NL INDUSTRIES INC
10-K405, 1997-03-21
INDUSTRIAL INORGANIC CHEMICALS
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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K

|X|   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 - For the fiscal year ended December 31, 1996

                                      OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                         Commission file number 1-640

                               NL INDUSTRIES, INC.
            (Exact name of registrant as specified in its charter)

          New Jersey                                             13-5267260
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                             Identification No.)

16825 Northchase Drive, Suite 1200, Houston, Texas               77060-2544
    (Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code:            (281) 423-3300
                                                            
Securities registered pursuant to Section 12(b) of the Act:

                                                Name of each exchange on
   Title of each class                              which registered

Common stock ($.125 par value)                  New York Stock Exchange
                                                Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None.

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,  and (2) has been subject to such filing  requirements
for the past 90 days. Yes X        No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

As of March 20, 1997,  51,144,014 shares of common stock were  outstanding.  The
aggregate  market  value  of the  13,662,324  shares  of  voting  stock  held by
nonaffiliates as of such date approximated $149 million.

                     Documents incorporated by reference:

The  information  required by Part III is  incorporated  by  reference  from the
registrant's  definitive  proxy  statement to be filed with the  Securities  and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.


<PAGE>



Forward-Looking Information.

      The  statements  contained  in this  Annual  Report on Form 10-K  ("Annual
Report")  which  are  not  historical  facts,  including,  but not  limited  to,
statements found (i) under the captions "Kronos-Industry,"  "Kronos-Products and
operations,"     "Kronos-Manufacturing     process    and    raw     materials,"
"Kronos-Competition,"   "Rheox-Products  and  operations,"  "Rheox-Manufacturing
process and raw materials," "Patents and Trademarks,"  "Foreign Operations," and
"Regulatory and Environmental  Matters," all contained in Item 1. Business, (ii)
under the captions  "Lead pigment  litigation"  and  "Environmental  matters and
litigation,"  both contained in Item 3. Legal  Proceedings,  and (iii) under the
captions  "Results of Operations"  and "Liquidity and Capital  Resources,"  both
contained in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations,  are forward-looking statements that involve a number
of risks and uncertainties. The actual results of the future events described in
such  forward-looking  statements in this Annual Report could differ  materially
from those  stated in such  forward-looking  statements.  Among the factors that
could cause actual results to differ  materially are the risks and uncertainties
discussed in this Annual Report,  including,  without  limitation,  the portions
referenced  above,  and the  uncertainties  set  forth  from time to time in the
Company's filings with the Securities and Exchange  Committee,  and other public
statements.



<PAGE>



                                    PART I

ITEM 1.     BUSINESS

General

      NL  Industries,  Inc.,  organized  as a New  Jersey  corporation  in 1891,
conducts its operations through its principal wholly-owned subsidiaries, Kronos,
Inc. and Rheox,  Inc. Valhi,  Inc. and Tremont  Corporation,  each affiliates of
Contran Corporation,  hold 56% and 18%, respectively, of NL's outstanding common
stock.  Contran holds,  directly or through  subsidiaries,  approximately 91% of
Valhi's and 44% of Tremont's  outstanding  common  stock.  Substantially  all of
Contran's outstanding voting stock is held by trusts established for the benefit
of the children and  grandchildren  of Harold C. Simmons of which Mr. Simmons is
the sole trustee.  Mr. Simmons, the Chairman of the Board of NL and the Chairman
of the Board, President and Chief Executive Officer of each of Contran and Valhi
and a director of Tremont,  may be deemed to control each of such companies.  NL
and its consolidated  subsidiaries are sometimes referred to herein collectively
as the "Company."

      Kronos is the world's fourth largest producer of titanium dioxide pigments
("TiO2")  with an estimated  11% share of  worldwide  TiO2 sales volume in 1996.
Approximately  one-half of Kronos' 1996 sales volume was in Europe, where Kronos
is the second largest producer of TiO2. In 1996, Kronos accounted for 86% of the
Company's  sales and 63% of its operating  income.  Rheox is the world's largest
producer of rheological additives for solvent-based systems.

      The Company's  objective is to maximize total  shareholder  returns by (i)
focusing on continued  cost control,  (ii)  investing in certain cost  effective
debottlenecking  projects to increase TiO2 production capacity and productivity,
and (iii) deleveraging as excess liquidity becomes available.

Kronos

  Industry

      Titanium  dioxide  pigments  are  chemical  products  used  for  imparting
whiteness, brightness and opacity to a wide range of products, including paints,
plastics,   paper,   fibers  and   ceramics.   TiO2  is   considered   to  be  a
"quality-of-life"  product with demand affected by the gross domestic product in
various regions of the world.

      Demand,  supply and  pricing  within the TiO2  industry is  cyclical,  and
changes in industry economic  conditions can significantly  impact the Company's
earnings and operating cash flow. The Company's average TiO2 selling prices have
been  declining  since the last half of 1995,  which  followed an upturn in TiO2
prices that began in the third quarter of 1993. The Company  expects TiO2 prices
will  begin to  increase  during  the  second  quarter  of 1997 as the impact of
recently-announced  price  increases  begin to take  effect.  Despite the recent
decline in TiO2 average  selling prices,  industry-wide  demand for TiO2 grew in
1996, and Kronos' record 1996 sales volume was about 6% higher than 1995. The

                                    -1-

<PAGE>



Company's expectations as to the future prospects of the TiO2 industry are based
upon  several  factors  beyond  the  Company's  control,  principally  continued
worldwide  growth of gross  domestic  product and the  absence of  technological
advancements in or modifications to TiO2 processes that would result in material
and  unanticipated  increases  in  production  efficiencies.  To the extent that
actual  developments differ from the Company's  expectations,  the Company's and
the TiO2 industry's future performance could be unfavorably affected.

      Kronos has an  estimated  18% share of European  TiO2 sales  volume and an
estimated 12% share of North American TiO2 sales volume.  Consumption per capita
in the United  States and Western  Europe far exceeds that in other areas of the
world and these regions are expected to continue to be the largest  consumers of
TiO2. A significant market for TiO2 could emerge in Eastern Europe, the Far East
and  China if the  economies  in these  countries  develop  to the  point  where
quality-of-life products, including TiO2, are in greater demand. Kronos believes
that, due to its strong  presence in Western  Europe,  it is well  positioned to
participate  in  growth  in the  Eastern  European  market.  Geographic  segment
information is contained in Note 3 to the Consolidated Financial Statements.

  Products and operations

      The Company  believes  that there are no effective  substitutes  for TiO2.
However,  extenders  such as  kaolin  clays,  calcium  carbonate  and  polymeric
opacifiers  are used in a number of Kronos'  markets.  Generally,  extenders are
used to reduce to some extent the  utilization  of higher cost TiO2.  The use of
extenders has not  significantly  affected TiO2 consumption over the past decade
because  extenders  generally  have,  to date,  failed to match the  performance
characteristics of TiO2. The Company believes that the use of extenders will not
materially alter the growth of the TiO2 business in the foreseeable future.

      Kronos  currently  produces over 40 different TiO2 grades,  sold under the
Kronos and Titanox trademarks, which provide a variety of performance properties
to meet  customers'  specific  requirements.  Kronos'  major  customers  include
domestic and international paint, plastics and paper manufacturers.

      Kronos is one of the world's  leading  producers  and  marketers  of TiO2.
Kronos and its distributors and agents sell and provide  technical  services for
its  products to over 4,000  customers  with the majority of sales in Europe and
North America.  Kronos'  international  operations are conducted  through Kronos
International,  Inc., a  Germany-based  holding company formed in 1989 to manage
and  coordinate  the  Company's  manufacturing  operations  in Germany,  Canada,
Belgium and Norway, and its sales and marketing activities in over 100 countries
worldwide.  Kronos and its predecessors have produced and marketed TiO2 in North
America and Europe for over 70 years.  As a result,  Kronos believes that it has
developed  considerable  expertise  and  efficiency  in the  manufacture,  sale,
shipment and service of its products in domestic and international  markets.  By
volume,  approximately  one-half of Kronos' 1996 TiO2 sales were to Europe, with
37% to North America and the balance to export markets.

      Kronos is also  engaged  in the  mining  and sale of  ilmenite  ore (a raw
material used in the sulfate pigment  production  process),  and the manufacture
and sale of iron-based  water treatment  chemicals  (derived from co-products of
the

                                    -2-

<PAGE>



pigment production  processes).  Water treatment chemicals are used as treatment
and conditioning agents for industrial effluents and municipal wastewater and in
the manufacture of iron pigments.

  Manufacturing process and raw materials

      TiO2 is  manufactured  by Kronos using both the  chloride  process and the
sulfate process. Approximately two-thirds of Kronos' current production capacity
is based on its chloride  process  which  generates  less waste than the sulfate
process.  Although most end-use applications can use pigments produced by either
process,  chloride-process  pigments are generally preferred in certain coatings
and plastics applications,  and sulfate-process pigments are generally preferred
for  certain  paper,  fibers and  ceramics  applications.  Due to  environmental
factors and customer  considerations,  the  proportion  of TiO2  industry  sales
represented   by   chloride-process   pigments   has   increased   relative   to
sulfate-process pigments in the past few years, and chloride-process  production
facilities in 1996 represented approximately 56% of industry capacity.

      Kronos  produced  373,000  metric  tons of TiO2 in 1996,  compared  to the
record  393,000  metric tons  produced in 1995 and 357,000  metric tons in 1994.
Kronos  reduced its  production  rates in early 1996 in  response  to  softening
demand and its high  inventory  levels at the end of 1995.  As demand  increased
during 1996 and inventories declined, Kronos' production rates were increased to
near  full  capacity  in  late  1996.  Kronos  believes  its  annual  attainable
production capacity is approximately 400,000 metric tons, including its one-half
interest in the joint  venture-owned  Louisiana  plant (see "TiO2  manufacturing
joint  venture").  Following the  completion of the $35 million  debottlenecking
expansion of its Leverkusen,  Germany  chloride-process  plant in late 1997, the
Company expects its worldwide annual attainable  production capacity to increase
to approximately 410,000 metric tons.

      The primary raw materials used in the TiO2 chloride production process are
chlorine,  coke  and  titanium-containing  feedstock  derived  from  beach  sand
ilmenite and natural  rutile ore.  Chlorine and coke are available from a number
of  suppliers.  Titanium-containing  feedstock  suitable for use in the chloride
process  is  available  from a limited  number of  suppliers  around  the world,
principally in Australia,  Africa,  Canada, India and the United States.  Kronos
purchases  slag  refined  from beach sand  ilmenite  from  Richards Bay Iron and
Titanium  (Proprietary)  Limited (South Africa),  approximately  50% of which is
owned by RTZ Iron and  Titanium  Inc.  ("RTZ"),  an indirect  subsidiary  of RTZ
Corp.,  under a long-term  supply contract that expires in 2000.  Natural rutile
ore, another chloride  feedstock,  is purchased primarily from RGC Mineral Sands
Limited (Australia), under a long-term supply contract that expires in 2000. Raw
materials under these contracts are expected to meet Kronos' chloride  feedstock
requirements  over the next  several  years.  The  Company  does not  expect  to
encounter  difficulties  obtaining new long-term  supply  contracts prior to the
expiration of its existing contracts.

      The primary raw materials used in the TiO2 sulfate  production process are
sulfuric acid and titanium-containing  feedstock derived primarily from rock and
beach sand  ilmenite.  Sulfuric  acid is available  from a number of  suppliers.
Titanium-containing feedstock suitable for use in the sulfate process is

                                    -3-

<PAGE>



available from a limited number of suppliers  around the world.  Currently,  the
principal  active sources are located in Norway,  Canada,  Australia,  India and
South   Africa.   As  one  of  the  few   vertically-integrated   producers   of
sulfate-process  pigments,  Kronos operates a Norwegian rock ilmenite mine which
provided  all of Kronos'  feedstock  for its  European  sulfate-process  pigment
plants in 1996.  Kronos  also  purchases  sulfate  grade  slag  under  contracts
negotiated  annually with RTZ and,  through 1997,  with Tinfos Titanium and Iron
K/S.

      Kronos believes the availability of titanium-containing feedstock for both
the chloride  and sulfate  processes  is adequate  through the  remainder of the
decade.  Kronos does not anticipate  experiencing  any  interruptions of its raw
material supplies because of its long-term supply contracts.  However, political
and economic  instability in the countries from which the Company  purchases its
raw material supplies could adversely affect the availability of such feedstock.

  TiO2 manufacturing joint venture

      Subsidiaries of Kronos and Tioxide Group, Ltd., a wholly-owned  subsidiary
of Imperial Chemicals  Industries PLC ("Tioxide"),  each own a 50%-interest in a
manufacturing   joint   venture.   The  joint   venture   owns  and  operates  a
chloride-process TiO2 plant located in Lake Charles, Louisiana.  Production from
the plant is shared equally by Kronos and Tioxide (the  "Partners")  pursuant to
separate offtake agreements.

      A  supervisory  committee,  composed  of four  members,  two of  whom  are
appointed  by each  Partner,  directs  the  business  and  affairs  of the joint
venture,  including production and output decisions.  Two general managers,  one
appointed and  compensated by each Partner,  manage the daily  operations of the
joint venture acting under the direction of the supervisory committee.

      The manufacturing joint venture is intended to be operated on a break-even
basis and, accordingly, Kronos' transfer price for its share of TiO2 produced is
equal to its share of the joint venture's production costs and interest expense.
Kronos'  share of the  production  costs  are  reported  as cost of sales as the
related TiO2 acquired from the joint venture is sold, and its share of the joint
venture's interest expense is reported as a component of interest expense.

  Competition

      The TiO2 industry is highly  competitive.  During the early 1990s,  supply
exceeded  demand,   primarily  due  to  new  chloride-process   capacity  coming
on-stream. Relative supply/demand relationships, which had a favorable impact on
industry-wide  prices  during the late 1980s,  had a negative  impact during the
subsequent  downturn.  During  1994 and the first  half of 1995,  strong  demand
growth  improved  industry  capacity  utilization  and  resulted in increases in
worldwide TiO2 prices.  Kronos believes that the increased  demand was partially
due to customers stocking inventories. In the second half of 1995 and first half
of 1996, customers reduced inventory levels, which reduced industry-wide demand.
Demand improved in the second half of 1996,  indicating,  Kronos believes,  that
customer  inventories had returned to more-normal  levels.  Price increases were
announced in late 1996 by most major TiO2 producers,  including Kronos,  and the
results  of such  announcements  are  expected  to  impact  second-quarter  1997
operating results.

                                    -4-

<PAGE>



No  assurance  can be given  that price  trends  will  conform to the  Company's
expectations.

      Capacity additions that are the result of construction of grassroot plants
in the  worldwide  TiO2 market  require  significant  capital  expenditures  and
substantial   lead  time  (typically  three  to  five  years  in  the  Company's
experience) for, among other things, planning, obtaining environmental approvals
and construction. No grassroot plants have been announced, but industry capacity
can  be  expected  to   increase   as  Kronos  and  its   competitors   complete
debottlenecking  projects at  existing  plants.  Based on the factors  described
under the caption  "Kronos-Industry" above, the Company expects that the average
annual  increase in industry  capacity from announced  debottlenecking  projects
will be less than the average  annual demand growth for TiO2 during the next few
years.

      Kronos  competes  primarily  on the basis of price,  product  quality  and
technical  service,  and the  availability of high  performance  pigment grades.
Although certain TiO2 grades are considered specialty pigments,  the majority of
grades and  substantially  all of Kronos'  production are  considered  commodity
pigments with price generally  being the most  significant  competitive  factor.
Kronos has an estimated 11% share of worldwide  TiO2 sales volume,  and believes
that it is the  leading  marketer  of TiO2 in a number of  countries,  including
Germany and Canada.

      Kronos'  principal  competitors  are E.I.  du Pont de  Nemours & Co.  ("Du
Pont");   Imperial  Chemical   Industries  PLC  (Tioxide)  ("ICI");   Millennium
Chemicals,  Inc.  (Millennium  Inorganic  Chemicals,  Inc.),  formerly a unit of
Hanson PLC; Kemira Oy;  Kerr-McGee  Corporation;  Ishihara Sangyo Kaisha,  Ltd.;
Bayer AG; and Thann et Mulhouse. In January 1997, ICI announced its intention to
spin off to its  shareholders  its  Tioxide  unit in the  next  six to  eighteen
months.  These eight competitors have estimated  individual  worldwide shares of
TiO2 sales volume  ranging from 3% to 21%, and an estimated  aggregate 75% share
of TiO2 sales volume.  Du Pont has about one-half of total U.S. TiO2  production
capacity and is Kronos' principal North American competitor.

Rheox

  Products and operations

      Rheological additives control the flow and leveling  characteristics for a
variety of products, including paints, inks, lubricants, sealants, adhesives and
cosmetics. Organoclay rheological additives are clays which have been chemically
reacted  with  organic  chemicals  and  compounds.  Rheox  produces  rheological
additives for both solvent-based and water-based  systems.  Rheox is the world's
largest producer of rheological  additives for solvent-based systems and is also
a supplier of rheological  additives used in  water-based  systems.  Rheological
additives for solvent-based  systems accounted for about 80% of Rheox's sales in
1996, with the remainder being principally rheological additives for water-based
systems.  Rheox  introduced a number of new products  during the past few years,
the majority of which are for water-based systems,  which are sold into a larger
market than solvent-based  systems. The Company believes  water-based  additives
will account for an increasing portion of its sales in the long term.


                                    -5-

<PAGE>



      Sales of rheological  additives  generally  follow gross domestic  product
growth  in  Rheox's  principal  markets  and are  influenced  by the  volume  of
shipments  of the  worldwide  coatings  industry.  Since a  portion  of  Rheox's
rheological  additives  are used in  industrial  coatings,  plant and  equipment
spending has an influence on demand for this product line.

  Manufacturing process and raw materials

      The  primary  raw  materials  utilized in the  production  of  rheological
additives are bentonite clays, hectorite clays, quaternary amines,  polyethylene
waxes and castor oil derivatives.  Bentonite clays are currently purchased under
a three-year  contract,  renewable  through  2004,  with a subsidiary of Dresser
Industries,  Inc.  ("Dresser"),  which has  significant  bentonite  reserves  in
Wyoming.  This  contract  assures  Rheox the right to purchase  its  anticipated
requirements  of  bentonite  clays for the  foreseeable  future,  and  Dresser's
reserves are believed to be  sufficient  for such purpose.  Hectorite  clays are
mined from  Company-owned  reserves in Newberry Springs,  California,  which the
Company  believes are adequate to supply its needs for the  foreseeable  future.
The Newberry Springs ore body contains the largest known  commercial  deposit of
hectorite clays in the world.  Quaternary amines are purchased  primarily from a
joint venture that is 50%-owned by Rheox and are also generally available on the
open market from a number of suppliers.  Castor oil-based  rheological additives
are  purchased  from  sources  outside  the  United  States.  Rheox has a supply
contract  with a  manufacturer  of these  products  which may not be  terminated
without 180 days notice by either party.

  Competition

      Competition  in the  specialty  chemicals  industry  generally  focuses on
product uniqueness,  quality and availability,  technical service,  knowledge of
end-use  applications and price.  Rheox's principal  competitors for rheological
additives for  solvent-based  systems are Laporte PLC and Sud-Chemie AG. Rheox's
principal  competitors  for  water-based  systems  are Rohm  and  Haas  Company,
Hercules Incorporated, and Union Carbide Corporation.

Research and Development

      The  Company's  expenditures  for  research  and  development  and certain
technical  support  programs have averaged  approximately  $11 million  annually
during  the  past  three  years  with  Kronos   accounting   for   approximately
three-quarters  of the annual  spending.  Research  and  development  activities
related to TiO2 are conducted  principally at the Leverkusen,  Germany facility.
Such activities are directed  primarily  toward  improving both the chloride and
sulfate  production  processes,  improving  product  quality  and  strengthening
Kronos' competitive position by developing new pigment applications.  Activities
relating to rheological  additives are conducted  primarily in the United States
and are  directed  towards  the  development  of new  products  for  water-based
systems,  environmental  applications and new end-use  applications for existing
product lines.


                                    -6-

<PAGE>



Patents and Trademarks

      Patents  held for  products and  production  processes  are believed to be
important to the Company and contribute to the continuing business activities of
Kronos and Rheox.  The  Company  continually  seeks  patent  protection  for its
technical developments, principally in the United States, Canada and Europe, and
from time to time enters into  licensing  arrangements  with third  parties.  In
connection with the formation of the  manufacturing  joint venture with Tioxide,
Kronos and certain of its subsidiaries  exchanged  proprietary  chloride process
and product technologies with Tioxide and certain of its affiliates. Use by each
recipient of the other's  technology in Europe was  restricted  through  October
1996. The Company does not expect that the technology  sharing  arrangement with
Tioxide will  materially  impact the Company's  competitive  position within the
TiO2 industry. See "Kronos - TiO2 manufacturing joint venture."

      The Company's major trademarks,  including Kronos,  Titanox and Rheox, are
protected by  registration  in the United States and  elsewhere  with respect to
those products it manufactures and sells.

Foreign Operations

      The Company's chemical  businesses have operated in international  markets
since the  1920s.  Most of Kronos'  current  production  capacity  is located in
Europe and Canada,  and approximately  one-third of Rheox's sales in each of the
past   three   years   have  been  from   European   production.   Approximately
three-quarters  of the  Company's  1996  consolidated  sales  were  to  non-U.S.
customers,  including  13% to  customers  in areas other than Europe and Canada.
Foreign  operations are subject to, among other things,  currency  exchange rate
fluctuations and the Company's  results of operations have in the past been both
favorably and unfavorably  affected by fluctuations in currency  exchange rates.
Effects of fluctuations in currency  exchange rates on the Company's  results of
operations  are discussed in Item 7.  "Management's  Discussion  and Analysis of
Financial Condition and Results of Operations."

      Political and economic  uncertainties in certain of the countries in which
the Company operates may expose it to risk of loss. The Company does not believe
that there is currently any  likelihood  of material  loss through  political or
economic  instability,  seizure,  nationalization  or similar event. The Company
cannot predict,  however, whether events of this type in the future could have a
material  effect on its  operations.  The  Company's  manufacturing  and  mining
operations are also subject to extensive and diverse environmental regulation in
each of the  foreign  countries  in which  they  operate.  See  "Regulatory  and
Environmental Matters."

Customer Base and Seasonality

      The Company  believes that neither its aggregate sales nor those of any of
its principal  product groups are  concentrated in or materially  dependent upon
any single customer or small group of customers.  Neither the Company's business
as a whole nor that of any of its  principal  product  groups is seasonal to any
significant  extent.  Due in part to the  increase  in paint  production  in the
spring to meet the spring and summer painting season demand, TiO2 sales are

                                    -7-

<PAGE>



generally higher in the second and third calendar quarters than in the first and
fourth calendar quarters.  Sales of rheological  additives are influenced by the
worldwide industrial protective coatings industry, where second calendar quarter
sales are generally the strongest.

Employees

      As of December 31, 1996, the Company employed approximately 3,100 persons,
excluding the joint venture  employees,  with approximately 400 employees in the
United States and approximately 2,700 at sites outside the United States. Hourly
employees in production facilities worldwide,  including the TiO2 joint venture,
are  represented  by a variety of labor  unions,  with labor  agreements  having
various expiration dates. The Company believes its labor relations are good.

Regulatory and Environmental Matters

      Certain  of the  Company's  businesses  are and have been  engaged  in the
handling,  manufacture  or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable  environmental laws. As with
other  companies  engaged  in  similar  businesses,  certain  past  and  current
operations and products of the Company have the potential to cause environmental
or other damage.  The Company has implemented and continues to implement various
policies  and programs in an effort to minimize  these risks.  The policy of the
Company  is  to  achieve  compliance  with  applicable  environmental  laws  and
regulations  at all its  facilities  and to strive to improve its  environmental
performance.  It  is  possible  that  future  developments,   such  as  stricter
requirements of environmental laws and enforcement  policies  thereunder,  could
adversely   affect   the   Company's   production,   handling,   use,   storage,
transportation,  sale or disposal of such  substances  as well as the  Company's
consolidated financial position, results of operations or liquidity.

      The  Company's  U.S.  manufacturing  operations  are  governed  by federal
environmental and worker health and safety laws and regulations, principally the
Resource  Conservation and Recovery Act, the Occupational Safety and Health Act,
the Clean Air Act, the Clean Water Act, the Safe  Drinking  Water Act, the Toxic
Substances   Control   Act  and  the   Comprehensive   Environmental   Response,
Compensation  and  Liability  Act, as amended by the  Superfund  Amendments  and
Reauthorization  Act  ("CERCLA"),  as well as the  state  counterparts  of these
statutes.  The Company  believes  that all of its U.S.  plants and the Louisiana
plant owned and operated by the joint venture are in substantial compliance with
applicable  requirements of these laws or compliance  orders issued  thereunder.
From time to time,  the  Company's  facilities  may be subject to  environmental
regulatory enforcement under such statutes. Resolution of such matters typically
involves the establishment of compliance programs. Occasionally,  resolution may
result in the payment of penalties, but to date such penalties have not involved
amounts having a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.

      The Company's  European and Canadian  production  facilities operate in an
environmental  regulatory framework in which governmental  authorities typically
are granted broad discretionary powers which allow them to issue operating

                                    -8-

<PAGE>



permits  required for the plants to operate.  The Company  believes that all its
plants are in substantial compliance with applicable environmental laws.

      While the laws  regulating  operations of industrial  facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European  Union (the  "EU").  Germany,  Belgium and the United  Kingdom,  each a
member of the EU,  follow the  initiatives  of the EU.  Norway,  although  not a
member,  generally  patterns its environmental  regulatory actions after the EU.
The Company  believes that Kronos is in substantial  compliance  with agreements
reached  with  European  environmental  authorities  and with an EU directive to
control the effluents produced by TiO2 production  facilities.  The Company also
believes  that  Rheox  is  in  substantial  compliance  with  the  environmental
regulations in Germany and the United Kingdom.

      The  Company  has a contract  with a third  party to treat  certain of its
Leverkusen and Nordenham,  Germany sulfate-process  effluents.  Either party may
terminate  the  contract  after  giving  four years  notice  with  regard to the
Nordenham plant. After December 1998 and under certain circumstances, Kronos may
terminate  the  contract  after  giving six  months  notice  with  regard to the
Leverkusen plant.

      In order to reduce sulfur dioxide emissions into the atmosphere consistent
with applicable environmental regulations, Kronos is completing the installation
of off-gas  desulfurization  systems at its  Norwegian  and German  plants at an
estimated cost of $30 million.  The manufacturing  joint venture installed a $16
million  off-gas  desulfurization  system  at the  Louisiana  plant  and  Kronos
completed an $11 million water treatment  chemical  purification  project at its
Leverkusen, Germany facility in 1996.

      The Quebec provincial  government has environmental  regulatory  authority
over Kronos' Canadian chloride and  sulfate-process  TiO2 production facility in
Varennes,  Quebec. The provincial  government  regulates discharges into the St.
Lawrence River. In May 1992, the Quebec provincial  government  extended Kronos'
right to discharge effluents from its Canadian  sulfate-process  TiO2 plant into
the  St.  Lawrence  River  until  June  1994.  Kronos  completed  a  waste  acid
neutralization  facility  and  discontinued  discharging  untreated  waste  acid
effluents  into  the St.  Lawrence  River  in  June  1994.  Notwithstanding  the
foregoing,  in March 1993, Kronos' Canadian  subsidiary and two of its directors
were charged by the Canadian  federal  government  with five  violations  of the
Canadian  Fisheries Act relating to discharges  into the St. Lawrence River from
the  Varennes  sulfate-process  TiO2  plant.  The  monetary  penalty  for  these
violations, if proven, could be up to Canadian $15 million.  Additional charges,
if brought,  could involve additional penalties.  The Company believes that this
charge is  inconsistent  with the extension  granted by provincial  authorities,
referred to above,  and is vigorously  contesting  the charge.  A trial date has
been set for May 1997.

      The Company's capital  expenditures  related to its ongoing  environmental
protection and improvement  programs are currently  expected to be approximately
$3 million in 1997 and $5 million in 1998.


                                    -9-

<PAGE>



      The Company has been named as a defendant,  potentially  responsible party
("PRP"),  or both, pursuant to CERCLA and similar state laws in approximately 75
governmental  and private actions  associated with waste disposal sites,  mining
locations and facilities currently or previously owned,  operated or used by the
Company, or its subsidiaries, or their predecessors, certain of which are on the
U.S.   Environmental   Protection   Agency's  ("U.S.  EPA")  Superfund  National
Priorities List or similar state lists. See Item 3. "Legal Proceedings."

ITEM 2.     PROPERTIES

      Kronos currently  operates four TiO2 facilities in Europe  (Leverkusen and
Nordenham, Germany;  Langerbrugge,  Belgium; and Fredrikstad,  Norway). In North
America,  Kronos has a facility in  Varennes,  Quebec,  Canada and,  through the
manufacturing  joint venture  described above, a one-half interest in a plant in
Lake  Charles,  Louisiana.  Certain of the  Company's  properties  collateralize
long-term debt agreements and the Company's Nordenham TiO2 plant has a lien that
secures  the  German  tax  authorities,   pending   resolution  of  certain  tax
litigation. See Notes 10 and 13 to the Consolidated Financial Statements.

      Kronos'  principal German operating  subsidiary  leases the land under its
Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050. The
Leverkusen  facility,  with about  one-third of Kronos'  current TiO2 production
capacity,  is located within an extensive  manufacturing  complex owned by Bayer
AG,  and  Kronos  is the only  unrelated  party so  situated.  Under a  separate
supplies  and  services  agreement  expiring in 2011,  Bayer  provides  some raw
materials, auxiliary and operating materials and utilities services necessary to
operate the  Leverkusen  facility.  Both the lease and the supplies and services
agreement  restrict  Kronos'  ability  to  transfer  ownership  or  use  of  the
Leverkusen facility.

      All of Kronos' principal production  facilities described above are owned,
except for the land under the  Leverkusen  facility.  Kronos has a  governmental
concession with an unlimited term to operate its ilmenite mine in Norway.

      Specialty  chemicals are produced by Rheox at  facilities  in  Charleston,
West Virginia;  Newberry Springs,  California; St. Louis, Missouri;  Livingston,
Scotland and  Nordenham,  Germany.  A portion of the land under the  Livingston,
Scotland  facility  is leased  from an  unrelated  party;  all of the  remaining
production facilities are owned.

ITEM 3.     LEGAL PROCEEDINGS

  Lead pigment litigation

      The Company was formerly  involved in the manufacture of lead pigments for
use in paint and lead-based  paint. The Company has been named as a defendant or
third party defendant in various legal proceedings alleging that the Company and
other  manufacturers  are  responsible  for personal  injury and property damage
allegedly  associated  with the use of lead pigments.  The Company is vigorously
defending such litigation. Considering the Company's previous involvement in the
lead pigment and  lead-based  paint  businesses,  there can be no assurance that
additional  litigation,  similar to that described below,  will not be filed. In
addition, various legislation and administrative regulations  have, from time to

                                    -10-

<PAGE>



time,  been enacted or proposed that seek to (a) impose  various  obligations on
present  and former  manufacturers  of lead  pigment and  lead-based  paint with
respect to asserted health concerns associated with the use of such products and
(b) effectively  overturn court decisions in which the Company and other pigment
manufacturers  have  been  successful.  Examples  of such  proposed  legislation
include  bills which would  permit civil  liability  for damages on the basis of
market share. No legislation or regulations  have been enacted to date which are
expected  to  have a  material  adverse  effect  on the  Company's  consolidated
financial  position,  results of operations  or  liquidity.  The Company has not
accrued  any  amounts  for  the  pending  lead  pigment  and  lead-based   paint
litigation.  There is no  assurance  that the  Company  will  not  incur  future
liability  in  respect  of this  pending  litigation  in  view  of the  inherent
uncertainties  involved in court and jury rulings in pending and possible future
cases. However,  based on, among other things, the results of such litigation to
date, the Company  believes that the pending lead pigment and  lead-based  paint
litigation  is  without  merit.  Liability  that  may  result,  if  any,  cannot
reasonably be estimated.

      In 1989 and 1990,  the Housing  Authority  of New Orleans  ("HANO")  filed
third-party  complaints for indemnity and/or  contribution  against the Company,
other alleged  manufacturers  of lead pigment  (together  with the Company,  the
"pigment  manufacturers") and the Lead Industries  Association (the "LIA") in 14
actions  commenced by residents of HANO units seeking  compensatory and punitive
damages for injuries allegedly caused by lead pigment.  The actions,  which were
pending  in the  Civil  District  Court  for the  Parish  of  Orleans,  State of
Louisiana,  were  dismissed by the district  court in 1990.  Subsequently,  HANO
agreed to consolidate  all the cases and appealed.  In March 1992, the Louisiana
Court of Appeals,  Fourth  Circuit,  dismissed  HANO's  appeal as untimely  with
respect to three of these cases. With respect to the other cases included in the
appeal,  the court of appeals  reversed the lower court decision  dismissing the
cases. These cases were remanded to the District Court for further  proceedings.
In November  1994,  the District  Court granted  defendants'  motion for summary
judgment  in one of the  remaining  cases  and in June 1995 the  District  Court
granted  defendants'  motion for summary  judgment  in several of the  remaining
cases. After such grant, only two cases remain pending.

      In June 1989, a complaint  was filed in the Supreme  Court of the State of
New York,  County of New York,  against the pigment  manufacturers  and the LIA.
Plaintiffs seek damages, contribution and/or indemnity in an amount in excess of
$50 million for monitoring and abating  alleged lead paint hazards in public and
private  residential  buildings,  diagnosing  and  treating  children  allegedly
exposed to lead paint in city  buildings,  the costs of educating city residents
to the hazards of lead paint,  and liability in personal  injury actions against
the City and the  Housing  Authority  based on alleged  lead  poisoning  of city
residents (The City of New York, the New York City Housing Authority and the New
York City Health and Hospitals  Corp. v. Lead Industries  Association,  Inc., et
al., No. 89-4617). In December 1991, the court granted the defendants' motion to
dismiss claims alleging negligence and strict liability and denied the remainder
of the motion. In January 1992,  defendants appealed the denial. The Company has
answered the remaining  portions of the  complaint  denying all  allegations  of
wrongdoing, and the case is in discovery. In May 1993, the Appellate Division of
the  Supreme  Court  affirmed  the denial of the  motion to dismiss  plaintiffs'
fraud,  restitution  and  indemnification  claims.  In May 1994, the trial court
granted the

                                    -11-

<PAGE>



defendants'  motion to dismiss the plaintiffs'  restitution and  indemnification
claims, and plaintiffs  appealed.  In June 1996, the Appellate Division reversed
the trial  court's  dismissal of  plaintiffs'  restitution  and  indemnification
claims, reinstating those claims. Defendants' motion for summary judgment on the
fraud claim was denied in August 1995;  defendants  have  appealed.  In December
1995,  defendants  moved for summary  judgment on the basis that the fraud claim
was  time-barred.  In February 1996,  the motion was denied and defendants  have
appealed. Discovery is proceeding.

      In March 1992,  the Company was served with a complaint  in  Skipworth  v.
Sherwin-Williams Co., et al. (No. 92-3069), Court of Common Pleas,  Philadelphia
County. Plaintiffs are a minor and her legal guardians seeking damages from lead
paint and pigment producers, the LIA, the Philadelphia Housing Authority and the
owners of the plaintiffs' premises for bodily injuries allegedly suffered by the
minor from lead-based paint. Plaintiffs' counsel has asserted that approximately
200 similar complaints would be served shortly,  but no such complaints have yet
been served.  In April 1994,  the court granted  defendants'  motion for summary
judgment and the dismissal  was affirmed by the Superior  Court in October 1995.
In February  1997,  the  Pennsylvania  Supreme  Court  unanimously  affirmed the
Superior Court's decision.

      In August  1992,  the  Company  was served  with an amended  complaint  in
Jackson,  et al. v. The Glidden  Co., et al.,  Court of Common  Pleas,  Cuyahoga
County,  Cleveland,  Ohio (Case No. 236835).  Plaintiffs seek  compensatory  and
punitive  damages for personal  injury caused by the  ingestion of lead,  and an
order directing  defendants to abate lead-based  paint in buildings.  Plaintiffs
purport to represent a class of similarly  situated persons throughout the State
of Ohio.  The amended  complaint  identifies 18 other  defendants  who allegedly
manufactured  lead products or lead-based  paint,  and asserts  causes of action
under theories of strict  liability,  negligence per se,  negligence,  breach of
express  and implied  warranty,  fraud,  nuisance,  restitution,  and  negligent
infliction of emotional  distress.  The complaint  asserts  several  theories of
liability including joint and several,  market share, enterprise and alternative
liability.  In October  1992,  the  Company  and the other  defendants  moved to
dismiss the complaint  with  prejudice.  In July 1993,  the court  dismissed the
complaint.  In December 1994, the Ohio Court of Appeals reversed the trial court
dismissal  and  remanded the case to the trial  court.  In July 1996,  the trial
court granted  defendants'  motion to dismiss the property damage and enterprise
liability  claims,  but  denied  the  remainder  of  the  motion.  Discovery  is
proceeding with respect to class certification.

      In November 1993,  the Company was served with a complaint in Brenner,  et
al. v. American  Cyanamid,  et al., (No.  12596-93) Supreme Court,  State of New
York, Erie County alleging injuries to two children  purportedly  caused by lead
pigment.  The  complaint  seeks $24 million in  compensatory  and $10 million in
punitive damages for alleged negligent failure to warn, strict liability,  fraud
and   misrepresentation,   concert  of  action,  civil  conspiracy,   enterprise
liability,  market share liability,  and alternative liability. In January 1994,
the Company answered the complaint, denying liability. Discovery is proceeding.


                                    -12-

<PAGE>



      In January 1995, the Company was served with  complaints in Wright (Alvin)
and Wright (Allen) v. Lead  Industries,  et. al.,  (Nos.  94-363042 and 363043),
Circuit  Court,  Baltimore  City,  Maryland.  Plaintiffs  are two brothers  (one
deceased) who allege  injuries due to exposure to lead pigment.  The complaints,
as amended  in April  1995,  seek more than $100  million  in  compensatory  and
punitive damages for alleged strict liability, negligence, conspiracy, fraud and
unfair and  deceptive  trade  practices  claims.  In July 1995,  the trial court
granted,  in  part,  the  defendants'  motion  to  dismiss,  and  dismissed  the
plaintiffs' fraud and unfair and deceptive trade practices claims. In June 1996,
the trial court granted defendants' motions for summary judgement on plaintiffs'
conspiracy  claim,  and dismissed the Company and certain other  defendants from
the cases. In September 1996, the trial court granted the remaining  defendants'
motions for summary judgment. Plaintiffs have appealed as to all defendants.

      In November  1995,  the Company was served with the complaint in Jefferson
v. Lead Industry Association,  et. al. (No. 95-2835), filed in the U.S. District
Court for the Eastern  District  of  Louisiana.  The  complaint  asserts  claims
against the LIA and the lead pigment defendants on behalf of a putative class of
allegedly injured children in Louisiana. The complaint purports to allege claims
for strict liability, negligence, failure to warn, breach of alleged warranties,
fraud and  misrepresentation,  and  conspiracy,  and seeks  actual and  punitive
damages.  The complaint  asserts several theories of liability,  including joint
and several and market share  liability.  In June 1996,  the trial court granted
defendants'  motions to dismiss the complaint  and entered  judgment in favor of
all defendants. Plaintiffs appealed to the Fifth Circuit Court of Appeals, which
affirmed the judgment in favor of all defendants in March 1997.

      In January  1996,  the Company  was served  with a complaint  on behalf of
individual  intervenors in German,  et. al. v. Federal Home Loan Mortgage Corp.,
et. al., (U.S.  District Court,  Southern District of New York, Civil Action No.
93 Civ.  6941 (RWS)).  This class  action  lawsuit had  originally  been brought
against the City of New York and other  landlord  defendants.  The  intervenors'
complaint  alleges claims against the Company and other former  manufacturers of
lead pigment for medical monitoring,  property  abatement,  and other injunctive
relief,  based on various causes of action,  including negligent product design,
negligent  failure  to warn,  strict  liability,  fraud  and  misrepresentation,
concert  of  action,  civil  conspiracy,   enterprise  liability,  market  share
liability,   breach  of  express  and  implied  warranties,  and  nuisance.  The
intervenors  purport to  represent a class of children  and  pregnant  women who
reside  in New  York  City.  In May  1996,  the  Company  and the  other  former
manufacturers  of lead  pigments  filed  motions  to  dismiss  the  intervenors'
complaint. Class discovery is proceeding.

      In April  1996,  the  Company  was  served  with a  complaint  in Gates v.
American  Cyanamid Co., et al., (No.  I1996-2114)  Supreme  Court,  State of New
York, Erie County, an action alleging personal injury arising out of exposure to
lead  pigment.  Plaintiff  seeks  compensatory  and  punitive  damages  from the
Company,  other former lead pigment manufacturers and the LIA based on claims of
negligence,  strict  liability,  fraud,  concert  of action,  civil  conspiracy,
enterprise  liability,   market  share  liability  and  alternative   liability.
Plaintiff also asserts claims against the landlords of the apartments in which

                                    -13-

<PAGE>



plaintiff  has lived  since  1977.  In July 1996,  the  Company  filed an answer
denying  plaintiff's  allegations  of  wrongdoing  and  liability.  Discovery is
proceeding.

      In September  1996,  the Company was served with a complaint in Ritchie v.
NL  Industries,  et al.  (U.S.  District  Court,  Northern  District  of Western
Virginia,  Civil Action No.  5:96-CV-166),  an action  originally  filed in West
Virginia  state  court on behalf  of a minor  allegedly  injured  as a result of
exposure to lead pigment.  Plaintiffs  seeks  compensatory  and punitive damages
from the Company and five other former  manufacturers  of lead pigment  based on
claims of negligence,  strict liability,  breach of warranty, fraud, conspiracy,
market  share  liability  and  alternative  liability.   In  October  1996,  the
defendants  removed  the case to federal  court and filed  motions  to  dismiss.
Plaintiffs has filed a motion to remand the case to state court. The motions are
pending.

      The Company  believes that the foregoing lead pigment  actions are without
merit  and  intends  to  continue  to deny all  allegations  of  wrongdoing  and
liability and to defend such actions vigorously.

      The Company  has filed  actions  seeking  declaratory  judgment  and other
relief against various  insurance  carriers with respect to costs of defense and
indemnity coverage for certain of its environmental and lead pigment litigation.
NL Industries,  Inc. v. Commercial  Union Insurance Cos., et al., Nos.  90-2124,
- -2125 (HLS) (District Court of New Jersey).  The action relating to lead pigment
litigation  defense costs filed in May 1990 against  Commercial  Union Insurance
Company ("Commercial Union") seeks to recover defense costs incurred in the City
of New York lead pigment case and two other cases which have since been resolved
in the Company's favor. In July 1991, the court granted the Company's motion for
summary judgment and ordered  Commercial  Union to pay the Company's  reasonable
defense  costs for such  cases.  In June  1992,  the  Company  filed an  amended
complaint  in the United  States  District  Court for the District of New Jersey
against  Commercial  Union seeking to recover costs  incurred in defending  four
additional  lead pigment  cases which have since been  resolved in the Company's
favor.  In August  1993,  the court  granted  the  Company's  motion for summary
judgment and ordered  Commercial  Union to pay the reasonable costs of defending
those cases.  In July 1994,  the court entered  judgment on the order  requiring
Commercial  Union to pay  previously-incurred  Company costs in defending  those
cases.  In  September  1995,  the U.S.  Court of Appeals  for the Third  Circuit
reversed and remanded for further  consideration the decision by the trial court
that  Commercial  Union was  obligated to pay the Company's  reasonable  defense
costs in  certain  of the lead  pigment  cases.  The  trial  court  had made its
decision  applying New Jersey law; the appeals court concluded that New York and
not New  Jersey  law  applied  and  remanded  the case to the trial  court for a
determination under New York law. On remand from the Court of Appeals, the trial
court in April 1996 granted the Company's motion for summary  judgment,  finding
that  Commercial  Union had a duty to defend the  Company in the four lead paint
cases which were the subject of the  Company's  second  amended  complaint.  The
court also  issued a partial  ruling on  Commercial  Union's  motion for summary
judgment in which it sought  allocation of defense costs and  contribution  from
the Company and two other  insurance  carriers in connection with the three lead
paint  actions on which the court had granted the  Company  summary  judgment in
1991. The court

                                    -14-

<PAGE>



ruled that Commercial  Union is entitled to receive such  contribution  from the
Company and the two carriers,  but reserved  ruling with respect to the relative
contributions to be made by each of the parties,  including contributions by the
Company  that  may  be  required  with  respect  to  periods  in  which  it  was
self-insured and contributions from one carrier which were reinsured by a former
subsidiary  of the  Company,  the  reinsurance  costs of which the  Company  may
ultimately be required to bear. Other than granting motions for summary judgment
brought by two excess liability insurance  carriers,  which contended that their
policies contained absolute pollution  exclusion  language,  and certain summary
judgment  motions  regarding  policy  periods,  the court has not made any final
rulings on defense  costs or indemnity  coverage  with respect to the  Company's
pending  environmental  litigation.  The Court has not made any final  ruling on
indemnity coverage in the lead pigment litigation. No trial dates have been set.
Other than rulings to date, the issue of whether insurance  coverage for defense
costs or  indemnity  or both will be found to exist  depends  upon a variety  of
factors,  and there can be no assurance that such insurance  coverage will exist
in  other  cases.  The  Company  has  not  considered  any  potential  insurance
recoveries for lead pigment or environmental  litigation in determining  related
accruals.

  Environmental matters and litigation

      The  Company  has been named as a  defendant,  PRP,  or both,  pursuant to
CERCLA and  similar  state laws in  approximately  75  governmental  and private
actions  associated with waste disposal sites,  mining  locations and facilities
currently  or  previously  owned,  operated  or  used  by  the  Company,  or its
subsidiaries,  or their  predecessors,  certain  of which are on the U.S.  EPA's
Superfund  National  Priorities List or similar state lists.  These  proceedings
seek cleanup costs,  damages for personal  injury or property  damage,  or both.
Certain of these proceedings  involve claims for substantial  amounts.  Although
the Company may be jointly and severally liable for such costs, in most cases it
is only one of a number of PRPs who may also be jointly and severally liable.

      The extent of CERCLA liability  cannot  accurately be determined until the
Remedial  Investigation and Feasibility Study ("RIFS") is complete, the U.S. EPA
issues a record of decision and costs are  allocated  among PRPs.  The extent of
liability under analogous state cleanup  statutes and for common law equivalents
are  subject to similar  uncertainties.  The Company  believes  it has  provided
adequate  accruals for reasonably  estimable  costs for CERCLA matters and other
environmental  liabilities.  At December 31, 1996,  the Company had accrued $113
million for those  environmental  matters which are  reasonably  estimable.  The
Company  determines the amount of accrual on a quarterly  basis by analyzing and
estimating the range of possible costs to the Company. Such costs include, among
other things, remedial investigations,  monitoring,  studies,  clean-up, removal
and remediation. During the first quarter of 1997, the Company's accrual will be
increased  to include  legal fees and other  costs of  managing  and  monitoring
environmental  remediation  sites as  required  by the  adoption  of the AICPA's
Statement of Position 96-1, "Environmental  Remediation Liabilities." See Note 2
to the  Consolidated  Financial  Statements.  It is not possible to estimate the
range of costs for certain  sites.  The Company has estimated that the upper end
of the range of reasonably  possible costs to the Company for sites for which it
is possible to estimate  costs is  approximately  $160  million.  The  Company's
estimate of such liability has not been discounted to present value and the

                                    -15-

<PAGE>



Company has not recognized any potential insurance recoveries.  No assurance can
be given that actual costs will not exceed either  accrued  amounts or the upper
end of the range for sites for which  estimates have been made, and no assurance
can be given that costs will not be incurred  with  respect to sites as to which
no estimate presently can be made. The imposition of more stringent standards or
requirements  under  environmental  laws or  regulations,  new  developments  or
changes respecting site cleanup costs or allocation of such costs among PRPs, or
a determination  that the Company is potentially  responsible for the release of
hazardous  substances at other sites could result in  expenditures  in excess of
amounts  currently  estimated  by the Company to be required  for such  matters.
Further,  there can be no assurance that additional  environmental  matters will
not arise in the future. More detailed descriptions of certain legal proceedings
relating to environmental matters are set forth below.

      At  Pedricktown,  the U.S. EPA divided the site into two  operable  units.
Operable unit one addresses  contaminated ground water, surface water, soils and
stream  sediments.  In July 1994, the U.S. EPA issued the Record of Decision for
operable unit one. The U.S. EPA estimates the cost to complete operable unit one
is $18.7 million.  In May 1996, certain PRPs, but not the Company,  entered into
an administrative consent order with the U.S. EPA to perform the remedial design
phase of operable unit one. In addition, the U.S. EPA incurred past costs in the
estimated  amount of $5 million.  The U.S.  EPA issued an order with  respect to
operable  unit two in March  1992 to the  Company  and 30 other  PRPs  directing
immediate removal activities  including the cleanup of waste,  surface water and
building  surfaces.  The Company has complied with the order,  and the work with
respect to operable  unit two is completed.  The Company has paid  approximately
50% of operable unit two costs, or $2.5 million.

      At Granite City, the RIFS is complete, and in 1990 the U.S. EPA selected a
remedy estimated at that time to cost  approximately $28 million.  In July 1991,
the United  States filed an action in the U.S.  District  Court for the Southern
District of Illinois against the Company and others (United States of America v.
NL  Industries,  Inc., et al., Civ. No. 91-CV 00578) with respect to the Granite
City smelter.  The complaint seeks injunctive relief to compel the defendants to
comply with an  administrative  order issued  pursuant to CERCLA,  and fines and
treble damages for the alleged failure to comply with the order. The Company and
the other parties did not implement the order believing that the remedy selected
by the U.S.  EPA was  invalid,  arbitrary,  capricious  and was not  selected in
accordance  with law.  The  complaint  also seeks  recovery  of past costs and a
declaration that the defendants are liable for future costs. Although the action
was filed against the Company and ten other defendants, there are 330 other PRPs
who have  been  notified  by the U.S.  EPA.  Some of those  notified  were  also
respondents to the  administrative  order. In February 1992, the court entered a
case  management  order  directing  that the remedy  issues be tried  before the
liability  aspects are presented.  In September  1995, the U.S. EPA released its
amended decision  selecting  cleanup remedies for the Granite City site. At that
time,  the cost of the  remedies  selected by the U.S.  EPA  aggregated,  in its
estimation,  $40.8 million to $67.8 million,  although its decision  stated that
the higher amount was not considered to be representative of expected costs. The
Company  presently is challenging  portions of the U.S.  EPA's  selection of the
remedy.  The U.S. EPA's current  estimate for completion of the cleanup is $24.3
million,  and in January  1997,  the  Company  was  informed  that the U.S.  EPA
incurred

                                    -16-

<PAGE>



cleanup and other past costs  approximating  $30 million.  There is currently no
allocation among the PRPs for these costs.

      Having  completed the RIFS at Portland,  the Company  conducted  predesign
studies to explore the viability of the U.S. EPA's selected remedy pursuant to a
June 1989 consent decree  captioned U.S. v. NL  Industries,  Inc.,  Civ. No. 89-
408, United States District Court for the District of Oregon.  Subsequent to the
completion of the predesign  studies,  the U.S. EPA issued  notices of potential
liability to  approximately  20 PRPs,  including the Company,  directing them to
perform the remedy,  which was  initially  estimated to cost  approximately  $17
million,  exclusive  of  administrative  and overhead  costs and any  additional
costs, for the disposition of recycled materials from the site. In January 1992,
the U.S.  EPA issued  unilateral  administrative  orders to the  Company and six
other PRPs directing the  performance  of the remedy.  The Company and the other
PRPs  commenced  performance  of the  remedy.  In  August  1994,  the  U.S.  EPA
authorized  the Company and the other PRPs to cease  performing  most aspects of
the  selected  remedy.  The U.S.  EPA has issued a proposed  Record of  Decision
Amendment  changing  portions of the cleanup  remedy  selected for the site. The
U.S. EPA  currently  estimates  the cost of the  proposed  remedy to be from $10
million to $13 million.  Pursuant to an interim allocation,  the Company's share
of remedial  costs is  approximately  50%. In November  1991,  Gould,  Inc., the
current owner of the site, filed an action,  Gould Inc. v. NL Industries,  Inc.,
No. 91-1091,  United States  District Court for the District of Oregon,  against
the Company for damages for alleged fraud in the sale of the smelter, rescission
of the sale,  past CERCLA response costs and a declaratory  judgment  allocating
future response costs and punitive damages.  The court granted Gould's motion to
amend the complaint to add additional  defendants  (adjoining current and former
landowners and generators). The amended complaint deletes the fraud and punitive
damages claims asserted  against NL; thus, the pending action is essentially one
for  reallocation of past and future cleanup costs.  Discovery is proceeding.  A
trial  date has been set for  September  1997.  The  Company  and the other PRPs
performing  the cleanup have reached  settlement  in principle  with many of the
generators and adjoining landowner defendants.

      The Company and other PRPs entered into an  administrative  consent  order
with the U.S. EPA requiring the  performance  of a RIFS at two sites in Cherokee
County,  Kansas,  where the Company and others  formerly  mined lead and zinc. A
former  subsidiary of the Company mined at the Baxter Springs subsite,  where it
is the largest  viable PRP. The final RIFS was  submitted to the U.S. EPA in May
1993.  In August 1994,  the U.S. EPA issued its proposed plan for the cleanup of
the Baxter Springs and Treece sites in Cherokee  County.  The proposed remedy is
estimated by U.S. EPA to cost $6 million.

      In January  1989,  the State of  Illinois  brought an action  against  the
Company and several other subsequent owners and operators of the former plant in
Chicago, Illinois (People of the State of Illinois v. NL Industries, et al., No.
88-CH-11618,  Circuit Court, Cook County).  The complaint seeks recovery of $2.3
million of cleanup  costs  expended  by the  Illinois  Environmental  Protection
Agency, plus penalties and treble damages. In October 1992, the Supreme Court of
Illinois reversed the Appellate  Division,  which had affirmed the trial court's
earlier  dismissal  of  the  complaint,   and  remanded  the  case  for  further
proceedings. In December 1993, the trial court denied the State's petition to

                                    -17-

<PAGE>



reinstate the  complaint,  and dismissed  the case with  prejudice.  In November
1996, the appeals court reversed the dismissal. The U.S. EPA has issued an order
to the  Company to perform a removal  action at the  Company's  former  facility
involved in the State of Illinois case. The Company is complying with the order.


      In 1980, the State of New York commenced litigation against the Company in
connection with the operation of a plant in Colonie,  New York formerly owned by
the Company. Flacke v. NL Industries,  Inc., No. 1842-80 ("Flacke I") and Flacke
v. Federal Insurance Company and NL Industries, Inc., No. 3131-92 ("Flacke II"),
New York Supreme  Court,  Albany  County.  The plant  manufactured  military and
civilian products from depleted uranium and was acquired from the Company by the
U.S.  Department of Energy ("DOE") in 1984. Flacke I seeks penalties for alleged
violations of New York's Environmental  Conservation Law, and of a consent order
entered into to resolve these alleged violations.  Flacke II seeks forfeiture of
a $200,000  surety  bond  posted in  connection  with the  consent  order,  plus
interest from February 1980. The Company denied  liability in both actions.  The
litigation  had been inactive from 1984 until July 1993 when the State moved for
partial summary judgment for approximately $1.5 million on certain of its claims
in Flacke I and for summary  judgment in Flacke II. In January 1994, the Company
cross-moved for summary judgment in Flacke I and Flacke II. All summary judgment
motions have been denied. The Company has reached a settlement in principle with
the State.

      Residents  in the  vicinity  of the  Company's  former  Philadelphia  lead
chemicals  plant  commenced a class  action  allegedly  comprised  of over 7,500
individuals seeking medical monitoring and damages allegedly caused by emissions
from the plant.  Wagner, et al. v. Anzon, Inc. and NL Industries,  Inc., No. 87-
4420,  Court  of  Common  Pleas,   Philadelphia  County.  The  complaint  sought
compensatory  and punitive damages from the Company and the current owner of the
plant, and alleged causes of action for, among other things, negligence,  strict
liability,  and nuisance.  A class was certified to include persons who resided,
owned or rented property,  or who work or have worked within up to approximately
three-quarters  of a mile from the plant  from 1960  through  the  present.  The
Company answered the complaint,  denying  liability.  In December 1994, the jury
returned  a  verdict  in  favor  of  the  Company.  Plaintiffs  appealed  to the
Pennsylvania  Superior Court,  requesting a new trial and in September 1996, the
Superior Court affirmed the judgment in favor of the Company.  In December 1996,
plaintiffs filed a petition for allowance of appeal to the Pennsylvania  Supreme
Court.  Plaintiffs'  petition  is  pending.  Residents  also filed  consolidated
actions  in the  United  States  District  Court  for the  Eastern  District  of
Pennsylvania,  Shinozaki  v. Anzon,  Inc. and Wagner and Antczak v. Anzon and NL
Industries,  Inc. Nos. 87-3441,  87-3502,  87-4137 and 87-5150. The consolidated
action is a putative  class action  seeking  CERCLA  response  costs,  including
cleanup and medical  monitoring,  declaratory  and  injunctive  relief and civil
penalties for alleged  violations of the Resource  Conservation and Recovery Act
("RCRA"),  and also asserting  pendent  common law claims for strict  liability,
trespass,  nuisance and punitive  damages.  The court  dismissed  the common law
claims without prejudice,  dismissed two of the three RCRA claims as against the
Company  with  prejudice,  and stayed the case  pending the outcome of the state
court litigation.


                                    -18-

<PAGE>



      In July 1991, a complaint  was filed in the United States  District  Court
for the Central  District of California,  United States of America v. Peter Gull
and NL Industries,  Inc.,  Civ. No. 91-4098,  seeking  recovery of $2 million in
costs  incurred  by the United  States in  response  to the  alleged  release of
hazardous  substances  into the  environment  from a facility  located in Norco,
California,  treble  damages and $1.75  million in penalties  for the  Company's
alleged  failure to comply with the U.S. EPA's  administrative  order No. 88-13.
The order, which alleged that the Company arranged for the treatment or disposal
of materials  at the Norco site,  directed  the  immediate  removal of hazardous
substances from the site. The Company carried out a portion of the remedy at the
Norco site, but did not complete the ordered activities because it believed they
were in  conflict  with  California  law.  The court  ruled that the Company was
liable for approximately  $2.7 million in response costs plus approximately $3.6
million in penalties  for failure to comply with the  administrative  order.  In
April 1994,  the court  entered  final  judgment in this  matter  directing  the
Company to pay $6.3 million plus  interest.  Both the Company and the government
have appealed.  In August 1994, this matter was referred to mediation,  which is
pending.

      At a municipal and industrial  waste  disposal site in Batavia,  New York,
the  Company  and six others  have been  identified  as PRPs.  The U.S.  EPA has
divided the site into two operable units. Pursuant to an administrative  consent
order entered into with the U.S. EPA, the Company  conducted a RIFS for operable
unit one, the closure of the industrial  waste disposal section of the landfill.
The Company's RIFS costs were  approximately $2 million.  In June 1995, the U.S.
EPA issued the record of decision for operable  unit one,  which is estimated by
the U.S. EPA to cost  approximately  $12.3 million.  In September 1995, the U.S.
EPA and certain  PRPs entered  into an  administrative  order on consent for the
remedial  design phase of the remedy for operable  unit one and the design phase
is  proceeding.  The Company and other PRPs entered into an interim cost sharing
arrangement  for this phase of work.  With respect to the second  operable unit,
the extension of the municipal water supply, the U.S. EPA estimated the costs at
$1.2 million plus annual  operation and maintenance  costs.  The Company and the
other PRPs are  performing the work  comprising  operable unit two. The U.S. EPA
has also demanded approximately $.9 million in past costs from the PRPs.

      See Item 1.  "Business - Regulatory and Environmental Matters."

  Other litigation

      Rhodes,  et al. v. ACF  Industries,  Inc., et al. (Circuit Court of Putnam
County,  West Virginia,  No. 95-C-261).  Twelve  plaintiffs  brought this action
against the Company and various other defendants in July 1995. Plaintiffs allege
that they were employed by demolition and disposal  contractors,  and claim that
as a result of the  defendants'  negligence they were exposed to asbestos during
demolition and disposal of materials from defendants' premises in West Virginia.
Plaintiffs allege personal injuries and seek compensatory damages totaling $18.5
million and punitive  damages  totaling $55.5 million.  The Company has filed an
answer denying plaintiffs' allegations. Discovery is proceeding.


                                    -19-

<PAGE>



      The  Company has been named as a defendant  in various  lawsuits  alleging
personal  injuries  as a result of  exposure  to  asbestos  in  connection  with
formerly-owned  operations.  Various of these actions remain  pending.  One such
case, In re:  Monongalia  Mass II,  (Circuit  Court of Monongalia  County,  West
Virginia,   Nos.  93-C-362,   et  al.),  involves  the  consolidated  claims  of
approximately  3,100  plaintiffs.  The Company  intends to defend these  matters
vigorously.

      Plaintiff brought the complaint in Frank D. Seinfeld v. Harold C. Simmons,
et al.  (Superior  Court of New York,  Bergen  County,  Chancery  Division,  No.
C-336-96) in September 1996 on behalf of himself and derivatively,  on behalf of
NL,  against the Company,  Valhi and certain  current and former  members of the
Company's Board of Directors.  The complaint alleges,  among other things,  that
the Company's  purchase of shares in an August 1991 "Dutch auction" tender offer
was an unfair and wasteful expenditure of the Company's funds that constituted a
breach  of the  defendants'  fiduciary  duties  to the  Company's  shareholders.
Plaintiff  seeks,  among  other  things,  to rescind the  Company's  purchase of
approximately 10.9 million shares of its common stock from Valhi pursuant to the
Dutch  auction,  and plaintiff has stated that damages  sought are $149 million.
The Company and the other defendants have answered the complaint and have denied
all allegations of wrongdoing.  The Company believes,  and understands that each
of the other  defendants  believes,  that the  complaint is without  merit.  The
Company  intends,  and believes that each of the other  defendants  intends,  to
defend the action vigorously. Trial is scheduled to begin in November 1997.

      The Company is also involved in various other environmental,  contractual,
product  liability  and other claims and disputes  incidental to its present and
former businesses, and the disposition of past properties and former businesses.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.



                                    -20-

<PAGE>



                                    PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

      NL's common  stock is listed and traded on the New York and Pacific  Stock
Exchanges under the symbol "NL." As of March 20, 1997, there were  approximately
9,000 holders of record of NL common stock.  The following  table sets forth the
high and low sales  prices for NL common  stock on the New York  Stock  Exchange
("NYSE") Composite Tape. On March 20, 1997, the closing price of NL common stock
according to the NYSE Composite Tape was $10-7/8.


                                                          High            Low
                                                        -------         -------
Year ended December 31, 1995:
  First quarter ................................        $13-1/2         $11-3/4
  Second quarter ...............................         16-5/8          11-7/8
  Third quarter ................................         17-1/2          13-1/2
  Fourth quarter ...............................         16-5/8          10-7/8

Year ended December 31, 1996:
  First quarter ................................         14-3/4          12-1/4
  Second quarter ...............................         15-3/8          11-1/2
  Third quarter ................................         12-1/4           9-1/8
  Fourth quarter ...............................         11-1/4           7-5/8


      The Company's  Senior Notes  generally limit the ability of the Company to
pay  dividends to 50% of  consolidated  net income,  as defined in the indenture
governing  the Notes,  subsequent  to October  1993.  At December 31,  1996,  no
amounts were  available for  dividends.  The Company paid three  quarterly  cash
dividends during 1996 of $.10 per share, beginning with a dividend paid on March
1, 1996.  The Company  suspended  its quarterly  dividend in October  1996.  The
Company did not pay dividends in 1994 or 1995.  The  declaration  and payment of
future  dividends  and the amount  thereof will be dependent  upon the Company's
results of operations,  financial condition,  contractual restrictions and other
factors deemed relevant by the Company's Board of Directors.



                                    -21-

<PAGE>



ITEM 6.     SELECTED FINANCIAL DATA

      The selected consolidated financial data set forth below should be read in
conjunction with the Consolidated  Financial  Statements and Notes thereto,  and
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>

                                                     Years ended December 31,
                                  -------------------------------------------------------------
                                     1992         1993         1994         1995         1996
                                  ---------    ---------    ---------    ---------    ---------
                                               (In millions, except per share amounts)

<S>                               <C>          <C>          <C>          <C>          <C>      
INCOME STATEMENT DATA:
Net sales .....................   $   893.5    $   805.3    $   888.0    $ 1,023.9    $   986.1
Operating income ..............       110.7         62.4        111.4        199.7        113.4
Income (loss) from
 continuing operations ........       (44.6)       (83.2)       (24.0)        85.6         10.8
Net income (loss) .............       (76.4)      (109.8)       (24.0)        85.6         10.8

Per common share:
  Income (loss) from
   continuing operations ......   $    (.88)   $   (1.63)   $    (.47)   $    1.66    $     .21
  Net income (loss) ...........       (1.50)       (2.16)        (.47)        1.66          .21

  Cash dividends ..............   $     .35    $      --    $      --    $      --    $     .30

BALANCE SHEET DATA at year-end:
Cash, cash equivalents
 and current marketable
 securities, including
 restricted cash ..............   $   187.9    $   147.6    $   156.3    $   141.3    $   114.1
Current assets ................       635.8        467.5        486.4        551.1        500.2
Total assets ..................     1,472.1      1,206.5      1,162.4      1,271.7      1,221.4
Current liabilities ...........       248.8        232.5        244.9        302.4        290.3
Long-term debt including
 current maturities ...........     1,035.3        870.9        789.6        783.7        829.0
Shareholders' deficit .........      (146.3)      (264.8)      (293.1)      (209.4)      (203.5)

CASH FLOW DATA:
Operating activities ..........   $   (44.7)   $    (7.3)   $   181.8    $    71.6    $    16.5
Investing activities ..........       234.9        182.0        (32.8)       (62.2)       (67.6)
Financing activities ..........      (223.1)      (155.3)      (132.1)        (3.3)        26.6

OTHER NON-GAAP FINANCIAL DATA:
EBITDA (1) ....................   $   115.1    $    67.2    $   101.3    $   212.1    $   135.6

OTHER DATA:
Net debt (2) ..................   $   847.7    $   723.2    $   633.4    $   681.6    $   740.7
Interest expense, net (3) .....       104.3         95.1         78.9         75.4         70.3
Cash interest expense,
 net (4) ......................        98.0         86.8         60.8         59.7         49.4
Capital expenditures ..........        85.2         48.0         36.9         64.2         66.9

TiO2 sales volumes
 (metric tons in
 thousands) ...................         336          346          376          366          388
Average TiO2 selling
 price index (1983=100) .......         140          128          132          152          139
</TABLE>
                                    -22-


<PAGE>

(1)   EBITDA, as presented,  represents operating income less corporate expense,
      net, plus depreciation, depletion and amortization. EBITDA is presented as
      a  supplement  to the  Company's  operating  income  and  cash  flow  from
      operations  because the Company  believes that EBITDA is a widely accepted
      financial  indicator of cash flows and the ability to service debt. EBITDA
      should not be considered as an alternative  to, or more  meaningful  than,
      generally accepted accounting  principles ("GAAP") operating income or net
      income as an indicator of the  Company's  operating  performance,  or GAAP
      cash flows from operating, investing and financing activities as a measure
      of  liquidity.  EBITDA is not  intended  to  depict  funds  available  for
      reinvestment or other  discretionary  uses, as the Company has significant
      debt requirements and other commitments. Investors should consider certain
      factors in evaluating the Company's  EBITDA,  including  interest expense,
      income  taxes,  noncash  income and expense  items,  changes in assets and
      liabilities, capital expenditures, investments in joint ventures and other
      items  included  in GAAP  cash  flows  as well as  future  debt  repayment
      requirements and other commitments, including those described in Notes 10,
      13 and 17 to the Consolidated  Financial Statements.  The Company believes
      that the  trend of its  EBITDA  is  consistent  with the trend of its GAAP
      operating  income.  See  "Management's  Discussion  and  Analysis"  for  a
      discussion of operating  income and cash flows during the last three years
      and the Company's outlook.  EBITDA as a measure of a company's performance
      may  not be  comparable  to  other  companies,  unless  substantially  all
      companies and analysts determine EBITDA as computed and presented herein.

(2)   Net debt  represents  notes  payable and  long-term  debt less cash,  cash
      equivalents (including restricted cash) and current marketable securities.

(3)   Interest expense,  net represents  interest expense less general corporate
      interest and dividend income.

(4)   Cash interest expense,  net represents interest expense,  net less noncash
      interest expense (deferred interest expense on the Senior Secured Discount
      Notes and amortization of deferred financing costs).



                                    -23-

<PAGE>



ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

  General

      The Company's  operations  are  conducted in two business  segments - TiO2
conducted by Kronos and  specialty  chemicals  conducted by Rheox.  As discussed
below, TiO2 selling prices increased during 1994 and the first half of 1995, but
declined in the last half of 1995 and during 1996.  Kronos' operating income and
margins improved during 1995, but declined in 1996.

      Many factors influence TiO2 pricing levels,  including  industry capacity,
worldwide demand growth and customer inventory levels and purchasing  decisions.
Kronos believes the decline in prices in 1996 was due, in part, to the impact of
recent  debottlenecking  projects increasing  capacity,  TiO2 customers reducing
inventory levels in a period of declining  prices,  and greater  competition for
sales volume with more industry  capacity  available.  Kronos  believes that the
TiO2 industry has long-term growth potential,  as discussed in "Item 1. Business
- - Kronos - Industry" and "Competition."

  Net sales and operating income
<TABLE>
<CAPTION>


                                    Years ended December 31,       % Change
                                ------------------------------  ----------------
                                  1994       1995       1996    1995-94  1996-95
                                --------   --------   --------  -------  -------
                                                  (In millions)
<S>                             <C>        <C>        <C>         <C>      <C>
Net sales:
  Kronos ....................   $  770.1   $  894.1   $  851.2     +16%     -5%
                                --------   --------   -------- 
  Rheox .....................      117.9      129.8      134.9     +10%     +4%

                                $  888.0   $1,023.9   $  986.1     +15%     -4%
                                ========   ========   ======== 
Operating income:
  Kronos ....................   $   80.6   $  161.2   $   71.6    +100%    -56%
  Rheox .....................       30.8       38.5       41.8     +25%     +8%
                                --------   --------   -------- 

                                $  111.4   $  199.7   $  113.4     +79%    -43%
                                ========   ========   ======== 

Percent change in TiO2:
  Sales volume ..............                                       -3%     +6%
  Average selling prices
   (in billing currencies) ..                                      +15%     -9%
</TABLE>

      Kronos'  operating  income in 1996 was lower  than 1995  primarily  due to
lower average TiO2 selling prices,  partially offset by higher sales volumes. In
billing   currency  terms,   Kronos'  1996  average  TiO2  selling  prices  were
approximately  9% lower  than in 1995.  Average  selling  prices  in the  fourth
quarter of 1996 were 17% lower than the fourth quarter of 1995 and were 3% lower
than the third quarter of 1996. Selling prices at the end of 1996 were 17% below
year-end  1995  levels,  8% below  the  average  for 1996 and were 1% below  the
average  selling prices during the fourth  quarter of 1996.  The  improvement in
Kronos'  1995  results over 1994 was  primarily  due to 15% higher  average TiO2
selling

                                    -24-

<PAGE>



prices and higher TiO2 production volumes,  partially offset by lower TiO2 sales
volumes.

      Kronos'  cost of sales in 1996 was  higher  than 1995 due to higher  sales
volumes and higher unit costs, primarily due to lower production levels. Kronos'
costs of sales in 1995 was higher than 1994 due to slightly higher manufacturing
costs,  partially  offset by lower sales volumes.  As a percentage of net sales,
cost of sales  increased  in 1996 and  decreased  in 1995  primarily  due to the
impact  on net  sales  of  changes  in the  average  selling  price  during  the
respective years.

      Kronos' selling, general and administrative expenses declined in 1996 from
the previous year, as a result of continuing  cost  containment  efforts,  while
1995's expense was higher than 1994 due to the unfavorable  effect of changes in
currency exchange rates.

      Record  sales volume of 388,000  metric tons of TiO2 in 1996  increased 6%
compared  to 1995,  with  improvements  in all major  markets,  including  a 10%
increase  in North  America.  Sales  volumes in the second half of 1996 were 16%
higher  than the same  period in 1995.  In  response to soft demand in the first
half of 1996 and its high inventory levels at the end of 1995,  Kronos curtailed
production rates in early 1996. As demand increased during the last half of 1996
and inventories  declined,  Kronos' production rates were increased to near full
capacity in late 1996 and the average capacity utilization was 95% for the year.
Kronos'  production  rates were 94% of its capacity in 1994 and at full capacity
in 1995.  Approximately  one-half of Kronos'  1996 TiO2 sales,  by volume,  were
attributable to markets in Europe with  approximately  37% attributable to North
America and the balance to other regions.

      Demand, supply and pricing of TiO2 have historically been cyclical. Kronos
anticipates  its TiO2  operating  margins  will  begin to  improve in the second
quarter of 1997 as the impact of  recently-announced  TiO2 price increases takes
effect;  however, Kronos expects its 1997 operating income will be below that of
1996,  primarily  because  of lower  anticipated  average  TiO2  prices for 1997
compared  to 1996 and  lower  technology  fee  income.  Demand  for TiO2 in 1996
increased over 1995 and Kronos  expects demand to remain strong in 1997.  Kronos
believes continued growth in demand should result in significant  improvement in
average selling prices over the longer term.

      Rheox's  operating  income  improved  in 1996  compared  to 1995 due to 5%
higher sales volumes, lower selling,  general and administrative  expenses and a
$2.7 million gain related to the  curtailment of certain U.S.  employee  pension
benefits,  partially offset by slightly higher  manufacturing  costs.  Operating
income  increased  in 1995 over 1994 due to 5% higher  sales  volumes and higher
average selling prices,  partially offset by higher raw material costs.  Rheox's
cost of sales  increased  in 1995  and  1996  over  the  respective  prior  year
primarily due to higher sales volumes,  and cost of sales as a percentage of net
sales were approximately the same level in 1994, 1995 and 1996. Selling, general
and  administrative  expenses decreased slightly in 1996 compared to 1995 due to
lower variable  compensation  expense,  and selling,  general and administrative
expenses in 1995 approximated 1994 amounts.


                                    -25-

<PAGE>



      The Company has  substantial  operations  and assets  located  outside the
United States (principally Germany, Norway, Belgium and Canada). The U.S. dollar
value of the Company's  foreign sales and operating costs is subject to currency
exchange rate  fluctuations  which may slightly impact reported earnings and may
affect the comparability of  period-to-period  operating  results. A significant
amount of the Company's sales are denominated in currencies  other than the U.S.
dollar (61% in 1996),  principally  major  European  currencies and the Canadian
dollar.  Certain  purchases  of  raw  materials,  primarily  titanium-containing
feedstocks,  are denominated in U.S.  dollars,  while labor and other production
costs are primarily  denominated in local currencies.  Fluctuations in the value
of the U.S.  dollar  relative to other  currencies  decreased  1996 sales by $14
million  compared to 1995 and  increased  1995 sales by $54 million  compared to
1994.

  General corporate

      The  following  table sets forth  certain  information  regarding  general
corporate income (expense).
<TABLE>
<CAPTION>


                                     Years ended December 31,        Change
                                     1994       1995      1996  1995-94  1996-95
                                    ------    ------    ------  -------  -------
                                             (In millions)

<S>                                <C>       <C>        <C>      <C>     <C>    
Securities earnings .............. $   3.9   $   7.4    $  4.7   $  3.5  $ (2.7)
Corporate expenses, net ..........   (44.7)    (26.6)    (17.4)    18.1     9.0
Interest expense .................   (83.9)    (81.6)    (75.0)     2.3     6.6
                                    ------    ------    ------   ------  ------

                                   $(124.7)  $(100.8)   $(87.7)  $ 23.9  $ 12.9
                                    ======    ======    ======   ======  ======
</TABLE>

      Securities  earnings  fluctuate  in part  based  upon the  amount of funds
invested and yields  thereon.  Corporate  expenses,  net in 1996 were lower than
1995 due to lower  provisions  for  environmental  remediation  cost.  Corporate
expenses,  net were  significantly  lower in 1995  compared to 1994 due to lower
provisions  for  environmental  remediation  and litigation  costs.  The Company
expects corporate expenses,  net in 1997 will exceed that of 1996, primarily due
to approximately $30 million of additional  environmental  remediation  accruals
related  to  the  adoption  of a new  accounting  standard.  See  Note  2 to the
Consolidated Financial Statements.

  Interest expense

      Interest  expense in 1996  declined  compared to 1995  principally  due to
lower  interest  rates on  variable  rate  debt,  principally  Kronos'  Deutsche
mark-denominated  debt, partially offset by higher levels of such DM-denominated
debt.  Interest expense in 1995 declined compared to 1994 due to lower levels of
debt,  principally  DM-denominated  debt,  and  lower  interest  rates  on  such
DM-denominated  debt. In January 1997, the Company  refinanced certain U.S. debt
and prepaid certain  DM-denominated debt, as discussed in "Liquidity and Capital
Resources," and expects its interest  expense will be higher in 1997 compared to
1996 as a result of higher anticipated interest rates and average debt levels.


                                    -26-

<PAGE>



  Provision for income taxes

      The  principal  reasons  for  the  difference  between  the  U.S.  federal
statutory  income  tax rates and the  Company's  effective  income tax rates are
explained in Note 13 to the  Consolidated  Financial  Statements.  The Company's
operations  are conducted on a worldwide  basis and the geographic mix of income
can  significantly  impact the Company's  effective income tax rate. In 1994 and
1996, the geographic mix of income,  including  losses in certain  jurisdictions
for which no current  refund was  available  and  recognition  of a deferred tax
asset was not considered appropriate, contributed to the Company's effective tax
rate varying from a normally-expected rate.

      Due to the  Company's  higher  U.S.  earnings  before  taxes in 1995,  the
Company's  valuation allowance was reduced by approximately $10 million due to a
change in estimate of the future tax benefit of certain U.S.  tax credits  which
the Company believes satisfies the "more-likely-than-not"  recognition criteria.
During 1995, the Company also recorded deferred tax benefits of $6.6 million due
to the reduction in dividend  withholding  tax rates pursuant to ratification of
the U.S./Canada  income tax treaty.  The Company's deferred income tax status at
December 31, 1996 is discussed in "Liquidity and Capital Resources."

LIQUIDITY AND CAPITAL RESOURCES

      The Company's consolidated cash flows provided by operating, investing and
financing activities for each of the past three years are presented below.

<TABLE>
<CAPTION>

                                                     Years ended December 31,
                                                  -----------------------------
                                                   1994        1995       1996
                                                  ------      ------     ------
                                                          (In millions)
<S>                                               <C>         <C>        <C>   
Net cash provided (used) by:
  Operating activities .......................    $181.7      $ 71.5     $ 16.5
  Investing activities .......................     (32.8)      (62.2)     (67.6)
  Financing activities .......................    (132.1)       (3.3)      26.6
                                                  ------      ------     ------

Net cash provided (used) by operating,
 investing and financing activities ..........    $ 16.8      $  6.0     $(24.5)
                                                  ======      ======     ======
</TABLE>

      The TiO2  industry is cyclical and changes in economic  conditions  within
the industry  significantly  impact the earnings and operating cash flows of the
Company. During 1996, declining TiO2 selling prices unfavorably impacted Kronos'
operating  income and cash  flows  from  operations  compared  to 1995.  Average
selling  prices  began a downward  trend in the last half of 1995 and  continued
throughout 1996. The Company expects prices will begin to increase in the second
quarter of 1997;  however,  no  assurance  can be given that price  trends  will
conform to the  Company's  expectations  and future cash flows will be adversely
affected should price trends be lower than the Company's expectations.

      Changes in the Company's inventories,  receivables and payables (excluding
the effect of currency  translation)  also  contributed  to the cash provided by
operations in 1994 and 1996;  however,  such changes used cash in 1995 primarily
due to increased inventory levels. In 1994 and 1995, net proceeds of $15 million
and  $26  million,  respectively,  from  the  sale  of  trading  securities  are
components  of the cash  provided  from  operations.  Certain  German income tax
refunds and

                                    -27-

<PAGE>



payments,  discussed  below,  significantly  increased cash flows from operating
activities  during 1994 and decreased  cash flows from  operating  activities in
1996.

      The Company's capital  expenditures during the past three years include an
aggregate  of $67  million  ($26  million  in 1996)  for the  Company's  ongoing
environmental  protection  and compliance  programs,  including a Canadian waste
acid neutralization  facility,  a Norwegian onshore tailings disposal system and
German and Norwegian off-gas  desulfurization  systems.  The Company's estimated
1997  and  1998   capital   expenditures   are  $35  million  and  $36  million,
respectively,  and include $3 million and $5 million,  respectively, in the area
of  environmental  protection  and compliance  primarily  related to the off-gas
desulfurization  systems.  The Company spent $9 million in 1995,  $18 million in
1996 and plans to spend an additional $8 million in 1997 in capital expenditures
related to a debottlenecking project at its Leverkusen, Germany chloride-process
TiO2  facility  that is expected  to increase  the  Company's  worldwide  annual
attainable  production to  approximately  410,000  metric tons in 1998.  Capital
expenditures  of  the  manufacturing  joint  venture  are  not  included  in the
Company's capital expenditures. Rheox acquired the minority interests of certain
of its non-U.S. subsidiaries for $5.2 million in 1996.

      In 1996,  the Company  borrowed DM 144 million ($96 million when borrowed)
under its DM credit  facility and used DM 49 million  ($32  million) to fund the
German tax settlement  payments  described  below, and used the remainder of the
proceeds  primarily  to fund  operations.  Repayments  of  indebtedness  in 1996
included  payments  of $23  million on the Rheox bank term loan,  $15 million in
payments on the joint  venture  term loan and DM 16 million  ($10  million  when
repaid)  in  payments  on  DM-denominated   notes  payable.  Net  repayments  of
indebtedness  in 1995  included  $30  million in payments on the Rheox bank term
loan and $15 million in payments on the joint  venture  term loan.  In addition,
the Company  borrowed a net DM 56 million  ($40  million  when  borrowed)  under
DM-denominated  short-term  credit lines.  In 1994,  the Company  borrowed DM 75
million ($45 million when borrowed) under the DM credit facility, and repayments
of indebtedness  included DM 225 million ($140 million when paid) in payments on
the DM credit facility,  $15 million in payments on the Rheox bank term loan and
$15 million in payments on the joint venture term loan.

      In order to improve its near-term  liquidity,  during  January  1997,  the
Company  refinanced  its Rheox  subsidiary,  obtaining a net $125 million of new
long-term  financing.  The net proceeds,  along with other available funds, were
used to prepay DM 207 million  ($127 million when paid) of the Company's DM term
loan and to repay DM 43 million  ($26  million  when paid) of the  Company's  DM
revolving  credit facility,  leaving DM 130 million ($80 million)  available for
borrowing at January 31, 1997. As a result of the  refinancing  and  prepayment,
the Company's  aggregate  scheduled debt payments for 1997 and 1998 decreased by
$103 million ($64 million in 1997 and $39 million in 1998).  In connection  with
the prepayment, the Company and its lenders modified certain financial covenants
of the DM credit agreement and NL guaranteed the facility.

      At  December  31,  1996,  the  Company  had  cash  and  cash   equivalents
aggregating  $114  million  (44%  held  by  non-U.S.   subsidiaries)   including
restricted cash and cash equivalents of $11 million. At December 31, 1996, after
giving pro forma

                                    -28-

<PAGE>



effect  for the  refinancing  discussed  above,  the  Company  had cash and cash
equivalents  aggregating  $87  million  and the  Company's  subsidiaries  had $9
million and $102 million available for borrowing under U.S. and non-U.S.  credit
facilities,  respectively.  At December 31, 1996, the Company had complied with,
or had  obtained  waivers  for,  all  financial  covenants  governing  its  debt
agreements.

      Dividends paid during 1996 totaled $15.3  million.  No dividends were paid
in 1994 or 1995. In October 1996, the Company's Board of Directors suspended the
Company's  quarterly  dividend  and  the  Company  is  currently  unable  to pay
dividends due to certain restrictions under the indentures of the Senior Notes.

      Based  upon  the  Company's   expectations   for  the  TiO2  industry  and
anticipated  demands on the Company's  cash resources as discussed  herein,  the
Company expects to have sufficient  liquidity to meet its near-term  obligations
including operations,  capital expenditures and debt service. To the extent that
actual developments differ from Company's expectations,  the Company's liquidity
could be adversely affected.

      Certain of the  Company's  income tax returns in various U.S. and non-U.S.
jurisdictions  are being  examined  and tax  authorities  have  proposed  or may
propose tax  deficiencies.  During  1994,  the German tax  authorities  withdrew
certain  proposed  tax  deficiencies  of DM 100 million and remitted tax refunds
aggregating DM 225 million ($136 million when received),  including interest, on
a tentative basis while  examination of the Company's  German income tax returns
continued.  The Company  subsequently  reached an agreement  with the German tax
authorities  regarding such examinations which resolved certain  significant tax
contingencies for years through 1990. The Company received final assessments and
paid certain tax  deficiencies  of  approximately  DM 50 million ($32  million),
including interest, in settlement of these issues in 1996. The Company considers
the agreement to be a favorable  resolution of the contingencies and the payment
was within previously-accrued amounts for such matters.

      Certain  other  German  tax  contingencies  remain  outstanding  and  will
continue to be litigated.  Although the Company believes that it will ultimately
prevail in the litigation, the Company has granted a DM 100 million ($64 million
at December 31, 1996) lien on its Nordenham,  Germany TiO2 plant in favor of the
German tax  authorities  until the litigation is resolved.  No assurances can be
given that this  litigation  will be resolved in the Company's  favor in view of
the inherent  uncertainties involved in court rulings. The Company believes that
it has  adequately  provided  accruals for  additional  income taxes and related
interest  expense which may  ultimately  result from all such  examinations  and
believes that the ultimate  disposition of such  examinations  should not have a
material  adverse  effect  on the  Company's  consolidated  financial  position,
results of operations or liquidity.

      At December 31, 1996, the Company had net deferred tax liabilities of $152
million. The Company operates in numerous tax jurisdictions, in certain of which
it has temporary  differences that net to deferred tax assets (before  valuation
allowance).  The Company has provided a deferred tax valuation allowance of $207
million at December 31, 1996, principally related to the U.S. and Germany,

                                    -29-

<PAGE>



partially  offsetting  deferred  tax assets  which the  Company  believes do not
currently meet the "more-likely-than-not" recognition criteria.

      In addition  to the  chemicals  businesses  conducted  through  Kronos and
Rheox,  the  Company  also has  certain  interests  and  associated  liabilities
relating to certain  discontinued  or divested  businesses and other holdings of
marketable  equity  securities  including  securities  issued by Valhi and other
Contran subsidiaries.

      The Company has been named as a  defendant,  PRP, or both,  in a number of
legal  proceedings  associated  with  environmental  matters,   including  waste
disposal sites,  mining locations and facilities  currently or previously owned,
operated  or used  by the  Company,  certain  of  which  are on the  U.S.  EPA's
Superfund National Priorities List or similar state lists. On a quarterly basis,
the Company evaluates the potential range of its liability at sites where it has
been named as a PRP or defendant.  The Company believes it has adequate accruals
for  reasonably  estimable  costs of such matters,  but the  Company's  ultimate
liability may be affected by a number of factors,  including changes in remedial
alternatives  and costs and the allocation of such costs among PRPs. The Company
is also a  defendant  in a  number  of legal  proceedings  seeking  damages  for
personal injury and property damage arising out of the sale of lead pigments and
lead-based paints.  There is no assurance that the Company will not incur future
liability  in  respect  of this  pending  litigation  in  view  of the  inherent
uncertainties  involved in court and jury rulings in pending and possible future
cases. However,  based on, among other things, the results of such litigation to
date, the Company believes that the pending lead pigment and paint litigation is
without  merit.  The  Company  has not  accrued  any  amounts  for such  pending
litigation.  Liability that may result,  if any, cannot reasonably be estimated.
The Company  currently  believes  the  disposition  of all claims and  disputes,
individually or in the aggregate,  should not have a material  adverse effect on
the  Company's  consolidated  financial  position,   results  of  operations  or
liquidity. There can be no assurance that additional matters of these types will
not arise in the  future.  See Item 3.  "Legal  Proceedings"  and Note 17 to the
Consolidated Financial Statements.

      As discussed above, the Company has substantial operations located outside
the United States for which the functional currency is not the U.S. dollar. As a
result,  the reported amount of the Company's assets and liabilities  related to
its non-U.S.  operations,  and therefore the Company's  consolidated net assets,
will fluctuate based upon changes in currency exchange rates. The carrying value
of the Company's net investment in its German  operations is a net liability due
principally  to its DM credit  facility,  while its net  investment in its other
non-U.S. operations are net assets.

      The Company periodically evaluates its liquidity requirements, alternative
uses of capital,  capital needs and  availability of resources in view of, among
other  things,  its  debt  service  and  capital  expenditure  requirements  and
estimated future operating cash flows. As a result of this process,  the Company
in the  past  has  sought  and in the  future  may  seek to  reduce,  refinance,
repurchase  or  restructure   indebtedness,   raise  additional  capital,  issue
additional  securities,   modify  its  dividend  policy,  restructure  ownership
interests, sell interests in subsidiaries or other assets, or take a combination
of such steps or other steps

                                    -30-

<PAGE>



to manage its  liquidity  and  capital  resources.  In the normal  course of its
business, the Company may review opportunities for the acquisition, divestiture,
joint venture or other business  combinations in the chemicals industry.  In the
event of any such  transaction,  the Company may consider using  available cash,
issuing equity securities or increasing its indebtedness to the extent permitted
by the  agreements  governing the Company's  existing  debt.  See Note 10 to the
Consolidated Financial Statements.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The information  required by this Item is contained in a separate  section
of this Annual Report. See "Index of Financial Statements and Schedules" on page
F-1.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

     Not applicable.

                                   PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information  required by this Item is incorporated by reference to the
Company's  definitive  proxy  statement  to be  filed  with the  Securities  and
Exchange  Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "NL Proxy Statement").

ITEM 11.    EXECUTIVE COMPENSATION

      The information  required by this Item is incorporated by reference to the
NL Proxy Statement.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information  required by this Item is incorporated by reference to the
NL Proxy Statement.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information  required by this Item is incorporated by reference to the
NL Proxy Statement. See also Note 16 to the Consolidated Financial Statements.

                                    PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

 (a) and (d)  Financial Statements and Schedules


                                    -31-

<PAGE>



               The consolidated financial statements and schedules listed by the
               Registrant on the accompanying Index of Financial  Statements and
               Schedules (see page F-1) are filed as part of this Annual Report.

 (b)           Reports on Form 8-K

               Reports on Form 8-K for the quarter  ended  December 31, 1996 and
               thereafter through the date of this report.

               October 23, 1996   -  reported Items 5 and 7.
               January 30, 1997   -  reported Items 5 and 7.

 (c)           Exhibits

               Included as exhibits are the items  listed in the Exhibit  Index.
               NL will furnish a copy of any of the  exhibits  listed below upon
               payment  of  $4.00  per  exhibit  to  cover  the  costs  to NL of
               furnishing  the  exhibits.  Instruments  defining  the  rights of
               holders  of  long-term  debt  issues  which do not  exceed 10% of
               consolidated total assets will be furnished to the Securities and
               Exchange Commission upon request.

                                    -32-

<PAGE>



Item No.                                Exhibit Index

  3.1       By-Laws,  as amended on June 28, 1990 - incorporated by reference to
            Exhibit 3.1 to the  Registrant's  Annual Report on Form 10-K for the
            year ended December 31, 1990.

  3.2       Certificate  of Amended and Restated  Certificate  of  Incorporation
            dated June 28, 1990 - incorporated  by reference to Exhibit 1 to the
            Registrant's  Proxy Statement on Schedule 14A for the annual meeting
            held on June 28, 1990.

  4.1       Registration Rights Agreement dated October 30, 1991, by and between
            the Registrant and Tremont  Corporation - incorporated  by reference
            to Exhibit 4.3 to the  Registrant's  Annual  Report on Form 10-K for
            the year ended December 31, 1991.

  4.2       Indenture dated October 20, 1993 governing the  Registrant's  11.75%
            Senior  Secured  Notes  due  2003,  including  form of  Senior  Note
            incorporated  by  reference  to  Exhibit  4.1  to  the  Registrant's
            Quarterly  Report on Form 10-Q for the quarter  ended  September 30,
            1993.

  4.3       Senior  Mirror  Notes  dated  October  20,  1993 -  incorporated  by
            reference  to Exhibit 4.3 to the  Registrant's  Quarterly  Report on
            Form 10-Q for the quarter ended September 30, 1993.

  4.4       Senior  Note  Subsidiary  Pledge  Agreement  dated  October 20, 1993
            between  Registrant and Kronos,  Inc. - incorporated by reference to
            Exhibit 4.4 to the  Registrant's  Quarterly  Report on Form 10-Q for
            the quarter ended September 30, 1993.

  4.5       Third Party Pledge and  Intercreditor  Agreement  dated  October 20,
            1993 between Registrant, Chase Manhattan Bank (National Association)
            and Chemical Bank - incorporated  by reference to Exhibit 4.5 to the
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            September 30, 1993.

  4.6       Indenture  dated  October 20, 1993  governing the  Registrant's  13%
            Senior Secured  Discount Notes due 2005,  including form of Discount
            Note - incorporated by reference to Exhibit 4.6 to the  Registrant's
            Quarterly  Report on Form 10-Q for the quarter  ended  September 30,
            1993.

  4.7       Discount  Mirror  Notes dated  October 20,  1993 -  incorporated  by
            reference  to Exhibit 4.8 to the  Registrant's  Quarterly  Report on
            Form 10-Q for the quarter ended September 30, 1993.

  4.8       Discount Note  Subsidiary  Pledge  Agreement  dated October 20, 1993
            between  Registrant and Kronos,  Inc. - incorporated by reference to
            Exhibit 4.9 to the  Registrant's  Quarterly  Report on Form 10-Q for
            the quarter ended September 30, 1993.


                                    -33-

<PAGE>



 10.1       Amended and  Restated  Loan  Agreement  dated as of October 15, 1993
            among  Kronos  International,  Inc.,  the Banks  set forth  therein,
            Hypobank  International  S.A.,  as  Agent  and  Banque  Paribas,  as
            Co-agent  -  incorporated  by  reference  to  Exhibit  10.17  to the
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            September 30, 1993.

 10.2       Second Amended and Restated Loan  Agreement  dated as of January 31,
            1997 among Kronos International,  Inc., Hypobank International S.A.,
            as Agent, and the Banks set forth therein.

 10.3       Amended and Restated Liquidity Undertaking dated October 15, 1993 by
            the  Registrant,  Kronos,  Inc.  and Kronos  International,  Inc. to
            Hypobank  International  S.A.,  as  agent,  and the  Banks set forth
            therein  -  incorporated  by  reference  to  Exhibit  10.18  to  the
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            September 30, 1993.

 10.4       Second Amended and Restated Liquidity  Undertaking dated January 31,
            1997 by the Registrant, Kronos, Inc. and Kronos International,  Inc.
            to and in favor of Hypobank  International  S.A., as Agent,  and the
            Banks set forth therein.

 10.5       Guaranty  dated as of January  31,  1997 made by the  Registrant  in
            favor of Hypobank International S.A., as Agent.

 10.6       Credit Agreement dated as of March 20, 1991 between Rheox,  Inc. and
            Subsidiary   Guarantors  and  The  Chase  Manhattan  Bank  (National
            Association)   and  the  Nippon  Credit  Bank,  Ltd.,  as  Co-agents
            incorporated by reference to Exhibit 10.4 to the Registrant's Annual
            Report on Form 10-K for the year ended December 31, 1990.

 10.7       Amendments  1 and 2  dated  May  1,  1991  and  February  15,  1992,
            respectively,  to the  Credit  Agreement  between  Rheox,  Inc.  and
            Subsidiary   Guarantors  and  the  Chase  Manhattan  Bank  (National
            Association)   and  the  Nippon  Credit  Bank,   Ltd.  as  Co-agents
            incorporated  by  reference  to  Exhibit  10.2  to the  Registrant's
            Quarterly Report on form 10-Q for the quarter ended June 30, 1992.

 10.8       Third amendment to the Credit Agreement, dated March 5, 1993 between
            Rheox,  Inc. and Subsidiary  Guarantors and the Chase Manhattan Bank
            (National  Association) and the Nippon Credit Bank, Ltd as Co-agents
            -  incorporated  by reference  to Exhibit  10.7 to the  Registrant's
            Annual Report on Form 10-K for the year ended December 31, 1992.

 10.9       Fourth and Fifth Amendments to the Credit Agreement, dated September
            23, 1994 and December 15, 1994,  respectively,  between Rheox,  Inc.
            and  Subsidiary  Guarantors  and the Chase  Manhattan Bank (National
            Association)   and  the  Nippon  Credit  Bank,   Ltd.  as  Co-agents
            incorporated by reference to Exhibit 10.6 to the Registrant's Annual
            Report on Form 10-K for the year ended December 31, 1994.

                                    -34-

<PAGE>



 10.10      Sixth  and  Seventh  Amendments  to  the  Credit  Agreement,   dated
            September  23,  1995 and  February  2, 1996,  respectively,  between
            Rheox,  Inc. and Subsidiary  Guarantors and the Chase Manhattan Bank
            (National Association) and the Nippon Credit Bank, Ltd. as Co-agents
            -  incorporated  by reference  to Exhibit  10.7 to the  Registrant's
            Annual Report on Form 10-K for the year ended December 31, 1995.

 10.11      Eighth amendment to the Credit Agreement,  dated September 17, 1996,
            between  Rheox,  Inc.  and  Subsidiaries,  Guarantors  and the Chase
            Manhattan  Bank (National  Association)  and the Nippon Credit Bank,
            Ltd. as Co-Agents - incorporated by reference to Exhibit 10.1 to the
            Registrants'  Quarterly  Report on Form 10-Q for the  quarter  ended
            September 30, 1996.

 10.12      Amended and Restated  Credit  Agreement dated as of January 30, 1997
            between Rheox,  Inc., the Subsidiary  Guarantors Party thereto,  the
            Lenders Party thereto,  the Chase Manhattan Bank, as  Administrative
            Agent, and Bankers Trust Company, as Documentation Agent.

 10.13      Credit  Agreement  dated as of  October  18,  1993  among  Louisiana
            Pigment  Company,  L.P., as Borrower,  the Banks listed  therein and
            Citibank,  N.A.,  as Agent -  incorporated  by  reference to Exhibit
            10.11 to the  Registrant's  Quarterly  Report  on Form  10-Q for the
            quarter ended September 30, 1993.

 10.14      Security  Agreement  dated October 18, 1993 from  Louisiana  Pigment
            Company, L.P., as Borrower, to Citibank, N.A., as Agent incorporated
            by reference to Exhibit 10.12 to the  Registrant's  Quarterly Report
            on Form 10-Q for the quarter ended September 30, 1993.

 10.15      Security  Agreement  dated  October 18, 1993 from Kronos  Louisiana,
            Inc. as Grantor,  to  Citibank,  N.A.,  as Agent -  incorporated  by
            reference to Exhibit 10.13 to the  Registrant's  Quarterly Report on
            Form 10-Q for the quarter ended September 30, 1993.

 10.16      KLA Consent  and  Agreement  dated as of October  18,  1993  between
            Kronos Louisiana,  Inc. and Citibank,  N.A., as Agent - incorporated
            by reference to Exhibit 10.14 to the  Registrant's  Quarterly Report
            on Form 10-Q for the quarter ended September 30, 1993.

 10.17      Guaranty dated October 18, 1993, from Kronos, Inc., as guarantor, in
            favor of Lenders named therein, as Lenders,  and Citibank,  N.A., as
            Agent  -   incorporated   by  reference  to  Exhibit  10.15  to  the
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            September 30, 1993.

 10.18      Mortgage by Louisiana  Pigment Company,  L.P. dated October 18, 1993
            in favor of Citibank,  N.A. -  incorporated  by reference to Exhibit
            10.16 to the  Registrant's  Quarterly  Report  on Form  10-Q for the
            quarter ended September 30, 1993.

                                    -35-

<PAGE>



 10.19      Lease Contract dated June 21, 1952,  between  Farbenfabrieken  Bayer
            Aktiengesellschaft  and  Titangesellschaft  mit beschrankter Haftung
            (German   language   version   and  English   translation   thereof)
            incorporated  by  reference  to  Exhibit  10.14 to the  Registrant's
            Annual Report on Form 10-K for the year ended December 31, 1985.

 10.20      Contract on Supplies and Services among Bayer AG, Kronos  Titan-GmbH
            and  Kronos  International,   Inc.  dated  June  30,  1995  (English
            translation  from  German  language   document)  -  incorporated  by
            reference to Exhibit 10.1 to the  Registrant's  Quarterly  Report on
            Form 10-Q for the quarter ended September 30, 1995.

 10.21      Richards Bay Slag Sales Agreement dated May 1, 1995 between Richards
            Bay  Iron  and  Titanium  (Proprietary)  Limited  and  Kronos,  Inc.
            incorporated  by  reference  to  Exhibit  10.17 to the  Registrant's
            Annual Report on Form 10-K for the year ended December 31, 1995.

 10.22      Formation  Agreement  dated as of October  18,  1993  among  Tioxide
            Americas Inc., Kronos Louisiana, Inc. and Louisiana Pigment Company,
            L.P. - incorporated by reference to Exhibit 10.2 to the Registrant's
            Quarterly  Report on Form 10-Q for the quarter  ended  September 30,
            1993.

 10.23      Joint Venture Agreement dated as of October 18, 1993 between Tioxide
            Americas Inc. and Kronos Louisiana, Inc. - incorporated by reference
            to Exhibit 10.3 to the  Registrant's  Quarterly  Report on Form 10-Q
            for the quarter ended September 30, 1993.

 10.24      Amendment No. 1 to Joint Venture  Agreement dated as of December 20,
            1995 between  Tioxide  Americas  Inc. and Kronos  Louisiana,  Inc. -
            incorporated  by  reference  to  Exhibit  10.20 to the  Registrant's
            Annual Report on Form 10-K for the year ended December 31, 1995.

 10.25      Kronos Offtake Agreement dated as of October 18, 1993 between Kronos
            Louisiana,  Inc. and Louisiana Pigment Company,  L.P. - incorporated
            by reference to Exhibit 10.4 to the Registrant's Quarterly Report on
            Form 10-Q for the quarter ended September 30, 1993.

 10.26      Amendment No. 1 to Kronos Offtake Agreement dated as of December 20,
            1995 between Kronos  Louisiana,  Inc. and Louisiana Pigment Company,
            L.P.  -   incorporated   by  reference  to  Exhibit   10.22  to  the
            Registrant's  Annual Report on Form 10-K for the year ended December
            31, 1995.

 10.27      Tioxide  Americas  Offtake  Agreement  dated as of October  18, 1993
            between Tioxide Americas Inc. and Louisiana Pigment Company,  L.P. -
            incorporated  by  reference  to  Exhibit  10.5  to the  Registrant's
            Quarterly  Report on Form 10-Q for the quarter  ended  September 30,
            1993.

 10.28      Amendment No. 1 to Tioxide  Americas  Offtake  Agreement dated as of
            December 20, 1995 between Tioxide Americas Inc. and Louisiana

                                    -36-

<PAGE>



            Pigment  Company,  L.P. - incorporated by reference to Exhibit 10.24
            to the  Registrant's  Annual  Report on Form 10-K for the year ended
            December 31, 1995.

 10.29      TCI/KCI  Output  Purchase  Agreement  dated as of October  18,  1993
            between  Tioxide Canada Inc. and Kronos Canada,  Inc. - incorporated
            by reference to Exhibit 10.6 to the Registrant's Quarterly Report on
            Form 10-Q for the quarter ended September 30, 1993.

 10.30      TAI/KLA  Output  Purchase  Agreement  dated as of October  18,  1993
            between  Tioxide  Americas  Inc.  and  Kronos   Louisiana,   Inc.  -
            incorporated  by  reference  to  Exhibit  10.7  to the  Registrant's
            Quarterly  Report on Form 10-Q for the quarter  ended  September 30,
            1993.

 10.31      Master  Technology  Exchange  Agreement dated as of October 18, 1993
            among Kronos,  Inc., Kronos Louisiana,  Inc., Kronos  International,
            Inc.,  Tioxide  Group  Limited and Tioxide  Group  Services  Limited
            incorporated  by  reference  to  Exhibit  10.8  to the  Registrant's
            Quarterly  Report on Form 10-Q for the quarter  ended  September 30,
            1993.

 10.32      Parents'  Undertaking  dated as of  October  18,  1993  between  ICI
            American Holdings Inc. and Kronos,  Inc. - incorporated by reference
            to Exhibit 10.9 to the  Registrant's  Quarterly  Report on Form 10-Q
            for the quarter ended September 30, 1993.

 10.33      Allocation  Agreement  dated as of October 18, 1993 between  Tioxide
            Americas Inc., ICI American Holdings,  Inc., Kronos, Inc. and Kronos
            Louisiana,  Inc. - incorporated by reference to Exhibit 10.10 to the
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            September 30, 1993.

 10.34*     1985 Long Term Performance Incentive Plan of NL Industries, Inc., as
            adopted by the Board of Directors on February 27, 1985  incorporated
            by reference  to Exhibit A to the  Registrant's  Proxy  Statement on
            Schedule 14A for the annual  meeting of  shareholders  held on April
            24, 1985.

 10.35      Form  of  Director's   Indemnity   Agreement   between  NL  and  the
            independent  members of the Board of Directors of NL -  incorporated
            by reference to Exhibit 10.20 to the  Registrant's  Annual Report on
            Form 10-K for the year ended December 31, 1987.

 10.36*     1989 Long Term Performance  Incentive Plan of NL Industries,  Inc. -
            incorporated  by  reference to Exhibit B to the  Registrant's  Proxy
            Statement  on Schedule  14A for the annual  meeting of  shareholders
            held on May 8, 1996.

 10.37*     NL Industries,  Inc.  Variable  Compensation  Plan - incorporated by
            reference to Exhibit A to the Registrant's Proxy Statement on

                                    -37-

<PAGE>



            Schedule 14A for the annual meeting of  shareholders  held on May 8,
            1996.

 10.38*     NL Industries, Inc. Retirement Savings Plan, as amended and restated
            effective April 1, 1996.

 10.39*     NL Industries, Inc. 1992 Non-Employee Director Stock Option Plan, as
            adopted by the Board of Directors on February 13, 1992  incorporated
            by reference to Appendix A to the  Registrant's  Proxy  Statement on
            Schedule 14A for the annual meeting of  shareholders  held April 30,
            1992.

 10.40      Intercorporate Services Agreement by and between Valhi, Inc. and the
            Registrant effective as of January 1, 1996.

 10.41      Intercorporate Services Agreement by and between Contran Corporation
            and the Registrant effective as of January 1, 1996.

 10.42      Intercorporate Services Agreement by and between Tremont Corporation
            and the Registrant effective as of January 1, 1996.

 10.43      Insurance  Sharing  Agreement,  effective  January 1,  1990,  by and
            between the Registrant,  NL Insurance,  Ltd. (an indirect subsidiary
            of Tremont  Corporation)  and Baroid  Corporation - incorporated  by
            reference to Exhibit 10.20 to the Registrant's Annual Report on Form
            10-K for the year ended December 31, 1991.

 10.44*     Executive  severance  agreement effective as of February 16, 1994 by
            and between the Registrant and Joseph S.  Compofelice - incorporated
            by reference to Exhibit 10.2 to the Registrant's Quarterly Report on
            Form 10-Q for the quarter ended September 30, 1996.

 10.45*     Executive  severance  agreement effective as of March 9, 1995 by and
            between the  Registrant  and  Lawrence A. Wigdor -  incorporated  by
            reference to Exhibit 10.3 to the  Registrant's  Quarterly  Report on
            Form 10-Q for the quarter ended September 30, 1996.

 10.46*     Executive  Severance  Agreement effective as of December 31, 1991 by
            and between the Registrant  and J. Landis Martin -  incorporated  by
            reference to Exhibit 10.22 to the Registrant's Annual Report on Form
            10-K for the year ended December 31, 1991.

 10.47*     Supplemental  Executive  Retirement Plan for Executives and Officers
            of NL Industries,  Inc. effective as of January 1, 1991 incorporated
            by reference to Exhibit 10.26 to the  Registrant's  Annual Report on
            Form 10-K for the year ended December 31, 1992.

 10.48*     Agreement to Defer Bonus Payment dated December 28, 1995 between the
            Registrant  and  Lawrence  A.  Wigdor and  related  trust  agreement
            incorporated  by  reference  to  Exhibit  10.43 to the  Registrant's
            Annual Report on Form 10-K for the year ended December 31, 1995.


                                    -38-

<PAGE>



 21.1       Subsidiaries of the Registrant.

 23.1       Consent of Independent Accountants.

 27.1       Financial Data Schedules for the year ended December 31, 1996.

 99.1       Annual Report of Savings Plan for Employees of NL  Industries,  Inc.
            (Form 11-K) to be filed under Form 10-K/A to the Registrant's Annual
            Report on Form 10-K within 180 days after December 31, 1996.

* Management contract, compensatory plan or arrangement.

                                    -39-

<PAGE>



                                  SIGNATURES


      Pursuant  to the  requirements  of Section  13 or 15(d) 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.

                                       NL Industries, Inc.
                                       (Registrant)



                                   By /s/ J. Landis Martin
                                      J. Landis Martin, March 20, 1997
                                      President and Chief Executive Officer


      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the date indicated:





/s/ J. Landis Martin                   /s/ Harold C. Simmons
- -----------------------------------    ----------------------------------------
J. Landis Martin, March 20, 1997       Harold C. Simmons, March 20, 1997
Director, President and                Chairman of the Board
Chief Executive Officer



/s/ Glenn R. Simmons                   /s/ Joseph S. Compofelice
- -----------------------------------    ----------------------------------------
Glenn R. Simmons, March 20, 1997       Joseph S. Compofelice, March 20, 1997
Director                               Director, Vice President and
                                       Chief Financial Officer


/s/ Kenneth R. Peak                    /s/ Dr. Lawrence A. Wigdor
- -----------------------------------    ----------------------------------------
Kenneth R. Peak, March 20, 1997        Dr. Lawrence A. Wigdor, March 20, 1997
Director                               Director, President and Chief
                                       Executive Officer of Kronos and Rheox


/s/ Elmo R. Zumwalt, Jr.               /s/ Dennis G. Newkirk
- -----------------------------------    ----------------------------------------
Elmo R. Zumwalt, Jr., March 20,1997    Dennis G. Newkirk, March 20, 1997
Director                               Vice President and Controller
                                       (Principal Accounting Officer)




                                    -40-

<PAGE>

                              NL INDUSTRIES, INC.

                          ANNUAL REPORT ON FORM 10-K

                           Items 8, 14(a) and 14(d)

                  Index of Financial Statements and Schedules



Financial Statements                                                  Pages

  Report of Independent Accountants .............................    F-2

  Consolidated Balance Sheets - December 31, 1995 and 1996 ......    F-3 / F-4

  Consolidated Statements of Operations - Years ended
   December 31, 1994, 1995 and 1996 .............................    F-5

  Consolidated Statements of Shareholders' Deficit - Years
   ended December 31, 1994, 1995 and 1996 .......................    F-6

  Consolidated Statements of Cash Flows - Years ended
   December 31, 1994, 1995 and 1996 .............................    F-7 / F-9

  Notes to Consolidated Financial Statements ....................    F-10 / F-36


Financial Statement Schedules

  Report of Independent Accountants .............................    S-1

  Schedule I - Condensed Financial Information of Registrant ....    S-2 / S-7

  Schedule II - Valuation and qualifying accounts ...............    S-8





                                    F-1

<PAGE>







                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Shareholders and Board of Directors of NL Industries, Inc.:

      We  have  audited  the  accompanying  consolidated  balance  sheets  of NL
Industries,  Inc. as of December 31, 1995 and 1996, and the related consolidated
statements of operations,  shareholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1996.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects,  the consolidated financial position of NL Industries,
Inc. as of December  31, 1995 and 1996,  and the  consolidated  results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.






                                    COOPERS & LYBRAND L.L.P.

Houston, Texas
February 7, 1997




                                    F-2

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                          December 31, 1995 and 1996

                     (In thousands, except per share data)


<TABLE>
<CAPTION>


              ASSETS
                                                           1995          1996
                                                       ----------     ----------

<S>                                                    <C>            <C>       
Current assets:
  Cash and cash equivalents, including
   restricted cash of $10,104 and $10,895 ........     $  141,333     $  114,115
  Accounts and notes receivable, less
   allowance of $4,039 and $3,813 ................        147,428        138,538
  Refundable income taxes ........................          4,941          9,267
  Inventories ....................................        251,630        232,510
  Prepaid expenses ...............................          3,217          4,219
  Deferred income taxes ..........................          2,522          1,597
                                                       ----------     ----------

      Total current assets .......................        551,071        500,246
                                                       ----------     ----------


Other assets:
  Marketable securities ..........................         20,944         23,718
  Investment in joint ventures ...................        185,893        181,479
  Prepaid pension cost ...........................         22,576         24,821
  Deferred income taxes ..........................            788            223
  Other ..........................................         31,165         24,825
                                                       ----------     ----------

      Total other assets .........................        261,366        255,066
                                                       ----------     ----------


Property and equipment:
  Land ...........................................         22,902         21,963
  Buildings ......................................        166,349        165,479
  Machinery and equipment ........................        648,458        660,333
  Mining properties ..............................         97,190         95,891
  Construction in progress .......................         11,187         13,231
                                                       ----------     ----------
                                                          946,086        956,897

  Less accumulated depreciation and depletion ....        486,870        490,851
                                                       ----------     ----------

      Net property and equipment .................        459,216        466,046
                                                       ----------     ----------

                                                       $1,271,653     $1,221,358
                                                       ==========     ==========
</TABLE>




                                    F-3

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEETS (CONTINUED)

                          December 31, 1995 and 1996

                     (In thousands, except per share data)



<TABLE>
<CAPTION>

   LIABILITIES AND SHAREHOLDERS' DEFICIT
                                                        1995            1996
                                                    -----------     -----------

<S>                                                 <C>             <C>        
Current liabilities:
  Notes payable ................................    $    39,247     $    25,732
  Current maturities of long-term debt .........         43,369          91,946
  Accounts payable and accrued liabilities .....        165,985         153,904
  Payable to affiliates ........................         10,181          10,204
  Income taxes .................................         40,088           5,664
  Deferred income taxes ........................          3,555           2,895
                                                    -----------     -----------

      Total current liabilities ................        302,425         290,345
                                                    -----------     -----------

Noncurrent liabilities:
  Long-term debt ...............................        740,334         737,100
  Deferred income taxes ........................        157,192         151,221
  Accrued pension cost .........................         69,311          57,941
  Accrued postretirement benefits cost .........         60,235          55,935
  Other ........................................        148,511         132,048
                                                    -----------     -----------

      Total noncurrent liabilities .............      1,175,583       1,134,245
                                                    -----------     -----------

Minority interest ..............................          3,066             249
                                                    -----------     -----------

Shareholders' deficit:
  Preferred stock - 5,000 shares authorized,
   no shares issued or outstanding .............             --              --
  Common stock - $.125 par value; 150,000
   shares authorized; 66,839 shares issued .....          8,355           8,355
  Additional paid-in capital ...................        759,281         759,281
  Adjustments:
    Currency translation .......................       (126,934)       (118,629)
    Pension liabilities ........................         (1,908)         (1,822)
    Marketable securities ......................           (525)          1,278
  Accumulated deficit ..........................       (481,432)       (485,948)
  Treasury stock, at cost (15,748 and 15,721
   shares) .....................................       (366,258)       (365,996)
                                                    -----------     -----------

      Total shareholders' deficit ..............       (209,421)       (203,481)
                                                    -----------     -----------

                                                    $ 1,271,653     $ 1,221,358
                                                    ===========     ===========
</TABLE>

Commitments and contingencies (Notes 13 and 17)

         See accompanying notes to consolidated financial statements.

                                    F-4

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                 Years ended December 31, 1994, 1995 and 1996

                     (In thousands, except per share data)


<TABLE>
<CAPTION>


                                             1994          1995         1996
                                         -----------   -----------  -----------

<S>                                      <C>           <C>          <C>        
Revenues and other income:
  Net sales ...........................  $   887,954   $ 1,023,939  $   986,074
  Other, net ..........................       44,828        22,241       30,480
                                         -----------   -----------  -----------

                                             932,782     1,046,180    1,016,554
                                         -----------   -----------  -----------

Costs and expenses:
  Cost of sales .......................      649,745       676,184      738,438
  Selling, general and administrative .      212,516       189,477      177,464
  Interest ............................       83,926        81,617       75,039
                                         -----------   -----------  -----------

                                             946,187       947,278      990,941
                                         -----------   -----------  -----------
    Income (loss) before income
     taxes and minority interest ......      (13,405)       98,902       25,613

Income tax expense ....................        9,734        12,671       14,833
                                         -----------   -----------  -----------

    Income (loss) before minority
     interest .........................      (23,139)       86,231       10,780

Minority interest .....................          843           622          (37)
                                         -----------   -----------  -----------

     Net income (loss) ................  $   (23,982)  $    85,609  $    10,817
                                         ===========   ===========  ===========


Net income (loss) per share of common
 stock and common stock equivalents ...  $      (.47)  $      1.66  $       .21
                                         ===========   ===========  ===========

Weighted average common shares and
 common stock equivalents outstanding .       51,022        51,512       51,350
                                         ===========   ===========  ===========

</TABLE>








         See accompanying notes to consolidated financial statements.

                                    F-5

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

                 Years ended December 31, 1994, 1995 and 1996

                                (In thousands)
<TABLE>
<CAPTION>

                                                               Adjustments
                                                   -----------------------------------
                                        Additional 
                              Common     paid-in    Currency      Pension   Marketable Accumulated  Treasury  
                               stock     capital   translation  liabilities securities   deficit     stock        Total
                              ---------  --------- -----------  ----------- ---------- -----------  ---------   ---------

<S>                           <C>        <C>        <C>         <C>         <C>         <C>         <C>         <C>       
Balance at December 31, 1993  $   8,355  $ 759,281  $(115,803)  $  (3,442)  $  (2,164)  $(543,059)  $(367,963)  $(264,795)

Net loss ...................         --         --         --          --          --     (23,982)         --     (23,982)
Treasury stock reissued ....         --         --         --          --          --          --       1,427       1,427
Adjustments ................         --         --     (9,691)      1,807       2,152          --          --      (5,732)
                              ---------  ---------  ---------   ---------   ---------   ---------   ---------   ---------

Balance at December 31, 1994      8,355    759,281   (125,494)     (1,635)        (12)   (567,041)   (366,536)   (293,082)

Net income .................         --         --         --          --          --      85,609          --      85,609
Treasury stock reissued ....         --         --         --          --          --          --         278         278
Adjustments ................         --         --     (1,440)       (273)       (513)         --          --      (2,226)
                              ---------  ---------  ---------   ---------   ---------   ---------   ---------   ---------

Balance at December 31, 1995      8,355    759,281   (126,934)     (1,908)       (525)   (481,432)   (366,258)   (209,421)

Net income .................         --         --         --          --          --      10,817          --      10,817
Common dividends declared -
 $.30 per share ............         --         --         --          --          --     (15,333)         --     (15,333)
Treasury stock reissued ....         --         --         --          --          --          --         262         262
Adjustments ................         --         --      8,305          86       1,803          --          --      10,194
                              ---------  ---------  ---------   ---------   ---------   ---------   ---------   ---------

Balance at December 31, 1996  $   8,355  $ 759,281  $(118,629)  $  (1,822)  $   1,278   $(485,948)  $(365,996)  $(203,481)
                              =========  =========  =========   =========   =========   =========   =========   =========
</TABLE>





         See accompanying notes to consolidated financial statements.

                                    F-6

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 Years ended December 31, 1994, 1995 and 1996

                                (In thousands)


<TABLE>
<CAPTION>


                                              1994          1995        1996
                                           ---------    ---------    ---------

<S>                                         <C>          <C>          <C>      
Cash flows from operating activities:
  Net income (loss) .....................   $ (23,982)   $  85,609    $  10,817
  Depreciation, depletion and
   amortization .........................      34,592       38,989       39,664
  Noncash interest expense ..............      18,071       19,396       20,959
  Deferred income taxes .................      11,907      (29,248)       2,802
  Minority interest .....................         843          622          (37)
  Net (gains) losses from:
    Securities transactions .............       1,220       (1,175)          --
    Disposition of property and
     equipment ..........................       1,981        2,713        2,312
  Pension cost, net .....................      (2,753)      (7,248)     (12,893)
  Other postretirement benefits, net ....      (3,437)      (4,169)      (5,086)
  Other, net ............................          68         (477)        (126)
                                            ---------    ---------    ---------

                                               38,510      105,012       58,412

  Change in assets and liabilities:
    Accounts and notes receivable .......     (13,152)      (1,483)       2,798
    Inventories .........................      17,778      (57,378)       8,401
    Prepaid expenses ....................       3,221        1,148       (1,426)
    Accounts payable and accrued
     liabilities ........................     (17,343)     (17,700)      (3,311)
    Income taxes ........................     109,243       14,861      (39,424)
    Accounts with affiliates ............      (2,024)      (4,059)       3,229
    Other noncurrent assets .............       2,219        1,587          684
    Other noncurrent liabilities ........      28,706        3,233      (12,825)
    Marketable trading securities:
      Purchases .........................        (870)        (762)          --
      Dispositions ......................      15,530       27,102           --
                                            ---------    ---------    ---------

    Net cash provided by operating
     activities .........................     181,818       71,561       16,538
                                            ---------    ---------    ---------

</TABLE>





                                    F-7

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                 Years ended December 31, 1994, 1995 and 1996

                                (In thousands)


<TABLE>
<CAPTION>


                                               1994         1995         1996
                                            ---------    ---------    ---------

<S>                                         <C>          <C>          <C>       
Cash flows from investing activities:
  Capital expenditures ..................   $ (36,931)   $ (64,196)   $ (66,906)
  Purchase of minority interest .........          --           --       (5,168)
  Investment in joint ventures, net .....       3,133        1,793        4,359
  Proceeds from disposition of
   property and equipment ...............         598          182          108
  Other, net ............................         362           --           --
                                            ---------    ---------    ---------

      Net cash used by investing
       activities .......................     (32,838)     (62,221)     (67,607)
                                            ---------    ---------    ---------

Cash flows from financing activities:
  Indebtedness:
    Borrowings ..........................      44,490       57,556       97,503
    Principal payments ..................    (175,886)     (61,128)     (55,403)
  Dividends paid ........................          --           --      (15,333)
  Other, net ............................        (742)         264         (202)
                                            ---------    ---------    ---------

      Net cash provided (used) by
       financing activities .............    (132,138)      (3,308)      26,565
                                            ---------    ---------    ---------

      Net change during the year from
       operating, investing and
       financing activities .............   $  16,842    $   6,032    $ (24,504)
                                            =========    =========    =========
</TABLE>





                                    F-8

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                 Years ended December 31, 1994, 1995 and 1996

                                (In thousands)


<TABLE>
<CAPTION>


                                             1994         1995       1996
                                            ---------    ---------    ---------

<S>                                         <C>          <C>          <C>       
Cash and cash equivalents:
 Net change during the year from:
    Operating, investing and financing
     activities .........................   $  16,842    $   6,032    $ (24,504)
    Currency translation ................       7,689        4,177       (2,714)
                                            ---------    ---------    ---------

                                               24,531       10,209      (27,218)
  Balance at beginning of year ..........     106,593      131,124      141,333
                                            ---------    ---------    ---------

  Balance at end of year ................   $ 131,124    $ 141,333    $ 114,115
                                            =========    =========    =========

Supplemental disclosures - cash paid
 (received) for:
  Interest, net of amounts capitalized ..   $  66,801    $  62,078    $  51,678
  Income taxes, net .....................    (111,418)      27,965       50,400

</TABLE>





         See accompanying notes to consolidated financial statements.
                                    F-9
                                   

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1 - Organization and basis of presentation:

      NL Industries,  Inc. conducts its operations primarily through its wholly-
owned  subsidiaries,  Kronos,  Inc.  (titanium  dioxide  pigments or "TiO2") and
Rheox, Inc. (specialty chemicals).

      Valhi,   Inc.  and  Tremont   Corporation,   each  affiliates  of  Contran
Corporation,  hold 56% and 18%, respectively,  of NL's outstanding common stock.
Contran holds,  directly or through  subsidiaries,  approximately 91% of Valhi's
and 44% of Tremont's  outstanding  common stock.  Substantially all of Contran's
outstanding  voting stock is held by trusts  established  for the benefit of the
children and  grandchildren  of Harold C. Simmons,  of which Mr.  Simmons is the
sole trustee.  Mr. Simmons,  the Chairman of the Board of NL and the Chairman of
the Board,  President,  and Chief  Executive  Officer of Contran and Valhi and a
director of Tremont, may be deemed to control each of such companies.

Note 2 - Summary of significant accounting policies:

Principles of consolidation and management's estimates

      The accompanying consolidated financial statements include the accounts of
NL and  its  majority-owned  subsidiaries  (collectively,  the  "Company").  All
material   intercompany   accounts  and  balances  have  been  eliminated.   The
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the  reported  amount of revenues  and  expenses  during the  reporting  period.
Ultimate actual results may in some instances  differ from previously  estimated
amounts.

Translation of foreign currencies

      Assets and liabilities of subsidiaries whose functional currency is deemed
to be other than the U.S.  dollar are  translated at year-end  rates of exchange
and revenues and expenses are  translated  at weighted  average  exchange  rates
prevailing during the year.  Resulting  translation  adjustments and the related
income tax  effects  are  accumulated  in the  currency  translation  adjustment
component of shareholders'  deficit.  Currency  transaction gains and losses are
recognized in income currently.


                                    F-10

<PAGE>



Cash and cash equivalents

      Cash  equivalents,   including  restricted  cash,  include  U.S.  Treasury
securities purchased under short-term  agreements to resell, bank deposits,  and
government  and  commercial  notes and bills with  original  maturities of three
months or less.  Restricted cash of approximately $6 million in 1995 and 1996 is
restricted  under  the  Company's  joint  venture  indebtedness   agreement  and
restricted  cash of  approximately  $4  million  in 1995 and $5  million in 1996
secures undrawn letters of credit.

Marketable securities and securities transactions

      Marketable  securities  are classified as either  "available-for-sale"  or
"trading"  and are carried at market based on quoted market  prices.  Unrealized
gains and losses on  trading  securities  are  recognized  in income  currently.
Unrealized gains and losses on  available-for-sale  securities,  and the related
deferred  income tax  effects,  are  accumulated  in the  marketable  securities
adjustment  component of  shareholders'  deficit.  See Note 4. Realized gains or
losses are computed based on specific identification of the securities sold.

Inventories

      Inventories are stated at the lower of cost (principally  average cost) or
market. Amounts are removed from inventories at average cost.

Investment in joint ventures

      Investments  in 20% to 50%-owned  entities are accounted for by the equity
method.

Intangible assets

      Intangible  assets,  included in other noncurrent assets, are amortized by
the  straight-line  method  over the  periods  expected  to be  benefitted,  not
exceeding ten years.

Property, equipment, depreciation and depletion

      Property  and  equipment  are stated at cost.  Interest  costs  related to
major, long-term capital projects are capitalized as a component of construction
costs. Maintenance,  repairs and minor renewals are expensed; major improvements
are capitalized.

      Depreciation is computed  principally by the straight-line method over the
estimated  useful lives of ten to forty years for  buildings and three to twenty
years for machinery and equipment. Depletion of mining properties is computed by
the unit-of-production and straight-line methods.


                                    F-11

<PAGE>



Long-term debt

      Long-term  debt is  stated  net of  unamortized  original  issue  discount
("OID").  OID is amortized  over the period during which cash interest  payments
are not required and deferred financing costs are amortized over the term of the
applicable issue, both by the interest method.

Employee benefit plans

      Accounting and funding  policies for retirement  plans and  postretirement
benefits other than pensions ("OPEB") are described in Note 11.

      The Company accounts for stock-based  employee  compensation in accordance
with Accounting  Principles Board Opinion ("APBO") No. 25, "Accounting for Stock
Issued to  Employees,"  and its various  interpretations.  Under APBO No. 25, no
compensation  cost is generally  recognized for fixed stock options in which the
exercise price is not less than the market price on the grant date. Compensation
cost  recognized  by the  Company  in  accordance  with APBO No. 25 has not been
significant in each of the past three years.

Environmental remediation costs

      Environmental   remediation   costs  are  accrued  when  estimated  future
expenditures  are  probable  and  reasonably  estimable.  The  estimated  future
expenditures  are not  discounted to present  value.  Recoveries of  remediation
costs from other parties, if any, are reported as receivables when their receipt
is deemed probable. At December 31, 1995 and 1996, no receivables for recoveries
have been recognized.

      The Company will adopt the  recognition  and  disclosure  requirements  of
AICPA's Statement of Position No. 96-1, "Environmental Remediation Liabilities,"
in the first  quarter of 1997.  The new rule,  among other  things,  expands the
types of costs which must be considered in determining environmental remediation
accruals.  As a result of adopting the new  Statement  of Position,  the Company
expects to recognize a noncash cumulative charge of approximately $30 million in
the first quarter of 1997.  The charge is not expected to materially  change the
Company's  1997 tax expense due to existing  net  operating  losses for which no
benefit is expected to be  recognized.  Such charge is  comprised  primarily  of
estimated  future  undiscounted   expenditures   associated  with  managing  and
monitoring existing  environmental  remediation sites. The expenditures  consist
principally  of legal  and  professional  fees,  but do not  include  litigation
defense costs with respect to  situations  in which the Company  asserts that no
liability exists. Currently, such expenditures are expensed as incurred.

Net sales

      Sales are recognized as products are shipped.

Income taxes

      Deferred income tax assets and liabilities are recognized for the expected
future tax  consequences  of  temporary  differences  between the income tax and
financial  reporting  carrying  amounts  of assets  and  liabilities,  including
investments in subsidiaries and unconsolidated affiliates not included in the

                                    F-12

<PAGE>



Company's  U.S.  tax  group  (the  "NL Tax  Group").  The  Company  periodically
evaluates its deferred tax assets and adjusts any related  valuation  allowance.
The Company's  valuation allowance is equal to the amount of deferred tax assets
which the Company  believes do not meet the  "more-likely-than-not"  realization
criteria.

Income (loss) per share of common stock

      Income  (loss) per share of common stock is based on the weighted  average
number of common shares and equivalents  outstanding.  Common stock equivalents,
consisting of nonqualified stock options, are excluded from the computation when
their effect is antidilutive.

Note 3 - Business and geographic segments:

      The Company's  operations  are  conducted in two business  segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox. Titanium dioxide
pigments are used to impart whiteness,  brightness and opacity to a wide variety
of products,  including paints, plastics, paper, fibers and ceramics.  Specialty
chemicals  include  rheological  additives  which  control the flow and leveling
characteristics of a variety of products,  including paints,  inks,  lubricants,
sealants,  adhesives and cosmetics. General corporate assets consist principally
of cash, cash  equivalents and marketable  securities.  At December 31, 1995 and
1996,  the net assets of  non-U.S.  subsidiaries  included in  consolidated  net
assets approximated $121 million and $124 million, respectively.

<TABLE>
<CAPTION>

                                              Years ended December 31,
                                     -----------------------------------------
                                         1994          1995           1996
                                     -----------    -----------    -----------
                                                   (In thousands)

<S>                                   <C>            <C>            <C>        
Business segments

Net sales:
  Kronos ..........................   $   770,077    $   894,149    $   851,179
  Rheox ...........................       117,877        129,790        134,895
                                      -----------    -----------    -----------

                                      $   887,954    $ 1,023,939    $   986,074
                                      ===========    ===========    ===========

Operating income:
  Kronos ..........................   $    80,515    $   161,175    $    71,606
  Rheox ...........................        30,837         38,544         41,767
                                      -----------    -----------    -----------

                                          111,352        199,719        113,373

General corporate income (expense):
  Securities earnings .............         3,855          7,419          4,708
  Expenses, net ...................       (44,686)       (26,619)       (17,429)
  Interest expense ................       (83,926)       (81,617)       (75,039)
                                      -----------    -----------    -----------

                                      $   (13,405)   $    98,902    $    25,613
                                      ===========    ===========    ===========

Capital expenditures:
  Kronos ..........................   $    34,522    $    60,699    $    64,201
  Rheox ...........................         2,283          3,464          2,665
  General corporate ...............           126             33             40
                                      -----------    -----------    -----------

                                      $    36,931    $    64,196    $    66,906
                                      ===========    ===========    ===========
</TABLE>


                                    F-13

<PAGE>

<TABLE>
<CAPTION>


                                              Years ended December 31,
                                         1994          1995            1996
                                     -----------    -----------    -----------
                                                   (In thousands)

<S>                                   <C>            <C>            <C>        
  Depreciation, depletion and
   amortization:
    Kronos ........................   $    31,156    $    35,706    $    36,295
    Rheox .........................         3,153          3,089          3,175
    General corporate .............           283            194            194
                                      -----------    -----------    -----------

                                      $    34,592    $    38,989    $    39,664
                                      ===========    ===========    ===========

Geographic areas

  Net sales - point of origin:
    United States .................   $   303,475    $   339,568    $   348,071
    Europe ........................       587,291        703,206        653,828
    Canada ........................       122,957        139,341        139,346
    Eliminations ..................      (125,769)      (158,176)      (155,171)
                                      -----------    -----------    -----------

                                      $   887,954    $ 1,023,939    $   986,074
                                      ===========    ===========    ===========

  Net sales - point of destination:
    United States .................   $   238,568    $   258,850    $   273,110
    Europe ........................       468,915        580,794        523,667
    Canada ........................        64,374         60,472         56,436
    Other .........................       116,097        123,823        132,861
                                      -----------    -----------    -----------

                                      $   887,954    $ 1,023,939    $   986,074
                                      ===========    ===========    ===========

  Operating income:
    United States .................   $    49,358    $    75,650    $    71,914
    Europe ........................        50,273        103,096         27,971
    Canada ........................        11,721         20,973         13,488
                                      -----------    -----------    -----------

                                      $   111,352    $   199,719    $   113,373
                                      ===========    ===========    ===========

</TABLE>

<TABLE>
<CAPTION>

                                                    December 31,
                                      ------------------------------------------
                                         1994           1995             1996
                                      ----------      ----------      ----------
                                                   (In thousands)

<S>                                   <C>             <C>             <C>       
Identifiable assets

Business segments:
  Kronos .......................      $  950,200      $1,063,369      $1,064,285
  Rheox ........................          83,176          83,620          90,095
  General corporate ............         129,034         124,664          66,978
                                      ----------      ----------      ----------

                                      $1,162,410      $1,271,653      $1,221,358
                                      ==========      ==========      ==========

Geographic segments:
  United States ................      $  308,017      $  311,374      $  303,547
  Europe .......................         594,921         690,353         718,626
  Canada .......................         130,438         145,262         132,207
  General corporate ............         129,034         124,664          66,978
                                      ----------      ----------      ----------

                                      $1,162,410      $1,271,653      $1,221,358
                                      ==========      ==========      ==========
</TABLE>
                                    F-14

<PAGE>

Note 4 - Marketable securities and securities transactions:

<TABLE>
<CAPTION>

                                                               December 31,
                                                         ----------------------
                                                           1995          1996
                                                         --------      --------
                                                              (In thousands)

<S>                                                      <C>           <C>     
Available-for-sale securities - noncurrent
 marketable equity securities:
  Unrealized gains .................................     $  1,962      $  3,516
  Unrealized losses ................................       (2,770)       (1,550)
  Cost .............................................       21,752        21,752
                                                         --------      --------

      Aggregate market .............................     $ 20,944      $ 23,718
                                                         ========      ========

</TABLE>

<TABLE>
<CAPTION>

                                                      Years ended December 31,
                                                    ----------------------------
                                                     1994         1995      1996
                                                    -------      -------    ----
                                                            (In thousands)

<S>                                                 <C>          <C>         <C>
Securities transactions gains (losses)
 on trading securities:
  Unrealized ..................................     $(1,177)     $ 1,125     $--
  Realized ....................................         (43)          50      --
                                                    -------      -------     ---

                                                    $(1,220)     $ 1,175     $--
                                                    =======      =======     ===
</TABLE>

Note 5 - Inventories:

<TABLE>
<CAPTION>

                                                             December 31,
                                                     ---------------------------
                                                       1995               1996
                                                     --------           --------
                                                             (In thousands)

<S>                                                  <C>                <C>     
Raw materials ............................           $ 35,075           $ 43,284
Work in process ..........................              9,132             10,356
Finished products ........................            172,330            142,091
Supplies .................................             35,093             36,779
                                                     --------           --------

                                                     $251,630           $232,510
                                                     ========           ========
</TABLE>

Note 6 - Investment in joint ventures:

<TABLE>
<CAPTION>

                                                              December 31,
                                                        ------------------------
                                                          1995            1996
                                                        --------        --------
                                                              (In thousands)

<S>                                                     <C>             <C>     
TiO2 manufacturing joint venture ...............        $183,129        $179,195
Other ..........................................           2,764           2,284
                                                        --------        --------

                                                        $185,893        $181,479
                                                        ========        ========
</TABLE>

      Kronos Louisiana,  Inc. ("KLA"), a wholly-owned subsidiary of Kronos, owns
a  50%  interest  in  Louisiana  Pigment  Company,   L.P.  ("LPC").   LPC  is  a
manufacturing  joint venture that is also  50%-owned by Tioxide  Group,  Ltd., a
wholly-owned  subsidiary of Imperial Chemicals  Industries PLC ("Tioxide").  LPC
owns and operates a chloride-process TiO2 plant in Lake Charles, Louisiana.


                                    F-15

<PAGE>



      LPC has long-term debt that is collateralized by the partnership interests
of the partners and  substantially  all of the assets of LPC. The long-term debt
consists of two tranches,  one attributable to each partner, and each tranche is
serviced through (i) the purchase of the plant's TiO2 output in equal quantities
by the partners and (ii) cash capital contributions. KLA is required to purchase
one-half of the TiO2  produced by LPC.  KLA's tranche of LPC's debt is reflected
as  outstanding  indebtedness  of the Company  because Kronos has guaranteed the
purchase obligation relative to the debt service of its tranche. See Note 10.

      LPC is intended to be operated  on a  break-even  basis and,  accordingly,
Kronos'  transfer price for its share of the TiO2 produced is equal to its share
of LPC's production costs and interest expense.  Kronos' share of the production
costs are  reported as cost of sales as the related  TiO2  acquired  from LPC is
sold,  and its share of the  interest  expense is  reported  as a  component  of
interest expense.

      Summary balance sheets of LPC are shown below.

<TABLE>
<CAPTION>

                                                               December 31,
                                                          ----------------------
                                                            1995          1996
                                                          --------      --------
           ASSETS                                         (In thousands)

<S>                                                       <C>           <C>     
Current assets .....................................      $ 49,398      $ 47,861
Other assets .......................................         1,553         1,224
Property and equipment, net ........................       335,254       325,617
                                                          --------      --------

                                                          $386,205      $374,702
                                                          ========      ========

   LIABILITIES AND PARTNERS' EQUITY

Long-term debt, including current portion:
  Kronos tranche ...................................      $ 73,286      $ 57,858
  Tioxide tranche ..................................        59,400        16,800
  Note payable to Tioxide ..........................            --        21,000
Other liabilities, primarily current ...............        17,719        14,084
                                                          --------      --------
                                                           150,405       109,742

Partners' equity ...................................       235,800       264,960
                                                          --------      --------

                                                          $386,205      $374,702
                                                          ========      ========
</TABLE>


                                    F-16

<PAGE>



      Summary income statements of LPC are shown below.


<TABLE>
<CAPTION>


                                                  Years ended December 31,
                                           ------------------------------------
                                             1994          1995          1996
                                           --------      --------      --------
                                                      (In thousands)

<S>                                         <C>           <C>           <C>     
Revenues and other income:
  Kronos .............................      $ 70,492      $ 76,365      $ 74,916
  Tioxide ............................        67,218        75,241        73,774
  Interest income ....................           462           653           518
                                            --------      --------      --------

                                             138,172       152,259       149,208
                                            --------      --------      --------
Cost and expenses:
  Cost of sales ......................       126,972       140,103       140,361
  General and administrative .........           572           385           377
  Interest ...........................        10,628        11,771         8,470
                                            --------      --------      --------

                                             138,172       152,259       149,208
                                            --------      --------      --------

    Net income .......................      $     --      $     --      $     --
                                            ========      ========      ========
</TABLE>

Note 7 - Other noncurrent assets:

<TABLE>
<CAPTION>

                                                               December 31,
                                                           ---------------------
                                                             1995         1996
                                                           -------       -------
                                                               (In thousands)

<S>                                                        <C>           <C>    
Intangible assets, net of accumulated
 amortization of $20,562 and $22,207 ...............       $11,803       $ 7,939
Deferred financing costs, net ......................        13,199         9,791
Other ..............................................         6,163         7,095
                                                           -------       -------

                                                           $31,165       $24,825
                                                           =======       =======
</TABLE>

Note 8 - Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>

                                                              December 31,
                                                     ---------------------------
                                                       1995               1996
                                                     --------           --------
                                                            (In thousands)

<S>                                                  <C>                <C>     
Accounts payable .........................           $ 68,734           $ 60,648
                                                     --------           --------
Accrued liabilities:
  Employee benefits ......................             49,884             34,618
  Environmental costs ....................              6,000              6,000
  Interest ...............................              6,633              9,429
  Miscellaneous taxes ....................              2,557              4,073
  Other ..................................             32,177             39,136
                                                     --------           --------

                                                       97,251             93,256
                                                     --------           --------

                                                     $165,985           $153,904
                                                     ========           ========
</TABLE>


                                    F-17

<PAGE>



Note 9 - Other noncurrent liabilities:

<TABLE>
<CAPTION>

                                                               December 31,
                                                          ----------------------
                                                            1995          1996
                                                          --------      --------
                                                               (In thousands)

<S>                                                       <C>           <C>     
Environmental costs ................................      $112,827      $106,849
Employee benefits ..................................        13,148        11,960
Insurance claims expense ...........................        12,088        11,673
Deferred technology fee income .....................         8,456            --
Other ..............................................         1,992         1,566
                                                          --------      --------

                                                          $148,511      $132,048
                                                          ========      ========
</TABLE>

Note 10 - Notes payable and long-term debt:
<TABLE>
<CAPTION>

                                                                December 31,
                                                          ----------------------
                                                            1995         1996
                                                          --------      --------
                                                               (In thousands)

<S>                                                       <C>           <C>     
Notes payable (DM 56,000 and DM 40,000,
 respectively) .....................................      $ 39,247      $ 25,732
                                                          ========      ========


Long-term debt:
  NL Industries:
    11.75% Senior Secured Notes ....................      $250,000      $250,000
    13% Senior Secured Discount Notes ..............       132,034       149,756
                                                          --------      --------

                                                           382,034       399,756
  Kronos:
    DM bank credit facility (DM 397,610 and
     DM 539,971, respectively) .....................       276,895       347,362
    LPC term loan ..................................        73,286        57,858
    Other ..........................................        13,672         9,125
                                                          --------      --------

                                                           363,853       414,345
  Rheox:
    Bank term loan .................................        37,263        14,659
    Other ..........................................           553           286
                                                          --------      --------

                                                            37,816        14,945

                                                           783,703       829,046
  Less current maturities ..........................        43,369        91,946
                                                          --------      --------

                                                          $740,334      $737,100
</TABLE>

      The Company's $250 million principal amount of 11.75% Senior Secured Notes
due 2003 and $188 million principal amount at maturity ($100 million proceeds at
issuance)  of 13% Senior  Secured  Discount  Notes due 2005  (collectively,  the
"Notes")  are  collateralized  by a series of  intercompany  notes  from  Kronos
International,  Inc.  ("KII"),  a wholly-owned  subsidiary of Kronos, to NL, the
interest  rate and payment terms of which mirror those of the  respective  Notes
(the "Mirror  Notes").  The Senior  Secured Notes are also  collateralized  by a
first  priority  lien on the stock of Kronos and a second  priority  lien on the
stock of Rheox. In the event of foreclosure, the Note holders would have access

                                    F-18

<PAGE>



to the  consolidated  assets,  earnings and equity of the  Company.  The Company
believes  the  collateralization  of  the  Notes,  as  described  above,  is the
functional  economic  equivalent to a full,  unconditional and joint and several
guarantee of the Notes by Kronos and Rheox.

      The  Senior  Secured  Notes  and the  Senior  Secured  Discount  Notes are
redeemable,  at the  Company's  option,  after  October  2000 and October  1998,
respectively.  The redemption  prices range from 101.5% (starting  October 2000)
declining to 100% (after  October 2001) of the  principal  amount for the Senior
Secured  Notes and range from 106%  (starting  October  1998)  declining to 100%
(after October 2001) of the accreted value of the Senior Secured Discount Notes.
In the event of a Change of Control,  as defined,  the Company would be required
to make an offer to purchase  the Notes at 101% of the  principal  amount of the
Senior  Secured  Notes  and 101% of the  accreted  value of the  Senior  Secured
Discount  Notes.  The Notes are issued  pursuant to  indentures  which contain a
number of covenants and  restrictions  which,  among other things,  restrict the
ability of the Company and its  subsidiaries  to incur debt,  incur  liens,  pay
dividends or merge or consolidate with, or sell or transfer all or substantially
all of their assets to,  another  entity.  At December 31, 1996, no amounts were
available for payment of dividends pursuant to the terms of the indentures.  The
Senior  Secured  Discount  Notes do not require cash interest  payments  through
October 1998. The net carrying  value of the Senior  Secured  Discount Notes per
$100 principal amount at maturity was $70.42 and $79.87 at December 31, 1995 and
1996, respectively.  At December 31, 1996, the quoted market price of the Senior
Secured Notes was $106.08 per $100 principal  amount and the quoted market price
of the Senior Secured  Discount Notes was $86.34 per $100 principal amount (1995
- - $107.06 and $80.95, respectively).

      At December 31, 1996, the DM credit facility  consists of a DM 396 million
term  loan  and a DM 250  million  revolving  credit  facility,  of which DM 144
million is  outstanding.  Borrowings bear interest at DM LIBOR plus 1.625% (5.5%
and 4.76% at December 31, 1995 and 1996,  respectively),  and are collateralized
by the stock of certain KII subsidiaries. In January 1997, the Company completed
an amendment to the DM credit facility in which the Company prepaid a net DM 207
million  ($127  million) of the term loan and DM 43 million ($26 million) of the
revolver,  leaving DM 188 million and DM 100 million outstanding,  respectively.
In addition, the aggregate amount available for borrowing under the revolver was
reduced to DM 230 million. The majority of the cash generated from a refinancing
of the  Rheox  term  loan,  discussed  below,  was  used for a  portion  of such
prepayments.  As amended, the term loan is due in 1998 and 1999 and the revolver
is due in 2000,  borrowings  bear  interest at DM LIBOR plus  2.75%,  additional
collateral  in the form of  pledges of certain  Canadian  and German  assets was
granted and NL has guaranteed the facility.

      At December 31, 1996,  Rheox's term loan is due in quarterly  installments
through December 1997, and is  collateralized  principally by the stock of Rheox
and its U.S.  subsidiaries.  The term loan bears interest, at Rheox's option, at
the prime  rate  plus 1.5% or LIBOR  plus  2.5%  (1995 - 8.3%  with  LIBOR  rate
borrowings;  1996 - 9.8% with  prime rate  borrowings).  In  January  1997,  the
Company  completed a refinancing of this facility which  increased the term loan
to $125 million and provided for a $25 million revolving facility,  generating a
net $135 million in cash proceeds and credit availability. As amended, the term

                                    F-19

<PAGE>



loan is due in  quarterly  installments  commencing  in  September  1997 through
January 2004 and the revolver is due no later than January  2004.  The margin on
LIBOR-based  borrowings will range from .75% to 1.75%,  depending upon the level
of a certain Rheox financial ratio.

      After  giving  effect for the Rheox term loan and the  amendment to the DM
credit facility,  unused lines of credit available for borrowing under the Rheox
U.S. facility and under the Company's non-U.S. credit facilities,  including the
DM facility, approximated $9 million and $102 million, respectively, at December
31, 1996.

      Borrowings  under KLA's  tranche of LPC's term loan bear  interest at U.S.
LIBOR  plus  1.625%   (7.315%  and  7.245%  at  December   31,  1995  and  1996,
respectively)  and are  repayable in quarterly  installments  through  September
2000. See Note 6.

      Notes  payable at December 31, 1995 and 1996 consists of DM 56 million and
DM 40 million,  respectively,  of short-term borrowings due within one year from
non-U.S. banks with interest rates ranging from 4.25% to 4.856% in 1995 and from
3.25% to 3.70% in 1996.

      The  aggregate  maturities  of  long-term  debt at December  31, 1996 on a
historical and a pro forma basis, giving effect for the January 1997 refinancing
described above, are shown in the table below.

<TABLE>
<CAPTION>

Years ending December 31,                               Historical    Pro forma
                                                        ----------    ---------
                                                             (In thousands)

      <S>                                                 <C>         <C>     
      1997                                                $ 91,946    $ 28,152
      1998                                                 103,938      65,040
      1999                                                 133,295     120,609
      2000                                                  11,855      26,855
      2001                                                     215      22,715
      2002 and thereafter                                  525,541     567,937
                                                          --------    --------
                                                           866,790     831,308
      Less unamortized original issue discount
       on the Senior Secured Discount Notes                 37,744      37,744
                                                          --------    --------

                                                          $829,046    $793,564
                                                          ========    ========
</TABLE>

Note 11 - Employee benefit plans:

Company-sponsored pension plans

      The Company  maintains  various defined  benefit and defined  contribution
pension  plans  covering  substantially  all  employees.  Personnel  employed by
non-U.S.  subsidiaries  are  covered  by  separate  plans  in  their  respective
countries  and U.S.  employees  are  covered  by  various  plans  including  the
Retirement Programs of NL Industries, Inc. (the "NL Pension Plan").

      A majority of U.S. employees are eligible to participate in a contributory
savings plan. The Company partially matches employee  contributions to the Plan,
and, beginning April 1996, the Company contributes to each employee's account an
amount equal to approximately 3% of the employee's annual eligible earnings. The
Company also has an unfunded defined contribution plan covering certain

                                    F-20

<PAGE>



executives,  and  contributions  are  based  on  a  formula  involving  eligible
earnings.  The Company's expense related to these plans was $.8 million in 1994,
and $1.2 million in 1995 and $1.3 million in 1996.

      Defined  pension  benefits are  generally  based upon years of service and
compensation under fixed-dollar,  final pay or career average formulas,  and the
related expenses are based upon independent  actuarial  valuations.  The funding
policy for U.S.  defined  benefit plans is to  contribute  amounts which satisfy
funding  requirements of the Employee Retirement Income Security Act of 1974, as
amended,  and the Retirement  Protection Act of 1994.  Non-U.S.  defined benefit
pension plans are funded in accordance with applicable statutory requirements.

      Certain  actuarial  assumptions  used in  measuring  the  defined  benefit
pension assets, liabilities and expenses are presented below.

<TABLE>
<CAPTION>

                                                 Years ended December 31,
                                           1994           1995            1996
                                        ----------     ----------     ----------
                                                   (Percentages)

<S>                                     <C>            <C>            <C>
Discount rate .....................            8.5     7.0 to 8.5     6.5 to 8.5
Rate of increase in future
 compensation levels ..............     5.0 to 6.0     3.5 to 6.0     3.5 to 6.0
Long-term rate of return on
 plan assets ......................     8.5 to 9.0     8.0 to 9.0     7.0 to 9.0
</TABLE>

      During 1996, the Company  curtailed certain U.S. employee pension benefits
and  recognized  a $4.6 million  gain.  Plan assets are  comprised  primarily of
investments  in  U.S.  and  non-U.S.   corporate  equity  and  debt  securities,
short-term investments, mutual funds and group annuity contracts.

      Statement of Financial  Accounting  Standards ("SFAS") No. 87, "Employers'
Accounting for Pension Costs" requires that an additional  pension  liability be
recognized when the unfunded  accumulated pension benefit obligation exceeds the
unfunded accrued pension liability.  Variances from  actuarially-assumed  rates,
including  the rate of return on pension plan assets,  will result in additional
increases or  decreases  in accrued  pension  liabilities,  pension  expense and
funding  requirements  in future  periods.  At  December  31,  1996,  79% of the
projected benefit obligations in excess of plan assets relate to non-U.S. plans.
The funded status of the Company's  defined  benefit  pension plans is set forth
below.

                                    F-21

<PAGE>


<TABLE>
<CAPTION>

 
                                           Assets exceed         Accumulated benefits
                                       accumulated benefits         exceed assets
                                      ----------------------    ----------------------
                                           December 31,              December 31,
                                      ----------------------    ----------------------
                                         1995       1996           1995         1996
                                      ---------    ---------    ---------    ---------
                                                       (In thousands)

<S>                                   <C>          <C>          <C>          <C>      
Actuarial present value of benefit
 obligations:
  Vested benefits .................   $  47,181    $  48,953    $ 156,275    $ 167,411
  Nonvested benefits ..............       3,744        4,075        2,562        9,466
                                      ---------    ---------    ---------    ---------

  Accumulated benefit obligations .      50,925       53,028      158,837      176,877
  Effect of projected salary
   increases ......................       7,885        7,598       22,373       25,741
                                      ---------    ---------    ---------    ---------

  Projected benefit obligations
   ("PBO") ........................      58,810       60,626      181,210      202,618
Plan assets at fair value .........      71,345       78,511      124,632      126,580
                                      ---------    ---------    ---------    ---------

Plan assets over (under) PBO ......      12,535       17,885      (56,578)     (76,038)
Unrecognized net loss (gain) from
 experience different from
 actuarial assumptions ............       7,155        3,567      (20,643)      11,414
Unrecognized prior service cost
 (credit) .........................       3,147        3,838       (2,711)         262
Unrecognized transition obligations
 (assets) being amortized over 15
 to 18 years ......................        (261)        (469)       2,517        2,043
Adjustment required to recognize
 minimum liability ................          --           --       (1,908)      (1,822)
                                      ---------    ---------    ---------    ---------

      Total prepaid (accrued)
       pension cost ...............      22,576       24,821      (79,323)     (64,141)
Less current portion ..............          --           --      (10,012)      (6,200)
                                      ---------    ---------    ---------    ---------

      Noncurrent prepaid (accrued)
       pension cost ...............   $  22,576    $  24,821    $(69,311)    $(57,941)
                                      =========    =========    =========    =========
</TABLE>

      The components of the net periodic defined benefit pension cost, excluding
curtailment gain, are set forth below.

<TABLE>
<CAPTION>

                                                 Years ended December 31,
                                           ------------------------------------
                                             1994          1995         1996
                                           --------      --------      --------
                                                     (In thousands)

<S>                                        <C>           <C>           <C>     
Service cost benefits ................     $  4,905      $  4,325      $  3,482
Interest cost on PBO .................       15,371        17,853        16,577
Return on plan assets ................       (8,039)      (16,574)      (16,245)
Net amortization and deferrals .......       (5,940)       (2,399)          (39)
                                           --------      --------      --------

                                           $  6,297      $  3,205      $  3,775
                                           ========      ========      ========
</TABLE>


                                    F-22

<PAGE>



Incentive bonus programs

      The Company has incentive bonus programs for certain  employees  providing
for  annual  payments,  which  may be in the form of NL common  stock,  based on
formulas  involving  the  profitability  of Kronos and Rheox in  relation to the
annual  operating  plan of the  employee's  business unit and, for most of these
employees, individual performance.

Postretirement benefits other than pensions

      In addition to providing pension benefits,  the Company currently provides
certain health care and life insurance  benefits for eligible retired employees.
Certain of the Company's  U.S. and Canadian  employees  may become  eligible for
such  postretirement  health  care and life  insurance  benefits  if they  reach
retirement age while working for the Company. In 1989, the Company began phasing
out such benefits for currently  active U.S.  employees over a ten-year  period.
The majority of all retirees are required to contribute a portion of the cost of
their benefits and certain  current and future retirees are eligible for reduced
health care benefits at age 65. The Company's  policy is to fund medical  claims
as they are incurred, net of any contributions by the retirees.

      For measuring the OPEB  liability at December 31, 1996,  the expected rate
of  increase in health care costs is 8% in 1997,  gradually  declining  to 5% in
2000. Other  assumptions used to measure the liability and expense are presented
below.

<TABLE>
<CAPTION>

                                                        Years ended December 31,
                                                        ------------------------
                                                          1994     1995     1996
                                                        -------   ------   -----
                                                              (Percentages)

<S>                                                        <C>      <C>      <C>
Discount rate .......................................      8.5      7.5      7.5
Long-term rate for compensation increases ...........      6.0      4.5      6.0
Long-term rate of return on plan assets .............      9.0      9.0      9.0
</TABLE>

      Variances  from  actuarially-assumed   rates  will  result  in  additional
increases or decreases in accrued OPEB  liabilities,  net periodic  OPEB expense
and funding  requirements in future periods.  If the health care cost trend rate
was  increased by one  percentage  point for each year,  postretirement  benefit
expense  would  have  increased  approximately  $.2  million  in  1996,  and the
actuarial present value of accumulated  benefit obligations at December 31, 1996
would have  increased by  approximately  $2.2 million.  During 1996, the Company
curtailed  certain Canadian employee OPEB benefits and recognized a $1.3 million
gain.

                                    F-23

<PAGE>


<TABLE>
<CAPTION>


                                                                 December 31,
                                                             -------------------
                                                               1995        1996
                                                             -------     -------
                                                                (In thousands)

<S>                                                          <C>         <C>    
Actuarial present value of accumulated benefit
 obligations:
  Retiree benefits .....................................     $53,211     $41,768
  Other fully eligible active plan participants ........       1,228         840
  Other active plan participants .......................       2,322       2,152
                                                             -------     -------
                                                              56,761      44,760

Plan assets at fair value ..............................       7,103       6,689
                                                             -------     -------
Accumulated postretirement benefit obligations
 in excess of plan assets ..............................      49,658      38,071
Unrecognized net gain from experience different
 from actuarial assumptions ............................       4,676       7,083
Unrecognized prior service credit ......................      12,199      16,259
                                                             -------     -------

    Total accrued postretirement benefits cost .........      66,533      61,413
Less current portion ...................................       6,298       5,478
                                                             -------     -------

    Noncurrent accrued postretirement benefits
     cost ..............................................     $60,235     $55,935
                                                             =======     =======
</TABLE>

      The components of the Company's net periodic  postretirement benefit cost,
excluding curtailment gain, are set forth below.

<TABLE>
<CAPTION>

                                                      Years ended December 31,
                                                  -----------------------------
                                                   1994       1995        1996
                                                  -------    -------    -------
                                                          (In thousands)

<S>                                               <C>        <C>        <C>    
Interest cost on accumulated benefit
 obligations ..................................   $ 4,338    $ 4,415    $ 3,995
Service cost benefits earned during the year ..        99        101        112
Return on plan assets .........................      (688)      (637)      (596)
Net amortization and deferrals ................    (1,495)    (1,870)    (1,473)
                                                  -------    -------    -------

                                                  $ 2,254    $ 2,009    $ 2,038
                                                  =======    =======    =======
</TABLE>

Note 12 - Shareholders' deficit:

Common stock

<TABLE>
<CAPTION>

                                                   Shares of common stock
                                              ----------------------------------
                                                          Treasury
                                              Issued        stock    Outstanding
                                              -------     --------   -----------
                                                       (In thousands)

<S>                                            <C>          <C>           <C>   
Balance at December 31, 1993 ...........       66,839       15,949        50,890
  Treasury shares reissued .............           --         (162)          162
                                              -------      -------       -------

Balance at December 31, 1994 ...........       66,839       15,787        51,052
  Treasury shares reissued .............           --          (39)           39
                                              -------      -------       -------

Balance at December 31, 1995 ...........       66,839       15,748        51,091
  Treasury shares reissued .............           --          (27)           27
                                              -------      -------       -------

Balance at December 31, 1996 ...........       66,839       15,721        51,118
                                              =======      =======       =======
</TABLE>

                                    F-24

<PAGE>

Common stock options

      The 1989 Long Term Performance Incentive Plan of NL Industries,  Inc. (the
"NL Option Plan")  provides for the  discretionary  grant of  restricted  common
stock,  stock options,  stock  appreciation  rights ("SARs") and other incentive
compensation  to  officers  and other key  employees  of the  Company.  Although
certain stock options  granted  pursuant to a similar plan which preceded the NL
Option Plan ("the Predecessor  Option Plan") remain  outstanding at December 31,
1996, no additional options may be granted under the Predecessor Option Plan.

      Up to five million shares of NL common stock may be issued pursuant to the
NL Option Plan and at December 31, 1996, an aggregate of 2.5 million shares were
available  for  future  grants.  The NL Option  Plan  provides  for the grant of
options  that  qualify as  incentive  options and for  options  which are not so
qualified.  Generally,  stock  options and SARs  (collectively,  "options")  are
granted at a price equal to or greater than 100% of the market price at the date
of grant,  vest over a five year  period  and  expire ten years from the date of
grant.  Restricted stock,  forfeitable  unless certain periods of employment are
completed,  is held in escrow in the name of the grantee  until the  restriction
period expires. No SARs have been granted under the NL Option Plan.

      In addition to the NL Option  Plan,  the Company  maintains a stock option
plan for its nonemployee directors.  At December 31, 1996, there were options to
acquire  10,000  shares of common  stock  outstanding  of which 8,000 were fully
vested.

      Changes in outstanding options granted pursuant to the NL Option Plan, the
Predecessor Option Plan and the nonemployee  director plan are summarized in the
table below.

                                    F-25

<PAGE>


<TABLE>
<CAPTION>


                                                      Exercise price     Amount
                                                        per share      payable
                                                     --------------      upon
                                           Shares     Low      High    exercise
                                         --------    ------   ------   --------
                                        (In thousands, except per share amounts)

<S>                                         <C>      <C>      <C>      <C>     
Outstanding at December 31, 1993 .....      1,718    $ 4.81   $24.19   $ 20,624

  Granted ............................        675      8.69    10.69      6,315
  Exercised ..........................        (13)     9.31    10.50       (120)
  Forfeited ..........................         (6)     5.00     9.31        (46)
                                         --------    ------   ------   --------

Outstanding at December 31, 1994 .....      2,374      4.81    24.19     26,773

  Granted ............................         94     11.81    14.81      1,150
  Exercised ..........................        (39)     5.00    10.78       (282)
  Forfeited ..........................        (36)     5.00    11.81       (320)
                                         --------    ------   ------   --------

Outstanding at December 31, 1995 .....      2,393      4.81    24.19     27,321

  Granted ............................        218     14.25    17.25      3,316
  Exercised ..........................        (27)     5.00    10.78       (262)
  Forfeited ..........................        (10)     5.00    14.25        (91)
  Expired ............................         (1)    10.78    10.78         (6)
                                         --------    ------   ------   --------

Outstanding at December 31, 1996 .....      2,573    $ 4.81   $24.19   $ 30,278
                                         ========    ======   ======   ========
</TABLE>


      At  December  31,  1994,  1995 and  1996,  options  to  purchase  850,582,
1,189,907 and 1,660,068  shares,  respectively,  were exercisable and options to
purchase 298,698 shares become  exercisable in 1997. Of the exercisable  options
at December 31, 1996,  options to purchase  1,161,398 shares had exercise prices
less than the  Company's  December  31, 1996 quoted  market price of $10.875 per
share.  Outstanding options at December 31, 1996 expire at various dates through
2006, with a weighted-average remaining life of six years.

      The pro  forma  information  required  by SFAS No.  123,  "Accounting  for
Stock-Based  Compensation,"  is based  on an  estimation  of the  fair  value of
options issued during 1995 and 1996. The weighted average fair values of options
granted during 1995 and 1996 were $6.02 and $8.38 per share,  respectively.  The
fair values of employee stock options were  calculated  using the  Black-Scholes
stock option valuation model with the following weighted average assumptions for
grants in 1995 and 1996: stock price volatility of 31% and 42% in 1995 and 1996,
respectively; risk-free rate of return of 5%; no dividend yield; and an expected
term of 9 years.  If the fair  value-based  method of accounting in SFAS No. 123
had been  applied,  the  Company's  earnings per share would not have changed in
1995 and would have been reduced by $.01 per share in 1996. The pro forma impact
on earnings per share for 1996 is not  necessarily  indicative of future effects
on earnings per share.

Preferred stock

      The  Company  is  authorized  to issue a total of five  million  shares of
preferred  stock.  The rights of preferred  stock as to  dividends,  redemption,
liquidation and conversion are determined upon issuance.

                                    F-26

<PAGE>



Note 13 - Income taxes:

      The  components  of (i) income  (loss)  before  income  taxes and minority
interest ("pretax income (loss)"), (ii) the difference between the provision for
income taxes  attributable to pretax income (loss) and the amounts that would be
expected  using the U.S.  federal  statutory  income tax rate of 35%,  (iii) the
provision  for  income  taxes  and  (iv) the  comprehensive  tax  provision  are
presented below.

<TABLE>
<CAPTION>

                                                    Years ended December 31,
                                               --------------------------------
                                                 1994        1995        1996
                                               --------    --------    --------
                                                     (In thousands)

<S>                                            <C>         <C>         <C>     
Pretax income (loss):
  U.S ......................................   $ (6,241)   $ 43,125    $ 50,430
  Non-U.S ..................................     (7,164)     55,777     (24,817)
                                               --------    --------    --------

                                               $(13,405)   $ 98,902    $ 25,613
                                               ========    ========    ========

Expected tax expense (benefit) .............   $ (4,692)   $ 34,616    $  8,965
Non-U.S. tax rates .........................     (7,108)     (7,016)       (206)
Rate change adjustment of deferred taxes ...         --      (6,593)         --
Valuation allowance ........................     24,309      (9,588)      3,013
Settlement of U.S. tax audits ..............     (5,437)         --          --
Incremental tax on income of companies not
 included in the NL Tax Group ..............        790         499       3,132
U.S. state income taxes ....................        534         721         468
Other, net .................................      1,338          32        (539)
                                               --------    --------    --------

                                               $  9,734    $ 12,671    $ 14,833
                                               ========    ========    ========

Provision for income taxes:
  Current income tax expense (benefit):
    U.S. federal ...........................   $ (5,222)   $    249    $  4,934
    U.S. state .............................        475       2,135       1,136
    Non-U.S ................................      2,574      39,535       5,961
                                               --------    --------    --------

                                                 (2,173)     41,919      12,031
                                               --------    --------    --------
  Deferred income tax expense (benefit):
    U.S. federal ...........................      4,058      (9,005)     (4,764)
    U.S. state .............................        347      (1,026)       (668)
    Non-U.S ................................      7,502     (19,217)      8,234
                                               --------    --------    --------

                                                 11,907     (29,248)      2,802
                                               --------    --------    --------

                                               $  9,734    $ 12,671    $ 14,833
                                               ========    ========    ========

Comprehensive tax provision allocable to:
  Pretax income (loss) .....................   $  9,734    $ 12,671    $ 14,833
  Shareholders' deficit, principally
   deferred income taxes allocable to
   currency translation and marketable
   securities adjustments ..................          7          10         971
                                               --------    --------    --------

                                               $  9,741    $ 12,681    $ 15,804
                                               ========    ========    ========
</TABLE>


                                    F-27

<PAGE>



The components of the net deferred tax liability are summarized below:

<TABLE>
<CAPTION>

                                                   December 31,
                               -------------------------------------------------
                                          1995                       1996
                                          ----                       ----
                                     Deferred tax              Deferred tax
                               -----------------------    ----------------------
                                 Assets    Liabilities      Assets   Liabilities
                               ---------   -----------    ---------  -----------
                                              (In thousands)
<S>                            <C>          <C>          <C>          <C>       
Tax effect of temporary
 differences relating to:
  Inventories ..............   $   5,277    $  (5,644)   $   4,130    $  (4,967)
  Property and equipment ...         574     (109,418)         512     (109,963)
  Accrued postretirement
   benefits cost ...........      23,200           --       21,396           --
  Accrued (prepaid) pension
   cost ....................       8,978      (14,942)       6,308      (17,579)
  Accrued environmental
   costs ...................      38,214           --       36,670           --
  Other accrued liabilities
   and deductible
   differences .............      26,496           --       33,464           --
  Other taxable differences           --     (101,621)          --     (102,578)
Tax on unremitted earnings
 of non-U.S. subsidiaries ..         281      (22,526)          --      (18,048)
Tax loss and tax credit
 carryforwards .............     189,263           --      205,476           --
Valuation allowance ........    (195,569)          --     (207,117)          --
                               ---------    ---------    ---------    ---------

  Gross deferred tax assets
   (liabilities) ...........      96,714     (254,151)     100,839     (253,135)

Reclassification,
 principally netting by tax
 tax jurisdiction ..........     (93,404)      93,404      (99,019)      99,019
                               ---------    ---------    ---------    ---------

  Net total deferred tax
   assets (liabilities) ....       3,310     (160,747)       1,820     (154,116)
  Net current deferred tax
   assets (liabilities) ....       2,522       (3,555)       1,597       (2,895)
                               ---------    ---------    ---------    ---------

  Net noncurrent deferred
   tax assets (liabilities)    $     788    $(157,192)   $     223    $(151,221)
                               =========    =========    =========    =========
</TABLE>

      The  Company's  valuation  allowance  increased  in the  aggregate  by $31
million in each of 1994 and 1995 and $12 million in 1996.  During 1995, both the
Company's gross deferred tax assets and the offsetting  valuation allowance were
increased  by $34  million as a result of  recharacterizations  of  certain  tax
attributes  primarily  due to  changes  in  certain  tax  return  elections.  In
addition,  the valuation  allowance  increased  during 1995 by $6 million due to
foreign currency translation and was reduced by approximately $10 million due to
a change in estimate of the future tax benefit of certain tax credits  which the
Company believes satisfies the  "more-likely-than-not"  recognition criteria. In
1996, both the Company's gross deferred tax assets and the offsetting  valuation
allowance  were increased by $14 million due to certain  non-U.S.  tax losses of
its dual resident  subsidiary.  In addition,  the valuation  allowance decreased
during

                                    F-28

<PAGE>



1996 by $6 million due to foreign  currency  translation and was increased by $3
million  as  a  result  of  increases  in  certain  other  deductible  temporary
differences  during the year which the Company believes do not currently satisfy
the "more-likely-than-not" recognition criteria.

      Certain of the  Company's  income tax returns in various U.S. and non-U.S.
jurisdictions  are being  examined  and tax  authorities  have  proposed  or may
propose tax  deficiencies.  During  1994,  the German tax  authorities  withdrew
certain  proposed  tax  deficiencies  of DM 100 million and remitted tax refunds
aggregating DM 225 million ($136 million),  including  interest,  on a tentative
basis while  examination of the Company's  German income tax returns  continued.
The Company  subsequently  reached an agreement with the German tax  authorities
regarding such examinations which resolved certain significant tax contingencies
for years through 1990. The Company received final  assessments and paid certain
tax  deficiencies  of  approximately  DM 50 million  ($32  million  when  paid),
including interest, in settlement of these issues in 1996. The Company considers
the agreement to be a favorable  resolution of the contingencies and the payment
was within previously-accrued amounts for such matters.

      Certain  other  German  tax  contingencies  remain  outstanding  and  will
continue to be litigated.  Although the Company believes that it will ultimately
prevail in the litigation, the Company has granted a DM 100 million ($64 million
at December 31, 1996) lien on its Nordenham,  Germany TiO2 plant in favor of the
German tax  authorities  until the litigation is resolved.  No assurances can be
given that this  litigation  will be resolved in the Company's  favor in view of
the inherent  uncertainties involved in court rulings. The Company believes that
it has  adequately  provided  accruals for  additional  income taxes and related
interest  expense which may  ultimately  result from all such  examinations  and
believes that the ultimate  disposition of such  examinations  should not have a
material  adverse  effect  on the  Company's  consolidated  financial  position,
results of operations or liquidity.

      During 1995, the Company  recorded tax benefits of $6.6 million due to the
reduction in dividend  withholding  tax rates  pursuant to  ratification  of the
U.S./Canada income tax treaty.

      During  1995,  the  Company  utilized  $14  million of foreign  tax credit
carryforwards  and U.S. net  operating  loss  carryforwards  from prior years to
reduce its 1995 U.S. federal income tax expense.  At December 31, 1996, for U.S.
federal  income tax  purposes,  the  Company  had  approximately  $27 million of
foreign  tax  credit  carryforwards   expiring  during  1997  through  2001  and
approximately $10 million of alternative  minimum tax credit  carryforwards with
no expiration  date. The Company also had  approximately  $400 million of income
tax loss carryforwards in Germany with no expiration date.


                                    F-29

<PAGE>



Note 14 - Other income, net:

<TABLE>
<CAPTION>

                                                    Years ended December 31,
                                               --------------------------------
                                                 1994        1995         1996
                                               --------    --------    --------
                                                      (In thousands)

<S>                                            <C>         <C>         <C>     
Securities earnings:
  Interest and dividends ...................   $  5,075    $  6,244    $  4,708
  Securities transactions ..................     (1,220)      1,175          --
                                               --------    --------    --------
                                                  3,855       7,419       4,708
Litigation settlement gains ................     22,978          --       2,756
Technology fee income ......................     10,344      10,660       8,743
Currency transaction gains, net ............      1,735         561       5,637
Pension and OPEB curtailment gains .........         --          --       5,900
Royalty income .............................      1,508          --          --
Disposition of property and equipment ......     (1,981)     (2,713)     (2,312)
Other, net .................................      6,389       6,314       5,048
                                               --------    --------    --------

                                               $ 44,828    $ 22,241    $ 30,480
                                               ========    ========    ========
</TABLE>

      Litigation  settlement gains includes $20 million related to the Company's
1994  settlement of its lawsuit  against  Lockheed  Corporation.  Technology fee
income was amortized by the straight-line method over a three-year period ending
October 1996.

Note 15 - Other items:

      Advertising costs, expensed as incurred,  were $2 million in each of 1994,
1995 and 1996.

      Research,  development and certain sales technical support costs, expensed
as incurred,  approximated  $10 million in 1994, and $11 million in each of 1995
and 1996.

      Interest  capitalized in connection with long-term capital projects was $1
million in each of 1994 and 1995, and $2 million in 1996.

Note 16 - Related party transactions:

      The  Company  may  be  deemed  to be  controlled  by  Harold  C.  Simmons.
Corporations  that may be  deemed to be  controlled  by or  affiliated  with Mr.
Simmons sometimes engage in (a) intercorporate  transactions such as guarantees,
management and expense  sharing  arrangements,  shared fee  arrangements,  joint
ventures,  partnerships,  loans, options, advances of funds on open account, and
sales,  leases and  exchanges  of assets,  including  securities  issued by both
related  and  unrelated  parties  and  (b)  common  investment  and  acquisition
strategies,   business   combinations,    reorganizations,    recapitalizations,
securities  repurchases,  and  purchases and sales (and other  acquisitions  and
dispositions)  of  subsidiaries,   divisions  or  other  business  units,  which
transactions  have involved both related and unrelated parties and have included
transactions  which  resulted  in the  acquisition  by one  related  party  of a
publicly-held  minority  equity  interest  in another  related  party.  While no
transactions of the type described above are planned or proposed with respect to
the  Company  other than as set forth in this  Annual  Report on Form 10-K,  the
Company from time to time

                                    F-30

<PAGE>



considers, reviews and evaluates and understands that Contran, Valhi and related
entities consider,  review and evaluate,  such transactions.  Depending upon the
business,  tax and other objectives then relevant,  and  restrictions  under the
indentures  and other  agreements,  it is possible  that the Company  might be a
party to one or more such transactions in the future.

      It is the policy of the  Company to engage in  transactions  with  related
parties  on terms,  in the  opinion of the  Company,  no less  favorable  to the
Company than could be obtained from unrelated parties.

      The  Company  is a party  to an  intercorporate  services  agreement  with
Contran (the "Contran ISA") whereby Contran provides certain management services
to the Company on a fee basis.  Management  services fee expense  related to the
Contran ISA was $.4 million in each of 1994, 1995 and 1996.

      The Company is a party to an intercorporate  services agreement with Valhi
(the "Valhi ISA")  whereby  Valhi and the Company  provide  certain  management,
financial  and  administrative  services  to  each  other  on a fee  basis.  Net
management  services  fee  expense  related to the Valhi ISA was $.2  million in
1994, and $.1 million in each of 1995 and 1996.

      The Company is party to an intercorporate  services agreement with Tremont
(the  "Tremont  ISA").  Under the terms of the  contract,  the Company  provides
certain management and financial services to Tremont on a fee basis.  Management
services fee income  related to the Tremont ISA was nil in 1994, and $.1 million
in each of 1995 and 1996.

      Baroid Corporation,  a former  wholly-owned  subsidiary of the Company and
currently a subsidiary of Dresser Industries, Inc., and the Company were parties
to an intercorporate services agreement (the "Baroid ISA") pursuant to which, as
amended,  Baroid agreed to make certain  services  available to the Company on a
fee basis. The agreement was terminated in 1994. Management services fee expense
pursuant to the Baroid ISA approximated $.2 million in 1994.

      Sales to Baroid in the  ordinary  course of business  were $1.8 million in
1994, $1.6 million in 1995 and $1.1 million in 1996.

      Purchases in the ordinary  course of business  from  unconsolidated  joint
ventures,  including LPC, were approximately $74 million in 1994, $79 million in
1995 and $81 million in 1996.

      Certain  employees of the Company  have been  granted  options to purchase
Valhi common stock under the terms of Valhi's  stock option  plans.  The Company
and Valhi have agreed that the Company will pay Valhi the  aggregate  difference
between the option  price and the market  value of Valhi's  common  stock on the
exercise date of such options.  For financial  reporting  purposes,  the Company
accounts for the related expense  (income)  ($64,000 in 1994,  $(25,000) in 1995
and $1,000 in 1996) in a manner  similar to accounting for SARs. At December 31,
1996,  employees of the Company held options to purchase 365,000 shares of Valhi
common  stock at  exercise  prices  ranging  from $4.76 to $14.66 per share.  At
December 31, 1996,  30,000 of the vested options were exercisable at prices less
than Valhi's quoted market price per share of $6.375.

                                    F-31

<PAGE>



      The Company and NLI Insurance, Ltd., a wholly-owned subsidiary of Tremont,
are parties to an  Insurance  Sharing  Agreement  with  respect to certain  loss
payments and reserves  established by NLI Insurance,  Ltd. that (i) arise out of
claims against other entities for which the Company is responsible  and (ii) are
subject to payment by NLI Insurance,  Ltd. under certain reinsurance  contracts.
Also,  NLI  Insurance,  Ltd.  will  credit the Company  with  respect to certain
underwriting profits or credit recoveries that NLI Insurance, Ltd. receives from
independent reinsurers that relate to retained liabilities.

      Net amounts payable to affiliates are summarized in the following table.

<TABLE>
<CAPTION>

                                                           December 31,
                                                   ----------------------------
                                                     1995                1996
                                                   --------            --------
                                                          (In thousands)

<S>                                                <C>                 <C>     
Tremont Corporation ....................           $  3,525            $  3,529
LPC ....................................              6,677               6,677
Other ..................................                (21)                 (2)
                                                   --------            --------

                                                   $ 10,181            $ 10,204
</TABLE>

      Amounts  payable to LPC are  generally  for the purchase of TiO2 (see Note
6), and amounts payable to Tremont principally relate to the Company's Insurance
Sharing Agreement described above.

Note 17 - Commitments and contingencies:

Leases

      The Company leases,  pursuant to operating leases,  various  manufacturing
and  office  space and  transportation  equipment.  Most of the  leases  contain
purchase  and/or  various  term  renewal  options at fair market and fair rental
values,  respectively.  In most cases  management  expects  that,  in the normal
course of business, leases will be renewed or replaced by other leases.

      Kronos'  principal German operating  subsidiary  leases the land under its
Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050. The
Leverkusen  facility,  with  approximately  one-third  of Kronos'  current  TiO2
production  capacity,  is located  within the lessor's  extensive  manufacturing
complex,  and Kronos is the only unrelated  party so situated.  Under a separate
supplies and services  agreement  expiring in 2011, the lessor provides some raw
materials, auxiliary and operating materials and utilities services necessary to
operate the  Leverkusen  facility.  Both the lease and the supplies and services
agreements  restrict the Company's  ability to transfer  ownership or use of the
Leverkusen facility.


                                    F-32

<PAGE>



      Net rent expense aggregated $8 million in 1994, $9 million in 1995 and $12
million in 1996.  At December 31, 1996,  minimum  rental  commitments  under the
terms of noncancellable operating leases were as follows:

<TABLE>
<CAPTION>

Years ending December 31,                                Real Estate   Equipment
                                                              (In thousands)

  <S>                                                       <C>        <C>    
  1997                                                      $ 2,219    $ 2,721
  1998                                                        2,086      2,179
  1999                                                        2,102      1,197
  2000                                                        1,777        119
  2001                                                        1,415         17
  2002 and thereafter                                        24,752       -
                                                            -------    ----

                                                            $34,351    $ 6,233
                                                            =======    =======
</TABLE>

Capital expenditures

      At December 31, 1996, the estimated cost to complete  capital  projects in
process  approximated  $16  million,  including  a  $8  million  debottlenecking
expansion project at the Company's  Leverkusen,  Germany  chloride-process  TiO2
facility  and $2 million  related to  environmental  protection  and  compliance
programs.

Purchase commitments

      The Company has long-term  supply contracts that provide for the Company's
chloride feedstock requirements through 2000. The agreements require the Company
purchase  certain  minimum  quantities of feedstock with average  minimum annual
purchase commitments aggregating approximately $115 million.

Legal proceedings

      Lead pigment litigation. Since 1987, the Company, other past manufacturers
of lead pigments for use in paint and lead-based  paint and the Lead  Industries
Association have been named as defendants in various legal  proceedings  seeking
damages for personal injury and property damage  allegedly  caused by the use of
lead-based  paints.  Certain of these actions have been filed by or on behalf of
large United  States  cities or their  public  housing  authorities  and certain
others  have been  asserted  as class  actions.  These  legal  proceedings  seek
recovery  under a variety  of  theories,  including  negligent  product  design,
failure to warn, breach of warranty,  conspiracy/concert  of action,  enterprise
liability,   market   share   liability,   intentional   tort,   and  fraud  and
misrepresentation.

      The plaintiffs in these actions generally seek to impose on the defendants
responsibility for lead paint abatement and asserted health concerns  associated
with the use of  lead-based  paints,  including  damages  for  personal  injury,
contribution  and/or  indemnification  for medical expenses,  medical monitoring
expenses and costs for educational programs. Most of these legal proceedings are
in various pre-trial stages; several are on appeal.

      The Company  believes  that these  actions are without  merit,  intends to
continue to deny all allegations of wrongdoing and liability and to defend all

                                    F-33

<PAGE>



actions vigorously. The Company has not accrued any amounts for the pending lead
pigment litigation.  Considering the Company's previous  involvement in the lead
and  lead  pigment  businesses,  there  can  be  no  assurance  that  additional
litigation similar to that currently pending will not be filed.

      Environmental  matters and litigation.  Some of the Company's  current and
former facilities, including several divested secondary lead smelters and former
mining  locations,   are  the  subject  of  civil   litigation,   administrative
proceedings  or  investigations  arising under  federal and state  environmental
laws. Additionally,  in connection with past disposal practices, the Company has
been named a potential  responsible  party ("PRP") pursuant to the Comprehensive
Environmental  Response,  Compensation  and  Liability  Act,  as  amended by the
Superfund  Amendments and  Reauthorization  Act ("CERCLA") in  approximately  75
governmental  and private  actions  associated  with  hazardous  waste sites and
former  mining  locations,  certain  of  which  are  on the  U.S.  Environmental
Protection  Agency's  Superfund  National  Priorities  List.  These actions seek
cleanup costs and/or damages for personal injury or property  damage.  While the
Company may be jointly and severally  liable for such costs, in most cases it is
only one of a number  of PRPs who are also  jointly  and  severally  liable.  In
addition,  the  Company  is a party to a number  of  lawsuits  filed in  various
jurisdictions  alleging CERCLA or other  environmental  claims.  At December 31,
1996, the Company had accrued $113 million for those environmental matters which
are reasonably estimable.  It is not possible to estimate the range of costs for
certain  sites.  The upper end of the range of reasonably  possible costs to the
Company for sites which it is possible to estimate costs is  approximately  $160
million. The Company's estimates of such liabilities have not been discounted to
present  value,  and the  Company has not  recognized  any  potential  insurance
recoveries.  The imposition of more stringent  standards or  requirements  under
environmental  laws or regulations,  new developments or changes respecting site
cleanup costs or allocation  of such costs among PRPs, or a  determination  that
the Company is potentially  responsible for the release of hazardous  substances
at other  sites  could  result in  expenditures  in excess of amounts  currently
estimated by the Company to be required for such  matters.  No assurance  can be
given that actual costs will not exceed accrued  amounts or the upper end of the
range for sites for which estimates have been made and no assurance can be given
that costs will not be  incurred  with  respect to sites as to which no estimate
presently  can be made.  Further,  there  can be no  assurance  that  additional
environmental  matters will not arise in the future. As discussed in Note 2, the
Company  will adopt the  AICPA's  Statement  of  Position  96-1,  "Environmental
Remediation  Liabilities,"  during  the first  quarter of 1997,  increasing  its
environmental liability by approximately $30 million.

      Certain  of the  Company's  businesses  are and have been  engaged  in the
handling,  manufacture  or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable  environmental laws. As with
other companies engaged in similar  businesses,  certain operations and products
of the Company have the potential to cause  environmental  or other damage.  The
Company  continues  to implement  various  policies and programs in an effort to
minimize these risks. The Company's policy is to comply with  environmental laws
and  regulations at all of its  facilities and to continually  strive to improve
environmental  performance in association with applicable industry  initiatives.
It is possible that future developments, such as stricter requirements of

                                    F-34

<PAGE>



environmental  laws  and  enforcement  policies  thereunder,  could  affect  the
Company's production, handling, use, storage,  transportation,  sale or disposal
of such  substances as well as the Company's  consolidated  financial  position,
results of operations or liquidity.

      Other   litigation.   The  Company  is  also  involved  in  various  other
environmental,  contractual,  product  liability  and other  claims and disputes
incidental to its present and former businesses.

      The Company currently  believes the disposition of all claims and disputes
individually or in the aggregate,  should not have a material  adverse effect on
the  Company's  consolidated  financial  condition,  results  of  operations  or
liquidity.

Concentrations of credit risk

      Sales of TiO2  accounted for almost 90% of net sales during the past three
years. TiO2 is sold to the paint,  plastics and paper  industries.  Such markets
are  generally  considered  "quality-of-life"  markets  whose demand for TiO2 is
influenced  by  the  relative  economic  well-being  of the  various  geographic
regions.  TiO2 is sold to over  4,000  customers,  none of  which  represents  a
significant portion of net sales. In each of the past three years, approximately
one-half of the Company's TiO2 sales by volume were to Europe and  approximately
36% in both 1994 and 1995 and 37% in 1996 of sales  were  attributable  to North
America.

      Consolidated  cash,  cash  equivalents  and restricted  cash includes $103
million and $53 million  invested in U.S.  Treasury  securities  purchased under
short-term agreements to resell at December 31, 1995 and 1996, respectively,  of
which $88 million and $41 million,  respectively, of such securities are held in
trust for the Company by a single U.S. bank.

Note 18 - Financial instruments:

      Summarized  below is the  estimated  fair value and related  net  carrying
value of the Company's financial instruments.
<TABLE>
<CAPTION>

                                              December 31,        December 31,
                                                  1995                1996
                                            -----------------   ----------------
                                            Carrying    Fair    Carrying   Fair
                                             Amount     Value    Amount    Value
                                            --------   ------   --------  ------
                                                        (In millions)

<S>                                          <C>       <C>      <C>       <C>   
Cash and cash equivalents, including
 restricted cash .........................   $141.3    $141.3   $114.1    $114.1
Marketable securities - classified as
 available-for-sale ......................     20.9      20.9     23.7      23.7

Notes payable and long-term debt:
  Fixed rate with market quotes:
    Senior Secured Notes .................   $250.0    $267.7   $250.0    $265.2
    Senior Secured Discount Notes ........    132.0     151.8    149.8     161.9
  Variable rate debt .....................    440.9     440.9    455.0     455.0

Common shareholders' equity (deficit) ....   $(209.4)  $619.5   $(203.5)  $555.9
</TABLE>

      Fair value of the Company's marketable securities and Notes are based upon
quoted market prices and the fair value of the  Company's  common  shareholder's
equity  (deficit) is based upon quoted market prices for NL's common stock.  The
Company held no derivative financial instruments at December 31, 1995 and 1996.

Note 19 - Quarterly financial data (unaudited):

<TABLE>
<CAPTION>

                                                 Quarter ended
                             ---------------------------------------------------
                                March 31    June 30      Sept. 30    Dec. 31
                             -----------   ----------   ---------   ---------
                                 (In thousands, except per share amounts)

<S>                             <C>         <C>         <C>          <C>      
Year ended December 31, 1995:

  Net sales .................   $ 250,875   $ 283,474   $ 255,339    $ 234,251
  Cost of sales .............     169,768     187,896     169,058      149,462
  Operating income ..........      41,968      57,549      50,590       49,612

      Net income ............   $  13,062   $  21,002   $  17,426    $  34,119(a)
                                =========   =========    =========   =========

  Net income per share of
   common stock .............   $     .26   $     .41   $       .34  $     .66(a)
                                =========   =========    =========   =========

  Weighted average shares
   and common stock
   equivalents outstanding ..      51,176      51,552      51,628       51,486
                                =========   =========    =========   =========

Year ended December 31, 1996:

  Net sales .................   $ 240,440   $ 263,162   $ 248,462    $ 234,010
  Cost of sales .............     169,816     194,794     193,271      180,557
  Operating income ..........      41,938      36,098      19,471       15,866

      Net income (loss) .....   $  13,444   $  11,919   $  (4,249)   $ (10,297)
                                =========   =========   =========    =========

  Net income (loss) per
   share of common stock ....   $     .26   $     .23   $    (.08)   $    (.20)
                                =========   =========   =========    =========

  Weighted average shares
   and common stock
   equivalents outstanding ..      51,510      51,493      51,118       51,118
                                =========   =========    =========   =========
</TABLE>

(a)   Income tax benefits in the fourth quarter of 1995 include the  recognition
      of $10 million of deferred  tax assets  related to a change in estimate of
      the future tax benefit of certain tax credits  which the Company  believes
      satisfies the "more-likely-than-not" recognition criteria and $6.6 million
      related to the reduction in U.S./Canada dividend withholding tax rates.
      See Note 13.

                                    F-35

<PAGE>



                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ON FINANCIAL STATEMENT SCHEDULES


     Our report on the consolidated financial statements of NL Industries,  Inc.
is included on page F-2 of this Annual Report on Form 10-K.  In connection  with
our  audits of such  financial  statements,  we have also  audited  the  related
financial statement schedules listed in the index on page F-1.

     In our opinion,  the financial  statement schedules referred to above, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present  fairly,  in all  material  respects,  the  information  required  to be
included therein.





                                    COOPERS & LYBRAND L.L.P.

Houston, Texas
February 7, 1997


                                    S-1

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

           SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                           Condensed Balance Sheets

                          December 31, 1995 and 1996

                                (In thousands)

<TABLE>
<CAPTION>


                                                          1995           1996
                                                       ---------      ---------

<S>                                                    <C>            <C>      
Current assets:
  Cash and cash equivalents, including
   restricted cash of $4,349 and $4,833 ..........     $  40,080      $  12,135
  Accounts and notes receivable ..................           203            356
  Receivable from subsidiaries ...................         4,273          9,542
  Refundable income taxes ........................         1,662             --
  Prepaid expenses ...............................           729            445
                                                       ---------      ---------

      Total current assets .......................        46,947         22,478
                                                       ---------      ---------

Other assets:
  Marketable securities ..........................        20,944         23,718
  Notes receivable from subsidiary ...............       382,034        505,557
  Investment in subsidiaries .....................       (89,395)      (175,063)
  Other ..........................................         7,582          6,680
                                                       ---------      ---------

      Total other assets .........................       321,165        360,892
                                                       ---------      ---------

Property and equipment, net ......................         3,562          3,396
                                                       ---------      ---------

                                                       $ 371,674      $ 386,766
                                                       =========      =========

Current liabilities:
  Accounts payable and accrued liabilities .......     $  28,116      $  24,929
  Payable to affiliates ..........................         3,498          2,813
  Income taxes ...................................            --          3,024
  Deferred income taxes ..........................         1,905          1,908
                                                       ---------      ---------

      Total current liabilities ..................        33,519         32,674
                                                       ---------      ---------

Noncurrent liabilities:
  Long-term debt .................................       382,034        399,756
  Deferred income taxes ..........................        10,211          9,736
  Accrued pension cost ...........................        10,835         10,974
  Accrued postretirement benefits cost ...........        37,430         34,396
  Other ..........................................       107,066        102,711
                                                       ---------      ---------

      Total noncurrent liabilities ...............       547,576        557,573
                                                       ---------      ---------

Shareholders' deficit ............................      (209,421)      (203,481)
                                                       ---------      ---------

                                                       $ 371,674      $ 386,766
                                                       =========      =========
</TABLE>

Contingencies (Note 4)

                                    S-2

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                      Condensed Statements of Operations

                 Years ended December 31, 1994, 1995 and 1996

                                (In thousands)

<TABLE>
<CAPTION>


                                               1994         1995         1996
                                            ---------     ---------    ---------

<S>                                         <C>           <C>          <C>      
Revenues and other income:
  Equity in income of subsidiaries .....    $   7,925     $  99,734    $  18,236
  Interest and dividends ...............        2,538         2,739        1,461
  Interest income from subsidiary ......       43,157        45,551       49,738
  Securities transactions ..............       (1,220)        1,175           --
  Other income, net ....................        3,135           460        1,873
                                            ---------     ---------    ---------

                                               55,535       149,659       71,308
                                            ---------     ---------    ---------
Costs and expenses:
  General and administrative ...........       69,875        27,079       18,094
  Interest .............................       44,003        45,842       47,940
                                            ---------     ---------    ---------

                                              113,878        72,921       66,034
                                            ---------     ---------    ---------

      Income (loss) before income
       taxes ...........................      (58,343)       76,738        5,274

Income tax benefit .....................       34,361         8,871        5,543
                                            ---------     ---------    ---------

      Net income (loss) ................    $ (23,982)    $  85,609    $  10,817
                                            =========     =========    =========

</TABLE>


                                    S-3

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                      Condensed Statements of Cash Flows

                 Years ended December 31, 1994, 1995 and 1996

                                (In thousands)
<TABLE>
<CAPTION>



                                                 1994        1995        1996
                                               --------    --------    --------

<S>                                            <C>         <C>         <C>     
Cash flows from operating activities:
  Net income (loss) ........................   $(23,982)   $ 85,609    $ 10,817
  Equity in income of subsidiaries .........     (7,925)    (99,734)    (18,236)
  Distributions from subsidiaries ..........     30,000      15,000      20,000
  Noncash interest expense .................        845         842         842
  Deferred income taxes ....................    (20,577)      1,411      (1,443)
  Securities transactions ..................      1,220      (1,175)         --
  Other, net ...............................     (3,836)     (5,819)     (3,291)
                                               --------    --------    --------

                                                (24,255)     (3,866)      8,689

  Change in assets and liabilities, net ....     23,263       8,042      (8,593)
  Marketable trading securities:
    Purchases ..............................       (870)       (762)         --
    Dispositions ...........................     15,530      27,102          --
                                               --------    --------    --------

      Net cash provided by operating
       activities ..........................     13,668      30,516          96
                                               --------    --------    --------

Cash flows from investing activities:
  Investments in and loans to subsidiaries .     (6,630)     (9,062)    (12,941)
  Capital expenditures .....................       (126)        (33)        (40)
  Other, net ...............................        402          10          11
                                               --------    --------    --------

      Net cash used by investing
       activities ..........................     (6,354)     (9,085)    (12,970)
                                               --------    --------    --------

</TABLE>

                                    S-4

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                Condensed Statements of Cash Flows (Continued)

                 Years ended December 31, 1994, 1995 and 1996

                                (In thousands)

<TABLE>
<CAPTION>


                                                 1994        1995        1996
                                               --------    --------    --------

<S>                                            <C>         <C>         <C>      
Cash flows from financing activities:
  Dividends ................................   $     --    $     --    $(15,333)
  Principal payments of borrowings .........       (170)         --          --
  Other, net ...............................        120         278         262
                                               --------    --------    --------

      Net cash provided (used) by
       financing activities ................        (50)        278     (15,071)
                                               --------    --------    --------

Cash and cash equivalents:
  Increase (decrease) from:
    Operating activities ...................     13,668      30,516          96
    Investing activities ...................     (6,354)     (9,085)    (12,970)
    Financing activities ...................        (50)        278     (15,071)
                                               --------    --------    --------

  Net change from operating, investing
   and financing activities ................      7,264      21,709     (27,945)
  Balance at beginning of year .............     11,107      18,371      40,080
                                               --------    --------    --------

  Balance at end of year ...................   $ 18,371    $ 40,080    $ 12,135
                                               ========    ========    ========

</TABLE>


                                    S-5

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

    SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                   Notes to Condensed Financial Information



Note 1 - Basis of presentation:

      The  Consolidated  Financial  Statements  of  NL  Industries,   Inc.  (the
"Company")  and the  related  Notes to  Consolidated  Financial  Statements  are
incorporated herein by reference.

Note 2 - Net receivable from (payable to) subsidiaries and affiliates:

<TABLE>
<CAPTION>

                                                             December 31,
                                                     --------------------------
                                                         1995            1996
                                                     ---------        ---------
                                                             (In thousands)

<S>                                                  <C>              <C>       
Current:
  Tremont Corporation ........................       $  (3,525)       $  (3,529)
  Other ......................................              27               (2)
  Kronos and Rheox:
    Income taxes .............................             567             (836)
    Other, net ...............................           3,706           11,096
                                                     ---------        ---------

                                                     $     775        $   6,729
                                                     =========        =========

Noncurrent - notes receivable from:
  Kronos .....................................       $ 382,034        $ 399,756
  Rheox ......................................              --          105,801
                                                     ---------        ---------

                                                     $ 382,034        $ 505,557
</TABLE>

Note 3 - Long-term debt:

<TABLE>
<CAPTION>

                                                               December 31,
                                                        ------------------------
                                                          1995            1996
                                                        --------        --------
                                                              (In thousands)

<S>                                                     <C>             <C>     
11.75% Senior Secured Notes ....................        $250,000        $250,000
13% Senior Secured Discount Notes ..............         132,034         149,756
                                                        --------        --------

                                                        $382,034        $399,756

</TABLE>

      See Note 10 of the Consolidated  Financial Statements for a description of
the Notes.


                                    S-6

<PAGE>



      The aggregate  maturities of the Company's  long-term debt at December 31,
1996 are shown in the table below.

<TABLE>
<CAPTION>

                                                                        Amount
                                                                  --------------
                                                                  (In thousands)

<S>                                                                     <C>     
Senior Secured Notes due 2003 ..................................        $250,000
Senior Secured Discount Notes due 2005 .........................         187,500
                                                                        --------
                                                                         437,500
Less unamortized original issue discount on the
 Senior Secured Discount Notes .................................          37,744

                                                                        $399,756
                                                                        ========
</TABLE>

      The  Company and Kronos  have  agreed,  under  certain  circumstances,  to
provide  Kronos'  principal  international  subsidiary with up to DM 125 million
through January 1, 2001. The Company has guaranteed the DM credit facility.

Note 4 - Contingencies:

See Legal proceedings in Note 17 to the Consolidated Financial Statements.


                                    S-7

<PAGE>


                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                (In thousands)

<TABLE>
<CAPTION>


                                     Balance at   Charged to                   Currency
                                     beginning    costs and                   translation               Balance at
           Description                of year      expenses      Deductions   adjustments     Other     end of year
           -----------               ----------   ----------     ----------   -----------    -------    -----------

<S>                                    <C>          <C>           <C>          <C>           <C>          <C>     
Year ended December 31, 1996:
  Allowance for doubtful accounts
   and notes receivable ..........     $  4,039     $  1,274      $ (1,331)(a) $   (169)     $     --     $  3,813
                                       ========     ========      ========     ========      ========     ========

  Amortization of intangibles ....     $ 20,562     $  3,152      $     --     $ (1,507)     $     --     $ 22,207
                                       ========     ========      ========     ========      ========     ========

  Valuation allowance for deferred
   income taxes ..................     $195,569     $  3,013      $     --     $ (5,937)     $14,472(c)   $207,117
                                       ========     ========      ========     ========      ========     ========

Year ended December 31, 1995:
  Allowance for doubtful accounts
   and notes receivable ..........     $  3,749     $    289      $   (166)(a) $    167      $     --     $  4,039
                                       ========     ========      ========     ========      ========     ========

  Amortization of intangibles ....     $ 16,149     $  3,241      $     --     $  1,172      $     --     $ 20,562
                                       ========     ========      ========     ========      ========     ========

  Valuation allowance for deferred
   income taxes ..................     $164,500     $ (9,588)     $     --     $  6,451      $ 34,206(b)  $195,569
                                       ========     ========      ========     ========      ========     ========

Year ended December 31, 1994:
  Allowance for doubtful accounts
   and notes receivable ..........     $  3,008     $  1,141      $   (616)(a) $    216      $     --     $  3,749
                                       ========     ========      ========     ========      ========     ========

  Amortization of intangibles ....     $ 11,941     $  2,901      $     --     $  1,307      $     --     $ 16,149
                                       ========     ========      ========     ========      ========     ========

  Valuation allowance for deferred
   income taxes ..................     $133,377     $ 24,309      $     --     $  6,814      $     --     $164,500
                                       ========     ========      ========     ========      ========     ========
</TABLE>

(a)   Amounts written off, less recoveries.
(b)   Direct  offset  to the  increase  in  gross  deferred  income  tax  assets
      resulting from  recharacterization of certain tax attributes due primarily
      to changes in certain income tax return elections.
(c)   Direct offset to the increase in non-U.S. gross deferred income tax assets
      due to dual residency status of a Company subsidiary.

                                    S-8

                                                                    EXHIBIT 10.2

                                  KRONOS INTERNATIONAL, INC.



                          SECOND AMENDED AND RESTATED LOAN AGREEMENT



                                 Dated as of January 31, 1997



                                        DM 418,249,878



                                 HYPOBANK INTERNATIONAL S.A.

                                           as Agent



                                           and the

                                      BANKS NAMED HEREIN







                                              1

<PAGE>

<TABLE>
<CAPTION>


                                       TABLE OF CONTENTS
                                                                                          Page

<S>                                                                                        <C>
ARTICLE 1.  DEFINITIONS......................................................................4

ARTICLE 2.  THE FACILITY....................................................................38
        2.01   .............................................................................38
        2.02   .............................................................................40
        2.03   .............................................................................40
        2.04   .............................................................................40
        2.05   .............................................................................42
        2.06   .............................................................................42

ARTICLE 3.  PURPOSE OF THE LOAN.............................................................45

ARTICLE 4.  CONDITIONS PRECEDENT AND NOTICE OF BORROWING....................................45
        4.01   .............................................................................45
        4.02   .............................................................................49
        4.03   .............................................................................50
        4.04   .............................................................................50

ARTICLE 5.  INTEREST PERIODS................................................................50
        5.01   .............................................................................50
        5.02   .............................................................................50
        5.03   .............................................................................50
        5.04   .............................................................................51

ARTICLE 6.  INTEREST........................................................................51
        6.01   .............................................................................51
        6.02   .............................................................................51
        6.03   .............................................................................51
        6.04   .............................................................................51
        6.05   .............................................................................51

ARTICLE 7.  SUBSTITUTE BASIS................................................................52
        7.01   .............................................................................52
        7.02   .............................................................................52
        7.03   .............................................................................53
        7.04   .............................................................................54

ARTICLE 8.  PREPAYMENT......................................................................54
        8.01   .............................................................................54
        8.02   .............................................................................58

                                              ii

<PAGE>



        8.03   .............................................................................59

ARTICLE 9.  REPAYMENT.......................................................................59

ARTICLE 10.  EVIDENCE OF DEBT...............................................................60
        10.01  .............................................................................60
        10.02  .............................................................................60
        10.03  .............................................................................61

ARTICLE 11.  PAYMENTS.......................................................................61
        11.01  .............................................................................61
        11.02  .............................................................................62
        11.03  .............................................................................63
        11.04  .............................................................................63
        11.05  .............................................................................63
        11.06  .............................................................................64
        11.07  .............................................................................64
        11.08  .............................................................................64
        11.09  .............................................................................65

ARTICLE 12.  DEFAULT INTEREST AND INDEMNITY.................................................65
        12.01  .............................................................................65
        12.02  .............................................................................66
        12.03  .............................................................................66
        12.04  .............................................................................67

ARTICLE 13.  SET-OFF AND REDISTRIBUTION OF PAYMENTS.........................................67
        13.01  .............................................................................67
        13.02  .............................................................................68
        13.03  .............................................................................68
        13.04  .............................................................................68
        13.05  .............................................................................68

ARTICLE 14.  CHANGE OF CIRCUMSTANCES; ILLEGALITY;
                   RESERVE REQUIREMENTS.....................................................69
        14.01  Change of Circumstances......................................................69
        14.02  Illegality...................................................................70
        14.03  Reserve Requirements.........................................................71

ARTICLE 15.  REPRESENTATIONS AND WARRANTIES.................................................72
        15.01  Corporate Existence of Borrower and Subsidiaries.............................72
        15.02  Power and Authority of Borrower..............................................72
        15.03  Power and Authority of Pledgors and Guarantors...............................72

                                             iii

<PAGE>



        15.04  Rank of Indebtedness.........................................................73
        15.05  No Conditions to Performance and Enforceability..............................73
        15.06  No Filings; No Stamp Taxes...................................................73
        15.07  Legal, Valid and Enforceable Obligations.....................................74
        15.08  Bankruptcy...................................................................74
        15.09  No Defaults; No Litigation...................................................74
        15.10  Environmental Compliance.....................................................75
        15.11  Financial Statements.........................................................76
        15.12  No Material Adverse Change...................................................76
        15.13  Accurate Information.........................................................76
        15.14  No Violation, Defaults or Liens..............................................76
        15.15  ERISA........................................................................77
        15.16  Non-U.S. Employee Plans......................................................79
        15.17  Investment Company...........................................................79
        15.18  Subsidiaries.................................................................79
        15.19  Margin Stock.................................................................80
        15.20  Taxes........................................................................81
        15.21  Intellectual Property Rights.................................................81
        15.22  Key Contracts................................................................82
        15.23  Affiliate Transactions.......................................................82
        15.24  NL Debt Offering; Mirror Notes; Subordinated Loans; Consideration
                 for Prepayments............................................................83
        15.25  Taxes relating to Mirror Notes...............................................83
        15.26  Ownership of Material Assets.................................................83
        15.27  Optional Prepayments.........................................................84
        15.28  Certain Adjusted Restricted Payments.........................................84

ARTICLE 16.  UNDERTAKINGS AND COVENANTS.....................................................84
        16.01  Delivery of Financial Statements, etc........................................84
        16.02  Operating Permits............................................................86
        16.03  Environmental Compliance.....................................................86
        16.04  Compliance with Applicable Law...............................................86
        16.05  Books and Records............................................................87
        16.06  Environmental Reports........................................................87
        16.07  Intellectual Property Rights.................................................87
        16.08  Liens........................................................................88
        16.09  Dispositions.................................................................88
        16.10  Merger; Consolidation........................................................89
        16.11  Employee Matters.............................................................90
        16.12  Interest Rate Protection Agreements..........................................92
        16.13  Indebtedness to Subsidiaries.................................................92
        16.14  Maintenance of Separate Corporate Identities.................................92
        16.15  Affiliate Transactions.......................................................92

                                              iv

<PAGE>



        16.16  Transactions with Subsidiaries...............................................93
        16.17  Notice of Default; Change of Law.............................................94
        16.18  Limitation of Indebtedness...................................................94
        16.19  Subsidiary Indebtedness......................................................94
        16.20  Restricted Payments..........................................................94
        16.21  Maximum Funded Debt Ratio; Maximum Indebtedness..............................95
        16.22  Minimum Consolidated Equity..................................................96
        16.23  Current Assets to Current Liabilities Ratio..................................96
        16.24  Interest Coverage Ratio......................................................96
        16.25  Minimum EBITDA...............................................................97
        16.26  Registered Office in Germany.................................................97
        16.27  Service Contract of Kronos Titan.............................................97
        16.28  Restriction on Dividends from Subsidiaries...................................97
        16.29  Investments..................................................................98
        16.30  Limitation on Restricted Payments............................................98
        16.31  Maintenance of Property; Insurance...........................................99
        16.32  Continuation of Business.....................................................99
        16.33  Taxes........................................................................99
        16.34  Additional Guaranties, Pledged Subsidiaries..................................99
        16.35  Pledged Stock...............................................................100
        16.36  Principal Shareholder Waiver................................................101
        16.37  Maximum Capital Expenditures................................................101
        16.38  Mirror Notes; Subordinated Loans............................................102
        16.39  Notification of Indenture Defaults..........................................102
        16.40  Bank Accounts...............................................................102

ARTICLE 17.  COLLATERAL....................................................................103
        17.01  ............................................................................103
        17.02  ............................................................................104
        17.03  ............................................................................104
        17.04  ............................................................................105
        17.05  ............................................................................106

ARTICLE 18.  EVENTS OF DEFAULT.............................................................107
        18.01  ............................................................................107
        18.02  ............................................................................107
        18.03  ............................................................................107
        18.04  ............................................................................107
        18.05  ............................................................................107
        18.06  ............................................................................107
        18.07  ............................................................................108
        18.08  ............................................................................108
        18.09  ............................................................................108

                                              v

<PAGE>



        18.10  ............................................................................108
        18.11  ............................................................................108
        18.12  ............................................................................108
        18.13  ............................................................................109
        18.14  ............................................................................109
        18.15  ............................................................................109
        18.16  ............................................................................109
        18.17  ............................................................................109

ARTICLE 19.  FEES..........................................................................110
        19.01  ............................................................................110
        19.02  ............................................................................111
        19.03  ............................................................................111
        19.04  ............................................................................111

ARTICLE 20.  EXPENSES AND DUTIES...........................................................111
        20.01  ............................................................................111
        20.02  ............................................................................111
        20.03  ............................................................................112
        20.04  ............................................................................112

ARTICLE 21.  THE AGENT AND THE BANKS.......................................................112
        21.01  ............................................................................112
        21.02  ............................................................................112
        21.03  ............................................................................113
        21.04  ............................................................................113
        21.05  ............................................................................114
        21.06  ............................................................................114
        21.08  ............................................................................115
        21.09  ............................................................................115
        21.10  ............................................................................116
        21.11  ............................................................................116

ARTICLE 22.  NO WAIVER.....................................................................116

ARTICLE 23.  PARTIAL INVALIDITY; CHANGE IN ACCOUNTING PRINCIPLES...........................117
        23.01  ............................................................................117
        23.02  ............................................................................117

ARTICLE 24.  ASSIGNMENTS, PARTICIPATION....................................................117
        24.01  ............................................................................117
        24.02  ............................................................................118
        24.03  ............................................................................119

                                              vi

<PAGE>



        24.04  ............................................................................120
        24.05  ............................................................................120
        24.06  ............................................................................120
        24.07  ............................................................................121

ARTICLE 25.  LANGUAGE......................................................................121

ARTICLE 26.  NOTICES.......................................................................121

ARTICLE 27.  LIMITATION ON SPECIAL DAMAGES.................................................121

ARTICLE 28.  APPLICABLE LAW; JURISDICTION; SERVICE OF PROCESS..............................122

ARTICLE 29.  COUNTERPARTS..................................................................122

ARTICLE 30.  FURTHER ASSURANCES............................................................122

ARTICLE 31.  CONSTRUCTION..................................................................123

ARTICLE 32.  ENTIRE AGREEMENT..............................................................123

ARTICLE 33.  SURVIVAL OF WARRANTIES AND AGREEMENTS.........................................123

ARTICLE 34.  NO THIRD PARTY BENEFICIARIES..................................................123

ARTICLE 35.  NO NOVATION...................................................................124

ARTICLE 36.  MISCELLANEOUS.................................................................124
        36.01  ............................................................................124
        36.02  ............................................................................124
        36.03  ............................................................................124
        36.04  ............................................................................125


</TABLE>

                                             vii

<PAGE>



                                           SCHEDULES

Schedule 1     List of Banks

Schedule 2     Indebtedness

Schedule 3     Liens

Schedule 4     Certain Legal Matters

Schedule 5     Litigation

Schedule 6     ERISA and Non-U.S. Employee Plans

               A      Erisa Disclosure
               B      Termination
               C      Plan Description
               D      Withdrawal
               E      Claims
               F      Non-U.S. Employee Plans

Schedule 7     Subsidiaries

Schedule 8     License Agreements and Intellectual Property Rights

               A      Exceptions to Ownership of Intellectual Property Rights
               B      Affiliate License Agreements
               C      Third Party License Agreements
               D      Other Agreements
               E      Patents
               F      Trademarks
               G      Infringements Claims

Schedule 9     Affiliate Transactions

Schedule 10    Insurance

Schedule 11    Tax Information

Schedule 12    Certain Loan Agreements

Schedule 13    Certain Material Assets


                                             viii

<PAGE>



                                           EXHIBITS

Exhibit A      Form of Assignment and Acceptance

Exhibit B      Form of Mirror Notes

Exhibit C      Subordinated Loan Documents

Exhibit D      Forms of Amendments and/or Reaffirmations of Pledge Agreements

Exhibit E      Forms of Amendments and/or Reaffirmations of Guaranties

Exhibit F      Form of Second  Amended and Restated  Technology  and Trademark
               Undertaking

Exhibit G      Form of Amendment and/or  Reaffirmation  of  Subordination  and
               Contribution Agreement

Exhibit H      Form of Second Amended and Restated Liquidity Undertaking

Exhibit I      Form of Acknowledgment of Limitation of Special Damages

Exhibit J      Form of NL Guaranty

Exhibit K      Form of Canadian Security Documents

Exhibit L      Form of Nordenham Mortgage

Exhibit M      Forms of Cash Pledge Agreements of the Borrower

Exhibit N      Forms of Cash Pledge Agreements of the Canadian Subsidiaries

Exhibit O      Form of Solvency Certificate

Exhibit P      Form of Notice of Borrowing

Exhibit Q      Form of Certificate of Chief  Financial  Officer of Borrower as
               to Annual Financial Statements

Exhibit R      Form of Certificate of Chief  Financial  Officer of Borrower as
               to Quarterly Financial Statements

Exhibit S      Form of Confidentiality Agreement


                                              ix

<PAGE>



                          SECOND AMENDED AND RESTATED LOAN AGREEMENT

        THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT, dated as of January 31,
1997,  is executed  and  delivered by and among  KRONOS  INTERNATIONAL,  INC., a
Delaware corporation (the "BORROWER"), KRONOS TITAN - GMBH, a German corporation
("KRONOS  TITAN") (for the limited  purposes  specified  herein),  the BANKS (as
hereinafter defined), HYPOBANK INTERNATIONAL S.A., as Agent for the Banks.

        The Borrower has a registered office in Leverkusen,  Germany,  and is an
indirect  wholly-owned   subsidiary  of  NL  Industries,   Inc.,  a  New  Jersey
corporation ("NL INDUSTRIES"). As of May 30, 1990, and prior to January 1, 1992,
the  Borrower was a  wholly-owned  subsidiary  of Kronos (US),  Inc., a Delaware
corporation  formerly and then known as Kronos, Inc. ("KRONOS (US)").  Effective
as of January 1, 1992, Kronos (US) assigned the Stock of the Borrower to Kronos,
Inc., a Delaware corporation formerly (prior to such assignment) known as Kronos
(USA), Inc.  ("KRONOS") and a subsidiary of Kronos (US),  whereupon the Borrower
became (and is now) a wholly-owned subsidiary of Kronos.

        The Borrower,  the Banks (or their predecessors in interest),  the Agent
and Banque Paribas, Co-Agent for the Banks (the "CO-AGENT") were parties to that
certain Loan Agreement  dated as of May 30, 1990, as amended by that certain (a)
First Amendment  Agreement (herein so called) dated as of December 31, 1990, (b)
Second  Amendment  Agreement  (herein so called) dated as of March 22, 1991, and
(c) Third Amendment  Agreement  (herein so called) dated as of June 15, 1992 (as
amended thereby, the "ORIGINAL AGREEMENT").  Pursuant to the Original Agreement,
the Borrower  requested that the Banks (and/or their  predecessors  in interest)
make, and the Banks (and/or their  predecessors in interest)  made,  advances to
the  Borrower  in  Deutsche  Mark  in  the  aggregate  principal  amount  of  DM
1,600,000,000  on the terms and subject to the  conditions  and for the purposes
set forth in the Original Agreement.

        Pursuant to the First Amendment  Agreement,  certain financial covenants
in the Original Agreement were amended for the year 1990.

        Pursuant  to  the  Second  Amendment  Agreement,   INTER  ALIA,  certain
financial  covenants in the  Original  Agreement  were  amended,  the  repayment
schedule for the Loan was amended and the NL/Kronos  Guaranty and the Investment
Account Agreement (as defined in the Original Agreement) were executed.

        Pursuant to the Third Amendment Agreement, INTER ALIA, certain financial
covenants in the Original Agreement were amended, the repayment schedule for the
Loan was amended,  certain  U.S.  Dollar  denominated  tranches of the Loan were
permitted,  the Borrower was given the right to reborrow certain  prepayments of
the final  repayment  installment  of the Loan and a Liquidity  Undertaking  was
executed by NL Industries and Kronos (US).

        Effective  as of January 1, 1992,  the  Borrower  became a  wholly-owned
subsidiary  of Kronos as  explained  in the second  paragraph of the preamble of
this Agreement.


                                              1

<PAGE>



        During  February 1993, the Borrower  notified the Agent and the Co-Agent
of certain proposed  transactions  involving its Subsidiaries,  certain of which
transactions  were required to be approved by the requisite  Banks. As a result,
the First Approval Agreement was executed and the transactions  described in the
First Approval  Agreement  have been  consummated  (except for the  transactions
referred  to in Step 10 of  Schedule 1 to the First  Approval  Agreement,  which
transactions have not been, and need not be, consummated).

        The Borrower,  the Banks, the Agent and the Co-Agent are parties to that
certain  Amended and Restated Loan  Agreement  dated as of October 15, 1993 (the
"FIRST RESTATED  AGREEMENT"),  which amends and restates the Original Agreement.
Pursuant to or in connection  with the First Restated  Agreement,  (a) the Agent
and  the  Banks  (or  their  predecessors  in  interest)  were  requested  by NL
Industries,  Kronos  (US)  and  Kronos  to  approve,  and did  approve,  certain
transactions pursuant to which NL Industries assigned,  contributed or otherwise
transferred  the Stock of Kronos  (US) to Kronos and  Kronos  (US)  assigned  or
otherwise  transferred  the Stock of Kronos to NL Industries,  (b) a substantial
prepayment  of the Loan was made from proceeds of a public debt offering made by
NL Industries and the maturity of the principal amount of the Loan that remained
outstanding  after giving effect to such  prepayment  was extended,  and (c) the
Original Agreement was amended in certain other respects.

        During  1994,  the  Borrower  notified  the Agent of (a) the  Borrower's
receipt of the Tentative Tax Refund (as hereinafter  defined) relating to German
income taxes for the calendar year 1990 and (b) the Borrower's position that the
Tentative Tax Refund did not constitute the Tax Refund for purposes of the First
Restated Agreement. In addition, in consideration of the Agent, the Co-Agent and
the Banks not  challenging  that position and in  accordance  with the terms and
provisions  of the Tentative Tax Refund  Letter (as  hereinafter  defined),  the
Borrower  agreed to apply the amount of the  Tentative Tax Refund as an optional
prepayment of the  Revolving  Portion and,  notwithstanding  Section 2.04 of the
First Restated Agreement, further agreed to not borrow all or any portion of the
Tentative Tax Refund Availability Amount (as hereinafter defined) except for the
purpose  of (i)  prior  to the  Final  Determination  Date  (as  defined  in the
Tentative Tax Refund Letter),  repaying  amounts  constituting the Tentative Tax
Refund  which  the  Borrower  became  obligated  to  repay  to  the  German  tax
authorities in respect of German tax  assessments or liabilities of the Borrower
and certain of its Consolidated Subsidiaries for calendar years 1989 and 1990 or
(ii) at the Borrower's election, treating the amount so borrowed as a portion of
the Tax Refund and prepaying  the Loan pursuant to SECTION  8.01(D) of the First
Restated  Agreement.  During 1994, the Borrower paid DM 175,000,000 to the Agent
for application  against the Revolving  Portion in accordance with the Tentative
Tax Refund Letter.

        On  October  31,  1994,  the  Borrower  drew down DM  50,000,000  of the
Revolving  Portion from the Banks under the  Tentative  Tax Refund  Availability
Amount and applied such amount (which  constituted  part of the Tax Refund) as a
prepayment of the Term Portion in accordance  with SECTION  8.01(D) of the First
Restated Agreement.


                                              2

<PAGE>



        During  1996,  the  Borrower  notified  the  Agent of  certain  proposed
transactions  involving its  Subsidiaries,  certain of which  transactions  were
required to be approved by the requisite Banks. As a result, the Second Approval
Agreement (as hereinafter  defined) was executed and the transactions  described
in the  Second  Approval  Agreement  have  been or are in the  process  of being
consummated.

        On  October  22,  1996,  the  Borrower  drew down DM  49,361,653  of the
Revolving  Portion from the Banks under the  Tentative  Tax Refund  Availability
Amount to pay German  income taxes in  accordance  with the Tentative Tax Refund
Letter.  On January 22, 1997,  the  Borrower  repaid DM 1,649,238 of such amount
drawn on  October  22,  1996,  which DM  1,649,238  amount  was  applied  to the
Revolving  Portion and thereby  increased the Tentative Tax Refund  Availability
Amount by DM 1,649,238.

        Immediately  prior to the Second  Restatement  Date, (a) the outstanding
principal  amount of the Term Portion was DM 395,537,463 and (b) the outstanding
principal  amount of the  Revolving  Portion was DM  142,784,415.  In  addition,
immediately  prior to the Second  Restatement  Date, the undrawn  portion of the
Revolving  Portion was DM  107,215,585,  DM 77,287,585 of which  constituted the
Tentative  Tax  Refund  Availability   Amount,  the  reborrowing  of  which  was
restricted  in  accordance  with the terms and  provisions  of the Tentative Tax
Refund Letter.

        Notwithstanding that the Final Determination Date may not have occurred,
the Borrower,  in consideration of the agreements of the Banks set forth in this
Agreement,  is willing  and  desires to treat the amount of DM  77,287,585  as a
portion of the Tax Refund as of the Second Restatement Date subject to the terms
and  conditions  of this  Agreement.  Accordingly,  in  accordance  with SECTION
8.01(D) of the First Restated Agreement and this Agreement,  the Borrower shall,
on the Second  Restatement  Date,  make a DM  77,287,585  prepayment of the Term
Portion,  all of which  shall be  applied,  on a pro rata basis as  provided  in
SECTION  8.01(D),  to reduce the remaining  Repayment  Installments  of the Term
Portion, with the proceeds of a drawdown of the Revolving Portion (in accordance
with the Tentative Tax Refund Letter) in the amount of DM 57,287,585 and with DM
20,000,000  of the  proceeds  of the NL  Subordinated  Loan  referred  to in the
immediately succeeding paragraph.

        The  Borrower,  the Agent and the Banks  have  discussed,  and desire to
provide for, (a) a DM 150,000,000  prepayment of the Term Portion of the Loan to
be made on the Second Restatement Date from a subordinated loan in the principal
amount of DM  260,000,000  to be made by NL  Industries  to the Borrower and (b)
certain other amendments to the First Restated Agreement.  DM 20,000,000 of such
prepayment will be (as stated in the immediately  preceding  paragraph) applied,
on a pro rata basis, to reduce the remaining Repayment  Installments of the Term
Portion as a mandatory  prepayment of part of the Tax Refund in accordance  with
SECTION  8.01(D) of the First  Restated  Agreement  and this  Agreement  and the
remaining  DM  130,000,000  of such  prepayment  will be applied as a  mandatory
prepayment  of the Term  Portion  in  accordance  with  SECTION  8.01(H) of this
Agreement and will be applied to the outstanding Repayment

                                              3

<PAGE>



Installments  of the Term Portion in the direct order of the  maturities of such
installments.  In order to accomplish  the  foregoing and to address  additional
matters relating  thereto,  the Borrower,  the Banks and the Agent now desire to
amend and restate the First Restated Agreement as provided in this Agreement.

        NOW, THEREFORE,  in consideration of the Original  Agreement,  the First
Restated  Agreement,  this  Agreement and the mutual  covenants  and  agreements
contained therein and herein, and for other good and valuable consideration, the
receipt and  sufficiency of which are hereby  acknowledged  and  confessed,  the
First Restated Agreement is hereby amended and restated in its entirety, and the
parties hereto hereby agree, as follows:

                                    ARTICLE 1.  DEFINITIONS

        In this Agreement, unless the context otherwise requires:

"Adjusted Restricted  Payments"             means, without
                                            duplication (a) the aggregate of all
                                            Restricted  Payments,  plus  (b) the
                                            aggregate  of all Deemed  Restricted
                                            Payments.

"Affiliate"                                 means any  individual,  corporation,
                                            partnership,  joint venture,  trust,
                                            unincorporated    organization    or
                                            association,  mutual company,  joint
                                            stock  company,   estate,  trust  or
                                            other organization, whether or not a
                                            legal  entity,   which  directly  or
                                            indirectly  is  in  Control  of,  is
                                            Controlled  by,  or is under  common
                                            Control with respect to, any Person.

"Affiliate License Agreements"              means as set forth in SECTION 15.21.

"Agent"                                     means Hypobank  International  S.A.,
                                            its  corporate   successors  or  any
                                            successor agent  appointed  pursuant
                                            to ARTICLE 21.

"Agreement"                                 means  this   Second   Amended   and
                                            Restated Loan  Agreement,  including
                                            all  of  the   Schedules   and   the
                                            Exhibits   hereto,   as  amended  or
                                            supplemented from time to time.

"Assignment and Acceptance"                 means an assignment
                                            and  acceptance  of a Bank's  rights
                                            and  obligations  with  respect to a
                                            Loan  (or  a   Commitment   relating
                                            thereto) or a portion thereof in the
                                            form attached hereto as EXHIBIT A.


                                              4

<PAGE>



"Assignment of Dividends"                   means an assignment of
                                            dividends from Societe  Industrielle
                                            du Titane S.A. in the form delivered
                                            in  connection   with  the  Original
                                            Agreement,    the   First   Restated
                                            Agreement  or  this  Agreement,   as
                                            amended or supplemented from time to
                                            time.

"Bank" and  "Banks"                         means  any  bank  or
                                            financial  institution  or all banks
                                            or financial  institutions as listed
                                            on  the  signature   pages  of  this
                                            Agreement  and on SCHEDULE 1 and any
                                            bank(s) or financial  institution(s)
                                            which  become(s)  a Bank or Banks in
                                            accordance  with  ARTICLE 24 of this
                                            Agreement.

"Base Deutsche Mark Amount"                 means (a) with
                                            respect  to any  advance of the Loan
                                            originally borrowed in U.S. Dollars,
                                            the   amount   of   Deutsche    Mark
                                            specified in the Notice of Borrowing
                                            of  which  the  U.S.  Dollar  amount
                                            advanced is the Equivalent Amount on
                                            the Drawdown  Date of such  advance,
                                            and (b) with  respect to any advance
                                            of the Loan or portion thereof to be
                                            redenominated  from Deutsche Mark to
                                            U.S. Dollars, the amount of Deutsche
                                            Mark  specified  in  the  Borrower's
                                            request for redenomination  pursuant
                                            to  SECTION  2.05 of which  the U.S.
                                            Dollar amount to be redenominated is
                                            the Equivalent Amount as of the date
                                            of redenomination.

"Borrower"                                  means  as set  forth  in  the  first
                                            paragraph  of the  preamble  of this
                                            Agreement.

"Business Day"                              means a day on which  banks are
                                            required to be open for  business in
                                            London,  Luxembourg,  New  York  and
                                            Munich.

"Canadian Dollars or Can. $"                means lawful currency of Canada.

"Canadian Security Documents"               mean a Deed of
                                            Collateral   Hypothec   executed  by
                                            Kronos  Canada,   Inc.  pursuant  to
                                            which a Lien  affecting the real and
                                            personal  property of Kronos  Canada
                                            Inc. (including the plant located at
                                            Varennes,  Quebec,  Canada, and bank
                                            accounts  but  excluding   stock  of
                                            Kronos World Services S.A./N.V.  and
                                            certain    immaterial   assets)   is
                                            created in favor of the

                                              5

<PAGE>



                                            Agent,  a Deed of Hypothec  executed
                                            by 2927527  Canada Inc.  pursuant to
                                            which a Lien  affecting the personal
                                            property  of  2927527   Canada  Inc.
                                            (including    bank    accounts   but
                                            excluding certain immaterial assets)
                                            is created in favor of the Agent,  a
                                            Deed of Hypothec executed by 2969157
                                            Canada Inc. pursuant to which a Lien
                                            affecting  the personal  property of
                                            2969157  Canada Inc.  (including the
                                            Kronos Canada Note and bank accounts
                                            but  excluding  certain   immaterial
                                            assets)  is  created in favor of the
                                            Agent    and    other    agreements,
                                            documents and  instruments  relating
                                            to the foregoing.

"Capital Expenditures"                      means any expenditure
                                            by the Borrower or any  Consolidated
                                            Subsidiary for or with respect to an
                                            asset  which  has a  useful  life of
                                            more    than   one    year,    which
                                            expenditure is properly  classified,
                                            in   the   consolidated    financial
                                            statements  of the  Borrower  and in
                                            accordance  with German GAAP,  as an
                                            addition to equipment, real property
                                            or  improvements or similar types of
                                            tangible fixed assets.

"Capital Leases"                            means rental  obligations as
                                            lessee  under  leases   recorded  as
                                            capital  leases in  accordance  with
                                            German GAAP.

"Cash Pledge Agreements"                    means   such
                                            collateral   assignments,   security
                                            agreements, pledge agreements and/or
                                            similar  agreements,   in  form  and
                                            substance reasonably satisfactory to
                                            the Agent,  pursuant  to which Liens
                                            are  granted  in favor of the  Agent
                                            affecting  the cash  balances of the
                                            Borrower     and    its     Canadian
                                            Subsidiaries.

"Co-Agent"                                  means Banque Paribas in its capacity
                                            as Co-Agent  for the Banks under the
                                            Original  Agreement  and  the  First
                                            Restated Agreement.

"Code"                                      means  the  United  States  Internal
                                            Revenue Code of 1986, as amended and
                                            in effect from time to time.


                                              6

<PAGE>



"Collateral"                                means  the  Pledge  Agreements,  the
                                            Canadian  Security  Documents,   the
                                            Nordenham Mortgage,  the Cash Pledge
                                            Agreements, the Guaranties and other
                                            documents   delivered   or   to   be
                                            delivered   pursuant   to   SECTIONS
                                            16.34, 17.01, 17.02, 17.03 and 17.04
                                            of this  Agreement,  the  Liens  and
                                            guaranties  created  thereby and any
                                            and all  property,  real,  personal,
                                            tangible   or   intangible,    which
                                            secures the  Borrower's  obligations
                                            under this Agreement.

"Commitment" or "Commitments"               means, in relation
                                            to   each    Bank,    the    several
                                            obligations  of  such  Bank,  and in
                                            relation to all Banks, the aggregate
                                            obligations of such Banks,  sub ject
                                            to the terms of this  Agreement,  to
                                            make  available  its  portion of the
                                            Loans      (including,       without
                                            limitation,  the Revolving  Portion)
                                            to be made under this  Agreement  up
                                            to the  aggregate  principal  amount
                                            specified  in  SCHEDULE  1,  to  the
                                            extent not reduced or canceled under
                                            this   Agreement,    and   includes,
                                            without  limitation,  the "Revolving
                                            Commitment"       or      "Revolving
                                            Commitments", respectively.

"Company" or "Companies"                    means,  individually,
                                            any of  the  Borrower  or any  Major
                                            Subsidiary  and,  collectively,  the
                                            Borrower and all Major Subsidiaries.

"Consolidated Equity"                       means,  as of the  date  of
                                            determination  for the  Borrower and
                                            its  Subsidiaries  on a consolidated
                                            basis  in  conformity   with  German
                                            GAAP, (a) consolidated stockholder's
                                            equity determined in accordance with
                                            German GAAP, (b) plus any deductions
                                            made   for   currency    translation
                                            adjustments  and minus any additions
                                            made   for   currency    translation
                                            adjustments,   (c)  plus  an  amount
                                            equal to the  outstanding  principal
                                            of and accrued  and unpaid  interest
                                            on the  Subordinated  Debt,  if any,
                                            described  in CLAUSES  (A),  (B) and
                                            (C) of the  definition  of the  term
                                            "Subordinated    Debt"    in    this
                                            Agreement,  (d) minus any  increase,
                                            or plus any decrease,  in Net Income
                                            resulting from the foreign  currency
                                            translation  amount arising from the
                                            translation of the Mirror Notes from
                                            U.S.  Dollars to Deutsche Mark since
                                            the  issuance  of the Mirror  Notes,
                                            (e) minus the

                                              7

<PAGE>



                                            Restricted Capital Amount,  plus (f)
                                            any deductions  made for adjustments
                                            to  goodwill  if and  to the  extent
                                            that such  adjustments  have reduced
                                            Net Income.

"Consolidated Subsidiary"                   means any Subsidiary the
                                            accounts    of   which    would   be
                                            consolidated   with   those  of  the
                                            Borrower    in   its    consolidated
                                            financial statements.

"Contaminant"                               means    any    waste,    pollutant,
                                            hazardous      substance,      toxic
                                            substance,    hazardous   waste   or
                                            material,  special  or toxic  waste,
                                            petroleum   or   petroleum   derived
                                            substance    or   waste,    or   any
                                            constituent of any such substance or
                                            waste,      including,       without
                                            limitation,   any   such   substance
                                            defined  in  or   pursuant   to  any
                                            Environmental Law.

"Control" or "Controlled"                   means, with respect
                                            to any Person,  the power,  directly
                                            or indirectly:

                                            (a)    to  vote  more   than   fifty
                                                   percent  (50%) of the  voting
                                                   securities   issued  by  such
                                                   Person  for the  election  of
                                                   the  board of  directors  (or
                                                   members   of  an   equivalent
                                                   governing   body)   of   such
                                                   Person; or

                                            (b)    otherwise  to direct or cause
                                                   the  direction of  management
                                                   and policies of such Person.

"Controlled Group"                          means  all   members  of  a
                                            controlled group of corporations and
                                            all trades or businesses (whether or
                                            not   incorporated)   under   common
                                            control  which,  together  with  the
                                            Borrower,  are  treated  as a single
                                            employer   under   Section   414(b),
                                            414(c),  414(m)  or  414(o)  of  the
                                            Code.

"Current Assets"                            means,  for the Borrower and
                                            its  Subsidiaries  on a consolidated
                                            basis  in  conformity   with  German
                                            GAAP, consolidated assets, excluding
                                            intangibles   and   tangible   fixed
                                            assets,  realizable  within one year
                                            of the date of determination.

"Current Liabilities"                       means, for the Borrower
                                            and    its    Subsidiaries    on   a
                                            consolidated   basis  in  conformity
                                            with German

                                              8

<PAGE>



                                            GAAP,   consolidated   accruals  and
                                            liabilities  due  within one year of
                                            the date of determination, excluding
                                            Current Maturities.

"Current Maturities"                        means those portions of
                                            Funded  Debt due  within one year of
                                            the date of determination.

"Deemed Restricted  Payments"               means, without
                                            duplication,  any  payments or other
                                            transfers of value  (irrespective of
                                            the form of such  payments  or other
                                            transfers)  directly  or  indirectly
                                            made by the  Borrower  or any of its
                                            Subsidiaries    to    Kronos,     NL
                                            Industries, Kronos (US) or any other
                                            Affiliate  of  the  Borrower  (other
                                            than the Borrower or a Subsidiary of
                                            the Borrower) for less than full and
                                            fair  consideration  to the Borrower
                                            or its  Subsidiary  (as  applicable)
                                            and,  in any event,  shall  include,
                                            without limitation,  (a) all license
                                            fees,  royalties  or other  payments
                                            for the use of  technology  or other
                                            Intellectual Property Rights paid or
                                            payable to such Affiliates,  (b) all
                                            amounts  paid  or  payable  to  such
                                            Affiliates constituting cost sharing
                                            (excluding insurance expenses except
                                            to the  extent  that  such  expenses
                                            exceed  the  amount   therefor  that
                                            would  be  paid  or   payable  in  a
                                            comparable arm's length  transaction
                                            with  a  non-Affiliate),   personnel
                                            costs   and  other   overhead,   (c)
                                            transfers  of value  resulting  from
                                            the sale or  transfer  of product or
                                            other  assets by the Borrower or any
                                            of   its    Subsidiaries   to   such
                                            Affiliates for consideration that is
                                            less than the consideration  (net of
                                            reasonable     transaction     costs
                                            incurred in the  ordinary  course of
                                            business)  that is  obtained by such
                                            Affiliates  in  connection  with the
                                            resale  or  subsequent  transfer  of
                                            such  product or other  assets,  (d)
                                            transfers  of value  resulting  from
                                            the sale or  transfer  of product or
                                            other assets by such  Affiliates  to
                                            the   Borrower   or   any   of   its
                                            Subsidiaries for consideration  that
                                            is  more   than  the  cost  of  such
                                            product  or  other  assets  to  such
                                            Affiliates (provided,  however, that
                                            such  sales  or other  transfers  by
                                            such  Affiliates  of  product in the
                                            ordinary course of business shall be
                                            excluded from this CLAUSE (D) except
                                            to the extent that the consideration
                                            received therefor is more than would
                                            be paid or payable  in a  comparable
                                            arm's

                                              9

<PAGE>



                                            length     transaction     with    a
                                            non-Affiliate),  and (e) payments in
                                            the  form  of  service   charges  to
                                            compensate   such   Affiliates   for
                                            purchases  of titanium ore and other
                                            product or assets.

"Default"                                   means  an Event  of  Default  or any
                                            event, act or occurrence which, with
                                            the  giving of notice or  passage of
                                            time  or  both,   unless   cured  or
                                            waived,  would  become  an  Event of
                                            Default.

"Deutsche Mark"  or  "DM"                   means  the  lawful
                                            currency of Germany.

"Deutsche Mark  Amount"                     means (a) in the case
                                            of   any   amount   denominated   in
                                            Deutsche   Mark,   the   amount   of
                                            Deutsche  Mark  from  time  to  time
                                            outstanding,  and (b) in the case of
                                            any  amount  denominated  or  to  be
                                            denominated  in  U.S.  Dollars,  the
                                            amount  of  Deutsche  Mark  which is
                                            equivalent to a given amount of U.S.
                                            Dollars  as of  the  Relevant  Date,
                                            determined by using the Spot Rate on
                                            the date two Business  Days prior to
                                            the Relevant  Date  (unless  another
                                            date    is    specified    in   this
                                            Agreement).

"Disposition"                               means, with respect to any asset, to
                                            sell,   assign,   lease,   exchange,
                                            transfer  or  otherwise  dispose  of
                                            such asset.

"Drawdown Date"                             means (a) with respect to each
                                            advance  of the  Loan  prior  to any
                                            reborrowing   pursuant   to  SECTION
                                            2.04,  the  date  set  forth  in the
                                            Notice of Borrowing relating to such
                                            advance  (which  date was a Business
                                            Day on or before June 19, 1990), and
                                            (b) with respect to any  reborrowing
                                            under the Revolving Portion pursuant
                                            to SECTION 2.04,  the date set forth
                                            in the Notice of Borrowing  relating
                                            to  such  reborrowing,   which  date
                                            shall be a Business Day on or before
                                            August 15, 2000.

"Earnings Available for Fixed Charges"      means,
                                            for  the   preceding   four   fiscal
                                            quarters  and for the  Borrower  and
                                            its  Subsidiaries  on a consolidated
                                            basis  in  conformity   with  German
                                            GAAP,  Net Income plus Income  Taxes
                                            plus  depreciation,   depletion  and
                                            amortization  plus Interest  Expense
                                            plus

                                              10

<PAGE>



                                            rentals  payable under leases (other
                                            than  Capital   Leases)   having  an
                                            initial non-cancelable lease term in
                                            excess  of  one  year  plus,  to the
                                            extent  included in determining  Net
                                            Income,  the decrease resulting from
                                            the  foreign  currency   translation
                                            amount arising from the  translation
                                            of  the   Mirror   Notes  from  U.S.
                                            Dollars to  Deutsche  Mark or minus,
                                            to   the    extent    included    in
                                            determining Net Income, the increase
                                            resulting from the foreign  currency
                                            translation  amount arising from the
                                            translation of the Mirror Notes from
                                            U.S. Dollars to Deutsche Mark.

"EBITDA"                                    means,  with  respect  to any fiscal
                                            period,  for  the  Borrower  and its
                                            Subsidiaries on a consolidated basis
                                            in  conformity  with German GAAP or,
                                            with  respect to the third  sentence
                                            of   SECTION    8.01(C)   only,   NL
                                            Industries and its subsidiaries on a
                                            consolidated   basis  in  conformity
                                            with generally  accepted  accounting
                                            principles  in the United  States of
                                            America,  the sum of (a) net income,
                                            excluding  extraordinary  gains  and
                                            losses,  plus (b)  interest  expense
                                            (including  imputed interest expense
                                            in  respect  of  obligations   under
                                            capital  leases,   if  any),  income
                                            taxes,  depreciation,   amortization
                                            and other  non-cash  expenses to the
                                            extent that any of such expenses are
                                            deducted in determining  net income,
                                            minus  (c)  non-cash  income  to the
                                            extent  that such income is included
                                            in determining net income.

"Employee Plan"                             means an employee benefit plan
                                            within the  meaning of Section  3(3)
                                            of ERISA.

"Environmental Claim"                       means any written  notice by
                                            any  state,  federal,   territorial,
                                            provincial,  local or other court or
                                            govern mental  authority,  entity or
                                            instrumentality  alleging  potential
                                            liability    for   damage   to   the
                                            environment,   or  by   any   Person
                                            alleging  potential   liability  for
                                            personal injury (including sickness,
                                            disease or death) or property damage
                                            or   damage   of  any   other   kind
                                            resulting from or based upon:

                                            (a)    the   presence   or   release
                                                   (including,           without
                                                   limitation,     sudden     or
                                                   non-sudden, accidental

                                              11

<PAGE>



                                                   or  non-accidental,  leaks or
                                                   spills)  of  any  Contaminant
                                                   at,  in  or  from   property,
                                                   whether  or not  owned by the
                                                   Borrower  and/or  any  of its
                                                   Subsidiaries; or

                                            (b)    circumstances   forming   the
                                                   basis  of any  violation,  or
                                                   alleged  violation,   of  any
                                                   Environmental Law.

"Environmental Law"                         means   any   law,   rule  or
                                            regulation  pertaining  to land use,
                                            air,  soil,  surface  water,  ground
                                            water   (including  the  protection,
                                            cleanup,  removal,   remediation  or
                                            damage thereof),  public or employee
                                            health   or   safety  or  any  other
                                            environmental   matter,   including,
                                            without limitation, any of the above
                                            promulgated by the EU, together with
                                            any other non-U.S.  or domestic laws
                                            (federal,     state,    territorial,
                                            provincial  or  local)  relating  to
                                            emissions,  discharges,  releases or
                                            threatened     releases    of    any
                                            Contaminant  into ambient air, land,
                                            surface water, groundwater, personal
                                            property or structures, or otherwise
                                            relating    to   the    manufacture,
                                            processing,    distribution,    use,
                                            treatment,     storage,    disposal,
                                            transportation,     discharges    or
                                            handling of any Contaminant.

"Equivalent Amount"                         means  the  amount  of U.S.
                                            Dollars  which  is  equivalent  to a
                                            given amount of Deutsche  Mark as of
                                            the  Relevant  Date,  determined  by
                                            using  the Spot Rate on the date two
                                            Business  Days prior to the Relevant
                                            Date.

"ERISA"                                     means  the  United  States  Employee
                                            Retirement  Income  Security  Act of
                                            1974,  as amended and in effect from
                                            time to time.

"EU"                                        means the European Union.

"Eurocurrency Liabilities"                  means as that  term is
                                            defined in Regulation D.

"Eurocurrency Rate Reserve Percentage"      means the
                                            reserve  percentage  applicable  for
                                            any Bank during any Interest  Period
                                            under  regulations  issued from time
                                            to time by the  Federal  Reserve for
                                            determining   the  maximum   reserve
                                            requirement

                                              12

<PAGE>



                                            (including,  without limitation, any
                                            emergency,   supplemental  or  other
                                            marginal  reserve  requirement)  for
                                            such    Bank   with    respect    to
                                            liabilities or assets  consisting of
                                            or      including       Eurocurrency
                                            Liabilities  having a term  equal to
                                            such Interest Period.

"Event of Default"                          means as set forth in ARTICLE 18.

"Excess Adjusted Restricted Payments"       means,
                                            without    duplication,    for   the
                                            applicable calendar year (or portion
                                            thereof which has occurred as of any
                                            date of  determination),  the amount
                                            (if  any)  by  which  the  aggregate
                                            amount   of   Adjusted    Restricted
                                            Payments  exceeds (a) DM  47,000,000
                                            (Deutsche Mark Forty-Seven  Million)
                                            during  calendar  year 1996,  (b) DM
                                            39,000,000       (Deutsche      Mark
                                            Thirty-Nine Million) during calendar
                                            year   1997,   (c)   DM   44,000,000
                                            (Deutsche  Mark Forty- Four Million)
                                            during  calendar year 1998,  and (d)
                                            DM   47,000,000    (Deutsche    Mark
                                            Forty-Seven    Million)    for   any
                                            calendar year thereafter;  provided,
                                            however, that if, within 30 (thirty)
                                            days  after  the  payment  or  other
                                            making  of any such  excess  amount,
                                            the   entire   amount   thereof   is
                                            contributed  by NL Industries or any
                                            of its subsidiaries  (other than the
                                            Borrower  and its  Subsidiaries)  to
                                            the Borrower (or a Subsidiary of the
                                            Borrower  as the Agent may  approve,
                                            which    approval   shall   not   be
                                            unreasonably  withheld)  as  a  cash
                                            equity  capital  contribution  or as
                                            Subordinated    Debt   (other   than
                                            Subordinated  Debt  referred  to  in
                                            CLAUSE (A) of the  definition of the
                                            term  "Subordinated  Debt")  made or
                                            advanced,   respectively,   to   the
                                            Borrower  or such  Subsidiary,  then
                                            such excess amount  previously  paid
                                            or otherwise  made and thereafter so
                                            contributed   or   advanced  to  the
                                            Borrower  (or  its  Subsidiary,   as
                                            applicable)  shall  not be deemed to
                                            constitute   an   Excess    Adjusted
                                            Restricted Payment hereunder.

"Excess Cash Flow"                          means (a) Free Cash Flow
                                            minus (b) Capital  Expenditures  for
                                            the preceding  four fiscal  quarters
                                            less     any     Indebtedness     or
                                            Subordinated    Debt    specifically
                                            incurred to finance any such Capital
                                            Expenditures   during   such  fiscal
                                            quarters minus

                                              13

<PAGE>



                                            (c) the sum of (i) Fixed Charges and
                                            (ii)   repayments  of  Funded  Debt,
                                            exclusive  of  repayments  of Funded
                                            Debt  from   proceeds   of  the  Tax
                                            Refund, in the preceding four fiscal
                                            quarters.

"Excess EBITDA"                             means,  for the Borrower and
                                            its  Subsidiaries  on a consolidated
                                            basis and with respect to any fiscal
                                            year,  the  positive  remainder  (if
                                            any)  of (a)  (i)  EBITDA  for  such
                                            fiscal year, minus (ii) Income Taxes
                                            paid in  cash  (exclusive  of  taxes
                                            paid   arising   from    assessments
                                            received as a result of tax audits),
                                            Capital  Expenditures  and  Interest
                                            Expense,    other   than    non-cash
                                            Interest  Expense,  for such  fiscal
                                            year, minus (b) the amount set forth
                                            in the table  below for such  fiscal
                                            year:

                                     FISCAL YEAR ENDED           AMOUNT

                                            1997          Negative DM 90,000,000
                                            1998          Negative DM 7,500,000
                                            1999          DM 60,000,000

"Excess Term Prepayment"                    means DM 2,000,000
                                            (Deutsche  Mark Two Million),  which
                                            amount is the positive  remainder of
                                            (a)   the   amount   of  the   First
                                            Prepayment   applied   to  the  Term
                                            Portion in  accordance  with SECTION
                                            2.01(A) (expressed in Deutsche Mark)
                                            minus (b) DM  400,000,000  (Deutsche
                                            Mark Four Hundred Million).

"Excluded Taxes"                            means as set forth in SECTION 11.01.

"Federal Reserve"                           means   the   Board   of
                                            Governors  of  the  Federal  Reserve
                                            System.

"Financial Covenants"                       means as set forth in SECTION 23.02.

"First Amendment  Agreement"                means  as set
                                            forth in the third  paragraph of the
                                            preamble of this Agreement.

"First Approval Agreement"                  means   the
                                            Approval Agreement dated as of April
                                            6,  1993,  among the  Borrower,  the
                                            requisite  Banks who are signatories
                                            thereto, the Agent and the Co-Agent.

                                              14

<PAGE>



"First Prepayment"                          means the prepayment of
                                            the  Loan  in the  First  Prepayment
                                            Amount  as  referred  to in  SECTION
                                            2.01(A).

"First Prepayment Amount"                   means    DM
                                            552,000,000   (Deutsche   Mark  Five
                                            Hundred  Fifty-Two  Million),  i.e.,
                                            the  amount,  determined  as of  the
                                            First  Prepayment Date and expressed
                                            in  Deutsche  Mark,   equal  to  the
                                            remainder of (a) the gross  proceeds
                                            of the NL Debt  Offering  minus  (b)
                                            the NL Debt Offering Expenses.

"First Prepayment  Date"                    means  October 21,
                                            1993,  the date upon which the First
                                            Prepayment   was   received  by  the
                                            Agent.

"First Restated  Agreement"                 Means  as  set
                                            forth in the ninth  paragraph of the
                                            preamble of this Agreement.

"First Restatement Date"                    means October 15,
                                            1993, the date of the First Restated
                                            Agreement.

"Fixed Charges"                             means,  for the  preceding
                                            four  fiscal  quarters  and  for the
                                            Borrower and its  Subsidiaries  on a
                                            consolidated   basis  in  conformity
                                            with German GAAP,  Interest  Expense
                                            (excluding   Interest   Expense   on
                                            Subordinated Debt payable in kind in
                                            the  form of  Subordinated  Debt and
                                            excluding  non-cash Interest Expense
                                            on the Mirror  Notes)  plus  rentals
                                            payable  under  leases  (other  than
                                            Capital  Leases)  having an  initial
                                            non-cancelable  lease term in excess
                                            of one year.

"Free Cash Flow"                            means,  for the preceding
                                            four  fiscal  quarters  and  for the
                                            Borrower and its  Subsidiaries  on a
                                            consolidated   basis  in  conformity
                                            with  German   GAAP,   (a)  Earnings
                                            Available  for Fixed  Charges  minus
                                            (b) taxes paid in cash  during  such
                                            fiscal   quarters,   plus   (c)  tax
                                            refunds,   exclusive   of  the   Tax
                                            Refund, received in cash during such
                                            fiscal  quarters,  plus or minus, as
                                            the  case  may be (d)  any  non-cash
                                            additions or  subtractions  included
                                            in the  determination  of Net Income
                                            to the extent not already taken into
                                            account   in   the   definition   of
                                            Earnings    Available    for   Fixed
                                            Charges.

                                              15

<PAGE>



"Funded Debt"                               means,  as of the date of any
                                            calculation, (a) all Indebtedness of
                                            the Borrower and its Subsidiaries to
                                            the extent such  Indebtedness has an
                                            initial stated or final maturity of,
                                            or by  its  terms  is  renewable  or
                                            extendable  by the  Borrower  or its
                                            Subsidiaries  to, a date or a period
                                            ending  more than one year after the
                                            date of any  such  calculation,  (b)
                                            plus  Indebtedness  of the  Borrower
                                            and its Subsidiaries comprised of or
                                            liabilities  in respect of  unfunded
                                            vested   benefits   under   Non-U.S.
                                            Employee  Plans to the  extent  such
                                            liabilities  exceed  DM  150,000,000
                                            (Deutsche  Mark  One  Hundred  Fifty
                                            Million),    (c)   minus   unsecured
                                            working capital  Indebtedness of the
                                            Borrower   and   its    Subsidiaries
                                            (including the aggregate face amount
                                            of all funded and  unfunded  standby
                                            and documentary  letters of credit),
                                            but   only   to  the   extent   such
                                            unsecured       working      capital
                                            Indebtedness       is      Permitted
                                            Indebtedness, (d) minus the increase
                                            in  Indebtedness  resulting from the
                                            foreign currency  translation amount
                                            arising from the  translation of the
                                            Mirror  Notes  from U.S.  Dollars to
                                            Deutsche  Mark or plus the  decrease
                                            in  Indebtedness  resulting from the
                                            foreign currency  translation amount
                                            arising from the  translation of the
                                            Mirror  Notes  from U.S.  Dollars to
                                            Deutsche Mark, and (e) plus (without
                                            duplication) the Restricted  Capital
                                            Amount.

"Funded Debt Ratio"                         means,  for the Borrower
                                            and    its    Subsidiaries    on   a
                                            consolidated   basis,   Funded  Debt
                                            divided    by   the   sum   of   (a)
                                            Consolidated    Equity    plus   (b)
                                            Subordinated Debt.

"German GAAP"                               means   generally   accepted
                                            accounting    principles   for   the
                                            preparation    of   group   accounts
                                            pursuant  to the  provisions  of the
                                            relevant laws of Germany.

"Gross Proceeds"                            means, with respect to the
                                            Disposition  of Stock  or any  other
                                            asset,  cash  or  non-cash  proceeds
                                            actually   received,   directly   or
                                            indirectly  by,  or for the  account
                                            of, the Borrower or any Subsidiary.

"Guarantor"                                 means NL Industries,  Kronos Canada,
                                            Inc.,  2927527 Canada Inc.,  2969157
                                            Canada Inc. or any

                                              16

<PAGE>



                                            Subsidiary,  whether existing on the
                                            Second  Restatement  Date  or at any
                                            time  hereafter,   which  becomes  a
                                            Guarantor pursuant to SECTION 16.34.

"Guaranty" or "Guaranties"                  means a guaranty or
                                            the  guaranties  executed  or  to be
                                            executed   by  the   Guarantors   in
                                            accordance    with   the    Original
                                            Agreement,    the   First   Restated
                                            Agreement    or    this    Agreement
                                            (including,    without   limitation,
                                            SECTION  16.34 and  ARTICLE  17), as
                                            amended or supplemented from time to
                                            time.

"Income Taxes"                              means,  for the Borrower and
                                            its  Subsidiaries  on a consolidated
                                            basis,  expense for income  taxes in
                                            accordance with German GAAP.

"Indebtedness"                              means,   for  any   Person   without
                                            duplication,   and   excluding   all
                                            Subordinated  Debt  referred  to  in
                                            CLAUSES  (B),  (C)  and  (D)  of the
                                            definition of the term "Subordinated
                                            Debt":

                                            (a)    debt  consisting  of borrowed
                                                   money,  including obligations
                                                   evidenced      by      bonds,
                                                   debentures,  notes or similar
                                                   instruments,  or the deferred
                                                   purchase price of property or
                                                   services  (other  than  trade
                                                   payables incurred and payable
                                                   in  the  ordinary  course  of
                                                   business   and  on  customary
                                                   terms);

                                            (b)    rental    obligations   under
                                                   Capital Leases;

                                            (c)    obligations  under  direct or
                                                   indirect     guaranties    in
                                                   respect    of     obligations
                                                   (contingent  or otherwise) to
                                                   purchase     or     otherwise
                                                   acquire,   or   otherwise  to
                                                   assure  a  creditor   against
                                                   loss   (such   as,    without
                                                   limitation, obligations under
                                                   an   agreement   to  pay  for
                                                   property      or     services
                                                   irrespective  of  whether  or
                                                   not    such    property    is
                                                   delivered  or  such  services
                                                   are rendered), in respect of,
                                                   debt or obligations of others
                                                   of the kinds  referred  to in
                                                   CLAUSES (A) or (B) above;


                                              17

<PAGE>



                                            (d)    obligations   (contingent  or
                                                   otherwise)  under  letters of
                                                   credit  (funded or  unfunded)
                                                   not arising out of the import
                                                   of goods;

                                            (e)    liabilities   in  respect  of
                                                   unfunded    vested   benefits
                                                   under  (i) plans  covered  by
                                                   Title  IV of  ERISA  and (ii)
                                                   any laws  governing  Non-U.S.
                                                   Employee  Plans to the extent
                                                   such  liabilities  exceed  DM
                                                   150,000,000   (Deutsche  Mark
                                                   One Hundred  Fifty  Million);
                                                   and

                                            (f)    all  obligations  secured  by
                                                   any Lien,  other  than  Liens
                                                   described in CLAUSES (D), (E)
                                                   and (F) of the  definition of
                                                   the term "Permitted Liens" in
                                                   this Agreement,  to which any
                                                   property  or  asset  owned by
                                                   the   Borrower   and/or   its
                                                   Subsidiaries    is   subject,
                                                   whether     or    not     the
                                                   obligations  secured  thereby
                                                   shall  have been  assumed  by
                                                   the     Borrower    or    its
                                                   Subsidiaries.

"Indentures"                                means  that  certain  (a)  Indenture
                                            dated  as  of  October   20,   1993,
                                            between NL  Industries  and Chemical
                                            Bank, as trustee,  to be executed by
                                            the parties thereto  relating to the
                                            senior  secured notes due 2003 to be
                                            issued  by  NL  Industries  and  (b)
                                            Indenture  dated as of  October  20,
                                            1993,   between  NL  Industries  and
                                            State Street Bank and Trust Company,
                                            as  trustee,  to be  executed by the
                                            parties  thereto   relating  to  the
                                            senior  secured  discount  notes due
                                            2005 to be issued by NL Industries.

"Intellectual Property   Rights"            shall  mean  all
                                            material    patents    and    patent
                                            applications, technical information,
                                            know-how and processes necessary for
                                            or used in the current manufacturing
                                            operations  and all  material  trade
                                            names,     trademarks,     trademark
                                            registrations  and applications used
                                            in   the    marketing    and   sales
                                            operations  of the  Borrower and its
                                            Subsidiaries   as  of   the   Second
                                            Restatement Date.

"Interbank Rate"                            means  the  rate  per  annum
                                            determined   by  the  Agent  on  the
                                            Interest  Determination  Date  to be
                                            the

                                              18

<PAGE>



                                            arithmetic mean (rounded upwards, if
                                            necessary,   to  the  nearest   four
                                            decimal   places)   of   the   rates
                                            notified   to  the   Agent   by  the
                                            Reference Banks to be those at which
                                            each  Reference  Bank, in accordance
                                            with its normal practice, is able to
                                            obtain  deposits in  Deutsche  Mark,
                                            with  respect to that portion of the
                                            Loan  denominated  in Deutsche Mark,
                                            or  deposits in U.S.  Dollars,  with
                                            respect to that  portion of the Loan
                                            denominated  in  U.S.   Dollars  (or
                                            other substitute  currency agreed to
                                            in accordance with the provisions of
                                            ARTICLE  7) at or about  11:00  a.m.
                                            London time in the London  interbank
                                            Euro-currency market for delivery on
                                            the first day of the Interest Period
                                            for the  number  of  days  comprised
                                            therein,   provided   that,   if   a
                                            Reference  Bank shall fail to notify
                                            the Agent of its rate, the Interbank
                                            Rate  shall  be  determined  on  the
                                            basis  of  the  quotation(s)  of the
                                            remaining Reference Bank(s).

"Interest Coverage Ratio"                   means,   for  the
                                            preceding  four fiscal  quarters and
                                            for    the    Borrower    and    its
                                            Subsidiaries   on   a   consolidated
                                            basis,  (a) the  sum of (i)  EBITDA,
                                            plus (ii) the sum of (A) the amount,
                                            if  any,  of  contributions  to  the
                                            equity of the  Borrower  in the form
                                            of cash (as  distinguished  from the
                                            conversion  of debt to equity)  made
                                            by NL  Industries  or Kronos  during
                                            such period, plus (B) the amount, if
                                            any, of loans made by NL  Industries
                                            or  Kronos  as   Subordinated   Debt
                                            during such period,  minus (iii) the
                                            sum  of  (A)  the  increase  in  the
                                            Restricted   Capital  Amount  during
                                            such period,  plus (B) the aggregate
                                            amount of  Restricted  Payments made
                                            during  such   period   pursuant  to
                                            SECTION  16.20(B),  divided  by  (b)
                                            Interest   Expense   (exclusive   of
                                            non-cash     Interest      Expense);
                                            provided,  however, that the amounts
                                            referred to in clause (ii) preceding
                                            that shall be counted  for  purposes
                                            of  the   definition   of  "Interest
                                            Coverage Ratio" shall be made during
                                            no more  than  two  separate  fiscal
                                            years  of the  Borrower  during  the
                                            term of this  Agreement and any such
                                            amounts  contributed  or made during
                                            any  fiscal  year  shall  be  wholly
                                            excluded for purposes of determining
                                            the "Interest Coverage Ratio" during
                                            any other fiscal year.

                                              19

<PAGE>



"Interest Determination Date"               means,   with
                                            respect to any Interest Period,  the
                                            Business   Day   which  is  2  (two)
                                            Business Days prior to the first day
                                            of such Interest Period.

"Interest Expense"                          means  interest  expense of
                                            the Borrower and its Subsidiaries on
                                            a  consolidated  basis in conformity
                                            with German GAAP,  and shall include
                                            imputed  interest expense in respect
                                            of obligations under Capital Leases,
                                            if any.

"Interest Payment Date"                     means the last day of
                                            any Interest Period.

"Interest Period"                           means each of the successive
                                            periods,  determined  in  accordance
                                            with this Agreement,  into which the
                                            period   for   which   the  Loan  is
                                            outstanding is divided and for which
                                            a  rate   of   interest   is  to  be
                                            established under this Agreement.

"Interest Rate Protection Agreement"        means any
                                            agreement  evidencing an arrangement
                                            designed  to  protect  the  Borrower
                                            against   fluctuations  in  interest
                                            rates.

"Investment"                                means any investment of cash or cash
                                            equivalents  in any Person,  whether
                                            by means of  share  purchase,  loan,
                                            capital contribution or otherwise.

"Kroner"                                    means the lawful currency of Norway.

"Kronos"                                    means  as set  forth  in the  second
                                            paragraph  of the  preamble  of this
                                            Agreement.


"Kronos Canada Note"                        means  that  certain
                                            Amended    Promissory   Note   dated
                                            December 20,  1996,  in the original
                                            principal amount of Cdn. $89,000,000
                                            made by Kronos Canada,  Inc. payable
                                            to the order of 2969157 Canada Inc.,
                                            which  promissory  note  amends  and
                                            replaces  that certain  Subordinated
                                            Promissory  Note dated May 28, 1993,
                                            in the original  principal amount of
                                            Cdn.  $123,000,000  made  by  Kronos
                                            Canada, Inc. payable to the order of
                                            Kronos  S.A./N.V.  and  subsequently
                                            assigned to 2969157 Canada Inc.


                                              20

<PAGE>



"Kronos Subordinated Loan"                  means   the
                                            unsecured and  subordinated  loan in
                                            the    principal    amount   of   DM
                                            25,000,000       (Deutsche      Mark
                                            Twenty-Five  Million) made by Kronos
                                            to  the  Borrower  on  December  31,
                                            1996,   pursuant   to   the   Kronos
                                            Subordinated     Note     and    the
                                            Subordination
                                            Agreement.

"Kronos Subordinated Note"                  means   that
                                            certain  Zero  Coupon   Subordinated
                                            Promissory  Note dated  December 31,
                                            1996,  in  the  original   principal
                                            amount  of DM  25,000,000  (Deutsche
                                            Mark  Twenty-Five  Million)  made by
                                            the Borrower payable to the order of
                                            Kronos  which  evidences  the Kronos
                                            Subordinated Loan.

"Kronos Titan"                              means Kronos Titan - GmbH, a
                                            German  corporation  and an indirect
                                            wholly-owned   Subsidiary   of   the
                                            Borrower.

"Kronos Titan Revolving Portion             means as set
                                            forth in SECTION 2.04(C).

"Kronos (US)"                               means  as  set  forth  in the
                                            second  paragraph of the preamble of
                                            this Agreement.

"Kronos(US)/Kronos Flip"                    means    the
                                            transactions  pursuant  to  which NL
                                            Industries has assigned, contributed
                                            or otherwise  transferred  the Stock
                                            of Kronos  (US) to Kronos and Kronos
                                            (US)     assigned    or    otherwise
                                            transferred  the  Stock of Kronos to
                                            NL Industries.

"Lending Office"                            means,  as to each Bank, the
                                            office(s) or  branch(es)  located at
                                            the  address(es)  set  forth  on the
                                            signature   page(s)  below  or  such
                                            other  office(s)  or  branch(es)  of
                                            such  Bank  as it may  from  time to
                                            time  designate   pursuant  to  this
                                            Agreement.

"Leverkusen Lease"                          means  the  lease  agreement
                                            (Erbbaurechtsvertrag zum Grundstueck
                                            Gemarkung    Wiesdorf,    Flur   18,
                                            Parzelle 108/2 mit Ergaenzungsabrede
                                            zum      Erbbaurechtsvertrag     und
                                            Errechnung des Erbbauzinses) between
                                            Titangesellschaft   GmbH   and  I.G.
                                            Farbenindustrie   Aktiengesellschaft
                                            i.L. dated June 21, 1952, as amended
                                            by  Supplementary   Agreement  dated
                                            June 21, 1952.

                                              21

<PAGE>



"Lien"                                      means,  with respect to the Borrower
                                            or any  Subsidiary  (in  each  case,
                                            whether  the same is  consensual  or
                                            nonconsensual     or    arises    by
                                            contractual obligation, operation of
                                            law,  legal  process  or  otherwise,
                                            existing  on the Second  Restatement
                                            Date or at any time thereafter): any
                                            mortgage,   deed  of  trust,   lien,
                                            pledge, attachment,  levy, charge or
                                            other    security     interest    or
                                            encumbrance  of any kind in  respect
                                            of any  property  now  or  hereafter
                                            owned   by  the   Borrower   or  any
                                            Subsidiary,    personal,   real   or
                                            otherwise,  or  upon  the  proceeds,
                                            income  or  profits  therefrom.  For
                                            this  purpose,  the  Borrower or any
                                            Subsidiary  shall be  deemed to own,
                                            subject to a Lien, any asset that it
                                            has  acquired  or  hereafter   holds
                                            subject to the  interest of a vendor
                                            or  lessor  under  any   conditional
                                            sales   agreement,   Capital  Lease,
                                            reservation  of title or other title
                                            retention agreement relating to such
                                            asset.

"Liquidity Undertaking"                     means   the   Second
                                            Amended   and   Restated   Liquidity
                                            Undertaking  dated as of the  Second
                                            Restatement     Date     among    NL
                                            Industries, Kronos, the Borrower and
                                            the Agent.

"Liquidity Undertaking Credit"              means, as of the
                                            date  of  determination,  an  amount
                                            equal to the  aggregate  amount,  if
                                            any,  of  the  credits  against  the
                                            "Maximum     Required     Investment
                                            Amount",  as such term is defined in
                                            the      Liquidity      Undertaking,
                                            designated  by the  Borrower  by its
                                            giving  of  written  notice  to  the
                                            Agent,  at any time or from  time to
                                            time,  provided,  however,  that the
                                            Liquidity   Undertaking  Credit  (a)
                                            shall be zero  prior to  January  1,
                                            2000,  may not exceed DM  50,000,000
                                            (Deutsche Mark Fifty Million) at any
                                            time  prior to July 1,  2000 and may
                                            not exceed DM  75,000,000  (Deutsche
                                            Mark  Seventy-Five  Million)  at any
                                            time after July 30, 2000,  (b) shall
                                            not,   at  any  time,   exceed   the
                                            aggregate   amount   of   Restricted
                                            Payments  then  permitted to be made
                                            by the Borrower  pursuant to Section
                                            16.20(a)   in  the  absence  of  any
                                            Liquidity Undertaking Credit and (c)
                                            once designated,  may not thereafter
                                            be reduced.


                                              22

<PAGE>



"Loan" or "Loans"                           means,  with  respect to
                                            each Bank, at any time, the total of
                                            all monies  advanced  by or owing to
                                            each  such Bank  under the  Original
                                            Agreement,    the   First   Restated
                                            Agreement  or  this   Agreement  and
                                            outstanding  at  any  time,  or  the
                                            aggregate  of all monies so advanced
                                            by  or  owing  to  all   Banks   and
                                            outstanding at any time.

"Loan Documents"                            means   the   Original
                                            Agreement,    the   First   Restated
                                            Agreement,   this   Agreement,   the
                                            Guaranties,  the Pledge  Agreements,
                                            the Canadian Security Documents, the
                                            Nordenham Mortgage,  the Cash Pledge
                                            Agreements,    the   Assignment   of
                                            Dividends,     the     Subordination
                                            Agreement,       the      Technology
                                            Undertaking,   the  Special  Purpose
                                            Account  Agreement,   the  Liquidity
                                            Undertaking,   the  First   Approval
                                            Agreement,   the   Second   Approval
                                            Agreement,  the  documents  executed
                                            pursuant to or specified or referred
                                            to in CLAUSES  (I)(A) through (I) of
                                            SECTION   4.01(A)   of   the   First
                                            Restated  Agreement,  CLAUSES (I)(A)
                                            through  (N) of SECTION  4.01(B) and
                                            SECTIONS  16.40,  17.01  (other than
                                            17.01(J)),  17.02, 17.03, and 17.04,
                                            any   and  all   amendments   to  or
                                            restatements  of the foregoing  Loan
                                            Documents  and  any  and  all  other
                                            documents,      instruments      and
                                            certificates  executed and delivered
                                            or to be executed  and  delivered by
                                            the   Borrower   or  any   Affiliate
                                            pursuant   to  the   terms  of  this
                                            Agreement  or any  amendment to this
                                            Agreement    (including,     without
                                            limitation,      the      documents,
                                            instruments and  certificates in the
                                            forms  attached  as  Exhibits to the
                                            Original   Agreement,    the   First
                                            Restated     Agreement    or    this
                                            Agreement).

"Majority Banks"                            means,  at any time  when no
                                            Loans  are  outstanding,  the  Banks
                                            whose  aggregate  Commitments at any
                                            time  exceed 50% (fifty  percent) of
                                            the total  aggregate  Commitments of
                                            all  Banks  and,  at any  time  when
                                            Loans  are  outstanding,  the  Banks
                                            holding   more   than   50%   (fifty
                                            percent)  of  the  aggregate  unpaid
                                            principal amount of the Loans.


                                              23

<PAGE>



"Majority Banks (662/3%)"                   means, at any time
                                            when no Loans are  outstanding,  the
                                            Banks whose aggregate Commitments at
                                            any time  exceed 66 2/3%  (sixty-six
                                            and two-thirds percent) of the total
                                            aggregate  Commitments  of all Banks
                                            and,  at any  time  when  Loans  are
                                            outstanding,  the Banks holding more
                                            than  66  2/3%  (sixty-six  and  two
                                            thirds  percent)  of  the  aggregate
                                            unpaid   principal   amount  of  the
                                            Loans.

"Major Subsidiaries"                        means  the  following
                                            Subsidiaries  (unless  amended  with
                                            the consent of the Majority Banks):

                                            (a)    NL  Industries  (Deutschland)
                                                   GmbH;

                                            (b)    Kronos Titan - GmbH;

                                            (c)    Societe    Industrielle    du
                                                   Titane, S.A.;

                                            (d)    Kronos Europe S.A./N.V.;

                                            (e)    Kronos     World     Services
                                                   S.A./N.V.;

                                            (f)    Kronos Norge A/S;

                                            (g)    Kronos Titan A/S;

                                            (h)    Titania A/S;

                                            (i)    Kronos Limited;

                                            (j)    Kronos Canada, Inc.;

                                            (k)    2969157 Canada Inc.;

                                            and  other   Subsidiaries,   whether
                                            existing  on the Second  Restatement
                                            Date or at any time thereafter, with
                                            Total    Assets    for   any    such
                                            Subsidiary,  determined  at the date
                                            of  presentation  of its  respective
                                            quarterly    unaudited   or   annual
                                            audited  financial  statements,   in
                                            excess  of DM  35,000,000  (Deutsche
                                            Mark Thirty-Five Million).


                                              24

<PAGE>



"Margin"                                    means,  with respect to that portion
                                            of the Loan that is  denominated  in
                                            Deutsche   Mark,   2.75%   (two  and
                                            three-quarters  of one  percent) per
                                            annum  and,  with  respect  to  that
                                            portion   of  the   Loan   that   is
                                            denominated in U.S. Dollars,  2.875%
                                            (two   and   seven-eighths   of  one
                                            percent) per annum.

"Material Adverse Effect"                   means a material adverse effect on:

                                            (a)    the   financial    condition,
                                                   business,    operations    or
                                                   properties  of any  specified
                                                   Person or a  specified  group
                                                   of Persons, taken as a whole;
                                                   or

                                            (b)    the  ability of the  Borrower
                                                   to    meet    its    payment,
                                                   Collateral       or      Lien
                                                   obligations     under    this
                                                   Agreement  or any other  Loan
                                                   Document.

"Mirror Notes"                              means  that   certain   (a)
                                            Second-Tier Senior Mirror Note dated
                                            as  of  October  20,  1993,  in  the
                                            original    principal    amount   of
                                            $250,000,000    executed    by   the
                                            Borrower  payable  to the  order  of
                                            Kronos and (b) Second-Tier  Discount
                                            Mirror  Note dated as of October 20,
                                            1993,  in  the  original   principal
                                            amount of  $187,500,000  executed by
                                            the Borrower payable to the order of
                                            Kronos, in the forms attached hereto
                                            as EXHIBIT B.

"Multiemployer Plan"                        means a multiemployer  plan as
                                            such  term  is  defined  in  Section
                                            4001(a)(3) of ERISA.

"Net Income"                                means  net  income  of  the
                                            Borrower and its  Subsidiaries  on a
                                            consolidated   basis  in  conformity
                                            with German GAAP.

"Net Proceeds"                              means, with respect to the
                                            Disposition  of Stock  or any  other
                                            asset by any Person,  Gross Proceeds
                                            of  such  Disposition  less  (i) all
                                            reasonable    fees   and    expenses
                                            actually  incurred  pursuant  to  an
                                            arm's     length     agreement    or
                                            arrangement,    including,   without
                                            limitation,    customary   brokerage
                                            commissions,  charges  or fees,  and
                                            (ii)  all  taxes,  excluding  income
                                            taxes.

                                              25

<PAGE>



"NL Debt Offering"                          means the offering of the NL Notes.

"NL Debt  Offering  Expenses"               means the
                                            reasonable    fees   and    expenses
                                            incurred  relating  to the  NL  Debt
                                            Offering.

"NL Guaranty"                               means the Guaranty  dated
                                            as of the  Second  Restatement  Date
                                            executed by NL  Industries to and in
                                            favor of the  Agent,  as  amended or
                                            supplemented from time to time.

"NL Industries"                             means  as set  forth in
                                            the second paragraph of the preamble
                                            of this Agreement.

"NL/Kronos Guaranty"                        means the Guaranty  dated
                                            as of March 22, 1991, executed by NL
                                            Industries  and  Kronos  (US)  (then
                                            known  as  Kronos,  Inc.)  to and in
                                            favor of the Agent.

"NL Notes"                                  means  the  senior   secured
                                            notes   due  2003  and  the   senior
                                            secured   discount  notes  due  2005
                                            issued by NL Industries  pursuant to
                                            the Indentures.

"NL Subordinated Loan"                      means   the
                                            unsecured and  subordinated  loan in
                                            the    principal    amount   of   DM
                                            260,000,000   (Deutsche   Mark   Two
                                            Hundred  Sixty  Million)  made by NL
                                            Industries  to  the  Borrower  on or
                                            before the Second  Restatement  Date
                                            pursuant to the NL Subordinated Note
                                            and the Subordination Agreement.

"NL Subordinated Note"                      means   that
                                            certain  Zero  Coupon   Subordinated
                                            Promissory  Note dated  January  31,
                                            1997,  in  the  original   principal
                                            amount of DM  260,000,000  (Deutsche
                                            Mark Two Hundred Sixty Million) made
                                            by the Borrower payable to the order
                                            of NL Industries which evidences the
                                            NL Subordinated Loan.

"NL Undertaking"                            means the  Amended and
                                            Restated     Undertaking    of    NL
                                            Industries,  Inc.  dated as of First
                                            Restatement     Date     among    NL
                                            Industries, the Agent and the Banks,
                                            as amended or supplemented from time
                                            to time.

"Non-U.S. Employee Plans"                   means all employee
                                            pension  benefit and welfare benefit
                                            plans of the Borrower or any of its

                                              26

<PAGE>



                                            Subsidiaries   including,    without
                                            limitation,  severance  pay,  plans,
                                            policies,  agreements  or  programs,
                                            governed by laws other than the laws
                                            of the United  States  applicable to
                                            or   covering   current   or  former
                                            employees   or   directors   of  the
                                            Borrower or any Subsidiaries.

"Nordenham Mortgage"                        means   Land    Charges
                                            executed by Kronos Titan pursuant to
                                            which  Liens   affecting   the  real
                                            properties  (and  plant)  of  Kronos
                                            Titan located in Nordenham,  Germany
                                            are  created  in favor of the  Agent
                                            and other agreements,  documents and
                                            instruments relating thereto.

"Notice of Borrowing"                       means as set forth in
                                            SECTION 4.02(C).

"Operating Subsidiaries"                    means as set forth in
                                            SECTION 16.09(F).

"Original Agreement"                        means as set forth in the
                                            third  paragraph  of the preamble of
                                            this Agreement.

"Original Currency"                         means as set forth in SECTION 12.03.

"Other Currency"                            means as set forth in SECTION 12.03.

"PBGC"                                      means the Pension  Benefit  Guaranty
                                            Corporation,    or   any   successor
                                            thereto.

"Pension Benefit Plan"                      means  an  employee
                                            pension   benefit  plan  within  the
                                            meaning of Section 3(2) of ERISA.

"Permitted Indebtedness"                    means, with respect to
                                            the Borrower and any Subsidiary:

                                            (a)    Indebtedness   described   on
                                                   SCHEDULE  2  attached  hereto
                                                   (other than  working  capital
                                                   indebtedness  of the Borrower
                                                   and any  Subsidiary set forth
                                                   in CLAUSE (D) below and other
                                                   than Subordinated Debt);

                                            (b)    trade  payables  incurred and
                                                   payable   in   the   ordinary
                                                   course  of  business  and  on
                                                   customary  terms  and  rental
                                                   obligations under Capital

                                              27

<PAGE>



                                                   Leases   relating  solely  to
                                                   personal property acquired by
                                                   the     Borrower    or    any
                                                   Subsidiary  in  the  ordinary
                                                   course of business;

                                            (c)    Indebtedness    arising    or
                                                   existing   pursuant  to  this
                                                   Agreement;

                                            (d)    unsecured (except as provided
                                                   in  this  CLAUSE  (D)  below)
                                                   working capital  Indebtedness
                                                   of  the   Borrower   and  its
                                                   Subsidiaries  maturing in all
                                                   cases no more  than 3 (three)
                                                   years from the date  incurred
                                                   or issued, including, without
                                                   limitation,   the   aggregate
                                                   face   amounts   (funded   or
                                                   unfunded)  of all standby and
                                                   documentary     letters    of
                                                   credit;  provided,   however,
                                                   that such  unsecured  working
                                                   capital   Indebtedness  shall
                                                   not  exceed in the  aggregate
                                                   DM 80,000,000  (Deutsche Mark
                                                   Eighty  Million)  at any time
                                                   outstanding;   and  provided,
                                                   further,  however,  that  any
                                                   such     working      capital
                                                   Indebtedness    incurred   by
                                                   Kronos Canada, Inc. shall not
                                                   exceed  Cdn.  $10,000,000  in
                                                   aggregate principal amount at
                                                   any time  outstanding and may
                                                   be   secured   by  the   Lien
                                                   referred  to in CLAUSE (H) of
                                                   the  definition  of the  term
                                                   "Permitted Liens";

                                            (e)    any    refinancing   of   the
                                                   Indebtedness in the foregoing
                                                   CLAUSES  (A)   through   (D),
                                                   provided, however, that, with
                                                   respect    to    Indebtedness
                                                   described  in CLAUSE (A) such
                                                   refinancing  shall  not:  (i)
                                                   (A)  include an  increase  in
                                                   Indebted  ness,  (B)  include
                                                   any  decrease,  reduction  or
                                                   shortening    of   the   then
                                                   remaining   term  over  which
                                                   such      Indebtedness     is
                                                   amortized,  (C)  include  any
                                                   increase  in  the  amount  or
                                                   frequency     of    principal
                                                   payments        of       such
                                                   Indebtedness, and (ii) result
                                                   in  a  Default   under   this
                                                   Agreement,  unless  otherwise
                                                   approved  in  writing  by the
                                                   Majority   Banks   in   their
                                                   reasonable discretion;


                                              28

<PAGE>



                                            (f)    Indebtedness between or among
                                                   any  of the  Borrower  and/or
                                                   its Subsidiaries;

                                            (g)    Indebtedness  of the Borrower
                                                   evidenced   by   the   Mirror
                                                   Notes; and

                                            (h)    Subordinated  Debt as defined
                                                   in   CLAUSE    (A)   of   the
                                                   definition    of   the   term
                                                   "Subordinated Debt."

"Permitted Liens"                           means:

                                            (a)    Liens  existing on the Second
                                                   Restatement   Date   and  set
                                                   forth in SCHEDULE 3;

                                            (b)    Liens existing on property at
                                                   the  time of its  acquisition
                                                   (other  than  any  such  Lien
                                                   created in  contemplation  of
                                                   or   connection   with   such
                                                   acquisition);

                                            (c)    extensions,    renewals   and
                                                   replacements     of     Liens
                                                   referred  to in  CLAUSES  (A)
                                                   and (B) above,  provided that
                                                   any such  extension,  renewal
                                                   or  replacement is limited to
                                                   the    property   or   assets
                                                   covered by the Lien extended,
                                                   renewed or replaced  and does
                                                   not secure  any  Indebtedness
                                                   in     addition    to    that
                                                   originally  secured,  in  the
                                                   case of Liens  referred to in
                                                   CLAUSE (A)  above,  as of May
                                                   30,  1990 and, in the case of
                                                   Liens  referred  to in CLAUSE
                                                   (B)  above,  at the time when
                                                   such   Liens   are  or   were
                                                   originally     created     or
                                                   incurred;

                                            (d)    Liens imposed by law, such as
                                                   carriers',    warehousemen's,
                                                   materialmen's,    landlords',
                                                   and mechanics' Liens;  zoning
                                                   restrictions;      easements;
                                                   survey            exceptions;
                                                   reservations;  rights-of-way;
                                                   restrictions   on  use;   and
                                                   other similar Liens that were
                                                   not  incurred  in con nection
                                                   with the  borrowing of monies
                                                   or obtaining credit and that:


                                              29

<PAGE>



                                                   (i)    do    not    in    the
                                                          aggregate   materially
                                                          detract    from    the
                                                          value,  or  materially
                                                          impair the use, of the
                                                          property  or assets to
                                                          which    such    Liens
                                                          attach; or

                                                   (ii)   are being contested in
                                                          good      faith     by
                                                          appropriate
                                                          proceedings,     which
                                                          proceedings  have  the
                                                          effect  of  preventing
                                                          the forfeiture or sale
                                                          of  the   property  or
                                                          assets subject to such
                                                          Lien;

                                            (e)    Liens  securing taxes not yet
                                                   due  or  being  contested  in
                                                   good  faith  by   appropriate
                                                   proceedings,            which
                                                   proceedings  have the  effect
                                                   of preventing  the forfeiture
                                                   or  sale of the  property  or
                                                   assets  subject to such Liens
                                                   and where  adequate  reserves
                                                   are      established      and
                                                   maintained   if  required  in
                                                   accordance  with German GAAP;
                                                   provided,  however, that none
                                                   of the Liens  referred  to in
                                                   this  CLAUSE (E) may,  at any
                                                   time, attach or relate to any
                                                   property  or  assets  of  any
                                                   Subsidiary  of  the  Borrower
                                                   except to the extent that the
                                                   taxes  secured   thereby  are
                                                   attributable  to and  owed by
                                                   such  Subsidiary  or are owed
                                                   to the taxing  authorities of
                                                   the  country  in  which  such
                                                   Subsidiary is organized;

                                            (f)    Liens  arising in  connection
                                                   with  workman's  compensation
                                                   laws or  similar  legislation
                                                   or  progress  payments  under
                                                   government     con    tracts,
                                                   deposits to secure  public or
                                                   statutory  obligations of the
                                                   Borrower   or   any   of  its
                                                   Subsidiaries,  or deposits as
                                                   security for contested import
                                                   duties;

                                            (g)    obligations under conditional
                                                   sale   agreements,    Capital
                                                   Leases  or   reservation   of
                                                   title    or    other    title
                                                   retention agreements relating
                                                   solely to  personal  property
                                                   acquired  by the  Borrower or
                                                   any    Subsidiary    in   the
                                                   ordinary course of business;

                                              30

<PAGE>



                                            (h)    Liens  affecting the property
                                                   of   Kronos   Canada,    Inc.
                                                   securing    working   capital
                                                   Indebtedness  not  to  exceed
                                                   Cdn. $10,000,000 in aggregate
                                                   principal  amount at any time
                                                   outstanding;

                                            (i)    other  Liens if  approved  by
                                                   the Majority  Banks, in their
                                                   sole discretion; and

                                            (j)    Liens in  favor of the  Agent
                                                   and the Banks  under the Loan
                                                   Documents.

"Person"                                    means an individual,  a corporation,
                                            a partnership,  joint venture,  or a
                                            trust,  unincorporated  organization
                                            or  association  or mutual  company,
                                            joint stock company,  estate,  trust
                                            or other  organization,  whether  or
                                            not  a  legal  entity,  including  a
                                            government or political  subdivision
                                            or  an  agency  or   instrumentality
                                            thereof.

"Pledge Agreement"  
or  "Pledge  Agreements"                    means the pledge agreement or pledge
                                            agreements   executed   or   to   be
                                            executed  by NL  Industries  and the
                                            Pledgors  in  accordance   with  the
                                            Original   Agreement,    the   First
                                            Approval   Agreement,    the   First
                                            Restated   Agreement,   the   Second
                                            Approval Agreement or this Agreement
                                            (including,    without   limitation,
                                            SECTION  16.34 and  ARTICLE  17), as
                                            amended or supplemented from time to
                                            time.

"Pledged Subsidiary"
or "Pledged Subsidiaries"                   means,
                                            individually or  collectively,  each
                                            of the following Subsidiaries of the
                                            Borrower  (unless  amended  with the
                                            consent of the Majority Banks):

                                            (a)    NL  Industries  (Deutschland)
                                                   GmbH;

                                            (b)    Kronos Chemie GmbH;

                                            (c)    Societe    Industrielle    du
                                                   Titane, S.A.;

                                            (d)    Kronos Europe S.A./N.V.;


                                              31

<PAGE>



                                            (e)    Kronos Norge A/S;

                                            (f)    Kronos Limited;

                                            (g)    Kronos Canada, Inc.;

                                            (h)    2927527 Canada Inc.;

                                            (i)    2969157 Canada Inc.;

                                            and   any   Subsidiaries,    whether
                                            existing  on the Second  Restatement
                                            Date  or  at  any  time  thereafter,
                                            which  become  Pledged  Subsidiaries
                                            pursuant to SECTION
                                            16.34.

"Pledgors"                                  means   the   Borrower   and   those
                                            Subsidiaries which have delivered or
                                            will  deliver  a pledge of the Stock
                                            of any of the  Pledged  Subsidiaries
                                            pursuant   to   SECTION   16.34  and
                                            ARTICLE 17.

"Primary Syndication Completion Date"       means
                                            the Primary  Syndication  Completion
                                            Date as such term is  defined in the
                                            Original Agreement.

"Principal Shareholder"                     means, with respect to
                                            the  Borrower,  any  Person who owns
                                            directly   more   than  50%   (fifty
                                            percent) of the voting  Stock of the
                                            Borrower (whether such Stock is held
                                            in the  name  of such  Person  or is
                                            held in the name of  another  Person
                                            for the benefit of such Person),  or
                                            if no Person owns such percentage of
                                            voting   Stock,   that   Person  who
                                            directly   owns  an  amount  of  the
                                            Borrower's    voting   Stock   which
                                            exceeds  the  amount  of such  Stock
                                            owned    directly   by   any   other
                                            stockholder  (whether  such Stock is
                                            held in the name of such  Person  or
                                            is  held  in  the  name  of  another
                                            Person  for  the   benefit  of  such
                                            Person).

"Reference Banks"                           means the principal London or
                                            Luxembourg office of:

                                            (a)    Hypobank International S.A.;

                                            (b)    Bankers Trust Company; and


                                              32

<PAGE>



                                            (c)    Arab Banking Corporation;

                                            provided  that, if the Commitment of
                                            any  Reference  Bank  is  terminated
                                            pursuant  to this  Agreement  or any
                                            Reference  Bank  ceases to be a Bank
                                            or  ceases  to  act  as a  Reference
                                            Bank, the Agent, with the consent of
                                            the  Borrower,  which  consent shall
                                            not  be  unreasonably   withheld  or
                                            delayed,  shall select  another Bank
                                            to   serve  as  a   Reference   Bank
                                            hereunder.

"Regulation D"                              means Regulation D of the Federal
                                            Reserve.

"Relevant Date"                             means,  with  respect  to any
                                            amounts   denominated   or   to   be
                                            denominated  in  U.S.   Dollars,   a
                                            Drawdown  Date  or the  date  of any
                                            redenomination  or payment  pursuant
                                            to this Agreement in U.S. Dollars or
                                            the  date of any  other  calculation
                                            with  respect  to U.S.  Dollars,  as
                                            applicable.

"Repayment Date"                            means  each of the  days  for
                                            repayment of the Loan or any portion
                                            thereof  referred  to in  ARTICLE 9,
                                            provided that if any such day is not
                                            a   Business   Day,   the   relevant
                                            Repayment  Date  shall  be the  next
                                            succeeding Business Day.

"Repayment Installment"                     means each installment
                                            for repayment or amount of repayment
                                            of the Loan or any  portion  thereof
                                            required pursuant to or described in
                                            ARTICLE 9.

"Restricted Capital  Amount"                means,  as of  the
                                            date of determination, the aggregate
                                            amount   of   Restricted    Payments
                                            permitted to be paid by the Borrower
                                            on   or    after    the    date   of
                                            determination as Restricted Payments
                                            pursuant to SECTION
                                            16.20(B).

"Restricted Payments"                       means:

                                            (a)    with  respect  to  any  Stock
                                                   issued by any Person,

                                                   (i)    the        retirement,
                                                          redemption,   purchase
                                                          or  other  acquisition
                                                          for value

                                              33

<PAGE>



                                                          (directly           or
                                                          indirectly)   of   any
                                                          such   Stock   (except
                                                          Stock   acquired  upon
                                                          conversion  into other
                                                          shares of such Stock);
                                                          and

                                                   (ii)   the   declaration   or
                                                          payment     of     any
                                                          dividend    or   other
                                                          distribution,
                                                          including          any
                                                          distribution        of
                                                          assets,    properties,
                                                          cash,          rights,
                                                          obligations         or
                                                          securities,  but other
                                                          than    dividends   or
                                                          distributions  payable
                                                          solely  in  shares  of
                                                          such Stock, on or with
                                                          respect  to  any  such
                                                          Stock;

                                            (b)    payments  of   principal   or
                                                   interest  on or with  respect
                                                   to any Subordinated Debt;

                                            (c)    Investments  by the  Borrower
                                                   or  any   Subsidiary   in  an
                                                   Affiliate,   other  than  the
                                                   Borrower  or any  Subsidiary,
                                                   consisting of  investments in
                                                   the  capital  stock  of  such
                                                   Affiliate  or  loans  to such
                                                   Affiliate (exclusive of trade
                                                   payables   and    contractual
                                                   obligations  not for borrowed
                                                   money    incurred   by   such
                                                   Affiliate   in  the  ordinary
                                                   course of business); and

                                            (d)    for   purposes   of   SECTION
                                                   16.20(A)  only, the Liquidity
                                                   Undertaking Credit.

"Revolving Commitment"      
or "Revolving Commitments"                  means,  in relation to
                                            each Bank,  the several  obligations
                                            of such Bank, and in relation to all
                                            Banks, the aggregate  obligations of
                                            such Banks,  subject to the terms of
                                            this  Agreement,  to make  available
                                            its portion of the Revolving Portion
                                            to be made under this  Agreement  up
                                            to the  aggregate  principal  amount
                                            specified  in  SCHEDULE  1,  to  the
                                            extent not reduced or canceled under
                                            this Agreement.

"Revolving Portion"                         means that  portion of the
                                            principal of the Loan in the maximum
                                            amount   of   (a)   DM   230,000,000
                                            (Deutsche

                                              34

<PAGE>



                                            Mark Two Hundred Thirty Million) for
                                            the    period    from   the   Second
                                            Restatement  Date through  March 14,
                                            2000 or (b) DM 105,000,000 (Deutsche
                                            Mark One Hundred  Five  Million) for
                                            the  period   from  March  15,  2000
                                            through  September  14, 2000,  which
                                            portion  includes  the Kronos  Titan
                                            Revolving  Portion  and may be, from
                                            time to time,  prepaid  pursuant  to
                                            SECTION 8.02 and reborrowed pursuant
                                            to SECTION 2.04; provided,  however,
                                            that each of the  amounts  set forth
                                            in  CLAUSES  (A) and  (B)  preceding
                                            shall be automatically reduced by an
                                            aggregate   amount   equal  to  300%
                                            (three   hundred   percent)  of  the
                                            cumulative   total  of  the   Excess
                                            Adjusted  Restricted  Payments which
                                            have  been,   as  of  any  date  but
                                            subject to the 30 (thirty)  day cure
                                            period  specified in the  definition
                                            of   "Excess   Adjusted   Restricted
                                            Payments",  paid  or  made  or  have
                                            otherwise  arisen or  existed  on or
                                            after   January   1,   1996,   which
                                            reduction in the  Revolving  Portion
                                            shall   occur   automatically   upon
                                            expiration  of the 30  (thirty)  day
                                            cure   period   applicable   to  the
                                            payment,  making,  arising  or other
                                            existence   of  each   such   Excess
                                            Adjusted Restricted Payment.

"Revolving Portion  Availability"           means, at any
                                            time,  the  principal  amount of the
                                            Revolving   Portion  that  has  been
                                            prepaid pursuant to SECTION 2.04 and
                                            is not then outstanding.

"Second Amendment  Agreement"               means  as set
                                            forth in the third  paragraph of the
                                            preamble of this Agreement.

"Second Approval Agreement"                 means   the
                                            Approval  Agreement dated as of June
                                            21, 1996,  among the  Borrower,  the
                                            requisite  Banks who are signatories
                                            thereto, the Agent and the Co-Agent.

"Second Prepayment"                         means the prepayment of
                                            the  Loan in the  Second  Prepayment
                                            Amount pursuant to SECTION 2.01(B).

"Second Prepayment Amount"                  means    DM
                                            150,000,000   (Deutsche   Mark   One
                                            Hundred Fifty Million).

"Second Restatement Date"                   means January 31,
                                            1997, the date of this Agreement (as
                                            unamended).


                                              35

<PAGE>



"Service Contract"                          means   the   agreement
                                            between  Bayer  AG,  Leverkusen  and
                                            Kronos  Titan  -  GmbH,  Leverkusen,
                                            dated June 21,  1952,  as amended on
                                            September    9,    1971    and    as
                                            supplemented  on December  29, 1983,
                                            and  as  supplemented  on  June  30,
                                            1995.

"Special Purpose Account"                   has the meaning set
                                            forth in the Special Purpose Account
                                            Agreement.

"Special Purpose Account Agreement"         means the
                                            Amended and Restated Special Purpose
                                            Account  Agreement  dated  as of the
                                            First   Restatement  Date  among  NL
                                            Industries, Kronos, the Borrower and
                                            the    Agent,    as    amended    or
                                            supplemented from time to time.

"Spot Rate"                                 means,  with  respect  to any
                                            day,  the  rate  determined  on such
                                            date  on the  basis  of the  offered
                                            rates,    as    reflected   on   the
                                            appropriate   BHFX  display  of  the
                                            Reuter  Monitor  Money Rates Service
                                            at or about 1:00 p.m. Frankfurt time
                                            (a)    with     respect    to    the
                                            determination  of the Deutsche  Mark
                                            Amount,  to purchase  Deutsche  Mark
                                            with  U.S.   Dollars  and  (b)  with
                                            respect to the  determination of the
                                            Equivalent  Amount, to purchase U.S.
                                            Dollars with Deutsche Mark, provided
                                            that,  if at least two such  offered
                                            rates  appear on such  display,  the
                                            rate shall be the arithmetic mean of
                                            such  offered  rates and, if no such
                                            offered rates are so displayed,  the
                                            Spot Rate shall be determined by the
                                            Agent on the basis of the arithmetic
                                            mean of such offered rates  notified
                                            to the Agent by the Reference  Banks
                                            in  accordance   with  their  normal
                                            practice.

"Stock"                                     means,  with  respect to any Person,
                                            any  capital  stock or other  equity
                                            rights,   bonds,   notes   or  other
                                            instruments convertible into capital
                                            stock or other equity interests, and
                                            options, warrants or other rights to
                                            acquire   capital   stock  or  other
                                            equity interests.

"Subordinated Debt"                         means    the     following
                                            Indebtedness   (exclusive   of   the
                                            Indebtedness   of  the  Borrower  to
                                            Kronos   evidenced   by  the  Mirror
                                            Notes):


                                              36

<PAGE>



                                            (a)    Indebtedness (if any) owed by
                                                   the Borrower to Kronos and/or
                                                   NL  Industries  in respect of
                                                   loans  to the  Borrower  from
                                                   Kronos  and/or NL  Industries
                                                   made    after    the    First
                                                   Prepayment Date if and to the
                                                   extent that (i) the  proceeds
                                                   of such  loans are  deposited
                                                   by    Kronos     and/or    NL
                                                   Industries  into the  Special
                                                   Purpose  Account  (or,  if so
                                                   agreed  by  the  Agent,  into
                                                   another  special,  restricted
                                                   account   of   the   Borrower
                                                   maintained at, and acceptable
                                                   to,  the Agent from which the
                                                   Borrower    may   not    make
                                                   withdrawals    or   otherwise
                                                   direct  distributions  except
                                                   with  respect to any interest
                                                   to accrue thereon),  and (ii)
                                                   such  proceeds are applied to
                                                   the Loans in accordance  with
                                                   the Special  Purpose  Account
                                                   Agreement;

                                            (b)    Indebtedness (if any) owed by
                                                   the Borrower to Kronos and/or
                                                   NL  Industries  in respect of
                                                   loans  to the  Borrower  from
                                                   Kronos  and/or NL  Industries
                                                   made    after    the    First
                                                   Prepayment  Date obtained for
                                                   general corporate purposes or
                                                   made  to   comply   with  the
                                                   obligations  of Kronos and/or
                                                   NL   Industries   under   the
                                                   Liquidity Undertaking,  which
                                                   Indebtedness is not otherwise
                                                   permitted      under      the
                                                   definition    of   "Permitted
                                                   Indebtedness" or described in
                                                   CLAUSE (A) of this definition
                                                   of "Subordinated Debt";

                                            (c)    the Kronos  Subordinated Loan
                                                   and the NL Subordinated Loan;
                                                   and

                                            (d)    other  Indebtedness  approved
                                                   by  the  Majority   Banks  as
                                                   Subordinated Debt.

"Subordinated Loan  Documents"              means    the
                                            Subordination   Agreement,   the  NL
                                            Subordinated  Note  and  the  Kronos
                                            Subordinated Note, true, correct and
                                            complete photocopies of which (other
                                            than  the  Subordination  Agreement)
                                            are attached hereto as EXHIBIT C.

                                              37

<PAGE>



"Subordination Agreement"                   means  the  Amended  and
                                            Restated      Subordination      and
                                            Contribution  Agreement  dated as of
                                            the First  Restatement Date among NL
                                            Industries, Kronos, the Borrower and
                                            the    Agent,    as    amended    or
                                            supplemented from time to time.

"Subsidiary"                                means any Person Controlled directly
                                            or indirectly by the Borrower.

"Tax Refund"                                means  the  German  income
                                            taxes   to  be   refunded   to   the
                                            Borrower,  if any,  pursuant  to its
                                            1990 German federal corporate income
                                            tax returns for  calendar  year 1990
                                            claiming  refunds  aggregating  more
                                            than DM 150,000,000 of German income
                                            taxes   previously   paid   by   the
                                            Borrower  and  certain  Consolidated
                                            Subsidiaries   for  calendar   years
                                            1988, 1989 and 1990.

"Taxes"                                     shall have the  meaning set forth in
                                            SECTION 11.01.

"Technology Undertaking"                    means the  Amended and
                                            Restated  Technology  and  Trademark
                                            Undertaking  dated  as of the  First
                                            Restatement   Date   among   Kronos,
                                            Kronos   (US)  and  the  Agent,   as
                                            amended or supplemented from time to
                                            time.

"Temporary Cash Investment"                 means    any
                                            Investment in (i) direct obligations
                                            of, or  obligations  guaranteed  by,
                                            the governments of Belgium,  Canada,
                                            Germany,  France, Norway, the United
                                            Kingdom or the United  States or any
                                            agency of any of the foregoing, (ii)
                                            commercial paper (including, without
                                            limitation,   Eurocommercial  paper)
                                            rated  in the  highest  grade  by an
                                            internationally   recognized  credit
                                            rating  agency,  (iii) time deposits
                                            (including,    without   limitation,
                                            Euro-deposits  and  certificates  of
                                            deposit),   with  prime   commercial
                                            banks of international standing, and
                                            (iv)  bonds  issued by  corporations
                                            and  financial   institutions   with
                                            obligations  rated at least  "AA" by
                                            an internationally recognized credit
                                            rating agency; provided, however, in
                                            each  case,   that  such  Investment
                                            matures  within  one  year  from the
                                            date of

                                              38

<PAGE>



                                            acquisition  thereof by the Borrower
                                            or its Subsidiary.

"Tentative Tax  Refund"                     means as set  forth in
                                            the Tentative Tax Refund Letter.

"Tentative Tax Refund
Availability Amount"                        means  as set  forth in the
                                            Tentative Tax Refund Letter.

"Tentative Tax Refund Letter"               means  that
                                            certain  letter  dated May 27, 1994,
                                            from the Borrower to the Agent.

"Term Portion"                              means that  portion of the
                                            principal of the Loan other than the
                                            Revolving Portion.

"Third Amendment Agreement"                 means  as set
                                            forth in the third  paragraph of the
                                            preamble of this Agreement.

"Third Party License Agreements"            shall have
                                            the  meaning  set  forth in  SECTION
                                            15.21.

"Total Assets"                              means  total  assets of the
                                            Borrower and its  Subsidiaries  on a
                                            consolidated   basis  in  conformity
                                            with German GAAP.

"Underwriting Agreement"                    means  the  Underwriting
                                            Agreement  dated as of  October  13,
                                            1993,   between  NL  Industries  and
                                            Salomon  Brothers  Inc.  executed by
                                            the  parties  thereto in  connection
                                            with  the  underwriting  of  the  NL
                                            Notes.

"U.S. Dollars  or  U.S.  $"                 means  lawful
                                            currency  of the  United  States  of
                                            America.

        When used in this Agreement:

        (a)    A reference to a law, rule or regulation  includes any amendment,
               supplement or  modification  to such law, rule or regulation  and
               any successor to such law, rule or regulation;

        (b)    A reference to an agreement, instrument or document shall include
               such  agreement,  instrument  or  document  as  the  same  may be
               amended, modified,  supplemented or restated from time to time in
               accordance with its terms and as permitted by this

                                              39

<PAGE>



               Agreement or has been amended, modified, supplemented or restated
               in accordance with its terms;

        (c)    All article and section  headings in this  Agreement are for ease
               of reference only and shall be disregarded in the construction of
               this Agreement; and

        (d)    A reference to a Person shall, unless otherwise provided, include
               its successors.

                                   ARTICLE 2.  THE FACILITY

2.01    (a)    The Banks  (or their  predecessors  in  interest)  previously
               granted,   through  their  respective  Lending  Offices,  to  the
               Borrower,  upon the terms and  subject to the  conditions  of the
               Original  Agreement  (as  and  to  the  extent  amended  by  this
               Agreement), the Loan in the maximum aggregate principal amount of
               DM 1,600,000,000 (Deutsche Mark One Billion Six Hundred Million),
               of which DM 1,100,000,000  (Deutsche Mark One Billion One Hundred
               Million) was outstanding as of the First  Restatement Date (prior
               to  giving  effect  to  the  First  Prepayment).   On  the  First
               Prepayment  Date and in accordance with SECTION 2.01 of the First
               Restated  Agreement,  but immediately  prior to the making of the
               First  Prepayment,  the Loan was  deemed to be  divided  into two
               portions, the Term Portion in the outstanding principal amount of
               DM  850,000,000  (Deutsche  Mark Eight Hundred Fifty Million) and
               the Revolving  Portion in the outstanding  principal amount of DM
               250,000,000  (Deutsche  Mark Two Hundred Fifty  Million).  On the
               First  Prepayment Date and in accordance with SECTION 2.01 of the
               First Restated  Agreement,  and promptly upon the consummation of
               the NL Debt Offering, NL Industries or Kronos wire transferred to
               the Agent (to the Agent's  account  specified  in SECTION  11.04)
               immediately  available  funds in the  amount  equal to the  First
               Prepayment  Amount. The Borrower agreed that it had absolutely no
               control  over such  funds used to make the First  Prepayment  and
               that its estate was not,  in any way,  diminished  as a result of
               such transfer of funds or the First Prepayment.  Immediately upon
               the Agent's receipt of the First Prepayment, the First Prepayment
               was applied in accordance  with SECTION 2.1 of the First Restated
               Agreement  as a  prepayment  of the  principal  of the  Loan,  as
               follows:

               (i)    first, DM 400,000,000 (Deutsche Mark Four Hundred Million)
                      of the First  Prepayment  Amount  was  applied to the Term
                      Portion;

               (ii)   second,  DM  150,000,000  (Deutsche Mark One Hundred Fifty
                      Million) of the First Prepayment Amount was applied to the
                      Revolving Portion as a prepayment of the Loans pursuant to
                      SECTION 8.02; and

               (iii)  third, an amount equal to DM 2,000,000  (Deutsche Mark Two
                      Million) of the First Prepayment Amount was applied to the
                      Term Portion.

                                              40

<PAGE>



               After giving effect to such  application of the First  Prepayment
               and other  prepayments made in accordance with the First Restated
               Agreement,  the outstanding principal balance of the Term Portion
               was,  immediately  prior  to  the  Second  Restatement  Date,  DM
               395,537,463 (Deutsche Mark Three Hundred Ninety-Five Million Five
               Hundred Thirty-Seven Thousand Four Hundred Sixty-Three).

        (b)    The Banks shall continue to maintain the Loan in accordance  with
               and subject to the terms and provisions of this Agreement.  On or
               before the Second  Restatement  Date,  NL  Industries  shall wire
               transfer  to the  Agent's  account  with  respect to  payments in
               Deutsche  Mark  specified  in  SECTION   11.04,   in  immediately
               available  funds,  proceeds  of the NL  Subordinated  Loan in the
               amount equal to the Second Prepayment Amount. The Borrower agrees
               that it shall have  absolutely no control over such funds used to
               make the Second  Prepayment  and that its estate shall not be, in
               any way,  diminished as a result of such transfer of funds or the
               Second  Prepayment.  Immediately  upon the Agent's receipt of the
               Second  Prepayment,  the Second  Prepayment shall be promptly and
               automatically  applied  by  the  Agent  as a  prepayment  of  the
               principal of the Term Portion of the Loan as follows:  first,  DM
               20,000,000   (Deutsche   Mark  Twenty   Million)  of  the  Second
               Prepayment Amount shall be applied as a mandatory prepayment of a
               portion of the amount equal to the Tax Refund in accordance  with
               SECTION 8.01(D) and,  second,  DM 130,000,000  (Deutsche Mark One
               Hundred Thirty Million) of the Second  Prepayment Amount shall be
               applied as a mandatory  prepayment  pursuant to SECTION  8.01(H).
               Also   concurrently   herewith,   the  Borrower  shall  cause  NL
               Industries  to wire  transfer to the  Borrower's  account  number
               5803610284  maintained at Bayerische  Hypotheken-und  Wechselbank
               AG, Munich, in immediately  available funds, the remainder of the
               proceeds  of  the  NL  Subordinated  Loan  in  the  amount  of DM
               110,000,000  (Deutsche  Mark  One  Hundred  Ten  Million),  which
               proceeds shall be available for general corporate purposes of the
               Borrower  without any  restriction on use of proceeds  imposed by
               any  Affiliate  of the  Borrower.  The  proceeds  of  the  Kronos
               Subordinated  Loan in the amount of DM 25,000,000  (Deutsche Mark
               Twenty-Five  Million) also shall be available for working capital
               purposes  of  the  Borrower  without  any  restriction  on use of
               proceeds imposed by any Affiliate of the Borrower.

2.02    Upon the terms and  subject to the  conditions  of this  Agreement,  the
        Revolving  Portion shall be made available to the Borrower  severally by
        each Bank in the amount of such Bank's  Revolving  Commitment under this
        Agreement.

2.03    The failure of any Bank to perform its obligations  under this Agreement
        shall not affect the obligations of the Borrower toward the Agent or any
        other Bank or the obligations of any other Bank toward the Borrower, nor
        shall the Agent or any other Bank be liable for the failure of such Bank
        to perform its obligation under this Agreement.

                                              41

<PAGE>




2.04    (a)    The Revolving  Portion may be, from time to time,  prepaid in
               whole  or in part  at the  option  of the  Borrower  pursuant  to
               SECTION  8.02  and  thereafter  the  amounts  so  prepaid  may be
               reborrowed  pursuant  to,  and in  compliance  with all terms and
               conditions  of,  SECTION  2.04 and the other  provisions  of this
               Agreement.  Notwithstanding anything to the contrary contained in
               SECTION 2.04 or elsewhere  in this  Agreement,  the amount of the
               Loan that may be reborrowed  by the Borrower  pursuant to SECTION
               2.04  at  any  time  shall  not  exceed  the  Revolving   Portion
               Availability  at such time.  The  Borrower  may not  reborrow any
               amounts  prepaid  pursuant to SECTION 8.01 or any other provision
               of  this  Agreement  (other  than  SECTION  8.02,  to the  extent
               permitted in the immediately preceding  sentences).  The Borrower
               and the Banks hereby acknowledge and agree that, as of the Second
               Restatement  Date and after giving effect to the prepayment in an
               amount equal to the Tax Refund as referred to in SECTION 8.01(D),
               the Revolving  Portion  Availability  is DM 29,928,000  (Deutsche
               Mark  Twenty-Nine  Million  Nine Hundred  Twenty-Eight  Thousand)
               (i.e.,  the remainder of DM  230,000,000,  the maximum  principal
               amount of the  Revolving  Portion  as of the  Second  Restatement
               Date, minus DM 200,072,000,  the outstanding  principal amount of
               the Revolving Portion as of the Second Restatement Date).

        (b)    Upon the terms and  subject to the  conditions  set forth in this
               SECTION 2.04 and elsewhere in this Agreement (including,  without
               limitation,   the  Borrower's   satisfaction  of  all  conditions
               precedent to such reborrowing),  and upon request of the Borrower
               made pursuant to a Notice of Borrowing  delivered to the Agent in
               compliance with SECTION 4.02(C), each Bank agrees,  severally and
               not jointly, to make advances of the Revolving Portion (including
               the Kronos Titan Revolving  Portion) to or for the account of the
               Borrower  from the First  Prepayment  Date to August 15, 2000, by
               making  such  amounts  available  to the Agent on the  respective
               Drawdown  Dates  therefor  pursuant to SECTION  11.06;  provided,
               however,  that (i) the  principal  amount of each  advance of the
               Revolving Portion made by each Bank pursuant to this SECTION 2.04
               at any time may not exceed such Bank's pro rata share (based upon
               its  Revolving  Commitment  as  a  percentage  of  the  aggregate
               Revolving  Commitments  of all  Banks) of the  Revolving  Portion
               Availability at such time and the aggregate  principal  amount of
               all advances of the Revolving  Portion made by each Bank pursuant
               to this  SECTION 2.04 and  outstanding  from time to time may not
               exceed  such  Bank's pro rata  share  (based  upon its  Revolving
               Commitment as a percentage of the aggregate Revolving Commitments
               of all Banks) of the  Revolving  Portion  and (ii) the  aggregate
               principal amount of all advances of the Revolving Portion made by
               all  Banks  pursuant  to this  SECTION  2.04 at any  time may not
               exceed the Revolving  Portion  Availability  at such time and the
               aggregate  principal  amount  of all  advances  of the  Revolving
               Portion  made by all  Banks  pursuant  to this  SECTION  2.04 and
               outstanding  from  time to  time  may not  exceed  the  aggregate
               Revolving Commitments of all Banks. Unless the Agent

                                              42

<PAGE>



               determines  that any applicable  condition  precedent to any such
               reborrowing  has not been  satisfied,  the Agent  shall  make the
               funds  so  received  from the  Banks  available  to the  Borrower
               pursuant to SECTION  11.05;  provided,  however,  that such funds
               consisting of drawdowns under the Kronos Titan Revolving  Portion
               requested by Kronos Titan  (together with the Borrower)  shall be
               made  available  directly  to  Kronos  Titan in  accordance  with
               SECTION  2.04(C).  Each  advance of the  Revolving  Portion  made
               pursuant  to  this  SECTION  2.04  shall  be  made as a part of a
               borrowing  consisting of advances made by the Banks in accordance
               with their respective pro rata shares thereof; provided, however,
               that the failure of any Bank to advance its pro rata share of any
               such  advance  shall not in itself  relieve any other Bank of its
               obligation  under this  SECTION 2.04 (it being  agreed,  however,
               that no Bank shall be  responsible  for the  failure of any other
               Bank to do so).  Prior to August 15, 2000, the Borrower may repay
               and  reborrow  under this  SECTION  2.04 and the Banks shall make
               advances  in  accordance  with the terms of this  Agreement.  The
               Banks  shall  not  be  obligated  to  make  any  advances  of the
               Revolving  Portion  under this  SECTION  2.04  subsequent  to the
               August 15, 2000.

        (c)    It is  acknowledged  and agreed by the parties hereto that Kronos
               Titan  may  utilize  certain  proceeds  of  drawdowns  under  the
               Revolving  Portion.  Accordingly,  as of the  Second  Restatement
               Date,  an  amount  of the  Revolving  Portion  not to  exceed  DM
               20,000,000  (Deutsche Mark Twenty Million) shall be designated as
               the "Kronos Titan Revolving Portion".  The Kronos Titan Revolving
               Portion  is, and shall be deemed to be for all  purposes  of this
               Agreement, a part of the Revolving Portion and is available to be
               drawn down by the Borrower in accordance with this Agreement. The
               Borrower and Kronos Titan agree that, notwithstanding anything to
               the contrary  contained in this SECTION 2.04,  the Borrower shall
               use its best efforts to ensure that the proceeds of all drawdowns
               under the  Revolving  Portion  that are to be  utilized by Kronos
               Titan,  unless the Kronos Titan  Revolving  Portion is then fully
               drawn,  shall be  requested by Kronos  Titan  (together  with the
               Borrower) to be advanced by the Agent  directly to Kronos  Titan.
               Notwithstanding  anything  to  the  contrary  contained  in  this
               Agreement  or any other Loan  Document,  each of the Borrower and
               Kronos Titan  hereby  jointly and  severally  agrees to repay the
               principal  of the  Kronos  Titan  Revolving  Portion,  to pay all
               interest  accrued on such principal that is outstanding from time
               to time and to pay all fees  accrued  with  respect to the Kronos
               Titan Revolving Portion from time to time, all in accordance with
               the terms and provisions of this  Agreement;  provided,  however,
               that  Kronos  Titan so agrees only if and to the extent that such
               indebtedness,  liabilities  and  obligations  relate to  advances
               under the Kronos Titan  Revolving  Portion  advanced  directly to
               Kronos Titan.  Furthermore,  the Borrower acknowledges and agrees
               that  advances of the Kronos  Titan  Revolving  Portion to Kronos
               Titan shall  directly  benefit the Borrower to the same extent as
               if such advances had been made directly to the Borrower, and that
               the  indebtedness,  liabilities  and  obligations of the Borrower
               with  respect  to the Kronos  Titan  Revolving  Portion  shall be
               identical to

                                              43

<PAGE>



               the Borrower's  indebtedness,  liabilities and  obligations  with
               respect to the portion of the  Revolving  Portion that is not the
               Kronos Titan Revolving Portion.

2.05    The Borrower may, in connection with and concurrently with any Notice of
        Borrowing  with  respect to any  reborrowing  of the  Revolving  Portion
        pursuant to SECTION 2.04 and in connection  with and  concurrently  with
        any selection of a new Interest Period pursuant to SECTION 5.02, deliver
        to the Agent a written request that such  reborrowing or such portion of
        the Loan  subject to such new  Interest  Period,  as the case may be, be
        denominated or  redenominated  (as the case may be) in U.S.  Dollars (as
        opposed  to  Deutsche  Mark),  provided,  however,  that  the  aggregate
        principal amount of the Loan at any time outstanding that is denominated
        in U.S.  Dollars may not, without the prior written consent of the Banks
        that  hold  at  least  80%  (eighty  percent)  of the  aggregate  unpaid
        principal  amount of the Loans,  immediately  upon giving  effect to any
        such reborrowing or any such Interest  Period,  exceed the Base Deutsche
        Mark  Amount  of DM  350,000,000  (Deutsche  Mark  Three  Hundred  Fifty
        Million).  Each  such  written  request  for a U.S.  Dollar  denominated
        tranche shall specify the Base Deutsche Mark Amount of such tranche.  If
        such a written  request  for a U.S.  Dollar  denominated  tranche is not
        received  by the  Agent at least  five (5)  Business  Days  prior to the
        proposed  Drawdown  Date,  with respect to a Notice of Borrowing,  or no
        later than 10:00 a.m., Luxembourg time, on the fourth (4th) Business Day
        prior to the beginning of the relevant Interest Period,  with respect to
        the  selection  of a new  Interest  Period,  then the  tranche  shall be
        denominated  in  Deutsche   Mark,   provided,   however,   that  if  the
        corresponding tranche for the Interest Period then ending is denominated
        in U.S.  Dollars,  then the  tranche  for the next  succeeding  Interest
        Period shall also be  denominated  in U.S.  Dollars  unless the Borrower
        notifies the Agent, pursuant to SECTION 5.02, that such tranche shall be
        redenominated in Deutsche Mark for the next succeeding  Interest Period.
        Any  agreement or  obligation of the Banks to provide any portion of the
        Loan in Deutsche Mark or U.S.  Dollars  pursuant to this Agreement shall
        in all cases be subject to the condition that no circumstance  described
        in SECTION 7.01 shall have occurred (as  determined in good faith by the
        Agent) in the London interbank  Euro-currency  market or otherwise after
        request  therefor by the Borrower and before the relevant  Drawdown Date
        or the first day of the relevant Interest Period, as the case may be. If
        the Agent has determined that such a change has occurred,  then it shall
        forthwith  give  notice  thereof to the  Borrower  and each Bank and the
        procedures set forth in ARTICLE 7 shall be applicable.

2.06    (a)    If the Borrower requests  (pursuant to SECTION 2.05) that any
               reborrowing of the Revolving  Portion  (pursuant to SECTION 2.04)
               be  denominated  in U.S.  Dollars,  the Banks  shall,  subject to
               compliance  by the Borrower with SECTION 2.05 and the other terms
               and  conditions  of this  Agreement,  make their  advances of the
               reborrowing in U.S.  Dollars in an aggregate  amount equal to the
               Equivalent  Amount  of  the  Base  Deutsche  Mark  Amount  of the
               advances to be funded in U.S.
               Dollars.


                                              44

<PAGE>



        (b)    In the event of any  advance of the Loan being  redenominated  in
               whole or in part in U.S. Dollars for the next succeeding Interest
               Period and such advance having been  denominated in Deutsche Mark
               during the Interest  Period then  ending,  each Bank will make an
               amount equal to the Equivalent Amount in U.S. Dollars of the Base
               Deutsche  Mark  Amount of its advance  (or the  relevant  portion
               thereof)  to be  denominated  in U.S.  Dollars  during  the  next
               succeeding  Interest  Period  available to the Agent on the first
               day of such next  succeeding  Interest  Period.  The Agent shall,
               subject  to the  provisions  of SECTION  2.06(F),  make each such
               amount of U.S. Dollars available to the Borrower on such date and
               in like  currency  and funds as  received  by the Agent  from the
               Banks in the manner  provided in SECTION 11.06,  and the Borrower
               on the last day of the  Interest  Period then ending  shall repay
               the amount of such  advance  (or the  relevant  portion  thereof)
               outstanding  in  Deutsche  Mark during the  Interest  Period then
               ending (with accrued interest thereon in Deutsche Mark).

        (c)    In the event that (i) any advance of the Loan denominated in U.S.
               Dollars is to continue to be denominated in U.S.  Dollars for the
               next succeeding  Interest Period,  and (ii) as of the last day of
               the Interest  Period then ending,  the  aggregate  Deutsche  Mark
               Amount of all outstanding  advances of the Loan then  denominated
               in U.S.  Dollars is more than one hundred and five percent (105%)
               of the aggregate  Base  Deutsche  Mark Amount of all  outstanding
               advances of the Loan then denominated in U.S.  Dollars,  then the
               Borrower  shall  repay  to the  Agent,  on the  last  day of such
               Interest  Period then ending,  an amount of U.S.  Dollars as will
               result in (after giving effect to such  repayment)  the aggregate
               Deutsche Mark Amount of all outstanding advances of the Loan then
               denominated in U.S.  Dollars,  as of the last day of the Interest
               Period then ending,  being equal to one hundred percent (100%) of
               the  aggregate  Base  Deutsche  Mark  Amount  of all  outstanding
               advances of the Loan then denominated in U.S. Dollars. The amount
               to be repaid by the  Borrower  pursuant to this  SECTION  2.06(C)
               shall be in addition to any Repayment Installment or other amount
               due and payable by the Borrower on the last day of such  Interest
               Period then ending. In the event that (A) any advance of the Loan
               denominated  in U.S.  Dollars is to continue to be denominated in
               U.S. Dollars for the next succeeding  Interest Period,  (B) as of
               the last day of the Interest  Period then ending,  the  aggregate
               Deutsche Mark Amount of all outstanding advances of the Loan then
               denominated  in U.S.  Dollars  is less than  ninety-five  percent
               (95%)  of  the  aggregate   Base  Deutsche  Mark  Amount  of  all
               outstanding  advances  of  the  Loan  then  denominated  in  U.S.
               Dollars, and (C) no Default shall have occurred and be continuing
               as of the last day of the Interest Period then ending,  then each
               Bank shall make available to the Agent,  and the Agent shall make
               available  to the  Borrower,  on the  last  day of such  Interest
               Period then  ending,  such Bank's pro rata share  (based upon its
               Commitment as a percentage of the  aggregate  Commitments  of all
               Banks)  of an  amount of U.S.  Dollars  as will  result in (after
               giving effect to the delivery of such amount to the Borrower) the
               aggregate Deutsche Mark

                                              45

<PAGE>



               Amount of all outstanding  advances of the Loan then  denominated
               in U.S.  Dollars,  as of the last day of the Interest Period then
               ending,  being  equal  to  one  hundred  percent  (100%)  of  the
               aggregate Base Deutsche Mark Amount of all  outstanding  advances
               of the Loan then denominated in U.S.  Dollars.  The obligation of
               the Banks and the Agent to make such additional amounts available
               to the Agent and the Borrower, respectively, shall be subject, in
               all respects,  to the condition  precedent that no  circumstances
               described in SECTION  7.01,  as  determined  in good faith by the
               Agent, shall have occurred in the London interbank  Euro-currency
               market or  otherwise  on or about  the last day of such  Interest
               Period then ending.

        (d)    In the event of any  advance of the Loan being  redenominated  in
               whole  or in part  in  Deutsche  Mark  for  the  next  succeeding
               Interest Period and such advance having been  denominated in U.S.
               Dollars  during the Interest  Period then ending,  each Bank will
               make its  advance  in  Deutsche  Mark in an amount  equal to such
               Bank's pro rata  share of the Base  Deutsche  Mark  Amount of the
               aggregate  advance  to  commence  on the  first  day of such next
               succeeding  Interest  Period.  The Agent  shall,  subject  to the
               provisions of SECTION 2.06(F),  make each such amount of Deutsche
               Mark  available to the Borrower on such date and in like currency
               and funds as  received  by the Agent in the  manner  provided  in
               SECTION  11.06,  and the Borrower on the last day of the Interest
               Period then ending shall repay the amount of such advance (or the
               relevant portion thereof)  outstanding in U.S. Dollars during the
               Interest  Period then ending (with  accrued  interest  therein on
               U.S. Dollars).

        (e)    In the event that,  with  respect to any tranche  requested to be
               denominated  in U.S.  Dollars,  any of the  events  specified  in
               SECTION 7.01 shall occur relating to U.S. Dollar  deposits,  then
               the Agent,  with the consent of Majority  Banks and by the giving
               of notice to the  Borrower,  may  require  that (i) each  advance
               shall be made to the Borrower in Deutsche Mark in an amount equal
               to such Bank's pro rata share of the Base Deutsche Mark Amount of
               the aggregate advance requested to be made in U.S. Dollars,  (ii)
               each advance which shall have been  denominated  in Deutsche Mark
               during the  Interest  Period  then  ending  shall  continue to be
               denominated  in  Deutsche  Mark and (iii)  each Bank  shall  make
               available to the Agent in Deutsche  Mark the Base  Deutsche  Mark
               Amount of its advance which shall have been  outstanding  in U.S.
               Dollars  during the Interest  Period then ending on the first day
               of the next succeeding Interest Period. The Agent shall,  subject
               to the  provisions  of SECTION  2.06(F),  make such Base Deutsche
               Mark  Amount  available  to the  Borrower on the same date and in
               like  currency  and funds as received by the Agent from such Bank
               in the manner  provided in SECTION  11.06 and the Borrower on the
               last day of the  Interest  Period  then  ending  shall  repay the
               amount of such advance  denominated  in U.S.  Dollars  during the
               Interest  Period then ending (with  accrued  interest  thereon in
               U.S. Dollars).


                                              46

<PAGE>



        (f)    In the event the Borrower is required to repay any amounts on the
               last day of any Interest  Period  pursuant to this SECTION  2.06,
               the Agent  shall  make any  amounts to be  advanced  by the Banks
               available to the Borrower on the first day of the next succeeding
               Interest  Period  only  if  the  Agent   receives,   concurrently
               therewith in accordance with this Agreement, the relevant amounts
               to be repaid by the Borrower  pursuant to this SECTION 2.06.  The
               Borrower hereby agrees that it shall indemnify the Agent and each
               Bank, and hold the Agent and each Bank harmless from and against,
               any and all funding or foreign exchange costs, losses or expenses
               that the Agent and the Banks may  suffer,  sustain  or incur as a
               consequence  of a failure by the Borrower to promptly  pay,  when
               due, any amounts required to be paid by the Borrower.

                                ARTICLE 3.  PURPOSE OF THE LOAN

        The  Borrower  represents  and  warrants  that the  proceeds of the Loan
initially were used to refinance all of its then outstanding  bank  indebtedness
and certain of its then existing  indebtedness  (including principal and accrued
interest) to Kronos (US) (then known as Kronos,  Inc.),  and that the  remaining
proceeds  of the  Loan  in  excess  of  the  amount  needed  to  refinance  such
indebtedness  were used  exclusively  for its general  corporate  purposes.  The
Borrower shall use the entire proceeds of each  reborrowing  under the Revolving
Portion  exclusively  for its general  corporate  purposes  (including,  without
limitation, to make Restricted Payments permitted under SECTION 16.20).

                   ARTICLE 4.  CONDITIONS PRECEDENT AND NOTICE OF BORROWING

4.01    (a)    Reference  is hereby made to Sections  4.01(a),  4.01(b) and
               4.01(c) of the First Restated  Agreement,  which Section  4.01(a)
               contains certain conditions of the First Restated Agreement,  and
               which  Sections  4.01(a),  4.01(b) and  4.01(c) are  incorporated
               herein by reference.

        (b)    Notwithstanding  anything  to  the  contrary  contained  in  this
               Agreement or in any other Loan  Document,  this  Agreement  shall
               become  effective when (and shall not become effective unless and
               until) each of the following  conditions  precedent are satisfied
               to the reasonable satisfaction of the Agent:

               (i)    The Agent shall have received the following documents,  as
                      appropriately  executed,  delivered and (where applicable)
                      completed to its reasonable  satisfaction (except that any
                      such condition  precedent set forth in this CLAUSE (I) may
                      be  waived  by the  Agent,  subject  to  any  post-closing
                      documentation requirements imposed by the Agent):

                             (A)    amendment and restatement,  amendment and/or
                                    reaffirmation   of   each   of  the   Pledge
                                    Agreements executed by

                                              47

<PAGE>



                                    the  Borrower or, with respect to the Pledge
                                    Agreement   relating  to  the  Stock  of  NL
                                    Industries  (Deutschland) GmbH pledged by NL
                                    Industries,  executed by NL Industries, each
                                    of  which   amendments   and   restatements,
                                    amendments and/or reaffirmations shall be in
                                    the  applicable   form  attached  hereto  as
                                    EXHIBIT D,  together  with such  agreements,
                                    documents and  instruments as may reasonably
                                    be required by the Agent in connection  what
                                    the Pledge Agreements;

                             (B)    amendment  and/or  reaffirmation  of each of
                                    the  Guaranties  (other  than the  NL/Kronos
                                    Guaranty  which  has been  fully  performed)
                                    executed  by Kronos  Canada,  Inc.,  2927527
                                    Canada Inc. and 2969157 Canada Inc., each of
                                    which amendments and/or reaffirmations shall
                                    be in the applicable form attached hereto as
                                    EXHIBIT E;

                             (C)    Second  Amended and Restated  Technology and
                                    Trademark Undertaking executed by Kronos and
                                    Kronos (US), which agreement shall be in the
                                    form attached hereto as EXHIBIT F;

                             (D)    amendment and restatement,  amendment and/or
                                    reaffirmation  of the Amended  and  Restated
                                    Subordination  and  Contribution   Agreement
                                    executed  by NL  Industries,  Kronos and the
                                    Borrower,  which amendment and  restatement,
                                    amendment and/or  reaffirmation  shall be in
                                    the form attached hereto as EXHIBIT G;

                             (E)    amendment and restatement,  amendment and/or
                                    reaffirmation  of the Amended  and  Restated
                                    Liquidity   Undertaking   executed   by   NL
                                    Industries,  Kronos and the Borrower,  which
                                    amendment and restatement,  amendment and/or
                                    reaffirmation  shall be in the form attached
                                    hereto as EXHIBIT H;

                             (F)    amendment and restatement,  amendment and/or
                                    reaffirmation  of (i) each of the agreements
                                    executed by the Borrower,  NL Industries and
                                    Kronos  pursuant  to which it  appoints  Dr.
                                    Wienand   Meilicke  to  accept   service  of
                                    process   in   Germany   pursuant   to   the
                                    applicable Loan Documents,  and (ii) each of
                                    the  agreements  executed  by  Prentice-Hall
                                    Corporation  System,  Inc. pursuant to which
                                    it agrees to act as agent for the  Borrower,
                                    NL Industries  and Kronos to accept  service
                                    of process in New York pursuant to the

                                              48

<PAGE>



                                    applicable Loan Documents,  which amendments
                                    and    restatements,    amendments    and/or
                                    reaffirmations   shall   be  in   form   and
                                    substance  reasonably  satisfactory  to  the
                                    Agent;

                             (G)    an  Acknowledgment  of Limitation of Special
                                    Damages  executed by Kronos  World  Services
                                    S.A./N.V.,  which acknowledgment shall be in
                                    the form attached hereto as EXHIBIT I;

                             (H)    the NL Guaranty,  which Guaranty shall be in
                                    the form attached hereto as EXHIBIT J;

                             (I)    the Canadian Security  Documents executed by
                                    Kronos Canada, Inc., 2927527 Canada Inc. and
                                    2969157 Canada Inc., which Canadian Security
                                    Documents  shall  be in the  forms  attached
                                    hereto as EXHIBIT K;

                             (J)    the  Nordenham  Mortgage  executed by Kronos
                                    Titan, which Nordenham Mortgage shall secure
                                    only  the   indebtedness,   liabilities  and
                                    obligations  of Kronos Titan relating to the
                                    Kronos Titan Revolving  Portion and shall be
                                    in the form attached hereto as EXHIBIT L;

                             (K)    the Cash Pledge  Agreements  executed by the
                                    Borrower, which Cash Pledge Agreements shall
                                    be in the forms  attached  hereto as EXHIBIT
                                    M;

                             (L)    the  Cash  Pledge  Agreements   executed  by
                                    Kronos Canada, Inc., 2927527 Canada Inc. and
                                    2969157  Canada  Inc.,   which  Cash  Pledge
                                    Agreements  shall be in the  forms  attached
                                    hereto as EXHIBIT N;

                             (M)    a certificate  of the  Secretary,  Assistant
                                    Secretary  or  other  appropriate   officer,
                                    director or other  representative of each of
                                    the   Borrower,    its   Subsidiaries,    NL
                                    Industries,   Kronos  and  Kronos  (US)  (as
                                    applicable) as to the  authorization  of the
                                    Loan Documents to be executed by such Person
                                    pursuant to this  Agreement  and as to other
                                    corporate matters;

                             (N)    a true and correct  photocopy of each of the
                                    Subordinated  Loan  Documents as executed by
                                    all parties thereto, which photocopies shall
                                    be   certified   by  the   Secretary  or  an
                                    Assistant  Secretary  of each of the parties
                                    thereto as being

                                              49

<PAGE>



                                    true,   correct  and  complete   photocopies
                                    thereof,  all  of  which  Subordinated  Loan
                                    Documents  shall  be in form  and  substance
                                    satisfactory to the Agent;

                             (O)    such  legal   opinions  of  counsel  to  the
                                    Borrower and its Subsidiaries and counsel to
                                    the Agent as the Agent may  require,  all of
                                    which   opinions   shall   be  in  form  and
                                    substance  reasonably  satisfactory  to  the
                                    Agent;

                             (P)    such   other   agreements,   documents   and
                                    instruments  relating to the Loan  Documents
                                    and/or the parties  thereto as the Agent may
                                    reasonably request.

            (ii)      Any and all invoiced fees, costs or expenses to be paid or
                      reimbursed,  as of the  Second  Restatement  Date,  by the
                      Borrower  to the  Agent or any Bank with  respect  to this
                      Agreement  or any other Loan  Document or any  transaction
                      contemplated   hereby  or  thereby   (including,   without
                      limitation, charges and expenses for which the Borrower is
                      obligated  pursuant to the Original  Agreement,  the First
                      Restated Agreement and/or this Agreement), shall have been
                      paid in full.

           (iii)      All corporate  proceedings  taken in  connection  with the
                      transactions contemplated by this Agreement, and all legal
                      matters  incident to this  Agreement,  shall be reasonably
                      satisfactory to the Agent.

            (iv)      The  Borrower  shall  have  paid  to the  Agent  all  fees
                      required  to be paid to the Agent or any Bank on or before
                      the Second  Restatement Date pursuant to SECTION 19.01 and
                      SECTION 19.02.

             (v)      The  NL   Subordinated   Loan  shall  have  been  made  in
                      accordance   with  the   terms  and   provisions   of  the
                      Subordinated Loan Documents.

            (vi)      DM  57,287,585  (Deutsche  Mark  Fifty-Seven  Million  Two
                      Hundred Eighty-Seven Thousand Five Hundred Eighty-Five) of
                      the Tax Refund  shall have been drawn under the  Tentative
                      Tax Refund  Availability  Amount of the Revolving  Portion
                      Availability  and paid to the Agent to be  applied  to the
                      Term Portion in accordance with SECTION 8.01(D).

           (vii)      The Agent shall have received (A) from NL  Industries  and
                      for the  account  of the Banks  ratably in  proportion  to
                      their portion of the Loan and for application  against the
                      outstanding  principal  amount of the Term  Portion of the
                      Loan  in  accordance  with  SECTION  2.01(B),  the  Second
                      Prepayment from the proceeds of the NL Subordinated  Loan,
                      and (B) a Solvency Certificate

                                              50

<PAGE>



                      executed by NL Industries  and Kronos,  which  certificate
                      shall be in the form attached hereto as EXHIBIT O.

          (viii)      The Borrower shall have received DM 110,000,000  (Deutsche
                      Mark One  Hundred Ten  Million) of the  proceeds of the NL
                      Subordinated  Loan (i.e.,  the entirety of the proceeds of
                      the  NL   Subordinated   Loan  in  excess  of  the  Second
                      Prepayment Amount) in accordance with SECTION 2.01(B).

        (c)    The Borrower  shall  (except to the extent waived as permitted by
               this  Agreement)  cause  the  conditions  precedent  set forth in
               SECTION 4.01(B) to be satisfied  concurrently with the Borrower's
               execution of this Agreement, and the Borrower shall, concurrently
               with its execution of this Agreement, so certify to the Agent and
               the Banks.

4.02    Each Drawdown of the Revolving Portion  (including,  without limitation,
        the Kronos Titan Revolving Portion) is subject to:

        (a)    no Default having occurred;

        (b)    all  representations  and warranties  made by the Borrower and/or
               any Affiliate in the Loan Documents  being true and correct as of
               the  Drawdown  Date  (other  than  the  representations  and  the
               warranties  that are expressly  made only in reference to another
               specific date);

        (c)    the receipt by the Agent of a notice of borrowing in the form set
               forth in EXHIBIT P ("Notice of Borrowing"),  duly completed,  not
               less than 5 (five)  Business Days prior to the proposed  Drawdown
               Date;

        (d)    the  conditions  that (i)  immediately  prior to giving effect to
               such drawdown,  the outstanding  principal  amount of the Loan is
               not less than DM 100,000  (Deutsche  Mark One Hundred  Thousand),
               (ii)  the  Agent,  as Agent  for the  Banks,  shall  have a first
               priority   perfected  security  interest  in  the  Stock  of  the
               respective  Subsidiaries  pledged under the Pledge  Agreements as
               security  for  the  Loan  (including,   without  limitation,  the
               Revolving  Portion and any reborrowings of the Revolving  Portion
               to be advanced on the date of any drawdown thereof),  which Stock
               shall be free and clear of all Liens  (other  than such  security
               interest  securing  the  Loan)  except  for any  Permitted  Liens
               referred to in CLAUSE (D),  (E), (F) OR (I) of the  definition of
               such term in this  Agreement,  and (iii) the Agent,  as Agent for
               the Banks,  shall have the  additional  Liens as security for the
               Loans (including,  without limitation,  the Revolving Portion and
               any  reborrowings of the Revolving  Portion to be advanced on the
               date of any drawdown  thereof)  provided in SECTION 17.05,  which
               Liens shall have the priority  specified  in such SECTION  17.05;
               and


                                              51

<PAGE>



        (e)    the condition that no Excess  Adjusted  Restricted  Payments have
               been directly or  indirectly  paid or made by the Borrower or any
               of its  Subsidiaries to any Affiliate of the Borrower (other than
               the  Borrower or  Subsidiaries  of the  Borrower)  from and after
               January  1, 1996  (subject  to the 30  (thirty)  day cure  period
               specified  in  the  definition  of  "Excess  Adjusted  Restricted
               Payments").

4.03    Each Notice of Borrowing  shall be irrevocable and the Borrower shall be
        bound to borrow in accordance with such notice.

4.04    Upon the Agent's receipt of each (a) Notice of Borrowing,  (b) notice of
        selection  of a new  Interest  Period  pursuant  to SECTION  5.02 or (c)
        request  that any  tranche be  denominated  (or  redenominated)  in U.S.
        Dollars  pursuant to SECTION 2.05, the Agent shall promptly  notify each
        Bank of the contents thereof and, if applicable, of such Bank's pro rata
        share  of any  advance  of the Loan to be  made.  Furthermore,  upon the
        determination of the interest rate applicable to any tranche,  the Agent
        shall promptly notify each Bank of such interest rate.

                                 ARTICLE 5.  INTEREST PERIODS

5.01    The Loan  proceeds  shall be made  available  to the Borrower in no more
        than 4 (four)  tranches for Interest  Periods of 1 (one),  3 (three),  6
        (six) or 12 (twelve) months with respect to each such tranche, except as
        provided  in SECTION  5.04 and  provided  that the  Borrower  may select
        Interest  Periods of 1 (one) month or 3 (three) months only with respect
        to any tranche  denominated or to be denominated in U.S.  Dollars.  Each
        tranche  shall  be in a  minimum  principal  amount  of  DM  100,000,000
        (Deutsche  Mark  One  Hundred  Million)  and  integral  multiples  of DM
        10,000,000  (Deutsche  Mark  Ten  Million)  in  excess  thereof  (or the
        Equivalent Amount thereof in U.S. Dollars);  provided, however, that any
        tranche  evidencing a reborrowing of the Revolving  Portion  pursuant to
        SECTION  2.04  shall be in a minimum  principal  amount of DM  5,000,000
        (Deutsche  Mark Five  Million)  and  integral  multiples of DM 1,000,000
        (Deutsche Mark One Million) in excess thereof (or the Equivalent  Amount
        thereof  in U.S.  Dollars)  and  provided,  further,  however,  that any
        concurrent  reborrowing  under the Kronos  Titan  Revolving  Portion and
        reborrowing  under the Revolving  Portion that does not  constitute  the
        Kronos Titan  Revolving  Portion shall be aggregated for purposes of the
        immediately  preceding  proviso.  Each tranche shall be  denominated  in
        Deutsche  Mark or, if permitted by SECTION 2.05 and upon  compliance  by
        the Borrower with SECTION 2.05, U.S. Dollars,  provided,  however,  that
        each tranche shall be entirely  denominated  in either  Deutsche Mark or
        U.S. Dollars.

5.02    The Borrower shall inform the Agent no later than 10:00 a.m., Luxembourg
        time,  on the 4th (fourth)  Business  Day prior to the  beginning of the
        relevant  Interest  Period  of the  tenor of the next  Interest  Period,
        including,  without limitation, the duration of such Interest Period and
        the  currency  (whether  Deutsche  Mark or U.S.  Dollars)  in which  the
        tranche  to  be  outstanding  during  such  Interest  Period  is  to  be
        denominated.  Unless the Agent is notified to the contrary by such time,
        the relevant Interest Period shall have a duration of

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<PAGE>



        1 (one) month and the  currency  in which the tranche to be  outstanding
        during  such  Interest  Period  is to be  denominated  shall be the same
        currency  in which the  corresponding  tranche was  denominated  for the
        Interest Period then ending.

5.03    Each Interest  Period for any tranche,  other than the initial  Interest
        Period,  shall commence on the expiration of the  immediately  preceding
        Interest  Period for such tranche.  If an Interest Period would end on a
        day which is not a Business Day, such Interest  Period shall be extended
        to the next succeeding  Business Day unless such day falls into the next
        calendar  month,  in which event such  Interest  Period shall end on the
        immediately  preceding Business Day. If any other date on which interest
        is payable  under this  Agreement  is not a Business  Day,  then payment
        shall be due on the next  succeeding  Business Day unless such day falls
        into the next calendar month, in which event payment shall be due on the
        immediately preceding Business Day.

5.04    The Borrower  may not select an Interest  Period which begins prior to a
        Repayment  Date and ends after such  Repayment Date unless the aggregate
        amount of the tranches which have Interest Periods ending on or prior to
        such  Repayment  Date shall at least equal the  principal  amount of the
        Loan  required  to be  paid  on  such  Repayment  Date.  Notwithstanding
        anything  herein to the  contrary,  the  Borrower may select an Interest
        Period other than one, three or six months, but not to exceed six months
        (subject  to the  ability  of  the  Reference  Banks  to  determine  the
        Interbank  Rate for such  period),  for that  portion of the Loan not in
        excess of the amount of the Loan which is scheduled to come due pursuant
        to ARTICLE 9 within six months of the first day of such Interest  Period
        and which Interest Period shall end on such scheduled Repayment Date.

                                     ARTICLE 6.  INTEREST

6.01    On each Interest  Payment Date,  the Borrower shall pay to the Agent for
        the account of the Banks for the Interest Period ending thereon, accrued
        interest,  on the  applicable  tranche as  provided  in this  Agreement,
        provided,  however, that if any Interest Period is longer than 3 (three)
        months,  accrued  interest shall be payable (a) on the date in the third
        succeeding calendar month numerically  corresponding to the commencement
        date of such Interest  Period,  or, if there exists no date  numerically
        corresponding  to the  commencement  date of such Interest Period in any
        such third succeeding  month,  such accrued interest shall be payable on
        the last Business Day of such third succeeding  calendar month after the
        first day of such Interest Period and (b) on the Interest  Payment Date.
        Interest shall be paid in the currency in which the  applicable  tranche
        is denominated on the applicable Interest Payment Date.

6.02    The rate of interest  applicable  to each tranche of the Loan during any
        Interest  Period  relating  thereto shall be the Interbank Rate plus the
        Margin.


                                              53

<PAGE>



6.03    Interest  payable pursuant to this Agreement shall be calculated for the
        actual  number  of days  elapsed  on the basis of a 360  (three  hundred
        sixty) day year.

6.04    The Agent  shall  promptly  notify  the  Borrower  and each Bank of each
        determination  of  an  interest  rate  made  by  the  Agent  under  this
        Agreement.

6.05    All agreements  between the Borrower,  the Agent and the Banks,  whether
        now  existing or  hereafter  arising and  whether  written or oral,  are
        hereby  limited  so  that  in  no  contingency,  whether  by  reason  of
        acceleration  of the  maturity  of the  Loan  or  otherwise,  shall  the
        interest  contracted for, charged or received by the Agent, the Banks or
        any of them from the  Borrower  exceed the  maximum  amount  permissible
        under  applicable law. If, from any  circumstance  whatsoever,  interest
        would  otherwise  be payable  to the Agent,  the Banks or any of them in
        excess of the maximum lawful amount,  the interest payable to the Agent,
        the  Banks  or any of  them  shall  be  reduced  to the  maximum  amount
        permitted under  applicable law; and if from any circumstance the Agent,
        the Banks or any of them shall ever  receive  anything  of value  deemed
        interest by applicable law in excess of the maximum  lawful  amount,  an
        amount equal to any excessive interest shall be applied to the reduction
        of the principal of the Loan and to the payment of interest,  or if such
        excessive  interest  exceeds the unpaid  principal  balance of the Loan,
        such excess  shall be refunded to the  Borrower.  All  interest  paid or
        agreed to be paid to the Agent,  the Banks or any of them shall,  to the
        extent  permitted by applicable law, be amortized,  prorated,  allocated
        and  spread  throughout  the full  period  until  payment in full of the
        principal  (including the period of any renewal or extension  hereof) so
        that the  interest on the Loan for such full period shall not exceed the
        maximum amount permitted by applicable law. This paragraph shall control
        all  agreements  between the  Borrower,  the Agent,  the Banks or any of
        them.

                                 ARTICLE 7.  SUBSTITUTE BASIS

7.01    If any of the following should occur:

        (a)    the  Reference  Banks  determine and notify the Agent that, at or
               about 11:00 a.m. (London time) on the Interest Determination Date
               for an Interest  Period,  no Deutsche  Mark  deposits  (as to the
               portion of the Loan proposed to be  denominated in Deutsche Mark)
               or no U.S.  Dollar  deposits  (as to the portion of the  proposed
               Loan to be  denominated in U.S.  Dollars) in the required  amount
               for  the  required  Interest  Period  are  being  offered  to the
               Reference   Banks  by  prime   banks  in  the  London   interbank
               Euro-currency market;

        (b)    before  the  close of  business  in  Luxembourg  on the  Interest
               Determination  Date for an Interest  Period,  the Majority  Banks
               determine  and  notify  the  Agent  that the  rate at which  such
               deposits  were being so offered does not  accurately  reflect the
               cost to them of obtaining such deposits; or


                                              54

<PAGE>



        (c)    the Reference Banks shall determine and notify the Agent that, by
               reason  of   circumstances   affecting   the   London   interbank
               Euro-currency  market generally,  such deposits are not available
               to banks in such market or that adequate and reasonable  means do
               not  or  will  not  exist  for  ascertaining  the  interest  rate
               applicable to the next succeeding Interest Period;

        then,  notwithstanding  the  provisions  of  ARTICLES 5 and 6, the Agent
        shall  forthwith  give notice of any such event to the Borrower and each
        Bank.

7.02    With  respect to the  circumstances  described  in  SECTIONS  7.01(A) or
        7.01(B) above,  the Borrower may, subject to the rights of the Agent and
        the Banks pursuant to SECTION 2.06(E):

        (a)    elect to prepay  the  applicable  portion  of the  Loan,  without
               premium  or  penalty,  at the end of the  then  current  Interest
               Period; or

        (b)    select an alternative Interest Period, to the extent available as
               determined by the Reference  Banks 2 (two) Business Days prior to
               the  first day of the next  succeeding  Interest  Period,  during
               which  Interest  Period  the  applicable  interest  rate  for the
               applicable  portion of the Loan shall be the  Interbank  Rate, if
               available  for  such  alternative   Interest  Period,   plus  the
               applicable Margin; or

        (c)    request  that the  Agent,  on behalf  of the  Banks,  enter  into
               negotiations  regarding the  applicable  interest  rate, in which
               event the Interest Period for the applicable  portion of the Loan
               shall be one month and during such Interest  Period the Agent, on
               behalf of the Banks,  and the  Borrower  shall  negotiate in good
               faith to agree upon an interest rate that will adequately reflect
               the cost to the Banks of  maintaining  or funding the  applicable
               portion of the Loan for such Interest Period, and if the Borrower
               and  the  Majority  Banks  (662/3%)  are  able to  agree  on such
               interest  rate,  the  interest  rate  that  shall  apply  to  the
               applicable  portion of the Loan for such Interest Period shall be
               the sum of the applicable Margin and the interest rate so agreed.
               If the Borrower and the Agent, on behalf of the Banks, are unable
               to  agree  upon an  interest  rate by the  day  which  is 2 (two)
               Business  Days before the end of the  one-month  Interest  Period
               referred to above, the interest rate that shall apply to the Loan
               for such Interest  Period shall be (i) the rate determined by the
               Agent to be the arithmetic mean (rounded  upwards,  if necessary,
               to the nearest four decimal  places) per annum of the  respective
               rates  notified to the Agent by each Reference Bank as that which
               expresses  as a  percentage  rate  per  annum  the  cost  to such
               Reference Bank of obtaining such deposits from such sources as it
               may  select  having  reasonable  regard to the  interests  of the
               Borrower, plus (ii) the applicable Margin.


                                              55

<PAGE>



7.03    With respect to  circumstances  described in SECTION 7.01(C) above,  the
        duration of such next succeeding  Interest Period shall be one month or,
        if the  period  until the next  Repayment  Date is less than one  month,
        shall end on the next Repayment Date and,  during such Interest  Period,
        the  Borrower  and the Agent,  on behalf of the Banks and subject to the
        consent of the Majority Banks (662/3%), shall negotiate in good faith in
        order  to  redenominate  the  applicable  portion  of  the  Loan  in  an
        alternative  currency  which is freely  convertible  into  Deutsche Mark
        (which alternative  currency may include,  without limitation,  Deutsche
        Mark as to the portion of the Loan  proposed to be  denominated  in U.S.
        Dollars) and in which deposits are available to the Reference  Banks for
        determining the interest rate from time to time applicable  thereto (but
        excluding  any  such  currency  for  which  any  central  bank or  other
        governmental authorization in the country of issue is required to permit
        use of such  currency by a Bank for lending  hereunder,  if such authori
        zation  has not  been  obtained  and any  currency  the use of  which as
        contemplated  hereunder  is  restricted  or  prohibited  pursuant to any
        request,   directive,   regulation  or  guideline  of  any  governmental
        authority  (whether  or not having the force of law) with which any Bank
        is  accustomed  to act),  and the interest  rate that shall apply to the
        applicable portion of the Loan for such Interest Period shall be the sum
        of the  applicable  Margin  and the  interest  rate for the  alternative
        currency  so agreed.  If the  Borrower  and the Agent,  on behalf of the
        Banks and with the consent of the Majority Banks (662/3%), are unable to
        agree  on  such  alternative  currency  or an  interest  rate  for  such
        alternative  currency by the day which is 2 (two)  Business  Days before
        the end of the Interest  Period  referred to above,  the Borrower  shall
        repay the applicable  portion of the Loan together with accrued interest
        thereon at the rate  determined by the Agent to be the  arithmetic  mean
        (rounded  upwards,  if necessary to the nearest four decimal  places) of
        the  respective  rates  notified to the Agent by each  Reference Bank as
        being that which  expresses as a  percentage  rate per annum the cost to
        such  Reference  Bank of obtaining such deposits from such sources as it
        may select  having  reasonable  regard to the interests of the Borrower,
        plus the applicable  Margin, on the next Interest Payment Date,  without
        premium or penalty except as otherwise provided in SECTION 12.04.

7.04    During the period when any alternative  interest rate or Interest Period
        or  redenomination  of the Loan or any applicable  portion thereof is in
        force pursuant to SECTION 7.02 or 7.03 above, the Agent, in consultation
        with the Banks, shall periodically review whether circumstances are such
        that an  Interbank  Rate may  again be  determined  in  accordance  with
        ARTICLES 5 and 6. If such a  determination  may again be made, the Agent
        shall  forthwith  give written  notice  thereof to the Borrower and each
        Bank and the Interbank  Rate, plus the applicable  Margin,  shall be the
        applicable  interest  rate  commencing  with the  beginning  of the next
        Interest Period for the Loan or the applicable portion thereof.

                                    ARTICLE 8.  PREPAYMENT

8.01    From and after the  Prepayment  Date,  the Borrower shall make mandatory
        prepayments of the Loan as follows:

                                              56

<PAGE>




        (a)    An amount equal to the Net Proceeds  (with respect to CLAUSES (2)
               and (3) below, only to the extent that the aggregate Net Proceeds
               exceed DM 15,000,000  (Deutsche Mark Fifteen  Million) during any
               calendar year, from:

               (1)    the Disposition by the Borrower or any of its Subsidiaries
                      of any Stock of any Subsidiary, other than:

                      (i)    Dispositions  of Stock  of any of the  Subsidiaries
                             from  the  Borrower  to  any  Subsidiary,   from  a
                             Subsidiary    to   the    Borrower,    or   between
                             Subsidiaries; or

                      (ii)   Dispositions which constitute  Restricted  Payments
                             permitted  in  accordance  with  SECTION  16.20  or
                             Dispositions  permitted in accordance  with SECTION
                             16.15(C);

               (2)    the Disposition by the Borrower or any of its Subsidiaries
                      of any assets, individually or in the aggregate, or of any
                      Stock of any Subsidiary  (other than a Major Subsidiary or
                      a Pledged Subsidiary), other than:

                      (i)    Dispositions  of assets in the  ordinary  course of
                             business;

                      (ii)   Dispositions  from the Borrower to any  Subsidiary,
                             from  a  Subsidiary  to  the  Borrower  or  between
                             Subsidiaries;

                      (iii)  Dispositions which constitute  Restricted  Payments
                             permitted  in  accordance  with  SECTION  16.20  or
                             Dispositions  permitted in accordance  with SECTION
                             16.15(C);

                      (iv)   Dispositions which constitute  interest payments on
                             Subordinated  Debt  permitted  in  accordance  with
                             SECTION 16.09(D);

                      (v)    Dispositions  or other events  described in CLAUSES
                             (1) or (3) of SECTION 8.01(A); or

                      (vi)   Dispositions  prior to the Second  Restatement Date
                             of   the   distributorship/marketing   arrangements
                             existing as of the First  Restatement  Date between
                             Rheox,  Inc.  and/or its  subsidiaries  and certain
                             Subsidiaries of the Borrower; and/or

               (3)    the   Disposition,   termination,   shortening   or  other
                      modification  of the  Leverkusen  Lease  or any  agreement
                      providing for the Disposition,  termination, shortening or
                      other modification of the Leverkusen Lease;

                                              57

<PAGE>



               shall be used,  to the  extent  permitted  by law,  to prepay the
               Loan,  without  premium or penalty except as set forth in SECTION
               12.04, on the Interest Payment Date(s) immediately  following the
               receipt by the Borrower or any  Subsidiary  of such Net Proceeds,
               in accordance with SECTION 8.01(B).  If the Net Proceeds from the
               aforementioned  Dispositions  described  in CLAUSES (2) or (3) of
               this  SECTION  8.01(A) or from other  transactions  described  in
               CLAUSE (3) of this SECTION 8.01(A) exceed DM 15,000,000 (Deutsche
               Mark Fifteen  Million) in any calendar year, or, if there are any
               Net Proceeds from the  aforementioned  Dispositions  described in
               CLAUSE (1) of this SECTION  8.01(A),  then the Borrower  shall in
               accordance  with SECTION  8.01(B) make a mandatory  prepayment in
               cash  equal to the  amount of such  excess in the case of CLAUSES
               (2) and (3) or equal to the  amount of such Net  Proceeds  in the
               case of CLAUSE (1), in each case  whether or not the Net Proceeds
               are comprised of cash or non-cash proceeds.  For purposes of this
               SECTION  8.01(A),  the value of the  non-cash  proceeds  received
               shall be determined in good faith by the chief financial  officer
               of the Borrower.

        (b)    Amounts payable under SECTION 8.01(A) shall be deposited promptly
               into an interest  bearing  account  maintained in the name of the
               Banks  with the  Agent  for the  benefit  of the  Banks and shall
               remain on deposit with the Agent until the next Interest  Payment
               Date(s),  at which  time  such  amounts  together  with  interest
               thereon  shall be applied at the  Borrower's  request to interest
               or, on a  pro-rata  basis,  to  reduce  the  remaining  Repayment
               Installments of the Term Portion or, after such  installments are
               paid in full, to permanently reduce the Revolving Portion.

        (c)    On the Interest Payment Date(s) immediately following delivery of
               the financial statements in accordance with SECTION 16.01(A), the
               Borrower shall prepay the Loan, without premium or penalty except
               as set forth in SECTION 12.04, in an amount equal to 70% (seventy
               percent)  of the  amount  by  which  Excess  Cash  Flow  for  the
               immediately preceding fiscal year exceeds DM 20,000,000 (Deutsche
               Mark Twenty Million); provided, however, that this sentence shall
               apply only to Excess  Cash Flow for  fiscal  year 1996 and fiscal
               years prior thereto. On the earlier to occur of (a) 5 (five) days
               after the date upon which  EBITDA for the  immediately  preceding
               fiscal  year  (commencing  with the  fiscal  year  1997) has been
               finally  determined or (b) 90 (ninety) days after the immediately
               preceding  fiscal year end, the  Borrower  shall prepay the Loan,
               without  premium or penalty except as set forth in SECTION 12.04,
               in an amount equal to 70% (seventy  percent) of Excess EBITDA for
               the immediately  preceding fiscal year. In addition, on or before
               March 31,  1997,  the  Borrower  shall  prepay the Loan,  without
               premium or penalty  except as set forth in SECTION  12.04,  in an
               amount  equal  to the  amount  (if  any) by  which  EBITDA  of NL
               Industries  and its  subsidiaries  for fiscal  year 1996  exceeds
               $140,000,000  (One  Hundred  Forty  Million  Dollars).  All  such
               prepayments shall be applied to the Repayment Installments of the
               Term Portion in the inverse order

                                              58

<PAGE>



               of  the   maturities   of  such   installments   or,  after  such
               installments  are  paid  in  full,  to  permanently   reduce  the
               Revolving Portion.

        (d)    An amount  equal to the amount of each  payment  received  by the
               Borrower with respect to the Tax Refund at any time shall be used
               by the  Borrower to prepay the Loan,  without  premium or penalty
               except as set forth in SECTION  12.04,  on the  Interest  Payment
               Date(s)  immediately   following  the  date(s)  upon  which  such
               payment(s)  is (are)  received by the Borrower.  Amounts  payable
               under this SECTION  8.01(D)  shall be deposited  promptly into an
               interest bearing account maintained in the name of the Banks with
               the Agent  for the  benefit  of the  Banks  and  shall  remain on
               deposit until the next Interest  Payment  Date(s),  at which time
               such amounts together with interest thereon shall be applied,  on
               a pro-rata basis, to reduce the remaining Repayment  Installments
               of the Term Portion or, after such installments are paid in full,
               to  permanently  reduce  the  Revolving  Portion.   The  Borrower
               represents  and  warrants  to the Agent  and the  Banks  that all
               amounts drawn under the Tentative Tax Refund  Availability Amount
               prior to the Second Restatement Date have been used to pay German
               income taxes or have been paid to the Agent and applied to reduce
               the  Revolving  Portion in  accordance  with  paragraph  2 of the
               Tentative Tax Refund Letter. Accordingly, the Borrower, the Agent
               and the Banks hereby agree that (although the Final Determination
               Date may not yet have  occurred)  DM  77,287,585  (Deutsche  Mark
               Seventy-Seven  Million Two  Hundred  Eighty-Seven  Thousand  Five
               Hundred  Eighty-Five)  shall be deemed to be the remaining amount
               of the Tax  Refund  received  by the  Borrower  as of the  Second
               Restatement  Date and not  previously  applied to prepay the Term
               Portion and that, on the Second  Restatement  Date, DM 57,287,585
               (Deutsche  Mark  Fifty-Seven  Million  Two  Hundred  Eighty-Seven
               Thousand  Five  Hundred  Eighty-Five)  of the Tax Refund shall be
               drawn under the Tentative Tax Refund  Availability  Amount of the
               Revolving Portion Availability and applied to the Term Portion in
               accordance with this SECTION 8.01(D) and DM 20,000,000  (Deutsche
               Mark  Twenty  Million) of the  proceeds of the Second  Prepayment
               shall be applied  to the Term  Portion  in  accordance  with this
               SECTION 8.01(D). As of the Second Restatement Date, DM 20,000,000
               (Deutsche  Mark  Twenty  Million)  of the  Tentative  Tax  Refund
               Availability  Amount  shall be deemed to have been  cancelled  by
               virtue of the  reduction in the maximum  principal  amount of the
               Revolving Portion from DM 250,000,000  (Deutsche Mark Two Hundred
               Fifty  Million)  to DM  230,000,000  (Deutsche  Mark Two  Hundred
               Thirty Million).

        (e)    On March 15, 2000,  the Borrower  shall prepay,  and  permanently
               reduce,  the Revolving Portion in an amount equal to the positive
               remainder (if any) of (i) the then  outstanding  principal amount
               of the Revolving Portion minus (ii) DM 125,000,000 (Deutsche Mark
               One Hundred Twenty-Five Million).


                                              59

<PAGE>



        (f)    Upon the  occurrence  of a "Change of  Control",  as such term is
               defined in either of the Indentures,  the Borrower shall promptly
               so notify the Agent and each of the Banks of such  occurrence and
               shall  (whether or not the Borrower  complies with its obligation
               to give such notice) prepay the Loans, and all accrued and unpaid
               interest  thereon to the date of the  prepayment,  in full on the
               date upon which the  holders  of any of the NL Notes may  receive
               prepayment  of any of the NL Notes as a result of such  Change of
               Control  (assuming such holders elect to receive such  prepayment
               but  whether or not such  holders so elect)  unless the  Majority
               Banks  (662/3%)  shall  have  expressly   waived  such  right  of
               prepayment  on or before the date upon which such  prepayment  is
               required to be made.

        (g)    On or  before 2 (two)  Business  Days  after the last day of each
               calendar  month upon which the  aggregate  cash  balances  of the
               Borrower and its Subsidiaries (excluding any cash balances of the
               Borrower and its Canadian  Subsidiaries  which are pledged to the
               Agent as security for the Loans and  excluding  U.S.  Dollar cash
               balances  held in the  ordinary  course  of  business)  exceed DM
               40,000,000  (Deutsche  Mark  Forty  Million)  (or the  equivalent
               amount in any  currency),  the  Borrower  shall  prepay,  without
               premium or  penalty  except as set forth in  SECTION  12.04,  the
               outstanding  principal  amount of the  Revolving  Portion  by the
               entire amount of such excess;  provided,  however,  that the cash
               balances  held by the Borrower  immediately  prior to a Repayment
               Date or a date upon which payments are required to be made on the
               Mirror Notes which are to be applied and are actually  applied to
               make  repayments  of the Loan or such  required  payments  on the
               Mirror  Notes,  respectively,  shall be excluded  for purposes of
               determining   the  cash   balances  of  the   Borrower   and  its
               Subsidiaries  pursuant to this SECTION  8.01(G).  For purposes of
               this SECTION  8.01(G) and SECTION 16.40,  "cash  balances"  shall
               mean the aggregate of the collected cash balance in bank accounts
               (net of checks issued and  uncleared),  other cash  (exclusive of
               petty cash  maintained  in  reasonable  amounts  in the  ordinary
               course of  business)  and  Temporary  Cash  Investments.  Amounts
               payable under this SECTION  8.01(G)  shall be  deposited,  within
               such 2 (two)  Business  Days,  into an interest  bearing  account
               maintained  in the  name of the  Banks  with  the  Agent  for the
               benefit of the Banks and shall  remain on deposit  with the Agent
               until  the next  Interest  Payment  Date(s),  at which  time such
               amounts  together with  interest  thereon shall be applied to the
               Revolving Portion as provided herein.  The Borrower covenants and
               agrees  that  it  will  not,  and  will  not  permit  any  of its
               Subsidiaries  to, convert  non-U.S.  Dollar cash balances to U.S.
               Dollar cash balances except to the extent reasonably necessary in
               the ordinary conduct of their business.

        (h)    On the Second  Restatement  Date,  the Borrower  shall prepay the
               Loan,  without  premium or penalty except as set forth in SECTION
               12.04, in the amount of DM 130,000,000 (Deutsche Mark One Hundred
               Thirty Million). Such prepayment

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               shall  be  applied  to the  Repayment  Installments  of the  Term
               Portion  in  the  direct   order  of  the   maturities   of  such
               installments.

8.02    The Borrower may make optional prepayments (including the portion of the
        First  Prepayment  applied  toward the  Revolving  Portion  pursuant  to
        SECTION 2.01(A) and optional prepayments deemed made with funds provided
        by NL Industries and/or Kronos resulting from capital contributions made
        or Subordinated Debt, other than the Kronos Subordinated Loan and the NL
        Subordinated  Loan,  extended  by NL  Industries  and/or  Kronos  to the
        Borrower) as follows:

        On giving not less than 5 (five) days prior written notice to the Agent,
        the  Borrower  may prepay all or any part (but in any case not less than
        DM 5,000,000  (Deutsche  Mark Five  Million) (or the  Equivalent  Amount
        thereof in U.S.  Dollars)  and in  integral  multiples  of DM  1,000,000
        (Deutsche  Mark One Million) (or the  Equivalent  Amount thereof in U.S.
        Dollars) in excess  thereof per  prepayment) of the Loan on any Interest
        Payment Dates, without premium or penalty,  except as otherwise provided
        in SECTION 12.04, provided that:

        (a)    except as expressly permitted by SECTION 2.04 with respect to the
               Revolving Portion,  each prepayment made under this Agreement may
               not be reborrowed under this Agreement;

        (b)    unless the Borrower  expressly  informs the Agent,  in connection
               with  the  aforesaid  notice  of  such   prepayment,   that  such
               prepayment  shall  be  applied  to  the  Revolving  Portion,  any
               prepayment  under  this  SECTION  8.02  shall be  applied  to the
               outstanding Repayment Installments of the Term Portion in inverse
               order of the maturities of such installments; and

        (c)    notice of prepayment  given by the Borrower  shall be irrevocable
               and the Borrower shall be bound to prepay in accordance with each
               such notice.

8.03    To the extent that the amounts  available to prepay the Loan pursuant to
        SECTIONS 8.01 or 8.02 shall exceed the principal of the tranche relating
        to the immediately  following  Interest Payment Date, such amounts shall
        be applied to prepay the principal of such tranche and the remainder, if
        any, shall be applied to prepay the principal of the tranche relating to
        the next  immediately  following  Interest Payment Date or Dates, as the
        case may be,  until  all  amounts  allocated  for  prepayment  have been
        applied.  The  requirement  that  prepayments  be applied pro rata under
        SECTION  8.01(B) or 8.01(D),  in inverse order of maturity under SECTION
        8.01(C) and SECTION  8.02 or in direct order of maturity  under  SECTION
        8.01(H) shall not be affected by the fact that  prepayments  may be made
        on an Interest Payment Date which is also a Repayment Date.


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                                     ARTICLE 9.  REPAYMENT

        Subject to the  prepayment  provisions  set forth in ARTICLE 8, the Term
Portion shall be repaid in 6 (six)  installments  due and payable on each of the
following Repayment Dates in the following amounts:

       REPAYMENT DATE           REPAYMENT INSTALLMENT

       March 15, 1997           DM 50,000,000

       September 15, 1997       DM 50,000,000

       March 15, 1998           DM 75,000,000

       September 15, 1998       DM 75,000,000

       March 15, 1999           DM 100,000,000 minus 50% (fifty percent) of the
                                Excess Term Prepayment (if any)

       September 15, 1999       DM 100,000,000 minus 50% (fifty percent) of the
                                        Excess Term Prepayment (if any)

Subject to the  prepayment  provisions  set forth in  ARTICLE  8, the  Revolving
Portion  (which shall be reduced to DM  105,000,000  (Deutsche  Mark One Hundred
Five  Million)  on March 15,  2000)  shall be repaid  (as  provided  in  SECTION
8.01(E))  on March 15,  2000 to the extent  necessary  to cause the  outstanding
principal  amount  of  the  Revolving  Portion,  after  giving  effect  to  such
repayment, to equal DM 105,000,000 (Deutsche Mark One Hundred Five Million), and
shall be repaid in full on  September  15,  2000.  All  amounts  owed under this
Agreement with respect to the Term Portion shall be due and payable on or before
September  15, 1999,  in accordance  with the terms of this  Agreement,  and all
amounts owed under this Agreement with respect to the Revolving Portion shall be
due and payable on or before September 15, 2000, in accordance with the terms of
this Agreement.

        After  giving  effect  to the  mandatory  prepayments  to be made on the
Second  Restatement Date pursuant to SECTIONS 8.01(D) and 8.10(H) (including the
Second  Prepayment),   (a)  the  Repayment  Installments  of  the  Term  Portion
previously (immediately prior to the Second Amendment Date) due on each of March
15, 1997,  September  15, 1997,  and March 15, 1998 shall have been paid in full
and (b) the Repayment  Installments of the Term Portion previously  (immediately
prior to the Second Amendment Date) due on each of September 15, 1998, March 15,
1999, and September 15, 1999, shall have been paid in part.  Accordingly,  after
giving effect to such prepayments,  the remaining outstanding Term Portion shall
be payable in 3 (three)  installments due and payable on the following Repayment
Dates in the following amounts:


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               REPAYMENT DATE           REMAINING REPAYMENT INSTALLMENT
 
               September 15, 1998       DM 48,751,048

               March 15, 1999           DM 70,785,415

               September 15, 1999       DM 68,713,415

                                 ARTICLE 10.  EVIDENCE OF DEBT

10.01   Each  Bank  shall  maintain,  in  accordance  with its  usual  practice,
        accounts  evidencing  the amounts from time to time lent by and owing to
        it under this Agreement,  including such amounts with respect to each of
        the Term Portion and the  Revolving  Portion,  which  accounts  shall be
        prima facie  evidence of such amounts.  Such amounts shall be designated
        in Deutsche Mark or U.S. Dollars, as appropriate,  and, if designated in
        U.S.  Dollars,  shall  also  be  designated  in the  corresponding  Base
        Deutsche Mark Amount.

10.02   The Agent  shall  maintain  on its books an  account  in which  shall be
        recorded:

        (a)    the amount of the Loan (and the currency in which each portion of
               the Loan is  denominated  or  redenominated  from  time to time),
               including  the  amount  of  each  of the  Term  Portion  and  the
               Revolving Portion  outstanding from time to time, and each Bank's
               share therein;

        (b)    the amount of any principal or interest due or to become due from
               the Borrower to the Banks under this  Agreement (and the currency
               in which such amount is denominated or redenominated from time to
               time) with respect to each of the Term Portion and the  Revolving
               Portion and each Bank's share therein; and

        (c)    the amount of any sum received or recovered by the Agent (and the
               currency  in  which  such  amount  is  denominated)   under  this
               Agreement and each Bank's share therein.

10.03   In any legal action or proceeding  arising out of or in connection  with
        this Agreement,  the entries made in the accounts maintained pursuant to
        SECTIONS  10.01 and 10.02 shall be prima facie evidence of the existence
        and amounts of the obligations and the payments of the Borrower  therein
        recorded.  In the case of any conflict between  accounting under SECTION
        10.01 and 10.02,  the  accounts of each Bank under  SECTION  10.01 shall
        control.

                                     ARTICLE 11.  PAYMENTS

11.01   Any and all  payments by the  Borrower  and/or  Kronos  Titan under this
        Agreement  shall be made without  setoff or  counterclaim,  and free and
        clear of and without  deduction for any and all present or future taxes,
        levies,   imposts,   deductions,   charges  or  withholdings,   and  all
        liabilities  with respect  thereto,  whether under U.S. or German law or
        otherwise,

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        excluding,  in the case of each Bank and the Agent, taxes imposed on its
        overall net income and franchise taxes imposed on it by the jurisdiction
        under  the laws of which  such Bank or the Agent (as the case may be) is
        organized or any political  subdivision thereof and, in the case of each
        Bank,  taxes  imposed on its  overall  net income  and  franchise  taxes
        imposed on it by the  jurisdiction  of such Bank's Lending Office or any
        political  subdivision  thereof (all such excluded taxes being hereunder
        referred to as "Excluded Taxes" and all such non-excluded taxes, levies,
        imposts,  deductions,   charges,   withholdings  and  liabilities  being
        hereinafter referred to as "Taxes"). If the Borrower and/or Kronos Titan
        shall be required by law (whether U.S. or German or otherwise) to deduct
        any Taxes from or in respect of any sum payable hereunder to any Bank or
        the Agent,

        (a)    and if the deductions are the result of a change in circumstances
               after May 30, 1990 of the type described in CLAUSE (1) of SECTION
               14.01(A),  the sum payable shall be increased as may be necessary
               so that, after making all required  deductions,  such Bank or the
               Agent (as the case may be) receives an amount equal to the sum it
               would have received had no such deductions been made;

        (b)    the Borrower and/or Kronos Titan shall make such deductions; and

        (c)    the  Borrower  and/or  Kronos  Titan  shall  pay the full  amount
               deducted to the relevant taxation authority or other authority in
               accordance with applicable law.

        Any Bank  claiming  any  additional  amounts  payable  pursuant  to this
        SECTION 11.01 shall use reasonable efforts (consistent with its internal
        policy and legal and regulatory restrictions) to transfer its portion of
        the Loan to a  Lending  Office  in  another  jurisdiction  where no such
        deductions are required.  The Borrower and/or Kronos Titan shall forward
        promptly  to the Agent  official  receipts of the  relevant  taxation or
        other authority or other evidence acceptable to the respective recipient
        of the amount deducted or withheld as described above,  when and as such
        receipts or other  evidence are made  available  to the Borrower  and/or
        Kronos Titan by the relevant authority.

11.02   From time to time upon the request of the Borrower,  Kronos Titan or the
        Agent,

        (a)    each Bank organized under the laws of a jurisdiction  outside the
               United  States shall  provide the Agent and the  Borrower  and/or
               Kronos  Titan  with a  certificate,  signed by an officer of each
               such  Bank,  stating  that  payments  to be  made  to  such  Bank
               hereunder are expected,  in the reasonable judgment of such Bank,
               to be exempt from United States  withholding tax, if such Bank is
               so  exempt,  and the forms (if any)  prescribed  by the  Internal
               Revenue Service of the United States certifying as to such Bank's
               status; and

        (b)    each  Bank  organized  under the laws of a  jurisdiction  outside
               Germany  shall  provide the Agent and the Borrower  and/or Kronos
               Titan with a certificate, signed by an

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<PAGE>



               officer of each such Bank,  stating  that  payments to be made to
               such Bank hereunder are expected,  in the reasonable  judgment of
               such Bank, to be exempt from German withholding tax, if such Bank
               is  so  exempt,   and  the  forms  (if  any)  prescribed  by  the
               appropriate  German  governmental tax authority  certifying as to
               such Bank's status.

        Unless  the  Borrower,  Kronos  Titan or the Agent (as  applicable)  has
        received forms or other  documents  satisfactory  to it indicating  that
        payments   hereunder   are  not  subject  to  United  States  or  German
        withholding tax, as applicable,  the Borrower, Kronos Titan or the Agent
        (as applicable)  shall,  unless the Borrower,  Kronos Titan or the Agent
        (as  applicable)  determines  that  no  such  withholding  is  required,
        withhold  taxes from such payments at the  applicable  statutory rate in
        the case of  payments to or for any Bank  organized  under the laws of a
        jurisdiction  outside  the  United  States or the  Federal  Republic  of
        Germany,  as the  case  may be.  If any Bank  fails  to  furnish  to the
        Borrower,  Kronos  Titan or the  Agent  (as  applicable)  forms or other
        documents  necessary for claiming exemption from United States or German
        withholding  tax, then payments to such Bank shall be net of any amounts
        the Borrower,  Kronos Titan or the Agent (as  applicable) is required to
        withhold under applicable law, provided,  however, that, notwithstanding
        anything in this Agreement to the contrary,  any Bank that is subject to
        withholding as a result of a change in circumstances occurring after May
        30,  1990 of the type  described  in SECTION  14.01 shall be entitled to
        payments pursuant to SECTION 11.01(A).

        Each Bank hereby  represents  and  warrants to the  Borrower  and Kronos
        Titan that,  on the date that it became or becomes a Bank in  accordance
        with the terms of the Original  Agreement,  the First Restated Agreement
        or this  Agreement,  respectively  (as may be  applicable),  its Lending
        Office was or is  entitled  to receive  payments  of  principal  of, and
        interest on, Loans made by such Bank from such  Lending  Office  without
        withholding  or  deduction  for or on  account  of Taxes  imposed by the
        United  States  of  America,   Germany  or  any   respective   political
        subdivisions of the United States of America or Germany.

11.03   If the Borrower  and/or  Kronos Titan makes an increased  payment to any
        Bank  pursuant  to  SECTION  11.01  and  such  Bank  determines  in  its
        reasonable  discretion  that it has  received  or been  granted a credit
        against or relief or remission for, or payment of tax paid or payable by
        it in  respect of or  calculated  with  reference  to the  deduction  or
        withholding giving rise to such payment,  such Bank shall, to the extent
        that  it can in its  sole  discretion  do so  without  prejudice  to the
        retention of the amount of such credit, relief,  remission or repayment,
        pay to the Borrower and/or Kronos Titan (as  applicable)  such amount as
        such Bank shall have  calculated to be attributable to such deduction or
        withholding. If Taxes are incorrectly or illegally paid or assessed, and
        if any Bank or the Agent  contests  the  payment or  assessment  of such
        Taxes,  such Bank or the Agent shall refund, to the extent of any refund
        made to such Bank or the Agent,  any amounts paid by the Borrower and/or
        Kronos  Titan  under  SECTION  11.01 in respect of such  Taxes.  Amounts
        payable pursuant

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<PAGE>



        to this  SECTION  11.03 shall be paid  within 30 (thirty)  days from the
        date of receipt of the relevant refund by such Bank or the Agent (as the
        case may be).

11.04   All payments to be made by the Borrower  and/or  Kronos Titan under this
        Agreement  shall be made in the appropriate  currency  (Deutsche Mark or
        U.S.  Dollars,  as applicable)  and in immediately  available  funds not
        later than 10:00 a.m.  (local time at Munich) on the date upon which the
        relevant  payment is due, (a) with respect to payments in Deutsche Mark,
        to the Agent's account no.  6450025141  with  Bayerische  Hypotheken-und
        Wechselbank AG, Munich, or (b) with respect to payments in U.S. Dollars,
        to the Agent's  account no. 001 1 329 026 with The Chase  Manhattan Bank
        N.A.,  New York,  or (in either  case) to such other bank and account as
        the Agent  may from  time to time  designate  by  written  notice to the
        Borrower and/or Kronos Titan (as  applicable).  All payments  (including
        prepayments)  of  principal  or  interest  accrued  with  respect to the
        Revolving  Portion  of the Loans  shall be  applied  (i)  first,  to the
        payment of interest accrued with respect to the Revolving  Portion other
        than the Kronos Titan Revolving  Portion (until such interest is paid in
        full), (ii) second,  to the payment of the outstanding  principal amount
        of the Revolving  Portion other than the Kronos Titan Revolving  Portion
        (until such principal is paid in full),  (iii) third,  to the payment of
        interest  accrued  with respect to the Kronos  Titan  Revolving  Portion
        (until such interest is paid in full),  and (iv) fourth,  to the payment
        of the  outstanding  principal  of the Kronos  Titan  Revolving  Portion
        (until such principal is paid in full).

11.05   All payments to be made by the Agent to the Borrower  (or,  with respect
        to advances  under the Kronos Titan  Revolving  Portion,  Kronos  Titan)
        under this Agreement shall be made not later than 10:00 a.m. (local time
        at Munich) on the date upon which the  relevant  payment is due and,  at
        the risk of the Borrower (and, with respect to advances under the Kronos
        Titan Revolving Portion,  Kronos Titan), remitted to, in the case of the
        Borrower,  an account in Munich or  Luxembourg  maintained  at  Hypobank
        International S.A. or an affiliate of Hypobank  International S.A. which
        is pledged to secure the Loans in  accordance  with SECTION 16.40 or, in
        the case of Kronos Titan, an account of Kronos Titan.

11.06   Each Bank shall make available to the Agent in the appropriate  currency
        (Deutsche  Mark or U.S.  Dollars,  as the case may be) as the  Agent may
        from time to time designate its portion of the Loan  hereunder  prior to
        10:00 a.m.  (local time at Munich) on the Drawdown Date or, with respect
        to any  redenomination  of any advance  pursuant to SECTION 2.06, on the
        first day of the next succeeding Interest Period, as the case may be, to
        such  account  as the  Agent  may from  time to time  designate  for the
        account of the Borrower  and/or Kronos Titan (as  applicable).  Not less
        than 2 (two)  Business Days prior to the  effective  date of any initial
        advance of the Loan in U.S. Dollars, each Bank shall notify the Agent of
        the  identity  and  location  of the  Lending  Office  for such  Bank in
        relation to all advances and payments to be denominated in U.S.  Dollars
        in the event that such  Lending  Office is  different  from the  Lending
        Office previously designated for the

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        Loan,  provided,  however,  that (a) each Bank shall utilize the Lending
        Office  previously  designated for the Loan unless it is prohibited from
        doing so by applicable regulatory  requirements,  (b) if the use of such
        previously  designated Lending Office is so prohibited,  such Bank shall
        use its best  efforts to use a Lending  Office  entitled to an exemption
        from United  States and German  withholding  taxes (but no Bank shall be
        required to establish an office or branch or obtain any authorization to
        engage in banking activities in any jurisdiction in order to be entitled
        to any exemption  from United States  withholding  taxes),  and (c) such
        Bank shall give written  notice to the Borrower  and/or Kronos Titan (as
        applicable)  if it is unable to utilize  its Lending  Office  previously
        designated for the Loan and if its Lending Office  utilized for the Loan
        is not entitled to an exemption from U.S. and German  withholding taxes,
        and further  provided that the Borrower shall not be in any way relieved
        of any  obligation  to gross up any  payments to be made to the Agent or
        any Bank under this  Agreement.  All advances to be made by each Bank in
        U.S. Dollars shall be made available  through the Lending Office of such
        Bank so designated for advances in U.S. Dollars.

11.07   Except for  payments  received  by the Agent for its  account or for the
        account of a specific Bank in accordance with this Agreement,  the Agent
        shall  promptly  distribute  in like  funds and  currency  each  payment
        received by it for the  account of the Banks  ratably in  proportion  to
        their  portion  of the Loan or,  as the  case may be,  their  respective
        Commitments.

11.08   Where an amount is to be made  available  under  this  Agreement  by the
        Agent to a  Person,  the Agent  shall  not be bound to make such  amount
        available  to such  Person  until the  Agent has been able to  establish
        whether or not such amount has been made available to the Agent.  If the
        Agent makes an amount  available  to the  Borrower  and/or  Kronos Titan
        which has not,  but should have,  been made  available to the Agent by a
        Bank, the Borrower  and/or Kronos Titan (as  applicable)  shall (without
        prejudice to any rights the Borrower and/or Kronos Titan (as applicable)
        may have  against that Bank) refund that amount to the Agent on request.
        If the Agent  makes an amount  available  to a Bank  which has not,  but
        should have,  been made  available  to the Agent by the Borrower  and/or
        Kronos Titan,  that Bank shall  (without  prejudice to any rights it may
        have against the Borrower  and/or Kronos Titan,  as  applicable)  refund
        that amount to the Agent on a date to be  determined  by the Agent after
        consultation with such Bank. Where, in accordance with the foregoing, an
        amount is to be  refunded to the Agent,  the Agent in addition  shall be
        indemnified by the Person who has failed to make an amount  available as
        required  under this  Agreement  against any  reasonable  interest costs
        actually  incurred  and paid by the Agent by reason of any lapse of time
        between the date on which the amount was made available to any Person by
        the Agent and the date on which the amount was  refunded to the Agent in
        full (including,  without limitation,  any interest paid by the Agent in
        respect  of funds  borrowed  by the Agent in order to fund  such  amount
        during such period).

11.09   Any currency  specified in accordance  with this Agreement  shall be the
        currency  of  account  and  of  payment  in  all  events.   The  payment
        obligations  of the  Borrower and Kronos  Titan  hereunder  shall not be
        discharged by an amount paid in another currency, whether

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        pursuant  to a judgment or  otherwise,  to the extent that the amount so
        paid upon  conversion by the Agent or the Banks (as  applicable)  to the
        specified  currency under normal and reasonable  banking procedures does
        not yield at the place when  payment is due the amount of the  specified
        currency due hereunder. In the event that any payment by or on behalf of
        the Borrower  and/or  Kronos  Titan,  whether  pursuant to a judgment or
        otherwise,  upon such  conversion  and after the  deduction of all fees,
        costs and expenses  relating  thereto does not result in payment of such
        amount of the specified  currency at the place payment is due, the Agent
        and each Bank shall be  entitled  to receive  from the  Borrower  and/or
        Kronos Titan (as applicable),  and shall have a separate cause of action
        for,   the   deficiency   in  respect  of  the  payments  due  to  each,
        respectively.

                          ARTICLE 12.  DEFAULT INTEREST AND INDEMNITY

12.01   In the event of a failure by the  Borrower to pay any sum on the date on
        which  such  sum is due  and  payable  pursuant  to this  Agreement  and
        irrespective  of any  notice  by the  Agent or any  other  Person to the
        Borrower in respect of such failure,  the Borrower shall pay interest on
        such sum,  on  demand,  from the date of such  failure up to the date of
        actual  payment  (both  after  and  before  any  judgment)  at the rate,
        increased by the sum of the Margin plus 2% (two percent),  determined by
        the Agent to be the arithmetic mean (rounded upwards,  if necessary,  to
        the nearest four decimal  places) of the rates  notified to the Agent by
        the  Reference  Banks to be those at which  deposits in Deutsche Mark or
        U.S.  Dollars  as  the  Agent  may  select  in  its  discretion   (after
        consultation  with the Banks) for such period as the Agent may select in
        its  discretion  (after  consultation  with the Banks) are so offered to
        each Reference Bank by prime banks in the London interbank Euro-currency
        market at or about 11:00 a.m.  (London time) for value 2 (two)  Business
        Days after the Business  Day  immediately  succeeding  that on which the
        Agent  becomes  aware  of such  failure  and,  so  long  as the  failure
        continues, such rate shall be recalculated on the same basis thereafter,
        provided that:

        (a)    if any Reference  Bank is unable or otherwise  fails to furnish a
               quotation  for the purposes of this SECTION  12.01,  the interest
               rate  shall  be  determined  on the  basis  of  the  quotation(s)
               furnished by the remaining Reference Bank(s); and

        (b)    if for any such period,  none of the Reference  Banks was offered
               deposits in the required amount and for the required period,  the
               rate of interest applicable thereto shall be the weighted average
               (having  regard to the  respective  portions  of such unpaid sum)
               (rounded  upwards,  if  necessary  to the  nearest  four  decimal
               places) per annum of the  respective  rates notified to the Agent
               by each  Reference  Bank  as  being  that  which  expresses  as a
               percentage  rate per  annum  the cost to such  Reference  Bank of
               obtaining such deposits from such sources as it may select having
               reasonable regard to the interests of the Borrower.

        Interest  accruing  under this SECTION 12.01 shall be due and payable at
        the end of each period by reference to which it is calculated.


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12.02   Without prejudice to the foregoing and irrespective of any notice by the
        Agent or any other Person to the  Borrower in respect of the  Borrower's
        failure to make any payment  when due or in respect of any other  matter
        relating to this SECTION 12.02,  the Borrower shall  indemnify the Agent
        and  the  Banks  against  any  and  all  damages,   losses  or  expenses
        (including,  without  limitation,  losses  incurred  in  paying  default
        interest or in  liquidating  or employing  deposits  from third  parties
        acquired  to  make,  fund or  maintain  the  Loan or any  part  thereof,
        including  interest and penalties on unpaid Taxes, if any, and including
        losses on foreign currency  exchanges,  if any, with respect to portions
        of the Loan denominated in U.S.  Dollars) which any of them may properly
        and  reasonably  sustain or incur as a consequence of (a) the failure by
        the  Borrower  to borrow  pursuant to any Notice of  Borrowing,  (b) the
        failure by the Borrower to pay any sum,  including  Taxes,  if any, when
        due and payable under this Agreement upon the occurrence of any Event of
        Default,  (c) the  funding  of the Loan or any  portion  thereof in U.S.
        Dollars as opposed to Deutsche Mark or (d) the liquidation or employment
        of amounts borrowed or contracted for relating to, or the termination or
        unwinding of any contract  entered into in order to fund,  an advance in
        U.S. Dollars requested by the Borrower that, by reason of the occurrence
        of any event specified in SECTION 7.01, is not funded as requested.

12.03   If for the  purposes  of  filing  a claim  or  proof  for  obtaining  or
        enforcing  any  judgment in any court,  it is necessary to convert a sum
        due under this  Agreement in Deutsche Mark or U.S.  Dollars (as the case
        may be) (the  "Original  Currency")  into another  currency  (the "Other
        Currency"),  the parties  hereto agree,  to the fullest extent that they
        may  effectively do so, that the rate of exchange used shall be the rate
        of  exchange  offered by any one or more of the  Reference  Banks to the
        Agent,  in respect of the relevant  sums, at which,  in accordance  with
        normal banking procedures,  the Agent could purchase the greatest amount
        of the Original  Currency with the Other Currency at or about 11:00 a.m.
        in London on the Business Day preceding  that on which final judgment is
        given.  The  obligation of the Borrower in respect of any sum due in the
        Original  Currency from it to any Bank or the Agent under this Agreement
        shall, notwithstanding any judgment in any Other Currency, be discharged
        only to the extent that on the  Business Day  following  receipt by such
        Bank or the Agent (as the case may be) of any sum  adjudged to be so due
        in such Other Currency,  such Bank or the Agent (as the case may be) may
        in  accordance  with normal  banking  procedures  purchase  the Original
        Currency  with  such  Other  Currency.  If the  amount  of the  Original
        Currency so purchased is less than the sum  originally  due to such Bank
        or the Agent (as the case may be) in the Original Currency, the Borrower
        agrees, as a separate  obligation and notwithstanding any such judgment,
        to  indemnify  immediately  such  Bank or the Agent (as the case may be)
        against  such  loss,  and if the  amount  of the  Original  Currency  so
        purchased  exceeds the sum  originally  due to any Bank or the Agent (as
        the case may be) in the  Original  Currency,  such Bank or the Agent (as
        the case may be) agrees to remit to the Borrower such excess.  The above
        indemnity shall constitute a separate and independent  obligation of the
        Borrower from its other obligations under this Agreement and shall apply
        irrespective of any grace period granted by the Agent or the Banks.


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12.04   Any prepayment or repayment of principal made under this  Agreement,  if
        made otherwise than on an Interest  Payment Date relative to the amounts
        prepaid or repaid,  shall be made together with accrued interest thereon
        and such  additional  amount as each Bank may  certify as  necessary  to
        compensate it for any damages or losses incurred or to be incurred by it
        in  connection  with such  prepayment  or repayment  (including  loss of
        Margin and losses on account of funds borrowed in order to make, fund or
        maintain  its  proportion  of the Loan or any part  thereof  prepaid  or
        repaid).

                      ARTICLE 13.  SET-OFF AND REDISTRIBUTION OF PAYMENTS

13.01   Upon the occurrence  and during the  continuance of any Event of Default
        specified in SECTION 18.01 consisting of the failure to pay principal of
        the Loan or any portion thereof and subject to the prior written consent
        of the Agent or the Majority Banks or upon the occurrence and during the
        continuance of any Event of Default and the acceleration of the maturity
        of the Loan  pursuant  to the  provisions  of ARTICLE  18,  each Bank is
        hereby  authorized  at any time and from  time to time,  to the  fullest
        extent  permitted  by law,  to set off and  apply  any and all  deposits
        (general or special,  time or demand,  provisional or final) at any time
        held  and  other  indebtedness  at any time  owing by such  Bank (at any
        office or branch) to or for the  credit or the  account of the  Borrower
        against all or any portion of the Loan outstanding  under this Agreement
        and other amounts payable hereunder. Each Bank agrees promptly to notify
        the Borrower after any such set-off and  application  made by such Bank,
        provided  that the  failure  to give such  notice  shall not  affect the
        validity of such set-off and application.  The rights of each Bank under
        this ARTICLE 13 are in addition to other rights and remedies (including,
        without  limitation,  other rights of set-off) which such Bank may have.
        Each Bank agrees that if it shall, by exercising any right of set-off or
        counterclaim  or  otherwise,  receive  payment  of a  proportion  of the
        aggregate  amount of  principal  and  interest  due with  respect to any
        portion  of the Loan  held by it which is  greater  than the  proportion
        received  by any  other  Bank in  respect  of the  aggregate  amount  of
        principal  and interest due with respect to any portion of the Loan held
        by such other Bank,  the Bank  receiving  such  proportionately  greater
        payment  shall  purchase such  participation  in the portion of the Loan
        held by the other Banks,  and such other  adjustments  shall be made, as
        may be required so that all such payments of principal and interest with
        respect to the Loans held by the Banks  shall be shared by the Banks pro
        rata; provided that nothing in this ARTICLE 13 shall impair the right of
        any Bank to exercise  any right of set-off or  counterclaim  it may have
        and to apply the  amount  subject  to such  exercise  to the  payment of
        indebtedness  hereunder.  Subject to SECTION 13.02 hereof,  the Borrower
        agrees,  to the fullest  extent such holder may  effectively do so under
        applicable law, that any holder of a participation in a Loan, whether or
        not acquired pursuant to the foregoing arrangements, may exercise rights
        of  set-off  or  counterclaim  and other  rights  with  respect  to such
        participation  as  fully as if such  holder  of a  participation  were a
        direct  creditor of the  Borrower  in the amount of such  participation.
        Anything herein to the contrary notwithstanding, nothing in this ARTICLE
        13 shall impair the right of the Borrower to receive  notice and to have
        the opportunity to cure certain Events of Default as provided in ARTICLE
        18 or otherwise prior to the declaration of an acceleration of maturity.

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13.02   Except for payments to a Bank from the Agent which were  received by the
        Agent for the account of such Bank in accordance  with the provisions of
        this  Agreement,  if any  Bank  shall  at any time  receive  payment  or
        satisfaction of all or a part of its share of the Loan, interest thereon
        or any other amount payable hereunder,  whether by setoff,  counterclaim
        or otherwise, in a proportion which, in relation to any amounts received
        by any other  Bank or Banks at the same time,  represents  more than its
        percentage  participation  in the Loan,  then such Bank shall notify the
        Agent  thereof  and shall pay to the Agent not later  than 10 (ten) days
        after request by the Agent for account of the other Banks such amount as
        determined  by the Agent as will  ensure  that each Bank will  receive a
        proportion of such payment equal to its percentage participation.

13.03   In the event  that at any time any Bank shall be  required  to refund to
        the  Borrower  any amount  which has been paid to or  received  by it by
        set-off,  counterclaim  or otherwise on account of any part of the Loan,
        interest  thereon or any other amount  payable  hereunder  and which has
        been paid to any other Bank pursuant to this ARTICLE 13, such other Bank
        shall repay a  proportionate  amount of the amounts so refunded  without
        interest.

13.04   The  Borrower  and  the  Banks  expressly  agree  that  payments  by  or
        recoveries from the Borrower shall be distributed in accordance with the
        provisions  of this  ARTICLE 13 without the need for further  consent or
        the completion of any other formalities whatsoever.

13.05   If a Bank is required to make any payment to any other Bank  pursuant to
        this ARTICLE 13, then,  subject to SECTION  13.02,  the liability of the
        Borrower to the Bank making such payment under this  Agreement  shall be
        treated as not having been reduced by the amount of such payment and the
        liability of the Borrower to any Bank  receiving  such payment  shall be
        treated as having been reduced by the amount of the payment  received by
        such Bank.

                       ARTICLE 14.  CHANGE OF CIRCUMSTANCES; ILLEGALITY;
                                     RESERVE REQUIREMENTS

14.01   Change of Circumstances

        (a)    If, after May 30, 1990, the adoption of any applicable  law, rule
               or  regulation,  or any  change  therein,  or any  change  in the
               interpretation or  administration by any governmental  authority,
               central bank or comparable agency charged with the interpretation
               or  administration  thereof,  or  compliance  by any Bank (or its
               Lending  Office)  with any request or  directive  (whether or not
               having the force of law) of any such  authority,  central bank or
               comparable agency:

               (1)    shall subject any Bank (or its Lending Office) to any tax,
                      duty or  other  charge  with  respect  to the  Loan or its
                      obligation  to make such  Loan,  or any part  thereof,  or
                      shall change the basis of taxation of payments to any Bank
                      (or its Lending Office) of the principal of or interest on
                      its Loan, or any

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<PAGE>



                      part  thereof,   or  any  other  amounts  due  under  this
                      Agreement in respect of its Loan or its obligation to make
                      the Loan,  or any part thereof  (except for changes in the
                      rate of tax on the  overall net income of such Bank or its
                      Lending Office imposed by the  jurisdiction  in which such
                      Bank's  principal  executive  office or Lending  Office is
                      located); or

               (2)    shall  impose,  modify  or deem  applicable  any  reserve,
                      special  deposit  or  similar   requirement,   (including,
                      without  limitation,  any such requirement  imposed by the
                      Federal  Reserve)  against assets of, deposits with or for
                      the  accounts  of, or credit  extended by any Bank (or its
                      Lending  Office)  or  shall  impose  on any  Bank  (or its
                      Lending  Office)  or on the  London  interbank  market any
                      other  condition  affecting its Loan, or any part thereof,
                      or  other   indebtedness   under  the   Agreement  or  its
                      obligations to make the Loan;

               and the result of any of the foregoing is to increase the cost to
               such Bank (or its Lending  Office) of making or  maintaining  the
               Loan, or any portion thereof,  or to reduce the amount of any sum
               received or receivable by such Bank (or its Lending Office) under
               this Agreement with respect  thereto,  then,  within 15 (fifteen)
               days after  demand by such Bank (with a copy to the  Agent),  the
               Borrower  shall pay  promptly  for the  account of such Bank such
               additional  amount or  amounts as will  compensate  such Bank for
               such increased  cost or reduction.  Such Bank shall submit to the
               Borrower  and the  Agent a  certificate  showing,  in  reasonable
               detail, the calculation of the amount of such increased cost.

        (b)    If,  after  May  30,  1990,  the  adoption  of any  law,  rule or
               regulation  of  any  general   applicability   regarding  capital
               adequacy,   or  any  change   therein,   or  any  change  in  the
               interpretation  or  administration   thereof  by  a  governmental
               authority,  central bank or  comparable  agency  charged with the
               interpretation or administration thereof, or compliance by a Bank
               (or its Lending  Office) with any request or directive  regarding
               capital adequacy  (whether or not having the force of law) of any
               such  authority,  central bank or comparable  agency  (including,
               without  limitation,  and whether  promulgated  or made before or
               after  the  Second   Restatement   Date,  any  law,   regulation,
               interpretation,  guideline or request  contemplated by the report
               dated July 1988 entitled  "International  Convergence  of Capital
               Measurement and Capital  Standards" issued by the Basle Committee
               on Banking Regulations and Supervisory Practices),  shall, in the
               determination  of a Bank, have the effect of reducing the rate of
               return of such  Bank's  capital to a level  below that which such
               Bank could have  achieved  as a  consequence  of its  obligations
               hereunder but for such  adoption,  change or  compliance  (taking
               into  consideration  such Bank's policies with respect to capital
               adequacy), by an amount deemed by such Bank to be material in its
               sole and absolute  discretion,  then,  within 15  (fifteen)  days
               after  demand  by  such  Bank  (with a copy  to the  Agent),  the
               Borrower shall pay to such Bank such additional amount or amounts
               as will compensate such Bank for such reduction.


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        (c)    Each Bank will notify the Borrower and the Agent  promptly of any
               event  of which  it has  knowledge,  occurring  after  the  First
               Restatement  Date,  which will entitle such Bank to  compensation
               pursuant  to this  SECTION  14.01 and will  designate a different
               Lending  Office if such  designation  will avoid the need for, or
               reduce the  amount of,  such  compensation  and will not,  in the
               judgment of such Bank, be otherwise disadvantageous to such Bank.
               A  certificate  of any  Bank  claiming  compensation  under  this
               SECTION 14.01 and setting forth the additional  amount or amounts
               to be paid to it under this Agreement  shall be conclusive in the
               absence of manifest error.

        (d)    Upon the  occurrence  of any of the events  described  in SECTION
               14.01(A)  or (B),  the  Borrower  may prepay  without  premium or
               penalty except as otherwise provided in SECTION 12.04 such Bank's
               portion of the Loan  together with all interest  accrued  thereon
               and all fees and other amounts  (including  amounts payable under
               SECTION 14.01(A) or (B) above) payable to such Bank hereunder, on
               giving not less than 10 (ten) days  prior  written  notice to the
               Agent.  Such Bank's Commitment shall be canceled on the giving of
               such notice.

14.02   ILLEGALITY

        (a)    Notwithstanding  anything  to  the  contrary  contained  in  this
               Agreement,  if any change in law,  regulation or treaty or in the
               interpretation or application  thereof after May 30, 1990, by any
               authority charged with the  administration  thereof shall make it
               unlawful  for any Bank to make,  fund or maintain  its portion of
               the  Loan   (although   such  Bank  may  lawfully   maintain  its
               Commitment)  or to give  effect to its  obligations  through  its
               Lending Office as contemplated hereby, such Bank may give written
               notice  thereof to the Agent to be  forwarded by the Agent to the
               Borrower  and the other Banks.  Before  giving such notice to the
               Agent,  such  Bank,  to the  reasonable  extent  possible,  shall
               designate a different  Lending  Office if such  designation  will
               avoid the need for giving such notice.

        (b)    Until  such Bank  notifies  the  Borrower  and the Agent that the
               circumstances  of the type described  above no longer exist,  the
               obligation  of such Bank to make its portion of the Loan shall be
               suspended  and the Borrower  may, at its option,  terminate  such
               Bank's Commitment, by notice to such Bank and to the Agent, to be
               given  within 30  (thirty)  days  after the date of notice by the
               Agent to the Borrower, as provided above.

        (c)    If such Bank shall determine that it may not lawfully continue:

               (1)    to maintain and fund its portion of the  outstanding  Loan
                      to maturity; and

               (2)    to  maintain  its  Commitment  to  maturity,  and shall so
                      specify in such notice, the Borrower shall prepay, without
                      premium or penalty except as otherwise provided in SECTION
                      12.04, forthwith (or if permitted by law, on the next

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                      following  Interest  Payment Date) such Bank's  portion of
                      the Loan,  together with all interest  accrued thereon and
                      all fees and other amounts payable to such Bank under this
                      Agreement.  Such Bank's  obligations  under this Agreement
                      and its Commitment shall be canceled on the giving of such
                      notice.

14.03   RESERVE REQUIREMENTS

        The  Borrower  shall pay to the Agent for the  account of each Bank,  so
        long as such Bank shall be  required  under  regulations  of the Federal
        Reserve to  maintain  reserves  with  respect to  liabilities  or assets
        consisting  of  or  including  Eurocurrency  Liabilities,   interest  in
        addition to the applicable  interest rate plus the applicable  Margin on
        the  unpaid  principal  amount  of the  applicable  portion  of the Loan
        advanced by such Bank,  from the date of such Loan until such  principal
        amount is paid in full,  an amount  equal to an interest  rate per annum
        equal at all times to the remainder obtained by subtracting (i) the rate
        (not including the applicable  Margin) for the Interest  Period for such
        Loan,  from (ii) the rate  obtained by dividing  the rate  described  in
        CLAUSE  (I) of this  SECTION  14.03 by a  percentage  equal to 100% (one
        hundred percent) minus the Eurocurrency Rate Reserve  Percentage of such
        Bank for such Interest Period, payable on each date on which interest is
        payable.  A certificate of each Bank setting forth in reasonable  detail
        the  calculation of the amount of such increased  costs and such amounts
        as shall be necessary to compensate  such Bank for such costs,  shall be
        delivered  to the Borrower  and the Agent.  The Borrower  shall pay each
        Bank the amount shown as due on any such certificate  within 30 (thirty)
        days after its receipt of the same.

        Each Bank that became a "Bank" pursuant to the Original  Agreement prior
        to the  Primary  Syndication  Completion  Date waives the right to claim
        additional amounts based upon reserve requirements in effect on the date
        it became a Bank;  provided,  however,  that such  waiver does not apply
        with  respect to  reserve  requirements  to which such Bank is  entitled
        pursuant to Regulation D.

                          ARTICLE 15.  REPRESENTATIONS AND WARRANTIES

        The Borrower  represents and warrants as of the Second  Restatement Date
(which  representations  and  warranties  shall be deemed to be  repeated on the
first day of each  Interest  Period)  and as of the date of each  advance of the
Revolving  Portion  existing  during the term of this  Agreement  (except to the
extent such  representations and warranties are expressly made only in reference
to another specific date) that:

15.01   CORPORATE EXISTENCE OF BORROWER AND SUBSIDIARIES

        The Borrower is a corporation  duly organized,  validly  existing and in
        good standing  under the laws of the State of Delaware with a registered
        office in the Federal  Republic of Germany.  The Borrower has  corporate
        power and authority to own its assets and carry on business as it is now
        being conducted in the United States and the Federal Republic of

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        Germany.  Each of the Subsidiaries is a corporation or limited liability
        company  duly  organized  and  validly  existing  under  the laws of its
        respective  jurisdiction of incorporation,  with the corporate power and
        authority  to own its  assets and carry on  business  as it is now being
        conducted.

15.02   POWER AND AUTHORITY OF BORROWER

        The  Borrower  had,  at the  time  of  its  execution  of  the  Original
        Agreement,  the First  Restated  Agreement and the other Loan  Documents
        executed  in  connection  with  the  Original  Agreement  and the  First
        Restated Agreement, the necessary corporate power and authority to enter
        into the Original Agreement,  the First Restated Agreement and such Loan
        Documents  to which it is a signatory  and to exercise its rights and to
        perform its obligations under the Original Agreement, the First Restated
        Agreement  and  such  other  Loan  Documents,  and has  duly  taken  all
        corporate  action  required to authorize  the execution and delivery of,
        and the performance of its obligations  under,  the Original  Agreement,
        the First Restated  Agreement and such Loan Documents.  The Borrower has
        the necessary corporate power and authority to enter into this Agreement
        and the other Loan Documents  executed in connection with this Agreement
        to which it is a signatory and to exercise its rights and to perform its
        obligations  under this Agreement and such Loan Documents,  and has duly
        taken all  corporate  action  required to authorize  the  execution  and
        delivery  of,  and  the  performance  of  its  obligations  under,  this
        Agreement and such Loan Documents.

15.03   POWER AND AUTHORITY OF PLEDGORS AND GUARANTORS

        Each of the Pledgors has the necessary  corporate power and authority to
        enter  into  its  respective   Pledge   Agreement  and  to  perform  its
        obligations under its respective  Pledge  Agreement,  and has duly taken
        all  corporate  action  required to authorize the execution and delivery
        of, and the performance of its obligations  under, its respective Pledge
        Agreement;  and each  Guarantor  has the necessary  corporate  power and
        authority  to enter into its  respective  Guaranty  and to  perform  its
        obligations  under  its  respective  Guaranty,  and has duly  taken  all
        corporate  action  required to authorize  the execution and delivery of,
        and the performance of its obligations under, its respective Guaranty.

15.04   RANK OF INDEBTEDNESS

        The claims of the Agent and the Banks  against the  Borrower  under this
        Agreement  will rank  senior in  respect of  priority  of payment to any
        Subordinated  Debt  and will  rank at least  pari  passu in  respect  of
        priority of payment with all other  present and future  Indebtedness  of
        the  Borrower  (excluding  rights of  secured  parties  with  respect to
        Permitted Liens).  As of the Second  Restatement Date, under the laws in
        force in the jurisdiction of incorporation of each of the Guarantors and
        in the jurisdiction of its principal place(s) of business, the claims of
        the Agent and the Banks  against  the  Guarantors  under the  respective
        Guaranties  will rank at least  pari passu in  respect  of  priority  of
        payment with

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        all present and future Indebtedness of the Guarantors  (excluding rights
        of secured  parties with respect to Permitted  Liens) subject to matters
        described on SCHEDULE 4.

15.05   NO CONDITIONS TO PERFORMANCE AND ENFORCEABILITY

        As of the Second  Restatement  Date,  under the laws in force, all acts,
        conditions   and  things  have  been  done,   fulfilled  and  performed,
        including, without limitation, obtaining all authorizations, permits and
        consents, and making all filings and registrations, in order:

        (a)    to enable the Borrower,  Guarantor and Pledgors lawfully to enter
               into, to exercise  rights under and to perform and to comply with
               their respective obligations under the Loan Documents; and

        (b)    to ensure that the  obligations  assumed under the Loan Documents
               are legal, valid,  binding and enforceable except as set forth on
               SCHEDULE 4.

15.06   NO FILINGS; NO STAMP TAXES

        As of the Second  Restatement  Date,  under the laws in force, it is not
        necessary in order to be legal, valid,  binding and enforceable (subject
        to matters described in SCHEDULE 4):

        (a)    that the Original Agreement,  the First Restated Agreement,  this
               Agreement or any of the other Loan  Documents  (except the Pledge
               Agreement  for Societe  Industrielle  du Titane,  S.A.) be filed,
               recorded or  enrolled  with any court or other  authority  in any
               jurisdiction; or

        (b)    that any  stamp,  registration  or  similar  tax be paid on or in
               relation to the Original Agreement, the First Restated Agreement,
               this Agreement or any other Loan  Documents,  except such actions
               or payments  that have been taken as of the date of the  Original
               Agreement  or the First  Restated  Agreement  or, with respect to
               this Agreement and the Loan Documents executed in connection with
               this Agreement, as of the Second Restatement Date.

15.07   LEGAL, VALID AND ENFORCEABLE OBLIGATIONS

        The Loan Documents have been duly executed and delivered by the Borrower
        and its Subsidiaries who are signatories  thereto, and each of such Loan
        Documents is a legal,  valid and binding  obligation  of such entity and
        enforceable  against such entity in accordance  with the terms  thereof,
        except to the extent  that  enforcement  may be  limited by  bankruptcy,
        insolvency,  reorganization,  moratorium or other similar laws affecting
        the  enforcement  of  creditors'  rights  generally and by principles of
        equity and except as set forth in SCHEDULE 4. The execution and delivery
        of the Loan Documents by the Borrower, and its Subsidiaries, as the case
        may be, who are signatories thereto, do not contravene any provisions of
        the  Certificate  of   Incorporation   and  By-Laws,   or  corresponding
        constitutive  documents  by  whatever  name,  of  the  Borrower  or  its
        Subsidiaries.

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15.08   BANKRUPTCY

        Neither the Borrower nor any of its Subsidiaries has taken any corporate
        action nor have any other  steps been  taken or legal  proceedings  been
        started or (to the best of the  Borrower's  knowledge  and belief)  been
        threatened  against any of the Borrower or any of its  Subsidiaries  for
        the winding-up,  dissolution,  administration or reorganization (in each
        such case under bankruptcy or insolvency laws) or for the appointment of
        a receiver,  administrator,  administrative receiver, trustee or similar
        officer  of it or  them  or of any or all  of  its or  their  assets  or
        revenues,  except the  dissolution of  Subsidiaries  which are not Major
        Subsidiaries  with  respect to which  notice is or has been given to the
        Agent.

15.09   NO DEFAULTS; NO LITIGATION

        Neither the Borrower nor any of its  Subsidiaries  is in breach of or in
        default  under any  agreement to which it is a party or which is binding
        on it or any of its or their  assets,  which  breach  or  default  could
        reasonably be expected to have a Material Adverse Effect on the Borrower
        and its  Consolidated  Subsidiaries,  taken as a whole; and no action or
        administrative  proceeding  before any court,  arbitration  tribunal  or
        governmental agency has been commenced or, to the Borrower's  knowledge,
        threatened against the Borrower or any Subsidiary,  or any assets of any
        of them, in which an adverse  decision  could  reasonably be expected to
        have a Material  Adverse  Effect on the  Borrower  and its  Consolidated
        Subsidiaries,  taken  as a whole.  As of the  Second  Restatement  Date,
        SCHEDULE 5 sets forth a summary  of each such  action or  administrative
        proceeding before any court, arbitration tribunal or governmental agency
        pending or, to the knowledge of the Borrower,  threatened in writing, as
        of the Second  Restatement Date which action or proceeding may result in
        liability to the Borrower  and/or any  Subsidiary in an amount in excess
        of  DM  10,000,000  (Deutsche  Mark  Ten  Million).  As  of  the  Second
        Restatement  Date,  except as may be set forth on SCHEDULE 5, neither NL
        Industries  nor Kronos nor any other  Affiliate  of the  Borrower  is in
        breach of or  default  under  any of (a) the  Indentures  or the  senior
        secured notes or senior  secured  discount notes issued by NL Industries
        thereunder,  (b) the "First-Tier  Senior Mirror Note" or the "First-Tier
        Discount  Mirror Note" (as such terms are defined in the  Indentures) or
        (c) the Mirror Notes issued by the Borrower.

15.10   ENVIRONMENTAL COMPLIANCE

        (a)    Each of the Borrower and its Subsidiaries is in compliance in all
               respects with all applicable  Environmental Laws except where the
               failure to do so would not have a Material  Adverse Effect on the
               Borrower and its Consolidated Subsidiaries, taken as a whole;

        (b)    Except  where the failure to do so or absence  thereof  would not
               have  a  Material   Adverse   Effect  on  the  Borrower  and  its
               Consolidated  Subsidiaries,  taken  as a  whole,  (1) each of the
               Borrower  and its  Subsidiaries  has  obtained or applied for all
               environmental,  health and  safety  permits  necessary  for their
               respective operations;

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               (2) with  respect to all such permits  which have been  obtained,
               all such permits are in good standing other than those which have
               expired as to which  applications  for renewal or  extension  are
               pending;  (3) with  respect to all such  permits  which have been
               obtained,  each  of  the  Borrower  and  its  Subsidiaries  is in
               compliance in all material respects with all terms and conditions
               of such permits;  and (4) with respect to those permits for which
               applications  are  pending or renewals  or  extensions  have been
               requested, neither the Borrower nor any of its Subsidiaries is in
               violation  of any  applicable  law for the  failure  to have such
               permit in good standing;

        (c)    Neither the Borrower nor any of its Subsidiaries nor any of their
               respective properties or operations nor, to the best knowledge of
               the Borrower,  any of their formerly owned or operated properties
               are subject to any  outstanding  written  notice or order from or
               agreement  with  any  state,   federal,   foreign,   territorial,
               provincial,  local or other court or governmental authority,  nor
               subject to any judicial or administrative  proceeding  respecting
               any  Environmental  Law,  the  result  of  which  notice,  order,
               agreement or proceeding  would have a Material  Adverse Effect on
               the Borrower and its Consolidated Subsidiaries, taken as a whole;
               and

        (d)    Except as  described  on SCHEDULE 5, there are no  conditions  or
               circumstances  associated  with any property or operations of the
               Borrower  or any  Subsidiary  or,  to the best  knowledge  of the
               Borrower,  property formerly owned or operated by the Borrower or
               any Subsidiary or any of their  predecessors or former operations
               of the  Borrower  or  its  Consolidated  Subsidiaries,  including
               offsite   disposal   practices,   which   could   give   rise  to
               Environmental Claims that would have a Material Adverse Effect on
               the Borrower and its Consolidated Subsidiaries, taken as a whole.
               As of the Second  Restatement  Date,  SCHEDULE 5 also sets forth,
               for  each  site  or  location,   a  brief   description   of  all
               Environmental Claims involving amounts in excess of DM 10,000,000
               (Deutsche  Mark Ten  Million)  (or the  equivalent  amount in any
               currency).

15.11   FINANCIAL STATEMENTS

        The consolidated  and  consolidating  group financial  statements of the
        Borrower  and  its  Subsidiaries  as of  December  31,  1995  and  as of
        September  30,  1996,  respectively,  and for the year and  period  then
        ended, present fairly, in all material respects,  the consolidated group
        financial  position  and results of  operations  of the Borrower and its
        Subsidiaries  as of such dates and for such  periods,  all in conformity
        with German GAAP,  and neither the Borrower nor any of its  Subsidiaries
        had any material  liabilities as of December 31, 1995 or as of September
        30, 1996 (as  applicable),  which are not  reflected  in such  financial
        statements.


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15.12   NO MATERIAL ADVERSE CHANGE

        Since the preparation of the consolidated group financial  statements of
        the Borrower and its  Subsidiaries  as of September 30, 1996,  there has
        been no change which has had a Material  Adverse  Effect on the Borrower
        and its Consolidated Subsidiaries, taken as a whole.

15.13   ACCURATE INFORMATION

        The financial  projections for the Borrower and NL Industries  contained
        in the projection  package dated January 15, 1997, were prepared in good
        faith based on assumptions believed by the management of the Borrower to
        be reasonable as of such date.

15.14   NO VIOLATION, DEFAULTS OR LIENS

        The execution and delivery by the Borrower and its Subsidiaries,  as the
        case may be, of the Loan  Documents  and the exercise by the Borrower of
        its rights,  and the performance by the Borrower and its Subsidiaries of
        their respective  obligations,  under the Loan Documents will not result
        in:

        (a)    the creation of or require the imposition of any Lien in favor of
               any Person other than the Agent and/or the Banks; or

        (b)    the  existence of any event of default  (howsoever  called) under
               any agreement or contract to which the Borrower or any Subsidiary
               is a party or by which any of them or their  properties are bound
               which event of default  would have a Material  Adverse  Effect on
               any Company; or

        (c)    the  violation  of any  law or  regulation,  or by any  judgment,
               decree or order,  applicable to the Borrower or its  Subsidiaries
               which  violation  would  have a  Material  Adverse  Effect on any
               Company.

15.15   ERISA

        (a)    Except as disclosed in SCHEDULE 6 A attached hereto, with respect
               to all Pension Benefit Plans which are or have been maintained by
               the Borrower or any member of the Controlled Group:

               (1)    there  have  not  been any  prohibited  transactions,  the
                      aggregate   liability   for  which  either  has  not  been
                      satisfied in full or would have a Material  Adverse Effect
                      on the Borrower and its Consolidated  Subsidiaries,  taken
                      as a whole;

               (2)    none of such  plans  has been  terminated,  the  aggregate
                      liability for which either has not been  satisfied in full
                      or the liability  for which would have a Material  Adverse
                      Effect on the Borrower and its Consolidated Subsidiaries,

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                      taken as a whole,  and if any of such  plans  has not been
                      terminated,   the   aggregate   liability   and  potential
                      liability  of the  Borrower,  if all  such  plans  were to
                      terminate, would not have a Material Adverse Effect on the
                      Borrower  and its  Consolidated  Subsidiaries,  taken as a
                      whole;

               (3)    none of such plans has any accumulated funding deficiency,
                      whether or not waived,  the aggregate  liability for which
                      either  has not been  satisfied  in full or  would  have a
                      Material   Adverse   Effect  on  the   Borrower   and  its
                      Consolidated Subsidiaries, taken as a whole;

               (4)    neither  the  Borrower  nor any  member of the  Controlled
                      Group  has  incurred  aggregate   liabilities   (excluding
                      premium  payments  made as and when  due) to the PBGC with
                      respect to all such plans which  liabilities  would have a
                      Material   Adverse   Effect  on  the   Borrower   and  its
                      Consolidated Subsidiaries, taken as a whole;

               (5)    there  have  been  no  reportable  events,  the  aggregate
                      liability for which either has not been  satisfied in full
                      or would have a Material  Adverse  Effect on the  Borrower
                      and its Consolidated Subsidiaries, taken as a whole.

               For  purposes  of this  SECTION  15.15,  the  terms  "accumulated
               funding   deficiency"  and  "reportable  event"  shall  have  the
               respective meanings assigned thereto by ERISA and/or the Code.

        (b)    Except as  disclosed  in SCHEDULE 6 B with respect to all Pension
               Benefit  Plans  currently  maintained or  participated  in by the
               Borrower or another  member of the Controlled  Group,  the amount
               for which the Borrower would be liable pursuant to the provisions
               of Section 4063 of ERISA would not have a Material Adverse Effect
               on the Borrower  and its  Consolidated  Subsidiaries,  taken as a
               whole, if all such plans had terminated.

        (c)    Except as disclosed in SCHEDULE 6 C, neither the Borrower nor any
               other member of the Controlled Group is now, nor has the Borrower
               or any other member of the Controlled  Group during the preceding
               10 (ten) years ever been, a  contributing  employer to a multiple
               employer plan or a  Multiemployer  Plan with respect to which the
               Borrower or any other member of the Controlled Group has:

               (1)    withdrawn as a substantial  employer or otherwise so as to
                      become  subject to the provisions of Section 4063 of ERISA
                      or to any  liability for  withdrawal  from such plan under
                      either  provisions  of  applicable  non-U.S.  laws or with
                      respect  to  the  applicable  plan  document,  unless  the
                      aggregate  liability and potential  liability with respect
                      to all  such  withdrawals  has been  satisfied  in full or
                      would not have a Material  Adverse  Effect on the Borrower
                      and its Consolidated Subsidiaries, taken as a whole;


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               (2)    incurred  or  caused  to  occur  a  "complete  withdrawal"
                      (within  the  meaning  of  Section  4203  of  ERISA)  or a
                      "partial  withdrawal"  (within the meaning of Section 4205
                      of  ERISA)  from a  Multiemployer  Plan  that is a Pension
                      Benefit  Plan so as to incur  withdrawal  liability  under
                      Section  4201 of ERISA,  or  incurred or caused to incur a
                      similar  event  which  could  result  in  liability  under
                      non-U.S.  laws with  respect to  Non-U.S.  Employee  Plans
                      unless the aggregate liability and potential liability for
                      all such  withdrawals  has been satisfied in full or would
                      not have a Material Adverse Effect on the Borrower and its
                      Consolidated Subsidiaries taken as a whole; or

               (3)    been a party to any  transaction or agreement  under which
                      the  provisions of Section 4204 of ERISA were  applicable,
                      unless  Borrower  can no  longer  be held  liable  for any
                      withdrawal  liability with respect to a Multiemployer Plan
                      to be  contributed  to by the  purchaser  pursuant to such
                      transaction  or agreement or the amount of the  withdrawal
                      liability which could be imposed on Borrower if there were
                      a partial or complete  withdrawal with respect to all such
                      Multiemployer  Plans  would  not have a  Material  Adverse
                      Effect on the Borrower and its Consolidated  Subsidiaries,
                      taken as a whole.

        (d)    Except as  disclosed  on  SCHEDULE 6 D, the  aggregate  potential
               withdrawal   liability  of  the  Borrower  with  respect  to  all
               Multiemployer  Plans and any similar  liabilities of the Borrower
               and its Subsidiaries and potential  liabilities  under applicable
               non-U.S.  laws  or  Non-U.S.  Employee  Plans  would  not  have a
               Material  Adverse  Effect on the  Borrower  and its  Consolidated
               Subsidiaries,  taken as a whole,  if the Borrower and all members
               of  the   Controlled   Group  were  to  withdraw  from  all  such
               Multiemployer  Plans and were to incur all such  liabilities  and
               potential  liabilities  under  applicable  non-U.S.  laws or with
               regard to the Non-U.S. Employee Plans.

        (e)    Except as disclosed on SCHEDULE 6 E, there are no actions,  suits
               or claims pending (other than routine claims for benefits) or, to
               the knowledge of the Borrower,  threatened in writing which could
               reasonably  be expected to be asserted  against any Employee Plan
               maintained  by the Borrower or against the Borrower or the assets
               of any such plan, the liability for which in the aggregate  could
               have  a  Material   Adverse   Effect  on  the  Borrower  and  its
               Consolidated Subsidiaries, taken as a whole.

        (f)    All of the Employee  Plans  maintained  by the Borrower or by any
               member of the  Controlled  Group  comply or,  upon  amendment  to
               conform to legislation  within any applicable  remedial amendment
               period, will comply in all material respects with their terms and
               with all  applicable  provisions  of ERISA and the Code,  and all
               other applicable  laws,  rules and regulations,  except where the
               failure to do so would not have a Material  Adverse Effect on the
               Borrower and its Consolidated Subsidiaries, taken as a whole.


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15.16   NON-U.S. EMPLOYEE PLANS

        Except as provided  in  SCHEDULE 6 F, with  regard to Non-U.S.  Employee
        Plans for which assets are not required to be or have not been set aside
        in a separate  fund or trust,  the reserves on the balance sheet of each
        Subsidiary,  respectively,  equal or  exceed  the  present  value of all
        accrued  benefits  under such Non-U.S.  Employee  Plans or the amount by
        which such  reserves are less than the present value of all such accrued
        benefits  would not have a Material  Adverse  Effect on the Borrower and
        its  Consolidated  Subsidiaries,  taken as a whole.  The aggregate  fair
        market value of the assets of Non-U.S. Employee Plans which are required
        to be funded by  applicable  law, or are funded to any extent  (although
        not required to be funded),  is at least equal to the sum of the accrued
        benefits  and all other  accrued  liabilities  provided  for under  such
        Non-U.S.  Employee Plans, or if such value is not at least equal to such
        sum, the fact that, and the amount by which, the value is less than such
        sum would not have a Material  Adverse  Effect on the  Borrower  and its
        Consolidated   Subsidiaries,   taken  as  a  whole.  The  Borrower,  its
        Subsidiaries and their Non-U.S.  Employee Plans are in compliance in all
        material  respects with all  applicable  laws,  regulations  and reserve
        and/or funding requirements  concerning Non-U.S.  Employee Plans, except
        where the failure to so comply would not have a Material  Adverse Effect
        on the Borrower and its Consolidated Subsidiaries, taken as a whole.

15.17   INVESTMENT COMPANY

        Neither the Borrower nor any Subsidiary is (a) an  "investment  company"
        within the meaning of the Investment Company Act of 1940, as amended; or
        (b) a "holding company" or a "subsidiary company" of a "holding company"
        or an "affiliate" of a "holding company" or a "subsidiary  company" of a
        "holding  company"  within the  meaning of the  Public  Utility  Holding
        Company Act of 1935, as amended.

15.18   SUBSIDIARIES

        As of the Second Restatement Date:

        (a)    the Subsidiaries  listed in SCHEDULE 7 are the only  Subsidiaries
               of  the  Borrower,  and  the  Subsidiaries  designated  as  Major
               Subsidiaries in SCHEDULE 7 are the only Major Subsidiaries of the
               Borrower;

        (b)    SCHEDULE  7  sets  forth  the   jurisdiction  of   incorporation,
               principal  place of business and  percentage  of ownership of the
               Borrower or any of its Subsidiaries in such Subsidiaries;

        (c)    The Borrower or its  Subsidiaries  have good and marketable title
               to the shares of the Major Subsidiaries comprising the respective
               percentages of ownership  indicated on SCHEDULE 7, free and clear
               of any  Liens,  except  Liens in favor of the Agent and the Banks
               under the Loan Documents;


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<PAGE>



        (d)    Neither the  Borrower  nor any of its  Subsidiaries  have sold or
               agreed  to sell or  otherwise  dispose  of any  right,  title  or
               interest in any of its or their shares of any of the Subsidiaries
               described on SCHEDULE 7;

        (e)    All of the shares of capital  stock of the  Pledged  Subsidiaries
               have been duly  authorized and are fully paid and  non-assessable
               and,  in the  case of  Pledged  Subsidiaries  issuing  registered
               shares,  are in registerable  form;  SCHEDULE 7 sets forth,  with
               respect to the Pledged Subsidiaries, the number of shares of each
               class of capital stock  authorized,  the number of shares of each
               class of capital stock issued and outstanding and, if applicable,
               the stock  certificate  numbers  which  evidence  such issued and
               outstanding  shares;  and, as of the Second  Restatement Date, no
               options,  warrants,  conversion  or other  rights,  agreements or
               commitments  of any kind to a Person  other than the  Borrower or
               its Subsidiaries or officers or directors thereof  obligating any
               of the  Pledged  Subsidiaries  to issue or sell any shares of its
               capital stock of any class, or any securities convertible into or
               exchangeable for any of such shares, are outstanding, nor has any
               authorization therefor been given;

        (f)    There are no  contractual  restrictions  on the right to vote any
               shares of the Major  Subsidiaries  owned by the  Borrower  or its
               Subsidiaries, or the right to sell, transfer or otherwise dispose
               of such shares; and

        (g)    The  Pledge  Agreements,  which  have  been  accompanied  by  any
               required  delivery  of share  certificates,  create a valid first
               priority  perfected  security  interest  in  the  shares  of  the
               respective Subsidiaries pledged thereunder.

15.19   MARGIN STOCK

        Neither the  Borrower nor any  Subsidiary  is engaged in the business of
        extending  credit for the purpose of purchasing or carrying margin stock
        or margin  securities  (within the meaning of  Regulations U or X of the
        Federal Reserve) or owns any such margin stock or margin  security,  and
        no part of the proceeds of any extension of credit under this  Agreement
        will be used by the Borrower or any  Subsidiary to purchase or carry any
        such margin stock or margin  security or to extend  credit to others for
        the  purpose  of  purchasing  or  carrying  any  margin  stock or margin
        security.

15.20   TAXES

        The Borrower and its Subsidiaries  have filed all income tax returns and
        all other material tax returns that are required to be filed by them and
        have  paid all taxes  due for the  period  covered  by such  returns  or
        pursuant to any material  assessment  received by the Borrower or any of
        its  Subsidiaries,  except for those  being  contested  in good faith by
        appropriate  proceedings  against  which  adequate  reserves  are  being
        maintained if required in accordance  with German GAAP. As of the Second
        Restatement Date, except as may be specified on SCHEDULE 11, (i) none of
        the tax returns of the Borrower or any of its

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        Subsidiaries  is under  audit,  (ii)  there  is no  dispute,  action  or
        administrative proceeding by or before any court, arbitration,  tribunal
        or  governmental  authority  pending  or, to the  Borrower's  knowledge,
        threatened in writing against the Borrower or any Subsidiary relating to
        any income taxes or similar types of taxes  involving  amounts in excess
        of DM 5,000,000  (Deutsche Mark Five Million) (or the equivalent  amount
        in any  currency),  and (iii) no Lien  referred  to in CLAUSE (E) of the
        definition  of  the  term  "Permitted  Lien"  arising  from  income  tax
        assessments  or similar  types of tax  assessments  has been  granted or
        exists involving  amounts in excess of DM 5,000,000  (Deutsche Mark Five
        Million) (or the equivalent amount in any currency).

15.21   INTELLECTUAL PROPERTY RIGHTS

        (a)    Except  as set  forth  on  SCHEDULE  8 A,  the  Borrower  and its
               Subsidiaries  either own or are  licensed to use  pursuant to the
               license  agreements  with Affiliates of the Borrower set forth on
               SCHEDULE 8 B (the "Affiliate License  Agreements") or pursuant to
               the license  agreements with parties other than Affiliates of the
               Borrower  set forth on  SCHEDULE 8 C (the  "Third  Party  License
               Agreements")  the  Intellectual  Property  Rights.  Each  of  the
               Affiliate   License   Agreements  and  the  Third  Party  License
               Agreements  is  presently  in full force and effect,  neither the
               Borrower, any of its Affiliates nor any of its Subsidiaries is in
               default  under any  Affiliate  License  Agreement  or Third Party
               License   Agreement  and,   pursuant  to  the  Affiliate  License
               Agreements and the Third Party License Agreements,  the Borrower,
               its  Affiliates  and its  Subsidiaries  hold (and  following  the
               completion of the  transactions  contemplated  by this  Agreement
               will  continue  to hold)  licenses to all  Intellectual  Property
               Rights material to the conduct of their businesses.

        (b)    Except for the Affiliate  License  Agreements and the Third Party
               License Agreements and except as set forth on SCHEDULE 8 D, there
               are  no  agreements   pursuant  to  which  the  Borrower  or  its
               Subsidiaries are licensed to use Intellectual Property Rights.

        (c)    SCHEDULE  8  E  sets  forth  the  owners  among  the   Borrower's
               Affiliates or Subsidiaries of Intellectual  Property Rights which
               are patented or for which patent applications have been filed.

        (d)    SCHEDULE  8  F  sets  forth  the  owners  among  the   Borrower's
               Affiliates  or  Subsidiaries   of  trademarks   included  in  the
               Intellectual  Property  Rights which are  registered or for which
               applications for registration have been filed.

        (e)    To  the  best   knowledge  of  the  Borrower,   (i)  the  current
               manufacturing operations of the Borrower's Subsidiaries as of the
               Second  Restatement  Date do not  infringe  on any valid  patent,
               trade  secret  or  copyright  of any  other  Person  and (ii) the
               current  marketing  and sales  operations of the Borrower and its
               Subsidiaries as of the Second Restatement Date do not infringe on
               any valid  trademark or trade name of any other Person which,  in
               each case, if enforced would have a Material

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               Adverse Effect on the Borrower and its Consolidated Subsidiaries,
               taken as a whole.

        (f)    Except  as set  forth on  SCHEDULE  8 G, no  claims  by any other
               Person  alleging   infringement  of  any  patent,  trade  secret,
               trademark, trade name or copyright of such Person and relating to
               the current  manufacturing,  marketing or sales operations of the
               Borrower and its  Subsidiaries as of the Second  Restatement Date
               have  been  communicated  to  an  employee  of  Borrower  or  its
               Subsidiaries   charged  with   responsibility   for  Intellectual
               Property  Rights  and  are  pending   against   Borrower  or  its
               Subsidiaries,   nor  have  any  such  claims  been  made  and  so
               communicated  within  the  twelve  months  preceding  the  Second
               Restatement Date.

        (g)    The execution,  delivery and performance of the Loan Documents to
               which the Borrower is a party will not in any material  manner or
               to any  material  extent  impair the  ownership  of or any rights
               under  or  the  license  of,  as  the  case  may  be,  any of the
               Intellectual  Property Rights utilized by the Borrower and/or its
               Subsidiaries.

15.22   KEY CONTRACTS

        The Borrower  has  delivered  to the Agent,  true,  correct and complete
        photocopies  of the  Leverkusen  Lease,  the  Service  Contract  and all
        existing loan agreements,  including all Project  Financing  agreements,
        which,  if  terminated  or  materially  modified,  would have a Material
        Adverse Effect on the Borrower and its Consolidated Subsidiaries,  taken
        as a whole.  As of the  Second  Restatement  Date,  SCHEDULE  12  hereto
        specifically identifies each of such loan agreements.

15.23   AFFILIATE TRANSACTIONS

        SCHEDULE 9 sets forth all agreements or arrangements,  whether or not in
        the  ordinary  course of  business,  existing on the Second  Restatement
        Date,  which  involve  payments  or  transfers  of  assets  (other  than
        inventory in the ordinary  course of business) in excess of DM 5,000,000
        (Deutsche  Mark Five Million) per calendar  year by the Borrower  and/or
        its  Subsidiaries  to  Affiliates  (other  than  the  Borrower  and  its
        Subsidiaries).

15.24   NL DEBT OFFERING;  MIRROR NOTES;  SUBORDINATED LOANS;  CONSIDERATION FOR
        PREPAYMENTS

        (a)    The gross  proceeds  of the NL Debt  Offering  were not less than
               $350,000,000  (Three Hundred Fifty Million U.S. Dollars),  all of
               which gross proceeds,  less the NL Debt Offering  Expenses,  were
               paid by NL  Industries  or  Kronos  to the Agent on behalf of the
               Borrower as the First Prepayment  pursuant to SECTION 2.01 of the
               First Restated  Agreement.  The aggregate principal amount of the
               Mirror  Notes  issued by the  Borrower  did not  exceed the gross
               proceeds of the NL Debt Offering. The only consideration received
               or to be received by NL Industries, Kronos or any other Affiliate
               of  the  Borrower  from  the  Borrower  in  consideration  for or
               otherwise

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               in  connection  with or relating to the First  Prepayment  is the
               Indebtedness evidenced by the Mirror Notes, and there is no other
               Indebtedness,  liability or obligation due or owing,  or that may
               become due or owing, by the Borrower as consideration  for, or in
               any way in connection with or relating to, the First Prepayment.

        (b)    The amount of the Kronos  Subordinated Loan made by Kronos to the
               Borrower on December 31, 1996,  was DM 25,000,000  (Deutsche Mark
               Twenty-Five Million). The amount of the NL Subordinated Loan made
               by NL  Industries  to  the  Borrower  on  or  before  the  Second
               Restatement  Date was DM  260,000,000  (Deutsche Mark Two Hundred
               Sixty Million),  DM 150,000,000  (Deutsche Mark One Hundred Fifty
               Million)  of which  proceeds  of the NL  Subordinated  Loan  are,
               concurrently  with the Second  Restatement Date, being paid by NL
               Industries  to the Agent on behalf of the  Borrower as the Second
               Prepayment.   The  Subordinated   Loan  Documents   evidence  and
               represent  the entire  agreement  between NL  Industries  and the
               Borrower  relating  to the  Kronos  Subordinated  Loan and the NL
               Subordinated Loan.

15.25   TAXES RELATING TO MIRROR NOTES

        Under the laws in force at the  First  Restatement  Date and the  Second
        Restatement  Date,  no Taxes were or will be  required to be deducted or
        withheld from or with respect to any sum payable or to be paid under the
        Mirror Notes.

15.26   OWNERSHIP OF MATERIAL ASSETS

        As of the Second Restatement Date,  SCHEDULE 13 sets forth each tangible
        property or asset (or group of related  properties  or assets),  whether
        real or personal property but exclusive of cash balances,  inventory and
        accounts  receivable,  of the Borrower or any of its Subsidiaries  which
        individual property or asset (or group of related properties or assets),
        individually  or in the  aggregate,  has a book value or estimated  fair
        market  value  of DM  20,000,000  (Deutsche  Mark  Twenty  Million)  (or
        equivalent  amount in any  currency)  or more,  and also sets  forth the
        owner(s) of each such property or asset (or group of related  properties
        or assets).

15.27   OPTIONAL PREPAYMENTS

        As of the Second  Restatement Date, no optional  prepayments of the Loan
        have been made with funds provided by Kronos and/or NL Industries  which
        would allow for the making of  Restricted  Payments in  accordance  with
        SECTION 16.20(B).

15.28   CERTAIN ADJUSTED RESTRICTED PAYMENTS


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        The aggregate of all Adjusted  Restricted  Payments made by the Borrower
        or any of its  Subsidiaries to any Affiliate of the Borrower (other than
        Subsidiaries  of the Borrower)  during 1996 did not exceed DM 47,000,000
        (Deutsche Mark Forty-Seven Million).

15.29   SOLVENCY OF RHEOX, INC.

        A  condition  to the closing of the January  1997  $150,000,000  loan to
        Rheox,  Inc.  is the  issuance  by an  independent  valuation  firm of a
        solvency opinion with respect to the financial  condition of Rheox, Inc.
        after giving effect to such loan and a dividend in the maximum amount of
        $130,000,000 from Rheox, Inc. to NL Industries.

                            ARTICLE 16.  UNDERTAKINGS AND COVENANTS

        The Borrower  agrees that so long as the Loan or any portion  thereof or
any Commitment therefor is outstanding, the Borrower shall do the following:

16.01   DELIVERY OF FINANCIAL STATEMENTS, ETC.

        (a)    As soon as the same become available,  but in any event within 90
               (ninety) days after the end of each of its fiscal years,  deliver
               to the Agent,  in sufficient  copies for  distribution to all the
               Banks,  the  audited   consolidated  group  financial  statements
               (including  a  balance  sheet  and   statements  of   operations,
               stockholders'  equity  and  cash  flow) of the  Borrower  and its
               Subsidiaries for such fiscal year, and, as unaudited supplemental
               information:

               (1)    the related consolidating financial statements by country;
                      and

               (2)    separate  balance sheets,  as included in the consolidated
                      group balance  sheet of the  Borrower,  for each of Kronos
                      Titan, Kronos Europe S.A./N.V.,  Titania A/S, Kronos Titan
                      A/S and Kronos Canada, Inc.;

               all as prepared in accordance  with German GAAP,  consistent with
               the  preparation  of  the  financial  statements  for  the  prior
               financial  period  except  to the  extent  that any  inconsistent
               practice  is  specified  in  the  certificate   described  below,
               together  with a  certificate  executed  by the  chief  financial
               officer  of the  Borrower  in the  form of  EXHIBIT  Q  including
               calculations  of the  provisions of SECTIONS 16.18 through 16.25,
               showing in reasonable detail the basis for such calculations.

        (b)    Within  60  (sixty)  days  after the end of each  fiscal  quarter
               (excluding the fourth  quarter),  unaudited  consolidating  group
               financial  statements  of the Borrower and its  Subsidiaries,  by
               country, prepared in accordance with German GAAP, consistent with
               the  preparation  of  the  financial  statements  for  the  prior
               financial  period  except  to the  extent  that any  inconsistent
               practice is specified in the certificate described below, and, as
               supplemental information, separate balance sheets, as included in
               the consolidating balance sheets of the Borrower and its

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               Subsidiaries,  for each of Kronos Titan, Kronos Europe S.A./N.V.,
               Titania A/S,  Kronos Titan A/S and Kronos Canada,  Inc., for each
               fiscal quarter (excluding the fourth quarter,  except as provided
               below) and,  commencing  with the third fiscal quarter of 1993, a
               certificate  executed  by  the  chief  financial  officer  of the
               Borrower in the form of EXHIBIT R including  calculations  of the
               provisions of SECTIONS 16.18 through 16.25, showing in reasonable
               detail the basis for such  calculations  and including  (for each
               fiscal  quarter,  including the fourth  quarter)  calculations of
               Adjusted  Restricted Payments made through the end of such fiscal
               quarter,   showing  in  reasonable  detail  the  basis  for  such
               calculations.

        (c)    Promptly   deliver  notice   thereof  to  the  Agent,   upon  the
               commencement of any action or other proceedings by or against the
               Borrower  or  any  of  its  Subsidiaries  under  any  bankruptcy,
               insolvency or other similar law.

        (d)    Upon   request  of  the  Agent,   furnish  the  Agent  with  such
               information about the business, assets and financial condition of
               each of the Borrower and/or any of its Subsidiaries as the Agent,
               or any Bank through the Agent, may reasonably request;  provided,
               however, nothing in this Agreement shall entitle the Agent or the
               Banks to request, nor require the Borrower or its Subsidiaries to
               provide,  (i) nonpublic  confidential  technical  information and
               knowhow or  information  relating to  processes of or used by the
               Borrower or its Subsidiaries or (ii) information  relating to the
               costs  of  manufacture   (including,   without  limitation,   raw
               materials supply contracts) any of which, if made public,  would,
               in the reasonable opinion of the Borrower, impair its competitive
               position,  provided, however, that the restriction on information
               set forth in CLAUSES (I) and (II) (A) shall not apply if an Event
               of Default  exists  and is  continuing  and (B) does not  include
               information which:

               (1)    is or becomes generally available to the public other than
                      as a result  of a  disclosure  by the  Agent or the  Banks
                      which  are   signatories   to  this   Agreement  or  their
                      respective  directors,  officers,  employees,  Affiliates,
                      attorneys,  accountants or other professional  advisors in
                      violation of this provision;

               (2)    was   available   to  the   Agent   or  any   Bank   on  a
                      non-confidential  basis  prior  to its  disclosure  to any
                      other Bank; or

               (3)    becomes   available   to  the  Agent  or  any  Bank  on  a
                      non-confidential  basis  from a  Person  (other  than  the
                      Borrower or its Affiliates) who, to the reasonable  belief
                      of  the   Agent  or  such   Bank,   is  not   bound  by  a
                      confidentiality  agreement  and  is  not  prohibited  from
                      transmitting such information under applicable law.

        (e)    Upon the request of the Agent, and at the Bank's expense,  permit
               an auditor  of the Agent to audit the  financial  statements  and
               review all the financial records of the

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               Borrower and/or any of its  Subsidiaries  and permit the Banks to
               receive additional  information from the auditors of the Borrower
               and its Subsidiaries.

        (f)    Within 5 (five) days after the end of each month, (i) a report in
               form and  substance  reasonably  satisfactory  to the Agent which
               sets  forth  the  maximum  committed   amount,   the  outstanding
               principal  amount and  identities  of the debtor and payee of all
               Indebtedness of the Borrower or any of its Subsidiaries as of the
               end of such  immediately  preceding month, and (ii) the Liquidity
               Report (as such term is defined in the Liquidity Undertaking).

16.02   OPERATING PERMITS

        Inform the Agent  promptly  about the refusal of (or  written  notice of
        intent to refuse)  any  application  for any  operating  permits  and/or
        licenses or the  suspension or  withdrawal  of any operating  permits or
        licenses  by  governmental  authorities  having  jurisdiction  over  the
        Borrower or any of its Subsidiaries,  as the case may be, if the refusal
        of such  application  or the  occurrence of such refusal,  suspension or
        withdrawal would have a Material Adverse Effect on any of the Companies.

16.03   ENVIRONMENTAL COMPLIANCE

        Cause each of the Companies to comply in all material  respects with all
        applicable Environmental Laws and all other laws, rules, regulations and
        orders  relating to the  disposal of  Contaminants  except to the extent
        failure  to comply  would  not have a  Material  Adverse  Effect on such
        Company.

16.04   COMPLIANCE WITH APPLICABLE LAW

        Comply,  and cause each of its  Subsidiaries to comply,  in all material
        respects with all applicable laws,  ordinances,  rules,  regulations and
        requirements of governmental authorities (including, without limitation,
        applicable  Environmental Laws) except where the necessity of compliance
        therewith is contested in good faith by appropriate  proceedings and for
        which adequate  reserves are being maintained if required by German GAAP
        or where noncompliance with such laws, ordinances, rules, regulations or
        requirements  would  not have a  Material  Adverse  Effect on any of the
        Companies.

16.05   BOOKS AND RECORDS

        Keep,  and cause  each of its  Subsidiaries  to keep,  proper  books and
        records  and  accounts  in which  full,  true  and  correct  entries  in
        conformity with local  standards shall be made of all material  dealings
        and transactions in relation to its business and activities; and subject
        to  SECTION  16.01(D)  permit,  and cause  each of its  Subsidiaries  to
        permit,  representatives  of any Bank, at such Bank's expense,  to visit
        and  inspect  any of their  respective  properties,  to examine and make
        abstracts  from any of their  respective  books and records  (including,
        without limitation,  all documents relating to environmental  control of
        the production of

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<PAGE>



        titanium  dioxide  pigments)  and to discuss their  respective  affairs,
        finances and accounts  with their  respective  officers,  employees  and
        independent  accountants,  and  authorize and instruct and cause each of
        its Subsidiaries to authorize and instruct said officers,  employees and
        accountants to so discuss the respective affairs, finances and accounts,
        all of the  foregoing  at such  reasonable  times  and as  often  as may
        reasonably be requested with prior notice.

16.06   ENVIRONMENTAL REPORTS

        (a)    Notify  the  Agent and the Banks in  writing,  promptly  upon the
               Borrower  or  any  of  its  Subsidiaries  learning  of any of the
               following  which could have a Material  Adverse  Effect on any of
               the Companies:

               (1)    any Environmental Claim against the Borrower or any of its
                      Subsidiaries, including one to take a remedial, removal or
                      other action with respect to any Contaminants contained on
                      any  property  whether  or not  owned by the  Borrower  or
                      Subsidiary so notified;

               (2)    any notice of violation of any Environmental Law; and

               (3)    the   commencement  of  any  judicial  or   administrative
                      proceedings or  investigation  alleging a violation of any
                      Environmental Law.

        (b)    Upon written  request by the Agent or any Bank submit,  and cause
               each of its Subsidiaries to submit, to the Agent or such Bank, at
               reasonable intervals,  a report providing an update of the status
               of any  environmental,  health  or safety  compliance,  hazard or
               liability  issue  identified in any notice  required  pursuant to
               this SECTION 16.06.

16.07   INTELLECTUAL PROPERTY RIGHTS

        (a)    Not  permit  any of its  Subsidiaries  to  assign  the  Affiliate
               License  Agreements  to  which  they  are a party  or to amend or
               modify in any respect  adverse to any Company or any  Subsidiary,
               or allow to expire,  or terminate  any of the  Affiliate  License
               Agreements  to  which  they  are  a  party,  provided  that  this
               provision  shall be without  prejudice to the right of a party to
               seek  damages or  specific  performance  for breach of any of the
               Affiliate License Agreements; and

        (b)    maintain,  protect and enforce,  and require each  Subsidiary  to
               take  reasonable  steps to  maintain,  protect and  enforce,  the
               Intellectual  Property  Rights  owned by it (if any),  consistent
               with prior  practice by and among  Kronos,  Kronos U.S. and their
               Affiliates and, in any event,  consistent  with prudent  business
               practices of the Borrower and the Subsidiaries.

16.08   LIENS

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        Not create or permit to exist,  or permit its  Subsidiaries to create or
        permit to exist, any Lien, except Permitted Liens.

16.09   DISPOSITIONS

        Not make, nor permit any of its  Subsidiaries  to make, a Disposition of
any asset:

        (a)    other than in the ordinary course of business;

        (b)    for  less  than  fair  market  value  (other  than a  Disposition
               described in SECTIONS 16.09(A), (C), (D), (F) or (G));

        (c)    other than transactions made in accordance with SECTION 16.15(C),
               Restricted  Payments  made in  accordance  with SECTION 16.20 and
               payments made under the Mirror Notes in accordance with the terms
               of the Mirror Notes;

        (d)    other than interest payments on Subordinated  Debt, if and to the
               extent permitted by the  Subordination  Agreement,  provided that
               there  exists no Default  with  respect to payment of any amounts
               due and owing under this Agreement and no Default exists or would
               result from such payment;

        (e)    except  for  cash,   if  the   aggregate  Net  Proceeds  of  such
               Dispositions (other than a Disposition  described in CLAUSES (A),
               (C), (D), (F) or (G) of this SECTION  16.09),  either alone or in
               the  aggregate,  during any calendar year during the term of this
               Agreement  exceeds  DM  100,000,000  (Deutsche  Mark One  Hundred
               Million);

        (f)    other than  Dispositions  between and among the  Borrower and its
               Subsidiaries  or between  and among the  Subsidiaries;  provided,
               however,  that with respect to Kronos Canada, Inc., Kronos Europe
               S.A./N.V.,  Kronos  Titan,  Kronos Titan A/S and Titania A/S (the
               "Operating  Subsidiaries"),  without  approval  of  the  Majority
               Banks,  the  Borrower  shall not make,  nor permit its  Operating
               Subsidiaries  to make, a  Disposition  to the Borrower or another
               Subsidiary of assets in such Operating Subsidiaries consisting of
               production capacity, inventory (other than in the ordinary course
               of  business),  accounts  receivable  (other than to Kronos World
               Services  S.A./N.V.  (and as long as it remains a Subsidiary) for
               cash) or  Intellectual  Property  Rights (other than licenses and
               sub-licenses of such Intellectual  Property Rights),  and further
               the  Borrower   shall  not  transfer,   nor  permit  any  of  its
               Subsidiaries  to transfer,  to any other  Subsidiary the Stock of
               any  Pledged  Subsidiary  without the  approval  of the  Majority
               Banks;

        (g)    notwithstanding anything in this Agreement to the contrary, other
               than  Dispositions,  termination  or  shortening  of the term, or
               modifications,  of  the  Leverkusen  Lease  for  full,  fair  and
               reasonable consideration; or


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        (h)    other than Dispositions  prior to the Second  Restatement Date of
               the  distributorship/marketing  arrangements  existing  as of the
               First   Restatement   Date  between   Rheox,   Inc.   and/or  its
               subsidiaries and certain Subsidiaries of the Borrower.

        Not use, or allow to be used,  directly or  indirectly,  the proceeds of
        any  Disposition  permitted by this Section 16.09 to make any payment or
        other  transfer of funds to or for the benefit of any  Affiliate  of the
        Borrower  other than the  Subsidiaries  of the  Borrower  (if and to the
        extent that such payment or transfer to  Subsidiaries  is not  otherwise
        prohibited  by this  Agreement);  provided,  however,  that,  subject to
        compliance with the other terms of this  Agreement,  the proceeds of any
        such permitted  Disposition may be used to make  Restricted  Payments if
        and to the extent that such Restricted  Payments are permitted  pursuant
        to  Section  16.20  and to make  payments  under  the  Mirror  Notes  in
        accordance with the terms of the Mirror Notes.

16.10   MERGER; CONSOLIDATION

        (a)    (i)    Not merge or consolidate with any other Person whereby
                      the Borrower  shall be the surviving  corporation  without
                      the prior written consent of the Majority Banks.

               (ii)   Not merge or  consolidate  with or into any  other  Person
                      whereby any other  Person  would be the  surviving  entity
                      without the prior  written  consent of the Majority  Banks
                      (662/3%).

        (b)    Not permit Kronos  Canada,  Inc.,  2927527  Canada Inc.,  2969157
               Canada Inc. or Kronos Europe  S.A./N.V.  to merge or  consolidate
               with or into any other Person (other than,  as to 2927527  Canada
               Inc.  only,  the  Borrower),  unless the survivor  shall (i) be a
               corporation  organized  under the laws of Canada (with respect to
               Kronos Canada,  Inc., 2927527 Canada Inc. or 2969157 Canada Inc.)
               or Belgium (with respect to Kronos Europe S.A./N.V.); (ii) have a
               net worth  approximately  equal to or greater than that of Kronos
               Canada,  Inc., 2927527 Canada Inc., 2969157 Canada Inc. or Kronos
               Europe  S.A./N.V.,  as the case may be; (iii) have assumed all of
               the  liabilities  of Kronos  Canada,  Inc.,  2927527 Canada Inc.,
               2969157 Canada Inc. or Kronos Europe  S.A./N.V.,  as the case may
               be; and (iv) be a Subsidiary directly Controlled by the Borrower.

        (c)    Not permit Kronos Titan, Kronos Titan A/S or Titania A/S to merge
               or consolidate  with or into any Person unless the survivor shall
               (i) be a  corporation  organized  under the laws of Germany (with
               respect to Kronos  Titan) or Norway (with respect to Kronos Titan
               A/S or Titania A/S); (ii) have a net worth approximately equal to
               or greater than that of Kronos Titan, Kronos Titan A/S or Titania
               A/S,  as  the  case  may  be;  (iii)  have  assumed  all  of  the
               liabilities  of such  entity;  and  (iv) be a  Subsidiary  either
               directly  Controlled by the Borrower or directly  Controlled by a
               Subsidiary of the Borrower;

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               provided,  however,  that any other  Subsidiary may merge with or
               into any other Subsidiary.

16.11   EMPLOYEE MATTERS

        (a)    DISCHARGE OF ERISA LIABILITY

               Pay and  discharge  promptly or cause any  Subsidiary  to pay and
               discharge  promptly any liability imposed upon it pursuant to the
               provisions of Title IV of ERISA or the  provisions of any similar
               applicable Non-U.S. law or similar provisions provided for in any
               applicable  plan or  document  relating  to such plan;  provided,
               however,  that neither the Borrower nor any  Subsidiary  shall be
               required to pay any such liability if:

               (i)    the amount,  applicability  or validity  thereof  shall be
                      diligently   contested   in  good  faith  by   appropriate
                      proceedings; and

               (ii)   the Borrower or the Subsidiary,  as the case may be, shall
                      establish and maintain reserves, if required in accordance
                      with German GAAP which,  in the opinion of the  Borrower's
                      independent   accountants,   are  adequate   with  respect
                      thereto.

        (b)    ERISA NOTICES

               Deliver to the Banks  promptly,  and in any event within 10 (ten)
working days:

               (i)    when the  Borrower or any member of the  Controlled  Group
                      gives or is  required  to give  notice  to the PBGC of any
                      "reportable  event" (as defined in Section  4043 of ERISA)
                      with  respect  to any  Pension  Benefit  Plan  that  might
                      constitute  grounds  for a  termination  of  such  Pension
                      Benefit  Plan under  Title IV of ERISA,  or knows that the
                      plan  administrator  of any Pension Benefit Plan has given
                      or is  required  to give  notice  of any  such  reportable
                      event, a copy of the notice of such reportable event given
                      or required to be given to the PBGC;

               (ii)   when the Borrower or a member of the Controlled  Group, or
                      an  administrator  of any Pension  Benefit Plan files with
                      participants, beneficiaries or the PBGC a notice of intent
                      to  terminate  any  such  plan in a  distress  termination
                      pursuant to Section  4041(c) of ERISA,  a copy of any such
                      notice;

               (iii)  upon the  receipt of notice by the  Borrower  or member of
                      the Controlled  Group or an  administrator  of any Pension
                      Benefit Plan from the PBGC of

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                      the PBGC's intention to terminate any Pension Benefit Plan
                      or to appoint a trustee  to  administer  any such plan,  a
                      copy of such notice;

               (iv)   when the Borrower knows or has reason to know of any event
                      or  condition  which might  constitute  grounds  under the
                      provisions of Section 4042 of ERISA for the termination of
                      (or  the  appointment  of a  trustee  to  administer)  any
                      Pension Benefit Plan or when Borrower or any member of the
                      Controlled Group files an application under Section 412(d)
                      of the Code for a waiver of the minimum funding  standards
                      with respect to a Pension  Benefit Plan, an explanation of
                      such event or condition or a copy of such application,  as
                      the case may be; or

               (v)    upon the  receipt  by the  Borrower  or by a member of the
                      Controlled  Group of  aggregate  assessments  in excess of
                      $1,000,000  (U.S.   Dollars  One  Million)  of  withdrawal
                      liability  under Section 4201 of ERISA from  Multiemployer
                      Plans, a copy of each such assessment.

        (c)    ERISA TRANSACTIONS

               Not engage in any  transaction or permit any Subsidiary to engage
               in any  transaction  which  could  subject  the  Borrower  or any
               Subsidiary to a civil penalty assessed pursuant to the provisions
               of Section 502 of ERISA or tax imposed  under the  provisions  of
               Section 4975 of the Code, which civil penalty or tax would have a
               Material  Adverse  Effect on the  Borrower  and its  Consolidated
               Subsidiaries, taken as a whole.

        (d)    NO TERMINATION OF EMPLOYEE PLANS

               Not  terminate  any Pension  Benefit  Plan of the Borrower or any
               member of the Controlled Group in a "distress  termination" under
               Section 4041 of ERISA, or take any other action or have any event
               occur  with  respect  to an  Employee  Plan,  including,  without
               limitation,  any  action or event for  which  the  Borrower  must
               provide the Banks with a copy of a notice,  an  explanation of an
               event or condition, or a copy of an assessment under this SECTION
               16.11, which would have a Material Adverse Effect on the Borrower
               and its Consolidated Subsidiaries, taken as a whole.

        (e)    NON-U.S. EMPLOYEE PLANS

               Not permit  any  condition  to exist  with  respect to a Non-U.S.
               Employee Plan which would have a Material  Adverse  Effect on any
               Company.


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16.12   INTEREST RATE PROTECTION AGREEMENTS

        Shall, with financial institutions and at rates reasonably acceptable to
        the Agent,  maintain Interest Rate Protection Agreements with respect to
        a  minimum  of 45%  (forty-five  percent)  of the  amount  of the  Loans
        outstanding at any time through May 31, 1995.

16.13   INDEBTEDNESS TO SUBSIDIARIES

        Shall not make any payments with respect to any Indebtedness owed by the
        Borrower to any  Subsidiary if a Default  exists and is  continuing,  or
        would result from the making of such payment.

16.14   MAINTENANCE OF SEPARATE CORPORATE IDENTITIES

        Shall,  for so long as the Loan or any portion thereof or any Commitment
        therefor is outstanding,

        (a)    provide,  that at all times, at least one (1) member of its board
               of directors or at least one (1) of its officers will be a Person
               who is not an officer,  director  or employee of any  corporation
               which Controls the Borrower;

        (b)    maintain  corporate  records and books of account  separate  from
               those of any corporation which Controls the Borrower and separate
               from those of any Major Subsidiary;

        (c)    not commingle  its funds or assets with those of any  corporation
               which   Controls   the  Borrower  or  with  those  of  any  Major
               Subsidiary; and

        (d)    provide  that its board of  directors  will hold all  appropriate
               meetings,  which  will not be jointly  held with any  corporation
               which  Controls  the  Borrower,  to  authorize  and  approve  the
               Borrower's corporate actions.

16.15   AFFILIATE TRANSACTIONS

        Not, nor permit any of its Subsidiaries,  directly or indirectly, to pay
        any funds  (including,  without  limitation,  payments of  principal  or
        interest on Indebtedness  or  Subordinated  Debt to any Affiliate) to or
        for the account of, make any  investment  in, lease,  sell,  transfer or
        otherwise dispose of, any assets,  tangible or intangible,  grant loans,
        guarantees,   suretyships   to,  enter  into   management,   consulting,
        brokerage,  advisory or similar  agreements  or  arrangements  with,  or
        participate in or effect any  transaction  in connection  with any joint
        enterprise or other joint  arrangement  with, any Affiliate  (other than
        the  Borrower  and  its  Subsidiaries),   provided,  however,  that  the
        foregoing shall not restrict:

        (a)    transactions  which are on terms and conditions no less favorable
               to  the  Borrower  and  its  Subsidiaries  than  would  apply  in
               comparable arm's-length transactions

                                              95

<PAGE>



               (involving  comparable   circumstances)  with  a  Person  not  an
               Affiliate;  provided that (i) in no event shall payments provided
               for in any management, consulting, advisory or similar agreements
               or   arrangements   (other  than  the  existing   agreements  and
               arrangements  described in SCHEDULE 9) exceed,  in the aggregate,
               DM 10,000,000  (Deutsche  Mark Ten Million) in any calendar year;
               (ii) in no event shall  amounts paid to  Affiliates  as brokerage
               fees in connection with Dispositions to non-Affiliates exceed the
               lesser of (A) 3% (three  percent)  of the Gross  Proceeds  or (B)
               customary fees and expenses  which would be incurred  pursuant to
               an arm's length agreement or arrangement); and (iii) with respect
               to sales  or  transfers  of  product  or  similar  assets  by the
               Borrower or any of its Subsidiaries to Affiliates of the Borrower
               (other than the Borrower and its Subsidiaries) (A) all such sales
               or  transfers  shall be on payment  terms that  provide  for full
               payment in cash on or before 45 (forty-five)  days after the date
               of such sale or transfer  and (B) the  aggregate  amount owing to
               the Borrower and its Subsidiaries for all such sales or transfers
               (net of any amounts  owing by the Borrower  and its  Subsidiaries
               with respect to sales or  transfers of product or similar  assets
               to such  Affiliates of the Borrower) shall not at any time exceed
               $15,000,000  (Fifteen Million Dollars) (or the equivalent  amount
               in any currency);

        (b)    Restricted Payments made in accordance with SECTION 16.20;

        (c)    transactions by the Borrower or any Subsidiary with any Affiliate
               (including,  without  limitation,  loans  and  advances),  to the
               extent  that  the  aggregate  amount  of such  transactions  when
               aggregated with Restricted Payments shall not exceed the limit on
               payments in the periods  specified  under SECTION 16.20 and shall
               otherwise be made in accordance with SECTION 16.20;

        (d)    the Affiliate License Agreements and transactions by the Borrower
               or any Subsidiary  pursuant to the Affiliate License  Agreements;
               or

        (e)    the issuance and payment of the Mirror Notes in  accordance  with
               the terms of the Mirror Notes.

16.16   TRANSACTIONS WITH SUBSIDIARIES

        If  the  Borrower  or  any  Subsidiary,  or  a  Subsidiary  and  another
        Subsidiary, creates or enters into any agreement with a Subsidiary which
        is on terms and conditions  more favorable to such Subsidiary than would
        apply in a similar  agreement  with a Person which is not an  Affiliate,
        then,  in the  event  that  any such  benefitted  Subsidiary  merges  or
        consolidates  with another  entity such that the surviving  entity is no
        longer a  Subsidiary,  or such  agreement  is, or the  benefits  of such
        agreement are, sold (in one transaction or a series of transactions to a
        Person that is not a  Subsidiary),  any such  agreement  involving  such
        benefitted  Person must, prior to such merger,  consolidation or sale of
        assets, be modified so that the terms and conditions thereof would be no
        more favorable than would apply with a Person which is not an Affiliate.

                                              96

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16.17   NOTICE OF DEFAULT; CHANGE OF LAW

        Advise the Agent  promptly upon the Borrower  becoming  aware of (i) any
        Default under this  Agreement or any of the other Loan Documents or (ii)
        any change in law which  would cause any  representation  or warranty in
        SECTION 15.04,  15.05,  15.06,  15.07,  or 15.14 of this Agreement to be
        incorrect if such change in law were in effect on the Second Restatement
        Date.

16.18   LIMITATION OF INDEBTEDNESS

        Not incur any Indebtedness other than Permitted Indebtedness.

16.19   SUBSIDIARY INDEBTEDNESS

        Not  allow  any  Subsidiary  to incur any  Indebtedness  other  than (a)
        Permitted  Indebtedness  or (b)  subject to the  limitations  of SECTION
        16.18,  Indebtedness  in respect of unfunded  vested  benefits under any
        laws governing non-U.S. Employee Plans.

16.20   RESTRICTED PAYMENTS

        Not make or declare any  Restricted  Payments  except for the  following
        Restricted  Payments if no Default  exists or would  result after giving
        effect thereto:

        (a)    As a  result  of the  First  Prepayment,  the  Borrower  may make
               Restricted  Payments  to Kronos  in an  aggregate  amount  not to
               exceed  DM  75,000,000  (Deutsche  Mark  Seventy-Five   Million),
               provided  that (i) none of such  Restricted  Payments may be made
               prior to  January  1,  1995 and  (ii) the  aggregate  of all such
               Restricted  Payments  made  during  calendar  year 1995 shall not
               exceed DM 50,000,000 (Deutsche Mark Fifty Million); and

        (b)    The Borrower  may make  Restricted  Payments to Kronos  and/or NL
               Industries if and to the extent that such payments do not exceed,
               at any time when paid, the positive remainder, if any, of (i) the
               sum of (A) the optional  prepayments  of the Loan made with funds
               provided by Kronos  and/or NL  Industries as described in SECTION
               8.02,   exclusive  of  any  optional   prepayments   directly  or
               indirectly  made with funds  constituting  capital  contributions
               made or Subordinated Debt advanced to the Borrower and satisfying
               all or any portion of the "Maximum Required Investment Amount" as
               such term is defined in the Liquidity  Undertaking  and exclusive
               of the First  Prepayment,  the  Second  Prepayment  and any other
               prepayments made with the proceeds of the NL Subordinated Loan or
               the Kronos  Subordinated  Loan, plus (B) interest  accrued,  at a
               rate not to exceed the average rate of interest applicable to the
               Loans plus 0.50% (one-half of one percent) as of the Business Day
               upon which such Restricted  Payment is made, on any  Subordinated
               Debt  borrowed by the Borrower  from Kronos  and/or NL Industries
               and incurred to finance  such  optional  prepayments  of the Loan
               referred to in

                                              97

<PAGE>



               CLAUSE (A) preceding minus (ii) the amount of Restricted Payments
               then  previously  paid  by  the  Borrower  to  Kronos  and/or  NL
               Industries  pursuant  to this CLAUSE  (B);  for  purposes of this
               CLAUSE  (B), no such  optional  prepayment  (or portion  thereof)
               shall be deemed to have been made with funds  provided  by Kronos
               and/or NL Industries unless, in connection with the prior written
               notice of such  optional  prepayment  given  pursuant  to SECTION
               8.02,  the  Borrower   notifies  the  Agent  that  such  optional
               prepayment (or portion thereof) shall be made with funds provided
               by  Kronos  and/or  NL  Industries  and,  at  the  time  of  such
               prepayment,  the Agent receives evidence reasonably  satisfactory
               to it that such optional  prepayment (or portion  thereof) was in
               fact paid with funds  provided by Kronos and/or NL Industries and
               placed into the Special  Purpose Account (or, if so agreed by the
               Agent, into another special,  restricted  account of the Borrower
               maintained  at,  and  acceptable  to,  the Agent  from  which the
               Borrower   may  not  make   withdrawals   or   otherwise   direct
               distributions  except  with  respect  to any  interest  to accrue
               thereon)  and then applied  against the Loan  pursuant to SECTION
               8.02.

        Notwithstanding   the  foregoing,   the  Borrower  may  make  Restricted
        Payments,  even if the foregoing conditions are not met, but only if and
        to the extent that, prior to or concurrently with the making of any such
        Restricted  Payment,  a cash equity capital  contribution is made to the
        Borrower  by the  Person to whom such  Restricted  Payment is to be made
        such that the sum of Consolidated  Equity plus  Subordinated Debt of the
        Borrower  is at  least  equal  to the sum of  Consolidated  Equity  plus
        Subordinated  Debt of the  Borrower if such  Restricted  Payment had not
        been made.

16.21   MAXIMUM FUNDED DEBT RATIO; MAXIMUM INDEBTEDNESS

        Maintain for each fiscal quarter during the fiscal years set forth below
        a Funded  Debt  Ratio  not  exceeding  the  maximum  Funded  Debt  Ratio
        specified opposite each such fiscal year:

               YEAR                         MAXIMUM FUNDED DEBT RATIO

               1996                             0.95 to 1.00

        Effective as of the Second  Restatement  Date,  allow to exist or remain
        outstanding  Indebtedness  of the  Borrower  and its  Subsidiaries  on a
        consolidated  basis,  exclusive  of the  Indebtedness  evidenced  by the
        Mirror Notes,  that does not, at any time during any  particular  fiscal
        year,  exceed  the  aggregate  amount  set  forth  in  the  table  below
        applicable to such year:


                                              98

<PAGE>



                                                Maximum Aggregate
               YEAR                             AMOUNT OF INDEBTEDNESS

               1997                             DM 430,000,000
               1998                             DM 430,000,000
               1999                             DM 400,000,000
               2000                             DM 300,000,000

16.22   MINIMUM CONSOLIDATED EQUITY

        Maintain for each fiscal quarter during the fiscal years set forth below
        Consolidated  Equity of not less than the  minimum  Consolidated  Equity
        specified opposite each such fiscal year:

               YEAR                         MINIMUM CONSOLIDATED EQUITY

               1997                         DM 1,600,000,000
               1998                         DM 1,325,000,000
               1999                         DM 1,175,000,000
               2000                         DM 1,100,000,000

16.23   CURRENT ASSETS TO CURRENT LIABILITIES RATIO

        Maintain a ratio of Current  Assets to Current  Liabilities  of not less
        than 1.50 to 1.00.

16.24   INTEREST COVERAGE RATIO

        Maintain for the four fiscal  quarters  then ended an Interest  Coverage
        Ratio of not less than the minimum  Interest  Coverage  Ratio  specified
        opposite each date as set forth below:

                 Four Fiscal                       Minimum Interest
               QUARTERS ENDED                        COVERAGE RATIO

               March 31, 1997                         0.65 to 1.00
               June 30, 1997                          0.35 to 1.00
               September 30, 1997                     0.30 to 1.00
               December 31, 1997                      0.30 to 1.00
               March 31, 1998                         0.30 to 1.00
               June 30, 1998                          0.50 to 1.00
               September 30, 1998                     0.80 to 1.00
               December 31, 1998                      1.00 to 1.00
               March 31, 1999                         1.05 to 1.00
               June 30, 1999                          1.15 to 1.00
               September 30, 1999                     1.25 to 1.00
               December 31, 1999                      1.60 to 1.00
               March 31, 2000                         1.75 to 1.00

                                              99

<PAGE>



               June 30, 2000                          2.00 to 1.00

16.25   MINIMUM EBITDA

        Have or achieve,  for each fiscal year set forth  below,  EBITDA that is
        not less than the minimum  EBITDA  specified  opposite  each such fiscal
        year below:

               FISCAL YEAR ENDED                        MINIMUM EBITDA

                  1997                                DM  20,000,000
                  1998                                DM  90,000,000
                  1999                                DM 195,000,000

        For  purposes  of  determining   compliance   with  the  minimum  EBITDA
        requirements  set forth in the  immediately  preceding  sentence,  there
        shall be added to EBITDA during any fiscal year the positive  remainder,
        if any, of (a) the sum of (i) the amount,  if any, of  contributions  to
        the equity of the  Borrower in the form of cash (as  distinguished  from
        the conversion of debt to equity) made by NL Industries or Kronos during
        such  fiscal  year plus (ii) the  amount,  if any,  of loans  made by NL
        Industries or Kronos as Subordinated  Debt during such fiscal year minus
        (b) the sum of (i) the increase in the Restricted  Capital Amount during
        such fiscal year, plus (ii) the aggregate amount of Restricted  Payments
        made during such fiscal  year  pursuant to SECTION  16.20(B);  provided,
        however,  that such addition to EBITDA may occur during no more than two
        separate  fiscal years of the Borrower during the term of this Agreement
        and any such addition  occurring  during any fiscal year shall be wholly
        excluded  for  purposes of  determining  EBITDA  during any other fiscal
        year.

16.26   REGISTERED OFFICE IN GERMANY

        Maintain a registered office in Germany.

16.27   SERVICE CONTRACT OF KRONOS TITAN

        Cause Kronos Titan to maintain the Service  Contract or obtain a renewal
        or renewals,  or a replacement or  replacements,  thereof  providing for
        comparable services during the term of the Leverkusen Lease.

16.28   RESTRICTION ON DIVIDENDS FROM SUBSIDIARIES

        (a)    Without the consent of the Majority Banks, the Borrower shall not
               permit  any of its  Subsidiaries  to incur any  Indebtedness  not
               existing as of the First  Restatement  Date,  which  Indebtedness
               includes a consensual  encumbrance  or restriction on the ability
               of a Subsidiary to pay dividends or distributions or make similar
               payments on its Stock to the Borrower or to any other Subsidiary.


                                             100

<PAGE>



        (b)    Without the consent of the Majority  Banks,  the  Borrower  shall
               not,  nor permit any of its  Subsidiaries  to, amend or refinance
               any  Indebtedness  if such  amendment or  refinancing  includes a
               consensual  encumbrance  or  restriction  on the  ability  of any
               Subsidiary  to pay  dividends  or  distributions  or make similar
               payments on its Stock to the Borrower or to any other  Subsidiary
               to a greater extent than exists with respect to such Indebtedness
               at the time of such amendment or refinancing.

16.29   INVESTMENTS

        Except as otherwise expressly permitted under SECTIONS 16.09 or 16.10 of
        this Agreement,  neither the Borrower nor any of its  Subsidiaries  will
        make or acquire any Investment in any Person other than:

        (a)    Temporary Cash Investments;

        (b)    Investments  by a Subsidiary in the Borrower,  or by the Borrower
               or any of the Subsidiaries in any of the Major Subsidiaries;

        (c)    Investments by the Borrower or by any of its  Subsidiaries in any
               Subsidiary which is not a Major Subsidiary if,  immediately after
               such Investment is made or acquired, the aggregate net book value
               of all  Investments  permitted by this CLAUSE (C) does not exceed
               DM 105,000,000 (Deutsche Mark One Hundred Five Million); and

        (d)    any Investment not otherwise  permitted by the foregoing  clauses
               of this SECTION 16.29 if,  immediately  after such  Investment is
               made or acquired, the aggregate net book value of all Investments
               permitted  by this  CLAUSE  (D) does  not  exceed  DM  25,000,000
               (Deutsche Mark Twenty-Five Million);

        and  provided,  however,  that  neither  the  Borrower  nor  any  of its
        Subsidiaries  shall,  if a Default  exists  and is  continuing,  make or
        acquire any  Investment in any Person other than pursuant to CLAUSES (A)
        and (B) of this SECTION 16.29.

16.30   LIMITATION ON RESTRICTED PAYMENTS

        Not make any Restricted  Payment to any Person if any one or more of the
        following  Persons  shall fail to make  payments when due and payable of
        any of their Indebtedness in an aggregate amount exceeding DM 20,000,000
        (Deutsche  Mark Twenty  Million)  with respect to each such  Person:  NL
        Industries, the Principal Shareholder,  or any corporation Controlled by
        NL Industries and Controlling the Principal Shareholder.


                                             101

<PAGE>



16.31   MAINTENANCE OF PROPERTY; INSURANCE

        Except as otherwise permitted under this Agreement, keep, and cause each
        of its  Subsidiaries  to keep, all property  useful and necessary in its
        business in good working  order and  condition,  ordinary  wear and tear
        excepted and maintain,  and cause each of its  Subsidiaries  to maintain
        (either in the name of the Borrower or in such  Subsidiary's  own name),
        with financially sound and reputable insurance  companies,  insurance on
        all their  property  in at least such  amounts and against at least such
        risks  as are  usually  insured  against  in the  same  general  area by
        companies  of  established  repute  engaged  in the  same  or a  similar
        business; and furnish to the Agent, upon written request from the Agent,
        full  information  as to the  insurance  carried.  SCHEDULE  10 attached
        hereto is a description of the types and amounts of insurance carried by
        the Borrower and its Subsidiaries as of the Second Restatement Date.

16.32   CONTINUATION OF BUSINESS

        Except as otherwise permitted under this Agreement,  continue, and cause
        each of its Major Subsidiaries to continue, to engage in business of the
        same  general  type  as  conducted  by  each  of  them  as of the  First
        Restatement Date, and preserve, renew and keep in full force and effect,
        and cause each of its Major Subsidiaries to preserve,  renew and keep in
        full  force  and  effect  its  respective  corporate  existence  and its
        respective rights,  privileges and franchises  necessary or desirable in
        the normal conduct of business.

16.33   TAXES

        File, and cause each of its Subsidiaries to file, all income tax returns
        and all other  material  tax  returns  that are  required to be filed by
        them;  and timely pay and cause each of its  Subsidiaries  to pay timely
        all taxes due and  payable  for the period  covered  by such  returns or
        pursuant  to  any  assessment  received  by the  Borrower  or any of its
        Subsidiaries,  except  for  those  being  contested  in  good  faith  by
        appropriate   proceedings  and  against  which  adequate   reserves  are
        established and maintained if required in accordance with German GAAP.

16.34   ADDITIONAL GUARANTIES, PLEDGED SUBSIDIARIES, ETC.

        (a)    Cause any  Subsidiary  which is not a Guarantor  as of the Second
               Restatement Date  (including,  without  limitation,  a Subsidiary
               which becomes a Subsidiary after the Second  Restatement Date) to
               become a Guarantor  hereunder  and thereupon  promptly  execute a
               Guaranty in form and  substance  reasonably  satisfactory  to the
               Agent,  to the extent  permitted  by  applicable  law;  provided,
               however,  that no such  Subsidiary  shall be  required to execute
               such a Guaranty if, in the opinion of its independent  counsel or
               counsel  for the Agent,  the  execution  of such  Guaranty  could
               subject the directors or officers of such  Subsidiary to civil or
               criminal liability;  provided,  further,  however, that each such
               Subsidiary  which is not  required to execute  such a Guaranty in
               accordance with the preceding proviso shall

                                             102

<PAGE>



               be  required to execute  such  Guaranty if and when (and within a
               reasonably  prompt time after the occurrence of) any change in or
               clarification  of  applicable  law would permit the  execution of
               such  Guaranty  without the  imposition of such civil or criminal
               liability.

        (b)    Cause any Subsidiary which is not a Pledged  Subsidiary as of the
               Second  Restatement  Date  (including,  without  limitation,  any
               Subsidiary   which   becomes  a   Subsidiary   after  the  Second
               Restatement Date) to become a Pledged Subsidiary and if it or any
               Subsidiary  owns shares of a Subsidiary  which  becomes a Pledged
               Subsidiary, it shall, or shall cause such Subsidiary to, become a
               Pledgor  with  respect  thereto  and  promptly  execute  a Pledge
               Agreement in form and substance  reasonably  satisfactory  to the
               Agent,  to the extent  permitted  by  applicable  law;  provided,
               however,  that neither the Borrower nor any  Subsidiary  shall be
               required to execute a Pledge  Agreement if, in the opinion of its
               independent  counsel or counsel for the Agent,  the  execution of
               such Pledge  Agreement could subject the directors or officers of
               the Borrower or such  Subsidiary to civil or criminal  liability;
               provided,  further,  however,  that if and to the extent that the
               Borrower or any  Subsidiary  is not  required  to execute  such a
               Pledge  Agreement in accordance with the preceding  proviso,  the
               Borrower or such Subsidiary (as applicable)  shall be required to
               execute  such  Pledge   Agreement  if  and  when  (and  within  a
               reasonably  prompt time after the occurrence of) any change in or
               clarification  of  applicable  law would permit the  execution of
               such Pledge  Agreement  without the  imposition  of such civil or
               criminal liability.

16.35   PLEDGED STOCK

        (a)    Except as otherwise  permitted by this Agreement,  not effect nor
               permit any reduction in, or limitation on, by charter,  by-law or
               otherwise,   voting   rights,   rights  to   dividends  or  other
               distributions, or rights of sale by pledgees in foreclosure, with
               respect to the Stock of any Pledged Subsidiaries.

        (b)    Except as otherwise  permitted by this Agreement,  not effect any
               sale,  pledge,  hypothecation,  mortgage  of, nor grant an option
               with respect to, or otherwise transfer,  assign or encumber,  any
               of the Stock of any Pledged Subsidiary.

        (c)    Not permit a Pledged Subsidiary to issue Stock to the Borrower or
               other  Pledgor  that is not subject to a Pledge  Agreement  or as
               otherwise permitted under this Agreement.

        (d)    Not effect or permit,  by  charter,  by-laws,  contract  or other
               arrangement,  any restriction on the rights of the pledgees under
               the Pledge  Agreements to exercise  their rights of sale or other
               rights  or  remedies  in  accordance   with  the  terms  of  such
               agreements.


                                             103

<PAGE>



16.36   PRINCIPAL SHAREHOLDER WAIVER

        If Kronos is no longer the Principal  Shareholder of the Borrower,  then
        any such Person which  becomes a Principal  Shareholder  shall  promptly
        execute,   to  the  extent  not   prohibited  by   applicable   law,  an
        Acknowledgement  of Limitation of Special Damages  substantially  in the
        form of EXHIBIT J to the First Restated Agreement.

16.37   MAXIMUM CAPITAL EXPENDITURES

        Not make or  allow  any  Consolidated  Subsidiary  to make  any  Capital
        Expenditures,  provided,  however that Capital  Expenditures may be made
        if, after giving effect thereto, the aggregate Capital Expenditures made
        during any  fiscal  year do not exceed  the  maximum  aggregate  Capital
        Expenditures specified opposite each such fiscal year below:

                                                   Maximum Aggregate
               YEAR                                CAPITAL EXPENDITURES

               1996                                DM 90,000,000
               1997                                DM 70,000,000
               1998                                DM 60,000,000
               1999                                DM 60,000,000
               2000                                DM 60,000,000
               2001                                DM 60,000,000
               2002                                DM 60,000,000

        and provided further,  however, that Capital Expenditures  exceeding the
        amount  thereof set forth in the preceding  table may be made during any
        fiscal year if and to the extent that (a) such Capital  Expenditures are
        reasonably required to comply with applicable Environmental Laws and the
        Borrower provides  reasonable  evidence of such requirement to the Agent
        and (b) such Capital  Expenditures have not been previously  budgeted or
        otherwise  planned  to occur  during  such  fiscal  year,  and  provided
        further,  however,  that the  Borrower  may,  in addition to the maximum
        aggregate  Capital  Expenditures  allowed  in the  table  above  for any
        particular  fiscal year,  make Capital  Expenditures  during such fiscal
        year of an amount  equal to the positive  remainder  (if any) of (i) the
        maximum  aggregate Capital  Expenditures  allowed in the table above for
        the immediately  preceding fiscal year minus (ii) the aggregate  Capital
        Expenditures  actually  made during such  immediately  preceding  fiscal
        year.  In  addition,  and  notwithstanding   anything  to  the  contrary
        contained in the immediately  preceding  sentence,  the Borrower and its
        Consolidated  Subsidiaries  shall, during each fiscal year subsequent to
        1996, make Capital Expenditures of not less than DM 40,000,000 (Deutsche
        Mark  Forty  Million)  (or the  equivalent  amount in any  currency)  in
        aggregate amount.


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<PAGE>



16.38   MIRROR NOTES; SUBORDINATED LOANS

        (a)    Not  make  any  payment  (whether  principal,  interest  or other
               payment in any form) of, on or with respect to the Mirror  Notes,
               the NL Subordinated Loan or the Kronos  Subordinated Loan, except
               for payments of principal  and interest on or with respect to the
               Mirror  Notes in amounts not to exceed the amounts  then due made
               on or after the due dates for such  payments,  which  payments of
               principal  are (in the  absence of any  acceleration  of maturity
               upon the occurrence of a default) due,  respectively,  on October
               20, 2003 and October 20, 2005; and

        (b)    Not amend or modify any of the Mirror  Notes or the  Subordinated
               Loan Documents  without the prior written consent of the Majority
               Banks (662/3%) (i) to increase the principal amount of any of the
               Mirror  Notes  or  the  NL   Subordinated   Loan  or  the  Kronos
               Subordinated  Loan,  (ii) to shorten the maturity of, or any date
               for the payment of any  principal  of or interest  on, any of the
               Mirror  Notes  or  the  NL   Subordinated   Loan  or  the  Kronos
               Subordinated  Loan,  (iii) to increase the rate of interest on or
               with  respect to any of the Mirror  Notes or the NL  Subordinated
               Loan or the Kronos  Subordinated Loan, (iv) to otherwise amend or
               modify any of the  payment  terms of the  Mirror  Notes or the NL
               Subordinated  Loan or the Kronos  Subordinated Loan other than to
               waive or cancel any  payment  obligations  of the  Borrower  with
               respect thereto or to contribute such  Indebtedness to the equity
               capital of the  Borrower or a  Subsidiary,  (v) to  increase  any
               cost,  fee or expense  payable by the  Borrower,  (vi) to add any
               collateral  as security for payment or  collection  of any of the
               Mirror  Notes  or  the  NL   Subordinated   Loan  or  the  Kronos
               Subordinated  Loan or  (vii)  in any  other  respect  that  would
               reasonably  be  expected  to be  adverse to the  Borrower  or any
               Subsidiary.

16.39   NOTIFICATION OF INDENTURE DEFAULTS

        Promptly  notify the Agent of the  occurrence of any "Default" or "Event
        of Default", as such terms are defined in either of the Indentures.

16.40   BANK ACCOUNTS

        The  Borrower  shall  cause all cash  balances of the  Borrower  and its
        Subsidiaries,   other  than  Kronos  World  Services  S.A./N.V.,  to  be
        maintained at Hypobank  International S.A. (or any affiliate of Hypobank
        International  S.A.  acceptable  to the Agent) or another Bank (party to
        this  Agreement)  or  branch  of  such  Bank  acceptable  to the  Agent;
        provided,  however,  that an  aggregate  amount of cash  balances not to
        exceed DM 30,000,000  (Deutsche Mark Thirty  Million) (or the equivalent
        amount  in  any   currency)   may  be  maintained  by  the  Borrower  or
        Subsidiaries of the Borrower at other  financial  institutions if and to
        the extent that it is not feasible for the Borrower or such Subsidiaries
        to  maintain  cash  balances  with  Hypobank  International  S.A. or its
        affiliates or another Bank or branch of such Bank.  The Borrower  shall,
        and shall cause each of its Canadian  Subsidiaries to, from time to time
        as may be necessary, pledge to the Agent as security for the Loans,

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        pursuant to agreements,  documents and instruments in form and substance
        reasonably  satisfactory  to the Agent which shall create first priority
        Liens  (except as provided in SECTION  17.05),  all cash balances of the
        Borrower and its Canadian Subsidiaries,  and the Borrower will, and will
        cause each of its Canadian  Subsidiaries to, at all times cause its cash
        balances to be so pledged.

                                    ARTICLE 17.  COLLATERAL

17.01   As security for the  repayment of the Loans and the  performance  of all
        other  obligations  of the  Borrower  to the Banks (and in  addition  to
        certain  undertakings,  covenants and other  agreements),  the following
        documents  were executed and  delivered in connection  with the Original
        Agreement or the First Approval Agreement:

        (a)    Pledge dated as of May 30, 1990,  executed by the Borrower to and
               in favor of the  Agent  relating  to the  Stock of NL  Industries
               (Deutschland)   GmbH,  Kronos  Chemie  GmbH  and  Schraubenfabrik
               Neustadt Goetz & Cie. GmbH, as amended and reaffirmed;

        (b)    Pledge dated as of May 30, 1990, executed by NL Industries to and
               in favor of the  Agent  relating  to the  Stock of NL  Industries
               (Deutschland) GmbH, as amended and reaffirmed;

        (c)    Deed of  Security  dated  as of May 30,  1990  and as of June 19,
               1992,   executed   by  the   Borrower,   the  Agent  and  Societe
               Industrielle du Titane S.A.,  Assignment of Dividends dated as of
               May 30, 1990 and as of June 19, 1992,  executed by the  Borrower,
               the Agent and Societe Industrielle du Titane S.A. and Declaration
               of Pledge dated as of June 19, 1992, executed by the Borrower and
               Societe Industrielle du Titane S.A. to and in favor of the Banks,
               all relating to the Stock of Societe Industrielle du Titane S.A.;

        (d)    Pledge  Agreement of Registered  Shares dated as of May 30, 1990,
               executed by the Borrower to and in favor of the Agent relating to
               the Stock of Kronos  S.A./N.V.  (including  power of attorney and
               notice  of   assignment   relating   thereto),   as  amended  and
               reaffirmed, and Pledge Agreement of Registered Shares dated as of
               May 28,  1993,  executed  by the  Borrower to and in favor of the
               Agent relating to the Stock of Kronos Europe S.A./N.V. (including
               power of attorney and notice of assignment relating thereto);

        (e)    Pledge  Agreement  dated  as of May  30,  1990,  executed  by the
               Borrower  to and in favor of the Agent  relating  to the Stock of
               Kronos Norge A/S, as amended and reaffirmed;

        (f)    Legal  Mortgage of Shares dated as of May 30,  1990,  executed by
               the  Borrower to and in favor of the Agent  relating to the Stock
               of Kronos Limited (including power of attorney relating thereto),
               as amended and reaffirmed;

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        (g)    Pledge  of  Shares  dated  as of May 30,  1990,  executed  by the
               Borrower  to and in favor of the Agent  relating  to the Stock of
               Kronos Canada, Inc., as amended and reaffirmed;

        (h)    Stock Pledge Agreement dated as of May 30, 1990,  executed by the
               Borrower  to and in favor of the Agent  relating  to the Stock of
               Kronos Europe, Inc., as amended and reaffirmed;

        (i)    Guaranty  dated as of May 30,  1990,  executed by Kronos  Europe,
               Inc. to and in favor of the Agent, as amended and reaffirmed;

        (j)    Guaranty  dated as of March 22, 1991,  executed by NL  Industries
               and  Kronos  (US)  to and in  favor  of  Agent,  as  amended  and
               reaffirmed (which Guaranty has been fully performed);

        (k)    Guarantee  Agreement dated as of May 10, 1991, executed by Kronos
               Canada,  Inc.  to and in  favor  of the  Agent,  as  amended  and
               reaffirmed;

        (l)    Special  Purpose  Account  Agreement  dated  as of May 15,  1992,
               executed  by NL  Industries,  Kronos  (US) (then known as Kronos,
               Inc.) and the  Borrower to and in favor of the Agent  relating to
               the Special Purpose Account;

        (m)    Declaration dated as of June 15, 1992,  executed by the Borrower,
               NL  Industries  and  Kronos  (US)  relating  to the pledge of the
               Special  Purpose  Account  (and  additional   documents  relating
               thereto);

        (n)    Pledge of Shares dated as of September 30, 1993,  executed by the
               Borrower  to and in favor of the Agent  relating  to the Stock of
               2927527 Canada Inc.; and

        (o)    Guarantee  Agreement dated as of September 30, 1993,  executed by
               2927527 Canada Inc. to and in favor of the Agent.

17.02   As  additional   security  for  the  repayment  of  the  Loans  and  the
        performance of all other  obligations of the Borrower to the Banks,  the
        documents  referred to in CLAUSES (I)(A) through (C) of SECTION  4.01(A)
        of the First Restated Agreement were executed and delivered concurrently
        with the First Restatement Date.

17.03   As  additional   security  for  the  repayment  of  the  Loans  and  the
        performance of all other  obligations of the Borrower to the Banks,  the
        documents  referred to in  Paragraphs  3(h),  3(i) and 3(k) of the First
        Approval  Agreement,  if required to be executed  under such  agreement,
        were  executed  and  delivered  in  accordance  with,  and at the  times
        specified in, the First Approval Agreement.


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17.04   As  additional   security  for  the  repayment  of  the  Loans  and  the
        performance of all other  obligations of the Borrower to the Banks,  the
        following  documents have been, or will be concurrently  with the Second
        Restatement Date, executed and delivered:

        (a)    (i)    Pledge  of  Shares  dated  as of  November  5,  1993,
                      executed  by the  Borrower  to and in favor  of the  Agent
                      relating to the Stock of 2969157  Canada Inc.,  as amended
                      and reaffirmed;

               (ii)   Guarantee Agreement dated as of November 5, 1993, executed
                      by 2969157  Canada Inc.  to and in favor of the Agent,  as
                      amended and reaffirmed;

               (iii)  Amendment and  Reaffirmation  of Pledge Agreement dated as
                      of January  28,  1994,  executed by the  Borrower  and the
                      Agent  confirming the pledge of 48,313 new shares of Stock
                      of  Kronos  Norge A/S  issued  by Kronos  Norge A/S to the
                      Borrower;

               (iv)   Pledge  Agreement of ZCON and ZCON  Agreement  dated as of
                      February 2, 1994, executed by the Borrower to and in favor
                      of the Agent  relating  to the pledge of the  Subordinated
                      Zero  Coupon  Option  Note dated  March 15,  1993,  in the
                      principal  amount  of NOK 110  million  issued  by  Kronos
                      Europe  S.A./N.V.  (then  known as  Kronos  S.A./N.V.)  to
                      Kronos Norge A/S and the Agreement dated January 29, 1993,
                      between Kronos Europe  S.A./N.V.  and Kronos Norge A/S and
                      the ZCON Amendment Agreement dated March 15, 1993;

               (v)    Amendment and  Reaffirmation  of Pledge of Shares dated as
                      of January 1, 1994, executed by the Borrower and the Agent
                      relating to the Stock of 2927527 Canada Inc.; and

               (vi)   Amendment and  Reaffirmation  of Pledge of Shares dated as
                      of January 1, 1994, executed by the Borrower and the Agent
                      relating to the Stock of 2969157 Canada Inc.;

        (b)    Amended and Restated Pledge  Agreement dated as of June 26, 1996,
               executed by the Borrower to and in favor of the Agent relating to
               the pledge of 53,427 newly issued shares and 532,196 newly issued
               shares of Stock of Kronos Norge A/S and that  certain  Promissory
               Note and Agreement dated June 26, 1996, in the original principal
               amount of NOK 200,000,000 made by Kronos Norge A/S payable to the
               order of the Borrower; and

        (c)           (i) the Nordenham Mortgage executed by Kronos Titan to and
                      in favor of the Agent,  which Lien  document  shall secure
                      only the  principal  amount of the Kronos Titan  Revolving
                      Portion  which has at any time been  advanced  directly to
                      Kronos  Titan  and  which  is   outstanding  at  any  time
                      (including the principal thereof, interest accrued thereon
                      and fees incurred with respect

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                      thereto)   and  the   priority  of  which  Lien  shall  be
                      subordinate  only to (A) the  existing  Lien in  favor  of
                      Westdeutsche  Landesbank securing an actual (as opposed to
                      nominal)  aggregate  amount  not to  exceed  DM  4,000,000
                      (Deutsche Mark Four Million) of principal  Indebtedness at
                      any time  outstanding,  (B) the existing  Lien in favor of
                      the  German  tax  authorities  securing  claims  for taxes
                      (including  interest) of the Borrower and its Subsidiaries
                      owed to the German tax  authorities  for fiscal  year 1990
                      not to exceed DM  100,000,000  (Deutsche  Mark One Hundred
                      Million) and (C) any (if any) Permitted  Liens referred to
                      in  CLAUSES  (D) and  (E) of the  definition  of the  term
                      "Permitted Liens";

               (ii)   the Canadian Security Documents executed by Kronos Canada,
                      Inc.,  2927527  Canada Inc.  and 2969157  Canada Inc.  (as
                      applicable) to and in favor of the Agent;

               (iii)  the  Cash  Pledge  Agreements  executed  by the  Borrower,
                      Kronos  Canada,  Inc.,  2927527  Canada  Inc.  and 2969157
                      Canada Inc. (as  applicable) to and in favor of the Agent;
                      and

               (iv)   the NL Guaranty  executed by NL Industries to and in favor
                      of the Agent.

17.05   The  Borrower  covenants  and  agrees  that,   pursuant  to  the  Pledge
        Agreements,  the Nordenham Mortgage, the Canadian Security Documents and
        the Cash Pledge  Agreements,  the Agent,  as Agent for the Banks,  shall
        have a Lien in and to (a) the Stock of the Pledged Subsidiaries, (b) the
        Nordenham plant of Kronos Titan,  (c) all material assets and properties
        of Kronos  Canada,  Inc.,  2927527  Canada Inc. and 2969157  Canada Inc.
        (including,  without limitation,  the Varennes,  Quebec, Canada plant of
        Kronos  Canada,  Inc. and the Kronos Canada Note held by 2969157  Canada
        Inc. but excluding the stock of Kronos World Services S.A./N.V. owned by
        Kronos  Canada,  Inc.),  and (d) certain bank  accounts of the Borrower,
        Kronos Canada, Inc., 2927527 Canada Inc. and 2969157 Canada Inc., all as
        security for the Loans  (including,  without  limitation,  the Revolving
        Portion and any reborrowings of the Revolving  Portion to be advanced on
        the date of any drawdown  thereof).  The Borrower further  covenants and
        agrees that all of such Liens referred to in the  immediately  preceding
        sentence shall constitute perfected first priority Liens in favor of the
        Agent for the benefit of the Agent and the Banks and the  properties and
        assets  affected  thereby  shall not be subject to any other Liens other
        than  Permitted  Liens referred to in CLAUSE (D), (E), (F) or (I) of the
        definition of the term "Permitted  Liens" in this  Agreement;  provided,
        however,  that (A) the Lien created by the  Nordenham  Mortgage may have
        the priority  specified in CLAUSE (I) of SECTION 17.04(C),  (B) the Lien
        referred to in CLAUSE (B) preceding may be  subordinate  to any (if any)
        Permitted  Liens referred to in CLAUSES (D) and (E) of the definition of
        the term "Permitted  Liens", and (C) the Liens referred to in CLAUSE (C)
        preceding may be subordinate to any (if any) Permitted Liens referred to
        in CLAUSES (D), (E), (F) and, as to Liens affecting assets or properties
        of Kronos Canada,  Inc. only, (H) of the term "Permitted Liens", and the
        Banks  hereby  expressly  authorize  the Agent to take all  actions  and
        execute all instruments

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        on their behalf necessary to subordinate its Liens referred to in CLAUSE
        (C) preceding  affecting assets or properties of Kronos Canada,  Inc. to
        the Liens referred to in CLAUSE (H) of the term "Permitted Liens".

                                ARTICLE 18.  EVENTS OF DEFAULT

        If,  for  whatever  reason,  any of the  following  shall  occur  and be
continuing:

18.01   The  Borrower  shall fail to pay  principal  of the Loan or any  portion
        thereof on the due date  therefor;  shall fail to pay any interest  with
        respect to the Loan or any portion  thereof  within five (5) days of the
        due date  therefor;  or shall fail to pay any fee or any other sum which
        shall have become due under this  Agreement  or any other Loan  Document
        within  five (5) days after  notice from the Agent;  provided,  however,
        that no  failure  of the  Borrower  to pay  principal  on the  due  date
        therefor shall be an Event of Default (as  hereinafter  defined) if, and
        only if, NL Industries or Kronos pays such principal on such due date;

18.02   The Borrower  ceases to be,  directly or  indirectly,  a  majority-owned
        subsidiary of NL Industries.

18.03   The  Leverkusen  Lease is  voluntarily  modified,  or is  terminated  or
        shortened  or there is a  Disposition  of the  Leverkusen  Lease,  or an
        agreement  providing for the Disposition,  modification,  termination or
        shortening of the Leverkusen Lease shall be entered into during the term
        of the Loan or while any payments due and payable by the Borrower remain
        outstanding,  unless such Disposition,  modification,  termination of or
        agreement  with  respect  to the  Leverkusen  Lease  will  result in the
        payment of full, fair and reasonable consideration to Kronos Titan.

18.04   The lessor  under the  Leverkusen  Lease  exercises  or has the right to
        exercise  immediately any remedies or rights of reversion or termination
        thereunder  or, with respect to rental  payments  required in accordance
        with the Leverkusen  Lease, the lessee fails to make rental payments for
        a period of 2 (two)  quarters or, if there is a bona fide  dispute,  the
        lessee fails to make rental payments for a period of 4 (four) quarters.

18.05   The Service  Contract is  terminated,  modified or  Disposition  is made
        thereof  during the term of the  Leverkusen  Lease  unless  replaced  or
        renewed with a contract or provisions  providing for comparable services
        which  replacement  continues during the term of the Leverkusen Lease or
        unless the Disposition of the Service  Contract or any such  replacement
        occurs  concurrently  with the Disposition,  termination,  shortening or
        modification  of the  Leverkusen  Lease in accordance  with the terms of
        this Agreement.

18.06   Any  representation,  warranty,  certification  or statement made by the
        Borrower or any Affiliate (including, without limitation, NL Industries,
        Kronos (US),  Kronos and the  Subsidiaries)  in any Loan Document  shall
        prove to have been incorrect in any material respect when made or deemed
        to have been made or repeated, as the case may be.

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<PAGE>




18.07   Except  as set  forth on  SCHEDULE  4, any Loan  Document  or any of the
        obligations  of  the  Borrower  or  any  Affiliate  (including,  without
        limitation,  NL Industries,  Kronos (US),  Kronos and the  Subsidiaries)
        thereunder  shall  cease in any  material  respect to be legally  valid,
        binding and enforceable in accordance with the respective  terms of such
        Loan Document,  or any Guarantor shall state its intention,  in writing,
        to revoke its Guaranty.

18.08   The Borrower  and/or any Subsidiary  shall fail to observe or perform in
        any  material  respect any  covenant or  agreement  contained in SECTION
        16.08  (to  the  extent  that  Borrower  or  any  of  its   Subsidiaries
        voluntarily  creates or permits  to exist any Lien,  except a  Permitted
        Lien) or SECTIONS 16.09,  16.10,  16.17 through 16.25, 16.30 or 16.38 of
        this Agreement.

18.09   The Borrower and/or any Affiliate  (including,  without  limitation,  NL
        Industries,  Kronos  (US),  Kronos and the  Subsidiaries)  shall fail to
        observe  or  perform  in any  material  respect  any other  covenant  or
        agreement  contained in any Loan Document (and not constituting an Event
        of Default  under any other  clause of this ARTICLE 18) and such failure
        shall  continue for 30 (thirty)  days after written  notice  thereof has
        been given to the Borrower by the Agent.

18.10   Any Company,  NL Industries,  Kronos,  the Principal  Shareholder or any
        corporation  which is  Controlled  by NL  Industries  and  Controls  the
        Principal Shareholder becomes insolvent for the purposes of any relevant
        law, or shall commence a voluntary action or other  proceedings  seeking
        liquidation,  reorganization or other relief with respect to itself, its
        properties  or its  debts  under  any  bankruptcy,  insolvency  or other
        similar law now or hereafter in effect,  or seeking the appointment of a
        trustee, receiver, liquidator, custodian or other similar official of it
        or any substantial part of its property,  or shall consent to any relief
        or to the appointment of or taking or possession by any such official in
        an involuntary case or other proceeding  commenced  against it, or shall
        make a general  assign ment for the benefit of creditors,  or shall fail
        generally  to pay its  debts  as they  become  due,  or  shall  take any
        corporate action to authorize any of the foregoing.

18.11   An involuntary  action or other  proceedings  shall be commenced against
        any Company,  NL Industries,  Kronos,  the Principal  Shareholder or any
        corporation  which is  Controlled  by NL  Industries  and  Controls  the
        Principal  Shareholder  seeking  liquidation,  reorganization  or  other
        relief with respect to it or its debt under any  bankruptcy,  insolvency
        or  other  similar  law  now or  hereafter  in  effect  or  seeking  the
        appointment  of a  trustee,  receiver,  liquidator,  custodian  or other
        similar official of it or any substantial part of its property, and such
        involuntary  case or  other  proceeding  shall  remain  undismissed  and
        unstayed for a period of 75  (seventy-five)  days; or an order of relief
        shall be entered against any such corporation  under any bankruptcy laws
        as now or hereafter in effect;

18.12   Indebtedness  of (i) the  Borrower  and/or  any  Subsidiary  or (ii) the
        Principal  Shareholder,  in  either  such  case in an  aggregate  amount
        exceeding  DM  20,000,000   (Deutsche  Mark  Twenty   Million)  (or  the
        equivalent amount in any currency) is not paid when due after any

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        applicable  grace  period or is not paid if it becomes  due and  payable
        prior to its  specified  maturity,  or any  creditor or creditors of the
        Borrower or any of its Subsidiaries or the Principal Shareholder becomes
        entitled  immediately to declare any such  Indebtedness  due and payable
        prior to its specified maturity;

18.13   One or more final judgments or non-appealable  orders for the payment of
        money in excess of DM  10,000,000  (Deutsche  Mark Ten  Million) (or the
        equivalent  amount in any  currency)  for all such  judgments  or orders
        shall  be  rendered  against  the  Borrower  and/or  any  of  its  Major
        Subsidiaries,  and such judgments or orders shall  continue  unsatisfied
        and in effect for a period of 10 (ten) consecutive days;

18.14   Any other  event  occurs or  circumstances  arise  with  respect  to the
        Borrower and/or its Subsidiaries  which in the reasonable opinion of the
        Majority Banks is likely to materially  adversely  affect the ability of
        the  Borrower  to perform  its  obligations  with  respect to  payments,
        Collateral or Liens under the Loan Documents;

18.15   The  occurrence of an "Event of Default"  (whether or not such an "Event
        of  Default"  is  declared  or any  remedy  is  exercised  with  respect
        thereto), as such term is defined in either of the Indentures; or

18.16   (a) Either of the  Indentures or any of the NL Notes shall be amended or
        modified  without  the  prior  written  consent  of the  Majority  Banks
        (662/3%)  (i) to increase the  principal  amount of any of the NL Notes,
        (ii) to  shorten  the  maturity  of, or any date for the  payment of any
        principal of or interest on, any of the NL Notes,  (iii) to increase the
        effective  rate of interest or discount on or with respect to any of the
        NL Notes,  (iv) to  increase  any cost,  fee or  expense  payable  by NL
        Industries  or any of its  subsidiaries,  (v) to add any  collateral  as
        security for payment or  collection  of any of the NL Notes,  or (vi) in
        any other respect that would be  materially  adverse to NL Industries or
        any of its  subsidiaries,  (b) NL  Industries  shall  elect  to make any
        optional  redemption or optional prepayment of principal of, interest on
        or other  amount  with  respect  to the NL Notes (or any of such  notes)
        without the prior written consent of the Majority Banks (662/3%), or (c)
        the  Borrower  shall  voluntarily  or  involuntarily  make a payment  of
        principal  of,  interest  on or  other  amount  with  respect  to the NL
        Subordinated  Loan or the Kronos  Subordinated  Loan  without  the prior
        written consent of the Majority Banks (662/3%); or

18.17   The First Prepayment or any portion thereof or the Second  Prepayment or
        any  portion  thereof,  for any  reason,  is  determined  by a court  of
        competent jurisdiction to be void or invalid as a fraudulent transfer, a
        preference or the like or is otherwise required to be disgorged;

        then unless such an event (an "Event of Default")  shall have been cured
        or waived in accordance  with the  applicable  terms of this  Agreement,
        except for an event under  SECTIONS  18.10 or 18.11,  the Agent may, and
        upon  instruction  of the Majority  Banks  shall,  at any time after the
        occurrence  of such  Event  of  Default  by  notice  in  writing  to the
        Borrower,  declare that the Loan and all outstanding balances hereunder,
        together with

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        accrued interest thereon, and all other sums whatsoever payable pursuant
        to this Agreement and/or any other Loan Document have become immediately
        due and payable and that the Commitment of any Bank under this Agreement
        shall have terminated, without presentment, demand, protest or any other
        notice of any kind,  all of which are expressly  waived by the Borrower,
        and  exercise  any and all other  rights or remedies of the Agent and/or
        the  Banks  under  the  Loan  Documents  or  otherwise  available  under
        applicable  law (none or which rights or remedies are waived).  Upon the
        occurrence of any event in SECTION 18.10 or 18.11 above, the Commitments
        of the  Banks  shall  automatically  terminate  and  the  Loan  and  all
        outstanding  balances hereunder,  accrued interest thereon and all other
        sums whatsoever payable pursuant to this Agreement and/or any other Loan
        Document   shall   automatically   become  due  and   payable,   without
        presentment,  demand,  protest  or notice of any kind,  all of which are
        expressly waived by the Borrower.  The occurrence of an Event of Default
        shall  entitle  the Agent  and the Banks to  enforce  their  rights  and
        remedies  under the Loan  Documents  and  against  any  Collateral,  and
        otherwise  as  permitted  by  applicable  law,  and the  same  shall  be
        cumulative,  non-exclusive  and  concurrent  against the  Borrower,  its
        Affiliates  or  any  other   obligated   party  for  payment  of  and/or
        performance  under  the Loan or any of the Loan  Documents,  or any part
        thereof,  or against any one or more of them, or against the Collateral,
        at the sole discretion of the Agent and the Banks,  and may be exercised
        as often as  occasion  therefor  shall  arise,  it being  agreed  by the
        Borrower  that the  exercise of or failure to exercise any of same shall
        in no event be construed as a waiver or release thereof or of any right,
        remedy or recourse.

                                       ARTICLE 19.  FEES

19.01   On or before the Second  Restatement Date, the Borrower shall pay to the
        Agent,  for  distribution  amongst the Banks, a closing fee in an amount
        equal to 1/2 of 1%  (one-half  of one  percent)  of the sum of, for each
        such  Bank  and as of  the  Second  Restatement  Date,  the  outstanding
        principal  amount of the Term Portion of the Loans of such Bank plus the
        maximum amount of such Bank's  Revolving  Commitment (in each case after
        giving effect to the prepayments and the reduction in the maximum amount
        of the Revolving Portion to occur on the Second Restatement Date). On or
        before  January  29,  1997,  the  Borrower  shall pay to the Agent,  for
        distribution amongst each of the Banks who consents to this Agreement on
        or before January 24, 1997, whether or not this Agreement is executed by
        the  Majority  Banks,  an  additional  closing fee in an amount equal to
        1/10th of 1%  (one-tenth  of one percent) the sum of, for each such Bank
        and as of the Second Restatement Date, the outstanding  principal amount
        of the Term Portion of the Loans of such Bank plus the maximum amount of
        such Bank's  Revolving  Commitment  (in each case after giving effect to
        the prepayments and the reduction in the maximum amount of the Revolving
        Portion to occur on the Second  Restatement  Date). On or before January
        29, 1997, the Borrower  agrees to pay 40% (forty percent) of the closing
        fee referred to in the first sentence of this SECTION 19.01 preceding to
        each of the Banks who consents to this  Agreement  on or before  January
        24,  1997,  whether or not this  Agreement  is executed by the  Majority
        Banks.


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19.02   The Borrower shall pay to the Agent for its own account an annual agency
        fee in  Deutsche  Mark in the  amounts  and on the  dates  stated in the
        letter dated as of May 30, 1990 to the Agent from the Borrower,  as such
        letter may be amended from time to time. In addition,  and in connection
        with this  Agreement,  the  Borrower  shall pay to the Agent for its own
        account the fees in the  amounts  and on the dates  stated in the letter
        dated December 30, 1996 to the Agent from the Borrower.

19.03   The Borrower shall pay to the Agent for  distribution  amongst the Banks
        pro rata according to each Bank's Revolving Commitment a commitment fee,
        with respect to the Revolving Portion,  equal to one-half of one percent
        (0.50%) per annum of the average Revolving Portion  Availability  during
        the applicable  period.  Such  commitment fee shall be payable,  for the
        period from the First  Restatement  Date through  June 30, 2000,  on the
        last day of each calendar  quarter during the term of the First Restated
        Agreement or this Agreement (commencing December 31, 1993) and on August
        15, 2000,  and shall be calculated for the actual number of days elapsed
        on the basis of a 365 (three hundred sixty-five) day year.

19.04   All of the fees paid or payable by the Borrower pursuant to the Original
        Agreement,  the First Restated  Agreement,  this Agreement and the other
        Loan Documents shall be nonrefundable.

                               ARTICLE 20.  EXPENSES AND DUTIES

20.01   The  Borrower  shall  reimburse  the Agent on demand for all  reasonable
        out-of-pocket  charges and expenses  incurred by the Agent in connection
        with  the  preparation,   negotiation  and  execution  of  the  Original
        Agreement,  the First Restated  Agreement,  this Agreement and the other
        Loan  Documents  (including,  without  limitation,  fees and expenses of
        legal  advisors)  and  reimburse  the  Agent on  demand  for  reasonable
        out-of-pocket charges and expenses in connection with the publication of
        this  transaction.  The Borrower shall reimburse the Agent on demand for
        fees and expenses of legal  advisors,  financial  consultants  and other
        consultants  in  connection  with  the   preparation,   negotiation  and
        execution of the Original Agreement, the First Restated Agreement,  this
        Agreement and the other Loan Documents.

20.02   The Borrower  shall  reimburse the Agent and the Banks on demand for all
        reasonable,  out-of-pocket  charges and expenses  (including legal fees)
        reasonably  incurred by them or any of them in, or in  connection  with,
        any modification of, the enforcement of, or preservation of rights under
        the Original Agreement, the First Restated Agreement, this Agreement and
        the other Loan Documents, provided that prior to an Event of Default the
        Borrower  shall not be  obligated  to pay the fees and  expenses of more
        than one law firm (unless questions arise under laws of jurisdictions in
        which the principal  firms engaged are not  authorized to practice law),
        and, after an Event of Default,  the Borrower shall  reimburse the Banks
        for the fees and  expenses of counsel  for each such Bank in  connection
        with the  modification,  enforcement or  restructuring of this Agreement
        and the other Loan  Documents,  and  provided  further that the Borrower
        shall not be obligated to pay under the

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        Original Agreement, the First Restated Agreement,  this Agreement or any
        of the other Loan Documents  losses,  costs or expenses  arising from or
        relating to disputes  solely  among the Agent and the Banks,  or losses,
        costs or  expenses  of the  Agent or any Bank  resulting  from its gross
        negligence or wilful misconduct.

20.03   The  Borrower  shall pay any and all  stamp,  registration  and  similar
        taxes,  duties and  charges of  whatsoever  nature  (but  excluding  all
        Excluded  Taxes) which may be payable or determined to be payable on, or
        in  connection   with,   the  execution,   registration,   notarization,
        performance or enforcement of the Original Agreement, the First Restated
        Agreement,  this  Agreement and the other Loan  Documents.  The Borrower
        shall  indemnify the Agent and the Banks against any and all liabilities
        with respect to or  resulting  from delay or omission on the part of the
        Borrower to pay any such taxes, duties or charges.

20.04   The Borrower  shall  reimburse  the Agent on demand for all  reasonable,
        out-of-pocket charges and expenses (including, without limitation, legal
        fees and fees of financial consultants and other consultants) reasonably
        incurred  by it in,  or in  connection  with,  periodic  monitoring  and
        determination of on-going compliance (or non-compliance, as the case may
        be) with the terms and  provisions of this  Agreement and the other Loan
        Documents.  The Borrower  acknowledges  and agrees that,  in addition to
        legal  advisors,  such  consultants  may  include,  without  limitation,
        industry, tax, accounting and environmental consultants.

                             ARTICLE 21.  THE AGENT AND THE BANKS

21.01   Each Bank hereby  irrevocably  appoints the Agent to act as its agent in
        connection with this Agreement and the Loan Documents and authorizes the
        Agent to exercise such rights,  remedies,  powers and  discretion as are
        specifically  delegated to the Agent by the terms of this  Agreement and
        the Loan Documents together with all such rights,  powers and discretion
        as are reasonably incidental thereto.

21.02   When acting in connection with the Loan Documents, the Agent may:

        (a)    assume that no Default has occurred and that the parties  thereto
               are not in  breach or  default  of their  respective  obligations
               thereunder   unless  the   officers  of  the  Agent   immediately
               responsible  for matters  concerning  this  Agreement  shall have
               actual knowledge or shall have been notified in writing by a Bank
               that such Bank  considers that a Default exists and is continuing
               and specifying the nature thereof;

        (b)    assume that each Bank's  Lending Office is that  identified  with
               its signature  below and on SCHEDULE 1 until it has received from
               such Bank written  notice  designating  some other office of such
               Bank as its Lending  Office and  continue to act upon such notice
               until the same is superseded by a further such notice;


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        (c)    subject to the  provisions of SECTION  20.02,  engage and pay for
               the  advice or  services  of any  lawyers,  accountants  or other
               experts  whose  advice  or  services  may to it  seem  necessary,
               expedient  or  desirable  and  fully  rely  upon  any  advice  so
               obtained;

        (d)    rely as to any matters of fact which might reasonably be expected
               to be  within  the  knowledge  of  the  Borrower  or  any  of its
               Affiliates  upon a certificate  signed by an officer on behalf of
               such entity;

        (e)    rely upon any  communication  or  document  believed  by it to be
               genuine;

        (f)    refrain from exercising any right,  power or discretion vested in
               it hereunder unless and until instructed by the Majority Banks as
               to the manner in which such right,  power or discretion should be
               exercised; and

        (g)    refrain from acting in accordance  with any  instructions  of the
               Majority  Banks to begin any legal action or  proceeding  arising
               out of or in connection  with the Loan  Documents  until it shall
               have been indemnified by the Banks to its reasonable satisfaction
               against  any and all costs,  claims,  expenses  (including  legal
               fees)  and  liabilities  which it will or may  expend or incur in
               complying with such instructions.

21.03   The Agent shall:

        (a)    subject to the provisions of this Agreement, promptly inform each
               Bank of the contents of any written  notice or document  received
               by it from the Borrower hereunder;

        (b)    promptly  notify each Bank of the occurrence of any Default under
               this  Agreement  of which the Agent has received  written  notice
               from a Bank pursuant to SECTION 21.02;

        (c)    subject to the  provisions of this  Agreement,  act in accordance
               with any written instructions given to it by the Majority Banks;

        (d)    if so instructed by the Majority  Banks in writing,  refrain from
               exercising any right, power or discretion vested in it hereunder;
               and

        (e)    administer and service the Loan in accordance  with its customary
               procedures and practices in the  administration  and servicing of
               loans of a similar nature made by the Agent,  and the Agent shall
               have the authority to make decisions hereunder in connection with
               the day-to-day administration and servicing of the Loan, and each
               Bank shall be bound thereby.

21.04   Neither the Agent nor any of its directors,  officers, employees, agents
        or Affiliates, shall:


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<PAGE>



        (a)    be bound to  inquire as to the  occurrence  or  otherwise  of any
               Default or Event of Default or as to any failure of the  Borrower
               or any  Affiliate  duly to perform its  obligations  hereunder or
               under the Loan Documents;

        (b)    be bound to account to any Bank for any sum or the profit element
               of any sum received by it for its own account;

        (c)    be bound to disclose to any other Person any information relating
               to the Borrower or any of the Borrower's  Affiliates  received by
               it if such disclosure would or might in the opinion of any of the
               above Persons  constitute a breach of any law or regulation or be
               otherwise actionable by suit of any Person;

        (d)    be under  any  fiduciary  duty  towards  any  Bank or  under  any
               obligations  other than those for which express provision is made
               herein;

        (e)    be liable for any action  taken or omitted to be taken except for
               their own gross negligence or wilful misconduct; or

        (f)    be liable for any error in  computing  any amount  payable to any
               Bank,  provided,  that the Agent,  the  Borrower and any affected
               Bank, upon discovery of such error,  shall make such  adjustments
               as may be required to correct such error.

21.05   Each Bank agrees to  indemnify  the Agent and its  directors,  officers,
        employees,  agents and  Affiliates  to the extent not  reimbursed by the
        Borrower in the proportion of its share in the Loan (or, if no amount is
        outstanding,  its Commitment) for any and all liabilities,  obligations,
        losses, damages,  penalties,  actions, judgments, suits, costs, expenses
        or disbursements of any kind and nature  whatsoever which may be imposed
        on,  incurred  by or  asserted  against  the  Agent  and its  directors,
        officers,  employees,  agents or  Affiliates  in any way  relating to or
        arising out of the First Restated Agreement, this Agreement or any other
        Loan Documents,  or any other  documents  contemplated by or referred to
        herein  or the  transactions  contemplated  hereby  (including,  without
        limitation,  the costs and  expenses  which the Borrower is obligated to
        pay under  ARTICLE  20 but  excluding,  unless an Event of  Default  has
        occurred and is  continuing,  normal  administrative  costs and expenses
        incident to the  performance of its Agent's agency duties  hereunder) or
        the  enforcement  of any of the terms of the First  Restated  Agreement,
        this  Agreement,  the Loan  Documents  or of any such  other  documents,
        provided  that no Bank shall be liable for any of the  foregoing  to the
        extent  they  arise  from  the  Agent's   gross   negligence  or  wilful
        misconduct.

21.06   Each  Bank  agrees  that the  Agent  shall  not be  responsible  for the
        accuracy or completeness of any  representation  made (whether orally or
        otherwise)  herein  or in  connection  herewith,  for the  proper  form,
        validity,  effectiveness,  adequacy or  enforceability  of the  Original
        Agreement,  the First Restated Agreement,  this Agreement, any Guaranty,
        the Pledge  Agreements,  the Nordenham  Mortgage,  the Canadian Security
        Documents, the Cash Pledge Agreements or any of the other Loan Documents
        or for the  creditworthiness  of the Borrower,  any Guarantor,  Pledgor,
        Pledged Subsidiary or any Affiliate of the foregoing

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<PAGE>



        entities.  Neither  the  Agent  nor  any  of  its  directors,  officers,
        employees,  agents or Affiliates  shall be under any liability for or in
        respect of any action taken or omitted by any of them in relation to the
        Original Agreement,  the First Restated Agreement,  this Agreement,  any
        Guaranty,  the Pledge Agreements,  the Nordenham Mortgage,  the Canadian
        Security Documents,  the Cash Pledge Agreements or any of the other Loan
        Documents except for their gross negligence or wilful misconduct.

21.07   The Agent may accept deposits from,  lend money to and generally  engage
        in any kind of  banking  or other  business  with  the  Borrower  or any
        Affiliate, independently of the transactions contemplated herein.

21.08   It is  understood  and  agreed by each  Bank that it has been,  and will
        continue to be, solely responsible, without reliance upon the Agent, for
        making its own  independent  appraisal  of and  investigations  into the
        financial condition,  creditworthiness and affairs of the Borrower,  any
        Guarantor,  the Pledgors,  Pledged  Subsidiaries  and  Affiliates of the
        foregoing  entities  and the value of the  Collateral  or the  validity,
        enforceability  or  genuineness  of the  Original  Agreement,  the First
        Restated  Agreement,  this  Agreement or any of the Loan  Documents  and
        accordingly each Bank confirms to the Agent that it has not relied,  and
        will not hereafter rely, on the Agent:

        (a)    to check or inquire on its behalf into the adequacy,  accuracy or
               completeness of any  information  provided by the Borrower or any
               Affiliates,  director,  officer,  employee  or agent  thereof  in
               connection  with the Loan Documents or the  transactions  therein
               contemplated  whether  or not  such  information  has  been or is
               hereafter circulated to such Bank by the Agent; or

        (b)    to  assess  or keep  under  review on its  behalf  the  financial
               condition,  creditworthiness  or affairs of the  Borrower  or its
               Affiliates and the value and/or enforceability of the Collateral.

21.09   The Agent may at any time be removed by the Majority Banks upon at least
        30 (thirty) days prior written  notice to such Agent of such removal but
        only for cause  consisting of gross  negligence or wilful  misconduct or
        following a declaration of insolvency by the appropriate regulators. The
        Agent  may at any time  resign  from the  agency  upon not less  than 45
        (forty-five) days' notice to the Banks of its intention to do so and, if
        any such  notice  is given  by the  Agent,  the  Agent  shall,  upon the
        appointment of a successor  agent as hereinafter  provided for, cease to
        be under any further obligation as Agent hereunder.  Within such period,
        the Majority Banks may appoint a successor agent with the consent of the
        Borrower, which consent will not be unreasonably withheld or delayed and
        if, before the expiry of such notice,  such successor agent notifies the
        parties hereto that it accepts such appointment:

        (a)    each  reference   herein  to  the  "Agent"  shall  thereafter  be
               construed as a reference to the successor agent; and


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        (b)    the  successor  agent  and the  parties  hereto  other  than  the
               retiring Agent shall  thereafter have such rights and obligations
               inter se as they would have if the successor agent had been named
               herein as the Agent.  If no  successor  agent,  appointed  by the
               Majority Banks,  notifies the parties hereto, prior to the expiry
               of the Agent's  notice of its intention to retire from the agency
               giving rise to the need to appoint the same, of its acceptance of
               such  appointment,  the Agent may  appoint  any  experienced  and
               reputable bank having offices in London, Munich, New York City or
               Luxembourg  to be the  successor  agent and,  if it does and such
               successor  agent notifies the parties hereto that it accepts such
               appointment:

               (i)    each reference  herein to the "Agent" shall  thereafter be
                      construed  as  a  reference  to  the  successor  agent  so
                      appointed; and

               (ii)   the  successor  agent so  appointed  upon  execution  of a
                      counterpart of this Agreement and the parties hereto other
                      than the retiring Agent shall  thereafter have such rights
                      and  obligations  inter  se as  they  would  have  if  the
                      successor  agent so appointed had been named herein as the
                      Agent.

               Until the Borrower  receives written notice of the appointment of
               a new Agent,  the Borrower  shall be entitled to continue to send
               notices  and  payments  to the  previously  appointed  Agent  and
               otherwise  to treat such Agent as the Agent for  purposes of this
               Agreement.

21.10   If any  Reference  Bank shall be prepaid  under this  Agreement or shall
        cease to have any Commitment or after the Second  Restatement Date cease
        to have any principal or interest  owing to it hereunder,  the Agent may
        in  consultation  with the Banks and the  Borrower  appoint a substitute
        Reference Bank.

21.11   The  provisions  of this  ARTICLE 21 are  solely for the  benefit of the
        Agent and the Banks and  neither  the  Borrower  nor any  Subsidiary  or
        Affiliate of the Borrower shall have any rights  (whether as third party
        beneficiary or otherwise) except as specifically provided herein.

                                    ARTICLE 22.  NO WAIVER

        No failure to  exercise  and no delay in  exercising  on the part of the
Agent or any Bank of any right, power or privilege  hereunder shall operate as a
waiver thereof,  nor shall any single or partial exercise of any right, power or
privilege preclude any other or future exercise thereof,  or the exercise of any
other right,  power or privilege.  The rights and privileges herein provided are
cumulative and not exclusive of any rights or remedies provided by law in equity
or otherwise.  This Agreement may be amended and any provision of this Agreement
may be waived only with the consent of the Majority  Banks,  provided,  however,
that no  amendment  or waiver  shall,  unless in writing and signed by each Bank
affected thereby, do any of the following:

               (1)    reduce the  principal  or the rate of interest  payable by
                      the Borrower on any Loan or reduce any fees payable to the
                      Banks under this Agreement;

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               (2)    postpone the date fixed for the payment of principal of or
                      interest  on the Loan or any fees to the Banks  under this
                      Agreement;

               (3)    increase the Commitment of any Bank or subject any Bank to
                      any additional obligation to make Loans; or

               (4)    amend this ARTICLE 22;

provided,  further, that no amendment or waiver shall be effected which releases
or impairs or otherwise  compromises  any Collateral or  substitutes  Collateral
without the prior written  consent of the Majority  Banks (662/3%) other than in
the case of the NL Undertaking for which the consent of the Majority Banks shall
be required;  and provided  further that no such amendment or waiver or consent,
as the case may be,  which  has the  effect  of (i)  increasing  the  duties  or
obligations  of the Agent under this  Agreement  or of the Agent under any other
Loan Document,  or (ii) increasing the standard of care or performance  required
on the part of the Agent  under this  Agreement  or of the Agent under any other
Loan Document, or (iii) reducing or eliminating the indemnities or immunities to
which the Agent is entitled  hereunder  (including any amendment or modification
of this ARTICLE 22), shall be effective unless the same shall be signed by or on
behalf of the Agent.

               ARTICLE 23.  PARTIAL INVALIDITY; CHANGE IN ACCOUNTING PRINCIPLES

23.01   If at any time any provision of this  Agreement or other Loan  Documents
        to which the  Borrower or any of its  Affiliates  is a  signatory  is or
        becomes  illegal,  invalid or unenforceable in any respect under the law
        of any  jurisdiction,  the legality,  validity or  enforceability of the
        remaining  provisions  under this  Agreement or such Loan Document shall
        not in any way be affected or impaired thereby. Such illegal, invalid or
        unenforceable   provisions  shall  be  replaced  by  legal,   valid  and
        enforceable  provisions,  the economic and legal effects of which are as
        close  as  possible  to that of the  invalid  illegal  or  unenforceable
        provisions.

23.02   If any changes in German GAAP or other applicable  accounting principles
        after  the   First   Restatement   Date   result  in  a  change  of  the
        interpretation,  calculation  or  method  of  calculation  of  financial
        covenants,  ratios,  standards or terms contained in this Agreement (the
        "Financial   Covenants")   which  is  materially   different   from  the
        interpretation,  calculation  or method of  calculation of the Financial
        Covenants on the First  Restatement  Date,  the parties  hereto agree to
        enter into negotiations with a view to amending the Financial  Covenants
        so that the  criteria  for  evaluating  the  financial  condition of the
        Borrower  and its  Subsidiaries  shall be the same as if such change had
        not been made.

                            ARTICLE 24.  ASSIGNMENTS, PARTICIPATION

24.01   The  Borrower  may not  assign  or  transfer  all or any of its  rights,
        benefits and obligations  under this Agreement without the prior written
        consent of the Majority Banks (662/3%);  provided, however, that nothing
        in this SECTION 24.01 shall affect the ability of the

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        Borrower to merge or consolidate in accordance with the terms of SECTION
16.10.

24.02   (a)    Notwithstanding  any  other  provision  contained  in  this
               Agreement or any other documents,  no Bank may assign or transfer
               any of its interests  under this  Agreement  except in accordance
               with  the  provisions  of this  SECTION  24.02  and no  Bank  may
               transfer,  assign or grant  participations  in its rights  and/or
               delegations  under this Agreement  except in accordance with this
               SECTION 24.02;  provided,  however,  that nothing in this SECTION
               24.02 or in this  Agreement  shall  prevent,  subject  to SECTION
               24.03,  any Bank  assigning  or granting  participations  in such
               Bank's  interests under this Agreement to such Bank's parent bank
               holding  company or to any affiliate in which such Bank or parent
               bank  holding  company  has the power to vote at least 33 1/3% of
               the voting  securities  issued by such affiliate for the election
               of the board of directors (or members of an equivalent  governing
               body),  provided,  however, that such affiliate assignee may only
               further assign or subparticipate  its interests in Loans pursuant
               to the terms of this ARTICLE 24 and provided,  however, that such
               affiliate  assignee cannot further assign or  subparticipate  its
               interests in Loans to any Person  which is an affiliate  pursuant
               to the provisions of SECTION 24.02(A).

        (b)    Each  Bank  shall  have the  right to  transfer,  assign or grant
               participations  in all or any part of its  remaining  rights  and
               obligations  under this Agreement on the basis and subject to the
               conditions set forth below in this SUBSECTION 24.02(B).

               (i)    Each Bank may  assign  all or a portion  of its rights and
                      obligations   under  this   Agreement  to  any  Person  in
                      accordance  with the  terms  of this  SECTION  24.02.  The
                      parties to each such assignment  shall execute and deliver
                      to  the  Agent,  for  its  acceptance  and  recording,  an
                      Assignment  and  Acceptance  substantially  in the form of
                      EXHIBIT A together with a processing and  recordation  fee
                      of DM  1,000  (Deutsche  Mark  One  Thousand).  Upon  such
                      execution,  delivery,  acceptance and recording,  from and
                      after the effective date specified in each  Assignment and
                      Acceptance,  which  effective  date  shall  be at  least 5
                      (five) Business Days after the execution  thereof (or such
                      earlier  date as shall have been agreed to by the assignor
                      Bank,  the  assignee  and the  Agent),  (A)  the  assignee
                      thereunder shall be a party hereto and, to the extent that
                      rights and obligations  hereunder have been assigned to it
                      pursuant  to such  Assignment  and  Acceptance,  have  the
                      rights and  obligations  of a Bank  hereunder  and (B) the
                      Bank assignor  thereunder shall, to the extent that rights
                      and  obligations   hereunder  have  been  assigned  by  it
                      pursuant to such Assignment and Acceptance, relinquish its
                      rights and be  released  from its  obligations  under this
                      Agreement   (and,  in  the  case  of  an  Assignment   and
                      Acceptance  covering  all or the  remaining  portion of an
                      assigning   Bank's  rights  and  obligations   under  this
                      Agreement, such Bank shall cease to be a party hereto).


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               (ii)   Each Bank may sell  participations to one or more banks or
                      other  financial  institutions  in all or a portion of its
                      rights and  obligations  under this Agreement  (including,
                      without limitation, all or a portion of its Commitment and
                      the Loans owing to it); provided,  however,  that (A) such
                      Bank  shall  remain  a  "Bank"  for all  purposes  of this
                      Agreement and the transferee of such  participation  shall
                      not  constitute a Bank  hereunder,  (B) such Bank's rights
                      and obligations under this Agreement  (including,  without
                      limitation,  its  Commitment  to the  Borrower  hereunder)
                      shall  remain  unchanged,  (C)  no  notice  to  or  filing
                      (including  the  filing  of any  registration  or  similar
                      statement) with any  governmental  authority or regulatory
                      body is required in connection with any participation, (D)
                      such Bank shall  remain  solely  responsible  to the other
                      parties hereto for the  performance  of such  obligations,
                      (E) the Borrower, the Guarantors,  the Agent and the other
                      Banks shall continue to deal solely and directly with such
                      Bank in connection with such Bank's rights and obligations
                      under this  Agreement  and (F) any  agreement  pursuant to
                      which any Bank grants a  participation  in its rights with
                      respect to the Loan shall  provide  that,  with respect to
                      such  Loan,  such Bank  shall  retain  the sole  right and
                      responsibility  to exercise  the rights of such Bank,  and
                      enforce the  obligations of the Bor rower relating to such
                      Loan,  including  without  limitation the right to approve
                      any amendment,  modification or waiver of any provision of
                      this  Agreement or any other Loan  Documents and the right
                      to take action to have the Loan  declared  due and payable
                      pursuant to ARTICLE 18,  provided that such  participation
                      agreement may provide that such Bank will not agree to any
                      modification, amendment or waiver of this Agreement or any
                      of the other Loan  Documents  without  the  consent of the
                      participant that would:

                      (1)    reduce  the  principal  or  the  rate  of  interest
                             payable by the  Borrower  on any Loan or reduce any
                             fees payable under this Agreement;

                      (2)    postpone   any  date  fixed  for  the   payment  of
                             principal  of or  interest  on the Loan or any fees
                             under this Agreement;

                      (3)    increase the  Commitment of any Bank or subject any
                             Bank to any additional obligation to make Loans; or

                      (4)    amend  ARTICLE  22 or any other  provision  of this
                             Agreement  requiring the consent or other action of
                             all the Banks.

                      No participant  shall have any rights under this Agreement
                      to receive payments pursuant to SECTION 11.01 AND 14.01.

24.03   Assignments  under  this  Agreement,  including  assignments  made to an
        Affiliate of a Bank in accordance with SECTION 24.02(A),  are subject to
        the  condition  that if, at the time of such  assignment,  the  assignee
        would be subject to any greater Taxes than those to which

                                             122

<PAGE>



        the assignor Bank is then subject, or thereafter,  if the assignee would
        at any time be  subject  to any  greater  Taxes  than those to which the
        assignor  Bank would at such time have been  subject,  the assignee Bank
        shall and does  hereby  waive any right to claim and  receive  Taxes and
        additional  amounts  payable  pursuant  to  SECTIONS  11.01 AND 14.01 in
        respect of the excess of the Taxes and additional  amounts applicable to
        it over the Taxes and  additional  amounts  applicable  to the  assignor
        Bank.

24.04   By executing and delivering an Assignment and  Acceptance,  the assignor
        Bank  thereunder and the assignee  thereunder  confirm to and agree with
        each other and the other  parties  hereto as follows:  (i) other than as
        provided in such Assignment and Acceptance,  such assignor Bank makes no
        representation or warranty and assumes no responsibility with respect to
        any statements,  warranties or representations  made in or in connection
        with   this   Agreement   or   the   execution,    legality,   validity,
        enforceability, genuineness, sufficiency or value of this Agreement, the
        Loan  Documents,  the  Collateral  or any other  instrument  or document
        furnished   pursuant   hereto;   (ii)  such   assignor   Bank  makes  no
        representation or warranty and assumes no responsibility with respect to
        the financial condition of the Borrower,  any Pledgor,  any Guarantor or
        their Affiliates or the performance or observance by the Borrower or any
        such  Pledgor,  Guarantor or Affiliate of any of its  obligations  under
        this Agreement, other Loan Documents or any other instrument or document
        furnished pursuant hereto or thereto;  (iii) such assignee confirms that
        it has received a copy of this  Agreement,  together  with copies of the
        financial  statements  referred  to in  SECTION  15.11  and  such  other
        documents and  information as it has deemed  appropriate to make its own
        credit   analysis  and  decision  to  enter  into  such  Assignment  and
        Acceptance;  (iv) such assignee will, independently and without reliance
        upon the Agent,  such  assignor Bank or any other Bank and based on such
        documents  and  information  as it shall deem  appropriate  at the time,
        continue to make its own credit decisions in taking or not taking action
        under  this  Agreement  or any of the  other  Loan  Documents;  (v) such
        assignee  appoints and authorizes the Agent to take such action as agent
        on its behalf and to exercise  such powers  under this  Agreement as are
        delegated to the Agent by the terms hereof, together with such powers as
        are reasonably incidental thereto; and (vi) such assignee agrees that it
        will perform in accordance with their terms all of the obligations which
        by the terms of this  Agreement  are required to be performed by it as a
        Bank.

24.05   The Agent shall maintain at its address referred to below a copy of each
        Assignment and Acceptance delivered to and accepted by it and records of
        the names and addresses of the Banks and the  Commitment  (including the
        Revolving  Commitment)  of, and principal  amount of the Loan (including
        each portion thereof) owing to, each Bank from time to time. The entries
        in such records shall be conclusive and binding for all purposes, absent
        manifest error, and the Borrower, the Agent and the Banks may treat each
        Person  whose name is recorded in such records as a Bank  hereunder  for
        all  purposes of this  Agreement.  The records  shall be  available  for
        inspection by the Borrower or any Bank at any  reasonable  time and from
        time to time upon reasonable prior notice.

24.06   Upon  its  receipt  of  an  Assignment  and  Acceptance  executed  by an
        assigning Bank and an assignee,  the Agent shall, if such Assignment and
        Acceptance has been completed and is

                                             123

<PAGE>



        in substantially  the form of EXHIBIT A hereto,  as the case may be, (i)
        accept such  Assignment  and  Acceptance,  (ii)  record the  information
        contained therein, and (iii) give prompt notice thereof to the Borrower.

24.07   Each of the Agent and each Bank which is a signatory  to this  Agreement
        shall  execute  a  Confidentiality  Agreement  in the form of  EXHIBIT S
        attached  hereto  on or  prior  to the  date  of its  execution  of this
        Agreement.   Any  Bank  may,  in  connection   with  any  assignment  or
        participation or proposed  assignment or participation  pursuant to this
        ARTICLE 24 disclose to the assignee or participant or proposed  assignee
        or  participant,  any  information  relating  to  the  Borrower  or  its
        Affiliates furnished to such Bank by or on behalf of the Borrower or its
        Affiliates;  provided  that,  prior to the  disclosure  of  confidential
        information  concerning the Borrower or its Affiliates,  the assignee or
        participant  or  proposed  assignee  or  participant  shall  execute and
        deliver  to the  Borrower  a  Confidentiality  Agreement  in the form of
        EXHIBIT S.

                                     ARTICLE 25.  LANGUAGE

        Each document, instrument,  certificate and statement referred to herein
or to be  delivered  hereunder  shall,  if  not  in  the  English  language,  be
accompanied by an English  translation  thereof. In the case of conflict between
any original  document not in the English  language and the English  translation
thereof, the language of the original document shall prevail.

                                     ARTICLE 26.  NOTICES

        Unless  otherwise  specifically  provided  herein,  any  notice or other
communication  herein  required or permitted to be given shall be in writing and
may be  personally  served,  telecopied,  telexed or sent by courier  service or
first class prepaid mail (airmail if to an address in a foreign country from the
party  writing) and shall be deemed to have been given when  delivered in person
or by courier service, upon transmission of a telecopy or telex or four (4) days
after  deposit  in the mail  (registered,  with  postage  prepaid  and  properly
addressed). Notices to Agent shall not be effective until received by the Agent.
For the purposes hereof, the addresses of the parties hereto (until 15 (fifteen)
days' prior written  notice of a change thereof is delivered as provided in this
ARTICLE 26) shall be as set forth below each party's name on the signature pages
hereof.

                          ARTICLE 27.  LIMITATION ON SPECIAL DAMAGES

        EACH OF THE BORROWER AND KRONOS TITAN HEREBY WAIVES, RELEASES AND AGREES
NOT TO SUE FOR ANY SPECIAL,  INDIRECT OR CONSEQUENTIAL DAMAGES,  SUFFERED BY THE
BORROWER OR ANY AFFILIATE,  IN CONNECTION  WITH ANY CLAIM  (WHETHER  SOUNDING IN
TORT,  CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED
WITH THIS  AGREEMENT  AND/OR ANY OTHER  LOAN  DOCUMENTS,  WHETHER  SUCH CLAIM IS
ASSERTED  BEFORE  OR AFTER  REPAYMENT  IN FULL OF ALL OF THE  BORROWER'S  AND/OR
KRONOS TITAN'S OBLIGATIONS.


                                             124

<PAGE>



                 ARTICLE 28.  APPLICABLE LAW; JURISDICTION; SERVICE OF PROCESS

        THIS AGREEMENT,  AND THE RELATIONSHIP OF THE PARTIES ESTABLISHED BY THIS
AGREEMENT,  SHALL BE GOVERNED BY AND  CONSTRUED  IN  ACCORDANCE  WITH THE LAW OF
GERMANY.  EACH OF THE BORROWER AND KRONOS TITAN HEREBY AGREES THAT ALL CLAIMS OR
SUITS OF ANY NATURE, WHETHER IN CONTRACT,  TORT OR OTHERWISE,  ARISING OUT OF OR
RELATING TO THIS  AGREEMENT OR THE  RELATIONSHIP  OF THE PARTIES  ESTABLISHED BY
THIS AGREEMENT SHALL BE RESOLVED  EXCLUSIVELY BEFORE THE LANDGERICHT  MUENCHEN I
(COURT OF MUNICH), IN GERMANY,  AND EACH OF THE BORROWER AND KRONOS TITAN HEREBY
SUBMITS TO THE EXCLUSIVE  JURISDICTION OF SAID COURT. NOTHING IN THIS ARTICLE 28
SHALL  AFFECT  (I) THE  RIGHT OF THE  AGENT  AND THE BANKS TO BRING AN ACTION OR
PROCEEDING  AGAINST THE  BORROWER OR KRONOS  TITAN OR ANY OF ITS  PROPERTIES  OR
AGAINST ANY OF ITS  SUBSIDIARIES IN THE COURT OF ANY OTHER  JURISDICTION OR (II)
THE  RIGHT OF THE  BORROWER  OR KRONOS  TITAN TO BRING AN  ACTION OR  PROCEEDING
AGAINST  THE AGENT OR THE BANKS  ARISING  UNDER  ANY  CONFIDENTIALITY  AGREEMENT
EXECUTED PURSUANT TO SECTION 24.07. The Borrower, in connection
with the Original  Agreement,  and pursuant to a Form of  Designation of Process
Agent dated May 30,  1990,  designated,  appointed  and  empowered  Dr.  Wienand
Meilicke,  with offices at Poppelsdorfer Allee 106, 5300 Bonn 1, Germany, as its
designee,  appointee and agent to secure,  accept and acknowledge for and on its
behalf,  and in respect of its property,  service of any and all legal  process,
summons,  notices  and  documents  which  may be  served  in any such  action or
proceeding.   The  Borrower  hereby  ratifies  and  confirms  such  designation,
appointment and  empowerment,  and hereby agrees to appoint a substitute  person
upon  the  death  or  removal  of  Dr.   Meilicke   pursuant  to  a  designation
substantially  identical to that previously  delivered to the Agent or otherwise
in form and substance reasonably satisfactory to the Agent.

                                   ARTICLE 29.  COUNTERPARTS

        This   Agreement   may  be  executed  and   delivered  in  one  or  more
counterparts,  each of which shall constitute an original, and all of which when
taken  together shall  constitute  one and the same  instrument and shall become
effective  when copies  thereof,  bearing the  signatures of each of the parties
hereto, shall have been received by the Agent and the Borrower.

                                ARTICLE 30.  FURTHER ASSURANCES

        In addition to the acts recited herein and contemplated to be performed,
executed and/or  delivered by the Borrower,  the Borrower hereby agrees,  at any
time,  and from time to time, to perform,  execute  and/or  deliver to the Agent
upon request, any and all such further acts,  additional  agreements,  documents
and instruments  (including,  without limitation,  estoppel certificates stating
that the Loan is in full  force  and  effect  and that  there  are no  defenses,
counterclaims or offsets thereto),  or further assurances as may be necessary or
proper to assure the rights and  remedies  intended to be granted or conveyed to
the Agent and the Banks under this

                                             125

<PAGE>



Agreement or any of the other Loan  Documents;  and create,  perfect,  preserve,
maintain and protect the liens and security  interests created or intended to be
created by the Loan Documents.

                                   ARTICLE 31.  CONSTRUCTION

        The terms and  provisions of this  Agreement and the wording used herein
shall in all cases be interpreted and construed  simply in accordance with their
fair meanings and not strictly for or against any party hereto.

                                 ARTICLE 32.  ENTIRE AGREEMENT

        This  Agreement  and the other  Loan  Documents  constitute  the  entire
agreement  with  respect to the matters set forth  herein and  therein,  and all
prior  negotiations,  drafts and other writings that do not constitute a part of
the Loan  Documents but which relate to the subject  matter of this Agreement or
the other Loan  Documents  are merged  herein and  therein  and are  superseded,
nullified and canceled by this Agreement and the other Loan Documents; provided,
however,  that the  Original  Agreement  shall remain in effect as to the period
from May 30, 1990 to the First Restatement Date and the First Restated Agreement
shall remain in effect as to the period from the First  Restatement  Date to the
Second  Restatement Date. This Agreement shall become effective as of the Second
Restatement Date when executed by the Borrower,  Kronos Titan, the Agent and the
Majority Banks and, if and when so executed,  shall  constitute an amendment and
restatement of the First Restated Agreement.

                      ARTICLE 33.  SURVIVAL OF WARRANTIES AND AGREEMENTS

        All  statements  contained  in this  Agreement  or any of the other Loan
Documents,  or any  certificate,  financial  statement or other written material
delivered by the Borrower to the Agent or the Banks pursuant to or in connection
with this Agreement or any other Loan Document shall constitute  representations
and warranties made under this Agreement.  All agreements,  representations  and
warranties made herein shall survive,  and shall not be waived by, the execution
and  delivery  of  this  Agreement  and  the  other  Loan  Documents,   and  any
investigation  by the Agent or any Bank.  The  obligations of the Borrower under
ARTICLES  11,  12,  14,  19 and 20 shall  survive,  and not be  waived  by,  the
repayment of Borrower's obligations under this Agreement.

                           ARTICLE 34.  NO THIRD PARTY BENEFICIARIES

        The  covenants  contained  herein and in all other Loan  Documents to be
kept by Borrower  and/or  Kronos  Titan or the Agent and the Banks are  intended
solely for the benefit of the Borrower,  the Agent and the Banks,  respectively,
and are not intended for the benefit of any other  Person.  No Person other than
Borrower may compel the disbursement of Loans  hereunder.  No provisions in this
Agreement or actions taken by the Agent or the Banks under this Agreement  shall
be construed as an  assumption of any  undertaking  to protect third parties and
all such  provisions  and actions are solely for the protection of the Agent and
the Banks.


                                             126

<PAGE>



                                   ARTICLE 35.  NO NOVATION

        This Agreement  shall not result in or be deemed to be a novation of the
Loan or any portion  thereof.  Without limiting the generality of the foregoing,
the division of the Loan into the Term Portion and the  Revolving  Portion,  and
the division of the Revolving  Portion into the Kronos Titan  Revolving  Portion
and the portion that is not the Kronos Titan Revolving Portion, shall not result
in or be deemed to be a  repayment  or an  extinguishment  of any portion of the
Loan.

                                  ARTICLE 36.  MISCELLANEOUS

36.01   The  parties  hereto  agree  that a matter  that is not a breach  of the
        representation set forth in SECTION 15.21(E) shall not be, or be claimed
        to be, a breach of the representation set forth in SECTION 15.21(A).

36.02   The Banks hereby agree that the  consummation of the Kronos  (US)/Kronos
        Flip shall not, in and of itself,  be deemed to result in a "Kronos MAC"
        as such term is defined in the Original Agreement.

36.03   Subject to the Borrower's  compliance with Section 8.01(a) and the other
        terms  of this  Agreement,  the  Agent  shall  have  the  authority  and
        obligation to release any  Collateral (a) consisting of the Stock of any
        Pledged  Subsidiary,  which Stock is transferred  to another  Subsidiary
        with the approval of the  Majority  Banks  pursuant to Section  16.09(f)
        (except to the extent that such approval is  conditioned  upon there not
        being a release of such Collateral),  (b) consisting of the Stock of any
        Pledged  Subsidiary  that  is a  party  to a  merger  permitted  by (and
        approved in accordance  with, if  applicable)  Section 16.10 if (i) such
        Pledged Subsidiary is not the surviving entity in such merger, (ii) such
        release  occurs  concurrently  with  or  after  such  merger  and  (iii)
        concurrently  with such  release,  the Agent  (on  behalf of the  Banks)
        receives  a valid and  enforceable  first  priority  perfected  security
        interest  in the Stock of the  entity  surviving  such  merger,  and (c)
        consisting  of all of the issued and  outstanding  Stock of any  Pledged
        Subsidiary  owned  by the  Borrower  if  (i)  such  Stock  is  sold,  in
        compliance with this  Agreement,  to a Person who is not an Affiliate of
        the  Borrower  for an amount  equal to or greater  than its fair  market
        value and (ii) all Net Proceeds  from such sale shall be,  promptly upon
        the occurrence of such sale and concurrently with such release, applied,
        first, as a prepayment of the principal of the Loan in the manner stated
        in Section  8.01(b),  second (if any such Net Proceeds  remain after all
        principal of the Loan is paid in full) to interest accrued and unpaid on
        the Loan and, third (if any such Net Proceeds  remain after all interest
        accrued on the Loan is paid in full), to pay any additional  amounts due
        and owing to the Agent and/or any Bank under the Loan Documents.


                                             127

<PAGE>



36.04   If and to the extent that such approval is  necessary,  the Banks hereby
        approve consummation of the following transactions:

        (a)    the  cross-licensing  and  transfer  of  technology  between  the
               "Kronos  Group" and the  "Tioxide  Group",  and the  licensing of
               technology  to the joint  venture  that will acquire the plant of
               Kronos   Louisiana,   Inc.,   pursuant  to  that  certain  Master
               Technology  Exchange  Agreement  dated  October  15,  1993  among
               Kronos,  the  Borrower,  Kronos  Louisiana,  Inc.,  Tioxide Group
               Limited and Tioxide Group
               Services Limited;

        (b)    the  execution  of an amendment  to that  certain  Trademark  Use
               Agreement  among  Kronos  (US),  Kronos,  Kronos Titan and Kronos
               Titan  A/S  dated  as of May  30,  1990 to  take  account  of the
               assignment of trademarks from Kronos (US) to Kronos;

        (c)    the execution of an amendment to that certain  License  Agreement
               between  Kronos and Kronos Titan A/S dated as of October 1, 1966,
               pursuant to which the royalty rate payable by Kronos Titan A/S to
               Kronos is reduced from 7% to 5% of annual net sales; and

        (d)    the execution of  supplementary  agreements  dated as of December
               27,  1990  and July  16,  1991  implementing  the  mechanism  for
               paragraphs  II.G and II.H of the Amended and Restated  Technology
               Transfer and License  Agreement  between  Kronos and Kronos Titan
               dated as of May 30, 1990.

        IN WITNESS WHEREOF the hands of the duly authorized  representatives  of
the parties hereto the day and year first before written.


                                             128

<PAGE>



THE BORROWER                                KRONOS INTERNATIONAL, INC.


                                            By:    /s/ E. Gaertner
                                            Name:  E. Gaertner
                                            Title: President


                                            By:    /s/ V. Roth
                                            Name:  V. Roth
                                            Title: Vice President/Controller

                              Address for Notices:

                                            Peschstrasse 5
                                            51373 Leverkusen 1
                                            Germany
                                            Attention:  Volker Roth
                                            Telefax:      0214-42150

                                            Copy to:

                                            NL Industries, Inc.
                                            70 East 55th Street
                                            New York, New York 10022
                                            Attention: Susan E. Alderton
                                            Telefax: 212-421-7209


                                             129

<PAGE>



        The  undersigned,  Kronos Titan - GmbH,  executes this Agreement for the
limited  purposes of agreeing to all of the terms and  provisions  contained  in
this Agreement in any way relating to or in connection with (a) the Kronos Titan
Revolving Portion,  including,  without limitation,  the borrowing of the Kronos
Titan  Revolving  Portion and the repayment of the principal of the Kronos Titan
Revolving  Portion,  the payment of interest  accrued on such  principal and the
payment of all fees accrued with respect to the Kronos Titan  Revolving  Portion
in accordance with SECTION 2.04, ARTICLE 8 and SECTION 19.03 and (b) ARTICLES 27
and 28.

KRONOS TITAN                                KRONOS TITAN - GMBH


                                            By:    /s/ E. Gaertner
                                            Name:  E. Gaertner
                                            Title: Company Manager


                                            By:    
                                            Name:
                                            Title:

                              Address for Notices:

                                            51373 Leverkusen 1
                                            Germany
                                            Attention:  Volker Roth
                                            Telefax:      0214-42150

                                            Copy to:

                                            NL Industries, Inc.
                                            70 East 55th Street
                                            New York, New York 10022
                                            Attention: Susan E. Alderton
                                            Telefax: 212-421-7209

                                             130

<PAGE>



THE AGENT AND A BANK                HYPOBANK INTERNATIONAL S.A.


                                    By:    /s/ Michael Bisch
                                    Name:  Michael Bisch
                                    Title: Charge de Service



                                    By:    /s/ Erwin Moos
                                    Name:  Erwin Moos
                                    Title: Vice President

                                    Address for Notices:

                                    4, rue Alphonse Weicker
                                    L-2099 Luxembourg
                                    Attention:     Michael Bisch
                                    Phone:         011-352-4272-2151
                                    Fax:           011-352-4272-4510

                                    Lending Office:

                                    4, rue Alphonse Weicker
                                    L-2099 Luxembourg
                                    Attention:     Michael Bisch
                                    Phone:         011-352-4272-2151
                                    Fax:           011-352-4272-4510


                                             131

<PAGE>



                                            ABN-AMRO BANK (DEUTSCHLAND) AG
                                            NIEDERLASSUNG DUESSELDORF


                                            By:
                                                   Volker Haubrich
                                            Title:


                                            By:
                                                   Roland Lukas
                                            Title:

                              ADDRESS FOR NOTICES:

                                            Berliner Allee 41
                                            D-40212 Duesseldorf
                                            Attention:    Volker Haubrich
                                                          Roland Lukas
                                            Phone:        49-211-8770-117
                                            Fax:          49-211-8770-125

                                 LENDING OFFICE:

                                            Berliner Allee 41
                                            D-40212 Duesseldorf
                                            Attention:    Volker Haubrich
                                                          Roland Lukas
                                            Phone:        49-211-8770-117
                                            Fax:          49-211-8770-125

                                             132

<PAGE>



                                    ARAB BANKING CORPORATION B.S.C.


                                    By:    /s/ Wahid O. Bugaighis
                                    Name:  Wahid O. Bugaighis
                                    Title: Fist Vice President


                                    By:    /s/ Stephen A. Plauche
                                    Name:  Stephen A. Plauche
                                    Title: Vice President


                      ADDRESS FOR NOTICES:

                                    277 Park Avenue, 32nd Floor
                                    New York, New York 10172
                                    Attention:    R. Hassan/Susan Williams
                                    Phone:        212-583-4770/71
                                    Fax:          212-583-0921/32

                         LENDING OFFICE:

                                    Arab Banking Corporation (B.S.C.)
                                    Grand Cayman Branch
                                    c/o 277 Park Avenue, 32nd Floor
                                    New York, New York 10172
                                    Attention:    R. Hassan/Susan Williams
                                    Phone:        212-583-4770/71
                                    Fax:          212-583-0921/32
                                    

                                             133

<PAGE>



                                            BAHRAIN MIDDLE EAST BANK E.C.


                                            By:    /s/ Albert I. Kittaneh
                                            Name:  Albert I. Kittaneh
                                            Title: Chief Executive

                              ADDRESS FOR NOTICES:

                                            BMB Centre, Diplomatic Area
                                            P. O. Box 797
                                            Manama, Bahrain
                                            Attention:    K.S. Ganesh
                                                          Vice President
                                            Phone:        973-528138
                                            Fax:          973-536312

                                 LENDING OFFICE:

                                            BMB Center, Diplomatic Area
                                            P. O.Box 797
                                            Manama, Bahrain
                                            Attention:    K.S. Ganesh
                                                          Vice President
                                            Phone:        973-528138
                                            Fax:          973-536312

                                             134

<PAGE>



                                BANK HAPOALIM BM


                                            By:    /s/ Conrad Wager
                                            Name:  Conrad Wagner
                                            Title: First Vice President


                                            By:    /s/ Shaun Breidbart
                                            Name:  Shaun Breidbart
                                            Title: Assistant Vice President

                              ADDRESS FOR NOTICES:

                                            1177 Avenue of the Americas
                                            New York, New York 10036
                                            Attention:    Conrad Wagner
                                            Phone:        212-782-2176
                                            Fax:          212-782-2187

                                 LENDING OFFICE:

                                            1177 Avenue of the Americas
                                            New York, New York 10036
                                            Attention:    Conrad Wagner
                                            Phone:        212-782-2176
                                            Fax:          212-782-2187

                                             135

<PAGE>



                                            BANK OF AMERICA NATIONAL TRUST AND
                                            SAVINGS ASSOCIATION


                                            By:    /s/ A. G. Tucker
                                            Name:  A. G. Tucker
                                            Title: Vice President

                              ADDRESS FOR NOTICES:

                                            1, Alie Street
                                            London EC1 8DE
                                            England
                                            Attention:    A. G. Tucker
                                            Phone:        44-171-634-4728
                                            Fax:          44-171-634-4968

                                 LENDING OFFICE:

                                            1, Alie Street
                                            London EC1 8DE
                                            Attention: A. G. Tucker
                                            Phone: 44-171-634-4728
                                            Fax: 44-171-634-4968

                                             136

<PAGE>



                                 BANK OF MONTREAL


                                 By:    /s/ Michael J. Solski
                                 Name:  Michael J. Solski
                                 Title: Director

                   ADDRESS FOR NOTICES:

                                 115 South LaSalle Street, 11th Floor
                                 Chicago, Illinois 60603
                                 Attention:    Farid Ali
                                 Phone:        312-750-3727
                                 Fax:          312-750-3798

                      LENDING OFFICE:

                                 Corporate and Institutional Financial Services
                                 24th Floor, First Bank Tower
                                 First Canadian Place, P. O. Box 1
                                 Toronto, Ontario M5X 1A1
                                 Attention:    Michael J. Solski
                                 Phone:        416-867-6968
                                 Fax:          417-867-6366

                                             137

<PAGE>



                                            BANK OF SCOTLAND


                                            By:    /s/ Catherine M. Oniffrey
                                            Name:  Catherine M. Oniffrey
                                            Title: Vice President

                              ADDRESS FOR NOTICES:

                                            565 Fifth Avenue, 5th Floor
                                            New York, New York 10017
                                            Attention:    Catherine M. Oniffrey
                                            Fax:          212-557-9460

                                 WITH A COPY TO:

                                            Bank of Scotland
                                            Houston Representative Office
                                            1750 Two Allen Center
                                            1200 Smith Street
                                            Houston, Texas 77002
                                            Attention:    Justin M. Alexander
                                            Phone:        713-651-1870
                                            Fax:          713-651-9714

                                 LENDING OFFICE:

                                            Bank of Scotland
                                            Grand Cayman Branch
                                            565 Fifth Avenue, 5th Floor
                                            New York, New York 10017
                                            Attention:    Catherine M. Oniffrey
                                            Fax:          212-557-9460

                                             138

<PAGE>



                                   BANKERS TRUST COMPANY


                                   By:     /s/ Michael Dent
                                   Name:   M. Dent
                                   Title:  Managing Director

                     ADDRESS FOR NOTICES:

                                   1 Appold Street, Broadgate
                                   London EC2A 2HE
                                   Attention:    Simon Alloway/Robert Foulston
                                   Phone:        44-171-982-3302
                                   Fax:          44-171-982-1902

                        LENDING OFFICE:

                                   1 Appold Street, Broadgate
                                   London EC2A 2HE
                                   Attention:    Simon Alloway/Robert Foulston
                                   Phone:        44-171-982-3302
                                   Fax:          44-171-982-5833

                                             139

<PAGE>



                                        BANQUE ET CAISSE D'EPARGNE DE L'ETAT,
                                        LUXEMBOURG


                                        By:    /s/ John Dhur  
                                        Name:  John Dhur
                                        Title: Sous Director

                          ADDRESS FOR NOTICES:

                                        1, place de Metz
                                        L-2954 Luxembourg
                                        Attention:    Jean Pierre Thein
                                        Phone:        352-4015-4337
                                        Fax:          352-4015-4284

                             LENDING OFFICE:

                                        1, place de Metz
                                        L-2954 Luxembourg
                                        Attention:    Jean Pierre Thein
                                        Phone:        352-4015-4337
                                        Fax:          352-4015-4284

                                             140

<PAGE>



                                       BANQUE INDOSUEZ


                                       By:    /s/ Jerome Sanzo
                                       Name:  Jerome Sanzo
                                       Title: First Vice President


                                       By:    /s/ Jaime Silver
                                       Name:  Jaime Silver
                                       Title: Vice President

                         ADDRESS FOR NOTICES:

                                       1211 Avenue of the Americas
                                       New York, New York 10036
                                       Attention:    Jaime Silver/Raymond Wright
                                       Phone:        212-278-2544
                                       Fax:          212-278-2759

                            LENDING OFFICE:

                                       1211 Avenue of the Americas
                                       New York, New York 10036
                                       Attention:    Raymond Wright
                                                     Loan Department
                                       Phone:        212-278-2000
                                       Fax:          212-278-2502

                                             141

<PAGE>



                                      BANQUE INTERNATIONALE A LUXEMBOURG
                                      S.A.


                                      By:     /s/ Yves Lahaye
                                      Name:   Yves Lahaye
                                      Title:  Vice President

                                      By:     /s/ Claude Lehnertz
                                      Name:   Claude Lehnertz
                                      Title:  Vice President

                        ADDRESS FOR NOTICES:

                                      69, route d'Esch
                                      L-2953 Luxembourg
                                      Attention:    Guy Denys/Simon Hauxwell
                                      Phone:        352-4590-2564
                                      Fax:          352-4590-3855

                        LENDING OFFICE:

                                      69, route d'Esch
                                      L-2953 Luxembourg
                                      Attention:    Guy Denys/Simon Hauxwell
                                      Phone:        352-4590-2564
                                      Fax:          352-4590-3855

                                             142

<PAGE>



                                            CHRISTIANIA BANK OG KREDITKASSE ASA


                                            By:    /s/ Stein H. Offenberg
                                            Name:  Stein H. Offenberg
                                            Title: Senior Vice President

                              ADDRESS FOR NOTICES:

                                            P. O. Box 1166 Sentrum
                                            N-0107 Oslo
                                            Norway
                                            Attention:    Stein H. Offenberg
                                            Phone:        47-22-48-69-59
                                            Fax:          47-22-56-40-83

                                 WITH A COPY TO:

                                            International Loan Administration
                                            P. O. Box 1166 Sentrum
                                            N-0107 Oslo
                                            Norway
                                            Attention:    Aud Sandnes
                                            Phone:        47-22-48-47-26
                                            Fax:          47-22-48-54-97

                                 LENDING OFFICE:

                                            P. O. Box 1166 Sentrum
                                            N-0107 Oslo
                                            Norway
                                            Attention:    Stein H. Offenberg
                                            Phone:        47-22-48-69-59
                                            Fax:          47-22-56-40-83

                                             143

<PAGE>



                                            DLJ CAPITAL FUNDING, INC.


                                            By:    /s/ Stephen P. Hickey
                                            Name:  Stephen P. Hickey
                                            Title: Managing Director

                              ADDRESS FOR NOTICES:

                                            525 Washington Boulevard
                                            Newport Tower
                                            Jersey City, NJ 07310
                                            Attention:    Ed Vowinkel
                                            Phone:        201-610-1971
                                            Fax:          201-610-1965

                                 WITH A COPY TO:

                                            c/o DLJ International
                                            Moorgate Hall, 155 Moorgate
                                            London, EC 2M 6XB
                                            Attention:    Pam Carter
                                            Phone:        44-171-628-0869
                                            Fax:          44-171-814-7224

                                            and

                                            DLJ Capital Funding, Inc.
                                            277 Park Avenue, 9th Floor
                                            New York, New York 10172
                                            Attention:    Mr. Donald Pollard
                                            Phone:        212-892-5475
                                            Fax:          212-892-5286

                                 LENDING OFFICE:

                                            525 Washington Boulevard
                                            Newport Tower
                                            Jersey City, NJ 07310
                                            Attention:    Ed Vowinkel
                                            Phone:        201-610-1971
                                            Fax:          201-610-1965

                                             144

<PAGE>



                                      FUJI BANK (LUXEMBOURG) S.A.


                                      By:    /s/ Tadashi Omiya
                                      Name:  Tadashi Omiya
                                      Title: Managing Director

                        ADDRESS FOR NOTICES:

                                      29, Avenue de la Porte Neuve
                                      2227 Luxembourg
                                      Attention:    Loan Department
                                      Phone:        352-474-681
                                      Fax:          352-474-688

                           WITH A COPY TO:

                                      The Fuji Bank, Limited
                                      One Houston Center, Suite 4100
                                      1221 McKinney Street
                                      Houston, Texas 77010
                                      Attention:    Philip C. Lauinger, III
                                      Phone:        713-650-7852
                                      Fax:          713-759-0048

                           LENDING OFFICE:

                                      29, Avenue de la Porte Neuve
                                      2227 Luxembourg
                                      Attention:    Loan Department
                                      Phone:        352-474-681
                                      Fax:          352-474-688

                                             145

<PAGE>



                                       IBJ SCHRODER BANK & TRUST COMPANY


                                       By:    /s/ Frederik W. Aase
                                       Name:  Frederik W. Aase
                                       Title: Vice President



                                       By:
                                       Name:
                                       Title:

                              ADDRESS FOR NOTICES:

                                       Grand Cayman Branch
                                       One State Street
                                       New York, New York 10004
                                       Attention: Frank DeLillo/Frederik W. Aase
                                       Phone: 212-858-2786
                                       Fax: 212-858-2115

                                 LENDING OFFICE:

                                       Grand Cayman Branch
                                       One State Street
                                       New York, New York 10004
                                       Attention: Frank DeLillo/Frederik W. Aase
                                       Phone: 212-858-2786
                                       Fax: 212-858-2222

                                             146

<PAGE>



                               MERITA BANK LTD.
   

                               By:    /s/ Esa Tuomi
                               Name:  Esa Tuomi
                               Title: Vice President

                               By:    /s/ Aimo Vitie
                               Name:  Aimo Vitie
                               Title: Vice President

                 ADDRESS FOR NOTICES:

                               2627 International Credits
                               FIN-00020 Merita
                               Attention:    Pirkko Relander/Borje Lindblom
                               Phone:        358-9-165-55590
                               Fax:          358-9-165-52820

                    LENDING OFFICE:

                               2627 International Credits
                               FIN-00020 Merita
                               Attention:    Pirkko Relander/Borje Lindblom
                               Phone:        358-9-165-55590
                               Fax:          358-9-165-52820

                                             147

<PAGE>



                                            SCHRODER MUENCHMEYER HENGST & CO.


                                            By:    /s/ Thomas W. Benger
                                            Name:  Thomsa W. Benger
                                            Title:


                                            By:    /s/ David E. Watson
                                            Name:  David E. Watson
                                            Title:

                              ADDRESS FOR NOTICES:

                                            Friedensstrasse 6-10
                                            D-60311 Frankfurt am Main
                                            Attention:    Thomas W. Benger
                                            Phone:        49-69-2179-562
                                            Fax:          49-69-2179-591

                                 LENDING OFFICE:


                                            Friedensstrasse 6-10
                                            D-60311 Frankfurt am Main
                                            Attention:    Thomas W. Benger
                                            Phone:        49-69-2179-562
                                            Fax:          49-69-2179-591

                                             148

<PAGE>



                                            SWISS BANK CORPORATION
                                            New York and Cayman Islands Branches


                                            By:    /s/ Nicolas T Erni
                                            Name:  Nicolas T. Erni
                                            Title: Director


                                            By:    /s/ William A. Roche
                                            Name:  William A. Roche
                                            Title: Restructuring

                              ADDRESS FOR NOTICES:

                                            New York and Cayman Islands Branches
                                            222 Broadway
                                            New York, New York 10038
                                            Attention:    Elizabeth Burnett
                                            Phone:        212-574-3000
                                            Fax:          212-574-3162

                                 LENDING OFFICE:

                                            New York and Cayman Islands Branches
                                            222 Broadway
                                            New York, New York 10038
                                            Attention:    Nicolas T. Erni
                                            Phone:        212-574-3443
                                            Fax:          212-574-3162

                                             149

<PAGE>



                                   THE BANK OF NOVA SCOTIA


                                   By:    /s/ R. A. Millard
                                   Name:  R. A. Millard
                                   Title: Relationship Manager

                     ADDRESS FOR NOTICES:

                                   1100 Louisiana Street
                                   Houston, Texas 77002
                                   Attention:    Bryan Bulawa
                                   Phone:        713-752-0900
                                   Fax:          713-752-2425

                        LENDING OFFICE:

                                   Scotia House
                                   33 Finsbury Square
                                   London EC2A 1BB
                                   Attention:    R. A. Millard/J.W. Stevens
                                   Phone:        44-171-454-5758
                                   Fax:          44-171-454-9019

                                             150

<PAGE>



                                            THE CHUO TRUST AND BANKING CO., LTD.


                                            By:    /s/ Mr. Y. Ueda
                                            Name:  Mr. Y. Ueda
                                            Title: Deputy General Manager

                              ADDRESS FOR NOTICES:

                                            Woolgate House
                                            Coleman Street
                                            London EC2R 5AT
                                            Attention:    Paul Glynn/R. Weir
                                            Phone:        44-171-726-6050
                                            Fax:          44-171-606-8061

                                 LENDING OFFICE:

                                 Woolgate House
                                 Coleman Street
                                 London EC2R 5AT
                                            Attention:    Paul Glynn/R. Weir
                                            Phone:        44-171-726-6050
                                            Fax:          44-171-606-8061

                                             151

<PAGE>



                                          SCHEDULE 1



                                             152

<PAGE>




SCHEDULE 2

INDEBTEDNESS



                                             153

<PAGE>



SCHEDULE 3

LIENS



                                             154

<PAGE>



SCHEDULE 4

CERTAIN LEGAL MATTERS



                                             155

<PAGE>



SCHEDULE 5

LITIGATION



                                             156

<PAGE>



SCHEDULE 6

ERISA AND NON-U.S. EMPLOYEE PLANS



                                             157

<PAGE>



SCHEDULE 7

SUBSIDIARIES



                                             158

<PAGE>



SCHEDULE 8

LICENSE AGREEMENTS AND INTELLECTUAL PROPERTY RIGHTS



                                             159

<PAGE>



SCHEDULE 9

AFFILIATE TRANSACTIONS



                                             160

<PAGE>



SCHEDULE 10

INSURANCE



                                             161

<PAGE>



SCHEDULE 11

TAX INFORMATION



                                             162

<PAGE>



SCHEDULE 12

CERTAIN LOAN AGREEMENTS



                                             163

<PAGE>



SCHEDULE 13

CERTAIN MATERIAL ASSETS



                                             164

<PAGE>



EXHIBIT A

FORM OF ASSIGNMENT AND ACCEPTANCE



                                             165

<PAGE>



EXHIBIT B

FORM OF MIRROR NOTES



                                             166

<PAGE>



EXHIBIT C

SUBORDINATED LOAN DOCUMENTS



                                             167

<PAGE>



EXHIBIT D

FORMS OF AMENDMENTS AND/OR REAFFIRMATIONS
OF PLEDGE AGREEMENTS



                                             168

<PAGE>



EXHIBIT E

FORMS OF AMENDMENTS AND/OR
REAFFIRMATIONS OF GUARANTIES



                                             169

<PAGE>



EXHIBIT F

FORM OF SECOND AMENDED AND RESTATED TECHNOLOGY
AND TRADEMARK UNDERTAKING



                                             170

<PAGE>



EXHIBIT G

FORM OF AMENDMENT AND/OR REAFFIRMATION OF
SUBORDINATION AND CONTRIBUTION AGREEMENT



                                             171

<PAGE>



EXHIBIT H

FORM OF SECOND AMENDED AND
RESTATED LIQUIDITY UNDERTAKING



                                             172

<PAGE>



EXHIBIT I

FORM OF ACKNOWLEDGMENT OF LIMITATION
OF SPECIAL DAMAGES



                                             173

<PAGE>



EXHIBIT J

FORM OF NL GUARANTY



                                             174

<PAGE>



EXHIBIT K

FORM OF CANADIAN SECURITY DOCUMENTS



                                             175

<PAGE>



EXHIBIT L

FORM OF NORDENHAM MORTGAGE



                                             176

<PAGE>



EXHIBIT M

FORMS OF CASH PLEDGE
AGREEMENTS OF THE BORROWER



                                             177

<PAGE>



EXHIBIT N

FORMS OF CASH PLEDGE AGREEMENTS
OF THE CANADIAN SUBSIDIARIES



                                             178

<PAGE>



EXHIBIT O

FORM OF SOLVENCY CERTIFICATE



                                             179

<PAGE>



EXHIBIT P

FORM OF NOTICE OF BORROWING



                                             180

<PAGE>



EXHIBIT Q

FORM OF CERTIFICATE OF CHIEF FINANCIAL OFFICER
OF BORROWER AS TO ANNUAL FINANCIAL STATEMENTS



                                             181

<PAGE>



EXHIBIT R

FORM OF CERTIFICATE OF CHIEF FINANCIAL OFFICER OF
BORROWER AS TO QUARTERLY FINANCIAL STATEMENTS



                                             182

<PAGE>


EXHIBIT S

FORM OF CONFIDENTIALITY AGREEMENT

                                             183

<PAGE>

                                                                  EXHIBIT 10.4

               SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING

      This Second Amended and Restated Liquidity Undertaking (this "Agreement"),
dated  effective  as of January  31,  1997,  is  executed  and  delivered  by NL
INDUSTRIES,  INC., a New Jersey corporation ("NL Industries"),  KRONOS,  INC., a
Delaware  corporation  f/k/a Kronos (USA),  Inc.  ("Kronos")  (NL Industries and
Kronos  are  sometimes  hereinafter  individually  called  a  "Shareholder"  and
collectively called  "Shareholders") and KRONOS INTERNATIONAL,  INC., a Delaware
corporation  ("Borrower")  to  and  in  favor  of  HYPOBANK  INTERNATIONAL  S.A.
("Agent"), as Agent for the Banks (hereinafter defined), and the Banks.

                                  WITNESSETH:

      Borrower,  Kronos  Titan-GmbH,  Agent  and  the  Banks  are,  concurrently
herewith,  entering into that certain Second Amended and Restated Loan Agreement
dated as of January  31, 1997 (as the same may be amended or  supplemented  from
time to time now or  hereafter,  the "Loan  Agreement"),  which  Loan  Agreement
amends and restates that certain Amended and Restated Loan Agreement dated as of
October  15,  1993,  among  Borrower,   Agent,   Banque  Paribas,   as  Co-Agent
("Co-Agent"),  and the Banks (or their  precedessors  in  interest)  (the "First
Restated  Agreement"),  which First Restated  Agreement amends and restates that
certain Loan Agreement dated as of May 30, 1990, among Borrower, Agent, Co-Agent
and the Banks (or their  predecessors  in interest),  as amended by that certain
(i) First  Amendment  Agreement  dated as of  December  31,  1990,  (ii)  Second
Amendment  Agreement  dated as of March  22,  1991,  and (iii)  Third  Amendment
Agreement  (herein   so-called)  dated  as  of  June  15,  1992  (the  "Original
Agreement").

      Pursuant to the Third  Amendment  Agreement,  the parties hereto  executed
that  certain  Liquidity  Undertaking  dated as of June 15, 1992 (the  "Original
Liquidity  Undertaking").  Pursuant to the First Restated Agreement, the parties
hereto executed that certain Amended and Restated Liquidity Undertaking dated as
of October 15, 1993 (the "First Restated Liquidity  Undertaking")  which amended
and restated the Original  Liquidity  Undertaking.  In order to induce Agent and
the Banks to enter into the Loan Agreement,  Shareholders and Borrower desire to
amend and restate the First Restated Liquidity Undertaking as herein set forth.

      NOW,  THEREFORE,  for and in consideration of the Loan Agreement and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged,  the parties hereto hereby agree that the First Restated Liquidity
Undertaking is amended and restated in its entirety as follows:

      i.    Definitions.  Unless otherwise defined in this Agreement,  initially
            capitalized  terms used in this  Agreement  shall have the  meanings
            ascribed to them in the Loan  Agreement.  As used in this Agreement,
            the phrase  "any  Shareholder"  means any  Shareholder  and/or  both
            Shareholders.

SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 1


<PAGE>




      ii.         Maintenance of Liquidity.

                        (i)   Liquidity Report. By 5:00 p.m. (New York, New York
                              time) on each  Business Day (i) which occurs prior
                              to  January  1,  2001 and (ii)  which is the first
                              Business Day  immediately  preceding any date upon
                              which  Borrower is required to make any payment of
                              principal  or  interest  on the  Loans  (any  such
                              Business  Day herein a "Report  Date" and any such
                              date upon which  Borrower  is required to make any
                              such payment  hereinafter called a "Payment Date")
                              but  excluding  any day upon which the  payment of
                              principal  on the Loan is due as a  result  of the
                              acceleration  thereof,  Borrower agrees to provide
                              Shareholders   and  Agent   with  a  report   (the
                              "Liquidity   Report")    identifying    Borrower's
                              Liquidity Level as of the prior Business Day (each
                              such  prior   Business   Day  herein  a  "Date  of
                              Determination") and showing, in reasonable detail,
                              Borrower's Liquidity Level and the manner in which
                              such  Liquidity  Level  was  calculated.  As  used
                              herein,  the term  "Liquidity  Level" means, as of
                              each  Date  of   Determination   the  sum  of  (i)
                              Borrower's   Cash  Position,   plus  (ii)  without
                              duplication,  each Consolidated Subsidiaries' Cash
                              Position,  plus (iii) if no Default has  occurred,
                              the amount  available  to be  borrowed by Borrower
                              under  the  terms  of  Section  2.04  of the  Loan
                              Agreement but  excluding any amounts  available to
                              be  borrowed by  Borrower  under any other  credit
                              facilities,  minus  (iv)  the  amount  of all  the
                              payments  scheduled  to be made under the Loans on
                              the Payment Date immediately  following the Report
                              Date.  As used  herein,  the term "Cash  Position"
                              means,  with  respect to any  Person,  the amount,
                              expressed in Deutsche Mark, equal to the remainder
                              of (A) the  sum of such  Person's  cash  and  cash
                              equivalents  (determined in accordance with German
                              GAAP with respect to Borrower and its Consolidated
                              Subsidiaries  or determined  on an  unconsolidated
                              basis but otherwise in accordance  with accounting
                              principles generally accepted in the United States
                              ["U.S.  GAAP"] with  respect to the  Shareholders,
                              both  consistently  applied) plus the market value
                              of such Person's  Marketable  Securities minus (B)
                              without  duplication,  the aggregate amount of any
                              Indebtedness  secured  by any Lien,  other  than a
                              Lien in favor of Agent as security  for the Loans,
                              affecting  such  cash,  cash  equivalents   and/or
                              Marketable  Securities (in each case not to exceed
                              the amount

SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 2


<PAGE>



                              or value of the particular  cash, cash equivalents
                              or Marketable  Securities  affected by such Lien).
                              As used herein,  the term "Marketable  Securities"
                              means all stocks, bonds, notes or other securities
                              which  are  regularly  traded  on  any  recognized
                              national or  international  market or exchange and
                              are  otherwise  freely  transferable.  The  market
                              value of Marketable Securities shall be determined
                              as of each Date of Determination by reference to a
                              market   price   quoted  as  of  such  date  in  a
                              recognized  national  or  international  market or
                              exchange for the Marketable Securities in question
                              and otherwise on a basis  reasonably  satisfactory
                              to  the  Majority   Banks.   If  any  cash,   cash
                              equivalent or the value of  Marketable  Securities
                              is denominated in any currency other than Deutsche
                              Mark,  then, for purposes of calculating  the Cash
                              Position  under  this  Agreement,  the  equivalent
                              amount of  Deutsche  Mark shall be  determined  by
                              using the Spot Rate existing as of the  applicable
                              Date of Determination.  As used in this Agreement,
                              the term "Spot Rate", with respect to any currency
                              and any day,  means the rate  determined  based on
                              the "Frankfurt  Foreign  Exchange  Fixing" for the
                              offered rates to purchase  Deutsche Mark with such
                              currency as reflected on the display designated as
                              page "1011" on the Telerate Systems,  Incorporated
                              service  (or such other page as may  replace  page
                              "1011"  on  that   service  for  the  purposes  of
                              displaying  such offered  rates) at or about 11:00
                              a.m.  London  time on such  date.  If at least two
                              such  offered  rates appear on such  display,  the
                              rate for such date will be the arithmetic  mean of
                              such offered rates.

                        (ii)  Borrower Liquidity Deficit;  Required  Investment.
                              If  Borrower's  Liquidity  Level  is less  than DM
                              25,000,000  (Deutsche Mark Twenty Five Million) as
                              of any Date of Determination,  Shareholders  shall
                              on a joint, several, irrevocable and unconditional
                              basis  (but  subject to  subparagraph  (d) of this
                              Paragraph  2),  within ten (10) days  after  being
                              given the applicable  Liquidity Report (or if such
                              Liquidity Report is not delivered, within ten (10)
                              days after being given written  notice from Agent)
                              either  make  Capital  Contributions  to  Borrower
                              and/or make  Subordinated  Loans to  Borrower,  in
                              either case in an aggregate  amount  sufficient so
                              that,  after giving  effect to such  contributions
                              and/or such loans and the receipt of such funds by
                              Borrower,  Borrower's  Liquidity Level (calculated
                              as if such contributions and/or

SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 3



<PAGE>



                              loans  were  made  as of the  applicable  Date  of
                              Determination) shall equal or exceed DM 25,000,000
                              (Deutsche Mark Twenty Five Million); provided that
                              the aggregate amount of Capital  Contributions and
                              Subordinated   Loans  made  by   Shareholders   to
                              Borrower  after  January  31,  1997  and  prior to
                              January 1, 2001 pursuant to this  Agreement  shall
                              not  exceed  an  aggregate   amount  equal  to  DM
                              125,000,000 (Deutsche Mark One Hundred Twenty-Five
                              Million)   (the   "Maximum   Required   Investment
                              Amount");  and provided further that Shareholders'
                              obligations to make Capital  Contributions  and/or
                              Subordinated  Loans  up to  the  Maximum  Required
                              Investment Amount shall be satisfied by any of the
                              following:  (A) to  the  extent  and in an  amount
                              equal  to,  as of the date of  determination,  the
                              positive  remainder  (if any) of (1) the aggregate
                              amount   of    Shareholders'    optional   Capital
                              Contributions  and/or  Subordinated  Loans made to
                              Borrower   after  January  31,  1997  for  general
                              corporate purposes (including, without limitation,
                              optional  prepayments)  minus  (2)  the sum of the
                              aggregate  amount of  Restricted  Payments made by
                              Borrower  prior to the date of  determination  but
                              after   January  31,  1997   pursuant  to  Section
                              16.20(b) of the Loan  Agreement plus the aggregate
                              amount of Restricted Payments permitted (as of the
                              date of  determination)  to be made by Borrower on
                              or after  the date of  determination  pursuant  to
                              Section 16.20(b) of the Loan Agreement, and (B) an
                              amount equal to the Liquidity  Undertaking  Credit
                              in  effect  as of the date of  determination.  The
                              term "Capital  Contributions"  means contributions
                              by a  Shareholder  to the equity of Borrower.  The
                              term   "Subordinated   Loans"  means  loans  by  a
                              Shareholder  to Borrower  on terms and  provisions
                              acceptable  to  such   Shareholder  and  Borrower;
                              provided that such loans are "Subordinated  Debt",
                              as such term is defined in the Loan Agreement.

                        (iii) Event    of    Default;    Required    Investment.
                              Notwithstanding anything to the contrary contained
                              elsewhere  in  this  Agreement,  if  an  Event  of
                              Default has occurred and is  continuing  and Agent
                              shall have given Borrower and Shareholders written
                              notice  requesting or requiring  performance under
                              this   subparagraph   (c),   then   Borrower   and
                              Shareholders'   jointly  and  severally  agree  as
                              follows:


SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 4



<PAGE>



                  (i) a  Liquidity  Report  shall be  provided  by  Borrower  to
            Shareholders  and Agent  within two Business  Days after  Borrower's
            receipt of such notice referred to in this  subparagraph  (c), which
            Liquidity Report shall identify Borrower's Liquidity Level as of the
            Business  Day  immediately  succeeding  the date of such notice (the
            "Default  Date  of  Determination");  provided,  however  that,  for
            purposes of this  subparagraph (c), the term "Liquidity Level" shall
            mean (without  duplication)  (A) the  Liquidity  Level as defined in
            subparagraph (a) of this Paragraph 2 minus, (B) the aggregate unpaid
            principal  amount  of the  Loans,  minus  (C) the  aggregate  of the
            accrued and unpaid  interest and fees under the Loan  Agreement  and
            the other Loan Documents; and

                  (ii)  based  upon  the  Liquidity  Level as so  determined  in
            accordance with clause (i) immediately  preceding,  the Shareholders
            shall, on a joint, several, irrevocable and unconditional basis (but
            subject to  subparagraph  (d) of this  Paragraph 2), within ten (10)
            days after being given such notice from Agent,  either make  Capital
            Contributions  to  Borrower  and/or  make   Subordinated   Loans  to
            Borrower,  in either case in an aggregate amount sufficient so that,
            after giving effect to such contributions  and/or such loans and the
            receipt of such funds by Borrower,  Borrower's  Liquidity  Level (as
            defined  in  this   subparagraph  (c)  and  calculated  as  if  such
            contributions  and/or loans were made as of the  applicable  Default
            Date of Determination) shall equal or exceed DM 25,000,000 (Deutsche
            Mark Twenty Five  Million);  provided that the  aggregate  amount of
            Capital Contributions and Subordinated Loans made by Shareholders to
            Borrower  after  January  31,  1997 and  prior to  January  1,  2001
            pursuant to this  Agreement  shall not exceed the  Maximum  Required
            Investment Amount. Notwithstanding anything to the contrary that may
            be contained in this Agreement,  payments by NL Industries under the
            NL Guaranty will not reduce or otherwise affect the Maximum Required
            Investment Amount.

                        (iv)  Priority of Contributions  by  Shareholders.  Each
                              time the Shareholders are required to make Capital
                              Contributions or Subordinated Loans (the "Required
                              Contributions")  under subparagraphs (b) or (c) of
                              this  Paragraph  2, Kronos  shall be  obligated to
                              make so much of the Required  Contributions  as it
                              is  able  to  make  from  funds  received  from or
                              otherwise attributable to its operations before NL
                              Industries  (i) makes any portion of the  Required
                              Contributions or (ii) contributes  funds to Kronos
                              to   enable    Kronos   to   make   the   Required
                              Contributions.  Kronos  agrees  that it  will  not
                              utilize any funds  received  from NL Industries to
                              make  any  Required  Contributions  until  it  has
                              utilized  all the then  available  funds which are
                              received  from or  otherwise  attributable  to its
                              operations.   After  Kronos  has   satisfied   its
                              obligations under the preceding two sentences or

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                              if   Kronos    is   unable   to   make    Required
                              Contributions,   then  NL   Industries   will,  if
                              necessary,  promptly  (within  the  ten  (10)  day
                              period  specified  in  subparagraph  (c)  of  this
                              Paragraph  2) make the Required  Contributions  or
                              the remainder thereof left unpaid.

                        (v)   Payments. All payments by either Shareholder under
                              this Agreement  shall be in immediately  available
                              funds  and made  directly  to  Borrower's  account
                              number   5803610284   maintained   at   Bayerische
                              Hypotheken-und  Wechselbank AG in Munich, Germany.
                              All payments by the  Shareholders  hereunder shall
                              be made without setoff,  deduction or counterclaim
                              for amounts owed to any  Shareholder  by Borrower.
                              Each  Shareholder   irrevocably   waives,  to  the
                              fullest  extent  permitted by law,  all  defenses,
                              rights of setoff and counterclaims,  which may now
                              exist or  hereafter  arise  with  respect  to such
                              payments   or   other   obligations   under   this
                              Agreement.  All payments by each Shareholder under
                              this  Agreement  shall also be made free and clear
                              of, and without withholding or deduction for or on
                              account  of, any  present  or future  taxes now or
                              hereafter  imposed on  Borrower  or its  property,
                              except  to the  extent  that such  withholding  or
                              deduction is required by applicable law.

                        (vi)  Borrower Obligations.  Borrower hereby irrevocably
                              and unconditionally agrees to either (i) authorize
                              (to the extent necessary),  issue and sell capital
                              stock  to  Shareholders,  in  connection  with any
                              Capital Contributions, or (ii) authorize and issue
                              promissory notes and any other necessary documents
                              to evidence the  Subordinated  Loans or (iii) take
                              such other action at such time as is necessary for
                              Shareholders to comply with the provisions of this
                              Paragraph 2. Neither the  obligations  of Borrower
                              under this  subparagraph  (f), any other provision
                              of this  Agreement or any other Loan  Document nor
                              the  performance  thereof  shall be a condition to
                              the obligations of Shareholders to pay to Borrower
                              the  amounts   required   under  this   Agreement;
                              provided  that  either  Shareholder's  performance
                              shall  not  constitute  a  waiver  of  any  rights
                              against Borrower.

                        (vii) Termination. The obligations of Shareholders under
                              this  Paragraph  2 shall  terminate  on January 1,
                              2001 (the "Termination  Date") except with respect
                              to any  obligation  under this  Paragraph  2 which
                              remains unsatisfied on the

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<PAGE>



                              Termination   Date  and  except  as   provided  in
                              subparagraph (j) and (k) below.

                        (viii)Failure to Perform; No Proof of Damages;  Specific
                              Performance.   Borrower   and   each   Shareholder
                              recognize and agree that in the event  Borrower or
                              any Shareholder fails to perform or observe any or
                              all of its obligations  under this Agreement,  and
                              if for any  reason  Agent or any Bank  shall  have
                              failed to receive when due and payable (whether at
                              stated maturity,  by  acceleration,  or otherwise)
                              the  payment  of all or any part of  principal  or
                              interest or any other  amount  payable by Borrower
                              under  the  Loan   Agreement  or  the  other  Loan
                              Documents,  then in each  such  case it  shall  be
                              assumed  conclusively  without  necessity of proof
                              that such failure by Borrower or Shareholders  was
                              the  sole  and  direct  cause of Agent or any Bank
                              failing  to   receive   such   payment   when  due
                              irrespective   of  any   other   contributing   or
                              intervening cause  whatsoever.  As a result of the
                              forgoing,  Shareholders  and Borrower  irrevocably
                              waive to the full extent  permitted by  applicable
                              law  any  right  or  defense   that   Borrower  or
                              Shareholders  may have to cause  Agent or any Bank
                              to prove the cause or amount of any  damages or to
                              mitigate  the  same.  In  addition,   and  without
                              limiting the  forgoing,  the parties  hereto agree
                              that in the  event  of such a  failure,  (i) it is
                              impossible  to measure in money the  damages  that
                              would be  suffered  by Agent and the  Banks,  (ii)
                              Agent and the Banks  will be  irreparably  damaged
                              and  (iii) any  remedy  at law will be  inadequate
                              relief and, as a result,  this Agreement  shall be
                              enforceable  by Agent  and the Banks in a court of
                              equity by a decree of specific performance without
                              the  need  of  proving  that  a  remedy  at law is
                              inadequate,  Borrower and each Shareholder  hereby
                              waiving and agreeing not to raise the defense that
                              an adequate remedy at law exists.

                        (ix)  Non-impairment  of Obligations  upon Bankruptcy of
                              Borrower.  The obligations of  Shareholders  under
                              this  Agreement  shall not be released,  impaired,
                              limited, reduced, discharged or otherwise affected
                              on   account   of  the   insolvency,   bankruptcy,
                              arrangement,     adjustment,     composi     tion,
                              liquidation,  disability,  dissolution  or lack of
                              authority of Borrower or any Shareholder,  whether
                              now   existing  or   hereafter   arising  and,  in
                              furtherance  of the  foregoing,  each  Shareholder
                              waives, to the fullest extent permitted by

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<PAGE>



                              applicable  law and for the  benefit  of, and as a
                              separate  undertaking  with,  Agent and the Banks,
                              any defense to the  performance  of this Agreement
                              which may be available to either  Shareholder as a
                              consequence  of Borrower not being in existence or
                              this  Agreement  being  rejected or otherwise  not
                              assumed  by  Borrower  or  any  trustee  or  other
                              similar   official   for   Borrower   or  for  any
                              substantial  part of the property of Borrower,  or
                              as a consequence of this Agreement being otherwise
                              terminated  or  modified,  in  any  bankruptcy  or
                              insolvency   proceeding  whether  such  rejection,
                              non-assumption,  termination or modification be by
                              reason  of  this  Agreement  being  held  to be an
                              executory  contract  or by  reason  of  any  other
                              circumstance;  provided  that,  if  Borrower is no
                              longer in  existence  or this  Agreement  shall be
                              rejected or otherwise  not assumed,  or terminated
                              or  modified,  each  Shareholder  agrees  for  the
                              benefit  of, and as a separate  undertaking  with,
                              Agent and the Banks, that it will unconditionally,
                              jointly and severally pay to Agent an amount equal
                              to each payment  which would  otherwise be payable
                              by  Shareholders  under or in connection with this
                              Agreement to Borrower if this  Agreement  were not
                              so  rejected  or  otherwise  not  assumed  or were
                              otherwise  not so  terminated  or  modified  (such
                              amount to be payable to Agent to be applied to the
                              indebtedness,  liabilities and  obligations  owing
                              under or pursuant to the Loan Documents (the "Loan
                              Obligations"))  and in such event,  Borrower shall
                              comply with its  obligations  under  subparagraphs
                              (f) of  this  Paragraph  2.  Shareholders  further
                              agree   that   their    obligations   under   this
                              subparagraph (i) shall continue to be effective or
                              be   reinstated   (if  a  release,   discharge  or
                              termination has occurred but only to the extent of
                              the amount discharged),  as the case may be, if at
                              any time any payment (or any part of such payment)
                              to  Agent or any Bank  previously  paid by  either
                              Shareholder  under the terms of this  subparagraph
                              (i) is rescinded or must  otherwise be restored or
                              disgorged  by Agent or any  Bank  pursuant  to any
                              bankruptcy,      insolvency,       reorganization,
                              receivership,  liquidation  or other debtor relief
                              granted to any  Shareholder  or its  successors or
                              assigns.  If, pursuant to the foregoing  sentence,
                              the   obligations  of   Shareholders   under  this
                              subparagraph (i) shall continue to be effective or
                              be   reinstated   (if  a  release,   discharge  or
                              termination  has  occurred),  any  prior  release,
                              discharge or termination from

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<PAGE>



                              the   terms  of  this   Agreement   given  to  any
                              Shareholder  by Agent or any Bank shall be without
                              effect.

                        (x)   No Effect or Impairment. Each Shareholder consents
                              to and  agrees  that its  obligations  under  this
                              Agreement  will also not be discharged or affected
                              by: (i) any acceptance,  forbearance or release in
                              respect of the rights of Agent or any of the Banks
                              under  the  Loan   Agreement  or  the  other  Loan
                              Documents; (ii) any waiver or release of any right
                              or option  of Agent or any of the Banks  under the
                              terms  of  the  Loan   Agreement   or  other  Loan
                              Documents;  (iii)  any  modification,   extension,
                              renewal  or  amendment  of the  terms  of the Loan
                              Agreement or other Loan  Documents;  (iv) the fact
                              that the Loan Agreement or any other Loan Document
                              shall be  invalid,  illegal or  unenforceable,  in
                              whole or in part, for any reason; or (v) except as
                              otherwise   provided  herein,  any  other  act  or
                              omission  of  any  kind  by  Agent,  any  Bank  or
                              Borrower  or  any  other  circumstance  whatsoever
                              which  might   constitute  a  legal  or  equitable
                              discharge of the Shareholders.

                        (xi)  Liquidity Report; Liquidity Level. Borrower agrees
                              to  provide  to Agent and  Shareholders,  promptly
                              upon  any   request   therefor  by  Agent  or  any
                              Shareholders,  such  information in such detail as
                              Agent or any  Shareholder  may reasonably  request
                              from time to time relating to the determination of
                              the   Liquidity   Level   from   time   to   time.
                              Furthermore,  and notwithstanding  anything to the
                              contrary contained elsewhere in this Agreement, in
                              the event that Borrower  fails to timely provide a
                              Liquidity  Report or an accurate  Liquidity Report
                              in accordance with this Agreement  within five (5)
                              days after being given  written  notice from Agent
                              to do so, then for all purposes of this Agreement,
                              the  Liquidity  Level  as of the  applicable  date
                              shall be  deemed  to be the  Liquidity  Level,  as
                              reasonably  determined  by  Agent  in good  faith,
                              specified  in a  written  notice to  Borrower  and
                              Shareholders.

      iii.  Representations  and Warranties of Shareholders.  In connection with
            this Agreement,  Shareholders hereby jointly and severally represent
            and  warrant to Agent and the Banks as follows,  provided,  however,
            that any  representation  or warranty  contained in this Paragraph 3
            made as to a  particular  Shareholder  shall be deemed  made in this
            Agreement only by such Shareholder:


SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 9



<PAGE>



                        (i)   NL  Industries is the sole  shareholder  of Kronos
                              and Kronos is the sole  shareholder  of  Borrower,
                              and  Shareholders  have received and will continue
                              to receive a direct and indirect  material benefit
                              from the making of this  Agreement,  the Loans and
                              the transactions  evidenced by and contemplated in
                              the Loan  Agreement and the other Loan  Documents;
                              this  Agreement  is  given  by   Shareholders   in
                              furtherance  of the direct and  indirect  business
                              interests and corporate  purposes of Shareholders,
                              and is  necessary to the  conduct,  promotion  and
                              attainment  of the business of  Shareholders;  and
                              the value of the consideration  received and to be
                              received  by  Shareholders  pursuant  to the  Loan
                              Agreement is reasonably  worth at least as much as
                              the liability and obligation of Shareholders under
                              this Agreement;

                        (ii)  Each  Shareholder is a corporation duly organized,
                              validly  existing and in good  standing  under the
                              laws of the jurisdiction of its  incorporation and
                              has the corporate  power and authority to execute,
                              deliver  and perform  its  obligations  under this
                              Agreement. The execution, delivery and performance
                              by each  Shareholder  of this  Agreement have been
                              duly  authorized  by all  requisite  action on the
                              part of each  Shareholder  and do not and will not
                              violate  or   conflict   with  the   articles   of
                              incorporation  or bylaws of either  Shareholder or
                              any law, rule or  regulation  or any order,  writ,
                              injunction  or decree of any  court,  governmental
                              authority or arbitrator to which such  Shareholder
                              is  subject  and do not and will not result in the
                              creation or imposition of any Lien upon any of the
                              revenues  or  assets of  either  Shareholder.  The
                              execution  and delivery of this  Agreement and the
                              performance  of and  compliance  with the terms of
                              this Agreement will not conflict with,  constitute
                              a default  (or an event which with notice or lapse
                              of time or both would constitute a default) under,
                              or result in the breach of, any material contract,
                              agreement  or  other   instrument   to  which  any
                              Shareholder  is a party or which may be applicable
                              to any Shareholder or any of its assets;

                        (iii) This  Agreement,  when  executed and  delivered by
                              each Shareholder and Borrower, will constitute the
                              joint and  several  and valid,  legal and  binding
                              obligation  of  each  Shareholder  enforceable  in
                              accordance  with its  terms,  except to the extent
                              that enforcement may be limited by

SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 10



<PAGE>



                              bankruptcy, insolvency, reorganization, moratorium
                              or other similar laws affecting the enforcement of
                              creditors'  rights  generally and by principles of
                              equity;

                        (iv)  As of the date of this Agreement, and after giving
                              effect  to  this   Agreement  and  the  contingent
                              obligations  evidenced  by  this  Agreement,  each
                              Shareholder is not, and will not be, insolvent (as
                              such  term is used or  defined  in all  applicable
                              bankruptcy,   fraudulent   transfer,   insolvency,
                              fraudulent  conveyance and similar laws), and each
                              Shareholder has and will have assets which, fairly
                              valued,  exceed its indebtedness,  liabilities and
                              obligations;

                        (v)   All corporate acts and  conditions  required to be
                              performed and satisfied prior to the execution and
                              delivery of this Agreement, and to constitute this
                              Agreement  as the valid,  binding and  enforceable
                              obligation of each  Shareholder in accordance with
                              its terms,  except to the extent that  enforcement
                              may  be   limited   by   bankruptcy,   insolvency,
                              reorganization,  moratorium  or other similar laws
                              affecting the  enforcement  of  creditors'  rights
                              generally and by  principles of equity,  have been
                              performed  and  satisfied in  accordance  with all
                              applicable laws;

                        (vi)  Each   Shareholder   is  familiar  with,  and  has
                              independently    reviewed    books   and   records
                              regarding, the financial condition of Borrower and
                              is  familiar   with  the  value  of  any  and  all
                              Collateral  and  other   collateral  and  security
                              intended  to secure or to be created to secure the
                              Loans;   however,  each  of  Shareholders  is  not
                              relying  on  such  financial   condition  or  such
                              Collateral,   collateral   or   security   as   an
                              inducement to enter into this Agreement; and

                        (vii) Except for the execution of the Loan  Agreement by
                              Agent and Majority  Banks,  neither Agent,  any of
                              the  Banks  nor any  other  Person  has  made  any
                              representation,   warranty  or  statement  to,  or
                              promise,   covenant   or   agreement   with,   any
                              Shareholder  in order to  induce  Shareholders  to
                              execute this Agreement.

      iv.   Representations and Warranties of Borrower.  In connection with this
            Agreement,  Borrower hereby represents and warrants to Shareholders,
            Agent and the Banks as follows:


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                        (i)   Borrower is a corporation duly organized,  validly
                              existing  and in good  standing  under the laws of
                              the  jurisdiction  of its  incorporation,  has all
                              requisite corporate power and authority to own its
                              assets and carry on its  business  as now being or
                              as proposed to be conducted, and has the corporate
                              power  and  authority  to  execute,   deliver  and
                              perform its obligations under this Agreement;

                        (ii)  The   execution,   delivery  and   performance  by
                              Borrower   of  this   Agreement   have  been  duly
                              authorized by all requisite  action on the part of
                              Borrower  and do  not  and  will  not  violate  or
                              conflict  with the  articles of  incorporation  or
                              bylaws of Borrower or any law,  rule or regulation
                              or any order,  writ,  injunction  or decree of any
                              court,  governmental  authority or  arbitrator  to
                              which Borrower is subject, and do not and will not
                              result in the creation or  imposition  of any lien
                              upon any of the  revenues  or assets of  Borrower.
                              The execution  and delivery of this  Agreement and
                              the  performance of and compliance  with the terms
                              of  this   Agreement   will  not  conflict   with,
                              constitute  a  default  (or an  event  which  with
                              notice or lapse of time or both would constitute a
                              default)  under,  or result in the  breach of, any
                              material  contract,  agreement or other instrument
                              to  which  Borrower  is a party  or  which  may be
                              applicable to Borrower or any of its assets;

                        (iii) This  Agreement,  when  executed and  delivered by
                              each Shareholder and Borrower, will constitute the
                              valid,  legal and binding  obligation  of Borrower
                              enforceable in accordance  with its terms,  except
                              to the extent that  enforcement  may be limited by
                              bankruptcy, insolvency, reorganization, moratorium
                              or other similar laws affecting the enforcement of
                              creditors'  rights  generally and by principles of
                              equity; and

                        (iv)  All corporate acts and  conditions  required to be
                              performed and satisfied prior to the execution and
                              delivery of this Agreement, and to constitute this
                              Agreement  as the valid,  binding and  enforceable
                              obligation  of  Borrower  in  accordance  with its
                              terms,  except to the extent that  enforcement may
                              be    limited    by    bankruptcy,     insolvency,
                              reorganization,  moratorium  or other similar laws
                              affecting the  enforcement  of  creditors'  rights
                              generally and by

SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 12



<PAGE>



                              principles  of  equity,  have been  performed  and
                              satisfied in accordance with all applicable laws.

      v.    Cumulative Remedies; No Election.  The rights of Agent and the Banks
            under this Agreement shall be cumulative of any and all other rights
            that Agent and the Banks may ever have  against any  Shareholder  or
            Borrower  or  arising  under  the  Loan  Documents,  or at law or in
            equity.  The  exercise  by Agent or any Bank of any  right or remedy
            under this Agreement or under any other Loan Document,  or at law or
            in equity,  shall not preclude the concurrent or subsequent exercise
            of any other right or remedy.  This  Agreement  may be enforced from
            time to time as often as  occasion  therefor  may  arise,  and it is
            agreed  that it shall not be  necessary  for  Agent or any Bank,  in
            order to enforce the provisions of this Agreement, first to exercise
            any rights against Borrower,  any Shareholder or any other Person or
            institute suit or to exhaust any available remedies against security
            in its  possession  or under its control,  or to resort to any other
            sources or means of obtaining  payment of the Loans. The obligations
            and duties of  Shareholders  under this Agreement are independent of
            the  obligations  and duties of Borrower under the Loan Agreement or
            this Agreement,  and a separate action or actions may be brought and
            prosecuted  against  Shareholders  or either of them, on a joint and
            several basis,  whether or not action is brought against Borrower or
            any other Person obligated in respect of the Loan and whether or not
            Borrower is joined in any such action or actions. In furtherance and
            not in limitation of the foregoing, the obligations and duties of NL
            Industries  under this Agreement are  independent of the obligations
            and duties of NL Industries under the NL Guaranty,  payments made by
            NL Industries under the terms of this Agreement will not be credited
            against  payments made or required to be made under the NL Guaranty,
            payments  made by NL  Industries  under the NL Guaranty  will not be
            credited  against payments made or required to be made hereunder and
            the  rights  of  Agent  and  the  Banks  under  this  Agreement  are
            cumulative  of all  rights  Agent and the Banks may have  against NL
            Industries under the NL Guaranty.

      vi.   Binding Effect. This Agreement is for the benefit of Borrower, Agent
            and the Banks, and their successors and assigns, and in the event of
            an assignment by Agent or any Bank,  its  successors or assigns,  of
            the Loans,  or any part of the Loans,  the rights and benefits under
            this  Agreement,  to the  extent  applicable  to  the  indebtedness,
            liabilities  and  obligations so assigned,  may be transferred  with
            such  indebtedness,  liabilities and obligations.  This Agreement is
            binding,  not only upon  Shareholders  and Borrower,  but upon their
            respective  successors and assigns;  provided that neither  Borrower
            nor any  Shareholder  may assign  any of its  rights or  obligations
            hereunder without the prior written consent of the Majority Banks.

      vii.  Right of Setoff.  With respect to all  obligations  of  Shareholders
            hereunder owed to Agent or the Banks, each Shareholder hereby grants
            to Agent and the Banks a right of  setoff  upon any and all  monies,
            securities or other property of

SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 13



<PAGE>



            such Shareholder,  and the proceeds therefrom, now or hereafter held
            or  received  by or in  transit to Agent or any Bank from or for the
            account  of such  Shareholder,  whether  for  safekeeping,  custody,
            pledge, transmission, collection or otherwise, and also upon any and
            all deposits  (general or special) and credits of such  Shareholder,
            and any and all  claims  of such  Shareholder  against  Agent or any
            Banks at any time existing.

      viii. Further  Assurances.  Upon the  reasonable  request  of Agent,  each
            Shareholder  will,  at any time and from time to time,  duly execute
            and deliver to Agent any and all such further agreements,  documents
            and instruments,  and supply such additional information,  as may be
            necessary  or  advisable,  in the  reasonable  opinion of Agent,  to
            obtain the full benefits of this Agreement,  provided, however, that
            delivery of such additional  information is subject to receipt of an
            executed  Confidentiality  Agreement  with  respect to  confidential
            information of any Shareholder or any Person Controlled  directly or
            indirectly by such Shareholder.

      ix.   Invalid Provisions. If any provision of this Agreement is held to be
            illegal,  invalid or  unenforceable  under  present  or future  laws
            effective during the term of this Agreement, such provision shall be
            fully  severable,  this Agreement shall be construed and enforced as
            if such  illegal,  invalid  or  unenforceable  provision  had  never
            comprised a part of this Agreement,  and the remaining provisions of
            this  Agreement  shall remain in full force and effect and shall not
            be affected by the illegal, invalid or unenforceable provision or by
            its  severance  from this  Agreement.  Furthermore,  in lieu of such
            illegal,  invalid or  unenforceable  provision  there shall be added
            automatically  as a part of this Agreement a provision as similar in
            terms to such illegal,  invalid or unenforceable provision as may be
            possible and be legal, valid and enforceable.

      x.    Modification  in Writing.  No  modification,  consent,  amendment or
            waiver of any  provision  of this  Agreement,  and no consent to any
            departure  by any  Shareholder  or  Borrower  from the terms of this
            Agreement,  shall be  effective  unless the same shall be in writing
            and signed by the Majority Banks and then shall be effective only in
            the specific  instance and for the specific purpose for which given;
            provided  that no  amendment,  waiver or other  modification  of, or
            consent to any departure from, the provisions of Paragraph 2 of this
            Agreement or this  Paragraph  10 shall be effective  unless the same
            shall  be in  writing  and  signed  by Banks  who hold at least  80%
            (eighty  percent) of the aggregate  unpaid  principal  amount of the
            Loans.

      xi.   No Waiver,  Etc.  No notice to or demand on any  Shareholder  in any
            case  shall,  of itself,  entitle  any  Shareholder  to any other or
            further notice or demand in similar or other circumstances. No delay
            or  omission by Agent or any Bank in  exercising  any power or right
            under  this  Agreement  shall  impair  any such power or right or be
            construed as a waiver thereof or any acquiescence therein, and no

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<PAGE>



            single or partial exercise of any such power or right shall preclude
            other or further exercise thereof or the exercise of any other power
            or right under this Agreement.

      xii.  Expenses.  If any  Shareholder or Borrower  should breach or fail to
            perform any provision of this Agreement,  Shareholders  agree to pay
            to Agent all reasonable  costs and expenses  (including  court costs
            and reasonable attorneys' fees of outside counsel) incurred by Agent
            in the enforcement of this Agreement.

      xiii. APPLICABLE  LAW. THIS  AGREEMENT  SHALL BE GOVERNED BY AND CONSTRUED
            ACCORDING TO THE INTERNAL LAWS OF THE STATE OF NEW YORK.

      xiv.  Notices.  Unless otherwise  specifically provided in this Agreement,
            any notice or other communication  required or permitted to be given
            under  this  Agreement  shall be in  writing  and may be  personally
            served, telefaxed, telecopied, telexed or sent by courier service or
            first  class  prepaid  mail  (airmail  if to an address in a foreign
            country  from the  party  writing)  and shall be deemed to have been
            given  when  delivered  in  person  or  by  courier  service,   upon
            transmission of a telefax,  telecopy or telex or four (4) days after
            deposit in the mail  (registered,  with postage prepaid and properly
            addressed).  For the purposes of this  Agreement,  the  addresses of
            Borrower,  Shareholders  and Agent  (until  fifteen (15) days' prior
            written  notice of a change thereof is delivered as provided in this
            Paragraph  14 ) shall be as set forth below on the  signature  pages
            hereof in the case of Shareholders and Agent and as set forth in the
            Loan Agreement in the case of Borrower.

      xv.   NO ORAL  AGREEMENTS.  THIS AGREEMENT  REPRESENTS THE FINAL AGREEMENT
            AMONG SHAREHOLDERS, BORROWER AND AGENT AND THE BANKS RELATING TO THE
            SUBJECT  MATTER OF THIS  AGREEMENT  AND MAY NOT BE  CONTRADICTED  BY
            EVIDENCE OF PRIOR,  CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
            SUCH  PARTIES.  THERE ARE NO UNWRITTEN  ORAL  AGREEMENTS  BETWEEN OR
            AMONG SUCH PARTIES.

      xvi.  Joint   and   Several   Obligations,   Etc.   Except   for   certain
            representations  and  warranties  made by only  one of  Shareholders
            pursuant  to  Paragraph  3  of  this  Agreement,   all  obligations,
            covenants,  agreements,  representations  and warranties  under this
            Agreement or contained in this Agreement shall constitute and be the
            joint    and    several    obligations,    covenants,    agreements,
            representations   and  warranties  of  each  Shareholder;   provided
            however,  that in no event shall the amount of Capital Contributions
            or   Subordinated   Loans  made   pursuant  to  this   Agreement  by
            Shareholders  exceed individually or in the aggregate DM 125,000,000
            (Deutsche Mark One Hundred Twenty-Five Million).


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<PAGE>



      xvii. Survival. All representations,  warranties, covenants and agreements
            of any  Shareholder or Borrower in this Agreement  shall survive the
            execution of this Agreement.

      xviii.Counterparts.  This  Agreement  may be  executed  in any  number  of
            counterparts, each of which shall constitute an original, but all of
            which  when  taken  together  shall  constitute  one  and  the  same
            Agreement.

      xix.  CONSENT TO  JURISDICTION,  VENUE.  EACH  SHAREHOLDER  REPRESENTS AND
            WARRANTS   THAT  IT  IS  NOT  ENTITLED  TO  IMMUNITY  FROM  JUDICIAL
            PROCEEDINGS  AND  AGREES  THAT,  SHOULD  AGENT OR ANY BANK BRING ANY
            SUIT,  ACTION OR PROCEEDING IN ANY  JURISDICTION  DESCRIBED BELOW TO
            ENFORCE ANY OBLIGATION OR LIABILITY OF SUCH  SHAREHOLDER  UNDER THIS
            AGREEMENT NO IMMUNITY FROM SUCH SUIT,  ACTION OR PROCEEDING  WILL BE
            CLAIMED BY OR ON BEHALF OF SUCH  SHAREHOLDER  OR WITH RESPECT TO ITS
            PROPERTY.  EACH SHAREHOLDER  IRREVOCABLY SUBMITS TO THE JURISDICTION
            OF ANY FEDERAL OR STATE COURT SITTING IN THE CITY OF NEW YORK, STATE
            OF NEW YORK,  OR IN THE CITY OF HOUSTON,  STATE OF TEXAS,  OR IN THE
            CITY OF DALLAS,  STATE OF TEXAS, OVER ANY SUIT, ACTION OR PROCEEDING
            ARISING  OUT OF OR  RELATING  TO THIS  AGREEMENT.  EACH  SHAREHOLDER
            IRREVOCABLY  WAIVES,  TO THE FULLEST  EXTENT  PERMITTED  BY LAW, ANY
            OBJECTION  WHICH IT MAY HAVE OR MAY HEREAFTER  HAVE TO THE LAYING OF
            THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
            COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
            IN ANY SUCH COURT HAS BEEN BROUGHT IN AN  INCONVENIENT  FORUM.  EACH
            SHAREHOLDER AGREES THAT A FINAL AND  NON-APPEALABLE  JUDGMENT IN ANY
            SUCH SUIT,  ACTION OR PROCEEDING  BROUGHT IN ANY SUCH COURT SHALL BE
            CONCLUSIVE AND BINDING UPON SUCH  SHAREHOLDER AND MAY BE ENFORCED IN
            ANY OTHER COURTS TO THE  JURISDICTION  OF WHICH SUCH  SHAREHOLDER IS
            SUBJECT  BY A SUIT UPON SUCH  JUDGMENT,  PROVIDED  THAT  SERVICE  OF
            PROCESS IS  EFFECTED  UPON SUCH  SHAREHOLDER  IN ONE OF THE  MANNERS
            SPECIFIED IN PARAGRAPH 21 BELOW OR AS OTHERWISE PERMITTED BY LAW.

      xx.   Appointment of Agent. Each Shareholder hereby irrevocably designates
            and appoints  Prentice-Hall  Corporation  System,  Inc., 15 Columbus
            Circle,  New York, NY 10023,  as its authorized  agent to accept and
            acknowledge  on its behalf  service of any and all process which may
            be served in any suit,  action or proceeding of the nature  referred
            to in Paragraph 19 of this Agreement in any court

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<PAGE>



            sitting in the City of New York,  State of New York,  in the City of
            Houston,  State of Texas, or in the City of Dallas,  State of Texas,
            respectively. Said designation and appointment shall be irrevocable.
            If such agent for service  shall cease so to act,  each  Shareholder
            covenants and agrees that it shall irrevocably designate and appoint
            without  delay  another such agent  satisfactory  to Agent and shall
            deliver  promptly to Agent evidence in writing of such other agent's
            acceptance of such appointment.

      xxi.  Service of  Process.  Each  Shareholder  hereby  consents to process
            being  served  in any  suit,  action  or  proceeding  of the  nature
            referred  to in  Paragraph  19 of this  Agreement  either (a) by the
            mailing of a copy thereof by registered mail (registered  airmail if
            addressed  to a  location  in a country  other  than the  country of
            mailing),  postage prepaid, return receipt requested, to the address
            for such Shareholder set forth below such  Shareholder's name on the
            signature  pages  hereof  or to any  other  address  of  which  such
            Shareholder  shall have given  written  notice to Agent  pursuant to
            Paragraph 14 of this Agreement or (b) by serving a copy thereof upon
            Prentice-Hall  Corporation  System,  Inc. at its appropriate address
            set forth in Paragraph 20 of this Agreement,  as such  Shareholder's
            agent for service of process  (provided  that,  to the extent lawful
            and possible, written notice of said service upon said agent of such
            Shareholder may be mailed by registered mail (registered  airmail if
            addressed  to a  location  in a country  other  than the  country of
            mailing),   postage  prepaid,  return  receipt  requested,  to  such
            Shareholder at its address  specified  above or to any other address
            of which such Shareholder shall have given written notice to Agent).
            Each Shareholder irrevocably waives, to the fullest extent permitted
            by law,  all claim of error by reason of any such service and agrees
            that such  service  (i) shall be deemed in every  respect  effective
            service of process upon such Shareholder in any such suit, action or
            proceeding and (ii) shall,  to the fullest extent  permitted by law,
            be taken and held to be valid  personal  service  upon and  personal
            delivery to such Shareholder.

      xxii. No Limitation on Service or Suit. Nothing in Paragraphs 19, 20 or 21
            of this Agreement shall (a) affect the right of Agent or any Bank to
            serve process in any manner  permitted by law or (b) limit the right
            of Agent or any Bank or other  holder to bring  proceedings  against
            any Shareholder in the courts of any other jurisdiction.

      xxiii.Financial  Reporting.  So long as this Agreement  remains in effect,
            Shareholders  agree that they will deliver to Agent,  in  sufficient
            copies  for  distribution  to all  Banks,  the  following  financial
            information:

                        (i)   As soon as the same become  available,  but in any
                              event within 120 (one  hundred  twenty) days after
                              the  end  of  the   fiscal   year,   the   audited
                              consolidated      financial     statements     and
                              consolidating    financial    statements    (which
                              consolidating

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<PAGE>



                              financial  statements are not separately  reported
                              on  by  independent  public   accountants)  of  NL
                              Industries  and its  subsidiaries  for such fiscal
                              year and the  consolidating  financial  statements
                              (not separately  reported on by independent public
                              accountants)  of Kronos and its  subsidiaries  for
                              such fiscal year;  each  presented  in  conformity
                              with  U.S.   GAAP  with   changes  in   accounting
                              principles,  if any,  from the prior  fiscal year,
                              specified  in the  certificates  described  below,
                              together  with  certificates  executed  by a  Vice
                              President of NL Industries,  in form and substance
                              reasonably  satisfactory  to Agent,  and otherwise
                              certifying  that such  financial  statements  have
                              been  prepared in  accordance  with U.S.  GAAP and
                              fairly present the financial condition and results
                              of operation of the Persons subject thereof.

                        (ii)  Within  90  (ninety)  days  after  the end of each
                              fiscal  quarter  (excluding  the fourth  quarter),
                              unaudited consolidated and consolidating financial
                              statements of NL Industries  and its  subsidiaries
                              and unaudited  consolidating  financial statements
                              of Kronos and its subsidiaries;  each presented in
                              conformity   with  U.S.   GAAP  with   changes  in
                              accounting  principles,  if any,  from  the  prior
                              fiscal  year,   specified   in  the   certificates
                              described   below,   for   each   fiscal   quarter
                              (excluding the fourth  quarter),  and certificates
                              executed by a Vice President of NL Industries,  in
                              form  and  substance  reasonably  satisfactory  to
                              Agent,   and   otherwise   certifying   that  such
                              financial   statements   have  been   prepared  in
                              accordance  with U.S. GAAP and fairly  present the
                              financial  condition  and results of  operation of
                              the Persons subject thereof.

                        (iii) Promptly deliver notice thereof to Agent, upon the
                              commencement of any action or other proceedings by
                              or against any  Shareholder  under any bankruptcy,
                              insolvency or other similar law.

                        (iv)  Upon  request  of Agent,  furnish  Agent with such
                              information   about  the   business,   assets  and
                              financial  condition of any Shareholder and/or any
                              other Persons Controlled directly or indirectly by
                              such   Shareholder   as  Agent  or  any  Bank  may
                              reasonably  request,   provided,   however,   that
                              delivery of such information is subject to receipt
                              of an executed Confidentiality Agreement with

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<PAGE>



                              respect  to   confidential   information  of  such
                              Shareholder or Person.



SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 19



<PAGE>



      IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
as of the date first written above.

                                    NL INDUSTRIES, INC.


                                    By:    /s/ Susan E. Alderton
                                    Name:  Susan E. Alderton
                                    Title: Vice President & Treasurer

                                    By:
                                    Name:
                                    Title:

                                    Address for Notices:

                                    70 East 55th Street
                                    New York, New York 10022
                                    Attention: Ms. Susan E. Alderton
                                    Telefax: 212-421-7209


                                    KRONOS, INC.


                                    By:    /s/ Susan E. Alderton
                                    Name:  Susan E. Alderton
                                    Title: Vice President & Treasurer


                                    By:
                                    Name:
                                    Title:

                                    Address for Notices:

                                    c/o NL Industries, Inc.
                                    70 East 55th Street
                                    New York, New York 10022
                                    Attention: Ms. Susan E. Alderton
                                    Telefax: 212-421-7209



SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 20



<PAGE>


                           KRONOS INTERNATIONAL, INC.


                                    By:    /s/ E. Gaertner
                                    Name:  E. Gaertner
                                    Title: President


                                    By:    /s/ V. Roth
                                    Name:  V. Roth
                                    Title: Vice President & Controller


      The  undersigned  has executed  this  Agreement  solely for the purpose of
confirming receipt of this Agreement and reliance on this Agreement by Agent and
Banks effective as of the date first written above.

HYPOBANK INTERNATIONAL S.A.


By:     /s/ Michael Bisch
Name:   Michael Bisch
Title:  Charge de Service


By:
Name:
Title:

Address for Notices:

4, rue Alphonse Weicker
L-2721 Luxembourg-Kirchberg
Attention:  Michael Bisch
Telefax:    (011) 352-4272-4510


SECOND AMENDED AND RESTATED LIQUIDITY UNDERTAKING - Page 21



<PAGE>



                                                                  EXHIBIT 10.5

                                   GUARANTY


      THIS GUARANTY (the  "Guaranty"),  dated as of January 31, 1997, is made by
NL  INDUSTRIES,  INC., a Delaware  corporation  (the  "Guarantor"),  in favor of
HYPOBANK  INTERNATIONAL S.A. (the "Agent"), as agent for all the Banks listed on
Schedule 1 to the Loan Agreement (as hereinafter  defined) and their  successors
and assigns (collectively,  with the Agent, the "Banks"). Capitalized terms used
herein, unless otherwise defined,  shall have the meanings set forth in the Loan
Agreement.

                             W I T N E S S E T H:

      WHEREAS,   Kronos   International,   Inc.,  a  Delaware  corporation  (the
"Borrower"),  Kronos Titan-GmbH  ("Kronos Titan"),  the Agent and the Banks are,
concurrently  herewith,  entering into that certain  Second Amended and Restated
Loan  Agreement  dated as of  January  31,  1997 (as the same may be  amended or
supplemented  from time to time,  the "Loan  Agreement"),  which Loan  Agreement
amends and restates that certain Amended and Restated Loan Agreement dated as of
October 15, 1993,  among the Borrower,  the Agent,  Banque Paribas,  as Co-Agent
(the "Co-Agent"),  and the Banks (or their predecessors in interest) (the "First
Restated  Agreement"),  which First Restated  Agreement amends and restates that
certain Loan Agreement dated as of May 30, 1990, among the Borrower,  the Agent,
the  Co-Agent  and the Banks (or their  predecessors  in interest) as amended by
that certain (i) First  Amendment  Agreement dated as of December 31, 1990, (ii)
Second Amendment  Agreement dated as of March 22, 1991 and (iii) Third Amendment
Agreement  dated as of June 15,  1992 (the  "Original  Agreement"),  pursuant to
which the Banks (or their  predecessors  in  interest)  initially  loaned to the
Borrower the principal amount of DM 1,600,000,000 (Deutsche Mark One Billion Six
Hundred  Million) (the aggregate of any and all amounts advanced by the Banks or
their  predecessors  in interest  under the Loan  Agreement,  the First Restated
Agreement and/or the Original  Agreement and outstanding at any time,  including
without limitation any and all amounts outstanding under the Term Portion or the
Revolving  Portion  (as  such  terms  are  defined  in the Loan  Agreement),  is
hereinafter called the "Loans"); and

      WHEREAS,  in order to  induce  the Banks to amend  and  restate  the First
Restated  Agreement,  the Guarantor is required to guarantee the prompt  payment
when due of all principal,  interest and other amounts that shall be at any time
payable by the Borrower or any of its  Subsidiaries  under the Loan Documents on
the terms and conditions set forth in this Guaranty;

      NOW  THEREFORE,  for and in  consideration  of the above,  and any and all
financial accommodations or extensions of credit (including, without limitation,
any loan or advance by  renewal,  refinancing  or  extension  of the  agreements
described herein) heretofore, now or hereafter made to or for the benefit of the
Borrower and/or Kronos Titan by the Banks,  the Guarantor  hereto  covenants and
agrees as follows:


                                      1

<PAGE>



                                   ARTICLE I

                                 The Guaranty

      SECTION 1.1 The Guaranty. The Guarantor hereby unconditionally  guarantees
to the  Agent and the Banks and their  respective  successors  and  assigns  the
punctual payment, as and when due (whether by acceleration or otherwise), of

            (i)  The  principal  amount  of  the  Loans  and  all  interest  and
prepayment and other charges accruing thereunder;

            (ii) All charges,  payments,  and other  obligations of the Borrower
and/or  Kronos  Titan  accruing  under the Loan  Agreement,  the First  Restated
Agreement and/or the Original Agreement; and

            (iii) All charges,  payments and other  obligations of the Borrower,
Kronos Titan and/or any of the Subsidiaries of the Borrower  accruing under this
Guaranty or any of the other Loan Documents (all of the foregoing, collectively,
the "Secured Indebtedness").

      Upon failure by the Borrower,  Kronos Titan and/or any of the Subsidiaries
of the Borrower to pay punctually any such amount,  the Guarantor agrees that it
will  forthwith  on demand  pay the  amount  not so paid at the place and in the
manner specified in the Loan Documents or as otherwise notified to the Guarantor
by the Agent.

      SECTION  1.2  Guarantor's  Obligation.   The  Guarantor  agrees  that  its
liability  hereunder  shall be as a sole and  primary  obligor and not merely as
surety and that its  liability is absolute and  unconditional,  and shall not be
subject to any right of set-off or  counterclaim  and shall remain in full force
and effect until the entire Secured Indebtedness shall have been paid in full.

      SECTION 1.3 Waiver.  The Guarantor  hereby  waives,  to the fullest extent
permitted  by law,  notice of the  acceptance  hereof,  diligence,  presentment,
demand of payment or  otherwise,  and any right to  require a  proceeding  first
against the Borrower,  Kronos Titan and/or any other Person  (including  without
limitation any other Guarantor).

      SECTION 1.4 No Effect or Impairment.  The Guarantor hereby consents to and
agrees  that its  obligations  under this  Guaranty  will not be  discharged  or
affected by: (i) any acceptance, forbearance or release in respect of the rights
of the Agent or the Banks or any  subsequent  holder under the Loan Agreement or
the Loan Documents,  including,  without  limitation,  any release of any of the
Collateral or any other guaranty of the Loans; (ii) any waiver or release of any
right or option of the Agent or the  Banks or any  subsequent  holder  under the
terms  of the  Loan  Agreement  or  other  Loan  Documents,  including,  without
limitation,  any release of any of the  Collateral or any other  guaranty of the
Loans; (iii) any modification,  extension,  renewal or amendment of the terms of
the  Loan  Agreement  or other  Loan  Documents;  (iv)  the  fact  that the Loan
Agreement   or  any  other  Loan   Documents   shall  be  invalid,   illegal  or
unenforceable,  in  whole  or in  part,  for any  reason;  (v) the  receipt  and
acceptance of notes, checks or other instruments for

                                      2

<PAGE>



the payment of money by the  Borrower,  Kronos Titan and/or any  Subsidiary  and
extensions and renewals  thereof;  or (vi) except as otherwise  provided herein,
any  other  act or  omission  of any  kind  by the  Agent  or the  Banks  or any
subsequent  holder or the  Borrower  or Kronos  Titan or any other  circumstance
whatsoever  which  might  constitute  a  legal  or  equitable  discharge  of the
Guarantor, including, without limitation, the bankruptcy of the Borrower, Kronos
Titan and/or any Subsidiary.

      SECTION 1.5  Payments.  All payments  provided for herein shall be made in
immediately  available funds in Deutsche Mark ("DM");  provided,  however,  that
payments  provided for herein shall be made in  immediately  available  funds in
U.S.  Dollars if and to the extent that the payment  provided for herein relates
to an amount payable by the Borrower  and/or Kronos Titan in U.S.  Dollars.  The
obligation  of the  Guarantor to make payment in DM of any amounts due hereunder
to the Agent shall not be discharged or satisfied by any tender, or any recovery
pursuant to any judgment,  which is expressed in or converted  into any currency
other than DM, except to the extent that such tender or recovery shall result in
the actual receipt by the Agent of the full amount of DM expressed to be due and
owing in respect of the  principal  amount of and interest  accrued on the Loans
and in regard to the other parts of the Secured  Indebtedness  expressed  in DM.
The Guarantor  agrees that the  obligations  to make payments in DM as aforesaid
shall be enforceable  as an  alternative  or additional  cause of action for the
purpose of recovery  in DM of the amount (if any) by which such  actual  receipt
shall fall short of the full amount of DM  expressed to be payable in respect of
any  amount due  hereunder,  and shall not be  affected  by any  judgment  being
obtained for other sums in any other currency in enforcement of this Guaranty.

      SECTION  1.6 Net  Payments.  All  payments  by the  Guarantor  under  this
Agreement  shall be made without setoff or  counterclaim  and free and clear of,
and without withholding or deduction for or on account of, any present or future
taxes (other than Excluded  Taxes) now or hereafter  imposed on the recipient of
such payment or its income, property, assets or franchises, except to the extent
that such withholding or deduction is required by applicable law or is permitted
under the Loan Agreement.

      If any such  withholding  or deduction is required by applicable law or is
permitted under the Loan Agreement, the Guarantor will:

            (i) pay to the relevant tax  authorities the full amount so required
to be withheld or deducted  when and as the same shall become due and payable to
such tax authorities;

            (ii) promptly forward to the Agent and each of the affected Banks an
official  receipt or other  documentation  satisfactory to the Agent  evidencing
such payment to such tax authorities; and

            (iii) except to the extent that such withholding or deduction is for
Excluded Taxes or, under the terms of the Loan Agreement, for additional amounts
which are not payable or have been  waived,  pay to the Agent for the account of
the relevant recipient such additional amount as is necessary to ensure that the
net amount actually received by each recipient will equal

                                      3

<PAGE>



the full amount such  recipient  would have received had no such  withholding or
deduction been required.

      SECTION 1.7  Subrogation.  The Guarantor  shall not have any right to, and
will not,  exercise any rights that it may acquire by way of  subrogation  under
this Guaranty (by any payment made hereunder or otherwise) until all the Secured
Indebtedness  shall have been paid in full.  If any amount  shall be paid to the
Guarantor on account of such subrogation rights at any time when all the Secured
Indebtedness  shall  not have been paid in full,  such  amount  shall be held in
trust for the benefit of the Agent and the Banks and shall  forthwith be paid to
the Agent to be credited and applied to the payment of the Secured Indebtedness,
whether  matured  or  unmatured,  in  accordance  with  the  terms  of the  Loan
Agreement.  If (i) all the Secured Indebtedness shall be paid in full, the Agent
and the Banks  will,  at the  Guarantor's  request,  execute  and deliver to the
Guarantor appropriate documents,  without recourse and without representation or
warranty,  necessary to evidence the transfer by subrogation to the Guarantor of
an interest  in the  Secured  Indebtedness  resulting  from such  payment by the
Guarantor.

      SECTION  1.8  Revival of  Obligation.  If,  after the Agent's or the other
Banks'  receipt  of any  payment  from  the  Borrower  of all or any part of the
amounts  paid  under this  Guaranty,  or after the  Agent's or the other  Banks'
collection of the proceeds  from the sale of any  Collateral or from the payment
under any other guaranty,  the Agent or the Banks are petitioned or compelled to
return any such  payment or  proceeds,  because  such  payment  or  proceeds  is
invalidated,  declared fraudulent,  set aside, determined to be void or voidable
as a preference, an impermissible setoff, or for any reason whatsoever, then the
Borrower's obligations (and Kronos Titan's obligations,  if applicable) shall be
deemed to be revived and this Guaranty  shall  continue in full force as if such
payment  or  proceeds  had not been  received  by the Agent or the  Banks  until
payment in full is made by the Guarantor.  In addition,  the Guarantor agrees to
indemnify and hold the Agent and the Banks harmless from and against and for any
and all  damages,  losses,  costs or  expenses  (including  without  limitation,
reasonable  attorneys'  fees) incurred by them in connection with such surrender
or return.

                                  ARTICLE II

                           Jurisdiction and Service

      SECTION 2.1 Consent to Jurisdiction,  Venue. The Guarantor  represents and
warrants  that it is not  entitled to immunity  from  judicial  proceedings  and
agrees  that,  should  the Agent  bring any suit,  action or  proceeding  in the
jurisdiction  described  below to enforce any  obligation  or  liability  of the
Guarantor under this Guaranty,  no immunity from such suit, action or proceeding
will be claimed by or on behalf of the  Guarantor  or with respect to its assets
or  property.  The  Guarantor  irrevocably  submits to the  jurisdiction  of any
federal or state court sitting in the City of New York, State of New York, or in
the City of Dallas,  State of Texas, over any suit, action or proceeding arising
out of or relating to this Guaranty.  The Guarantor  irrevocably  waives, to the
fullest  extent  permitted by law, any  objection  which it has or may hereafter
have to the laying of the venue of any such suit,  action or proceeding  brought
in such court and any claim that any such suit, action or proceeding  brought in
such court has been

                                      4

<PAGE>



brought  in  an  inconvenient   forum.  The  Guarantor  agrees  that  final  and
non-appealable judgment in any such suit, action or proceeding brought in such a
court shall be conclusive  and binding upon the Guarantor and may be enforced in
any other courts to the jurisdiction of which the Guarantor is subject by a suit
upon such  judgment,  provided  that  service of process  is  effected  upon the
Guarantor  in one of the manners  specified in Section 2.3 below or as otherwise
permitted by law.

      SECTION  2.2  Appointment  of  Agent.  The  Guarantor  hereby  irrevocably
designates  and  appoints  The  Prentice-Hall   Corporation  System,  Inc.,  c/o
Corporation Service Company, 500 Central Avenue,  Albany, New York 12206, as its
authorized  agent to accept and acknowledge on its behalf service of any and all
process  which may be served in any suit,  action or  proceeding  of the  nature
referred to in Section 2.1 in any court  sitting in The City of New York,  State
of New York. Said  designation and  appointment  shall be irrevocable  until the
Secured  Indebtedness  shall have been paid in full.  If such agent for  service
shall  cease  so to act,  the  Guarantor  covenants  and  agrees  that it  shall
irrevocably  designate and appoint without delay another such agent satisfactory
to the Agent and shall deliver promptly to the Agent evidence in writing of such
other agent's acceptance of such appointment.

      SECTION 2.3 Service of Process.  The Guarantor  hereby consents to process
being  served in any suit,  action or  proceeding  of the nature  referred to in
Section  2.1 either  (a) by the  mailing of a copy  thereof by  registered  mail
(registered  airmail  if  addressed  to a location  in a country  other than the
country of mailing),  postage prepaid,  return receipt requested, to the address
for the Guarantor set forth on the signature page hereof or to any other address
of which the Guarantor  shall have given written  notice to Agent or such holder
or (b) by serving a copy  thereof  upon The  Prentice-Hall  Corporation  System,
Inc., c/o Corporation  Service  Company,  500 Central Avenue,  Albany,  New York
12206,  as the Guarantor's  agent for service of process  (provided that, to the
extent  lawful and possible,  written  notice of said service upon said agent of
the  Guarantor  shall be  mailed  by  registered  mail  (registered  airmail  if
addressed to a location in a country other than the country of mailing), postage
prepaid,  return receipt  requested,  to the Guarantor at its address  specified
above or to any other  address of which the  Guarantor  shall have given written
notice to the Agent.  The Guarantor  irrevocably  waives,  to the fullest extent
permitted by law, all claim of error by reason of any such service (but does not
waive any right to assert lack of subject matter  jurisdiction)  and agrees that
such service (i) shall be deemed in every respect  effective  service of process
upon the Guarantor in any such suit, action or proceeding and (ii) shall, to the
fullest extent  permitted by law, be taken and held to be valid personal service
upon and personal delivery to the Guarantor.

      SECTION 2.4 No Limitation on Service or Suit. Nothing in Sections 2.1, 2.2
or 2.3 above shall affect the right of the Agent to serve  process in any manner
permitted  by law or limit  the  right of the  Agent  or other  holder  to bring
proceedings against the Guarantor in the courts of any other jurisdiction.


                                      5

<PAGE>



                                  ARTICLE III

                              General Conditions

      SECTION 3.1  Survival.  All  covenants,  agreements,  representations  and
warranties  made by the  Guarantor in this Guaranty and in any  certificates  or
other  documents  delivered  pursuant hereto shall survive and shall continue in
full force and effect until the Secured Indebtedness is paid in full.

      SECTION  3.2  Assignment.  The Agent may  assign any and all rights it has
hereunder,  either in whole or in part;  the Guarantor may not assign any of its
rights or indebtedness, liabilities or obligations under this Guaranty except as
may be permitted in the Loan Agreement.

      SECTION 3.3  Communications  and Notices.  All  communications and notices
provided for in this Guaranty shall be in English, shall be in writing and shall
be in accord with Article 26 of the Loan Agreement.

      SECTION 3.4 Stay of Acceleration.  If acceleration of the time for payment
of  any  amount  payable  by  the  Borrower,  Kronos  Titan  and/or  any  of the
Subsidiaries  of the  Borrower  under  the Loan  Documents  is  stayed  upon the
insolvency,  bankruptcy or reorganization  of the Borrower,  Kronos Titan and/or
any such Subsidiary,  all such amounts otherwise  subject to acceleration  under
the terms of the Loan  Documents  shall  nonetheless be payable by the Guarantor
hereunder forthwith on demand by the Agent.

      SECTION 3.5  Limitation  on  Guarantor's  Obligations.  The  indebtedness,
liabilities  and  obligations of the Guarantor  hereunder shall be limited to an
aggregate  amount  equal  to the  largest  amount  that  would  not  render  its
indebtedness,  liabilities and obligations  hereunder subject to avoidance under
Section 548 of the Bankruptcy  Code or any  applicable  provisions of comparable
state law.

      SECTION 3.6 Governing  Law. This Guaranty shall be construed in accordance
with, and governed by the laws of, the State of New York.

      SECTION  3.7  Headings  of  Articles  and  Sections.  The  headings of the
Articles and Sections of this  Guaranty  are inserted for  convenience  only and
shall not be deemed to constitute a part of this Guaranty.

      SECTION 3.8 Severability.  In case one or more of the provisions contained
in this Guaranty shall be invalid,  illegal or unenforceable in any respect, the
validity,  legality and  enforceability  of the remaining  provisions  contained
herein shall not in any way be affected or impaired thereby.

      SECTION 3.9  Execution in  Counterparts.  This Guaranty may be executed in
one or more counterparts,  each of which when executed and delivered shall be an
original and all of which shall together constitute one and the same instrument.

                                      6

<PAGE>



      SECTION 3.10 Entire Agreement. This Guaranty embodies the entire agreement
and  understanding  between the Agent and the Guarantor  relating to the subject
matter hereof and supersedes all prior agreements and understandings relating to
the subject matter hereof.

      SECTION 3.11 No Waivers.  No waiver by any party of any conditions,  or of
any breach of any term,  covenant,  representation or warranty  contained in the
instruments  evidencing the Loans, the Loan Agreement,  this Guaranty, or any of
the other Loan Documents in any one or more instances,  shall be deemed to be or
construed as a further or continuing  waiver of any such  condition or breach or
waiver of any other  condition  or of any  breach of any other  term,  covenant,
representation  or warranty  thereof;  nor shall any single or partial  exercise
thereof  preclude any other or further  exercise  thereof or the exercise of any
other right, power or privilege.

      SECTION 3.12 Changes, Waivers, Amendments and Modifications.  Neither this
Guaranty nor any provision hereof may be modified or amended orally, but only by
a statement in writing  entered into by the  Guarantor  and the Agent,  provided
however,  that no such agreement shall (i) affect the indebtedness,  liabilities
and  obligations  of the  Guarantor  under  Article I hereof or (ii)  modify the
provisions of this Section 3.12,  without the consent of the Banks in accordance
with the Loan Agreement.

      SECTION 3.13 Definitions. Terms used but not defined herein shall have the
meanings provided for in the Loan Agreement unless otherwise  expressly provided
or unless the context hereof otherwise requires.

      SECTION 3.14 Costs and  Expenses.  The  Guarantor  covenants and agrees to
reimburse  the  Agent  for all  reasonable  out-of-pocket  costs  and  expenses,
including  without  limitation  reasonable  attorneys'  fees  and  court  costs,
incurred by the Agent in enforcing this Guaranty, and the Guarantor acknowledges
and agrees that all such sums to be so reimbursed by it to the Agent are part of
the Secured Indebtedness.

      SECTION 3.15 Limitation of Special Damages.  The Guarantor hereby releases
each of the Agent and all of the Banks from any liability  for, and waives,  and
agrees not to claim or sue for any special,  indirect or consequential  damages,
suffered by the undersigned,  in connection with any claim (whether  sounding in
tort, contract or otherwise) in any way arising out of, related to, or connected
with  the  Loan  Documents,  whether  such  claim is  asserted  before  or after
repayment in full of all of the Borrower's  and/or Kronos Titan's  indebtedness,
liabilities and obligations. This waiver shall inure to the benefit of the Agent
and the Banks and their  respective  successors and assigns and shall be binding
on the Guarantor and its successors and assigns.

                                      7

<PAGE>


      IN WITNESS  WHEREOF,  the parties  hereto have caused this  Guaranty to be
duly executed as of the date first stated above.

                               NL INDUSTRIES, INC.

                                    By:       /s/ Susan E. Alderton
                                    Name:     Susan E. Alderton
                                    Title:    Vice President & Treasurr
                                    Address:  16825 Northchase Drive, Suite 1200
                                              Houston, Texas  77060

                                    HYPOBANK INTERNATIONAL S.A.

                                    By:       /s/ Michael Bisch
                                    Name:     Michael Bisch
                                    Title:    Charge de Service
                                    Address:  4, rue Alphonse Weicker
                                              L-2721 Luxembourg-Kirchberg

                                      8

<PAGE>



                                                                   EXHIBIT 10.12

CONFORMED COPY




               AMENDED AND RESTATED CREDIT AGREEMENT

                            dated as of


                         January 30, 1997

                              between


                            RHEOX, INC.


              THE SUBSIDIARY GUARANTORS PARTY HERETO,

                                and

                     THE LENDERS PARTY HERETO,


                                and


                     THE CHASE MANHATTAN BANK,
                      as Administrative Agent

                      BANKERS TRUST COMPANY,
                      as Documentation Agent




<PAGE>



                         TABLE OF CONTENTS


                                                               Page


                             ARTICLE I

Definitions.....................................................  1
           SECTION 1.01.  Defined Terms.........................  1
           SECTION 1.02.  Classification of Loans and Borrowings 26
           SECTION 1.03.  Terms Generally....................... 27
           SECTION 1.04.  Accounting Terms; GAAP................ 27

                            ARTICLE II

The Credits..................................................... 27
           SECTION 2.01.  Commitments........................... 27
           SECTION 2.02.  Loans and Borrowings.................. 28
           SECTION 2.03.  Requests for Borrowings............... 29
           SECTION 2.04.  Letters of Credit..................... 29
           SECTION 2.05.  Funding of Borrowings................. 34
           SECTION 2.06.  Interest Elections.................... 35
           SECTION 2.07.  Termination and Reduction of 
                           Commitments.......................... 36
           SECTION 2.08.  Repayment of Loans; Evidence of Debt.. 37
           SECTION 2.09.  Prepayment of Loans................... 38
           SECTION 2.10.  Fees.................................. 41
           SECTION 2.11.  Interest.............................. 43
           SECTION 2.12.  Alternate Rate of Interest............ 44
           SECTION 2.13.  Increased Costs....................... 44
           SECTION 2.14.  Break Funding Payments................ 45
           SECTION 2.15.  Taxes................................. 46
           SECTION 2.16.  Payments Generally; Pro Rata Treatment;
                           Sharing of Set-Offs.................. 47
           SECTION 2.17.  Mitigation Obligations................ 49

                            ARTICLE III

Guarantee by Subsidiary Guarantors.............................. 50
           SECTION 3.01.  The Guarantee......................... 50
           SECTION 3.02.  Obligations Unconditional............. 50
           SECTION 3.03.  Reinstatement......................... 51
           SECTION 3.04.  Subrogation........................... 52
           SECTION 3.05.  Remedies.............................. 52
           SECTION 3.06.  Instrument for the Payment of Money... 52


                              (i)


<PAGE>





                                                               Page

           SECTION 3.07.  Continuing Guarantee.................. 52
           SECTION 3.08.  Rights of Contribution................ 52
           SECTION 3.09.  General Limitation on Guarantee 
                           Obligations.......................... 53

                            ARTICLE IV

Representations and Warranties.................................. 54
           SECTION 4.01.  Organization; Powers.................. 54
           SECTION 4.02.  Authorization; Enforceability......... 54
           SECTION 4.03.  Governmental Approvals; No Conflicts.. 54
           SECTION 4.04.  Financial Condition; No Material 
                           Adverse Change....................... 54
           SECTION 4.05.  Properties............................ 55
           SECTION 4.06.  Litigation and Environmental Matters.. 56
           SECTION 4.07.  Compliance with Laws and Agreements... 58
           SECTION 4.08.  Investment and Holding Company Status. 58
           SECTION 4.09.  Taxes................................. 58
           SECTION 4.10.  ERISA................................. 58
           SECTION 4.11.  Disclosure............................ 58
           SECTION 4.12.  Capitalization........................ 59
           SECTION 4.13.  Material Agreements and Liens......... 59
           SECTION 4.14.  Subsidiaries.......................... 59
           SECTION 4.15.  Certain Documents..................... 60

                             ARTICLE V

Conditions...................................................... 60
           SECTION 5.01.  Effective Date........................ 60
           SECTION 5.02.  Each Extension of Credit.............. 65

                            ARTICLE VI

Affirmative Covenants........................................... 66
           SECTION 6.01.  Financial Statements and Other 
                           Information.......................... 66
           SECTION 6.02.  Notices of Material Events............ 68
           SECTION 6.03.  Existence; Conduct of Business........ 68
           SECTION 6.04.  Payment of Obligations................ 69
           SECTION 6.05.  Maintenance of Properties............. 69
           SECTION 6.06.  Maintenance of Insurance.............. 69
           SECTION 6.07.  Books and Records; Inspection Rights.. 72
           SECTION 6.08.  Fiscal Year........................... 72


                              (ii)


<PAGE>





                                                               Page

           SECTION 6.09.  Compliance with Laws.................. 72
           SECTION 6.10.  Use of Proceeds....................... 72
           SECTION 6.11.  Hedging Agreements.................... 72
           SECTION 6.12.  Certain Obligations Respecting 
                           Subsidiaries and Collateral Security. 73
           SECTION 6.13.  Environmental Laws and Permits........ 74
           SECTION 6.14.  Environmental Notices................. 74
           SECTION 6.15.  Environmental Audit and Remedial
                           Action............................... 75

                            ARTICLE VII

Negative Covenants.............................................. 75
           SECTION 7.01.  Indebtedness.......................... 75
           SECTION 7.02.  Liens................................. 76
           SECTION 7.03.  Fundamental Changes................... 77
           SECTION 7.04.  Investments, Loans, Advances, Guarantees
                           and Acquisitions; Hedging Agreements. 78
           SECTION 7.05.  Restricted Payments................... 79
           SECTION 7.06.  Transactions with Affiliates.......... 79
           SECTION 7.07.  Restrictive Agreements................ 80
           SECTION 7.08.  Certain Financial Covenants........... 80
           SECTION 7.09.  Lines of Business..................... 82
           SECTION 7.10.  Modifications of Certain Documents.... 82
           SECTION 7.11.  Rheox International................... 82
           SECTION 7.12.  Subordinated Notes.................... 82

                           ARTICLE VIII

Events of Default............................................... 83

                            ARTICLE IX

The Administrative Agent........................................ 86

                             ARTICLE X

Miscellaneous................................................... 89
           SECTION 10.01.  Notices.............................. 89
           SECTION 10.02.  Waivers; Amendments.................. 89
           SECTION 10.03.  Expenses; Indemnity; Damage Waiver... 91


                              (iii)


<PAGE>



           SECTION 10.04.  Successors and Assigns............... 93
           SECTION 10.05.  Survival............................. 96
           SECTION 10.06.  Counterparts; Integration;
                            Effectiveness....................... 97
           SECTION 10.07.  Severability......................... 97
           SECTION 10.08.  Right of Setoff...................... 97
           SECTION 10.09.  Governing Law; Jurisdiction; Consent 
                            to Service of Process............... 97
           SECTION 10.10.  WAIVER OF JURY TRIAL................. 98
           SECTION 10.11.  Headings............................. 98
           SECTION 10.12.  Confidentiality...................... 99


SCHEDULES:

Schedule 1.01 -- Ancillary Agreements 
Schedule 2.01 -- Commitments 
Schedule 2.04 -- Existing  Letters of Credit  
Schedule 4.05 -- Intellectual  Property  Matters
Schedule 4.06 -- Disclosed  Matters  
Schedule 4.13 -- Material Agreements and Liens 
Schedule 4.14 -- Subsidiaries
Schedule 6.10 -- Indebtedness To Be Paid From Term Loan Proceeds  
Schedule 7.01 -- Existing  Indebtedness  
Schedule 7.02 --  Existing  Liens  
Schedule 7.04 -- Investments 
Schedule 7.07 -- Existing Restrictions

EXHIBITS:

Exhibit A   --  Form of Assignment and Acceptance
Exhibit B   --  Form of Opinion of Counsel to the Credit Parties and NL
Exhibit C   --  Form of Opinion of Special Counsel
Exhibit D   --  Form of Security Agreement
Exhibit E   --  Form of NL Pledge Agreement
Exhibit F   --  Form of Mortgage
Exhibit G   --  Form of Conditional Assignment of and Security Interest in 
                Patent Rights
Exhibit H   --  Form of Conditional Assignment of and Security Interest in 
                Trademark Rights
Exhibit I   --  Form of Copyright Security Agreement



                              (iv)


<PAGE>





           AMENDED AND RESTATED  CREDIT  AGREEMENT  dated as of January 30, 1997
between RHEOX,  INC., the SUBSIDIARY  GUARANTORS party hereto, the LENDERS party
hereto and THE CHASE MANHATTAN BANK, as Administrative Agent.

           WHEREAS,  the Borrower,  the  Subsidiary  Guarantors,  certain of the
Lenders (the  "Existing  Lenders") and the  Administrative  Agent are party to a
Credit  Agreement  dated  as of  March  20,  1991 (as  heretofore  modified  and
supplemented and in effect on the date hereof  immediately  before giving effect
to the amendment  and  restatement  contemplated  hereby,  the "Existing  Credit
Agreement").  Pursuant  to the  Existing  Credit  Agreement  (a)  certain of the
Existing  Lenders  committed to make  Revolving  Credit Loans (as defined in the
Existing Credit  Agreement and referred to herein as "Existing  Revolving Credit
Loans") in an original aggregate  principal amount not exceeding  $15,000,000 at
any one time outstanding (the "Existing Revolving Credit  Commitments"),  with a
portion of such commitments made available for the issuance of letters of credit
in an aggregate amount not exceeding  $5,000,000 at any one time outstanding and
(b) certain of the Existing Lenders  committed to make Term Loans (as defined in
the Existing  Credit  Agreement and referred to herein as "Existing Term Loans")
to  the  Borrower  in an  original  aggregate  principal  amount  not  exceeding
$115,000,000 (the "Existing Term Loan Commitments");

           WHEREAS,  the Borrower has requested that the Existing Lenders (which
include  all of the  Persons  that on the date  hereof are Banks  under,  and as
defined in, the Existing Credit Agreement) and the Administrative Agent agree to
amend and restate the Existing Credit  Agreement,  and the Existing  Lenders and
the  Administrative  Agent are willing to amend and restate the Existing  Credit
Agreement, in order to, among other things, (a) increase the aggregate amount of
the Existing  Revolving  Credit  Commitments  to  $25,000,000,  redesignate  the
Existing  Revolving  Credit   Commitments  as  "Revolving  Credit   Commitments"
hereunder  and decrease the amount  thereof  available  for Letters of Credit to
$2,500,000  and (b) reinstate the Existing Term Loan  Commitments,  increase the
aggregate  amount thereof to $125,000,000 and redesignate the Existing Term Loan
Commitments as "Term Loan Commitments" hereunder;

           NOW,  THEREFORE,  the parties  hereto  hereby agree that the Existing
Credit  Agreement  shall be amended  and  restated  as of the date  hereof  (but
subject to Section 5.01) to read in its entirety as follows:

                             ARTICLE I

                            Definitions

           SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:



                         Credit Agreement

<PAGE>


                             - 2 -


           "Acquisition"  means  any  transaction,  or  any  series  of  related
transactions,  consummated  after the date  hereof,  by which  (a) the  Borrower
and/or any of its Subsidiaries  acquires the business of or all or substantially
all of the assets of any firm, corporation or division thereof,  whether through
purchase  of  assets,  merger  or  otherwise  or (b)  any  Person  that  was not
theretofore a Subsidiary  of the Borrower  becomes a Subsidiary of the Borrower;
provided  however,  the foregoing  clauses (a) and (b) shall not include (i) any
transaction  between  the  Borrower  and any  direct or  indirect  Wholly  Owned
Subsidiary or between one or more direct or indirect Wholly Owned  Subsidiaries,
or (ii) the  organization  of a newly  formed  Wholly  Owned  Subsidiary  of the
Borrower.

           "Adjusted  Base Rate"  means,  for any day, a rate per annum equal to
the greater of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the Adjusted Base Rate due to a change in
the Prime Rate,  the Base CD Rate or the Federal Funds  Effective  Rate shall be
effective  from and  including  the  effective  date of such change in the Prime
Rate, Base CD Rate or the Federal Funds Effective Rate, respectively.

           "Adjusted LIBO Rate" means, with respect to any Eurodollar  Borrowing
for any  Interest  Period,  an  interest  rate per annum  (rounded  upwards,  if
necessary,  to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.

           "Administrative Agent" means The Chase Manhattan Bank in its capacity
as administrative agent for the Lenders hereunder.

           "Administrative  Questionnaire" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.

           "Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries,  Controls or is
Controlled by or is under common Control with the Person specified. For purposes
of this  definition,  a Person  shall be deemed to be an Affiliate of the Person
specified if such Person  possesses,  directly or indirectly,  the power to vote
10% or more of the securities  having  ordinary voting power for the election of
directors of the Person specified.  Notwithstanding  anything in this definition
to the contrary,  (a) the Borrower and its Subsidiaries  shall not be Affiliates
of each other and (b) none of the  Administrative  Agent,  the Lenders or the LC
Issuing Lender shall be an Affiliate of the Borrower or any of its Subsidiaries.

           "Ancillary  Agreements"  means the Tax Sharing  Agreement and each of
the other documents listed on Schedule 1.01.

           "Applicable  Percentage"  means  (a) with  respect  to any  Revolving
Credit  Lender for  purposes of Section  2.04 and any related  definitions,  the
percentage of the total Revolving


                         Credit Agreement

<PAGE>


                             - 3 -


Credit Commitments  represented by such Lender's Revolving Credit Commitment and
(b) with respect to any Lender in respect of any  indemnity  claim under Section
10.03(b) or 10.03(c) arising out of an action or omission of the  Administrative
Agent under any Loan Document,  the  percentage of the total  Commitments of all
Classes  hereunder   represented  by  the  aggregate  amount  of  such  Lender's
Commitment of all Classes hereunder.

           "Applicable  Rate" means,  for Loans of any Type and commitment  fees
for each Rate Period (as defined below), the respective rate per annum indicated
below for Loans of such Type or  commitment  fees, as  applicable,  opposite the
applicable Leverage Ratio indicated below for such Rate Period:
<TABLE>
<CAPTION>

=========================================================================
                                            Applicable Rate
                                            ---------------
            Range
              of                Base Rate     Eurodollar     Commitment
        Leverage Ratio            Loans          Loans          Fee
- -------------------------------------------------------------------------
<S>                               <C>           <C>            <C>   
Greater than to 3.00 to 1         0.750%        1.750%         0.500%
- -------------------------------------------------------------------------
Greater than 2.00 to 1
  but less than or equal to
  3.00 to 1                       0.500%        1.500%         0.500%
- -------------------------------------------------------------------------
Greater than 1.50 to 1
  but less than or equal to
  2.00 to 1                       0.250%        1.250%         0.375%
- -------------------------------------------------------------------------
Greater than 1.00 to 1
  but less than or equal to
  1.50 to 1                       0.000%        1.000%         0.375%
- -------------------------------------------------------------------------
Less than or equal to 1.00 to 1   0.000%        0.750%         0.375%
=========================================================================
</TABLE>


           For purposes  hereof,  (i) a "Rate Period" means (x)  initially,  the
period  commencing  on the date hereof to but not including the first Rate Reset
Date (as defined below) thereafter and (y) thereafter,  the period commencing on
a Rate Reset Date to but not including the immediately following Rate Reset Date
and (ii) a "Rate  Reset  Date"  means,  with  respect to any fiscal  quarters or
fiscal year,  the earlier of (x) the third  Business Day after the date on which
the  Borrower  delivers  the  Financial  Certificate  in respect of such  fiscal
quarter  or  fiscal  year,  as the  case may be,  and (y) the date on which  the
Borrower is required to have  delivered the financial  statements  under Section
6.01(a) or (b) in respect of such fiscal quarter or fiscal year, as the case may
be.

           The Leverage  Ratio for any Rate Period  shall be the Leverage  Ratio
set  forth in the  applicable  Financial  Certificate  as at the last day of the
fiscal quarter or fiscal year, as the


                         Credit Agreement

<PAGE>


                             - 4 -


case may be, in respect of which such Financial  Certificate is delivered (i.e.,
the  Leverage  Ratio  for the Rate  Period  commencing  on the date on which the
Borrower delivers its financial  statements  pursuant to Section 6.01(b) for the
fiscal  quarter  ended on September  30, 1997 shall be the Leverage  Ratio as at
September  30, 1997,  the Leverage  Ratio for the Rate Period  commencing on the
date on which the Borrower delivers its financial statements pursuant to Section
6.01(a)  for the fiscal year ended on  December  31, 1997 shall be the  Leverage
Ratio as at December 31, 1997, and so forth).

           Anything  in this  Agreement  to the  contrary  notwithstanding,  the
Applicable  Rate shall be the highest  rates  provided  for above (i) during any
period when an Event of Default shall have occurred and be  continuing,  or (ii)
if the applicable  Financial  Certificate shall not be delivered within the time
that the applicable financial statements are required to be delivered by Section
6.01(a) or (b), as the case may be, (but only,  in the case of this clause (ii),
with  respect to the portion of such Rate Period  prior to the  delivery of such
Financial Certificate).

           "Assessment  Rate" means, for any day, the annual  assessment rate in
effect  on such  day that is  payable  by a member  of the Bank  Insurance  Fund
classified  as  "well-capitalized"  and within  supervisory  subgroup  "B" (or a
comparable successor risk  classification)  within the meaning of 12 C.F.R. Part
327 (or any successor  provision) to the Federal Deposit  Insurance  Corporation
for  insurance  by such  Corporation  of time  deposits  made in  dollars at the
offices of such member in the United  States;  provided  that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid,  then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative  Agent to be representative of
the cost of such insurance to the Lenders.

           "Assignment  and  Acceptance"  means  an  assignment  and  acceptance
entered  into by a Lender and an  assignee  (with the consent of any party whose
consent is required by Section 10.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.

           "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.

           "Base Rate", when used in reference to any Loan or Borrowing,  refers
to whether  such Loan,  or the Loans  comprising  such  Borrowing,  are  bearing
interest at a rate determined by reference to the Adjusted Base Rate.

           "Basic   Documents"  means  the  Loan  Documents  and  the  Ancillary
Agreements.

           "Board" means the Board of Governors of the Federal Reserve System of
the United States of America.


                         Credit Agreement

<PAGE>


                             - 5 -



           "Borrower" means Rheox, Inc., a Delaware corporation.

           "Borrowing" means Loans of a particular Class of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect.

           "Borrowing  Request"  means a request by the Borrower for a Borrowing
in accordance with Section 2.03.

           "Business"   means  the  development,   licensing,   manufacture  and
distribution  of  rheological  additives and related  and/or  similar  specialty
chemical products and services from time to time, now or hereafter, conducted by
the Borrower and its Subsidiaries.

           "Business Day" means any day that is not a Saturday,  Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
the term  "Business  Day" shall also exclude any day on which banks are not open
for dealings in U.S. dollar deposits in the London interbank market.

           "Capital  Assets" means, as to any Person,  all fixed assets,  plant,
equipment,  land (to the extent  the same  constitutes  a capital  asset of such
Person)  and other  assets  (including  intangible  assets) of such  Person that
constitute capital assets of such Person under GAAP.

           "Capital Expenditures" means expenditures made by the Borrower or any
Subsidiary to acquire or construct  Capital Assets,  computed in accordance with
GAAP.

           "Capital Lease  Obligations"  of any Person means the  obligations of
such  Person  to pay  rent  or  other  amounts  under  any  lease  of (or  other
arrangement  conveying  the  right  to use)  real  or  personal  property,  or a
combination  thereof,  which  obligations  are  required  to be  classified  and
accounted  for as capital  leases on a balance  sheet of such Person under GAAP,
and the  amount of such  obligations  shall be the  capitalized  amount  thereof
determined in accordance with GAAP.

           "Casualty  Event" means,  with respect to any property of any Person,
any loss of or damage to, or any  condemnation or other taking of, such property
for which such Person or any of its Subsidiaries receives insurance proceeds, or
proceeds of a condemnation award or other compensation.

           "Change in Law" means (a) the adoption of any law, rule or regulation
by any Governmental  Authority after the date of this Agreement,  (b) any change
in any law, rule or regulation or in the  interpretation or application  thereof
by any Governmental Authority after the date of this Agreement or (c) compliance
by any Lender or the LC Issuing Lender (or, for


                         Credit Agreement

<PAGE>


                             - 6 -


purposes of Section  2.13(b),  by any  lending  office of such Lender or by such
Lender's or the LC Issuing Lender's  holding company,  if any) with any request,
guideline  or  directive  (whether  or not  having  the  force  of  law)  of any
Governmental Authority made or issued after the date of this Agreement.

           "Chase"  means  The  Chase   Manhattan   Bank,  a  New  York  banking
corporation.

           "Class", when used in reference to any Loan, Borrowing or Commitment,
refers to whether such Loan,  the Loans  comprising  such Borrowing or the Loans
that a Lender holding such Commitment is obligated to make, are Revolving Credit
Loans or Term Loans.

           "Code" means the Internal  Revenue Code of 1986, as amended from time
to time.

           "Commitments"  means the Revolving  Credit  Commitments and Term Loan
Commitments, as applicable.

           "Conditional  Assignment of and Security  Interest in Patent  Rights"
means an amended and restated Conditional Assignment of and Security Interest in
Patent  Rights  substantially  in the form of Exhibit G between the Borrower and
the Administrative Agent.

           "Conditional Assignment of and Security Interest in Trademark Rights"
means an amended and restated Conditional Assignment of and Security Interest in
Trademark Rights substantially in the form of Exhibit H between the Borrower and
the Administrative Agent.

           "Consolidated  Subsidiary" means, for any Person,  each Subsidiary of
such  Person  (whether  now  existing  or  hereafter  created or  acquired)  the
financial  statements  of which  shall be (or should be)  consolidated  with the
financial statements of such Person in accordance with GAAP.

           "Control" means the possession,  directly or indirectly, of the power
to direct or cause the  direction  of the  management  or  policies of a Person,
whether  through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.

           "Copyright   Security   Agreement"  means  an  amended  and  restated
Copyright Security Agreement  substantially in the form of Exhibit I between the
Borrower and the Administrative Agent.

           "Credit Parties" means the Borrower and the Subsidiary Guarantors.

           "Debt Service" means,  for any period,  the sum, for the Borrower and
its  Subsidiaries  (determined  on a consolidated  basis without  duplication in
accordance with


                         Credit Agreement

<PAGE>


                             - 7 -


GAAP), of the following: (a) all payments of principal of Indebtedness scheduled
(excluding any mandatory  prepayment made pursuant to Section 2.09 hereof) to be
made during such period, plus (b) all Interest Expense for such period.

           "Default" means any event or condition which  constitutes an Event of
Default or which  upon  notice,  lapse of time or both  would,  unless  cured or
waived, become an Event of Default.

           "Disclosed Matters" means the actions,  suits and proceedings and the
environmental matters disclosed in Schedule 4.06.

           "Disposition"   means  any  sale,   assignment,   transfer  or  other
disposition  of any property  (whether  now owned or hereafter  acquired) by the
Borrower or any  Subsidiary  to any other  Person  (other than the Borrower or a
Wholly  Owned  Subsidiary)  excluding  any sale,  assignment,  transfer or other
disposition  of (a) any property  sold or disposed of in the ordinary  course of
business,  (b) any  obsolete or worn-out  tools and  equipment no longer used or
useful  in the  business  of the  Borrower  and  its  Subsidiaries  and  (c) any
Collateral  under  and as  defined  in the  Security  Agreement  pursuant  to an
exercise of remedies by the Administrative Agent under Section 5.05 thereof.

           "Disposition Investment" means, with respect to any Disposition,  any
promissory  notes or other evidences of indebtedness or investments  received by
the Borrower or any Subsidiary in connection with such Disposition.

           "Distributor  Affiliate Credit  Extensions"  shall mean extensions of
credit by the Borrower and its  Subsidiaries to Affiliates of the Borrower under
Ancillary  Agreements to finance the sale and distribution by such Affiliates of
products of the Borrower and its Subsidiaries.

           "Domestic  Subsidiary"  means any  Subsidiary  that is  organized  or
created under the laws of the United  States of America,  any State or Territory
thereof or the District of Columbia.

           "EBITDA" means, for any period, operating income for the Borrower and
its  Subsidiaries  (determined  on a consolidated  basis without  duplication in
accordance with GAAP) for such period (calculated before income taxes,  Interest
Expense,  depreciation,  amortization and any other non-cash charges accrued for
such period and (except to the extent  received or paid in cash by the  Borrower
or any Subsidiary)  income or loss attributable to equity in Affiliates for such
period)  excluding  any  extraordinary  and unusual  gains or losses during such
period and excluding the proceeds of any Casualty Events and Dispositions.

           Notwithstanding the foregoing,  if during any period for which EBITDA
is being  determined  the Borrower  shall have  consummated  any  Acquisition or
Disposition then,


                         Credit Agreement

<PAGE>


                             - 8 -


for all purposes of this Agreement (other than for purposes of the definition of
Excess Cash Flow),  EBITDA shall be  determined  on a pro forma basis as if such
Acquisition or Disposition had been made or consummated on the first day of such
period.

           "Effective Date" means the date on which the conditions  specified in
Section 5.01 are satisfied (or waived in accordance with Section 10.02).

           "Enenco" means Enenco, Inc., a New York corporation that, on the date
hereof, is a joint venture between the Borrower and Witco Corporation.

           "Environmental  Claim" means, with respect to any Person, any written
notice,  claim,  demand or other  communication  by any other Person alleging or
asserting  such  Person's  liability for  investigatory  costs,  cleanup  costs,
governmental  response  costs,  damages to natural  resources or other property,
personal injuries, fines or penalties arising out of, based on or resulting from
(a) the presence or Release into the environment,  of any Hazardous  Material at
any location,  whether or not owned by such Person, or (b) circumstances forming
the basis of any violation, or alleged violation, of any Environmental Law.

           "Environmental  Laws"  means all  laws,  rules,  regulations,  codes,
ordinances,  orders,  decrees,  judgments,   injunctions,   notices  or  binding
agreements  issued,  promulgated or entered into by any Governmental  Authority,
relating in any way to the  environment,  preservation or reclamation of natural
resources,  the  management,  release or  threatened  release  of any  Hazardous
Material or to health and safety matters.

           "Environmental  Liability"  means  any  known or  unknown  liability,
contingent or otherwise (including any claim or liability for damages,  costs of
environmental remediation,  fines, penalties or indemnities), of the Borrower or
any Subsidiary directly or indirectly resulting from or based upon (a) violation
of or  non-compliance  with any  Environmental  Law,  (b) the  generation,  use,
handling,  transportation,  storage,  treatment  or  disposal  of any  Hazardous
Materials,  (c)  exposure  to  any  Hazardous  Materials,  (d)  the  Release  or
threatened  Release of any Hazardous  Materials into the  environment or (e) any
contract,  agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.

           "Equity  Issuance" shall mean the sale or issuance by the Borrower to
any  Person  other than NL or a  Subsidiary  of NL or by any  Subsidiary  to any
Person  other  than  the  Borrower  or  any  of  the  Borrower's   Wholly  Owned
Subsidiaries of (a) any capital stock of the Borrower or any Subsidiary, (b) any
options or  warrants  exercisable  in respect of such  capital  stock or (c) any
other security or instrument  representing  an equity  interest (or the right to
obtain an equity  interest) in the Borrower or any Subsidiary;  provided however
the foregoing  clauses (a), (b) and (c) shall not include the issuance of shares
by a Foreign  Subsidiary to a nominee for the Borrower or any of the  Borrower's
Wholly Owned


                         Credit Agreement

<PAGE>


                             - 9 -


Subsidiaries if such issuance is required under the applicable corporate laws of
the country in which such Foreign Subsidiary is organized.

           "Equity Rights" means, with respect to any Person, any subscriptions,
options,  warrants,  commitments,  preemptive  rights or  agreements of any kind
(including any  stockholders'  or voting trust  agreements)  for the issuance or
sale of, or securities  convertible into, any additional shares of capital stock
of any class, or partnership or other  ownership  interests of any type in, such
Person.

           "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

           "ERISA  Affiliate"  means  any  trade  or  business  (whether  or not
incorporated) that, together with the Borrower,  is treated as a single employer
under  Section  414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and  Section  412 of the Code,  is treated as a single  employer  under
Section 414 of the Code.

           "ERISA Event" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice  period is waived),  (b) the existence
with respect to any Plan of an "accumulated  funding  deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived, (c) the
filing  pursuant to Section  412(d) of the Code or Section 303(d) of ERISA of an
application  for a waiver of the minimum  funding  standard  with respect to any
Plan, (d) the  incurrence by the Borrower or any of its ERISA  Affiliates of any
liability  under Title IV of ERISA with respect to the  termination of any Plan,
(e) the receipt by the Borrower or any ERISA  Affiliate  from the PBGC or a plan
administrator  of any notice  relating to an intention to terminate  any Plan or
Plans or to appoint a trustee to administer  any Plan, (f) the incurrence by the
Borrower or any of its ERISA  Affiliates  of any  liability  with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan, or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice,  or the receipt by
any  Multiemployer  Plan from the Borrower or any ERISA Affiliate of any notice,
concerning  the  imposition of Withdrawal  Liability or a  determination  that a
Multiemployer  Plan is, or is expected to be,  insolvent  or in  reorganization,
within the meaning of Title IV of ERISA.

           "Eurodollar", when used in reference to any Loan or Borrowing, refers
to whether  such Loan,  or the Loans  comprising  such  Borrowing,  are  bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.

           "Event of Default"  has the meaning  assigned to such term in Article
VIII.

           "Excess  Cash Flow" means,  for any period,  the excess of (a) EBITDA
for  such  period  over  (b)  the  sum for  the  Borrower  and its  Subsidiaries
(determined on a consolidated


                         Credit Agreement

<PAGE>


                             - 10 -


basis without  duplication in accordance with GAAP) of (i) Debt Service for such
period plus (ii) the aggregate  amount of all Capital  Expenditures  made during
such period plus (iii) the  aggregate  amount paid in cash during such period in
respect of income taxes,  including  payments  under the Tax Sharing  Agreement,
plus (iv) any  decrease  in Working  Investment  for such  Period  minus (v) any
increase in Working Investment for such Period.

           "Excluded Taxes" means, with respect to the Administrative Agent, any
Lender,  the LC Issuing Lender or any other  recipient of any payment to be made
by or on account of any obligation of the Borrower  hereunder,  (a) income,  net
worth or franchise taxes imposed on (or measured by) its net income or net worth
by the United States of America,  or by the jurisdiction under the laws of which
such  recipient is organized or in which its principal  office is located or, in
the case of any Lender, in which its applicable  lending office is located,  (b)
any branch  profits taxes imposed by the United States of America and (c) in the
case of a Foreign Lender, any withholding tax that is imposed on amounts payable
to such Foreign  Lender on the date such Foreign  Lender becomes a party to this
Agreement (or, in the case of any Foreign Lender that is a party to the Existing
Credit  Agreement,  on the date hereof) or that is  attributable to such Foreign
Lender's  failure or  inability to comply with  Section  2.15(e),  except to the
extent that such Foreign Lender's assignor (if any) was entitled, at the time of
assignment, to receive additional amounts from the Borrower with respect to such
withholding tax pursuant to Section 2.15(a).

           "Existing Credit  Agreement" has the meaning assigned to such term in
the first paragraph of this Agreement.

           "Existing  Mortgages"  means  (a) the Deed of  Trust,  Assignment  of
Permits,  Rents and Benefits,  Security Agreement and Fixture Filing dated as of
June 5, 1992 by the Borrower,  as trustor,  in favor of Lawyers Title  Insurance
Corporation,  as trustee,  for the benefit of the Administrative  Agent recorded
with the County Recorder in the Official  Records of Alameda County,  California
as  Instrument  Number  92-184190;  (b) the Deed of  Trust,  Mortgage,  Security
Agreement (Personal Property Including Minerals,  Mineral Interests and Products
thereof), Assignment of Benefits and Fixture Filing dated as of June 18, 1992 by
the Borrower,  as trustor, in favor of Lawyers Title Insurance  Corporation,  as
trustee,  for the benefit of the  Administrative  Agent recorded with the County
Recorder  in the  Official  Records  of San  Bernardino  County,  California  as
Instrument No. 91-228659;  (c) the Deed of Trust,  Assignment of Permits,  Rents
and Benefits,  Security Agreement and Fixture Filing dated as of June 5, 1992 by
the  Borrower,  as trustor,  in favor of Kenneth R. Hill,  as  trustee,  for the
benefit of the  Administrative  Agent  recorded in the St. Louis City Records in
Book M919 Page 0651 as amended by Amendment to Deed of Trust dated as of June 5,
1992 recorded in the St. Louis City Records in Book M926 Page 2018;  and (d) the
Deed of Trust, Assignment of Permits, Rents and Benefits, Security Agreement and
Fixture Filing dated as of June 5, 1992 by the Borrower, as trustor, in favor of
Charles E.  Barnett,  as trustee,  for the benefit of the  Administrative  Agent
recorded in the Recorder's Office of Kanawha County, West Virginia in Book 2046,
Page 164.


                         Credit Agreement

<PAGE>


                             - 11 -



           "Fair Market Value" means,  with respect to any property,  the amount
that may be realized  within a  reasonable  period of time from the sale of such
property  at market  value,  such  market  value  being the amount that could be
obtained for such property  within such period by a capable and diligent  seller
from  an  interested  buyer  willing  to  purchase  under   prevailing   selling
conditions.

           "Federal  Funds  Effective  Rate"  means,  for any day,  the weighted
average (rounded upwards, if necessary, to the next 1/100 of l%) of the rates on
overnight Federal funds  transactions with members of the Federal Reserve System
arranged by Federal funds brokers,  as published on the next succeeding Business
Day by the  Federal  Reserve  Bank  of New  York,  or,  if  such  rate is not so
published for any day that is a Business Day, the average (rounded  upwards,  if
necessary,  to the  next  1/100 of 1%) of the  quotations  for such day for such
transactions  received  by the  Administrative  Agent from three  Federal  funds
brokers of recognized standing selected by it.

           "Final Maturity Date" means January 30, 2004 or, if such day is not a
Business Day, the next preceding Business Day.

           "Financial  Certificate"  has the  meaning  assigned  to such term in
Section 6.01(c).

           "Financial  Officer"  means the chief  financial  officer,  principal
accounting officer, treasurer or controller of the Borrower, as the case may be.

           "Fixed Charges Ratio" means,  as at any date, the ratio of (a) EBITDA
for the period of four  consecutive  fiscal  quarters ending on or most recently
ended prior to such date to (b) the sum for the  Borrower  and its  Subsidiaries
(determined  on a  consolidated  basis without  duplication  in accordance  with
GAAP),  of the  following:  (i) all Debt Service for such period  (excluding the
principal  amount of the Subordinated  Intercompany  Note payable at maturity to
the extent the same is extended, renewed or refinanced on substantially the same
terms) plus (ii) the aggregate amount paid in cash during such period in respect
of income taxes, including payments under the Tax Sharing Agreement,  plus (iii)
Restricted  Payments  (other than payments of the Special  Dividend) made during
such period. Notwithstanding the foregoing, payments or prepayments of principal
of the  Subordinated  Note shall not be deemed to increase or decrease the Fixed
Charges Ratio.

           "Foreign Intellectual Property" means,  collectively,  all non-United
States  copyrights,  copyright  registrations  and  applications  for  copyright
registrations,  including  all renewals  and  extensions  thereof,  the right to
recover for all past, present and future  infringements  thereof,  and all other
rights of any kind whatsoever  accruing  thereunder or pertaining  thereto,  all
non-United States patents and patent applications,  including the inventions and
improvements   described  and  claimed  therein   together  with  the  reissues,
divisions,   continuations,   renewals,   extensions  and  continuations-in-part
thereof, all income,


                         Credit Agreement

<PAGE>


                             - 12 -


royalties,  damages and payments now or hereafter  due and/or  payable under and
with  respect  thereto,  including  damages  and  payments  for  past or  future
infringements   thereof,   the  right  to  sue  for  past,  present  and  future
infringements thereof and all rights corresponding thereto throughout the world,
and all non-United  States trade names,  trademarks  and service  marks,  logos,
trademark and service mark  registrations,  and  applications  for trademark and
service mark registrations, including all renewals of trademark and service mark
registrations,   the  right  to  recover  for  all  past,   present  and  future
infringements  thereof,  all  other  rights  of  any  kind  whatsoever  accruing
thereunder or pertaining thereto, together, in each case, with the product lines
and goodwill of the business  connected with the use of, and symbolized by, each
such  trade  name,  trademark  and  service  mark,  in each  case,  now owned or
hereafter  acquired by any of the Borrower or any Subsidiary,  together with (a)
all inventions, processes, production methods, proprietary information, know-how
and trade  secrets  used or useful in the  Business;  (b) all  licenses or other
agreements  granted to the Borrower or any Subsidiary with respect to any of the
foregoing  to the  extent  legally  assignable,  in  each  case  whether  now or
hereafter owned or used including the licenses and other agreements with respect
to the  Foreign  Intellectual  Property;  (c) all  existing,  from time to time,
information,   customer  lists,   identification  of  suppliers,   data,  plans,
blueprints,  specifications,  designs,  drawings,  recorded knowledge,  surveys,
engineering reports,  test reports,  manuals,  materials  standards,  processing
standards,  performance  standards,  catalogs,  computer and automatic machinery
software and programs  (to the extent a security  interest may be granted),  and
the like pertaining to the operation by the Borrower or any of its  Subsidiaries
of the Business;  (d) all existing,  from time to time, field repair data, sales
data and other  information  relating  to sales or  service of  products  now or
hereafter manufactured and which pertain to the Business; (e) all existing, from
time to time,  accounting  information  which  pertains to the  Business and all
media in  which  or on which  any of the  information  or  knowledge  or data or
records which pertain to the Business may be recorded or stored and all computer
programs used for the  compilation or printout of such  information,  knowledge,
records or data; (f) all licenses, consents, permits, variances,  certifications
and approvals of governmental  agencies now or hereafter held by the Borrower or
any of its  Subsidiaries  pertaining to the  operation,  by the Borrower and its
Subsidiaries,  of the  Business;  and (g)  all  causes  of  action,  claims  and
warranties now or hereafter  owned or required by the Borrower or any Subsidiary
in respect of any of the items listed above.

           "Foreign Lender" means any Lender that is organized under the laws of
a jurisdiction  other than the United States of America,  a State thereof or the
District of Columbia.

           "Foreign  Subsidiary"  means any  Subsidiary  that is not a  Domestic
Subsidiary.

           "GAAP" means generally accepted  accounting  principles in the United
States of America.



                         Credit Agreement

<PAGE>


                             - 13 -


           "General Assignment" has the meaning assigned to that term in Section
1(e) of the Restructuring Agreement.

           "Generator" means any Person whose act or process produces  Hazardous
Materials  or whose act first causes a Hazardous  Material to become  subject to
regulation.

           "Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local,  and any agency,  authority,  instrumentality,  regulatory  body,  court,
central  bank or  other  entity  exercising  executive,  legislative,  judicial,
taxing,  regulatory  or  administrative  powers or functions of or pertaining to
government.

           "Guarantee" means a guarantee, an endorsement, a contingent agreement
to purchase or to furnish funds for the payment or maintenance  of, or otherwise
to be or become  contingently liable under or with respect to, the Indebtedness,
other  obligations,  net worth,  working capital or earnings of any Person, or a
guarantee of the payment of dividends or other  distributions  upon the stock or
equity interests of any Person,  or an agreement to purchase,  sell or lease (as
lessee or lessor) property, products,  materials, supplies or services primarily
for the  purpose  of  enabling  a  debtor  to  make  payment  of  such  debtor's
obligations  or an agreement to assure a creditor  against  loss,  and including
causing  a bank or other  financial  institution  to issue a letter of credit or
other  similar  instrument  for the  benefit of another  Person,  but  excluding
endorsements  for collection or deposit in the ordinary course of business.  The
terms  "Guarantee"  and  "Guaranteed"  used as a verb shall  have a  correlative
meaning.

           "Guaranteed  Obligations"  has the  meaning  assigned to such term in
Section 3.01.

           "Hazardous  Materials" means all explosive or radioactive  substances
or wastes and all  hazardous or toxic  substances,  wastes or other  pollutants,
including  petroleum or petroleum  distillates,  asbestos or asbestos containing
materials,  polychlorinated  biphenyls,  radon gas, infectious or medical wastes
and all other  substances  or wastes of any  nature  regulated  pursuant  to any
Environmental Law.

           "Hedging  Agreement"  means any interest rate  protection  agreement,
foreign currency  exchange  agreement,  commodity price protection  agreement or
other interest or currency exchange rate or commodity price hedging arrangement.

           "Inactive Subsidiary" means, as at any date, any Subsidiary which, as
at the end of and for the quarterly accounting period ending on or most recently
ended prior to such date,  shall have less than  $50,000 in assets and less than
$25,000 in gross revenues.



                         Credit Agreement

<PAGE>


                             - 14 -


           "Indebtedness"  of any Person  means,  without  duplication:  (a) all
obligations  of such Person for  borrowed  money or with  respect to deposits or
advances of any kind;  (b) all  obligations  of such Person  evidenced by bonds,
debentures,  notes or similar  instruments;  (c) all  obligations of such Person
under conditional sale or other title retention  agreements relating to property
acquired by such Person;  (d) all  obligations  of such Person in respect of the
deferred purchase price of property or services;  (e) all Indebtedness of others
secured by (or for which the holder of such  Indebtedness has an existing right,
contingent  or  otherwise,  to be  secured  by) any  Lien on  property  owned or
acquired by such Person,  whether or not the  Indebtedness  secured  thereby has
been assumed;  (f) all Guarantees by such Person of Indebtedness of others;  (g)
all Capital Lease Obligations of such Person; (h) all obligations, contingent or
otherwise,  of such  Person as an account  party in respect of letters of credit
and letters of guaranty; (i) all obligations,  contingent or otherwise,  of such
Person in respect of bankers' acceptances[;  and (j) in the case of the Borrower
or any Subsidiary, Indebtedness of Enenco, Inc. (but only to the extent that the
Borrower or such Subsidiary is obligated in respect of such  Indebtedness  under
any  arrangement  entered  into  primarily  for  the  benefit  of  one  or  more
creditors)].  The  Indebtedness of any Person shall include the  Indebtedness of
any other Person  (including  any  partnership in which such Person is a general
partner)  to the  extent  such  Person  is liable  therefor  as a result of such
Person's  ownership  interest in or other  relationship  with such other Person,
except to the extent the terms of such Indebtedness  provide that such Person is
not liable  therefor.  Notwithstanding  the  foregoing,  Indebtedness  shall not
include (x) obligations under Hedging  Agreements and (y) trade accounts payable
(other than for borrowed money) arising,  and accrued expenses incurred,  in the
ordinary  course of business so long as such trade  accounts are payable  within
180  days of the date the  respective  goods  are  delivered  or the  respective
services are rendered.

           "Indemnified Taxes" means all Taxes other than (a) Excluded Taxes and
Other Taxes and (b) amounts  constituting  penalties  or interest  imposed  with
respect to Excluded Taxes or Other Taxes.

           "Intangible  Assets" means the book value of all properties of any of
the Borrower and its  Subsidiaries  that would be treated as  intangibles  under
GAAP,  including  goodwill,  patents,  trademarks,  service marks,  trade names,
copyrights and organization,  reorganization  and developmental  expense and any
write-up  in  the  book  value  of  the  properties  of  the  Borrower  and  its
Subsidiaries  resulting  from a revaluation  thereof  subsequent to December 31,
1996.

           "Intercompany Note  Subordination  Agreement" means the Subordination
Agreement,  satisfactory in form and substance to each of the Lenders,  dated as
of January  30,  1997  between  NL,  Rheox  Inc.  and the  Administrative  Agent
providing for the  subordination  of the Subordinated  Intercompany  Note to the
Indebtedness of the Borrower hereunder.



                         Credit Agreement

<PAGE>


                             - 15 -


           "Interest  Coverage  Ratio" means,  as at any date,  the ratio of (a)
EBITDA  for the period of four  consecutive  fiscal  quarters  ending on or most
recently ended prior to such date to (b) Interest Expense for such period.

           "Interest  Election  Request"  means a  request  by the  Borrower  to
convert or continue a Borrowing in accordance with Section 2.06.

           "Interest  Expense" means, for any period,  the sum, for the Borrower
and its Subsidiaries  (determined on a consolidated basis without duplication in
accordance  with GAAP),  of all interest in respect of  Indebtedness  (including
imputed interest expense in respect of Capital Lease Obligations,  if any) paid,
accrued or capitalized during such period.

           Notwithstanding  the  foregoing,  if  during  any  period  for  which
Interest  Expense is being  determined the Borrower shall have  consummated  any
Acquisition or Disposition  then, for all purposes of this Agreement (other than
for purposes of the definition of Excess Cash Flow),  Interest  Expense shall be
determined on a pro forma basis as if such  Acquisition or Disposition  (and any
Indebtedness  incurred by the Borrower or any of its  Subsidiaries in connection
with such  Acquisition or repaid as a result of such  Disposition) had been made
or consummated  (and such  Indebtedness  incurred or repaid) on the first day of
such period.

           "Interest Payment Date" means (a) with respect to any Base Rate Loan,
each  Quarterly  Date and (b) with  respect  to any  Eurodollar  Loan,  the last
Business Day of the Interest  Period  applicable  to the Borrowing of which such
Loan is a part  and,  in the case of a  Eurodollar  Borrowing  with an  Interest
Period of more than three months' duration,  each Business Day prior to the last
day of such Interest  Period that occurs at intervals of three months'  duration
after the first day of such Interest Period.

           "Interest Period" means with respect to any Eurodollar Borrowing, the
period  commencing on the date of such  Borrowing and ending on the  numerically
corresponding  day in the calendar  month that is one, two,  three or six months
thereafter, as the Borrower may elect; provided, that (a) if any Interest Period
would end on a day other than a Business  Day,  such  Interest  Period  shall be
extended  to the next  succeeding  Business  Day  unless  such  next  succeeding
Business Day would fall in the next calendar  month, in which case such Interest
Period shall end on the next preceding  Business Day and (b) any Interest Period
that  commences on the last  Business  Day of a calendar  month (or on a day for
which there is no  numerically  corresponding  day in the last calendar month of
such  Interest  Period)  shall end on the last Business Day of the last calendar
month of such  Interest  Period.  For purposes  hereof,  the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter shall
be the  effective  date of the most recent  conversion or  continuation  of such
Borrowing. Notwithstanding the foregoing,



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<PAGE>


                             - 16 -


              (i) if any  Interest  Period for any  Revolving  Credit  Borrowing
      would  otherwise end after the Final Maturity Date,  such Interest  Period
      shall not be available hereunder,

             (ii) no Interest  Period for any Term Loan  Borrowing  may commence
      before and end after any  Principal  Payment  Date  unless,  after  giving
      effect thereto,  the aggregate  principal  amount of the Term Loans having
      Interest Periods that end after such Principal Payment Date shall be equal
      to or less than the aggregate principal amount of the Term Loans scheduled
      to be  outstanding  after  giving  effect  to the  payments  of  principal
      required to be made on such Principal Payment Date, and

           (iii) notwithstanding the foregoing clauses (i) and (ii), no Interest
      Period  shall have a duration of less than one month and, if the  Interest
      Period for any Eurodollar Loan would  otherwise be a shorter period,  such
      Loan  shall  not be  available  hereunder  as a  Eurodollar  Loan for such
      period.

           "Investment" means, for any Person, the acquisition of capital stock,
evidences of Indebtedness or other securities or ownership interests  (including
any option, warrant or other right to acquire any of the foregoing) of any other
Person,  or the making of any loans or advances to, Guarantee of any obligations
of, or  extensions  of credit to any other  Person  (other than in the  ordinary
course of business  with  respect to purchase  or sale of  inventory,  supplies,
product or services).

           "LC  Collateral  Account"  has the  meaning  assigned to such term in
Section 2.04(i).

           "LC  Disbursement"  means a  payment  made by the LC  Issuing  Lender
pursuant to a Letter of Credit.

           "LC  Exposure"  means,  at any  time,  the sum of (a)  the  aggregate
undrawn  amount of all  outstanding  Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of the Borrower at such time. The LC Exposure of any Revolving  Credit
Lender at any time shall be its  Applicable  Percentage of the total LC Exposure
at such time.

           "LC Issuing  Lender" means The Chase  Manhattan Bank, in its capacity
as the issuer of Letters of Credit hereunder.

           "Lenders"  means the Persons  listed on  Schedule  2.01 and any other
Person  that shall have become a party  hereto  pursuant  to an  Assignment  and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.

           "Letter of Credit" means any letter of credit issued pursuant to this
Agreement.


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<PAGE>


                             - 17 -



           "Leverage  Ratio"  means,  as at any  date,  the  ratio  of  (a)  all
Indebtedness of the Borrower and its Subsidiaries  (determined on a consolidated
basis without  duplication  in accordance  with GAAP) on such date to (b) EBITDA
for the period of four  consecutive  fiscal  quarters ending on or most recently
ended prior to such date.

           "LIBO Rate" means,  with respect to any Eurodollar  Borrowing for any
Interest Period,  the rate appearing on Page 3750 of the Telerate Service (or on
any  successor  or  substitute  page of such  Service,  or any  successor  to or
substitute  for such  Service,  providing  rate  quotations  comparable to those
currently  provided  on  such  page  of  such  Service,  as  determined  by  the
Administrative  Agent from time to time for purposes of providing  quotations of
interest  rates  applicable  to U.S.  dollar  deposits  in the London  interbank
market) at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period,  as the rate for U.S. dollar deposits with
a maturity  comparable to such Interest  Period.  In the event that such rate is
not available at such time for any reason,  then the "LIBO Rate" with respect to
such  Eurodollar  Borrowing for such Interest  Period shall be the rate at which
U.S.  dollar  deposits  of  $5,000,000,  and for a maturity  comparable  to such
Interest  Period,  are  offered  by the  principal  London  office  of  Chase in
immediately  available  funds in the London  interbank  market at  approximately
11:00 a.m.,  London time,  two Business Days prior to the  commencement  of such
Interest Period.

           "Lien" means,  with respect to any asset,  (a) any mortgage,  deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such  asset,  (b) the  interest  of a  vendor  or a  lessor  under  any
conditional sale agreement,  capital lease or title retention  agreement (or any
financing  lease having  substantially  the same  economic  effect as any of the
foregoing)  relating  to such  asset  and (c) in the  case  of  securities,  any
purchase  option,  call or similar  right of a third party with  respect to such
securities.

           "Loan   Documents"   means  this  Agreement,   any  promissory  notes
evidencing Loans hereunder and the Security Documents.

           "Loans" means the loans made by the Lenders to the Borrower  pursuant
to this Agreement.

           "Material  Adverse Effect" means a material adverse effect on (a) the
business,  assets,  operations  or  condition,  financial or  otherwise,  of the
Borrower and its  Subsidiaries  taken as a whole,  (b) the ability of any Credit
Party to perform any of its  obligations  under this  Agreement,  the other Loan
Documents  or the  Tax  Sharing  Agreement  or (c)  the  rights  of or  benefits
available to the Lenders under this Agreement or the other Loan Documents.

           "Material  Obligations" means  Indebtedness  (other than the Loans or
Letters  of  Credit  and  other  than  Indebtedness  owed by the  Borrower  to a
Subsidiary or by a Subsidiary to the Borrower or a  Subsidiary),  or obligations
in respect of one or more Hedging Agreements, of any one or more of the Borrower
or any Subsidiary in an aggregate principal


                         Credit Agreement

<PAGE>


                             - 18 -


amount exceeding  $2,000,000.  For purposes of determining Material Obligations,
the  "principal  amount"  of the  obligations  of any  Person in  respect of any
Hedging  Agreement  at any time shall be the maximum  aggregate  amount  (giving
effect to any netting  agreements)  that such Person would be required to pay if
such Hedging Agreement were terminated at such time.

           "Mortgage"  means  the  Mortgage,   Assignment  of  Rents,   Security
Agreement and Fixture  Filing  executed by the Borrower,  for the benefit of the
Administrative  Agent  substantially  in the form of Exhibit F and  covering the
leasehold interest of the Borrower located in Mercer county, New Jersey pursuant
to that  certain  lease dated as of August 17, 1994  between  the  Borrower,  as
tenant, and ABCJ East Windsor Associates L.P., as landlord.

           "Mortgage  Amendments"  means  amendments  to the Existing  Mortgages
satisfactory to the Agent in form and substance.

           "Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.

           "Net Available Proceeds" means:

           (a) in the case of any Disposition,  the aggregate amount of all cash
      payments  received  by the  Borrower  and  its  Subsidiaries  directly  or
      indirectly in  connection  with such  Disposition,  whether at the time of
      such  Disposition  or  after  such  Disposition   under  deferred  payment
      arrangements  or investments  entered into or received in connection  with
      such Disposition (including Disposition Investments) net of (i) the amount
      of any legal, title, transfer and recording tax expenses,  commissions and
      other fees and expenses  payable by the Borrower and its  Subsidiaries  in
      connection with such Disposition, (ii) any Federal, state and local income
      or  other  taxes   estimated  to  be  payable  by  the  Borrower  and  its
      Subsidiaries as a result of such Disposition,  but only to the extent that
      such estimated  taxes are in fact paid to the relevant  Federal,  state or
      local  governmental  authority  or to NL under the Tax  Sharing  Agreement
      within  twelve  months  of the  date of such  Disposition  and  (iii)  any
      repayments by the Borrower or any of its  Subsidiaries  of Indebtedness to
      the extent that (x) such Indebtedness is secured by a Lien on the property
      that is the  subject of such  Disposition  and (y) the  transferee  of (or
      holder of a Lien on) such  property  requires  that such  Indebtedness  be
      repaid as a condition to the purchase of such property;

           (b) in the  case of any  Casualty  Event,  the  aggregate  amount  of
      proceeds of insurance, condemnation awards and other compensation received
      by the Borrower and its Subsidiaries in respect of such Casualty Event net
      of (i) reasonable  expenses  incurred by the Borrower and its Subsidiaries
      in connection  therewith  and (ii)  contractually  required  repayments of
      Indebtedness to the extent secured by a Lien


                         Credit Agreement

<PAGE>


                             - 19 -


      on such property and any income and transfer taxes payable by the Borrower
      or any of its Subsidiaries in respect of such Casualty Event; and

           (c) in the case of any Equity  Issuance,  the aggregate amount of all
      cash  received by the  Borrower  and its  Subsidiaries  in respect of such
      Equity  Issuance net of reasonable  expenses  incurred by the Borrower and
      its Subsidiaries in connection therewith.

           "NL" means NL  Industries,  Inc., a corporation  organized  under the
laws of New Jersey.

           "NL Pledge  Agreement" means an amended and restated Pledge Agreement
substantially in the form of Exhibit E between NL and the Administrative Agent.

           "Note  Subordination  Agreement"  means the  Subordination  Agreement
dated as of September  17, 1996 between NL, the Borrower and the  Administrative
Agent  providing  for  the   subordination  of  the  Subordinated  Note  to  the
Indebtedness of the Borrower hereunder.

           "Other   Taxes"  means  any  and  all  present  or  future  stamp  or
documentary  taxes or any other  excise or  property  taxes,  charges or similar
levies arising from any payment made  hereunder or from the execution,  delivery
or  enforcement  of, or otherwise  with respect to, this Agreement and the other
Loan Documents (and any Uniform Commercial Code financing statements required by
any  Security  Document to be filed with  respect to the  security  interests in
personal property and fixtures created pursuant to any Security Document) or any
amendments thereof or supplements thereto, provided that there shall be excluded
from "Other Taxes" all Excluded Taxes.

           "PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.

           "Permitted Investments" means:

           (a)  direct  obligations  of, or  obligations  the  principal  of and
      interest on which are unconditionally  guaranteed by, the United States of
      America  (or by any  agency  thereof to the extent  such  obligations  are
      backed by the full faith and credit of the United  States of America),  in
      each case maturing within one year from the date of acquisition thereof;

           (b) Investments in commercial paper maturing within 270 days from the
      date of acquisition  thereof and having,  at such date of  acquisition,  a
      credit rating  obtainable from Standard & Poor's Ratings Service of A-1 or
      better or from Moody's Investors Service of P-1 or better;



                         Credit Agreement

<PAGE>


                             - 20 -


           (c) Investments in certificates of deposit,  banker's acceptances and
      time deposits (including  Euro-deposits) maturing within 180 days from the
      date of  acquisition  thereof  issued or guaranteed by or placed with, and
      money  market  deposit  accounts  issued or offered  by, any office of any
      commercial  bank organized  under the laws of the United States of America
      or any State  thereof,  or under the laws of any other member state of the
      Organization  for  Economic  Cooperation  and  Development,  which  has  a
      combined  capital  and  surplus  and  undivided  profits  of not less than
      $500,000,000; and

           (d) fully  collateralized  repurchase  agreements  with a term of not
      more  than 180 days for  securities  described  in  clause  (a)  above and
      entered  into  with  a  financial  institution   satisfying  the  criteria
      described in clause (c) above or with an investment  bank organized  under
      the laws of the United  States or any State  thereof  which has a combined
      capital and surplus and undivided profits of not less than $500,000,000.

           "Permitted Liens" means:

           (a) Liens  imposed by law for taxes that are not yet due or are being
      contested in compliance with Section 6.04;

           (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
      and other like Liens  imposed by law,  arising in the  ordinary  course of
      business  and  securing  obligations  that are not overdue by more than 30
      days or are being  contested  in  compliance  with  Section 6.04 and Liens
      securing  judgments  but only to the extent for an amount and for a period
      not resulting in an Event of Default under Article VIII(k);

           (c) pledges and deposits  made in the ordinary  course of business in
      compliance with workers'  compensation,  unemployment  insurance and other
      social security laws or regulations;

           (d)  deposits to secure the  performance  of bids,  trade  contracts,
      leases, statutory obligations,  surety and appeal bonds, performance bonds
      and other  obligations  of a like  nature,  in each  case in the  ordinary
      course of business;

           (e)   easements,   reservations,    covenant   restrictions,   zoning
      restrictions,  rights-of-way  and similar  encumbrances or restrictions on
      real property imposed by law or arising in the ordinary course of business
      that do not materially  detract from the value of the affected property or
      materially interfere with the ordinary conduct of business of the Borrower
      or any Subsidiary;

           (f) Liens  arising under  workers'  compensation  laws,  unemployment
      insurance  laws  or  similar   legislation  or  progress   payments  under
      government contracts, deposits


                         Credit Agreement

<PAGE>


                             - 21 -


      as security  for import  duties;  deposits to secure  public or  statutory
      obligations of the Borrower or any of its Subsidiaries; and

           (g) Liens incident to the conduct of, or the operation of property or
      assets in the ordinary course of the Business and not securing obligations
      in the aggregate amount exceeding $500,000 at any one time outstanding.

           "Person" means any natural  person,  corporation,  limited  liability
company, trust, joint venture, association,  company, partnership,  Governmental
Authority or other entity.

           "Plan"  means  any  employee  pension  benefit  plan  (other  than  a
Multiemployer  Plan)  subject to the  provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA  Affiliate is (or, if such plan were  terminated,  would under Section
4069 of ERISA be deemed to be) an  "employer"  as  defined  in  Section  3(5) of
ERISA.

           "Prime Rate" means the rate of interest per annum publicly  announced
from time to time by The Chase  Manhattan  Bank,  as its prime rate in effect at
its  principal  office in New York City;  each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.

           "Principal  Payment  Dates"  means the (a) 25  consecutive  Quarterly
Dates  falling on or nearest to March 31, June 30,  September 30 and December 31
of each year,  commencing  with the Quarterly  Date in September of 1997 and (b)
the Final Maturity Date.

           "Quarterly  Dates"  means  the  last  Business  Day of  March,  June,
September and December in each year,  the first of which shall be the first such
day after the date of this Agreement.

           "Register" has the meaning assigned to such term in Section 10.04.

           "Related Parties" means,  with respect to any specified Person,  such
Person's Affiliates and the respective directors,  officers,  employees,  agents
and advisors of such Person and such Person's Affiliates.

           "Release"  means any  "release"  as such term is defined in 42 U.S.C.
Section 9601 (22), as amended, or any successor statute.

           "Required  Lenders"  means,  at any time,  Lenders  having Loans,  LC
Exposure  and unused  Commitments  representing  more than 50% of the sum of the
total Loans, LC Exposure and unused Commitments at such time.



                         Credit Agreement

<PAGE>


                             - 22 -


           "Required  Revolving  Credit  Lenders"  means,  at any time,  Lenders
having   Revolving  Credit  Loans,  LC  Exposure  and  unused  Revolving  Credit
Commitments  representing more than 50% of the sum of the total Revolving Credit
Loans, LC Exposure and unused Revolving Credit Commitments at such time.

           "Required Term Loan Lenders" means, at any time,  Lenders having Term
Loans and unused Term Loan Commitments  representing more than 50% of the sum of
the total Term Loans and unused Term Loan Commitments at such time.

           "Restricted   Payment"  means  any  dividend  or  other  distribution
(whether in cash,  securities or other  property)  with respect to any shares of
any class of capital  stock of the  Borrower,  or any payment  (whether in cash,
securities or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption,  retirement,  acquisition,  cancellation or
termination of any such shares of capital stock of the Borrower.

           "Restructuring"   means  the  separation  of  NL's  titanium  dioxide
operations from the rheological  additives  operations,  as effected through the
Restructuring Agreement.

           "Restructuring Agreement" means that certain agreement dated June 30,
1990,  between NL, Rheox  International,  Inc.,  Kronos,  Inc. and the Borrower,
effecting the Restructuring.

           "Restructuring  Documents"  means the  Restructuring  Agreement,  the
Rheox Int'l IP Assignment,  the Rheox IP Assignment,  the General Assignment and
the Supplemental Agreements.

           "Revolving  Credit  Availability  Period"  means the period  from and
including  the  Effective  Date to but  excluding  the  earlier of (a) the Final
Maturity  Date  and  (b)  the  date  of  termination  of  the  Revolving  Credit
Commitments.

           "Revolving Credit Commitment" means, with respect to each Lender, the
commitment  of such  Lender  to  make  Revolving  Credit  Loans  and to  acquire
participations  in Letters of Credit  hereunder,  as such  commitment may be (a)
reduced from time to time  pursuant to Sections 2.07 and 2.09 and (b) reduced or
increased  from  time to  time  pursuant  to  assignments  by or to such  Lender
pursuant to Section 10.04. The initial amount of each Lender's  Revolving Credit
Commitment is set forth on Schedule  2.01, or in the  Assignment  and Acceptance
pursuant  to  which  such  Lender  shall  have  assumed  its  Revolving   Credit
Commitment, as applicable. The aggregate original amount of the Revolving Credit
Commitments is $25,000,000.

           "Revolving  Credit  Exposure"  means,  with respect to any  Revolving
Credit Lender at any time, the sum of the outstanding  principal  amount of such
Lender's Revolving Credit Loans and its LC Exposure at such time.


                         Credit Agreement

<PAGE>


                             - 23 -



           "Revolving Credit Lender" means (a) initially,  any Lender that has a
Revolving Credit Commitment set forth opposite its name on Schedule 2.01 and (b)
thereafter,  the Lenders  from time to time holding  Revolving  Credit Loans and
Revolving  Credit  Commitments,  after giving effect to any assignments  thereof
permitted by Section 10.04.

           "Revolving Credit Loan" means a Loan made pursuant to Section 2.01(a)
that utilizes the Revolving Credit Commitments.

           "Rheox Int'l IP Assignment" has the meaning  assigned to that term in
Section l(c) of the Restructuring Agreement.

           "Rheox  International"  means Rheox  International,  Inc., a Delaware
corporation.

           "Rheox  IP  Assignment"  has the  meaning  assigned  to that  term in
Section 1(d) of the Restructuring Agreement.

           "Security Agreement" means an amended and restated Security Agreement
substantially  in the form of Exhibit D between  the  Borrower,  the  Subsidiary
Guarantors and the Administrative Agent.

           "Security  Documents"  means the Copyright  Security  Agreement,  the
Conditional  Assignment  of and  Security  Interest  in  Patent  Rights  and the
Conditional  Assignment  of and  Security  Interest  in  Trademark  Rights,  the
Security  Agreement,  the NL  Pledge  Agreement,  the  Mortgage,  each  Existing
Mortgage and each Mortgage Amendment.

           "Special  Counsel"  means  Milbank,  Tweed,  Hadley & McCloy,  in its
capacity as special counsel to The Chase Manhattan Bank, as Administrative Agent
of the credit facilities contemplated hereby.

           "Special  Dividend"  means a dividend in an  aggregate  amount not to
exceed  $30,000,000  to be paid by the  Borrower to NL with the proceeds of Term
Loans and Revolving Credit Loans as provided herein.

           "Statutory  Reserve Rate" means a fraction  (expressed as a decimal),
the  numerator  of which is the number one and the  denominator  of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal,  special,  emergency or supplemental  reserves) expressed as a decimal
established by the Board to which the  Administrative  Agent is subject (a) with
respect to the Base CD Rate,  for new  negotiable  nonpersonal  time deposits in
dollars of over $100,000 with maturities approximately equal to three months and
(b) with respect to the Adjusted LIBO Rate, for eurocurrency  funding (currently
referred to as  "Eurocurrency  Liabilities" in Regulation D of the Board).  Such
reserve  percentages  shall include those imposed pursuant to such Regulation D.
Eurodollar  Loans shall be deemed to constitute  eurocurrency  funding and to be
subject to


                         Credit Agreement

<PAGE>


                             - 24 -


such reserve requirements without benefit of or credit for proration, exemptions
or offsets  that may be  available  from time to time to any  Lender  under such
Regulation D or any comparable  regulation.  The Statutory Reserve Rate shall be
adjusted  automatically  on and as of the  effective  date of any  change in any
reserve percentage.

           "Subordinated  Note" means the $100,000,000  subordinated  note dated
September 30, 1996 issued by the Borrower to NL.

           "Subordinated Intercompany Note" means the (Pound Sterling) 3,423,292
note dated February 2, 1996 issued by Rheox Limited to NL.

           "Subsidiary"  means, with respect to any Person (the "parent") at any
date, any corporation,  limited liability company,  partnership,  association or
other  entity the  accounts  of which  would be  consolidated  with those of the
parent in the  parent's  consolidated  financial  statements  if such  financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership,  association or other
entity (a) of which securities or other ownership  interests  representing  more
than 50% of the  ordinary  voting power or, in the case of a  partnership,  more
than 50% of the  general  partnership  interests  are,  as of such date,  owned,
controlled or held, or (b) that is, as of such date,  otherwise  Controlled,  by
the parent or one or more subsidiaries of the parent or by the parent and one or
more  subsidiaries of the parent.  References  herein to  "Subsidiaries"  shall,
unless  the  context  requires   otherwise,   be  deemed  to  be  references  to
Subsidiaries of the Borrower.

           "Subsidiary  Guarantors"  means the Persons  listed under the caption
"SUBSIDIARY  GUARANTORS" on the signature pages hereto and any other Person that
shall have become a party hereto pursuant to Section 6.12(a).

           "Supplemental  Agreements"  has the meaning  assigned to that term in
Section 6(a) of the Restructuring Agreement.

           "Tangible  Net Worth" means,  at any time,  the sum, for the Borrower
and its Consolidated  Subsidiaries  (determined on a consolidated  basis without
duplication in accordance with GAAP), of the following:  (a) the amount of share
capital (less cost of treasury shares) but excluding share capital in respect of
any  preferred  or  similar  stock  which,  by its terms or at the option of the
holder or the issuer, is under any circumstances  redeemable,  or is convertible
into Indebtedness,  or which requires payments to a sinking fund, on or prior to
the Final  Maturity Date;  plus (b) the amount of surplus and retained  earnings
(or, in the case of a surplus or retained earnings deficit,  minus the amount of
such deficit); minus (c) Intangible Assets of the Borrower and its Subsidiaries.
Notwithstanding anything in this definition to the contrary,  cumulative foreign
currency  translation  gains (or  losses)  shall not be deemed to  increase  (or
decrease) Tangible Net Worth.



                         Credit Agreement

<PAGE>


                             - 25 -


           "Tax Sharing  Agreement" means the Tax Agreement between NL and Rheox
dated as of July 1, 1990.

           "Taxes" means any and all present or future taxes,  levies,  imposts,
duties,  deductions,  charges  or  withholdings  of any  nature  imposed  by any
Governmental  Authority,  and any interest,  penalties or fines thereon or other
additions thereto.

           "Term  Loan"  means a Loan made  pursuant  to  Section  2.01(b)  that
utilizes the Term Loan Commitments.

           "Term Loan  Availability  Period" means the period from and including
the Effective Date to but excluding the earlier of (a) the Term Loan  Commitment
Termination Date and (b) the date of termination of the Term Loan Commitments.

           "Term  Loan  Commitment"  means,  with  respect to each  Lender,  the
commitment  of such Lender to make Term  Loans,  as such  commitment  may be (a)
reduced from time to time  pursuant to Sections 2.07 and 2.09 and (b) reduced or
increased  from  time to  time  pursuant  to  assignments  by or to such  Lender
pursuant  to  Section  10.04.  The  initial  amount of each  Lender's  Term Loan
Commitment is set forth on Schedule  2.01, or in the  Assignment  and Acceptance
pursuant to which such Lender  shall have assumed its Term Loan  Commitment,  as
applicable.  The  aggregate  original  amount  of the Term Loan  Commitments  is
$125,000,000.

           "Term Loan Commitment Termination Date" means the Effective Date.

           "Term Loan Lender"  means (a)  initially,  any Lender that has a Term
Loan Commitment set forth opposite its name on Schedule 2.01 and (b) thereafter,
the  Lenders  from time to time  holding  Term Loans and Term Loan  Commitments,
after giving effect to any assignments thereof permitted by Section 10.04.

           "Three-Month  Secondary  CD Rate" means,  for any day, the  secondary
market rate for three-month  certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding  Business
Day) by the Board through the public  information  telephone line of the Federal
Reserve  Bank of New York (which rate will,  under the current  practices of the
Board, be published in Federal Reserve  Statistical Release H.15(519) during the
week  following  such day),  or, if such rate is not so  reported on such day or
such next preceding Business Day, the average of the secondary market quotations
for three-month  certificates of deposit of major money center banks in New York
City received at approximately  10:00 a.m., New York City time, on such day (or,
if such day is not a Business  Day, on the next  preceding  Business Day) by the
Administrative  Agent from three  negotiable  certificate of deposit  dealers of
recognized standing selected by it.



                         Credit Agreement

<PAGE>


                             - 26 -


           "Transactions" means (a) with respect to the Borrower, the execution,
delivery and  performance by the Borrower of the Loan Documents to which it is a
party,  the  borrowing  of Loans and the use of the  proceeds  thereof,  and the
issuance of Letters of Credit hereunder and (b) with respect to any Credit Party
(other than the  Borrower),  the  execution,  delivery and  performance  by such
Credit Party of the Loan Documents to which it is a party.

           "Type",  when used in reference to any Loan or  Borrowing,  refers to
whether  the rate of  interest  on such Loan,  or on the Loans  comprising  such
Borrowing,  is determined by reference to the Adjusted LIBO Rate or the Adjusted
Base Rate.

           "UCP" means the Uniform Customs and Practices for Documentary Credits
(1993 Revision),  International  Chamber of Commerce Publication No. 500, or any
successor publication.

           "U.S.  dollars" or "$" refers to lawful money of the United States of
America.

           "Wholly Owned  Subsidiary"  means,  with respect to any Person at any
date, any corporation,  limited liability company,  partnership,  association or
other entity of which securities or other ownership interests  representing 100%
of the equity or ordinary voting power (other than directors' qualifying shares)
or, in the case of a partnership, 100% of the general partnership interests are,
as of such date, directly or indirectly owned, controlled or held by such Person
or one or more Wholly  Owned  Subsidiaries  of such Person or by such Person and
one or more Wholly Owned Subsidiaries of such Person.

           "Withdrawal  Liability" means liability to a Multiemployer  Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.

           "Working  Investment"  means,  at any time,  the sum of the following
(without  duplication)  for  the  Borrower  and  its  Consolidated  Subsidiaries
(determined  on a  consolidated  basis in  accordance  with GAAP),  in each case
generated in the ordinary  course of business:  (a) net  inventory at such time;
plus (b) net accounts and current notes  receivable at such time;  minus (c) net
accounts and current notes payable (excluding current notes payable to financial
institutions  in  respect  of  Indebtedness)  at such  time;  minus (d)  accrued
expenses at such time; minus (e) current accrued taxes at such time.

           SECTION 1.02. Classification of Loans and Borrowings. For purposes of
this  Agreement,  Loans may be  classified  and  referred to by Class  (e.g.,  a
"Revolving  Credit Loan" or "Term Loan") or by Type (e.g., a "Base Rate Loan" or
a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar  Revolving Credit
Loan"  or a  "Base  Rate  Revolving  Credit  Loan").  In  similar  fashion,  (i)
Borrowings may be classified and referred to by Class,  by Type and by Class and
Type, and (ii) Commitments may be classified and referred to by Class.


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<PAGE>


                             - 27 -



           SECTION 1.03. Terms Generally.  The definitions of terms herein shall
apply  equally to the singular and plural forms of the terms  defined.  Whenever
the context may require, any pronoun shall include the corresponding  masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed  by the phrase  "without  limitation".  The word "will"
shall be  construed  to have the same  meaning  and effect as the word  "shall".
Unless the context requires  otherwise (a) any definition of or reference to any
agreement,  instrument or other document  herein shall be construed as referring
to such  agreement,  instrument or other  document as from time to time amended,
supplemented  or  otherwise  modified  (subject  to  any  restrictions  on  such
amendments,  supplements or modifications  set forth herein),  (b) any reference
herein to any Person shall be construed to include such Person's  successors and
assigns, (c) the words "herein", "hereof" and "hereunder",  and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any  particular  provision  hereof,  (d)  all  references  herein  to  Articles,
Sections,  Exhibits  and  Schedules  shall be construed to refer to Articles and
Sections  of, and  Exhibits  and  Schedules  to, this  Agreement,  (e) the words
"asset" and  "property"  shall be  construed to have the same meaning and effect
and to refer to any and all  tangible  and  intangible  assets  and  properties,
including cash,  securities,  accounts and contract rights and (f) references to
"the date hereof" and "the date of this Agreement" and similar  references shall
be construed to mean January 30, 1997.

           SECTION 1.04.  Accounting Terms; GAAP. Except as otherwise  expressly
provided  herein,  all  terms of an  accounting  or  financial  nature  shall be
construed  in  accordance  with GAAP,  as in effect from time to time;  provided
that,  if the  Borrower  notifies  the  Administrative  Agent that the  Borrower
requests an amendment  to any  provision  hereof to eliminate  the effect of any
change occurring after the date hereof in GAAP or in the application  thereof on
the operation of such  provision (or if the  Administrative  Agent  notifies the
Borrower that the Required  Lenders request an amendment to any provision hereof
for such  purpose),  regardless  of whether any such  notice is given  before or
after such change in GAAP or in the  application  thereof,  then such  provision
shall be interpreted  on the basis of GAAP as in effect and applied  immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.


                            ARTICLE II

                            The Credits

           SECTION 2.01.  Commitments.

           (a) Revolving  Credit Loans.  Subject to the terms and conditions set
forth herein, each Revolving Credit Lender agrees to make Revolving Credit Loans
to the  Borrower  from time to time  during the  Revolving  Credit  Availability
Period in an aggregate principal


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<PAGE>


                             - 28 -


amount that will not result in such Lender's Revolving Credit Exposure exceeding
such Lender's  Revolving  Credit  Commitment.  Within the  foregoing  limits and
subject to the terms and conditions  set forth herein,  the Borrower may borrow,
prepay and reborrow  Revolving Credit Loans;  provided that the Borrower may not
borrow  Revolving  Credit  Loans  hereunder  unless  it shall  have  theretofore
borrowed  or is  concurrently  borrowing  hereunder  Term Loans in an  aggregate
principal amount of $125,000,000.

           (b) Term Loans. Subject to the terms and conditions set forth herein,
each Term Loan  Lender  agrees to make Term  Loans to the  Borrower  in a single
drawing  on a date  falling  during  the Term  Loan  Availability  Period  in an
aggregate principal amount equal to such Lender's Term Loan Commitment.

           SECTION 2.02.  Loans and Borrowings.

           (a) Subject to Section 2.01(b), each Loan of a particular Class shall
be made as part of a  Borrowing  consisting  of Loans of such  Class made by the
Lenders ratably in accordance with their  respective  Commitments of such Class.
The  failure of any Lender to make any Loan  required to be made by it shall not
relieve  any  other  Lender  of its  obligations  hereunder;  provided  that the
Commitments  of the Lenders are several and no Lender shall be  responsible  for
any other Lender's failure to make Loans as required.

           (b)  Subject to  Section  2.12,  each  Borrowing  shall be  comprised
entirely of Base Rate Loans or  Eurodollar  Loans as the Borrower may request in
accordance  herewith.  Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign  branch or Affiliate of such Lender to make such
Loan;  provided  that (i) any  exercise  of such  option  shall not  affect  the
obligation  of the Borrower to repay such Loan in  accordance  with the terms of
this Agreement and (ii) the Borrower shall not be required to pay any additional
amounts under Section  2.15(a) as a result of the exercise of such option unless
amounts  payable by the  Borrower  to the  relevant  Lender  under said  Section
immediately after such exercise do not exceed amounts payable by the Borrower to
the relevant Lender under said Section immediately prior to such exercise.

           (c) At the  commencement  of each  Interest  Period for a  Eurodollar
Borrowing,  such  Borrowing  shall be in an  aggregate  amount at least equal to
$5,000,000 or any greater integral multiple of $1,000,000 with respect to a Term
Loan, and at least equal to $1,000,000 with respect to a Revolving  Credit Loan.
At the time that each Base Rate Borrowing is made, such Borrowing shall be in an
aggregate amount at least equal to $1,000,000 or any greater  integral  multiple
of $1,000,000;  provided that a Base Rate Borrowing of Loans of any Class may be
in an aggregate  amount that is equal to the entire unused  balance of the total
Commitments  of such  Class.  Borrowings  of more than one Type and Class may be
outstanding at the same time;  provided that there shall not at any time be more
than a total of six Eurodollar Borrowings outstanding.



                         Credit Agreement

<PAGE>


                             - 29 -


           SECTION 2.03.  Requests for Borrowings.  To request a Borrowing,  the
Borrower shall notify the Administrative  Agent of such request by telephone (a)
in the case of a Eurodollar Borrowing,  not later than 11:00 a.m., New York City
time,  three  Business Days before the date of the proposed  Borrowing or (b) in
the case of a Base Rate  Borrowing,  not later  than 11:00  a.m.,  New York City
time,  on the date of the proposed  Borrowing.  Each such  telephonic  Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the  Administrative  Agent of a written  Borrowing Request in a form
approved  by the  Administrative  Agent and  signed by the  Borrower.  Each such
telephonic and written Borrowing Request shall specify the following information
in compliance with Section 2.02:

           (i)  whether the  requested  Borrowing  is to be a  Revolving  Credit
      Borrowing or Term Loan Borrowing;

             (ii)  the aggregate amount of such Borrowing;

            (iii)  the date of such Borrowing, which shall be a Business Day;

           (iv)  whether  such  Borrowing  is to be a Base Rate  Borrowing  or a
      Eurodollar Borrowing;

              (v) in the case of a Eurodollar  Borrowing,  the initial  Interest
      Period to be applicable  thereto,  which shall be a period contemplated by
      the definition of the term "Interest Period"; and

             (vi) the  location  and number of the  Borrower's  account to which
      funds are to be  disbursed,  which shall comply with the  requirements  of
      Section 2.05.

If no election as to the Type of  Borrowing  is  specified,  then the  requested
Borrowing  shall be a Base Rate  Borrowing.  If no Interest  Period is specified
with respect to any requested Eurodollar  Borrowing,  then the Borrower shall be
deemed to have  selected an Interest  Period of one month's  duration.  Promptly
following  receipt of a Borrowing  Request in accordance with this Section 2.03,
the Administrative  Agent shall advise each Lender of the details thereof and of
the amount of such Lender's Loan to be made as part of the requested Borrowing.

           SECTION 2.04.  Letters of Credit.

           (a) General. Subject to the terms and conditions set forth herein, in
addition to the  Revolving  Credit Loans  provided for in Section  2.01(a),  the
Borrower  may request  the  issuance of Letters of Credit for its own account or
for the account of a Subsidiary by the LC Issuing  Lender,  in a form acceptable
to the LC Issuing Lender in its reasonable  determination,  at any time and from
time to time during the Revolving Credit Availability Period. Letters of


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<PAGE>


                             - 30 -


Credit issued  hereunder shall  constitute  utilization of the Revolving  Credit
Commitments.  In the event of any inconsistency between the terms and conditions
of this  Agreement and the terms and  conditions of any form of letter of credit
application or other agreement  submitted by the Borrower to, or entered into by
the Borrower with, the LC Issuing Lender  relating to any Letter of Credit,  the
terms and conditions of this Agreement shall control.

           (b)  Notice  of  Issuance,  Amendment,  Renewal,  Extension;  Certain
Conditions.  To request the  issuance  of a Letter of Credit (or the  amendment,
renewal or extension of an  outstanding  Letter of Credit),  the Borrower  shall
hand  deliver  or  telecopy  (or  transmit  by  electronic   communication,   if
arrangements for doing so have been approved by the LC Issuing Lender) to the LC
Issuing  Lender  and the  Administrative  Agent  (reasonably  in  advance of the
requested date of issuance, amendment, renewal or extension) a notice requesting
the issuance of a Letter of Credit,  or  identifying  the Letter of Credit to be
amended,  renewed  or  extended,  the date of  issuance,  amendment,  renewal or
extension,  the date on which such  Letter of Credit is to expire  (which  shall
comply with  paragraph (c) of this Section  2.04),  the amount of such Letter of
Credit,  the  name  and  address  of the  beneficiary  thereof  and  such  other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit. If requested by the LC Issuing Lender, the Borrower also shall submit
a letter of credit  application  on the LC  Issuing  Lender's  standard  form in
connection with any request for a Letter of Credit.  A Letter of Credit shall be
issued,  amended,  renewed or extended  only if (and upon  issuance,  amendment,
renewal or extension  of each Letter of Credit the  Borrower  shall be deemed to
represent and warrant that),  after giving effect to such  issuance,  amendment,
renewal or  extension  (i) the  aggregate  LC Exposure of the LC Issuing  Lender
(determined  for these  purposes  without  giving  effect to the  participations
therein of the  Revolving  Credit  Lenders  pursuant  to  paragraph  (d) of this
Section 2.04) shall not exceed  $2,500,000 and (ii) the total  Revolving  Credit
Exposures shall not exceed the total Revolving Credit Commitments.

           (c) Expiration  Date.  Each Letter of Credit shall expire at or prior
to the close of  business on the earlier of (i) the date one year after the date
of the  issuance  of such  Letter of Credit  (or,  in the case of any renewal or
extension  thereof,  one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Final Maturity Date.

           (d)  Participations.  By the  issuance  of a Letter of Credit  (or an
amendment to a Letter of Credit increasing the amount thereof) by the LC Issuing
Lender, and without any further action on the part of the LC Issuing Lender, the
LC Issuing  Lender  hereby  grants to each  Revolving  Credit  Lender,  and each
Revolving  Lender hereby acquires from the LC Issuing Lender, a participation in
such  Letter  of  Credit  equal to such  Revolving  Credit  Lender's  Applicable
Percentage  of the aggregate  amount  available to be drawn under such Letter of
Credit.  In  consideration  and in furtherance of the foregoing,  each Revolving
Credit  Lender  hereby  absolutely  and  unconditionally  agrees  to  pay to the
Administrative  Agent, for the account of the LC Issuing Lender,  such Revolving
Credit Lender's  Applicable  Percentage of each LC  Disbursement  made by the LC
Issuing Lender and not reimbursed by the


                         Credit Agreement

<PAGE>


                             - 31 -


Borrower on the date due as provided in paragraph  (e) of this Section  2.04, or
of any  reimbursement  payment  required to be refunded to the  Borrower for any
reason. Each Revolving Credit Lender acknowledges and agrees that its obligation
to acquire  participations  pursuant to this  paragraph in respect of Letters of
Credit  is  absolute  and  unconditional  and  shall  not  be  affected  by  any
circumstance  whatsoever,  including any amendment,  renewal or extension of any
Letter of Credit or the occurrence and  continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.

           (e)  Reimbursement.  If the  LC  Issuing  Lender  shall  make  any LC
Disbursement in respect of a Letter of Credit,  the Borrower shall reimburse the
LC  Issuing  Lender  in  respect  of  such  LC  Disbursement  by  paying  to the
Administrative  Agent an amount  equal to such LC  Disbursement  not later  than
12:00 noon,  New York City time, on the Business Day  immediately  following the
day that the Borrower  receives such notice,  provided  that,  the Borrower may,
subject to the  conditions to borrowing set forth herein,  request in accordance
with  Section 2.03 that such  payment be financed  with a Revolving  Credit Base
Rate  Borrowing  in an  equivalent  amount and, to the extent so  financed,  the
Borrower's  obligation to make such payment shall be discharged  and replaced by
the resulting Revolving Credit Base Rate Borrowing.

           If  the   Borrower   fails  to  make  such   payment  when  due,  the
Administrative Agent shall notify each Revolving Credit Lender of the applicable
LC  Disbursement,  the payment then due from the Borrower in respect thereof and
such Revolving Credit Lender's Applicable Percentage thereof. Promptly following
receipt  of  such  notice,  each  Revolving  Credit  Lender  shall  pay  to  the
Administrative Agent its Applicable  Percentage of the payment then due from the
Borrower,  in the same  manner as  provided  in  Section  2.05 with  respect  to
Revolving  Credit  Loans made by such  Lender  (and  Section  2.05 shall  apply,
mutatis mutandis,  to the payment  obligations of the Revolving Credit Lenders),
and the  Administrative  Agent shall  promptly pay to the LC Issuing  Lender the
amounts so received by it from the Revolving Credit Lenders.  Promptly following
receipt by the Administrative Agent of any payment from the Borrower pursuant to
this paragraph, the Administrative Agent shall distribute such payment to the LC
Issuing  Lender or, to the extent that the  Revolving  Credit  Lenders have made
payments pursuant to this paragraph to reimburse the LC Issuing Lender,  then to
such  Lenders  and the LC Issuing  Lender as their  interests  may  appear.  Any
payment  made  by a  Revolving  Credit  Lender  pursuant  to this  paragraph  to
reimburse the LC Issuing Lender for any LC  Disbursement  shall not constitute a
Loan and shall not  relieve  the  Borrower of its  reimbursement  obligation  in
respect of such LC Disbursement.

           (f) Obligations  Absolute.  The Borrower's obligation to reimburse LC
Disbursements  as  provided  in  paragraph  (e) of this  Section  2.04  shall be
absolute,  unconditional  and  irrevocable,  and shall be performed  strictly in
accordance  with the terms of this  Agreement  under  any and all  circumstances
whatsoever and irrespective of (i) any lack of


                         Credit Agreement

<PAGE>


                             - 32 -


validity or  enforceability  of any Letter of Credit,  or any term or  provision
therein,  (ii) any draft or other  document  presented  under a Letter of Credit
proving to be forged,  fraudulent  or  invalid in any  respect or any  statement
therein being untrue or inaccurate in any respect, (iii) in the absence of gross
negligence  or  wilful  misconduct  on the  part of the LC  Issuing  Lender  (as
determined  by a court of  competent  jurisdiction),  payment  by the LC Issuing
Lender  under a  Letter  of  Credit  against  presentation  of a draft  or other
document that does not comply strictly or  substantially  with the terms of such
Letter of Credit and (iv) any other event or circumstance whatsoever, whether or
not similar to any of the foregoing,  that might, but for the provisions of this
Section  2.04,  constitute  a legal or  equitable  discharge  of the  Borrower's
obligations hereunder.

           Neither  the  Administrative  Agent,  the  Lenders nor the LC Issuing
Lender,  nor  any  of  their  Related  Parties,  shall  have  any  liability  or
responsibility  by reason of or in  connection  with the issuance or transfer of
any Letter of Credit by the LC Issuing  Lender or any payment or failure to make
any payment thereunder  (irrespective of any of the circumstances referred to in
the preceding sentence), or any error, omission,  interruption, loss or delay in
transmission or delivery of any draft,  notice or other  communication  under or
relating  to any Letter of Credit  (including  any  document  required to make a
drawing  thereunder),  any error in  interpretation  of  technical  terms or any
consequence  arising  from causes  beyond the control of the LC Issuing  Lender;
provided  that the  foregoing  shall not be  construed  to excuse the LC Issuing
Lender from  liability to the  Borrower to the extent of any direct  damages (as
opposed to consequential  damages,  claims in respect of which are hereby waived
by the  Borrower to the extent  permitted  by  applicable  law)  suffered by the
Borrower  that are caused by the LC Issuing  Lender's  failure to  exercise  the
standard of care agreed  hereunder to be  applicable  when  determining  whether
drafts and other  documents  presented  under a Letter of Credit comply with the
terms  thereof.  The parties hereto  expressly  agree that such standard of care
shall be as  follows,  and that the LC  Issuing  Lender  shall be deemed to have
exercised  such  standard of care in the absence of gross  negligence  or wilful
misconduct on its part (as determined by a court of competent jurisdiction):

              (i) the LC  Issuing  Lender may accept  documents  that  appear on
      their face to be in substantial  compliance  with the terms of a Letter of
      Credit without responsibility for further investigation, regardless of any
      notice  or  information  to  the  contrary,  and  may  make  payment  upon
      presentation  of documents  that appear on their face to be in substantial
      compliance with the terms of such Letter of Credit; and

             (ii)  the LC  Issuing  Lender  shall  have the  right,  in its sole
      discretion,  to decline to accept such  documents and to make such payment
      if such  documents  are not in  strict  compliance  with the terms of such
      Letter of Credit.

           (g)  Disbursement  Procedures.  The LC Issuing  Lender shall,  to the
extent  required by the UCP,  examine all  documents  purporting  to represent a
demand for payment under any Letter of Credit. The LC Issuing Lender shall, when
required by the UCP, notify


                         Credit Agreement

<PAGE>


                             - 33 -


the Administrative  Agent and the Borrower by telephone  (confirmed by telecopy)
of such demand for  payment  and whether the LC Issuing  Lender has made or will
make an LC Disbursement  thereunder;  provided that any failure to give or delay
in giving such  notice  shall not relieve  the  Borrower  of its  obligation  to
reimburse the LC Issuing Lender and the Revolving Credit Lenders with respect to
any such LC Disbursement.

           (h)  Interim  Interest.  If the LC Issuing  Lender  shall make any LC
Disbursement in respect of any Letter of Credit, then, unless the Borrower shall
reimburse such LC Disbursement in full on the date such LC Disbursement is made,
the unpaid amount thereof shall bear  interest,  for each day from and including
the  date  such LC  Disbursement  is made to but  excluding  the  date  that the
Borrower reimburses such LC Disbursement,  at the rate per annum then applicable
to Revolving  Credit Base Rate Loans;  provided  that, if the Borrower  fails to
reimburse  such LC  Disbursement  when due  pursuant  to  paragraph  (e) of this
Section 2.04, then Section  2.11(c) shall apply.  Interest  accrued  pursuant to
this paragraph  shall be for the account of the LC Issuing  Lender,  except that
interest accrued on and after the date of payment by any Revolving Credit Lender
pursuant to  paragraph  (e) of this  Section  2.04 to  reimburse  the LC Issuing
Lender shall be for the account of such Lender to the extent of such payment.

           (i) Cash  Collateralization.  If either (i) an Event of Default shall
occur and be continuing and the Borrower receives notice from the Administrative
Agent or the Required  Revolving  Credit  Lenders  demanding the deposit of cash
collateral pursuant to this paragraph, or (ii) the Borrower shall be required to
provide cover for LC Exposure  pursuant to Section  2.09(b),  the Borrower shall
immediately  deposit  into an account  (the "LC  Collateral  Account")  with the
Administrative  Agent,  in the  name  of the  Administrative  Agent  and for the
benefit of the  Lenders,  an amount in cash equal to, in the case of an Event of
Default,  the LC Exposure  as of such date plus any accrued and unpaid  interest
thereon  and,  in the case of cover  pursuant  to  Section  2.09(b),  the amount
required  under  2.09(b);  provided  that the  obligation  to deposit  such cash
collateral  shall become  effective  immediately,  and such deposit shall become
immediately  due and payable,  without demand or other notice of any kind,  upon
the occurrence of any Event of Default described in clause (h) or (i) of Article
VIII.  Such deposit shall be held by the  Administrative  Agent as collateral in
the first  instance for the LC Exposure  under this Agreement and thereafter for
the payment of any other  obligations of the Credit Parties  hereunder and under
the other Loan Documents. The Administrative Agent shall have exclusive dominion
and control, including the exclusive right of withdrawal, over the LC Collateral
Account.  Such deposits shall not accrue interest other than any interest earned
on the  investment  of such  deposits,  which  investments  shall  be  Permitted
Investments  made at the option and sole  discretion of the Borrower prior to an
Event of Default and made at the sole  discretion  of the  Administrative  Agent
after the occurrence and during the  continuance of an Event of Default,  and in
any event  shall be at the  Borrower's  risk and  expense.  Prior to an Event of
Default, income and profits, if any, on such investments shall be distributed to
the Borrower upon request. After the occurrence and during the continuance of an
Event of  Default,  interest  and  profits,  if any, on such  investments  shall
accumulate in


                         Credit Agreement

<PAGE>


                             - 34 -


such  account.  If the  Borrower  is  required  to  provide  an  amount  of cash
collateral hereunder as a result of the occurrence of an Event of Default,  such
amount  (to the  extent  not  applied as  aforesaid)  shall be  returned  to the
Borrower  upon request  within three  Business  Days after all Events of Default
have been cured or waived.

           (j)  Existing  Letters of Credit.  There is  outstanding  on the date
hereof pursuant to the Existing Credit  Agreements one or more letters of credit
issued  by Chase (as the  "Issuing  Bank"  thereunder)  for the  account  of the
Borrower as set forth on Schedule  2.04.  Upon the  Effective  Date each of such
letters of credit is hereby  designated  a "Letter of Credit"  under and for all
purposes of this Agreement.  In that connection,  the Borrower hereby represents
and warrants to the LC Issuing  Lender,  each  Revolving  Credit  Lender and the
Administrative  Agent that each such letter of credit satisfies the requirements
of this Section 2.04 (including paragraph (c) above).

           SECTION 2.05.  Funding of Borrowings.

           (a) Each Lender  shall make each Loan to be made by it  hereunder  on
the proposed date thereof by wire  transfer of  immediately  available  funds by
1:00 p.m., New York City time, to the account of the  Administrative  Agent most
recently  designated  by it for such  purpose  by  notice  to the  Lenders.  The
Administrative  Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received,  in like funds, to an account of the Borrower
maintained with the Administrative  Agent in New York City and designated by the
Borrower in the applicable  Borrowing  Request;  provided that Revolving  Credit
Base Rate Loans made to finance the  reimbursement  of an LC Disbursement  under
any Letter of Credit as  provided  in Section  2.04(e)  shall be remitted by the
Administrative Agent to the LC Issuing Lender.

           (b) Unless the Administrative Agent shall have received notice from a
Lender prior to the  proposed  date of any  Borrowing  that such Lender will not
make  available  to  the  Administrative  Agent  such  Lender's  share  of  such
Borrowing,  the  Administrative  Agent may assume that such Lender has made such
share  available on such date in accordance  with  paragraph (a) of this Section
2.05 and may, in reliance upon such assumption, make available to the Borrower a
corresponding  amount. In such event, if a Lender has not in fact made its share
of the applicable  Borrowing  available to the  Administrative  Agent,  then the
applicable Lender and the Borrower  severally agree to pay to the Administrative
Agent forthwith on demand such corresponding  amount with interest thereon,  for
each day from and  including  the date  such  amount  is made  available  to the
Borrower to but excluding the date of payment to the  Administrative  Agent,  at
(i) in the case of such Lender,  the Federal Funds Effective Rate or (ii) in the
case of the Borrower,  the interest rate  applicable to Base Rate Loans. If such
Lender  pays such amount to the  Administrative  Agent,  then such amount  shall
constitute such Lender's Loan included in such Borrowing.



                         Credit Agreement

<PAGE>


                             - 35 -


           SECTION 2.06.  Interest Elections.

           (a) Each  Borrowing  initially  shall be of the Type specified in the
applicable Borrowing Request and, in the case of a Eurodollar  Borrowing,  shall
have  an  initial  Interest  Period  as  specified  in such  Borrowing  Request.
Thereafter, the Borrower may elect to convert such Borrowing to a different Type
or to continue such  Borrowing and, in the case of a Eurodollar  Borrowing,  may
elect  Interest  Periods  therefor,  all as provided in this Section  2.06.  The
Borrower may elect different  options for  continuations  and  conversions  with
respect to different portions of the affected Borrowing, in which case each such
portion  shall  be  allocated  ratably  among  the  Lenders  holding  the  Loans
comprising such Borrowing,  and the Loans  comprising each such portion shall be
considered a separate Borrowing.

           (b) To make an election  pursuant to this Section 2.06,  the Borrower
shall notify the Administrative  Agent of such election by telephone by the time
that a Borrowing  Request  would be required  under Section 2.03 if the Borrower
were  requesting a Borrowing of the Type resulting from such election to be made
on the effective date of such election.  Each such telephonic  Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the Borrower.

           (c) Each  telephonic  and written  Interest  Election  Request  shall
specify the following information in compliance with Section 2.02:

              (i) the Borrowing to which such Interest  Election Request applies
      and, if  different  options for  continuations  or  conversions  are being
      elected with respect to different  portions thereof,  the portions thereof
      to be allocated to each resulting Borrowing (in which case the information
      to be  specified  pursuant  to  clauses  (iii)  and  (iv)  below  shall be
      specified for each resulting Borrowing);

             (ii) the  effective  date of the  election  made  pursuant  to such
      Interest Election Request, which shall be a Business Day;

           (iii) whether the resulting  Borrowing is to be a Base Rate Borrowing
      or a Eurodollar Borrowing; and

             (iv) if the  resulting  Borrowing  is a Eurodollar  Borrowing,  the
      Interest  Period to be  applicable  thereto  after  giving  effect to such
      election,  which shall be a period  contemplated  by the definition of the
      term "Interest Period".

If any such Interest  Election Request requests a Eurodollar  Borrowing but does
not  specify  an  Interest  Period,  then the  Borrower  shall be deemed to have
selected an Interest Period of one month's duration.


                         Credit Agreement

<PAGE>


                             - 36 -



           (d) Promptly  following receipt of an Interest Election Request,  the
Administrative  Agent shall advise each affected  Lender of the details  thereof
and of such Lender's portion of each resulting Borrowing.

           (e) If the  Borrower  fails to  deliver  a timely  Interest  Election
Request with respect to a Eurodollar  Borrowing prior to the end of the Interest
Period  applicable  thereto,  then,  unless such Borrowing is repaid as provided
herein,  at the end of such Interest Period such Borrowing shall be converted to
a Base Rate Borrowing.  Notwithstanding  any contrary  provision  hereof,  if an
Event of Default has occurred and is continuing and the Administrative Agent, at
the request of the Required Lenders, so notifies the Borrower,  then, so long as
an Event of Default is continuing (i) no outstanding  Borrowing may be converted
to  or  continued  as a  Eurodollar  Borrowing  and  (ii)  unless  repaid,  each
Eurodollar  Borrowing  shall be converted to a Base Rate Borrowing at the end of
the Interest Period applicable thereto.

           SECTION 2.07.  Termination and Reduction of Commitments.

           (a)  Unless   previously   terminated,   (i)  the  Revolving   Credit
Commitments  shall terminate at the close of business on the Final Maturity Date
and (ii) the Term Loan  Commitments  shall terminate at the close of business on
the Term Loan Commitment Termination Date.

           (b) The  Borrower  may at any time  terminate,  or from  time to time
reduce,  the  Commitments of any Class;  provided that (i) each reduction of the
Commitments  of such  Class  shall  be in an  amount  that  at  least  equal  to
$1,000,000 or any greater integral multiple of $500,000, (ii) the Borrower shall
not terminate or reduce the Term Loan Commitments if, after giving effect to any
concurrent  prepayment  of Term  Loans in  accordance  with  Section  2.09,  the
outstanding  Term Loans would exceed the total Term Loan  Commitments  and (iii)
the Borrower shall not terminate or reduce the Revolving Credit  Commitments if,
after giving effect to any concurrent  prepayment of the Revolving  Credit Loans
in accordance  with Section 2.09, the total  Revolving  Credit  Exposures  would
exceed the total Revolving Credit Commitments.

           (c)  The  Borrower  shall  notify  the  Administrative  Agent  of any
election to terminate or reduce  Commitments under paragraph (b) of this Section
2.07  at  least  three  Business  Days  prior  to the  effective  date  of  such
termination  or  reduction,  specifying  such  election and the  effective  date
thereof. Promptly following receipt of any such notice, the Administrative Agent
shall advise the Lenders of the contents  thereof.  Each notice delivered by the
Borrower  pursuant to this Section 2.07 shall be  irrevocable;  provided  that a
notice of termination  of  Commitments  delivered by the Borrower may state that
such notice is conditioned upon the effectiveness of other credit facilities, in
which  case  such  notice  may be  revoked  by the  Borrower  (by  notice to the
Administrative  Agent  on or  prior  to the  specified  effective  date) if such
condition is not satisfied. Any termination or reduction of Commitments shall be
permanent. Each reduction of Commitments of any Class shall be


                         Credit Agreement

<PAGE>


                             - 37 -


made ratably among the Lenders in accordance with their  respective  Commitments
of such Class.

           SECTION 2.08.  Repayment of Loans; Evidence of Debt.

           (a)  The  Borrower  hereby  unconditionally  promises  to  pay to the
Administrative  Agent for the account of each  Revolving  Credit Lender the then
unpaid  principal  amount of such Lender's  Revolving  Credit Loans on the Final
Maturity Date.

           (b)  The  Borrower  hereby  unconditionally  promises  to  pay to the
Administrative  Agent for the account of the Term Loan Lenders the  principal of
the Term Loans in twenty-six installments payable on the Principal Payment Dates
as follows:
<TABLE>
<CAPTION>

   Principal Payment Date
  Falling on or Nearest to:                           Amount of Installment ($):
  ------------------------                             -------------------------

<S>                                                                   <C>       
September 30, 1997 ....................................               $3,750,000
December 31, 1997 .....................................               $3,750,000

March 31, 1998 ........................................               $3,750,000
June 30, 1998 .........................................               $3,750,000
September 30, 1998 ....................................               $3,750,000
December 31, 1998 .....................................               $3,750,000

March 31, 1999 ........................................               $3,750,000
June 30, 1999 .........................................               $3,750,000
September 30, 1999 ....................................               $3,750,000
December 31, 1999 .....................................               $3,750,000

March 31, 2000 ........................................               $3,750,000
June 30, 2000 .........................................               $3,750,000
September 30, 2000 ....................................               $3,750,000
December 31, 2000 .....................................               $3,750,000

March 31, 2001 ........................................               $5,625,000
June 30, 2001 .........................................               $5,625,000
September 30, 2001 ....................................               $5,625,000
December 31, 2001 .....................................               $5,625,000

March 31, 2002 ........................................               $6,250,000
June 30, 2002 .........................................               $6,250,000
September 30, 2002 ....................................               $6,250,000
December 31, 2002 .....................................               $6,250,000
March 31, 2003 ........................................               $6,250,000
June 30, 2003 .........................................               $6,250,000
September 30, 2003 ....................................               $6,250,000

January 30, 2004 ......................................               $6,250,000

</TABLE>

                         Credit Agreement

<PAGE>


                             - 38 -




           (c) Each Lender shall maintain in accordance  with its usual practice
an account or  accounts  evidencing  the  indebtedness  of the  Borrower to such
Lender  resulting  from each Loan made by such Lender,  including the amounts of
principal  and  interest  payable  and  paid to such  Lender  from  time to time
hereunder.

           (d) The  Administrative  Agent  shall  maintain  accounts in which it
shall  record  (i) the  amount of each Loan made  hereunder,  the Class and Type
thereof  and the  Interest  Period  applicable  thereto,  (ii) the amount of any
principal  or interest  due and  payable or to become due and  payable  from the
Borrower to each Lender  hereunder  and (iii) the amount of any sum  received by
the  Administrative  Agent  hereunder  for the  account of the  Lenders and each
Lender's share thereof.

           (e) The entries made in the accounts maintained pursuant to paragraph
(c) or (d) of this Section 2.08 shall be prima facie  evidence of the  existence
and amounts of the obligations  recorded  therein;  provided that the failure of
any Lender or the  Administrative  Agent to maintain  such accounts or any error
therein shall not in any manner  affect the  obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.

           (f) Any  Lender  may  request  that  Loans of any Class made by it be
evidenced by a promissory  note.  In such event,  the  Borrower  shall  prepare,
execute  and deliver to such Lender a  promissory  note  payable to the order of
such Lender (or, if requested by such Lender,  to such Lender and its registered
assigns)  and in a form  reasonably  acceptable  to  the  Administrative  Agent.
Thereafter,  the  Loans of such  Class  evidenced  by such  promissory  note and
interest  thereon shall at all times  (including  after  assignment  pursuant to
Section  10.04)  be  represented  by one or more  promissory  notes in such form
payable to the order of the payee named therein (or, if such  promissory note is
a registered note, to such payee and its registered assigns).

           SECTION 2.09.  Prepayment of Loans.

           (a) Optional  Prepayments.  The Borrower  shall have the right at any
time and from time to time to prepay any Borrowing in whole or in part,  subject
to prior notice in accordance  with  paragraph  (c) of this Section  2.09.  Each
prepayment of Term Loans shall be applied to the  installments  thereof pro rata
in accordance with the respective  aggregate principal amounts of the Term Loans
outstanding on the date of such prepayment.



                         Credit Agreement

<PAGE>


                             - 39 -


           (b) Mandatory Prepayments. The Borrower shall make prepayments of the
Loans hereunder (and reduce the Commitments hereunder) as follows:

              (i) Casualty Events. On the date of receipt by the Borrower or any
      Subsidiary  of  Net  Available  Proceeds  in  excess  of  $100,000  of any
      insurance,  condemnation  award or other  compensation  in  respect of any
      Casualty  Event  (excluding  Net  Available  Proceeds  from  (x)  business
      interruption  coverage or (y) other  insurance  coverage  unrelated to the
      repair  and/or  replacement  of the damaged  assets) the  Borrower or such
      Subsidiary,  as the case may be, shall deposit such Net Available Proceeds
      into  the  Collateral  Account  (under  and as  defined  in  the  Security
      Agreement).  Upon request by the Borrower,  the Administrative Agent shall
      (unless a Default shall have occurred and be  continuing)  release the Net
      Available  Proceeds to the Borrower in an amount not  exceeding the amount
      required  for repair or  replacement  of the  property  for which such Net
      Available  Proceeds  were  received;  provided  that if such Net Available
      Proceeds  have not been released or committed to be expended in respect of
      such repair or replacement in an amount and manner  reasonably  acceptable
      to the Administrative  Agent within 180 days of receipt by the Borrower or
      such Subsidiary,  as the case may be, such Net Available Proceeds,  to the
      extent  that  such Net  Available  Proceeds,  together  with all other Net
      Available  Proceeds  received by the Borrower or any Subsidiary in respect
      of Casualty Events, not released or committed to be expended in respect of
      repair or  replacement  within 180 days of receipt by the  Borrower or any
      Subsidiary  exceeds  $500,000,  shall be used to prepay the Loans  (and/or
      provide  cover for LC  Exposure  as  specified  in  Section  2.04(i))  and
      automatically  reduce the  Revolving  Credit  Commitments  in an aggregate
      amount,  if any,  equal  to 100% of the  Net  Available  Proceeds  of such
      Casualty  Event not  theretofore  applied to the repair or  replacement of
      such property  (such  prepayment and reduction to be effected in each case
      in the manner and to the extent  specified  in clause (vi) of this Section
      2.09).

             (ii)  Sale  of  Assets.  Without  limiting  the  obligation  of the
      Borrower to obtain the consent of the Required  Lenders to any Disposition
      not otherwise permitted hereunder, the Borrower agrees, on or prior to the
      occurrence  of any  Disposition  which,  together  with the  aggregate Net
      Available  Proceeds of all other  Dispositions to date in the then current
      fiscal year,  would generate Net Available  Proceeds in excess of $100,000
      to  deliver  to  the  Administrative  Agent  a  statement  certified  by a
      Financial  Officer,  in form and  detail  reasonably  satisfactory  to the
      Administrative  Agent,  of  the  estimated  amount  of the  Net  Available
      Proceeds of such Disposition  that will (on the date of such  Disposition)
      be received by the  Borrower or any  Subsidiary  in cash and the  Borrower
      will  prepay the Loans  hereunder  (and  provide  cover for LC Exposure as
      specified in Section  2.04(i)),  and the  Commitments  hereunder  shall be
      subject to automatic reduction, as follows:

                (x) upon the date of such  Disposition,  in an aggregate  amount
           equal to 100% of the  amount of the Net  Available  Proceeds  of such
           Disposition which,


                         Credit Agreement

<PAGE>


                             - 40 -


           together  with the  aggregate  Net  Available  Proceeds  of all other
           Dispositions to date in the then current fiscal year,  would generate
           Net Available Proceeds in excess of $100,000,  to the extent received
           by the  Borrower  or any of its  Subsidiaries  in cash on the date of
           such Disposition; and

                (y)  thereafter,  quarterly,  on the date of the delivery by the
           Borrower to the Administrative  Agent pursuant to Section 6.01 of the
           financial  statements for any quarterly fiscal period or fiscal year,
           to the  extent the  Borrower  or any  Subsidiary  shall  receive  Net
           Available  Proceeds during the quarterly  fiscal period ending on the
           date of such  financial  statements  in cash under  deferred  payment
           arrangements or Disposition  Investments  entered into or received in
           connection with any  Disposition,  an amount equal to (A) 100% of the
           aggregate amount of such Net Available  Proceeds received during such
           quarterly fiscal period minus (B) any transaction expenses associated
           with Dispositions and not previously deducted in the determination of
           Net Available  Proceeds  plus (or minus,  as the case may be) (C) any
           other  adjustment  received or paid by the Borrower or any Subsidiary
           pursuant to the respective agreements giving rise to Dispositions and
           not  previously  taken into account in the  determination  of the Net
           Available  Proceeds of  Dispositions,  provided  that if prior to the
           date upon which the  Borrower  would  otherwise be required to make a
           prepayment under this clause (y) with respect to any quarterly fiscal
           period the  aggregate  amount of such Net Available  Proceeds  (after
           giving  effect to the  adjustments  provided  for in this clause (y))
           shall  exceed  $1,000,000,  then  the  Borrower  shall  within  three
           Business  Days  after  receipt  of  such  aggregate   amount  make  a
           prepayment  under this clause (y) in an amount equal to such required
           prepayment.

      Prepayments  of Loans  (and  cover  for LC  Exposure)  and  reductions  of
      Commitments shall be effected in each case in the manner and to the extent
      specified in clause (vi) of this Section 2.09(b).

            (iii)  Excess Cash Flow.  Not later than the date 120 days after the
      end of each fiscal year of the  Borrower  beginning  with Excess Cash Flow
      for the fiscal year ending  December 31, 1997,  the Borrower  shall prepay
      the Loans  (and/or  provide  cover for LC Exposure as specified in Section
      2.04(i)), and the Commitments shall be subject to automatic reduction,  in
      an aggregate amount equal to the excess of (x) 60% of Excess Cash Flow for
      such  fiscal year over (y) the  aggregate  amount of  prepayments  of Term
      Loans made during such fiscal year pursuant to Section 2.09(a) (other than
      that portion,  if any, of such prepayments  applied to installments of the
      Term Loans falling due in such fiscal year) and, after the payment in full
      of the Term  Loans,  the  aggregate  amount  of  voluntary  reductions  of
      Revolving  Credit  Commitments  made during  such fiscal year  pursuant to
      Section 2.07(b), such prepayment and reduction to be effected in each case
      in the manner and to the extent  specified  in clause (vi) of this Section
      2.09(b).


                         Credit Agreement

<PAGE>


                             - 41 -



             (iv) Equity Issuance.  Upon any Equity Issuance, the Borrower shall
      prepay the Loans  (and/or  provide  cover for LC Exposure as  specified in
      Section  2.04(i)),  and the  Commitments  shall be  subject  to  automatic
      reduction,  in an  aggregate  amount  equal  to 100% of the Net  Available
      Proceeds  thereof,  such  prepayment  and reduction to be effected in each
      case in the  manner  and to the extent  specified  in clause  (vi) of this
      Section 2.09(b).

              (v) Application.  Upon each required  reduction of Commitments and
      prepayment  of Loans (and cover for LC  exposure)  pursuant to clauses (i)
      through  (iv)  of  this  Section  2.09(b),  the  amount  of  the  required
      prepayment shall be applied (x) first, to reduce the Term Loan Commitments
      and if, after giving effect to such  reduction,  the  aggregate  principal
      amount of Term Loans exceeds the amount of the Term Loan Commitments,  the
      Borrower  shall  prepay the Term Loans in an amount  equal to such excess,
      such  prepayment to be applied to the  installments  of the Term Loans pro
      rata in accordance with the respective aggregate principal amounts thereof
      outstanding on the date of such  prepayment and (y) second,  to the reduce
      the  Revolving  Credit  Commitments  and if, after  giving  effect to such
      reduction,  the  aggregate  principal  amount of  Revolving  Credit  Loans
      exceeds the amount of the Revolving Credit Commitments, the Borrower shall
      prepay the Revolving Credit Loans (and, to the extent  necessary,  provide
      cover for LC Exposure  pursuant to Section  2.04(i)) in an amount equal to
      such excess.


           (c)   Notice  of   Prepayment.   The   Borrower   shall   notify  the
Administrative  Agent by telephone  (confirmed  by  telecopy) of any  prepayment
under this Section 2.09 (i) in the case of prepayment of a Eurodollar Borrowing,
not later than 11:00 a.m.,  New York City time,  three  Business Days before the
date of prepayment and (ii) in the case of a Base Rate Borrowing, not later than
11:00 a.m.,  New York City time, one Business Day before the date of prepayment.
Each such notice shall be irrevocable  and shall specify the prepayment date and
the  principal  amount of each  Borrowing  or  portion  thereof  to be  prepaid;
provided  that,  if a  notice  of  prepayment  is  given  in  connection  with a
conditional  notice of termination of the Commitments as contemplated by Section
2.07,  then  such  notice  of  prepayment  may be  revoked  if  such  notice  of
termination  is revoked in  accordance  with Section  2.07.  Promptly  following
receipt of any such notice  related to a prepayment,  the  Administrative  Agent
shall advise the Lenders of the contents thereof.  Each partial  prepayment of a
Borrowing  shall  be in an  amount  that  would  be  permitted  in the case of a
Borrowing  of the  same  Class  and  Type as  provided  in  Section  2.02.  Each
prepayment  of a  Revolving  Credit  Borrowing  shall be applied  ratably to the
Revolving Credit Loans included in the prepaid  Borrowing.  Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.11.


           SECTION 2.10.  Fees.



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                             - 42 -


           (a) The Borrower  agrees to pay to the  Administrative  Agent for the
account of each Lender a commitment  fee, which shall accrue at a rate per annum
equal  to the  Applicable  Rate  on  the  daily  average  unused  amount  of the
respective  Commitments  of such Lender during the period from and including the
Effective  Date to but excluding the date on which such  Commitment  terminates.
Accrued  commitment fees shall be payable in arrears on each Quarterly Date and,
in  respect  of  any  Commitments,  on  the  date  such  Commitments  terminate,
commencing on the first such date to occur after the date hereof. All commitment
fees shall be  computed  on the basis of a year of 360 days and shall be payable
for the actual number of days elapsed (including the first day but excluding the
last day).

           (b) The  Borrower  agrees to pay with  respect  to  Letters of Credit
outstanding hereunder the following fees:

              (i) to the Administrative  Agent for the account of each Revolving
      Credit Lender a participation  fee with respect to its  participations  in
      Letters of Credit,  which  shall  accrue at a rate per annum  equal to the
      Applicable  Rate  used  in  determining   interest  on  Revolving   Credit
      Eurodollar  Loans on the average daily amount of such Lender's LC Exposure
      (excluding  any  portion   thereof   attributable   to   unreimbursed   LC
      Disbursements)  during the period from and including the Effective Date to
      but  excluding  the  later of the date on which  such  Lender's  Revolving
      Credit  Commitment  terminates and the date on which there shall no longer
      be any Letters of Credit outstanding hereunder, and

           (ii) to the LC Issuing  Lender (x) a fronting fee, which shall accrue
      at the rate or rates per annum separately agreed upon between the Borrower
      and the LC Issuing  Lender on the average  daily amount of the LC Exposure
      of the LC Issuing Lender  (determined  for these  purposes  without giving
      effect to the  participations  therein  of the  Revolving  Credit  Lenders
      pursuant to  paragraph  (d) of Section  2.04,  and  excluding  any portion
      thereof  attributable to unreimbursed LC Disbursements)  during the period
      from and including  the  Effective  Date to but excluding the later of the
      date of termination of the Revolving  Credit  Commitments  and the date on
      which  there  shall no longer be any  Letters  of Credit of the LC Issuing
      Lender  outstanding  hereunder,  and (y) the LC Issuing Lender's  standard
      fees with respect to the issuance,  amendment, renewal or extension of any
      Letter of Credit or processing of drawings thereunder.

Accrued participation fees and fronting fees shall be payable in arrears on each
Quarterly  Date and on the  date the  Revolving  Credit  Commitments  terminate,
commencing on the first such date to occur after the date hereof,  provided that
any such fees accruing after the date on which the Revolving Credit  Commitments
terminate shall be payable on demand.  All participation  fees and fronting fees
shall be  computed  on the basis of a year of 360 days and shall be payable  for
the actual  number of days elapsed  (including  the first day but  excluding the
last day).



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                             - 43 -


           (c) The Borrower agrees to pay to the  Administrative  Agent, for its
own account,  fees payable in the amounts and at the times separately  agreed in
writing between the Borrower and the Administrative Agent.

           (d) All fees  payable  hereunder  shall be paid on the dates due,  in
immediately available funds, to the Administrative Agent for distribution to the
Lenders  entitled  thereto.   Fees  paid  shall  not  be  refundable  under  any
circumstances, absent manifest error in the determination thereof.

           SECTION 2.11.  Interest.

           (a) The Loans comprising each Base Rate Borrowing shall bear interest
at a rate per annum equal to the Adjusted Base Rate plus the Applicable Rate.

           (b)  The  Loans  comprising  each  Eurodollar  Borrowing  shall  bear
interest at a rate per annum equal to the  Adjusted  LIBO Rate for the  Interest
Period in effect for such Borrowing plus the Applicable Rate.

           (c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other  amount  payable by the  Borrower  hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise,  such
overdue amount shall bear interest,  after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise  applicable to such Loan as provided above or (ii) in the case of
any other  amount,  2% plus the rate  applicable  to Base Rate Loans as provided
above.

           (d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan; provided that (i) interest accrued pursuant
to paragraph  (c) of this  Section 2.11 shall be payable on demand,  (ii) in the
event of any  repayment or  prepayment of any Loan (other than a prepayment of a
Base  Rate  Revolving  Credit  Loan  prior  to the end of the  Revolving  Credit
Availability Period), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment, (iii) in the event
of any  conversion  of any  Eurodollar  Loan  prior  to the  end of the  current
Interest Period therefor,  accrued interest on such Loan shall be payable on the
effective  date of such  conversion  and (iv) all accrued  interest on Revolving
Credit  Loans  shall  be  payable  upon  termination  of  the  Revolving  Credit
Commitments.

           (e) All interest  hereunder  shall be computed on the basis of a year
of 360 days,  except that  interest  computed by reference to the Adjusted  Base
Rate at times  when the  Adjusted  Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed  (including the
first day but  excluding  the last  day).  The  applicable  Adjusted  Base Rate,
Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent,
and such determination shall be conclusive absent manifest error.


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<PAGE>


                             - 44 -



           SECTION  2.12.   Alternate   Rate  of  Interest.   If  prior  to  the
commencement of any Interest Period for a Eurodollar Borrowing:

           (a) the Administrative Agent determines (which determination shall be
      conclusive  absent manifest  error) that adequate and reasonable  means do
      not exist for  ascertaining  the Adjusted  LIBO Rate or the LIBO Rate,  as
      applicable, for such Interest Period; or

           (b)  if  such  Borrowing  is of a  particular  Class  of  Loans,  the
      Administrative  Agent is advised by the Required  Revolving Credit Lenders
      or the Required Term Loan  Lenders,  as the case may be, that the Adjusted
      LIBO Rate or the LIBO Rate, as applicable,  for such Interest  Period will
      not  adequately  and fairly  reflect the cost to such Lenders of making or
      maintaining  their Loans of such Class included in such Borrowing for such
      Interest Period;

then the Administrative  Agent shall give notice thereof to the Borrower and the
affected Lenders by telephone or telecopy as promptly as practicable  thereafter
and, until the Administrative  Agent notifies the Borrower and such Lenders that
the  circumstances  giving rise to such notice no longer exist, (i) any Interest
Election  Request that  requests the  conversion  of any such  Borrowing  to, or
continuation  of  any  such  Borrowing  as,  a  Eurodollar  Borrowing  shall  be
ineffective and (ii) if any Borrowing  Request requests a Eurodollar  Borrowing,
such Borrowing shall be made as a Base Rate Borrowing.

           SECTION 2.13.  Increased Costs.

           (a)  If any Change in Law shall:

              (i) impose, modify or deem applicable any reserve, special deposit
      or similar requirement against assets of, deposits with or for the account
      of, or credit extended by, any Lender (except any such reserve requirement
      reflected in the Adjusted LIBO Rate) or the LC Issuing Lender; or

             (ii)  impose on any Lender or the LC  Issuing  Lender or the London
      interbank   market  any  other  condition   affecting  this  Agreement  or
      Eurodollar  Loans  made  by  such  Lender  or  any  Letter  of  Credit  or
      participation therein;

and the result of any of the  foregoing  shall be to  increase  the cost to such
Lender of making or  maintaining  any  Eurodollar  Loan (or of  maintaining  its
obligation  to make any such Loan) or to increase the cost to such Lender or the
LC Issuing Lender of  participating  in,  issuing or  maintaining  any Letter of
Credit or to reduce the amount of any sum received or  receivable by such Lender
or  the  LC  Issuing  Lender  hereunder  (whether  of  principal,   interest  or
otherwise),  then,  upon  delivery of the  certificate  provided  for in Section
2.13(c),  the Borrower will pay to such Lender or the LC Issuing Lender,  as the
case may be, such additional amount


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                             - 45 -


or amounts as will compensate such Lender or the LC Issuing Lender,  as the case
may be, for such additional costs incurred or reduction suffered.

           (b) If any Lender or the LC Issuing Lender reasonably determines that
any Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or the LC Issuing  Lender's capital
or on the capital of such Lender's or the LC Issuing  Lender's  holding company,
if  any,  as  a  consequence  of  this  Agreement  or  the  Loans  made  by,  or
participations  in Letters of Credit  held by,  such  Lender,  or the Letters of
Credit issued by the LC Issuing Lender,  to a level below that which such Lender
or the LC Issuing  Lender or such  Lender's or the LC Issuing  Lender's  holding
company   could  have   achieved  but  for  such  Change  in  Law  (taking  into
consideration such Lender's or the LC Issuing Lender's policies and the policies
of such  Lender's or the LC Issuing  Lender's  holding  company  with respect to
capital  adequacy),  then from time to time the Borrower will pay to such Lender
or the LC Issuing Lender,  as the case may be, such additional amount or amounts
as will compensate such Lender or the LC Issuing Lender, or such Lender's or the
LC Issuing Lender's holding company, for any such reduction suffered.

           (c) A certificate  of a Lender or the LC Issuing Lender setting forth
the amount or amounts  necessary  to  compensate  such  Lender or the LC Issuing
Lender or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this  Section  2.13 shall be  delivered  to the  Borrower and shall be
conclusive so long as it reflects a reasonable  basis for the calculation of the
amounts set forth therein and does not contain any manifest error.  The Borrower
shall pay such  Lender or the LC Issuing  Lender the amount  shown as due on any
such certificate within 10 days after receipt thereof.

           (d)  Failure  or delay on the part of any  Lender  or the LC  Issuing
Lender to demand compensation pursuant to this Section 2.13 shall not constitute
a waiver of such  Lender's  or the LC  Issuing  Lender's  right to  demand  such
compensation;  provided that the Borrower  shall not be required to compensate a
Lender or the LC Issuing Lender  pursuant to this Section 2.13 for any increased
costs or  reductions  incurred  more than six months prior to the date that such
Lender or the LC Issuing  Lender,  as the case may be,  notifies the Borrower of
the Change in Law giving rise to such increased  costs or reductions and of such
Lender's or the LC Issuing Lender's  intention to claim  compensation  therefor;
provided  further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive,  then the six-month period referred to above shall
be extended to include the period of retroactive effect thereof.

           SECTION 2.14. Break Funding Payments. In the event of (a) the payment
of any  principal  of any  Eurodollar  Loan  other  than on the  last  day of an
Interest  Period  applicable  thereto  (including  as a  result  of an  Event of
Default),  (b) the conversion of any Eurodollar  Loan other than on the last day
of the Interest Period applicable thereto or (c) the failure to borrow, convert,
continue  or  prepay  any Loan on the date  specified  in any  notice  delivered
pursuant hereto  (regardless of whether such notice is permitted to be revocable
and


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                             - 46 -


is revoked in accordance herewith),  then, in any such event, the Borrower shall
compensate  each  Lender for the loss,  cost and  expense  attributable  to such
event.

           In the case of a Eurodollar Loan, the loss to any Lender attributable
to any such event shall be deemed to include an amount determined by such Lender
to be equal to the excess, if any, of

              (i) the  amount  of  interest  that  such  Lender  would pay for a
      deposit  equal to the  principal  amount of such Loan for the period  (the
      "Breakage Period") from the date of such payment,  conversion,  failure or
      assignment  to the last day of the then current  Interest  Period for such
      Loan (or,  in the case of a failure to borrow,  convert or  continue,  the
      duration  of the  Interest  Period  that  would  have  resulted  from such
      borrowing,  conversion  or  continuation)  if the interest rate payable on
      such  deposit  were  equal to the  Adjusted  LIBO  Rate for such  Interest
      Period,

over

             (ii) the amount of  interest  that such  Lender  would earn on such
      principal  amount for the  Breakage  Period if such  Lender were to invest
      such  principal  amount for the Breakage  Period at the interest rate that
      would be bid by such  Lender (or an  affiliate  of such  Lender)  for U.S.
      dollar  deposits  from  other  banks  in  the  eurodollar  market  at  the
      commencement of the Breakage Period.

A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive  pursuant to this  Section 2.14 shall be delivered to the
Borrower and shall be conclusive  absent manifest error.  The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

           SECTION 2.15.  Taxes.

           (a) Any and all  payments by or on account of any  obligation  of the
Borrower hereunder shall be made free and clear of and without deduction for any
Indemnified  Taxes  or  Other  Taxes;  provided  that if the  Borrower  shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable  shall be  increased  as  necessary so that after making all
required deductions  (including deductions applicable to additional sums payable
under this  Section  2.15) the  Administrative  Agent,  Lender or the LC Issuing
Lender (as the case may be)  receives  an amount  equal to the sum it would have
received had no such  deductions  been made,  (ii) the Borrower  shall make such
deductions  and (iii) the  Borrower  shall pay the full  amount  deducted to the
relevant Governmental Authority in accordance with applicable law.

           (b) In  addition  the  Borrower  shall  pay any  Other  Taxes  to the
relevant Governmental Authority in accordance with applicable law.



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                             - 47 -


           (c) The Borrower  shall  indemnify  the  Administrative  Agent,  each
Lender and the LC Issuing Lender,  within 10 days after written demand therefor,
for  the  full  amount  of any  Indemnified  Taxes  or  Other  Taxes  (including
Indemnified  Taxes or Other  Taxes  imposed or asserted  on or  attributable  to
amounts payable under this Section 2.15) paid by the Administrative  Agent, such
Lender or the LC Issuing Lender, as the case may be, and any penalties, interest
and reasonable  expenses arising  therefrom or with respect thereto,  whether or
not such  Indemnified  Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental  Authority. A certificate as to the amount
of such  payment or  liability  delivered  to the Borrower by a Lender or the LC
Issuing Lender, or by the Administrative Agent on its own behalf or on behalf of
a Lender or the LC Issuing Lender, shall be conclusive absent manifest error.

           (d) As soon as practicable  after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a  Governmental  Authority,  the  Borrower  shall
deliver  to the  Administrative  Agent the  original  or a  certified  copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return  reporting such payment or other evidence of such payment  reasonably
satisfactory to the Administrative Agent.

           (e) Any  Foreign  Lender  that is  entitled  at any time  under  then
current law to an exemption from or reduction of  withholding  tax under the law
of the  jurisdiction  in which the  Borrower is located,  or any treaty to which
such  jurisdiction  is a party,  with respect to payments  under this  Agreement
shall deliver to the Borrower (with a copy to the  Administrative  Agent), on or
before  Effective Date or such later date on which such Person becomes a Foreign
Lender  and at the time or times  prescribed  by  applicable  law or  reasonably
requested by the Borrower,  such properly  completed and executed  documentation
prescribed  by  applicable  law as will permit such  payments to be made without
withholding or at a reduced rate.

           SECTION 2.16.  Payments  Generally;  Pro Rata  Treatment;  Sharing of
Set-Offs.

           (a) The Borrower  shall make each  payment  required to be made by it
hereunder  (whether  of  principal,   interest,  fees  or  reimbursement  of  LC
Disbursements, or under Section 2.13, 2.14 or 2.15, or otherwise) prior to 12:00
noon, New York City time, on the date when due, in immediately  available funds,
without  set-off or  counterclaim.  Any amounts  received after such time on any
date may, in the discretion of the Administrative  Agent, be deemed to have been
received  on the  next  succeeding  Business  Day for  purposes  of  calculating
interest thereon. All such payments shall be made to the Administrative Agent at
such of its  offices  in New  York  City as shall be  notified  to the  relevant
parties from time to time, except payments to be made directly to the LC Issuing
Lender as  expressly  provided  herein  and except  that  payments  pursuant  to
Sections 2.13,  2.14, 2.15, 3.03 and 10.03 shall be made directly to the Persons
entitled thereto.  The  Administrative  Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate  recipient
promptly  following receipt thereof.  If any payment hereunder shall be due on a
day that is


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                             - 48 -


not a  Business  Day,  the  date  for  payment  shall  be  extended  to the next
succeeding  Business  Day,  and, in the case of any payment  accruing  interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in U.S. dollars.

           (b) If at any time  insufficient  funds are received by and available
to the Administrative Agent to pay fully all amounts of principal,  unreimbursed
LC  Disbursements,  interest  and fees then due  hereunder,  such funds shall be
applied (i) first,  to pay interest and fees then due  hereunder,  ratably among
the parties entitled thereto in accordance with the amounts of interest and fees
then due to such parties,  and (ii) second, to pay principal and unreimbursed LC
Disbursements then due hereunder,  ratably among the parties entitled thereto in
accordance with the amounts of principal and unreimbursed LC Disbursements  then
due to such parties.

           (c)  Except  to  the  extent  otherwise  provided  herein:  (i)  each
borrowing of Loans of a  particular  Class from the Lenders  under  Section 2.01
shall be made from the relevant  Lenders,  each payment of commitment  fee under
Section 2.10 in respect of Commitments  of a particular  Class shall be made for
account of the relevant Lenders, and each termination or reduction of the amount
of the Commitments of a particular  Class under Section 2.03 shall be applied to
the  respective  Commitments  of such Class of the  relevant  Lenders,  pro rata
according to the amounts of their  respective  Commitments  of such Class;  (ii)
Eurodollar Loans of any Class having the same Interest Period shall be allocated
pro  rata  among  the  relevant  Lenders  according  to  the  amounts  of  their
Commitments  of such  Class  (in the  case of the  making  of  Loans)  or  their
respective Loans of such Class (in the case of conversions and  continuations of
Loans);  (iii) each payment or  prepayment by the Borrower of principal of Loans
of a particular Class shall be made for account of the relevant Lenders pro rata
in accordance with the respective  unpaid principal amounts of the Loans of such
Class held by them;  (iv) each payment by the Borrower of interest on Loans of a
particular  Class shall be made for account of the relevant  Lenders pro rata in
accordance  with the  amounts of  interest on such Loans then due and payable to
the respective  Lenders;  and (v) each payment by the Borrower of  participation
fees in  respect  of  Letters  of Credit  shall be made for the  account  of the
Revolving Credit Lenders pro rata in accordance with the amount of participation
fees then due and payable to the Revolving Credit Lenders.

           (d) If any  Lender  shall,  by  exercising  any right of  set-off  or
counterclaim  or  otherwise,  obtain  payment in respect of any  principal of or
interest  on any of its Loans (or  participations  in LC  Disbursements)  of any
Class resulting in such Lender receiving payment of a greater  proportion of the
aggregate principal amount of its Loans (and participations in LC Disbursements)
of such Class and accrued  interest  thereon than the proportion of such amounts
received by any other Lender of any other Class,  then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in the
Loans (and LC  Disbursements)  of the other  Lenders to the extent  necessary so
that the benefit of such payments shall be shared by all the Lenders  ratably in
accordance  with the  aggregate  amount of principal of and accrued  interest on
their respective Loans (and  participations in LC Disbursements);  provided that
(i) if any such participations are purchased and all or any


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                             - 49 -


portion of the payment  giving rise thereto is  recovered,  such  participations
shall be  rescinded  and the  purchase  price  restored  to the  extent  of such
recovery,  without interest, and (ii) the provisions of this paragraph shall not
be construed to apply to any payment obtained by a Lender as  consideration  for
the  assignment  of  or  sale  of a  participation  in  any  of  its  Loans  (or
participations in LC  Disbursements) to any assignee or participant,  other than
to any Credit  Party or any  subsidiary  or  Affiliate  thereof (as to which the
provisions  of  this  paragraph  shall  apply).  The  Borrower  consents  to the
foregoing and agrees,  to the extent it may  effectively do so under  applicable
law,  that any  Lender  acquiring  a  participation  pursuant  to the  foregoing
arrangements   may  exercise   against  the  Borrower   rights  of  set-off  and
counterclaim with respect to such  participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.

           (e) Unless the  Administrative  Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the LC Issuing Lender  entitled  thereto
(the  "Applicable  Recipient")  hereunder  that the Borrower  will not make such
payment,  the  Administrative  Agent may assume that the  Borrower has made such
payment on such date in  accordance  herewith  and may,  in  reliance  upon such
assumption,  distribute  to the  Applicable  Recipient  the amount  due. In such
event,  if the Borrower has not in fact made such payment,  then each Applicable
Recipient  severally  agrees to repay to the  Administrative  Agent forthwith on
demand the amount so  distributed  to such  Applicable  Recipient  with interest
thereon,  for each day from and including the date such amount is distributed to
it to but  excluding  the date of payment to the  Administrative  Agent,  at the
Federal Funds Effective Rate.

           (f) If any Lender shall fail to make any payment  required to be made
by it  pursuant  to  Section  2.04(d),  2.04(e),  2.05(b) or  2.16(e),  then the
Administrative  Agent  may,  in its  discretion  (notwithstanding  any  contrary
provision hereof),  apply any amounts thereafter  received by the Administrative
Agent for the account of such Lender to satisfy such Lender's  obligations under
such Section until all such unsatisfied obligations are fully paid.

           (g) Anything in this Agreement to the contrary notwithstanding,  each
Lender hereby agrees with each other Lender that no Lender shall take any action
to protect or enforce its rights arising out of this Agreement or any promissory
notes  prepared  pursuant to Section  2.09(f)  (including,  without  limitation,
exercising  any rights of setoff)  without  first  obtaining  the prior  written
consent of the Administrative Agent or the Required Lenders, it being the intent
of the  Lenders  that any such  action to protect or enforce  rights  under this
Agreement and any promissory notes prepared pursuant to Section 2.09(f) shall be
taken in concert and at the direction or with the consent of the  Administrative
Agent or the Required Lenders and not individually by a single Lender.

           SECTION 2.17. Mitigation  Obligations.  Upon the earliest to occur of
(i) notice or knowledge by Lender of any event that could result in or provide a
basis for a request for  compensation  under Section 2.13 and a determination by
such Lender that it will request such compensation, (ii) a request by Lender for
compensation under Section 2.13, or


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                             - 50 -


(iii) the Borrower being required to pay any additional  amount to any Lender or
any  Governmental  Authority  for the account of any Lender  pursuant to Section
2.15,  then such Lender  shall use  reasonable  efforts to designate a different
lending  office  for  funding or booking  its Loans  hereunder  or to assign its
rights  and  obligations,  hereunder  to  another of its  offices,  branches  or
affiliates,  if, in the judgment of such Lender,  such designation or assignment
(i) would eliminate or reduce amounts payable  pursuant to Section 2.13 or 2.15,
as the case may be, in the future and (ii) would not subject  such Lender to any
unreimbursed cost or expense and would not otherwise be  disadvantageous to such
Lender;  provided  that  such  Lender  shall  not be  required  to make any such
designation  or  assignment  unless the  Borrower  agrees to pay all  reasonable
out-of-pocket costs and expenses incurred by any Lender in connection therewith.


                            ARTICLE III

                Guarantee by Subsidiary Guarantors

           SECTION 3.01. The Guarantee. The Subsidiary Guarantors hereby jointly
and  severally  guarantee  to  each  Lender,  the  LC  Issuing  Lender  and  the
Administrative  Agent and their  respective  successors  and  assigns the prompt
payment  in full  when due  (whether  at stated  maturity,  by  acceleration  or
otherwise)  of the principal of and interest on the Loans made by the Lenders to
the Borrower, all LC Disbursements and all other amounts from time to time owing
to the  Lenders,  the LC  Issuing  Lender  or the  Administrative  Agent  by the
Borrower hereunder or under any other Loan Document,  and all obligations of the
Borrower to any Lender  under any Hedging  Agreement,  in each case  strictly in
accordance with the terms thereof and including any interest  accruing after the
commencement of any proceeding  referred to in Article VIII (h) or (i),  whether
or not allowed as a claim in such  proceeding  (such  obligations  being  herein
collectively  called the "Guaranteed  Obligations").  The Subsidiary  Guarantors
hereby  further  jointly and severally  agree that if the Borrower shall fail to
pay in full when due (whether at stated maturity,  by acceleration or otherwise)
any of the Guaranteed  Obligations,  the Subsidiary Guarantors will promptly pay
the same, without any demand or notice  whatsoever,  and that in the case of any
extension  of time of payment or renewal of any of the  Guaranteed  Obligations,
the same will be promptly  paid in full when due (whether at extended  maturity,
by  acceleration or otherwise) in accordance with the terms of such extension or
renewal.

           SECTION  3.02.  Obligations  Unconditional.  The  obligations  of the
Subsidiary  Guarantors under Section 3.01 are absolute and unconditional,  joint
and several,  irrespective of the value,  genuineness,  validity,  regularity or
enforceability  of  this  Agreement,  the  other  Loan  Documents  or any  other
agreement  or  instrument  referred to herein or therein,  or any  substitution,
release  or  exchange  of any  other  guarantee  of or  security  for any of the
Guaranteed Obligations,  and, to the fullest extent permitted by applicable law,
irrespective  of  any  other   circumstance   whatsoever  that  might  otherwise
constitute a legal or equitable


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                             - 51 -


discharge  or  defense  of a surety or  guarantor,  it being the  intent of this
Section 3.02 that the obligations of the Subsidiary  Guarantors  hereunder shall
be  absolute  and   unconditional,   joint  and  several,   under  any  and  all
circumstances.  Without  limiting the generality of the foregoing,  it is agreed
that the  occurrence  of any one or more of the  following  shall  not  alter or
impair the liability of the Subsidiary  Guarantors  hereunder which shall remain
absolute and unconditional as described above:

           (a) at  any  time  or  from  time  to  time,  without  notice  to the
      Subsidiary Guarantors,  the time for any performance of or compliance with
      any of the Guaranteed  Obligations shall be extended,  or such performance
      or compliance shall be waived;

           (b) any of the acts mentioned in any of the  provisions  hereof or of
      the other Loan Documents or any other agreement or instrument  referred to
      herein or therein shall be done or omitted;

           (c)  the  maturity  of any of the  Guaranteed  Obligations  shall  be
      accelerated,  or any of the  Guaranteed  Obligations  shall  be  modified,
      supplemented  or amended in any respect,  or any right  hereunder or under
      the other Loan Documents or any other agreement or instrument  referred to
      herein or  therein  shall be waived or any other  guarantee  of any of the
      Guaranteed  Obligations  or any  security  therefor  shall be  released or
      exchanged in whole or in part or otherwise dealt with; or

           (d) any lien or  security  interest  granted  to, or in favor of, the
      Administrative  Agent,  the LC Issuing  Lender or any Lender or Lenders as
      security for any of the Guaranteed Obligations shall fail to be perfected.

The Subsidiary Guarantors hereby expressly waive diligence,  presentment, demand
of payment,  protest and all notices  whatsoever,  and any requirement  that the
Administrative  Agent,  the LC Issuing  Lender or any Lender  exhaust any right,
power or remedy or proceed  against the  Borrower  hereunder  or under the other
Loan  Documents  or any other  agreement  or  instrument  referred  to herein or
therein,  or against any other Person under any other  guarantee of, or security
for, any of the Guaranteed Obligations.

           SECTION  3.03.  Reinstatement.  The  obligations  of  the  Subsidiary
Guarantors  under this Article III shall be  automatically  reinstated if and to
the extent  that for any reason any  payment by or on behalf of the  Borrower in
respect of the Guaranteed Obligations is rescinded or must be otherwise restored
by any holder of any of the Guaranteed  Obligations,  whether as a result of any
proceedings  in bankruptcy or  reorganization  or otherwise,  and the Subsidiary
Guarantors   jointly  and   severally   agree  that  they  will   indemnify  the
Administrative  Agent,  the LC Issuing  Lender and each Lender on demand for all
reasonable  costs and  expenses  (including  fees of  counsel)  incurred  by the
Administrative  Agent,  any Lender or the LC Issuing  Lender in connection  with
such rescission or restoration,  including any such costs and expenses  incurred
in defending against any claim alleging that such payment constituted a


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                             - 52 -


preference,  fraudulent  transfer  or  similar  payment  under  any  bankruptcy,
insolvency or similar law.

           SECTION 3.04.  Subrogation.  Each Subsidiary  Guarantor hereby waives
all rights of  subrogation  or  contribution,  whether  arising by  contract  or
operation of law (including any such right arising under the Federal  Bankruptcy
Code of 1978,  as amended) or  otherwise by reason of any payment by it pursuant
to the  provisions of this Article III and further  agrees,  to the extent valid
under applicable law, with the Borrower for the benefit of each of its creditors
(including the LC Issuing Lender, each Lender and the Administrative Agent) that
any such payment by it shall constitute a dividend by such Subsidiary  Guarantor
to the Borrower.

           SECTION  3.05.  Remedies.   The  Subsidiary  Guarantors  jointly  and
severally  agree that, as between the Subsidiary  Guarantors on the one hand and
the  Administrative  Agent,  the Lenders and the LC Issuing  Lender on the other
hand, the obligations of the Borrower  hereunder may be declared to be forthwith
due and payable as provided in Article VIII or Section  2.04(i),  as  applicable
(and  shall be  deemed  to have  become  automatically  due and  payable  in the
circumstances  provided in Article VIII or Section  2.04(i),  as applicable) for
purposes  of  Section  3.01  notwithstanding  any  stay,   injunction  or  other
prohibition  preventing  such  declaration  (or such  obligations  from becoming
automatically due and payable) as against the Borrower and that, in the event of
such declaration (or such obligations being deemed to have become  automatically
due and  payable),  such  obligations  (whether  or not due and  payable  by the
Borrower)  shall forthwith  become due and payable by the Subsidiary  Guarantors
for purposes of Section 3.01.

           SECTION 3.06.  Instrument for the Payment of Money.  Each  Subsidiary
Guarantor hereby acknowledges that the guarantee in this Article III constitutes
an  instrument  for the payment of money,  and  consents  and agrees that the LC
Issuing Lender, any Lender or the  Administrative  Agent, at its sole option, in
the event of a dispute by the Subsidiary Guarantors in the payment of any moneys
due hereunder, shall have the right to bring a motion-action under New York CPLR
Section 3213.

           SECTION 3.07. Continuing Guarantee. The guarantee in this Article III
is a  continuing  guarantee,  and  shall  apply  to all  Guaranteed  Obligations
whenever arising.

           SECTION  3.08.  Rights of  Contribution.  The  Subsidiary  Guarantors
hereby agree,  as between  themselves,  that if any Subsidiary  Guarantor  shall
become an Excess  Funding  Guarantor (as defined below) by reason of the payment
by  such  Subsidiary  Guarantor  of  any  Guaranteed  Obligations,   each  other
Subsidiary  Guarantor  shall,  on demand of such Excess  Funding  Guarantor (but
subject to the next  sentence),  pay to such Excess Funding  Guarantor an amount
equal to such  Subsidiary  Guarantor's  Pro Rata  Share  (as  defined  below and
determined,  for this purpose,  without  reference to the properties,  debts and
liabilities of such Excess Funding  Guarantor) of the Excess Payment (as defined
below) in respect of such


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                             - 53 -


Guaranteed Obligations.  The payment obligation of a Subsidiary Guarantor to any
Excess  Funding  Guarantor  under this  Section  3.08 shall be  subordinate  and
subject in right of payment to the prior payment in full of the  obligations  of
such  Subsidiary  Guarantor  under the other  provisions of this Article III and
such  Excess  Funding  Guarantor  shall not  exercise  any right or remedy  with
respect to such excess  until  payment and  satisfaction  in full of all of such
obligations.

           For purposes of this Section  3.08,  (a) "Excess  Funding  Guarantor"
means, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that has
paid an amount in excess of its Pro Rata Share of such  Guaranteed  Obligations,
(b) "Excess Payment" means, in respect of any Guaranteed Obligations, the amount
paid by an Excess  Funding  Guarantor  in  excess of its Pro Rata  Share of such
Guaranteed  Obligations  and (c) "Pro  Rata  Share"  means,  for any  Subsidiary
Guarantor,  the ratio (expressed as a percentage) of (i) the amount by which the
aggregate  fair saleable value of all  properties of such  Subsidiary  Guarantor
(excluding  any  shares  of stock  of,  or  ownership  interest  in,  any  other
Subsidiary  Guarantor)  exceeds the amount of all the debts and  liabilities  of
such Subsidiary Guarantor  (including  contingent,  subordinated,  unmatured and
unliquidated  liabilities,  but excluding  the  obligations  of such  Subsidiary
Guarantor  hereunder and any obligations of any other Subsidiary  Guarantor that
have been Guaranteed by such  Subsidiary  Guarantor) to (ii) the amount by which
the aggregate fair saleable value of all properties of all of the Credit Parties
exceeds  the  amount  of all the debts and  liabilities  (including  contingent,
subordinated,   unmatured  and  unliquidated  liabilities,   but  excluding  the
obligations  of the Borrower and the Subsidiary  Guarantors  hereunder and under
the other Loan  Documents)  of all of the Credit  Parties,  determined  (x) with
respect to any  Subsidiary  Guarantor  that is a party  hereto on the  Effective
Date, as of the  Effective  Date,  and (y) with respect to any other  Subsidiary
Guarantor,  as of the  date  such  Subsidiary  Guarantor  becomes  a  Subsidiary
Guarantor hereunder.

           SECTION 3.09.  General  Limitation on Guarantee  Obligations.  In any
action or proceeding  involving any state corporate law, or any state or Federal
bankruptcy,  insolvency,  reorganization  or other law  affecting  the rights of
creditors  generally,  if the  obligations  of any  Subsidiary  Guarantor  under
Section  3.01 would  otherwise,  taking into account the  provisions  of Section
3.08,  be  held  or  determined  to  be  void,  invalid  or  unenforceable,   or
subordinated to the claims of any other  creditors,  on account of the amount of
its liability  under Section 3.01,  then,  notwithstanding  any other  provision
hereof to the contrary,  the amount of such liability shall, without any further
action by such Subsidiary Guarantor, any Lender, the Administrative Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable  and not  subordinated to the claims of other creditors as
determined in such action or proceeding.




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                             - 54 -


                            ARTICLE IV

                  Representations and Warranties

           The Borrower and each Subsidiary Guarantor represents and warrants to
the Lenders,  the LC Issuing Lender and the  Administrative  Agent, as to itself
and each of its Subsidiaries, that:

           SECTION 4.01. Organization;  Powers. The Borrower and each Subsidiary
is duly organized,  validly  existing and in good standing under the laws of its
jurisdiction of organization. The Borrower and each Subsidiary has all requisite
power and authority under its organizational  documents to carry on its business
as now conducted and, except where the failure to do so,  individually or in the
aggregate,  could not  reasonably  be expected  to result in a Material  Adverse
Effect,  is  qualified  to do business  in, and is in good  standing  in,  every
jurisdiction where such qualification is required.

           SECTION 4.02.  Authorization;  Enforceability.  The  Transactions are
within the corporate power of each Credit Party and have been duly authorized by
all necessary corporate and, if required, stockholder action on the part of such
Credit Party.  Each of this Agreement and the other Loan Documents has been duly
executed  and  delivered by each Credit Party party  thereto and  constitutes  a
legal,  valid and  binding  obligation  of such  Credit  Party,  enforceable  in
accordance  with  its  terms,  subject  to  applicable  bankruptcy,  insolvency,
reorganization,  moratorium or other laws affecting  creditors' rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.

           SECTION 4.03. Governmental Approvals; No Conflicts.  The Transactions
(a) do not require any consent or approval of,  registration  or filing with, or
any other  action by,  any  Governmental  Authority,  (b) will not  violate  any
applicable  law,  policy  or  regulation  or  the  charter,   by-laws  or  other
organizational  documents of any Credit  Party or any order of any  Governmental
Authority,  (c) will not  violate  or result in a default  under any  indenture,
agreement  or other  instrument  binding  upon any Credit  Party,  or any of its
assets,  or give rise to a right thereunder to require any payment to be made by
any  Credit  Party,  and  (d)  except  for the  Liens  created  by the  Security
Documents,  will not result in the  creation  or  imposition  of any Lien on any
asset of the Credit Parties.

           SECTION 4.04.  Financial Condition; No Material Adverse Change.

           (a)  The  Borrower  has  heretofore  delivered  to  the  Lenders  the
following financial statements:

           (i) the respective audited  consolidated balance sheet and statements
      of  income,  retained  earnings  and  cash  flow of the  Borrower  and its
      Consolidated


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                             - 55 -


      Subsidiaries  as of and for the fiscal  years ended  December 31, 1994 and
      December 31, 1995,  reported on by Coopers & Lybrand,  independent  public
      accountants; and

             (ii) the unaudited  consolidated  balance  sheet and  statements of
      income,   retained  earnings  and  cash  flow  of  the  Borrower  and  its
      Consolidated  Subsidiaries  as of and  for  the  nine-month  period  ended
      September 30, 1996, certified by a Financial Officer.

Such  financial  statements  present  fairly,  in  all  material  respects,  the
consolidated  financial position and results of operations and cash flows of the
Borrower and its Consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP,  subject to year-end audit  adjustments and the absence
of footnotes in the case of such unaudited statements.

           (b) Since  December  31,  1995,  there has been no  material  adverse
change in the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Consolidated Subsidiaries taken as a whole.

           (c) None of the Borrowers nor any of its Subsidiaries has on the date
of this Agreement any contingent  liabilities,  liabilities  for taxes,  unusual
forward or long-term  commitments or unrealized or  anticipated  losses from any
unfavorable  commitments  in each  case  that are  material  (as  determined  in
accordance with GAAP), except as referred to or reflected or provided for in the
balance sheets as at September 30, 1996 referred to above.

           SECTION 4.05.  Properties.

           (a) Each of the Borrower and its  Subsidiaries  has good title to, or
valid leasehold interests in, all its real and personal property material to its
business,  except for minor  defects in title that do not  materially  interfere
with its ability to conduct its  business as  currently  conducted or to utilize
such properties for their intended purposes.

           (b)  Except  as set forth on  Schedule  4.05  hereto,  as of the date
hereof,  (i) each of the Borrower and its  Subsidiaries  owns, or is licensed to
use, all  trademarks,  tradenames,  copyrights,  patents and other  intellectual
property  material to its business,  and (ii) the conduct of the business of the
Borrower and its  Subsidiaries  does not  infringe  upon the rights of any other
Person,  in both cases  except for any such  failure to own or have a license to
use,  and  except  for any  such  infringements,  that,  individually  or in the
aggregate,  could not  reasonably  be expected  to result in a Material  Adverse
Effect.  In the opinion of the Borrower,  the matters set forth on Schedule 4.05
hereto, both individually and in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect.



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                             - 56 -


           SECTION 4.06.  Litigation and Environmental Matters.

           (a) There  are no  actions,  suits or  proceedings  by or before  any
arbitrator or Governmental Authority pending against or, to the knowledge of any
of the Credit  Parties,  threatened  against or  affecting,  the Borrower or any
Subsidiary  (i) as to which  there is a  reasonable  possibility  of an  adverse
determination and that, if adversely  determined,  could reasonably be expected,
individually or in the aggregate,  to result in a Material Adverse Effect (other
than the Disclosed  Matters listed on Schedule 4.06) or (ii) that involve any of
the Loan Documents, the Tax Sharing Agreement or the Transactions.

           (b) The  Borrower  and each of its  Subsidiaries  have  obtained  all
permits,  licenses,  registrations and other  authorizations  which are required
under all  Environmental  Laws,  except to the  extent  failure to have any such
permit, license,  registration or authorization could not reasonably be expected
to have a Material Adverse Effect. The Borrower and each of its Subsidiaries are
in  compliance  with the terms and  conditions  of all such  permits,  licenses,
registrations  and  authorizations,  and are also in  compliance  with all other
limitations,  restrictions,  conditions, standards, prohibitions,  requirements,
obligations,  schedules and timetables contained in any applicable Environmental
Law or in any judgment,  injunction,  notice or demand letter  issued,  entered,
promulgated or approved  thereunder except to the extent failure to comply could
not  reasonably  be expected  to have a Material  Adverse  Effect.  No action to
revoke any  permit,  license  or other  authorization,  the lack of which  could
reasonably  be  expected  to have a  Material  Adverse  Effect,  is  pending  or
threatened in writing.  In addition,  except for the Disclosed Matters listed on
Schedule 4.06, as of the date of this Agreement:

              (i) No notice,  notification,  demand,  request  for  information,
      citation,  summons or order has been issued,  no complaint has been filed,
      no penalty has been assessed and no investigation or review is pending or,
      to the best knowledge of the Borrower,  threatened by any  governmental or
      other  entity with  respect to any alleged  failure by the Borrower or any
      Subsidiary  to have any  permit,  license  or  authorization  required  in
      connection  with  the  conduct  of the  business  of the  Borrower  or any
      Subsidiary or with respect to any handling generation, treatment, storage,
      recycling,  transportation,  discharge  or  disposal,  or  any  threatened
      Release or Release of any Hazardous Materials generated by the Borrower or
      any Subsidiary  that has not been fully  satisfied or discharged as of the
      date hereof.

             (ii) Neither the Borrower nor any Subsidiary has Released Hazardous
      Material on any property now or previously owned or leased by the Borrower
      or any  Subsidiary  in a  manner  or to an  extent  that  it  has,  or may
      reasonably be expected to have, a Material Adverse Effect; and to the best
      knowledge  of the  Borrower  after  due  inquiry,  (w) no  polychlorinated
      biphenyl  is present,  (x) no  asbestos  is present,  and (y) there are no
      underground storage tanks, active or abandoned,  at, or under any property
      now or  previously  owned or leased  by the  Borrower  or any  Subsidiary,
      during any


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                             - 57 -


      period that the Borrower or any  Subsidiary  owned or leased such property
      or, to the knowledge of the Borrower or any Subsidiary, prior thereto.

            (iii) To the best  knowledge  of the  Borrower  after  due  inquiry,
      neither the Borrower nor any  Subsidiary  has  transported or arranged for
      the  transportation  of any  Hazardous  Material to any location  which is
      listed or proposed for listing on the National  Priorities  List under the
      Comprehensive  Environmental  Response,  Compensation and Liability Act of
      1980, as amended ("CERCLA"), or any similar state list.

             (iv) No written  notification of a Release of a Hazardous  Material
      has been filed by or on behalf of the  Borrower or any  Subsidiary  and no
      property  now  or  previously  owned  or  leased  by the  Borrower  or any
      Subsidiary is listed or, to the best  knowledge of the Borrower,  proposed
      for  listing on the  National  Priorities  list  promulgated  pursuant  to
      CERCLA.

              (v) To the best  knowledge of the  Borrower,  no Liens have arisen
      under or pursuant to any Environmental Laws on any of the real property or
      properties owned or leased by the Borrower or any Subsidiary,  and, to the
      best knowledge of the Borrower,  no government  actions have been taken or
      are in process  which could  subject any of such  properties to such Liens
      and neither the Borrower nor any Subsidiary would be required to place any
      notice or restriction  relating to the presence of Hazardous  Materials at
      any property owned by it in any deed to such property.

             (vi)  There  have been no  environmental  investigations,  studies,
      audits,  tests,  reviews  or  other  analyses  conducted  by  third  party
      consultants  which are in the possession of the Borrower or any Subsidiary
      in relation to any property or facility now or previously  owned or leased
      by the Borrower or any  Subsidiary  which have not been made  available to
      the Lenders except  analyses  conducted in the ordinary course of business
      including  without  limitation,  waste water  monitoring and air emissions
      measurements.

            (vii)  Neither  the  Borrower  nor any  Subsidiary  has  retained or
      assumed  any  liabilities  (contingent  or  otherwise)  in  respect of any
      Environmental  Claims (x) under the terms of any  contract or agreement or
      (y) by operation of law as a result of the sale of assets or stock,  which
      liabilities  could  reasonably  be  expected  to have a  Material  Adverse
      Effect.

           (c) Since the date of this Agreement, there has been no change in the
status of the Disclosed  Matters that,  individually  or in the  aggregate,  has
resulted in, or  materially  increased  the  likelihood  of, a Material  Adverse
Effect.



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<PAGE>


                             - 58 -


           SECTION  4.07.  Compliance  with  Laws  and  Agreements.  Each of the
Borrower  and its  Subsidiaries  is in  compliance  with all laws,  regulations,
policies  and  orders  of any  Governmental  Authority  applicable  to it or its
property and all indentures, agreements and other instruments binding upon it or
its property,  except where the failure to be in compliance,  individually or in
the aggregate,  could not reasonably be expected to result in a Material Adverse
Effect.

           SECTION 4.08.  Investment  and Holding  Company  Status.  Neither the
Borrower nor any  Subsidiary  is (a) an  "investment  company" as defined in, or
subject to regulation under, the Investment Company Act of 1940, as amended,  or
(b) a "holding  company"  as defined  in, or subject to  regulation  under,  the
Public Utility Holding Company Act of 1935, as amended.

           SECTION 4.09.  Taxes. Each of the Credit Parties and their respective
subsidiaries  has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes required
to have been paid by it, except (a) Taxes that are being contested in good faith
by appropriate  proceedings and for which such Credit Party has set aside on its
books adequate  reserves with respect  thereto in accordance with GAAP or (b) to
the extent that the failure to do so could not  reasonably be expected to result
in a Material Adverse Effect.

           SECTION  4.10.  ERISA.  No ERISA Event has occurred or is  reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a  Material  Adverse  Effect.  The  present  value of all  accumulated
benefit  obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial  Accounting  Standards No. 87) did not, as of the date
hereof,  exceed by more than  $13,000,000 the fair market value of the assets of
such Plan, and the present value of all accumulated  benefit  obligations of all
underfunded  Plans (based on the  assumptions  used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date hereof, exceed by
more  than  $13,000,000  the  fair  market  value  of the  assets  of  all  such
underfunded Plans.

           SECTION  4.11.   Disclosure.   None  of  the  financial   statements,
certificates  or  other  information   (including,   without   limitation,   the
Information  Memorandum  dated  December,  1996  prepared  by  the  Borrower  in
contemplation hereof) furnished in writing by or on behalf of the Credit Parties
to the  Administrative  Agent or any Lender in connection with this Agreement or
delivered  hereunder  (as  modified  or  supplemented  by other  information  so
furnished) contain, as of the date hereof, any material  misstatement of fact or
omits to state any material fact  necessary to make the statements  therein,  in
the light of the  circumstances  under  which  they were  made,  not  materially
misleading;  provided that, with respect to projected financial information, the
Borrower and its Subsidiaries  represent only that such information was prepared
in good faith based upon assumptions believed to be reasonable at the time.


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                             - 59 -



           SECTION 4.12.  Capitalization.  The  authorized  capital stock of the
Borrower  consists,  on  the  date  hereof,  of an  aggregate  of  1,000  shares
consisting of (i) 1,000 shares of common stock,  par value $10.00 per share,  of
which,  as at the date  hereof,  1,000  shares are duly and  validly  issued and
outstanding,  each of which  shares is fully paid and  nonassessable.  As of the
date  hereof,  (x) there are no  outstanding  Equity  Rights with respect to the
Borrower  and (y) there are no  outstanding  obligations  of the Borrower or any
Subsidiary to  repurchase,  redeem,  or otherwise  acquire any shares of capital
stock of the Borrower nor are there any outstanding  obligations of the Borrower
or any  Subsidiary  to make  payments  to any Person,  such as  "phantom  stock"
payments,  where the amount  thereof is  calculated  with  reference to the fair
market value or equity value of the Borrower or any Subsidiary.

           SECTION 4.13.  Material Agreements and Liens.

           (a) Schedule  4.13 is a complete and correct  list, as of the date of
this Agreement, of each credit agreement, loan agreement,  indenture,  guarantee
or other arrangement providing for or otherwise relating to any Indebtedness of,
the  Borrower  or any  Subsidiary  (other  than such  arrangements  between  the
Borrower and a Subsidiary  or between one or more  Subsidiaries),  the aggregate
principal  or face  amount of which  equals or exceeds  (or may equal or exceed)
$100,000  (other than the Loan Documents) and, as of the date of this Agreement,
the  aggregate  principal  or  face  amount  outstanding  or  which  may  become
outstanding under each such arrangement is correctly described in Schedule 4.13.

           (b) Schedule  4.13 hereto is a complete and correct  list,  as of the
date of this  Agreement,  of each Lien securing  Indebtedness  of any Person the
aggregate  principal  or face amount of which equals or exceeds (or may equal or
exceed)  $100,000 and  covering any property of the Borrower or any  Subsidiary,
and the  aggregate  Indebtedness  secured (or which may be secured) by each such
Lien and the  Property  covered  by each such  Lien is  correctly  described  in
Schedule 4.13.

           SECTION 4.14.  Subsidiaries.

           (a) Set forth in Schedule  4.14 is a complete and correct list of all
of the Subsidiaries of the Borrower as of the date hereof and of all Investments
held by the Borrower or any of its  Subsidiaries  in any joint  venture or other
Persons of the date hereof  together  with,  for each such  Subsidiary,  (i) the
jurisdiction  of  organization  of such  Subsidiary,  (ii) each  Person  holding
ownership  interests in such  Subsidiary  and (iii) the nature of the  ownership
interests  held by each such  Person and the  percentage  of  ownership  of such
Subsidiary  represented  by such  ownership  interests.  Except as  disclosed in
Schedule 4.14, (x) the Borrower and its respective  subsidiaries  owns, free and
clear of Liens (other than Liens  created  pursuant to the Security  Documents),
and has the unencumbered right to vote, all outstanding  ownership  interests in
each Person and all Investments shown to be held by it in Schedule 4.14, (y) all
of the issued and outstanding  capital stock of each such Person  organized as a
corporation is validly issued, fully paid and nonassessable and (z) there are no


                         Credit Agreement

<PAGE>


                             - 60 -


outstanding  Equity  Rights with respect to such Person.  Except as set forth on
Schedule 4.14, all of the capital stock of each of the Foreign Subsidiaries that
is  owned,  directly  or  indirectly,  by the  Borrower  is owned,  directly  or
indirectly, by Rheox International.

           (b) Except as provided in the arrangements described on Schedule 4.13
or on Schedule 4.14, as of the date of this Agreement,  none of the Subsidiaries
of the  Borrower is subject to any  indenture,  agreement,  instrument  or other
arrangement containing any provision of the type described in Section 7.07.

           SECTION 4.15.  Certain Documents.  The Borrower  heretofore or on the
date hereof has furnished to the  Administrative  Agent true and complete copies
of (a) the Tax  Sharing  Agreement,  as amended and in effect on the date hereof
or, if not in effect on the date hereof, in substantially the form in which such
Tax Sharing  Agreement will be executed,  (b) each other Ancillary  Agreement in
effect  on  the  date  hereof  or if not  in  effect  on  the  date  hereof,  in
substantially  the form in which such  Ancillary  Agreement will be executed and
(c) the Restructuring Documents, as amended and in effect on the date hereof.


                             ARTICLE V

                            Conditions

           SECTION 5.01.  Effective  Date. The amendment and  restatement of the
Existing Credit  Agreement  provided for herein shall not become effective until
the date on which each of the  following  conditions  is satisfied (or waived in
accordance with Section 10.02):

           (a) Counterparts of Agreement.  The Administrative  Agent (or Special
      Counsel)  shall  have  received  from  each  party  hereto  either  (i)  a
      counterpart  of this  Agreement  signed on  behalf  of such  party or (ii)
      written  evidence  satisfactory  to the  Administrative  Agent  (which may
      include  telecopy   transmission  of  a  signed  signature  page  of  this
      Agreement) that such party has signed a counterpart of this Agreement.

           (b) Opinions of Counsel to Credit Parties and NL. The  Administrative
      Agent (or Special Counsel) shall have received a favorable written opinion
      (addressed  to the  Administrative  Agent  and the  Lenders  and dated the
      Effective Date) of (i) Bartlit,  Beck, Herman,  Palenchar & Scott, counsel
      to the  Credit  Parties,  substantially  in the  form of  Exhibit  B,  and
      covering  such  other  matters  relating  to  the  Credit  Parties,   this
      Agreement,  the other Loan Documents or the  Transactions  as the Required
      Lenders shall request and (ii) counsel to the Borrower in the states where
      the  properties  covered by the  Mortgage  and each  Existing  Mortgage is
      located,  satisfactory to the  Administrative  Agent in form and substance
      (and each  Credit  Party  hereby  requests  such  counsel to deliver  such
      opinion).


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<PAGE>


                             - 61 -



           (c) Opinion of Special Counsel.  The Administrative  Agent shall have
      received  a   favorable   written   legal   opinion   (addressed   to  the
      Administrative  Agent and the  Lenders  and dated the  Effective  Date) of
      Special  Counsel,  substantially  in  the  form  of  Exhibit  C  (and  the
      Administrative Agent requests Special Counsel to deliver such opinion).

           (d) Corporate Matters.  The Administrative Agent (or Special Counsel)
      shall have received such documents and certificates as the  Administrative
      Agent  or  Special  Counsel  may  reasonably   request   relating  to  the
      organization, existence and good standing of each Credit Party and NL, the
      authorization  of the Transactions and any other legal matters relating to
      the Credit Parties,  NL, this  Agreement,  the other Loan Documents or the
      Transactions,  all in form and substance  reasonably  satisfactory  to the
      Administrative Agent and its counsel.

           (e)  Financial  Officer  Certificate.  The  Administrative  Agent (or
      Special  Counsel) shall have received a  certificate,  dated the Effective
      Date and signed by the President,  a Vice President or a Financial Officer
      of the Borrower,  confirming  compliance  with the conditions set forth in
      paragraphs (a) and (b) of Section 5.02.

           (f) Notes. The  Administrative  Agent (or Special Counsel) shall have
      received for each Lender that shall have  requested a  promissory  note, a
      duly completed and executed promissory note for such Lender.

           (g)  NL  Pledge  Agreement.  The  Administrative  Agent  (or  Special
      Counsel)  shall have received (i) from NL a  counterpart  of the NL Pledge
      Agreement  signed  on  behalf  of  NL  and  (ii)  the  stock  certificates
      identified under the name of NL in Annex 1 thereto, accompanied by undated
      stock  powers  executed in blank.  In  addition,  NL shall have taken such
      other  action  (including  delivering  to the  Administrative  Agent,  for
      filing,  appropriately  completed  and duly  executed  copies  of  Uniform
      Commercial Code financing  statements) as the  Administrative  Agent shall
      have requested in order to perfect the security interests created pursuant
      to the NL Pledge  Agreement  to give effect to the  priority  contemplated
      therefor.

           (h) Security Agreement. The Administrative Agent (or Special Counsel)
      shall have received (i) from the Borrower and each Subsidiary Guarantor, a
      counterpart  of the  Security  Agreement  signed on behalf of such  Credit
      Party and (ii) the stock  certificates  identified  under the name of such
      Credit  Party in Annex 1  thereto,  accompanied  by undated  stock  powers
      executed in blank.  In addition,  each of the Borrower and the  Subsidiary
      Guarantors shall have taken such other action (including delivering to the
      Administrative  Agent,  for  filing,   appropriately  completed  and  duly
      executed copies of Uniform  Commercial  Code financing  statements) as the
      Administrative Agent shall have requested in order to perfect the security
      interests


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<PAGE>


                             - 62 -


      created pursuant to the Security  Agreement to give effect to the priority
      contemplated therefor.

           (i)  Mortgage  and  Title  Insurance.  The  Administrative  Agent (or
      Special Counsel) shall have received (i) from the Borrower,  a counterpart
      of the  Mortgage  signed  on  behalf  of the  Borrower,  (ii)  one or more
      mortgagee  policies  of title  insurance  on forms of and issued by one or
      more title companies  satisfactory to the Administrative Agent (the "Title
      Companies"), insuring the validity and priority of the Liens created under
      the Mortgage for and in amounts satisfactory to the Administrative  Agent,
      subject only to such exceptions as are satisfactory to the  Administrative
      Agent and containing  such  affirmative  coverage and  endorsements as the
      Lenders may require and, to the extent necessary under applicable law, for
      filing in the appropriate  county land office(s),  Uniform Commercial Code
      financing  statements  covering  fixtures,   in  each  case  appropriately
      completed and duly  executed,  (iii) an as-built  survey of recent date of
      the facilities to be covered by the Mortgage,  showing such matters as may
      be required by the  Administrative  Agent,  which surveys shall be in form
      and content acceptable to the  Administrative  Agent, and certified to the
      Administrative Agent and the Title Companies, and shall have been prepared
      by a registered surveyor acceptable to the Administrative  Agent, and (iv)
      certified copies of permanent and unconditional  certificates of occupancy
      (or, if it is not the practice to issue  certificates  of occupancy in the
      jurisdiction  in which the  facilities  to be covered by the  Mortgage  is
      located, then such other evidence reasonably  satisfactory to each Lender)
      permitting  the fully  functioning  operation  and  occupancy of each such
      facility and of such other permits as the Administrative Agent may request
      necessary for the use and  operation of each such  facility  issued by the
      respective  Governmental  Authorities  having  jurisdiction over each such
      facility. In addition, the Borrower shall have paid to the Title Companies
      all expenses and premiums of the Title  Companies in  connection  with the
      issuance of such  policies  and in  addition  shall have paid to the Title
      Companies  an amount  equal to the  recording  and stamp taxes  payable in
      connection  with  recording  the Mortgage in the  appropriate  county land
      office(s).

           (j)  Mortgage  Amendments.   The  Administrative  Agent  (or  Special
      Counsel)  shall  have  received  (i) from any  Credit  Party  party to any
      Existing Mortgage,  a counterpart of a Mortgage Amendment signed on behalf
      of such Credit Party and amending such Mortgage and (ii)  commitments  for
      title  insurance  policies or  endorsements  to existing  title  insurance
      policies in a form  acceptable to the  Administrative  Agent  insuring the
      validity  and  priority of the Liens  created  under each of the  Existing
      Mortgages  (as  amended  by the  Mortgage  Amendments)  for and in amounts
      satisfactory to the Administrative  Agent, subject only to such exceptions
      as are satisfactory to the Agent and containing such affirmative  coverage
      and  endorsements as the Lenders may require and, to the extent  necessary
      under  applicable law, for filing in the  appropriate  county and offices,
      Uniform Commercial Code financing  statements  covering fixtures,  in each
      case appropriately completed and duly


                         Credit Agreement

<PAGE>


                             - 63 -


      executed. In addition, the applicable Credit Parties shall have (x) caused
      to be delivered to the  applicable  title  companies  such  affidavits and
      other documents required by such title companies,  including,  if required
      by the  respective  title  companies in order to provide  title  insurance
      coverage  acceptable to the Administrative  Agent, a re-certification by a
      registered surveyor acceptable to the applicable title company of as-built
      surveys of each of the facilities covered by the Existing Mortgages, which
      surveys shall be in form and content  acceptable to the  applicable  title
      company and certified to the Administrative Agent and the applicable title
      insurance company,  necessary to omit from the title insurance policies or
      endorsements  thereto the standard  survey  exception and (y) caused to be
      paid to the applicable  title insurance  company all expenses and premiums
      in connection with the issuance of the title insurance and an amount equal
      to the recording and stamp taxes payable in connection with recording each
      Mortgage Amendment in the appropriate county land office.

           (k) Intercompany Note  Subordination  Agreement.  The  Administrative
      Agent (or Special  Counsel)  shall have  received  (i) from each of NL and
      Rheox,   Inc.,  a  counterpart  of  the  Intercompany  Note  Subordination
      Agreement signed on behalf of NL and Rheox Inc.

           (l) Insurance.  The  Administrative  Agent (or Special Counsel) shall
      have received  certificates  of insurance  evidencing the existence of all
      insurance  required to be maintained by the Borrower and its  Subsidiaries
      pursuant to Section 6.06 and the designation of the  Administrative  Agent
      as the loss payee  thereunder  to the extent  required by Section  6.06 in
      respect of all insurance covering tangible property,  such certificates to
      be in such form and contain  such  information  as is specified in Section
      6.06.

           (m) Other  Loan  Documents.  The  Administrative  Agent  (or  Special
      Counsel)  shall have  received (i) from the  Borrower and each  Subsidiary
      Guarantor,  a counterpart  of the  Conditional  Assignment of and Security
      Interest in Patent  Rights,  the  Conditional  Assignment  of and Security
      Interest in Trademark Rights and the Copyright  Security  Agreement signed
      on behalf of such Credit Party. In addition,  each of the Borrower and the
      Subsidiary  Guarantors  shall  have taken  such  other  action  (including
      delivering  to  the  Administrative   Agent,  for  filing,   appropriately
      completed and duly executed  copies of Uniform  Commercial  Code financing
      statements) as the  Administrative  Agent shall have requested in order to
      perfect the security  interests created pursuant to the Security Agreement
      to give effect to the priority contemplated therefor.

           (n) Solvency Analysis.  The Administrative Agent (or Special Counsel)
      shall have received (i) analyses from Valuation Research  Corporation,  or
      any other firm of independent  solvency analysts of nationally  recognized
      standing, to the effect that, as


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<PAGE>


                             - 64 -


      of the  Effective  Date and after giving effect to the making of the Loans
      hereunder  and to the  other  transactions  contemplated  hereby,  (x) the
      aggregate value of all properties of the Borrower and its  Subsidiaries at
      their present fair saleable value (i.e.,  the amount which may be realized
      within a reasonable time,  considered to be six months to one year, either
      through  collection or sale at the regular  market value,  conceiving  the
      latter as the amount  which could be obtained for the property in question
      within  such  period  by  a  capable  and  diligent  businessman  from  an
      interested  buyer  who is  willing  to  purchase  under  ordinary  selling
      conditions),   exceeds  the  amount  of  all  the  debts  and  liabilities
      (including   contingent,    subordinated,   unmatured   and   unliquidated
      liabilities)  of the Borrower and its  Subsidiaries,  (y) the Borrower and
      its Subsidiaries  will not, on a consolidated  basis, have an unreasonably
      small  capital  with  which  to  conduct  their  business   operations  as
      heretofore  conducted and (z) the Borrower and its Subsidiaries will have,
      on a consolidated basis,  sufficient cash flow to enable them to pay their
      debts as they mature and (ii) a  certificate  from a Financial  Officer of
      the Borrower  certifying that the financial  projections  were at the time
      made, and on the Effective Date are, based on reasonable  assumptions  and
      are accurately  computed based on such  assumptions,  and containing  such
      other   certifications   relating  to  the   valuation   analyses  as  the
      Administrative Agent may reasonably request.

           (o)  Financial  Projections.  The  Administrative  Agent  shall  have
      received  financial  projections  prepared  in good  faith  and  based  on
      reasonable  assumptions by a Financial Officer,  satisfactory in scope and
      substance  to the  Lenders,  as to the  annual  financial  results  of the
      Borrower  and its  Subsidiaries  for a period  of seven  years  after  the
      Effective Date.

           (p)  Ancillary  Agreements.  The  Administrative  Agent  (or  Special
      Counsel)  shall  have  received  (i)  copies  of  each  of  the  Ancillary
      Agreements,  including,  but not limited to, the Tax Sharing  Agreement as
      executed and delivered by the parties thereto, and (ii) a certificate from
      a senior  officer of the  Borrower to the effect that such copies are true
      and complete copies the Ancillary Agreements as in effect on the Effective
      Date.

           (q) Other  Documents.  The  Administrative  Agent shall have received
      such other documents as the Administrative  Agent or any Lender or Special
      Counsel shall have reasonably requested.

           (r)  Amounts  Owing  under  the  Existing   Credit   Agreement.   The
      Administrative  Agent shall have received evidence that the Borrower shall
      have paid or  provided  for the  payment to the Agent  under the  Existing
      Credit Agreement the principal amount of all loans outstanding  thereunder
      and all  accrued  and  unpaid  interest,  fees and  expenses  owing by the
      Borrower thereunder.



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<PAGE>


                             - 65 -


           (s) Fees and Expenses.  The Administrative  Agent shall have received
      all fees and other  amounts due and  payable on or prior to the  Effective
      Date, including,  to the extent invoiced,  reimbursement or payment of all
      legal fees and expenses and other  out-of-pocket  expenses  required to be
      reimbursed or paid by the Borrower hereunder.

           (t) Special Dividend.  The Administrative Agent shall have received a
      certificate  of a Financial  Officer of the Borrower,  dated the Effective
      Date,  confirming that the Special Dividend, in the amount of $30,000,000,
      will be paid on the Effective Date.

The  Administrative  Agent  shall  notify the  Borrower  and the  Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing,  the amendment and restatement of the Existing  Credit  Agreement
contemplated  hereby  shall not become  effective  unless each of the  foregoing
conditions  is satisfied  (or waived  pursuant to Section  10.02) at or prior to
3:00 p.m.,  New York City time,  on February  28,  1997 (and,  in the event such
conditions are not so satisfied or waived,  the  Commitments  shall terminate at
such time).

           SECTION 5.02. Each Extension of Credit. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, and of the LC Issuing Lender to
issue,  amend,  renew  or  extend  any  Letter  of  Credit,  is  subject  to the
satisfaction of the following conditions:

           (a)   Representations   and  Warranties.   The   representations  and
      warranties of each Credit Party set forth in this  Agreement and the other
      Loan Documents,  and the representations and warranties of NL set forth in
      the NL Pledge  Agreement,  shall be true and correct on and as of the date
      of such Borrowing,  or (as  applicable)  the date of issuance,  amendment,
      renewal  or  extension  of such  Letter of Credit,  both  before and after
      giving effect  thereto and to the use of the proceeds  thereof (or, if any
      such  representation  or warranty is expressly stated to have been made as
      of a specific  date,  such  representation  or warranty  shall be true and
      correct as of such specific date).

           (b) No Defaults.  At the time of such  Borrowing,  and based upon the
      intended use thereof and immediately after giving effect to such Borrowing
      and the  intended use thereof,  or (as  applicable)  the date of issuance,
      amendment, renewal or extension of such Letter of Credit, no Default shall
      have occurred and be continuing.

Each Borrowing Request, or request for issuance, amendment, renewal or extension
of a Letter of  Credit,  shall be  deemed to  constitute  a  representation  and
warranty by the  Borrower  (both as of the date of such  Borrowing  Request,  or
request for issuance, amendment, renewal or extension, and as of the date of the
related  Borrowing  or  issuance,  amendment,  renewal or  extension)  as to the
matters specified in paragraphs (a) and (b) of this Section 5.02.



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                             - 66 -



                            ARTICLE VI

                       Affirmative Covenants

           Until  the  Commitments  have  expired  or  been  terminated  and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements  shall have been  reimbursed,  each of the Borrower and the
Subsidiary Guarantors covenants and agrees with the Lenders that:

           SECTION  6.01.  Financial  Statements  and  Other  Information.   The
Borrower will furnish to the Administrative Agent and each Lender:

           (a) as soon as  available  and in any event within 105 days after the
      end of each fiscal year of the Borrower:

                   (i) consolidated and  consolidating  statements of income and
           retained  earnings and  consolidated  statements  of cash flow of the
           Borrower  and its  Subsidiaries  for such fiscal year and the related
           consolidated and consolidating balance sheets of the Borrower and its
           Subsidiaries as at the end of such fiscal year, setting forth in each
           case in  comparative  form with  respect to  consolidated  statements
           only, the corresponding consolidated figures for the preceding fiscal
           year,

                  (ii) an opinion of independent certified public accountants of
           recognized  national  standing  (without  a "going  concern"  or like
           qualification or exception and without any qualification or exception
           as to the  scope  of  such  audit)  stating  that  said  consolidated
           financial  statements referred to in the preceding clause (i) present
           fairly,  in  all  material  respects,   the  consolidated   financial
           condition and consolidated  results of operations of the Borrower and
           its  Subsidiaries  as at the end of,  and for,  such  fiscal  year in
           conformity with generally accepted accounting principles, and

                 (iii) a certificate  of a Financial  Officer  stating that said
           consolidating  financial  statements  referred  to in  the  preceding
           clause (i) present fairly,  in all material  respects,  the financial
           condition and results of operations on a  consolidating  basis of the
           Borrower and of each of its Subsidiaries,  in each case in accordance
           with generally accepted accounting principles,  consistently applied,
           as at the end of, and for, such fiscal year;

           (b) as soon as  available  and in any event  within 60 days after the
      end of each of the first  three  quarterly  fiscal  periods of each fiscal
      year of the Borrower:



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                             - 67 -


                   (i) consolidated  statements of income and retained  earnings
           and  consolidated  statements  of cash flow of the  Borrower  and its
           Subsidiaries for such period and for the period from the beginning of
           the respective fiscal year to the end of such period, and the related
           consolidated balance sheet of the Borrower and its Subsidiaries as at
           the end of such  period,  setting  forth in each case in  comparative
           form, the  corresponding  consolidated  figures for the corresponding
           period in the  preceding  fiscal year  (except  that,  in the case of
           balance sheets, such comparison shall be to the last day of the prior
           fiscal year),

                  (ii) a certificate of a Financial  Officer,  which certificate
           shall  state  that  said  financial  statements  referred  to in  the
           preceding clause (i) present fairly,  in all material  respects,  the
           consolidated  financial  condition  and results of  operations of the
           Borrower and its Subsidiaries;

           (c)  concurrently  with any  delivery of financial  statements  under
      clause  (a) or (b)  above,  a  certificate  of a  Financial  Officer  (the
      "Financial  Certificate")  (i)  certifying  as to  whether a  Default  has
      occurred and, if a Default has occurred,  specifying  the details  thereof
      and any action  taken or proposed to be taken with respect  thereto,  (ii)
      setting forth reasonably detailed  calculations  demonstrating  compliance
      with Section 7.08, including a calculation of the Leverage Ratio as at the
      last day of the  fiscal  quarter  or fiscal  year,  as the case may be, in
      respect of which such  financial  statements  are  delivered,  and setting
      forth a reasonably  detailed  calculation of EBITDA for (x) in the case of
      financial  statements delivered under clause (a) above, the fiscal year in
      respect of which such financial  statements are being delivered and (y) in
      the case of financial  statements  delivered  under clause (b) above,  the
      period of the four  consecutive  fiscal quarters ending on the last day of
      the fiscal quarter in respect of which such financial statements are being
      delivered and (iii) stating  whether any material change in GAAP or in the
      application thereof has been adopted by the Borrower since the date of the
      audited financial  statements referred to in Section 4.04 and, if any such
      change has been  adopted by the  Borrower,  specifying  the effect of such
      change on the financial statements accompanying such certificate;

           (d)  concurrently  with any  delivery of financial  statements  under
      clause (a) above, a certificate  of the  accounting  firm that reported on
      such financial  statements  stating whether they obtained knowledge during
      the  course  of their  examination  of such  financial  statements  of any
      Default  (which  certificate  may be  limited to the  extent  required  by
      accounting rules or guidelines);

           (e) within 105 days following the last day of each fiscal year of the
      Borrower,  commencing  with  fiscal  year  1997,  a report of a  qualified
      employee or agent (familiar with the identification of toxic and hazardous
      substances) stating that, except as expressly described in such report, to
      the best of such Person's knowledge, after due


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                             - 68 -


      inquiry,  each of the Borrower and its Subsidiaries is, as of the last day
      of such fiscal year, in compliance with all applicable  Environmental Laws
      (except  to the  extent  failure  so to  comply  could not  reasonably  be
      expected to have a Material Adverse Effect); and

           (f) not later than April 15 of each year,  commencing  with April 15,
      1998,  financial  projections  prepared in good faith based on  reasonable
      assumptions by a Financial Officer,  of the projected annual  consolidated
      financial  statements  of the  Borrower and its  Subsidiaries  through the
      period ending on December 31, 2003;

           (g) promptly  following any request therefor,  such other information
      regarding the operations,  business affairs and financial condition of the
      Borrower  or  any  Subsidiary,  or  compliance  with  the  terms  of  this
      Agreement,  as the  Administrative  Agent  or any  Lender  may  reasonably
      request.

           SECTION 6.02.  Notices of Material Events.  The Borrower will furnish
to the  Administrative  Agent  and each  Lender  prompt  written  notice  of the
following:

           (a) the  occurrence of any Default  describing the same in reasonable
      detail and describing the steps being taken to remedy same;

           (b) the filing or commencement  of any action,  suit or proceeding by
      or before any arbitrator or  Governmental  Authority  against or affecting
      the  Borrower,  any  Subsidiary  that,  if  adversely  determined,   could
      reasonably be expected to result in a Material Adverse Effect;

           (c) the  occurrence  of any ERISA Event that,  alone or together with
      any other ERISA Events that have occurred, could reasonably be expected to
      result in liability of the Borrower and its  Subsidiaries  in an aggregate
      amount exceeding $2,000,000; and

           (d) any other event that results in, or could  reasonably be expected
      to result in, a Material Adverse Effect.

Each  notice  delivered  under  this  Section  6.02  shall be  accompanied  by a
statement  of a Financial  Officer or other  executive  officer of the  Borrower
setting forth the details of the event or development  requiring such notice and
any action taken or proposed to be taken with respect thereto.

           SECTION 6.03. Existence;  Conduct of Business. The Borrower will, and
will cause each of its Subsidiaries (other than Inactive Subsidiaries) to, do or
cause to be done all things necessary to preserve,  renew and keep in full force
and effect its legal existence and the rights, licenses, permits, privileges and
franchises  material  to the conduct of its  business,  except to the extent the
failure to preserve, renew and keep in full force and effect any thereof


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                             - 69 -


could not  reasonably be expected to have a Material  Adverse  Effect;  provided
that the foregoing shall not prohibit any merger, consolidation,  liquidation or
dissolution permitted under Section 7.03.

           SECTION 6.04.  Payment of  Obligations.  The Borrower  will, and will
cause  each  of  its  Subsidiaries  to,  pay  its  obligations,   including  Tax
liabilities, that, if not paid, could result in a Material Adverse Effect before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings,  (b)
the Borrower or such  Subsidiary  has set aside on its books  adequate  reserves
with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest  could not  reasonably  be expected to result in a Material
Adverse Effect.

           SECTION 6.05. Maintenance of Properties.  The Borrower will, and will
cause each of its  Subsidiaries  to, keep and maintain all property  material to
the conduct of its business in good working order and  condition,  ordinary wear
and tear excepted, except where the failure to so maintain such properties could
not reasonably be expected to have a Material Adverse Effect.

           SECTION 6.06.  Maintenance of Insurance.  The Borrower will, and will
cause  each of its  Subsidiaries  to,  keep  insured  by  financially  sound and
reputable  insurers all property of a character  usually insured by corporations
engaged in the same or  similar  business  similarly  situated  against  loss or
damage of the kinds  and in the  amounts  customarily  insured  against  by such
corporations  and carry  such  other  insurance  as is  usually  carried by such
corporations,  provided  that in any  event the  Borrower  will  maintain  (with
respect to itself and each of its Subsidiaries):

           (a) Property  Insurance -- insurance  against loss or damage covering
      all of the tangible  real and personal  property and  improvements  of the
      Borrower and each of its  Subsidiaries  by reason of any Peril (as defined
      below) in such amounts  (subject to  reasonable  deductibles)  as shall be
      reasonable and customary and sufficient to avoid the insured named therein
      from  becoming a co-insurer of any loss under such policy but in any event
      in an amount (i) in the case of fixed assets and equipment, at least equal
      to  100%  of the  actual  replacement  cost of  such  assets,  subject  to
      deductibles as aforesaid and (ii) in the case of inventory,  not less than
      the fair  market  value  thereof,  subject to  deductibles  as  aforesaid.
      Without limiting the foregoing,  the Borrower shall in any event cover any
      property  constituting  improved real estate  located in a "special  flood
      hazard area" in a "participating community" as described in 12 CFR Part 22
      with  flood  insurance  in an amount at least  equal to the  lesser of the
      outstanding principal amount of the Obligations or the replacement cost of
      that property in the "special flood hazard area".

           (b)  Automobile  Liability  Insurance  for Bodily Injury and Property
      Damage  --insurance in respect of all vehicles  (whether  owned,  hired or
      rented by the Borrower or


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                             - 70 -


      any of its  Subsidiaries)  at any time  located at, or used in  connection
      with, its properties or operations against liability for bodily injury and
      property damage in such amounts as are then customary for vehicles used in
      connection with similar properties and businesses, but in any event to the
      extent required by applicable law.

           (c) Comprehensive  General  Liability  Insurance -- insurance against
      claims for bodily  injury,  death or property  damage  occurring on, in or
      about the properties (and adjoining  streets,  sidewalks and waterways) of
      the Borrower and its  Subsidiaries,  in such amounts as are then customary
      for property similar in use in the jurisdictions where such properties are
      located.

           (d)  Workers'   Compensation   Insurance  --  workers'   compensation
      insurance  (including   Employers'  Liability  Insurance)  to  the  extent
      required by applicable law.

           (e) Product  Liability  Insurance  --  insurance  against  claims for
      bodily injury, death or property damage resulting from the use of products
      sold by the  Borrower or any of its  Subsidiaries  in such  amounts as are
      then customarily  maintained by responsible  persons engaged in businesses
      similar to that of the Borrower and its Subsidiaries.

           (f) Business  Interruption  Insurance  --  insurance  against loss of
      operating income (subject to a deductible,  or self-insured amount, not in
      excess of $1,000,000) by reason of any Peril.

           (g)  Other  Insurance  --  such  other  insurance,  in  each  case as
      generally  carried by owners of similar  properties  in the  jurisdictions
      where such properties are located,  in such amounts and against such risks
      as are then customary for property similar in use.

Such insurance shall be written by financially responsible companies selected by
the  Borrower  and having an A.M.  Best  rating of "A+" or better and being in a
financial  size  category  of XIV or larger,  or by other  companies  reasonably
acceptable  to  the  Administrative  Agent  (including  an  insurer  that  is an
Affiliate of the Borrower  provided  that all insurance  with such  Affiliate is
reinsured on terms  (including  an  insolvency  provision)  and with  reinsurers
reasonably  acceptable to the  Administrative  Agent),  and (other than workers'
compensation)  shall name the  Administrative  Agent as an additional insured to
the extent of the Borrower's  liability under this Agreement,  or loss payee, as
its  interests  may appear.  Each policy  referred to in this Section 6.06 shall
provide  that it will not be canceled or  reduced,  or allowed to lapse  without
renewal,   except  after  not  less  than  30  days'   written   notice  to  the
Administrative   Agent  and  shall  also  provide  that  the  interests  of  the
Administrative  Agent,  the  Lenders  and the LC  Issuing  Lender  shall  not be
invalidated  by any act or  negligence  of the Borrower or any Person  having an
interest in any property  covered by any mortgage nor by occupancy or use of any
such property for purposes more hazardous than permitted by such policy nor by


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                             - 71 -


any  foreclosure or other  proceedings  relating to such property.  The Borrower
will  advise the  Administrative  Agent  promptly  of any  policy  cancellation,
material reduction or other material amendment.

           On or before the  Effective  Date the  Borrower  will  deliver to the
Administrative   Agent   certificates   of   insurance   satisfactory   to   the
Administrative  Agent  evidencing the existence of all insurance  required to be
maintained by the Borrower  hereunder  setting forth the  respective  coverages,
limits of liability,  carrier,  policy number and period of coverage and showing
that such  insurance  is in  effect.  Thereafter,  on or before the date 30 days
after the expiration or renewal date of each insurance policy required hereunder
the Borrower will deliver to the Administrative  Agent certificates of insurance
evidencing  that  all  insurance  required  to be  maintained  by  the  Borrower
hereunder  is in  effect.  In  addition,  the  Borrower  will not  modify in any
material  (in  the  reasonable  judgment  of the  Borrower)  respect  any of the
provisions of any policy with respect to property  insurance,  without notifying
the  Administrative  Agent and providing such  information in respect thereof as
the  Administrative  Agent may request.  The  Borrower  will not obtain or carry
separate insurance  concurrent in form or contributing in the event of loss with
that  required  by this  Section  6.06  unless  the  Administrative  Agent is an
additional  insured  thereunder,  with loss  payable  as  provided  herein.  The
Borrower will  immediately  notify the  Administrative  Agent  whenever any such
separate insurance is obtained and shall deliver to the Administrative Agent the
certificates evidencing the same.

           Without  limiting the obligations of the Borrower under the foregoing
provisions  of this  Section  6.06,  in the event  the  Borrower  shall  fail to
maintain  in full  force and  effect  insurance  as  required  by the  foregoing
provisions of this Section 6.06,  then the  Administrative  Agent may, but shall
have no obligation  so to do,  procure  insurance  covering the interests of the
Administrative  Agent, the Lenders and the LC Issuing Lender in such amounts and
against such risks as the  Administrative  Agent (or the Required Lenders) shall
deem  appropriate and the Borrower shall reimburse the  Administrative  Agent in
respect of any reasonable  premiums paid by the Administrative  Agent in respect
thereof.

           For purposes  hereof,  the term "Peril"  means,  collectively,  fire,
lightning,  flood,  windstorm,  hail,  earthquake,  explosion,  riot  and  civil
commotion,  vandalism and malicious mischief, damage from aircraft, vehicles and
smoke and all other perils covered by the "all-risk"  endorsement then in use in
the jurisdictions  where the properties of the Borrower and its Subsidiaries are
located.

           The  requirements  of this Section 6.06 shall apply only to insurance
coverage with respect to the Borrower and its  Subsidiaries and shall not affect
or limit any insurance, amendments,  cancellations or any changes with regard to
insurance coverage for other entities insured under policies that also cover the
Borrower and its Subsidiaries.



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                             - 72 -


           SECTION  6.07.  Books and Records;  Inspection  Rights.  The Borrower
will,  and will cause each of its  Subsidiaries  to, keep proper books of record
and account in which full, true and correct entries are made of all dealings and
transactions  in relation to its  business  and  activities.  Subject to Section
10.12, the Borrower will, and will cause each of its Subsidiaries to, permit any
representatives  designated  by the  Administrative  Agent or any  Lender,  upon
reasonable  prior notice,  to visit and inspect its  properties,  to examine and
make extracts from its books and records,  and to discuss its affairs,  finances
and  condition  with  its  officers  and  independent  accountants,  all at such
reasonable times and as often as reasonably requested.

           SECTION 6.08. Fiscal Year. The Borrower and its Subsidiaries will not
change the last day of their fiscal year from  December 31 of each year,  or the
last days of the first three fiscal  quarters in each of their fiscal years from
March 31, June 30, and September 30 of each year, respectively.

           SECTION 6.09. Compliance with Laws. The Borrower will, and will cause
each of its Subsidiaries (other than Inactive  Subsidiaries) to, comply with all
laws, rules,  regulations and orders of any Governmental Authority applicable to
it or its property,  except where the failure to do so,  individually  or in the
aggregate,  could not  reasonably  be expected  to result in a Material  Adverse
Effect.

           SECTION 6.10.  Use of Proceeds.

           (a) Term Loans.  The  proceeds of the Term Loans shall be used solely
(i) to pay certain  Indebtedness of the Borrower,  including  interest  thereon,
outstanding on the date hereof listed on Schedule 6.10, (ii) to finance,  on the
Effective Date, the payment of $15,000,000 of the Special  Dividend and (iii) to
pay related fees and expenses of the Borrower.  The Borrower shall repay in full
the indebtedness evidenced by the Subordinated Note on the Effective Date.

           (b)  Revolving  Credit Loans.  The proceeds of the  Revolving  Credit
Loans  shall be used  solely  (i) for  working  capital  and  general  corporate
purposes and (ii) to finance,  on the Effective  Date, the payment,  in a single
installment, of $15,000,000 of the Special Dividend.

           No part of the proceeds of any Loan will be used, whether directly or
indirectly,  for any purpose that entails a violation of any of the  Regulations
of the Board, including Regulations G, U and X.

           SECTION 6.11. Hedging Agreements. Within 120 days after the Effective
Date,  the Borrower will enter into and,  thereafter  maintain in full force and
effect for a period at all times of at least  four  years,  one or more  Hedging
Agreements with one or more of the


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                             - 73 -


Lenders  (and/or  with a bank or other  financial  institution  having  capital,
surplus  and  undivided  profits of at least  $500,000,000),  that  satisfy  the
following requirements:

           (a) the notional principal amount of such Hedging Agreement(s), shall
      be at least equal to $50,000,000; and

           (b) each such Hedging Agreement shall enable the Borrower,  as at any
      date,  to  protect  itself  in a  manner  reasonably  satisfactory  to the
      Required Lenders against interest rate fluctuations.

           SECTION  6.12.  Certain  Obligations   Respecting   Subsidiaries  and
Collateral Security.

           (a) Subsidiary  Guarantors.  The Borrower shall take such action, and
shall cause each of its  Subsidiaries to take such action,  from time to time as
shall be necessary to ensure that all Domestic Subsidiaries (other than Inactive
Subsidiaries)  are  Subsidiary  Guarantors,   and,  thereby,   "Credit  Parties"
hereunder and under the Security  Agreement.  Without limiting the generality of
the  foregoing,  in the event that the  Borrower  shall form or acquire  any new
Domestic  Subsidiary after the date hereof which the Borrower or such Subsidiary
anticipates  will  not be an  Inactive  Subsidiary  (or in the  event  that  any
theretofore  Inactive Subsidiary that is a Domestic Subsidiary shall cease to be
an  Inactive  Subsidiary),  the  Borrower  will,  and  will  cause  each  of its
Subsidiaries  to,  cause  such new  Domestic  Subsidiary  (or  such  theretofore
Inactive  Subsidiary)  within ten Business Days of such formation or acquisition
notify the  Administrative  Agent of such formation or acquisition  and promptly
take all such  actions  as the  Administrative  Agent may  request to cause such
Subsidiary to become a "Subsidiary  Guarantor"  (and thereby,  a "Credit Party")
hereunder and under the Security  Agreement  pursuant to a written instrument in
form and substance  reasonably  satisfactory  to the  Administrative  Agent,  to
become a party to the Security  Agreement and to deliver such proof of corporate
action,  incumbency  of  officers,  opinions  of  counsel  and  other  documents
(including Uniform Commercial Code Financing  Statements) as are consistent with
those  delivered  by Credit  Party  pursuant to Section  5.01 or as the Required
Lenders or the Administrative Agent shall have requested.

           (b) Ownership of Subsidiaries. The Borrower will, and will cause each
of its Subsidiaries to, take such action from time to time as shall be necessary
to ensure  that the  Borrower  and each of its  Subsidiaries  at all times  owns
(subject  only  to the  Lien  of the  Security  Agreement)  at  least  the  same
percentage  of the  issued and  outstanding  shares of each class of stock of or
other  ownership  interest in each of its  Subsidiaries  as is owned on the date
hereof  (except as  otherwise  permitted  by Section 7.03 and subject to Section
7.11).  Without  limiting the generality of the foregoing,  none of the Borrower
nor any of its  Subsidiaries  shall sell,  transfer or otherwise  dispose of any
shares of stock of or other ownership  interest in any Subsidiary owned by them,
nor permit any  Subsidiary to issue any shares of stock of any class  whatsoever
to any Person (except as otherwise permitted by


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                             - 74 -


Section 7.03 and, subject to Section 7.11, to the Borrower or a Subsidiary).  In
the event that any such additional  shares of stock or other ownership  interest
shall be issued by any Domestic  Subsidiary,  the respective Credit Party agrees
forthwith  to deliver  to the  Administrative  Agent  pursuant  to the  Security
Agreement  the  certificates  evidencing  such shares of stock,  accompanied  by
undated  stock powers duly executed in blank and shall take such other action as
the Administrative  Agent shall request to perfect the security interest created
therein pursuant to the Security Agreement.

           SECTION 6.13.  Environmental  Laws and Permits.  Without limiting the
Borrower's  obligations  under Section 6.09,  the Borrower  will, and will cause
each of its  Subsidiaries  to,  (a)  comply in all  material  respects  with all
Environmental  Laws  now  or  hereafter  applicable  to  the  Borrower  and  its
Subsidiaries,  (b) when and to the extent required by any Governmental Authority
after exhaustion of all available  administrative and judicial  remedies,  carry
out  environmental  investigatory  and  response  actions at any property of the
Borrower or any of its Subsidiaries under applicable Environmental Laws, and (c)
obtain, at or prior to the time required by applicable  Environmental  Laws, all
environmental,  health and safety  permits,  licenses  and other  authorizations
necessary for its operations and maintain such  authorizations in full force and
effect.

           SECTION 6.14.  Environmental Notices.

           (a) The Borrower  will, and will cause each of its  Subsidiaries  to,
promptly  and in no event later than thirty days after it has received the same,
furnish  to the  Administrative  Agent (i) all  written  notices  of  violation,
orders,  claims,  citations,  complaints,  penalty  assessments,  suits or other
proceedings, administrative, civil or criminal, at law or in equity, received by
the Borrower or any Subsidiary or of which it has notice,  pending or threatened
against the  Borrower  or any  Subsidiary  by any  Governmental  Authority  with
respect to any alleged  violation of or  non-compliance  with any  Environmental
Laws or any permits,  licenses or  authorizations,  if such alleged violation or
non-compliance  could  reasonably be expected to have a Material  Adverse Effect
and (ii) written  notification of any condition or occurrence at, on, or arising
from  the  property  of the  Borrower  or any  Subsidiary  that  results  in its
non-compliance  with  any  applicable  Environmental  Law,  which  violation  or
non-compliance could reasonably be expected to have a Material Adverse Effect.

           (b) The Borrower  will, and will cause each of its  Subsidiaries  to,
promptly  and in no event later than thirty days after it has received the same,
furnish to the  Administrative  Agent all requests for  information,  notices of
claim, demand letters, and other notifications,  received by the Borrower or any
Subsidiary,  that in connection  with its ownership or use of any real estate or
the conduct of its business,  it may be potentially  responsible with respect to
any  investigation  or clean-up of  Hazardous  Material at any  location,  which
investigation  or  clean-up  could  reasonably  be  expected  to have a Material
Adverse Effect.



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                             - 75 -


           (c) Upon receipt of any notice provided to the  Administrative  Agent
pursuant to clause (a) or (b) of this Section 6.14,  the Required  Lenders shall
have the right to retain the services of an independent environmental consulting
firm acceptable to the Borrower (the  "Environmental  Consultant") to conduct an
environmental  assessment of the property,  operation or environmental condition
described  in such notice.  As a result of such  environmental  assessment,  the
Environmental  Consultant may prepare a written  recommendation of what, if any,
technical  action should be taken by the Borrower or its  Subsidiaries to remedy
the environmental  condition in accordance with good commercial  practices or in
compliance  with applicable  Environmental  Laws. The  environmental  assessment
shall be conducted during normal business hours and with reasonable prior notice
to the Borrower but such environmental assessment shall not include the physical
collection of any samples.  The Borrower shall have sole  responsibility for all
costs and reasonable  out-of-pocket  expenses associated with such environmental
assessment.

           SECTION  6.15.  Environmental  Audit and  Remedial  Action.  Upon the
occurrence  and during the  continuation  of an Event of Default,  the  Borrower
will,  and will cause each of its  Subsidiaries  to,  conduct and  complete  all
investigations,  studies,  sampling  and testing and all  remedial,  removal and
other actions reasonably  requested by the Administrative Agent on behalf of the
Required Lenders.


                            ARTICLE VII

                        Negative Covenants

           Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable  hereunder have been paid in full
and  all  Letters  of  Credit  shall  have  expired  or  terminated  and  all LC
Disbursements  shall  have been  reimbursed,  the  Borrower  and the  Subsidiary
Guarantors covenant and agree with the Lenders that:

           SECTION  7.01.  Indebtedness.  The  Borrower  will not,  and will not
permit  any  Subsidiary  to,  create,  incur,  assume  or  permit  to exist  any
Indebtedness, except:

           (a)  Indebtedness created hereunder;

           (b)  Indebtedness  existing  on the  date  hereof  and set  forth  in
      Schedule 7.01, and any extensions, renewals, refinancings and replacements
      of any such Indebtedness that do not increase the principal amount thereof
      from the amount set forth in Schedule 7.01 or, in the case of the lines of
      credit, the aggregate amount of lines of credit set forth on Schedule 7.01
      and that do not contain  terms and  conditions  that are  materially  more
      restrictive  to the  Borrower  and its  Subsidiaries  than the  terms  and
      conditions  of  the  Indebtedness  so  extended,  renewed,  refinanced  or
      replaced;



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           (c)  Indebtedness of the Borrower and its Subsidiaries to each other,
      provided  that (i) no such  Indebtedness  shall be owed by the Borrower or
      any of the Domestic  Subsidiaries other than Rheox International to any of
      the Foreign  Subsidiaries and no such Indebtedness shall be owed by any of
      the  Foreign  Subsidiaries  to  any  of  the  Borrower  and  the  Domestic
      Subsidiaries  other than  Rheox  International  and (ii) if the  aggregate
      outstanding  principal amount of Indebtedness owed by Rheox  International
      to the Borrower and the Domestic  Subsidiaries  exceeds  $2,000,000 at any
      time,  an amount equal to the excess  shall be evidenced  solely by one or
      more promissory notes of Rheox International pledged to the Administrative
      Agent under the Security Agreement;

           (d)  until  the  initial  borrowing  hereunder,  Indebtedness  of the
      Borrower to NL evidenced by the Subordinated Note;

           (e) Indebtedness of Rheox Limited to NL evidenced by the Subordinated
      Intercompany Note;

           (f)  Indebtedness  of up to  $500,000  in the form of  Guarantees  of
      Indebtedness  of  Enenco,  so  long  as the  Borrower  owns,  directly  or
      indirectly, at least 50% of the equity interests in Enenco; and

           (g) additional Indebtedness of the Borrower in an aggregate principal
      amount up to but not exceeding $2,000,000 at any one time outstanding.

           SECTION 7.02.  Liens.  The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
or asset now owned or hereafter  acquired by it, or assign or sell any income or
revenues  (including  accounts  receivable) or rights in respect of any thereof,
except:

           (a)  Liens created under the Security Documents;

           (b)  Permitted Liens; and

           (c) Liens (including Capital Leases) on real and/or personal property
      acquired  and/or  constructed by the Borrower or any Subsidiary  after the
      date hereof  securing  Indebtedness  of the  Borrower  or such  Subsidiary
      permitted  by  Section  7.01  in  respect  of the  purchase  price  and/or
      construction  cost of such property  (including  Indebtedness  incurred to
      finance such acquisition and/or construction), provided that the aggregate
      principal amount of Indebtedness secured by each such Lien does not at any
      time exceed (i) the acquisition  and/or  construction  cost of the related
      property  referred to above or (ii) in the case of  property  subject to a
      Capital Lease, the Fair Market Value of the related  property  referred to
      above; and



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                             - 77 -


           (d)  any  Lien  on any  property  or  asset  of the  Borrower  or any
      Subsidiary  existing on the date hereof and set forth in Schedule 7.02 and
      Liens  securing  any   Indebtedness   incurred  in  connection   with  the
      refinancing of any  Indebtedness  secured by any Lien existing on the date
      hereof and set forth in Schedule 7.02,  provided  however that no property
      or asset may secure such Liens other than the property or asset covered by
      the related  Lien  existing on the date hereof and  provided  further that
      such Liens may not secure  Indebtedness in a principal amount in excess of
      the principal amount set forth on Schedule 7.02.

           SECTION 7.03.  Fundamental  Changes.  The Borrower will not, and will
not permit any Subsidiary  to, merge into or consolidate  with any other Person,
or  permit  any  other  Person to merge  into or  consolidate  with it, or sell,
transfer,  lease or otherwise  dispose of (in one  transaction or in a series of
transactions) all or any substantial part of its assets, or all or substantially
all of the stock of any of its Subsidiaries (in each case,  whether now owned or
hereafter  acquired),  or  liquidate or  dissolve,  except that,  if at the time
thereof  and  immediately  after  giving  effect  thereto no Default  shall have
occurred and be continuing:

           (a) any Subsidiary other than Rheox  International may merge into the
      Borrower  in  a  transaction  in  which  the  Borrower  is  the  surviving
      corporation;

           (b) any  Subsidiary  other  than Rheox  International  may merge into
      another  Subsidiary;  provided that (i) if any such  transaction  shall be
      between a  Subsidiary  and a Wholly  Owned  Subsidiary,  the Wholly  Owned
      Subsidiary  shall be the continuing or surviving  corporation  and (ii) if
      any such  transaction  shall  be  between  a  Subsidiary  Guarantor  and a
      Subsidiary not a Subsidiary  Guarantor,  and such Subsidiary  Guarantor is
      not the  continuing  or  surviving  corporation,  then the  continuing  or
      surviving  corporation  shall have assumed all of the  obligations of such
      Subsidiary Guarantor hereunder and under the other Loan Documents;

           (c) any Subsidiary may sell, transfer,  lease or otherwise dispose of
      its assets or property to the Borrower or to another Subsidiary;

           (d) the Borrower or any  Subsidiary  may make  Dispositions  to third
      parties with the approval of the Required Lenders;

           (e) the  Borrower  or any  Subsidiary  may sell,  transfer,  lease or
      otherwise  dispose of any  inventory  or other  assets or  property in the
      ordinary course of business;

           (f) the  Borrower  or any  Subsidiary  may sell,  transfer,  lease or
      otherwise dispose of obsolete or worn-out property,  tools or equipment no
      longer used or useful in its  business so long as the amount  thereof sold
      in any single fiscal year by the Borrower and its  Subsidiaries  shall not
      have a Fair Market Value in excess of $500,000; and


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<PAGE>


                             - 78 -



           (g) the Borrower may sell,  transfer,  lease or otherwise  dispose of
      the surplus parcels of real property in Alameda County,  California  owned
      by the Borrower and encumbered for the benefit of the Lenders as described
      in section (b) of the definition of "Existing Mortgages".

           SECTION  7.04.   Investments,   Loans,   Advances,   Guarantees   and
Acquisitions; Hedging Agreements.

           (a) The Borrower will not, and will not permit any its Subsidiary to,
purchase, hold or acquire (including pursuant to any merger with any Person that
was not a Wholly  Owned  Subsidiary  prior to such  merger) any  Investment,  or
purchase or otherwise  acquire (in one transaction or a series of  transactions)
any assets of any other Person constituting a business unit, except:

              (i)  Investments  outstanding  on the date hereof and set forth in
      Schedule 7.04, including such Investments in Enenco so set forth;

              (ii) Permitted Investments;

              (iii)  Investments  by the  Borrower  and  any  Subsidiary  in the
      capital  stock of and  other  ownership  interests  in other  Subsidiaries
      (subject to Section 7.11);

              (iv) Indebtedness and advances permitted by Section 7.01(c);

              (v)  Guarantees  constituting  Indebtedness  permitted  by Section
      7.01;

              (vi) operating deposit accounts with banks;

              (vii)  Distributor   Affiliate  Credit  Extensions  not  exceeding
      $5,000,000  in the  aggregate at any one time  outstanding,  provided that
      each Distributor Affiliate Credit Extension shall mature and be payable no
      later than the date 45 days after the date made;

              (viii)  Capital   Expenditures   (including  but  not  limited  to
      Acquisitions  constituting  Capital  Expenditures) made by the Borrower or
      any Subsidiary as permitted under Section 7.08(e); and

              (ix)  Investments in Enenco after the date of this Agreement of up
      to  $750,000  in the form of capital  contributions  or loans and of up to
      $500,000 in the form of Guarantees of Indebtedness  of Enenco,  so long as
      the  Borrower  owns,  directly or  indirectly,  at least 50% of the equity
      interests in Enenco; and



                         Credit Agreement

<PAGE>


                             - 79 -


              (x)  Investments  of the LC  Collateral  Account  as  provided  in
      Section 2.04(i).

           (b) The  Borrower  will not, and will not permit any  Subsidiary  to,
enter into any Hedging Agreement,  other than (i) Hedging Agreements required by
Section 6.11 and (ii) any other Hedging  Agreements entered into in the ordinary
course of  business  to hedge or  mitigate  risks to which the  Borrower  or any
Subsidiary  is exposed in the conduct of its business or the  management  of its
liabilities.

           SECTION 7.05.  Restricted  Payments.  The Borrower will not, and will
not permit any Subsidiary to, declare or make, or agree to pay or make, directly
or indirectly,  any Restricted Payment, except that so long as no Default exists
or would result therefrom:

           (a) the  Borrower  may (i) declare and pay the portion of the Special
      Dividend  payable  from the  proceeds of the Term Loans in cash;  and (ii)
      declare  and pay the  portion of the  Special  Dividend  payable  from the
      proceeds of the Revolving Credit Loans in cash, provided that after giving
      effect  thereto the aggregate  unutilized  amount of the Revolving  Credit
      Commitments shall not be less than $7,500,000; and

           (b) the Borrower  may declare and pay  dividends in cash with respect
      to its capital stock after the second  anniversary of the Effective  Date,
      provided  that  (i) at the  time  of the  declaration  and at the  time of
      payment of such  dividends  (and after giving effect  thereto),  the Fixed
      Charges  Ratio  shall not be less  than  1.10 to 1 and (ii) the  aggregate
      amount of such  dividends paid in such fiscal year shall not exceed 40% of
      Excess Cash Flow for the immediately preceding fiscal year.

           SECTION  7.06.  Transactions  with  Affiliates.  Except as  expressly
permitted  by this  Agreement,  the  Borrower  will not, and will not permit any
Subsidiary to, sell,  lease or otherwise  transfer any property or assets to, or
purchase,  lease or otherwise  acquire any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except that:

           (a) the Borrower or any Subsidiary may enter into  transactions  with
      Affiliates  (other than extension of  Indebtedness  by the Borrower or any
      Subsidiary to an  Affiliate) in the ordinary  course of business at prices
      and on terms and  conditions  not less  favorable  to the Borrower or such
      Subsidiary than could be obtained on an arm's-length  basis from unrelated
      third parties;

           (b) any  Affiliate  who is an  individual  may  serve as a  director,
      officer,  employee or consultant of the Borrower or any of Subsidiary  and
      receive reasonable compensation for his or her services in such capacity;



                         Credit Agreement

<PAGE>


                             - 80 -


           (c)  Rheox  GmbH,  a German  corporation,  may pay  dividends  to all
      holders of interests in Rheox GmbH,  provided that any such  dividends are
      paid  together  with  dividends  to each  holder of interest in Rheox GmbH
      ratably in accordance with their respective interests;

           (d) the Borrower and its  Subsidiaries may enter into and perform the
      Tax  Sharing   Agreement,   the  other   Ancillary   Agreements   and  the
      Restructuring Documents;

           (e) the Borrower may engage in the transactions with Enenco permitted
      under Sections 7.01, 7.03 and 7.04; and

           (f) the  Borrower  and its  Subsidiaries  may enter into  Distributor
      Affiliate Credit Extensions permitted by Section 7.04.

           SECTION 7.07. Restrictive Agreements. The Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into, incur
or permit to exist any agreement or other arrangement that prohibits,  restricts
or imposes any condition  upon the ability of any Subsidiary to pay dividends or
other  distributions  with respect to any shares of its capital stock or to make
or repay  loans or  advances  to the  Borrower  or any  other  Subsidiary  or to
Guarantee  Indebtedness of the Borrower or any other  Subsidiary;  provided that
(i) the foregoing shall not apply to restrictions and conditions  imposed by law
or by this Agreement,  (ii) the foregoing  shall not apply to  restrictions  and
conditions existing on the date hereof identified on Schedule 7.07 or related to
the Indebtedness set forth in Schedule 7.01 (but shall apply to any extension or
renewal of, or any amendment or modification  resulting in any such  restriction
or condition becoming more restrictive),  (iii) the foregoing shall not apply to
customary  restrictions and conditions  contained in agreements  relating to the
sale of a Subsidiary  pending such sale,  provided  that such  restrictions  and
conditions  apply  only to the  Subsidiary  that is to be sold and such  sale is
permitted hereunder,  and (iv) the foregoing shall not apply to (x) restrictions
or  conditions  imposed  by  any  agreement  relating  to  secured  Indebtedness
permitted by this Agreement if such restrictions or conditions apply only to the
property or assets securing such Indebtedness and (y) to customary provisions in
leases and other contracts restricting the assignment thereof.

           SECTION 7.08.  Certain Financial Covenants.

           (a) Leverage  Ratio.  The Borrower will not permit the Leverage Ratio
at any time  during any of the  periods  set forth below to exceed the ratio set
opposite such period below:


                         Credit Agreement

<PAGE>


                             - 81 -

                     Period                                              Ratio
                     ------                                              -----

From and including the Effective Date
through June 30, 1997 .......................................          3.75 to 1

From and including July 1, 1997
through September 30, 1997 ..................................          3.60 to 1

From and including October 1, 1997
through December 31, 1997 ...................................          3.50 to 1

From and including January 1, 1998
through December 31, 1998 ...................................          3.25 to 1

From and including January 1, 1999
through December 31, 2000 ...................................          3.00 to 1

From and including January 1, 2001 ..........................          2.50 to 1
and at all times thereafter

           (b) Tangible Net Worth.  The  Borrower  will not permit  Tangible Net
Worth on any date to be less than an amount  equal to negative  (-)  $52,000,000
plus the sum,  for all of the fiscal  quarters  of the  Borrower  starting on or
after  January  1,  1997  and  ending  on or  before  such  date for  which  the
consolidated  net income of the Borrower and its  Subsidiaries  was greater than
zero (and excluding each fiscal quarter for which the consolidated net income of
the  Borrower  and  its  Subsidiaries  was  less  than  zero),  of  60%  of  the
consolidated  net income of the  Borrower and its  Subsidiaries  for such fiscal
quarters minus the Special Dividend.

           (c) Fixed  Charges  Ratio.  The  Borrower  will not  permit the Fixed
Charges  Ratio to be less  than  1.000 to 1 at any time from and  including  the
Effective Date through June 30, 1997 or 1.025 at any time thereafter.

           (d)  Interest  Coverage  Ratio.  The  Borrower  will not  permit  the
Interest Coverage Ratio at any time during any of the periods set forth below to
be less than the ratio set opposite such period below:
<TABLE>
<CAPTION>

                   Period                                                Ratio
                   ------                                                -----

<S>                                                                    <C>
From and including the Effective
Date through December 31, 1998 .............................           3.00 to 1

From and including January 1, 1999
and at all times thereafter ................................           3.50 to 1
</TABLE>

           (e) Capital Expenditures.  The Borrower will not permit the aggregate
amount of Capital Expenditures to exceed $5,000,000 in any calendar year.



                         Credit Agreement

<PAGE>


                             - 82 -


           SECTION 7.09. Lines of Business.  Neither the Borrower nor any of its
Subsidiaries  shall  engage  to any  substantial  extent in any line or lines of
business activity other than the Business.

           SECTION 7.10.  Modifications of Certain Documents.  The Borrower will
not,  and  will  not  permit  any   Subsidiary  to,  agree  or  consent  to  any
modification,  supplement  or waiver of (a) any of the  provisions of any of the
Restructuring  Documents or the Ancillary Agreements (other than the Tax Sharing
Agreement)  if such  modification,  supplement  or waiver  could  reasonably  be
expected to have a Material  Adverse  Effect or (b) the  Subordinated  Note, the
Subordinated Intercompany Note (excluding any modification, supplement or waiver
regarding  waiver or  deferral  of the  payment  of  interest  or  principal  or
extending the final maturity  thereof),  the Note Subordination  Agreement,  the
Intercompany Note Subordination  Agreement or the Tax Sharing Agreement, in each
case without the prior consent of the Administrative Agent (with the approval of
the Required Lenders).

           SECTION 7.11. Rheox  International.  Notwithstanding  anything to the
contrary contained in this Agreement, but without limiting the effect of Section
6.12(b):

           (a) the  Borrower  will cause all  shares of  capital  stock or other
      ownership  interests in any of the Foreign  Subsidiaries at any time owned
      by any of the Borrower and the Domestic Subsidiaries to be owned solely by
      Rheox   International,   directly  or  indirectly  through  other  Foreign
      Subsidiaries; and

           (b) the Borrower will not permit Rheox  International to (i) merge or
      consolidate  with any Person,  (ii) engage in any business  other than (x)
      owning  and  administering  the  business  of  the  Foreign   Subsidiaries
      (including,  but not limited to, owning,  licensing and  administering the
      Foreign Intellectual Property) and (y) extending Indebtedness permitted by
      Sections 7.04(iii) and 7.04(viii) and incurring  Indebtedness permitted by
      Section  7.01(c)  hereof  or  (iii)  incur  any  Indebtedness  other  than
      Indebtedness of (A) Rheox  International  under the Loan Documents and (B)
      Indebtedness  of  Rheox  International  to  the  Borrower  and  its  other
      Subsidiaries permitted by Section 7.01(c).

           SECTION 7.12. Subordinated Notes. The Borrower will not (except, with
respect to the Subordinated Note, as required by Section 6.10(a)),  and will not
permit any  Subsidiary to,  purchase,  redeem,  retire or otherwise  acquire for
value, or set apart any money for a sinking,  defeasance or other analogous fund
for the purchase,  redemption,  retirement or other  acquisition of, or make any
voluntary payment or prepayment of the principal of or interest on, or any other
amount  owing  in  respect  of,  the  Subordinated   Note  or  the  Subordinated
Intercompany  Note,  except  (a) in the case of the  Subordinated  Note,  (i) as
required  by  Section  6.10(a)  and  (ii)  subject  to  the  Note  Subordination
Agreement,  for  regularly  scheduled  payments  of  interest  thereon  required
pursuant  thereto  and (b) in the case of the  Subordinated  Intercompany  Note,
subject to the Intercompany Note Subordination


                         Credit Agreement

<PAGE>


                             - 83 -


Agreement,  for regularly  scheduled  payments of principal and interest thereon
required pursuant thereto.


                           ARTICLE VIII

                         Events of Default

           If any of the following  events ("Events of Default") shall occur and
be continuing:

           (a) the Borrower  shall fail to pay any  principal of any Loan or any
      reimbursement obligation in respect of any LC Disbursement when and as the
      same shall become due and payable, whether at the due date thereof or at a
      date fixed for prepayment thereof or otherwise;

           (b) any Credit  Party  shall fail to pay any  interest on any Loan or
      any fee or other amount (other than an amount referred to in clause (a) of
      this Article VIII)  payable  under this  Agreement or under any other Loan
      Document,  when and as the same  shall  become  due and  payable  and such
      failure shall  continue  unremedied for a period of three or more Business
      Days;

           (c) any  representation  or  warranty  made or  deemed  made by or on
      behalf any Credit Party or NL in or in connection with this Agreement, any
      of the other Loan  Documents or any  amendment or  modification  hereof or
      thereof,  or in any  report,  certificate,  financial  statement  or other
      document furnished  pursuant to or in connection with this Agreement,  any
      of the other Loan  Documents or any  amendment or  modification  hereof or
      thereof,  shall prove to have been  incorrect  when made or deemed made in
      any material respect;

           (d) the  Borrower  shall fail to observe  or  perform  any  covenant,
      condition or agreement contained in Section 6.02(a), 6.03 (with respect to
      the Borrower's existence), 6.09 or 6.10 or in Article VII;

           (e) any Credit  Party or NL shall  fail to  observe  or  perform  any
      covenant,  condition or agreement  contained in this Agreement (other than
      those specified in clause (a), (b) or (d) of this Article VIII), any other
      Loan  Document  or the Tax  Sharing  Agreement,  and  such  failure  shall
      continue  unremedied for a period of 30 days after notice thereof from the
      Administrative Agent (given at the request of any Lender) to the Borrower;

           (f) the Borrower or any  Subsidiary  shall fail after any  applicable
      period of grace to make any payment of principal  of,  interest on or fees
      payable to lenders in


                         Credit Agreement

<PAGE>


                             - 84 -


      respect of any Material Obligations, when and as the same shall become due
      and payable;

           (g) any  event or  condition  occurs  that  results  in any  Material
      Obligations  becoming due prior to its scheduled  maturity or, for so long
      as such event or condition is continuing, that enables or permits (with or
      without  the  giving of  notice,  the lapse of time or both) the holder or
      holders  of any  Material  Obligations  or any  trustee or agent on its or
      their  behalf or cause any  Material  Obligations  to  become  due,  or to
      require the  prepayment,  repurchase,  redemption or  defeasance  thereof,
      prior to its scheduled  maturity;  provided that this clause (g) shall not
      apply  to  secured  Indebtedness  that  becomes  due  as a  result  of the
      voluntary  sale or  transfer  of the  property  or  assets  securing  such
      Indebtedness or the voluntary termination of a Hedging Agreement;

           (h) an  involuntary  proceeding  shall be commenced or an involuntary
      petition shall be filed seeking (i) liquidation,  reorganization  or other
      relief in  respect  of NL,  the  Borrower  any  Subsidiary  other  than an
      Inactive  Subsidiary or its debts, or of a substantial part of its assets,
      under any Federal, state or foreign bankruptcy,  insolvency,  receivership
      or similar law now or  hereafter  in effect or (ii) the  appointment  of a
      receiver,  trustee,  custodian,   sequestrator,   conservator  or  similar
      official  for NL, the  Borrower or any  Subsidiary  other than an Inactive
      Subsidiary or for a substantial part of its assets, and, in any such case,
      such  proceeding or petition shall continue  undismissed for 60 days or an
      order or  decree  approving  or  ordering  any of the  foregoing  shall be
      entered;

           (i) NL,  the  Borrower  or any  Subsidiary  other  than  an  Inactive
      Subsidiary  shall (i)  voluntarily  commence  any  proceeding  or file any
      petition  seeking  liquidation,  reorganization  or other relief under any
      Federal, state or foreign bankruptcy, insolvency,  receivership or similar
      law now or hereafter in effect,  (ii)  consent to the  institution  of, or
      fail to contest in a timely and  appropriate  manner,  any  proceeding  or
      petition  described in clause (h) of this Article VIII, (iii) apply for or
      consent  to  the   appointment   of  a   receiver,   trustee,   custodian,
      sequestrator,  conservator or similar official for NL, the Borrower or any
      Subsidiary other than an Inactive  Subsidiary or for a substantial part of
      its assets,  (iv) file an answer  admitting the material  allegations of a
      petition  filed  against  it in any such  proceeding,  (v) make a  general
      assignment  for the benefit of  creditors  or (vi) take any action for the
      purpose of effecting any of the foregoing;

           (j) NL,  the  Borrower  or any  Subsidiary  other  than  an  Inactive
      Subsidiary shall become unable,  admit in writing or fail generally to pay
      its debts as they become due;

           (k) one or more final judgments for the payment of money in excess of
      $2,500,000 shall be rendered against the Borrower or any Subsidiary or any


                         Credit Agreement

<PAGE>


                             - 85 -


      combination  thereof and the same shall not be discharged  for a period of
      30  consecutive  days during which the execution  shall not be effectively
      stayed,  or any action  shall be legally  taken by a judgment  creditor to
      attach  or levy upon any  assets  of the  Borrower  or any  Subsidiary  to
      enforce  any such  judgment,  or any action  shall be  legally  taken by a
      judgment  creditor  of NL to attach or levy  upon the  collateral  pledged
      under the NL Pledge Agreement;

           (l) an ERISA Event shall have  occurred  that,  in the opinion of the
      Required  Lenders,  when taken  together  with all other ERISA Events that
      have  occurred,  could  reasonably  be  expected  to result in a  Material
      Adverse Effect;

           (m) A reasonable basis shall exist for the assertion  against NL, the
      Borrower or any  Subsidiary of (or there shall have been asserted  against
      NL,  the  Borrower  or any  Subsidiary)  claims  or  liabilities,  whether
      accrued, absolute or contingent,  based on or arising from the generation,
      storage, transport, handling or disposal of Hazardous Materials by NL, the
      Borrower  or any of the  Borrower's  Subsidiaries  or  Affiliates,  or any
      predecessor  in  interest  of NL, the  Borrower  or any of the  Borrower's
      Subsidiaries  or  Affiliates,  or relating to any site or facility  owned,
      operated  or  leased  by  NL,  the  Borrower  or  any  of  the  Borrower's
      Subsidiaries or Affiliates,  which claims or liabilities  (insofar as they
      are payable by NL, the Borrower or any Subsidiary but after  deducting any
      portion  thereof  which  is  reasonably  expected  to  be  paid  by  other
      creditworthy  Persons  jointly  and  severally  liable  therefor),  in the
      judgment of the Required  Lenders are  reasonably  likely to be determined
      adversely to NL, the Borrower or any  Subsidiary,  and the amount  thereof
      is,  singly or in the  aggregate,  reasonably  likely  to have a  Material
      Adverse Effect;

           (n) NL  shall  at  any  time  and  for  any  reason  cease  to be the
      beneficial owner of 100% of the outstanding shares of capital stock of the
      Borrower;  or any Person or Persons not having beneficial ownership in the
      aggregate of 50% or more of the outstanding  shares of capital stock of NL
      on the date hereof shall acquire beneficial  ownership in aggregate of 50%
      or more of the  outstanding  shares of capital  stock of NL; or during any
      period  of 25  consecutive  calendar  months,  (i)  individuals  who  were
      directors of NL on the first day of such period and (ii) other individuals
      whose  election or nomination by the Board of Directors of NL was approved
      by at least a majority  of the Board of  Directors  of NL who either  were
      directors on the first day of such period or whose  election or nomination
      was  previously so approved  shall no longer  constitute a majority of the
      Board of Directors of NL; or

           (o) Any of the  following  shall  occur:  (i) the Lien created by any
      Security  Document  shall  at  any  time  (other  than  by  reason  of the
      Administrative Agent relinquishing  possession of certificates  evidencing
      shares of stock of Subsidiaries  pledged thereunder) cease to constitute a
      valid and  perfected  (to the extent such Lien is required to be perfected
      under the Security Documents) Lien on the collateral intended


                         Credit Agreement

<PAGE>


                             - 86 -


      to be covered  thereby;  (ii) except for expiration in accordance with its
      terms, any Security  Document shall for whatever reason be terminated,  or
      shall cease to be in full force and effect; or (iii) the enforceability of
      any Security  Document or the validity of any  subordination  provision in
      the Note Subordination Agreement or in the Intercompany Note Subordination
      Agreement shall be contested by any Credit Party or by NL;

then,  and in every such event  (other than an event  described in clause (h) or
(i) of this Article),  and at any time thereafter during the continuance of such
event, the Administrative  Agent may, and at the request of the Required Lenders
shall, by notice to the Borrower,  take either or both of the following actions,
at the same or different times: (i) terminate the Commitments, and thereupon the
Commitments  shall  terminate  immediately,  and (ii)  declare  the  Loans  then
outstanding  to be due and  payable  in  whole  (or in part,  in which  case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and  payable,  together  with  accrued  interest  thereon and all fees and other
obligations  of the  Borrower  accrued  hereunder,  shall become due and payable
immediately,  without presentment,  demand, protest or other notice of any kind,
all of which are  hereby  waived by the  Borrower;  and in the case of any event
described  in  clause  (h)  or  (i)  of  this  Article,  the  Commitments  shall
automatically  terminate  and  the  principal  of the  Loans  then  outstanding,
together with accrued interest thereon and all fees and other obligations of the
Borrower accrued hereunder,  shall automatically become due and payable, without
presentment,  demand,  protest  or other  notice of any  kind,  all of which are
hereby waived by the Borrower.


                            ARTICLE IX

                     The Administrative Agent

           Each of the  Lenders  and the LC Issuing  Lender  hereby  irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such  actions  on its behalf and to  exercise  such  powers as are
delegated to the  Administrative  Agent by the terms of this  Agreement  and the
other Loan  Documents,  together with such actions and powers as are  reasonably
incidental thereto.

           Chase  shall have the same  rights and  powers in its  capacity  as a
Lender  hereunder  as any other Lender and may exercise the same as though Chase
were not the  Administrative  Agent,  and Chase and its  Affiliates  may  accept
deposits from,  lend money to and generally  engage in any kind of business with
any Credit Party or any  Subsidiary  or other  Affiliate of any thereof as if it
were not the Administrative Agent hereunder.

           The  Administrative  Agent  shall not have any duties or  obligations
except those expressly set forth in this Agreement and the other Loan Documents.
Without limiting the


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                             - 87 -


generality of the foregoing,  (a) the Administrative  Agent shall not be subject
to any  fiduciary or other implied  duties,  regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary  action or exercise any discretionary  powers,  except
discretionary rights and powers expressly contemplated by this Agreement and the
other Loan  Documents that the  Administrative  Agent is required to exercise in
writing by the Required  Lenders,  and (c) except as expressly  set forth herein
and in the other Loan  Documents,  the  Administrative  Agent shall not have any
duty to  disclose,  and shall not be liable  for the  failure to  disclose,  any
information  relating  to  any  Credit  Party,  NL or any  of  their  respective
Subsidiaries  that  is  communicated  to or  obtained  by  Chase  or  any of its
Affiliates in any capacity. The Administrative Agent shall not be liable for any
action  taken or not  taken  by it with the  consent  or at the  request  of the
Required Lenders or, if provided  herein,  with the consent or at the request of
the Required  Revolving  Credit or the  Required  Term Loan  Lenders,  or in the
absence of its own gross  negligence or wilful  misconduct.  The  Administrative
Agent  shall not be deemed to have  knowledge  of any  Default  unless and until
written notice thereof is given to the Administrative Agent by the Borrower or a
Lender (whereupon the Administrative Agent shall promptly deliver a copy thereof
to the Lenders),  and the  Administrative  Agent shall not be responsible for or
have any duty to  ascertain  or  inquire  into (i) any  statement,  warranty  or
representation  made in or in connection  with this  Agreement or the other Loan
Documents,  (ii) the  contents  of any  certificate,  report  or other  document
delivered  hereunder or under any of the other Loan  Documents or in  connection
herewith  of  therewith,  (iii)  the  performance  or  observance  of any of the
covenants,  agreements or other terms or  conditions  set forth herein or in any
other  Loan  Document,  (iv)  the  validity,  enforceability,  effectiveness  or
genuineness of this Agreement,  the other Loan Documents or any other agreement,
instrument or document,  or (v) the  satisfaction  of any condition set forth in
Article V or elsewhere herein,  other than to confirm receipt of items expressly
required to be delivered to the Administrative Agent.

           The  Administrative  Agent shall not, except to the extent  expressly
instructed by the Required Lenders with respect to collateral security under the
Security  Documents,  be  required to  initiate  or conduct  any  litigation  or
collection proceedings hereunder or under any other Loan Document.

           The  Administrative  Agent shall be entitled to rely upon,  and shall
not incur any  liability  for relying upon,  any notice,  request,  certificate,
consent, statement,  instrument,  document or other writing believed by it to be
genuine and to have been signed or sent by the proper Person. The Administrative
Agent also may rely upon any  statement  made to it orally or by  telephone  and
believed  by it to be made  by the  proper  Person,  and  shall  not  incur  any
liability for relying thereon.  The Administrative  Agent may consult with legal
counsel (who may be counsel for the Borrower), independent accountants and other
experts  selected  by it, and shall not be liable  for any  action  taken or not
taken by it in accordance  with the advice of any such counsel,  accountants  or
experts.



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                             - 88 -


           The  Administrative  Agent may perform any and all of its duties, and
exercise  its  rights  and  powers,  by or  through  any one or more  sub-agents
appointed by the  Administrative  Agent. The  Administrative  Agent and any such
sub-agent  may perform any and all its duties and exercise its rights and powers
through  its  Related  Parties.  The  exculpatory  provisions  of the  preceding
paragraphs  shall apply to any such sub-agent and to the Related  Parties of the
Administrative  Agent and any such sub-agent,  and shall apply to its activities
in connection with the syndication of the credit facilities  provided for herein
as well as activities as the Administrative Agent.

           Subject  to  the   appointment   and   acceptance   of  a   successor
Administrative  Agent, as provided in this paragraph,  the Administrative  Agent
may resign at any time by notifying the Lenders,  the LC Issuing  Lender and the
Borrower. Upon any such resignation,  the Required Lenders shall have the right,
in consultation with the Borrower, to appoint a successor  Administrative Agent.
If no  successor  shall  have been so  appointed  and shall have  accepted  such
appointment within 30 days after such retiring Administrative Agent gives notice
of its resignation,  then such retiring  Administrative  Agent may, on behalf of
the Lenders and the LC Issuing Lender, appoint a successor Administrative Agent,
which shall be a bank with an office in New York,  New York,  or an Affiliate of
any such bank. Upon the acceptance of its appointment as  Administrative  Agent,
by a successor,  such successor  shall succeed to and become vested with all the
rights, powers,  privileges and duties of the retiring Administrative Agent, and
the  retiring  Administrative  Agent  shall be  discharged  from its  duties and
obligations  hereunder and under the other Loan  Documents.  The fees payable by
the  Borrower  to a  successor  Administrative  Agent shall be the same as those
payable to its predecessor unless otherwise agreed between the Borrower and such
successor. After an Administrative Agent's resignation hereunder, the provisions
of this Article IX and Sections 3.03 and 10.03 shall  continue in effect for its
benefit in respect  of any  actions  taken or omitted to be taken by it while it
was acting as Administrative Agent.

           Each  Lender  acknowledges  that it has,  independently  and  without
reliance  upon the  Administrative  Agent,  the LC  Issuing  Lender or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit  analysis  and decision to enter into this  Agreement.  Each
Lender also acknowledges  that it will,  independently and without reliance upon
the Administrative Agent, the LC Issuing Lender or any other Lender and based on
such documents and  information as it shall from time to time deem  appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement and the other Loan Documents,  any related  agreement or any
document furnished hereunder or thereunder.

           The  Documentation  Agent  identified  on  the  cover  page  of  this
Agreement  shall have no duties or  responsibilities  hereunder  other than as a
Lender hereunder.



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<PAGE>


                             - 89 -


                             ARTICLE X

                           Miscellaneous

           SECTION  10.01.  Notices.  Except  in the case of  notices  and other
communications  expressly  permitted to be given by  telephone,  all notices and
other  communications  provided  for  herein  shall be in  writing  and shall be
delivered  by  hand  or  overnight  courier  service,  mailed  by  certified  or
registered mail or sent by telecopy, as follows:

           (a) if to the Borrower, (i) to Rheox, Inc. c/o NL Industries, Inc. at
      70 East 55th  Street,  New York,  New York  10022,  Attention  of Susan E.
      Alderton  (Telecopy No. (212) 421-7209) and (ii) to Rheox,  Inc., P.O. Box
      700, Wycoffs Mill Road, Hightstown,  New Jersey 08520, Attention of Debbie
      Young;

           (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
      and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
      New York 10081, Attention of Terri Williams (Telecopy No. (212) 552-5277),
      with a copy to The Chase  Manhattan  Bank, 1 Chase  Manhattan  Plaza,  5th
      Floor, New York, New York 10081, Attention of Peter Dedousis (Telecopy No.
      (212) 552-7175); and

           (c) if to any Lender  (including  to Chase in its  capacity as the LC
      Issuing  Lender),  to it at its address (or telecopy  number) set forth in
      its Administrative Questionnaire.

Any party hereto may change its address or telecopy number for notices and other
communications  hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.

           SECTION 10.02.  Waivers; Amendments.

           (a) No failure or delay by the  Administrative  Agent, the LC Issuing
Lender or any Lender in exercising any right or power hereunder shall operate as
a waiver thereof,  nor shall any single or partial exercise of any such right or
power, or any abandonment or  discontinuance of steps to enforce such a right or
power,  preclude  any other or further  exercise  thereof or the exercise of any
other right or power. The rights and remedies of the  Administrative  Agent, the
LC Issuing Lender and the Lenders hereunder are cumulative and are not exclusive
of any rights or  remedies  that they  would  otherwise  have.  No waiver of any
provision  of this  Agreement  or consent to any  departure  by any Credit Party
therefrom shall in any event be effective  unless the same shall be permitted by
paragraph  (b) of this Section  10.02,  and then such waiver or consent shall be
effective  only in the  specific  instance  and for the purpose for which given.
Without limiting the generality of the foregoing, the making of


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<PAGE>


                             - 90 -


a Loan or issuance of a Letter of Credit  shall not be  construed as a waiver of
any Default,  regardless of whether the Administrative  Agent, any Lender or the
LC Issuing Lender may have had notice or knowledge of such Default at the time.

           (b) Neither this  Agreement nor any  provision  hereof may be waived,
amended or modified  except  pursuant to an agreement or  agreements  in writing
entered into by the Borrower and the Required Lenders or by the Borrower and the
Administrative Agent with the consent of the Required Lenders;  provided that no
such agreement shall:

              (i)  increase  the  Commitment  of any Lender  without the written
      consent of such Lender;

              (ii) reduce the principal amount of any Loan or LC Disbursement or
      reduce the rate of interest thereon, or reduce any fees payable hereunder,
      without the written consent of each Lender affected thereby;

              (iii)  postpone  the  scheduled  date of payment of the  principal
      amount of any Loan or LC  Disbursement,  or any interest  thereon,  or any
      fees payable hereunder,  or reduce the amount of, waive or excuse any such
      payment,  or postpone the scheduled date of expiration of any  Commitment,
      without the written consent of each Lender affected thereby;

              (iv) change  Section  2.09 in a manner that would  reduce or alter
      the application of prepayments thereunder,  or change Section 2.16(b), (c)
      or (d) in a manner  that  would  alter the pro rata  sharing  of  payments
      required thereby, without in each case the written consent of each Lender;

              (v) alter the  rights or  obligations  of the  Borrower  to prepay
      Loans without the written consent of each Lender;

              (vi) change any of the  provisions  of this  Section  10.02 or the
      definition of "Required Lenders",  "Required Revolving Credit Lenders", or
      "Required Term Loan Lenders", or any other provision hereof specifying the
      number or  percentage  of Lenders  required to waive,  amend or modify any
      rights   hereunder   or  under  any  other  Loan   Document  or  make  any
      determination  or grant any consent  hereunder or thereunder,  without the
      written consent of each Lender; or

              (vii)  release  all  or   substantially   all  of  the  Subsidiary
      Guarantors  from their  obligations  in respect of their  Guarantee  under
      Article III, without the written consent of each Lender;



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<PAGE>


                             - 91 -


provided further that no such agreement shall amend,  modify or otherwise affect
the  rights or  duties  of the  Administrative  Agent or the LC  Issuing  Lender
hereunder without the prior written consent of the  Administrative  Agent or the
LC Issuing Lender, as the case may be.

           Anything in this Agreement to the contrary notwithstanding, no waiver
or  modification  of any provision of this Agreement that has the effect (either
immediately  or at some  later  time) of  enabling  the  Borrower  to  satisfy a
condition  precedent to the making of Revolving Credit Loans or Term Loans shall
be  effective  against  the  Revolving  Credit  Lenders  or Term  Loan  Lenders,
respectively, unless the Required Revolving Credit Lenders or Required Term Loan
Lenders, respectively, shall have concurred with such waiver or modification.

           (c) Neither any Security  Document nor any  provision  thereof may be
waived,  amended or modified  except  pursuant to an agreement or  agreements in
writing  entered  into  by  the  Credit  Parties  party  thereto,   and  by  the
Administrative  Agent with the consent of the Required  Lenders,  provided that,
without the prior  consent of each Lender,  the  Administrative  Agent shall not
(except as provided herein or in the applicable  Security  Document) release all
or  substantially  all of the collateral  thereunder or otherwise  terminate any
Lien under any Security Document,  agree to additional obligations being secured
by such  collateral  (unless the Lien for such additional  obligations  shall be
junior to the Lien in favor of the other  obligations  secured by such  Security
Document,  in which  event the  Administrative  Agent may consent to such junior
Lien  provided  that it obtains the consent of the  Required  Lenders  thereto),
alter the relative priorities of the obligations entitled to the benefits of the
Liens created under such Security Document, except that no such consent shall be
required, and the Administrative Agent is hereby authorized, to release any Lien
covering  property  that is the  subject  of either a  Disposition  of  property
permitted  hereunder  or a  Disposition  to  which  the  Required  Lenders  have
consented.

           SECTION 10.03.  Expenses; Indemnity; Damage Waiver.

           (a) The  Credit  Parties  jointly  and  severally  agree  to pay,  or
reimburse the  Administrative  Agent or Lenders for paying,  (i) all  reasonable
out-of-pocket  expenses incurred by the Administrative Agent and its Affiliates,
including the reasonable fees, charges and disbursements of Special Counsel,  in
connection  with the syndication of the credit  facilities  provided for herein,
the  preparation of this Agreement and the other Loan Documents (and any Uniform
Commercial  Code financing  statements  required by any Security  Document to be
filed with respect to the security  interests in personal  property and fixtures
created  pursuant  thereto) or any amendments,  modifications  or waivers of the
provisions  hereof or  thereof  (whether  or not the  transactions  contemplated
hereby  or  thereby  shall  be  consummated),  (ii) all  out-of-pocket  expenses
incurred by the LC Issuing  Lender in connection  with the issuance,  amendment,
renewal  or  extension  of any  Letter  of  Credit  or any  demand  for  payment
thereunder,  (iii) all  out-of-pocket  expenses  incurred by the  Administrative
Agent,  the LC Issuing  Lender or any Lender,  including  the fees,  charges and
disbursements of any


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<PAGE>


                             - 92 -


counsel  for  such  Administrative  Agent,  LC  Issuing  Lender  or  Lender,  in
connection  with the  enforcement or protection of its rights in connection with
this  Agreement  and the other Loan  Documents,  including its rights under this
Section 10.03,  or in connection with the Loans made or Letters of Credit issued
hereunder,   including  in  connection  with  any  workout,   restructuring   or
negotiations in respect thereof,  and (iv) all transfer,  stamp,  documentary or
other  similar  taxes,  assessments  or charges  levied by any  governmental  or
revenue  authority  in  respect  of  this  Agreement  or any of the  other  Loan
Documents  or any other  document  referred  to herein or therein and all costs,
expenses,  taxes,  assessments and other charges incurred in connection with any
filing,   registration,   recording  or  perfection  of  any  security  interest
contemplated by any Security Document,  by any Uniform Commercial Code financing
statements  required by any  Security  Document to be filed with  respect to the
security  interests in personal  property and fixtures created pursuant thereto,
or by any other document  referred to therein.  Notwithstanding  anything to the
contrary in this Section  10.03(a),  the Borrower  shall not be obligated to pay
the fees and expenses of more than one law firm representing the  Administrative
Agent and the Lenders  (which law firm shall be  selected by the  Administrative
Agent, or if the Required Lenders so decide, by the Required Lenders) unless (x)
the Administrative  Agent or the Required Lenders reasonably  determine that the
retention of more than one law firm is advisable  because  questions arise under
laws of  jurisdictions in which the principal law firm engaged is not authorized
to  practice  law or (y)  in  the  case  of  the  foregoing  clause  (iii),  the
Administrative  Agent or any Lender or Lenders  have  different  or  conflicting
interests.

           (b) The Credit Parties  jointly and severally  agree to indemnify the
Administrative  Agent,  the LC Issuing Lender and each Lender,  and each Related
Party  of any of the  foregoing  Persons  (each  such  Person  being  called  an
"Indemnitee")  against,  and hold each  Indemnitee  harmless  from,  any and all
losses, claims, damages,  liabilities and related expenses,  including the fees,
charges and  disbursements  of any counsel  for any  Indemnitee,  incurred by or
asserted  against any  Indemnitee  arising out of, in  connection  with, or as a
result of (i) the  execution  or  delivery  of this  Agreement,  the other  Loan
Documents or any agreement or instrument contemplated hereby, the performance by
the parties  hereto and thereto of their  respective  obligations  hereunder  or
thereunder or the  consummation of the  Transactions  or any other  transactions
contemplated hereby or thereby,  (ii) any Loan or Letter of Credit or the use of
the proceeds therefrom  (including any refusal by the LC Issuing Lender to honor
a demand for  payment  under a Letter of Credit if the  documents  presented  in
connection with such demand do not strictly comply with the terms of such Letter
of Credit), (iii) any actual or alleged presence,  Release or threatened Release
of Hazardous  Materials  related to any property owned or operated by any Credit
Party or any of their  Subsidiaries,  or any Environmental  Liability related in
any way to any Credit Party or any of their Subsidiaries,  or (iv) any actual or
prospective claim,  litigation,  investigation or proceeding  relating to any of
the  foregoing,  whether  based  on  contract,  tort  or any  other  theory  and
regardless  of whether any  Indemnitee  is a party  thereto;  provided that such
indemnity shall not, as to any Indemnitee,  be available to the extent that such
losses,  claims,  damages,  liabilities or related expenses (are determined by a
court of competent jurisdiction by final and


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<PAGE>


                             - 93 -


nonappealable  judgment to have)  resulted  from the gross  negligence or wilful
misconduct of such Indemnitee.  Notwithstanding anything to the contrary in this
Section  10.03(b),  the  Borrower  shall not be  obligated  to pay or  otherwise
indemnify  the  Administrative  Agent or any Lender for the fees and expenses of
more than one law firm  representing  the  Administrative  Agent and the Lenders
(which  law firm  shall  be  selected  by the  Administrative  Agent,  or if the
Required   Lenders  so  decide,   by  the  Required   Lenders)  unless  (x)  the
Administrative  Agent or the  Required  Lenders  reasonably  determine  that the
retention of more than one law firm is advisable  because  questions arise under
laws of  jurisdictions in which the principal law firm engaged is not authorized
to practice  law or (y) the  Administrative  Agent or any Lender or Lenders have
different or conflicting interests.

           (c) To the  extent  that the  Credit  Parties  fail to pay any amount
required to be paid by them to the  Administrative  Agent under paragraph (a) or
(b)  of  this  Section  10.03,  each  Lender  severally  agrees  to  pay  to the
Administrative Agent such Lender's Applicable  Percentage  (determined as of the
time that the applicable unreimbursed expense or indemnity payment is sought) of
such unpaid amount;  provided that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted  against the  Administrative  Agent in its capacity as such.  To the
extent  that the Credit  Parties  fail to pay any amount  required to be paid by
them to the LC Issuing Lender under  paragraph (a) or (b) of this Section 10.03,
each Revolving  Credit Lender  severally  agrees to pay to the LC Issuing Lender
such  Lender's  Applicable  Percentage  (determined  as of  the  time  that  the
applicable  unreimbursed  expense or indemnity payment is sought) of such unpaid
amount;  provided that the  unreimbursed  expense or  indemnified  loss,  claim,
damage,  liability  or related  expense,  as the case may be, was incurred by or
asserted against the Administrative Agent in its capacity as such.

           (d) To the extent  permitted by  applicable  law,  none of the Credit
Parties shall assert, and each Credit Party hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect,  consequential or
punitive  damages  (as opposed to direct or actual  damages)  arising out of, in
connection with, or as a result of, this Agreement,  the other Loan Documents or
any agreement or instrument  contemplated  hereby or thereby,  the Transactions,
any Loan or Letter of Credit or the use of the proceeds thereof.

           (e) All  amounts  due  under  this  Section  10.03  shall be  payable
promptly after written demand therefor.

           SECTION 10.04.  Successors and Assigns.

           (a) The provisions of this Agreement  shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
permitted hereby,  except that the Borrower may not assign or otherwise transfer
any of its rights or obligations  hereunder without the prior written consent of
each Lender (and any attempted  assignment  or transfer by the Borrower  without
such consent shall be null and void). Nothing in this


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<PAGE>


                             - 94 -


Agreement,  expressed  or implied,  shall be construed to confer upon any Person
(other  than  the  parties  hereto,  their  respective  successors  and  assigns
permitted hereby and, to the extent expressly  contemplated  hereby, the Related
Parties of each of the Administrative Agent, the Issuing Lender and the Lenders)
any  legal or  equitable  right,  remedy  or claim  under or by  reason  of this
Agreement.

           (b) Any Lender may assign to one or more  assignees  all or a portion
of its rights and obligations  under this Agreement  (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that

              (i)  except  in  the  case  of an  assignment  to a  Lender  or an
      Affiliate of a Lender, the Borrower and the Administrative  Agent (and, in
      the case of an  assignment  of all or a  portion  of a  Commitment  or any
      Lender's obligations in respect of its LC Exposure, the LC Issuing Lender)
      must give its prior  written  consent to such  assignment  (which  consent
      shall not be unreasonably withheld or delayed),

              (ii)  except  in the  case  of an  assignment  to a  Lender  or an
      Affiliate of a Lender or an assignment of the entire  remaining  amount of
      the  assigning   Lender's   Commitment  and  Loans,  the  amount  (without
      duplication)  of the Commitment and Loans of the assigning  Lender subject
      to each such  assignment  (determined  as of the date the  Assignment  and
      Acceptance   with  respect  to  such   assignment   is  delivered  to  the
      Administrative  Agent) shall not be less than  $10,000,000  unless each of
      the Borrower and the Administrative Agent otherwise consent,

              (iii) the parties to each assignment  shall execute and deliver to
      the  Administrative  Agent an Assignment and  Acceptance,  together with a
      processing and recordation fee of $3,500,

              (iv) the assignee,  if it shall not be a Lender,  shall deliver to
      the Administrative Agent an Administrative Questionnaire, and

              (v) written notice of each assignment and the forms required under
      Section 2.15(e) are given to the Borrower.

provided further that any consent of the Borrower  otherwise required under this
paragraph  shall not be  required  if an Event of Default  has  occurred  and is
continuing.

           Upon  acceptance  and  recording  pursuant to  paragraph  (d) of this
Section 10.04,  from and after the effective  date specified in each  Assignment
and  Acceptance,  the  assignee  thereunder  shall be a party hereto and, to the
extent of the interest  assigned by such  Assignment  and  Acceptance,  have the
rights and  obligations  of a Lender  under this  Agreement,  and the  assigning
Lender  thereunder  shall,  to the  extent  of the  interest  assigned  by  such
Assignment and Acceptance, be released from its obligations under this Agreement
(and,


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<PAGE>


                             - 95 -


in the  case of an  Assignment  and  Acceptance  covering  all of the  assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall  continue to be entitled to the benefits of Sections
2.13,  2.14,  2.15,  3.03 and 10.03).  Any assignment or transfer by a Lender of
rights or  obligations  under  this  Agreement  that does not  comply  with this
paragraph (b) shall be treated for purposes of this  Agreement as a sale by such
Lender of a  participation  in such rights and  obligations  in accordance  with
paragraph (e) of this Section.

           (c) The Administrative  Agent, acting for this purpose as an agent of
the  Borrower,  shall  maintain  at one of its offices in The City of New York a
copy of each  Assignment and  Acceptance  delivered to it and a register for the
recordation  of the names and addresses of the Lenders,  and the  Commitment of,
and  principal  amount of the Loans and LC  Disbursements  owing to, each Lender
pursuant to the terms hereof from time to time (the "Register").  The entries in
the Register shall be conclusive,  and the Borrower,  the Administrative  Agent,
the LC  Issuing  Lender and the  Lenders  may treat  each  Person  whose name is
recorded in the Register  pursuant to the terms hereof as a Lender hereunder for
all purposes of this  Agreement,  notwithstanding  notice to the  contrary.  The
Register  shall be available  for  inspection  by the  Borrower,  the LC Issuing
Lender  and any  Lender,  at any  reasonable  time  and from  time to time  upon
reasonable prior notice.

           (d) Upon its receipt of a duly  completed  Assignment  and Acceptance
executed  by an  assigning  Lender and an  assignee,  the  assignee's  completed
Administrative  Questionnaire  (unless the  assignee  shall  already be a Lender
hereunder),  the processing and  recordation fee referred to in paragraph (b) of
this  Section  10.04 and any  written  consent to such  assignment  required  by
paragraph (b) of this Section 10.04, the Administrative  Agent shall accept such
Assignment and Acceptance and record the  information  contained  therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
and until it has been recorded in the Register as provided in this paragraph.

           (e)  Any  Lender  may,  without  the  consent  of the  Borrower,  the
Administrative  Agent or the LC Issuing Lender,  sell  participations  to one or
more  banks or other  entities  (a  "Participant")  in all or a portion  of such
Lender's rights and obligations under this Agreement (including all or a portion
of its  Commitment  and the Loans owing to it);  provided that (i) such Lender's
obligations under this Agreement shall remain unchanged,  (ii) such Lender shall
remain solely  responsible  to the other parties  hereto for the  performance of
such  obligations;  and (iii) the Borrower,  the  Administrative  Agent,  the LC
Issuing  Lender and the other Lenders shall continue to deal solely and directly
with such Lender in connection with such Lender's  rights and obligations  under
this  Agreement.  Any agreement or  instrument  pursuant to which a Lender sells
such a participation  shall provide that such Lender shall retain the sole right
to enforce this Agreement and to approve any amendment,  modification  or waiver
of any provision of this  Agreement;  provided that such agreement or instrument
may provide that such Lender will not,  without the consent of the  Participant,
agree to any amendment, modification or waiver described in the first proviso to
Section 10.02(b), or the


                         Credit Agreement

<PAGE>


                             - 96 -


first provision to Section 10.02(c),  that affects such Participant.  Subject to
paragraph (f) of this Section 10.04,  the Borrower agrees that each  Participant
shall be entitled,  subject to the  obligations of Section 2.17, to the benefits
of  Sections  2.13,  2.14 and 2.15 to the same extent as if it were a Lender and
had  acquired  its  interest by  assignment  pursuant to  paragraph  (b) of this
Section 10.04.

           (f) A  Participant  shall not be  entitled  to  receive  any  greater
payment  under Section 2.13 or 2.15 than the  applicable  Lender would have been
entitled to receive with respect to the participation  sold to such Participant,
and shall be subject to the obligations of Section 2.17,  unless the sale of the
participation  to such  Participant  is made with the  Borrower's  prior written
consent.  A Participant that would be a Foreign Lender if it were a Lender shall
not be entitled to the  benefits of Section 2.15 unless the Borrower is notified
of the participation  sold to such Participant and such Participant  agrees, for
the benefit of the Borrower,  to comply with Section 2.15(e) and Section 2.17 as
though it were a Lender.

           (g) Any Lender may at any time  pledge or assign a security  interest
in all or any portion of its rights under this  Agreement to secure  obligations
of such Lender,  including any such pledge or  assignment  to a Federal  Reserve
Bank,  and this Section  shall not apply to any such pledge or  assignment  of a
security  interest;  provided  that no such pledge or  assignment  of a security
interest  shall  release  a Lender  from  any of its  obligations  hereunder  or
substitute any such assignee for such Lender as a party hereto.

           (h) Anything in this Section  10.04 to the contrary  notwithstanding,
no  Lender  may  assign  or  participate  any  interest  in any Loan  held by it
hereunder to the Borrower or any of its Affiliates or  Subsidiaries  without the
prior consent of each Lender.

           SECTION 10.05. Survival. All covenants,  agreements,  representations
and  warranties  made  by the  Credit  Parties  herein  and in  the  other  Loan
Documents,  and in the certificates or other instruments delivered in connection
with or  pursuant  to this  Agreement  and the other  Loan  Documents,  shall be
considered  to have been  relied  upon by the  other  parties  hereto  and shall
survive  the  execution  and  delivery  of this  Agreement  and the  other  Loan
Documents  and the making of any Loans and  issuance  of any  Letters of Credit,
regardless  of any  investigation  made by any such other party or on its behalf
and notwithstanding that the Administrative  Agent, the LC Issuing Lender or any
Lender  may  have  had  notice  or   knowledge   of  any  Default  or  incorrect
representation  or warranty at the time any credit is  extended  hereunder,  and
shall  continue  in full  force and  effect so long as the  principal  of or any
accrued  interest on any Loan or any fee or any other amount  payable under this
Agreement or the other Loan Documents is outstanding and unpaid or any Letter of
Credit  is  outstanding  and so long as the  Commitments  have  not  expired  or
terminated.  The provisions of Sections 2.13,  2.14,  2.15, 2.17, 3.03 and 10.03
and Article IX shall  survive and remain in full force and effect  regardless of
the consummation of the transactions  contemplated  hereby, the repayment of the
Loans, the expiration or termination of the Letters


                         Credit Agreement

<PAGE>


                             - 97 -


of Credit and the  Commitments or the termination of this Agreement or any other
Loan Document or any provision hereof or thereof.

           SECTION  10.06.  Counterparts;   Integration;   Effectiveness.   This
Agreement may be executed in  counterparts  (and by different  parties hereto on
different counterparts),  each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any   separate   letter   agreements   with  respect  to  fees  payable  to  the
Administrative  Agent  constitute the entire contract among the parties relating
to the subject  matter hereof and supersede any and all previous  agreements and
understandings,  oral or written,  relating to the subject matter hereof. Except
as provided in Section 5.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received  counterparts  hereof which,  when taken together,  bear the
signatures of each of the other parties hereto,  and thereafter shall be binding
upon and  inure to the  benefit  of the  parties  hereto  and  their  respective
successors and assigns.  Delivery of an executed counterpart of a signature page
of this  Agreement  by  telecopy  shall be  effective  as delivery of a manually
executed counterpart of this Agreement.

           SECTION 10.07. Severability.  Any provision of this Agreement held to
be invalid,  illegal or  unenforceable  in any  jurisdiction  shall,  as to such
jurisdiction,  be  ineffective to the extent of such  invalidity,  illegality or
unenforceability without affecting the validity,  legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a  particular  jurisdiction  shall not  invalidate  such  provision in any other
jurisdiction.

           SECTION  10.08.  Right of Setoff.  If an Event of Default  shall have
occurred and be  continuing,  each Lender is hereby  authorized  at any time and
from time to time, to the fullest extent  permitted by law, to set off and apply
any and all deposits (general or special, time or demand,  provisional or final)
at any time held and other  indebtedness  at any time owing by such Lender to or
for  the  credit  or the  account  of the  Borrower  against  any of and all the
obligations of the Borrower now or hereafter  existing under this Agreement held
by such Lender,  irrespective  of whether or not such Lender shall have made any
demand under this Agreement and although such obligations may be unmatured.  The
rights of each  Lender  under this  Section  10.08 are in  addition to any other
rights and remedies  (including  other  rights of setoff)  which such Lender may
have.

           SECTION  10.09.  Governing Law;  Jurisdiction;  Consent to Service of
Process.

           (a) This Agreement shall be construed in accordance with and governed
by the law of the State of New York.

           (b) Each party hereto hereby irrevocably and unconditionally submits,
for itself and its property,  to the  nonexclusive  jurisdiction  of the Supreme
Court of the State of New


                         Credit Agreement

<PAGE>


                             - 98 -


York sitting in New York County and of the United States  District  Court of the
Southern District of New York, and any appellate court from any thereof,  in any
action or proceeding  arising out of or relating to this  Agreement or the other
Loan Documents,  or for recognition or enforcement of any judgment,  and each of
the parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding  may be heard and determined in such
New York  State  court (or,  to the extent  permitted  by law,  in such  Federal
court).  Each of the parties  hereto  agrees  that a final  judgment in any such
action  or  proceeding  shall  be  conclusive  and  may  be  enforced  in  other
jurisdictions  by suit on the judgment or in any other  manner  provided by law.
Nothing in this Agreement shall affect any right that the Administrative  Agent,
the LC Issuing  Lender or any Lender may  otherwise  have to bring any action or
proceeding relating to this Agreement against any Credit Party or its properties
in the courts of any jurisdiction.

           (c) Each party hereto hereby irrevocably and unconditionally  waives,
to the fullest extent it may legally and  effectively do so, any objection which
it may now or  hereafter  have to the  laying  of venue of any  suit,  action or
proceeding  arising  out of or  relating  to this  Agreement  or the other  Loan
Documents in any court referred to in paragraph (b) of this Section 10.09.  Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an  inconvenient  forum to the maintenance of such action
or proceeding in any such court.

           (d) Each party to this Agreement  irrevocably  consents to service of
process in the manner  provided  for notices in Section  10.01.  Nothing in this
Agreement  will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.

           SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST  EXTENT  PERMITTED BY APPLICABLE  LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING  DIRECTLY OR INDIRECTLY  ARISING OUT OF OR
RELATING TO THIS  AGREEMENT OR THE  TRANSACTIONS  CONTEMPLATED  HEREBY  (WHETHER
BASED ON CONTRACT,  TORT OR ANY OTHER  THEORY).  EACH PARTY HERETO (A) CERTIFIES
THAT NO  REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY OTHER PARTY HAS  REPRESENTED,
EXPRESSLY  OR  OTHERWISE,  THAT SUCH  OTHER  PARTY  WOULD  NOT,  IN THE EVENT OF
LITIGATION,  SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)  ACKNOWLEDGES  THAT IT
AND THE OTHER PARTIES  HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.10.

           SECTION 10.11.  Headings.  Article and Section headings and the Table
of Contents used herein are for  convenience of reference  only, are not part of
this  Agreement  and shall not  affect  the  construction  of, or be taken  into
consideration in interpreting, this Agreement.


                         Credit Agreement

<PAGE>


                             - 99 -



           SECTION 10.12.  Confidentiality.  Each Lender and the  Administrative
Agent  agrees  (on  behalf of itself  and each of its  Related  Parties)  to use
reasonable precautions to keep confidential,  in accordance with their customary
procedures  for  handling  confidential  information  of the same  nature and in
accordance  with safe and sound banking  practices,  any non-public  information
supplied to it by the Borrower  pursuant to this Agreement that is identified by
the  Borrower as being  confidential  at the time the same is  delivered  to the
Lenders or the  Administrative  Agent,  provided that nothing herein shall limit
the disclosure of any such  information  (i) after such  information  shall have
become  public (other than through a violation of this Section  10.12),  (ii) to
the extent required by statute,  rule, regulation or judicial process,  (iii) to
counsel  for  any of the  Lenders  or the  Administrative  Agent,  (iv)  to bank
examiners (or any other regulatory authority having jurisdiction over any Lender
or  the  Administrative  Agent),  or to  auditors  or  accountants,  (v)  to the
Administrative Agent or any other Lender, (vi) in connection with any litigation
to which any one or more of the Lenders or the Administrative  Agent is a party,
or in connection with the  enforcement of rights or remedies  hereunder or under
any other Loan  Document,  (vii) to a Related  Party of such Lender or (viii) to
any assignee or participant (or prospective  assignee or participant) so long as
such assignee or participant  (or  prospective  assignee or  participant)  first
executes and delivers to such Lender an acknowledgement to the effect that it is
bound by the provisions of this Section  10.12;  provided,  further,  that in no
event shall any Lender or the  Administrative  Agent be obligated or required to
return any materials furnished by the Borrower.




                         Credit Agreement

<PAGE>


                             - 100 -


           IN WITNESS WHEREOF,  the parties hereto have caused this Agreement to
be duly executed by their respective  authorized officers as of the day and year
first above written.


                               RHEOX, INC.


                               by / s / William R. Bronner
                                 Name:  William R. Bronner
                                 Title:  Vice President

                          SUBSIDIARY GUARANTORS

                               RHEOX INTERNATIONAL, INC.


                               by / s / William R. Bronner
                                 Name:  William R. Bronner
                                 Title:  Vice President

                          ADMINISTRATIVE AGENT

                               THE CHASE MANHATTAN BANK,
                               as Administrative Agent


                               by / s / Robert T. Sacks
                                 Name:  Robert T. Sacks
                                 Title:  Vice President

                          LENDERS

                               THE CHASE MANHATTAN BANK


                               by / s / Robert T. Sacks
                                 Name:  Robert T. Sacks
                                 Title:  Vice President




                         Credit Agreement

<PAGE>


                             - 101 -


                               BANKERS TRUST COMPANY


                               by / s / Mary Zadroga
                                 Name:  Mary Zadroga
                                 Title:  Vice President


                               LASALLE NATIONAL BANK


                               by / s / Mark E. McCarthy
                                 Name:  Mark E. McCarthy
                                 Title:  Senior Vice President


                               THE NIPPON CREDIT BANK, LTD.


                               by / s / David C. Carrington
                                 Name:  David C. Carrington
                                 Title: Vice President & Manager


                               VAN KAMPEN AMERICAN CAPITAL


                               by / s / Brian Good
                                 Name:  Brian Good
                                 Title :  Vice President


                               GIRO CREDIT BANK


                               by / s / T. Daileader
                                 Name:  T. Daileader
                                 Title: Assistant Vice President



                         Credit Agreement

<PAGE>





                              Schedule 1.01

                         [Ancillary Agreements]


                              Schedule 1.01

<PAGE>





                              Schedule 2.01
<TABLE>
<CAPTION>

                                              Term Loan       Revolving Credit
               Lender                         Commitment         Commitment
               ------                         ----------      ----------------


<S>                                        <C>                 <C>           
The Chase Manhattan Bank ................  $ 61,250,000.00     $ 8,750,000.00
Bankers Trust Company ...................    18,750,000.00       6,250,000.00
LaSalle National Bank ...................    11,250,000.00       3,750,000.00
The Nippon Credit Bank, Ltd. ............    11,250,000.00       3,750,000.00
Van Kampen American Capital .............    15,000,000.00              --
Giro Credit Bank ........................     7,500,000.00       2,500,000.00
                                           ---------------     --------------
</TABLE>



                              Schedule 2.01

<PAGE>





                              Schedule 4.06

                           [Disclosed Matters]


                              Schedule 4.06

<PAGE>





                              Schedule 4.13

                     [Material Agreements and Liens]


                              Schedule 4.13

<PAGE>





                              Schedule 4.14

                             [Subsidiaries]


                              Schedule 4.14

<PAGE>





                              Schedule 7.01

                         [Existing Indebtedness]


                              Schedule 7.01

<PAGE>





                              Schedule 7.02

                            [Existing Liens]


                              Schedule 7.02

<PAGE>




                              Schedule 7.07

                         [Existing Restrictions]


<PAGE>


                                                                 EXHIBIT 10.38













                              NL INDUSTRIES, INC.

                            RETIREMENT SAVINGS PLAN

                As Amended and Restated effective April 1, 1996




<PAGE>



                              NL INDUSTRIES, INC.
                            RETIREMENT SAVINGS PLAN


                               TABLE OF CONTENTS


Article

PREAMBLE                                                             Paragraph

ARTICLE I - Purpose

ARTICLE II - Definitions

      Affiliated Company...................................................2.1
      Authorized Leave of Absence..........................................2.2
      Basic Contributions..................................................2.3
      Basic After-Tax Contributions........................................2.4
      Basic Pre-Tax Contributions..........................................2.5
      Beneficiary..........................................................2.6
      Board................................................................2.7
      Break in Service.....................................................2.8
      Code.................................................................2.9
      Committee...........................................................2.10
      Common Stock........................................................2.11
      Company.............................................................2.12
      Compensation........................................................2.13
      Contributing Participant............................................2.14
      Disability..........................................................2.15
      Employee............................................................2.16
      Employer............................................................2.17
      Employer Contributions..............................................2.18
      ERISA...............................................................2.19
      Highly Compensated Employee.........................................2.20
      Hour of Service.....................................................2.21
      Investment Funds....................................................2.22
      Long-Term Disability Plan...........................................2.23
      Month of Service....................................................2.24
      Participant.........................................................2.25
      Plan................................................................2.26
      Plan Year...........................................................2.27
      Predecessor Plan....................................................2.28

                                      i

<PAGE>



      Prior Plan..........................................................2.29
      Profitability Level.................................................2.30
      Qualified Election..................................................2.31
      Regulations.........................................................2.32
      Retirement..........................................................2.33
      Spouse..............................................................2.34
      Supplemental Contributions..........................................2.35
      Supplemental After-Tax Contributions................................2.36
      Supplemental Pre-Tax Contributions..................................2.37
      Trust...............................................................2.38
      Trustee.............................................................2.39
      Trust Fund..........................................................2.40
      Valuation Date......................................................2.41
      Vesting Service.....................................................2.42

ARTICLE III - Eligibility for Participation

      Eligibility..........................................................3.1
      Method of Becoming a Participant.....................................3.2
      Method of Becoming a Contributing Participant........................3.3
      Termination of Participation in the Plan.............................3.4
      Intra-Company Transfers..............................................3.5

ARTICLE IV - Participant Contributions

      Amount of Basic After-Tax Contributions..............................4.1
      Amount of Basic Pre-Tax Contributions................................4.2
      Supplemental Contributions...........................................4.3
      Separate Accounting..................................................4.4
      Special Provisions Related to Basic and Supplemental Pre-Tax
            Contributions..................................................4.5
      Change in Amount of Contributions....................................4.6
      Suspension of Basic or Supplemental Contributions....................4.7
      Remittance of Contributions to Trustee...............................4.8
      Cessation of Contributions Made by a Contributing
            Participant....................................................4.9
      Participant Rollover Contributions, Direct Rollovers, and
            Trust to Trust Transfers......................................4.10

ARTICLE V - Employer Contributions

      Employer Contributions...............................................5.1
      Average Contributions Test...........................................5.2

                                      ii

<PAGE>



      Remittance of Employer Contributions to Trustee......................5.3
      Allocation of Employer Contributions and Forfeitures.................5.4
      Investment and Administrative Expenses...............................5.5
      Multiple Use.........................................................5.6
      Qualified Non-Elective Contributions.................................5.7

ARTICLE VI - Investment of Contributions

      Investment Funds.....................................................6.1
      Temporary Investments................................................6.2
      Change in Investment Election for Future Contributions...............6.3
      Inter-Fund Transfers.................................................6.4
      Suspension of Investments and Investment Transfers into the
            NL Stock Fund or the Dresser/Tremont Stock Fund................6.5
      Proxy Material for Those Participants For Whom an Investment Has
            Been Made in the NL Stock Fund or the Dresser Tremont
            Stock Fund.....................................................6.6
      Exercise of Tender Rights............................................6.7
      Best Interest of Participants........................................6.8
      Assumption of Investment Risk by Participants........................6.9
      Section 404(c) of ERISA.............................................6.10

ARTICLE VII - Trust Fund Accounts and Allocation of Earnings

      Participant's Account................................................7.1
      Valuation of Investment Funds........................................7.2
      Valuation of Accounts................................................7.3
      Statement of Participant's Account...................................7.4

ARTICLE VIII - Vesting

      Vesting With Respect to Predecessor Plan Contributions, Participant
            Contributions and Pre-Tax Contributions Made After
            December 31, 1973..............................................8.1
      Vesting With Respect to Employer Contributions.......................8.2
      Years of Vesting Service.............................................8.3
      Forfeitures Upon Distribution Prior to Full Vesting and
            Repayment......................................................8.4
      Full Vesting.........................................................8.5
      Other Provisions Affecting Vesting...................................8.6

ARTICLE IX - Distribution of Benefits Other Than Withdrawals


                                     iii

<PAGE>



      Normal Form of Payment...............................................9.1
      Alternative Forms of Payment.........................................9.2
      Notice of Right to Elect Not to Receive Benefits in Form of 
            Qualified Joint and Survivor Annuity...........................9.3
      Distributions Upon Death.............................................9.4
      Commencement of Certain Distributions................................9.5
      Special Distributions................................................9.6
      Minimum Distribution Requirements....................................9.7

ARTICLE X - Withdrawals

      Withdrawals of Contributions........................................10.1
      Suspensions.........................................................10.2
      Withdrawal of Basic and Supplemental Pre-Tax
            Contributions.................................................10.3
      Restrictions on Withdrawal of Employer Contributions................10.4
      Special Rules Affecting Withdrawals.................................10.5
      Hardship Withdrawals................................................10.6

ARTICLE XI - Named Fiduciary and Administration

      Pension and Employee Benefits Committee.............................11.1
      Authority of the Committee..........................................11.2
      Delegation of Authority.............................................11.3
      Administrator.......................................................11.4
      Appeals Procedure...................................................11.5
      Reliance on Reports and Certificates................................11.6
      Member's Own Participation..........................................11.7
      Exemption from Bond.................................................11.8
      Persons Serving in Dual Fiduciary Roles.............................11.9
      Indemnification....................................................11.10
      Liability of Fiduciaries...........................................11.11
      Liability of Named Fiduciaries.....................................11.12

ARTICLE XII - The Trust Fund

      The Trust...........................................................12.1
      Irrevocability of Company Contributions.............................12.2
      Exclusive Benefit...................................................12.3

ARTICLE XIII - Amendment and Termination of Plan

      Right to Amend or Terminate.........................................13.1

                                      iv

<PAGE>



      Mandatory Amendments................................................13.2
      Distribution of Accounts upon Plan Termination......................13.3

ARTICLE XIV - Limitations on Contributions

      Priority of this Article............................................14.1
      Limitation to Annual Additions......................................14.2
      Adjustments of Annual Additions.....................................14.3
      Participant Covered Under Defined Benefit Plan......................14.4

ARTICLE XV - Top-Heavy Provisions

      Applicability of Top-Heavy Provisions...............................15.1
      Definitions.........................................................15.2
      Determination of Top-Heavy Status...................................15.3
      Minimum Vesting.....................................................15.4
      Minimum Contribution................................................15.5
      Maximum Benefit and Contribution Limitations........................15.6
      Coordination of Plans...............................................15.7

ARTICLE XVI - General Provisions

      Employment Relationships............................................16.1
      Benefits Provided Solely From Trust.................................16.2
      Non-Alienation of Benefits..........................................16.3
      Merger, Consolidation or Transfer of Assets or Liabilities..........16.4
      Payments to Minors and Incompetents.................................16.5
      Employee's Records..................................................16.6
      Missing Persons.....................................................16.7
      Severability of Provisions..........................................16.8
      Receipt and Release.................................................16.9
      Fiduciary Capacities...............................................16.10
      Titles and Headings................................................16.11
      Gender and Number..................................................16.12
      Governing Law......................................................16.13
      Counterparts.......................................................16.14


                                      v

<PAGE>



                                   PREAMBLE


      1.  Formation  of the Plan.  The Plan is a  successor  plan to the  former
"Savings Plan for Employees of NL Industries, Inc.", which is referred to herein
as the  "Predecessor  Plan." In connection with the Plan of  Restructuring of NL
Industries,  Inc. which was approved by  shareholders  on December 22, 1988, the
Predecessor   Plan  was  renamed  the  Savings  Plan  for  Employees  of  Baroid
Corporation  and  adopted  and  assumed  by  Baroid  Corporation.   Pending  the
implementation  of the Plan,  eligible  employees  of NL  Industries,  Inc.  and
subsidiaries  formerly eligible to participate in the Predecessor Plan continued
to participate in the  Predecessor  Plan. The Plan was established as of January
1, 1989 to permit eligible  employees of NL Industries,  Inc. and  participating
subsidiaries to continue their  participation  in a tax-qualified  savings plan.
The Plan includes  amendments which reflect the  restructuring and other changes
which were communicated to eligible employees in November of 1988.  Accordingly,
the Plan governs the rights and obligations of the Company and Plan participants
for  all  periods  on  and  after  January  1,  1989,  except  with  respect  to
participants' accounts held in Investment Funds of the Predecessor Plan, pending
their transfer to the Plan. All  participants  who were  participants  under the
Predecessor Plan automatically  become  participants under the new Plan. Account
balances  under the  Predecessor  Plan were  transferred  to the Plan as soon as
practicable after the implementation of the Plan.

      2. Change of Investment Structure.  Effective as of July 1, 1990, the Plan
was amended and restated to restructure the investments  available,  and to make
related and other amendments.

      3. Baroid Stock Fund. Baroid Corporation restructured in 1990, as a result
of which holders of the Common Stock of Baroid Corporation under the Plan became
holders of shares of both Baroid  Corporation  and Tremont  Corporation.  Baroid
Corporation  was later  acquired  by or merged  with  Dresser  Industries,  Inc.
Therefore,  the Baroid Stock Fund was renamed the Dresser/Tremont  Stock Fund to
reflect the names of the companies whose shares are held in that fund.

      4. IRS  Required  changes.  As part of their  review  of the  amended  and
restated Plan in 1991, the Internal  Revenue  Service  required  several wording
changes that had no operational  effect, but also required  substantial  changes
the forfeitures provisions of Section 8.4.

      5. TRA 86 Update.  To meet the  requirements of the Tax Reform Act of 1986
and subsequent legislation and regulations, the Plan was amended and restated in
December, 1994.

      6. Additional Defined Contribution  Feature.  Effective April 1, 1996, the
defined  benefit  plan was frozen and the Savings Plan amended to provide for an
additional Company Contribution,  to be called a "pension feature contribution";
this  contribution is a profit sharing  contribution  not subject to the minimum
funding  standards of Section 412 of the  Internal  Revenue  Code.  The Plan was
renamed the NL Industries,  Inc. Retirement Savings Plan to reflect inclusion of
the new benefit

                                      vi

<PAGE>



formula.  Other minor changes,  including  deleting certain obsolete portions of
the historical plan document, are made at the same time.

                                     vii

<PAGE>



                                   ARTICLE I

                                    PURPOSE

      1.1 The purpose of the NL Industries,  Inc., Retirement Savings Plan is to
provide  eligible  employees  with a  convenient  way to save on a  regular  and
long-term  basis by providing such  employees with a beneficial  interest in the
profits of the  business,  all as set forth  herein  and in the Trust  Agreement
adopted in connection with the Plan. The Plan and its related Trust are intended
to qualify as a plan and trust which meet the  requirements of Sections  401(a),
401(k) and 501(a), respectively, of the Internal Revenue Code of 1986, as now in
effect  or  hereafter  amended,  and  all  other  applicable  provisions  of law
including,  without  limitation,  the Employee Retirement Income Security Act of
1974, as now in effect or hereafter amended.



                                     I-1

<PAGE>



                                  ARTICLE II

                                  DEFINITIONS

      As  used in the  Plan,  the  following  terms  shall  have  the  following
meanings:

      2.1  "Affiliated  Company" means any business entity which (i) is included
within a  controlled  group of  corporations  within  which the Company  also is
included,  (ii) is under common  control with the Company,  or (iii) is included
within an  affiliated  service  group within which the Company is also a member,
all as determined under Sections 414(b), (c) and (m) of the Code,  respectively;
provided,  however,  that for purposes of  determining  the annual  contribution
limitations  set  forth in  Article  XIV,  such  determination  shall be made in
accordance with Section 415(h) of the Code.

      2.2   "Authorized Leave of Absence" means any absence from employment:

            (a) Authorized by the Committee for education  purposes or by reason
      of family  obligations,  sickness,  short  term  disability,  accident  or
      emergency  (including  any  leave of  absence  to which  the  Employee  is
      eligible under the Family and Medical Leave Act of 1993); or

            (b) On account of a period of  military  service  required by law or
      under leave  granted by the  Committee,  provided the Employee  returns to
      employment with the Company or an Affiliated  Company within 90 days after
      his separation  from active duty or within such longer period during which
      his right to reemployment is legally protected.

      In granting  leaves of absence,  the Committee shall accord like treatment
to all Participants in similar circumstances.

      2.3  "Basic   Contributions"   means  the  aggregate  of  a   Contributing
Participant's Basic After-Tax  Contributions and Basic Pre-Tax  Contributions as
defined in Paragraphs 2.4 and 2.5, respectively.

      2.4 "Basic  After-Tax  Contributions"  means  that part of a  Contributing
Participant's  Compensation  which  he  contributes  to  the  Trust  Fund  on an
after-tax basis, as provided in Paragraph 4.1 hereof.

      2.5  "Basic  Pre-Tax  Contributions"  means  that  part of a  Contributing
Participant's  Compensation  which  he  elects  to  reduce  in  accordance  with
Paragraph 4.2 hereof and have contributed to the Trust Fund on his behalf by his
Employer on a pre-tax basis, in compliance with the provisions of Section 401(k)
of the Code.


                                     II-1

<PAGE>



      2.6  "Beneficiary"  means the  Spouse  of the  Participant  if  surviving;
provided,  however,  that if there is no  surviving  Spouse or if the  surviving
Spouse cannot be located, the person or persons designated by the Participant in
the form of a Qualified Election,  as such term is defined in Paragraph 2.31, to
receive any death benefit  payable  hereunder.  A Participant may also designate
any person or persons as his Beneficiary in the form of a written designation to
receive any death benefit payable  hereunder,  provided he obtains the notarized
written  consent  of  his  Spouse.  A  Participant  may  revoke  or  change  his
Beneficiary  designation only with the consent of the Spouse by filing a revised
designation  with the  Committee.  The last  such  designation  received  by the
Committee shall be controlling;  provided, however, that no designation,  change
or revocation thereof, shall be effective unless received by the Committee prior
to the  Participant's  death, and in no event shall it be effective as of a date
prior to such receipt. In the absence of an effective designation or if no named
beneficiary  shall  survive  the  Participant,  the  Beneficiary  shall  be  the
Participant's  Spouse, or, if there is no Spouse, then the following persons (if
then living) in the following order of priority:  (i) children, in equal shares,
(ii) parents, in equal shares, (iii) the persons designated as beneficiary under
the  group  life  insurance  plan of the  Employer,  and (iv) the  Participant's
estate.  If the  Committee  is in doubt as to the right of any person to receive
such amount, the Committee may direct the Trustee to retain such amount, without
liability for any interest thereon, until the rights thereto are determined,  or
the  Committee  may direct  the  Trustee  to pay such  amount  into any court of
appropriate  jurisdiction and such payment shall be a complete  discharge of the
liability of the Plan and the Trust therefor.

      2.7 "Board"  means the Board of  Directors  of the Company as  constituted
from time to time, or the duly appointed delegate of such Board of Directors.

      2.8 "Break in Service"  means any Plan Year during which an Employee fails
to  receive  credit  for at least  three (3)  Months of  Service or 501 Hours of
Service,  except that a Break in Service shall not be deemed to occur on account
of any Authorized Leave of Absence. Solely for purposes of determining whether a
Break in Service has  occurred in any Plan Year,  an Employee who is absent from
work on account of a "maternity or paternity absence" shall be credited with the
number of Hours of Service which would have been completed but for such absence,
or, if the Committee is unable to determine  such Hours of Service,  eight Hours
of Service for each day of such absence;  provided,  however,  that no more than
501 hours  shall be  credited  hereunder  on  account of any such  absence,  and
further  provided  that the  Employee  furnishes  to the  Committee  such timely
information  as may be required by the  Committee  to properly  administer  this
provision.  Hours of Service for a  "maternity  or paternity  absence"  shall be
credited  entirely in the Plan Year in which the absence  begins if necessary to
prevent  the  occurrence  of a Break in Service  in such year,  or, in any other
case, in the immediately following Plan Year. A "maternity or paternity absence"
shall mean any  absence  from work by reason of the  Employee's  pregnancy,  the
birth of the  Employee's  child,  the  placement of a child with the Employee in
connection  with the adoption of such child by the Employee,  or for purposes of
caring  for any such child for the period  immediately  following  such birth or
placement.


                                     II-2

<PAGE>



      2.9 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended,  and regulations and other authority issued  thereunder.  All
citations to sections of the Code are to such  sections as they may from time to
time be amended or renumbered.

      2.10 "Committee" means the Pension and Employee  Benefits  Committee of NL
Industries, Inc. as established in accordance with Article XI hereof.

      2.11 "Common Stock" means the presently authorized common stock, par value
$.125 per share, of NL Industries,  Inc., a New Jersey corporation,  as adjusted
for  stock  splits,  stock  dividends,  reclassifications  and  similar  changes
affecting  such  shares,  or other  common  stock with voting power and dividend
rights  no less  favorable  than the  voting  power and  dividend  rights of the
presently authorized common stock of NL Industries, Inc.

      Solely  with  respect  to  common  stock of Baroid  Corporation  which was
allocated  to the  accounts  of  Employees  of  the  Company  or its  Affiliated
Companies  as a result  of the  restructuring  of NL  Industries,  Inc.  into NL
Industries, Inc. and Baroid Corporation and which Participants to whose accounts
such stock was  allocated  elected to retain in lieu of exchanging it for common
stock of the Company,  Common Stock also means the presently  authorized  common
stock, par value $.10 per share, of Baroid Corporation,  a Delaware corporation,
or any successor  corporation,  as adjusted for stock splits,  stock  dividends,
reclassifications  and similar  changes  affecting such shares,  or other common
stock with voting power and dividend  rights no less  favorable  than the voting
power and dividend  rights of the  presently  authorized  common stock of Baroid
Corporation.

      Solely  with  respect  to common  stock of Tremont  Corporation  which was
allocated  to the  accounts  of  Employees  of  the  Company  or its  Affiliated
Companies as a result of the  restructuring  of Baroid  Corporation into Tremont
Corporation  and Baroid  Corporation,  Common  Stock  also  means the  presently
authorized  common stock,  par value $.10 per share, of Tremont  Corporation,  a
Delaware  corporation,  or of any successor  corporation,  as adjusted for stock
splits,  stock dividends,  reclassifications  and similar changes affecting such
shares,  or other common  stock with voting  power and  dividend  rights no less
favorable than the voting power and dividend rights of the presently  authorized
common stock of Tremont Corporation.

      2.12  "Company"  means  NL  Industries,  Inc.  and  any  person,  firm  or
corporation  which  hereafter  may succeed to the  interests  of said company by
merger, consolidation or otherwise and which, by appropriate action, shall adopt
the Plan.

      2.13  "Compensation"  means the first  $150,000  (as  adjusted,  as may be
determined by the  Commissioner  of Internal  Revenue,  at such time and in such
manner  as  is  prescribed  in  Section   401(a)(17)(B)  of  the  Code)  of  all
remuneration  paid to an  Employee by his  Employer  during a Plan Year which is
received  during  the  period  that  such  Employee  is  eligible  to  become  a
Participant  in the Plan under the  provisions  of  Paragraph  3.1, and which is
subject to withholding for federal income tax purposes,  or would have been paid
and been  subject  to  withholding  if the  Employee  (i) had not made any Basic
Pre-Tax Contributions as defined in Paragraph 4.2 or Supplemental

                                     II-3

<PAGE>



Pre-Tax  Contributions as defined in Paragraph 4.3 hereof,  (ii) had not elected
to have his salary  reduced to fund  contributions  to a plan  maintained by his
Employer  pursuant  to Section  125 of the Code,  or (iii) was  employed  in the
United  States.   Compensation  shall  not  include  relocation   allowances  or
relocation bonuses,  hiring or sign-on bonuses,  the imputed value of group life
insurance,  tuition refunds,  foreign service premiums and other similar foreign
service  adjustments,  and any  income  attributable  to  stock  options,  stock
appreciation  rights,  performance  award rights (other than  performance  award
rights which are in the nature of an annual  bonus award) or other  similar cash
or non-cash fringe benefits and  prerequisites  (other than executive  incentive
awards  made in cash or  stock).  To the  extent  that the  remuneration  of any
Employee is paid in a foreign currency, such amount shall be converted to United
States  Dollars  at a rate  to be  determined  by the  Committee  and  uniformly
applicable to all Employees paid in such currency at such time.  With respect to
Plan  Years  commencing  after  December  31,  1993,  Compensation  in excess of
$150,000 (as  adjusted,  as may be determined  by the  Commissioner  of Internal
Revenue,  at  such  time  and  in  such  manner  as  is  prescribed  in  Section
401(a)(17)(B) of the Code) (the "applicable  compensation  limitation") shall be
disregarded.

      For purposes of this definition of "Compensation," and for purposes of the
corresponding   limitations  on  compensation  in  Section  14.2  the  following
provisions shall apply:

            (a) The  cost-of-living  adjustment  in effect for a  calendar  year
      applies to any period, not exceeding 12 months, over which compensation is
      determined  ("determination period") beginning in such calendar year. If a
      determination  period  consists  of fewer than 12 months,  the  applicable
      compensation  limit will be  multiplied  by a fraction,  the  numerator of
      which  is the  number  of  months  in the  determination  period,  and the
      denominator of which is 12;

            (b) If compensation for any prior determination period is taken into
      account in determining an employee's benefits accruing in the current plan
      year, the compensation for that prior  determination  period is subject to
      the applicable  compensation limit in effect for that prior  determination
      period, and for this purpose,  for determination  periods beginning before
      the first day of the first  plan year  beginning  on or after  January  1,
      1994, the applicable compensation limit is $150,000.

      2.14  "Contributing  Participant" means any Participant who elects to make
Basic Contributions to the Trust Fund in accordance with Article IV hereof.

      2.15 "Disability" means, with respect to any Participant, the inability of
such  Participant to perform the normal duties of his employment for which he is
qualified by training or experience,  and which qualifies such Participant for a
benefit under the Long Term  Disability Plan and/or the Social Security Act. The
Committee may secure qualified medical advice and may require the Participant to
submit to a physical examination in determining Disability hereunder.

      2.16  "Employee" means any person employed by the Employer except:

                                     II-4

<PAGE>



            (a) any person,  other than a person whose  conditions of employment
      currently  are  covered  by  a  collective  bargaining  agreement,   whose
      compensation  is  computed  on  an  hourly,  daily,   piecework  or  other
      comparable  basis, or any person who is a "leased  employee" as defined in
      Section  414(n) of the Code,  unless  such  person or leased  employee  is
      included  within a class of employees  which is designated by the Board as
      eligible to  participate  in the Plan and is not  otherwise  excluded from
      participation under subparagraphs (c) or (d) below;

            (b) any person whose conditions of employment  currently are covered
      by a  collective  bargaining  agreement  to which the Employer is a party,
      unless the Employer and the bargaining  agent have come to agreement as to
      the inclusion of such person under the Plan;

            (c) any  person  who is or  becomes  a  participant  under any other
      profit  sharing,   savings  or  similar  type  defined  contribution  plan
      (excluding a tax credit employee stock  ownership  plan)  maintained by an
      Employer or any other nonparticipating Affiliated Company; and

            (d) any  person  employed  by an  Affiliated  Company  which  is not
      organized  under  the laws of the  United  States,  or any  State,  or the
      District of Columbia, unless such person is a citizen of the United States
      or  has  been  designated  as  an  Employee,  either  individually  or  by
      employment classification,  by the Committee in accordance with guidelines
      established by the Committee.

Provided  however,  any person  described in (a) through (b) of the  immediately
preceding  sentence  shall be deemed to be an Employee  for  purposes of Section
2.22.

      2.17 "Employer" means the Company,  Rheox, Inc., and Kronos, Inc., and any
other  Affiliated  Company which is designated by the Board as an Employer under
the Plan and whose  designation  as such has become  effective  and continues in
effect.  The Board may revoke the  designation  of an  Affiliated  Company as an
Employer at any time, but the provisions of the Plan shall otherwise continue to
govern the rights and  obligations  of  Participants  of that Employer and their
Beneficiaries  after  such  revocation.  When  used  in  reference  to  Employer
Contributions for a Participant, the term "Employer" shall refer to the Employer
employing such Participant. When the term "Employer" is used in reference to the
collective  obligations of all Employers  adopting the Plan, the  obligations of
each  such  Employer  shall  be   proportionate   to  the  Compensation  of  its
Participants to the Plan.  Each Employer  appoints the Company and the Committee
as its agents to act for it in all matters  relating to the Plan and Trust,  and
agrees to furnish to the Committee such  information  which may be necessary for
the proper administration of the Plan.

      2.18  "Employer  Contributions"  means the amount which the Employer shall
contribute  to the Trust Fund as  provided in Article V hereof,  including  both
Employer Matching Contributions and Employer Pension Feature Contributions.

                                     II-5

<PAGE>



      2.19 "ERISA" means the Employee Retirement Income Security Act of 1974, as
now in effect or hereafter  amended,  and regulations and other authority issued
thereunder.  All citations to Sections of ERISA are to such sections as they may
from time to time be amended or renumbered.


      2.20 "Highly  Compensated  Employee" or "Highly  Compensated  Participant"
means an Employee or Participant who, during the relevant period is treated as a
highly compensated employee under Section 414(q) of the Code.

      2.21  "Hour of Service" means:

            (a) each hour for which an  Employee  is paid or entitled to payment
      for the  performance  of duties for the Employer or an Affiliated  Company
      during the Plan Year;

            (b) each hour for which an  Employee  is paid or entitled to payment
      by the Employer or an Affiliated  Company  during the Plan Year on account
      of a period of time during which no duties are performed  (irrespective of
      whether the  employment  relationship  has  terminated)  due to  vacation,
      holiday, illness, incapacity (including disability), layoff, jury duty, or
      an Authorized Leave of Absence; provided, however, that an Hour of Service
      shall not include any hour during  which no duties are  performed  and for
      which payment is made solely for the purpose of complying with  applicable
      worker's compensation,  unemployment  compensation or disability insurance
      laws; and

            (c) each hour for which  back pay,  irrespective  of  mitigation  of
      damage,  has been  either  awarded  or  agreed  to by the  Employer  or an
      Affiliated  Company (these hours shall be credited to the Employee for the
      computation  period or  periods to which the award or  agreement  pertains
      rather  than the  computation  period  in which the  award  agreement,  or
      payment was made).

      Hours of Service credited for reasons other than the performance of duties
shall be  computed  and  credited  to  computation  periods in  accordance  with
paragraphs  (b)  and (c) of  Section  2530.200b-2  of the  Department  of  Labor
Regulations.  Hours of Service  shall be credited  for any person  considered  a
"leased  employee"  as  defined  in Section  414(n) of the Code,  regardless  of
whether  such person is an  Employee;  provided,  however,  that no such "leased
employee" shall  participate in the Plan except as provided in subparagraph  (a)
of Paragraph 2.17.

      2.22  "Investment  Funds"  means  the  funds in which  the  Trust  Fund is
invested by the Trustee in accordance with the provisions of Article VI hereof.

      2.23 "Long Term  Disability  Plan" means the long term  disability plan of
the Company, as amended from time to time, which covers enrolled Employees.


                                     II-6

<PAGE>



      2.24 "Month of Service" means each calendar month during which an Employee
or "leased employee" is entitled to credit for at least one Hour of Service. For
purposes of the Plan, credit for one Month of Service shall be the equivalent of
having been  credited  with 190 Hours of Service  during the  relevant  calendar
month.  Months of Service  shall  include  each  calendar  month of service with
Baroid Corporation after the approval of the Plan of Restructuring provided such
service would have been credited as a Month of Service if Baroid Corporation had
been an  Affiliated  Company  during such  period.  Months of Service also shall
include service  accumulated with certain  predecessor  employers if, and to the
extent,  authorized by the Board.  The Committee  shall credit Months of Service
under the preceding two sentences in accordance with nondiscriminatory  rules of
uniform application.

      2.25  "Participant"  means  an  Employee  who  satisfies  the  eligibility
requirements  of Article III hereof and who maintains an account  balance in the
Trust Fund, regardless of whether such Employee is a Contributing Participant.

      2.26 "Plan" means the NL Industries,  Inc. Retirement Savings Plan, as may
be subsequently amended or restated from time to time.

      2.27  "Plan Year" means each calendar year.

      2.28  "Predecessor  Plan" means the Savings  Plan for  Employees of Baroid
Corporation  as in effect on  December  31,  1988 and as  thereafter  amended to
incorporate  changes (i)  approved by the Board with  respect to NL  Industries,
Inc.  participants or (ii) otherwise required to be made effective prior to such
date to comply with the amendments to applicable law.

      2.29 "Prior Plan" means the Savings Plan for  Employees of NL  Industries,
Inc. effective as of July 1, 1990, as amended,  restated and continued under the
form of the  Plan,  without  a gap or lapse in  coverage,  time or  effect  of a
qualified plan under applicable provisions of the Code.

      2.30   "Profitability   Level"   means  the  level  and   measurement   of
profitability  which are approved by the Board with respect to the relevant Plan
Year.

      2.31 "Qualified  Election" shall mean an election made by a Participant in
writing and consented to by the  Participant's  Spouse in writing.  The Spouse's
consent must name a specific beneficiary or class of beneficiaries which may not
be changed without spousal consent,  unless the spouse expressly consents to the
designation by the participant without further consent; and must acknowledge the
effect of such  election and must be witnessed by a member of the  Committee,  a
local  employee  relations  manager  or a  notary  public.  Notwithstanding  the
preceding  sentence,  consent  of  the  Spouse  shall  not  be  required  if the
Participant  establishes to the  satisfaction  of the Committee that there is no
Spouse or that the Spouse  cannot be located.  Except as  otherwise  provided in
Paragraph 2.6, a Participant  may revoke a prior  election  without the Spouse's
consent at any time before the commencement of benefits. The number of elections
and revocations shall not be limited.

                                     II-7

<PAGE>



      2.32 "Regulations" means the applicable regulations issued under the Code,
ERISA or other  applicable  law by the IRS, the Labor  Department,  or any other
governmental authority or any temporary regulations or rules promulgated by such
authorities pending the issuance of such regulations.

      2.33 "Retirement" means, in the case of a Participant  eligible for a then
current  pension  under the  provisions  of any  formal  retirement  plan of the
Company,  the  termination  of  employment  by the  Participant  due  to  actual
retirement in accordance  with the  provisions of such plan,  and in the case of
any other  Participant  not covered by a formal  retirement plan of the Company,
such Participant's termination of employment in accordance with rules of uniform
application maintained by the Company.

      2.34  "Spouse"  means  the  person  to whom the  Participant  was  legally
married,  as  determined  by the  Committee,  for at least  31 days  immediately
preceding the earlier of either (a) the date on which the Participant terminates
employment  under the Plan due to Retirement (or is deemed to have so terminated
his employment) or (b) the Participant's death; provided, however, that a former
Spouse  will be  treated as a Spouse to the extent  provided  under a  qualified
domestic relations order as described in Paragraph 16.2.

      2.35  "Supplemental  Contributions"  means the aggregate of a Contributing
Participant's Supplemental After-Tax and Supplemental Pre-Tax Contributions,  as
defined in Paragraphs 2.37 and 2.38, respectively.

      2.36  "Supplemental   After-Tax   Contributions"  means  that  part  of  a
Contributing  Participant's  Compensation in excess of his Basic  Contributions,
and/or and contributions made by a Contributing Participant by means of personal
check,  which he contributes to the Trust Fund on an after-tax basis as provided
in Paragraph 4.3 hereof.

      2.37   "Supplemental   Pre-Tax   Contributions"   means  that  part  of  a
Contributing  Participant's Compensation which he elects to reduce in accordance
with  Paragraph 4.3 hereof and have  contributed to the Trust Fund on his behalf
by his Employer on a pre-tax basis, in compliance with the provisions of Section
401(k) of the Code.

      2.38 "Trust" means the trust  established  pursuant to and forming part of
the Plan for the investment,  reinvestment and  administration  of contributions
under the Plan.

      2.39  "Trustee"  means  the  bank,   trust  company  or  national  banking
association  having  trust  powers  designated  as Trustee of the Trust under an
agreement  between the Company and such bank,  trust company or national banking
association.

      2.40 "Trust Fund" means the trust fund described in Article XII hereof.


                                     II-8

<PAGE>



      2.41 "Valuation  Date" means the date or dates as may be determined by the
Committee to apply with respect to amounts invested in any Investment Fund.

      2.42  "Vesting Service" means service described in Paragraph 8.3 hereof.



                                     II-9

<PAGE>



                                  ARTICLE III

                         ELIGIBILITY FOR PARTICIPATION

      3.1   Eligibility:

            (a) General Rules:  Effective April 1, 1996, each Employee who was a
      Contributing  Participant in the Prior Plan on the date immediately  prior
      to the date such Prior Plan was amended,  restated and continued under the
      form of the Plan shall  continue as a Contributing  Participant  under the
      provisions of the Plan. Each other Employee shall become a Participant and
      also eligible to participate in the Plan as a Contributing  Participant on
      the later of (a) April 1,  1996,  and (b) the first day of the pay  period
      coincident  with  or next  following  the  date on  which  he  shall  have
      performed  at least  1000  Hours of  Service  or six  Months  of  Service,
      provided he shall have performed such service within a single "eligibility
      computation period." An Employee's "eligibility  computation period" shall
      be the 12-month  period  commencing with his date of employment or, if the
      Employee fails to satisfy the requirements of this subparagraph (a) during
      such period, any Plan Year following his date of employment.

            (b) Rollovers By Non-Participants:  Notwithstanding subparagraph (a)
      immediately  above or any other provision of the Plan to the contrary,  an
      Employee who would  otherwise be eligible to  participate  in the Plan but
      for his failure to satisfy the service  requirement under subparagraph (a)
      may make, with the consent of the Committee,  a Rollover  Contribution (as
      defined in subparagraph  4.10(b)), a Direct Rollover to the Trust Fund (as
      described in subparagraph  4.10(c)) or a direct transfer to the Trust Fund
      (as described in  subparagraph  4.10(d)) in accordance with the procedures
      set forth in subparagraph  4.10(a).  In the event the Committee permits an
      Employee to make such a Rollover Contribution,  Direct Rollover, or direct
      transfer  to the Trust  Fund,  the  Committee  shall  cause the Trustee to
      establish  a  separate  account  for  such  Employee  in  accordance  with
      procedures  set forth in Article  VII  hereof and shall  invest the assets
      involved  in the  manner set forth in  Paragraph  6.1 in  accordance  with
      instructions submitted in writing to the Committee by the Employee. In the
      event  the  Employee  terminates  employment  with the  Employer  prior to
      becoming a  Participant  under the Plan,  such  separate  account shall be
      distributed  to him in the form of a lump sum payment in the manner and at
      the time prescribed in subparagraph 9.1(a).

            (c) Non-Resident Aliens:  Notwithstanding any other provision of the
      Plan to the contrary, an Employee who qualifies as such under subparagraph
      2.17(d) or any other nonresident alien or expatriate shall not be eligible
      to make Basic Pre-Tax  Contributions  as defined in Paragraph 2.5,  unless
      otherwise determined by the Committee in its sole discretion.


                                    III-1

<PAGE>



            (d) Independent Contractors:  Notwithstanding any other provision of
      the Plan to the contrary, but subject to the provisions of this paragraph,
      (i) any individual who was considered by the Employer to be an independent
      contractor,  but  who  is  later  reclassified  as a  common-law  Employee
      (excluding  any Leased  Employee  described  in clause  (ii) below) of the
      Employer  with  respect  to  any  portion  of the  period  in  which  such
      individual was paid by the Employer as an independent contractor,  or (ii)
      any Leased Employee, shall be excluded from participation in the Plan with
      respect to the period in which any individual  described in clause (i) was
      considered  to be an  independent  contractor,  or the period in which any
      individual  described  in  clause  (ii)  is  a  Leased  Employee.  If  any
      individual  who is  described  in  clause  (i) or in  clause  (ii) must be
      covered  with  respect  to a Plan Year (or  portion  thereof)  in order to
      ensure that the Plan is operated in compliance  with  Sections  401(a) and
      410(b) of the Code,  starting with the class of  reclassified  independent
      contractors,  only  such  number of  individuals  within  the class  which
      includes the individual  (beginning with the  individuals  with the lowest
      Considered Compensation determined on an annualized basis) as is necessary
      to ensure  compliance  with the Code shall be covered in the Plan only for
      the Plan Year (or portion  thereof)  that is  necessary to ensure that the
      requirements of the Code are met.

      3.2 Method of  Becoming a  Participant:  An  Employee  who is  eligible to
become a  Participant  in the Plan under the  provisions  of Paragraph 3.1 shall
automatically become a Participant and shall be provided opportunity to:

            (a)  stipulate  the   Investment   Fund(s)  to  which  the  Employer
      Contributions should be allocated as set forth in Paragraph 6.1; and

            (b)   name a Beneficiary.

      3.3 Method of Becoming a  Contributing  Participant:  An  Employee  who is
eligible to become a  Contributing  Participant in the Plan under the provisions
of Paragraph  3.1 shall do so by completing  and  delivering to the Committee at
least 15 days (or any shorter  period  authorized by the  Committee)  before the
date of desired  participation,  a written statement (or other form of direction
authorized by the Committee):

            (a)   enrolling as a Contributing Participant;

            (b)  electing  the  initial  rate  of  his  Basic  and  Supplemental
      Contributions under Article IV;

            (c)  stipulating the Investment  Fund(s) to which his  contributions
      and the  Employer  Contributions  should  be  allocated  as set  forth  in
      Paragraph 6.1;

            (d) providing  such other  information as the Committee may require;
      and


                                    III-2

<PAGE>



            (e)  agreeing  to be bound by all the  terms and  conditions  of the
      Plan.

      Each Participant who does not become a Contributing Participant when first
eligible to do so may become a  Contributing  Participant as of the first day of
any pay period  thereafter by complying  with the  provisions of this  Paragraph
3.2.

      3.4 Termination of  Participation  in the Plan:  Participation in the Plan
shall  cease in the case of any  Participant  whose  entire  account  balance is
distributed.  Any person  whose  participation  is  terminated  pursuant  to the
preceding  sentence may resume  participation in the Plan as of the first day of
the pay period  coincident  with or next  following the date he again becomes an
Employee, provided he satisfies the requirements of Paragraph 3.2. Participation
in the Plan shall continue in the case of any Participant  who, upon termination
of employment for any reason  (including  Disability or  Retirement),  or in the
case of any  Beneficiary  who,  upon the  death of the  Participant,  elects  to
receive a distribution  in a form that would maintain an account  balance in any
one or more of the Investment Funds after termination of employment. Such person
shall  remain a  Participant  or,  in the  case of a  Beneficiary,  be  deemed a
Participant herein, but not a Contributing  Participant,  until such time as the
distribution  in full has been made to him.  Any person whose  participation  is
continued  under this  Paragraph 3.3 shall continue to participate in Investment
Fund  performance but shall be prohibited from making any further  contributions
to the Trust Fund  unless he is  reemployed,  in which  event  again he shall be
eligible to become an active  Participant,  and, at his election a  Contributing
Participant herein.

      3.5 Intra-Company Transfers: Termination of employment shall not be deemed
to occur by reason of:

            (a)   transfer in employment from one Employer to another Employer;

            (b)  transfer  in  employment  from an  Employer  to any  Affiliated
      Company  not  participating  in  the  Plan  or  to a  class  of  employees
      (including  "leased  employees" as defined in Section  414(n) of the Code)
      which is ineligible to participate in the Plan; or

            (c)  transfer  in  employment   from  any  Affiliated   Company  not
      participating in the Plan or from a class of employees  (including "leased
      employees"  as defined in Section  414(n) of the Code) which is ineligible
      to participate  in the Plan to an Employer or class of eligible  Employees
      hereunder.

      Except as provided in Paragraph 10.1, for purposes of subparagraph  (b), a
Participant  shall remain a  Participant  for purposes of  investment  election,
withdrawals,  and  distribution  rights,  under  the  Plan,  but he shall not be
eligible to be a Contributing  Participant or to receive Employer  Contributions
for the period of time  during  which he is employed  by an  Affiliated  Company
which is not  participating in the Plan or during which he is part of a class of
employees  which is  ineligible  to  participate  in the Plan.  For  purposes of
subparagraph   (c),   employment  with  an  Affiliated   Company  which  is  not
participating  in the Plan or as an employee  ineligible to  participate  in the
Plan

                                    III-3

<PAGE>



shall  count as Hours of Service  and Months of Service  toward  satisfying  the
requirement of Paragraph 3.1.

                                    III-4

<PAGE>



                                  ARTICLE IV

                           PARTICIPANT CONTRIBUTIONS

      4.1 Amount of Basic After-Tax Contributions:  Subject to the provisions of
Paragraph  5.2(c)(i)  and Article  XIV,  any  Employee who is, or is eligible to
become, a Contributing  Participant may make through payroll  deductions,  Basic
After-Tax  Contributions,  for any Plan  Year,  equal to any  percentage  of his
Compensation,  in  increments  of 0.5%,  from 1% up to and including 8% (or such
other maximum amount as may be established by the Committee) less the percentage
of  Compensation  elected as Basic Pre-Tax  Contributions  pursuant to Paragraph
4.2, if any.

      4.2   Amount of Basic Pre-Tax Contributions:

            (a) Contribution Limits:  Subject to the provisions of Paragraph 4.5
      and  Article  XIV,  any  Employee  who is, or is  eligible  to  become,  a
      Contributing  Participant may elect, in accordance with procedures adopted
      by the  Company,  to reduce  his  Compensation  by an amount  equal to any
      percentage, in increments of 0.5%, from 1% up to and including 8%, or such
      other maximum amount as may be  established  by the  Committee;  provided,
      however, that the maximum amount elected as Basic Pre-Tax Contributions in
      no event shall exceed the difference between (i) 8% (or such other maximum
      amount as may be  established by the Committee) and (ii) the percentage of
      Compensation  elected  as  Basic  After-Tax   Contributions   pursuant  to
      Paragraph 4.1, if any. Subject to subparagraph  4.5(b),  the amount of any
      such  reduction  shall  be  contributed  to  the  Plan  as  Basic  Pre-Tax
      Contributions on behalf of such Contributing  Participant by his Employer.
      Notwithstanding the foregoing, Basic Pre-Tax Contributions in any calendar
      year shall not exceed the limitation on elective  deferrals  under Section
      402(g)(1)  of the Code  adjusted  for  increases  in the cost of living in
      accordance with Section 402(g)(5) of the Code.

            (b) Refund of Excess Contributions:  In the event that the aggregate
      amount  of Basic  Pre-Tax  Contributions  for a  Participant  exceeds  the
      limitation in the previous sentence, the amount of such excess,  increased
      by any  income and  decreased  by any losses  attributable  thereto  (but,
      effective  January 1, 1992,  before the gap period  between the end of the
      calendar  year and the date of  distribution),  shall be  refunded  to the
      Participant  no later than the April 15th of the calendar  year  following
      the calendar year for which the Basic Pre-Tax  Contributions were made. If
      a Participant also participates,  in any calendar year, in any other plans
      subject to the limitations set forth in Section 402(g) of the Code and has
      made excess  deferrals  under this Plan when combined with the other plans
      subject  to  such  limits,  to the  extent  the  Participant,  in  writing
      submitted to the  Committee no later than the March 1 of the calendar year
      following the calendar year for which the Basic Pre-Tax Contributions were
      made, designates any Basic Pre-Tax Contributions under this Plan as excess
      deferrals,  the amount of such designated excess,  increased by any income
      and decreased by any losses attributable thereto, shall be refunded to the
      Participant  no later than the April 15 of the calendar year following the
      calendar year for which the Basic Pre-Tax Contributions were

                                     IV-1

<PAGE>



      made. Alternatively,  a Participant may request refund of excess deferrals
      before the end of the Plan Year.

      4.3 Supplemental Contributions:  Subject to the provisions of Article XIV,
a Participant who is an Employee and whose Basic  Contributions  are at least 8%
may elect to make Supplemental  After-Tax or Supplemental Pre-Tax  Contributions
through  payroll  deductions.  A Participant  who is an Employee and whose Basic
Contributions  are  less  than  8% may  elect  to  make  Supplemental  After-Tax
Contributions by personal check.  Supplemental  Pre-Tax  Contributions  shall be
made  in  accordance  with  procedures  adopted  by  the  Company.  Supplemental
Contributions  are not  matched by the  Company.  The  amount of a  Contributing
Participant's  Supplemental  Contributions may be made by payroll  deductions in
increments  of 0.5%  from 1% to 4% of  Compensation,  or by  personal  check  in
multiples of $100, or in such other percentages or amounts as may be established
by the Committee.

      If Basic Contributions are reduced below 8%, a Participant's  Supplemental
Contributions  by  payroll  deduction  will  be  suspended.   Such  Supplemental
Contributions  may  resume  once  Basic  Contributions  equal at least  8%.  The
provisions of Section 4.2(b) apply to Supplemental Pre-Tax Contributions, also.

      4.4  Separate   Accounting:   The  Committee  and  the  Trustee  shall  be
responsible for maintaining  separate records of the Basic After-Tax and Pre-Tax
Contributions,  Supplemental  After-Tax and Pre-Tax  Contributions  and Rollover
Contributions  (including  Direct Rollovers and direct  transfers) made by or on
behalf of the Participant and paid over to the Trustee.  All amounts contributed
by or on behalf of the  Participant  to the Trust  Fund with  respect to any pay
period shall be allocated to the  Participant's  account as soon as  practicable
after the end of the pay  period in  respect  of which the  payroll  deductions,
salary reductions or cash payments are effectuated.

      4.5  Special  Provisions   Related  to  Basic  and  Supplemental   Pre-Tax
Contributions:

            (a)  Vesting  and  Withdrawal  Limitation:  Basic  and  Supplemental
      Pre-Tax Contributions, including increments earned thereon, shall be fully
      vested  at all  times  and may not be  withdrawn  by or  distributed  to a
      Participant,  except as permitted by an election  made pursuant to Section
      9.6,  until the earliest to occur of his  Retirement,  death,  Disability,
      separation from service, attainment of age 59 1/2 or hardship.

            (b)  (i) ADP  Test:  Notwithstanding  any  other  provision  of this
            Article  IV, the actual  deferral  percentage  for the Plan Year for
            Highly  Compensated  Employees  shall not exceed the  greater of the
            following actual deferral  percentage tests: (a) the actual deferral
            percentage  for such Plan Year of those  eligible  Employees who are
            not Highly  Compensated  Employees  multiplied  by 1.25;  or (b) the
            actual  deferral  percentage  for the Plan  Year of  those  eligible
            Employees  who are not Highly  Compensated  Employees  multiplied by
            2.0,  provided  that  the  actual  deferral  percentage  for  Highly
            Compensated Employees does not exceed the actual deferral

                                     IV-2

<PAGE>



            percentage  for  such  other  eligible  Employees  by  more  than  2
            percentage  points.  For  purposes  of this  Article IV, the "actual
            deferral percentage" for a Plan Year means, for each specified group
            of employees,  the average of the ratios (calculated  separately for
            each Employee in such group) of (a) the amount of the  Participant's
            Basic and Supplemental  Pre-Tax  Contributions for the Plan Year, to
            (b) the  amount of the  Participant's  Compensation  (as  defined in
            Section  414(s)  of  the  Code)  for  the  Plan  Year.  An  eligible
            Employee's  actual  deferral  percentage  shall  be zero if no Basic
            Pre-Tax Contribution or Supplemental Pre-Tax Contribution is made on
            his behalf for such Plan Year.

                  (ii)  Recharacterization  and Refund  (Leveling  Method):  The
            Committee  shall  determine  as of the end of the Plan Year,  and at
            such  time or times in its  discretion,  whether  one of the  actual
            deferral  percentage  tests specified in  subparagraph  4.5(b)(i) is
            satisfied for such Plan Year. This determination shall be made after
            first  determining  the  treatment  of excess  deferrals  within the
            meaning of Section  402(g) of the Code under  Paragraph  4.2. In the
            event  that  neither of such  actual  deferral  percentage  tests is
            satisfied,  the Committee shall, to the extent permissible under the
            Code   and   the   Regulations,   and  to  the   extent   any   such
            recharacterization  would  not  cause a  violation  of  subparagraph
            5.2(a) or,  together  with Basic  After-Tax  Contributions  actually
            made, exceed the limitations on Basic After-Tax Contributions stated
            in Paragraph 4.1 determined  prior to  application  of  subparagraph
            5.2(a),  if the  Participant so elects,  recharacterize  such excess
            contributions as Basic or Supplemental After-Tax  Contributions,  in
            the manner  described in  subparagraph  4.5(b)(iv) or, to the extent
            such  recharacterization is not possible or the Participant does not
            so elect, refund the excess contributions in the manner described in
            subparagraph  4.5(b)(v).  For purposes of this  Article IV,  "excess
            contributions"  means,  with respect to any Plan Year, the excess of
            the aggregate amount of Basic and Supplemental Pre-Tax Contributions
            (and any  earnings  and  losses  allocable  thereto  but,  effective
            January  1,  1992,  before  the gap  period  between  the end of the
            calendar year and the date of distribution) made on behalf of Highly
            Compensated Participants for such Plan Year, over the maximum amount
            of such  contributions  that  could  be  made  to such  Participants
            without  violating  the  requirements  of  subparagraph   4.5(b)(i),
            determined by reducing Basic and Supplemental Pre-Tax  Contributions
            made on behalf of Highly  Compensated  Participants  in order of the
            actual  deferral  percentages  beginning  with the  highest  of such
            percentages.  The  reduction  shall be  determined  by the  leveling
            method,  under  which  the  actual  deferral  ratio  of  the  Highly
            Compensated  Employee  with the  highest  actual  deferral  ratio is
            reduced to the extent required to (i) enable the Plan to satisfy the
            ADP test, or (ii) cause such Highly  Compensated  Employee's  actual
            deferral ratio to equal the ratio of the Highly Compensated Employee
            with the next highest actual deferral ratio.  This leveling  process
            shall be repeated until the Plan  satisfies the ADP test.  Provided,
            however,  that for years after 1996, if a different  leveling method
            is mandated by the Code,  such  different  leveling  method shall be
            used instead.

                                     IV-3

<PAGE>



                  (iii)  Forfeiture  of  Matching  Contributions:  If any  Basic
            Pre-Tax  Contributions are to be refunded as an excess contribution,
            the corresponding matching contributions that were contributed under
            Section 5.1 (and any  earnings  and losses  attributed  thereto but,
            effective  January 1, 1992, before the gap period between the end of
            the calendar year and the date of distribution) will be forfeited.

                  (iv) Tax Treatment of Recharacterized Deferrals: To the extent
            provided in subparagraph 4.5(b)(ii), in accordance with the Code and
            the Regulations,  if a Highly  Compensated  Participant so elects in
            writing no later than the 15th day of the second  month  immediately
            following   the  end  of  the  Plan  Year  for  which  such   excess
            contributions were made, the Committee shall  recharacterize  excess
            contributions  of  such  Participant  for a Plan  Year as  Basic  or
            Supplemental  After-Tax   Contributions  in  order  to  satisfy  the
            requirements of subparagraph 4.5(b)(i), in which event the amount of
            excess  contributions  so  recharacterized   shall,  to  the  extent
            permitted by the Code and the Regulations, be treated as having been
            refunded to the Participant and then  contributed by the Participant
            as Basic or Supplemental  After-Tax  Contributions,  as appropriate.
            Earnings related to any recharacterized  amount shall not be treated
            as a recharacterized amount.

                  (v) Timing of  Refunds:  If a Highly  Compensated  Participant
            does not elect recharacterization under subparagraph 4.5(b)(iv), or,
            if required in order to comply with the  provisions of  subparagraph
            4.5(b)(i),   and  the  Code,  the  Committee   shall  refund  excess
            contributions  for a Plan  Year.  The  distribution  of such  excess
            contributions  shall be made to Highly  Compensated  Participants to
            the  extent  practicable  before  the  15th day of the  third  month
            immediately   following   the  Plan  Year  for  which  such   excess
            contributions  were made,  but in no event later than the earlier of
            (a) the end of the Plan Year  following such Plan Year or (b) in the
            case of the termination of the Plan in accordance with Article XIII,
            no  later  than  the  end of  the  twelve-month  period  immediately
            following the date of such termination.  Any such distribution shall
            be made to each Highly  Compensated  Participant on the basis of the
            respective portions of such amounts attributable to each such Highly
            Compensated Participant.

                  (vi)  Effect  of  Prior   Distribution  of  Excess  Deferrals:
            Notwithstanding  the  foregoing   provisions  of  this  subparagraph
            4.5(b), the amount of excess  contributions to be recharacterized or
            distributed  pursuant to subparagraph  4.5(b)(iii) with respect to a
            Participant for a Plan Year shall be reduced by any excess deferrals
            previously distributed to such Participant for such Plan Year.

                  (vii)    Continued    Impact    of    Excess    Contributions:
            Notwithstanding  the  foregoing  provisions of this  Paragraph  4.5,
            excess  contributions that are  recharacterized  shall then be taken
            into  account for purposes of Paragraph  5.2,  shall  continue to be
            subject to Paragraph 8.1 and Paragraph 10.3, and shall continue to

                                     IV-4

<PAGE>



            count toward the limits in Paragraph 14.2. Excess contributions that
            are refunded  shall continue to count toward the limits in Paragraph
            14.2.

                  (viii)Family Aggregation Rules: Only to the extent that family
            aggregation  rules are mandated by the Code,  if an eligible  Highly
            Compensated  Employee is subject to the family  aggregation rules of
            Section  414(q)(6)  of the Code  because  such  employee is either a
            five-percent  owner  or one  of  the  ten  most  Highly  Compensated
            Employees,  the combined  actual deferral ratio for the family group
            (which is  treated  as one  Highly  Compensated  Employee)  shall be
            determined   by  combining  the  Basic  and   Supplemental   Pre-Tax
            Contributions,   Compensation  and  amounts  treated  as  Basic  and
            Supplemental  Pre-Tax  Contributions  of  all  the  eligible  family
            members.

                  The Basic and Supplemental Pre-Tax Contributions, Compensation
            and amounts treated as Basic and Supplemental Pre-Tax  Contributions
            of all  family  members  shall be  disregarded  for the  purpose  of
            determining the actual deferral percentage for the group of eligible
            Employees who are not Highly Compensated Employees.

                  If an Employee is  required  to be  aggregated  as a member of
            more than one family group in a plan, all eligible Employees who are
            members of those family groups that include that  Employee  shall be
            aggregated as one family group.

                  (ix) Family  Correction:  The  determination and correction of
            excess  contributions of a Highly Compensated  Employee whose actual
            deferral ratio is determined under  subparagraph  4.5(b)(viii) shall
            be  accomplished  as  follows:  the actual  deferral  ratio shall be
            reduced as required  under  subparagraph  4.5(b)(ii)  and the excess
            contributions  for the  family  unit  shall be  allocated  among the
            family members in proportion to the Basic and  Supplemental  Pre-Tax
            Contributions  of each family  member that are combined to determine
            the actual deferral ratio.

      4.6 Change in Amount of  Contributions:  A  Contributing  Participant  may
change  the rate of his Basic or  Supplemental  Contributions  for any  calendar
month by filing the appropriate Plan form with the local  administrator at least
15 days prior to the first day of any such  calendar  month for which the change
in payroll  deductions is intended to be  effective.  All elections of Basic and
Supplemental  Contribution  rates made  under the Plan  shall  remain in effect,
notwithstanding  any change in Compensation,  until changed as permitted in this
Paragraph 4.6 or Paragraph 4.5.

      4.7  Suspension of Basic or  Supplemental  Contributions:  A  Contributing
Participant may suspend his Basic or Supplemental  Contributions  to the Plan by
filing the appropriate  Plan form with the local  administrator at least 15 days
prior to the first day of the pay period for which such  suspension  is intended
to be effective. Suspension of Basic After-Tax Contributions shall not prevent a
Contributing  Participant  from  continuing  or  increasing  his  Basic  Pre-Tax
Contributions

                                     IV-5

<PAGE>



and suspension of Basic Pre-Tax  Contributions  shall not prevent a Contributing
Participant from continuing or increasing his Basic After-Tax Contributions.

      4.8  Remittance  of  Contributions  to Trustee:  Basic  Contributions  and
Supplemental  Contributions  shall  be  remitted  to  the  Trustee  as  soon  as
practicable after the end of the month in which the payroll deductions, personal
checks,  salary  reductions  or cash payments are  effectuated,  but in no event
later than 90 days from the date such contributions are received by the Employer
(in the case of Basic and Supplemental  After-Tax  Contributions) or the date on
which such contributions  would otherwise have been paid to the Employee in cash
(in the case of Basic and  Supplemental  Pre-Tax  Contributions).  The aggregate
amounts  contributed  hereunder,  shall  be  employed  by the  Trustee  to  make
purchases for the  Investment  Fund or Funds in accordance  with the  respective
investment  elections of each Contributing  Participant for such pay period. All
such  contributions  shall be  allocated  to the  accounts  of each  Participant
established in accordance with Article VII.

      4.9 Cessation of  Contributions  Made by a Contributing  Participant:  All
Contributions of a Contributing Participant shall cease effective with the first
day of the pay period coincident with or next following the date of:

            (a) the timely  filing of a notice of voluntary  suspension of Basic
      Contributions as described in Paragraph 4.7;

            (b) the election to make certain withdrawals pursuant to Article X;

            (c) the involuntary  suspension of Basic Contributions  because of a
      transfer in  employment  or  employment  classification  as  described  in
      subparagraph 3.4(b); or

            (d)  the   termination  of  employment  for  any  reason   including
      Retirement, death or Disability.

      Notwithstanding  the  foregoing,  subparagraph  (b) shall not affect Basic
Pre-Tax Contributions, except as provided in Paragraph 10.2.

      4.10  Participant Rollover Contributions:

            (a)  General:  With  the  consent  of  the  Committee,  an  Employee
      described in subparagraphs  3.1(a) or (b) may contribute cash to the Trust
      Fund  other  than as Basic or  Supplemental  Contributions  provided  such
      contribution   constitutes   a  Rollover   Contribution   (as  defined  in
      subparagraph  (b) of this  Paragraph) or a Direct  Rollover (as defined in
      subsection  (c) of this  Paragraph)  or a direct  transfer  (as defined in
      subparagraph (d) of this Paragraph).  All Rollover  Contributions,  Direct
      Rollovers,  and direct  transfers  to the Trust Fund shall be allocated to
      the  Employee's  account  as of the  Valuation  Date  coincident  with  or
      immediately  preceding  the  date  of  the  contribution.  To  the  extent
      prohibited  under the Code, no Rollover  Contribution,  Direct Rollover or
      direct transfer shall be allowed if the

                                     IV-6

<PAGE>



      assets involved are is  attributable  directly or indirectly to a trust or
      annuity  forming part of a plan under which the Employee was a 5% owner at
      the time the  distribution  from  such  trust or  annuity  was  made.  For
      purposes of the preceding  sentence,  a 5% owner shall mean any individual
      who was a 5% owner  (within  the  meaning of Section  416(i)(1)(B)  of the
      Code) of the employer  maintaining  such other plan at any time during the
      five plan years preceding the plan year in which the distribution is made.
      If an Employee  described in  subparagraphs  3.1(a) or (b) is permitted to
      make such a Rollover Contribution, Direct Rollover or direct transfer, the
      Committee shall obtain such evidence,  assurances or  certifications as it
      may deem  necessary  from such  Employee to establish to its  satisfaction
      that the  amounts to be  contributed  qualify as  Rollover  Contributions,
      Direct  Rollovers or direct  transfers within the meaning of subparagraphs
      (b) or (c) and will not  affect the  qualification  of the Plan or the tax
      exempt  status of the Trust Fund under  Sections  401(a) and 501(a) of the
      Code, respectively,  or substantially increase the administrative expenses
      of the Plan.  The amount so transferred  must consist of cash  distributed
      from such other plan or any portion of the cash  proceeds from the sale of
      distributed  property other than cash, to the extent  permitted by Section
      402(a)(6)(D) of the Code.

            (b) Rollover Contributions: As used in this Paragraph 4.10, the term
      "Rollover Contribution" shall mean the following:

                  (i) all or any portion of a "qualified total distribution" (as
            said term is defined in Section  402(a)(5)(E)(i)(I)  and (II) of the
            Code inclusive of Section 402(a)(6) of the Code, and, after December
            31, 1984, including a rollover distribution  attributable to a trust
            forming  part of a plan under  which the  Employee  was an  employee
            within the meaning of Section  401(c)(1)  at the time  contributions
            were made on his  behalf)  which is  contributed  to the Trust  Fund
            within 60 days or receipt of the distribution from a trust described
            in  Section  401(a) of the Code and  exempt  from tax under  Section
            501(a) of the Code. A qualified total distribution shall not include
            any amount  considered  to be  contributed  by the  Employee  to the
            qualified trust described above;

                  (ii) an  amount  (described  in  Section  408(d)(3)(A)(ii)  or
            Section  409(b)(3)(C) of the Code) which is contributed to the Trust
            Fund  and  represents  all  or any  portion  of  the  amount  of the
            Employee's  distribution  from an individual  retirement  account or
            individual retirement annuity (defined in Sections 408(a) and 408(b)
            of the Code,  respectively) the value of which account or annuity is
            attributable  solely to a qualified total  distribution  received by
            such Employee from a trust  described in Section  401(a) of the Code
            and  exempt  from tax under  Section  501(a) of the Code,  and which
            amount  is  contributed  to the  Trust  Fund  within  60 days of the
            distribution from the Employee's individual account or annuity.


            (c) Direct  Rollovers:  Special Rules  Regarding  Eligible  Rollover
      Distributions:

                                     IV-7

<PAGE>



                  (i) This Section 4.10(c) applies to  distributions  made on or
            after January 1, 1993.  Notwithstanding any provision of the Plan to
            the contrary that would  otherwise  limit a  distributee's  election
            under this Section 4.10(c), a distributee may elect, at the time and
            in the  manner  prescribed  by the  Committee,  to have any  portion
            (provided  that  such  portion  is at  least  $500)  of an  eligible
            rollover  distribution paid directly to an eligible  retirement plan
            specified by the distributee in a Direct  Rollover.  Only one Direct
            Rollover shall be allowed for each eligible rollover distribution.

                  (ii)  Definitions:

                        (a) Eligible rollover distribution: An eligible rollover
                  distribution  is any  distribution of all or any portion (that
                  is at  least  $500)  of  the  balance  to  the  credit  of the
                  distributee,  except  that an eligible  rollover  distribution
                  does not include: (1) any distribution that is one of a series
                  of substantially  equal periodic payments (not less frequently
                  than annually)  made for the life (or life  expectancy) of the
                  distributee or the joint lives (or joint life expectancies) of
                  the distributee and the distributee's  designated beneficiary,
                  or for a  specified  period  of ten  years  or  more;  (2) any
                  distribution to the extent such distribution is required under
                  Section  401(a)(9)  of  the  Code;  (3)  the  portion  of  any
                  distribution   that  is  not   includable   in  gross   income
                  (determined  without regard to the exclusion of new unrealized
                  appreciation with respect to employer securities), and (4) any
                  other amounts that are treated as not being eligible  rollover
                  distributions under Temporary  Regulation Section 1.401(a)(31)
                  - IT or other guidance issued under Section  401(a)(31) of the
                  Code.

                        (b) Eligible  retirement  plan:  An eligible  retirement
                  plan is an individual  retirement account described in Section
                  408(a) of the Code, an individual retirement annuity described
                  in Section  408(b) of the Code,  an annuity plan  described in
                  Section 403(a) of the Code, or a qualified  trust described in
                  Section  401(a) of the Code  that  accepts  the  distributee's
                  eligible  rollover  distribution.  However,  in the case of an
                  eligible  rollover  distribution to the surviving  spouse,  an
                  eligible  retirement plan is an individual  retirement account
                  or individual retirement annuity.

                  (iii)  Distributee:  A  distributee  includes  an  Employee or
            former Employee.  In addition,  the Employee's or former  Employee's
            surviving spouse and the Employee's or former  Employee's  spouse or
            former spouse who is the alternate payee under a qualified  domestic
            relations  order,  as  defined in  Section  414(p) of the Code,  are
            distributees  with  regard to the  interest  of the spouse or former
            spouse.


                                     IV-8

<PAGE>



                  (iv) Direct  Rollover:  A Direct  Rollover is a payment by the
            Plan to the eligible retirement plan specified by the distributee.

            (d) Direct Transfers:  Subject to subparagraph  4.10(e), in addition
      to the Rollover  Contribution  described in subparagraphs (a) and (b), and
      the Direct  Rollover  described in  subparagraph  (c), the  Committee,  in
      accordance  with a uniform  and  nondiscriminatory  policy  applicable  to
      Employees  described  in  subparagraphs  3.1(a)  and (b),  may  direct the
      Trustee to accept a cash  contribution  transferred  directly to the Trust
      Fund from the trustee of another trust  described in Section 401(a) of the
      Code and  exempt  from tax under  Section  501(a) of the Code on behalf of
      such Employee who  participated in that trust.  Prior to the acceptance of
      such a contribution  the Committee shall obtain such evidence,  assurances
      or   certifications   as  it  may  deem  necessary  to  establish  to  its
      satisfaction  that  the  amount  to be  contributed  will not  affect  the
      qualification of the Plan or the tax-exempt status of the Trust Fund under
      Sections  401(a) and 501(a) of the Code,  respectively,  or  substantially
      increase the administrative expenses of the Plan.

            (e) Restrictions:  Notwithstanding  anything herein to the contrary,
      the  Committee,  pursuant  to  uniform  and  nondiscriminatory  guidelines
      established by it, shall not permit any direct or indirect  transfers from
      another trust  described in Section 401(a) of the Code and exempt from tax
      under Section  501(a) of the Code,  which provides for a life annuity form
      of payment to the  Employee,  other than the trust  under the  Predecessor
      Plan.




                                     IV-9

<PAGE>



                                   ARTICLE V

                            EMPLOYER CONTRIBUTIONS

      5.1   Employer Contributions:

            (a)  Employer  Matching  Contributions:  For  each  plan  year,  and
      generally  during  the  first  quarter  of the  Plan  Year,  the  Board of
      Directors in its sole  discretion,  shall  establish  three  profitability
      thresholds which are referred to herein as "Level A", "Level B" and "Level
      C". The highest Profitability Level which is attained, as determined at or
      after the end of the Plan Year,  shall  determine the Employer's  matching
      contribution obligations to the Plan.

            Subject  to the  provisions  of Article  XIV,  each  Employer  shall
      contribute to the Trust Fund based upon the  Profitability  Level attained
      in accordance with the following formula:


                  (i)  Twenty-five  cents for each one dollar of a  Contributing
            Participant's Basic Contributions which are based on the first 8% of
            his Compensation,  provided the  Profitability  Level is equal to or
            above Level A but below Level B;

                  (ii)  Fifty  cents  for  each  one  dollar  of a  Contributing
            Participant's  Basic Contributions which is based on the first 8% of
            his  Compensation  provided the  Profitability  Level is equal to or
            above Level B but below Level C;

                  (iii) Seventy-five cents for each one dollar of a Contributing
            Participant's  Basic Contributions which is based on the first 8% of
            his  Compensation  provided the  Profitability  Level is equal to or
            above Level C.

            In a "below A" year,  no  Employer  Matching  Contributions  will be
      contributed to the Plan or allocated to any Participant's account.

            No Employer Matching  Contributions  shall be made with respect to a
      Contributing   Participant's  Supplemental   Contributions.   No  Employer
      matching  contributions  shall  be made  with  respect  to a  Contributing
      Participant's Basic After-Tax  Contributions to the extent that such Basic
      After-Tax Contributions were withdrawn before the end of the calendar year
      in which they were contributed.

            (b) Employer Pension Feature Contributions:  Effective April 1, 1996
      for  periods  after  March  31,  1996,   the  Employer   Pension   Feature
      Contribution  shall be that amount which, in combination with forfeitures,
      provides for a percentage of  Compensation  profit  sharing  allocation as
      calculated  for each  Participant  who is an active  employee  during  the
      calendar year, by adding together two formulas, "A" and "B", where:

                                     V-1

<PAGE>



      "A" is 3% of the Participant's Compensation for the calendar year, and

      "B" is calculated in accordance with the following steps:

            1) The prospective  benefit that would have been earned (starting on
            April 1, 1996) from the Retirement Programs of NL Industries,  Inc.,
            for Salaried  Employees if that plan had not been frozen as of April
            1, 1996,  for service on and after April 1, 1996,  was calculated as
            of March 31, 1996,  using data  available on January 22, 1996.  1996
            annual  compensation  was estimated and was projected to increase at
            3% per year.  Corporate  profitability  was assumed to be "B" level,
            resulting  in 2%  accruals  per year.  Continuous  employment  until
            retirement at age 65 was assumed.  (For anyone  already over age 65,
            the April 1, 1996 age was  used.)  These  assumptions  and data will
            remain  fixed;  they will not be  adjusted in later years to reflect
            actual corporate  profitability rates,  employment  experiences,  or
            changes in other assumptions used to calculate the benefit under the
            Retirement  Programs.  The result of this  calculation is called the
            "Old Plan Benefit."

            2) The value of the Old Plan  benefit  was  converted  to a lump sum
            payable  at age 65 using a  discount  rate of 9% and the 1983  Group
            Annuity Mortality Table (50% male, 50% female).  (For any individual
            not a participant  in the  Retirement  Program as of March 31, 1996,
            the Old Plan Benefit is zero.)

            3)  The  account  balance  that  will  be  provided  by  the  3%  of
            Compensation  contribution  in item A above was projected to the end
            of the year  prior to age 65,  assuming  accruals  start  January 1,
            1996, with an assumed  contribution date at the end of each calendar
            year while the  Participant is under age 65, and an assumed  account
            earnings  rate of 9% per year.  This total amount is called the "New
            Plan Benefit."

            4) The New Plan Benefit  (calculated  in Item 3 above) is subtracted
            from  two-thirds  of the  lump sum  value  of the Old  Plan  Benefit
            (calculated  in  item  2  above).   The  difference  is  called  the
            "Transition Benefit."

            5) If the Transition Benefit (calculated in item 4 above) is zero or
            less,  no additional  contribution  will be added to the amount in A
            above for 1996 or any later year.

            6) If the  Transition  Benefit  (calculated in item 4 above) is more
            than zero, the current value of the Transition Benefit is calculated
            by discounting  the value the Transition  Benefit at age 65 to April
            1, 1996, at 9% interest. This result is called the "Current Value of
            the Transition Benefit."

            7) The Current Value of the  Transition  Benefit was converted to an
            increasing  annuity payable  annually for a number of years equal to
            65 minus the  Participant's  age as of the most  recent  birthday on
            April 1, 1996, assuming 3% annual

                                     V-2

<PAGE>



            compensation  increases and 9% annual asset growth. That annuity was
            converted to a percentage of pay ("Transition  Benefit  Percentage")
            by  dividing  the  annual  1996  payment by  estimated  1996 pay and
            rounding to one decimal place.

            8)  Participants  with a Transition  Benefit  Percentage  of 1.0% or
            greater  will receive the  transition  benefit for 1996,  1997,  and
            later  years,  so long as they remain  employed  and  eligible for a
            benefit under the terms of the Plan governing eligibility to receive
            an allocation.

            9) Participants  with a Transition  Benefit  Percentage of less than
            1.0%  will  receive  the  Current  Value of the  Transition  Benefit
            (calculated  in item 6 above) in 1996 if they  remain  employed  and
            eligible  for a  benefit  for  1996  under  the  terms  of the  Plan
            governing eligibility to receive an allocation,  and will receive no
            transition  benefit  for any year  after  1996  even if they  remain
            employed for future years.

      The purpose of the pension feature  contribution is to help ameliorate the
      effect  of the  freeze  of  the  Retirement  Programs  by  creating  a new
      contribution to the Retirement  Savings Plan equal to not less than 2/3 of
      the  future  benefit  lost due to the freeze of the  Retirement  Programs.
      Therefore,  notwithstanding  the preceding  provisions of this  subsection
      5.1(b), any employee whose compensation  during the period January 1, 1996
      through March 31, 1996 exceeded  $150,000 shall receive no pension feature
      contribution for 1996.

      The contributions  calculated under this subsection 5.1(b) are intended to
      meet the general  test under Code  Section  401(a)(4)  both in 1996 and in
      1997 and later years.

      5.2   Average Contribution Test:

            (a)  ACP:  Subject  to  Paragraph  5.7,  the  average   contribution
      percentage for the Plan Year for Highly  Compensated  Employees  shall not
      exceed the greater of the following average contribution percentage tests:
      (i) the  average  contribution  percentage  for  such  Plan  Year of those
      eligible Employees who are not Highly Compensated  Employees multiplied by
      1.25;  or (ii) the average  contribution  percentage  for the Plan Year of
      those  eligible  Employees  who  are  not  Highly  Compensated   Employees
      multiplied by 2.0, provided that the average  contribution  percentage for
      Highly  Compensated  Employees  does not exceed the  average  contribution
      percentage  for such other  eligible  Employees  by more than 2 percentage
      points. The test in clause (ii) shall not be used if the parallel test was
      used  under  Section  4.5(b)(i),  to  the  extent  such  multiple  use  is
      prohibited  by the Code.  For  purposes  of this  Article V, the  "average
      contribution  percentage" for a Plan Year means,  for each specified group
      of employees,  the average of the ratios  (calculated  separately for each
      Employee  in  such  group)  of  (i)  the  sum  of  (A)  Employer  Matching
      Contributions  described  in Section 5.1 for the Plan Year,  (B) Basic and
      Supplemental  After-Tax  Contributions  for the Plan Year,  and (C) if the
      Committee so elects in accordance with and to the extent  permitted by the
      Regulations,  Basic and Supplemental  Pre-Tax  Contributions,  to (ii) the
      amount of the

                                     V-3

<PAGE>



      Participant's  compensation (as defined in Section 414(s) of the Code) for
      the Plan Year.  In accordance  with  regulation  1.401(m)-1(b)(5)  and the
      related  Example 3, for the purpose of passing the ACP test the  Committee
      may elect to treat as Matching  Contributions some or all of the Basic and
      Supplemental  Pre-Tax  Contributions  of  HCEs as  well  as of  NHCEs.  An
      eligible  Employee's average  contribution  percentage shall be zero if no
      contributions are made on his behalf for such Plan Year.

            (b) Refund  (Leveling  Method) or  Forfeiture:  The Committee  shall
      determine as of the end of the Plan Year, and at such time or times in its
      discretion,  whether  one of the  average  contribution  percentage  tests
      specified in  subparagraph  5.2(a) is satisfied  for such Plan Year.  This
      determination  shall be made after  first  determining  the  treatment  of
      excess  deferrals  within the meaning of Section  402(g) of the Code under
      Paragraph 4.2 and then  determining the treatment of excess  contributions
      under  subparagraph  4.5(b).  In the event  that  neither  of the  average
      contribution percentage tests is satisfied,  the Committee shall refund or
      forfeit the excess  contributions  in the manner described in subparagraph
      5.2(d).  For purposes of this Article V, "excess aggregate  contributions"
      means,  with respect to any Plan Year and with respect to any Participant,
      the excess of the aggregate  amount (and any earnings and losses allocable
      thereto before the gap period between the end of the calendar year and the
      date of distribution) of (a) Employer  Matching  Contributions,  (b) Basic
      and   Supplemental   After-Tax   Contributions   and  (c)  the  Basic  and
      Supplemental  Pre-Tax  Contributions  (if the  Regulations  permit and the
      Committee  elects to take into  account  Basic  and  Supplemental  Pre-Tax
      Contributions  when  calculating the average  contribution  percentage) of
      Highly  Compensated  Participants  for such Plan  Year,  over the  maximum
      amount of such Employer  Contributions,  Basic and Supplemental  After-Tax
      Contributions and Basic and Supplemental Pre-Tax  Contributions that could
      be made to the account of Participants  without violating the requirements
      of   subparagraph   5.2(a).   The  amount  of  each   Highly   Compensated
      Participant's  excess  aggregate  contributions  shall  be  determined  by
      reducing the average  contribution  percentage of each Highly  Compensated
      Participant  whose  average  compensation  percentage  is in excess of the
      percentage  otherwise  permitted under subparagraph  5.2(a) to the maximum
      amount permitted by that paragraph.

            The  reduction  shall be determined  by the leveling  method,  under
      which the actual  contribution  ratio of the Highly  Compensated  Employee
      with the  highest  actual  contribution  ratio is  reduced  to the  extent
      required  to (i) enable the Plan to  satisfy  the ACP test,  or (ii) cause
      such Highly Compensated  Employee's actual contribution ratio to equal the
      ratio of the Highly  Compensated  Employee  with the next  highest  actual
      contribution ratio. This leveling process shall be repeated until the Plan
      satisfies the ACP test. Provided, however, that for years after 1996, if a
      different leveling method is mandated by the Code, such different leveling
      method shall be used instead.

            (c)  Forfeiture  of  Non-vested  Matching  Contributions:   Matching
      contributions that were not forfeited under Section 4.5(b)(iii) may not be
      forfeited  except  to the  extent  that  they are not  vested.  Non-vested
      matching contributions (and any earnings and losses

                                     V-4

<PAGE>



      allocated thereto) may be forfeited,  but such forfeited contributions are
      still counted as annual additions under Sections 404 and 415 of the Code.

            (d) Timing of Refund or Forfeiture:  If the Committee is required to
      refund  or  forfeit  excess   aggregate   contributions   for  any  Highly
      Compensated   Participant  for  a  Plan  Year  in  order  to  satisfy  the
      requirement of subparagraph  5.2(a), then the refund or forfeiture of such
      excess aggregate  contributions  shall be made with respect to such Highly
      Compensated  Participants to the extent practicable before the 15th day of
      the third month immediately  following the Plan Year for which such excess
      aggregate  contributions  were made, but in no event later than the end of
      the Plan Year following such Plan Year, or, in the case of the termination
      of the Plan in accordance  with Article XIII, no later than the end of the
      twelve-month  period  immediately  following the date of such termination.
      For each of such  Participants,  amounts so refunded or forfeited shall be
      made in the following  order of priority:  (A) to the extent  permitted by
      law, by forfeiting nonvested Employer Matching Contributions, and earnings
      thereon; (B) by distributing vested Employer Matching  Contributions,  and
      earnings thereon, of Highly Compensated Participants;  (C) by distributing
      Supplemental or Basic After-Tax  Contributions,  and earnings thereon; and
      (D) by distributing  Supplemental or Basic Pre-Tax  Contributions  (to the
      extent such amounts are included in the average  contribution  percentage)
      and earnings thereon. All such distributions and forfeitures shall be made
      to or be with respect to Highly  Compensated  Participants on the basis of
      the respective  portions of such amounts  attributable to each such Highly
      Compensated  Participant.  The amount of any forfeitures  made pursuant to
      this Paragraph 5.2 shall be used to reduce Employer Matching Contributions
      in accordance with Paragraph 5.4.


            (e)  Family  Aggregation  Rules:  Only  to the  extent  that  family
      aggregation  rules  are  mandated  by  the  Code,  if an  eligible  Highly
      Compensated Employee is subject to the family aggregation rules or Section
      414(q)(6) of the Code because such employee is either a five-percent owner
      or one of the ten most Highly Compensated  Employees,  the combined actual
      contribution  ratio for the family  group  (which is treated as one Highly
      Compensated  Employee)  shall be  determined  by  combining  the Basic and
      Supplemental  After-Tax  Contributions and Employer Matching Contributions
      of all the eligible family members.

            The Basic and Supplemental After-Tax Contributions, Compensation and
      amounts treated as Employer  Matching  Contributions of all family members
      shall be disregarded for purposes of determining  the actual  contribution
      percentage for the group of Highly Compensated Employees, and the group of
      eligible Employees.

            If an Employee is required to be aggregated as a member of more than
      one family  group in a plan,  all  eligible  Employees  who are members of
      those family groups that include that Employee  shall be aggregated as one
      family group.

            (f)  The   determination   and   correction   of  excess   aggregate
      contributions of a Highly Compensated  Employee whose actual  contribution
      ratio is  determined  under the family  aggregation  rules of (e) shall be
      accomplished as follows: the actual contribution ratio shall be reduced as
      required under subparagraph 5.2(b) and the excess aggregate

                                     V-5

<PAGE>



      contributions  for the  family  unit shall be  allocated  among the family
      members   in   proportion   to  the  Basic  and   Supplemental   After-Tax
      Contributions  and Employer  Matching  Contributions of each family member
      that are combined to determine the actual contribution ratio.

      5.3   Remittance   of  Employer   Contributions   to   Trustee:   Employer
Contributions, if any, shall be made solely in cash and shall be remitted to the
Trustee,  as  soon as  practicable  after  the end of the  year  for  which  the
Company's  Profitability Level was attained;  provided,  however,  that Employer
Contributions  to the NL Stock Fund, may be made in shares of Common Stock of NL
or in cash.

      5.4   Allocation of Employer Contributions and Forfeitures:

            (a) General: All Employer Contributions shall be used by the Trustee
      to make purchases for the Investment  Fund or Funds in accordance with the
      respective  investment  elections of the  Participant to whose account the
      Employer Contributions are allocated.  All Employer Contributions shall be
      allocated to the accounts  established  in accordance  with Article VII of
      each Participant entitled to share in such contributions.

            (b) December 31 Rule: Employer Pension Feature Contributions accrued
      on  behalf  of a  Participant  shall be  allocated  to such  Participant's
      account whether or not such  Participant  remains employed on the last day
      of the Plan Year.  Notwithstanding  any other  provision  of the Plan,  no
      Employer Matching  Contributions  shall be made for the benefit of, and no
      Employer Matching  Contributions or forfeitures shall be allocated,  added
      or otherwise  credited to the account of, a Participant under the Plan who
      was not an  Employee  of an  Employer  on the last  day of the Plan  Year;
      provided,  however,  a Participant who terminated  Service during any Plan
      Year on his Retirement Date or by reason of his death or Disability  shall
      be treated as if he was an active Participant on the last day of such Plan
      Year.  In addition,  any  Participant  who is, on the last day of the Plan
      Year on a leave of absence to which such  Employee is  entitled  under the
      Family and Medical Leave Act of 1993 ("FMLA") shall be deemed to be in the
      employ of the  Employer on such last day unless final  regulations  issued
      under the FMLA do not require such treatment for this purpose.

            (c) Use of  forfeitures:  Amounts in the  accounts  of  Participants
      which are  forfeited in accordance  with Article VIII and  Paragraph  16.6
      shall be  applied  during  the  continuance  of the Plan in the  following
      order: (i) to restore the accounts of reemployed  participants pursuant to
      subparagraph  8.4(b),  (ii) to restore  the  accounts of  Participants  or
      Beneficiaries who apply for forfeited  benefits pursuant to Paragraph 16.6
      and (iii) to reduce the amount of Employer Contributions otherwise payable
      by their Employer. If upon complete  discontinuance of contributions under
      the Plan or termination of the Plan any such  forfeitures have not been so
      applied,  such  unapplied  amount shall be allocated  among all  remaining
      Employees who are Participants in accordance with Paragraph 13.2.

                                     V-6

<PAGE>



      5.5 Investment and  Administrative  Expenses:  All brokerage  commissions,
taxes and other expenses related to the purchase and sale of securities shall be
paid out of the assets of the Trust  Fund,  as directed  by the  Committee.  All
other expenses,  including any taxes which may be imposed upon the Trust Fund or
upon the income therefrom,  compensation of the Trustee,  investment  management
fees,  fees for legal and  accounting  purposes and all other costs and expenses
incurred in administering the Plan,  unless paid by the Employer,  shall be paid
out of the Trust Fund, as directed by the Committee.

      5.6   Multiple Use:

            (a)  Notwithstanding  any other  provision  under this Plan,  in the
      event there is multiple use, as defined and determined in accordance  with
      Section  1.401(m)-2  of  the  Regulations,  such  multiple  use  shall  be
      corrected to the extent required by the Regulations by reducing the actual
      contribution  percentage,  as defined in  subparagraph  5.2(a),  of Highly
      Compensated Employees in the manner prescribed in subparagraph 5.6(b).

            (b)  The  amount  of  the  reduction  to  the  actual   contribution
      percentage  of Highly  Compensated  Employees  shall be  calculated in the
      manner described in subparagraph  5.2(b) so that there is no multiple use.
      The reduction shall be treated as an excess aggregate contribution.

      5.7 Qualified Non-Elective Contributions:  At the election of the Board of
the  Plan  Sponsor,  in lieu of  distributing  excess  contributions  to  Highly
Compensated Employees in order to satisfy the actual deferral percentage test or
the  actual  contribution  percentage  test,  the  Employer  may make  Qualified
Non-Elective  Contributions  on  behalf  of one or more  non-Highly  Compensated
Employees who are  Participants in such amounts as are sufficient to satisfy the
actual deferral percentage test or the actual contribution percentage test.

                                     V-7

<PAGE>



                                  ARTICLE VI

                          INVESTMENT OF CONTRIBUTIONS



      6.1  Investment   Funds:  Each  Participant  at  the  time  he  becomes  a
Participant  under the Plan shall submit written  instructions  to the Committee
(unless the Committee  establishes a different way to submit such  instructions)
to  invest  any and all  contributions  made by him or on his  behalf  in  whole
percentages  in any one or a combination  of Investment  Funds (which conform to
any portfolio  standards and  guidelines  established  by the Trustee) as may be
determined  from time to time by the  Committee  and made  available on an equal
basis to all individuals  with accounts in the Plan. The Investment  Funds shall
include at least the following  five,  but may include  additional  funds at the
Committee's discretion:


            (a)  Money  Market  Fund:  an  income  producing   diversified  fund
      comprised of short-term money market  instruments that seeks to maintain a
      constant $1 per share value.  Acceptable  securities include,  but are not
      limited  to,  U.S.  Government  and U.S.  Government  Agency  obligations,
      commercial  paper,  time  deposits,  certificates  of deposit,  Eurodollar
      deposits,  repurchase  agreements,  banker's  acceptances  and  guaranteed
      investment contracts.

            (b) Fixed  Income  Fund:  a  diversified  fund that may  invest in a
      variety of short-,  intermediate-  or long-term fixed income  instruments,
      that may seek a mixture of capital  gains and current  income.  Acceptable
      securities  include,  but are not  limited to,  U.S.  Government  and U.S.
      Government Agency obligations, corporate bonds and notes and mortgage- and
      asset-backed  securities  and other  money  market  instruments.  The fund
      assumes a higher  degree of risk  than a money  market  fund and its share
      value may fluctuate considerably.

            (c) Equity Fund: a diversified fund that invests primarily in equity
      securities  traded in public  markets in the U.S.  or in foreign  markets,
      that seeks growth in asset value and possibly  current income.  The fund's
      investments  can be  comprised  of  common  stock  from a  wide  array  of
      companies and industries.  The fund will typically  assume a higher degree
      of risk  than a money  market  fund and a fixed  income  fund but may also
      achieve a higher long term rate of return.  The fund's  share value can be
      expected to fluctuate considerably.

            (d) NL Stock Fund: A fund invested  primarily in Common  Stock.  All
      dividends  declared  and paid on Common  Stock held in the NL Stock  Fund,
      shall  be  used,  as soon  as  practicable,  by the  Trustee  to  purchase
      additional  Common  Stock,  the value of which shall be  allocated to such
      Participant's account.


                                     VI-1

<PAGE>



            (e) The  Dresser/Tremont  Stock Fund: A fund which shall hold shares
      of Common Stock which were received by the Trustee as a result of the Plan
      of Restructuring of NL Industries,  Inc.,  approved by the shareholders of
      the Company at the special  meeting held on December  22, 1988,  and which
      Participants  elected to retain in the form of Baroid  Corporation  Common
      Stock in lieu of exchanging it for Common Stock of the Company (the Baroid
      Corporation common stock having later been acquired by Dresser Industries,
      Inc.),   and  shares  of  Common  Stock  of  Tremont   Corporation   which
      Participants  received  due to the  subsequent  reorganization  of  Baroid
      Corporation into Tremont Corporation and Baroid Corporation. No additional
      contributions  or  transfers  to the  Dresser/Tremont  Stock  Fund will be
      permitted.  Dividends paid on the securities in the Dresser/Tremont  Stock
      Fund  will be  allocated  to the  respective  Participant's  accounts  and
      invested in accordance  with the  Participant's  most recent  instructions
      directing the  investment of new  contributions  to the Plan. No shares of
      Dresser or Tremont  Common Stock will be purchased on or after  January 1,
      1994.

      6.2  Temporary  Investments:  After the  allocation of assets of the Trust
Fund  to any of the  Investment  Funds,  but  prior  to  investment  or  pending
reinvestment of monies in securities of a type consistent with the objectives of
any such Fund,  the Trustee or  Investment  Manager may  temporarily  invest and
reinvest  any such  assets in  securities  with  maturities  of one year or less
issued or guaranteed by the Government of the United States of America or by any
agency or instrumentality  thereof, or in the name of the Trustee in any savings
accounts or  certificates of deposit in any banks, or may maintain cash balances
consistent with the liquidity needs of the Plan.

      6.3 Change in Investment Election for Future Contributions: Any investment
election filed by a Participant  for investment of current  contributions  shall
continue in effect until changed by the  Participant.  A Participant  may change
his current investment  election as to future  contributions.  Effective July 1,
1990,   changes  in  investment   elections  may  be  made  by  telephoning  the
representative  of the  Trustee  at  the  number  stated  in  the  summary  plan
description of the Plan, and following the instructions of that  representative.
Written  confirmation of the transaction  will be sent to the Participant by the
Trustee  and  such  written  confirmation  is  binding  unless  the  Participant
demonstrates  an error in such  written  confirmation  within the number of days
stated on the written confirmation.

      6.4  Inter-Fund  Transfers:  Effective  July 1, 1990,  a  Participant  may
transfer all or any portion of his account balance in any Fund (in increments of
1%) to any other Fund upon submission to the investment  manager appointed under
Section 11.2 the appropriate  information in the form required by the investment
manager under uniform procedures.

      Transfers may be made as often as daily. Instructions must be received one
business  day in  advance of the  business  day on which the  transfer  is to be
effected.  A business day is a period of time during a calendar day when the New
York financial markets are open.


                                     VI-2

<PAGE>



      Notwithstanding the preceding  paragraph,  only one transfer per month may
affect a  Participant's  accounts in the NL Stock Fund, and only one transfer is
permitted out of a  Participant's  Dresser/Tremont  Stock Fund. No transfer into
the Dresser/Tremont Stock Fund will be permitted. Transfers under this paragraph
are permitted any business day of the quarter  requested by the Participant with
one  business day advance  notice,  and  settlement  will take place within five
business days. Any commissions charged will be paid by the forfeiture account of
the Plan or by the Employer.

      6.5 Suspension of Investments  and Investment  Transfers into the NL Stock
Fund or the  Dresser/Tremont  Stock  Fund:  Notwithstanding  any  election  by a
Participant,  during  any  period  of time  when  (a) a  Registration  Statement
covering the Plan is not in effect,  (b) although in effect,  information in the
Prospectus  forming  part of such  Registration  Statement  does  not  meet  the
requirements of the Securities Act of 1933, as amended,  or is not available for
delivery,  or (c) in the judgment of the Company, a proceeding by the Securities
and  Exchange  Commission  for  the  issuance  of a stop  order  suspending  the
effectiveness  of the Registration  Statement is threatened or contemplated,  no
future Basic, Supplemental, or Employer Contributions may be invested in, and no
such prior  contributions,  or income earned  thereon,  may be  transferred  for
investment  in the NL Stock  Fund or the  Dresser/Tremont  Stock  Fund.  In lieu
thereof,  the Trustee  shall  invest such amounts in short term  investments  in
accordance  with  Paragraph  6.2. At such time as (a) a  Registration  Statement
covering the plan shall become  effective,  (b) the  Prospectus  forming part of
such Registration  Statement shall have been amended to meet the requirements of
the Act or shall be available  for  delivery,  or (c) no stop order  proceedings
shall be threatened or contemplated, such amount shall be invested as previously
directed,  until such prior  direction is changed in accordance  with  Paragraph
6.3.

      6.6 Proxy Material for Those  Participants for Whom an Investment Has Been
Made in the NL Stock Fund or the Dresser/Tremont  Stock Fund: Before each annual
or special  shareholders'  meeting of the applicable company,  the Trustee shall
furnish  to  each  Participant  with  an  account  in the NL  Stock  Fund or the
Dresser/Tremont Stock Fund, a copy of the proxy solicitation material,  together
with a form  requesting  confidential  instructions  to the  Trustee on how such
Common Stock (including fractional shares, to 1/10th of a share) is to be voted.
Such proxy  solicitation  material will be furnished to participants in a timely
manner so as to comply with  applicable  federal and/or state laws.  Upon timely
receipt  of such  instructions,  the  Trustee  shall vote such  Common  Stock as
instructed.  The instructions received by the Trustee from Participants shall be
held by the Trustee in strict  confidence  and shall not be divulged or released
to any person  including  officers or employees of the Company or any Affiliated
Company.  The Trustee shall not make  recommendations to Participants on whether
to vote or how to vote. If voting instructions for Common Stock for a particular
shareholders  meeting are not timely  received  from  Participants,  the Trustee
shall not vote such Common  Stock,  except that  effective  January 1, 1994,  if
timely  instructions  are not  received  from  Participants,  or if the  Trustee
determines that the instructions  received violate ERISA, the trustee shall vote
such Common  Stock for which  valid  instructions  are not  received in the same
proportion as are voted the shares for which valid instructions are received.


                                     VI-3

<PAGE>



      6.7 Exercise of Tender Rights:  Each Participant shall have the right from
time to time with respect to the shares of Common Stock allocated to his account
in the NL Stock Fund or the  Dresser/Tremont  Stock Fund to instruct the Trustee
in writing as to the manner in which to respond to any tender or exchange offers
which shall be pending or which may be made in the future for all such shares of
Common Stock or any portion thereof.  A Participant's  instructions shall remain
in force until  superseded  in writing by the  Participant.  The  Trustee  shall
tender  or  exchange  such  shares  of  Common  Stock  as and to the  extent  so
instructed.  If the Trustee  shall not receive  instructions  from a Participant
regarding  tender or exchange offers for Common Stock, the Trustee shall have no
discretion in such matter and shall take no action in response  thereto.  Unless
and until  shares of Common  Stock are  tendered or  exchanged,  the  individual
instructions  received by the  Trustee  from  Participants  shall be held by the
Trustee  in strict  confidence  and shall not be  divulged  or  released  to any
person,  including  officers  or  employees  of the  Company  or any  Affiliated
Company;  provided,  however,  that the Trustee shall advise the Company, at any
time upon  request,  of the total  number of shares of Common Stock which it has
been  instructed  to tender or exchange  and the total number of such shares not
subject to  instructions  to tender or exchange.  The Trustee  shall notify each
Participant  of each  tender or exchange  offer and utilize its best  efforts to
timely distribute or cause to be distributed to such Participant all information
distributed to shareholders of the Company in connection with any such tender or
exchange offer.

      6.8 Best  Interests  of  Participants:  In the event that the Trustee or a
court of  competent  jurisdiction  determines  that the  Trustee  shall have the
discretion or power to sell,  convey or transfer any shares of Common Stock held
in the NL Stock  Fund or the  Dresser  Tremont  Stock  Fund of the Trust Fund in
response  to a tender or  exchange  offer,  notwithstanding  the  provisions  of
Section 6.7, the Trustee in exercising such discretion or power shall be obliged
to consider not only any increased value in the accounts of the  Participants in
the NL Stock  Fund or the  Dresser  Tremont  Stock  Fund of the Trust  Fund as a
result of a tender or exchange of the shares of Common  Stock in the accounts of
such  Participants,  but also the  impact  of any  change in the  management  or
control of the Company on the status of the  Participants  as  employees  of the
Company  in the  long  run,  not  over a  short  period,  such as  whether  such
Participants will be retained or dismissed as employees of the Company,  whether
such  Participants  will receive  greater or fewer benefits than they receive as
employees of the Company at present,  including coverage under pension,  savings
or thrift,  or employee stock  ownership  plans similar to the Company's  plans,
whether  such  plans are as well  funded as the  Company's  plans,  whether  the
Participants  will receiver  greater or lower levels of compensation and whether
the  Participants  will continue to be covered by a savings or thrift plan, such
as the Plan.  To the maximum  extent  permitted  by law,  the  Trustee  shall be
obliged  to  treat  the   instructions  of  Participants  who  have  given  such
instructions as indicative of whether  tendering shares of Common Stock would be
in the best interests of other Participants.

      6.9 Assumption of Investment Risk by Participants:  Upon the withdrawal or
distribution  of benefits under the Plan, a Participant  or  Beneficiary  may be
entitled  to  receive  shares  of  Common  Stock or cash as  provided  for under
Articles IX and X. The Employer does not guarantee that the current market value
of Common  Stock or any other  investment  will be equal to the  purchase  price
thereof or that the total amount  withdrawn or distributed in cash will be equal
to or greater than the

                                     VI-4

<PAGE>



amount  of  the  Participant's   Basic  or  Supplemental   Contributions.   Each
Participant  assumes  all risks in  connection  with any  decrease in the market
price of any common stocks or other  investments or Investment Funds held on his
behalf in accordance with the provisions of the Plan.

      If a Participant or Employee  submits invalid  instructions  directing the
investment  of his  account,  his  account  shall  continue  to be  invested  in
accordance with the most recent valid instructions  received by the Committee or
in  accordance  with  Section  6.3.  If no valid  instructions  have  ever  been
received, such Participant or Employee shall be deemed to have elected to invest
his account in the Money Market Fund, or if none is offered, the Investment Fund
that the  Committee  determines to be closest to a money market fund in expected
risk.

      6.10 Section 404(c) of ERISA: Except as may otherwise be prescribed by the
Committee, categories of assets, election procedures and other rules relating to
investment  elections  shall comply with the  requirements  of Section 404(c) of
ERISA.



                                     VI-5

<PAGE>



                                  ARTICLE VII

                TRUST FUND ACCOUNTS AND ALLOCATION OF EARNINGS

      7.1 Participant's  Account:  The Committee shall cause to be maintained in
an equitable manner a separate account for each Participant in which there shall
be kept a separate  record of the share of such  Participant in each  Investment
Fund of the Trust  Fund  which is  attributable  to his  Basic and  Supplemental
After-Tax  and Pre-Tax  Contributions,  Roll-over  Contributions,  if any,  made
pursuant to Article IV hereof and the Employer Contributions made on his behalf.

      7.2 Valuation of Investment  Funds:  The Committee shall cause the Trustee
to value  separately  the  Investment  Funds  described in Article VI as of each
Valuation Date by  determining  the fair market value of the Trust Fund's assets
then held in each of the Investment Funds.

      7.3 Valuation of Accounts:  The difference  between the value of each such
Investment  Fund on any  Valuation  Date and its value as of the last  preceding
Valuation  Date  together with  interest,  dividends and other sums received and
accrued but not yet invested,  less expenses,  shall be credited or debited,  as
the case may be,  to the  account  balances  of the  Participants  in each  such
Investment Fund.

      7.4 Statement of Participant's  Account:  As soon as practicable after the
completion of a Plan Year, an individual statement of account shall be issued to
each Participant showing the value of his interest in each Fund.



                                    VII-1

<PAGE>



                                 ARTICLE VIII

                                    VESTING

      8.1 Vesting With Respect to Predecessor  Plan  Contributions,  Participant
Contributions  and  Pre-Tax  Contributions  Made  After  December  31,  1973:  A
Participant  shall at all  times be fully  vested in the  current  value of that
portion  of  his  account  which  is   attributed  to  Basic  and   Supplemental
Contributions, Rollover Contributions, Direct Rollovers, and direct transfers to
the Trust Fund (as described in subparagraph 4.10(c)).

      8.2 Vesting With Respect to Employer  Contributions:  A Participant  shall
have no vested interest with respect to the value of that portion of his account
which is  attributed  to  Employer  Contributions,  unless  he shall  have  been
credited  with at least three years of Vesting  Service (as defined in Paragraph
8.3).  If a  Participant  has been credited with at least three years of Vesting
Service,  he shall be vested in 50% of the value of all Employer  Contributions.
If a Participant has been credited with at least four years of Vesting  Service,
he  shall  be  vested  in 75% of the  value  of all  Employer  Contributions.  A
Participant  who has been credited  with at least five years of Vesting  Service
shall be vested in 100% of the value of all Employer Contributions.

      8.3 Years of Vesting Service: Subject to the last sentence of subparagraph
10.1(c), an Employee shall be credited with one year of Vesting Service for each
Plan Year or part thereof  following his  commencement  of  employment  with the
Employer or with an Affiliated  Company during which he shall have been credited
with at least 1,000 Hours of Service or six Months of Service. For this purpose,
an Employee  shall receive credit for all Hours of Service and Months of Service
with an Employer or an  Affiliated  Company,  whether or not such  Employee  was
eligible to participate in the Plan during each such Plan Year. In addition, any
Employee may be credited  with up to five years of employment  with Valhi,  Inc,
Tremont Corporation, Louisiana Pigment Company, L.P., or Baroid Corporation (but
only if such employment with Baroid Corporation preceded Baroid's acquisition by
or merger with Dresser  Industries,  Inc.) prior to such Employee's date of hire
by the  Employer.  Notwithstanding  the fact that a  Participant  has incurred a
forfeiture  under the rules described in Paragraph 8.4, years of Vesting Service
shall  include  years of Vesting  Service  prior to a one-year  Break in Service
subject to the following rules:

            (a) If a vested  Participant  has a one-year  Break in Service,  his
      pre-break and  post-break  service  shall be used for  computing  years of
      Vesting Service upon his date of reemployment.

            (b)  After  five   consecutive   one-year   Breaks  in  Service,   a
      Participant's  vested interest in the value of his Employer  Contributions
      attributable  to pre-break  service  shall not be increased as a result of
      post-break service.

      8.4  Forfeitures  Upon  Distribution  Prior to Full Vesting and Repayment:
Except as provided in Paragraphs 8.5 and 8.6, any termination of employment of a
Participant, prior to the time

                                    VIII-1

<PAGE>



his account attributable to the Employer  Contributions made with respect to him
is 100%  vested  in  accordance  with  Paragraphs  8.2 or 8.5,  may  result in a
forfeiture  of  the  current  value  of the  nonvested  amounts  subject  to the
following provisions, effective January 1, 1992.

            (a) General Rule: The value of his vested  interest in his Basic and
      Supplemental  After-Tax  Contributions,  and in the Basic and Supplemental
      Pre-Tax  Contributions and Employer  Contributions made on his behalf will
      be paid to him in accordance with Paragraph 9.1. Notwithstanding any other
      provisions  of the Plan to the contrary,  any nonvested  amounts that were
      held under the Plan (as in effect  immediately prior to the Plan Year that
      commenced on January 1, 1992), in Accounts maintained for Participants who
      had incurred at least five (5)  consecutive  one year Breaks in Service on
      or before January 1, 1992,  shall be deemed to have been forfeited  during
      the first Plan Year that commenced immediately after December 31, 1991 and
      shall be applied as herein provided.

            (b) Cashouts Within Two Plan Years After Employment Terminates:  The
      Participant shall not be entitled to the value of the nonvested portion of
      his account attributable to Employer Contributions which nonvested portion
      shall be  forfeited  as of the date  distribution  of his  vested  account
      balance  is  made  or  commenced  (due  to  such  person's   cessation  of
      participation  in the Plan) by the close of the second  complete Plan Year
      following the Plan Year in which his employment terminated, and applied in
      accordance  with Paragraph 5.4.  Otherwise,  with respect to the nonvested
      portion of such account of a Participant  who received a  distribution  of
      all or a portion of the vested  portion of such account  other than by the
      close of the second  complete  Plan Year  following the Plan Year in which
      his  employment  terminated,  such  forfeiture  shall occur on the date on
      which such Participant incurs five consecutive  one-year Breaks in Service
      following the date of termination of employment.  Provided,  however, that
      if the  Participant  (1) received a  distribution  which includes the full
      amount of his  entire  vested  interest  in his  account  attributable  to
      Employer  Contributions as a result of his termination of participation in
      the Plan, which distribution is $3,500 or less, or is more than $3,500 but
      is consented to, (2) returns to active  employment  before  incurring five
      consecutive  one-year  Breaks in Service and (3) not later than the end of
      the  five-year  period   beginning  with  the  Employee's   resumption  of
      employment  covered  by the Plan,  repays to the  Trust  Fund,  in cash or
      shares of  Employer  Stock (but only to the extent of the number of shares
      received upon  distribution),  the entire value of his account  balance at
      the time of  distribution  to him,  the amount  repaid  and the  nonvested
      portion of the Employer Contributions previously made on the Participant's
      behalf shall be restored to such Participant's accounts in an amount equal
      to the  value of his  accounts  on the date of  distribution  and shall be
      invested in accordance  with the option in effect for such  Participant at
      the time of repayment.  In addition,  if such  Participant  (1) received a
      distribution  by the close of the second Plan Year following the Plan Year
      in which his employment  terminated,  which distribution was less than the
      full amount of his entire vested  interest in his account  attributable to
      Employer Contributions,  which interest is $3,500 or less, or is more than
      $3,500 but is consented  to, and (2) returns to active  employment  before
      incurring five consecutive one-year Breaks in Service following the date

                                    VIII-2

<PAGE>



      his  employment   terminated,   the  nonvested  portion  of  the  Employer
      Contributions  previously  made  on  the  Participant's  behalf  shall  be
      restored to such Participant's accounts in an amount equal to the value of
      his  accounts  on  the  date  the  distribution   commenced   without  any
      requirement that he repay to the Trust Fund any amount of the distribution
      attributable  to Employer  Contributions;  provided,  however,  any future
      distributions  attributable to Employer  Contribution  shall be subject to
      offset  by the  amount  of the  prior  distribution  that  was not  repaid
      incident to  restoration  to the  Participant's  account  pursuant to this
      sentence.  There shall be no adjustment  for any gains or losses which may
      be incurred between the date of distribution and the date of repayment.

            (c)  Deemed  Cashouts:  If the  Participant  did not  have a  vested
      interest in any  contributions  credited to his account at the time of his
      termination  of  participation  in the  Plan he shall  be  deemed  to have
      received  distribution of a vested interest in any contributions  credited
      to his account equal to zero (although  actually receiving no distribution
      from his account as a result of his  termination of  participation  in the
      Plan), and his account will be restored if he resumes  employment  covered
      under the Plan prior to  incurring a period of five  consecutive  one-year
      Breaks in Service following the date of the termination.

            (d)  Distribution  Made or Begun  More  Than Two  Plan  Years  After
      Employment Terminates: With respect to a Participant whose vested interest
      in his account  attributable to Employer  Contributions  is less than 100%
      and who receives a termination  distribution from his account attributable
      to Employer  Contributions other than by the close of the second Plan Year
      following  the Plan Year in which his  employment  terminated,  any amount
      remaining  in his account  attributable  to Employer  Contributions  shall
      continue to be maintained  as a separate  account.  At any relevant  time,
      such Participant's  nonforfeitable  portion of such separate account shall
      be determined in accordance with the following formula:

                               X = P(AB + D) - D

      For purposes of applying the formula: X is the  nonforfeitable  portion of
      such separate account at the relevant time; P is the Participant's  vested
      interest in his account  attributable  to  Employer  Contributions  at the
      relevant time; AB is the balance of such separate  account at the relevant
      time; and D is the amount of the  distribution.  For all other purposes of
      the Plan, a Participant's  separate account shall be treated as an account
      attributable to Employer  Contributions.  The forfeitable  portion of such
      terminated  Participant's  separate account shall be forfeited on the date
      on which such  Participant  incurs  five  consecutive  one-year  Breaks in
      Service following the date of termination of employment.

            (e) Deferred Vested Distributions: With respect to a Participant who
      terminates  employment  with the  Employer  with a vested  interest in his
      account  attributable to Employer  Contributions  greater than 0% but less
      than 100% and who is not otherwise subject to the forfeiture provisions of
      paragraph (b) or paragraph (d) above, the forfeitable portion of such

                                    VIII-3

<PAGE>



      terminated  Participant's  account attributable to Employer  Contributions
      shall be  forfeited  on the date on which  such  Participant  incurs  five
      consecutive  one-year Breaks in Service  following the date of termination
      of employment.

            (f)  Investment  of  Forfeitable  Account  Balances:   A  terminated
      Participant  shall be entitled to direct the  investment of his Account up
      until  such  time  as  investments  are  liquidated,  if  applicable,  and
      distribution  of his entire  vested  interest is made in  accordance  with
      Article IX. Thereafter,  the forfeitable  portion of such Account shall be
      invested by the Committee.

      8.5 Full  Vesting:  Notwithstanding  the  provisions  of Paragraph  8.2, a
Participant  shall  be  fully  vested  in  all  Employer  Contributions  if  his
employment is terminated as a result of his  Retirement,  Disability or death. A
Participant  shall also be fully vested upon attainment of his normal retirement
age  regardless  of whether he  actually  retires on such date,  except that for
Participants  first  hired  by an  Employer  on or  after  January  1,  1997,  a
Participant shall be fully vested upon attainment of the later of (i) his normal
retirement age (regardless of whether he actually retires on such date) and (ii)
the completion of five years of Vesting  Service.  For purposes of the preceding
sentence,  a Participant's  normal retirement age shall be the earlier of age 65
or the age  treated as his normal  retirement  age under the  provisions  of any
formal retirement plan the Company under which he may be covered.

      8.6  Other   Provisions   Affecting   Vesting:   If  the   termination  of
participation  of any  Participant is occasioned by a change in ownership of the
outstanding  stock  of an  Affiliated  Company  by  which  such  Participant  is
employed,  or if the  termination of employment of any Participant is occasioned
by  the  sale  or  other  transfer  to  an  acquiring   corporation  of  all  or
substantially  all of the  assets  used by the  Company  in a  division,  plant,
location, or other identifiable unit of the Company by which such Participant is
employed, and if such former Affiliated Company or acquiring corporation, either
prior to or within 60 days from the date of such  change,  evidences  in writing
its intention to continue in effect for its employees a profit  sharing,  thrift
or savings plan for their benefit in accordance  with the terms of the Plan, the
Committee  upon  approval by the Board  shall  direct the Trustee to transfer to
itself, or to such other trustee as such former Affiliated  Company or acquiring
corporation  shall  designate  in a  trust  agreement  containing  the  same  or
substantially  similar  terms and  provisions  as are contained in the agreement
establishing  the Trust  forming part of the Plan,  such assets then held by the
Trustee for such Participant,  without reduction for the nonvested  amounts,  if
any, of his account balance, as the Committee shall determine and certify to the
Trustee, constitute the appropriate share of the Trust Fund then held in respect
of such former Affiliated  Company's or the acquiring  corporation's  employees,
who, prior to the change in ownership, participated under the Plan.


                                    VIII-4

<PAGE>



                                  ARTICLE IX

                DISTRIBUTION OF BENEFITS OTHER THAN WITHDRAWALS

      9.1 Normal Form of Payment: Subject to Paragraphs 5.2, 8.6, 13.2, 17.2 and
17.3, distributions shall be made under the Plan only upon the occurrence of one
of the events  described in Paragraph 10.3. In addition,  to the extent required
by  Section  401(k)  of the  Code and  Regulations  or  other  authority  issued
thereunder  by  the  appropriate  governmental  authority,  the  limits  of  the
immediately  preceding  sentence  shall  continue  to apply even if Trust  Funds
attributable  to any  Participant's  account  are  transferred  to another  plan
pursuant to  applicable  provisions  of Paragraph  4.12(c) or 17.3.  Neither the
Committee,  Trustee nor any  Employer  shall have any duty to ensure  compliance
with the  requirements of the immediately  preceding  sentence after the initial
transfer therein described.

      Unless a Participant  otherwise elects, in the case of a Participant whose
employment is terminated  for any reason,  including  Retirement,  the Committee
shall value his account balance as of the Valuation Date coincident with or next
following the date on which such  termination of employment  occurs (or would be
deemed to have occurred).

            (a) If a  Participant's  termination of employment is for any reason
      other than death, all vested amounts then credited to his account shall be
      distributed  in one  lump-sum  payment;  provided,  however,  that no such
      lump-sum  payment  shall  be  made  without  the  written  consent  of the
      Participant where the portion of the payment  attributable to (i) Employer
      Contributions,  (ii)  Basic  and  Supplemental  Contributions,  and  (iii)
      Rollover  Contributions,  exceeds  $3,500.  Such written  consent shall be
      obtained by the Committee within the 90 day period  commencing  before the
      date the  lump-sum  payment  is to be made to the  Participant.  If such a
      Participant  does not  provide  the  Committee  with the  written  consent
      described  above,  the  Participant  shall be  deemed  to have  elected  a
      deferred distribution and all amounts credited to his account at that time
      shall  remain  in the  Investment  Funds,  subject  to his  right  to make
      inter-fund  transfers  pursuant to Paragraph 6.4,  until such  Participant
      either (i) dies (ii)  attains  age 65 or (iii)  consents  in writing to an
      earlier date for distribution;  provided,  however,  if any Participant or
      Beneficiary  elects a deferred  lump-sum  payment  described in Paragraphs
      9.2(b), such amounts credited to the Participant's account shall remain in
      said  Investment  Funds,  subject  to  inter-fund  transfers  pursuant  to
      Paragraph 6.4, until the Valuation Date  designated by the  Participant or
      the  Beneficiary for  distribution  of benefits,  with payment to occur as
      soon as practicable  thereafter.  If such  Participant dies or attains age
      65,  without  having made a timely  election to defer  distribution  under
      Paragraph  9.2, all amounts  credited to his account at that time shall be
      distributed pursuant to this subparagraph no later than the 60th day after
      the close of the Plan Year in which such  Participant  dies or attains age
      65. Such  Participant's  account balance shall be valued for  distribution
      purposes as of the Valuation Date either (i) designated by the Participant
      for distribution of benefits under this  subparagraph or Paragraph 9.2, or
      (ii)  coincident  with or next following his date of death, as applicable.
      Any such distributions

                                     IX-1

<PAGE>



      shall be made as soon as practicable after the applicable  Valuation Date.
      All amounts  distributable  as a lump-sum  under this  Paragraph  9.1 from
      Investment  Funds  other  than the NL Stock  Fund and the  Dresser/Tremont
      Stock Fund shall be paid in cash. Amounts  distributable from the NL Stock
      Fund and the  Dresser/Tremont  Stock Fund shall be paid either entirely in
      cash,  or  entirely  in whole  shares of  Common  Stock and in cash to the
      extent of any fractional  shares (to 1/10th of a share) as the Participant
      shall elect.  Absent such an election,  amounts  distributable from the NL
      Stock  Fund  and the  Dresser/Tremont  Stock  Fund  shall be paid in whole
      shares of Common Stock (and fractional shares to 1/10th of a share paid in
      cash).

            (b) If the value of a Participant's  vested benefit  attributable to
      any Employer  Contributions,  Basic and  Supplemental  Contributions,  and
      Rollover  Contributions,  is less than $3,500,  the  Committee in its sole
      discretion may distribute  such benefit in a cash lump-sum,  regardless of
      any election to the contrary.

      9.2 Alternative  Forms of Payment:  Each Participant  whose vested account
balance  exceeds  $3,500 shall be given,  not less than 30 days nor more than 90
days before the first day of the first  period for which an amount is to be paid
as a partial or complete distribution, a general description of the distribution
options.  After receiving the notice,  a Participant or his Beneficiary may file
with the Committee an election to have his distribution  paid to the Participant
or his  Beneficiary,  as the case may be, in one or more of the forms  described
below in lieu of the immediate  lump-sum payment  provided in Paragraph  9.1(a);
provided,  however, that in the case of termination of employment for any reason
other than death,  Disability or Retirement,  the  Participant may not elect the
annuity form of  distribution  described in  subparagraph  (a) of this Paragraph
9.2. Any such election may be revoked, by the Participant or the Beneficiary, as
the case may be,  at any time  prior to the  commencement  of  benefits  or,  if
sooner,  the purchase of any annuity  contract  pursuant to subparagraph  (a) of
this Paragraph 9.2. Similarly, a Participant whose Beneficiary is other than his
Spouse may  designate,  at the time he  designates  such  Beneficiary,  that the
distribution to such Beneficiary be paid in one or more of such forms in lieu of
the form prescribed in subparagraph 9.1(a). If the designation  permitted in the
previous  sentence is not made  irrevocably  by a  Participant  with  respect to
actions of his Beneficiary or if the  Participant's  Spouse is his  Beneficiary,
and such Participant dies prior to his Retirement, then his Beneficiary may file
with the  Committee  the same  election not more than 60 days  subsequent to the
date of the Participant's death.
The alternate forms of distribution are:

            (a) Annuity: A nontransferable annuity contract,  provided, however,
      that:  (i)  if  a  Participant's  termination  of  employment  is  due  to
      Retirement  and if  such  Participant  has a  Spouse  at the  time of such
      distribution  then, unless the Participant files a written election not to
      receive his  benefits in this form in the manner  prescribed  in Paragraph
      9.3,  such annuity  shall be paid on a fixed annuity basis with 50% of the
      annuity  continued  after  the  Participant's  death to his  Spouse.  Such
      annuity shall be in the form of a "qualified joint and survivor  annuity",
      as that term is defined in Section 417(b) of the Code, and shall be

                                     IX-2

<PAGE>



      actuarially  equivalent  to the single life annuity which would be payable
      for the life of the Participant.

            All payments under an annuity contract distributed hereunder must be
      payable not less  frequently  than  annually and must be of  approximately
      equal  amounts,  except  that the  earlier  payments  may exceed the later
      payments and no  contingent  annuitant  option may be elected  which would
      allocate to the  Participant  less than 50% of the actuarial  value of the
      benefits  payable under such contract.  This limitation shall not preclude
      the  election  of an annuity for the life of the  Participant  under which
      payments in equal or lesser amounts are  thereafter  made to his surviving
      Spouse;

            (b) Lump Sum: A lump sum payment payable in the manner prescribed in
      subparagraph 9.1(a) valued as of the Valuation Date designated as the date
      for  distribution of benefits by the Participant or the Beneficiary but no
      later than the April 1st of the calendar year  following the calendar year
      in which the  Participant  attains  age 70 1/2;  provided,  however,  if a
      Participant  was born prior to July 1, 1917, and is not a 5% owner subject
      to the rule set forth in subparagraph  9.5(a), any benefit payable to such
      Participant  shall  commence  no later than the April 1st of the  calendar
      year following the later of (i) the calendar year in which the Participant
      attains  age 70 1/2 or (ii) the  calendar  year in which  the  Participant
      retires. The Committee may accelerate the lump-sum payment in the event of
      hardship; or

            (c) Installments:  Approximately  equal annual  installments paid in
      cash over a fixed period of years subject to minimum payment  requirements
      under the Regulations as prescribed by the Committee. Such period of years
      for the payment of  installments  may  commence as of any  Valuation  Date
      after the  Participant's  termination  of  employment,  as  elected by the
      Participant  or the  Beneficiary,  but no later  than the April 1st of the
      calendar year following the calendar year in which the Participant attains
      age 70 1/2; provided,  however, if a Participant attained age 70 1/2 prior
      to January 1, 1988, except as otherwise  provided in subparagraph  9.4(a),
      any benefit payable to such  Participant  shall commence no later than the
      April 1st of the  calendar  year  following  the later of (i) the calendar
      year in which the Participant attains age 70 1/2 or (ii) the calendar year
      in which the Participant retires. Such installments shall be paid over the
      period of years elected by the  Participant  or the  Beneficiary  provided
      that such period shall not exceed the lesser of (i) 15 years,  or (ii) the
      life  expectancy of the  Participant,  the  Beneficiary  or the joint life
      expectancy of the  Participant  and the  Beneficiary  as determined by the
      Committee  in  accordance  with the Code.  In the event of  hardship,  the
      Committee may accelerate the payment of one or more installments or reduce
      the installment payment period.

      Any Participant or Beneficiary  electing an alternate form of distribution
described  in  subparagraphs  (b)  or  (c)  shall  continue  to  participate  in
Investment Fund  performance with respect to all  undistributed  portions of his
account balance.  In no event shall any payment pursuant to subparagraphs (b) or
(c) be permitted after the Participant's attainment of age 65 unless the method

                                     IX-3

<PAGE>



of payment,  on an actuarial basis,  will provide the Participant with more than
50% of the present value of the total payments to be made to the Participant and
the Beneficiary.

      9.3 Notice of Right to Elect Not to Receive  Benefits in Form of Qualified
Joint and Survivor Annuity: Each Participant who elects to have his distribution
paid in the form of an annuity  contract set forth in  Paragraph  9.2(a) and who
would otherwise  receive the qualified  joint and survivor  annuity set forth in
subparagraph  9.2(a)(i)  shall  have a period of 90 days  ending on the  annuity
starting  date to make a  Qualified  Election  not to take such form of  annuity
under the Plan,  and to elect any other  permissible  form of  annuity  or other
optional form of benefit  provided under Paragraph 9.2. A Participant may revoke
his election to take an optional form of benefit at any time during the election
period.  The  Committee  shall  provide to the  Participant  within a reasonable
period prior to the  commencement of benefits a written  explanation of: (i) the
terms  and  conditions  of  qualified  joint  and  survivor  annuity;  (ii)  the
Participant's  right to make,  and the effect of, a Qualified  Election to waive
such form of benefit; (iii) the rights of the Participant's Spouse; and (iv) the
right to make, and the effect of, a revocation of a previous  Qualified Election
to waive the qualified joint and survivor  annuity.  The election of an optional
form of benefit  which  includes  the  payment of an annuity  shall not be given
effect if the  Participant  or any other person who would receive  benefits from
such annuity dies before the purchase of an annuity contract.

      9.4   Distributions Upon Death:

            (a) Except in the case of a Participant  whose  benefits are paid in
      the form of an annuity, as described in subparagraph  9.2(a), in the event
      of the  death  of a  Participant  prior  to  complete  payment  under  any
      allowable form of distribution, the balance of his account under the Trust
      Fund shall be distributed to his Beneficiary in accordance with Paragraphs
      9.1(a) and 9.2; provided,  however,  that such balance will continue to be
      distributed  at least as rapidly as under the  method of  distribution  in
      effect on the Participant's death.

            (b) In the event of the death of a Participant prior to commencement
      of the distribution of his benefit, the Participant's entire benefit shall
      be  distributed  to the  Beneficiary  no later than five  years  after the
      Participant's death; provided,  however, that any such distribution may be
      made in installments  pursuant to subparagraph 9.2(c) if such distribution
      is commenced not later than one year after such Participant's death or, if
      such Beneficiary is the Participant's surviving Spouse, not later than the
      date on which such Participant would have attained age 70 1/2 (or any such
      later date prescribed in the  Regulations.)  If the surviving  Spouse dies
      before payments begin,  subsequent  distributions  shall be made as if the
      Spouse had been the Participant.

            (c) For purposes of this  Paragraph  9.4, any amount paid to a child
      of the  Participant  shall  be  treated  as if it  had  been  paid  to the
      surviving  Spouse if such amount becomes  payable to the surviving  Spouse
      upon  the  child's  attaining  the age of  majority  or such  other  event
      prescribed in the Regulations.

                                     IX-4

<PAGE>



      9.5   Commencement of Certain Distributions:

            (a) If a  Participant  who is a 5% owner  attained age 70 1/2 before
      January 1, 1988, any benefit payable to such Participant shall commence no
      later than the April 1st of the calendar  year  following the later of (i)
      the calendar year in which the Participant  attains age 70 1/2 or (ii) the
      earlier of (A) the calendar year within which the Participant becomes a 5%
      owner or (B) the  calendar  year in which  the  Participant  retires.  For
      purposes of this  Subsection (a), a 5% owner shall mean a 5% owner of such
      Participant's  Employer  as defined in Section  416 (i) of the Code at any
      time  during the Plan Year in which such owner  attains  age 66 1/2 or any
      subsequent Plan Year.

            (b)  Unless  a  Participant  or  Beneficiary   elects  otherwise  in
      accordance   with  this  Article  IX,  the  payment  of  the  value  of  a
      Participant's  vested  interest  under the Plan shall begin not later than
      the 60th day after the latest of the close of the Plan Year in which:  (i)
      the Participant attains age 65; (ii) the Participant terminates employment
      with the  Employer  or  other  Affiliated  Company;  or  (iii)  the  tenth
      anniversary of the year in which the Participant  commenced  participation
      in the Plan occurs.

      9.6   Special Distributions:

            (a) In addition to the  distributions  available  under Sections 9.1
      and 9.2, a Participant or his  Beneficiary may elect, on or after the date
      of occurrence of an event specified in Paragraph  9.5(b),  to receive,  as
      soon as practicable after the filing of an election with the Committee,  a
      distribution  in one  lump-sum  payment  of all  amounts  credited  to his
      account in Investment Funds B,C,E and G or, effective July 1, 1990, in all
      Investment Funds.


            (b) A  Participant  or his  Beneficiary  may make an election  under
      Paragraph  9.5(a) if one of the following events shall have occurred on or
      after  January  1,  1985:   (i)  the  Plan  is   terminated   without  the
      establishment  of or  maintenance  of another  defined  contribution  plan
      (other than a plan defined in Section 4975(e)7 of the Code); (ii) there is
      a disposition  by the Company of  substantially  all of the assets (within
      the  meaning of Section  409(d)(2)  of the Code) used by the  Company in a
      trade or  business,  and the  Participant  continues  employment  with the
      corporation  acquiring the assets;  or (iii) there is a disposition by the
      Company of the Company's  interest in a subsidiary  (within the meaning of
      Section 409(d)(3) of the Code), and the Participant  continues  employment
      with the subsidiary.

      9.7 Minimum Distribution Requirements:  All distributions under Article IX
shall be determined and made in accordance  with Section  401(a)(9) of the Code,
including the minimum  distribution  incidental  benefit  requirement of Section
1.401(a)(9)-2  of the proposed  Income Tax Regulations or any successor or final
regulation issued with respect thereto.


                                     IX-5

<PAGE>



      9.8 Waiver of 30 Day Notice:  If a  distribution  is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not apply,  such distribution
may  commence  less  than  30 days  after  the  notice  required  under  Section
1.411(a)-11(c) of the Income Tax Regulations is given, provided that:

            (1) the plan administrator  clearly informs the participant that the
      participant  has a right to a period of at least 30 days  after  receiving
      the  notice  to  consider  the  decision  of  whether  or not to  elect  a
      distribution (and, if applicable, a particular distribution option), and

            (2) the  participant,  after  receiving  the  notice,  affirmatively
      elects a distribution.




                                     IX-6

<PAGE>



                                   ARTICLE X

                                  WITHDRAWALS

      10.1  Withdrawals of Contributions:

            (a) General:  Subject to the limitations set forth in Paragraph 10.3
      with  respect  to  Basic  and  Supplemental   Pre-Tax   Contributions,   a
      Participant may make  withdrawals  from his account balance in the various
      Investment  Funds at any  time  prior to his  termination  of  employment,
      without  the  consent of the  Committee,  as  hereinafter  set forth.  The
      provisions of this Article X shall apply to deferred  vested  Participants
      who are not current employees on the same basis that such provisions apply
      to currently employed Participants.

            (b) Procedure:  All requests for  withdrawals  shall be initiated by
      submission  of the  appropriate  Plan form to the local  administrator  at
      least 5 days  before the 15th of the month or the end of the month that is
      the  Valuation  Date with respect to the proposed  withdrawal,  unless the
      Committee  resolves  that  requests  for  withdrawals  may be initiated by
      telephoning the  representative of the Trustee at the number stated in the
      summary plan  description  of the Plan and following the  instructions  of
      that representative.  Written confirmation of the transaction will be sent
      to  the   Contributing   Participant  by  the  Trustee  and  such  written
      confirmation is binding unless the Contributing  Participant  demonstrates
      an error in such written  confirmation within the number of days stated on
      the written  confirmation.  The value of a Participant's  accounts will be
      valued on the Valuation  Date next following the date on which the request
      is approved.  Distribution shall be made in a lump-sum cash payment within
      15 days or as soon as  practicable.  All such  withdrawals  shall be taken
      proportionately  from each of the Participant's  Investment Funds,  except
      that  if  the  Committee  determines  in its  sole  discretion  that  such
      proportionate   withdrawal  would  violate  any  Securities  and  Exchange
      Commission  ("SEC")  rule  concerning  the sale of stock by an  officer or
      member of the board of directors of any company of which the stock is held
      in the Plan, the withdrawal  shall be taken  proportionately  from each of
      the affected  Participant's  Investment Funds other than the NL Stock Fund
      or the Dresser/Tremont Stock Fund or any other company stock fund in which
      transactions would violate any SEC rule.

            (c) Limitations:  A Participant is not allowed to take more than two
      withdrawals  in any calendar year, nor any withdraw an amount of less than
      one hundred dollars ($100).

            (d) Source of funds: All withdrawals  shall be made in the following
      sequence and for  purposes of this  Paragraph  where  reference is made to
      Basic and  Supplemental  Pre-Tax  Contributions  or Basic and Supplemental
      After-Tax  Contributions,  such terms  shall mean the lesser of the actual
      amount of such  unwithdrawn  contributions  or the  current  market  value
      thereof as of the applicable Valuation Date:


                                     X-1

<PAGE>



                  (i) all of his Basic and Supplemental After-Tax  Contributions
            made prior to 1987;

                  (ii)  all or  part  of his  post-1986  Supplemental  After-Tax
            Contributions,  and  all or  part of the  increments  earned  on all
            Supplemental  After-Tax  Contributions;  

                  (iii)   all  or  part  of  his   post-1986   Basic   After-Tax
            Contributions, and all or part of the increments earned on all Basic
            After-Tax Contributions;

                  (iv)  all or part  of  that  portion  of his  account  balance
            attributable  to  Employer  Contributions  which are  fully  vested,
            including  increments  earned thereon,  subject to the provisions of
            Paragraph 10.4. For purposes of determining his vested percentage at
            the time of such  withdrawal,  a  Participant  who has  completed at
            least 1,000 Hours of Service or six Months of Service at the time of
            the withdrawal shall be deemed to have completed one year of Vesting
            Service;

                  (v)  all or part  of  Employer  Contributions  made  prior  to
            January 1, 1974 to the Predecessor Plan, including increments earned
            thereon,   Rollover  Contributions,   Direct  Rollovers  and  direct
            transfers from another qualified trust as described in subparagraphs
            4.10(b), (c) and (d) including increments earned thereon;

                  (vi)  all  or  part  of his  Basic  and  Supplemental  Pre-Tax
            Contributions,   provided  he  has  satisfied  the  requirements  of
            Paragraphs 10.3 or 10.6.

      10.2 Suspensions:  A Participant who makes a withdrawal shall be suspended
from making any further  Basic  After-Tax or  Supplemental  Contributions  for a
period of three  months,  effective  as of the  Valuation  Date  upon  which the
withdrawal is based. A Participant who makes a withdrawal  pursuant to Paragraph
10.6 shall be suspended from making any further Basic Pre-Tax,  Basic  After-Tax
or Supplemental  Contributions for a period of three months, effective as of the
Valuation Date upon which the withdrawal is based.

      10.3  Withdrawal  of  Basic  and   Supplemental   Pre-Tax   Contributions:
Notwithstanding the provisions of Paragraph 10.1, Basic and Supplemental Pre-Tax
Contributions, including the increments earned thereon, may not be withdrawn by,
or otherwise  distributed  to, a Participant  until the earliest to occur of the
Participant's Retirement, Disability, death, separation from service, attainment
of age 59 1/2 or hardship (as  determined by the  Committee in  accordance  with
Paragraph 10.6).  Notwithstanding the foregoing,  in the case of a withdrawal on
account of hardship,  no  post-1988  earnings on Basic or  Supplemental  Pre-Tax
Contributions  may be withdrawn by, or otherwise  distributed  to, a Participant
except to the extent permitted by Regulations.

      10.4 Restrictions on Withdrawal of Employer Contributions: Notwithstanding
the  provisions  of Paragraphs  10.1,  10.2 and 10.6,  no  Participant  shall be
permitted to make a withdrawal under  subparagraph  10.1(c) until the amounts to
be  withdrawn  have been held in the Trust Fund for a period of 24 full  months.
Such period shall be measured  from the day such amounts are actually  deposited
in  the  Trust  Fund  until  the  day of  withdrawal;  provided,  however,  that
Participants with

                                     X-2

<PAGE>



not less  than 60  months  of  participation  in the Plan  (including,  for this
purpose,  participation  in the Prior  Plan)  may make  withdrawals  subject  to
Paragraph 10.2 under  subparagraph  10.1(c)  without  regard to the  restriction
imposed by this Paragraph 10.4.

      10.5 Special Rules Affecting Withdrawals:  Except as provided in Paragraph
10.6, no withdrawal other than as provided in subparagraph (d) of Paragraph 10.1
may be made by a  Participant  while a suspension  for a prior  withdrawal is in
effect.  If a Participant  was suspended  from making Basic  Contributions  as a
result of a withdrawal  described under  Paragraph 10.1, and thereafter  resumes
making Basic  Contributions,  such Basic Contributions shall be, for a period of
time equal to the period of suspension,  at a rate of  contribution  not greater
than the rate  contributed  as Basic  Contributions  at the time the  suspension
began.

      10.6  Hardship Withdrawals:

            (a)  General  rules:   After  all  withdrawals   permissible   under
      Paragraphs  10.1 and 10.4, a  Participant,  in the case of  immediate  and
      heavy  financial  need,  may apply to the Committee to withdraw all or any
      portion of his vested  account  balance  under the Plan.  If the Committee
      determines in accordance with  nondiscriminatory  and objective guidelines
      promulgated  by  the  Committee   (which  shall  be  consistent  with  the
      Regulations subject to differences in rules and regulations  applicable to
      different  classifications of contributions and increments,  and uniformly
      applicable  to all  Participants),  in accordance  with any  guidelines or
      Regulations issued by the Secretary of the Treasury, and with the facts of
      the particular  case,  that an immediate and heavy  financial need exists,
      the  Committee  may direct the Trustee to  distribute  such portion of the
      Participant's  account balance at such time and subject to such conditions
      as the Committee in its sole  discretion  shall  determine is necessary to
      satisfy  such  immediate  and  heavy  financial  need  and  which  may not
      reasonably  be obtained by other  resources of the  Participant  including
      resources of the Participant's  spouse,  children or dependents reasonably
      available to the  Participant.  The Committee may require any  Participant
      who applies for a withdrawal pursuant to this Paragraph 10.6 to provide it
      with  such  financial   information  as  may  be  required  to  make  such
      determination.

            (b)  Hardship  amounts  and  purposes:  Subject  to the  Committee's
      guidelines,  such withdrawals may be made in the event of an immediate and
      heavy  financial  need  arising  from (i) medical  expenses  described  in
      Section 213(d) of the Code previously  incurred (or,  effective January 1,
      1992, previously incurred or necessary to be incurred) by the Participant,
      his spouse, or dependents, (ii) the purchase (excluding mortgage payments)
      of the  Participant's  primary  residence,  whether  such  residence  is a
      previously existing structure or a proposed structure under contract to be
      newly  constructed (iii) payment of tuition or, effective January 1, 1992,
      related  educational  fees, for the next semester or quarter or, effective
      January 1, 1992, year, of post-secondary education of the Participant, his
      spouse,  or  dependents,  (iv) the need to  prevent  the  eviction  of the
      Participant from his principal residence or foreclosure on the mortgage of
      the Participant's principal residence, or (v) any other event specifically
      identified in  regulations  or other  guidance  from the Internal  Revenue
      Service as a  hardship  for which a  qualified  pension  benefit  plan may
      permit a hardship  withdrawal under Section 401(k) of the Code and related
      regulations.  Effective  January 1, 1992,  the  withdrawal  may include an
      additional  amount  necessary to pay any federal,  state,  or local income
      taxes or penalties (including  additional taxes under Section 72(t) of the
      Code) that are reasonably expected to result from the withdrawal.


                                     X-3

<PAGE>



                                  ARTICLE XI

                      NAMED FIDUCIARY AND ADMINISTRATION

      11.1 Pension and Employee Benefits  Committee:  The Committee shall be the
Pension and Benefits Committee of NL Industries,  which is a committee appointed
by the Board. The charter and bylaws of the Committee shall govern wherever such
investments  are in direct  conflict with the provisions of this Article XI. If,
however, the Pension and Employee Benefits Committee should cease to exist then,
the Board shall  appoint at least three  persons as members of the Committee who
shall be subject to removal by the Board at any time. A member of the  Committee
may resign by giving the Board not less than 30 days written  notice  unless the
Board accepts a lesser period of notice.

      Names of the  current  members of the  Committee  are  available  from the
Secretary of the Committee.  The Committee shall be the Plan's "named fiduciary"
as that term is defined  in ERISA and shall,  except as  provided  in  Paragraph
11.2,  provide for the funding,  maintenance and administration of the Plan. Any
act which the Plan  authorizes  or requires the Committee to do may be done at a
meeting of the  Committee by a majority of the members then voting.  The members
of the Committee  shall serve without  compensation  for their services as such,
but all expenses of the Committee in the  performance  of their duties under the
Plan (including  compensation  for legal counsel,  accountants,  consultants and
agents) shall be paid  proportionately  by each Employer or, at the  Committee's
direction, out of the Trust Fund.

      11.2  Authority of the Committee:

            (a) The  Committee  shall have the  following  powers of the Company
      with respect to the Plan:

                  (i)   to appoint, remove or replace any Trustee;

                  (ii) to appoint,  remove or replace any one or more investment
            advisors or investment managers under the Plan;

                  (iii) to  appoint,  remove or replace any other  fiduciary  or
            named fiduciary of the Plan;

                  (iv) to amend  the Plan and the Trust as may be  necessary  or
            appropriate to facilitate  their  administration  or operation or to
            ensure the continued  qualification  of the Plan and the  tax-exempt
            status of the Trust  under  Sections  401(a) and 501(a) of the Code,
            respectively,  provided such amendment does not increase  materially
            the cost to the Company funding or administering the Plan; and

                  (v) to secure and maintain the qualification of the Plan under
            applicable law.

            (b) The  Board  shall  retain  power  and,  except  as  provided  in
      subparagraph (a)(iv) above, the Committee shall not have the power:

                  (i) to amend, suspend or terminate the Plan, any contributions
            thereunder  or the Trust,  in whole or in part,  at any time and for
            any reason;

                  (ii)  to provide the proper funding of the Plan; and

                  (iii) to monitor periodically the performance of the Committee
            and to determine,  in connection  with such  monitoring,  whether to
            continue any delegation to or  responsibility  of the Committee with
            respect to the Plan.

      11.3 Delegation of Authority: The Committee shall appoint a Secretary, who
need be neither a Participant nor a member of the Committee.  The Secretary,  or
such other person as the Committee may designate, duly shall record all acts and
determinations  of the  Committee  and  maintain  all record  books or documents
necessary  for the  administration  of the Plan.  The  Committee  may  establish
procedures for allocating  fiduciary  responsibilities  among the members of the
Committee  and may  designate  any one or more  persons to  exercise  any of its
powers,  including any of its powers as administrator,  or to execute or deliver
any  instrument or make any payment on its behalf;  provided,  however,  that no
person  other  than a member of the  Committee,  the  Trustee  or an  investment
manager  shall have any  authority  or  control,  whether or not  discretionary,
respecting the management or disposition of the Plan's assets.

      11.4  Administrator:  The Committee shall serve as  "administrator" of the
Plan as that term is defined in ERISA. The Committee,  as  administrator,  shall
have the authority and responsibility to:

            (a)  control  the  operation  and  administration  of  the  Plan  in
      accordance with the terms of the instruments and resolutions governing the
      Plan and any related Trust;

            (b) determine benefit eligibility and to certify such eligibility to
      any other fiduciaries;

            (c) establish  procedures and adopt rules and regulations of uniform
      application  as it  deems  necessary  or  appropriate  for  the  effective
      administration of the Plan;

            (d) hire persons and  organizations  to provide  legal,  accounting,
      investment  advisory and other  services  necessary or  beneficial  to the
      Plan;

            (e) issue directions to the Trustee to pay any fees, taxes,  charges
      or other costs  incidental to the operation and  management of the Plan by
      the administrator pursuant to this Paragraph 11.4;

            (f) issue  directions to the Trustee as to the amount of Plan assets
      to be held in cash to assure proper liquidity;

            (g) prepare and file all reports and returns required to be filed by
      the Plan with any agency of government;

            (h)  comply  with all  disclosure  requirements  imposed by state or
      federal law;

            (i) maintain all records of the Plan other than those required to be
      maintained by the Trustee or by any fiduciary of the Plan; and

            (j) perform all other acts  required by law to be  performed  by the
      administrator of the Plan.

      The Committee shall have all powers  necessary to carry out the provisions
of the Plan and shall have the absolute,  unilateral,  and  exclusive  right and
power to interpret, construe and construct the terms and provisions of the Plan,
including,  without  limitation,  correcting any error or defect,  supplying any
omission or reconciling any inconsistency,  and making all  determinations  that
may impact a claim for benefits,  including factual  determinations.  Subject to
Paragraph 11.5, the Committee's decisions,  interpretations,  determinations and
actions in respect  thereof shall be conclusive  and binding upon each Employer,
Participant, Beneficiary and all other persons and entities.

      11.5 Appeals  Procedure:  The Committee,  as  administrator,  shall act as
claims  fiduciary  except to the extent that the  Committee  has  delegated  the
function to someone else. All claims for benefits under the Plan must be made in
writing and shall be directed to the  attention  of the claims  fiduciary.  Upon
receipt of the claim, the claims fiduciary shall notify the claimant in a timely
fashion of the time periods within which any notice of denial of claim,  request
for review of claim,  or  decision on review of denial of claim must be given in
accordance with subparagraphs (a) through (c) below.

            (a) If the claims  fiduciary  determines that any individual who has
      claimed a right to  receive  benefits  under the Plan is not  entitled  to
      receive  all or any part of the  benefits  claimed,  it shall  inform  the
      claimant in writing of its  determination  and of the reasons  therefor in
      layman's terms,  with specific  reference to pertinent Plan provisions and
      any additional  material  necessary for the claimant to perfect his claim.
      The notice of denial shall also include a summary description or a copy of
      the text of the review  procedures  set forth below.  Such notice shall be
      made within a  reasonable  period of time but not later than 90 days after
      receipt of the claim, unless special circumstances require
      an  extension  of time for  processing.  If such an  extension  of time is
      required,  the  claims  fiduciary  shall  furnish  written  notice  of the
      extension to the claimant  prior to the  termination of the initial 90 day
      period.  In no event shall such extension  exceed a period of 90 days from
      the end of such initial  period.  The extension  notice shall indicate the
      special circumstances requiring an extension of time and the date by which
      the claims fiduciary expects to render a final decision.  If notice of the
      denial of claim is not furnished  within the time limits  specified above,
      the claim shall be deemed  denied and the  claimant  shall be permitted to
      proceed to the  review  process  described  in  subparagraphs  (b) and (c)
      below.

            (b) Within 60 days of the  receipt by the  claimant  of the  written
      notice of denial of the claim,  the  claimant  may file a written  request
      with the claims  fiduciary to conduct a full and fair review of the denial
      of the  claimant's  claim for benefit.  In connection  with the claimant's
      appeal, the claimant may review pertinent  documents and may submit issues
      and comments in writing.

            (c) The claims  fiduciary  shall promptly advise the claimant of its
      decision on the  claimant's  request for review.  Such  decision  shall be
      written in a manner  calculated to be  understood  by the claimant,  shall
      include  specific  reasons for the decision,  and shall  contain  specific
      references to pertinent Plan  provisions upon which the decision is based.
      The  decision  on  review  shall be made no later  than 60 days  following
      receipt of the  claimant's  request for review.  If special  circumstances
      require an extension of time for processing,  a decision shall be rendered
      not later than 120 days  following  receipt  of the  request  for  review.
      Written  notice of any such  extension  shall be furnished to the claimant
      prior to the commencement of the extension.

      11.6 Reliance on Reports and Certificates: The Committee shall be entitled
to rely conclusively  upon all tables,  valuations,  certificates,  opinions and
reports  furnished  by any  Trustee,  accountant,  controller,  counsel or other
person who is employed or engaged for such purposes.

      11.7 Member's Own Participation:  No member of the Committee may act, vote
or otherwise influence a decision of the Committee  specifically relating to his
own participation under the Plan.

      11.8 Exemption from Bond: No member of the Committee  shall be required to
give bond for the  performance of his duties  hereunder,  unless required by law
which cannot be waived.

      11.9  Persons  Serving  in Dual  Fiduciary  Roles:  Any  person,  group of
persons,  corporations,  firm or  other  entity,  may  serve  in more  than  one
fiduciary capacity with respect to the Plan, excluding the ability to serve both
as Trustee and as a member of the Committee.

      11.10  Indemnification:  Each member of the  Committee  and any  Employee,
director  or officer  of an  Employer,  who is  considered  to have  served in a
fiduciary capacity with respect to the Plan, shall be indemnified by the Company
against expenses (including the amount of any liability imposed in the form of a
money  judgment,  civil  penalty,  excise  tax,  as  well  as  amounts  paid  in
settlement)  reasonably  incurred by him in connection with any action,  suit or
proceeding  to which he may be a party or with which he shall be  threatened  by
reason of his being  considered to have served in a fiduciary  capacity,  to the
fullest  extent  permitted  by the  By-Laws of the  Company  and by law. No such
individual  shall be liable with respect to a breach of fiduciary duty if such a
breach  occurred  before  he  became a  fiduciary  or after  he  ceased  to be a
fiduciary.

      11.11  Liability of  Fiduciaries:  No person,  including any Trustee,  who
shall at any time be considered to be or to have been a fiduciary,  as such term
is  defined   under  ERISA,   shall  be  liable  for  the  breach  of  fiduciary
responsibility  of any other  person who is at any time  considered  to be or to
have been a fiduciary, except as provided in Section 405(a) of ERISA.

      11.12  Liability of Named  Fiduciaries:  No  fiduciary  who at any time is
considered to be or to have been a "named fiduciary," as that term is defined in
ERISA, shall be liable for an act or omission of any person,  designated by such
fiduciary  to  carry  out  fiduciary  responsibilities,  or to whom  such  named
fiduciary has allocated the  performance of his own fiduciary  responsibilities,
except as provided in Section 405(c)(2) of ERISA.



                                     XI-1

<PAGE>



                                  ARTICLE XII

                                THE TRUST FUND

      12.1 The Trust: All assets of the Plan, including earnings thereon,  shall
comprise the Trust Fund.  Except as provided in Paragraph  12.2,  no part of the
principal  or income of the  Trust  Fund  shall be used  for,  or  diverted  to,
purposes  other  than  the  exclusive  benefit  of the  Participants  and  their
Beneficiaries.  No person shall have any interest in or right to any part of the
earnings of the Trust Fund, except as and to the extent provided in the Plan and
under federal law. The Trustee shall invest, reinvest,  manage, control and make
disbursements  from the Trust Fund in accordance with the provisions of the Plan
and the Trust,  subject,  however,  to the power of the  Committee to appoint an
investment manager pursuant to subparagraph 11.2(a)(ii).

      12.2  Irrevocability  of Company  Contributions:  All contributions by the
Company or any Employer  shall be  irrevocable  when made, and the Company shall
have no  right,  title or  interest  of any kind in the  Trust  Fund;  provided,
however, that if the Plan and Trust shall not initially, or after any amendment,
be determined by the Internal  Revenue Service to be qualified under  applicable
provisions  of the Code,  or if a  contribution  made by any  Employer  shall be
disallowed  as a deduction  under  applicable  provisions  of the Code,  or if a
contribution  of any  Employer  is  made by  mistake  of  fact,  then  upon  the
Employer's  written  request  such  affected  Employer  contributions  shall  be
returned to the Company or to the  appropriate  Employer  within 30 days of such
request; provided,  however, that no contributions may be returned more than one
year after the date of the  determination of  disqualification,  disallowance of
the deduction of mistaken payment, respectively.

      12.3 Exclusive  Benefit:  Subject to the provisions of Paragraph  12.2, it
shall be  impossible at any time for any part of the Trust Fund to revert to the
Company or to any  Employer,  or to be used for or diverted to any purpose other
than the  exclusive  benefit  of  Participants,  former  Participants  and their
Beneficiaries,  or for defraying  expenses of  administering  the Plan and Trust
Fund.  No person  shall have any  interest  in or right to any part of the Trust
Fund,  except as, and to the extent,  provided in the Plan and under  federal or
state law.



                                    XII-1

<PAGE>



                                 ARTICLE XIII

                       AMENDMENT AND TERMINATION OF PLAN

      13.1 Right to Amend or Terminate:  The Board shall have the right,  at any
time  and  from  time  to  time,  to  amend  in  whole  or in part of any of the
provisions of the Plan or to terminate the Plan, provided that no such amendment
may affect the rights,  duties or  responsibilities  of the Trustee  without its
consent.  Any  amendment  or  termination  of the Plan,  other than an amendment
described in subparagraph  11.2(a)(iv),  shall become effective upon delivery to
the  Committee and the Trustee of a written  instrument  executed by the Company
pursuant to written resolutions of the Board, as of the effective date specified
therein.  To the extent that the Board  delegates  authority to the Committee to
amend the Plan,  the  written  instrument  shall be  executed  by the  Committee
pursuant to written resolution of the Committee. The written instrument may be a
certified copy of the applicable  resolutions.  Amendments of the Plan described
in subparagraph 11.2(a)(iv) shall become effective as of the effective date of a
written  instrument  executed  by the  Committee.  Any  amendment  of  the  Plan
requiring the Trustee's consent shall become effective as of such specified date
immediately  upon such  consent.  Except as may be  necessary  to  maintain  the
qualification of the Plan pursuant to Sections 401(a) and 501(a) of the Code and
subject to the provisions of Paragraph 12.2, no such amendment or termination of
the Plan shall  authorize or permit any part of the Trust Fund to be used for or
directed to purposes other than the exclusive  benefit of Participants and their
Beneficiaries,  or,  except as may be required  by  governmental  authority,  to
affect  adversely either the benefits of Participants  already  retired,  or the
Trust Fund securing such benefit.

      13.2 Mandatory Amendments:  The Contributions of each Employer to the Plan
are intended to be:

            (a)   deductible under the applicable provisions of the Code;

            (b) except as otherwise  prescribed by applicable  law,  exempt from
      the Federal Social Security Act;

            (c) except as otherwise  prescribed by applicable  law,  exempt from
      withholding under the Code; and

            (d) excludible from any  Participant's  regular rate of pay, as that
      term is defined under the Fair Labor Standards Act of 1938, as amended.

      The Company shall make such  amendments to the Plan as may be necessary to
carry out this intention, and all such amendments may be made retroactively.

      13.3 Distribution of Accounts Upon Plan  Termination:  In the event of and
upon the Company's  termination  or partial  termination of the Plan or complete
discontinuance  of  contributions  other than by reason of being merged into, or
consolidated  with, the plan of another Affiliated  Company,  whether or not the
Trust also  terminates  concurrently  therewith,  the interest in the portion of
each  Participant's  account  balance  attributable  to  Employer  Contributions
theretofore  made on behalf  of such  Participant  shall  become  fully  vested.
Subject to the provisions of Article XIV, any unallocated  forfeitures  shall be
reallocated  to the accounts of Employees  who are  Participants  on the date of
such termination or complete  discontinuance  in the proportion that the account
balances of each such individual  Participant  bears to the account  balances of
all persons who are Participants on such date,  provided that such  reallocation
does not discriminate in favor of Employees who are officers,  shareholders,  or
highly  compensated.  Unless  the  Board  directs  otherwise,  such  a  complete
discontinuance  of  contributions or a termination of the Plan shall not, except
as  otherwise   permitted  under  Paragraph  9.5,  accelerate  any  payments  or
distributions to or for the benefit of the  Participants or their  Beneficiaries
or estates,  but the Trust Fund shall continue to be held for  distribution  and
application in the manner to be prescribed by the Board.



                                    XIII-1

<PAGE>



                                  ARTICLE XIV

                         LIMITATIONS ON CONTRIBUTIONS

      14.1  Priority of this Article:  The  provisions of this Article XIV shall
govern notwithstanding any other provisions of the Plan.

      14.2 Limitation to Annual  Additions:  Annual Additions to a Participant's
account in respect of any Plan Year may not exceed the lesser of:

            (a)  $30,000,  or, if greater,  one-fourth  of the  defined  benefit
      dollar  limitation  set forth in  Section  415(b)(1)(A)  of the Code as in
      effect for such Plan Year; or

            (b) 25  percent  of the  Participant's  compensation  as  defined in
      Section  415(c)(3)  of the Code for such Plan  Year,  but in no event more
      than the first $150,000 of compensation, as adjusted for cost of living to
      the extent permitted by the Code and the Regulations.

      For this purpose,  the term "Annual  Additions"  shall mean the sum of the
following  amounts  which,  without  regard to this Article XIV, would have been
credited to the Participant's Account for any Plan Year under the Plan and under
any other  defined  contribution  plans of the  Employer  or an  Affiliate:  (i)
Employer Contributions; (ii) Basic Pre-Tax Contributions;  (iii) Basic After-Tax
Contributions;  (iv) Supplemental Contributions; (v) forfeitures, if applicable;
and, with respect to any plan  maintained by the Employer or an Affiliate;  (vi)
contributions  allocated to any individual  medical  account  defined in Section
415(l)(1)  of the  Code;  and (vii) in the case of a  Participant  who is a "key
employee," as defined in Section 416(i) of the Code,  the amount  allocated to a
separate  account  established  for  postretirement  medical  or life  insurance
benefits  or such  Participant  described  in  Section  419A(d)(1)  of the Code.
Without  limiting  the  scope of the  immediately  preceding  sentence,  for the
purpose of clarity,  in addition to other  amounts set forth in  regulations  or
other  guidance  issued  under  Section  415 of  the  Code  by  the  appropriate
governmental  authority,  amounts  paid to the Trust  pursuant  to the terms and
provisions  of the Plan to pay brokerage  commissions  on purchases and sales of
Employer  Stock  shall not be  treated  as  annual  additions.  The term  Annual
Additions  shall  not  include  any  Rollover  Contributions  made  pursuant  to
Paragraph  4.10.  Solely  for  the  purposes  of  subparagraph  14.4(a),  Annual
Additions  shall  include  a  participant's   contributions  under  a  qualified
cost-of-living   arrangement   described  in  Section  415(k)(2)  of  the  Code.
Contributions  shall continue to be treated as Annual Additions  notwithstanding
that such contributions are excess deferrals,  excess  contributions,  or excess
aggregate contributions or notwithstanding that such excess deferrals and excess
contributions have been corrected through distribution or recharacterization.

      14.3 Adjustments of Annual Additions:  In the event that the amounts which
would  otherwise  be  allocated  to a  Participant's  account must be reduced by
reason of the limitations of Paragraph 14.2, such reduction shall be made in the
following order of priority, but only to the extent necessary:

            (1)  The  amount  of  the   Participant's   Supplemental   After-Tax
      Contributions,  exclusive of any  earnings of the Trust Fund  attributable
      thereto, shall be refunded to the Participant; then

            (2) The amount of the Participant's  Basic After-Tax  Contributions,
      exclusive of any earnings of the Trust Fund attributable thereto, shall be
      refunded to the Participant; then

            (3) To the extent  permitted  by the Code and the  Regulations,  the
      amount of Basic and Supplemental Pre-Tax  Contributions,  exclusive of any
      earnings of the Trust Fund attributable thereto,  shall be refunded to the
      Participant or, to the extent required by law shall be held unallocated in
      a suspense  account and shall be applied,  as directed by the Committee in
      accordance  with  the law and  regulations,  as a  credit  to  reduce  the
      contributions  of the  Employer for the next Plan Year and in the event of
      termination of the Plan shall be returned to the Employer; and then

            (4)  Employer  Pension  Feature  Contributions   allocable  to  such
      Participant  in respect of such Plan Year shall be reduced  and the amount
      of such reduction  shall be utilized to reduce  Employer  Pension  Feature
      Contributions which would otherwise be made to the Plan.

            (5) Employer Matching Contributions allocable to such Participant in
      respect  of such  Plan  Year  shall  be  reduced  and the  amount  of such
      reduction  shall be utilized  to reduce  Employer  Matching  Contributions
      which would otherwise be made to the Plan.


      14.4  Participant Covered Under Defined Benefit Plan:

            (a) Subject to subparagraphs 14.4(c) and 14.4(d), in the event that,
      in any Plan  Year  and with  respect  to any  Participant,  the sum of the
      "Defined  Contribution  Fraction" (as defined in subparagraph 14.4(b)) and
      the "Defined Benefit Fraction" (as defined in subparagraph  14.4(b)) would
      otherwise  exceed 1.0, then the benefit  payable under the defined benefit
      plan or plans shall be reduced in accordance  with the  provisions of that
      plan or those plans,  but only to the extent necessary to ensure that such
      limitation is not  exceeded.  If this  reduction  does not ensure that the
      limitation  set forth in this  Paragraph  14.4 is not  exceeded,  then the
      Annual  Addition to any defined  contribution  plan,  other than the Plan,
      shall be reduced in accordance  with the  provisions of that plan but only
      to the extent necessary to ensure that such limitation is not exceeded.

            (b) For purposes of Paragraph  14.4, the following  terms shall have
      the following meanings:

                  (1)  "Defined  Contribution  Fraction"  shall mean,  as to any
            Participant  for any Plan Year,  a fraction,  (A) the  numerator  of
            which is the sum of  Annual  Additions,  for the  Plan  Year and all
            prior  Plan  Years,  as of the  close of the  Plan  Year and (B) the
            denominator  of  which  is the sum of the  lesser  of the  following
            amounts,  determined  for such Plan Year and for each  prior Year of
            Service (i) the product of 1.25 multiplied by the dollar  limitation
            in  effect  for such year  under  subparagraph  14.2(a)  or (ii) the
            product  of 1.4  multiplied  by the  amount  which may be taken into
            account under  subparagraph  14.2(b) with respect to the Participant
            for such year;  provided,  however,  that for years  ending prior to
            January 1, 1976, the numerator of such fraction shall in no event be
            deemed to exceed the  denominator  of such  fraction;  and,  further
            provided,   that  the   Committee,   in   determining   the  Defined
            Contribution  Fraction  may  elect to use the  special  transitional
            rules  permitted  by  Section  415 of the Code  and the  Regulations
            thereunder; and

                  (2)  "Defined   Benefit   Fraction"  shall  mean,  as  to  any
            Participant  for any Plan Year,  a fraction,  (A) the  numerator  of
            which is the projected annual benefit (determined as of the close of
            the  Plan  Year  and in  accordance  with  the  Regulations)  of the
            Participant  under any defined  benefit plan (as defined in Sections
            414(j) and 415(k) of the Code)  maintained  by the Company or any of
            its  Affiliates  and (B) the  denominator  is the  lesser of (i) the
            product of 1.25 multiplied by the dollar  limitation in effect under
            Section  415(b)(1)(A)  of the Code for  such  Plan  Year or (ii) the
            product of 1.4  multiplied  by an amount equal to 100 percent of the
            Participant's  average  compensation for his high 3 years within the
            meaning of Section 415(b)(3) of the Code for such Plan Year.

            (c) In the case of a Participant with respect to whom the sum of the
      Defined Contribution Fraction and the Defined Benefit Fraction exceeds 1.0
      with respect to the last Plan Year  beginning  before  January 1, 1983, an
      amount,  determined in accordance with the Regulations,  may be subtracted
      from the numerator of the Defined  Contribution  Fraction  (not  exceeding
      such numerator) so that the sum of such Participant's Defined Contribution
      Fraction and his Defined Benefit Fraction  computed under paragraph (a) of
      this  Paragraph  14.4 does not exceed 1.0 for the last Plan Year beginning
      before January 1, 1983.

            (d) Notwithstanding the foregoing provisions of this Paragraph 14.4,
      in  determining  the maximum  Annual  Addition for any Plan Year beginning
      before  January 1, 1987,  the Annual  Addition  shall not be recomputed to
      treat  all  Basic  After-Tax   Contributions  and  Supplemental  After-Tax
      Contributions as an Annual Addition.



                                    XIV-1

<PAGE>



                                  ARTICLE XV

                             TOP-HEAVY PROVISIONS

      15.1  Applicability of Top-Heavy  Provisions:  If the Plan is or becomes a
Top-Heavy  Plan  in any  Plan  Year,  the  provisions  of this  Article  XV will
supersede any conflicting  provisions in the Plan during each Plan Year in which
the Plan is a Top-Heavy Plan. In the event that any provision of this Article XV
is no longer  necessary for the Plan to meet the  requirements of Section 401(a)
or other  applicable  sections of the Code,  such  provision  shall  immediately
become null and void and shall no longer apply  without the necessity of further
amendment of the Plan.

      15.2  Definitions:  As used in this Article XV, the following  terms shall
have the meanings set forth below:

            (a) "Determination  Date" shall mean, with respect to any Plan Year,
      the last day of the preceding Plan Year.

            (b) "Key  Employee"  shall  have the  meaning  set forth in  Section
      416(i) of the Code. For purposes of determining Key Employees  pursuant to
      this  subparagraph,  "compensation"  shall have the meaning  prescribed in
      Section 414(s) of the Code or, to the extent  required by the Code and the
      Regulations, Section 1.415-2(d) of the Regulations.

            (c) "Non-Key Employee" shall mean a "Non-Key Employee" as defined in
      Section 416(i)(2) of the Code and the Regulations promulgated thereunder.

            (d)   "Top-Heavy Plan" shall mean a "top-heavy plan" as defined in
      Section 416(g) of the Code.

            (e)  "Aggregation  Group"  shall  mean the  group  composed  of each
      qualified  retirement  plan of the Company or an  Affiliate in which a Key
      Employee is a participant and each other qualified  retirement plan of the
      Company  or an  Affiliate  which  enables  a  plan  of the  Company  or an
      Affiliate in which a Key  Employee is a  participant  to satisfy  Sections
      401(a)(4) or 410 of the Code. In addition, the Company may choose to treat
      any other qualified  retirement plan as a member of the Aggregation  Group
      if such Aggregation Group will continue to satisfy Sections  401(a)(4) and
      410 of the Code with such plan being taken into account.

      15.3 Determination of Top-Heavy Status: The Plan shall be a Top-Heavy Plan
for  any  Plan  Year  if it is  determined  to be a  Top-Heavy  Plan  as of  the
Determination Date applicable to such year. For purposes of determining  whether
the Plan is a Top-Heavy Plan, all qualified  retirement  plans maintained by the
Company or an  Affiliated  Company  shall be  aggregated to the extent that such
aggregation is required  under the  applicable  provisions of Section 416 of the
Code.  All other  qualified  retirement  plans  maintained  by the Company or an
Affiliated  Company shall be aggregated  only if elected by the Company and only
to the extent  permitted by Section 416 of the Code. In determining  whether the
Plan is a Top-Heavy  Plan,  the  provisions  of Section 416 of the Code shall be
applied.

      15.4 Minimum  Vesting:  For any Plan Year in which the Plan is a Top-Heavy
Plan,  each  Participant who is credited with at least one Hour of Service on or
after the date the Plan becomes a Top-Heavy Plan shall have his vested  interest
in his account attributable to Employer Contributions determined as follows:

  Years of Vesting Service    Vested Interest

      less than 2                    0%
      2 but less than 3             20%
      3 but less than 4             50%
      4 but less than 5             75%
      5 or more                    100%

      If in any subsequent  Plan Year,  the Plan ceases to be a Top-Heavy  Plan,
the above vesting schedule shall continue to apply.

      15.5 Minimum Contribution:  The aggregate Employer Contributions allocable
to the account of each  Employee  (other than a Key  Employee) who has satisfied
the  eligibility  requirements  of Paragraph 3.1,  whether or not a Contributing
Participant in the Plan, and who is in Service at the end of the Plan Year shall
not be less  than  the  lesser  of (i) 3% of such  Employee's  compensation  (as
defined in Section  414(s) of the Code or to the extent  required by the Code or
the  Regulations,  Section  1.415-2(d) of the  Regulations)  or (ii) the largest
percentage of Employer Contributions, as a percentage of Compensation, allocated
to the  accounts  of any Key  Employee  for such  Plan  Year.  For  purposes  of
determining  the percentage  under clause (ii), all defined  contribution  plans
required  to be included  in an  Aggregation  Group shall be treated as a single
plan. Clause (ii) shall not be applicable if the Plan is required to be included
in an Aggregation Group which enables a defined benefit plan also required to be
included in said Aggregation  Group to satisfy Sections  401(a)(4) or 410 of the
Code.  Any  required  minimum   contribution  shall  be  made  even  though  the
Participant would not be eligible otherwise to receive a contribution,  or would
have  received  a lesser  contribution  in such  Plan  Year as a  result  of the
Participant's  failure to make Basic  Contributions to the Plan. For the purpose
of clarity and without  limiting the scope of the  preceding  provisions of this
paragraph,  with respect to Plan Years  beginning  after  December 31, 1988, any
elective deferral (described in Section 402(g)(3) of the Code) under the Plan or
any other defined  contribution  plan that is aggregated with the Plan under the
provisions  stated above on behalf of any  Participant who is not a Key Employee
shall not be treated as Employer  Contributions  for purposes of this paragraph,
but will be treated as an Employer  Contribution for purposes of determining the
percentage at which  Employer  Contributions  are made for the Key Employee with
the highest percentage.

      15.6 Maximum Benefit and Contribution  Limitations:  If for any Limitation
Year the Plan is a Top-heavy  Plan,  then for  purposes of applying  the overall
limitations on benefits and  contributions  under Paragraph 14.4(a) of the Plan,
"1.0" shall be substituted for "1.25" in each applicable  place in subparagraphs
14.4(b)(1)  and  14.4(b)(2) of the Plan unless the Plan would not be a Top-Heavy
Plan if 90% were  substituted for 60% in each applicable place in Section 416(g)
of the Code and 4% were substituted for 3% in each applicable place in Paragraph
15.6 of the Plan.

      15.7  Coordination  of Plans:  If, with respect to a Non-Key  Employee who
benefits  in a Plan Year  under both a defined  contribution  plan and a defined
benefit  plan which are  determined  to be  Top-Heavy  Plans  maintained  by the
Employer,  a top-heavy  minimum benefit is not provided for such Plan year under
both  plans,  then  such  determination  for  such  Plan  Year  shall be made in
conformity  with the  comparability  analysis  described  in Q&A M-12 of Section
1.416-1 of the Regulations.

      Such  analysis  shall be modified,  where a factor of 1.25 is utilized for
such Plan Year in connection with the  satisfaction of the limitations set forth
in Section 415(e) of the Code, in accordance  with the last sentence of Q&A M-14
of Section 1.416-1 of the Regulations.



                                     XV-1

<PAGE>


                                  ARTICLE XVI

                              GENERAL PROVISIONS

      16.1 Employment Relationships. Nothing contained herein shall be deemed to
give any  Employee the right to be retained in the service of any Employer or to
interfere with the right of an Employer to discharge any Employee at any time.

      16.2 Benefits  Provided Solely From Trust:  All benefits payable under the
Plan shall be paid or provided  for solely from the Trust;  no Employer  assumes
any liability or responsibility therefor.

      16.3  Non-Alienation  of Benefits.  Except as otherwise may be required by
law or  pursuant  to the terms of a  "qualified  domestic  relations  order," no
amount  payable  under the Plan shall be subject in any manner to  anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance,  charge or seizure.
Except with respect to any indebtedness owing to the Trust by a Participant or a
Beneficiary,  no amount payable under the Plan shall be liable in any manner for
or subject to the debts,  contracts,  liabilities,  engagements  or torts of any
Employee  or  Beneficiary.  For  purposes  of the Plan,  a  "qualified  domestic
relations order" means any judgment,  decree, or order (including  approval of a
property  settlement  agreement) which has been determined by the Committee,  in
accordance  with  procedures  established  by it,  to  constitute  a  "qualified
domestic  relations  order" ("QDRO") within the meaning of Section 414(p) of the
Code.  The  Committee  shall comply with the terms and  provisions  of any order
which  requires  distribution  to an  alternate  payee  prior  to  the  affected
Participant's  "earliest  retirement  age," as such term is  defined  in Section
206(d)(3)(E)(ii)  of the Act and Section  414(p)(4)(B) of the Code, if the order
would  have  been  determined  to be  valid  QDRO  if  the  order  had  required
distribution at or after the  Participant's  "earliest  retirement date." If the
Committee receives notice that a domestic relations order that is intended to be
a QDRO is being prepared and will be provided to the Committee within 30 days or
such other short time as the Committee deems reasonable, the Committee may put a
temporary  hold on the  distribution  of benefits under the Plan to the affected
Participant,  pending (a) the determination of whether such order is a QDRO, and
(b) the rights of the alternate payee under such order.

      16.4 Merger,  Consolidation  or Transfer of Assets or Liabilities.  In the
event of any merger or consolidation  with, or transfer of assets of the Plan to
another  plan,  each  Participant  in the Plan  shall  receive a benefit  in the
surviving plan (if such plan were then terminated) at least equal to the benefit
which  he  would  have  been  entitled  to  receive  immediately  prior  to  the
transaction if the Plan had then terminated.

      16.5 Payments to Minors and Incompetents.  If a Participant or Beneficiary
entitled to receive any  benefits  hereunder  is deemed by the  Committee  or is
adjudged to be legally  incapable of giving valid receipt and discharge for such
benefits or is a minor,  such benefit shall be paid to such person or persons as
the Committee may designate or to a duly appointed guardian.

      16.6  Employee's  Records.   Each  of  the  Employers  and  the  Committee
respectively shall keep such records, and shall give the other reasonable access
to such  information  as is necessary or desirable to effectuate the purposes of
the Plan and the Trust including,  without  limiting the foregoing,  records and
information  with respect to the employment  date, date of  participation in the
Plan  and  Compensation  of  Employees,  elections  by  Participants  and  their
Beneficiaries  and consents granted and  determinations  made under the Plan and
the  Trust.  Neither  the  Employers  nor the  Committee  shall be  required  to
duplicate any records kept by the other.

      16.7 Missing  Persons.  Each  Participant and  Beneficiary  shall keep the
Committee advised of his current address. If amounts become  distributable under
the Plan and the Committee is unable,  after reasonable  efforts,  to locate the
Participant or Beneficiary to whom  distribution  is payable for a period of two
years from the time such  distribution  first becomes payable,  all such amounts
shall be  forfeited  and  applied  in  accordance  with  Paragraph  5.4.  If the
Participant  or  his  Beneficiary   thereafter  applies  for  the  Participant's
distributable  account,  the amount  forfeited  shall be paid to him pursuant to
Article IX.

      16.8  Severability  of  Provisions.  If any  provision of the Plan is held
invalid or unenforceable,  such invalidity or unenforceability  shall not affect
any other  provisions,  and the Plan shall be construed  and enforced as if such
provision had not been included.

      16.9 Receipt and Release.  As a condition  precedent to the payment to any
Participant or to his legal  representative  or Beneficiary,  such  Participant,
legal  representative  or  Beneficiary  may be  required  to  execute  a receipt
therefor and a release in such form as shall be determined by the Committee.

      16.10  Fiduciary  Capacities.  Any person or group of persons may serve in
more than one fiduciary capacity with respect to the Plan.

      16.11  Titles  and  Headings.  The  titles to  Articles  and  headings  of
Paragraphs of the Plan are for  convenience  of reference.  In case of conflict,
the text of the Plan, rather than such titles and headings, shall control.

      16.12 Gender and Number.  Wherever used herein, the masculine gender shall
include the feminine  gender and the singular  shall include the plural,  unless
the context indicates otherwise.

      16.13  Governing  Law.  To the  extent  that New  Jersey  law has not been
preempted by federal law,  the  provisions  of the Plan shall be governed by and
construed in accordance with the laws of the State of New Jersey.

      16.14 Counterparts:  If this Agreement is executed,  it may be executed in
two or more  counterparts,  each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.


                                    XVI-1

<PAGE>



                                                                   EXHIBIT 10.40

                      INTERCORPORATE SERVICES AGREEMENT

      This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"),  effective as of
January 1, 1996,  amends and  supersedes  that certain  Intercorporate  Services
Agreement effective as of January 1, 1995 by and between VALHI, INC., a Delaware
corporation ("Valhi"), and NL INDUSTRIES, INC., a New Jersey corporation ("NL").

                                   Recitals

            Employees  and  agents  of Valhi  and  affiliates  of Valhi  perform
management,  financial  and  administrative  functions  for  NL  without  direct
compensation from NL.

            NL does not  separately  maintain the full  internal  capability  to
perform all necessary management, financial and administrative functions that NL
requires.

            Valhi desires to have the services of certain personnel of NL and NL
is willing to provide such services under the terms of this Agreement.

            The  cost of  maintaining  the  additional  personnel  necessary  to
perform the  functions  provided for by this  Agreement  would exceed the amount
charged to such party that is contained in the net fee set forth in Section 4 of
this  Agreement and that the terms of this  Agreement  are no less  favorable to
each party than could  otherwise be obtained  from a third party for  comparable
services.

            Each party desires to continue  receiving the management,  financial
and  administrative  services  presently  provided  by the  other  party and its
affiliates  and each party is willing to continue to provide such services under
the terms of this Agreement.

                                  Agreement

      For and in  consideration  of the  mutual  premises,  representations  and
covenants herein contained, the parties hereto mutually agree as follows:

      Section Valhi  Services to be Provided.  Valhi agrees to make available to
NL, upon request,  the following  services (the "Valhi Services") to be rendered
by the internal staff of Valhi and affiliates of Valhi:

                  Consultation   and   assistance   in   the   development   and
      implementation   of  NL's  corporate   business   strategies,   plans  and
      objectives;

                  Consultation  and  assistance  in  management  and  conduct of
      corporate affairs and corporate governance consistent with the charter and
      bylaws of NL;

                  Consultation   and  assistance  in  maintenance  of  financial
      records  and  controls,  including  preparation  and  review  of  periodic
      financial  statements  and reports to be filed with public and  regulatory
      entities and those required to be prepared for financial  institutions  or
      pursuant to indentures and credit agreements;



<PAGE>




                  Consultation   and  assistance  in  cash   management  and  in
      arranging financing necessary to implement the business plans of NL;

                  Consultation    and   assistance   in   tax   management   and
      administration,  including, without limitation,  preparation and filing of
      tax returns, tax reporting, examinations by government authorities and tax
      planning; and

                  Such other  services  as may be  requested  by NL from time to
time.

      Section NL Services to be Provided.  NL agrees to make available to Valhi,
upon request,  the following  services (the "NL Services," and collectively with
the Valhi Services, the "Services") to be rendered by the internal staff of NL:

                  The services of Joseph S. Compofelice to act as Executive Vice
      President of Valhi,  which Valhi and NL agree shall involve  substantially
      such  time as has  been  allocated  in the  past  and is  currently  being
      devoted;

                  The  services of NL's  internal  audit  personnel in providing
      consultation  and  assistance in  performing  internal  audit  projects as
      requested from time to time; and

                  Such other  services as may be requested by Valhi from time to
time.

      Section  Miscellaneous  Services.  It is the intent of the parties  hereto
that each  party to this  Agreement  provide  (a  "Providing  Party")  only such
Services as are requested by the other party (a "Receiving Party") in connection
with routine management,  financial and administrative  functions related to the
ongoing  operations  of the  Receiving  Party and not with  respect  to  special
projects,  including corporate investments,  acquisitions and divestitures.  The
parties hereto  contemplate  that the Services  rendered by a Providing Party in
connection  with the conduct of each  Receiving  Party's  business  will be on a
scale  compared  to that  existing  on the  effective  date  of this  Agreement,
adjusted  for  internal  corporate  growth  or  contraction,  but not for  major
corporate acquisitions or divestitures,  and that adjustments may be required to
the terms of this Agreement in the event of such major  corporate  acquisitions,
divestitures or special projects. Each Receiving Party will continue to bear all
other costs  required for outside  services  including,  but not limited to, the
outside services of attorneys, auditors, trustees, consultants,  transfer agents
and registrars, and it is expressly understood that each Providing Party assumes
no  liability  for any  expenses  or  services  other than those  stated in this
Agreement to be provided by such party.  In addition to the amounts charged to a
Receiving Party for Services provided pursuant to this Agreement, such Receiving
Party will pay the Providing Party the amount of out-of-pocket costs incurred by
the Providing Party in rendering such Services.

      Section  Net  Fee for  Services.  Valhi  agrees  to pay to NL a net fee of
$2,500 quarterly,  commencing as of January 1, 1996, pursuant to this Agreement,
which net fee  includes  reimbursements  of  $36,000  for  certain  NL  Services
provided in 1995. In addition to the net fee:

                  Valhi shall pay to NL an  additional  amount  equal to the sum
of:




                                    -2-


<PAGE>



                  the  product of (x) $600,  (y) the  number of days  devoted by
            NL's  internal  auditors  to  providing  NL  Services  described  in
            Subsection  2(b) and (z) the number of internal  auditors  providing
            such NL Services; and

                        all related out-of-pocket expenses;

                  Valhi  shall pay to NL  additional  amounts  plus all  related
      out-of-pocket  costs, all as agreed to by the parties, for all NL Services
      provided under Subsection 2(c); and

                  NL shall  credit or pay to Valhi  additional  amounts plus all
      related  out-of-pocket  costs,  all as agreed to by the  parties,  for all
      Valhi Services provided under Subsection 1(f).

      Section Original Term.  Subject to the provisions of Section 6 hereof, the
original  term of this  Agreement  shall be from January 1, 1996 to December 31,
1996.

      Section   Extensions.    This   Agreement   shall   be   extended   on   a
quarter-to-quarter  basis  after the  expiration  of its  original  term  unless
written  notification is given by Valhi or NL thirty (30) days in advance of the
first day of each successive  quarter or unless it is superseded by a subsequent
written agreement of the parties hereto.

      Section  Limitation of Liability.  In providing Services  hereunder,  each
Providing  Party shall have a duty to act,  and to cause its agents to act, in a
reasonably  prudent manner,  but no Providing  Party nor any officer,  director,
employee  or agent of such  party  nor or its  affiliates  shall be  liable to a
Receiving  Party for any error of  judgment  or  mistake  of law or for any loss
incurred  by the  Receiving  Party in  connection  with the matter to which this
Agreement relates,  except a loss resulting from willful misfeasance,  bad faith
or gross negligence on the part of the Providing Party.

      Section  Indemnification.  Each Receiving  Party shall  indemnify and hold
harmless the Providing  Party,  its  affiliates and their  respective  officers,
directors  and  employees  from and  against  any and all  losses,  liabilities,
claims,  damages,  costs  and  expenses  (including  attorneys'  fees and  other
expenses of litigation) to which such Providing Party may become subject arising
out of the Services  provided by such  Providing  Party to the  Receiving  Party
hereunder, provided that such indemnity shall not protect any person against any
liability to which such person  would  otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on the part of such person.

      Section  Further  Assurances.  Each of the  parties  will  make,  execute,
acknowledge and deliver such other instruments and documents,  and take all such
other actions,  as the other party may reasonably  request and as may reasonably
be required in order to effectuate  the purposes of this  Agreement and to carry
out the terms hereof.

      Section  Notices.  All  communications  hereunder  shall be in writing and
shall be addressed,  if intended for Valhi,  to Three Lincoln  Centre,  5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240,  Attention:  President,  or such other
address as it shall have furnished to NL in



                                   -3-


<PAGE>



writing,  and if intended for NL, to Two  Greenspoint  Plaza,  16825  Northchase
Drive, Suite 1200, Houston,  Texas 77060,  Attention:  President,  or such other
address as it shall have furnished to Valhi in writing.

      Section  Amendment and  Modification.  Neither this Agreement nor any term
hereof may be changed, waived,  discharged or terminated other than by agreement
in writing signed by the parties hereto.

      Section  Successor and Assigns.  This Agreement  shall be binding upon and
inure to the  benefit  of  Valhi  and NL and  their  respective  successors  and
assigns,  except that neither  party may assign its rights under this  Agreement
without the prior written consent of the other party.

      Section  Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of the State of Texas.


                                    -4-


<PAGE>






IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be duly
executed and delivered as of the date first above written.



                            VALHI, INC.




                            By: /s/ Steven L. Watson
                                Steven L. Watson
                                 Vice President



                            NL INDUSTRIES, INC.




                            By: /s/ J. Landis Martin
                                J. Landis Martin
                                 President and Chief Executive Officer



                                    -5-


<PAGE>



                                                                   EXHIBIT 10.41

                      INTERCORPORATE SERVICES AGREEMENT

      This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"),  effective as of
January 1, 1996,  amends and  supersedes  that certain  Intercorporate  Services
Agreement effective as of January 1, 1995 by and between CONTRAN CORPORATION,  a
Delaware  corporation  ("Contran"),  and  NL  INDUSTRIES,  INC.,  a  New  Jersey
corporation.
("Recipient"),

                                   Recitals

            Harold C.  Simmons,  an employee  of Contran and a director  and the
Chairman of the Board of  Recipient,  performs  certain  advisory  functions for
Recipient,  which  functions are unrelated to his function as a director and the
Chairman of the Board of Recipient, without direct compensation from Recipient.

            Recipient does not separately  maintain the full internal capability
to perform all necessary advisory functions that Recipient requires.

            The cost of engaging the advisory services of someone possessing Mr.
Simmons'  expertise  and the cost of  maintaining  the  personnel  necessary  to
perform the functions  provided for by this  Agreement  would exceed the fee set
forth in Section 3 of this Agreement and the terms of this Agreement are no less
favorable to Recipient  than could  otherwise be obtained from a third party for
comparable services.

            Recipient  desires to continue  receiving  the advisory  services of
Harold C.  Simmons and Contran is willing to continue to provide  such  services
under the terms of this Agreement.

                                  Agreement

      For and in  consideration  of the  mutual  premises,  representations  and
covenants herein contained, the parties hereto mutually agree as follows:

      Section  Services to be  Provided.  Contran  agrees to make  available  to
Recipient,  upon request, the following services (the "Services") to be rendered
by Harold C. Simmons:

                  Consultation   and   assistance   in   the   development   and
      implementation of Recipient's  corporate  business  strategies,  plans and
      objectives; and

                  Such other services as may be requested by Recipient from time
to time.

This  Agreement  does not apply to and the  Services  provided for herein do not
include any services that Harold C. Simmons may provide to Recipient in his role
as a director on  Recipient's  Board of Directors,  as Chairman of such Board of
Directors or any other activity related to such Board of Directors.




<PAGE>



Section  Miscellaneous  Services.  It is the intent of the  parties  hereto that
Contran  provide only the Services  requested  by Recipient in  connection  with
routine  functions  related to the ongoing  operations of Recipient and not with
respect to special projects,  including corporate investments,  acquisitions and
divestitures.  The parties  hereto  contemplate  that the  Services  rendered in
connection with the conduct of Recipient's  business will be on a scale compared
to that existing on the effective date of this Agreement,  adjusted for internal
corporate  growth or contraction,  but not for major  corporate  acquisitions or
divestitures,  and  that  adjustments  may be  required  to the  terms  of  this
Agreement in the event of such major  corporate  acquisitions,  divestitures  or
special  projects.  Recipient will continue to bear all other costs required for
outside  services  including,  but not  limited  to,  the  outside  services  of
attorneys, auditors, trustees, consultants,  transfer agents and registrars, and
it is expressly understood that Contran assumes no liability for any expenses or
services  other than those  stated in Section 1. In  addition to the fee paid to
Contran by  Recipient  for the  Services  provided  pursuant to this  Agreement,
Recipient  will pay to Contran  the amount of  out-of-pocket  costs  incurred by
Contran in rendering such Services.

      Section Fee for Services.  Recipient agrees to pay to Contran  $100,000.00
quarterly, commencing as of January 1, 1996, pursuant to this Agreement.

      Section Original Term.  Subject to the provisions of Section 5 hereof, the
original  term of this  Agreement  shall be from January 1, 1996 to December 31,
1996.

      Section   Extensions.    This   Agreement   shall   be   extended   on   a
quarter-to-quarter  basis  after the  expiration  of its  original  term  unless
written  notification  is given by  Contran  or  Recipient  thirty  (30) days in
advance of the first day of each  successive  quarter or unless it is superseded
by a subsequent written agreement of the parties hereto.

      Section  Limitation  of Liability.  In providing  its Services  hereunder,
Contran  shall  have a duty  to act,  and to  cause  its  agents  to  act,  in a
reasonably  prudent  manner,  but  neither  Contran nor any  officer,  director,
employee or agent of Contran or its affiliates  shall be liable to Recipient for
any error of judgment or mistake of law or for any loss incurred by Recipient in
connection  with the  matter  to which  this  Agreement  relates,  except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Contran.

      Section Indemnification of Contran by Recipient. Recipient shall indemnify
and hold  harmless  Contran,  its  affiliates  and  their  respective  officers,
directors  and  employees  from and  against  any and all  losses,  liabilities,
claims,  damages,  costs  and  expenses  (including  attorneys'  fees and  other
expenses of litigation)  to which such party may become  subject  arising out of
the Services  provided by Contran to  Recipient  hereunder,  provided  that such
indemnity  shall not protect  any person  against  any  liability  to which such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence on the part of such person.

      Section  Further  Assurances.  Each of the  parties  will  make,  execute,
acknowledge and deliver such other instruments and documents,  and take all such
other actions,  as the other party may reasonably  request and as may reasonably
be required in order to effectuate  the purposes of this  Agreement and to carry
out the terms hereof.




                                    -2-


<PAGE>



Section Notices.  All communications  hereunder shall be in writing and shall be
addressed,  if intended for Contran,  to Three Lincoln Centre, 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240, Attention:  President, or such other address as
it shall have furnished to Recipient in writing,  and if intended for Recipient,
to Two Greenspoint  Plaza, 16825 Northchase Drive,  Suite 1200,  Houston,  Texas
77060, Attention:  President or such other address as it shall have furnished to
Contran in writing.

      Section  Amendment and  Modification.  Neither this Agreement nor any term
hereof may be changed, waived,  discharged or terminated other than by agreement
in writing signed by the parties hereto.

      Section  Successor and Assigns.  This Agreement  shall be binding upon and
inure to the benefit of Contran and  Recipient and their  respective  successors
and  assigns,  except  that  neither  party may  assign  its  rights  under this
Agreement without the prior written consent of the other party.

      Section  Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of the State of Texas.


                                    -3-


<PAGE>





IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be duly
executed and delivered as of the date first above written.


                                    CONTRAN CORPORATION




                                    By:  /s/ Steven L. Watson
                                         Steven L. Watson
                                          Vice President


                                    NL INDUSTRIES, INC.




                                    By:  /s/ J. Landis Martin
                                         J. Landis Martin
                                          President and Chief Executive Officer


                                    -4-


<PAGE>

                                                                   EXHIBIT 10.42

                                   EXHIBIT C

              INTERCORPORATE SERVICES AND REIMBURSEMENT AGREEMENT


      INTERCORPORATE  SERVICES  AND  REIMBURSEMENT  AGREEMENT  effective  as  of
January 1, 1996,  by and between  Tremont  Corporation  ("Tremont"),  a Delaware
corporation, and NL Industries, Inc. ("NL"), a New Jersey corporation.

      WHEREAS,  Tremont desires that NL provide certain services to Tremont, and
NL is  willing  to  provide  such  services  to  Tremont,  as  provided  in this
Agreement.

      NOW,  THEREFORE,  in  consideration of the premises and promises set forth
herein, the parties to this Agreement agree as follows:

      1.  Services  Provided.   NL  will  make  available  to  Tremont  and  its
subsidiaries the following services (the "Services"):

            a.    certain administration and management services with respect to
                  Tremont's insurance and risk management needs, including:

                  (i)  management of claims (including insured
                       and self-insured workers compensation and
                       liability claims);
                  (ii) budgeting and related activities;
                  (iii)administration of Tremont's captive
                       insurance company;
                  (iv) coordination of property loss control
                       program; and
                  (v)  administration of Tremont's insurance program,  excluding
                       all employee benefit and welfare related programs.

            b.    certain administration and management services with respect to
                  Tremont's real properties and interests.

            c.    consultation and assistance in performing internal audit
                  projects, as requested.

            d.    certain executive secretarial and administrative services.

      2. Fees for Services and  Reimbursement of Expenses.  Tremont shall pay to
NL an annual fee of $88,400  (the "Annual  Fee") for the  Services  described in
paragraphs 1.a, 1.b , and 1.d above payable in quarterly installments of $22,100
during the term of this Agreement plus all  out-of-pocket  expenses  incurred in
connection with the performance of such Services. In addition,  Tremont will pay
to NL within  thirty  (30) days after  receipt of an invoice  (such  invoices to
occur no more frequently than once per month)

                                      1

<PAGE>



an amount equal to the product of $600  multiplied by the number of days devoted
by NL's internal auditors to providing Services described in paragraph 1.c above
times  the  number  of  internal  auditors  providing  such  Services  plus  all
out-of-pocket  expenses incurred in the performance of such Services;  provided,
however, in the event that Tremont determines,  in its sole discretion,  that it
no  longer  desires  certain  of the  Services  or NL  determines,  in its  sole
discretion,  that it no longer desires to provide certain of the Services,  then
Tremont or NL, as appropriate,  shall provide the other party with a ninety (90)
day  prior  written  notice  of  cancellation  describing  the  Services  to  be
terminated  or  discontinued  and Tremont and NL during such  ninety-day  period
shall  agree  to a  pro-rata  reduction  of the  fees  due  hereunder  for  such
terminated or discontinued Services.

      3. Limitation of Liability. In providing Services hereunder, NL shall have
a duty to act, and to cause its agents to act, in a reasonably  prudent  manner,
but  neither  NL nor any  officer,  director,  employee  or agent of NL shall be
liable to Tremont or its  subsidiaries  for any error of  judgment or mistake of
law or for any loss incurred by Tremont or its  subsidiaries  in connection with
the  matters to which  this  Agreement  relates,  except a loss  resulting  from
willful  misfeasance,  bad faith or gross  negligence  on the part of NL or from
NL's reckless disregard of obligations and duties under this Agreement.

      4.  Indemnification  of NL by Tremont.  Tremont  shall  indemnify and hold
harmless NL, its  subsidiaries  and their  respective  officers,  directors  and
employees  from and against any and all losses,  liabilities,  claims,  damages,
costs and expenses (including  reasonable  attorneys' fees and other expenses of
litigation) to which such party may become subject  arising out of the provision
by NL to Tremont and its subsidiaries of any of the Services, provided that such
indemnity  shall not protect any such party  against any liability to which such
person would otherwise by subject by reason of willful  misfeasance,  bad faith,
gross negligence or reckless disregard of obligations and duties hereunder.

      5. Further Assurance. Each of the parties will make, execute,  acknowledge
and  deliver  such  other  instruments  and  documents,  and take all such other
actions,  as the other party may  reasonably  request and as may  reasonably  by
required in order to effectuate  the purposes of this Agreement and to carry out
the terms hereof.

      6. Notices. All communications  hereunder shall be in writing and shall be
addressed to:

            If to NL:         NL Industries, Inc.
                              16825 Northchase Drive, Suite 1200
                              Houston, Texas 77060
                              Attention:  General Counsel

            If to Tremont:    Tremont Corporation
                              1999 Broadway, Suite 4300
                              Denver, Colorado 80202
                              Attention:  General Counsel

            or such  other  address  as the  parties  shall  have  specified  in
writing.

      7. Amendment and Modification.  Neither this Agreement nor any item hereof
may be changed,  waived,  discharged  or  terminated  other than by agreement in
writing signed by the parties hereto.


                                      2

<PAGE>


      8.  Successors and Assigns.  This Agreement  shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties hereto,
provided that this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other party.

      9.  Miscellaneous.  The  headings  contained  in  this  Agreement  are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation  of  this  Agreement.   This  Agreement  constitutes  the  entire
agreement, and supersedes all prior agreements and understandings,  both written
and oral,  between the parties with respect to the subject matter  hereof.  This
Agreement  may be executed in one or more  counterparts,  each of which shall be
deemed an original,  and all of which together shall constitute one and the same
instrument.  This  Agreement  shall  be  governed  in  all  respects,  including
validity, interpretation and affect, by the laws of the State of Texas.

      10. Term of Agreement.  This Agreement shall be effective as of January 1,
1996, and shall remain in effect until  December 31, 1996,  subject to a renewal
by mutual written agreement for succeeding  one-year terms commencing January 1,
1997.  This  Agreement may be  terminated  at any time by mutual  consent of the
parties and by either  party upon ninety (90) days prior  written  notice to the
other party. Upon such termination or upon the expiration of this Agreement, the
parties' rights and obligations  hereunder shall cease and terminate except with
respect to rights and obligations  arising on or prior to the date of expiration
or termination and the rights and obligations arising under paragraph 4 above.

      IN WITNESS  WHEREOF,  the parties have duly executed this  Agreement as of
the 24th day of July, 1996, which Agreement will be deemed to be effective as of
January 1, 1996.

                                    NL INDUSTRIES, INC.


                                    By:   /s/ Dennis G. Newkirk
                                          Dennis G. Newkirk
                                          Vice President


                                    TREMONT CORPORATION


                                    By:   /s/ Mark A. Wallace
                                          Mark A. Wallace
                                          Vice President




                                      3

<PAGE>



                                                                  EXHIBIT 21.1





                        SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>

                                             Jurisdiction of
                                              incorporation        % of Voting
          NAME OF CORPORATION                or organization   Securities Held

<S>                                          <C>                           <C>
Kronos, Inc.                                 Delaware                      100
  Kronos (US) Inc.                           Delaware                      100
  Kronos International, Inc.                 Delaware                      100
    NL Industries (Deutschland) GmbH         Germany                       100
      Kronos Titan-GmbH                      Germany                       100
        Unterstutzungskasse Titan GmbH       Germany                       100
    Kronos Chemie-GmbH                       Germany                       100
    Kronos Europe S.A./N.V.                  Belgium                       100
      Kronos World Services S.A./N.V.        Belgium                       100
      Kronos B.V.                            Holland                       100
    Kronos Canada, Inc.                      Canada                        100
    2927527 Canada Inc.                      Canada                        100
    2969157 Canada Inc.                      Canada                        100
    Societe Industrielle Du Titane, S.A.     France                         93
    Kronos Norge A/S                         Norway                        100
      Kronos Titan A/S                       Norway                        100
      Titania A/S                            Norway                        100
        The Jossingfjord Manufacturing
         Company A/S                         Norway                        100
    Kronos Limited                           United Kingdom                100
  Kronos Louisiana, Inc.                     Delaware                      100
    Louisiana Pigment Company, L.P.          Delaware                       50*
Rheox, Inc.                                  Delaware                      100
  Rheox International, Inc.                  Delaware                      100
    Bentone Sud, S.A.                        France                        100
    Rheox GmbH                               Germany                       100
      Bentone-Chemie GmbH                    Germany                       100
    Rheox Limited                            United Kingdom                100
      Abbey Chemicals Limited                United Kingdom                100
    Rheox Europe S.A./N.V.                   Belgium                       100
    RK Export, Inc.                          Barbados                      100**
  Enenco, Inc.                               New York                       50*
Other:
  National Lead Company                      New Jersey                    100
  NL Industries (USA), Inc.                  Texas                         100
  NLO, Inc.                                  Ohio                          100
  Salem Lead Company                         Massachusetts                 100
  Sayre & Fisher Land Company                New Jersey                    100
  153506 Canada Inc.                         Canada                        100
  The 1230 Corporation                       California                    100
  United Lead Company                        New Jersey                    100
</TABLE>


*     Unconsolidated joint venture accounted for by the equity method.
**    Registrant indirectly owns 100% with 50% owned by Kronos and 50% owned
      by Rheox.

<PAGE>

                                                                    EXHIBIT 23.1





                       CONSENT OF INDEPENDENT ACCOUNTANTS


We consent to the incorporation by reference in the:

      (i)   Registration   Statement  No.   2-98713  on  Form  S-8  and  related
            Prospectus with respect to the 1985 Long Term Performance  Incentive
            Plan of NL Industries, Inc.; and

      (ii)  Registration   Statement  No.  33-25913  on  Form  S-8  and  related
            Prospectus  with  respect to the Savings  Plan for  Employees  of NL
            Industries, Inc.; and

      (iii) Registration   Statement  No.  33-29287  on  Form  S-8  and  related
            Prospectus with respect to the 1989 Long Term Performance  Incentive
            Plan of NL Industries, Inc.; and

      (iv)  Registration   Statement  No.  33-48145  on  Form  S-8  and  related
            Prospectus with respect to the NL Industries, Inc. 1992 Non-Employee
            Directors Stock Option Plan.

of our report which is dated February 7, 1997 on our audits of the  consolidated
financial statements and financial statement schedules of NL Industries, Inc. as
of  December  31,  1995 and 1996,  and for each of the three years in the period
ended December 31, 1996,  which report is included in this Annual Report on Form
10-K.





                                    COOPERS & LYBRAND L.L.P.



Houston, Texas
March 20, 1997



<PAGE>

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from NL
Industries Inc.'s consolidated financial statements for the twelve months ended
December 31, 1996, and is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                         114,115
<SECURITIES>                                         0
<RECEIVABLES>                                  126,995
<ALLOWANCES>                                     3,813
<INVENTORY>                                    232,510
<CURRENT-ASSETS>                               500,246
<PP&E>                                         956,897
<DEPRECIATION>                                 490,851
<TOTAL-ASSETS>                               1,221,358
<CURRENT-LIABILITIES>                          290,345
<BONDS>                                        737,100
                                0
                                          0
<COMMON>                                         8,355
<OTHER-SE>                                   (211,836)
<TOTAL-LIABILITY-AND-EQUITY>                 1,221,358
<SALES>                                        986,074
<TOTAL-REVENUES>                               986,074
<CGS>                                          738,438
<TOTAL-COSTS>                                  738,438
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                    30
<INTEREST-EXPENSE>                              75,039
<INCOME-PRETAX>                                 25,613
<INCOME-TAX>                                  (14,833)
<INCOME-CONTINUING>                             10,817
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    10,817
<EPS-PRIMARY>                                     0.21
<EPS-DILUTED>                                     0.21
        

</TABLE>


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