facility, the Offering Circular and the Notes (including, without
limitation, the fees and expenses of Cravath, Swaine & Moore, Dames &
Moore, Chem Systems and Ashurst Morris Crisp) up to an aggregate amount
of $939,668 (but excluding any fees and expenses incurred by Octel with
Linklaters & Paines, Kirkland & Ellis, Sabrelance and Price Waterhouse
LLP, which shall be in addition to such sum and are for Octel's account
pursuant to clause (a)(ii)(g) other than to the extent payable by Great
Lakes under clauses (a)(i)(e), (f), (g) and (h) above); (d) $75,000 in
fees and expenses of Hammond Suddards (in addition to any fees and
expenses of Hammond Suddards that are payable by Octel pursuant to
clause (a)(ii)(c)); (e) $120,000 in fees and expenses of Skadden, Arps,
Slate, Meagher & Flom (in addition to any fees and expenses of Skadden,
Arps, Slate, Meagher & Flom that are payable by Octel pursuant to clause
(a)(ii)(c)); (f) all fees and expenses of Moody's Investors Service and
Standard and Poor's Rating Group; (g) all fees and expenses of
Linklaters & Paines, Kirkland & Ellis, Price Waterhouse LLP and
Sabrelance, except to the extent such fees and expenses are to be paid
by Great Lakes pursuant to clauses (a)(i)(e), (f), (g) and (h); (h) all
payments due and owing under the following interest rate hedge
agreements: (x) Forward Treasury Lock Agreement, dated as of October 24,
1997, between The Associated Octel Company, Limited and Morgan Guaranty
Trust Company of New York (Deal Number 214011), (y) Confirmation, dated
October 23, 1997, between Associated Octel Company Limited, UK and
Goldman Sachs Capital Markets, LP (Reference Number NUU0710950
(600000000)/(006 833 495)) and (z) Forward Treasury Lock Agreement,
dated as of October 30, 1997, between The Associated Octel Company,
Limited and Morgan Guaranty Trust Company of New York (Deal Number
214690), and with respect to (x), (y) and (z) all extensions, rollovers
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or reissuances thereof regardless of whether effected under the same or
a different deal number or reference number; and (i) any other fees or
expenses not expressly listed in clause (a)(ii) to the extent that Octel
retained the person or entity that provided the services that are the
subject of such fee or expense.
(b) The party responsible for the payment of fees or
expenses incurred by the other party as provided in clauses (a)(i) and (a)(ii)
shall also be responsible for any applicable VAT, unless the party incurring the
fees or expenses (and who seeks reimbursement under clause (d)) has a right of
offset or recovery for such VAT, in which case the party incurring the fees or
expenses shall be responsible for the VAT.
(c) Neither party shall have any right of recovery against
the other for any fees or expenses of Kirkland & Ellis, Price Waterhouse LLP,
Linklaters & Paines and Sabrelance that were paid by Octel prior to January 1,
1998.
(d) Within ninety (90) days following the Distribution
Date, each party shall reimburse the other for all amounts paid or to be paid
pursuant to the allocation of fees and expenses in clauses (a)(i) and (a)(ii).
Section 12.3 Governing Law. Except with respect to the
Conveyancing and Assumption Instruments, which shall be governed by local law,
and except as may be expressly provided in this Agreement, the Related
Agreements and any other agreements entered into in connection with this
transaction, this Agreement, the Related Agreements and any other agreement
entered into in connection with this transaction and any questions, claims,
disputes, remedies or procedural matters shall be governed exclusively by the
laws of New York, without regard to the principles of conflicts of law, as to
all matters, including, without limitation, matters of validity, construction,
effect, performance and remedies. The parties agree that New York has a
substantial relationship to this transaction.
Section 12.4 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (a) on the date of service if served personally on the
party to whom notice is given, (b) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, provided facsimile
confirmation of receipt is obtained promptly after completion of transmission,
(c) on the third business day after delivery to an overnight courier service,
provided receipt of delivery has been confirmed, or (d) on the tenth day after
mailing, provided receipt of delivery is
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confirmed, if mailed to the party to whom notice is to be given, by first class
mail, registered or certified, postage prepaid, properly addressed and
re-turn-receipt requested, to the party as follows:
If to Great Lakes: Great Lakes Chemical Corporation
One Great Lakes Boulevard
West Lafayette, Indiana 47906
United States
Attn: Vice President and General Counsel
Telecopy: (765) 497-6660
If to Octel: Octel Corp.
P.O. Box 17, Oil Sites Road
Ellesmere Port
South Wirral L65 4HF
United Kingdom
Attn: Senior Vice President and General Counsel
Telecopy: 44-151-356-6239
Any party may change its address by giving the other party written notice of its
new address in the manner set forth above.
Section 12.5 Amendment and Modification. This Agreement may
be amended, modified or supplemented only by written agreement of the parties.
Section 12.6 Termination. This Agreement may be terminated and
the Distribution abandoned at any time prior to the Distribution Date by and in
the sole discretion of Great Lakes without the approval of Octel. In the event
of such termination, no party shall have any liability of any kind to any other
party.
Section 12.7 Successors and Assigns. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party without the prior written consent of the other party,
provided, however, that Octel may assign its rights and interests under this
Agreement in connection with the Lenders' Liens.
To the extent that Great Lakes assigns to a party (including an
Affiliate of Great Lakes) any of its Retained Liabilities (except for such
amounts of
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Retained Liabilities which are not material, individually or in the aggregate),
Great Lakes shall cause the assignee of such Retained Liabilities to assume
specifically its obligations with respect thereto under this Agreement, shall
cause such assignee to fulfill its obligations related to such Retained
Liabilities and shall guarantee the performance thereof. To the extent Octel
transfers to another party (including an Affiliate of Octel) any of the Assumed
Liabilities (except for such amounts of Assumed Liabilities which are not
material individually or in the aggregate), Octel shall cause the assignee of
such Assumed Liabilities to assume specifically its obligations with respect
thereto under this Agreement, shall cause such assignee to fulfill its
obligations related to such Assumed Liabilities and shall guarantee the
performance thereof. In the event the assignee of the Retained Liabilities or
Assumed Liabilities does not fulfill its obligations with respect thereto, Great
Lakes or Octel, as the case may be, shall fulfill its obligations with respect
thereto and continue to guarantee the performance of such obligations pursuant
to Section 12.15 hereof.
Section 12.8 No Third Party Beneficiaries. Except with respect to
the Lenders' Liens and except as provided in Section 5.1(b), Section 5.1(c) and
any other applicable indemnity provisions contained in this Agreement granting
rights to third parties, this Agreement is solely for the benefit of the parties
hereto and is not intended to confer upon any other person except the parties
hereto any rights or remedies hereunder.
Section 12.9 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 12.10 Interpretation. The Article, Section and
subparagraph headings contained in this Agreement are solely for the purpose of
reference, are not part of the agreement of the parties and shall not in any way
affect the meaning or interpretation of this Agreement. As used in this
Agreement, the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof. Whenever any
words are used herein in the masculine gender, they shall be construed as though
they were also used in the feminine gender in all cases where they would so
apply.
Section 12.11 Annexes, Etc. The Annexes, Schedules and Exhibits
shall be construed with, and shall be an integral part of, and are hereby
expressly
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incorporated into, this Agreement to the same extent as if the same had been set
forth verbatim herein.
Section 12.12 Construction of Agreements. Notwithstanding any
other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
(or any Conveyancing and Assumption Instrument or other instrument of
assumption) and the provisions of any other agreement entered into by Great
Lakes or Octel pursuant to this Agreement (including, without limitation, the
Related Agreements other than the Tax Disaffiliation Agreement), the provisions
of this Agreement shall control. Except as provided in Section 12.2 with respect
to VAT, all Liabilities and obligations of the parties regarding Taxes (as that
term is defined in the Tax Disaffiliation Agreement) shall be governed
exclusively by the Tax Disaffiliation Agreement. In the event of any conflict
between this Agreement and the Tax Disaffiliation Agreement, the terms of the
Tax Disaffiliation Agreement will prevail.
Section 12.13 Legal Enforceability. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 12.14 Survival. All covenants, obligations and agreements
of the parties contained in this Agreement shall survive the Distribution Date
or the sale or other transfer by other party of the Transferred Businesses, the
Transferred Assets, the Excluded Business or the Excluded Assets (as the case
may be) or the assignments by either party of any Liabilities.
Section 12.15 Guaranty. Octel and Great Lakes each guarantees the
performance of all obligations of its Affiliates, assignees and transferees (if
any) under this Agreement, all Related Agreements and all other agreements to be
entered into in connection with this transaction. Great Lakes shall use its best
efforts to cause its Affiliates, Great Lakes Europe Limited and Great Lakes
Chemical (Europe) Limited, and Octel shall use its best effort to cause its
Affiliates, Associated Octel Company (Plant) Limited, Octel Trading Limited,
Octel Resources Limited, The Associated Octel Company Limited and AKC Trading
Limited within ninety (90) days of the date of this Agreement to enter into
guarantees of the performance of the obligations of Great Lakes and Octel,
respectively, under this Agreement, the Related Agreements and all other
agreements to be entered into in connection with
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this transaction to the extent that such guarantees are lawful and do not
infringe the terms of any contractual obligation entered into by Great Lakes, or
Octel or their respective Affiliates on or prior to the Distribution Date. For
these purposes, the obligations of Great Lakes and Octel shall include an
obligation to procure compliance with Sections 155 to 158 Companies Act 1985 of
the United Kingdom so far as the same are capable of being complied with in
relation to such guarantees.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered as of the day and year first above written.
GREAT LAKES CHEMICAL CORPORATION
By:___________________________________
Name:
Title:
OCTEL CORP.
By:___________________________________
Name:
Title:
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ANNEX I
ASSUMED LIABILITIES
Assumed Liabilities: (a) all Liabilities or obligations
(regardless of whether any claims with respect to such Liabilities and
obligations are asserted before, on or after the Distribution Date) relating to,
arising from or out of, or incurred in connection with, the acquisition,
ownership, use or operation of the Transferred Businesses or the Transferred
Assets, whether arising out of acts or omissions before, on or after the
Distribution Date, shall be expressly deemed to be Assumed Liabilities of Octel,
including, but not limited to:
(i) all Liabilities and obligations which should be set forth,
reflected, disclosed or reserved for on a balance sheet for Octel as of the
Distribution Date, which balance sheet shall be prepared in the same manner as
the December 31, 1997 audited balance sheet of Octel included in the Information
Statement (after giving effect to any pro forma adjustments reflected in the
Information Statement);
(ii) all Liabilities and obligations relating to, arising from or
out of, or incurred in connection with, the acquisition of all or any portion
of, the Transferred Businesses or the Transferred Assets, including, without
limitation, any Liabilities or obligations arising under the agreements set
forth on Schedule 1 to this Annex I;
(iii) all Liabilities and obligations pursuant to, under or
relating to all agreements, contracts and leases, whether written or oral,
whether entered into before, on or after the Distribution Date, relating to the
Transferred Businesses or Transferred Assets, including, without limitation, the
agreements set forth on Schedule 2 to this Annex I;
(iv) all Liabilities and obligations relating to, arising out of,
or incurred in connection with (A) the formation, structure and operation of The
Associated Octel Company Limited or Octel Associates or (B) the status of or
conduct of the businesses by Great Lakes or any Great Lakes Entity as an owner,
shareholder or partner, as the case may be, of The Associated Octel Company
Limited or Octel Associates, including, without limitation, any Liabilities and
obligations arising under or relating to the agreements set forth on Schedule 3
to this Annex I;
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(v) all Liabilities and obligations relating to, arising out of
or incurred in connection with the ownership, operation or use of the
Transferred Businesses or Transferred Assets, before, on or after the
Distribution Date;
(vi) all Assumed Environmental Liabilities and Product
Liabilities;
(vii) outstanding Bids, Quotations and Proposals pertaining to
the Transferred Businesses to the extent that such Bids, Quotations and
Proposals can be transferred or assigned without extinguishment or penalty; and
all contracts awarded to Great Lakes or any Great Lakes Entity before, on or
after the Distribution Date pertaining to the Transferred Businesses or the
Transferred Assets, as (A) assignee if those contracts are assignable and
assigned or transferred by operation of law, or (B) subcontractor if assignment
of those contracts and/or the proceeds therefrom is prohibited by law;
(viii) all warranty, performance and similar obligations entered
into or made in the course of business of the Transferred Businesses with
respect to Products;
(ix) all Liabilities and obligations not specifically retained by
Great Lakes pursuant to this Agreement or the Related Agreements with respect to
Transferred Great Lakes Employees;
(x) all Liabilities and obligations relating to all Actions
relating to, arising out of or incurred in connection with the operations of the
Transferred Businesses or the Transferred Assets;
(xi) all Liabilities and obligations relating to, arising out of,
or incurred in connection with the Transferred Businesses or the Transferred
Assets under laws, rules or regulations relating to the registration or
regulation of the sale or use of Products in commerce and similar state and
local laws;
(b) the Octel Liabilities shall be expressly deemed to be Assumed
Liabilities of Octel;
(c) all Liabilities and obligations specifically assumed by Octel
pursuant to this Agreement or the Related Agreements with respect to the
Transferred Octel Employees shall be expressly deemed to be Assumed Liabilities
of Octel;
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(d) (i) all Liabilities and obligations relating to the draining and
cleaning of the DBE Storage Tank as provided in Section 6.12 of this Agreement,
(ii) that portion of the Liabilities and obligations under the DBE Lease for
repairing or rebuilding the DBE Storage Tank which shall be equal to (A) the
total amount of such Liabilities and obligations multiplied by (B) the quotient
obtained by dividing (1) the number of days Octel or its Affiliates utilized the
DBE Storage Tank from February, 1985, through the date Octel delivers the DBE
Storage Tank to Great Lakes as provided in Section 6.12 by (2) the total number
of days the DBE Storage Tank was utilized by Octel or its Affiliates and Great
Lakes or its Affiliates from February, 1985 through any termination of the DBE
Lease, and (iii) except to the extent provided in (i) or (ii) above, any breach
of the DBE Lease by Octel or its Affiliates on or prior to the date Octel
delivers the DBE Storage Tank to Great Lakes as provided in Section 6.12 shall
be expressly deemed to be Assumed Liabilities of Octel; and
(e) all Liabilities and obligations for severance payments pursuant to
the agreement between Graham Hewitt and The Associated Octel Company Limited,
dated June 5, 1997, and the agreement between Glenda Hale and The Associated
Octel Company Limited, dated October 21, 1997 shall be expressly deemed to be
Assumed Liabilities of Octel.
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ANNEX I, SCHEDULE 1
Acquisition of Majority Interest in Octel Associates and The Associated Octel
Company Limited from BP, Mobil and Texaco Effective On or About May 18, 1989:
1. Sale and Purchase Agreement, dated February 21, 1989, between Great
Lakes Chemical Corporation, BP Oil U.K. Limited, Mobil Coatings Limited,
Texaco Limited and Texaco International Trader Inc.;
2. Deed of Assumption, dated May 18, 1989, between BP Oil U.K. Limited,
Texaco Limited, Mobil Coatings Limited, Shell U.K. Limited, Chevron
International Oil Company Limited and Great Lakes Chemical (Europe)
Limited; and
3. Deed of Novation, dated May 18, 1989, between Shell U.K. Limited, The
British Petroleum Company plc, Mobil Oil Corporation, Trans-Ocean
Chevron Company, The Dorchester Oil Trading Company Limited, Texaco
International Trader Inc., Mobil Coatings Limited and Great Lakes
Chemical (Europe) Limited.
Acquisition of Shell Interests in The Associated Octel Company Limited and Octel
Associates Effective On or About March 16, 1992:
1. Sale and Purchase Agreement, dated November 22, 1991, between Shell
Ventures U.K. Limited, Shell U.K. Limited and GHC Properties, Inc.;
2. Deed of Assumption dated November 20, 1991, between Shell U.K. Limited,
Shell Ventures U.K. Limited, The Associated Octel Company Limited and
Associated Octel Company (Plant) Limited;
3. Deed of Guarantee and Warranty, dated November 22, 1991, between Great
Lakes Chemical Corporation, Shell Ventures U.K. Limited and Shell U.K.
Limited;
4. Stamp Duty Agreement, dated November 22, 1991, between Shell U.K.
Limited and Great Lakes Chemical Corporation;
5. Deed of Guarantee, dated November 22, 1991, between Shell U.K. Limited,
GHC Properties, Inc. and Great Lakes Chemical Corporation;
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6. Letter, dated December 27, 1991, from Robert Jeffares for and on behalf
of GHC Properties, Inc. to Shell Ventures U.K. Limited and Shell U.K.
Limited;
7. Deed, dated March 13, 1992, between Chevron International Oil Company
Limited, Great Lakes Europe Limited and Great Lakes Chemical (Europe)
Limited;
8. Letter, dated March 13, 1992, from Emerson Kampen for and on behalf of
Great Lakes Chemical Corporation to the Directors, Shell U.K. Limited;
9. Novation of Managing Agency and Leasing Agreements, dated March 16,
1992, between Shell Ventures U.K. Limited, Great Lakes Chemical (Europe)
Limited, The Dominion Motor Spirit Co Limited, Mobil Holdings (U.K.)
Limited, Team Fuels Limited, The Associated Octel Company Limited and
Associated Octel Company (Plant) Limited;
10. Deed of Assumption, dated March 16, 1992, between BP Oil U.K. Limited,
Texaco Limited, Mobil Coatings Limited, Shell Ventures U.K. Limited,
Chevron International Oil Company Limited, Great Lakes Europe Limited,
Great Lakes Chemical (Europe) Limited, The Dominion Motor Spirit Co
Limited, Mobil Holdings (U.K.) Limited and Team Fuels Limited;
11. Deed of Novation, dated March 16, 1992, between Shell U.K. Limited,
Shell Ventures U.K. Limited, GHC Properties Inc., Great Lakes Europe
Limited and Great Lakes Chemical (Europe) Limited;
12. Deed of Novation Partnership Agreement with NEC, dated March 16, 1992,
between Shell U.K. Limited, Shell Ventures U.K. Limited, The Associated
Octel Company Limited, Nobel's Explosives Company Limited, Great Lakes
Chemical (Europe) Limited, The Dominion Motor Spirit Company Limited,
Mobil Holdings (U.K.) Limited, and Team Fuels Limited;
13. Deed of Novation Participant's Agreement, dated March 16, 1992, between
Shell U.K. Limited, Trans-Ocean Chevron Company, Dorchester Oil Trading
Company Limited, Texaco International Trader Inc., Mobil Coatings
Limited and Great Lakes Europe Limited;
14. Deed of Indemnity, dated March 16, 1992, between Great Lakes Europe
Limited, Great Lakes Chemical (Europe) Limited, Shell Ventures U.K.
Limited and Shell U.K. Limited;
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<PAGE> 80
15. Letter, dated March 16, 1992, from Emerson Kampen on behalf of Great
Lakes Chemical Corporation to Shell Ventures U.K. Limited and Shell U.
K. Limited;
16. Letter, dated March 13, 1992, from Emerson Kampen for and on behalf of
Great Lakes Chemical Corporation to Shell U.K. Limited;
17. Deed of Supply, dated November 14, 1991, between Great Lakes Europe
Limited and Shell Internationale Petroleum Maatschappij BV;
18. Deed of Assumption and Guarantee, dated November 18, 1991, between BP
Oil U.K. Limited, Texaco Limited, Mobil Coatings Limited, Shell U.K.
Limited, Chevron International Oil Company Limited, Great Lakes Chemical
(Europe) Limited and Shell Ventures U.K. Limited; and
19. Dollar Retention Agreement, dated October 7, 1993, between The
Associated Octel Company Limited and Chevron Chemical Company.
Acquisition of Shell Interests in Fuel Detergent Plant Effective On or About
March 16, 1992:
1. Asset Sale Agreement, dated November 22, 1991, between Shell U.K.
Limited, GHC Properties, Inc., The Associated Octel Company Limited and
Associated Octel Company (Plant) Limited; and
2. Deed of Novation, dated March 16, 1992, between Shell U.K. Limited, GHC
Properties, Inc., The Associated Octel Company Limited, Associated Octel
Company (Plant) Limited, and Great Lakes Europe Limited.
Acquisition of E.I. du Pont de Nemours and Company's Petroleum Additives
Business and North and South America Compounds Business Effective On or About
August 31, 1994:
1. Agreement (to purchase assets of Petroleum Additives Business) dated
August 31, 1994, between E. I. du Pont de Nemours and Company and Octel
America, Inc.;
2. Seller's Information License Agreement-Petroleum Additives, dated August
31, 1994, between E.I. du Pont de Nemours and Company and Octel America,
Inc.;
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<PAGE> 81
3. Manufacturing and Supply Agreement, dated August 31, 1994, between E. I.
du Pont de Nemours and Company and Octel America, Inc.;
4. Support Services Agreement, dated August 31, 1994, between E. I. du Pont
de Nemours and Company and Octel America, Inc.
5. Transportation and Distribution Agreement, dated as of August 31, 1994,
between E. I. du Pont de Nemours and Company and Octel America, Inc.;
6. Tradename License Agreement, dated August 31, 1994, between E. I. du
Pont de Nemours and Company and Octel America, Inc.;
7. License Agreement (to occupy the Petroleum Additives Laboratory), dated
August 31, 1994, between E. I. du Pont de Nemours and Company and Octel
America, Inc.;
8. Technology License Agreement (relating to DCI-11 Corrosion Inhibitor),
dated August 31, 1994, between E. I. du Pont de Nemours and Company and
Octel America, Inc.;
9. Assignment and Assumption Agreement, dated August 31, 1994, between
Octel America Inc. and E.I. du Pont de Nemours and Company;
10. Agreement (to purchase Lead Additive Business), effective as of August
31, 1994, between E. I. du Pont de Nemours and Company, Societa Italiana
Additivi per Carburanti s.r.l. and AKC Trading Limited;
11. Assignment and Assumption Agreement, dated August 31, 1994, between
Societa Italiana Additivi per Carburanti s.r.l. and E. I. du Pont de
Nemours and Company; and
12. Seller's Information License Agreement, executed and delivered as of
August 31, 1994, between Societa Italiana Additive per Carburanti and E.
I. du Pont de Nemours and Company.
Acquisition of BP, Mobil, Texaco .01% Interests in The Associated Octel Company
Limited and Octel Associates Effective On or About February 4, 1997:
1. Settlement Deed, dated February 4, 1997, between Great Lakes Chemical
Corporation, Great Lakes Europe Ltd., Great Lakes Chemical (Europe)
Ltd.,
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<PAGE> 82
BP Oil U.K. Limited, The Dominion Motor Spirit Co., Limited, Dorchester
Oil Trading Company Limited, Mobil Coatings Limited, Mobil Holdings
(U.K.) Limited, Texaco Limited, Texaco International Trader Inc., Team
Fuels Limited, The British Petroleum Company p.l.c., Mobil Corporation
and Texaco Inc.;
2. Deed of Guarantee, in the form of Schedule 9, Part 1 to the Deed of
Settlement dated 4 February 1997, dated March 13, 1997, between The
British Petroleum Company p.l.c., Great Lakes Chemical Corporation,
Great Lakes Europe Ltd., and Great Lakes Chemical (Europe) Ltd.;
3. Deed of Guarantee, in the form of Schedule 9, Part 2 to the Deed of
Settlement dated 4 February 1997, dated March 13, 1997, between Mobil
Corporation, Great Lakes Chemical Corporation, Great Lakes Europe Ltd.
and Great Lakes Chemical (Europe) Ltd.;
4. Deed of Guarantee, in the form of Schedule 9, Part 3 to the Deed of
Settlement dated 4 February 1997, dated March 13, 1997, between Texaco
Inc., Great Lakes Chemical Corporation, Great Lakes Europe Ltd. and
Great Lakes Chemical (Europe) Ltd.;
5. Deed of Guarantee, in the form of Schedule 13 to the Deed of Settlement
dated 4 February 1997, dated March 13, 1997, between Great Lakes
Chemical Corporation, BP Oil U.K. Limited, Texaco International Trader
Inc, Texaco Limited and Mobil Coatings Limited;
6. Deed of Assumption, dated March 13, 1997, between BP Oil U.K. Limited,
Texaco Limited, Mobil Coatings Limited, Great Lakes Chemical
Corporation, Great Lakes Europe Ltd, Great Lakes Chemical (Europe) Ltd.,
The Dominion Motor Spirit Co Limited, Mobil Holdings (U.K.) Limited,
Team Fuels Limited and Chevron International Oil Company Limited;
7. Deed in the form of the second schedule of the Deed of Assumption, dated
March 13, 1997, between The Dominion Motor Spirit Co Limited, Mobil
Holdings (U.K.) Limited, Team Fuels Limited, Great Lakes Europe Ltd, The
Associated Octel Company Limited and Associated Octel Company (Plant)
Limited;
8. Undertaking dated March 13, 1997, from John V. Lacci for and on behalf
of Great Lakes Europe Ltd to Associated Octel Company (Plant) Limited;
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9. Letter, dated March 13, 1997, to Octel Associates for and on behalf of
The Dominion Motor Spirit Co., Limited;
10. Letter, dated March 13, 1997, to Octel Associates for and on behalf of
Team Fuels Limited;
11. Letter, dated March 13, 1997, to Octel Associates from John Robertson
for and on behalf of Mobil Holdings (U.K.) Limited;
12. Letter, dated March 13, 1997, from D C Codd, Texaco Limited to John
Lacci, Great Lakes Chemical Corporation;
13. Letter, dated March 13, 1997, to John Lacci for and on behalf of Mobil
Corporation; and
14. Letter, dated March 13, 1997 to John Lacci for and on behalf of The
British Petroleum Company p.l.c.
Acquisition of BP, Mobil, Texaco Retained Interests and Retained Shares In the
Associated Octel Company and Octel Associates Effective On or About October 31,
1997:
1. Letter, dated October 2, 1997, to Graham Leathes and John V. Lacci by F.
G. Soler for and on behalf of Chevron Overseas Petroleum Inc. (waiving
pre-emption rights);
2. Letter, dated October 3, 1997, to Graham Leathes and John V. Lacci by T.
P. Garrett for and on behalf of Chevron International Oil Company
Limited (waiving pre-emption rights);
3. Deed of Assumption, dated October 31, 1997, between BP Oil U.K. Limited,
Texaco Limited, Mobil Coatings Limited, Chevron International Oil
Company Limited, Great Lakes Chemical Corporation, Great Lakes Europe
Ltd and Great Lakes Chemical (Europe) Ltd.;
4. Deed in the form of the second schedule to the Deed of Assumption, dated
October 31, 1997, between BP Oil U.K. Limited, Mobil Coatings Limited,
Texaco Limited, Great Lakes Europe Limited, The Associated Octel Company
Limited and Associated Octel Company (Plant) Limited;
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5. Letter, dated October 31, 1997, to Octel Associates, for and on behalf
of BP Oil U.K. Limited (relating to Associated Octel Company (South
Africa) (Proprietary) Limited);
6. Letter, dated October 31, 1997, to Octel Associates from John Robertson
for and on behalf of Mobil Coatings Limited (relating to Associated
Octel Company (South Africa) (Proprietary) Limited;
7. Letter, dated October 31, 1997, to Octel Associates, for and on behalf
of Texaco Limited (relating to Associated Octel Company (South Africa)
(Proprietary) Limited); and
8. Deed of Release, dated October 31, 1997, between Dorchester Oil Trading
Company Limited, Mobil Coatings Limited, Texaco International Trader
Inc, Chevron Overseas Petroleum Inc and Great Lakes Chemical (Europe)
Limited.
Acquisition of Chevron Interests in Octel Associates and The Associated Octel
Company Limited Effective On or About November 20, 1997:
1. Memorandum of Understanding, dated July 15, 1997, between Great Lakes
Chemical Corporation and Chevron Chemical Company;
2. Retirement Agreement Relating to Octel Associates, dated November 20,
1997, between Chevron U.K. Limited, Great Lakes Europe Limited, Great
Lakes Chemical (Europe) Limited, Chevron Chemical Company and Great
Lakes Chemical Corporation;
3. Agreement For Purchase of Own Shares, dated November 20, 1997, between
The Associated Octel Company Limited, Chevron Overseas Petroleum, Inc.,
Great Lakes Europe Limited, Chevron Chemical Company and Great Lakes
Chemical Corporation;
4. Deed, dated November 20, 1997, between Chevron U.K. Limited, The
Associated Octel Company Limited, and Associated Octel Company (Plant)
Limited;
5. Agreement Concerning Amount of Retirement Payment, dated November 20,
1997, between Chevron U.K. Limited, Chevron Chemical Company, Great
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<PAGE> 85
Lakes Europe Limited, Great Lakes Chemical (Europe) Limited and Great
Lakes Chemical Corporation;
6. Agreement Concerning Amount of Purchase Price, dated November 20, 1997,
between Chevron Overseas Petroleum Inc., Chevron Chemical Company, The
Associated Octel Company Limited, Great Lakes Europe Limited and Great
Lakes Chemical Corporation;
7. Deed of Assumption, dated November 6, 1997, between Chevron
International Oil Company Limited, Chevron U.K. Limited, Great Lakes
Europe Limited and Great Lakes Chemical (Europe) Limited;
8. Deed, dated November 6, 1997, between Chevron International Oil Company
Limited, Chevron U.K. Limited, The Associated Octel Company Limited,
and The Associated Octel Company (Plant) Ltd. (CUK assumes obligations
of CIOCL under Managing Agency Agreement and Leasing Agreement);
9. Undertaking, dated November 20, 1997, given by Great Lakes Europe
Limited to Associated Octel Company (Plant) Limited with respect to
retirement of CUK; and
10. Deed of Release dated November 20, 1997, between Chevron Overseas
Petroleum Inc. and Great Lakes Chemical (Europe) Limited.
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<PAGE> 86
ANNEX I, SCHEDULE 2
1. Memorandum of Understanding, dated October 27, 1993, between The
Associated Octel Company Limited and Ethyl Corporation;
2. Supply of Lead Antiknock Compounds, dated December 22, 1993, between
The Associated Octel Company Limited and Ethyl Corporation;
3. Agreement For Bulk Transportation, March 25, 1994, between The
Associated Octel Company Limited and Ethyl Corporation;
4. Supply of Ethylene Dibromide, dated January 1, 1995, between The
Associated Octel Company Limited and Albemarle Corporation;
5. Supply of Lead Antiknock Compounds, dated January 1, 1998, between The
Associated Octel Company Limited and Ethyl Corporation;
6. Letter Agreement, dated December 22, 1997, between The Associated Octel
Company Limited and Ethyl Corporation, interpreting certain provisions
of the Supply Agreement (for lead antiknock compounds) effective January
1, 1998; and
7. Agreement Containing Consent Order to Cease and Desist, not yet dated,
between Great Lakes Chemical Corporation, The Associated Octel Company
Limited and the Federal Trade Commission. This Agreement has been signed
by Great Lakes Chemical Corporation and The Associated Octel Company
Limited and is pending final approval by the Federal Trade Com mission.
See Form 10 for additional information.
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<PAGE> 87
ANNEX I, SCHEDULE 3
Operational and Structural Documents of Octel Associates and The Associated
Octel Company Limited
1. Up to date Memorandum and Articles of Association of the Associated
Octel Company Limited;
2. Partnership Agreement, dated April 15, 1966 (as amended to November 1,
1989), between Shell U.K. Limited, BP Oil U.K. Limited, Texaco Limited,
Chevron International Oil Company Limited, Mobil Coatings Limited and
Great Lakes Chemical (Europe) Limited;
3. Participants of the Agreement, dated December 22, 1961 (as amended to
December 1, 1989), between Shell U.K. Limited, Dorchester Oil Trading
Company Limited, Texaco International Trader Inc., Transpatch Ocean
Chevron Company, Mobil Coatings Limited and Great Lakes Chemical
(Europe) Limited;
4. Managing Agency Agreement, dated April 15, 1966, between Shell U.K.
Limited, BP Oil U.K. Limited, Texaco Limited, Chevron International Oil
Company Limited, Mobil Coatings Limited and Great Lakes Chemical
(Europe) Limited;
5. Leasing Agreement, dated April 15, 1966, between Shell U.K. Limited, BP
Oil U.K. Limited, Texaco Limited, Chevron International Oil Company
Limited, Mobil Coatings Limited and Great Lakes Chemical (Europe)
Limited;
6. Supplemental Partnership Agreement (Change of Partners), dated December
29, 1967, between Shell U.K. Limited, BP Trading Limited, Caltex (U.K.)
Limited, Mobil Transportation Company Limited, Texaco Operations (U.K.)
Limited and Chevron International Oil Company Limited;
7. Supplemental Partnership Agreement (Change of Partners), dated December
19, 1969, between Shell U.K. Limited, BP Trading Limited, Mobil Coatings
Limited, Texaco Operations (U.K.) Limited, Chevron International Oil
Company Limited and Texaco Limited;
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<PAGE> 88
8. Supplemental Partnership Agreement (Change of Partners), dated December
21, 1978, between Shell U.K. Limited, BP Trading Limited, Mobil Coatings
Limited, Texaco Limited, Chevron International Oil Company Limited and
BP Oil Limited;
9. Deed of Assumption (Change Partners), dated May 18, 1989, between BP Oil
U.K. Limited, Texaco Limited, Mobil Coatings Limited, Shell U.K.
Limited, Chevron International Oil Company Limited and Great Lakes
Chemical (Europe) Limited;
10. Deed of Assumption (Change of Partners), dated November 18, 1991,
between BP Oil U.K. Limited, Texaco Limited, Mobil Coatings Limited,
Shell U.K. Limited, Chevron International Oil Company Limited, Great
Lakes Chemical (Europe) Limited and Shell Ventures U.K. Limited;
11. Deed of Assumption (Change of Partners), dated March 16, 1992, between
BP Oil U.K. Limited, Texaco Limited, Mobil Coatings Limited, Shell
Ventures U.K. Limited, Chevron International Oil Company Limited, Great
Lakes Europe Limited, Great Lakes Chemical (Europe) Limited, The
Dominion Motor Spirit Co Limited, Mobil Holdings (U.K.) Limited and Team
Fuels Limited;
12. Deed of Assumption (Change of Partners), dated March 13, 1997, between
BP Oil U.K. Limited, Texaco Limited, Mobil Coatings Limited, Great Lakes
Chemical Corporation, Great Lakes Europe Limited, Great Lakes Chemical
(Europe) Limited, The Dominion Motor Spirit Company Limited, Mobil
Holdings (U.K.) Limited, Team Fuels Limited and Chevron International
Oil Company Limited;
13. Deed of Assumption (Re Managing Agency Agreement and Leasing Agreement),
dated March 13, 1997, between The Dominion Motor Spirit Company Limited,
Mobile Holdings (U.K.) Limited, Team Fuels Limited, Great Lakes Europe
Limited, The Associated Octel Company Limited and Associated Octel
Company (Plant) Limited;
14. Deed of Assumption (Change of Partners), dated October 31, 1997, between
BP Oil U.K. Limited, Texaco Limited, Mobil Coatings Limited, Chevron
International Oil Company Limited, Great Lakes Chemical Corporation,
Great Lakes Europe Limited and Great Lakes Chemical (Europe) Limited;
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<PAGE> 89
15. Deed of Assumption (Change of Partners), dated November 6, 1997, Chevron
International Oil Company Limited, Chevron U.K. Limited, Great Lakes
Chemical Corporation, Great Lakes Europe Limited and Great Lakes
Chemical (Europe) Ltd.;
16. Memorandum of Agreement, dated December 30, 1969, between Shell U.K.
Limited, BP Trading Limited, Texaco Limited, Chevron International Oil
Company Limited and Mobil Coatings Limited;
17. Memorandum re Distribution of Profits, dated December 31, 1970, between
Shell U.K. Limited, BP Trading Limited, Mobil Coatings Limited, Texaco
Limited and Chevron International Oil Company Limited;
18. Memorandum re ACT, dated December 18, 1973, between Shell U.K.
Limited, BP Trading Limited, Texaco Limited, Chevron International Oil
Company Limited and Mobil Coatings Limited;
19. Memorandum of Agreement, dated April 26, 1979, between Shell U.K.
Limited, BP Oil Limited, Mobil Coatings Limited, Texaco Limited and
Chevron International Oil Company Limited;
20. Memorandum of Agreement and Declaration, dated September 16, 1981,
between Shell U.K. Limited, BP Oil Limited, Mobil Coatings Limited,
Texaco Limited and Chevron International Oil Company Limited;
21. Agreement re "Partnership Business," dated January 28, 1985, between
Shell U.K. Limited, BP Oil Limited, Mobil Coatings Limited, Texaco
Limited and Chevron International Oil Company Limited;
22. Memorandum of Agreement, dated January 28, 1985, between Shell U.K.
Limited, BP Oil Limited, Mobil Coatings Limited, Texaco Limited and
Chevron International Oil Company Limited;
23. Memorandum of Agreement, dated September 5, 1968, between Shell U.K.
Limited, BP Trading Limited, Texaco Operations (U.K.) Limited, Chevron
International Oil Company Limited and Mobil Transportation Company
Limited;
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24. Memorandum re Distribution of Profits, dated December 19, 1974, between
Shell U.K. Limited, BP Oil Limited, Mobil Coatings Limited, Texaco
Limited and Chevron International Oil Company Limited;
25. Memorandum of Agreement, dated November 24, 1980, between Shell U.K.
Limited, BP Oil Limited, Mobil Coatings Limited, Texaco Limited and
Chevron International Oil Company Limited;
26. Memorandum of Agreement, dated February 26, 1982, between Shell U.K.
Limited, BP Oil Limited, Mobil Coatings Limited, Texaco Limited and
Chevron International Oil Company Limited; and
27. Memorandum of Agreement, dated January 19, 1983, between Shell U.K.
Limited, BP Oil Limited, Mobil Coatings Limited, Texaco Limited and
Chevron International Oil Company Limited.
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<PAGE> 91
ANNEX II
TRANSFERRED ASSETS
Transferred Assets: All assets and properties of Great Lakes or
any Great Lakes Entity used principally (except as otherwise provided herein) in
the Transferred Businesses before or on, and in existence as of, the
Distribution Date, including but not limited to:
(a) All assets and properties which should be set forth or
reflected on a balance sheet for Octel as of the Distribution Date, which
balance sheet shall be prepared in the same manner as the December 31, 1997
audited balance sheet of Octel included in the Information Statement (after
giving effect to any pro forma adjustments reflected in the Information
Statement), subject, however, to the provisions of clause (a) of Annex III;
(b) the real properties owned or leased by Great Lakes or any
Great Lakes Entity and used in the Transferred Businesses and with respect to
such owned real properties, the buildings, structures and improvements
(including construction in progress) located thereon, fixtures contained therein
and appurtenances thereto, such real properties to include, without limitation,
the real properties currently owned or leased as set forth on Schedule 1 hereto;
(c) (i) all of Great Lakes' or its Affiliates' right and interest
in, to and under all outstanding Bids, Quotations and Proposals pertaining to
the Transferred Businesses to the extent that such Bids, Quotations and
Proposals can be transferred or assigned without extinguishment or penalty; all
of Great Lakes' or its Affiliates' right and interest in, to and under all
contracts and agreements awarded to Great Lakes or its Affiliates before, on or
after the Distribution Date in connection with the Bids, Quotations and
Proposals in existence before or on the Distribution Date and pertaining to the
Transferred Businesses, as assignee if those contracts are assignable and
assigned or transferred by operation of law; as subcontractor by payment of a
subcontract price equal to the monies, rights and other considerations received
by Great Lakes or its Affiliates under such contracts and agreements if
assignment of those contracts and/or agreement and/or the proceeds therefrom is
prohibited by law;
(ii) all of Octel's or its Affiliates' right and
interest in, to and under all Outstanding Bids, Quotations and Proposals
pertaining to the Transferred Businesses; all of Octel's or its Affiliates'
right and interest in, to and under all
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<PAGE> 92
contracts and agreements awarded to Octel or its Affiliates before, on or after
the Distribution Date in connection with Bids, Quotations and Proposals in
existence before or on the Distribution Date and pertaining to the Transferred
Businesses;
(d) all machinery, equipment and other items of tangible personal
property (including construction in progress) owned by Great Lakes or any Great
Lakes Entity which are utilized principally in the Transferred Businesses;
(e) all of Great Lakes' or any Great Lakes Entity's rights with
respect to trade receivables relating exclusively to the Transferred Businesses;
(f) subject to Article VI of this Agreement, all rights and
interests of Great Lakes or any Great Lakes Entity in, to and with respect to
the intellectual property rights used principally in the Transferred Businesses,
including, but not limited to (i) all patents, copyrights, trade secrets,
tradenames, servicemarks, trademarks, pending patents, patent applications and
inventions conceived on or before the Distribution Date for which a patent
application has not yet been filed and (ii) all patents and trademarks acquired
by Octel America, Inc. from E.I. du Pont de Nemours and Company pursuant to an
agreement effective on or about August 1994;
(g) all of the Transferred Businesses Books and Records (except
as otherwise provided in Section 7.1 of this Agreement);
(h) inventories of raw materials, work-in-process, finished
products, supplies and spare parts which at the Distribution Date are owned by
Great Lakes or any Great Lakes Entity and relate principally to the Transferred
Businesses and any property under bailment relating to the Transferred
Businesses;
(i) all permits and licenses held by Great Lakes and its
Affiliates which are transferable and which relate principally to the
Transferred Businesses;
(j) all permits and licenses held by Octel and its Affiliates
which relate principally to the Transferred Businesses;
(k) all intangible assets, other than intellectual property
rights, of Great Lakes or any Great Lakes Entity, used principally in the
Transferred Businesses;
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<PAGE> 93
(l) employee receivables, temporary and permanent travel advances
and funds advanced for travel not yet taken relating to Transferred Great Lakes
Employees and all prepayments and deposits;
(m) subject to Article VI of this Agreement, all supplies, forms,
labels, shipping material, catalogues, sales brochures, operating manuals,
instructional documents and advertising material held for use by the
Transferred Businesses;
(n) all trucks, automobiles and other vehicles which are owned by
Great Lakes or any Great Lakes Entity and used principally in the Transferred
Businesses;
(o) all of Great Lakes' or any Great Lakes Entity's rights
relating to all Actions related to or arising out of the Transferred Businesses
and Transferred Assets (other than with respect to Actions specifically retained
by Great Lakes or its Affiliates pursuant to this Agreement);
(p) duty drawbacks relating to the Transferred Businesses which
were filed by Great Lakes or any Great Lakes Entity on or prior to the
Distribution Date and are outstanding as of the Distribution Date;
(q) the Fuel Detergent Plant; and
(r) all effective confidentiality agreements to which Great Lakes
or any Great Lakes Entity is a party and which relate to the Transferred
Businesses or the Transferred Assets.
For the avoidance of doubt, no Excluded Asset listed on Annex III
hereof shall be considered part of the Transferred Businesses or Transferred
Assets for any purpose under the Agreement.
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<PAGE> 94
ANNEX II, SCHEDULE 1
REAL PROPERTIES
<TABLE>
<CAPTION>
Owned Leased Leased
- ----- ------ ------
<S> <C> <C>
Oil Sites Road SIAC Sr1 6 North Quay
Ellesmere Port Piazza Le Biancamano Hayle
South Wirral Italy* Cornwall
L65 4HF TR27 4BL
England Suite 2 England
Fourth Floor
8 Rue Bellini Berkeley Square House
757782 Paris Cedex 16 Berkeley Square
France London
W1X 6DT
Usine de Paimboeuf England
Boite Postale 36
France Sant' Apollinare
72100 Brindisi
64580 Biebesheim am Rhein Italy
Postfach 1140
Germany Usine de Port-de-Bouc
Biote Postale 111
Watling Street 13524 Port-de-Bouc
Bletchley France*
Milton Keynes
MK1 1EZ No. 11 Ovcon House
England Constantia Main Road
Constantia
Bletchley 7800
Milton Keynes South Africa
MK1 1EZ
England 200 Executive Drive
Newark, Delaware 19702
Moss Lane**
Lostock 65021 Bussi Officiene
Grolam Percara, Italy*
Northwich
England Ardeer
Stevenston
Bridle Road Ayrshire
Bromborough Scotland
Near Ellesmere Port
South Wirral
L65 4HF
England
</TABLE>
- ------------------
* One portion of the property is leased and the other portion is owned.
**This property was formerly part of a larger owned parcel that has since been
sold and what remains are three acres owned by Octel or its Affiliates which
are currently leased to a third party.
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<PAGE> 95
ANNEX III
EXCLUDED ASSETS
Excluded Assets: The following assets are considered "Excluded Assets"
for purposes of this Agreement:
(a) cash and cash equivalents of $30 million (the payment of which will
be encompassed within the Special Dividend (as defined in the Form 10)), subject
to adjustment by adding any positive sums or subtracting any negative sums, as
the case may be, which are calculated in accordance with the following:
(i)(x) the net income (with income taxes applied at the statutory
UK rate) plus depreciation less capital spending for the Excluded
Businesses undertaken at Amlwch, UK for the period from January
1, 1998 through the Distribution Date and (y) the change in the
balances of accounts receivable and inventory for the Excluded
Businesses undertaken at Amlwch, UK from December 31, 1997 to the
Distribution Date;
(ii) the change in the intercompany cash account balance between
Octel (or its Affiliates) and Palmer Research Laboratories from
December 31, 1997 to the Distribution Date; and
(iii) the change in the intercompany cash account balance between
Octel America, Inc. and Great Lakes from December 31, 1997 to the
Distribution Date.
(b) any Transferred Businesses Books and Records which Great Lakes or
any of its Affiliates is required by law to retain in its possession;
(c) the Palmer Research Laboratories facility located on Mostyn Road,
Holywell, Flintshire, North Wales, United Kingdom and the facility located at
Amlwch, Anglesey, Gwynedd, Wales, United Kingdom, and all assets and properties
principally used therein (or principally relating thereto) and businesses and
operations conducted thereat, before or on, and in existence as of, the
Distribution Date (collectively, the "Excluded Businesses"), including, but not
limited to:
(i) the real properties owned by Great Lakes or any Great Lakes
Entity and used in the Excluded Businesses, including buildings, structures and
improvements (including construction in progress) located thereon, fixtures
contained therein and appurtenances thereto;
(ii) all of Octel's or its Affiliates' right and interest in, to
and under all outstanding Excluded Bids, Quotations and Proposals pertaining to
the Excluded
AIII - 1
<PAGE> 96
Businesses to the extent that such Excluded Bids, Quotations and Proposals can
be transferred or assigned without extinguishment or penalty; all of Octel's or
its Affiliates' right and interest in, to and under all contracts and agreements
awarded to Octel or its Affiliates before, on or after the Distribution Date in
connection with Excluded Bids, Quotations and Proposals in existence before or
on the Distribution Date and pertaining to the Excluded Businesses, as assignee
if those contracts are assignable and assigned or transferred by operation of
law; as subcontractor by payment of a subcontract price equal to the monies,
rights and other considerations received by Octel or its Affiliates' under such
contracts and agreements if assignment of those contracts and/or agreement
and/or the proceeds therefrom is prohibited by law, including, but not limited
to, those contracts listed on Schedule 1 to this Annex III;
(iii) all of Great Lakes' or its Affiliates' right and interest
in, to and under all outstanding Excluded Bids, Quotations and Proposals
pertaining to the Excluded Businesses; all of Great Lakes' or its Affiliates'
right and interest in, to and under all contracts and agreements awarded to
Great Lakes or its Affiliates before, on or after the Distribution Date in
connection with Excluded Bids, Quotations and Proposals in existence on or
before the Distribution Date and pertaining to the Excluded Businesses;
(iv) all machinery, equipment and other items of tangible
personal property (including construction in progress) owned by Great Lakes or
any Great Lakes Entity which are utilized principally in the Excluded
Businesses;
(v) all of Great Lakes' or any Great Lakes Entity's rights with
respect to trade receivables relating exclusively to the Excluded Businesses;
(vi) subject to Article VI of this Agreement, all rights and
interests of Great Lakes or any Great Lakes Entity in, to and with respect to
the intellectual property rights used principally in concerning the Excluded
Businesses, including, but not limited to, all patents, copyrights, trade
secrets, tradenames, servicemarks, trademarks, pending patents, patent
applications and inventions conceived on or before the Distribution Date for
which a patent application has not yet been filed;
(vii) all of the Excluded Books and Records (except as otherwise
provided in Section 7.1 of this Agreement);
(viii) inventories of raw materials, work-in-process, finished
products, supplies and spare parts which at the Distribution Date are owned by
Great Lakes or any Great Lakes Entity and relate principally to the Excluded
Businesses and any property under bailment relating to the Excluded Businesses;
(ix) all permits and licenses held by (A) Octel and its
Affiliates which are transferable and which relate principally to the Excluded
Businesses, and
AIII - 2
<PAGE> 97
(B) by Great Lakes and its Affiliates which relate principally to the Excluded
Businesses;
(x) all intangible assets, other than intellectual property
rights, of Great Lakes or any Great Lakes Entity used principally in the
Excluded Businesses;
(xi) employee receivables, temporary and permanent travel
advances and funds advanced for travel not yet taken relating to Transferred
Octel Employees and all prepayments and deposits;
(xii) subject to Article VI of this Agreement, all supplies,
forms, labels, shipping material, catalogues, sales brochures, operating
manuals, instructional documents and advertising material held for use by the
Excluded Businesses;
(xiii) all trucks, automobiles and other vehicles which are owned
by Great Lakes or any Great Lakes Entity and used principally in the Excluded
Businesses;
(xiv) all of Great Lakes' or any Great Lakes Entity's rights
relating to all Actions related to or arising out of the Excluded Businesses
(other than with respect to Actions specifically retained by Octel and its
Affiliates pursuant to this Agreement); and
(xv) duty drawbacks relating to the Excluded Businesses which
were filed by Great Lakes or any Great Lakes Entity on or prior to the
Distribution Date and are outstanding as of the Distribution Date;
(d) any facilities owned or leased by Great Lakes or any Great Lakes
Entity as of the Distribution Date, where bromine, ethylene dibromide, hydrogen
bromide, Stadis(R) 425 and Stadis(R) 450 (Enhanced) are manufactured other than
manufacturing facilities owned, operated or leased by Societe Mediterraneene du
Brome S.A.;
(e) Agreement No. 065, dated July 1996, between GATX Terminals Limited
and The Associated Octel Company Limited for the use by The Associated Octel
Company Limited of a dedicated tank for the storage of dibromoethane (the "DBE
Lease"); and
(f) all assets and properties which should be set forth or reflected on
a balance sheet for the Excluded Businesses as of the Distribution Date, which
balance sheet shall be prepared in the same manner as the December 31, 1997
audited balance sheet of Octel included in the Information Statement (after
giving effect to any pro forma adjustments reflected in the Information
Statement).
AIII - 3
<PAGE> 98
ANNEX III, SCHEDULE 1
OCTEL CONTRACTS INCLUDED WITHIN EXCLUDED ASSETS
AMLWCH BROMINE PLANT AGREEMENTS
<TABLE>
<CAPTION>
PARTIES DATE DESCRIPTION
<S> <C> <C>
Gas and Equipment Ltd.; The Associ- 1/31/91 Confidentiality Agreement
ated Octel Co. Limited
Ferrosan Fine Chemicals; The Associ- 4/16/91 Confidentiality Agreement
ated Octel Co. Limited
Cremer & Warner Limited; The Associ- 1/16/92 Secrecy Agreement
ated Octel Co. Limited
Contract Chemicals Limited; The Asso- 3/30/92 Confidentiality Agreement
ciated Octel Co. Limited
Vince Peers Consultants; The Associ- 2/7/94 Confidentiality Agreement
ated Octel Co. Limited
Graham Vince and Michael Tennesen; 4/30/94 Consulting Agreement
The Associated Octel Co. Limited
Vince Peers Consultants; The Associ- 1/14/94 Confidentiality Agreement
ated Octel Co. Limited
Simon Carves Ltd.; The Associated 11/15/94 Confidentiality Agreement
Octel Co. Limited
Hoechst Aktiengesellshaft; The Associ- 5/16/95 Secrecy Agreement
ated Octel Co. Limited
Hoechst Aktiengesellshaft; The Associ- 8/3/95 Purchase Agreement
ated Octel Co. Limited
Ciba-Geigy Ltd.; Great Lakes Chemical 1/15/95 Equipment Service Agreement
(Europe) Limited and The Associated
Octel Co. Limited
Air Products (U.K.) Limited; Air Prod- 11/14/90 Supplemental Deed to Supply
ucts (BR) Limited; The Associated Agreement
Octel Co. Limited
Novoktan GmbH; The Associated Octel 4/3/91 Supply Agreement (EDB)
Co. Limited
Honeywell & Stein Limited; The Asso- 11/19/87 Sales Representation Agreement
ciated Octel Co. Limited
</TABLE>
AIII - 4
<PAGE> 99
AMLWCH BROMINE PLANT AGREEMENTS
<TABLE>
<CAPTION>
PARTIES DATE DESCRIPTION
<S> <C> <C>
Pure Chemicals Limited; The Associ- 12/8/64 Sale Agreement (Bromine)
ated Octel Company Limited
Shell Nederland Chemie V.B.; The As- 1/23/75 Sale Agreement (Bromine)
sociated Octel Company Limited
Polysar Belgium NV; The Associated 11/12/90 Supplemental Letter to Sale Agree-
Octel Company Ltd. ment (Bromine)
Air Products SA/NV and Air Products 10/18/91 Distribution Agreement (Hydrogen
(GB) Ltd; The Associated Octel Co. Bromide)
Limited
ICI Chemicals & Polymers Limited; 1/11/94 Purchase Agreement
The Associated Octel Company Limited
Reliance Tankers Limited; The Associ- 6/1/89 Transportation Agreement
ated Octel Company Limited
Air Products Plc; The Associated Octel 1/10/96 Purchase Agreement (Liquid Nitro-
Co. Ltd. gen)
Analytical Developments Company 1/1/98 Equipment Maintenance Agreement
Limited; The Associated Octel Co. Ltd.
Arriva Automotive Solutions; The As 5/2/97 Automobile Lease Agreement
sociated Octel Co. Ltd.
B.P. Chemicals Ltd.; The Associated 1/7/94 Purchase Agreement (Liquid Ethyl-
Octel Co. Ltd. ene)
British Telecommunications plc; The 1/1/98 Equipment Lease Agreement
Associated Octel Co. Ltd.
British Telecommunications plc; The 1/1/98 Equipment Lease Agreement
Associated Octel Co. Ltd.
Crump & Co.; The Associated Octel Co. 3/2/95 Equipment Maintenance Agreement
Ltd.
Dell Computer Corporation; The Asso- 1/2/98 Computer Maintenance Agreement
ciated Octel Co. Ltd.
Ecovert Ltd.; The Associated Octel Co. 1/1/98 Trash Collection Agreement
Ltd.
Eurotherm Process Automation Ltd.; 4/1/97 Computer Maintenance Agreement
The Associated Octel Co. Ltd.
GATX Terminals Ltd; The Associated 1/5/94 Storage Agreement
Octel Co. Ltd.
</TABLE>
AIII - 5
<PAGE> 100
AMLWCH BROMINE PLANT AGREEMENTS
<TABLE>
<CAPTION>
PARTIES DATE DESCRIPTION
<S> <C> <C>
Group 4 Total Security Ltd.; The Asso- 1/1/98 Security Service Agreement
ciated Octel Co. Ltd.
Gwynedd Heath Authority; The Associ- 3/31/98 Storage Agreement
ated Octel Co. Ltd.
Hoechst Atkiengesellschaft; The Asso- 1/1/98 Purchase Agreement (Bromide Li-
ciated Octel Co. Ltd. quor)
Hoyer UK Ltd.; The Associated Octel 1/1/98 Transportation Agreement
Co. Ltd.
Hydrogen Supplies Ltd.; The Associated 9/1/97 Storage Facility Maintenance Agree-
Octel Co. Ltd. ment
Manweb plc; The Associated Octel Co. 1/1/98 Equipment Maintenance Agreement
Ltd.
OCS Cleaning Midlands and North 11/1/98 Office Cleaning Agreement
Limited; The Associated Octel Co. Ltd.
Payroll Bureau; The Associated Octel 11/1/98 Payroll Services Agreement
Co. Ltd.
Powergren; The Associated Octel Co. 1/1/98 Electricity Purchase Agreement
Ltd.
Rank Xerox plc; The Associated Octel 4/23/96 Copier Lease Agreement
Co. Ltd.
Rank Xerox plc; The Associated Octel 1/16/98 Copier Lease Agreement
Co. Ltd.
Rank Xerox plc; The Associated Octel 12/18/95 Copier Lease Agreement
Co. Ltd.
Royal Sun Alliance Ltd.; The Associ- 12/23/92 Inspection Service Agreement
ated Octel Co. Ltd.
Smart Systems Ltd.; The Associated Co. 7/30/97 Software Support Service Agreement
Ltd.
The National Sulphuric Acid Associa- 1/1/98 Purchase Agreement (Liquid Sul-
tion Ltd.; The Associated Octel Co. Ltd. phur)
Suttons International Ltd.; The Associ- 8/1/97 Transportation Agreement
ated Octel Co. Ltd.
Welsh Water; The Associated Octel Co. 3/1/98 Water Purchase Agreement
Ltd.
</TABLE>
AIII - 6
<PAGE> 101
PALMER RESEARCH LABORATORIES
<TABLE>
<CAPTION>
PARTIES DATE DESCRIPTION
<S> <C> <C>
Astra Production Chemicals AB; The 7/12/93 Toll Manufacturing Agreement
Associated Octel Company Limited
Smithkline Beecham p.l.c.; The Associ- 11/9/93 Confidentiality Agreement
ated Octel Co. Limited
Smithkline Beecham p.l.c.; The Associ- 3/7/94 Confidentiality Agreement
ated Octel Co. Limited
Anglo Leasing Limited; The Associated 2/9/98 Equipment Lease Agreement
Octel Company Ltd.
Air Products, plc; unknown Purchase Agreement (Gases)
Air Products plc; 11/1/97 Addendum to Bulk Supply Agree-
ment
Anglo Leasing Limited; Palmer Re- 12/23/97 Equipment Lease Agreement
search Laboratories
Barlow Handling Rentals Limited; 7/15/94 Equipment Lease Agreement
Palmer Research Laboratories
Barlow Handling Rentals Limited; The 9/19/95 Equipment Lease Agreement
Associated Octel Company Limited T/A
Palmer Research Laboratories
British Oxygen Corporation Cyrospeed; 7/28/86 Purchase Agreement (Liquid Nitro-
Johnson Matthey Chemicals Ltd. gen)
Camlab Limited 1/3/98 Equipment Maintenance Agreement
Chubb Fire Limited; Palmer Research 1/14/98 Equipment Maintenance Agreement
Laboratories Ltd.
CLWYD Refergeration Limited; Palmer 1/23/98 Equipment Maintenance Agreement
Research Ltd.
Crown Lift Trucks Limited; Palmer Re- 1/25/98 Equipment Maintenance Agreement
search Laboratories
County Laundry & Cleaners; Palmer unknown Laundry Service Agreement
Research Laboratories
Dun & Bradstreet; Palmer Research 11/13/98 Company Information Service
Laboratory Agreement
Hamo UK Ltd.; Palmer Research 1/1/98 Equipment Maintenance Agreement
Hewlett Packard Ltd.; Palmer Research 1/5/97 Computer Hardware Maintenance
Agreement
</TABLE>
AIII - 7
<PAGE> 102
<TABLE>
<CAPTION>
PARTIES DATE DESCRIPTION
<S> <C> <C>
Initial Textile Services; Palmer Re- 7/3/97 Purchase & Service Agreement
search
Initial Textile Services; Palmer Re- 5/3/96 Purchase & Service Agreement
search
Jaytee Biosciences Ltd; Palmer Re- 5/1/97 Equipment Service Agreement
search
Kudos Kleening Ltd.; Palmer Research 10/1/96 Cleaning Service Agreement
Leigh Environmental Ltd.; Palmer Re- 2/12/95 Drum Disposal Agreement
search
Mettler-Toledo Ltd.; Palmer Research 11/1/97 Equipment Service Agreement
Laboratories
Mettler-Toledo Ltd.; Palmer Research 1/1/98 Equipment Service Agreement
Laboratories
Modern Security Systems Ltd; Palmer 12/10/97 Alarm Maintenance Agreement
Research Laboratories
Molak NMR Service; Palmer Research 1/1/98 Laboratory Equipment Maintenance
Agreement
Nova Weigh Limited; Palmer Research 1/3/98 Laboratory Equipment Maintenance
Laboratories Agreement
North Wales Vending Services; Palmer 9/29/97 Vending Management Services
Research Agreement
Perkin Elmer; The Associated Octel 1/1/98 Laboratory Equipment Maintenance
Company Limited, Palmer Research Agreement
Division
Rentokil Environmental Service; The 1/1/98 Equipment Maintenance Agreement
Associated Octel Co. Ltd., T/A Palmer
Research Labs
Sartorius Limited; Palmer Research 6/1/97 Equipment Maintenance Agreement
Laboratories
Securicor Guarding Limited; Palmer 1/1/98 Security Personnel Services Agree-
Research Laboratories ment
Sci-Tek Instruments; Palmer Research 7/1/97 Equipment Maintenance Agreement
Laboratories
Schroeder Leasing Limited; Palmer Re 12/1/96 Equipment Lease Agreement
search Laboratories
Sovereign Finance plc; The Associated 6/12/94 Equipment Lease Agreement
Octel Company Limited T/A Palmer
Research Laboratories
</TABLE>
AIII - 8
<PAGE> 103
<TABLE>
<CAPTION>
PARTIES DATE DESCRIPTION
<S> <C> <C>
Superior Vending Services, Ltd.; Palmer 11/4/97 Vending Services Agreement
Research Laboratories
USF Limited; Palmer Research 1/1/98 Equipment Maintenance Lease
Laboratories
</TABLE>
AIII - 9
<PAGE> 1
EXHIBIT 10.1
TAX DISAFFILIATION AGREEMENT
TAX DISAFFILIATION AGREEMENT (the "Agreement") dated as of April 24, 1998
by and between Great Lakes Chemical Corporation, a Delaware corporation
("Company"), and Octel Corp., a Delaware corporation and a direct, wholly-owned
subsidiary of the Company ("Octel").
RECITALS
WHEREAS:
A. The Company is the common parent of an affiliated group of corporations
within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the members of the affiliated group have heretofore
joined in filing consolidated Federal income Tax Returns.
B. The Company expects, pursuant to the Transfer and Distribution
Agreement dated as of April 24, 1998 (the "Distribution Agreement") by and
between the Company and Octel, to spin-off its interest in assets relating to
the Lead Alkyls Business (as defined below), the Performance Chemicals Business
(as defined below) and the Petroleum Specialties Business (as defined
below)(collectively the "Petroleum Additives Business") to its shareholders.
In furtherance of this decision, among other things (i) Subsidiaries (as
hereinafter defined) of the Company intend to transfer certain assets to
Subsidiaries of Octel, (ii) Subsidiaries of Octel intend to transfer certain
assets to Subsidiaries of the Company, (iii) Great Lakes Europe Limited, a
limited company formed under the laws of England and Wales and a wholly owned
subsidiary of the Company, intends to distribute on or before the Distribution
Date (as hereinafter defined) all the equity it owns in Octel Associates, a
partnership existing under the laws of England and Wales that has elected or
will elect to be treated as a corporation for United States Federal tax
purposes (the "Internal Distribution"), (iv) the Company intends on or before
the Distribution Date to transfer all the equity of Octel Associates it owns
and other assets to Octel and/or its Subsidiaries, and (v) the Company intends
to distribute (the "External Distribution") on the Distribution Date
<PAGE> 2
pro rata to the holders of its common stock all of the outstanding shares of
the common stock of Octel (the Internal Distribution and the External
Distribution are referred to collectively as the "Distributions").
C. The Company and Octel intend the Distributions to be tax-free
transactions under Section 355 of the Code. After the External Distribution,
neither Octel nor any of its Subsidiaries will be affiliated with the Company
for Tax (as hereinafter defined) purposes.
D. The Company and Octel desire on behalf of themselves, their
Subsidiaries and their successors to set forth their rights and obligations
with respect to Taxes due for periods before and after the External
Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 "Code" shall have the meaning set forth on page 1 of this Agreement.
1.2 "Company" shall have the meaning set forth on page 1 of this
Agreement.
1.3 "Company Group" shall mean, for any period, the Company and its
Subsidiaries.
1.4 "Distributions" shall have the meaning set forth on pages 1 and 2 of
this Agreement.
1.5 "Distribution Agreement" shall have the meaning set forth on page 1
of this Agreement.
1.6 "Distribution Date" shall mean the last day on which, due to the
External Distribution, Octel
2
<PAGE> 3
could be considered a member of the affiliated group of which the Company is
the common parent.
1.7 "Ernst & Young Tax Analysis" shall mean the tax analysis prepared and
issued by Ernst & Young and dated as of the date of this Agreement, with
respect to the United Kingdom Tax consequences of the Reorganization
Transactions.
1.8 "External Distribution" shall have the meaning set forth on page 1 of
this Agreement.
1.9 "Final Determination" shall mean with respect to any issue (1) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (2) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service or U.K. Inland Revenue) entered into in
connection with or in contemplation of an administrative or judicial
proceeding, or (3) the completion of the highest level of administrative
proceedings if a judicial contest is not or is no longer available.
1.10 "Indemnitee" shall have the meaning set forth in Section 4.2.
1.11 "Indemnitor" shall have the meaning set forth in Section 4.2.
1.12 "Internal Distribution" shall have the meaning set forth on page 1
of this Agreement.
1.13 "Lead Alkyls Business" shall have the meaning set forth in the
Distribution Agreement.
1.14 "Lender's Liens" shall have the meaning set forth in the
Distribution Agreement.
1.15 "Octel" shall have the meaning set forth on page 1 of this
Agreement.
1.16 "Octel America" shall mean Octel America, Inc., an indirect wholly
owned subsidiary of the Company.
3
<PAGE> 4
1.17 "Octel Group" shall mean, for any period, Octel and its
Subsidiaries.
1.18 "Payor" shall have the meaning set forth in Section 2.5.
1.19 "Payee" shall have the meaning set forth in Section 2.5.
1.20 "Performance Chemicals Business" shall have the meaning set forth in
the Distribution Agreement.
1.21 "Period After Distribution" shall mean any tax year or other tax
period beginning after the Distribution Date and, in the case of any tax year
or other tax period that begins before and ends after the Distribution Date,
that part of the tax year or other tax period that begins after the close of
the Distribution Date.
1.22 "Period Before Distribution" shall mean any tax year or other tax
period that ends on or before the Distribution Date and, in the case of any tax
year or other tax period that begins before and ends after the Distribution
Date, that part of the tax year or other tax period through the close of the
Distribution Date.
1.23 "Petroleum Additives Business" shall have the meaning set forth on
page 1 of this Agreement.
1.24 "Petroleum Specialties Business" shall have the meaning set forth in
the Distribution Agreement.
1.25 "Reorganization Transactions" shall mean collectively (i) the
transactions described under the heading "Proposed Transactions" in the letter
ruling issued by the Internal Revenue Service on March 13, 1998, and (ii) the
transactions described in the Ernst & Young Tax Analysis.
1.26 "Restriction Period" shall mean the two-year period that begins on
the day after the Distribution Date.
4
<PAGE> 5
1.27 "Subsidiary" shall mean a current or former corporation, partnership,
joint venture or other business entity where 50% or more of the outstanding
equity or voting power of such entity is owned directly or indirectly by the
Company or Octel. Notwithstanding anything to the contrary in this Agreement,
in determining whether a Subsidiary is a Subsidiary of Octel or the Company with
respect to any period under the Agreement, Octel shall not be considered a
Subsidiary of the Company, and any Subsidiary of Octel immediately after the
Distribution Date shall be considered a Subsidiary of Octel (and not of the
Company) for all periods before and after the Distribution Date.
1.28 "Tax" or "Taxes" means all taxes, charges, fees, levies, imposts,
duties and other assessments, including, without limitation, income, gross
receipts, excise, personal property, real property, sales, ad valorem,
value-added, withholding, social security, occupation, use, service, service
use, leasing, leasing use, license, payroll, franchise, transfer and recording
taxes, fees and charges, imposed by the United States or any state, local, or
foreign governmental authority whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include (including
without limitation regarding any duty to reimburse another party for
indemnified Taxes or refunds or credit of Taxes) any interest, fines, penalties
and additional amounts attributable to, imposed on, or with respect to, any
such taxes, charges, fees, levies, imposts, duties or other assessments, and
interest thereon.
1.29 "Tax Returns" shall mean all returns, reports, statements or company
accounts to be filed or that may be filed for any period with any Tax authority
(whether domestic or foreign) in connection with any Tax or Taxes (whether
domestic or foreign). For purposes of this Agreement, the return of profits of
Octel Associates provided to U.K. Inland Revenue shall be deemed to be a
corporation tax return.
1.30 "Underpayment Rate" shall mean the rate specified under Section
6621(c) of the Code for the applicable period.
5
<PAGE> 6
ARTICLE II
TAX RETURNS, TAX PAYMENTS AND EVENT OF LOSS
2.1 Obligation to Prepare and File Tax Returns.
(a) Company's Obligation to File Tax Returns. The Company shall
timely file (or cause to be filed):
(i) all Tax Returns that are filed on a consolidated,
combined or unitary basis and include the Company or any member of
the Company Group,
(ii) all Tax Returns that are filed on a separate basis
with respect to any member of the Company Group, and
(iii) all Tax Returns that are filed with respect to any
member of the Octel Group for any Tax year or period ending on or
before December 31, 1997.
Subject to the obligations set forth in Section 2.3(d), the Company shall have
sole and absolute discretion to take or not take a position in and with respect
to any Tax Return that it is required to file or cause to be filed hereunder;
provided, however, the Company shall not take a position on such Returns that
is not consistent with past practice (other than with respect to the
Reorganization Transactions) that would increase the tax liability of the Octel
Group.
(b) Octel's Obligation to Prepare or File Tax Returns. Octel
shall prepare (or cause to be prepared) in accordance with past practice
pro forma copies of:
(i) Octel America's 1997 Federal income Tax Return and
Octel America's 1998 Federal income Tax Return (for the tax year that
began on January 1, 1998, and that will end for Federal income tax
purposes on the Distribution Date),
6
<PAGE> 7
(ii) Octel America's 1997 and 1998 apportionment
schedules for purposes of preparing its United States state income
and franchise Tax Returns, and
(iii) all Tax Returns of each member of the Octel
Group for its 1997 Tax year.
In each case, Octel will deliver copies of such Tax Returns or apportionment
schedules to the Company at least 45 days prior to the due dates (taking into
account all extensions which are granted as a matter of right) of such Tax
Returns or the due dates of Octel America's Tax Returns to which the
apportionment schedules relate. Except as provided in Section 2.1(a)(iii)
above, Octel shall timely file (or cause to be filed) any Tax Return with
respect to the Octel Group or any of its members, provided, however, that at
least 45 days prior to the filing of any such Tax Return with respect to the
tax year or period beginning on January 1, 1998, Octel shall deliver (or cause
to be delivered) a copy of such Tax Return to the Company for its review and
approval (which approval shall not be unreasonably withheld) before submission.
In the case of the 1998 Tax Return of Octel Associates, such income Tax Return
shall also include an allocation of income among those persons that owned an
interest in Octel Associates during 1998 (determined on a pro rata basis,
excluding goodwill, unless otherwise provided for in the Octel Associates
partnership agreement). Each such Tax Return shall be consistent with the
obligations set forth in Section 2.3(d).
2.2 Obligation to Remit Taxes. The Company and Octel shall each remit
or cause to be remitted any Taxes due in respect of any Tax for which it is
required to file a Tax Return under this Agreement and shall be entitled to
reimbursement for such payments only to the extent provided in Section 2.3
below and in the manner set forth in Section 2.5. Notwithstanding the
foregoing, at least 30 days prior to the due date (taking into account all
extensions which are granted as a matter of right) of any Tax Returns which the
Company is required to file pursuant to Section 2.1(a)(iii), the Company shall
deliver copies of such Tax Returns to Octel, and at least 10 days prior to the
due date of such Tax Returns, Octel shall remit to the Company the amount of
Taxes
7
<PAGE> 8
shown as due on such Tax Returns that is attributable to a member of the Octel
Group, provided, however, that Octel shall not be responsible for Taxes of
Octel or Octel America or for Taxes attributable to Reorganization Transactions
except to the extent provided in Section 2.3(b)(iv) and Section 2.3(c).
2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) Company Tax Sharing Obligations. Except as provided in
Section 2.3(b) hereof, and consistent with Section 2.4(b) of this Agreement,
the Company shall be liable for and shall hold the Octel Group harmless against:
(i) any liability of any member of the Company Group
(other than any liability of any member of the Company Group with
respect to its interest in Octel Associates for the period January 1,
1998, through and including the Distribution Date) for Taxes,
regardless of whether attributable to a Period Before Distribution
or a Period After Distribution, including any such Tax liability
asserted against any member of the Octel Group under the provisions
of Treas. Reg. Section 1.1502-6(a) that impose several liability on
members of an affiliated group of corporations that files consolidated
returns, or similar provisions of any foreign, state or local law,
(ii) any liability of Octel or Octel America for Taxes
attributable to a Period Before Distribution,
(iii) except as set forth in Section 2.3(b)(iv) or
Section 2.3(c), any incremental Tax liability attributable to a
Period Before Distribution of the Octel Group resulting solely from
the Reorganization Transactions that would not have been incurred if
such Reorganization Transactions had not been undertaken, and
(iv) any corporation income tax liability imposed directly
against Octel Asso-
8
<PAGE> 9
ciates attributable to a Period Before Distribution (and not
attributable to any member of the Company Group with respect to
its interest in Octel Associates).
The Company shall be entitled to any refund (including without limitation any
refund with respect to advance corporation tax relating to any dividend paid
during or with respect to any Period Before Distribution) or credit of Taxes
which is attributable to both an entity and a taxable year or taxable period
for which the Company has liability hereunder or has otherwise paid (and Octel
will, or will cause each member of the Octel Group to promptly pay to the
Company any such refund or credit received by Octel or any member of the Octel
Group). Octel or Octel America shall not be entitled to any compensation from
the Company or any member of the Company Group in the event that Octel or Octel
America has a net operating loss, capital loss, credit or other tax attribute
in a Period Before Distribution and such tax attribute is used to reduce the
Taxes otherwise payable by a member of the Company Group for a Period Before
Distribution.
(b) Octel Tax Sharing Obligations. Consistent with Section
2.4(b) of this Agreement, Octel shall be liable for and Octel shall hold the
Company Group harmless against:
(i) any liability of any member of the Octel Group
(other than Octel or Octel America with respect to a Period Before
Distribution) for Taxes, regardless of whether attributable to a
Period Before Distribution or a Period After Distribution, including
any such Tax liability asserted against any member of the Company
Group under any provision of law that imposes several liability on
related corporations or entities, except to the extent Section
2.3(a)(iii) above applies,
(ii) any liability of Octel or Octel America for Taxes
attributable to a Period After Distribution,
(iii) any liability attributable to any member of the
Company Group for Taxes
9
<PAGE> 10
with respect to its interest in Octel Associates for the period
January 1, 1998, through and including the Distribution Date, and
(iv) any Tax liability attributable to any member of the
Octel Group or the Company Group (including, without limitation,
any such liability resulting from the Reorganization
Transactions) arising out of or resulting from (aa) the breach
by any member of the Octel Group of any of the representations,
warranties, covenants or agreements of Octel set forth in this
Agreement (including, without limitation, the representations,
warranties, covenants and agreements set forth in Sections
2.3(d), (e) and (f) hereof) or the Distribution Agreement, (bb)
any action taken by any member of the Octel Group that breaches
any of the representations, or is contrary to the stated
assumptions, conditions, or facts set forth in the Ernst & Young
Tax Analysis, or (cc) any member of the Octel Group engaging in
any of the transactions set forth in Section 2.3(e)(i)-(iv),
regardless of whether Octel has obtained a ruling from the
Internal Revenue Service reasonably satisfactory to the Company
that the proposed transaction will not adversely affect the Tax
treatment of the Distribution.
Octel's indemnity obligations pursuant to Section 2.3(b)(i-iv) above
will be absolute, unconditional and not subject to reduction or set-off;
provided, however, for an indemnity obligation arising under this
Subsection 2.3(b)(iv)(aa) above, wherein Octel has breached a
representation set forth in Section 2.3(f) or breached the covenant set
forth in 2.3(e)(iv), and such breach is the only act or omission by
Octel that contributes to a Final Determination of Tax liability, Octel
will be entitled to reduce the amount of indemnity payments to be made
to the Company hereunder to the extent, and only to the extent, such
Final Determination of Tax liability is also caused by actions taken by
the Company (such reduction in indemnity payments to be equal to the
percentage of total Tax liability that equals
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the percentage of fault attributable to the Company in causing such Tax
liability).
Subject to the limitations set forth in Section 3.2 below, Octel shall
be entitled to any refund or credit of Taxes which is attributable to
both an entity and a taxable year or taxable period for which Octel has
liability hereunder or has otherwise paid (and the Company will or will
cause each member of the Company Group to promptly pay to Octel such
refund or credit received by any of the Company or member of the Company
Group).
(c) Stamp Duty. Octel agrees and undertakes that it shall not
at any time cause or permit (i) any executed original or counterpart of this
Agreement or any other agreement executed in connection with the Reorganization
Transactions to be brought into the United Kingdom or (ii) the registration of
any of the assets transferred pursuant to the Reorganization Transactions.
Notwithstanding the foregoing, the stock of The Associated Octel Company
Limited (UK) may be registered by Octel Associates upon receipt thereof from
Great Lakes (Europe) Limited; provided, however, the Company shall have the
right to control the registration of such stock and the valuation thereof, and
Octel covenants and agrees it shall not, and shall cause its Subsidiaries not
to, take any position contrary to such registration and valuation and shall
cause its Subsidiaries to cooperate in any claims or declarations necessary to
obtain relief or exemption in respect of any stamp taxes in relation to the
transfer of such stock. The Company shall pay any transfer or stamp taxes
arising in connection with the Reorganization Transactions unless Octel has
breached any of its obligations in Section 2.3(c)(i) and (ii) above, or Octel
or its Subsidiaries takes a position contrary to the Company's control of the
registration or valuation of the stock of The Associated Octel Company Limited,
in which event Octel shall pay such transfer or stamp taxes. The Company and
Octel agree and understand that they shall not argue, plead or in any way raise
in any civil proceeding, arbitration, quasi arbitration or mediation, any
allegation to the effect that this Agreement or any other agreement executed in
connection with the Reorganization Transactions is inadmissable in any such
proceeding by reason of it not bearing a stamp or that a certified copy thereof
is not adequate evidence of its terms.
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(d) Reporting Obligations. Each of the Company and Octel agrees
to (i) report the Distributions as tax-free transactions under Section 355 of
the Code on all Tax Returns and other filings, and (ii) take no position or
make any statement that is inconsistent with the treatment of the Distributions
as tax-free transactions under Section 355, any ruling contained in the letter
ruling issued or to be issued by the Internal Revenue Service, or the Ernst &
Young Tax Analysis. Neither the Company nor Octel shall, nor shall they permit
any of their respective Subsidiaries to, report on any Tax Return, communicate
with any Tax authority, or take any position in any Tax proceeding inconsistent
with the treatment of the Distributions as tax-free transactions under Section
355 of the Code or otherwise adversely affect the Company Group's tax treatment
of the Reorganization Transactions (including, without limitation, the Company
Group's Tax positions regarding allocation of Taxes for foreign tax credit
purposes or distributions from U.K. entities to U.S. entities as distributions
of previously taxed income).
(e) Covenants Specific to Distributions -- Restrictions on the
Operations of Octel. Until the first day after the Restriction Period, Octel
covenants and agrees that no member of the Octel Group:
(i) shall fail to continue the active conduct of the
Petroleum Additives Business through officers and employees of
members of the Octel Group (and not through independent contractors),
(ii) shall liquidate, transfer, dispose of, or otherwise
discontinue the conduct of any material portion or segment of the
Octel Group's business; provided, however, that a disposition of
operating assets of the Octel Group that, taking into account prior
transactions occurring within the Restriction Period, constitute no
more than 30% of the gross fair market value of the Octel Group's
assets (as of the Distribution Date) shall not be subject to this
Section 2.3(e)(ii),
(iii) shall (aa) solicit one or more persons to make a
tender offer for the
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stock or equity of any member of the Octel Group, (bb) participate
in or support any unsolicited tender offer for stock or equity of
any member of the Octel Group, or (cc) participate in or approve
any proposed business combination or transaction, in each case
which, taking into account prior transactions occurring within the
Restriction Period, results in one or more persons owning 50% or
more of the voting power or value of the stock or equity of any
member of the Octel Group; and
(iv) shall redeem or otherwise acquire from any
person, any common stock or other equity securities of Octel;
provided, however, that purchases meeting the requirement of
Section 4.05(1)(b) of Rev. Proc. 96-30 shall not constitute a
redemption or acquisition of equity securities of Octel;
unless in the case of matters involving Sections 2.3(e)(i-iv) above,
Octel has previously obtained a ruling from the Internal Revenue Service,
reasonably satisfactory to the Company in form and content, to the effect
that such proposed transaction will not adversely affect the tax treatment
of the Distributions. The foregoing notwithstanding, the Company Group
shall be indemnified and held harmless by Octel in accordance with Section
2.3(b)(iv) without regard to the fact that Octel may have received a
ruling from the Internal Revenue Service pursuant to this Section 2.3(e)
and such ruling was reasonably satisfactory to the Company. In the event
a transaction is proposed that is described within this Section 2.3(e),
Octel shall, promptly upon becoming aware of such transaction, deliver
written notice to the Company in which it describes in sufficient detail
such proposed transaction. The Company shall keep such proposed
transaction confidential (except it may disclose such proposed transaction
to its agents, to enforce its rights under this Agreement, or as may
otherwise be required by law).
(f) Representations Specific to Distribution Tax Matters. Octel
hereby represents and warrants that it has examined copies of the Internal
Revenue Service ruling request dated September 11, 1997 and the
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supplements thereto dated September 25, 1997, October 24, 1997, November 11,
1997, November 17, 1997, December 12, 1997, March 13, 1998, March 13, 1998,
March 16, 1998, and the Internal Revenue Service private letter ruling issued to
the Company dated March 13, 1998 and, to Octel's best knowledge after due
inquiry, to the extent descriptive of Octel and its Subsidiaries or the
Petroleum Additives Business (including, without limitation, the representations
in such ruling documents to the extent that they relate to the plans, proposals,
intentions or policies of Octel or its Subsidiaries), the facts presented and
the representations made therein are true and correct, except to the extent that
any such facts or representations:
(i) set forth facts about the Company or any member
of the Company Group;
(ii) by their terms, express the opinions of the
management of the Company regarding the management, operation or
financial prospects or results of Octel or its Subsidiaries;
(iii) describe or characterize the views of investors
or analysts in the investment community with respect to Octel's or
its Subsidiaries' financial prospects or results;
(iv) describe or characterize the purpose of the
Company management for the Distribution; or
(v) set forth legal conclusions.
(g) Termination of Existing Agreements. Except as set forth in
this Agreement and in consideration of the mutual indemnities and other
obligations of this Agreement, any and all existing tax sharing agreements and
prior practices regarding Taxes and their payment, allocation, or sharing
between (i) any member of the Company Group and (ii) any member of the Octel
Group, shall be terminated as of the Distribution Date.
(h) Transfer Pricing.
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(i) If, as a result of any investigations by any
Tax authority, any member of the Company Group is deemed for Tax
purposes to have entered into a transaction with any member of
the Octel Group on a non arms length basis and is accordingly
taxed in respect of a sum greater than that (if any) actually
received, or is granted relief in respect of a sum that is less
than the sum that was actually paid, Octel shall or shall
procure (subject to all necessary cooperation being given by the
relevant member of the Company Group) that a reference shall be
made to the Competent Authority under any relevant Double
Taxation Agreement with a view to achieving a corresponding
adjustment in respect of such non arms length transaction. To
the extent that any member of the Octel Group receives relief
for Tax as a result of any such corresponding adjustment whether
pursuant to a relevant Double Taxation Agreement or Section 770
Income and Corporation Taxes Act 1988, Octel shall or shall
procure that a sum equal to the Tax saved shall be paid to the
counterparty that was subject to the initial adjustment such sum
to be payable (a) (where such relief is given by way of
reduction of Tax) on the last day on which the Tax saved would
otherwise have been payable without interest or penalty for late
payment or (b) (where such relief is given by reimbursement of
Tax) forthwith upon receipt of any payment in respect of such
relief. All reasonable costs incurred by the party providing
such cooperation (including costs of outside advisors and
attorneys) shall be borne by or reimbursed by the party for
whose benefit such cooperation is given.
(ii) If, as a result of any investigation by any
Tax authority, any member of the Octel Group is deemed for Tax
purposes to have entered into a transaction with any member of
the Company Group on a non arms length basis and is accordingly
taxed in respect of a sum greater than that (if any) actually
received, or is granted relief in respect of a sum that is less
than the sum that was
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<PAGE> 16
actually paid, the Company shall or shall procure (subject to
all necessary cooperation being given by the relevant member of
the Octel Group) that a reference shall be made to the Competent
Authority under any relevant Double Taxation Agreement with a
view to achieving a corresponding adjustment in respect of such
non arms length transaction. To the extent that any member of
the Company Group receives relief for Tax as a result of any such
corresponding adjustment whether pursuant to a relevant Double
Taxation Agreement or Section 770 Income and Corporation Taxes Act
1988, the Company shall or shall procure that a sum equal to the
Tax saved shall be paid to the counterparty that was subject to the
initial adjustment, such sum to be payable (a) (where such relief
is given by way of reduction of Tax) on the last day on which the
Tax saved would otherwise have been payable without interest or
penalty for late payment or (b) (where such relief is given by
reimbursement of Tax) forthwith upon receipt of any payment in
respect of such relief. All reasonable costs incurred by the party
providing such cooperation (including costs of outside advisors and
attorneys) shall be borne by or reimbursed by the party for whose
benefit such cooperation is given.
(iii) For purposes of this Section 2.3(h), "Double
Taxation Agreement" means any convention between two nation
states for the elimination of double taxation, and "Competent
Authority" means, in accordance with the terms of any relevant
Double Taxation Agreement, the Tax authority responsible for
administering any mutual agreement procedure contained in such
Double Taxation Agreement. The agreements set forth in this
Section 2.3(h) shall apply notwithstanding any other provision
of this Agreement.
2.4 Period That Includes the Distribution Date.
(a) Closing of the Tax Year. The Tax year of the members of the
Octel Group and the members of
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<PAGE> 17
the Company Group shall, to the extent permitted by law or administrative
practice, be treated as closing at the close of business on the Distribution
Date. The parties agree that the Tax year of Octel America and Octel will
close for Federal income tax purposes at that time, and further agree that one
of the Tax Returns to be filed by the Company pursuant to Section 2.1 of this
Agreement is the consolidated Federal income Tax Return of the Company Group
for the tax year that begins January 1, 1998 and that will include Octel
America and Octel for the period beginning on January 1, 1998 and ending at the
close of business on the Distribution Date. The parties further agree that
such short Tax year is a Period Before Distribution under this Agreement and
that such Tax Return properly does, and will, include all transactions
occurring through and including the Distribution Date, including the
Reorganization Transactions.
(b) Interim Closing of the Tax Year. Except as otherwise
provided in Section 2.1(b), if it is necessary for purposes of this Agreement
to determine the Tax liability of any member of the Company Group or the Octel
Group for a Tax year that begins on or before and ends after the Distribution
Date and is not treated under law or administrative practices as closing at the
close of the Distribution Date, the determination shall be made by assuming
that such member of the Octel Group or of the Company Group had a tax year that
ended at the close of the Distribution Date, except that exemptions, allowances
or deductions that are calculated on an annual basis shall be apportioned on a
per diem basis.
2.5 Payments. To the extent that a party owes money (the "Payor") to
another party (the "Payee") pursuant to this Article II, the Payor shall pay
the Payee, no later than the later to occur of (i) 30 days after the Payor
receives the Payee's calculations or (ii) the earlier to occur of 10 days prior
to the due date of the relevant Tax Return (including an estimated Tax Return)
or the payment date for the Tax. The Payee shall submit its calculation of the
amount required to be paid pursuant to this Article II, including sufficient
detail to permit the Payor to understand the basis of such calculation. The
Payor shall have the right to disagree with such calculations and any such
dispute shall be resolved in accordance with Article VII of this Agreement;
provided, however, that the Payor will pay all undisputed
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amounts in accordance with the time frames specified above. All payments
required to be made hereunder shall be made in immediately available funds
denominated in United States dollars. To the extent any Tax liability that
results in an indemnification obligation hereunder is calculated in a currency
other than United States dollars, that amount shall be translated into United
States dollars using the average of the most recent bid and asked spot rates
published in the Wall Street Journal on the earlier of (i) the date the
indemnification is made or (ii) the date the indemnification is due.
2.6 Interest. Any payment required by this Agreement which is not
made on or before the date provided hereunder shall bear interest after such
date at the Underpayment Rate.
ARTICLE III
CARRYBACKS AND REFUNDS
3.1 Carrybacks. Without the prior consent of the Company, which
consent shall be given only in the sole and absolute discretion of the Company,
no member of the Octel Group shall carry back from a Period After Distribution
to a Period Before Distribution any net operating loss, credit, capital loss or
other Tax attribute; provided, however, that if any such net operating loss,
credit, capital loss or other Tax attribute must, under applicable foreign law,
be carried back, such loss, credit or attribute may be carried back (to the
extent required by applicable foreign law) and the Company shall cooperate in
filing for such carryback (pursuant to Octel's reasonable request).
3.2 Amended Returns; Refunds. Except as set forth in Section 3.1, no
member of the Octel Group shall file an amended Tax Return with respect to a
Period Before Distribution or otherwise make any claim for a refund or credit
of Taxes paid with respect to a Period Before Distribution without the consent
of the Company, which consent shall be given only in the sole and absolute
discretion of the Company.
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ARTICLE IV
TAX AUDITS
4.1 General. Except as provided in Section 4.2, each of Octel and the
Company shall have sole responsibility for all audits or other proceedings with
respect to Tax Returns that it is required to file under Section 2.1.
4.2 Indemnified Claims. The Company or Octel shall promptly notify
the other in writing of any proposed adjustment (including any inquiry
regarding foreign Taxes) to a Tax Return that may result in liability, or
entitlement to refund, of the other party (the "Indemnitor") under this
Agreement. The Indemnitor shall have the option of assuming sole
responsibility for contesting the proposed adjustment by providing written
notice to the other party (the "Indemnitee") of its intention to do so within
20 days of receiving written notice of the proposed adjustment; provided,
however, that notwithstanding anything to the contrary herein, with respect to
a proposed adjustment relating to Taxes for which Octel potentially could
reduce its indemnity liability under Section 2.3(b) (unless Octel agrees in
writing to forego any such potential reduction) (i) the Company shall be
entitled to control any proceeding relating to any such Taxes to the extent
such Taxes could be included on a Tax Return of a member of the Company Group;
(ii) the Company shall not settle any such proceeding without the consent of
Octel (such consent not to be unreasonably withheld), (iii) Octel and its
representatives, at Octel's expense, shall be entitled to participate in all
conferences and meetings relating to such proceeding with any Tax authority,
and (iv) the Company shall provide Octel and its representatives with any
documentation, protests, memoranda of fact and law and briefs prior to their
submission in connection with such proceeding and the Company shall consider
any comments that Octel may have with respect to such documents. If the
Indemnitor elects to assume responsibility for contesting a proposed
adjustment, it may employ counsel of its choice at the Indemnitor's expense.
In addition, the Indemnitor shall provide the Indemnitee with information
concerning the proposed adjustments and shall permit the Indemnitee and its
representatives to participate in the
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proceeding at the Indemnitee's expense. If the Indemnitor does not exercise
its options within such 20 day period, the Indemnitee shall be permitted (but
not obligated) to contest or settle the proposed adjustment. If the Indemnitor
does not exercise such option and the Indemnitee contests or settles the
proposed adjustment, the Indemnitor shall reimburse the Indemnitee for the
reasonable expenses incurred (including professional fees) in such contest.
4.3 Payment of Audit Assessments. The obligation for payment or
entitlement to refund of the Indemnitor shall be limited to the net increase or
net decrease in tax liability resulting (for all past and future periods) from
a change in tax treatment required by a Final Determination. The obligation or
entitlement of the Indemnitor shall be adjusted to reflect the present value of
the increase and/or decrease in future tax liabilities of the Indemnitee
resulting from the change in tax treatment using, with respect to tax periods
prior to the date of such Final Determination, the highest marginal tax rate of
the applicable taxing jurisdiction known to be applicable to the entities, tax
periods and items involved, and with respect to tax periods thereafter, using
the highest marginal tax rate of the applicable taxing jurisdiction scheduled
to be in effect as of the date of such Final Determination with respect to the
entities and items involved, and using a discount rate equal to the
Underpayment Rate in effect as of the date of such Final Determination. In
each case, actual or projected Tax liabilities denominated in currencies other
than the United States dollar shall be converted into United States dollars
based upon the average of the most recent bid and asked spot rates published in
the Wall Street Journal on or prior to the date of the Final Determination.
Such conversion into United States dollars shall take place before Tax
liabilities are discounted to their present value as described in the second
sentence of this Section 4.3.
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ARTICLE V
COOPERATION
The Company and Octel shall cooperate (and shall cause their respective
Subsidiaries to cooperate) with each other in the filing and execution of any
Tax Returns (including, without limitation, elections to "check the box" under
Federal Tax law as reasonably requested by the Company) and the conduct of any
audit or other proceeding and each shall execute and deliver such powers of
attorney and make available such other documents and employees as are necessary
to carry out the intent of this Agreement or to obtain any private letter
ruling in connection with the transactions contemplated hereunder (including
without limitation Section 2.3(e) hereof). Each party agrees to notify the
other party of any audit adjustments that do not result in Tax liability, but
can be reasonably expected to affect Tax Returns of the other party, or any of
its Subsidiaries. Each party agrees to treat the Internal and External
Distributions for all income tax purposes as tax-free transactions pursuant to
Section 355(a) of the Code, unless and until there has been a Final
Determination that the Internal or External Distribution, as the case may be,
is not a tax-free transaction under Section 355(a) of the Code.
ARTICLE VI
RETENTION OF RECORDS; ACCESS
The Company Group and the Octel Group shall each (a) until the
expiration of the relevant statute of limitations (including any extensions of
which it has actual notice), retain records, documents, accounting data and
other information (including computer data) necessary for the preparation and
filing of all Tax Returns in respect of Taxes of the Company Group or the Octel
Group or for the audit of such Tax Returns; and (b) give to the other party
reasonable access to and copies of such records, documents, accounting data and
other information (including computer data) and to its personnel (insuring
their cooperation) and premises, for the
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purpose of the review or audit of such Tax Returns to the extent relevant to
an obligation or liability of a party under this Agreement. Prior to
destroying any records, documents, data or other information in accordance with
this Article, the party wishing to destroy such items will give the other party
a reasonable opportunity to obtain such items (at such other party's expense).
Any information provided under this Agreement shall be kept strictly
confidential and shall not be disclosed by the party to which such information
is provided, other than to its agents or to the extent required by law or
requested by a Taxing authority.
ARTICLE VII
DISPUTES
Any controversy or claim arising out of or relating to this Agreement
shall be finally determined as follows:
7.1 General. If the parties disagree as to the calculation of any Tax
or the amount of (but not liability for) any payment to be made under this
Agreement, the parties shall cooperate in good faith to resolve any such
dispute, and any agreed-upon amount shall be paid to the appropriate party. If
the parties are unable to resolve any such dispute within 15 days after notice
has been given by one party to the other of the existence of the dispute, such
dispute shall be resolved by an internationally recognized accounting firm
acceptable to both the Company and Octel, which firm has not performed auditing
services for either party or their Subsidiaries within the prior five years.
For purposes of this paragraph, to the extent practicable, disputes primarily
regarding (i) U.K. Taxes shall be arbitrated in the London office of such firm,
(ii) U.S. Taxes shall be arbitrated in the New York office of such firm, and
(iii) other foreign Taxes shall be arbitrated in the principal office of such
firm. In the event the parties are unable to agree on the selection of an
accounting firm, the selection of an accounting firm shall be made by the
American Arbitration Association. The decision of such firm shall be final and
binding. The fees and expenses incurred in connection with such decision shall
be borne equally by the Company and Octel. Following the decision
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of such accounting firm, the parties shall each take (or cause to be taken) any
action that is necessary or appropriate to implement such decision, including,
without limitation, the prompt payment of underpayments or overpayments, with
interest calculated on such overpayments and underpayments at the Underpayment
Rate from the date such payment was due (the due date of payments governed by
Section 2.5 of this Agreement shall be the date a payment is due thereunder
assuming the party does not dispute the amount owed) through the date such
underpayment or overpayment is paid or refunded.
7.2 Judicial Proceeding. The parties agree that New York has a
substantial relationship to the Distributions, and each party consents to
personal jurisdiction in the courts of New York and further agree that all
claims or controversies between the parties arising out of or relating to this
Agreement, other than those provided for in Section 7.1, shall be finally
determined by the federal and state courts sitting in New York, New York.
7.3 Injunctive Relief. The parties acknowledge that the Company would
be damaged irreparably in the event any of the warranties, covenants or
agreements of any member of the Octel Group set forth herein was not performed
in accordance with its specific terms or was otherwise breached and that money
damages would be an inadequate remedy for any such nonperformance or breach.
Therefore, the Company or its assigns shall be entitled, in addition to any
other rights and remedies existing in their favor, to an injunction or
injunctions to prevent any breach or threatened breach of any such warranties,
covenants or agreements and to enforce such provisions specifically (without
posting a bond or other security). The parties further acknowledge and agree
that this Section 7.3 is an essential part of the bargained-for consideration
of this Agreement.
ARTICLE VIII
TERMINATION OF LIABILITIES
All representations, warranties and covenants under this Agreement
shall survive indefinitely.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Notices and Governing Law.
(a) All notices required or permitted to be given pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given
(i) on the date of service if served personally on the party to whom notice is
given, (ii) on the day of transmission if sent via facsimile transmission to
the facsimile number given below, provided facsimile confirmation of receipt is
obtained promptly after completion of transmission, (iii) on the third business
day after delivery by an overnight courier service, provided receipt of
delivery is confirmed, or (iv) on the tenth day after mailing, provided receipt
of delivery is confirmed, if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepaid, properly
addressed and return-receipt requested, to the party as follows:
If to the Company:
Great Lakes Chemical Corporation
One Great Lakes Boulevard
West Lafayette, Indiana 47906
United States
Attn: Vice President and General Counsel
Facsimile: (765) 497-6660
If to Octel:
Octel Corp.
c/o The Associated Octel Company Limited
P.O. Box 17, Oil Sites Road
Ellesmere Port
South Wirral L65 4HF
United Kingdom
Attn: Company Secretary and General
Counsel
Facsimile: 44-151-356-6239
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Any party may change its address by giving the other party written
notice of its new address in the manner set forth above.
(b) New York law, without regard to principles of conflicts of
law, shall govern the interpretation of this Agreement.
9.2 Treatment of Payments. The parties hereto shall treat any
payments made pursuant to the terms of this Agreement as a capital transaction
for all Tax purposes, except to the extent such payments represent interest
paid pursuant to Section 2.6.
9.3 Binding Effect; No Assignment; Third Party Beneficiaries. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
and their respective successors and assigns. The Company and Octel hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of each member of the Company Group and the Octel
Group, respectively. The Company shall use its best efforts to cause Great
Lakes Europe Limited and Great Lakes Chemical (Europe) Limited, being members of
the Company Group, and Octel shall use its best efforts to cause Associated
Octel Company (Plant) Limited, Octel Trading Limited, Octel Resources Limited,
The Associated Octel Company Limited and ARC Trading Limited, being members of
the Octel Group, within 90 days of the date of this Agreement to enter into
guarantees of the performance of the obligations of the Company and Octel
respectively under this Agreement, to the extent that such guarantees are lawful
and do not infringe the terms of any contractual obligation entered into by the
Company or Octel or the Members of the Company Group or the Octel Group on or
prior to the Distribution Date. For these purposes the obligation of the Company
and Octel shall include an obligation to procure compliance with Sections 155 to
158 Companies Act 1985 of the United Kingdom so far as the same are capable of
being complied with in relation to such guarantees. Except for assignments in
connection with the Lender's Liens, the Company or Octel, shall not assign any
of its rights or delegate any of its duties under this Agreement without the
prior written consent of Octel or the Company, as the case may be, in its sole
and absolute discretion. Except with respect to the Lender's Liens, no person
(including, without limitation, any employee of a party or any stockholder of a
party) shall be, or shall be deemed to be, a third party beneficiary of this
Agreement.
9.4 Entire Agreement; Amendments. This Agreement constitutes the
entire agreement of the parties concerning Taxes of the parties and their
Subsidiaries hereto, including the sharing, payment of and indemnification with
respect to, such Taxes, and supersedes all prior agreements, whether or not
written, concerning such
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subject matter. This Agreement may not be amended except by an agreement in
writing, signed by the parties.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
9.6 Interpretation. Whenever the words "Include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The words describing the singular number shall
include the plural and vice versa.
9.7 Effective Date. This Agreement shall be effective as of the
Distribution Date.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
Great Lakes Chemical Corporation
By
------------------------------
Name:
Title:
Octel Corporation
By
------------------------------
Name:
Title:
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EXHIBIT 10.11
OCTEL CORP
-----------------------------
RULES
OF THE
OCTEL CORP TIME RESTRICTED STOCK OPTION PLAN
-----------------------------
Established by the Company in General Meeting
on [ ]
PRICE WATERHOUSE
9 Bond Court
Leeds
LS1 2SN
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS............................................................................. 1
2. GRANT OF OPTIONS ....................................................................... 2
2.1 Procedure for Grant of Options...................................................... 2
2.2 Requirement to Issue Option Certificate............................................. 2
2.3 Right to Disclaim Option............................................................ 2
2.4 Options may not be transferred...................................................... 2
3. CONDITIONS RELATING TO THE GRANT OF OPTIONS............................................. 2
3.1 Modified Terms and Conditions....................................................... 3
3.2 Additional Requirements............................................................. 3
4. RIGHTS OF EXERCISE ..................................................................... 3
4.1 Earliest Date of Exercise .......................................................... 3
4.2 Requirement to remain in Employment ................................................ 3
4.3 Death of Option Holder ............................................................. 3
4.4 Right to Exercise Prematurely....................................................... 3
4.5 Transfer of Employment within Group................................................. 4
4.6 Transfer of Employment Overseas..................................................... 4
4.7 Lapse of Options.................................................................... 4
5. TAKE-OVER, RECONSTRUCTION AND AMALGAMATION AND LIQUIDATION ............................. 5
5.1 Take-over pursuant to General Offer................................................. 5
5.2 Voluntary Winding Up of the Company................................................. 5
5.3 Rollover of Options................................................................. 5
5.4 Meaning of "appropriate period"..................................................... 5
6. MANNER OF EXERCISE...................................................................... 6
6.1 Actions Required of the Option Holder............................................... 6
6.2 Actions Required of the Company..................................................... 6
6.3 Partial Exercise.................................................................... 6
6.4 Indemnity against Taxation of the Option Holder..................................... 6
7. ISSUE OF SHARES......................................................................... 6
7.1 Ranking of Shares................................................................... 6
7.2 Admission to Official List of the New York Stock Exchange........................... 7
8. ADJUSTMENTS............................................................................. 7
8.1 General Power of Adjustment ........................................................ 7
8.2 Notification of Option Holders...................................................... 7
9. ADMINISTRATION.......................................................................... 7
9.1 Delivery of Notices or Documents.................................................... 7
9.2 Copies of Shareholder Communications................................................ 7
9.3 Maintenance of Unissued Share Capital............................................... 7
9.4 The Committee's Power to Administer Plan............................................ 7
9.5 The Committee's Decision is Final and Conclusive.................................... 8
9.6 Costs of Administering Plan......................................................... 8
10.ALTERATIONS............................................................................. 8
10.1 Power to alter Rules............................................................... 8
10.2 Alteration which affects subsisting rights of Option Holders....................... 8
10.3 Notification to Option Holders..................................................... 8
11. GENERAL................................................................................ 8
11.1 Termination of the Plan .......................................................... 8
11.2 No Compensation for loss of Option Rights......................................... 8
11.3 Governing Law..................................................................... 9
</TABLE>
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
================================================================================
1. DEFINITIONS
In this Plan, the following words and expressions shall, where the context so
permits, have the meaning set forth below;
"ACQUIRING COMPANY" the person mentioned in Rule 5.
"THE CODE" the United States Internal Revenue Code of 1986
(as amended);
"THE COMMITTEE" the Octel Corp Compensation Benefits Committee;
"DATE OF GRANT" the date on which the Committee resolves to grant an
Option under the Plan pursuant to Rule 2;
"THE COMPANY" save as provided in Rule 5.3, Octel Corp a Delaware
Corporation, registered in the United States;
"ELIGIBLE EMPLOYEE" any person who is listed in Schedule One of the
Rules (or added to the list in Schedule One of the
Rules at the discretion of the Committee) and who is
a director or employee of a Member of the Group at
the Date of Grant;
"GRANT PERIOD" a period of 180 days commencing on the Dealing Day
following the day of the spin of the Company from
Great Lakes Chemicals Corporation.
"GROUP" the Company and its Subsidiaries and "Member of the
Group" shall be construed accordingly;
"OPTION" a right to acquire Shares for no payment pursuant to
the Plan;
"OPTION CERTIFICATE" a certificate issued under Rule 2.2;
"OPTION HOLDER" a person to whom an Option has been granted (or, as
the context requires his personal representatives);
"PARENT" a parent corporation within the meaning of Section
424(e) of the Code;
"THE PLAN" the Octel Corp Time Restricted Stock Option Plan in
its present form, or as from time to time altered in
accordance with the Rules;
"RULES" the Rules of the Plan and "Rule" shall be construed
accordingly;
"SALARY" the annual salary of an Eligible Employee (excluding
benefits in kind), for a year in which the Options
are granted to an Eligible Employee;
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
"SHARE" save as provided in Rule 5.3, a share in the
Company;
"SUBSIDIARY" a subsidiary corporation within the meaning of
Section 424(f) of the Code;
References to any statutory provision are to that provision as amended or
re-enacted from time to time, and, unless the context otherwise requires, words
in the singular shall include the plural (and vice versa) and words importing
the masculine the feminine (and vice versa).
2. GRANT OF OPTIONS
2.1 PROCEDURE FOR GRANT OF OPTIONS
a Within the Grant Period, the Committee may, at its absolute discretion,
grant Options under the Plan to Eligible Employees. The Committee has
decided that the level of Options granted to Eligible Employees will be
linked to Salary as set out in Schedule One of these Rules.
b The Committees may adopt such procedure as it thinks fit for granting
Options, whether by invitation to Eligible Employees to apply for
Options or by granting Options without issuing Invitations.
2.2 REQUIREMENT TO ISSUE OPTION CERTIFICATE
The Company shall issue to each Option Holder an Option Certificate which shall
be in such from as the Committee shall from time to time determine. The Option
Certificate shall included details of:
a the Date of Grant of the Option; and
b the number of Shares subject to the Option.
2.3 RIGHT TO DISCLAIM OPTION
Each Eligible Employee to whom an Option is granted may by notice in writing
within 30 days of the Date of Grant disclaim in whole or in part his rights
under the Option in which case the Option shall for all purposes be deemed never
to have been granted.
2.4 OPTIONS MAY NOT BE TRANSFERRED
Subject to the rights of an Option Holder's personal representatives to exercise
an Option as provided in Rule 4.3, every Option shall be personal to the
Eligible Employee to whom it is granted and shall not be capable of being
transferred, assigned or charged. Each Option Certificate shall carry a
statement to this effect.
3. CONDITIONS RELATING TO THE GRANT OF OPTIONS
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
3.1 MODIFIED TERMS AND CONDITIONS
The Committee may determine that any Option shall be subject to additional
and/or modified terms and conditions relating to the grant and terms of
exercise as may be necessary to comply with or take account of any securities,
exchange control or taxation laws, regulations or practice of any territory
which may have application to the relevant Eligible Employee, Option Folder or
Member of the Group.
3.2 ADDITIONAL REQUIREMENTS
In exercising its discretion under Rule 3.1, the Committee may:
a require an Option Holder to make such declarations or take such other
action (if any) as may be required for the purpose of any securities,
taxes or other laws of any territory which may be applicable to him at
the Date of Grant or on exercise; and
b adopt any supplemental rules or procedures governing the grant or
exercise of Options as may be required for the purposes of any
securities, tax or other laws of any territory which may be applicable
to an Eligible Employee or Option Holder.
4. RIGHTS OF EXERCISE
4.1 EARLIEST DATE OF EXERCISE
Save as provided in Rule 4.3, 4.4 and 5, an Option may not be exercised before
whichever is the latest of:
a 1.1.2001; and
b any date or dates which may have been specified in accordance with Rule
2.2 in the relevant Option Certificate
but in any event may not be exercised later than the tenth anniversary of the
Date of Grant.
4.2 REQUIREMENT TO REMAIN IN EMPLOYMENT
Save as provided in Rules 4.3, 4.4., and 5, an Option may only be exercised by
an Option Holder while he is a director or employee of a Member of the Group.
4.3 DEATH OF OPTION HOLDER
An Option may be exercised by the personal representatives of a deceased Option
Holder during the period of one year following the date of death.
4.4 RIGHT TO EXERCISE PREMATURELY
Where an Option Holder ceases to hold any office or employment with a Member
of the Group on account of:
a injury, ill-health or disability; or
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
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b redundancy (within the meaning of the Employment Rights Act 1996); or
c the transfer of the undertaking or part-undertaking in which the Option
Holder is employed to a person other than a Member of the Group; or
d the company by which the Option Holder is employed ceasing to be a
Subsidiary of the Company
Options will lapse and will only be exercisable at the absolute discretion of
the Committee, in which circumstances Options will be exercisable by the Option
Holder within a period of one year, following the date of termination of any
office or employment with a Member of the Group.
4.5 TRANSFER OF EMPLOYMENT WITHIN GROUP
An Option Holder shall not be treated for the purposes of Rules 4.4 and 4.7 as
ceasing to hold an office or employment with a Member of the Group until such
time as he is no longer a director or an employee of any Member of the Group
and an Option Holder (being a woman) who ceases to be a member of the Committee
or employee by reason of pregnancy or confinement and who exercises a
contractual or statutory right to return to work before exercising an Option
shall be treated for those purposes as not having ceased to hold such an office
or employment.
4.6 TRANSFER OF EMPLOYMENT OVERSEAS
If an Option Holder, whilst remaining a director or employee of a Member of the
Group, is transferred to work in another country and as a result of that
transfer will either
a become subject to tax on his remuneration in the country to which he is
transferred and the Committee is satisfied that as a result he will suffer
a tax disadvantage upon exercising an Option; or
b become subject to restrictions on his ability to exercise his Option or to
hold or deal in the shares or the proceeds of the sale of the shares he may
acquire an exercise of that Option by reason of or in consequence of the
securities laws or exchange control laws of the country to which he is
transferred
the Option Holder may exercise that Option in the period commencing three
months before and ending three months after the transfer takes place. If he
chooses not to exercise his Option at that time, it will not thereby lapse.
4.7 LAPSE OF OPTIONS
An Option shall lapse on the occurrence of the earliest of the following:
a the tenth anniversary of the Date of Grant; or
b subject to Rule 5.3, the expiry of any of the applicable periods specified
in Rules 4.3, 4.4, 5.1 and 5.2, but where an Option Holder dies while time
is running under Rule 4.4 the Option shall not lapse until the expiry of
the period in Rule 4.3; or
c the date on which an Option Holder ceases to be a Committee or employee of
any Member of the Group for any reason other than his death or those
specified in Rule 4.4; or
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
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d the date on which a resolution is passed, or an order is made by the
Court, for the compulsory winding-up of the Company; or
e the date on which the Option Holder becomes bankrupt or does or attempts
or omits to do anything as a result of which he is deprived of the legal
or beneficial ownership of the Option.
5. TAKE-OVER, RECONSTRUCTION AND AMALGAMATION AND LIQUIDATION
5.1 TAKE-OVER PURSUANT TO GENERAL OFFER
If any company ("THE ACQUIRING COMPANY") becomes a Parent of the Company as a
result of making either a general offer to acquire the whole of the Company's
issued share capital (other than any shares already owned by the Acquiring
Company or any Subsidiary of the Acquiring Company) and which is made on a
condition that if it is satisfied the Acquiring Company will become the Parent,
or a general offer to acquire all the Shares in the Company which are of the
same class as the Shares then an Option may be exercised within the period of
six months of the date on which the Acquiring Company becomes the Parent and
any condition subject to which the offer is made is satisfied.
5.2 VOLUNTARY WINDING UP OF THE COMPANY
If a resolution is passed for the voluntary winding-up of the Company, an
Option may be exercised during the period of six months starting on the
commencement of such winding-up provided that any issue of shares pursuant
to such exercise is authorised by the liquidator or the Court (if appropriate)
upon the application of and at the sole cost and expense of the Option Holder.
5.3 ROLLOVER OF OPTIONS
Notwithstanding anything to the contrary in these Rules, where Rule 5.1 applies,
an Option Holder may, by agreement with the Acquiring Company and within the
appropriate period release his Option under the Plan ("THE OLD OPTION") in
consideration of the grant to him of a new Option ("THE NEW OPTION") which is
equivalent to the Old Option but relates to shares in a different company
(whether the Acquiring Company or some other company). With effect from the date
of release references in Rules 4, 5, 6, 7, 8, 9, 10, and 11, (and, in relation
to expressions used in those Rules, in Rule 1) to "THE COMPANY" and "SHARES"
shall, in relation to the New Option, be construed as references to the
Acquiring Company and Shares in the Acquiring Company or that other company as
the case may be.
5.4 MEANING OF "APPROPRIATE PERIOD"
For the purpose of Rule 5.3, the "APPROPRIATE PERIOD" is the period mentioned
in Rule 5.1 or Rule 5.2 as the case may be.
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
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6. MANNER OF EXERCISE
6.1 ACTIONS REQUIRED OF THE OPTION HOLDER
An Option may be exercised, in whole or in part, by the delivery to the
secretary of the Company, or his duly appointed agent, of an Option Certificate
covering not less than all the Shares over which the Option is then to be
exercised, with the notice of exercise in the prescribed form duly completed
and signed by the Option Holder.
6.2 ACTIONS REQUIRED OF THE COMPANY
The relevant Shares shall be allotted or transferred (as the case may be)
within 28 days following such delivery and, accordingly in cases where Shares
are to be transferred, the Company shall use its best endeavours to ensure due
transfer thereof. At the request of the Option Holder, the Shares may be
allotted or transferred (as the case may be) to a nominee provided the Option
Holder has beneficial ownership of the Shares at the time of such allotment or
transfer.
6.3 PARTIAL EXERCISE
Where an Option is exercised in part the minimum number of shares which may be
exercised is 100 Shares and the Company shall issue a balancing Option
Certificate to the Option Holder.
6.4 INDEMNITY AGAINST TAXATION OF THE OPTION HOLDER
The Option Holder shall indemnify the company (and, where relevant, any Member
of the Group) aganist any tax arising in respect of the exercise of the Option
which is a liability of the Option Holder but for which such company is
required to account under the laws of any relevant territory. Such company may
recover the tax from the Option Holder in such manner as the Committee thinks
fit including (but without prejudice to the generality of the foregoing):
a withholding shares when the Option is exercised and selling the same;
b deducting the necessary amount from the Option Holder's remuneration;
or
c requiring the Option Holder to account directly to such company for
such tax.
7. ISSUE OF SHARES
7.1 RANKING OF SHARES
All Shares issued pursuant to the exercise of Options under the Plan shall as
to voting, dividend, transfer and other rights (including those arising on a
liquidation) rank pari passu in all respects with the Shares then in issue,
except that they shall not rank for any dividend or other rights declared by
reference to a record date preceding the date of such exercise.
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
7.2 ADMISSION TO OFFICIAL LIST OF THE NEW YORK STOCK EXCHANGE
If and so long as the Shares are listed on the New York Stock Exchange the
Company shall use its best endeavours to procure that as soon as practicable
after the allotment of any Shares pursuant to the Plan application shall be made
to the New York Stock Exchange for permission to deal in these shares.
8. ADJUSTMENTS
8.1 GENERAL POWER OF ADJUSTMENT
The number of Shares over which an Option is granted may adjusted in such manner
as the Committee shall determine following any capitalisation issue,
subdivision, consolidation or reduction of share capital and in respect of any
discount element in any rights issue or other variation of share capital to the
intent that Price below the nominal value of a Share.
8.2 NOTIFICATION OF OPTION HOLDERS
The Committee may take such steps as it may consider necessary to notify Option
Holders of any adjustments made under Rule 8.1 and to call in, cancel, endorse,
issue or re-issue any Option Certificate consequent upon such adjustment.
9. ADMINISTRATION
9.1 DELIVERY OF NOTICES OR DOCUMENTS
Notices or documents required to be given to an Eligible Employee or to an
Option Holder shall either be delivered to him by hand or sent to him by post
at his last known home or business address according to the information
provided by him. Notices sent by post shall be deemed to have been given on the
day following the date of posting.
9.2 COPIES OF SHAREHOLDERS COMMUNICATIONS
The Company may, distribute to Option Holders copies of any notice or document
sent by the Company to its shareholders generally.
9.3 MAINTENANCE OF UNISSUED SHARE CAPITAL
The Company shall at all times either keep available sufficient unissued Shares
to satisfy the exercise of all Options which have neither lapsed nor been
exercised (taking account of any other obligations of the Company to allot
unissued Shares) or shall ensure that sufficient issued Shares will be
available to satisfy the exercise of such Options.
9.4 THE COMMITTEE'S POWER TO ADMINISTER PLAN
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
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The Committee may make such regulations for the administration of the Plan as it
deems fit, provided that no regulation shall be valid to the extent it is
inconsistent with the Rules.
9.5 THE COMMITTEE'S DECISION IS FINAL AND CONCLUSIVE
The decision of the Committee in any dispute relating to an Option, or the due
exercise thereof, or any other matter in respect of the Plan, shall be final
and conclusive.
9.6 COSTS OF ADMINISTERING PLAN
The costs of introducing and administering the Plan shall be borne by the
Company.
10. ALTERATIONS
10.1 POWER TO ALTER RULES
Subject to Rule 10.2, the Committee may in its discretion alter the Rules in
any way they think fit.
10.2 ALTERATION WHICH AFFECTS SUBSISTING RIGHTS OF OPTION HOLDERS
No alteration may be made which would abrogate or adversely affect the
subsisting rights of Option Holders.
10.3 NOTIFICATION TO OPTION HOLDERS
Written notice of any amendment made in accordance with this Rule 10 shall be
given to all Option Holders.
11. GENERAL
11.1 TERMINATION OF THE PLAN
The Plan shall terminate on the tenth anniversary of the date on which it is
approved by the Company in general meeting or at any earlier time by the
passing of a resolution by the Committee. Termination of the Plan shall be
without prejudice to the subsisting rights of Option Holders.
11.2 NO COMPENSATION FOR LOSS OF OPTION RIGHTS
If an Option Holder shall cease for any reason to be in the employment of a
Member of the Group, he shall not be entitled, by way of compensation for loss
of office or otherwise howsoever, to any
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THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
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sum or any benefit to compensate him for the loss of any right or benefit
accrued or in prospect under the Plan.
11.3 GOVERNING LAW
This Plan and all Options shall be governed by and construed in accordance with
English law.
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<PAGE> 12
THE RULES OF THE OCTEL CORP TIME RESTRICTED OPTION PLAN
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SCHEDULE ONE
ENTITLEMENT TO SHARE OPTIONS
The grant of Options to an Eligible Employee is at the absolute discretion of
the Committee. The number of Options to be granted under the Plan to Eligible
Employees will be linked to Salary. Within a period of 180 days following the
date of the spin of the Company from Great Lakes Chemical Corp Options will be
granted based on the "Value of Options Awarded" as set out in the table
below.
OPTIONS GRANTED
The number of Shares over which Options will be granted during the Grant Period
mentioned above will be equal to:
VALUE OF OPTIONS AWARDED
THE FAIR MARKET VALUE OF A SHARE IN THE COMPANY AT THE DATE OF GRANT
EXAMPLE FOR A GRANT OF OPTIONS MADE WITHIN 180 DAYS OF SPIN
ELIGIBLE EMPLOYEES ESTIMATED PERCENTAGE INITIAL AWARD VALUE
ANNUAL SALARY APPLIED TO
FOR YEAR OF GRANT SALARY
(A) (B) ((A)x(B)=(C))
$
-
DJ Kerrison 431,943 300% 1,295,828
SW Williams 224,610 200% 449,220
AG Jarvis 259,166 200% 518,332
RA Lee 215,972 200% 431,944
GJ Hignett 215,972 200% 431,944
HA Hanslip 165,866 200% 331,732
RT Shone 156,322 200% 312,644
GM Leathes 156,322 200% 312,644
<PAGE> 1
EXHIBIT 10.12
OCTEL CORP
________________________________________________________________________________
RULES
OF THE
OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
________________________________________________________________________________
Established by the Company in General Meeting
on [ ]
PRICE WATERHOUSE
[9 Bond Court
Leeds
LS1 2SN]
<PAGE> 2
CONTENTS
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. GRANT OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Procedure for Grant of Options . . . . . . . . . . . . . . . . . . . 2
2.2 Requirement to Issue Option Certificate. . . . . . . . . . . . . . . 3
2.3 Right to Disclaim Option . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Options may not be transferred . . . . . . . . . . . . . . . . . . . 3
3. CONDITIONS RELATING TO THE GRANT OF OPTIONS . . . . . . . . . . . . . . . 3
3.1 Performance Conditions . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Variation of Performance Conditions. . . . . . . . . . . . . . . . . 3
3.3 Modified Terms and Conditions. . . . . . . . . . . . . . . . . . . . 4
3.4 Additional Requirements. . . . . . . . . . . . . . . . . . . . . . . 4
4. RIGHTS OF EXERCISE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Earliest Date of Exercise. . . . . . . . . . . . . . . . . . . . . . 4
4.2 Requirement to remain in Employment. . . . . . . . . . . . . . . . . 4
4.3 Death of Option Holder . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Right to Exercise Prematurely irrespective of Performance
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.5 Right to Exercise Prematurely if Performance Conditions Achieved . . 5
4.6 Transfer of Employment within Group. . . . . . . . . . . . . . . . . 5
4.7 Transfer of Employment Overseas. . . . . . . . . . . . . . . . . . . 5
4.8 Lapse of Options . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. TAKE-OVER, RECONSTRUCTION AND AMALGAMATION AND LIQUIDATION. . . . . . . . 6
5.1 Take-over pursuant to General Offer. . . . . . . . . . . . . . . . . 6
5.2 Voluntary Winding Up of the Company. . . . . . . . . . . . . . . . . 7
5.3 Meaning of Obtaining Control . . . . . . . . . . . . . . . . . . . . 7
5.4 Rollover of Options. . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5 Meaning of "appropriate period". . . . . . . . . . . . . . . . . . . 7
6. MANNER OF EXERCISE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Actions Required of the Option Holder. . . . . . . . . . . . . . . . 7
6.2 Actions Required of the Company. . . . . . . . . . . . . . . . . . . 7
6.3 Partial Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Indemnity against Taxation of the Option Holder. . . . . . . . . . . 8
7. ISSUE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Ranking of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Admission to Official List of the New York Stock Exchange. . . . . . 8
8. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1 General Power of Adjustment. . . . . . . . . . . . . . . . . . . . . 8
8.2 Notification of Option Holders . . . . . . . . . . . . . . . . . . . 9
9. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1 Delivery of Notices or Documents . . . . . . . . . . . . . . . . . . 9
9.2 Copies of Shareholder Communications . . . . . . . . . . . . . . . . 9
9.3 Maintenance of Unissued Share Capital. . . . . . . . . . . . . . . . 9
9.4 The Committee's Power to Administer Plan . . . . . . . . . . . . . . 9
9.5 The Committee's Decision is Final and Conclusive . . . . . . . . . . 9
9.6 Costs of Administering Plan. . . . . . . . . . . . . . . . . . . . . 9
10. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
10.1 Power to alter Rules . . . . . . . . . . . . . . . . . . . . . . . .10
10.2 Alteration which affects subsisting rights of Option Holders . . . .10
10.3 Notification to Option Holders . . . . . . . . . . . . . . . . . . .10
11. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
11.1 Termination of the Plan. . . . . . . . . . . . . . . . . . . . . . .10
11.2 No Compensation for loss of Option Rights. . . . . . . . . . . . . .10
11.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
<PAGE> 3
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
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1. DEFINITIONS
In this Plan, the following words and expressions shall, where the context so
permits, have the meanings set forth below:
"ACQUIRING COMPANY" the person mentioned in Rule 5.1;
"THE CODE" the United States Internal Revenue Code of 1986
(as amended);
"THE COMMITTEE" the Octel Corp Compensation Benefits Committee;
"DATE OF GRANT" the date on which the Committee resolve to grant
an Option under the Plan pursuant to Rule 2;
"THE COMPANY" save as provided in Rule 5.4, Octel Corp a
Delaware Corporation, registered in the United
States;
"ELIGIBLE EMPLOYEE" any person who is listed in Schedule One of the
Rules (or added to the list in Schedule One of
the Rules at the discretion of the Committee) and
who is a director or employee of a Member of the
Group at the date of Grant;
"FAIR MARKET VALUE" in relation to a Share on any day;
(1) If and so long as the Shares are listed on
the New York Stock Exchange, the reported
closing price of Octel Corp common stock on
the New York Stock Exchange for the Dealing
Day;
(2) save as mentioned in (1) above, its market
value as determined in accordance with Part
VIII of the Taxation of Chargeable Gains Act
1992 and agreed in advance with the Shares
Valuation Division of the Inland Revenue;
"GRANT PERIOD" a period of 180 days commencing on the Dealing
Day following any of;
(1) the date of the spin of the Company from
Great Lakes Chemicals Corporation; or
(2) the first and second anniversary of the date
of the spin of the Company from Great Lakes
Chemicals Corporation; or
(3) a day on which the Committee resolve that
exceptional circumstances have arisen which
justify the grant of Options;
1
<PAGE> 4
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
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"GROUP" the Company and its Subsidiaries and "Member of the
Group" shall be construed accordingly;
"OPTION" a right to acquire Shares for no payment pursuant to
the Plan;
"OPTION CERTIFICATE" a certificate issued under Rule 2.2;
"OPTION HOLDER" a person to whom an Option has been granted (or, as the
context requires, his personal representatives);
"THE PARENT" a parent corporation within the meaning of Section
424(e) of the Code;
"THE PLAN" the Octel Corp Performance Related Stock Option Plan
its present form, or as from time to time altered in
accordance with the Rules;
"RULES" the Rules of the Plan and "Rule" shall be construed
accordingly;
"SALARY" the annual salary of an Eligible Employee (excluding
benefits in kind), for a year in which Options are
granted to an Eligible Employee;
"SHARE" save as provided in Rule 5.4, a share in the Company;
"SUBSIDIARY" a subsidiary corporation within the meaning of Section
424(f) of the Code
"VESTED OPTIONS" any Options remaining after the cancellation of part of
an initial Option originally granted;
References to any statutory provision are to that provision as amended or
re-enacted from time to time, and, unless the context otherwise requires, words
in the singular shall include the plural (and vice versa) and words importing
the masculine the feminine (and vice versa).
2. GRANT OF OPTIONS
2.1 PROCEDURE FOR GRANT OF OPTIONS
a Within a Grant Period, the Committee may, at its absolute discretion, grant
Options under the Plan to Eligible Employees. The Committee has decided
that initially, the level of Options granted to Eligible Employees will be
linked to Salary.
b The Committee may adopt such procedure as it thinks fit for granting
Options, whether by invitation to Eligible Employees to apply for Options
or by granting Options without issuing invitations.
<PAGE> 5
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
________________________________________________________________________________
2.2 REQUIREMENT TO ISSUE OPTION CERTIFICATE
The Company shall issue to each Option Holder an Option Certificate which shall
be in such form as the Committee shall from time to time determine. The Option
Certificate shall include details of:
a the Date of Grant of this Option;
b the maximum number of Shares subject to the Option; and
c any date or dates determined by the Committee in accordance with Rule
3.1 upon which the Option is first exercisable in whole and/or part and,
where on any date only part is first exercisable, the number of Shares over
which such partial exercise may be made; and
d the performance targets or conditions to be satisfied as a condition
of the exercise of the Option in accordance with Rule 3.1.
2.3 RIGHT TO DISCLAIM OPTION
Each Eligible Employee to whom an Option is granted may by notice in writing
within 30 days of the Date of Grant disclaim in whole or in part his rights
under the Option in which case the Option shall for all purposes be deemed never
to have been granted.
2.4 OPTIONS MAY NOT BE TRANSFERRED
Subject to the rights of an Option Holder's personal representatives to
exercise an Option as provided in Rule 4.3, every Option shall be personal to
the Eligible Employee to whom it is granted and shall not be capable of being
transferred, assigned or charged. Each Option Certificate shall carry a
statement to this effect.
3. CONDITIONS RELATING TO THE GRANT OF OPTIONS
3.1 PERFORMANCE CONDITIONS
Every Option shall be granted subject to the condition that (save as provided in
Rules 4.3, 4.4 and 5) it shall only be exercisable in whole or in part following
the attainment of the performance conditions as set out in Schedule One of these
Rules.
3.2 VARIATION OF PERFORMANCE CONDITIONS
In the application of Rule 3.1, when events have happened which cause the
Committee to consider that the existing constraints and/or conditions (as the
case may be) have become unfair or impractical, it may, in its discretion
(provided such discretion is exercised fairly and reasonably), amend, relax,
waive or substitute such constraints or conditions so that such constraints or
conditions so amended, relaxed, waived or substituted would, in the reasonable
opinion of the Committee, be no more or less difficult to abide by or satisfy
than when they were originally imposed or last amended or relaxed (as the case
may be). After any such amendment, relaxation, waiver or substitution the
Committee shall issue to the Option Holder a replacement Option Certificate or
other notice including the details specified in Rule 2.2.
3
<PAGE> 6
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
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3.3 MODIFIED TERMS AND CONDITIONS
The Committee may determine that any Option shall be subject to additional
and/or modified terms and conditions relating to the grant and terms of
exercise as may be necessary to comply with or take account of any securities,
exchange control or taxation laws, regulations, or practice of any territory
which may have application to the relevant Eligible Employee, Option Holder or
Member of the Group.
3.4 ADDITIONAL REQUIREMENTS
In exercising their discretion under Rule 3.3 the Committee may:
a require an Option Holder to make such declarations or take such other
action (if any) as may be required for the purpose of any securities, taxes or
other laws of any territory which may be applicable to him at the Date of
Grant or on exercise; and
b adopt any supplemental rules or procedures governing the grant or exercise
of Options as may be required for the purpose of any securities, tax or other
laws of any territory which may be applicable to an Eligible Employee or Option
Holder.
4. RIGHTS OF EXERCISE:
4.1 EARLIEST DATE OF EXERCISE
Save as provided in Rules 4.3, 4.4 and 5, a Vested Option that Vests in
accordance with Schedule One may not be exercised before whichever is the
latest of:
a 1.1.2001; and
b any date or dates which may have been specified in accordance with Rule
2.2 in the relevant Option Certificate; and
c the date on which the conditions specified in accordance with Rule 3.1
have been satisfied whether as originally provided or as subsequently
amended, relaxed, waived or substituted pursuant to Rule 3.2
but in any event may not be exercised later than the tenth anniversary of the
Date of Grant.
4.2 REQUIREMENT TO REMAIN IN EMPLOYMENT
Save as provided in Rules 4.3, 4.4, 4.5 and 5, a Vested Option may only be
exercised by an Option Holder while he is a director or employee of a Member
of the Group.
4.3 DEATH OF OPTION HOLDER
An Option may be exercised by the personal representatives of a deceased Option
Holder during the period of one year following the date of death.
4
<PAGE> 7
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
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4.4 RIGHT TO EXERCISE PREMATURELY IRRESPECTIVE OF PERFORMANCE CONDITIONS
Where an Option Holder ceases to hold any office or employment with a Member of
the Group on account of:
a injury, ill-health or disability; or
b redundancy (within the meaning of the Employment Rights Act 1996); or
c the transfer of the undertaking or part-undertaking in which the Option
Holder is employed to a person other than a Member of the Group; or
d the Company by which the Option Holder is employed ceasing to be under the
Control of the Company
Options will lapse and will only be exercisable at the absolute discretion of
the Committee, in which circumstances Options will be exercisable by the Option
Holder within a period of one year following the date of termination of any
office or employment with a Member of the Group
4.5 RIGHT TO EXERCISE PREMATURELY IF PERFORMANCE CONDITIONS ACHIEVED
If the condition required by Rule 3.1 has been achieved, a Vested Option may be
exercised by an Option Holder within the period of one year following the date
on which he ceases to hold any office or employment with a Member of the Group
on account of:
a retirement at contractual retirement age including late retirement; or
b early retirement by agreement with his employer; or
c any other reason in the absolute discretion of the Committee.
4.6 TRANSFER OF EMPLOYMENT WITHIN GROUP
An Option Holder shall not be treated for the purposes of Rules 4.4, 4.5 and
4.8 as ceasing to hold an office or employment with a Member of the Group until
such time as he is no longer a director or employee of any Member of the Group
and an Option Holder (being a woman who ceases to be such a director or
employee by reason of pregnancy or confinement and who exercises her right to
return to work before exercising an Option shall be treated for those purposes
as not having ceased to hold such an office or employment.
4.7 TRANSFER OF EMPLOYMENT OVERSEAS
Subject to the satisfaction of the condition imposed pursuant to Rule 3.1 if an
Option Holder, whilst remaining a director or employee of a Member of the Group,
is transferred to work in another country and as a result of that transfer will
either
a become subject to tax on his remuneration in the country to which he is
transferred and the Committee is satisfied that as a result he will suffer
a tax disadvantage upon exercising an Option; or
b become subject to restrictions on his ability to exercise his Option or to
hold or deal in the shares or the proceeds of the sale of the shares he may
acquire an exercise of that Option
5
<PAGE> 8
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
-----------------------------------------------------------------
by reason of or in consequence of the securities laws or
exchange control laws of the country to which he is transferred
the Option Holder may exercise that Option in the period commencing
three months before and ending three months after the transfer takes place.
If he chooses not to exercise his Option at that time, it will not thereby
lapse.
4.8 LAPSE OF OPTIONS
An Option or vested Option shall lapse on the occurrence of the
earliest of the following:
a. the tenth anniversary of the Date of Grant; or
b. the expiry of the period (if any) allowed for the satisfaction
of any condition of exercise specified in the Option
Certificate pursuant to Rule 3.1 without such condition having
been satisfied or the date on which it becomes apparent that
any such condition has become incapable of being satisfied; or
c. subject to Rule 5.4, the expiry of any of the applicable
periods specified in Rules 4.3, 4.4, 4.5, 5.1 and 5.2, but
where an Option Holder dies while time is running under Rules
4.4 and 4.5, the Option shall not lapse until the expiry of the
period in Rule 4.3; or
d. the date on which an Option Holder ceases to be a director or
employee of any Member of the Group for any reason other than his
death or those specified in Rules 4.4 and 4.5; or
e. the date on which a resolution is passed, or an order is made
by the Court, for the compulsory winding-up of the Company; or
f. the date on which the Option Holder becomes bankrupt or does
or attempts or omits to do anything as a result of which he is
deprived of the legal or beneficial ownership of the Option.
5. TAKE-OVER, RECONSTRUCTION AND AMALGAMATION AND LIQUIDATION
5.1 TAKE-OVER PURSUANT TO GENERAL OFFER
If any company ("THE ACQUIRING COMPANY") becomes a Parent of the
Company as a result of making either a general offer to acquire the
whole of the Company's issued share capital (other than any shares
already owned by the Acquiring Company or any Subsidiary of the
Acquiring Company) and which is made on a condition that if it is
satisfied the Acquiring Company will become the Parent, or a general
offer to acquire all the Shares in the Company which are of the same
class as the Shares then an Option may be exercised within the period
of six months of the date on which the Acquiring Company becomes the
Parent, any condition subject to which the offer is made is satisfied.
6
<PAGE> 9
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
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5.2 VOLUNTARY WINDING UP OF THE COMPANY
If a resolution is passed for the voluntary winding-up of the Company, an
Option may be exercised during the period of six months starting on the
commencement of such winding-up provided that any issue of shares pursuant to
such exercise is authorised by the liquidator or the Court (if appropriate)
upon the application of and at the sole cost and expense of the Option Holder.
5.3 MEANING OF OBTAINING CONTROL
For the purpose of this Rule 5, a person shall be deemed to have obtained
Control of the Company if he and others acting in concert with him have together
obtained Control.
5.4 ROLLOVER OF OPTIONS
Notwithstanding anything to the contrary in these Rules, where Rule 5.1 applies,
an Option Holder may, by agreement with the Acquiring Company and within the
appropriate period release his Option under the Plan ("THE OLD OPTION") in
consideration of the grant to him of a new Option ("THE NEW OPTION") which is
equivalent to the Old Option but relates to shares in a different company
(whether the Acquiring Company or some other company). With effect from the date
of release references in Rules 4, 5, 6, 7, 8, 9, 10, and 11, (and, in relation
to expressions used in those Rules, in Rule 1) to "THE COMPANY" and "SHARES"
shall, in relation to the New Option, be construed as references to the
Acquiring Company and Shares in the Acquiring Company or that other company as
the case may be.
5.5 MEANING OF "APPROPRIATE PERIOD"
For the purpose of Rule 5.4, the "APPROPRIATE PERIOD" is the period mentioned
in Rule 5.1 or Rule 5.2 as the case may be.
6. MANNER OF EXERCISE
6.1 ACTIONS REQUIRED OF THE OPTION HOLDER
An Option may be exercised, in whole or in part, by the delivery to the
secretary of the Company, or his duly appointed agent, of an Option Certificate
covering not less than all the Shares over which the Option is then to be
exercised, with the notice of exercise in the prescribed form duly completed
and signed by the Option Holder.
6.2 ACTIONS REQUIRED OF THE COMPANY
The relevant Shares shall be allotted or transferred (as the case may be)
within 28 days following such delivery and, accordingly in cases where Shares
are to be transferred, the Company shall use its best endeavours to ensure due
transfer thereof. At the request of the Option Holder, the Shares may be
allotted or transferred (as the case may be) to a nominee provided the Option
Holder has beneficial ownership of the Shares at the time of such allotment or
transfer.
7
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THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
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6.3 PARTIAL EXERCISE
Where an Option is exercised in part the minimum number of shares which may be
exercised is 100 Shares and the Company shall issue a balancing Option
Certificate to the Option Holder.
6.4 INDEMNITY AGAINST TAXATION OF THE OPTION HOLDER
The Option Holder shall indemnify the company (and, where relevant, any Member
of the Group) against any tax arising in respect of the exercise of the Option
which is a liability of the Option Holder but for which such company is
required to account under the laws of any relevant territory. Such company may
recover the tax from the Option Holder in such manner as the Committee think
fit including (but without prejudice to the generality of the foregoing):
a withholding shares when the Option is exercised and selling the same;
b deducting the necessary amount from the Option Holder's remuneration; or
c requiring the Option Holder to account directly to such company for such
tax.
7. ISSUE OF SHARES
7.1 RANKING OF SHARES
All Shares issued pursuant to the exercise of Options under the Plan shall as
to voting, dividend, transfer and other rights (including those arising on a
liquidation) rank pari passu in all respects with the Shares then in issue,
except that they shall not rank for any dividend or other rights declared by
reference to a record date preceding the date of such exercise.
7.2 ADMISSION TO OFFICIAL LIST OF THE NEW YORK STOCK EXCHANGE
If and so long as the Shares are listed on the New York Stock Exchange the
Company shall use its best endeavors to procure that as soon as practicable
after the allotment of any Shares pursuant to the Plan application shall be
made to the New York Stock Exchange for permission to deal in these shares.
8. ADJUSTMENTS
8.1 GENERAL POWER OF ADJUSTMENT
The number of Shares over which an Option is granted may adjusted in such
manner as the Committee shall determine following any capitalisation issue,
subdivision, consolidation or reduction of share capital and in respect of any
discount element in any rights issue or other variation of share capital to the
intent that Price below the nominal value of a Share.
8
<PAGE> 11
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
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8.2 NOTIFICATION OF OPTION HOLDERS
The Committee may take such steps as it may consider necessary to notify Option
Holders of any adjustments made under Rule 8.1 and to call in, cancel, endorse,
issue or re-issue any Option Certificate consequent upon such adjustment.
9. ADMINISTRATION
9.1 DELIVERY OF NOTICES OR DOCUMENTS
Notices or documents required to be given to an Eligible Employee or to an
Option Holder shall either be delivered to him by hand or sent to him by post
at his last known home or business address according to the information
provided by him. Notices sent by post shall be deemed to have been given on the
day following the date of posting.
9.2 COPIES OF SHAREHOLDER COMMUNICATIONS
The Company may distribute to Option Holders copies of any notice or document
sent by the Company to its shareholders generally.
9.3 MAINTENANCE OF UNISSUED SHARE CAPITAL
The Company shall at all times either keep available sufficient unissued Shares
to satisfy the exercise of all Options which have neither lapsed nor been
exercised (taking account of any other obligations of the Company to allot
unissued Shares) or shall ensure that sufficient issued Shares will be
available to satisfy the exercise of such Options.
9.4 THE COMMITTEE'S POWER TO ADMINISTER PLAN
The Committee may make such regulations for the administration of the Plan as
it deems fit, provided that no regulation shall be valid to the extent it is
inconsistent with the Rules.
9.5 THE COMMITTEE'S DECISION IS FINAL AND CONCLUSIVE
The decision of the Committee in any dispute relating to an Option, or the due
exercise thereof, or any other matter in respect of the Plan, shall be final
and conclusive subject to the determination of the Auditors when so required by
Rule 8.1.
9.6 COSTS OF ADMINISTERING PLAN
The costs of introducing and administering the Plan shall be borne by the
Company.
9
<PAGE> 12
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
________________________________________________________________________________
10. ALTERATIONS
10.1 POWER TO ALTER RULES
Subject to Rule 10.2, the Committee may in its discretion alter the Rules in
any way it thinks fit.
10.2 ALTERATION WHICH AFFECTS SUBSISTING RIGHTS OF OPTION HOLDERS
No alteration may be made which would abrogate or adversely affect the
subsisting rights of Option Holders.
10.3 NOTIFICATION TO OPTION HOLDERS
Written notice of any amendment made in accordance with this Rule 10 shall be
given to all Option Holders.
11. GENERAL
11.1 TERMINATION OF THE PLAN
The Plan shall terminate on the tenth anniversary of the date on which it is
approved by the Company in general meeting or at any earlier time by the
passing of a resolution by the Committee. Termination of the Plan shall be
without prejudice to the subsisting rights of Option Holders.
11.2 NO COMPENSATION FOR LOSS OF OPTION RIGHTS
If an Option Holder shall cease for any reason to be in the employment of a
Member of the Group, he shall not be entitled, by way of compensation for loss
of office or otherwise howsoever, to any sum or any benefit to compensate him
for the loss of any right or benefit accrued or in prospect under the Plan.
11.3 GOVERNING LAW
This Plan and all Options shall be governed by and construed in accordance with
English law.
10
<PAGE> 13
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STICK OPTION PLAN
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SCHEDULE ONE
ENTITLEMENT TO SHARE OPTIONS
The grant of Options to an Eligible Employee is at the absolute discretion of
the Committee. The number of Options to be granted under the Plan to Eligible
Employees will be linked to Salary. Within a period of 180 days following the
date of the spin of the Company from Great Lakes Chemical Corp and within a
period of 180 days following the first and second anniversary of the spin,
Options will be granted based on the "Value of Options Awarded" as set out in
the table below.
The final number of Options that vest under the Plan and are therefore
exercisable by an Option Holder will be dependent upon performance criteria.
Any Options that do not vest are cancelled. The proportion of Options granted
that ultimately vest (together with an example) is set out below.
OPTIONS GRANTED
The number of Shares over which Options will be granted during each of the
three Grant Periods mentioned above will be equal to:
VALUE OF OPTIONS AWARDED
THE FAIR MARKET VALUE OF A SHARE IN THE COMPANY AT THE DATE OF GRANT
Example for a Grant of Options made within 180 days of spin
<TABLE>
<CAPTION>
ELIGIBLE EMPLOYEES ANNUAL SALARY PERCENTAGE INITIAL AWARD MAXIMUM
- ------------------ FOR YEAR OF GRANT APPLIED TO VALUE VALUE OF
----------------- SALARY ------------- ANNUAL
---------- OPTION AWARD
------------
(A) (B) ((A) x (B) = (C)) ((C) x 1.5)
$ $
<S> <C> <C> <C> <C>
DJ Kerrison 431,943 75% 323,957 485,935
SW Williams 224,610 50% 112,305 168,458
AG Jarvis 259,166 50% 129,583 194,375
RA Lee 215,972 50% 107,986 161,979
GJ Hignett 215,972 50% 107,986 161,979
HA Hanslip 165,866 50% 82,933 124,340
RT Shone 156,322 50% 78,161 117,242
GM Leathes 156,322 50% 78,161 117,242
MC Waterhouse 90,505 30% 27,151 40,727
JPD Walker 122,943 30% 36,882 55,323
WE Martin 103,666 30% 31,099 46,649
JRJ Bain 103,798 30% 31,139 48,709
TJ Russell 108,341 30% 32,502 48,753
PJ Boon 98,804 30% 29,041 43,562
MH Pimbley 106,959 30% 32,087 48,131
WO Clarke 106,934 30% 32,080 48,120
TP Revington 118,569 30% 35,570 53,355
DP Turner 111,634 30% 33,490 50,235
</TABLE>
11
<PAGE> 14
THE RULES OF THE OCTEL CORP PERFORMANCE RELATED STOCK OPTION PLAN
- --------------------------------------------------------------------------------
PERFORMANCE MEASURES AND VESTING OF OPTIONS
- -------------------------------------------
Performance will be measured against the Company's cumulative cash flow before
debt repayments, share buyback and dividends for the period commencing on the
date of the spin and ending on 31 December 2002 ("Adjusted Cumulative Cash
Flow").
For Share Options Granted in 1998, the Adjusted Cumulative Cash Flow target for
the year ended 31 December 2000, is $353,000,000. If this target is reached
66.69% of the Options granted in 1998 will vest. This equates to the Option
Holders' Initial Award Value shown above. Should performance exceed or under
achieve this target the number of Options that vest are calculated pro-rata as
follows:
<TABLE>
<CAPTION>
PERFORMANCE ADJUSTED CUMULATIVE CASH FLOW PERCENTAGE OF OPTIONS THAT VEST
- ----------------------------------------- -------------------------------
<S> <C>
Less than $317,700,000 NIL
$317,700,001 - $388,300,000 53.33% - 80.00%
$388,300,001 - $400,000,000 80.01% - 93.33%
$400,000,000 - $410,000,000 93.34% - 99.99%
Over $410,000,000 100%
</TABLE>
By way of example, if the target of $353,000,000 is reached, Mr. HA Hanslip
will have vest 66.69% of his Options. This equates to 66.69% of his Annual
Option Award ($124,340) i.e. $82,934, which subject to slight rounding equates
to his Initial Award Value of $82,933 shown in the table above. If the target
was exceeded to the maximum possible, Mr Hanslip would have all his Options
vest, which equates to the maximum Award of $124,340.
Similar performance criteria will be set by the Committee for Options granted
in 1999 and 2000, relating Performance to the years ended 31 December 2001 and
31 December 2002.
12
<PAGE> 1
EXHIBIT 10.13
OCTEL CORP
- --------------------------------------------------------------------------------
RULES
OF THE
OCTEL CORP SAVINGS-RELATED SHARE OPTION SCHEME
- --------------------------------------------------------------------------------
DRAFT-FOR DISCUSSION PURPOSES
Established by the Company in General Meeting
on [ ]
PRICE WATERHOUSE
[9 Bond Court
Leeds
LS1 2SN]
<PAGE> 2
THE RULES OF THE OCTEL CORP SAVINGS-RELATED SHARE OPTION SCHEME
- --------------------------------------------------------------------------------
CONTENTS
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. INVITATION OF APPLICATIONS . . . . . . . . . . . . . . . . . . . . . 7
2.1 When Invitations may be issued . . . . . . . . . . . . . . . . . 7
2.2 Wording of Invitations . . . . . . . . . . . . . . . . . . . . . 7
2.3 Documents accompanying invitations . . . . . . . . . . . . . . . 7
2.4 Wording of Application Form . . . . . . . . . . . . . . . . . . . 7
2.5 Provision for Scaling Down . . . . . . . . . . . . . . . . . . . 7
2.6 Number of Shares applied for . . . . . . . . . . . . . . . . . . 8
3. SCALING DOWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. GRANT OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Maximum period between determination of Share Price
and Grant of Option . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Options must be granted within the Grant Period . . . . . . . . . 8
4.3 Options may only be granted to Eligible Employees . . . . . . . . 8
4.4 Requirement to Issue Option Certificate . . . . . . . . . . . . . 8
4.5 Options may not be transferred . . . . . . . . . . . . . . . . . 9
5. RIGHTS OF EXERCISE . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Earliest Date of Exercise . . . . . . . . . . . . . . . . . . . . 9
5.2 Requirement to remain in Employment . . . . . . . . . . . . . . . 9
5.3 Option Holder with Material Interest . . . . . . . . . . . . . . 9
5.4 Death of Option Holder . . . . . . . . . . . . . . . . . . . . . 9
5.5 Right to Exercise Prematurely . . . . . . . . . . . . . . . . . . 10
5.6 Right to Exercise on Attaining Age [60/75]- . . . . . . . . . . . 10
5.7 Right to Exercise More than Three Years after Date of Grant . . . 10
5.8 Employee Transferred to other member of the Group . . . . . . . . 10
5.9 Transfer of Employment within Group . . . . . . . . . . . . . . . 11
5.10 Lapse of Options . . . . . . . . . . . . . . . . . . . . . . . . 11
6. TAKEOVER, RECONSTRUCTION AND AMALGAMATION AND LIQUIDATION . . . . . . 11
6.1 Take-over pursuant to General Offer . . . . . . . . . . . . . . . 11
6.2 Voluntary Winding Up of the Company . . . . . . . . . . . . . . . 12
6.3 Meaning of Obtaining Control . . . . . . . . . . . . . . . . . . 12
6.4 Rollover of Options . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Meaning of "appropriate period" . . . . . . . . . . . . . . . . . 12
7. MANNER OF EXERCISE . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 Funds which can be used to exercise Option . . . . . . . . . . . 12
7.2 Actions Required of the Option Holder . . . . . . . . . . . . . . 13
7.3 Actions Required of the Company . . . . . . . . . . . . . . . . . 13
8. ISSUE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Ranking of Shares . . . . . . . . . . . . . . . . . . . . . . . . 13
8.2 Admission to the New York Stock Exchange . . . . . . . . . . . . 13
9. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.1 General Power of Adjustment . . . . . . . . . . . . . . . . . . . 13
9.2 Adjustment which reduces Share Price to less than nominal value . 14
9.3 Requirement to Capitalise Reserves . . . . . . . . . . . . . . . 14
9.4 Notification of Option Holders . . . . . . . . . . . . . . . . . 14
10. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.1 Delivery of Notices or Documents . . . . . . . . . . . . . . . . 14
10.2 Copies of Shareholder Communications . . . . . . . . . . . . . . 14
10.3 Maintenance of Unissued Share Capital . . . . . . . . . . . . . 14
10.4 Directors' Power to Administer Scheme . . . . . . . . . . . . . 15
10.5 Directors' Decisions are Final and Conclusive . . . . . . . . . 15
10.6 Costs of Administering Scheme . . . . . . . . . . . . . . . . . 15
11. ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.1 Power to alter Rules prior to Inland Revenue approval . . . . . 15
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_______________________________________________________________
<TABLE>
<S> <C>
11.2 Power to alter Rules following Inland Revenue approval . . . . . . . 15
11.3 Alteration which affects subsisting rights of Option Holders . . . . 15
11.4 Notification to Option Holders . . . . . . . . . . . . . . . . . . . 15
12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.1 Termination of the Scheme. . . . . . . . . . . . . . . . . . . . . . 16
12.2 No Compensation for loss of Option Rights. . . . . . . . . . . . . . 16
12.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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THE RULES OF THE OCTEL CORP SAVINGS-RELATED SHARE OPTION SCHEME
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APPROVED BY THE INLAND REVENUE UNDER THE INCOME AND CORPORATION TAXES
ACT 1988 ON [] UNDER REFERENCE []
1. DEFINITIONS
In this Scheme, the following words and expressions shall, where the context so
permits, have the meanings set forth below:
"ACQUIRING COMPANY" the person mentioned in Rule 6.1 being a company
within the meaning of Section 832 of the Act;
"ACQUISITION PRICE" in relation to an Option, the total amount payable
on any exercise being an amount equal to the
relevant Share Price in US Dollars, converted into
Sterling using the Exchange Rate in force on the
Date of Grant multiplied by the number of Shares in
respect of which the Option is exercised;
"THE ACT" the income and Corporation Taxes Act 1988;
"ASSOCIATED COMPANY" the meaning ascribed by Section 416 of the Act;
"THE AUDITORS" the auditors for the time being of the Company
acting as experts and not as arbitrators;
"BONUS" any sum payable by way of terminal bonus under a
Savings Contract being the additional payment made
by the nominated Savings Authority when repaying
contributions under a Savings Contract;
"BONUS DATE" under a three year Savings Contract, the earliest
date on which the Standard Bonus is payable under
the Savings Contract following 36 monthly payments;
"THE COMPANY" save as provided in Rule 6.4, Octel Corp. a Delaware
Corporation;
"CONTINUOUS EMPLOYMENT" the meaning ascribed by Section 211 of the
Employment Rights Act 1996;
"CONTROL" the meaning ascribed by Section 840 of the Act;
"DATE OF GRANT" the date on which an Option is granted under the
Scheme pursuant to Rule 4;
"DEALING DAY" a day on which the New York Stock Exchange is open
for business;
"THE DIRECTORS" the board of directors of the Company, or a duly
authorised committee thereof;
"ELIGIBLE EMPLOYEE" (1) any person who is a Full Time Director or
employee of a Participating Company and;
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(a) is chargeable to tax in respect of his office
or employment under Case 1 of Schedule E of
the Taxes Act; and
(b) on the immediately preceding Qualifying Date,
had such minimum period of Continuous
Employment with any one or more Participating
Companies (taken consecutively) as the
Directors may determine, being a period not
exceeding five years in total ending on the
date the relevant Option is granted; and
(2) any other director or employee of a Participating
Company whom the Directors may in their sole
discretion approve, provided that any person who
is ineligible to participate by virtue of
paragraph 8 of Schedule 9 to the Act shall not be
treated as an Eligible Employee;
"EMPLOYEES' SHARE
SCHEME" the meaning ascribed by Section 743 of the Companies
Act 1985;
"FULL TIME DIRECTOR" a Director who is contracted to work not less than 25
hours a week (exclusive of meal breaks) (or such
lower number of hours per week as the Directors may
determine from time to time in their absolute
discretion) for any one or more of the Participating
Companies; or
"GRANT PERIOD" a period of 42 days (or 54 days in the event that
applications are scaled down under Rule 3) commencing
on the Dealing Day following any of:
(1) a day on which the Scheme is approved by the
Inland Revenue under the Act, or
(2) a day on which the Company makes an announcement
of its results for any year, half year or other period
or issues any prospectus, listing particulars or other
document containing equivalent information relating to
Shares; or
(3) a day on which any announcement is made of
modifications to be made to the Act or a day on which
any such modifications come into force;
(4) a day on which an announcement is made by the
Savings Authority of a new savings-
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THE RULES OF OCTEL CORP SAVINGS-RELATED SHARE OPTION SCHEME
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related share option prospectus;
"HOLDING COMPANY" in relation to the Acquiring Company, a company
falling within the definition in Section 736 of
the Companies Act 1985;
"THE INVITATION DATE" the date of relevant invitation made under Rule 2
"MARKET VALUE" in relation to a Share on any day:
(1) if and so long as the Shares are listed on the
New York Stock Exchange, the average of its
middle market quotation for the three Dealing
Days immediately preceding the invitation
Date and falling within the Grant Period; or
(2) save as mentioned in (1) above, its market
value on the invitation Date as determined
in accordance with Part VIII of the Taxation
of Chargeable Gains Act 1992 and agreed in
advance with the Shares Valuation Division
of the Inland Revenue;
"MAXIMUM BONUS" the Bonus payable two years after the Standard
Bonus is payable;
"MAXIMUM CONTRIBUTION" under all Savings Contracts the lesser of
(1) 250 Pounds per month; and
(2) the maximum amount specified in paragraph
24(2)(a) of Schedule 9 to the Act; and
(3) such maximum contribution as may be determined
from time to time by the Directors
"MONTHLY CONTRIBUTIONS" monthly contributions agreed to be paid by an
Option Holder under his Savings Contract;
"OPTION" a right to acquire Shares pursuant to the Scheme;
"OPTION CERTIFICATE" a certificate issued under Rule 4.4;
"OPTION HOLDER" a person to whom an Option has been granted (or,
as the context requires, his personal
representatives);
"PARTICIPATING COMPANY" the Company and any other company for the time
being designated by the Directors as a
Participating Company being a company which is
both a Subsidiary of the Company and under the
Control of the Company;
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"PERMITTED MINIMUM MONTHLY CONTRIBUTION"
such amount as the Directors shall specify, being not less than 5 Pounds or more
than 10 Pounds;
"QUALIFYING DATE"
such date as the Directors may from time to time determine (or, in the absence
of any such determination, the last day of the Company's accounting period) in
the period of one year immediately preceding the relevant Date of Grant;
"RULES"
the Rules of the Scheme and "RULE" shall be construed accordingly;
"SAVINGS AUTHORITY"
the building society or bank recognised by the Directors from time to time for
the purpose of receiving Monthly Contributions under Savings Contracts;
"SAVINGS CONTRACT"
a contract under a certified contractual savings scheme (within the meaning of
Section 326 of the Act) approved by the Board of Inland Revenue for the
purpose of Schedule 9 to the Act;
"THE SCHEME"
the Octel Corp Savings Related Share Option Scheme in its present form, or as
from time to time altered in accordance with the Rules;
"SHARE"
save as provided in Rule 6.4, a share in the Company satisfying paragraphs 10 to
14 inclusive of Schedule 9 to the Act;
"SHARE PRICE"
the price per Share, as determined by the Directors, at which an Eligible
Employee may acquire Shares in respect of which an Option has been granted to
him, being not less than;
(1) 80% of the Market Value of the Share; or
(2) if greater and Shares are to be subscribed, the nominal value of a Share,
subject to any adjustment pursuant to Rule 9.1;
"STANDARD BONUS"
the Bonus payable on the earliest date on which a Bonus is payable under a
Savings Contract;
"SUBSIDIARY"
has the meaning ascribed by Section 736 of the Companies Act 1985;
References to any statutory provision are to that provision as amended or
re-enacted from time to time, and, unless the context otherwise requires, words
in the singular shall include the plural (and vice versa) and words importing
the masculine the feminine (and vice versa).
<PAGE> 8
THE RULES OF THE OCTEL CORP SAVINGS-RELATED SHARE OPTION SCHEME
2. INVITATION OF APPLICATIONS
2.1 WHEN INVITATIONS MAY BE ISSUED
Applications for the grant of Options under the Scheme shall be invited only
during a Grant Period and only if the Directors so determine in their absolute
discretion. Invitations to apply for Options on any occasion shall be made in
accordance with the Rules and on similar terms to all Eligible Employees.
2.2 WORDING OF INVITATIONS
Invitations shall be made in writing and shall include details of the following
matters which shall be determined by the Directors:
a the Share Price;
b the latest date during the Grant Period by which applications must be
received, being neither earlier than 14 days nor later than 28 days
after the date of the invitation:
c the Maximum Contribution:
2.3 DOCUMENTS ACCOMPANYING INVITATIONS
Each invitation shall be accompanied by:
a a proposal form for a Savings Contract; and
b an application form.
2.4 WORDING OF APPLICATION FORM
An application form shall be in such form as the Directors may from time to
time prescribe save that it shall provide for the applicant to state:
a the Monthly Contributions (being a multiple of 1 Pound and not less
than the Permitted Minimum Monthly Contribution) which he wishes to make
under the related Savings Contract; and
b that his proposed Monthly Contributions (when taken together with any
Monthly Contributions he makes under any other Savings Contract) will
not exceed the Maximum Contribution;
2.5 PROVISION FOR SCALING DOWN
Each application shall provide that, in the event of scaling down in accordance
with Rule 3, the Directors are authorised by the applicant either to alter his
application by reducing the amount of his Monthly Contributions or to withdraw
his application, as the case may be, to the extent of such scaling down.
7
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THE RULES OF THE OCTEL CORP SAVINGS-RELATED SHARE OPTION SCHEME
2.6 NUMBER OF SHARES APPLIED FOR
Each application shall be deemed to be for an Option over such number of Shares
as can be acquired at the Share Price with the expected repayment under the
related Savings Contract at the appropriate Bonus Date.
3. SCALING DOWN
To the extent that valid applications are received in excess of any maximum
number of Shares which may be determined by the Directors, then the Directors
shall scale down applications to the extent necessary in one of the following
ways as may be determined by them:
a (where relevant) by treating any elections for the Maximum Bonus as
elections for the Standard Bonus and then, so far as necessary,
reducing the proposed Monthly Contributions in excess of 5 Pounds pro
rata and then, so far as necessary, selecting by lot; or
b by treating each election for a Bonus as an election for no Bonus and
then, so far as necessary, reducing the proposed Monthly Contributions
in excess of Pound 5 pro rata and then, so far as necessary,
selecting by lot; or
c by reducing the proposed Monthly Contributions in excess of 5 Pounds
pro rata and then, so far as necessary, selecting by lot.
4. GRANT OF OPTIONS
4.1 MAXIMUM PERIOD BETWEEN DETERMINATION OF SHARE PRICE AND GRANT OF OPTION
No Option shall be granted more than 29 days (or 41 days in the event that
applications are scaled down under Rule 3) after the first day by reference to
which the Share Price in reaction to that Option was fixed.
4.2 [OPTIONS MUST BE GRANTED WITHIN THE GRANT PERIOD
No Option shall be granted after the last day of the applicable Grant
Period.](1)
4.3 OPTIONS MAY ONLY BE GRANTED TO ELIGIBLE EMPLOYEES
No Option shall be granted to a person unless at the Date of Grant he is an
Eligible Employee.
4.4 REQUIREMENT TO ISSUE OPTION CERTIFICATE
The Company shall issue an Option Certificate under seal (or in such other
manner as shall take effect as a deed of the Company) to each Eligible Employee
to whom such an Option has been granted which shall be in such form as the
Directors shall from time to time determine (subject to the approval of the
Inland Revenue). The Option Certificate shall include details of:
- -------------
(1) Wording not required for private company.
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a the Date of Grant of the Option;
b the Share Price; and
c the number of Shares subject to the Option.
4.5 OPTIONS MAY NOT BE TRANSFERRED
Subject to the rights of an Option Holder's personal representatives to
exercise an Option as provided in Rule 5.4, every Option shall be personal to
the Eligible Employee to whom it is granted and shall not be capable of being
transferred, assigned or charged. Each Option Certificate shall carry a
statement to this effect.
5. RIGHTS OF EXERCISE
5.1 EARLIEST DATE OF EXERCISE
a Save as provided in Rules 5.4, 5.5, 5.6, 5.7 and 6, an Option may be
exercised only during the period commencing with the Bonus Date under the
relevant Savings Contract; and
b save as provided in Rule 5.4, an Option may not be exercised after the
expiry of the period of six months after the relevant Bonus Date.
5.2 REQUIREMENT TO REMAIN IN EMPLOYMENT
Save as provided in Rules 5.4, 5.5, 5.7, 5.8 and 6, an Option may only be
exercised by an Option Holder while he is a director or employee of a
Participating Company.
5.3 OPTION HOLDER WITH MATERIAL INTEREST
An Option may not be exercised by an Option Holder at any time when he is
prohibited from such exercise by virtue of the provisions of paragraph 8 of
Schedule 9 to the Act (material interest in a close company).
5.4 DEATH OF OPTION HOLDER
An Option may be exercised by the personal representatives of a deceased Option
Holder
a during the period of one year following the date of the Option Holder's
death if such death occurs before the Bonus Date; or
b during the period of one year following the Bonus Date if the Option
Holder's death occurs on or within the period of six months after the Bonus
Date.
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5.5 RIGHTS TO EXERCISE PREMATURELY
An Option may be exercised by an Option Holder within the period of six months
following the date on which he ceases to hold any office or employment with a
Participating Company on account of:
a injury or disability; or
b redundancy (within the meaning of the Employment Rights Act 1996); or
c retirement on reaching age [60-75](2)
d the transfer of the undertaking or part-undertaking in which the Option
Holder is employed to a person other than a Participating Company or an
Associated Company of a Participating Company; or
e the Company by which the Option Holder is employed ceasing to be under
the Control of the Company.
5.6 RIGHT TO EXERCISE ON ATTAINING AGE [60/75]-
An Option may be exercised by an Option Holder within the period of six months
following the date on which he reaches age [60-75] if he continues to hold any
office or employment with a Participating Company after that date.
5.7 RIGHT TO EXERCISE MORE THAN THREE YEARS AFTER DATE OF GRANT
Provided more than three years have elapsed since the Date of Grant of an
Option, such Option may be exercised by an Option Holder within the period of
six months following the date on which he ceases to hold any office or
employment with a Participating Company on account of:
a early retirement by agreement with his employer; or
b pregnancy and, for the purposes of the Scheme, a woman who leaves
employment due to pregnancy or confinement will be regarded as having
left such employment on the earlier of the date she notifies the
relevant Participating Company of her intention not to return and the
last day of the 29-week period of confinement.
5.8 EMPLOYEE TRANSFERRED TO OTHER MEMBER OF THE GROUP
An Option Holder who is employed on the Bonus Date by an Associated Company of
a Participating Company or by a company of which the Company has Control may
exercise his Option within the period of six months commencing with the Bonus
Date.
- -------------
(2) A common age of between 60 and 75 must be specified.
10
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5.9 TRANSFER OF EMPLOYMENT WITHIN GROUP
An Option Holder shall not be treated for the purposes of Rule 5 as ceasing to
hold an office or employment with a Participating Company until such time as he
is no longer a director or employee of any Participating Company or an
Associated Company of a Participating Company and an Option Holder (being a
woman) who ceases to be such a director or employee by reason of pregnancy or
confinement and who exercises her right to return to work under section 79 of
the Employment Rights Act 1996 before exercising an Option shall be treated for
those purposes as not having ceased to hold such an office or employment.
5.10 LAPSE OF OPTIONS
An Option shall lapse on the occurrence of the earliest of the following:
a subject to Rule 5.10b below, the expiry of the period of six months
after the Bonus Date; or
b where the Option Holder has died, the expiry of the relevant period
during which the Option may be exercised in accordance with Rule 5.4; or
c subject to Rule 6.4, the expiry of any of the applicable periods
specified in Rules 5.4, 5.5, 5.7, 6.1, but where an Option Holder dies
while time is running under Rules 5.5 or 5.7 the Option shall not
lapse until the expiry of the period in Rule 5.4; or
d the date on which an Option Holder ceases to be a director or employee
of any Participating Company for any reason other than his death or
those specified in Rules 5.5 and 5.7; or
e the date on which a resolution is passed, or an order is made by the
Court, for the compulsory winding-up of the Company; or
f the date on which the Option Holder becomes bankrupt or does or
attempts or omits to do anything as a result of which he is deprived of
the legal or beneficial ownership of the Option.
6. TAKEOVER, RECONSTRUCTION AND AMALGAMATION AND LIQUIDATION
6.1 TAKE-OVER PURSUANT TO GENERAL OFFER
If any person obtains Control of the Company as a result of making either a
general offer to acquire the whole of the Company's issued share capital (other
than any shares already owned by the Holding Company or any Subsidiary of the
Holding Company) and which is made on a condition that if it is satisfied the
offer or will have such Control, or a general offer to acquire all the Shares
in the Company which are of the same class as the Shares then an Option may be
exercised within the period of six months of the date on which Control is so
obtained and any condition subject to which the offer is made is satisfied.
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6.2 VOLUNTARY WINDING UP OF THE COMPANY
If a resolution is passed for the voluntary winding-up of the Company, an
Option may be exercised during the period of six months starting on the
commencement of such winding-up provided that any issue of shares pursuant to
such exercise is authorised by the liquidator or the Court (if appropriate)
upon the application of and at the sole cost and expense of the Option Holder.
6.3 MEANING OF OBTAINING CONTROL
For the purpose of this Rule 6, a person shall be deemed to have obtained
Control of the Company if he and others acting in concert with him have
together obtained Control.
6.4 ROLLOVER OF OPTIONS
Notwithstanding anything to the contrary in these Rules, where any person
mentioned in Rules 6.1 is a company an Option Holder may, by agreement with the
Acquiring Company and within the appropriate period release his Option under
the Scheme ("THE OLD OPTION") in consideration of the grant to him of a new
Option ("THE NEW OPTION") which, within the meaning ascribed by paragraph 15(3)
of Schedule 9 to the Act, is equivalent to the Old Option but relates to shares
in a different company (whether the Acquiring Company or some other company
falling within sub-paragraph (b) or (c) of paragraph 10 of Schedule 9 to the
Act). With effect from the date of release references in Rules 5, 6, 7, 8, 9,
10, 11, and 12, (and, in relation to expressions used in those Rules, in Rule
1) to "THE COMPANY" and "SHARES" shall, in relation to the New Option, be
construed as references to the Acquiring Company and Shares in the Acquiring
Company or that other company as the case may be.
6.5 MEANING OF "APPROPRIATE PERIOD"
For the purpose of Rule 6.4, the "APPROPRIATE PERIOD" is the period mentioned
in Rule 6.1, or Rule 6.2 as the case may be.
7. MANNER OF EXERCISE
7.1 FUNDS WHICH CAN BE USED TO EXERCISE OPTION
An Option may only be exercised during the periods specified in Rules 5 and 6
and only with moneys not exceeding the amount of repayment (including any Bonus
or interest) made under the related Savings Contract. For this purpose,
repayment under the Savings Contract shall exclude the repayment of any Monthly
Contributions the due date for payment of which falls more than one month after
the date on which repayment is made.
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7.2 ACTIONS REQUIRED OF THE OPTION HOLDER
An Option may be exercised, in whole or in part, by the delivery to the
secretary of the Company, or his duly appointed agent, of an Option Certificate
covering not less than all the Shares over which the Option is then to be
exercised, with the notice of exercise in the prescribed form duly completed
and signed by the Option Holder, together with a remittance for the Acquisition
Price payable in respect of the Shares over which the Option is to be
exercised.
7.3 ACTIONS REQUIRED OF THE COMPANY
The relevant Shares shall be allotted or transferred (as the case may be)
within 28 days following such delivery and, accordingly in cases where Shares
are to be transferred, the Company shall use its best endeavours to ensure due
transfer thereof. At the request of the Option Holder, the Shares may be
allotted or transferred (as the case may be) to a nominee provided the Option
Holder has beneficial ownership of the Shares at the time of such allotment or
transfer.
8. ISSUE OF SHARES
8.1 RANKING OF SHARES
All Shares issued pursuant to the exercise of Options under the Scheme shall as
to voting, dividend, transfer and other rights (including those arising on a
liquidation) rank pari passu in all respects with the Shares then in issue,
except that they shall not rank for any dividend or other rights declared by
reference to a record date preceding the date of such exercise.
8.2 ADMISSION TO THE NEW STOCK EXCHANGE
If and so long as the Shares are listed on the New York Stock Exchange the
Company shall use its best endeavours to procure that as soon as practicable
after the allotment of any Shares pursuant to the Scheme application shall be
made to the New York Stock Exchange for permission to deal in those shares.
9. ADJUSTMENTS
9.1 GENERAL POWER OF ADJUSTMENT
The number of Shares over which an Option is granted and the Share Price
thereof may, subject to the prior approval of the Inland Revenue, be adjusted
in such manner as the Directors shall determine (and which the Auditors save
in the case of a capitalisation issue shall confirm in writing to be in their
opinion fair and reasonable) following any capitalisation issue, subdivision,
consolidation or reduction of share capital and in respect of any discount
element in any rights issue or other variation of share capital to the intent
that (as nearly as may be possible without involving fractions of a Share or a
Share Price calculated to more than two places of decimals) the Acquisition
Price payable in respect of an Option shall remain unchanged PROVIDED that,
save as
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THE RULES OF THE OCTEL CORP SAVINGS-RELATED SHARE OPTION SCHEME
---------------------------------------------------------------
provided in Rules 9.2 and 9.3, no adjustment made pursuant to this Rule 9.1
shall have the effect of reducing the Share Price below the nominal value of
a Share.
9.2 ADJUSTMENT WHICH REDUCES SHARES PRICE TO LESS THAN NOMINAL VALUE
Where an Option subsists over both issued and unissued Shares or over issued
Shares only, an adjustment may be made under Rule 9.1 which would have the
effect of reducing the Share Price to less than the nominal value of the Share
provided that the Acquisition Price of such Option remains constant.
9.3 REQUIREMENT TO CAPITALISE RESERVES
Any adjustment made to the Share Price of unissued Shares which would have the
effect of reducing the Share Price to less than the nominal value of the Share
shall only be made if and to the extent that the Directors are authorised to
capitalise from the reserves of the Company a sum equal to the amount by which
the nominal value of the Shares in respect of which the Option is excercisable
exceeds the adjusted Share Price. The Directors may apply such sum in paying up
such amount on such Shares so that on the excercise of any Option in respect of
which such a reduction shall have been made, the Directors shall capitalise
such sum (if any) and apply the same in paying up such amount as aforesaid.
9.4 NOTIFICATION OF OPTION HOLDERS
The Directors may take such steps as they may consider necessary to notify
Option Holders of any adjustments made under Rule 9.1 and to call in, cancel,
endorse, issue or re-issue any Option Certificate consequent upon such
adjustment.
10. ADMINISTRATION
10.1 DELIVERY OF NOTICES OR DOCUMENTS
Notice or documents required to be given to an Eligible Employee or to an Option
Holder shall either be delivered to him by hand or sent to him by first class
post at his last known home or business address according to the information
provided by him. Notices sent by first class post shall be deemed to have been
given on the day following the date of posting.
10.2 COPIES OF SHAREHOLDER COMMUNICATIONS
The Company shall distribute to Option Holders copies of any notice or document
sent by the Company to its shareholders generally.
10.3 MAINTENANCE OF UNISSUED SHARE CAPITAL
The Company shall at all times either keep available sufficient unissued
Shares to satisfy the exercise of all Options which have neither lapsed nor been
exercised (taking account of any other obligations of the Company to allot
unissued Shares) or shall ensure that sufficient issued Shares will be
available to satisfy the exercise of such Options.
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10.4 DIRECTORS' POWER TO ADMINISTER SCHEME
The Directors may make such regulations for the administration of the Scheme
as they deem fit, provided that no regulation shall be valid to the extent it
is inconsistent with the Rules.
10.5 DIRECTORS' DECISIONS ARE FINAL AND CONCLUSIVE
The decision of the Directors in any dispute relating to an Option, or the due
exercise thereof, or any other matter in respect of the Scheme, shall be final
and conclusive.
10.6 COSTS OF ADMINISTERING SCHEME
The costs of introducing and administering the Scheme shall be borne by the
Company.
11. ALTERATIONS
11.1 POWER TO ALTER RULES PRIOR TO INLAND REVENUE APPROVAL
The Directors may, prior to approval of the Scheme under the Act by the Inland
Revenue, alter the Rules of the Scheme as may be neccesary in order to obtain
such approval.
11.2 POWER TO ALTER RULES FOLLOWING INLAND REVENUE APPROVAL
Subject to Rule 11.3, after the date on which the Scheme is approved by the
Inland Revenue under the Act, the Directors may in their discretion alter the
Rules provided that no such alteration shall be effective until it has been
approved by the Inland Revenue.
11.3 ALTERATION WHICH AFFECTS SUBSISTING RIGHTS OF OPTION HOLDERS
No alteration may be made which would abrogate or adversely affect the
subsisting rights of Option Holders.
11.4 NOTIFICATION TO OPTION HOLDERS
Written notice of any amendment made in accordance with this Rule 11 shall be
given to all Option Holders.
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12. GENERAL
12.1 TERMINATION OF THE SCHEME
The Scheme shall terminate on the tenth anniversary of the date on which it is
approved by the Company in general meeting or at any earlier time by the
passing of a resolution by the Directors. Termination of the Scheme shall be
without prejudice to the subsisting rights of Option Holders.
12.2 NO COMPENSATION FOR LOSS OF OPTION RIGHTS
If an Option Holder shall cease for any reason to be in the employment of a
Participating Company or an Associated Company of a Participating Company, he
shall not be entitled, by way of compensation for loss of office or otherwise
howsoever, to any sum or any benefit to compensate him for the loss of any right
or benefit accrued or in prospect under the Scheme.
12.3 GOVERNING LAW
This Scheme and all Options shall be governed by and construed in accordance
with English law.
16
<PAGE> 18
OCTEL CORP
SAVE AS YOU EARN ("SAYE") SCHEME
* The rights obtained under the scheme are not be transferable, except
that if a participant dies, the options may pass into his estate.
* Options which are granted under the scheme are not be capable of being
exercised before the bonus date or more than six months after it.
* If a participant dies before the bonus date, the scheme provides for
these rights to be exercisable within twelve months following the date
of death.
* If death occurs within the 6 month period following the bonus date, the
scheme provides for the rights to be exercisable only within the twelve
months following the bonus date.
* Where the participant ceases to hold eligible office or employment and
the cessation is due to injury, disability redundancy, retirement or
reaching a particular age which has been specified in the rules of the
scheme or retirement on reaching any other age at which, in accordance
with the terms of the contract of employment, the employee is bound to
retire, the scheme provides for those rights to be exercisable only
within six months following the cessation.
* If the participant ceases to hold eligible office or employment in
other circumstances than above, and the rights have been held for more
than three years prior to the date of cessation, the rules may allow
them to be exercised within six months following that date.
* If the participant ceases employment and the rights have been held for
less than three years the rights lapse.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Registrant
1. Octel Corp., a Delaware corporation
2 Octel L.L.C., a Delaware corporation
3. Octel America Inc., a Delaware corporation
4. Octel International Ltd., a United Kingdom corporation
5. Octel Developments PLC, a United Kingdom corporation
6. Octel Trading Ltd., a United Kingdom corporation
7. Octel Resources Ltd., a United Kingdom corporation
8. Octel Associates, a United Kingdom corporation
9. The Associated Octel Co. Ltd, a United Kingdom corporation
10. Associated Octel Co. (Plant) Ltd, a United Kingdom corporation
11. AKC Trading Ltd, a United Kingdom corporation
12. AKC GmBh, a German corporation
13. AKC France SA, a French corporation
14. SIAC, an Italian corporation
15. Octel SA, a French corporation
