<PAGE>
Page 1 of 59 pages
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Transition Period from to
For Quarter Ended September 30, 1998 Commission File Number 1-5112
ETHYL CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0118820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 SOUTH FOURTH STREET
P. O. BOX 2189
RICHMOND, VIRGINIA 23218-2189
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (804) 788-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Number of shares of common stock, $1 par value, outstanding as of October 31,
1998: 83,465,460.
<PAGE>
ETHYL CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets - September 30, 1998
and December 31, 1997 3-4
Consolidated Statements of Income - Three Months and
Nine Months Ended September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 6
Notes to Financial Statements 7-10
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11-17
PART II. OTHER INFORMATION
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
EXHIBIT INDEX 20
EXHIBIT 10 Antiknock Marketing and Sales Agreement between
Ethyl Corporation and The Associated Octel Company
Limited 21-59
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30
1998 December 31
ASSETS (unaudited) 1997
----------- -----------
Current assets:
Cash and cash equivalents $ 11,265 $ 18,162
Accounts receivable, less allowance for doubtful
accounts ($1,847 in 1998 and $2,349 in 1997) 168,419 165,259
Inventories:
Finished goods and work-in-process 176,371 166,089
Raw materials 22,406 20,001
Stores, supplies and other 8,913 7,746
----------- -----------
207,690 193,836
Deferred income taxes and prepaid expenses 21,235 21,857
----------- -----------
Total current assets 408,609 399,114
----------- -----------
Property, plant and equipment, at cost 779,191 766,413
Less accumulated depreciation and amortization (394,039) (357,316)
----------- -----------
Net property, plant and equipment 385,152 409,097
----------- -----------
Other assets and deferred charges 182,140 179,918
Goodwill and other intangibles - net of amortization 102,481 79,148
----------- -----------
Total assets $ 1,078,382 $ 1,067,277
=========== ===========
See accompanying notes to financial statements.
3
<PAGE>
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September
1998 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 1997
----------- ------------
Current liabilities:
Accounts payable $ 69,288 $ 66,573
Accrued expenses 54,014 50,743
Dividends payable 5,217 5,217
Long-term debt, current portion 35,741 46,707
Income taxes payable 21,619 11,188
----------- -----------
Total current liabilities 185,879 180,428
----------- -----------
Long-term debt 555,637 594,429
Other noncurrent liabilities 88,658 86,308
Deferred income taxes 65,755 61,514
Shareholders' equity
Common stock ($1 par value)
Issued - 83,465,460 in 1998 and 1997 83,465 83,465
Accumulated other comprehensive (loss) income (5,447) 1,705
Retained earnings 104,435 59,428
----------- -----------
182,453 144,598
----------- -----------
Total liabilities and shareholders' equity $ 1,078,382 $ 1,067,277
=========== ===========
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
ETHYL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 285,282 $ 254,074 $ 756,466 $ 789,123
Cost of goods sold 200,256 184,360 550,775 564,013
--------- --------- --------- ---------
Gross profit 85,026 69,714 205,691 225,110
Selling, general and administrative expenses 19,554 21,150 58,780 67,079
Research, development and testing expenses 16,718 15,883 49,256 48,675
Special items (income, net) (9,817) - (4,885) -
--------- --------- --------- ---------
Operating profit 58,571 32,681 102,540 109,356
Interest and financing expenses 10,072 4,926 30,754 15,489
Other income, net (430) (590) (22,750) (947)
--------- --------- --------- ---------
Income before income taxes 48,929 28,345 94,536 94,814
Income taxes 18,131 9,499 33,879 33,441
--------- --------- --------- ---------
Net income $ 30,798 $ 18,846 $ 60,657 $ 61,373
========= ========= ========= =========
Basic and diluted earnings per share $ .37 $ .16 $ .73 $ .52
========= ========= ========= =========
Shares used to compute basic earnings per share 83,465 118,444 83,465 118,444
========= ========= ========= =========
Cash dividends per share of common stock $ .0625 $ .125 $ .1875 $ .375
========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
5
<PAGE>
ETHYL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Nine Months Ended
September 30
-------------------
1998 1997
--------- ---------
Cash and cash equivalents at beginning of year $ 18,162 $ 20,148
--------- ---------
Cash flows from operating activities:
Net income 60,657 61,373
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization 46,561 46,887
Special charge 3,986 -
Gain on sale of certain non-operating assets (14,631) -
Working capital (increases) decreases (17,931) 16,372
Other, net 2,385 (9,383)
--------- ---------
Cash provided from operating activities 81,027 115,249
--------- ---------
Cash flows from investing activities:
Capital expenditures (19,429) (28,446)
Proceeds from sale of certain non-operating assets 25,562 -
Other, net (407) 372
--------- ---------
Cash provided from (used in) investing activities 5,726 (28,074)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (78,000) (50,000)
Cash dividends paid (15,650) (44,417)
--------- ---------
Cash used in financing activities (93,650) (94,417)
--------- ---------
Decrease in cash and cash equivalents (6,897) (7,242)
--------- ---------
Cash and cash equivalents at end of period $ 11,265 $ 12,906
========= =========
Supplemental investing and financing non-cash transactions
Increase in intangibles related to the recognition of
a portion of the contingent note payable to Texaco
Inc. (Including deferred interest costs of $3,798) (31,923) -
Recognition of portion of contingent note payable to
Texaco, Inc. 28,125 -
See accompanying notes to financial statements.
6
<PAGE>
ETHYL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(In Thousands Except Per-Share Amounts)
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements of Ethyl Corporation and Subsidiaries (the "Company") contain
all adjustments necessary to present fairly, in all material respects, the
Company's consolidated financial position as of September 30, 1998 and the
consolidated results of operations for the three and nine-month periods
ended September 30, 1998 and 1997 and the consolidated cash flows for the
nine-month periods ended September 30, 1998 and 1997. All adjustments are
of a normal, recurring nature. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the December 31, 1997 Annual Report. The December 31, 1997
consolidated balance sheet data was derived from audited financial
statements but does not include all disclosures required by generally
accepted accounting principles. The results of operations for the
nine-month period ended September 30, 1998 are not necessarily indicative
of the results to be expected for the full year.
2. On October 2, 1997, the Company purchased 34,999,995 shares of its common
stock at $9.25 per share with the purchase price and related costs totaling
about $328.9 million. The purchase was financed under the Company's $750
million Competitive Advance, Revolving Credit Facility and Term Loan
Agreement which increased the committed funds available for borrowing.
As the Company's September 30, 1997 results of operations do not include
any effects of the purchase of the 34,999,995 shares, the following
selected unaudited pro forma information is being provided to present a
summary of the results of operations of the Company as if the purchase of
shares had occurred as of January 1, 1997. The pro forma information gives
effect to adjustments for the reduction in outstanding shares, interest
expense for additional debt and related income tax impact that would have
been incurred to finance the purchase of the shares. The pro forma data is
for informational purposes only and may not necessarily reflect the
financial position or results of operations of the Company had the purchase
of shares occurred on January 1, 1997.
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
Net income $ 15,520 $ 51,431
Basic and diluted earnings
per share $.19 $.62
Shares used to compute
earnings per share 83,444 83,444
7
<PAGE>
3. Long-term debt consists of the following: September 30, December 31,
1998 1997
---- ----
Variable-rate bank loans (average effective
interest rate was 6.3% for the nine-month
period ended September 30, 1998 and 6.1% for
the year 1997) $524,000 $602,000
5.99% Note payable to Texaco 40,625 12,500
8.6% to 8.86% Medium-term notes due through 2001 27,000 27,000
------- -------
Total long-term debt 591,625 641,500
Less unamortized discount (247) (364)
------- -------
Net long-term debt 591,378 641,136
Less current portion (35,741) (46,707)
------- -------
Long-term debt $555,637 $594,429
======= =======
The Company has a contingent note payable to Texaco Inc. of up to $60
million that is associated with Ethyl's 1996 acquisition of Texaco's
worldwide lubricant additives business. The actual amount of the note
is being determined using an agreed-upon formula based on volumes of
certain acquired product lines shipped during calendar years 1996
through 1998. Based on actual shipments through September 30, 1998,
$40.6 million of the contingent note was included in long-term debt.
Management has classified the note as long term pursuant to the
Company's ability and intent to refinance the obligation on a long-term
basis.
4. The components of comprehensive income for the three-month periods ended
September 30, 1998 and 1997 follows:
Three Months Ended
September 30
1998 1997
-------- --------
Net income 30,798 $ 18,846
-------- --------
Other comprehensive income (loss), net of tax:
Unrealized loss on marketable equity securities (432) -
Foreign currency translation adjustments 3,115 (3,401)
-------- --------
Other comprehensive income (loss), net of tax 2,683 (3,401)
-------- --------
Comprehensive income $ 33,481 $ 15,445
======== ========
8
<PAGE>
The components of comprehensive income for the nine-month periods ended
September 30, 1998 and 1997 follows:
Nine Months Ended
September 30
------------------------------
1998 1997
---- ----
Net income $60,657 $61,373
------- -------
Other comprehensive income, net of tax:
Unrealized gain on marketable equity
securities $ 1,289 $ -
Less: Reclassification adjustment
for gain included in net
income (9,487) (8,198) - -
------- -------
Foreign currency translation
adjustments 1,046 (8,444)
------- -------
Other comprehensive (loss), net of tax (7,152) (8,444)
------- -------
Comprehensive income $53,505 $52,929
======= =======
The components of accumulated other
comprehensive income consist of the
following: September 30, December 31,
1998 1997
------------- ------------
Unrealized gain on marketable equity
securities $ 1,626 $ 9,824
Foreign currency translation adjustments (7,073) (8,119)
------- -------
Accumulated other comprehensive (loss)
income $(5,447) $ 1,705
======= =======
5. The special items consist of a benefit due to a settlement with the
Canadian government partially offset by a charge related to a 1998 enhanced
retirement offer. The settlement of $13 million net of related expenses
($3.2 million) resulted in a benefit of $9.8 million in the third quarter,
or $6.3 million after income taxes or $.07 per share and a $8.9 million
benefit for the nine months net of related expenses ($4.1 million), or $5.7
million after income taxes or $.07 per share. The settlement with the
Canadian government was to reimburse the Company for a portion of its legal
cost and lost profits following the repeal of the 1997 ban on the
importation and interprovincial trade of methylcyclopentadienyl manganese
tricarbonyl (MMT). The second quarter 1998 enhanced retirement offer
resulted in a charge of about $4.0 million or $2.5 million after income
taxes or $.03 per share. This charge covered a voluntary early retirement
program and severance and termination benefits affecting 40 employees. The
positions eliminated were administrative and support functions.
Approximately $0.3 million has been paid out during the nine months for
severance, vacation and termination benefits. The remainder will be paid
out over an extended period for retirement and health insurance benefits.
6. Other income, net for the nine-month period ended September 30, 1998
included a gain on the sale of certain non-operating assets of $14.6
million which occurred in the first and second quarters and a first quarter
gain of $7.9 million relating to the settlement of a federal income tax
audit.
7. FASB Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" is effective for annual periods beginning after
9
<PAGE>
December 15, 1997 and for interim periods after the year of adoption. This
statement establishes standards for reporting information about operating
segments, including related disclosures about products and services,
geographic areas, and major customers. The Company has not yet completed
its analysis of what impact, if any, Statement No. 131 will have on
operating segments reported, or on the financial statements and related
disclosures.
In June 1998, FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued. This statement establishes
a comprehensive and consistent standard for the recognition and measurement
of derivatives and hedging activities. Statement No. 133 requires all
derivatives to be recorded on the balance sheet at fair value and the
hedged item in earnings in the same period. This new standard is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
implementation of this new standard is not expected to have a material
effect on the Company's consolidated results of operations or financial
position.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is management's discussion and analysis of certain significant
factors affecting the Company's results of operations during the periods
included in the accompanying consolidated statements of income and changes in
the financial condition since December 31, 1997. The Company's results of
operations for the third quarter and nine months of 1998 include the effect of
the repurchase of approximately 35 million shares of its common stock on October
2, 1997.
Some of the information presented in the following discussion, including certain
disclosures made related to the Year 2000, constitutes forward-looking comments
within the meaning of the Private Securities Litigation Reform Act of 1995.
Although the Company believes its expectations are based on reasonable
assumptions within the bounds of knowledge of its business and operations, there
can be no assurance that actual results will not differ materially from its
expectations. Factors which could cause actual results to differ from
expectations include, without limitation, the timing of orders received from
customers, the gain or loss of significant customers, competition from other
manufacturers, a significant rise in interest rates, changes in the demand for
the Company's products, results of testing systems for Year 2000 compliance and
costs to remediate non-Year 2000 compliant systems, disruption of business
caused by the failure of vendors, suppliers, or customers to be Year 2000
compliant, non-Year 2000 compliant equipment, or the loss of electrical power
due to non-Year 2000 compliant energy providers. In addition, increases in the
cost of the product, changes in the market in general and significant changes in
new product introduction could result in actual results varying from
expectations.
Results of Operations
Third Quarter 1998 Compared to Third Quarter 1997
Net sales for the third quarter of 1998 amounted to $285.3 million, representing
an increase of $31.2 million (12.3%) from net sales of $254.1 million in the
third quarter of 1997. The $31.2 million increase was due to a $54.6 million
increase resulting from higher volumes shipped of both antiknocks and petroleum
additives. Most of the volume increase was reflected in antiknock shipments and
was primarily the result of expected fluctuations in order and shipping patterns
for lead, as well as an increase in MMT shipments following the lifting of the
MMT ban by the Canadian government. The favorable effect on net sales from the
increase in volumes was partly offset by a decrease in selling prices of $23.4
million. This reduction reflected lower selling prices in petroleum additives,
as well as antiknocks and an unfavorable foreign currency impact. The lower
selling prices were the result of competitive pricing pressures for both
petroleum additives and antiknock products, as well as weak Asia Pacific markets
for petroleum additives.
Cost of goods sold for the third quarter of 1998 increased $15.9 million (8.6%)
to $200.3 million in 1998 from $184.4 million in the third quarter of 1997. The
increase was a function of higher shipments, in both antiknocks and petroleum
additives, totaling $33.0 million, which was partially offset by lower costs of
11
<PAGE>
$17.1 million. The lower costs in petroleum additives were the result of the
benefits of the Company's plant rationalization plan, a favorable foreign
currency impact, and overall lower raw material costs. The lower petroleum
additives costs were partially offset by an increase in antiknock material
costs.
Gross profit of $85.0 million in third quarter 1998 increased $15.3 million
(22.0%) from the third quarter 1997 level of $69.7 million. As a result of the
12.3% increase in net sales and the 8.6% increase in cost of sales, as outlined
above, the gross profit margin as a percentage of net sales improved from 27.4%
in 1997 to 29.8% in 1998. The higher profit and margins mainly reflected
increased shipments, particularly of antiknocks, which traditionally have higher
margins than petroleum additives.
Selling, general and administrative expenses combined with research, development
and testing expenses of $36.3 million in the third quarter 1998 were down $.8
million (2.1%) from the third quarter 1997. The reduction was primarily the
result of ongoing strict cost control efforts and a favorable foreign currency
impact. Selling, general and administrative expenses combined with research,
development and testing expenses as a percentage of net sales decreased from
14.6% in the third quarter 1997 to 12.7% in the third quarter 1998 reflecting an
increase in net sales of 12.3% combined with the 2.1% reduction in these
expenses.
The special item in the third quarter of $9.8 million ($6.3 million after-tax or
$.07 per share) represents a $13.0 million settlement, net of related expenses
($3.2 million), with the Canadian government. This settlement was for
reimbursement to the Company for a portion of its legal costs and lost profits
while the ban was in effect following the Government of Canada lifting its 1997
ban on the importation and interprovincial trade of methylcyclopentadienyl
manganese tricarbonyl (MMT).
Operating profit increased 79.2% to $58.6 million from $32.7 million in the
third quarter 1998. The higher operating profit primarily reflected higher
antiknock profit, as well as the settlement with the Canadian government, which
was partially offset by lower profit from petroleum additive products. The
increase in antiknocks resulted mostly from higher shipments. The lower
operating profit from petroleum additives reflected continuing pricing pressures
that were partially offset by higher shipments.
Interest and financing expenses of $10.1 million in 1998 were $5.1 million
higher than 1997. The increase was primarily the result of higher average debt
outstanding, which produced $4.9 million of the $5.1 million increase. The
higher average debt reflected the use of long-term debt to finance the October
1997 repurchase of almost 35 million shares of the Company's common stock.
Approximately $0.3 million of the increase was from higher fees, higher
amortization of deferred financing costs, and lower capitalized interest. These
increases were slightly offset by a decrease in average interest rates on
variable rate debt resulting in $0.1 million lower interest and financing
expenses.
Other income, net of $0.4 million in the third quarter of 1998 was comparable to
other income, net of $0.6 million in 1997.
Income taxes in the third quarter of 1998 increased $8.6 million (90.9%) to
$18.1 million from the third quarter 1997 amount of $9.5 million due to a 72.6%
12
<PAGE>
increase in income before income taxes and a higher effective income tax rate.
The effective income tax rate of 37.1% in 1998 versus 33.5% in 1997 primarily
reflected the benefit in 1997 of settlement of certain tax issues with the
Internal Revenue Service.
As a result of the items outlined above, net income of $30.8 million in 1998 was
$12.0 million (63.4%) higher than the third quarter of 1997. Excluding the
benefit of the settlement with the Canadian Government, net income would have
been up 30.2%. Basic and diluted earnings per share of $.37 in 1998 increased
131% from $.16 in 1997 due to the increase in net income as well as the benefit
of the fourth quarter 1997 stock repurchase. The stock repurchase resulted in an
approximate reduction of 30% in the number of outstanding shares to 83,465,460
at September 30, 1998 compared to 118,443,835 at September 30, 1997.
Nine Months 1998 Compared to Nine Months 1997
Net sales for the nine months of 1998 amounted to $756.5 million which was down
$32.6 million (4.1%) from 1997 net sales of $789.1 million. The decrease in net
sales included a reduction of $67.1 million due to lower selling prices in both
petroleum additives and antiknocks. The lower average selling prices reflect the
highly competitive nature of today's petroleum additive and antiknock markets,
as well as an unfavorable foreign currency impact, and the slowdown in the Asia
Pacific petroleum additive markets. This was partially offset by an increase in
volumes shipped of both petroleum additives and antiknocks, which improved net
sales by $34.5 million.
Cost of goods sold of $550.8 decreased $13.2 million (2.3%) from nine months
1997 amount of $564.0 million. The decrease was the result of lower costs of
$36.9 million reflecting lower costs in petroleum additives due to the benefit
of the plant rationalization plan, a favorable foreign currency effect, and
overall lower raw material costs. The lower petroleum additives costs were
partially offset by an increase in antiknock costs, primarily due to higher
material costs, as well as higher volumes shipped of $23.7 million in both
petroleum additives and antiknocks.
Gross profit was $205.7 million for the nine months of 1998 compared to $225.1
million in 1997. This reduction of $19.4 million (8.6%) in gross profit resulted
in the gross profit margin as a percentage of sales decreasing to 27.2% in 1998
from 28.5% in 1997. The lower profit margins reflect the 4.1% reduction in net
sales and the 2.3% reduction in cost of sales, as outlined above.
Selling, general and administrative expenses combined with research, development
and testing expenses of $108.0 million in 1998 was $7.7 million (6.7%) lower
than 1997. This is the result of lower employee related costs reflecting the
ongoing strict cost controls, lower MMT related cost and a favorable foreign
currency impact. Selling, general and administrative expenses combined with
research, development and testing expenses as a percentage of net sales
decreased from 14.7% in 1997 to 14.3% in 1998 reflecting the impact of a 4.1%
reduction in net sales as compared to a 6.7% reduction in these expenses.
Special items for the nine months 1998 of $4.9 million included income of $8.9
million from the settlement with the Canadian government (see the third quarter
13
<PAGE>
special item discussion), net of a special charge of about $4.0 million for an
enhanced retirement offer and the elimination of certain positions during the
second quarter. These initiatives affected 40 employees.
Operating profit decreased $6.8 million (6.2%) from $109.3 million in 1997 to
$102.5 million in 1998. The lower operating profit reflected both lower
antiknock profit (excluding the Canadian government settlement), as well as
lower profit from petroleum additives. The decrease in both antiknocks and
petroleum additives operating profit resulted from ongoing competitive pricing
pressures, partially offset by higher shipments. The cost of the enhanced
retirement offer and elimination of certain positions also reduced operating
profit in 1998.
Interest and financing expenses were $30.8 million for the nine months 1998,
which was $15.3 million higher than the 1997 amount of $15.5 million. Higher
average debt outstanding accounted for $14.3 million of the increase. The higher
average debt resulted from the use of long-term debt to finance the October 1997
repurchase of almost 35 million shares of the Company's common stock. Higher
average interest rates resulted in $0.2 million of the $15.3 million increase.
The remaining $0.8 million of the increase was caused by higher fees and
amortization of deferred financing costs, as well as lower capitalized interest.
Other income, net of $22.7 million in 1998 was $21.8 million higher than the
$0.9 million for the nine months 1997. The increase was primarily the result of
a $14.6 million gain on the sale of certain non-operating assets, as well as
interest income on the settlement of a federal income tax audit amounting to
$7.9 million.
Income taxes for the nine months 1998 increased $0.5 million (1.3%) to $33.9
million from the nine months 1997 amount of $33.4 million. The increase was
primarily due to a slightly higher effective income tax rate, offset by a small
reduction in income before income taxes of $0.3 million. The higher effective
income tax rate in 1998 of 35.8% as compared to 35.3% in 1997 was due primarily
to a settlement with the Internal Revenue Service in 1997, as well as a higher
state income tax rate largely offset by the tax benefit on the 1998 settlement
with the Internal Revenue Service.
As a result of the items discussed above, net income in 1998 decreased $0.7
million (1.2%) to $60.7 million from $61.4 million for the nine months 1997.
However, as a result of the 1997 stock repurchase, basic and diluted earnings
per share were $0.73 in 1998 as compared to $0.52 in 1997. At September 30,
1998, 83,465,460 shares were outstanding as compared to 118,443,835 at September
30, 1997.
Financial Condition and Liquidity
Cash and cash equivalents at September 30, 1998 totaled $11.3 million, a
decrease of $6.9 million since December 31, 1997. Cash flows were more than
sufficient to cover operating activities during the 1998 period. Cash flows from
operating activities for the nine months of 1998 of $81.0 million, combined with
cash-on-hand of $6.9 million and the proceeds from the sale of non-operating
assets of $25.6 million, were used to make principal payments on long-term debt
of $78.0 million, pay dividends of $15.7 million, and fund capital expenditures
of $19.4 million.
14
<PAGE>
The combined current and noncurrent long-term debt amounted to $591.4 million at
September 30, 1998, as compared to $641.1 million at December 31, 1997. This net
decrease of $49.7 million represented a repayment of $78.0 million of debt
including $40.0 million on the Company's term loan, as well as a repayment of
$38.0 million under the Company's line of credit. The repayments of long-term
debt were partly offset by an $28.1 million increase in the note payable related
to the Texaco acquisition. The contingent note is payable to Texaco Inc. for up
to $60 million. The actual amount of the contingent note is being determined
using an agreed-upon formula based on volumes of certain acquired product lines
shipped during calendar years 1996 through 1998. Based on actual shipments
through September 30, 1998, $40.6 million of the contingent note was included in
long-term debt. The note is payable on February 26, 1999. Management has
classified the note as long term pursuant to the Company's ability and intent to
refinance the obligation on a long-term basis. The Company's long-term debt
(excluding the current portion) as a percentage of total capitalization was
75.3% at September 30, 1998 as compared to 80.4% at December 31, 1997. The
Company has historically targeted a range of 30% to 50% for its long-term debt
ratio, and intends to continue to use its cash flows to reduce long-term debt
outstanding.
The Company's capital spending during the year is expected to be lower than in
1997 reflecting the completion of several capital projects. Capital spending is
expected to be financed with cash from operations.
Working capital at September 30, 1998 was $222.7 million resulting in a current
ratio of 2.20 to 1. At December 31, 1997, the working capital was $218.7 and the
current ratio was 2.21 to 1. The slight increase in working capital primarily
resulted from an increase in inventories and a decrease in the current portion
of long-term debt. The slightly lower current ratio reflected a decrease in
cash, as well as increases in taxes payable, accounts payable and accrued
expenses. The Company anticipates that cash provided from operations will
continue to be sufficient to cover the Company's operating expenses, service
debt obligations, including reducing long-term debt, and make dividend payments
to shareholders.
Recent Developments
The Company announced that effective October 1, 1998, it had entered into an
agreement with The Associated Octel Company Limited (Octel) to market and sell
tetraethyl lead (TEL) antiknock compounds. The agreement finalizes the
memorandum of understanding signed by the companies in July 1998. This
arrangement includes all world areas except North America and the European
Union.
Ethyl and Octel believe that significant cost savings can be realized through
more efficient marketing, sales and distribution of TEL products in certain
areas of the world. All marketing and sales efforts made to customers will be in
the name of Octel. While Octel will continue to produce all products marketed
under this agreement, Ethyl will continue to provide bulk distribution services.
Other TEL services will be provided by one or both companies depending upon
cost, performance and flexibility.
15
<PAGE>
Both companies believe that this agreement is the most effective way to continue
to provide their TEL customers with safe product supply and responsive
world-class service.
In the third quarter of 1998, the Company received a $13 million reimbursement
from the Canadian government for a portion of the Company's lost profits and
legal costs related to the Canadian government's decision to lift its 1997 ban
on the importation and interprovincial trade of Ethyl's MMT fuel additive.
Also, regarding current year operations, while overall operating profits are on
track to be higher in the second half of 1998 operating profits for the year are
expected to be moderately lower than 1997. This is primarily due to lower lead
antiknock profits, as well as lower petroleum additive profits primarily due to
pricing reflecting competitive pressures.
Year 2000
The Company is continuing to address the Year 2000 issues and has an aggressive
program in place to assure compliance of all of its mission critical systems
that can affect product supply, internal operations, employees, customers, and
suppliers. The Company's senior management and Board of Directors have placed a
high priority on the Year 2000 project. Funding necessary to successfully
complete the Year 2000 effort has been approved. In addition, a Year 2000
Project Manager has been assigned to coordinate the initiative and provide
regular status updates to senior management.
The Company expects that its products and services will be continuously
available and the facilities, equipment, and information systems of the business
will be fully functional and will operate accurately and without interruption
both before and after January 1, 2000. The Company is confident that its
commercial and operational systems will not expose it to any significant delay
or interruption. The Company will continue testing in the fourth quarter of 1998
and plans to use scheduled fourth quarter plant shut downs to implement and test
Year 2000 upgrades and replacements.
The Company's state of readiness was enhanced by conversion in prior years of
all mainframe systems to modern client/server systems. This included
implementation of SAP, Peoplesoft and other commercial and desktop software, all
of which are represented to be Year 2000 compliant. The Company has also
reviewed its manufacturing systems, R&D systems, testing equipment, desktop
computers, and technical infrastructure and has plans in place to have both
software and hardware fully compliant by December 31, 1998. In addition, the
Company has contracted an independent third party to provide assistance with the
review of manufacturing systems and embedded controllers.
The Company also includes in its Year 2000 program efforts to ensure the
readiness of mission critical suppliers of products and services, as well as key
customers. Confirmation of the readiness of these business partners Year 2000
status is being actively pursued.
Since most of the Company's Year 2000 compliance was achieved in prior years
through the systems implementations previously mentioned, the costs associated
16
<PAGE>
with compliance in 1998 for the third quarter and nine months 1998 have been low
and total approximately $0.1 million and $0.2 million, respectively. The
expected remaining costs are estimated to be less than $2.6 million and will be
funded through cash provided from operations. Approximately $1.5 million of the
cost will be capitalized. The cost of this program that will not be capitalized
represents less than 6% of the Company's information resources operating budget.
Further, the emphasis that the Company has placed on the Year 2000 initiative
has not seriously delayed any of the Company's mission critical programs.
As part of the Year 2000 assessment, the Company has rated the impact of a Year
2000 problem for each of the systems in terms of risk to the business and the
probability of successfully resolving the issue. The Company believes that,
because of the extensive work which has already been completed and the plans in
place to obtain 100% compliance, sufficient time and resources are committed to
resolve any remaining Year 2000 issues. Consequently, the Company expects that
the internal risks are low and the overall risk of business interruption is
minimal.
Nevertheless, the Year 2000 program includes a review of both internal and
external risk factors, as well as the actions necessary to minimize any
potential impacts. By the end of the fourth quarter 1998, the Company will be
developing a formal contingency plan in the event that a critical system or
business partner is not or will not be compliant by January 1, 2000. The plan
will address worst case scenarios and could result in special staff training,
stockpiling critical raw materials, and scheduling production runs to minimize
losses in the event of power outages.
Finally, in order to further assure that the Company is proceeding on the proper
course to assess and remedy Year 2000 issues, an independent third party is
performing an independent status review of the Company's enterprise-wide Year
2000 program. The results of the review, which are expected soon, will be used
to enhance the Company's program. A follow-up review is planned during the first
half of 1999.
Recently Issued Accounting Standards
FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for annual periods beginning after December 15, 1997
and for interim periods after the year of adoption. This statement establishes
standards for reporting information about operating segments, including related
disclosures about products and services, geographic areas, and major customers.
The Company has not yet completed its analysis of what impact, if any, Statement
No. 131 will have on operating segments reported, or on the financial statements
and related disclosures.
In June 1998, FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued. This statement establishes a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. Statement No. 133 requires all derivatives to be recorded on
the balance sheet at fair value and the hedged item in earnings in the same
period. This new standard is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The implementation of this new standard is not
expected to have a material effect on the Company's consolidated results of
operations or financial position.
17
<PAGE>
PART II - Other Information
ITEM 5. Other Information
Refer to "Recent Developments" in Item 2 "Management's Discussion and
Analysis of Results of Operations and Financial Condition" beginning
on page 15.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit No. Description
10 Antiknock Marketing and Sales Agreement, dated
October 1, 1998, between Ethyl Corporation and
The Associated Octel Company Limited*
- ------------------
* Subject to a request for confidential treatment, certain provisions of the
Antiknock Marketing and Sales Agreement have been intentionally omitted.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ETHYL CORPORATION
(Registrant)
Date: November 9, 1998 By: /s/ J. Robert Mooney
J. Robert Mooney
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 9, 1998 By:/s/ Wayne C. Drinkwater
Wayne C. Drinkwater
Controller
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
Page
Number
Number and Name of Exhibit
Exhibit 10 Antiknock Marketing and Sales Agreement
between Ethyl Corporation and The
Associated Octel Company Limited 21-59
Exhibit is not included except in 10-Q filed electronically. Copy of Exhibit is
available upon request.
20
ANTIKNOCK MARKETING AND SALES AGREEMENT
THIS AGREEMENT is made as of this 1st day of October 1998, by and
between The Associated Octel Company Limited a corporation organized under the
laws of England, acting on behalf of itself and its Affiliates (collectively,
"Octel") and Ethyl Corporation, a corporation organized under the laws of the
Commonwealth of Virginia, USA, acting on behalf of itself and its Affiliates
(collectively, "Ethyl") and supercedes the Antiknock Marketing and Sales
Agreement between the aforementioned parties dated as of September 29, 1998.
WHEREAS, governmental authorities in countries around the world have
promulgated laws and regulations which have effectively banned or severely
limited the amount of lead antiknock compounds which can be used in motor fuels
for health, safety and environmental reasons.
WHEREAS, said governmental authorities have continued to take actions
and plan to take additional measures in the future to further reduce or
eliminate the amount of AK currently used in motor fuels.
WHEREAS, because these actions have accelerated the reduction of demand
for AK, the product life of AK has been significantly reduced as a useful
additive in motor fuel.
WHEREAS, as a result of these actions and other factors, it has and
will continue to become increasingly more expensive and inefficient to market
and to sell the ever decreasing amount of AK throughout the world as this
product reaches the end of its life cycle.
WHEREAS, because of these factors, Octel and Ethyl believe that
significant cost savings and efficiencies and health, safety and environmental
benefits can be realized by entering into this Agreement to market and promote
the sale and safe distribution of AK in certain areas of the world as the demand
for AK continues to decline.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Administrative, Logistics and Order Processing Services shall mean the
services provided by Octel as described in Paragraph 11 of this
Agreement.
Affiliates shall mean any entity controlling, controlled by or under
common control with that Party and any entity which succeeds to that
portion of the business or ownership of the assets of that Party to
which this Agreement pertains.
Agreement shall mean this Antiknock Marketing and Sales Agreement.
Agreement Activities shall mean all of the activities performed by the
Parties pursuant to the terms of this Agreement. It is specifically
agreed that manufacture of Product is not included in Agreement
Activities.
Agreement Proceeds shall mean the amount determined pursuant to
Schedule C of this Agreement.
Bulk Distribution Agreement shall mean the Agreement for Bulk
Transportation between The Associated Octel Company Limited and Ethyl
Corporation dated March 25, 1994, as amended.
Bulk Distribution Services shall mean bulk distribution services
provided by Ethyl described in Paragraph 9 of this Agreement.
2
<PAGE>
Change of Control shall mean:
(i) the acquisition by an independent third party(ies) of
more than fifty percent (50%) of the outstanding
voting stock of Octel Corp, the Associated Octel
Company Limited or Ethyl Corporation but excluding
the formation of a holding company so long as there
is no change in the ultimate control of the
applicable company listed above; or
(ii) the acquisition by an independent third party(ies) of
substantially all the AK business assets of Octel
Corp., the Associated Octel Company Limited or Ethyl
Corporation; or
(iii) the assignment to an independent third party(ies) by
either Party of substantially all of their rights or
obligations under this Agreement.
Notwithstanding the above, Change of Control shall not mean any
internal reorganization of Octel Corp., The Associated Octel Company
Limited or Ethyl Corporation and/or any of their respective Affiliates
including any spin off or split off of assets or businesses to the
shareholders of any of the aforementioned companies or the purchase of
stock, assets or businesses conducted by any of the aforementioned
companies by any person or group who owns twenty percent (20%) of the
voting stock of the company as the date of this Agreement.
Contract Year shall mean the period beginning on October 1, 1998 and
ending on December 31, 1998 and each calendar year thereafter during
the term of this Agreement and any extension thereof.
Council shall mean Strategic Council.
Effective Date shall be October 1, 1998.
3
<PAGE>
Embargoed Countries shall mean any country or countries that is
subject to sanctions imposed by the United States government pursuant
to the Trading With the Enemy Act (50 App. U.S.C.A. S.1) or The
International Emergency Economic Powers Act (50 U.S.C.A. S.1701).
Ethyl shall mean Ethyl Corporation and its Affiliates.
European Economic Area shall mean those countries that are from time to
time members of the European Economic Area.
North America shall mean the countries of Canada and the United States.
Octel shall mean The Associated Octel Company Limited and its
Affiliates.
Parties shall mean Ethyl & Octel.
Party Services shall mean all of the services performed by the Parties
pursuant to the terms of this Agreement.
Product shall mean lead alkyl antiknock compounds ("AK") made available
for sale, marketed and/or sold, directly or indirectly, to customers
for use in the Territory by Octel, Octel Corp. or its Affiliates which
shall include all of the AK compounds currently made available for sale
by Octel and any new or modified AK products made available for sale,
marketed and/or sold, directly or indirectly, by Octel, Octel Corp. or
its Affiliates during the term of this Agreement or any extensions
thereof.
Service Agreement shall mean the Service Agreement set forth in
Schedule D of this Agreement.
Sludge Services Agreement shall mean the Services Agreement between The
Associated Octel Company Limited and Ethyl Corporation dated June 28,
1995, as amended.
4
<PAGE>
Supply Contract shall mean the Supply of Lead Antiknock Compounds
Agreement between The Associated Octel Company Limited and Ethyl dated
December 22, 1993, as subsequently amended by the Supply of Lead
Antiknock Compounds Agreement for the U.S. dated as of January 1, 1998,
and the letter agreement between Ethyl Corporation and The Associated
Octel Company Limited dated December 22, 1997.
Technical Support, Professional Services and Residue Processing and
Disposal Services shall mean the services provided by the Parties as
described in Paragraph 12 of this Agreement.
Territory shall mean all of the countries and regions of the world,
other than, and specifically excluding North America, the European
Economic Area and Embargoed Countries.
United States shall mean the fifty states of the United States of
America, the District of Columbia and all possessions and territories
of the United States including Puerto Rico and the U.S. Virgin Islands.
Wholesale Price shall mean . The Parties acknowledge that
the price formula was negotiated at arms length and
continues to represent the wholesale fair market value of the Product.
Working Capital shall mean the working capital as determined in
accordance with Schedule G.
2. Purpose of the Agreement
The purpose of this Agreement is to establish a marketing
arrangement for sales of Product by the Parties to customers in the
Territory. Octel and Ethyl each agree, and shall cause each of their
Affiliates to agree, to exclusively market and sell Product to
customers for use in the Territory pursuant to the terms of this
5
<PAGE>
Agreement. To support this marketing arrangement, both Ethyl and Octel
will provide various goods and services to the other as more
specifically set forth in this Agreement and the Service Agreement. The
rights conferred by this Agreement are strictly contractual in nature,
it being expressly understood and agreed that neither Party shall by
reason of this Agreement be deemed to have entered a partnership or to
have acquired directly or indirectly any stock, share capital, equity
or other interest in the other Party. It is further understood and
agreed that the Agreement Activities are limited strictly and
exclusively to the Territory and shall not extend beyond the Territory.
Unless earlier terminated pursuant to this Agreement, this arrangement
shall continue so long as sales of Product in the Territory remain
economically feasible. Notwithstanding the above, should existing
supply contracts with customers for delivery of Product in the
Territory prohibit or restrict the ability of either of the Parties to
perform the obligations contained herein, each Party agrees to meet the
terms of such contracts and perform such contractual obligations until
said contracts are terminated or expire. The proceeds generated from
the sale of Product under these contracts resulting from deliveries
made to customers in the Territory on or after the Effective Date of
this Agreement shall be calculated and accounted for using the same
basis as set forth in Schedule C and shall be included in determining
Agreement Proceeds pursuant to Schedule C of this Agreement and the
deliveries of Product in the Territory shall be treated as if made
pursuant to the terms of this Agreement.
3. Territory
This Agreement and its terms shall only apply to activities within the
Territory. Neither Party shall have any rights, responsibilities or obligations
to the other Party under this Agreement for activities relating to the
manufacture, distribution, marketing and sale of AK compounds to:
(i) customers outside the Territory;
(ii) customers inside the Territory prior to the Effective Date of this
Agreement.
6
<PAGE>
4. Operations
Each party shall independently provide its Party Services and be solely
responsible for the manner in which they are carried out.
5. The Strategic Council
The Party Services will be overseen by a Strategic Council composed of
six members. Three members shall be appointed at the sole discretion of each
Party. The actions of the Council shall be governed as provided in Schedule A of
this Agreement.
6. Party Services
Party Services provided by each Party hereunder shall be directed by a
Manager who will be subject to oversight by the Strategic Council. The initial
Manager shall be Errol Martin. Subsequent Managers shall be selected by Octel.
Octel will consult with the Strategic Council about the selection of subsequent
Managers but shall retain the ultimate right to make such selection. The Manager
and the organization reporting to this position as initially set forth in
Schedule B shall be responsible for directing the performance of Party Services.
The staff working under the direction of the Manager shall be initially
organized according to the function chart set forth in Schedule B. The employees
dedicated to providing services under this paragraph of the Agreement shall
remain employees of the respective Parties. The Parties shall be reimbursed in
accordance with the Service Agreement for the cost associated with the
compensation of such employees, including salaries, benefits, costs, expenses
and, if appropriate, recruitment and severance payments for new employees
specifically hired after the Effective Date to fill the vacant positions set
forth in Schedule B. In addition to providing services through the employees set
forth in Schedule B, the Parties shall provide upon request from the Manager and
approval by the Strategic Council, consulting and other services in support of
this Agreement. Octel shall also provide office facilities in the UK.
7
<PAGE>
7. Product
Except as otherwise provided herein or approved by the Council, all
Product marketed pursuant to this Agreement shall be provided by Octel, which
Product shall be of merchantable quality and meet the Product specifications set
forth in the Supply Contract. Other than inventory referred to in Paragraph 8,
Octel shall supply all of the Product requirements for sale to customers for use
in the Territory during the term of or any extension of the Agreement. The
Product cost shall be the applicable Wholesale Price as of the date of timely
invoice to customers.
8. Ethyl Product Inventory
Ethyl will make available for purposes of conducting marketing
activities under this Agreement of Product inventory. Ethyl
warrants that such Product inventory is of merchantable quality and meets the
Product specifications set forth in the Supply Contract. The quantities, grades
and locations of such Product inventories are described in Schedule F to this
Agreement. The Parties agree that the will be used to supply
customers under this Marketing Agreement within after the
Effective Date. It is agreed that title to the Ethyl inventory and the risk of
loss will remain with Ethyl until delivery to customers in the Territory. The
cost to Octel shall be the applicable Wholesale Price as of the invoice date.
9. Distribution Services
Ethyl and Octel shall jointly review the costs of distribution by bulk
and non bulk with the objective of minimizing overall distribution costs within
the Territory, and shall cooperate with each other to reduce the costs of bulk
and non-bulk distribution (including maintenance, decontamination and disposal
of distribution equipment).
a. Bulk Distribution. Octel and Ethyl agree that the Bulk
Distribution Services required to deliver Product to customers
in the Territory shall be provided under the Agreement for
8
<PAGE>
Bulk Transportation for as long as such bulk distribution
services are utilized. Except as otherwise provided in the
aforementioned agreement, all equipment used to provide these
services shall remain the property of Ethyl and Ethyl shall be
responsible for properly maintaining such equipment as well as
decontaminating and disposing of such equipment as required by
law when no longer suitable for use.
b. Non Bulk Distribution Services. Octel and Ethyl agree that
the Non Bulk Distribution Services required to deliver
Product to customers in the Territory shall be provided on
terms set forth in the Service Agreement. All equipment and
facilities used to provide these services shall remain the
property of the Party owning the equipment. Each Party shall
be responsible for decontaminating and disposing of such
equipment as required by law when no longer suitable for
use, except where such equipment is purchased or leased
after the Effective Date for exclusive use in the Territory,
in which case any required decontamination and disposal
thereof shall be provided by Octel under Schedule A, Section
I, Part 2 to the Service Agreement provided such services
are cost competitive with other decontamination services
available at that time and meet the environmental and
responsible care standards of both Parties. All equipment
shall be in good operating condition, fit for the purposes
intended and duly certified. Maintenance services for non
bulk distribution equipment and acquisition or lease of new
equipment for such use shall be pursuant to Schedules A and
B to the Service Agreement. Ethyl shall maintain the
terminals at Houston, Dordrecht and Singapore for as long as
the Ethyl Product Inventory is stored in such terminals and
during such period shall provide terminaling services at
these locations to Octel in support of Product sales upon
the terms and compensation set forth in the Service
Agreement the amount of such compensation to be pre-notified
upon request by Octel. Thereafter, Ethyl shall provide Octel
with the option of purchasing of terminaling services at
such locations upon the terms and compensation set forth in
the Service Agreement, the amount of such compensation to be
pre-notified upon request by Octel, and if Octel declines
such services at any location, then Ethyl shall have the
option of closing the said terminal. Notwithstanding the
9
<PAGE>
above, once the Ethyl Inventory is removed from an Ethyl
storage location, upon ninety (90) days prior written notice
to Octel Ethyl may discontinue providing terminaling
services to Octel at that location.
10. Marketing and Sales Services
All marketing and sales to customers in the Territory pursuant to this
Agreement shall be by and in the name of Octel. Except as otherwise provided in
this Agreement, all orders shall be placed with Octel and Octel shall collect
all proceeds from such sales.
11. Administrative, Logistics and Order Processing Services
Octel and Ethyl agree that the Administrative, Logistics and Order
Processing Services required to market and sell Product pursuant to this
Agreement shall be provided by Octel on terms set forth in the Service
Agreement.
12. Technical Support, Professional Services and Residue Processing and
Disposal Services
Technical support, professional services and residue processing and
disposal services required to support the activities under this Agreement shall
be provided by Octel and Ethyl utilizing where appropriate Octel and Ethyl
personnel on terms set forth in the Service Agreement. The Parties will
investigate alternative arrangements to optimize the cost-effectiveness of
residue processing requirements consistent with environmental acceptability.
Octel shall be responsible for providing legal and accounting services.
13. Agreement Proceeds Calculation
14. Payments
The Parties agree that cash distributions relating to Party Services
shall be made within 15 days following the end of the month to which they relate
and shall be calculated as provided in Schedule G.
10
<PAGE>
Ethyl agrees to submit itself to UK tax jurisdiction and pay applicable
UK tax attributable to funds received pursuant to this Agreement as reportable
earnings of its UK subsidiary. Ethyl will furnish Octel with written
confirmation when such return is filed and payments are made. Ethyl shall also
provide Octel with not less than ninety (90) days advance notice of any actions
or circumstances which may have the effect of removing Ethyl from UK tax
jurisdiction or which may result in an obligation on behalf of Octel to withhold
taxes on behalf of Ethyl.
Octel and Ethyl believe that under current UK law Octel is not required
to withhold taxes from any amounts payable to Ethyl under this Agreement and
accordingly, that all such payments should be made gross of tax. However, if in
the future Octel should reasonably determine that tax withholding on amounts to
be paid to Ethyl is required, then Octel may, after advising Ethyl of the basis
for its determination, effect withholding as appropriate. If, based on Octel's
conclusion that withholding is not legally required, Octel makes payments to
Ethyl without withholding taxes and it is later determined that withholding was
required, Ethyl shall indemnify Octel for any liability Octel suffers from
having failed to withhold such taxes.
Ethyl shall have the right, in good faith, by appropriate proceedings
to contest in Octel's name any withholding taxes which Octel has reasonably
determined are required by law to be made. Octel agrees to cooperate fully with
Ethyl in any way Ethyl may reasonably request in connection with such contest.
Any contest conducted by Ethyl shall be conducted at Ethyl's expense
and in the event of any penalties, interest or late charge with respect to taxes
as a result of such taxes become payable, Ethyl shall reimburse Octel for the
same.
15. Audit and Investigation Rights
Each Party providing services and/or providing Product pursuant to this
Agreement shall prepare and maintain the necessary books and accounting records
11
<PAGE>
as required by good and prudent business practice and generally accepted
accounting principles. Such records shall accurately reflect the cost of the
services and Product provided by the Party. Octel shall cause an annual audit of
the financial reports under this Agreement to be conducted and the cost of such
audit shall be covered under the Service Agreement.
In addition, each Party shall have the right to have an independent
auditor conduct a special examination of, or perform an agreed upon procedures
review ("Audit") in connection with, such records to determine if such records
accurately reflect the financial results of the activities conducted pursuant to
this Agreement (including the Agreement Proceeds Calculation) and that services
and Product provided by the Parties were accurately recorded and the charges for
such services and Product were correct. Such Audit shall be conducted under the
terms of a Confidentiality Agreement and shall be used for the sole purpose of
determining whether an overcharge or undercharge has occurred. Such Audit will
be conducted during normal business hours and shall be at the expense of the
Party requesting the Audit. Only the final report of the auditor's conclusions
will be provided to both Parties. If such Audit reveals a discrepancy in favor
of the Party requesting said Audit, and upon agreement of the other Party, said
discrepancy shall be promptly reimbursed. If the Parties cannot reach agreement
regarding the auditor's report, either Party may exercise its rights under
Paragraph 19 of this Agreement which shall constitute the sole remedy of the
Parties to resolve the matter. Upon resolution of the matter, the successful
Party shall be entitled to interest on the amount owed from the date such sum
was due to the date such sum was paid. Interest shall be calculated at the rate
of LIBOR plus three percent per annum. If the Audit determines that an
overcharge of less than US$100,000 has occurred, the Parties shall divide the
cost of the Audit equally between them. If, pursuant to such an Audit, it is
determined that an overcharge in excess of US$100,000 has occurred to the
detriment of the Party requesting the Audit, then the cost of the Audit shall be
paid by the other Party.
The Parties shall cause an investigation and procedures review of the
Agreement Proceeds and cash distributions for the first three (3) months after
the Effective Date. This shall be conducted by PriceWaterhouseCoopers, with the
cost divided equally between the Parties. If such investigation reveals that the
Agreement Proceeds and payments have not been appropriately calculated and made
in accordance with the terms of the Agreement, then such defects shall be
immediately remedied without penalty to either Party.
12
<PAGE>
16. Term of the Agreement
This Agreement shall become effective as of the Effective Date and
shall continue for an initial term of twelve Contract Years and successive
Contract Years thereafter for so long as Octel, Octel Corp. or its Affiliates
continues to make Product available for sale whether directly or indirectly
provided neither Party invokes its rights under Paragraph 18 of this Agreement.
17. Insurance and Liabilities
a. Each Party shall obtain and maintain during the term of this
Agreement with insurers reasonably acceptable to the other
insurance coverage of the types and minimum limits as set
forth in Schedule H with regard to supplying Product and
performing Party Services pursuant to this Agreement.
b. Each party shall be solely responsible for all costs and
liabilities associated with the termination of existing agency
or distributor relationships in the Territory that are not to
be utilized for the marketing of Product under this Agreement.
c. As to claims between the Parties:
(i) In the event Product supplied by either Octel or
Ethyl for sale to customers within the Territory
fails to be of merchantable quality and meet the
Product specifications set forth in the Supply
Contract, the supplier shall be responsible at its
sole expense for the costs of returning, reprocessing
(including disposal, if necessary) and/or replacement
of such material with Product which is merchantable
and meets the Product specifications of the Supply
Contract at its sole expense.
(ii) Each Party shall perform Party Services in a safe,
13
<PAGE>
professional, cost-effective manner in accordance
with industry standards and the requirements of the
Strategic Council. In the event a Party performs
services and such services are improperly or
negligently performed, the supplier of the services
as its sole liability in respect of such failure
shall not be entitled to the relevant service fee as
set forth in Section I of Schedules A and B of the
Service Agreement in respect of such unsatisfactory
services.
(iii) Without prejudice to subparagraphs (c)(i) and (c)(ii)
above, there shall be no claims made by either Party
against the other in providing Product and/or
rendering Party Services pursuant to this Agreement
for any direct, indirect or consequential loss
(including lost profits) as a result of noncompliance
irrespective of the cause or reason unless such loss
or damage arises as a direct result of a deliberate
act or omission of a Party with the intent of causing
economic loss to the other Party, a material breach
of or a willful refusal of a Party to comply with the
terms of this Agreement.
d.
18. Termination
This Agreement is terminable under the following circumstances:
a. The Agreement is terminable at any time by mutual agreement
in writing of the parties.
b. Provided such information is not confidential, each Party
shall give not less than thirty (30) days notice of a possible
Change of Control. In any event, each Party shall notify the
other immediately following a Change of Control. Upon a Change
of Control, the other Party may terminate this Agreement by
giving written notice and by tendering the Termination Fee in
cash within thirty (30) days of the determination of
Termination Fee.
14
<PAGE>
c. Either Party may terminate this Agreement upon the expiration
of the twelfth (12th) Contract Year by providing written
notice (180) days prior to expiration of the twelfth (12th)
Contract Year, or successive Contract Years, and making a
payment to the non-terminating party in an amount equal to the
Termination Fee within thirty (30) days of determination of
the Termination Fee. Giving notice and then failing to make
the Termination Fee payment to the other Party under 18(c)
herein shall preclude the Party giving notice from serving
another notice of Termination within two (2) years from the
date of the original notice.
d. Upon termination of this Agreement pursuant to (b) and (c)
above, the Party receiving the Termination Fee shall not
within a period of three (3) years engage in the sale of
Product in the Territory.
e. In the event of termination of this Agreement under (b) or (c)
above by reason of the purchase by Octel of Ethyl's interest
in this Agreement, Octel shall only have an obligation under
the Supply Contract to supply such quantities of Product as
Ethyl shall require for the servicing of the European Economic
Area.
f. If neither Party terminates this Agreement pursuant to this
provision as provided in the provisions of (b) and (c) above,
the Agreement shall continue in full force and effect for
successive Contract Years thereafter as provided in Paragraph
16.
g. The Termination Fee shall be determined as follows:
19. Disputes
Except as otherwise provided herein, any dispute between the Parties
with respect to this Agreement or matters upon which the Strategic Council
cannot agree and an impasse is reached shall be resolved in accordance with the
dispute resolution procedure set forth in Schedule E.
15
<PAGE>
20. Contingencies
Neither Octel nor Ethyl shall be liable for failure to perform its
obligations as required under this Agreement where such failure to perform is
caused by an event or circumstance beyond the reasonable control of the Party
affected thereby ("Force Majeure Event"). Without limiting the generality of the
forgoing, a Force Majeure Event may include fire, storm, flood, act of God, war,
explosion, sabotage, strike or other labor trouble, shortage of fuel and or raw
material, embargo, car/wagon shortages, accident, expropriation of plant or
equipment, shortage of Product and or raw materials caused in whole or in part
by any governmental authority, inability to secure machinery and or other
equipment or energy or raw materials for the manufacture, transport or
distribution of Products, inability to obtain vessel or cargo insurance at
reasonable cost due to war, revolution or civil interest, or acts or threats of
action by any government or any agency thereof or any other event or
circumstance beyond the reasonable control of either Party. No event or
circumstance shall serve to excuse an obligation to perform hereunder if such
event could have been prevented through exercise of reasonable diligence. A
Party claiming the benefit of this provision shall provide written notice of the
Force Majeure Event to the other and take all reasonable steps to cure the
problem causing the inability to perform such required service.
21. Waiver
Failure of either party to insist in any instance on the strict
performance of any term, provision or condition of this Agreement or to exercise
any option herein contained shall not be construed as a waiver of such term,
provision, condition or option in any other instance.
22. Assignment
The rights and obligations of the Parties hereunder shall not be
assigned or transferred without the prior written consent of the other, such
consent not to be unreasonably withheld. The foregoing notwithstanding, either
Party may, without the consent of the other, assign all or part of its rights
under this Agreement to an Affiliate of the assignor or to another party in
connection with its merger or transfer to such other party of substantially all
of its assets or of the business or assets to which this Agreement pertains.
16
<PAGE>
Nothing herein shall restrict any corporate reorganization by a Party that does
not constitute a Change of Control.
23. Notices
Notice to either Party under any provision of this Agreement shall be
deemed good and sufficient if (i) delivered in writing in person, (ii) sent by
facsimile to the other Party with confirmation of receipt of transmission and
promptly confirmed by air mail or (iii) delivered by commercial courier to the
address of such party noted below or such other address as such Party has
directed in a signed writing. Notice shall be effective on the date delivered in
person, sent by facsimile or delivered by commercial courier, whichever is
applicable.
Address for notices:
If to Octel:
The Associated Octel Company Limited
P.O. Box 17
Oil Sites Road
Ellesmere Port
South Wirral, L65 4HF United Kingdom
Attn: Dennis Kerrison, Managing Director
Copy to: Graham Leathes, Corporate Secretary and General Counsel
Facsimile: 0151-350-6976
If to Ethyl:
Ethyl Corporation
330 South Fourth Street
Richmond, Virginia 23219
Attn: Newton A. Perry
Senior Vice President
Refinery Chemicals
Copy to: Vice President & General Counsel
Facsimile: (804) 788-5519
17
<PAGE>
24. Miscellaneous
a. This Agreement constitutes the entire agreement of the
Parties. No change or modification shall be effected except by
a writing agreeing to the modification or change executed by a
duly authorized officer of each Party.
b. Upon the Effective Date of this Agreement, the Supply
Contract shall be amended and modified in accordance with
the terms of this Agreement to the extent of the obligations
of each Party relating to Product sold and or delivered to
customers in the Territory as provided for in this
Agreement, except for any payments for services or products
delivered under such agreements prior to the date of this
Agreement for which payments have not been made. The Bulk
Distribution Agreement and the Sludge Services Agreement
shall remain in full force and effect without modification.
If terms of this Agreement and/or the Service Agreement are
found by a court of competent jurisdiction to be unlawful,
unenforceable and/or legally nonbinding on either Party, the
Parties agree that such terms shall not affect the validity
of the remainder of these agreements and the Parties agree
to substitute terms in these agreements as near to the
intent of the invalid or unenforceable provision as is
legally permissible. The Parties shall negotiate in good
faith to make such changes in the agreements as shall most
nearly preserve the overall commercial intention of the
Parties in entering into these agreements. If either of the
aforesaid agreements are found to be totally invalid or
unenforceable, or this Agreement or the Service Agreement is
materially breached by either Party and such breach is not
resolved as provided by the terms of this Agreement, then
the provisions of the above described agreement which by
this paragraph have been amended shall be reinstated and
said agreement shall continue in full force and effect until
expiration or termination in accordance with the specific
terms of the agreement. The rights described
above are in addition to any rights the Parties may have
relative to each other or any third party.
18
<PAGE>
c. Recognizing that Octel and Ethyl shall continue to compete
vigorously in the marketing and sale of Product in North
America and the European Economic Area under no circumstances
shall the Parties discuss with one another (or provide one
another with any information) concerning prices to customers,
terms of supply, and other competitive information of the lead
antiknock compound market in such areas.
d. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Virginia,
U.S.A. without regard to the conflict of laws and principles
thereof.
e. The terms of this Agreement shall be regarded by the Parties
as confidential and shall not be disclosed by either Party
publicly or to third parties without the written consent of
the other Party, provided however that disclosure may be made
if required by law or compliance with regulatory requirements.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed effective as of the date first above written by their duly authorized
representatives.
THE ASSOCIATED OCTEL COMPANY LIMITED
By: ______________________________________
Title: ____________________________________
ETHYL CORPORATION
By: ______________________________________
Title: ____________________________________
19
<PAGE>
SCHEDULE A
Strategic Council Rules and Procedures
Council Membership - The Council shall be composed of six (6) members. Each
Party shall in its sole discretion appoint three (3) members to serve as its
representatives on the Council. Each party shall have the right to appoint a new
representative to replace a position on the Council previously appointed by that
Party which becomes vacant for any reason. Each Party may in its sole discretion
remove and/or appoint a substitute representative to a Council position
appointed by that Party. The appointment shall be effective upon delivery of
written notice to the other Party and members of the Council of such
appointment.
20
<PAGE>
SCHEDULE B
Function Chart
PERSONNEL FUNCTION
Octel Assigned
W E Martin Lead Alkyl Sales & Marketing
Director
J P D Walker Regional Director - Far East
J Grafstrom Lead Alkyls Personnel Assistant
J R Bain Distribution Projects Manager
A M Bilimoria Business Accountant
J T Braconnier Planning Coordinator
A A Thompson Refinery Economist
M J Lee Secretary
Management Accountant (EP) Management Accountant
Credit Controller (EP) Credit Controller
Ethyl Assigned
A Conn Marketing Director
P Stephanides Regional Director - Middle East
/West Africa
R Martinez Regional Director - South
America
Octel Allocated
Regional Director - North
Africa/Eastern Europe
A Pacquement
21
<PAGE>
SCHEDULE C
AGREEMENT PROCEEDS CALCULATION
22
<PAGE>
SCHEDULE D
SERVICE AGREEMENT
This Service Agreement, made as of this 1st day of October 1998, by and
between The Associated Octel Company Limited, a corporation organized under the
laws of England, on behalf of itself and its Affiliates (collectively, "Octel"),
and Ethyl Corporation, a corporation organized under the laws of the
Commonwealth of Virginia USA, on behalf of itself and its Affiliates
(collectively, "Ethyl"), is entered into in connection with the Antiknock
Marketing and Sales Agreement dated as of October 1, 1998, between the
aforementioned parties. The Services Agreement dated the 29th day of September
between the aforementioned parties is superceded by this Service Agreement.
WHEREAS, governmental authorities in countries around the world have
promulgated laws and regulations which have effectively banned or severely
limited the amount of lead antiknock compounds ("AK") which can be used in motor
oils;
WHEREAS, said governmental authorities have continued to take actions
and plan to take additional measures in the future to further reduce the amount
of AK currently used in motor fuels;
WHEREAS, because these actions have accelerated the reduction of demand
for AK, the product life has been significantly reduced as a useful additive in
motor fuel;
WHEREAS, as a result of these actions and other factors, it has and
will continue to become increasingly more expensive and inefficient to safely
market, sell and distribute the ever-decreasing amount of AK throughout the
world as this product reaches the end of its life cycle;
WHEREAS, because of these factors, Octel and Ethyl have entered into a
Marketing Agreement in order to capture significant cost savings and
efficiencies in marketing and selling AK in certain areas of the world as the
demand for AK continues to decline;
WHEREAS, in order to reduce duplicative and redundant service
capability and to capture resultant cost synergies and benefits, it is necessary
for Octel and Ethyl to provide certain services in support of activities
described in the Marketing Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows.
1. Definitions
Administrative, Logistics and Order Processing Services shall mean the
services set forth in Section I of Schedule A.
23
<PAGE>
Affiliates shall mean any entity controlling, controlled by or under
common control with that Party and any entity which succeeds to that
portion of the business or ownership of the assets of that Party to
which this Agreement pertains.
Agreement shall mean this Service Agreement.
Contract Year shall mean the period beginning on the Effective Date and
ending December 31, 1998, and each calendar year thereafter during the
term of this Agreement.
Embargoed Countries shall mean any country or countries that is
subject to sanctions imposed by the United States government
pursuant to the Trading With the Enemy Act (50 App. U.S.C.A. ss.1)
or The International Emergency Economic Powers Act (50 U.S.C.A.
ss.1701).
Ethyl shall mean Ethyl Corporation and its Affiliates.
Ethyl Services shall mean the services provided by Ethyl set forth in
Schedule B.
European Economic Area shall mean those countries that are members of
the European Economic Area.
Marketing Agreement shall mean Antiknock Marketing and Sales Agreement
on even date between Octel and Ethyl.
Non-Bulk Distribution Services shall mean the services set forth in
Section I of Schedule A and Schedule B.
North America shall mean the countries of Canada and the United States
of America.
Octel shall mean The Associated Octel Company Limited and its
Affiliates.
Octel Services shall mean the services provided by Octel as set forth
in Schedule A.
Parties shall mean Ethyl and Octel.
Product shall mean AK compound(s) made available for sale, marketed
and/or sold, directly or indirectly, to customers for use in the
Territory by Octel, Octel Corp. or its Affiliates which shall include
all of the AK compounds currently made available for sale by Octel and
any new or modified products made available for sale, marketed and/or
sold, directly or indirectly, by Octel, Octel Corp. or its Affiliates
during the term of this Agreement or any extensions thereof.
Residue Processing and Disposal Services shall mean the services
provided by Octel as set forth in Section I of Schedule A and the
services provided by Ethyl as set forth in Section I of Schedule B as
applicable.
24
<PAGE>
Service(s) shall mean the service(s) set forth in Schedules A and B
attached hereto.
Technical Support and Professional Services shall mean the services
provided by Octel and/or Ethyl as set forth in Section I of Schedule A
and Schedule B.
Territory shall mean all of the countries and regions of the world,
other than, and specifically excluding North America, the European
Economic Area and Embargoed Counties.
United States shall mean the 50 states of the United States of America
and all possessions and territories of the United States including
Puerto Rico and the U.S. Virgin Islands.
2. Services
The Parties agree that in order to capture the cost synergies and
efficiencies that will be generated by implementing the Marketing
Agreement that the Services provided by the Parties pursuant to this
Agreement be rendered in an efficient and cost-effective manner. Each
Party agrees that it will continue to examine and implement methods of
reducing cost in providing these Services during the term of this
Agreement.
a. Octel Services. The description of the Services to be rendered
by Octel pursuant to this Agreement are set forth in Schedule
A attached hereto and made a part hereof. Each of the Octel
Services shall be rendered by Octel or by an Affiliate of
Octel.
b. Ethyl Services. The description of the Services to be rendered
by Ethyl pursuant to this Agreement are set forth in Schedule
B attached hereto and made a part hereof. Each of the Ethyl
Services shall be rendered by Ethyl or by an Affiliate of
Ethyl.
3. Service Fees
Ethyl and Octel agree that out of proceeds collected by Octel pursuant
to the Marketing Agreement that Octel and Ethyl shall be compensated
for Octel Services and Ethyl Services rendered by each Party in
accordance with the Service Fees set forth in Schedules A and B
attached hereto.
4. Payment of Service Fees
Each Party shall invoice monthly for Services rendered pursuant to this
Agreement and payment shall be made to Ethyl in accordance with
Paragraph 14 of the Marketing Agreement.
5. Contingencies
Paragraph 20 of the Marketing Agreement is hereby incorporated by
reference.
6. Audit Rights
Paragraph 15 of the Marketing Agreement is hereby incorporated by
reference.
25
<PAGE>
7. Disputes
Any dispute between the Parties regarding the performance of the
Services provided under the terms of this Agreement shall be resolved
as set forth in Schedule E of the Marketing Agreement.
8. Term of Agreement
This Agreement shall become effective as of the date of the Marketing
Agreement and shall remain in effect for the duration of the Marketing
Agreement. Upon termination or expiration of the Marketing Agreement,
this Agreement shall automatically terminate on the effective date of
such termination or expiration. Any payments that are due to each Party
for services rendered prior to the termination date shall be promptly
paid.
9. Waiver
Failure of either party to insist in any instance on the strict
performance of any term, provision or condition of this Agreement or to
exercise any option herein contained shall not be construed as a waiver
of such term, provision, condition or option in any other instance.
10. Assignment
The rights and obligations of the Parties hereunder shall not be
assigned or transferred without the prior written consent of the other,
such consent not to be unreasonably withheld. The foregoing
notwithstanding, either Party may, without the consent of the other,
assign all or part of its rights under this Agreement to an Affiliate
of the assignor or to another party in connection with its merger or
transfer to such other party of substantially all of its assets or of
the business or assets to which this Agreement pertains. Subcontracting
of health, safety or environmental issues shall be in accordance with
the policy agreed upon by the Strategic Council.
11. Notices
Notice to either Party under any provision of this Agreement shall be
deemed good and sufficient if (i) delivered in writing in person, (ii)
sent by facsimile to the other Party with confirmation of receipt of
transmission and promptly confirmed by air mail or (iii) delivered by
commercial courier to the address of such party noted below or such
other address as such Party has directed in a signed writing. Notice
shall be effective on the date delivered in person, sent by facsimile
or delivered by commercial courier whichever is applicable.
26
<PAGE>
Address for notices:
If to Octel:
The Associated Octel Company Limited
P.O. Box 17
Oil Sites Road
Ellesmere Port
South Wirral, United Kingdom L65 4HF
Attn: Dennis Kerrison, Managing Director
Fax No.: 44-151-350-6976
Copy to: Corporate Secretary & General Counsel
If to Ethyl:
Ethyl Corporation
330 South Fourth Street
Richmond, Virginia 23219
Attn: Newton A. Perry
Senior Vice President
Refinery Chemicals
Fax No.: 804-788-5109
Copy to: Vice President & General Counsel
12. Confidentiality
Except as to information required to be disclosed to (i) comply with
law or (ii) effectively perform the Services required by this
Agreement, the Parties agree that all information regarding such
services shall remain confidential and shall not be disclosed to third
parties without the prior written consent of the other Party.
13. Miscellaneous
a. This Agreement constitutes the entire agreement of the Parties
concerning the Services provided pursuant to this Agreement.
No change or modification shall be effected except by a
writing executed by a duly authorized officer of each Party.
b. Recognizing that Octel and Ethyl shall continue to compete
vigorously in the marketing and sale of Product in North
America and the European Economic Area, under no circumstances
shall the Parties discuss with one another (or provide one
another with any information) concerning any aspect of the
lead antiknock compound market in these areas including,
without limitation, market prices or customers in these
markets.
c. In providing the Services, Ethyl and Octel are each operating
in the capacity of an independent contractor and not the
agent, employee, partner or representative of the other.
27
<PAGE>
d. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Virginia,
U.S.A. without regard to the conflict of laws and principles
thereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed effective as of the date set forth in the first paragraph of this
Agreement.
THE ASSOCIATED OCTEL COMPANY LIMITED
By: ______________________________________
Title: ____________________________________
ETHYL CORPORATION
By: ______________________________________
Title: ____________________________________
28
<PAGE>
SCHEDULE A TO THE SERVICE AGREEMENT
OCTEL SERVICES
29
<PAGE>
SCHEDULE B TO THE SERVICE AGREEMENT
ETHYL SERVICES
30
<PAGE>
SCHEDULE E
DISPUTE RESOLUTION PROCEDURE
1. Resolution of Legal Disputes.
With the exception of disputes arising out of a deadlock in the vote of
the Strategic Council concerning a business issue within the Council's
authority, any dispute, controversy or claim arising out of or relating to this
Agreement, shall be finally determined by arbitration in accordance with the
Rules of Arbitration of the London Court of International Arbitration (LCIA), in
London England, provided that the Parties have been unable to reach a
satisfactory resolution through negotiation and mediation under the procedures
set forth below.
1.1 Negotiation.
Before proceeding to mediation or arbitration, the Parties
shall attempt in good faith to resolve any such dispute promptly by
negotiation between senior executives of the respective Parties. Within
25 days of the delivery by one Party to the other of a written notice
of a dispute, controversy or claim, the receiving Party shall submit to
the claiming Party a written response. The notice and response shall
include: (1) a short statement of each Party's position and a summary
of reasons supporting that position, and (2) the name and position of
the executive who will represent the Party and any other person who
will accompany the executive in negotiations and include a schedule of
the availability of said executive. Within 45 days after delivery of
the notice of dispute, the senior executives of both Parties shall meet
at a mutually agreeable time and place, and thereafter for so long as
they mutually agree, for negotiations in an attempt to resolve the
dispute through agreement. All negotiations pursuant to this clause
will be treated as confidential and shall be treated as compromise and
settlement discussions for purposes of applicable rules of
confidentiality, evidence and professional secrecy.
1.2 Mediation.
Either Party may request the services of a mediator to aid the
senior executives in resolving the dispute. Unless the Parties
otherwise agree, the selection of a mediator shall be made by the
Centre for Dispute Resolution (CEDR) in London, England and CEDR
procedures shall govern the mediation. The Parties and the mediator
shall meet within 20 days after the date that the mediator is appointed
to begin settlement discussions with the assistance of the mediator.
The mediation process shall continue thereafter as long as both Parties
agree.
31
<PAGE>
1.3 Arbitration.
If the Parties have been unsuccessful in resolving a dispute
under this section through negotiation, either Party may commence
binding arbitration of such dispute in accordance with the Rules of the
London Court of International Arbitration ("LCIA") as follows:
1.3.1 Unless the Parties agree on a single arbitrator, the
arbitral tribunal shall consist of three members, each Party
shall select one arbitrator and the LCIA shall select the
third arbitrator who shall be knowledgeable concerning the
subject matter of the dispute. Each Party may submit to the
LCIA for its consideration in making the selection of the
third arbitrator the qualifications, knowledge and experience
that the Party requests to be considered in said appointment.
1.3.2 The place of the arbitration shall be London England.
1.3.3 The language of the arbitration shall be English.
1.3.4 The arbitral tribunal shall have the authority to award
all forms of relief determined to be just and equitable;
provided, however, that the tribunal shall have no authority
to award punitive or exemplary damages, or any other damages
not measured by the prevailing Party's actual damages.
1.3.5 Any arbitral award entered by the tribunal shall be
final and binding on the Parties and may be enforced in any
court of competent jurisdiction.
2. Resolution of Strategic Council Deadlock.
Where there is a deadlock in the vote of the Strategic Council by
reason of a tie vote among its members concerning a business issue within its
authority, any member of the Council who has voted on the issue may initiate the
following dispute resolution procedures:
2.1 Unless otherwise agreed by a majority of the Council, the
deadlocked issue shall be first be raised and discussed at a special
meeting of the Council called within thirty (30) days in an attempt to
resolve the deadlock through negotiation satisfactory to a majority of
all of the members of the Council.
2.2 If the Council vote on the issue remains deadlocked after
discussion and negotiation at the second meeting of the Strategic
Council, either Party may request the services of a mediator to aid the
Parties in resolving the deadlocked issue. Should there be no agreement
on the identification of a suitable mediator, the appointing authority
for selection of a mediator shall be made by the Centre for Dispute
Resolution (CEDR) after consultation with each Party as to the
qualifications, knowledge and experience that a mediator should have.
Within forty-five (45) days from the second Council meeting, the
32
<PAGE>
members of the Strategic Council shall meet with the assistance of the
mediator and, under CEDR procedures, seek to resolve the dispute in a
way which is satisfactory to a majority of all the members of the
Council. These mediation meetings shall be confidential and shall last
for so long as a majority of the Council determines that such meetings
are be helpful in resolving the business dispute.
2.3 If such issue remains deadlocked after undergoing the mediation
process described in 2.2 above, the issue shall be finally resolved by
binding arbitration as follows:
2.3.1 Resolution of such issue shall be referred to
arbitration in London England under the Rules of Arbitration
of the LCIA.
2.3.2 Unless the Parties agree on a single arbitrator, the
arbitral tribunal shall consist of three members, each Party
to select one arbitrator and the two arbitrators to select the
third arbitrator who will serve as Chairman. In the event that
the two arbitrators are unable to agree on the appointment of
the third arbitrator, the appointment shall be made in
accordance with the LCIA Rules. The Chairman need not be a
lawyer but should be knowledgeable concerning the business
issue which has resulted in a deadlock. Each Party may submit
to the LCIA for its consideration in making the selection of
the third arbitrator the qualifications, knowledge and
experience that the Party requests to be considered in said
appointment.
2.3.3 As part of its final submission to the arbitral
tribunal, each Party shall make a specific proposal to resolve
the business issue that is the subject of the arbitration. The
power of the arbitral tribunal to render an award shall be
limited to adopting one of the specific proposals submitted by
the Parties.
2.3.4 The position adopted by the arbitral tribunal shall be
accepted as the action of the Strategic Council under the
Agreement.
2.3.5 In arriving at its award the arbitral tribunal shall
take into account the following factors:
2.3.5.1
2.3.5.2 The ultimate goal of the Parties is to
operate under this Agreement in a way which maximizes
long-term profitability for both Parties in marketing
Product to customers in the Territory.
2.3.5.3 The goal of the Parties is to reduce the
overall costs of providing services under this
Agreement in safely and efficiently marketing and
distributing Product in the Territory.
33
<PAGE>
3. Time Is of the Essence
Each Party agrees that time is of the essence in resolving legal
disputes and Strategic Council deadlocks. Each Party shall fully cooperate to
avoid unnecessary delay in reaching resolution of these matters. Neither Party
shall be required to post security by way of a bank guarantee or other
collateral to initiate a resolution of a dispute under the provisions of this
Dispute Resolution Procedure other than for the administrative costs of
proceeding with the dispute resolution process.
34
<PAGE>
SCHEDULE F
ETHYL AVAILABLE INVENTORY
35
<PAGE>
SCHEDULE G
WORKING CAPITAL
36
<PAGE>
SCHEDULE H
INSURANCE
1. Insurance of Employees and Facilities
a. Octel will effect, and at all times maintain during the term
of this Agreement and for so long as any Liabilities may arise
thereunder, Employers Liability Insurance to a minimum level
required by applicable law, and in any event in an amount of
not less than per occurrence and where applicable
Workmans Compensation Act Insurance in respect of each
employee provided by Octel who performs any duties in
connection with this Agreement.
b. Ethyl will effect, and at all times maintain during the term
of this Agreement and for so long as any Liabilities may arise
thereunder, Employers Liability Insurance to a minimum level
required by applicable law, and in any event in an amount of
not less than per occurrence and where applicable
Workmans Compensation Act Insurance in respect of each
employee provided by Ethyl who performs any duties in
connection with this Agreement.
c. Octel will effect and at all times maintain during the term of
this Agreement All Risks (including Flood, Quake and
Engineering Risks) Property Damage Coverage with the property
valued at Full Replacement Cost on the Product manufacturing
and related facilities at Ellesmere Port.
d. Ethyl will effect and at all times maintain during the term of
this Agreement All Risks (including Flood, Quake and
Engineering Risks) Property Damage Coverage with the property
valued at Full Replacement Cost on the Houston, Texas,
Dordrecht, Netherlands and Singapore AK Terminal Facilities.
2. Public and Product Liability
Octel and Ethyl will each effect and at all times maintain during the
term of this Agreement, Public and Product Liability insurance in an
aggregate amount of (with a deductible amount as agreed between the
Parties from time to time) with respect to any Liabilities for which
the Parties are responsible as provided in Paragraph 17(d)(i), (ii),
(iii), (iv) and (v) of this Agreement. Each Party shall name the other
Party as an additional insured under such insurance.
3. Cargo Insurance
37
<PAGE>
Octel shall effect in the joint names of Octel and Ethyl, and at all
times maintain during the term of this Agreement on mutually agreed
terms and conditions, Bulk and Non-Bulk Cargo Insurance to cover
shipments of Product to customers in the Territory pursuant to this
Agreement. Non-Bulk insurance shall be placed on a CIF plus 10% plus
value of containers basis. Bulk insurance shall be placed on a FOB
value plus10%, plus value of containers where applicable. Any
deductible under such policies shall be borne by the Parties in the
proportions set forth in Section II, Part 1 of Schedules A and B to the
Service Agreement (irrespective of the cause or reason that the Losses
may have arisen and the fault of either Party in relation thereto).
4. Contingent Non-Bulk Marine Cargo Liability
Octel shall effect in the joint names of Octel and Ethyl, and at all
times maintain during the term of this Agreement on mutually agreed
terms and conditions, Contingent Non-Bulk Marine Cargo Insurance to
cover Non-Bulk shipments of AK to customers in the Territory pursuant
to this Agreement to an amount on conditions to be determined by Octel.
Any deductible under such policy shall be borne by the Parties in the
proportions set forth in Section II, Part 1 of Schedules A and B to the
Service Agreement (irrespective of the cause or reason that the Losses
may have arisen and the fault of either Party in relation thereto).
5. Insurance Costs
The portion of the cost of all insurance relating to Agreement
Activities pursuant to Paragraphs 3 and 4 of this Schedule shall be
included as an expense under Section 1, Part 2 of Schedule A of the
Services Agreement .
6. Additional Insurance
38
<PAGE>
SCHEDULE I
METHODS AND PRINCIPLES FOR CALCULATION
OF THE TERMINATION FEE
39
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 11265
<SECURITIES> 0
<RECEIVABLES> 168419
<ALLOWANCES> 1847
<INVENTORY> 207690
<CURRENT-ASSETS> 408609
<PP&E> 779191
<DEPRECIATION> 394039
<TOTAL-ASSETS> 1078382
<CURRENT-LIABILITIES> 185879
<BONDS> 555637
<COMMON> 83465
0
0
<OTHER-SE> 98988
<TOTAL-LIABILITY-AND-EQUITY> 1078382
<SALES> 756466
<TOTAL-REVENUES> 756466
<CGS> 550775
<TOTAL-COSTS> 653926
<OTHER-EXPENSES> (22750)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30754
<INCOME-PRETAX> 94536
<INCOME-TAX> 33879
<INCOME-CONTINUING> 60657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60657
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
