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, 1997
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 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 18, 1998, 51,290,614 shares of common stock were outstanding. The
aggregate market value of the 12,381,624 shares of voting stock held by
nonaffiliates as of such date approximated $203 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.
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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-discontinued operations," "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 risks and
uncertainties set forth from time to time in the Company's filings with the
Securities and Exchange Committee, and other public statements.
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PART I
ITEM 1. BUSINESS
General
NL Industries, Inc., organized as a New Jersey corporation in 1891,
conducts its continuing operations through its principal wholly-owned
subsidiary, Kronos, Inc. In January 1998 the specialty chemicals business of
Rheox, Inc., a wholly-owned subsidiary of NL, was sold for $465 million to
Elementis plc, including $20 million attributable to a five-year agreement by
the Company not to compete in the rheological products business. See "Rheox -
discontinued operations" for related discussion. At December 31, 1997 Valhi,
Inc. and Tremont Corporation, each affiliates of Contran Corporation, held 57%
and 18%, respectively, of NL's outstanding common stock, and together may be
deemed to control the Company. At December 31, 1997 Contran and other entities
related to Harold C. Simmons held approximately 93% of Valhi's and 49% of
Tremont's outstanding common stock. Substantially all of Contran's outstanding
voting stock is held by trusts established for the benefit of certain children
and grandchildren of Mr. 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 12% share of worldwide TiO2 sales volume in 1997.
Approximately one-half of Kronos' 1997 sales volume was in Europe, where Kronos
is the second largest producer of TiO2.
The Company's objective is to maximize total shareholder returns by (i)
focusing on continued cost control, (ii) acquiring additional TiO2 production
capacity, (iii) investing in certain cost effective debottlenecking projects to
also increase TiO2 production capacity and productivity and (iv) reducing
outstanding indebtedness.
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 gross domestic product in
various regions of the world.
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 increased during
the last
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three quarters of 1997, following a downturn in prices that began in the last
half of 1995. The Company expects TiO2 prices will continue to increase during
1998 as the impact of announced price increases take effect. Industry-wide
demand for TiO2 continued to grow in 1997, and Kronos' record 1997 sales volume
was 10% higher than the previous record set in 1996. The Company's expectations
as to the future prospects of the TiO2 industry and prices are based upon a
number of factors beyond the Company's control, including continued worldwide
growth of gross domestic product, competition in the market place, unexpected or
earlier-than-expected capacity additions and technological advances. If actual
developments differ from the Company's expectations, industry and Company
performance could be unfavorably affected.
Kronos has an estimated 18% share of European TiO2 sales volume and an
estimated 13% 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 region for TiO2 consumption could emerge in Eastern Europe,
the Far East or 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 consumption of TiO2 in Eastern Europe.
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 changed anticipated TiO2 consumption over the
past decade because extenders generally have, to date, failed to match the
performance characteristics of TiO2. As a result, 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
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service of its products in domestic and international markets. By volume,
approximately one-half of Kronos' 1997 TiO2 sales were to Europe, with 36% 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 described below), and
the manufacture and sale of iron-based water treatment chemicals (derived from
co-products of the 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 1997 represented almost 60% of industry capacity.
Kronos produced a record 408,000 metric tons of TiO2 in 1997, compared to
373,000 metric tons produced in 1996 and 393,000 metric tons in 1995. Kronos'
production rates were increased to near full capacity in late 1996 and Kronos
maintained near full capacity production rates throughout 1997 in response to
strong demand. Kronos believes its current annual attainable production capacity
is approximately 420,000 metric tons, including its one-half interest in the
joint venture-owned Louisiana plant (see "TiO2 manufacturing joint venture").
Kronos substantially completed a $34 million debottlenecking expansion of its
Leverkusen, Germany chloride-process plant in 1997 which increased annual
production capacity by approximately 20,000 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, South 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) 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 also expires in 2000. Raw materials purchased
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 extensions to existing long-term supply
contracts prior to the expiration of the contracts.
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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
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 rock ilmenite mine in Norway which
provided all of Kronos' feedstock for its European sulfate-process pigment
plants in 1997. For its Canadian plant, Kronos also purchases sulfate grade slag
from Q.I.T.-Fer et Titane Inc. under a long-term supply contract which expires
in 2002.
Kronos believes the availability of titanium-containing feedstock for both
the chloride and sulfate processes is adequate for the next several years.
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 certain 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. ("Tioxide"), a wholly-owned
subsidiary of Imperial Chemicals Industries plc ("ICI"), each own a 50%-interest
in a manufacturing joint venture, Louisiana Pigment Company ("LPC"). LPC 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. ICI has agreed to sell
Tioxide's non-North American operations to E.I. du Pont de Nemours & Co.
("DuPont"), subject to regulatory approval. ICI has announced it intends to sell
Tioxide's 50% interest in LPC and its remaining North American operations in a
separate transaction. The Company has advised ICI of its interest in acquiring
the portion of LPC it does not currently own.
A supervisory committee, composed of four members, two of whom are
appointed by each Partner, directs the business and affairs of LPC including
production and output decisions. Two general managers, one appointed and
compensated by each Partner, manage the 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.
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Competition
The TiO2 industry is highly competitive. During the early 1990s, supply of
TiO2 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 and throughout 1997, and selling
prices of TiO2 began to increase during the last three quarters of 1997.
Additional price increases have been announced by most major TiO2 producers,
including Kronos, that are expected to be implemented during the first half of
1998, and which Kronos expects to favorably impact operating income comparisons
in 1998 versus 1997. No assurance can be given that price trends will conform to
the Company's expectations. See "Industry" for the Company's views of risks and
uncertainties within the TiO2 industry.
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
three to five 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.
During 1997 Kronos had an estimated 12% share of worldwide TiO2 sales volume,
and Kronos believes that it is the leading seller of TiO2 in a number of
countries, including Germany and Canada.
Kronos' principal competitors are DuPont; ICI (Tioxide); Millennium
Chemicals, Inc. (Millennium Inorganic Chemicals, Inc.); Kerr-McGee Corporation;
Kemira Oy; Ishihara Sangyo Kaisha, Ltd.; and Bayer AG. These seven competitors
have estimated individual shares of TiO2 production capacity ranging from 23% to
4%, and an estimated aggregate 74% share of worldwide TiO2 production volume.
DuPont has about one-half of total U.S. TiO2 production capacity and is Kronos'
principal North American competitor.
In July 1997 DuPont announced an agreement had been reached to acquire
Tioxide's TiO2 business in Europe, Asia and Africa, that it expects to close in
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early 1998 subject to regulatory approval. In January 1998 Kerr-McGee announced
an agreement to acquire approximately 80% of the European TiO2 business of
Bayer.
Rheox - discontinued operations
On January 30, 1998 the specialty chemicals business of Rheox was sold to
Elementis plc (formerly known as Harrisons and Crosfield, plc) for $465 million,
including $20 million attributable to a five-year agreement by the Company not
to compete in the rheological products business. As a result of the sale, the
Company has reported its Rheox operation as discontinued operations. Following
the sale, Rheox, Inc. was renamed NL Capital Corporation. The Company intends to
use the after-tax proceeds of about $400 million primarily to invest in
additional TiO2 production capacity and reduce its outstanding indebtedness.
Research and Development
The Company's expenditures for research and development and certain
technical support programs, excluding discontinued operations, have averaged
approximately $8 million annually during the past three years. Research and
development activities 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.
Patents and Trademarks
Patents held for products and production processes are believed to be
important to the Company and to the continuing business activities of Kronos.
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.
The Company's major trademarks, including Kronos and Titanox, 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. Approximately three-quarters of the Company's 1997
consolidated sales, excluding discontinued operations, were to non-U.S.
customers, including 13% to customers in areas other than Europe and Canada.
Sales to customers in Asia accounted for 5% of consolidated net sales. 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
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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
generally higher in the second and third calendar quarters than in the first and
fourth calendar quarters.
Employees
As of December 31, 1997 the Company employed approximately 2,600 persons,
excluding the joint venture employees and discontinued operations, with
approximately 100 employees in the United States and approximately 2,500 at
sites outside the United States. Hourly employees in production facilities
worldwide, including the TiO2 manufacturing 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.
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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 the Louisiana plant owned and operated by the
joint venture is in substantial compliance with applicable requirements of these
laws or compliance orders issued thereunder. Following the sale of its specialty
chemicals business, the Company has no U.S. plants other than LPC. 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
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 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 advance 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 respect to treatment
of effluent from the Leverkusen plant.
In order to reduce sulfur dioxide emissions into the atmosphere consistent
with applicable environmental regulations, Kronos completed the installation of
off-gas desulfurization systems in 1997 at its Norwegian and German plants at an
estimated cost of $30 million. The manufacturing joint venture completed the
installation of a $16 million off-gas desulfurization system at the Louisiana
plant in 1996.
The Company's capital expenditures related to its ongoing environmental
protection and improvement programs are currently expected to be approximately
$5 million in each of 1998 and 1999.
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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 liens on it
that secure claims by the City of Leverkusen and the German federal 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. 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.
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
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
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manufacturers have been successful. Examples of such proposed legislation
include bills which would permit civil liability for damages on the basis of
market share, rather than requiring plaintiffs to prove that the defendant's
product caused the alleged damage. While 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 imposition of market share liability could have such an effect. 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 and have been inactive
since 1992, Hall v. HANO, et al. (No. 89-3552) and Allen V. HANO, et al. (No.
89-427) Civil District Court for the Parish of Orleans, State of Louisiana.
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. In May 1993 the Appellate Division of the Supreme Court affirmed the
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denial of the motion to dismiss plaintiffs' fraud, restitution and
indemnification claims. In May 1994 the trial court granted the 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. 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. In July 1997 the denial of defendants' two summary judgment
motions on the fraud claim were affirmed by the Appellate Division. Discovery is
proceeding.
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.
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'
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<PAGE>
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 and in October 1997 the Maryland Special Court of
Appeals affirmed. Plaintiffs did not seek further review of the dismissal of the
conspiracy claims against the Company and other defendants. Plaintiffs' request
for review of the affirmance of the dismissal of the remaining defendants was
denied by the Maryland Court of Appeals in February 1998.
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 alleged 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. In May 1997 plaintiffs moved for class certification and defendants
moved for summary judgment. In June 1997 the Court stayed all further activity
in the case pending reconsideration of its 1995 decision permitting filing of
the complaint against the manufacturer defendants and joinder of the new
complaint with the pre-existing complaint against New York City and other
landlords.
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, 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 plaintiff has lived since 1977.
In July 1996 the Company filed an answer denying plaintiff's allegations of
wrongdoing and liability. In November 1997 plaintiffs dismissed this case with
prejudice as to all defendants.
In April 1997 the Company was served with a complaint in Parker v. NL
Industries, et al. (Circuit Court, Baltimore City, Maryland, No. 97085060
CC915). Plaintiff, now an adult, and his wife, seek compensatory and punitive
damages from the Company, another former manufacturer of lead paint and a local
paint retailer, based on claims of negligence, strict liability and fraud, for
plaintiff's alleged ingestion of lead paint as a child. In June 1997 the Company
answered the complaint denying liability. In February 1998 the Court dismissed
the fraud claim. The case is set for trial in July 1998.
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In January 1998 the Company was served with an amended complaint in Adams
v. NL Industries, Inc., et at., (No. A9701785), Court of Common Pleas, Hamilton
County, Ohio, alleging injury to a minor arising out of exposure to lead, and
seeking compensatory and punitive damages from the Company, and other former
manufacturers of lead products and the LIA based on claims of negligence, strict
liability, breach of warranty, failure to warn, and nuisance. The amended
complaint also asserts various claims against plaintiff's landlord. In February
1998 the Company filed a motion to dismiss the action on procedural grounds. In
March 1998 plaintiffs informed the Court that they intend to dismiss the
complaint.
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 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
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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.
In June 1997 the Company reached a settlement in principle with its
insurers regarding allocation of defense costs in the lead pigment cases in
which reimbursement of defense costs had been sought.
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. Nor has the Court 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, and/or
damages for injury to natural resources. 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, 1997 the Company had accrued $135
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 was
increased by $30 million 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
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<PAGE>
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 $175 million. The Company's
estimate of such liability has not been discounted to present value and the
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.
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, Illinois lead smelter formerly owned by the
Company. 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. The
Company presently is challenging portions of the U.S. EPA's selection of the
remedy. In September 1997 the U.S. EPA informed the Company that past and future
cleanup costs are estimated to total approximately $63.5 million. There is
currently no allocation among the PRPs for these costs.
At the Pedricktown, New Jersey lead smelter site formerly owned by the
Company the U.S. EPA has 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 January 1998 the Company and the other PRPs were
informed that U.S. EPA would begin negotiations in 1998 with respect to
performance of the remedial action phase of operable unit one. In addition, the
U.S. EPA has indicated that it has incurred approximately $6.2 million in past
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costs. 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.
Having completed the RIFS at the Company's former Portland, Oregon lead
smelter site, 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. In May 1997 the
U.S. EPA issued an Amended Record of Decision ("ARD") for the soils operable
unit changing portions of the cleanup remedy selected. The ARD requires
construction of an onsite containment facility estimated to cost between $10.5
million and $12 million, including capital costs and operating and maintenance
costs. The Company and certain other PRPs have entered into a consent decree to
perform the remedial action in the ARD. 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. In February 1998 the Company and the
other defendants reached an agreement in principle to settle the litigation by
agreeing to pay a portion of future costs, which are estimated to be within
previously-accrued amounts.
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. In August 1997 the U.S. EPA issued the record of
decision for the Baxter Springs and Treece subsites. The U.S. EPA has estimated
that the selected remedy will cost an aggregate of approximately $7.1 million
for both subsites ($5.4 million for the Baxter Springs subsite). In addition,
the Company received a notice in March 1998 from the U.S. EPA that it may be a
PRP in three additional subsites in Cherokee County.
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
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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 reinstate the
complaint, and dismissed the case with prejudice. In November 1996 the appeals
court reversed the dismissal. In August 1997 the trial court again dismissed the
case and the state has appealed. 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.
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 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, which was
declined. 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.
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 $1.8 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
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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
February 1998 the parties reached agreement in principle to settle this matter
within previously-accrued amounts.
At a municipal and industrial waste disposal site in Batavia, New York,
the Company and 50 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. The Company and the other PRPs have
completed the work comprising operable unit two (the extension of the municipal
water supply) with the exception of annual operation and maintenance. 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. An agreement has been
reached settling this matter, with the Company being indemnified by another
party.
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 has reached an agreement to settle
this case.
In March 1997 the Company was served with a complaint in Ernest Hughes, et
al. v. Owens-Corning Fiberglass, Corporation, et al., No. 97-C-051, filed in the
Fifth Judicial District Court of Cass County, Texas, on behalf of approximately
4,000 plaintiffs and their spouses alleging injury due to exposure to asbestos
and seeking compensatory and punitive damages. The Company has filed an answer
denying the material allegations. The case has been stayed, and the plaintiffs
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are refiling their cases in Ohio. The Company is also a defendant in
approximately 1,000 additional asbestos cases pending in Ohio, the first of
which is scheduled for trial in the third quarter of 1998.
Plaintiff brought the complaint in Frank D. Seinfeld v. Harold C. Simmons,
et al. (Superior Court of New Jersey, Bergen County, Chancery Division, No.
C-336-96) in September 1996 on behalf of himself and derivatively, on behalf of
the Company, 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. In March 1998 Valhi reached an
agreement to settle this matter. Under the stipulation of settlement, in which
the defendants denied any wrongdoing, Valhi would transfer to the Company
750,000 shares of the Company's common stock held by Valhi, subject to
adjustment based upon the market price of the Company's shares at the time of
closing, up to a maximum of 825,000 shares of the Company and a minimum of
675,000 shares of the Company. Valhi may, at its option, transfer cash or cash
equivalents in lieu of all or a portion of such shares of the Company based on
the market price of the Company's common stock at the time of transfer. The
settlement is subject to, among other things, approval by the court and, if
approved, is expected to close in the second or third quarter of 1998. Pursuant
to the agreement and subject to court approval, the Company will reimburse
plaintiffs for attorneys' fees of up to $3 million and related costs. There can
be no assurance that any such settlement will become effective.
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, 1997.
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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 Stock Exchange and
the Pacific Exchange under the symbol "NL." As of March 18, 1998 there were
approximately 8,000 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 18, 1998 the closing price of
NL common stock according to the NYSE Composite Tape was $16-3/8.
<TABLE>
<CAPTION>
High Low
--------- -------
<S> <C> <C>
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
Year ended December 31, 1997:
First quarter 13-1/8 9-3/4
Second quarter 14-11/16 9-1/8
Third quarter 16-1/16 12-1/4
Fourth quarter 17-5/16 12-1/2
</TABLE>
The Company's Senior Notes generally limit the ability of the Company to
pay dividends and at December 31, 1997 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 1995 or
1997. 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.
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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." Certain amounts have been reclassified to reflect the results of
the Company's specialty chemicals business as discontinued operations and to
conform with the current year's consolidated financial statement presentation.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1993 1994 1995 1996 1997
--------------------------------------------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 697.0 $ 770.1 $ 894.1 $ 851.2 $ 837.2
Operating income 36.1 80.5 161.2 71.6 82.5
Income (loss) from
continuing operations (90.9) (38.9) 66.5 (11.7) (29.9)
Net income (loss) (109.8) (24.0) 85.6 10.8 (9.5)
Earnings per common
share:
Basic:
Income (loss) from
continuing
operations $ (1.79) $ (.76) $ 1.30 $ (.23) $ (.58)
Net income (loss) (2.16) (.47) 1.68 .21 (.19)
Diluted:
Income (loss) from
continuing
operations $ (1.79) $ (.76) $ 1.29 $ (.23) $ (.58)
Net income (loss) (2.16) (.47) 1.66 .21 (.19)
Cash dividends $ - $ - $ - $ .30 $ -
BALANCE SHEET DATA at year-end:
Cash, cash equivalents
and current marketable
securities, including
restricted cash $ 147.6 $ 156.3 $ 141.3 $ 114.1 $ 106.1
Current assets 467.5 486.4 551.1 500.2 454.5
Total assets 1,206.5 1,162.4 1,271.7 1,221.4 1,098.2
Current liabilities 232.5 244.9 302.4 290.3 276.4
Long-term debt including
current maturities 870.9 789.6 783.7 829.0 744.2
Shareholders' deficit (264.8) (293.1) (209.4) (203.5) (222.3)
CASH FLOW DATA:
Operating activities $ (7.3) $ 181.8 $ 71.6 $ 16.5 $ 89.2
Investing activities 182.0 (32.8) (62.2) (67.6) (12.2)
Financing activities (155.3) (132.1) (3.3) 26.6 (82.6)
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (1) $ 37.8 $ 66.3 $ 170.3 $ 90.7 $ 67.6
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(In millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net debt (2) $723.2 $633.4 $681.6 $740.7 $652.0
Interest expense, net (3) 86.5 71.5 69.5 64.6 63.0
Cash interest expense,
net (4) 79.7 54.5 50.9 44.2 39.9
Capital expenditures 46.9 34.6 60.7 64.2 28.2
TiO2 sales volumes
(metric tons in
thousands) 346 376 366 388 427
Average TiO2 selling
price index (1983=100) 128 132 152 139 133
</TABLE>
(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,
operating income or net income determined under generally accepted
accounting principles ("GAAP") as an indicator of the Company's operating
performance, or cash flows from operating, investing and financing
activities determined under GAAP 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).
-22-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
The Company's continuing operations are conducted by Kronos in the TiO2
business segment. As discussed below, average TiO2 selling prices declined in
1996 and 1997 compared to the prior year, but average selling prices increased
during each of the last three quarters of 1997 compared to the immediately
preceding quarter. Kronos' operating income and margins declined during 1996,
but improved in 1997.
Many factors influence TiO2 pricing levels, including industry capacity,
worldwide demand growth and customer inventory levels and purchasing decisions.
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
------------------------ ----------------
1995 1996 1997 1996-95 1997-96
---- ---- ---- ------- -------
(In millions)
<S> <C> <C> <C> <C> <C>
Net sales - Kronos $894.1 $851.2 $837.2 -5% -2%
Operating income - Kronos $161.2 $ 71.6 $ 82.5 -56% +15%
Percent change in TiO2:
Sales volume +6% +10%
Average selling prices
(in billing currencies) -9% -4%
</TABLE>
Kronos' operating income for 1997 increased on record production and sales
volumes and $12.9 million of income resulting from the refunds of German trade
capital taxes related to prior years, offset by lower average TiO2 selling
prices compared to 1996. In billing currency terms, Kronos' 1997 average TiO2
selling prices were 4% lower than in 1996. Average selling prices in the fourth
quarter of 1997 were 10% higher than the fourth quarter of 1996 and were 5%
higher than the third quarter of 1997. Selling prices at the end of 1997 were
12% higher than year-end 1996 levels, 7% higher than the average for 1997 and
were 1% higher than the average selling prices for the fourth quarter of 1997.
Kronos' operating income in 1996 was lower than 1995, primarily due to 9% lower
average TiO2 selling prices, partially offset by higher sales volumes.
Kronos' 1997 operating income includes $12.9 million of income resulting
from German trade capital tax refunds related to prior years, including
interest. The German tax authorities were required to remit refunds based on (i)
recent court decisions which resulted in reducing the trade capital tax base and
(ii) prior agreements between the Company and the German tax authorities
regarding payment of disputed taxes.
-23-
<PAGE>
Kronos' cost of sales in 1997 was lower than 1996 due to the favorable
effects of foreign currency translation and lower unit costs, primarily due to
higher production levels, partially offset by higher 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. As a percentage of net
sales, cost of sales decreased in 1997 primarily due to lower unit costs and
increased in 1996 primarily due to the impact on net sales of decreased average
selling prices.
Kronos' selling, general and administrative expenses declined in 1997 from
the previous year due to favorable effects of foreign currency translation and
German trade capital tax refunds, partially offset by higher distribution
expenses associated with higher 1997 sales volumes, while 1996 expenses were
lower than 1995 as a result of continuing cost containment efforts.
Record sales volume of 427,000 metric tons of TiO2 in 1997 was 10% higher
than 1996, with improvements in all major markets, including a 12% increase in
Europe. Approximately one-half of Kronos' 1997 TiO2 sales, by volume, were
attributable to markets in Europe with approximately 36% attributable to North
America, approximately 5% to Asia and the balance to other regions.
Strong demand growth during 1994 and the first half of 1995 allowed Kronos
to maintain full capacity production rates in 1995. 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 and Kronos responded by reducing production
rates. Kronos' average capacity utilization was approximately 95% in 1996.
Demand improved in the second half of 1996 and throughout 1997. Kronos produced
near full capacity in 1997.
Pricing of TiO2 has historically been cyclical. Kronos anticipates its
TiO2 operating income and margins will continue to improve in 1998 compared to
1997 as the impact of announced TiO2 price increases take effect. Demand for
TiO2 in 1997 increased over 1996 and Kronos expects demand will increase in
1998, although Kronos' 1998 sales volume is expected to be slightly lower as a
result of Kronos' lower inventory levels at the beginning of the year. Kronos
believes continued growth in demand should result in significant improvement in
average selling prices over the longer term.
The Company has substantial operations and assets located outside the
United States (principally Germany, Norway, Belgium and Canada). The U.S. dollar
translated 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 revenues and
expenses. A significant amount of the Company's sales are denominated in
currencies other than the U.S. dollar (67% in 1997), 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 sales by $12 million and $58 million during 1996 and 1997,
-24-
<PAGE>
respectively, compared to the year-earlier period. Fluctuation in the value of
the U.S. dollar relative to other currencies similarly impacted the Company's
operating expenses and the net impact of currency exchange rate fluctuations on
operating income comparisons was not significant in 1996 or 1997.
General corporate
The following table sets forth certain information regarding general
corporate income (expense).
<TABLE>
<CAPTION>
Years ended December 31, Change
------------------------ ----------------
1995 1996 1997 1996-95 1997-96
---- ---- ---- ------- -------
(In millions)
<S> <C> <C> <C> <C> <C>
Securities earnings $ 7.4 $ 4.7 $ 5.4 $(2.7) $ .7
Corporate expenses, net (26.6) (17.2) (49.8) 9.4 (32.6)
Interest expense (75.8) (69.3) (65.8) 6.5 3.5
------ ------ ------- ----- ------
$(95.0) $(81.8) $(110.2) $13.2 $(28.4)
====== ====== ======= ===== ======
</TABLE>
Securities earnings fluctuate in part based upon the amount of funds
invested and yields thereon. Corporate expenses, net in 1997 exceeded that of
1996, primarily due to the $30 million noncash charge related to the Company's
adoption of SOP 96-1, "Environmental Remediation Liabilities." See Note 2 to the
Consolidated Financial Statements. This charge is included in selling, general
and administrative expense in the Company's Consolidated Statements of
Operations. Corporate expenses, net in 1996 were lower than 1995 due to lower
provisions for environmental remediation cost. In 1998 the Company expects
corporate expenses, net will be lower than 1997 due to the absence of the $30
million noncash charge.
Interest expense
Interest expense declined in 1997 from 1996 due to lower levels of Kronos'
Deutsche mark-denominated debt, partially offset by higher variable interest
rates on such debt. Interest expense in 1996 declined compared to 1995
principally due to lower interest rates on variable rate debt, principally
Kronos' DM-denominated debt, partially offset by higher levels of such
DM-denominated debt. Interest expense in 1998 is expected to be lower compared
to 1997 due to lower expected levels of outstanding indebtedness, including
required payments on the DM term loan and anticipated prepayments of the joint
venture term loan.
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 1996 and
1997, 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
-25-
<PAGE>
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 changed its estimate of the future tax benefit of certain U.S. tax
credits which the Company believes satisfies the "more-likely-than-not"
recognition criteria. Accordingly, the Company's valuation allowance was reduced
by approximately $10 million. 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, 1997 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,
--------------------------
1995 1996 1997
------ ------ ------
(In millions)
<S> <C> <C> <C>
Net cash provided (used) by:
Operating activities $ 71.5 $ 16.5 $ 89.2
Investing activities (62.2) (67.6) (12.3)
Financing activities (3.3) 26.6 (82.6)
------ ------ ------
Net cash provided (used) by operating,
investing and financing activities $ 6.0 $(24.5) $ (5.7)
====== ====== ======
</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. Although average selling prices were 4% lower in 1997 compared to 1996,
average selling prices in each of the last three quarters of 1997 were higher
than the preceding quarter, reflecting the impact of industry-wide price
increases announced beginning in late 1996. The upturn in prices follows a
downward trend in prices that began in the last half of 1995. Operating cash
flows were favorably impacted in 1997 versus 1996 due to higher production and
sales volumes and $12.9 million of refunds of German trade capital taxes related
to prior years. The Company expects prices will continue to increase in 1998;
however, no assurance can be given that price trends will conform to the
Company's expectations and future cash flows could be adversely affected should
prices trend downward.
Changes in the Company's inventories, receivables and payables (excluding
the effect of currency translation) also contributed to the cash provided by
operations in 1996 and 1997. Such changes used cash in 1995 primarily due to
increased inventory levels. In 1995 net proceeds of $26 million from the sale of
trading securities is included in cash provided from operations. Certain German
income tax payments, discussed below, significantly decreased cash flows from
operating activities in 1996.
-26-
<PAGE>
The Company sold its specialty chemicals business to Elementis plc in
January 1998 for cash proceeds of $465 million, including $20 million
attributable to a five-year agreement by the Company not to compete in the
rheological products business, and expects to recognize an after-tax gain of
approximately $300 million in the first quarter of 1998. With the after-tax net
proceeds of about $400 million, the Company prepaid and terminated its $117.5
million Rheox credit facility and terminated the related interest rate collar
agreements. With the remaining proceeds, the Company intends to reduce
outstanding indebtedness and invest in additional TiO2 production capacity. The
Company has advised ICI of its interest in acquiring the portion of LPC it does
not currently own.
The indentures under which the Company's Senior Secured Notes and Senior
Secured Discount Notes (collectively, the "Senior Notes") were issued provide
that, if by November 1998 the Company has not applied the net cash proceeds from
the sale of its specialty chemicals business in a manner permitted by the
indentures, the Company must use the proceeds not so applied to offer to acquire
the Senior Notes for cash on a pro rata basis at par value. Permitted uses of
the proceeds include the acquisition of additional TiO2 capacity and the
permanent reduction of certain debt other than the Senior Notes. The Senior
Secured Discount Notes can first be redeemed at the option of the Company in
October 1998 at a price of 106% of their principal amount, which the Company
presently intends to do, depending on market conditions, availability of
resources and other factors. The Company may acquire Senior Notes in the open
market. The Company has notified the lender of its joint venture term loan that
it intends to prepay the $42.4 million balance in March 1998.
The Company's capital expenditures during the past three years include an
aggregate of $58 million ($6 million in 1997) for the Company's ongoing
environmental protection and compliance programs, including German and Norwegian
off-gas desulfurization systems. The Company's estimated 1998 and 1999 capital
expenditures are $30 million for each year and include $5 million for each year
in the area of environmental protection and compliance primarily related to the
off-gas desulfurization systems.
In the last three years the Company spent $34 million ($7 million in 1997)
in capital expenditures related to its substantially-completed debottlenecking
project at its Leverkusen, Germany chloride-process TiO2 facility. The
debottlenecking project increased the Company's annual attainable production by
approximately 20,000 metric tons, and the Company estimates its worldwide annual
attainable capacity is 420,000 metric tons. Capital expenditures of the
manufacturing joint venture and the Company's discontinued operations are not
included in the Company's capital expenditures.
In 1997 the Company prepaid DM 207 million ($127 million when paid) of its
DM term loan, repaid DM 43 million ($26 million when paid) of its DM revolving
credit facility, repaid $15 million of its joint venture term loan and repaid DM
15 million ($9 million when paid) of its short-term DM-denominated notes
payable. In the first quarter of 1997 Rheox refinanced its debt obtaining $125
million of new long-term financing and, with the proceeds, repaid a note payable
-27-
<PAGE>
to NL. Rheox's financing activities are accumulated as "Rheox, net" in the
Company's Consolidated Statements of Cash Flows.
In 1996 the Company borrowed DM 144 million ($96 million when borrowed)
under its DM credit facility. It 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 $15 million 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 $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.
At December 31, 1997 the Company had cash and cash equivalents aggregating
$106 million (45% held by non-U.S. subsidiaries) including restricted cash
equivalents of $10 million. Excluding cash and cash equivalents of discontinued
operations, the Company had $97 million in cash and cash equivalents (44% held
by non-U.S. subsidiaries) including restricted cash equivalents of $10 million.
At December 31, 1997 the Company's subsidiaries, excluding discontinued
operations, had $84 million available for borrowing under non-U.S. credit
facilities. At December 31, 1997 the Company had complied with all financial
covenants governing its debt agreements.
No dividends were paid in 1995 or 1997. Dividends paid during 1996 totaled
$15.3 million. At December 31, 1997 the Company was 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 tax returns in various U.S. and non-U.S.
jurisdictions are being examined and tax authorities have proposed or may
propose tax deficiencies. The Company previously reached an agreement with the
German tax authorities and paid certain tax deficiencies of approximately DM 44
million ($28 million when paid), including interest, which resolved significant
tax contingencies for years through 1990. During 1997 the Company reached a
tentative agreement with the German tax authorities regarding the years 1991
through 1994, and expects to pay DM 9 million ($5 million at December 31, 1997)
during 1998 in settlement of certain tax issues. Certain other significant
German tax contingencies remain outstanding for the years 1990 through 1996 and
will continue to be litigated. With respect to these contingencies, the Company
has received certain revised tax assessments aggregating DM 119 million ($66
million at December 31, 1997), including non-income tax related items and
interest, for years through 1996. The Company expects to receive tax assessments
for an additional DM 20 million ($11 million at December 31, 1997), including
non-income tax related items and interest, for the years 1991 through 1994. No
-28-
<PAGE>
payments of tax or interest deficiencies related to these assessments are
expected until the litigation is resolved.
During 1997 a German tax court proceeding involving a tax issue
substantially the same as that involved in the Company's primary remaining tax
contingency was decided in favor of the taxpayer. The German tax authorities
have appealed that decision to the German Supreme Court; the Company believes
that the decision by the German Supreme Court will be rendered within two years
and will become a legal precedent which will likely determine the outcome of the
Company's primary dispute with the German tax authorities, which assessments,
including non-income tax related items and interest, aggregate DM 121 million.
Although the Company believes that it will ultimately prevail, the Company has
granted a DM 94 million ($53 million at December 31, 1997) lien on its
Nordenham, Germany TiO2 plant in favor of the City of Leverkusen, and a DM 5
million ($3 million at December 31, 1997) lien in favor of the German federal
tax authorities.
During 1997 the Company received a tax assessment from the Norwegian tax
authorities proposing tax deficiencies of NOK 51 million ($7 million at December
31, 1997) relating to 1994. The Company has appealed this assessment and expects
to litigate this issue.
No assurance can be given that these tax matters will be resolved in the
Company's favor in view of the inherent uncertainties involved in court
proceedings. The Company believes that it has adequately provided accruals for
additional 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, 1997 the Company had net deferred tax liabilities of $132
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 $189
million at December 31, 1997, principally related to the U.S. and Germany,
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 business conducted through Kronos, the
Company also has certain interests and associated liabilities relating to
certain discontinued or divested businesses, and 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
-29-
<PAGE>
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.
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, certain of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue"). This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in normal business activities.
The Company has completed the process of evaluating the modifications to
critical software required to mitigate the Year 2000 Issue. The Company is in
the process of communicating with its significant customers and suppliers to
determine the extent to which the Company is vulnerable to those third parties'
failure to minimize their own Year 2000 Issue. The Company is utilizing both
internal and external resources to reprogram or replace and test its software
and expects to complete substantially all of the requirements by the first
quarter of 1999. However, if such modifications are not made or are not
completed timely, the Year 2000 Issue could have a material adverse impact on
the operations of the Company. In addition, there can be no assurance that the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with the Company's systems, would not have a material adverse
effect on the Company. The Company's estimate of the costs to complete the
modifications to critical software required to address the Year 2000 Issue is
not significant.
-30-
<PAGE>
The date on which the Company plans to complete any necessary Year 2000
Issue modifications is based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
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 in light of
its capital resources 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 to manage its liquidity and capital
resources. In the normal course of its business, the Company may review
opportunities for 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").
-31-
<PAGE>
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
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, 1997 and
thereafter through the date of this report.
October 17, 1997 - reported Items 5 and 7.
December 30, 1997 - reported Items 5 and 7.
January 23, 1998 - reported Items 5 and 7.
January 30, 1998 - reported Items 5 and 7.
January 30, 1998 - reported Items 2 and 7.
February 17, 1998 - reported Item 5.
February 26, 1998 - reported Item 5 and 7.
February 26, 1998 - reported Item 5.
(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.
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<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 - incorporated by
reference to Exhibit 10.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.
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 - incorporated by reference to Exhibit 10.4
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
10.5 Guaranty dated as of January 31, 1997 made by the Registrant in
favor of Hypobank International S.A., as Agent - incorporated by
reference to Exhibit 10.5 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.
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.
-34-
<PAGE>
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.
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
incorporated by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996.
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.
-35-
<PAGE>
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.
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 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.
10.25 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.
-36-
<PAGE>
10.26 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.
10.27 Amendment No. 1 to Tioxide Americas Offtake Agreement dated as of
December 20, 1995 between Tioxide Americas Inc. and Louisiana
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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33* 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.
10.34 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.
-37-
<PAGE>
10.35* 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.
10.36* NL Industries, Inc. Variable Compensation Plan - incorporated by
reference to Exhibit A 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. Retirement Savings Plan, as amended and restated
effective April 1, 1996 - incorporated by reference to Exhibit 10.38
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
10.38* 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.
10.39 Intercorporate Services Agreement by and between Valhi, Inc. and the
Registrant effective as of January 1, 1997 - incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.
10.40 Intercorporate Services Agreement by and between Contran Corporation
and the Registrant effective as of January 1, 1997 - incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.
10.41 Intercorporate Services Agreement by and between Tremont Corporation
and the Registrant effective as of January 1, 1997 - incorporated by
reference to Exhibit 10.4 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.
10.42 Intercorporate Service Agreement by and between Titanium Metals
Corporation and the Registrant effective January 1, 1997
incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
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.
-38-
<PAGE>
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 July 24, 1996 by and
between the Registrant and J. Landis Martin - incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.
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 February 20, 1998 between the
Registrant and Lawrence A. Wigdor and related trust agreement.
10.49* Agreement to Defer Bonus Payment dated February 20, 1998 between the
Registrant and J. Landis Martin and related trust agreement.
10.50 Asset Purchase Agreement dated as of December 29, 1997 by and among
NL Industries, Inc., Rheox, Inc., Rheox International, Inc.,
Harrisons and Crosfield plc, Harrisons and Crosfield (America) Inc.
and Elementis Acquisition 98, Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
27.1 Restated Financial Data Schedule for the year ended December 31,
1995.
27.2 Restated Financial Data Schedules for the year-to-date periods
ending March 31, 1996, June 30, 1996, September 30, 1996 and
December 31, 1996.
27.3 Restated Financial Data Schedules for the year-to-date periods
ending March 31, 1997, June 30, 1997, September 30, 1997 and
December 31, 1997.
99.1 Annual Report of NL Industries, Inc. Retirement Savings Plan (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, 1997.
* 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, 1998
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, 1998 Harold C. Simmons, March 20, 1998
Director, President and Chairman of the Board
Chief Executive Officer
/s/ Glenn R. Simmons /s/ Joseph S. Compofelice
Glenn R. Simmons, March 20, 1998 Joseph S. Compofelice, March 20, 1998
Director Director
/s/ Kenneth R. Peak /s/ Dr. Lawrence A. Wigdor
Kenneth R. Peak, March 20, 1998 Dr. Lawrence A. Wigdor, March 20, 1998
Director Director, President and Chief
Executive Officer of Kronos
/s/ Elmo R. Zumwalt, Jr. /s/ Susan E. Alderton
Elmo R. Zumwalt, Jr., March 20, 1998 Susan E. Alderton, March 20, 1998
Director Vice President and Chief Financial
Officer
/s/ Dennis G. Newkirk
Dennis G. Newkirk, March 20, 1998
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, 1996 and 1997 F-3 / F-4
Consolidated Statements of Operations - Years ended
December 31, 1995, 1996 and 1997 F-5
Consolidated Statements of Shareholders' Deficit - Years
ended December 31, 1995, 1996 and 1997 F-6
Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1996 and 1997 F-7 / F-9
Notes to Consolidated Financial Statements F-10 / F-43
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, 1996 and 1997, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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, 1996 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for environmental remediation costs in
1997 in accordance with Statement of Position No. 96-1.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 11, 1998
F-2
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
1996 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents, including
restricted cash of $10,895 and $9,751 ......... $ 114,115 $ 106,145
Accounts and notes receivable, less
allowance of $3,813 and $2,828 ................ 138,538 148,676
Refundable income taxes ........................ 9,267 1,941
Inventories .................................... 232,510 192,780
Prepaid expenses ............................... 4,219 3,348
Deferred income taxes .......................... 1,597 1,642
---------- ----------
Total current assets ....................... 500,246 454,532
---------- ----------
Other assets:
Marketable securities .......................... 23,718 17,270
Investment in joint ventures ................... 181,479 172,721
Prepaid pension cost ........................... 24,821 23,848
Deferred income taxes .......................... 223 110
Other .......................................... 24,825 18,482
---------- ----------
Total other assets ......................... 255,066 232,431
---------- ----------
Property and equipment:
Land ........................................... 21,963 19,479
Buildings ...................................... 165,479 150,090
Machinery and equipment ........................ 660,333 616,309
Mining properties .............................. 95,891 88,617
Construction in progress ....................... 13,231 2,577
---------- ----------
956,897 877,072
Less accumulated depreciation and depletion .... 490,851 465,843
---------- ----------
Net property and equipment ................. 466,046 411,229
---------- ----------
$1,221,358 $1,098,192
========== ==========
</TABLE>
F-3
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1996 and 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' DEFICIT
1996 1997
----------- -----------
<S> <C> <C>
Current liabilities:
Notes payable ................................ $ 25,732 $ 13,968
Current maturities of long-term debt ......... 91,946 77,374
Accounts payable and accrued liabilities ..... 153,904 161,730
Payable to affiliates ........................ 10,204 11,512
Income taxes ................................. 5,664 10,910
Deferred income taxes ........................ 2,895 891
----------- -----------
Total current liabilities ................ 290,345 276,385
----------- -----------
Noncurrent liabilities:
Long-term debt ............................... 737,100 666,779
Deferred income taxes ........................ 151,221 132,797
Accrued pension cost ......................... 57,941 44,389
Accrued postretirement benefits cost ......... 55,935 50,951
Other ........................................ 132,048 148,903
----------- -----------
Total noncurrent liabilities ............. 1,134,245 1,043,819
----------- -----------
Minority interest .............................. 249 257
----------- -----------
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 ....................... (118,629) (133,810)
Pension liabilities ........................ (1,822) --
Marketable securities ...................... 1,278 4,297
Accumulated deficit .......................... (485,948) (495,421)
Treasury stock, at cost (15,721 and 15,572 ...
shares) ..................................... (365,996) (364,971)
----------- -----------
Total shareholders' deficit .............. (203,481) (222,269)
----------- -----------
$ 1,221,358 $ 1,098,192
=========== ===========
</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, 1995, 1996 and 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues and other income:
Net sales $894,149 $851,179 $837,240
Other, net 21,518 27,669 19,367
-------- -------- --------
915,667 878,848 856,607
-------- -------- --------
Costs and expenses:
Cost of sales 611,882 668,605 649,945
Selling, general and administrative 161,753 151,144 168,592
Interest 75,759 69,333 65,759
-------- -------- --------
849,394 889,082 884,296
-------- -------- --------
Income (loss) from continuing
operations before income
taxes and minority interest 66,273 (10,234) (27,689)
Income tax expense (benefit) (278) 1,496 2,244
-------- -------- --------
Income (loss) from continuing
operations before minority
interest 66,551 (11,730) (29,933)
Minority interest 56 5 (58)
-------- -------- --------
Income (loss) from continuing
operations 66,495 (11,735) (29,875)
Discontinued operations 19,114 22,552 20,402
-------- -------- --------
Net income (loss) $ 85,609 $ 10,817 $ (9,473)
======== ======== ========
Earnings per common share:
Basic:
Income (loss) from continuing
operations $ 1.30 $ (.23) $ (.58)
======== ======== ========
Net income (loss) $ 1.68 $ .21 $ (.19)
======== ======== ========
Diluted:
Income (loss) from continuing
operations $ 1.29 $ (.23) $ (.58)
======== ======== ========
Net income (loss) $ 1.66 $ .21 $ (.19)
======== ======== ========
Weighted average common shares and potential common shares outstanding:
Basic 51,006 51,103 51,152
Diluted 51,512 51,103 51,152
</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, 1995, 1996 and 1997
(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, 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)
Net loss ................... -- -- -- -- -- (9,473) -- (9,473)
Treasury stock reissued .... -- -- -- -- -- -- 1,025 1,025
Adjustments ................ -- -- (15,181) 1,822 3,019 -- -- (10,340)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 $ 8,355 $ 759,281 $(133,810) $ -- $ 4,297 $(495,421) $(364,971) $(222,269)
========= ========= ========= ========= ========= ========= ========= =========
</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, 1995, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................ $ 85,609 $ 10,817 $ (9,473)
Depreciation, depletion and
amortization ............................ 35,696 36,285 34,887
Noncash interest expense ................. 18,610 20,442 23,092
Deferred income taxes .................... (28,327) 297 (5,627)
Minority interest ........................ 56 5 (58)
Net (gains) losses from:
Securities transactions ................ (1,175) -- (2,657)
Disposition of property and
equipment ............................. 2,695 2,236 (1,735)
Pension cost, net ........................ (7,833) (8,018) (5,112)
Other postretirement benefits, net ....... (3,973) (4,962) (4,799)
Change in accounting for environmental
remediation costs ....................... -- -- 30,000
Discontinued operations .................. (19,114) (22,552) (20,402)
Other, net ............................... (434) (67) --
-------- -------- --------
81,810 34,483 38,116
Rheox, net ............................... 17,551 20,705 31,506
Change in assets and liabilities:
Accounts and notes receivable .......... (103) 3,083 (14,925)
Inventories ............................ (52,883) 7,192 22,872
Prepaid expenses ....................... 996 (1,355) 96
Accounts payable and accrued
liabilities ........................... (19,560) (1,949) 9,347
Income taxes ........................... 14,010 (36,414) 12,978
Accounts with affiliates ............... (2,805) 3,408 (3,915)
Other noncurrent assets ................ 1,022 236 (269)
Other noncurrent liabilities ........... 5,183 (12,851) (6,640)
Marketable trading securities:
Purchases ............................ (762) -- --
Dispositions ......................... 27,102 -- --
-------- -------- --------
Net cash provided by operating
activities ........................ 71,561 16,538 89,166
-------- -------- --------
</TABLE>
F-7
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1995, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures .................. $ (60,732) $ (64,241) $ (28,220)
Proceeds from disposition of
marketable available-for-sale
securities ........................... -- -- 6,875
Investment in joint venture, net ...... 1,993 3,934 8,364
Proceeds from disposition of
property and equipment ............... 159 76 3,049
Rheox, net ............................ (3,641) (7,376) (2,314)
--------- --------- ---------
Net cash used by investing
activities ....................... (62,221) (67,607) (12,246)
--------- --------- ---------
Cash flows from financing activities:
Indebtedness:
Borrowings .......................... 57,556 97,503 --
Principal payments .................. (30,629) (32,362) (182,215)
Deferred financing costs ............ -- -- (2,343)
Dividends paid ........................ -- (15,333) --
Rheox, net ............................ (30,499) (23,492) 100,940
Other, net ............................ 264 249 1,023
--------- --------- ---------
Net cash provided (used) by
financing activities ............. (3,308) 26,565 (82,595)
--------- --------- ---------
Net change during the year from
operating, investing and
financing activities ............. $ 6,032 $ (24,504) $ (5,675)
========= ========= =========
</TABLE>
F-8
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1995, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash and cash equivalents:
Net change during the year from:
Operating, investing and financing
activities ......................... $ 6,032 $ (24,504) $ (5,675)
Currency translation ................ 4,177 (2,714) (2,295)
--------- --------- ---------
10,209 (27,218) (7,970)
Balance at beginning of year .......... 131,124 141,333 114,115
--------- --------- ---------
Balance at end of year ................ $ 141,333 $ 114,115 $ 106,145
========= ========= =========
Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized $ 62,078 $ 51,678 $ 55,908
Income taxes ........................ 27,965 50,400 6,875
Noncash investing activities -
marketable securities exchanged
for a note receivable ................ $ -- $ -- $ 6,875
</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 titanium dioxide pigments ("TiO2")
operations primarily through its wholly-owned subsidiary, Kronos, Inc. In
January 1998 the specialty chemicals business of Rheox, Inc., a wholly-owned
subsidiary of NL, was sold. See Note 20.
At December 31, 1997 Valhi, Inc. and Tremont Corporation, each affiliates
of Contran Corporation, held 57% and 18%, respectively, of NL's outstanding
common stock, and together may be deemed to control the Company. At December 31,
1997 Contran and other entities related to Harold C. Simmons held approximately
93% of Valhi's and 49% of Tremont's outstanding common stock. Substantially all
of Contran's outstanding voting stock is held by trusts established for the
benefit of certain children and grandchildren of Mr. 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. Certain
prior-year amounts have been reclassified to conform to the current year
presentation, including reporting Rheox as a discontinued operation. 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 and bank deposits
with original maturities of three months or less. Cash equivalents of
approximately $6 million in 1996 and $5 million in 1997 is restricted under the
Company's joint venture indebtedness agreement and, in addition, cash
equivalents of approximately $5 million in 1996 and 1997 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. Realized and
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. Gains and
losses on available-for-sale securities are recognized in income upon
realization and 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, 1996 and 1997 no receivables for recoveries
have been recognized.
The Company adopted a new method of accounting as required by the AICPA's
Statement of Position ("SOP") No. 96-1, "Environmental Remediation Liabilities,"
in the first quarter of 1997. The SOP, among other things, expands the types of
costs which must be considered in determining environmental remediation
accruals. As a result of adopting the SOP, the Company recognized a noncash
cumulative charge of $30 million in the first quarter of 1997. The charge did
not impact the Company's 1997 income tax expense because the Company believes
the resulting deferred income tax asset does not currently satisfy the
more-likely-than-not recognition criteria and, accordingly, the Company has
established an offsetting valuation allowance. 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. Previously, such expenditures were expensed as
incurred.
Net sales
Sales are recognized as products are shipped.
F-12
<PAGE>
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
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" recognition
criteria.
Interest rate swaps and contracts
The Company periodically uses interest rate swaps and contracts (such as
caps and floors) to manage interest rate risk with respect to financial assets
or liabilities. The Company does not enter into these contracts for speculative
purposes. Income or expense on swaps and contracts designated as hedges of
assets or liabilities is recorded as an adjustment to interest income or
expense. If the swap or contract is terminated, the resulting gain or loss is
deferred and amortized over the remaining life of the underlying asset or
liability. If the hedged instrument is disposed of, the swap or contract
agreement is marked to market with any resulting gain or loss included with the
gain or loss from the disposition. Any cost associated with the swap or contract
is deferred and amortized over the life of the agreement.
Earnings per common share
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings per Share", in the fourth quarter of 1997 and retroactively
restated its reported earnings per common share. The new accounting standard
requires both "basic" and "diluted" earnings per share presentation. Basic
earnings per share is based on the weighted average number of common shares
outstanding during each period. Diluted earnings per share is based on the
weighted average common shares outstanding and the dilutive impact of
outstanding stock options. The weighted average number of shares resulting from
outstanding stock options which were excluded from the calculation of diluted
earnings per share because their impact would have been antidilutive aggregated
1,878,000, 2,483,000 and 2,709,000 in 1995, 1996 and 1997, respectively. There
were no adjustments to income (loss) from continuing operations or net income
(loss) in the computation of earnings per common share. Both basic and diluted
earnings per share from discontinued operations were $.37 per share, $.44 per
share and $.40 per share in 1995, 1996 and 1997, respectively.
New accounting principles not yet adopted
The Company will adopt SFAS No. 130, "Reporting Comprehensive Income," in
the first quarter of 1998. Upon adoption of SFAS No. 130, the Company will
present a new Statement of Comprehensive Income which will report all changes in
the Company's shareholders' deficit other than transactions with its
shareholders. Comprehensive income pursuant to SFAS No. 130 would include the
Company's consolidated net income (loss), as reported in the Consolidated
F-13
<PAGE>
Statement of Operations, plus the net change in the currency translation,
pension liabilities and marketable securities components of shareholders'
deficit.
The Company will adopt SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," no later than the fourth quarter of 1998.
SFAS No. 131 will supersede the business segment disclosure requirements
currently in effect under SFAS No. 14. SFAS No. 131, among other things,
establishes standards regarding the information a company is required to
disclose about its operating segments. SFAS No. 131 also provides guidance
regarding what constitutes a reportable operating segment. The Company expects
to have one operating segment pursuant to SFAS No. 131, the same one segment
currently in effect under SFAS No. 14. Accordingly, segment disclosures pursuant
to SFAS No. 131 are not expected to be materially different from the current
disclosures pursuant to SFAS No. 14.
The Company will adopt the disclosure requirements of SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," in
the fourth quarter of 1998. SFAS No. 132 revises disclosure requirements for
such pension and postretirement benefit plans to, among other things,
standardize certain disclosures and eliminate certain other disclosures no
longer deemed useful. SFAS No. 132 does not change the measurement or
recognition criteria for such plans.
Note 3 - Business and geographic segments:
The Company's operations are conducted by Kronos in one operating business
segment - TiO2. Titanium dioxide pigments are used to impart whiteness,
brightness and opacity to a wide variety of products, including paints,
plastics, paper, fibers and ceramics. General corporate assets consists
principally of cash, cash equivalents and marketable securities. Discontinued
operations consists of the Company's specialty chemicals business owned by Rheox
which was sold in January 1998. See Note 20. At December 31, 1996 and 1997 the
net assets of non-U.S. subsidiaries included in consolidated net assets
approximated $124 million and $287 million, respectively.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Business segments
Operating income - Kronos ............. $ 161,175 $ 71,606 $ 82,501
General corporate income (expense):
Securities earnings ................. 7,419 4,708 5,393
Expenses, net ....................... (26,562) (17,215) (49,824)
Interest expense .................... (75,759) (69,333) (65,759)
--------- --------- ---------
$ 66,273 $ (10,234) $ (27,689)
========= ========= =========
Capital expenditures:
Kronos .............................. $ 60,699 $ 64,201 $ 28,193
General corporate ................... 33 40 27
--------- --------- ---------
$ 60,732 $ 64,241 $ 28,220
========= ========= =========
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
1995 1996 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Depreciation, depletion and
amortization:
Kronos .............................. $ 35,502 $ 36,091 $ 34,684
General corporate ................... 194 194 203
--------- --------- ---------
$ 35,696 $ 36,285 $ 34,887
========= ========= =========
Geographic areas
Net sales - point of origin:
United States ....................... $ 246,474 $ 252,448 $ 258,300
Europe .............................. 647,635 594,824 584,339
Canada .............................. 134,361 134,199 145,160
Eliminations ........................ (134,321) (130,292) (150,559)
--------- --------- ---------
$ 894,149 $ 851,179 $ 837,240
========= ========= =========
Net sales - point of destination:
United States ....................... $ 209,236 $ 222,710 $ 230,923
Europe .............................. 529,464 471,948 442,043
Canada .............................. 55,492 51,292 58,231
Asia ................................ 47,230 43,842 41,328
Other ............................... 52,727 61,387 64,715
--------- --------- ---------
$ 894,149 $ 851,179 $ 837,240
========= ========= =========
Operating income:
United States ....................... $ 45,652 $ 37,797 $ 30,514
Europe .............................. 94,815 21,024 40,882
Canada .............................. 20,708 12,785 11,105
--------- --------- ---------
$ 161,175 $ 71,606 $ 82,501
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1995 1996 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Identifiable assets
Business segments:
Kronos ....................... $1,063,369 $1,064,285 $ 961,635
General corporate ............ 124,664 66,978 47,922
Discontinued operations ...... 83,620 90,095 88,635
---------- ---------- ----------
$1,271,653 $1,221,358 $1,098,192
========== ========== ==========
Geographic segments:
United States ................ $ 257,164 $ 252,331 $ 268,518
Europe ....................... 662,997 681,380 562,454
Canada ....................... 143,208 130,574 130,663
General corporate ............ 124,664 66,978 47,922
Discontinued operations ...... 83,620 90,095 88,635
---------- ---------- ----------
$1,271,653 $1,221,358 $1,098,192
========== ========== ==========
</TABLE>
F-15
<PAGE>
Note 4 - Marketable securities and securities transactions:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Available-for-sale securities -
noncurrent marketable equity securities:
Unrealized gains ............................... $ 3,516 $ 6,939
Unrealized losses .............................. (1,550) (328)
Cost ........................................... 21,752 10,659
-------- --------
Aggregate market ........................... $ 23,718 $ 17,270
======== ========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1995 1996 1997
------ ---- ----
(In thousands)
<S> <C> <C> <C>
Securities transactions gains on
trading securities (in 1995) and
available-for-sale securities (in 1997):
Unrealized ............................... $1,125 $ - $ -
Realized ................................. 50 - 2,657
------ --- ------
$1,175 $ - $2,657
====== === ======
</TABLE>
Note 5 - Inventories:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Raw materials ............................ $ 43,284 $ 45,844
Work in process .......................... 10,356 8,018
Finished products ........................ 142,091 107,427
Supplies ................................. 36,779 31,491
-------- --------
$232,510 $192,780
======== ========
</TABLE>
Note 6 - Investment in joint ventures:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
TiO2 manufacturing joint venture ............... $179,195 $170,830
Other .......................................... 2,284 1,891
-------- --------
$181,479 $172,721
======== ========
</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.
("Tioxide"), a wholly-owned subsidiary of Imperial Chemicals Industries PLC
F-16
<PAGE>
("ICI"). LPC owns and operates a chloride-process TiO2 plant in Lake Charles,
Louisiana. ICI has agreed to sell Tioxide's non-North American operations to
E.I. du Pont de Nemours & Co., subject to regulatory approval. ICI has announced
it intends to sell Tioxide and the remaining North American operations in a
separate transaction. The Company had advised ICI of its interest in acquiring
the portion of LPC it does not currently own.
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,
----------------------
1996 1997
-------- --------
(In thousands)
ASSETS
<S> <C> <C>
Current assets ..................................... $ 47,861 $ 41,602
Other assets ....................................... 1,224 764
Property and equipment, net ........................ 325,617 309,989
-------- --------
$374,702 $352,355
======== ========
LIABILITIES AND PARTNERS' EQUITY
Long-term debt, including current portion:
Kronos tranche ................................... $ 57,858 $ 42,429
Tioxide tranche .................................. 16,800 7,200
Note payable to Tioxide .......................... 21,000 9,000
Other liabilities, primarily current ............... 14,084 8,466
-------- --------
109,742 67,095
Partners' equity ................................... 264,960 285,260
-------- --------
$374,702 $352,355
======== ========
</TABLE>
F-17
<PAGE>
Summary income statements of LPC are shown below.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1995 1996 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Revenues and other income:
Kronos ............................. $ 76,365 $ 74,916 $ 82,171
Tioxide ............................ 75,241 73,774 80,512
Interest income .................... 653 518 636
-------- -------- --------
152,259 149,208 163,319
-------- -------- --------
Cost and expenses:
Cost of sales ...................... 140,103 140,361 156,811
General and administrative ......... 385 377 355
Interest ........................... 11,771 8,470 6,153
-------- -------- --------
152,259 149,208 163,319
-------- -------- --------
Net income ....................... $ -- $ -- $ --
======== ======== ========
</TABLE>
Note 7 - Other noncurrent assets:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Deferred financing costs, net ...................... $ 9,791 $ 9,973
Intangible assets, net of accumulated
amortization of $22,207 and $22,366 ............... 7,939 4,228
Other .............................................. 7,095 4,281
------- -------
$24,825 $18,482
======= =======
</TABLE>
Note 8 - Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Accounts payable ......................... $ 60,648 $ 64,698
-------- --------
Accrued liabilities:
Employee benefits ...................... 34,618 40,110
Environmental costs .................... 6,000 9,000
Interest ............................... 9,429 6,966
Miscellaneous taxes .................... 4,073 330
Other .................................. 39,136 40,626
-------- --------
93,256 97,032
-------- --------
$153,904 $161,730
======== ========
</TABLE>
F-18
<PAGE>
Note 9 - Other noncurrent liabilities:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Environmental costs ........................ $106,849 $125,502
Insurance claims expense ................... 11,673 11,436
Employee benefits .......................... 11,960 10,835
Other ...................................... 1,566 1,130
-------- --------
$132,048 $148,903
======== ========
</TABLE>
Note 10 - Notes payable and long-term debt:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Notes payable (DM 40,000 and DM 25,000,
respectively) ....................................... $ 25,732 $ 13,968
======== ========
Long-term debt:
NL Industries:
11.75% Senior Secured Notes ...................... $250,000 $250,000
13% Senior Secured Discount Notes ................ 149,756 169,857
-------- --------
399,756 419,857
-------- --------
Kronos:
DM bank credit facility (DM 539,971, and
DM 288,322, respectively) ....................... 347,362 161,085
LPC term loan .................................... 57,858 42,429
Other ............................................ 9,125 3,282
-------- --------
414,345 206,796
-------- --------
Rheox:
Bank term loan ................................... 14,659 117,500
Other ............................................ 286 --
-------- --------
14,945 117,500
-------- --------
829,046 744,153
Less current maturities ............................ 91,946 77,374
-------- --------
$737,100 $666,779
======== ========
</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.
F-19
<PAGE>
In the event of foreclosure, the Note holders would have access 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.
The Company presently intends to redeem the Senior Secured Discount Notes in
October 1998, depending on market conditions, availability of resources and
other factors. 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, 1997 no
amounts were available for payment of dividends pursuant to the terms of the
indentures.
Rheox sold its specialty chemicals business in January 1998. See Note 20.
Under the terms of the indentures, the Company is required to make an offer to
tender for a portion of the Notes, on a pro rata basis, (at par value for the
Senior Secured Notes and at accreted value for the Senior Secured Discount
Notes) to the extent that the amount of the net proceeds from the disposal of
Rheox, as defined, are not used to either permanently pay down certain
indebtedness of the Company or its subsidiaries or invest in additional
productive assets by November 1998.
The Senior Secured Discount Notes do not require semiannual cash interest
payments until April 1999. The net carrying value of the Senior Secured Discount
Notes per $100 principal amount at maturity was $79.87 and $90.59 at December
31, 1996 and 1997, respectively. At December 31, 1997 the quoted market price of
the Senior Secured Notes was $111.17 per $100 principal amount and the quoted
market price of the Senior Secured Discount Notes was $99.59 per $100 principal
amount (1996 - $106.08 and $86.34, respectively).
At December 31, 1997 the DM credit facility consisted of a DM 188 million
term loan and a DM 230 million revolving credit facility, of which DM 100
million is outstanding. Borrowings bear interest at DM LIBOR plus 2.75% (1.625%
margin at December 31, 1996) (4.76% and 6.28% at December 31, 1996 and 1997,
respectively), and are collateralized by the stock of certain KII subsidiaries,
pledges of certain Canadian and German assets and NL has guaranteed the
facility. The term loan is due in semiannual installments commencing in
September 1998 through September 1999 and the revolver is due in 2000. In
accordance with the provisions of the DM credit agreement and as a result of
higher than expected operating income in 1997 for KII, the Company intends to
prepay in March 1998
F-20
<PAGE>
DM 81 million ($45 million at December 31, 1997) of the term loan, of which DM
49 million ($27 million at December 31, 1997) will satisfy the September 1998
scheduled term loan payment and the remaining DM 32 million ($18 million at
December 31, 1997) will reduce the March 1999 scheduled term loan payment.
Unused lines of credit available for borrowing under the Company's
non-U.S. credit facilities, including the DM facility, approximated $84 million
at December 31, 1997.
Borrowings under KLA's tranche of LPC's term loan bear interest at U.S.
LIBOR plus 1.625% (7.245% and 7.438% at December 31, 1996 and 1997,
respectively) and are repayable in quarterly installments through September
2000. The Company has notified the lender that it intends to prepay the loan in
March 1998.
Notes payable at December 31, 1996 and 1997 consists of DM 40 million and
DM 25 million, respectively, of short-term borrowings due within one year from
non-U.S. banks with interest rates ranging from 3.25% to 3.70% in 1996 and from
3.75% to 3.875% in 1997.
The Company used a portion of the net proceeds from the January 1998 sale
of substantially all of Rheox's net assets to prepay and terminate the Rheox
bank credit facility. See Note 20. At December 31, 1997 this facility consisted
of a $117.5 million term loan due in quarterly installments through January 2004
and a $25 million revolver (nil outstanding) due no later than January 2004.
Borrowings bore interest at LIBOR plus a margin of .75% to 1.75%, depending upon
the level of a certain Rheox financial ratio (the margin was 1.5% at December
31, 1997 resulting in a rate of 7.3%), and were collateralized principally by
the stock of Rheox and its U.S. subsidiaries. The interest rate on outstanding
prime-rate borrowings under a prior Rheox bank credit facility at December 31,
1996 was 9.8%.
The aggregate maturities of long-term debt at December 31, 1997 on a
historical and a pro forma basis, giving effect for the January 1998 sale of
Rheox described above and in Note 20, are shown in the table below.
<TABLE>
<CAPTION>
Years ending December 31, Historical Pro forma
- ------------------------- ---------- ---------
(Unaudited)
(In thousands)
<S> <C> <C>
1998 $ 77,374 $ 62,374
1999 91,077 76,077
2000 82,936 67,936
2001 22,909 409
2002 25,000 -
2003 and thereafter 462,500 437,500
-------- --------
761,796 644,296
Less unamortized original issue discount
on the Senior Secured Discount Notes 17,643 17,643
-------- --------
$744,153 $626,653
======== ========
</TABLE>
F-21
<PAGE>
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 in 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
executives, and contributions are based on a formula involving eligible
earnings. The Company's expense related to these plans included in continuing
operations was $.7 million in 1995, $.8 million in 1996 and $.7 million in 1997.
Expense related to these plans included in discontinued operations was $.5
million in each of 1995, 1996 and 1997.
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 the
funding requirements of the Employee Retirement Income Security Act of 1974, as
amended. 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,
-----------------------------------------
1995 1996 1997
---------- --------- ----------
(Percentages)
<S> <C> <C> <C>
Discount rate 7.0 to 8.5 6.5 to 8.5 6.0 to 8.5
Rate of increase in future
compensation levels 3.5 to 6.0 3.5 to 6.0 3.0 to 6.0
Long-term rate of return on
plan assets 8.0 to 9.0 7.0 to 9.0 6.0 to 9.0
</TABLE>
During 1996 the Company curtailed certain U.S. employee pension benefits
and recognized a gain of $4.6 million, of which $2.7 million is included in
discontinued operations. 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.
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
F-22
<PAGE>
assets, will result in additional increases or decreases in accrued pension
liabilities, pension expense and funding requirements in future periods. At
December 31, 1997 77% 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.
<TABLE>
<CAPTION>
Assets exceed Accumulated benefits
accumulated benefits exceed assets
-------------------- ---------------------
December 31, December 31,
-------------------- ---------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits ................. $ 48,953 $ 51,474 $ 167,411 $ 157,556
Nonvested benefits .............. 4,075 4,483 9,466 8,442
--------- --------- --------- ---------
Accumulated benefit obligations . 53,028 55,957 176,877 165,998
Effect of projected salary
increases ...................... 7,598 6,691 25,741 22,726
--------- --------- --------- ---------
Projected benefit obligations
("PBO") ........................ 60,626 62,648 202,618 188,724
Plan assets at fair value ......... 78,511 73,446 126,580 125,925
--------- --------- --------- ---------
Plan assets over (under) PBO ...... 17,885 10,798 (76,038) (62,799)
Unrecognized net loss from
experience different from
actuarial assumptions ............ 3,567 9,778 11,414 8,375
Unrecognized prior service cost ... 3,838 3,799 262 399
Unrecognized transition obligations
(assets) being amortized over 15
to 18 years ...................... (469) (527) 2,043 1,530
Adjustment required to recognize
minimum liability ................ -- -- (1,822) --
--------- --------- --------- ---------
Total prepaid (accrued)
pension cost ............... 24,821 23,848 (64,141) (52,495)
Less current portion .............. -- -- (6,200) (8,106)
--------- --------- --------- ---------
Noncurrent prepaid (accrued)
pension cost ............... $ 24,821 $ 23,848 $(57,941) $(44,389)
========= ========= ======== ========
</TABLE>
The components of the net periodic defined benefit pension cost, excluding
curtailment gain and discontinued operations, are set forth below. The net
periodic defined benefit pension cost included in discontinued operations was
$.6 million in 1995, $.3 million in 1996 and nil in 1997.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1995 1996 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Service cost benefits ................ $ 3,582 $ 3,131 $ 4,067
Interest cost on PBO ................. 16,721 15,439 15,335
Return on plan assets ................ (14,843) (15,112) (16,194)
Net amortization and deferrals ....... (2,890) 48 869
-------- -------- --------
$ 2,570 $ 3,506 $ 4,077
======== ======== ========
</TABLE>
F-23
<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 in relation to the annual
operating plan 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, 1997, the expected rate
of increase in health care costs is 7% in 1998, 6% in 1999 and 5% in 2000 and
years thereafter. Other assumptions used to measure the liability and expense
are presented below.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1996 1997
---- ---- ----
(Percentages)
<S> <C> <C> <C>
Discount rate ....................................... 7.5 7.5 7.0
Long-term rate for compensation increases ........... 4.5 6.0 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 $.1 million in 1997, and the
actuarial present value of accumulated benefit obligations at December 31, 1997
would have increased by approximately $1.2 million. During 1996 the Company
curtailed certain Canadian employee OPEB benefits and recognized a $1.3 million
gain.
F-24
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Retiree benefits ..................................... $41,768 $34,173
Other fully eligible active plan participants ........ 840 799
Other active plan participants ....................... 2,152 2,022
------- -------
44,760 36,994
Plan assets at fair value .............................. 6,689 6,527
------- -------
Accumulated postretirement benefit obligations
in excess of plan assets .............................. 38,071 30,467
Unrecognized net gain from experience different
from actuarial assumptions ............................ 7,083 11,722
Unrecognized prior service credit ...................... 16,259 14,171
------- -------
Total accrued postretirement benefits cost ......... 61,413 56,360
Less current portion ................................... 5,478 5,409
------- -------
Noncurrent accrued postretirement benefits
cost .............................................. $55,935 $50,951
======= =======
</TABLE>
The components of the Company's net periodic postretirement benefit cost,
excluding curtailment gain and discontinued operations, are set forth below. The
net periodic postretirement benefit costs included in discontinued operations
was $.3 million in each of 1995 and 1996 and $.2 million in 1997.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1995 1996 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest cost on accumulated benefit
obligations .................................. $ 4,194 $ 3,777 $ 2,972
Service cost benefits earned during the year .. 50 52 39
Return on plan assets ......................... (637) (596) (584)
Net amortization and deferrals ................ (1,905) (1,460) (2,380)
------- ------- -------
$ 1,702 $ 1,773 $ 47
======= ======= =======
</TABLE>
F-25
<PAGE>
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, 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
Treasury shares reissued - (149) 149
------ ------ ------
Balance at December 31, 1997 66,839 15,572 51,267
====== ====== ======
</TABLE>
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,
1997, 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, 1997, an aggregate of 1.9 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, 1997 there were options to
acquire 9,000 shares of common stock outstanding of which 7,000 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-26
<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, 1994 2,374 $ 4.81 $ 24.19 $ 26,773
Granted ...................... 94 11.81 14.81 1,150
Exercised .................... (39) 5.00 10.78 (278)
Forfeited .................... (36) 5.00 11.81 (324)
----- --------- --------- --------
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
----- --------- --------- --------
Granted ...................... 442 11.88 14.88 5,792
Exercised .................... (149) 4.81 11.81 (1,025)
Forfeited .................... (21) 5.00 22.29 (284)
----- --------- --------- --------
Outstanding at December 31, 1997 2,845 $ 4.81 $ 24.19 $ 34,761
===== ========= ========= ========
</TABLE>
At December 31, 1995, 1996 and 1997 options to purchase 1,189,907,
1,660,068 and 1,801,955 shares, respectively, were exercisable and options to
purchase 301,002 shares become exercisable in 1998. Of the exercisable options
at December 31, 1997, options to purchase 1,380,296 shares had exercise prices
less than the Company's December 31, 1997 quoted market price of $13.625 per
share. Outstanding options at December 31, 1997 expire at various dates through
2007, with a weighted-average remaining life of five 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, 1996 and 1997. The weighted average fair values of
options granted during 1995, 1996 and 1997 were $6.02, $8.38 and $6.35 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, 1996 and 1997: stock price volatility of
31%, 42% and 37% in 1995, 1996 and 1997, respectively; risk-free rate of return
of 5%; no dividend yield; and an expected term of 9 years. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period.
F-27
<PAGE>
The Company's pro forma net income (loss) and basic net income (loss) per
common share were as follows. The pro forma impact on earnings per common share
for 1995, 1996 and 1997 is not necessarily indicative of future effects on
earnings per share.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1996 1997
------- ------- --------
(In thousands except per share
amounts)
<S> <C> <C> <C>
Net income (loss)- as reported $85,609 $10,817 $ (9,473)
Net income (loss)- pro forma $85,450 $10,085 $(11,057)
Net income (loss) per basic common
share - as reported $ 1.68 $ .21 $ (.19)
Net income (loss) per basic common
share - pro forma $ 1.68 $ .20 $ (.22)
</TABLE>
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-28
<PAGE>
Note 13 - Income taxes:
The components of (i) income (loss) from continuing operations 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,
--------------------------------
1995 1996 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Pretax income (loss):
U.S ...................................... $ 17,943 $ 20,481 $ (9,308)
Non-U.S .................................. 48,330 (30,715) (18,381)
-------- -------- --------
$ 66,273 $(10,234) $(27,689)
======== ======== ========
Expected tax expense (benefit) ............. $ 23,196 $ (3,581) $ (9,692)
Non-U.S. tax rates ......................... (7,268) (6) (784)
Rate change adjustment of deferred taxes ... (6,593) -- --
Valuation allowance ........................ (9,588) 3,013 8,704
Incremental tax on income of companies not
included in the NL Tax Group .............. 795 3,423 3,886
U.S. state income taxes .................... (639) (569) 231
Other, net ................................. (181) (784) (101)
-------- -------- --------
$ (278) $ 1,496 $ 2,244
======== ======== ========
Provision for income taxes:
Current income tax expense (benefit):
U.S. federal ........................... $ (8,245) $ (3,539) $ (6,881)
U.S. state ............................. (258) (460) 681
Non-U.S ................................ 36,552 5,198 14,071
-------- -------- --------
28,049 1,199 7,871
-------- -------- --------
Deferred income tax expense (benefit):
U.S. federal ........................... (8,827) (6,493) 1,224
U.S. state ............................. (726) (668) (450)
Non-U.S ................................ (18,774) 7,458 (6,401)
-------- -------- --------
(28,327) 297 (5,627)
-------- -------- --------
$ (278) $ 1,496 $ 2,244
======== ======== ========
Comprehensive tax provision allocable to:
Pretax income (loss) ..................... $ (278) $ 1,496 $ 2,244
Shareholders' deficit, principally
deferred income taxes allocable to
currency translation and marketable
securities adjustments .................. 10 329 2,036
-------- -------- --------
$ (268) $ 1,825 $ 4,280
======== ======== ========
</TABLE>
F-29
<PAGE>
The components of the net deferred tax liability are summarized below:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1997
---- ----
Deferred tax Deferred tax
----------------------- ----------------------
Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Tax effect of temporary
differences relating to:
Inventories .............. $ 4,130 $ (4,967) $ 4,223 $ (2,674)
Property and equipment ... 512 (109,963) -- (105,806)
Accrued postretirement
benefits cost ........... 21,396 -- 19,682 --
Accrued (prepaid) pension
cost .................... 6,308 (17,579) 5,296 (16,697)
Accrued environmental
costs ................... 36,670 -- 45,242 --
Other accrued liabilities
and deductible
differences ............. 33,464 -- 42,393 --
Other taxable differences -- (102,578) -- (85,139)
Tax on unremitted earnings
of non-U.S. subsidiaries .. -- (18,048) -- (17,551)
Tax loss and tax credit
carryforwards ............. 205,476 -- 167,680 --
Valuation allowance ........ (207,117) -- (188,585) --
--------- --------- --------- ---------
Gross deferred tax assets
(liabilities) ........... 100,839 (253,135) 95,931 (227,867)
Reclassification,
principally netting by
tax jurisdiction .......... (99,019) 99,019 (94,179) 94,179
--------- --------- --------- ---------
Net total deferred tax
assets (liabilities) .... 1,820 (154,116) 1,752 (133,688)
Net current deferred tax
assets (liabilities) .... 1,597 (2,895) 1,642 (891)
--------- --------- --------- ---------
Net noncurrent deferred
tax assets (liabilities) $ 223 $(151,221) $ 110 $(132,797)
========= ========= ========= =========
</TABLE>
F-30
<PAGE>
Changes in the Company's deferred income tax valuation allowance during
the past three years are summarized below.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Balance at the beginning of year ......... $ 164,500 $ 195,569 $ 207,117
Increase in certain deductible temporary
differences which the Company believes
do not meet the "more-likely-than-not"
recognition criteria .................. -- 3,013 8,704
Change in estimate of the future tax
benefit of certain tax credits which
the Company believes satisfies the
"more-likely-than-not" recognition
criteria .............................. (9,588) -- --
Foreign currency translation ........... 6,451 (5,937) (12,339)
Offset to the increase in gross
deferred income tax assets resulting
from recharacterization of certain
tax attributes due primarily to
changes in certain tax return
elections ............................. 34,206 -- --
Offset to the change in gross deferred
income tax assets due to dual
residency status of a Company
subsidiary and redetermination of
certain U.S. tax attributes ........... -- 14,472 (14,897)
--------- --------- ---------
Balance at the end of year ............... $ 195,569 $ 207,117 $ 188,585
========= ========= =========
</TABLE>
Certain of the Company's tax returns in various U.S. and non-U.S.
jurisdictions are being examined and tax authorities have proposed or may
propose tax deficiencies. The Company previously reached an agreement with the
German tax authorities and paid certain tax deficiencies of approximately DM 44
million ($28 million when paid), including interest, which resolved significant
tax contingencies for years through 1990. During 1997 the Company received DM 19
million ($11 million when received) in trade capital tax refunds based on (i)
recent court decisions which resulted in reducing the trade capital tax base and
(ii) prior agreements between the Company and the German tax authorities
regarding payment of disputed taxes. The Company also reached a tentative
agreement with the German tax authorities regarding the years 1991 through 1994,
and expects to pay DM 9 million ($5 million at December 31, 1997) during 1998 in
settlement of certain tax issues. Certain other significant German tax
contingencies remain outstanding for the years 1990 through 1996 and will
continue to be litigated. With respect to these contingencies, the Company has
received certain revised tax assessments aggregating DM 119 million ($66 million
at December 31, 1997), including non-income tax related items and interest, for
years through 1996. The Company expects to receive tax assessments for an
additional DM 20 million ($11 million at December 31, 1997), including
non-income tax related items and interest, for the years 1991 through 1994. No
payments of
F-31
<PAGE>
tax or interest deficiencies related to these assessments are expected until the
litigation is resolved.
During 1997 a German tax court proceeding involving a tax issue
substantially the same as that involved in the Company's primary remaining tax
contingency was decided in favor of the taxpayer. The German tax authorities
have appealed that decision to the German Supreme Court; the Company believes
that the decision by the German Supreme Court will be rendered within two years
and will become a legal precedent which will likely determine the outcome of the
Company's primary dispute with the German tax authorities, which assessments,
including non-income tax related items and interest, aggregate DM 121 million.
Although the Company believes that it will ultimately prevail, the Company has
granted a DM 94 million ($53 million at December 31, 1997) lien on its
Nordenham, Germany TiO2 plant in favor of the City of Leverkusen, and a DM 5
million ($3 million at December 31, 1997) lien in favor of the German federal
tax authorities.
During 1997 the Company received a tax assessment from the Norwegian tax
authorities proposing tax deficiencies of NOK 51 million ($7 million at December
31, 1997) relating to 1994. The Company has appealed this assessment and expects
to litigate this issue.
No assurance can be given that these tax matters will be resolved in the
Company's favor in view of the inherent uncertainties involved in court
proceedings. The Company believes that it has adequately provided accruals for
additional 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.
The Company utilized foreign tax credit carryforwards of $11 million in
1995, $2 million in 1996 and $5 million in 1997, and utilized U.S. net operating
loss carryforwards of $8 million in 1995 and $26 million in 1997, to reduce U.S.
federal income tax expense. At December 31, 1997 for U.S. federal income tax
purposes, the Company had approximately $19 million of unutilized foreign tax
credit carryforwards expiring during 1998 through 2001 and approximately $12
million of alternative minimum tax credit carryforwards with no expiration date.
The Company also had approximately $350 million of income tax loss carryforwards
in Germany with no expiration date.
F-32
<PAGE>
Note 14 - Other income, net:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1995 1996 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Securities earnings:
Interest and dividends ................. $ 6,244 $ 4,708 $ 2,736
Securities transactions ................ 1,175 -- 2,657
-------- -------- --------
7,419 4,708 5,393
Currency transaction gains, net .......... 293 5,890 5,919
Trade interest income .................... 2,522 1,613 2,983
Disposition of property and equipment .... (2,695) (2,236) 1,735
Technology fee income .................... 10,660 8,743 --
Pension and OPEB curtailment gains ....... -- 3,240 --
Litigation settlement gains .............. -- 2,756 --
Other, net ............................... 3,319 2,955 3,337
-------- -------- --------
$ 21,518 $ 27,669 $ 19,367
======== ======== ========
</TABLE>
Technology fee income was amortized by the straight-line method over a
three-year period ending October 1996.
Note 15 - Other items:
Advertising costs included in continuing operations, expensed as incurred,
were $1 million in each of 1995, 1996 and 1997.
Research, development and certain sales technical support costs included
in continuing operations, expensed as incurred, approximated $9 million in 1995,
$8 million in 1996 and $7 million in 1997.
Interest capitalized related to continuing operations in connection with
long-term capital projects was $1 million in 1995 and $2 million in each of 1996
and 1997.
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
F-33
<PAGE>
as set forth in this Annual Report on Form 10-K, the Company from time to time
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 1995 and 1996 and $.5 million in 1997.
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 (income) related to the Valhi ISA was $.1
million in each of 1995 and 1996 and $(.1) million in 1997.
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 $.1 million in each of 1995
and 1996 and $.2 million in 1997.
The Company is party to an intercorporate services agreement (the "Timet
ISA") with Titanium Metals Corporation ("Timet"), approximately 30% of the
outstanding common stock of which is held by Tremont. Under the terms of the
contract, the Company provides certain management and financial services to
Timet on a fee basis. Management services fee income related to the Timet ISA
was $.3 million in 1997.
Purchases from LPC were $69.7 million in 1995, $69.8 million in 1996 and
$78.1 million in 1997.
Certain employees of the Company have been granted options to purchase
Valhi common stock under the terms of Valhi's stock option plans. The Company
and Valhi have agreed that the Company will pay Valhi the aggregate difference
between the option price and the market value of Valhi's common stock on the
exercise date of such options. For financial reporting purposes, the Company
accounts for the related expense (income) ($(25,000) in 1995, $1,000 in 1996 and
$68,000 in 1997) in a manner similar to accounting for SARs. At December 31,
1997 an employee of the Company held vested options to purchase 15,000 shares of
Valhi common stock at an exercise price of $14.66 per share which exceeded
Valhi's December 31, 1997 quoted market price per share of $9.4375.
F-34
<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,
----------------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
Tremont Corporation .................... $ 3,529 $ 3,354
LPC .................................... 6,677 8,513
Other, net ............................. (2) (355)
-------- --------
$ 10,204 $ 11,512
======== ========
</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-35
<PAGE>
Net rent expense included in continuing operations aggregated $7 million
in 1995, $8 million in 1996 and $7 million in 1997. At December 31, 1997 minimum
rental commitments under the terms of noncancellable operating leases, excluding
discontinued operations, were as follows:
<TABLE>
<CAPTION>
Years ending December 31, Real Estate Equipment
- ------------------------- ----------- ---------
(In thousands)
<S> <C> <C>
1998 $ 1,744 $ 1,962
1999 1,555 854
2000 1,056 345
2001 1,046 129
2002 1,031 47
2003 and thereafter 18,608 87
------- ------
$25,040 $3,424
======= ======
</TABLE>
Capital expenditures
At December 31, 1997 the estimated cost to complete capital projects in
process approximated $4 million, including $2 million to complete a
debottlenecking expansion project at the Company's Leverkusen, Germany
chloride-process TiO2 facility.
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 $101 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.
F-36
<PAGE>
The Company believes that these actions are without merit, intends to
continue to deny all allegations of wrongdoing and liability and to defend all
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, damages for personal injury or property damage and/or damages for
injury to natural resources. 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, 1997 the Company had accrued $135 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 $175 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 adopted the AICPA's
Statement of Position 96-1, "Environmental Remediation Liabilities," in the
first quarter of 1997, increasing its environmental liability by $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
F-37
<PAGE>
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
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 more than 90% of net sales from continuing
operations during each of 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 1995, 37% in 1996 and 36% in
1997 of sales were attributable to North America.
Consolidated cash, cash equivalents and restricted cash includes $63
million and $53 million invested in U.S. Treasury securities purchased under
short-term agreements to resell at December 31, 1996 and 1997, respectively, of
which $53 million and $45 million, respectively, of such securities are held in
trust for the Company by a single U.S. bank.
F-38
<PAGE>
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,
1996 1997
------------------ ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- -------
(In millions)
<S> <C> <C> <C> <C>
Cash and cash equivalents, including
restricted cash ......................... $ 114.1 $ 114.1 $ 106.1 $ 106.1
Marketable securities - classified as
available-for-sale ...................... 23.7 23.7 17.3 17.3
Notes payable and long-term debt:
Fixed rate with market quotes:
Senior Secured Notes ................. $ 250.0 $ 265.2 $ 250.0 $ 277.9
Senior Secured Discount Notes ........ 149.8 161.9 169.9 186.7
Variable rate debt ..................... 455.0 455.0 338.3 338.3
Common shareholders' equity (deficit) .... $ (203.5) $ 555.9 $ (222.3) $ 698.5
</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.
In connection with its credit facility, Rheox entered into interest rate
collar agreements in 1997 which effectively set minimum and maximum U.S. LIBOR
interest rates of 5.25% and 8%, respectively, on $50 million principal amount of
its variable-rate bank term loan through May 2001. The margin on such borrowings
ranged from .75% to 1.75%, depending upon the level of a certain Rheox financial
ratio. The Company was exposed to interest rate risk in the event of
nonperformance by the other parties to the agreements. At December 31, 1997 the
estimated fair value of such agreements was estimated to be a $.1 million
payable. Such fair value represented the amount the Company would pay if it
terminated the collar agreements at that date, and is based upon quotes obtained
from the counter party financial institutions. The Company terminated these
agreements in the first quarter of 1998 concurrently with the prepayment and
termination of the underlying credit facility. See Note 20. The Company held no
derivative financial instruments at December 31, 1996.
F-39
<PAGE>
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, 1996:
Net sales .................... $ 206,368 $ 228,229 $ 215,038 $ 201,544
Cost of sales ................ 152,333 177,396 175,864 163,012
Operating income ............. 29,472 25,443 9,640 7,051
Income (loss) from
continuing operations ....... 6,314 6,134 (9,724) (14,459)
Net income (loss) ............ $ 13,444 $ 11,919 $ (4,249) $ (10,297)
========= ========= ========= =========
Basic and diluted
earnings per common
share:
Income (loss) from
continuing operations ..... $ .12 $ .12 $ (.19) $ (.28)
========= ========= ========= =========
Net income (loss) .......... $ .26 $ .23 $ (.08) $ (.20)
========= ========= ========= =========
Weighted average common shares
and potential common shares
outstanding:
Basic ...................... 51,006 51,105 51,118 51,118
Diluted .................... 51,519 51,496 51,118 51,118
Year ended December 31, 1997:
Net sales .................... $ 204,389 $ 214,354 $ 210,343 $ 208,154
Cost of sales ................ 167,175 172,679 162,499 147,592
Operating income ............. 8,689 16,815 24,908 32,089
Income (loss) from
continuing operations ....... (40,180) (3,428) 3,984 9,749
Net income (loss) ............ $ (35,721) $ 2,255 $ 9,761 $ 14,232
========= ========= ========= =========
Basic and diluted
earnings per common
share:
Income (loss) from
continuing
operations ................ $ (.79) $ (.07) $ .08 $ .19
========= ========= ========= =========
Net income (loss) .......... $ (.70) $ .04 $ .19 $ .28
========= ========= ========= =========
Weighted average common
shares and potential
common shares outstanding:
Basic ...................... 51,140 51,144 51,146 51,175
Diluted .................... 51,140 51,144 51,585 51,717
</TABLE>
F-40
<PAGE>
Note 20 - Subsequent event:
The specialty chemical business of Rheox was sold to Elementis plc for
$465 million in January 1998, including $20 million attributable to a five-year
agreement by the Company not to compete in the rheological products business. A
portion of the net proceeds were used to prepay and terminate Rheox's bank
credit facility. The Company expects to recognize an after-tax gain of
approximately $300 million on the disposal of this business segment in the first
quarter of 1998. Had the sale occurred at December 31, 1997, the Company's pro
forma unaudited cash and cash equivalents would have been $326 million; notes
payable and long-term debt, including the current portion, would have been $641
million; and shareholders' equity would have been $40 million. As a result of
the sale, the Company has presented the results of this business segment as
discontinued operations for all periods presented. Following the sale, Rheox,
Inc. was renamed NL Capital Corporation.
Condensed income statements related to discontinued operations for 1995,
1996 and 1997 are as follows. Interest expense has been allocated to
discontinued operations based on the amount of debt specifically attributed to
Rheox's operations.
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Net sales ................................ $ 129,790 $ 134,895 $ 147,199
Other income (expense), net .............. 723 2,811 (200)
--------- --------- ---------
130,513 137,706 146,999
--------- --------- ---------
Cost of sales ............................ 64,302 69,843 73,583
Selling, general and administrative ...... 27,724 26,310 29,231
Interest expense ......................... 5,858 5,706 11,207
--------- --------- ---------
97,884 101,859 114,021
--------- --------- ---------
Income before income taxes and
minority interest ................... 32,629 35,847 32,978
Income tax expense ....................... 12,949 13,337 12,475
Minority interest ........................ 566 (42) 101
--------- --------- ---------
$ 19,114 $ 22,552 $ 20,402
========= ========= =========
</TABLE>
F-41
<PAGE>
Condensed balance sheets related to discontinued operations included in
the Company's consolidated balance sheets at December 31, 1996 and 1997 are as
follows.
<TABLE>
<CAPTION>
ASSETS 1996 1997
--------- ---------
(In thousands)
<S> <C> <C>
Cash and cash equivalents ........................ $ 9,269 $ 9,137
Accounts and notes receivable .................... 14,725 15,415
Inventories ...................................... 18,015 19,921
Other current assets ............................. 8,183 6,443
--------- ---------
Current assets ............................... 50,192 50,916
Property, plant and equipment, net ............... 31,436 30,308
Other assets ..................................... 8,467 7,411
--------- ---------
$ 90,095 $ 88,635
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current portion of long-term debt ................ $ 14,892 $ 15,000
Other current liabilities ........................ 11,277 19,129
--------- ---------
26,169 34,129
--------- ---------
Long-term debt ................................... 53 102,500
Note payable to parent ........................... 105,801 --
Deferred income taxes ............................ 3,248 2,485
Other noncurrent liabilities ..................... 2,875 4,489
--------- ---------
111,977 109,474
--------- ---------
Stockholder's deficit ............................ (48,051) (54,968)
--------- ---------
$ 90,095 $ 88,635
========= =========
</TABLE>
F-42
<PAGE>
Condensed cash flow data for Rheox (excluding dividends paid to,
contributions received from and intercompany loans with NL) is presented below.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities .... $ 17,551 $ 20,705 $ 31,506
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures .................. (3,464) (2,665) (2,330)
Purchase of minority interests ........ -- (5,168) --
Other, net ............................ (177) 457 16
--------- --------- ---------
(3,641) (7,376) (2,314)
--------- --------- ---------
Cash flows from financing activities:
Indebtedness, net ..................... (30,499) (23,041) 100,940
Other, net ............................ -- (451) --
--------- --------- ---------
(30,499) (23,492) 100,940
--------- --------- ---------
$ (16,589) $ (10,163) $ 130,132
========= ========= =========
</TABLE>
F-43
<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.
As discussed in Note 1 to the Condensed Financial Information on Schedule
I, the Company changed its method of accounting for environmental remediation
costs in 1997 in accordance with Statement of Position No. 96-1.
COOPERS & LYBRAND L.L.P.
Houston, Texas
February 11, 1998
S-1
<PAGE>
NL INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
December 31, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents, including
restricted cash of $4,833 and $4,934 .......... $ 12,135 $ 16,541
Accounts and notes receivable .................. 356 7,119
Receivable from subsidiaries ................... 9,542 10,625
Prepaid expenses ............................... 445 256
--------- ---------
Total current assets ....................... 22,478 34,541
--------- ---------
Other assets:
Marketable securities .......................... 23,718 17,270
Notes receivable from subsidiary ............... 505,557 573,218
Investment in subsidiaries ..................... (175,063) (216,264)
Other .......................................... 6,680 5,778
--------- ---------
Total other assets ......................... 360,892 380,002
--------- ---------
Property and equipment, net ...................... 3,396 3,221
--------- ---------
$ 386,766 $ 417,764
========= =========
Current liabilities:
Accounts payable and accrued liabilities ....... $ 24,929 $ 35,636
Payable to affiliates .......................... 2,813 3,218
Income taxes ................................... 3,024 5,051
Deferred income taxes .......................... 1,908 1,640
--------- ---------
Total current liabilities .................. 32,674 45,545
--------- ---------
Noncurrent liabilities:
Long-term debt ................................. 399,756 419,857
Deferred income taxes .......................... 9,736 12,856
Accrued pension cost ........................... 10,974 7,019
Accrued postretirement benefits cost ........... 34,396 31,117
Other .......................................... 102,711 123,639
--------- ---------
Total noncurrent liabilities ............... 557,573 594,488
--------- ---------
Shareholders' deficit ............................ (203,481) (222,269)
--------- ---------
$ 386,766 $ 417,764
========= =========
</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, 1995, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues and other income:
Equity in income (loss) from
continuing operations of
subsidiaries .......................... $ 80,620 $ (4,316) $ (1,019)
Interest and dividends ................. 2,739 1,461 1,246
Interest income from subsidiaries:
Continuing ........................... 45,551 47,097 57,851
Discontinued ......................... -- 2,641 1,189
Securities transactions ................ 1,175 -- 2,657
Other income, net ...................... 460 1,873 523
-------- -------- --------
130,545 48,756 62,447
-------- -------- --------
Costs and expenses:
General and administrative ............. 27,079 18,094 49,502
Interest ............................... 45,842 47,940 50,319
-------- -------- --------
72,921 66,034 99,821
-------- -------- --------
Income (loss) from continuing
operations before income taxes .... 57,624 (17,278) (37,374)
Income tax benefit ....................... 8,871 5,543 7,499
-------- -------- --------
Income (loss) from continuing
operations ........................ 66,495 (11,735) (29,875)
Discontinued operations .................. 19,114 22,552 20,402
-------- -------- --------
Net income (loss) .................. $ 85,609 $ 10,817 $ (9,473)
======== ======== ========
</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, 1995, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................ $ 85,609 $ 10,817 $ (9,473)
Equity in (income) loss of subsidiaries:
Continuing ............................. (80,620) 4,316 1,019
Discontinued ........................... (19,114) (22,552) (20,402)
Distributions from subsidiaries:
Continuing ............................. 15,000 20,000 35,000
Discontinued ........................... -- -- 30,000
Noncash interest expense ................. 842 842 (7,523)
Deferred income taxes .................... 1,411 (1,443) 1,224
Securities transactions .................. (1,175) -- (2,657)
Change in accounting for environmental
remediation costs ....................... -- -- 30,000
Other, net ............................... (5,819) (3,291) (2,544)
-------- -------- --------
(3,866) 8,689 54,644
Change in assets and liabilities, net .... 8,042 (8,593) 789
Marketable trading securities:
Purchases .............................. (762) -- --
Dispositions ........................... 27,102 -- --
-------- -------- --------
Net cash provided by operating
activities .......................... 30,516 96 55,433
-------- -------- --------
Cash flows from investing activities:
Investments in and loans to subsidiaries . (9,062) (12,941) (58,900)
Proceeds from disposition of securities .. -- -- 6,875
Capital expenditures ..................... (33) (40) (15)
Other, net ............................... 10 11 (12)
-------- -------- --------
Net cash used by investing
activities .......................... (9,085) (12,970) (52,052)
-------- -------- --------
</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, 1995, 1996 and 1997
(In thousands)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends ................................ $ -- $(15,333) $ --
Other, net ............................... 278 262 1,025
-------- -------- --------
Net cash provided (used) by
financing activities ................ 278 (15,071) 1,025
-------- -------- --------
Cash and cash equivalents:
Increase (decrease) from:
Operating activities ................... 30,516 96 55,433
Investing activities ................... (9,085) (12,970) (52,052)
Financing activities ................... 278 (15,071) 1,025
-------- -------- --------
Net change from operating, investing
and financing activities ................ 21,709 (27,945) 4,406
Balance at beginning of year ............. 18,371 40,080 12,135
-------- -------- --------
Balance at end of year ................... $ 40,080 $ 12,135 $ 16,541
======== ======== ========
</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. The Company adopted a new method of accounting
for environmental remediation costs. See Note 2 to the Consolidated Financial
Statements.
Note 2 - Net receivable from (payable to) subsidiaries and affiliates:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997
--------- ---------
(In thousands)
<S> <C> <C>
Current:
Tremont Corporation ........................ $ (3,529) $ (3,354)
Other, net ................................. (2) 356
Kronos and Rheox:
Income taxes ............................. (836) 3,381
Other, net ............................... 11,096 7,024
--------- ---------
$ 6,729 $ 7,407
========= =========
Noncurrent - notes receivable from:
Kronos ..................................... $ 399,756 $ 573,218
Rheox ...................................... 105,801 --
--------- ---------
$ 505,557 $ 573,218
========= =========
</TABLE>
Note 3 - Long-term debt:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1997
-------- --------
(In thousands)
<S> <C> <C>
11.75% Senior Secured Notes .................... $250,000 $250,000
13% Senior Secured Discount Notes .............. 149,756 169,857
-------- --------
$399,756 $419,857
======== ========
</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,
1997 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 ................................. 17,643
--------
$419,857
========
</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, 1997:
Allowance for doubtful
accounts and notes receivable $ 3,813 $ 382 $(1,153)(a) $ (214) $ - $ 2,828
======== ====== ======= ======= ===== ========
Amortization of intangibles $ 22,207 $2,862 $ - $(2,703) $ - $ 22,366
======== ====== ======= ======= ===== ========
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
======== ====== ======= ======= ===== ========
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
======== ====== ======= ======= ===== ========
</TABLE>
(a) Amounts written off, less recoveries.
S-8
<PAGE>
EXHIBIT 10.48
AGREEMENT TO DEFER BONUS PAYMENT
This AGREEMENT TO DEFER BONUS PAYMENT (this "Agreement") is made effective
as of the 20th day of February 1998 between NL Industries, Inc., a New Jersey
corporation (the "Corporation") and Dr. Lawrence A. Wigdor ("Executive").
WHEREAS, Executive was awarded a Special Bonus in recognition of his
performance which substantially contributed to the success of the Corporation;
WHEREAS, The Corporation and Executive desire to defer payment of $850,000
(the "Deferred Special Bonus") which Executive, in the absence of this
Agreement, would be entitled to receive immediately with respect to services
performed by Executive for the Corporation; and
WHEREAS, the Corporation and Robert D. Hardy as trustee, will enter into
an agreement (the "Trust Agreement") which establishes an irrevocable trust (the
"Trust") which is intended to hold and invest an amount of funds equal to the
Deferred Special Bonus until such bonus is paid to Executive pursuant to this
Agreement;
NOW, THEREFORE, in consideration of the agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. The Deferred Special Bonus shall be paid to Executive, or his
designated beneficiaries, upon the earliest to occur of (a) the termination of
Executive's employment (including Executive's resignation) for any reason, (b)
Executive's death, or (c) such date as shall be determined by the Management
Development and Compensation Committee of the Board of Directors (the
"Committee") in its sole discretion but in no event later than ten (10) years
after the effective date of this Agreement.
2. The Deferred Special Bonus shall accrue interest beginning on
February 20, 1998 up to and including the date such amount is paid to Executive
pursuant to Paragraph 1 hereof (the "Deferred Payment Date") and the entire
amount of such accrued interest shall be paid to Executive, or his designated
beneficiaries, on the Deferred Payment Date. Such interest shall accrue at the
rate of eight and one-half percent (8.50%) per annum. Interest accrued pursuant
to this Paragraph 2 shall compound on a semi-annual basis and shall be computed
for the actual number of days elapsed on the basis of a year consisting of 365
or 366 days.
3. The Corporation shall immediately enter into the Trust Agreement
and thereby establish the Trust. The Corporation shall contribute an amount
equal to the Deferred Special Bonus to the Trust.
4. Subject to the terms of the Trust Agreement, the Corporation may
satisfy its payment obligations to Executive, or to his designated
beneficiaries, under this Agreement by (a)
<PAGE>
directing the Trustee to make such payments from the principal and /or earnings
of the Trust, (b) making such payments directly from the Corporation's internal
funds, or (c) by any combination of (a) and (b), provided that all payments to
Executive, or to his designated beneficiaries, pursuant to this Agreement shall
be made in immediately available funds.
5. The Corporation shall withhold, either from the Deferred Special
Bonus in the year such amount is paid to Executive pursuant to Paragraph 1
hereof, or from any salary, bonus or other compensatory payment made to
Executive as the Corporation in its sole discretion may determine, such amounts
as is required by law to be withheld in 1996 or after, as the case may be,
pursuant to Code SS 3101 and 3121(v)(2) or successor provisions thereof.
6. Title to and beneficial ownership of any assets, whether cash or
investments and whether held by the Corporation or the Trust, which the
Corporation may earmark to meet its payment obligations to Executive under this
Agreement, shall at all times remain in the Corporation or the Trust, as
applicable, and Executive and his designated beneficiaries shall not have any
property interest whatsoever in any specific assets of the Corporation or the
Trust. Any right of the Executive or any of his designated beneficiaries to
receive payments from the Corporation under this Agreement shall be no greater
than the right of any unsecured general creditor of the Corporation.
7. The right of Executive or any other person to any payment under
this Agreement shall not be assigned, transferred, pledged or encumbered except
by will or by the laws of descent and distribution.
8. If the Committee shall find that any person to whom any payment
is payable under this Agreement is unable to care for his or her affairs because
of illness or accident, or is a minor, any payment due (unless a prior claim
therefor shall have been made by a duly appointed guardian or other legal
representative) may be paid to the spouse, a child, a parent, a brother or
sister, or the person or persons designated by the Executive in writing, or, in
the absence of any of the foregoing, to any one or more persons deemed by the
Committee to be appropriate. Any such payment shall be a complete discharge of
the liabilities of the Corporation under this Agreement.
9. Nothing contained herein shall be construed as conferring upon
Executive the right to continue in the employ of the Corporation as an executive
or in any other capacity.
10 This Agreement shall be binding upon and inure to the benefit of
the Corporation, it successors and assigns, and the Executive and his heirs,
executors, administrators and legal representatives.
11. This Agreement contains the entire agreement of and between the
parties with respect to the subject matter hereof, and supersedes any prior
understandings, agreements, or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
In the event of any conflict between the terms and provisions of this
2
<PAGE>
Agreement and the terms and provisions of any employment or severance agreement
entered into by the parties hereto, the terms and provisions of this Agreement
shall govern.
12. The Agreement shall be governed by the laws of the State of
Texas without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of Texas or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of Texas.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
NL INDUSTRIES, INC.
By: /s/ David B. Garten
Its: Vice President & General Counsel
EXECUTIVE
/s/ Lawrence A. Wigdor
Dr. Lawrence A. Wigdor
3
<PAGE>
TRUST AGREEMENT
This Agreement is made effective as of the 20th day of February,
1998 by and between NL Industries, Inc. (the "Corporation") and Robert D. Hardy
(the "Trustee");
WHEREAS, the Corporation and Lawrence A. Wigdor (the "Executive")
have entered into the Agreement to Defer Bonus Payment (the "Deferral
Agreement") attached hereto as Exhibit A;
WHEREAS, the Corporation has incurred or expects to incur liability
under the terms of such Deferral Agreement with respect to the Executive;
WHEREAS, the Corporation wishes to establish a trust (hereinafter
called the "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of the Corporation's creditors in the event of
the Corporation's Insolvency, as herein defined, until paid to the Executive and
his beneficiaries in such manner and at such times as specified in the Deferral
Agreement;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Deferral Agreement as an unfunded plan maintained for the purpose of providing
deferred compensation for a member of the select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974;
WHEREAS, it is the intention of the Corporation to make
contributions to the Trust to provide itself with a source of funds to assist it
in the meeting of its liabilities under the Deferral Agreement;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
(a) The Corporation hereby deposits with the Trustee in trust $100
or such other amount as determined by the Corporation, which shall become the
principal of the Trust to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the
Corporation is the grantor, within the meaning of subpart E, part I, subchapter
J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
1
<PAGE>
(d) The principal of the Trust, and any earnings thereon shall be
held separate and apart from other funds of the Corporation and shall be used
exclusively for the uses and purposes of the Executive and general creditors as
herein set forth. The Executive and his beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Deferral Agreement and this Trust Agreement shall be
mere unsecured contractual rights of the Executive and his beneficiaries against
the Corporation. Any assets held by the Trust will be subject to the claims of
the Corporation's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) The Corporation shall make additional deposits of cash or other
property in trust with the Trustee in accordance with the terms of the Deferral
Agreement to augment the principal to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement. Neither the Trustee nor the
Executive or any of his beneficiaries shall have any right to compel additional
deposits, except as may be required by the terms of the Deferral Agreement.
Section 2. Payments to Executive and His Beneficiaries.
(a) The Corporation shall deliver to the Trustee a written schedule
(the "Payment Schedule") that indicates the amounts payable in respect of the
Executive (and his beneficiaries), that provides the amounts so payable, the
form in which such amount is to be paid, and the dates for payment of such
amounts. Except as otherwise provided herein, the Trustee shall make payments to
the Executive and his beneficiaries in accordance with such Payment Schedule.
The Corporation may amend or modify such Payment Schedule from time to time by
providing the Trustee with written notice of such amendments. The Trustee may
conclusively rely on such Payment Schedule. The Trustee shall make provision for
the reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Deferral Agreement and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Corporation.
(b) The entitlement of the Executive or his beneficiaries to
benefits under the Deferral Agreement shall be determined by the Corporation in
accordance with the terms of the Deferral Agreement, and any claim for such
benefits shall be considered and reviewed under the terms of the Deferral
Agreement.
(c) The Corporation may make payment of benefits directly to the
Executive or his beneficiaries as they become due under the terms of the
Deferral Agreement. The Corporation shall notify the Trustee of its decision to
make payment of benefits directly prior to the time amounts are payable to the
Executive or his beneficiaries. Such payments by the Corporation shall not amend
the Payment Schedule unless the Corporation specifically amends said Schedule in
writing. In addition, if the principal of the Trust, and any earnings thereon,
are not sufficient to make payments of benefits in accordance with the Payment
Schedule, the Corporation shall make the balance of each such payment as it
falls due. The Trustee shall notify the Corporation where principal and earnings
are not sufficient.
2
<PAGE>
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When the Corporation Is Insolvent.
(a) The Trustee shall not make any payments to the Executive or his
beneficiaries if the Corporation is Insolvent. Notwithstanding any other
provision of this Trust Agreement, all determinations by the Trustee under this
Trust Agreement regarding whether the Corporation is solvent or Insolvent should
be based solely on the written representation to the Trustee from the
Corporation's Controller or Chief Financial Officer without independent
investigation by the Trustee. The Corporation shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) the Corporation is unable to pay its
debts as they become due, or (ii) the Corporation is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust shall be subject
to claims of general creditors of the Corporation under federal and state law as
set forth below.
(1) The Board of Directors, the Chief Executive Officer, the
Chief Financial Officer ("CFO") and the Controller of the Corporation shall have
the duty to inform the Trustee in writing of the Corporation's Insolvency with
respect to any payment date on the Payment Schedule. If a person claiming to be
a creditor of the Corporation alleges in writing to the Trustee that the
Corporation has become Insolvent, the Trustee shall determine whether the
Corporation is Insolvent; such determination shall be made based solely on
written representation from the Corporation's Controller or Chief Financial
Officer. Pending such determination, the Trustee shall not make any payments to
Executive or his beneficiaries.
(2) Unless the Trustee has received notice from the
Corporation that the Corporation is Insolvent, the Trustee shall have no duty at
any time to inquire whether the Corporation is Insolvent. The Trustee shall in
all events rely on such representation from the Corporation in making a
determination concerning the Corporation's solvency.
(3) In the event that the Corporation's Controller or Chief
Financial Officer has notified the Trustee in writing of the Corporation's
Insolvency, the Trustee shall not make any payments to the Executive or his
beneficiaries and shall hold the assets of the Trust for the benefit of the
Corporation's general creditors. Nothing in this Trust Agreement shall in any
way diminish or impair any rights of the Executive or his beneficiaries to
pursue their rights as general creditors of the Corporation with respect to
payments due under the Deferral Agreement or otherwise.
(4) The Trustee shall resume making payments to the Executive
or his beneficiaries in accordance with Section 2 of this Trust Agreement only
after the Trustee has determined that the Corporation is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues making payments from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments,
3
<PAGE>
the first payment following such discontinuance shall include the aggregate
amount of all payments due to the Executive or his beneficiaries under the terms
of the Deferral Agreement for the period of such discontinuance, less the
aggregate amount of any payments made to the Executive or his beneficiaries by
the Corporation in lieu of the payments provided for hereunder during any such
period of discontinuance.
Section 4. Payments to the Corporation.
Except as provided in Section 3 hereof, the Corporation shall have
no right or power to direct the Trustee to return to the Corporation or to
divert to others any of the Trust assets before all payments have been made to
the Executive or his beneficiaries pursuant to the terms of the Deferral
Agreement.
Section 5. Investment Authority.
In no event may the Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Corporation, other than a
de minimis amount held in common investment vehicles in which the Trustee
invests. All rights associated with assets of the Trust shall be exercised,
solely in accordance with the directions of the Corporation, by the Trustee or
the person designated by the Trustee, and shall in no event be exercisable by or
rest with the Executive.
Section 6. Disposition of Income.
During the term of this Trust, all income received by the Trust, net
of expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting by the Trustee.
The Trustee shall keep records of such investments, receipts,
disbursements, and all other transactions required to be made, as shall be
agreed upon in writing between the Corporation and the Trustee. Within 60 days
following the close of each calendar year and within 60 days after the removal
or resignation of the Trustee, the Trustee shall deliver to the Corporation a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
In the event the Trustee delegates the obligations of this section to an
employee of the Corporation, such obligations shall be deemed to be fulfilled by
the Trustee.
4
<PAGE>
Section 8. Responsibility of the Trustee.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Corporation in connection,
directly or indirectly, with, the terms of the Deferral Agreement or this Trust.
In the event of a dispute between the Corporation and a party, the Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) The Corporation agrees to indemnify and hold the Trustee
harmless from any and all costs, fees, expenses (including without limitation
attorney's fees and expenses), claims or lawsuits by any person or entity,
liabilities or obligations of any type or nature arising or related, directly or
indirectly, to the Deferral Agreement, this Trust or any action or failure to
act by the Trustee in connection in any way with any of the foregoing.
Furthermore, if the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Corporation agrees to indemnify the Trustee
against the Trustee's costs, expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating thereto and to be solely
liable for such payments. If the Corporation does not pay such costs, expenses
and liabilities in a reasonably timely manner, the Trustee may obtain payment
from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Corporation generally) with respect to any of its duties or
obligations hereunder.
(d) The Trustee may hire and the Corporation may make available to
the Trustee agents, accountants, actuaries, investment advisors, financial
consultants or other professionals to assist it in performing any of its duties
or obligations hereunder. In addition, the Trustee may delegate any of its
duties under this Trust to employees and management of the Corporation and the
Trustee may conclusively rely on the reports of such employees and management
without further investigation.
(e) The Trustee shall have, without exclusion, all powers conferred
on the Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
5
<PAGE>
Section 9. Compensation and Expenses of Trustee.
The Corporation shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to the
Corporation, which shall be effective 15 days after receipt of such notice
unless the Corporation and the Trustee agree otherwise.
(b) The Trustee may be removed by the Corporation on 15 days notice
to the Trustee or upon shorter notice accepted by the Trustee.
(c) Upon a Change of Control, as defined herein, the Trustee may not
be removed by the Corporation for 18 months.
(d) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Corporation extends the time
limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) or (b) of this section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
the Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
Section 11. Appointment of Successor.
(a) If the Trustee resigns or is removed in accordance with Section
10(a) or (b) hereof, the Corporation may appoint any third party, such as a bank
trust department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal. The appointment shall be effective when accepted in writing by the new
Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall execute
any instrument necessary or reasonably requested by the Corporation or the
successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
the Corporation shall indemnify and defend the successor Trustee from any claim
or liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes successor
Trustee.
6
<PAGE>
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Corporation. Notwithstanding the foregoing, no
such amendment shall conflict with the terms of the Deferral Agreement or shall
make the Trust revocable.
(b) The Trust shall not terminate until the date on which the
Executive and his beneficiaries are no longer entitled to any payments pursuant
to the terms of the Deferral Agreement. Upon termination of the Trust any assets
remaining in the Trust shall be returned to the Corporation.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) No amount payable to the Executive or any of his beneficiaries
under this Trust Agreement may be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Texas.
(d) For purposes of this Trust, Change of Control shall mean the
purchase or other acquisition by any person, entity or group of persons, within
the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934
("Act"), or any comparable successor provisions, of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or more of
either the outstanding shares of common stock or the combined voting power of
the Corporation's then outstanding voting securities entitled to vote generally,
or the approval by the stockholders of the Corporation of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of the Corporation immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than 50 percent of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated Corporation's then outstanding
securities, or a liquidation or dissolution of the Corporation or of the sale of
all or substantially all of the Corporation's assets.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be February 20,
1998.
* * * * *
7
<PAGE>
EXECUTED on the dates of the respective acknowledgments hereto, to
be effective as of the 20th day of February, 1998.
NL Industries, Inc.
by /s/ David B. Garten, V.P.
- TRUSTOR -
/s/ Robert D. Hardy
- TRUSTEE -
THE STATE OF TEXAS
COUNTY OF Harris
This instrument was acknowledged before me on the 20th day of
February, 1998, by Irene Pepe.
/s/ Irene Pepe
Notary Public in and for
the State of T E X A S
My Commission Expires:
11/29/01
8
<PAGE>
EXHIBIT 10.49
AGREEMENT TO DEFER BONUS PAYMENT
This AGREEMENT TO DEFER BONUS PAYMENT (this "Agreement") is made effective
as of the 20th day of February 1998 between NL Industries, Inc., a New Jersey
corporation (the "Corporation") and J. Landis Martin ("Executive").
WHEREAS, Executive was awarded a Special Bonus in recognition of his
performance which substantially contributed to the success of the Corporation;
WHEREAS, The Corporation and Executive desire to defer payment of
$1,508,300 (the "Deferred Special Bonus") which Executive, in the absence of
this Agreement, would be entitled to receive immediately with respect to
services performed by Executive for the Corporation; and
WHEREAS, the Corporation and Robert D. Hardy as trustee, will enter into
an agreement (the "Trust Agreement") which establishes an irrevocable trust (the
"Trust") which is intended to hold and invest an amount of funds equal to the
Deferred Special Bonus until such bonus is paid to Executive pursuant to this
Agreement;
NOW, THEREFORE, in consideration of the agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. The Deferred Special Bonus shall be paid to Executive, or his
designated beneficiaries, upon the earliest to occur of (a) the termination of
Executive's employment (including Executive's resignation) for any reason, (b)
Executive's death, or (c) such date as shall be determined by the Management
Development and Compensation Committee of the Board of Directors (the
"Committee") in its sole discretion.
2. The Deferred Special Bonus shall accrue interest beginning on
February 20, 1998 up to and including the date such amount is paid to Executive
pursuant to Paragraph 1 hereof (the "Deferred Payment Date") and the entire
amount of such accrued interest shall be paid to Executive, or his designated
beneficiaries, on the Deferred Payment Date. Such interest shall accrue at the
rate of eight and one-half percent (8.50%) per annum. Interest accrued pursuant
to this Paragraph 2 shall compound on a semi-annual basis and shall be computed
for the actual number of days elapsed on the basis of a year consisting of 365
or 366 days.
3. The Corporation shall immediately enter into the Trust Agreement
and thereby establish the Trust. The Corporation shall contribute an amount
equal to the Deferred Special Bonus to the Trust.
4. Subject to the terms of the Trust Agreement, the Corporation may
satisfy its payment obligations to Executive, or to his designated
beneficiaries, under this Agreement by (a) directing the Trustee to make such
payments from the principal and /or earnings of the Trust, (b)
<PAGE>
making such payments directly from the Corporation's internal funds, or (c) by
any combination of (a) and (b), provided that all payments to Executive, or to
his designated beneficiaries, pursuant to this Agreement shall be made in
immediately available funds.
5. The Corporation shall withhold, either from the Deferred Special
Bonus in the year such amount is paid to Executive pursuant to Paragraph 1
hereof, or from any salary, bonus or other compensatory payment made to
Executive as the Corporation in its sole discretion may determine, such amounts
as is required by law to be withheld in 1996 or after, as the case may be,
pursuant to Code 3101 and 3121(v)(2) or successor provisions thereof.
6. Title to and beneficial ownership of any assets, whether cash or
investments and whether held by the Corporation or the Trust, which the
Corporation may earmark to meet its payment obligations to Executive under this
Agreement, shall at all times remain in the Corporation or the Trust, as
applicable, and Executive and his designated beneficiaries shall not have any
property interest whatsoever in any specific assets of the Corporation or the
Trust. Any right of the Executive or any of his designated beneficiaries to
receive payments from the Corporation under this Agreement shall be no greater
than the right of any unsecured general creditor of the Corporation.
7. The right of Executive or any other person to any payment under
this Agreement shall not be assigned, transferred, pledged or encumbered except
by will or by the laws of descent and distribution.
8. If the Committee shall find that any person to whom any payment
is payable under this Agreement is unable to care for his or her affairs because
of illness or accident, or is a minor, any payment due (unless a prior claim
therefor shall have been made by a duly appointed guardian or other legal
representative) may be paid to the spouse, a child, a parent, a brother or
sister, or the person or persons designated by the Executive in writing, or, in
the absence of any of the foregoing, to any one or more persons deemed by the
Committee to be appropriate. Any such payment shall be a complete discharge of
the liabilities of the Corporation under this Agreement.
9. Nothing contained herein shall be construed as conferring upon
Executive the right to continue in the employ of the Corporation as an executive
or in any other capacity.
10 This Agreement shall be binding upon and inure to the benefit of
the Corporation, it successors and assigns, and the Executive and his heirs,
executors, administrators and legal representatives.
11. This Agreement contains the entire agreement of and between the
parties with respect to the subject matter hereof, and supersedes any prior
understandings, agreements, or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
In the event of any conflict between the terms and provisions of this Agreement
and the terms and provisions of any employment or severance agreement entered
into by the parties hereto, the terms and provisions of this Agreement shall
govern.
2
<PAGE>
12. The Agreement shall be governed by the laws of the State of
Texas without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of Texas or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of Texas.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
NL INDUSTRIES, INC.
By: /s/ David B. Garten
Its: Vice President & General Counsel
EXECUTIVE
/s/ J. Landis Martin
J. Landis Martin
3
<PAGE>
TRUST AGREEMENT
This Agreement is made effective as of the 20th day of February,
1998 by and between NL Industries, Inc. (the "Corporation") and Robert D. Hardy
(the "Trustee");
WHEREAS, the Corporation and J. Landis Martin (the "Executive") have
entered into the Agreement to Defer Bonus Payment (the "Deferral Agreement")
attached hereto as Exhibit A;
WHEREAS, the Corporation has incurred or expects to incur liability
under the terms of such Deferral Agreement with respect to the Executive;
WHEREAS, the Corporation wishes to establish a trust (hereinafter
called the "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of the Corporation's creditors in the event of
the Corporation's Insolvency, as herein defined, until paid to the Executive and
his beneficiaries in such manner and at such times as specified in the Deferral
Agreement;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Deferral Agreement as an unfunded plan maintained for the purpose of providing
deferred compensation for a member of the select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974;
WHEREAS, it is the intention of the Corporation to make
contributions to the Trust to provide itself with a source of funds to assist it
in the meeting of its liabilities under the Deferral Agreement;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
(a) The Corporation hereby deposits with the Trustee in trust $100
or such other amount as determined by the Corporation, which shall become the
principal of the Trust to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the
Corporation is the grantor, within the meaning of subpart E, part I, subchapter
J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be
held separate and apart from other funds of the Corporation and shall be used
exclusively for the uses and purposes of
1
<PAGE>
the Executive and general creditors as herein set forth. The Executive and his
beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under the Deferral
Agreement and this Trust Agreement shall be mere unsecured contractual rights of
the Executive and his beneficiaries against the Corporation. Any assets held by
the Trust will be subject to the claims of the Corporation's general creditors
under federal and state law in the event of Insolvency, as defined in Section
3(a) herein.
(e) The Corporation shall make additional deposits of cash or other
property in trust with the Trustee in accordance with the terms of the Deferral
Agreement to augment the principal to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement. Neither the Trustee nor the
Executive or any of his beneficiaries shall have any right to compel additional
deposits, except as may be required by the terms of the Deferral Agreement.
Section 2. Payments to Executive and His Beneficiaries.
(a) The Corporation shall deliver to the Trustee a written schedule
(the "Payment Schedule") that indicates the amounts payable in respect of the
Executive (and his beneficiaries), that provides the amounts so payable, the
form in which such amount is to be paid, and the dates for payment of such
amounts. Except as otherwise provided herein, the Trustee shall make payments to
the Executive and his beneficiaries in accordance with such Payment Schedule.
The Corporation may amend or modify such Payment Schedule from time to time by
providing the Trustee with written notice of such amendments. The Trustee may
conclusively rely on such Payment Schedule. The Trustee shall make provision for
the reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Deferral Agreement and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Corporation.
(b) The entitlement of the Executive or his beneficiaries to
benefits under the Deferral Agreement shall be determined by the Corporation in
accordance with the terms of the Deferral Agreement, and any claim for such
benefits shall be considered and reviewed under the terms of the Deferral
Agreement.
(c) The Corporation may make payment of benefits directly to the
Executive or his beneficiaries as they become due under the terms of the
Deferral Agreement. The Corporation shall notify the Trustee of its decision to
make payment of benefits directly prior to the time amounts are payable to the
Executive or his beneficiaries. Such payments by the Corporation shall not amend
the Payment Schedule unless the Corporation specifically amends said Schedule in
writing. In addition, if the principal of the Trust, and any earnings thereon,
are not sufficient to make payments of benefits in accordance with the Payment
Schedule, the Corporation shall make the balance of each such payment as it
falls due. The Trustee shall notify the Corporation where principal and earnings
are not sufficient.
2
<PAGE>
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When the Corporation Is Insolvent.
(a) The Trustee shall not make any payments to the Executive or his
beneficiaries if the Corporation is Insolvent. Notwithstanding any other
provision of this Trust Agreement, all determinations by the Trustee under this
Trust Agreement regarding whether the Corporation is solvent or Insolvent should
be based solely on the written representation to the Trustee from the
Corporation's Controller or Chief Financial Officer without independent
investigation by the Trustee. The Corporation shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) the Corporation is unable to pay its
debts as they become due, or (ii) the Corporation is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust shall be subject
to claims of general creditors of the Corporation under federal and state law as
set forth below.
(1) The Board of Directors, the Chief Executive Officer, the
Chief Financial Officer ("CFO") and the Controller of the Corporation shall have
the duty to inform the Trustee in writing of the Corporation's Insolvency with
respect to any payment date on the Payment Schedule. If a person claiming to be
a creditor of the Corporation alleges in writing to the Trustee that the
Corporation has become Insolvent, the Trustee shall determine whether the
Corporation is Insolvent; such determination shall be made based solely on
written representation from the Corporation's Controller or Chief Financial
Officer. Pending such determination, the Trustee shall not make any payments to
Executive or his beneficiaries.
(2) Unless the Trustee has received notice from the
Corporation that the Corporation is Insolvent, the Trustee shall have no duty at
any time to inquire whether the Corporation is Insolvent. The Trustee shall in
all events rely on such representation from the Corporation in making a
determination concerning the Corporation's solvency.
(3) In the event that the Corporation's Controller or Chief
Financial Officer has notified the Trustee in writing of the Corporation's
Insolvency, the Trustee shall not make any payments to the Executive or his
beneficiaries and shall hold the assets of the Trust for the benefit of the
Corporation's general creditors. Nothing in this Trust Agreement shall in any
way diminish or impair any rights of the Executive or his beneficiaries to
pursue their rights as general creditors of the Corporation with respect to
payments due under the Deferral Agreement or otherwise.
(4) The Trustee shall resume making payments to the Executive
or his beneficiaries in accordance with Section 2 of this Trust Agreement only
after the Trustee has determined that the Corporation is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues making payments from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments,
3
<PAGE>
the first payment following such discontinuance shall include the aggregate
amount of all payments due to the Executive or his beneficiaries under the terms
of the Deferral Agreement for the period of such discontinuance, less the
aggregate amount of any payments made to the Executive or his beneficiaries by
the Corporation in lieu of the payments provided for hereunder during any such
period of discontinuance.
Section 4. Payments to the Corporation.
Except as provided in Section 3 hereof, the Corporation shall have
no right or power to direct the Trustee to return to the Corporation or to
divert to others any of the Trust assets before all payments have been made to
the Executive or his beneficiaries pursuant to the terms of the Deferral
Agreement.
Section 5. Investment Authority.
In no event may the Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Corporation, other than a
de minimis amount held in common investment vehicles in which the Trustee
invests. All rights associated with assets of the Trust shall be exercised,
solely in accordance with the directions of the Corporation, by the Trustee or
the person designated by the Trustee, and shall in no event be exercisable by or
rest with the Executive.
Section 6. Disposition of Income.
During the term of this Trust, all income received by the Trust, net
of expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting by the Trustee.
The Trustee shall keep records of such investments, receipts,
disbursements, and all other transactions required to be made, as shall be
agreed upon in writing between the Corporation and the Trustee. Within 60 days
following the close of each calendar year and within 60 days after the removal
or resignation of the Trustee, the Trustee shall deliver to the Corporation a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
In the event the Trustee delegates the obligations of this section to an
employee of the Corporation, such obligations shall be deemed to be fulfilled by
the Trustee.
4
<PAGE>
Section 8. Responsibility of the Trustee.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Corporation in connection,
directly or indirectly, with, the terms of the Deferral Agreement or this Trust.
In the event of a dispute between the Corporation and a party, the Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) The Corporation agrees to indemnify and hold the Trustee
harmless from any and all costs, fees, expenses (including without limitation
attorney's fees and expenses), claims or lawsuits by any person or entity,
liabilities or obligations of any type or nature arising or related, directly or
indirectly, to the Deferral Agreement, this Trust or any action or failure to
act by the Trustee in connection in any way with any of the foregoing.
Furthermore, if the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Corporation agrees to indemnify the Trustee
against the Trustee's costs, expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating thereto and to be solely
liable for such payments. If the Corporation does not pay such costs, expenses
and liabilities in a reasonably timely manner, the Trustee may obtain payment
from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Corporation generally) with respect to any of its duties or
obligations hereunder.
(d) The Trustee may hire and the Corporation may make available to
the Trustee agents, accountants, actuaries, investment advisors, financial
consultants or other professionals to assist it in performing any of its duties
or obligations hereunder. In addition, the Trustee may delegate any of its
duties under this Trust to employees and management of the Corporation and the
Trustee may conclusively rely on the reports of such employees and management
without further investigation.
(e) The Trustee shall have, without exclusion, all powers conferred
on the Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
5
<PAGE>
Section 9. Compensation and Expenses of Trustee.
The Corporation shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to the
Corporation, which shall be effective 15 days after receipt of such notice
unless the Corporation and the Trustee agree otherwise.
(b) The Trustee may be removed by the Corporation on 15 days notice
to the Trustee or upon shorter notice accepted by the Trustee.
(c) Upon a Change of Control, as defined herein, the Trustee may not
be removed by the Corporation for 18 months.
(d) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of notice
of resignation, removal or transfer, unless the Corporation extends the time
limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) or (b) of this section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
the Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
Section 11. Appointment of Successor.
(a) If the Trustee resigns or is removed in accordance with Section
10(a) or (b) hereof, the Corporation may appoint any third party, such as a bank
trust department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal. The appointment shall be effective when accepted in writing by the new
Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall execute
any instrument necessary or reasonably requested by the Corporation or the
successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
the Corporation shall indemnify and defend the successor Trustee from any claim
or liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes successor
Trustee.
6
<PAGE>
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Corporation. Notwithstanding the foregoing, no
such amendment shall conflict with the terms of the Deferral Agreement or shall
make the Trust revocable.
(b) The Trust shall not terminate until the date on which the
Executive and his beneficiaries are no longer entitled to any payments pursuant
to the terms of the Deferral Agreement. Upon termination of the Trust any assets
remaining in the Trust shall be returned to the Corporation.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) No amount payable to the Executive or any of his beneficiaries
under this Trust Agreement may be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Texas.
(d) For purposes of this Trust, Change of Control shall mean the
purchase or other acquisition by any person, entity or group of persons, within
the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934
("Act"), or any comparable successor provisions, of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or more of
either the outstanding shares of common stock or the combined voting power of
the Corporation's then outstanding voting securities entitled to vote generally,
or the approval by the stockholders of the Corporation of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of the Corporation immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than 50 percent of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated Corporation's then outstanding
securities, or a liquidation or dissolution of the Corporation or of the sale of
all or substantially all of the Corporation's assets.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be February 20,
1998.
* * * * *
7
<PAGE>
EXECUTED on the dates of the respective acknowledgments hereto, to
be effective as of the 20th day of February, 1998.
NL Industries, Inc.
by /s/ David B. Garten, V.P.
- TRUSTOR -
/s/ Robert D. Hardy
- TRUSTEE -
THE STATE OF TEXAS
COUNTY OF HARRIS
This instrument was acknowledged before me on the 20th day of
February, 1998, by Irene Pepe.
/s/ Irene Pepe
Notary Public in and for
the State of T E X A S
My Commission Expires:
11/29/01
8
<PAGE>
EXHIBIT 10.50
ASSET PURCHASE AGREEMENT
DATED AS OF DECEMBER 29, 1997
BY AND AMONG
NL INDUSTRIES, INC.,
RHEOX, INC., RHEOX INTERNATIONAL, INC.,
HARRISONS AND CROSFIELD PLC,
HARRISONS AND CROSFIELD (AMERICA) INC.,
AND
ELEMENTIS ACQUISITION 98, INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. PURCHASE OF ASSETS..................... 2
------------------
1.1. Purchase and Sale of Assets.................................. 2
---------------------------
1.1.1. Accounts Receivable.................................. 2
-------------------
1.1.2. Contract Rights...................................... 2
---------------
1.1.3. Inventories and Stores and Supplies.................. 2
-----------------------------------
1.1.4. Tangible Personal Property........................... 3
--------------------------
1.1.5. Manufacturers' and Vendors' Warranties............... 3
--------------------------------------
1.1.6. Intellectual Property................................ 3
---------------------
1.1.7. Real Property........................................ 4
-------------
1.1.8. Governmental Licenses, Permits, and Approvals........ 4
---------------------------------------------
1.1.9. Books and Records.................................... 4
-----------------
1.1.10. Prepaid Items....................................... 4
-------------
1.1.11. Acquired Subsidiaries and Enenco.................... 4
--------------------------------
1.1.12. Marketing and Other Materials....................... 5
-----------------------------
1.1.13. Rights Against Third Parties........................ 5
----------------------------
1.1.14. Going Concern Value................................. 5
-------------------
1.1.15. Tax Refunds......................................... 5
-----------
1.1.16. Cash and Cash Equivalents........................... 5
-------------------------
1.1.17. Miscellaneous Assets................................ 5
--------------------
1.2. Excluded Assets.............................................. 5
---------------
1.2.1.Ordinary Course of Business Dispositions............... 6
----------------------------------------
1.2.2.Contracts Terminated in the Ordinary Course of Business 6
-------------------------------------------------------
1.2.3.Corporate Documents.................................... 6
-------------------
1.2.4.Employee Benefit Plans................................. 6
----------------------
1.2.5.[Intentionally omitted]................................ 6
-----------------------
1.2.6.Insurance.............................................. 6
---------
1.2.7.Tax Refunds............................................ 6
-----------
1.2.8.Intercompany Agreements................................ 7
-----------------------
1.2.9.Rights under this Agreement............................ 7
---------------------------
1.2.10. Other Excluded Assets................................ 7
---------------------
1.3. Nonassignable Contracts and Permits.......................... 7
-----------------------------------
1.3.1.Nonassignability....................................... 7
----------------
1.3.2.Seller to Use Commercially Reasonable Efforts.......... 7
---------------------------------------------
1.3.3.If Waivers or Consents Cannot Be Obtained.............. 8
-----------------------------------------
i
<PAGE>
ARTICLE II. ASSUMPTION OF LIABILITIES................. 8
-------------------------
2.1. Assumed Liabilities.......................................... 8
-------------------
2.2. Retained Liabilities......................................... 9
--------------------
ARTICLE III. PURCHASE PRICE...................... 11
--------------
3.1. Unadjusted Purchase Price.................................... 11
-------------------------
3.2. Adjustments to the Purchase Price............................ 11
---------------------------------
3.3. Allocation of Purchase Price................................. 13
----------------------------
ARTICLE IV. THE CLOSING........................ 14
-----------
4.1. Date of Closing.............................................. 14
---------------
ARTICLE V. REPRESENTATIONS AND WARRANTIES............... 14
------------------------------
5.1. Representations and Warranties of Seller..................... 14
----------------------------------------
5.1.1.Organization and Good Standing......................... 15
5.1.2.A Acquired Subsidiaries and Enenco.................... 15
5.1.2.B Capital Stock.............................................. 15
5.1.3.Authorization and Effect of Agreement.................. 16
5.1.4.No Restrictions Against Sale of the Purchased Assets;
Required Consents...................................... 17
5.1.5.No Third Party Options................................. 17
5.1.6.A Seller Financial Statements......................... 17
5.1.6.BEnenco Financial Statements.................................. 18
5.1.7.Accounts Receivable.................................... 18
5.1.8.Inventory.............................................. 19
5.1.9. Absence of Undisclosed Liabilities........................... 19
5.1.10.Contracts and Commitments.................................... 19
5.1.11.Title to Assets....................................... 21
5.1.12.Intellectual Property................................. 22
5.1.13.Sufficiency and Condition of Assets................... 23
5.1.14.Real Property................................................ 23
5.1.15.Insurance............................................. 26
5.1.16.Conduct of the Business Since the Interim
Balance Sheet Date ................................... 26
5.1.17.Customers and Suppliers............................... 27
5.1.19.Employee Benefit Plans................................ 29
5.1.20.Litigation; Decrees................................... 29
5.1.21.Compliance With Law; Permits.......................... 30
5.1.22.Environmental Matters................................. 30
5.1.23.Taxes................................................. 33
5.1.24.Certain Business Practices and Regulations............ 35
5.1.25.Warranties and Returns................................ 35
ii
<PAGE>
5.1.26.No Implied Warranties................................. 36
5.1.27.Parent's or Seller's Knowledge........................ 36
5.2. Representations and Warranties of H&C, H&C America
and Purchaser .............................................. 36
----------------------------------------------------------------
5.2.1.Corporate Organization................................. 36
----------------------
5.2.2.Authorization and Effect of Agreement.................. 36
-------------------------------------
5.2.3.No Restrictions Against Purchase of the Assets......... 37
----------------------------------------------
ARTICLE VI. PRE-CLOSING COVENANTS................... 37
---------------------
6.1. Access to Information........................................ 37
---------------------
6.2. Conduct of Business.......................................... 38
-------------------
6.3. Notification................................................. 40
------------
6.4. Governmental Filings......................................... 40
--------------------
6.5. Third Party Consents......................................... 41
--------------------
6.6. Compliance with Industrial Site Recovery Act................. 41
--------------------------------------------
6.7. Confidentiality.............................................. 41
---------------
6.8. No Solicitation.............................................. 42
---------------
6.9. Publicity.................................................... 42
---------
6.10. Satisfaction of Conditions................................... 42
--------------------------
6.11. Repayment of Indebtedness; Release of Liens.................. 43
-------------------------------------------
6.12. Formation and Capitalization of RIMC......................... 43
------------------------------------
6.13. Termination of Intercompany Agreements....................... 44
--------------------------------------
6.14. Cancellation of Intercompany Notes........................... 44
----------------------------------
ARTICLE VII. CONDITIONS TO CLOSING.................. 44
---------------------
7.1. Conditions Precedent to Obligations of Purchaser............. 44
------------------------------------------------
7.1.1.Representations, Warranties and Covenants.............. 44
7.1.2.Closing Documents...................................... 45
7.1.3.Governmental Consents or Approvals..................... 45
7.1.4.HSR Act................................................ 45
7.1.5.No Adverse Proceedings................................. 45
7.1.6.Third Party Consents................................... 45
7.1.7.Material Adverse Effect................................ 45
7.1.8.ISRA Compliance........................................ 46
7.1.9.Transitional Services Agreements....................... 46
7.1.10.[Intentionally omitted]................................ 46
7.1.11.Purchaser's Shareholders Approval...................... 46
7.1.12.Opinion of New Jersey Counsel.......................... 46
7.1.13.Tax Deeds.............................................. 46
7.1.14.NL Software License.................................... 46
7.2. Conditions Precedent to Obligations of Seller and Parent..... 46
--------------------------------------------------------
7.2.1.No Material Misrepresentation or Breach................ 46
---------------------------------------
iii
<PAGE>
7.2.2.Closing Documents...................................... 47
7.2.3.Governmental Consents or Approvals..................... 47
7.2.4.HSR Act................................................ 47
7.2.5.No Adverse Proceedings................................. 47
7.2.6.Transitional Services Agreements....................... 47
7.2.7.Tax Deeds.............................................. 47
7.2.8.NL Software License.................................... 47
ARTICLE VIII. DOCUMENTS TO BE DELIVERED AT THE CLOSING........ 48
8.1. Documents to be Delivered by Parent and Seller............... 48
8.1.1.Transfer Documents..................................... 48
8.1.2.Certified Resolutions.................................. 48
8.1.3.Officer's Certificate.................................. 48
8.1.4.Good Standing Certificates............................. 48
8.1.5.Other Documents........................................ 48
8.2. Documents to be Delivered by Purchaser....................... 48
--------------------------------------
8.2.1.Purchase Price......................................... 48
--------------
8.2.2.Assumption Agreement................................... 49
--------------------
8.2.3.Certified Resolutions.................................. 49
---------------------
8.2.4.Officer's Certificate.................................. 49
---------------------
8.2.5.Good Standing Certificates............................. 49
--------------------------
8.2.6.Other Documents........................................ 49
---------------
ARTICLE IX. POST-CLOSING COVENANTS.................. 49
----------------------
9.1. Employee Benefits Plans and Practices........................ 49
-------------------------------------
9.2. Maintenance of Books and Records............................. 53
--------------------------------
9.3. Payments Received............................................ 53
-----------------
9.4. Use of Name.................................................. 54
-----------
9.5. UCC Matters.................................................. 54
-----------
9.6. Covenant Not to Compete...................................... 54
-----------------------
9.7. Post-Closing Confidentiality................................. 55
----------------------------
9.8. Post-Closing Notifications................................... 56
--------------------------
9.9. Transfer Taxes............................................... 56
--------------
9.10. Insurance.................................................... 57
---------
9.11. Restrictions on Hiring of Seller's Employees................. 57
--------------------------------------------
9.12. Certain Tax Matters.......................................... 57
-------------------
9.13. German Tax Deed.............................................. 58
---------------
ARTICLE X. SURVIVAL AND INDEMNIFICATION................ 58
----------------------------
10.1. Survival of Representations, Warranties, and Covenants....... 58
------------------------------------------------------
10.2. Limitations on Liability..................................... 59
------------------------
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10.3. Indemnification.............................................. 61
---------------
10.4. Defense of Claims............................................ 63
-----------------
10.5. Conduct of Remedial Actions.................................. 64
---------------------------
10.6. Adjustment to Purchase Price................................. 66
----------------------------
ARTICLE XI. TERMINATION........................ 66
-----------
11.1. Termination.................................................. 66
-----------
11.2. Effect of Termination........................................ 67
---------------------
ARTICLE XII. MISCELLANEOUS PROVISIONS................. 67
12.1. Specific Performance......................................... 67
12.2. Notices...................................................... 67
12.3. Expenses..................................................... 69
12.4. Successors and Assigns....................................... 69
12.5. Waiver....................................................... 70
12.6. Entire Agreement............................................. 70
12.7. Amendments and Supplements................................... 70
12.8. Rights of the Parties........................................ 70
12.9. Brokers...................................................... 71
12.10. Further Assurances........................................... 71
12.11. Governing Law................................................ 71
12.12. Severability................................................. 71
12.13. Execution in Counterparts.................................... 71
12.14. Titles and Headings.......................................... 71
12.15. Passage of Title and Risk of Loss............................ 71
12.16. Certain Interpretive Matters and Definitions................. 72
v
<PAGE>
Exhibits
Exhibit A List of Subsidiaries
Exhibit B Terms of Transitional Services Agreement(s)
Exhibit C Terms of NL Software License
Exhibit D Form of Opinion of Seller's Counsel
Exhibit E-1 Form of U.K. Tax Deed
Exhibit E-2 Form of German Tax Deed
Exhibit F U.K. Pension Schedule
Schedules
Schedule 1.1.2 Contract Rights
Schedule 1.1.4 Tangible Personal Property
Schedule 1.1.6(a) Intellectual Property
Schedule 1.1.6(b) Trademarks
Schedule 1.1.7(a) Owned Real Property
Schedule 1.1.7(b) Real Property Leases
Schedule 1.1.8 Permits
Schedule 1.1.11 Acquired Subsidiaries and Enenco
Schedule 1.2.8 Intercompany Agreements
Schedule 1.2.10 Other Excluded Assets
Schedule 3.2(b) Sample Calculation of Net Book Value
Schedule 3.2(d) Form of Consolidated Statement of Income
Schedule 3.3 Allocation of Purchase Price
Schedule 5.1.1 Foreign Qualifications
Schedule 5.1.2.A Acquired Subsidiaries and Enenco
Schedule 5.1.2.B Capital Stock
Schedule 5.1.4 Required Governmental and Third Party Consents
Schedule 5.1.5 Third Party Options
Schedule 5.1.6.A Seller Financial Statements
Schedule 5.1.6.B Enenco Financial Statements
Schedule 5.1.8 Inventory
Schedule 5.1.9 Undisclosed Liabilities
Schedule 5.1.10 Contracts
Schedule 5.1.11 Title to Assets
Schedule 5.1.12(a) Intellectual Property
Schedule 5.1.12(b) Acquired Subsidiary Intellectual Property
Schedule 5.1.13 Business Arrangements with Related Parties
Schedule 5.1.14(a) Real Property
Schedule 5.1.14(b) Real Property Leases
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Schedule 5.1.14(g) Flood Plains
Schedule 5.1.15 Insurance
Schedule 5.1.16(f) Capital Expenditures
Schedule 5.1.17 Customers and Suppliers Schedule 5.1.18(a) Agreements Relating
to Employees Schedule 5.1.18(b) List of Employees Schedule 5.1.18(c) Collective
Bargaining Agreements Schedule 5.1.18(d) Other Employee Matters Schedule
5.1.19(a) Employee Plans Schedule 5.1.19(b) Employees and Former Bargaining Unit
Employees Schedule 5.1.20(a) Litigation Schedule 5.1.20(b) Product Liability
Claims Schedule 5.1.21(a) Compliance With Law Schedule 5.1.21(a)(1) Material
Permits Schedule 5.1.22 Environmental Matters Schedule 5.1.23 Taxes Schedule
5.1.24 Interests in Customers, Suppliers, Etc. Schedule 5.1.25 Warranties and
Returns Schedule 5.1.27 Parent's and Seller's Knowledge Schedule 5.2.3 Required
Governmental Consents Schedule 6.2 Pre-Closing Conduct Schedule 6.13 Agreements
with Affiliates Schedule 6.14 Intercompany Notes Schedule 7.1.6 Third Party
Consents Schedule 8.1.1(a) UK Completion Schedule 8.1.1(b) Germany Completion
Schedule 8.1.1(c) Belgium Completion
Schedule 9.1(a) Non-Bargaining Employees Not Being Offered Employment
Schedule 9.1(c) Purchaser's Benefit Plans
Schedule 9.1(g) Medical Benefits - Bargaining Unit Employees
Index of Defined Terms
Accountants SS 3.2(d)
Acquired Subsidiaries Recitals & Exhibit A
Acquired Subsidiary Intellectual Property SS 5.1.12(b)
Acquired Subsidiaries Closing Cash SS 3.2(c)
Affiliate SS 12.16(a)(vi)
Agreement Recitals
Assumed Liabilities SS 2.1
Book Value Adjustment SS 3.2(a)
vii
<PAGE>
Business Recitals
Cash Adjustment SS 3.2(c)
Closing SS 4.1
Closing Date SS 4.1
Closing Cash Statement SS 3.2(c)
Closing Statement SS 3.2(b)
Closing Statement Date SS 3.2(b)
Code SS 3.3
Continued Employees SS 9.1(a)
Contracts SS 1.1.2
Direct Claim SS 10.4(d)
Downward Book Value Adjustment SS 3.2(a)
Employee Plans SS 5.1.19(a)
Employees SS 5.1.19(b)
Enenco SS 1.1.11
Enenco Financial Statements SS 5.1.6.B
Enenco Shares SS 1.1.11
Environmental Claim SS 10.3(a)(iv)
Environmental Costs and Liabilities SS 5.1.22(j)
Environmental Law SS 5.1.22(j)
Environmental Permit SS 5.1.22(j)
Excluded Assets SS 1.2
Financial Statements SS 5.1.6.A
GAAP SS 3.2(b)
Governmental Entity SS 1.1.8
H&C Recitals
H&C America Recitals
Hazardous Material SS 5.1.22(j)
HSR Act SS 5.1.4
Indemnifiable Losses SS 10.2(a)(iv)
Indemnifying Party SS 10.2(a)(iii)
Indemnitee SS 10.2(a)(ii)
Indemnity Payment SS 10.2(a)(i)
Intellectual Property SS 1.1.6(b)
Intercompany Note Amount SS 3.1
Intercompany Notes SS 3.1
Interim Balance Sheet SS 5.1.6.A
Interim Balance Sheet Date SS 5.1.6.A
Inventories SS 1.1.3
Income Tax SS 1.2.7
ISRA SS 6.6
viii
<PAGE>
Law SS 1.3.1
liabilities SS 12.16(a)(vii)
Liens SS 1.1
Material Adverse Effect SS 5.1.1
Net Book Value SS 3.2(b)
NJDEP SS 6.6
Nonassignable Contract or Permit SS 1.3.1
Noncompetition Term SS 9.6
Nordenham Lease SS 7.1.10
Other Leased Real Property SS 5.1.14(b)
Other Owned Real Property 5.1.14(a)
Other Permits SS 5.1.21
Other Real Property SS 5.1.14(b)
Other Real Property Leases SS 5.1.14(b)(i)
Owned Real Property SS 1.1.7(a)
Parent Recitals
Patent-Related Assets SS 1.1.6(a)
Permits SS 1.1.8
Permitted Liens SS 5.1.11
Person SS 12.16(a)(ix)
Prepaid Items SS 1.1.10
Preparing Party SS 3.2(d)
Products SS 9.6(a)
Purchase Price SS 3.1
Purchased Assets SS 1.1
Purchaser Recitals
Purchaser Ancillary Documents SS 5.2.2
Purchaser Benefit Plans SS 9.1(c)
Real Property SS 1.1.7(b)
Real Property Leases SS 1.1.7(b)
Release SS 5.1.22(j)
Remedial Action SS 10.3(a)(iv)
Retained Liabilities SS 2.2
RII Recitals
Seller Recitals
Seller Ancillary Documents SS 5.1.3
Subsidiary Employees SS 5.1.19(b)
Subsidiaries Recitals & Exhibit A
Tangible Personal Property SS 1.1.4
Tax Deed SS 7.1.13
Tax or Taxes SS 5.1.23(g)
ix
<PAGE>
Tax Return SS 5.1.23(g)
Third Party Claim SS 10.2(a)(v)
to Parent's knowledge SS 5.1.27
to Seller's knowledge SS 5.1.27
Unadjusted Purchase Price SS 3.1
Upward Book Value Adjustment SS 3.2(a)
$ SS 12.16(a)
x
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (which together with the Exhibits and
Schedules attached hereto is referred to as this "Agreement") is made and
entered into as of the 29th day of December, 1997, by and among NL Industries,
Inc., a New Jersey corporation ("Parent"), Rheox, Inc., a Delaware corporation
and wholly owned subsidiary of Parent ("Seller"), Rheox International, Inc., a
Delaware Corporation and a wholly owned subsidiary of Seller ("RII"), Harrisons
& Crosfield plc, a public limited company formed under the laws of the United
Kingdom ("H&C"), Harrisons & Crosfield (America) Inc., a Delaware corporation
("H&C America") and a wholly owned subsidiary of H&C, and Elementis Acquisition
98, Inc., a Delaware corporation and an indirect wholly owned subsidiary of H&C
America ("Purchaser").
WHEREAS, Seller, itself and through its Subsidiaries (as hereinafter
defined), presently conducts the business of developing, manufacturing,
marketing, and selling specialty chemical products consisting primarily of
rheological additives (the "Business");
WHEREAS, on the terms and subject to the conditions contained in this
Agreement, Seller desires to sell, transfer, and assign to Purchaser (except as
described in the next paragraph hereof) or, as applicable, cause RII, to sell,
transfer, and assign to Purchaser (except as described in the next paragraph
hereof), and Purchaser (except as described in the next paragraph hereof)
desires to purchase from Seller, or, as applicable, RII, all of the Purchased
Assets (as defined in Section 1.1 hereof);
WHEREAS, on the terms and subject to the conditions contained in this
Agreement, H&C or one or more designees or assignees of H&C (to the extent
permitted pursuant to Section 12.4 hereof) (the "H&C Assignees"), desires to
purchase from Seller or RII as a part of the Purchased Assets, and Seller or RII
desires to sell to H&C or such H&C Assignees, all of the outstanding shares of
capital stock of RIMC, Inc., a Delaware corporation ("RIMC") and all of the
outstanding shares of capital stock of the subsidiaries of RII identified on
Exhibit A hereto (the "Acquired Subsidiaries" and, collectively with RII and
RIMC, the "Subsidiaries"), in each case as described in clause (i) of Section
1.1.11 hereto; and
WHEREAS, on the terms and subject to the conditions contained in this
Agreement, Seller wishes to assign to Purchaser, or, as applicable, cause RII to
assign to Purchaser, and Purchaser is willing to assume, the Assumed Liabilities
(as defined in Section 2.1 hereof);
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, promises and covenants herein contained, the
parties hereto agree as follows:
ARTICLE I. PURCHASE OF ASSETS
1.1. Purchase and Sale of Assets. On the terms and subject to the
conditions hereof, at the Closing (as defined in Section 4.1), Seller will sell,
transfer, convey, assign, and deliver to Purchaser or the H&C Assignees, as the
case may be, or, as applicable, cause RII to sell, transfer, assign, and deliver
to Purchaser or the H&C Assignees, as the case may be, and Purchaser or the H&C
Assignees, as the case may be, will purchase and accept, all right, title, and
interest of Seller or, as applicable, RII in and to all rights, properties, and
assets of every kind, character, and description, wherever located and whether
tangible or intangible, real or personal or fixed or contingent, owned, held,
used, conceived, developed, or offered for sale by Seller or RII, in each case
free and clear of all mortgages, liens, pledges, security interests, charges,
claims on title, restrictions with respect to title, and encumbrances of any
nature, including without limitation licenses, pledges, defect or objection
liens, conditional and installment sales agreements, easements, or
encroachments, other title or interest retention arrangements, reservations, or
limitations of any nature whatsoever (collectively, "Liens") except the
Permitted Liens described in clauses (a) and (b) of Sections 5.1.11 and each of
the Liens identified with an asterisk on Schedule 5.1.11 hereto (as defined in
Section 5.1.11), including without limitation the rights, properties, and assets
of Seller and RII (but not of any Acquired Subsidiary) described in this Section
1.1 (collectively, the "Purchased Assets"):
1.1.1. Accounts Receivable. All accounts or notes receivable of,
and any other amounts due to, Seller or RII, including receivables from
Affiliates;
1.1.2. Contract Rights. All right, title, and interest as of the
date hereof and, to the extent entered into subsequent to the date hereof in
accordance with the terms hereof (including Section 6.2 hereof), as of the
Closing, in and to all contracts, agreements, leases, licenses, joint venture,
purchase orders (as vendor or purchaser), commitments, and other agreements and
arrangements, whether oral or written (collectively, "Contracts"), of Seller or
RII, including without limitation such of the foregoing as are described on
Schedule 1.1.2;
1.1.3. Inventories and Stores and Supplies. All raw materials,
components, work-in-process, finished products, packaging materials, stores and
supplies, spare parts, and samples (collectively, "Inventories") of Seller or
RII, wherever located;
1.1.4. Tangible Personal Property. All machinery and equipment,
tools, spare and maintenance parts, furniture, fixtures, vehicles, tools, jigs,
dies, leasehold
2
<PAGE>
improvements, and all other tangible personal property of Seller or RII,
wherever located, including without limitation, the tangible personal property
listed on Schedule 1.1.4 (collectively, the "Tangible Personal Property");
1.1.5. Manufacturers' and Vendors' Warranties. All rights under
manufacturers' and vendors' warranties relating to items included in the
Purchased Assets and all similar rights against third parties relating to items
included in the Purchased Assets;
1.1.6. Intellectual Property.
(a) (i) all patents and patent applications owned by the Seller or
RII, all licenses to patents and patent applications to and from third
parties, in each case as set forth on Schedule 1.1.6(a) hereto, (ii)
research and development data and results, manufacturing and other
processes, trade secrets, know how, inventions, ideas, conceptions, mask
work, designs, technology, proprietary data or information, formulae, and
manufacturing, engineering, and other technical information, whether owned
by the Seller or RII or licensed to the Seller or RII by third parties or
Affiliates, (iii) all copyrights (registered or otherwise) and
registrations and applications for registration thereof owned or licensed
by Seller or RII, (iv) all copies and tangible embodiments of all the
foregoing, in whatever form or medium, (v) all rights to sue for present
and past infringement of any of the foregoing, (vi) all notebooks,
records, reports, and data relating thereto, and (vii) all applications
and registrations for any of the foregoing (collectively, the assets
referred to in clauses (i) through (vii) are referred to herein as the
"Patent-Related Assets");
(b) (i) all trademarks, trade names, service marks, trade dress,
logos, and corporate names (including the name Rheox and any derivatives
thereof), or any applications and registrations for any of the foregoing,
in each case as listed on Schedule 1.1.6(b) hereto, (ii) except as may
otherwise be provided in the transition services agreement (as described
in more detail on Exhibit B hereto) computer programs, software and data
bases licensed by the Seller or RII from third parties, with all
maintenance fees therefor arising for any period after Closing to be paid
by Purchaser, (iii) all copies and tangible embodiments of all the
foregoing, in whatever form of medium, (iv) all rights to sue for present
and past infringement of any of the foregoing, and (v) an irrevocable,
perpetual, non-exclusive, fully paid up, worldwide right and license to
use proprietary software developed by Affiliates of Seller or RII that are
used in the Business (the "NL Software License") on the terms set forth on
Exhibit C hereto, in each case as listed on Schedule 1.1.6(b)
(collectively all of the foregoing assets, whether or not listed on
Schedule 1.1.6(b) hereto, together with the Patent-Related Assets, are
referred to herein as the "Intellectual Property");
3
<PAGE>
1.1.7. Real Property. (a) The real property owned in fee by Seller
or RII and listed and described on Schedule 1.1.7(a), together with all
appurtenant easements thereunto and all structures, fixtures, and improvements
located thereon, and any minerals and mining rights of Seller or RII with
respect thereto, including, without limitation, any and all patented and
unpatented mining and millsite claims (the "Owned Real Property"), and (b) the
rights and incidents of interests of Seller or RII as lessee in and to all real
property leases (the "Real Property Leases") used or held for use primarily in
connection with the operations of the Business, including but not limited to
those listed or described on Schedule 1.1.7(b), and all of Seller's and RII's
rights as of the Closing in all of the structures, fixtures, and improvements
located thereon (the "Leased Real Property" and, together with the Owned Real
Property, the "Real Property");
1.1.8. Governmental Licenses, Permits, and Approvals. All rights,
title, and interest of Seller or RII in and to all licenses, permits,
franchises, authorizations, orders, registrations, certificates, variances,
approvals, and similar rights of Seller and RII (collectively, "Permits") issued
by any domestic or foreign court, government, governmental agency, authority,
entity, or instrumentality ("Governmental Entity"), including without limitation
such of the foregoing as are listed in Schedule 1.1.8;
1.1.9. Books and Records. All the books and records of Seller or
RII, including without limitation all books and records relating to employees,
the purchase of materials, supplies, and services, financial, accounting and
operations matters, product, research and development, manufacture and sale of
products and all customer and vendor lists relating to the operation of the
Business and all files and documents (including credit information) relating to
customers and vendors of the Business;
1.1.10. Prepaid Items. All prepaid items, deposits, costs, and
fees, including rights under insurance policies covering periods through the
Closing Date ("Prepaid Items");
1.1.11. Acquired Subsidiaries and Enenco. (i) All of the issued
and outstanding shares of capital stock and other equity interests of the
Acquired Subsidiaries as described on Schedule 1.1.11(A), (ii) all of the issued
and outstanding shares of capital stock and other equity interests of Enenco,
Inc., a New York corporation ("Enenco"), owned by Seller or any Affiliate of
Seller, as described on Schedule 1.1.11(B) (the "Enenco Shares") and (iii) all
of the issued and outstanding shares of capital stock and other equity interests
of RIMC, Inc.;
1.1.12. Marketing and Other Materials. All marketing brochures and
materials and other printed and written materials relating to Sellers' or RII's
ownership of or operation of the Purchased Assets or the Business that the
Seller or RII is not required by Law (as defined in Section 1.3.1) to retain (of
which the Seller or RII may retain duplicates so long
4
<PAGE>
as the confidentiality thereof is maintained by the Seller or RII, unless
disclosure thereof is required by Law);
1.1.13. Rights Against Third Parties. All rights under or pursuant
to all warranties, representations, and guarantees made by suppliers,
manufacturers, contractors, and other third parties or Affiliates in connection
with the operation of the Business or affecting any of the Purchased Assets or
Assumed Liabilities and all of Seller's or RII's rights, claims, credits, causes
of action, or rights of set-off against third parties relating to the Business
or the Purchased Assets, whether liquidated or unliquidated, fixed or
contingent, including all claims under any Contracts of Seller or RII, except as
such rights relate to a Retained Liability, an Excluded Asset, or a matter for
which Seller must indemnify Purchaser;
1.1.14. Going Concern Value. The value of the Business as a going
concern and all goodwill relating to the Purchased Assets;
1.1.15. Tax Refunds. Seller's or RII's rights to receive any
refund attributable to, or right to offset against, any Taxes (as defined in
Section 5.1.23), other than Income Taxes (as defined in Section 1.2.7)
attributable to periods ending on or prior to the Closing Date or to the
Pre-Closing portion of any taxable period that includes but does not end on the
Closing Date;
1.1.16. Cash and Cash Equivalents. All cash and cash equivalents
held by Seller or RII accounted for on the Closing Statement prepared pursuant
to Section 3.2(c); and
1.1.17. Miscellaneous Assets. Except for Excluded Assets (as
defined in Section 1.2), all other rights, properties, and assets owned by
Seller or RII, wherever located.
1.2. Excluded Assets. Notwithstanding anything contained in this Agreement
to the contrary, the following rights, properties, and assets (collectively, the
"Excluded Assets") will not be included in the Purchased Assets:
1.2.1. Ordinary Course of Business Dispositions. All of the
Accounts Receivable, Inventories, Tangible Personal Property, or Prepaid Items
which have been sold, transferred, consumed, or otherwise disposed of by Seller
or RII prior to the Closing, in each case in the ordinary course of the conduct
of the Business consistent with past practice and the provisions of Section 6.2;
1.2.2. Contracts Terminated in the Ordinary Course of Business.
All Contracts of Seller or RII that have terminated or expired prior to the
Closing in the ordinary course of the conduct of the Business consistent with
past practice and the provisions of Section 6.2;
5
<PAGE>
1.2.3. Corporate Documents. Seller's or RII's corporate seal,
minute books, charter documents, corporate stock record books, and such other
books and records as pertain to the organization, existence, or share
capitalization of Seller or RII, all books and records that pertain either to
other Excluded Assets or any Retained Liabilities, and duplicate copies of such
records included in the Purchased Assets as are reasonably necessary (a) to
enable Seller or RII to file its tax returns and reports, (b) to prepare its
financial statements, or (c) defend or pursue any claim, action, lawsuit or
other proceeding which constitutes a Retained Liability or relates to any
Excluded Asset (provided in each case that the confidentiality thereof is
maintained except where disclosure thereof is required by Law), and any other
records or materials relating to Seller or RII generally and not involving or
relating to the Purchased Assets or the operation or operations of the Business,
including but not limited to tax returns, reports, books and records of RII,
Bentone Sud S.A. and RK Export, Inc.;
1.2.4. Employee Benefit Plans. Except as otherwise provided in
Section 9.1, all Employee Plans (as defined in Section 5.1.19) which cover
Employees (as defined in Section 5.1.19) and all assets relating thereto,
including any contracts, insurance policies, trusts, or other similar assets.
1.2.5. [Intentionally omitted].
1.2.6. Insurance. Subject to Section 1.1.10, all contracts of
insurance of Seller or RII;
1.2.7. Tax Refunds. Seller's or RII's rights to receive any refund
attributable to, or right of offset against, any Income Taxes attributable to
periods ending on or prior to the Closing Date or to the pre-Closing portion of
any taxable period that includes but does not end on the Closing Date; for
purposes of this Agreement, "Income Tax" means (i) all Taxes however denominated
(including franchise taxes and premium taxes) that are based upon or measured by
gross income, net income, or gross receipts (solely when used to compute income
Tax), (ii) minimum and tax preference based Taxes, (iii) Taxes arising from
actual or deemed dividend distributions, (iv) capital gain Taxes, and (v) any
interest, fines, penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any Tax described in clauses (i)
and (ii) or any contest, dispute or refund thereof;
1.2.8. Intercompany Agreements. Except as listed in Schedule 1.2.8
or as otherwise expressly contemplated by this Agreement, all Contracts entered
into prior to the Closing Date between or among Parent or any Affiliate of
Parent (other than Seller or RII), on the one hand, and Seller and RII, on the
other hand;
1.2.9. Rights under this Agreement. Seller's rights arising out of
or relating to this Agreement or the transactions contemplated hereby; and
6
<PAGE>
1.2.10.Other Excluded Assets. Seller's or RII's ownership interest
in Bentone Sud S.A. and RK Export, Inc., furniture, equipment, supplies, and
contracted-for third party services currently utilized by employees of
Affiliates of Seller located in Seller's Hightstown, New Jersey offices, and any
other right, property, or asset which is described on Schedule 1.2.10.
1.3. Nonassignable Contracts and Permits.
1.3.1. Nonassignability. Without limiting or otherwise affecting
the rights of Purchaser pursuant to Articles VII or X, to the extent that any
Contract or Permit to be assigned pursuant to the terms of Sections 1.1.2,
1.1.6, 1.1.7(b), or 1.1.8 is not capable of being assigned (each a
"Nonassignable Contract or Permit"), without the consent, approval, or waiver of
any Person (including without limitation a Governmental Entity), or if such
assignment or attempted assignment would constitute a breach thereof or a
violation of any applicable foreign or United States federal, state, or local
law, statute, ordinance, regulation, order, writ, injunction, or decree ("Law"),
nothing in this Agreement will constitute an assignment or require the
assignment thereof prior to the time at which all consents, approvals, and
waivers necessary for such assignment shall have been obtained.
1.3.2. Seller to Use Commercially Reasonable Efforts.
Notwithstanding anything contained in this Agreement to the contrary, Seller
will not be obligated to assign to Purchaser, or cause RII to assign to
Purchaser, any of its rights or obligations in, to, or under any of the
Nonassignable Contracts or Permits without first having obtained all consents,
approvals, and waivers necessary for such assignment; provided, however, that
Seller shall use its commercially reasonable efforts to obtain all such
consents, approvals, and waivers prior to and after the Closing Date and will
otherwise comply with the provisions of Sections 6.4 and 6.5.
1.3.3. If Waivers or Consents Cannot Be Obtained. To the extent
and for so long as all consents, approvals, and waivers required for the
assignment of any Nonassignable Contracts or Permits shall not have been
obtained by Seller, Seller shall use its commercially reasonable efforts to, and
shall cause RII to use its commercially reasonable efforts to, (a) provide to
Purchaser the financial and business benefits of any such Nonassignable Contract
or Permit and (b) enforce, at the request of Purchaser, for the account and at
the expense of Purchaser, any rights of Seller or RII arising from any such
Nonassignable Contract or Permit (including without limitation the right to
elect to terminate in accordance with the terms thereof upon the advice of
Purchaser, provided Purchaser agrees to indemnify Seller from and against any
Indemnifiable Losses (as defined in Section 10.2(a) hereof) that Seller may
incur as a result of such termination). Following the Closing, Seller shall not
terminate, modify, or amend, and shall cause RII not to terminate, modify, or
amend, any Nonassignable Contract or Permit without the Purchaser's prior
written consent.
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ARTICLE II. ASSUMPTION OF LIABILITIES
2.1. Assumed Liabilities. Subject to Section 2.2 hereof, as of the
Closing, Purchaser will assume and thereafter in due course pay and fully
satisfy, as and when the same shall become due and payable, all liabilities and
obligations of Seller or RII in respect of the Business or the Purchased Assets,
whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due (the "Assumed Liabilities"), including without
limitation:
(a) all liabilities and obligations of Seller or RII under the
agreements, contracts, leases, licenses, and other arrangements referred
to in the definition of Purchased Assets other than those pertaining to
Excluded Assets;
(b) solely to the extent of the amount accrued on the Closing
Statement (as defined in Section 3.2(c)), (i) unpaid wages, vacation,
holiday pay and bonuses relating to any period prior to the Closing Date
and employment taxes thereon and an additional 8% of such unpaid
compensation for retirement benefits with respect thereto (and such amount
shall be accrued on the Closing Statement prepared in accordance with
Section 3.2(c) to the extent not otherwise accrued on the Closing
Statement), (ii) post-retirement medical benefits coverage of bargaining
unit Employees and their eligible dependents with respect to claims
arising for medical services whether rendered before, on or after the
Closing Date and (iii) post-retirement life insurance coverage of
bargaining unit Employees and their eligible spouses;
(c) to the extent accrued on the Closing Statement, all
obligations of Seller to Employees under the collective bargaining
agreements set forth in Schedule 5.1.18(a); and
(d) all liabilities accrued in the Closing Statement prepared
pursuant to Section 3.2(c); and
(e) Subject to Article X, all liabilities and obligations of
Seller and RII relating to the Business and the Purchased Assets with
respect to environmental matters, including without limitation those
arising under Environmental Laws (as defined in Section 5.1.22).
provided, however, that the Assumed Liabilities shall not include any liability
which is included within the definition of Retained Liability in Section 2.2.
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2.2. Retained Liabilities. Notwithstanding anything contained in this
Agreement to the contrary, Purchaser does not assume or agree to pay, satisfy,
discharge, or perform, and will not be deemed by virtue of the execution and
delivery of this Agreement or any document delivered at the Closing pursuant to
this Agreement, or as a result of the consummation of the transactions
contemplated by this Agreement, to have assumed, or to have agreed to pay,
satisfy, discharge, or perform, any liability, obligation, or indebtedness set
forth below (such liabilities and obligations retained by Seller or RII being
referred to herein as the "Retained Liabilities"):
(a) all obligations or liabilities of Seller or RII or any
predecessor or Affiliate thereof (including, without limitation, with
respect to any environmental matters) which relate to any of the Excluded
Assets or which relate to any business or operations (other than the
Business or the Purchased Assets) conducted by Parent, Kronos Inc., Seller
or any of their respective Affiliates;
(b) all obligations or liabilities of Seller or RII or any
predecessor or Affiliate thereof relating to Income Taxes with respect to
the Business attributable to periods ending on or prior to the Closing
Date or to the pre-Closing portion of any taxable period that includes but
does not end on the Closing Date, including, without limitation, (i) any
liability of Seller or RII for any Income Taxes arising because Seller or
RII is transferring the Purchased Assets or because Seller or RII has an
excess loss account (within the meaning of Treas. Reg. SS1.1502-19) in the
stock of any of the Subsidiaries, or because Seller or RII has deferred
gain on any deferred intercompany transaction (within the meaning of
Treas. Reg. SS1.1502-13) and (ii) all liabilities of Seller and RII for
the unpaid Income Taxes of persons other than Seller and Subsidiaries
under Treas. Reg. SS1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise;
(c) all obligations or liabilities of Seller or RII arising out of
or relating to this Agreement or the transactions contemplated hereby and
all obligations or liabilities for any legal, accounting, investment
banking, brokerage, or similar fees or expenses incurred by Seller or RII
in connection with, resulting from, or attributable to the transactions
contemplated by this Agreement;
(d) all obligations or liabilities for any indebtedness for
borrowed money incurred with respect to the Business prior to the Closing
Date pursuant to any indenture, mortgage, loan, letter of credit, or other
credit Contract under which the Seller or RII has borrowed or is entitled
to borrow any money or issued any note, bond, indenture, or other evidence
of indebtedness for borrowed money, or any guarantee or other contingent
liability in respect of any indebtedness of any other Person, including,
without limitation any obligations or liabilities of Seller or RII
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pursuant to the Amended and Restated Bank Credit Agreement dated as of
January 30, 1997 among Seller, certain of the Subsidiaries, The Chase
Manhattan Bank, N.A., and the other lenders named therein; and
(e) except (x) as specifically provided in Sections 2.1(b), 2.1(c)
and 9.1, or (y) to the extent of the amount accrued on the Closing
Statement prepared pursuant to Section 3.2(c), all obligations or
liabilities (contingent or otherwise) of Seller arising from or relating
to (i) the employment or termination of employment of any Employee before
the Closing Date, (ii) Employee Plans (including claims arising thereunder
and relating to the period prior to the Closing Date) and (iii)
post-retirement medical and/or life insurance benefits coverage of current
or former non-bargaining unit Employees and their eligible dependents.
ARTICLE III. PURCHASE PRICE
3.1. Unadjusted Purchase Price. At the Closing, in addition to assuming
the Assumed Liabilities, Purchaser (together with the H&C Assignees) will pay
for the Purchased Assets and the covenants of Seller included herein an
aggregate purchase price in the amount of U.S. $445,000,000 (the "Unadjusted
Purchase Price"), subject to adjustment as provided in Section 3.2 and Section
10.6 (as adjusted, the "Purchase Price"). The Unadjusted Purchase Price shall be
paid by wire transfer of immediately available funds to such account as shall
have been designated by Seller to Purchaser prior to the Closing. In so
designating such account, Seller shall be acting as agent for RII and shall have
the exclusive responsibility for the delivery to RII of such portion of the
Unadjusted Purchase Price to which it may be entitled.
3.2. Adjustments to the Purchase Price
(a) If the amount of the Net Book Value of the Business
(determined in accordance with Section 3.2(b) as of the Closing Statement Date
(as hereinafter defined) is: (i) less than $62,343,000, the Unadjusted Purchase
Price shall be decreased by an amount equal to the amount by which such Net Book
Value is less than $62,343,000, (the "Downward Book Value Adjustment"); or (ii)
is greater than $62,343,000, the Unadjusted Purchase Price shall be increased by
an amount equal to the amount by which such Net Book Value is greater than
$62,343,000, but such increased amount shall not in any event exceed the amount
of cash and cash equivalents included in the Closing Statement plus $5,000,000
(the "Upward Book Value Adjustment" and, together with the Downward Book Value
Adjustment, the "Book Value Adjustment"). Payment of any Book Value Adjustment
shall be made pursuant to Section 3.2(f).
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(b) As used herein, the term "Net Book Value" shall mean the sum
of the consolidated assets of the Business minus the sum of the amount of the
consolidated liabilities of the Business as reflected on the Closing Statement,
(i) provided there shall be excluded from the consolidated assets: (A) any
Excluded Assets; and, (B) any assets of the Acquired Subsidiaries relating to
Income Taxes and deferred Income Taxes with respect to the Business attributable
to periods ending on or prior to the Closing Date or to the pre-Closing portion
of any taxable period that includes but does not end on the Closing Date; and
(ii) provided there shall be excluded from the consolidated liabilities: (A) any
Retained Liabilities and (B) any liabilities of the Acquired Subsidiaries
relating to Income Taxes and deferred Income Taxes with respect to the business
attributable to periods ending on or prior to the Closing Date or to the
pre-Closing portion of any taxable period that includes but does not end on the
Closing Date.
(c) The term "Closing Statement" shall mean the statement of Net
Book Value as of the Closing Date or, if the Closing Date does not fall on the
last business day of the month, as of the month-end following the Closing Date
(as applicable, the "Closing Statement Date"). The Closing Statement shall be
prepared by Purchaser and shall be delivered to Seller as promptly as
practicable, and in any event within 60 days after the Closing Statement Date.
The Closing Statement (i) shall be prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied in a manner consistent
with the application of those principles in the audited balance sheet of the
Seller and its Subsidiaries as of December 31, 1996 and (ii) shall present
fairly the Net Book Value as of the Closing Statement Date and the amount of the
Book Value Adjustment resulting therefrom; provided, however, that no prepaid
expense shall be included on the Closing Statement unless Purchaser will
actually realize the benefit thereof subsequent to the Closing Date. For
illustrative purposes, set forth on Schedule 3.2(b) hereof is calculation of the
projected Net Book Value of the Business as of December 31, 1997.
(d) If the Closing Date occurs on any date other than the last
business day of the month, then the Book Value Adjustment shall be decreased by
an amount equal to the "Profit Adjustment" as defined below. The Profit
Adjustment shall be calculated by using the Consolidated Statement of Income
(which will be present in the form set out in Schedule 3.2(d)) for the month in
which the Closing Date occurs (the "Closing Month"). Purchaser shall prepare the
Consolidated Statement of Income in accordance with GAAP and consistent with the
principles applied in the audited consolidated financial statements of Seller
and its Subsidiaries for the year ended December 31, 1996. The "Profit
Adjustment" shall be the amount obtained by taking the net income (as set out in
the Consolidated Statement of Income) for the Closing Month multiplied by the
adjustment factor. The adjustment factor will be calculated as the number of
days from the Closing Date to and including the Closing Statement Date divided
by the total number of days in the Closing Month.
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(e) Seller shall have the opportunity to examine the work papers,
schedules, and other documents prepared by Purchaser, in connection with its
preparation of the Closing Statement and Profit Adjustment, as applicable. The
Closing Statement and Profit Adjustment shall be final and binding on the
parties unless, within 60 days after delivery to Seller notice is given by the
Seller of its objection setting forth in reasonable detail its basis for
objection. If notice of objection is given, the parties shall consult with each
other with respect to the items in dispute. If the parties are unable to reach
agreement within 20 days after the notice of objection has been given, the items
in dispute shall be referred for resolution to the U.S. national office of KPMG
Peat Marwick LLP (the "Accountants") as promptly as practicable. The Accountants
will make a determination as to each of the items in dispute, which
determination will be (i) in writing, (ii) furnished to each of the parties
hereto as promptly as practicable after the items in dispute have been referred
to the Accountants, (iii) made in accordance with this Agreement, and (iv)
conclusive and binding upon each of the parties hereto. In connection with their
determination of the disputed items, the Accountants will be entitled to rely
on, if any, the workpapers, trial balances, and similar materials prepared by
Purchaser's auditors in connection with such firm's examination of the financial
statements of Seller and Purchaser, and the fees and expenses of the Accountants
will be shared by Purchaser and Seller in such proportions as the Accountants
determine and deem equitable (after taking into account, among other things, the
difference between the positions taken by Purchaser and Seller, and the
conclusion determined by the Accountants to be appropriate). Each of Purchaser
and Seller will use commercially reasonable efforts to cause the Accountants to
render their decision as soon as reasonably practicable, including without
limitation by promptly complying with all reasonable requests by the Accountants
for information, books, records, and similar items.
(f) Parent and Seller jointly and severally agree, within 5 days
after the date of determination of the Book Value Adjustment and the Profit
Adjustment, to pay to Purchaser (or to the H&C Assignees, as applicable) the
amount of any Downward Book Value Adjustment, plus interest thereon from the
Closing Statement Date to the date of determination at a rate of five percent
(5%) per annum (subject to applicable withholding Taxes as may be required by
Law), accruing daily and compounding annually, as an adjustment to the Purchase
Price by wire transfer of immediately available funds to such account or
accounts as shall be designated by Purchaser to Seller. Purchaser, H&C and H&C
America jointly and severally agree, within 5 days after the date of
determination of the Book Value Adjustment, to pay (or cause to be paid in the
case of the H&C Assignees) to Seller (or to such Persons as Seller may
designate) the amount of any Upward Book Value Adjustment, plus interest thereon
from the Closing Statement Date to the date of determination at a rate of five
percent (5%) per annum (subject to applicable withholding Taxes as may be
required by Law), accruing daily and compounding annually, as an adjustment to
the Purchase Price by wire transfer of immediately available funds to such
account or accounts as shall be designated by Seller to Purchaser.
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3.3. Allocation of Purchase Price. Seller and Purchaser agree that the
Unadjusted Purchase Price shall be allocated to and among the shares of capital
stock of the Acquired Subsidiaries as set forth on Schedule 3.3 hereof. Seller
and Purchaser agree that the remaining portion of the Unadjusted Purchase Price
of the Purchased Assets (including the amount of the Assumed Liabilities) will
be allocated among the Purchased Assets and the covenants of Parent and Seller
included herein within 60 Business Days after the Closing Date by mutual
agreement between Purchaser and Seller, and Purchaser and Seller agree to be
bound by such allocation. Such allocation shall comply with Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations
promulgated thereunder. Subject to the requirements of any applicable tax law,
all Tax Returns and reports including, without limitation, IRS form 8594, filed
by the Purchaser and the Seller shall be prepared consistently with such
allocation and neither the Purchaser nor the Seller shall take a position
contrary thereto. In the event of any purchase price adjustment hereunder, the
Purchaser (and the H&C Assignees, as the case may be) and the Seller agree to
adjust such allocation to reflect such purchase price adjustment and to file
consistently any tax returns and reports including, without limitation, IRS form
8594, required as a result of such purchase price adjustment. Any disputes
regarding the allocation of the Unadjusted Purchase Price of the Purchased
Assets and the Assumed Liabilities shall be referred for resolution to the
Accountants, and the fees and expenses of the Accountants will be shared by
Purchaser and Seller in such proportions as the Accountants determine and deem
equitable (after taking into account, among other matters, the difference
between the allocation proposed by Seller and Purchaser, respectively, and the
allocation determined by the Accountants to be appropriate). Each of Purchaser
and Seller will use commercially reasonable efforts to cause the Accountants to
render their decision as soon as reasonably practicable, including without
limitation by promptly complying with all reasonable requests by the Accountants
for information, books, records, and similar items.
ARTICLE IV. THE CLOSING
4.1. Date of Closing. The consummation of the purchase and sale of the
Purchased Assets contemplated hereby (the "Closing") shall take place on January
30, 1998, at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New
York, New York 10155 (or at such other place as the parties may designate) or on
such other date designated by the parties in writing, after each of the
conditions specified in Article VII has been fulfilled (or waived by the party
entitled to waive that condition). The date on which the Closing is effected is
referred to in this Agreement as the "Closing Date." At the Closing, the parties
shall execute and deliver the documents referred to in Article VIII.
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ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of Seller. Each of Seller and Parent,
jointly and severally, makes the following representations and warranties to
H&C, H&C America and Purchaser, each of which is true and correct as of the date
hereof and shall be true and correct as of the Closing Date, and, except as
otherwise provided in Section 10.1 hereof, shall be unaffected by any
investigation heretofore or hereafter made by or on behalf of H&C, H&C America,
or Purchaser. Except with respect to the representations and warranties
contained in the second sentence of Section 5.1.6(B) and Section 5.1.11(i), the
representations and warranties contained in this Article V with respect to
Enenco or the Enenco Shares are made to the knowledge of Parent and Seller.
5.1.1. Organization and Good Standing. Each of Seller, Parent, and
RII is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, New Jersey, and Delaware respectively.
Each of Seller and RII has the requisite corporate power and authority to own,
lease, or otherwise hold the Purchased Assets owned, leased, or otherwise held
by it and to carry on the Business as presently conducted by it. Except as
described on Schedule 5.1.1, each of Seller and RII is in good standing and duly
qualified to conduct business as a foreign corporation in every state of the
United States in which its ownership or lease of property or conduct of its
business activities makes such qualification necessary, except where the failure
to be so qualified would not, individually or in the aggregate, have a material
adverse effect on the Purchased Assets or the condition (financial or otherwise)
or results of operations of the Business, taken as a whole, or on the ability of
Purchaser to conduct the Business after the Closing ("Material Adverse Effect").
The states in which Seller and RII are so qualified are listed on Schedule
5.1.1.
5.1.2.A Acquired Subsidiaries and Enenco. Each of the Acquired
Subsidiaries and Enenco is a corporation duly organized, validly existing, and
in good standing under the laws of its jurisdiction of organization or
incorporation set forth on Schedule 5.1.2A, and each of the Acquired
Subsidiaries and Enenco has the requisite corporate power and authority to own,
lease, or otherwise hold the assets owned, leased, or otherwise held by it and
to carry on the business presently conducted by it. None of the Acquired
Subsidiaries has filed in the last ten years for bankruptcy or composition
proceedings. Except as described on Schedule 5.1.2A, each of the Acquired
Subsidiaries and Enenco is duly qualified to conduct business as a foreign
corporation in each jurisdiction in which its ownership or lease of property or
assets or the conduct of its business activities makes such qualification
necessary, except where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect. The jurisdictions in which
the Acquired Subsidiaries are so qualified are listed on Schedule 5.1.2A. Except
for the Subsidiaries and Enenco, and except as otherwise set forth in Section
1.2.10 and on Schedule 5.1.2A, no shares of any corporation or any ownership or
other investment interest, either of record, beneficially, or equitably, in any
association, partnership, joint venture, limited liability company, trust, or
other legal entity are owned or held, directly or indirectly, by Seller or RII.
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5.1.2.B Capital Stock. The authorized and outstanding capital
stock and, as applicable, nominal values, of each Acquired Subsidiary and Enenco
is as set forth on Schedule 5.1.2B. All of the issued and outstanding shares of
capital stock of each Acquired Subsidiary and all of the Enenco Shares have been
duly authorized and validly issued, are fully paid and nonassessable with no
personal liability attaching thereto and were not issued in violation of any
preemptive rights or federal or state securities Laws, and are owned
beneficially and of record in the amounts (or in the nominal values) and by the
Persons as disclosed in Schedule 5.1.2B. Except as set forth on Schedule 5.1.2B,
all of the outstanding capital stock of each of the Acquired Subsidiaries and
the Enenco Shares are free and clear of all Liens. Except as set forth on
Schedule 5.1.2B, there are no outstanding securities, rights (preemptive or
other), subscriptions, calls, warrants, options, or other agreements (except for
this Agreement) that give any person the right to purchase, subscribe for, or
otherwise receive or be issued any shares of capital stock of any Acquired
Subsidiary or Enenco or any security convertible into or exchangeable or
exercisable for any shares of capital stock of any Acquired Subsidiary or
Enenco. Except as set forth on Schedule 5.1.2B, there are no proxies,
stockholder agreements, voting trusts, or other agreements or understandings to
which Parent, Seller, any Subsidiary, or Enenco is a party or by which it is
bound relating to the voting of any shares of capital stock of any Acquired
Subsidiary or Enenco and, except for rights held by Parent, Seller, or any
Subsidiary and except as set forth on Schedule 5.1.2B, there are no rights to
participate in the equity, income, or election of directors or officers of any
Acquired Subsidiary or Enenco. With respect to the Acquired Subsidiaries
organized under the laws of Germany, no direct or indirect repayments of stock
capital have been made.
5.1.3. Authorization and Effect of Agreement. Each of Seller and
Parent has the requisite corporate power to execute and deliver this Agreement
and the agreements to be entered into by them at the Closing pursuant hereto
(the "Seller Ancillary Documents") and to perform the transactions contemplated
hereby and thereby to be performed by it. The execution and delivery by each of
Seller and Parent of this Agreement and the Seller Ancillary Documents and the
performance by each of them of the transactions contemplated hereby and thereby
to be performed by it have been or, in the case of the Seller Ancillary
Documents, will at the Closing be duly authorized by any necessary corporate and
shareholder action on the part of Seller and Parent. This Agreement has been,
and each Seller Ancillary Document will at the Closing be, duly executed and
delivered by duly authorized officers of each of Seller and Parent and, assuming
the due execution and delivery of this Agreement and, as applicable, any Seller
Ancillary Document, by Purchaser, constitutes a valid and binding obligation of
Seller and Parent enforceable against them in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at Law).
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5.1.4. No Restrictions Against Sale of the Purchased Assets;
Required Consents. The execution and delivery of this Agreement and each Seller
Ancillary Document by Seller or Parent does not or, in the case of the Seller
Ancillary Documents, will not, and the performance by Seller, Parent, or any
Subsidiary of the transactions contemplated hereby or thereby to be performed by
any of them will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws (or other organizational documents)
of Seller, Parent, any Subsidiary, or Enenco (b) except as set forth on Schedule
5.1.4, conflict with, or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a benefit under, any provision of any Contract or Permit to which any of
Seller, Parent, any Subsidiary, or Enenco is a party or by which any of them or
any of their respective properties are bound, (c) constitute a violation of any
Law applicable to any of Seller, Parent, any Subsidiary, or Enenco, or the
Purchased Assets, or (d) result in the creation of any Lien (other than any
Permitted Lien) upon any of the Purchased Assets, except in the case of clauses
(b) or (c) above, for such conflicts, violations, breaches, defaults,
accelerations, terminations, modifications, or cancellations that would not,
individually or in the aggregate, (i) have a Material Adverse Effect, (ii)
materially impair the ability of Parent or Seller to perform its obligations
hereunder or under any Seller Ancillary Document, or (iii) prevent or materially
delay the consummation of the purchase and sale of the Purchased Assets
contemplated hereby. No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Governmental Entity is required
to be obtained or made by or with respect to Seller, Parent, any Subsidiary, or
Enenco in connection with the execution and delivery of this Agreement or any
Seller Ancillary Document by Seller, Parent, or any Subsidiary or the
performance by Seller, Parent, or any Subsidiary of the transactions
contemplated hereby to be performed by either of them, except for (i) such of
the foregoing as are listed or described on Schedule 5.1.4 and (ii) any filings,
if required, with the Federal Trade Commission and Department of Justice
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act").
5.1.5. No Third Party Options. Except as described on Schedule
5.1.5, there are no existing agreements with, options, or rights of, or
commitments to any Person to acquire any of the Purchased Assets or any interest
therein, except for those Contracts entered into in the normal course of
business consistent with past practice.
5.1.6.A Seller Financial Statements. Seller has delivered to
Purchaser true and complete copies of (a) the consolidated balance sheets of
Seller and its Subsidiaries at December 31, 1994, 1995, and 1996 and the related
statements of income, changes in stockholder's equity (deficit), and cash flows
for the fiscal years then ended, audited by Coopers & Lybrand LLP; and (b) an
unaudited balance sheet of Seller and its consolidated Subsidiaries at September
30, 1997 and related statements of income, changes in stockholder's equity
(deficit), and cash flows for the period then ended (collectively, the
"Financial
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Statements"). Except as set forth on Schedule 5.1.6, such Financial Statements
have been prepared in accordance with GAAP and such balance sheets, including
the related notes, fairly present the financial position, assets, and
liabilities of Seller and its consolidated Subsidiaries at the dates indicated
and such statements of income, changes in stockholder's equity (deficit), and
cash flow fairly present the results of operations, changes in stockholder's
equity (deficit), and cash flow of Seller and its consolidated Subsidiaries for
the periods indicated; provided, however, that the unaudited financial
statements included in the Financial Statements are subject to normal year-end
adjustments (none of which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect). References in this Agreement to the
"Interim Balance Sheet" shall mean the balance sheet of the Business as of
September 30, 1997 referred to above, and references in this Agreement to the
"Interim Balance Sheet Date" shall be deemed to refer to September 30, 1997. The
books, records, and accounts of Seller and its Subsidiaries maintained with
respect to the Business fairly reflect, in reasonable detail, the transactions
and the assets and liabilities of Seller and its Subsidiaries with respect to
the Business. Neither Seller nor RII has engaged in any material transaction
with respect to the Business, maintained any bank account for the Business, or
used any of the funds of Seller or any Subsidiary in the conduct of the Business
except for transactions, bank accounts, and funds which have been and are
reflected in the normally maintained books and records of the Business.
5.1.6.B Enenco Financial Statements. Seller has delivered to
Purchaser true and complete copies of (a) the consolidated balance sheets of
Enenco at December 31, 1994, 1995, and 1996 and the related statements of income
and retained earnings and cash flows for the fiscal years then ended, audited by
Ernst & Young LLP ("Audited Enenco Financial Statements"); and (b) an unaudited
balance sheet of Enenco at September 30, 1997 and related statements of income
and retained earnings and cash flows for the period then ended. Except as set
forth on Schedule 5.1.6.B., to the actual knowledge of Debbie Young without
inquiry, there is no reason to believe that such Audited Enenco Financial
Statements have not been prepared in accordance with GAAP and such balance
sheets, including the related notes, do not fairly present the financial
position, assets, and liabilities of Enenco at the dates indicated and such
statements of income and retained earnings and cash flows do not fairly present
the results of operations and retained earnings and cash flows of Enenco for the
periods indicated.
5.1.7. Accounts Receivable. The accounts receivable of Seller and
its Subsidiaries arising from the Business as set forth on the Interim Balance
Sheet or arising since the date thereof are valid; and have arisen solely out of
bona fide sales and deliveries of goods, performance of services, and other
business transactions in the ordinary course of business consistent with past
practice.
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5.1.8. Inventory. All Inventory of Seller and its Subsidiaries
used in the conduct of the Business, including without limitation raw materials,
work-in process, and finished goods, reflected on the Interim Balance Sheet or
acquired since the date thereof was acquired and has been maintained in the
ordinary course of the Business; is of good and merchantable quality; consists
substantially of a quality, quantity, and condition usable, leasable or saleable
in the ordinary course of the Business; and, net of related inventory valuation
reserves, is valued at the lower of cost or market. Except as described on
Schedule 5.1.8, neither Seller nor any Subsidiary is under any liability with
respect to the return of Inventory in the possession of wholesalers, retailers,
or other customers.
5.1.9. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 5.1.9, to the knowledge of Parent or Seller, neither Seller nor any
Subsidiary has any liabilities with respect to the Business except (a) those
liabilities set forth on the Interim Balance Sheet and not heretofore paid or
discharged and (b) those liabilities incurred in the ordinary course of business
consistent with past practice since the Interim Balance Sheet Date.
5.1.10.Contracts and Commitments.
(a) Except as described on Schedule 5.1.10, neither Seller nor any
Subsidiary is a party to any written or oral:
(i)employment or consulting Contract with an employee or
former employee, director, agent, consultant, or similar representative;
(ii)collective bargaining agreement with any labor union;
(iii)Contract for the future purchase of, or payment for,
supplies or products, or for the performance of services by a third party
which supplies services to the Seller or any Subsidiary, involving in
excess of (A) $500,000 with respect to the Seller's U.S. Business and (B)
$1,000,000 with respect to the Seller's Non-U.S.
Business;
(iv)Contract to sell or supply products or to perform
services in excess of $800,000;
(v)Contract for capital expenditures or the acquisition
or construction of fixed assets involving in excess of the amounts in
Schedule 5.1.16(f);
(vi)Contract in excess of $50,000 relating to cleanup,
abatement, or other actions in connection with, or which result or may
reasonably be expected to
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result in the incurrence of, Environmental Costs or Liabilities (as
defined in Section 5.1.22(j));
(vii)Contract granting to any Person a first-refusal,
first-offer, or similar preferential right to purchase or acquire any of
the Purchased Assets or any assets of the Acquired Subsidiaries except for
Contracts relating to the sale of Inventory in the ordinary course of
business consistent with past practice and Contracts involving sales of
Purchased Assets which do not exceed $250,000 in the aggregate;
(viii)indenture or mortgage (without qualification), and
any loan, letter of credit, or other credit Contract under which the
Seller or any Subsidiary has borrowed or is entitled to borrow any amounts
in excess of $50,000 or issued any note, bond, indenture, or other
evidence of indebtedness for borrowed money in an amount in excess of
$50,000, or any indemnity, guarantee, or other contingent liability in
respect of any indebtedness of any other Person in an amount in excess of
$50,000;
(ix) material Contract with any manufacturer's
representative, distributor, or other sales agent;
(x)material Contract under which Seller or any
Subsidiary is (A) a lessee of, or holds or uses, any machinery, equipment,
vehicle, or other tangible personal property owned by any other Person,
(B) a lessor of, or makes available for use by any other Person, any
tangible personal property owned by any Seller or any Subsidiary, or (C) a
lessee of, or holds or uses, any Leased Real Property;
(xi)except for the agreements disclosed pursuant to
Schedule 5.1.10(xiv) hereto, management service, investment advisory,
investment banking, or other similar Contract;
(xii)material Contract limiting the freedom of the Seller
or any Subsidiary to sell any products or services of any other Person,
engage in any line of business, or to compete with or obtain products from
any other Person;
(xiii)material Contract pursuant to which the Seller or any
Subsidiary has agreed to indemnify or hold harmless any Person;
(xiv)Contract with any officer, director, Affiliate, or
stockholder of the Seller or any Subsidiary or with any holder of any
securities convertible into or exchangeable or exercisable for any shares
of capital stock of the Seller or any Subsidiary;
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(xv)Contract or commitment for any charitable or
political contribution relating to the Business in an amount involving in
excess of $25,000;
(xvi)material license, franchise, distributorship, or
other Contract which relates in whole or in part to any software, patent,
trademark, trade name, service mark, or copyright or to any ideas,
technical assistance or other know-how of or used by Seller or any
Subsidiary in the conduct of the Business; or
(xvii)material Contract relating to the Business not
made in the ordinary course of business.
(b) Each of the Contracts and other instruments, documents, and
undertakings listed or required to be listed on Schedule 5.1.10, or not required
to be listed therein because of the amount thereof, under which H&C or Purchaser
is to directly or indirectly acquire rights or obligations hereunder is, to the
knowledge of Parent and Seller, valid and enforceable in accordance with its
terms; Seller and each Subsidiary is, and to Parent's and Seller's knowledge all
other parties thereto are, in compliance with the provisions thereof; neither
Seller nor any Subsidiary is, and to Parent's and Seller's knowledge no other
party thereto is, in material default in the performance, observance, or
fulfillment of any obligation, covenant, or condition contained therein; and no
event has occurred which with or without the giving of notice or lapse of time,
or both, would constitute a default thereunder.
5.1.11.Title to Assets. Except as listed or described on Schedule
5.1.11, (i) Seller and RII has, and following the Closing, Purchaser will have,
good, valid, and marketable title to the Purchased Assets, and each Acquired
Subsidiary has, and (ii) Enenco has, good and marketable title to the assets and
properties owned or used by it, free and clear of all Liens, other than with
respect to both clauses (i) and (ii), (a) Liens for Taxes, assessments, and
other governmental charges which are not due and payable or which may thereafter
be paid without penalty, and (b) mechanics', carriers', workmen's, repairmen's,
and other like Liens arising or incurred in the ordinary course of business
consistent with past practice. The items listed or described on Schedule 5.1.11,
and those referred to in clauses (a) and (b) of the immediately preceding
sentence are hereinafter referred to as "Permitted Liens".
5.1.12.Intellectual Property.
(a) Except as set forth on Schedule 5.1.12(a), the Intellectual
Property and the Acquired Subsidiary Intellectual Property, together with the
intellectual property provided pursuant to the transitional services agreement
described in more detail on Exhibit B hereto or the NL Software License,
includes all of the intellectual property rights owned or licensed by Seller and
its Subsidiaries and used in the operation of the Business. Except as set forth
on Schedule 5.1.12, Seller, directly or indirectly through its Subsidiaries, has
good and
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marketable title to, the Intellectual Property and the Acquired Subsidiary
Intellectual Property owned by Seller and its Subsidiaries, free and clear of
all Liens (other than Permitted Liens), and, subject to the receipt of consents
referred to in Schedule 5.1.12, Seller and RII have the power to transfer the
Intellectual Property to Purchaser and, except as set forth in Schedule 5.1.12,
no Person other than Seller and its Subsidiaries has rights to use, market, or
exploit the Intellectual Property or the Acquired Subsidiary Intellectual
Property owned by Seller and its Subsidiaries or any portion thereof. Except as
set forth in Schedule 5.1.12, there are no pending, or to the knowledge of
William R. Bronner, Michael Cronin, and Robert Cottone after due inquiry,
proceedings threatened affecting the Intellectual Property or the Acquired
Subsidiary Intellectual Property owned by Seller and its Subsidiaries. Schedule
5.1.12 lists all notices or claims currently pending or received within the past
3 years by Seller or RII with respect to claims of infringement by others which
claim infringement of any third-party domestic or foreign letters patent, patent
applications, patent licenses, software licenses and know-how licenses, trade
names, trademark registrations and applications, trademarks, service marks,
copyrights, copyright registrations or applications, trade secrets, technical
knowledge, know-how, or other confidential proprietary information. Except as
(i) set forth on Schedule 5.1.12 and (ii) for those matters which could not
reasonably be expected to have a Material Adverse Effect, there is, to the
knowledge of William R. Bronner, Michael Cronin, and Robert Cottone, after due
inquiry, no infringement or misappropriation of any domestic or foreign letters
patent, patents, trade names, trademark registrations, trademarks, service
marks, copyrights, copyright registrations or applications, trade secrets,
technical knowledge, know-how or other confidential proprietary information held
or owned by another Person. The patents and trademark registrations listed on
Schedule 1.1.6(a), 1.1.6(b), 5.1.12(b), are in effect, and none of Seller, any
Subsidiary, or, to the knowledge of William R. Bronner, Michael Cronin, and
Robert Cottone, after due inquiry, any other Person, is in default or violation
under any of the licenses specified on Schedule 1.1.6(a), 1.1.6(b), 5.1.12.
(b) For the purposes hereof, the term "Acquired Subsidiary
Intellectual Property" shall mean (i) all patents and patent applications owned
by any Acquired Subsidiary, all licenses to patents and patent applications to
and from third parties, in each case as set forth on Schedule 5.1.12(b) hereto,
(ii) research and development data and results, manufacturing and other
processes, trade secrets, know how, inventions, ideas, conceptions, mask work,
designs, technology, proprietary data or information, formulae, and
manufacturing, engineering, and other technical information, whether owned by
the Acquired Subsidiaries or licensed to the Acquired Subsidiaries by third
parties or Affiliates, (iii) all copyrights (registered or otherwise) and
registrations and applications for registration thereof owned or licensed by any
Acquired Subsidiary, (iv) all copies and tangible embodiments of all the
foregoing, in whatever form or medium, (v) all notebooks, records, reports, and
data relating thereto, (vi) all applications and registrations for any of the
foregoing, (vii) all trademarks, trade names, service marks, trade dress, logos,
and corporate names (including the name Rheox and any derivatives thereof), or
any applications and registrations for any of the
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foregoing, in each case as listed on Schedule 5.1.12(b) hereto, (viii) except as
may otherwise be provided in the transition services agreement described in more
detail on Exhibit B hereto, all computer programs, software and databases
licensed by any Acquired Subsidiary from third parties, (ix) all copies and
tangible embodiments of all the foregoing, in whatever form of medium, and (x)
all rights to sue for present and past infringement of any of the foregoing.
5.1.13.Sufficiency and Condition of Assets. The Purchased Assets
constitute all of the rights, properties, and assets of every kind, character,
and description, wherever located and whether tangible or intangible, real or
personal, or fixed or contingent, that are owned, held, used, conceived,
developed, or offered for sale or license by Seller or RII in connection with
the conduct of the Business as presently conducted, except the Excluded Assets;
provided, however, that such representations and warranties with respect to
Intellectual Property are provided in Section 5.1.12(a) above. All the Purchased
Assets and all of the assets held or used by the Subsidiaries are in good
operating condition and repair, subject to normal wear, maintenance, and
obsolescence and are usable in the regular and ordinary course of business.
Schedule 5.1.13 lists all material business arrangements between any Affiliates
of Seller or Parent, on the one hand, and Seller and the Subsidiaries, on the
other hand. Schedule 5.1.13 lists those material assets, tangible or intangible,
owned by any Affiliate of Seller or Parent which are used in the Business of any
of Seller and the Subsidiaries.
5.1.14.Real Property.
(a) Title to Owned Real Property. At Closing, title to the Owned
Real Property and to all real property owned by the Acquired Subsidiaries and
Enenco listed and described on Schedule 5.1.14(a), together with all appurtenant
easements thereunto and all structures, fixtures, and improvements located
thereon, and any minerals and mining rights with respect thereto (the "Other
Owned Real Property") shall be good and marketable, free and clear of all Liens
and other matters affecting Seller's, the Subsidiaries' or Enenco's title to or
possession of such Owned Real Property and other Owned Real Property, including,
but not limited to, all encroachments, boundary disputes, covenants,
restrictions, burdens, conditions, servitudes, occupancy rights, charges,
diligences, easements, rights of way, mortgages, security interests, leases,
encumbrances and title objections, excepting only the Permitted Liens and such
easements, restrictions, and covenants presently of record, which easements,
restrictions, and covenants are listed on Schedule 5.1.14(a). Without limiting
the generality of the foregoing, to Parent's and Seller's knowledge, all
unpatented mining claims included in the Owned Real Property are believed by
Seller to be properly located, have been properly maintained, and in good
standing. At Closing, (i) title to the Owned Real Property shall be insurable by
Lawyers Title Insurance Company, pursuant to the most recent version of the ALTA
Owner's form of policy, and (ii) title to the Other Owned Real Property owned by
the Acquired Subsidiaries (to the extent available in the country in which such
Other Owned Real Property is located) shall be insurable by a title insurance
company selected by Purchaser
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pursuant to such owner's form of policy as is customary in such country at such
insurer's customary rates, in each case free of all exceptions except the
aforesaid easements, restrictions, and covenants; provided that, in the case of
each of the foregoing clauses (i) and (ii), Parent and Seller make no
representation as to the availability of such title insurance to the extent that
Purchaser seeks to obtain title insurance in an amount and scope that is more
comprehensive in the aggregate than the title insurance obtained by Chase
Manhattan Bank pursuant to the title policies listed on Schedule 5.1.14(a).
(b) Leased Real Property. With respect to the Leased Real Property
and all real property leased by any Acquired Subsidiary and Enenco (the "Other
Leased Real Property" and, together with the Other Owned Real Property, the
"Other Real Property"):
(i)Schedule 5.1.14(b) describes each Real Property Lease
and each lease with respect to the Other Leased Real Property ("Other Real
Property Leases") by listing the name of the landlord or sublandlord, a
description of the leased premises, and the commencement and expiration
dates of the current term;
(ii)each Real Property Lease and each Other Real Property
Lease is, and at Closing shall be, in full force and effect and, except as
contemplated hereby, has not been assigned, modified, supplemented, or
amended, and none of Seller, the Subsidiaries or Enenco is in default
(with or without notice or lapse of time, or both) under any of the Real
Property Leases or Other Real Property Leases; and
(iii)the applicable Acquired Subsidiary has good and
marketable title to the real property lease located in Livingston,
Scotland.
(c) Utility Services. The water, electric, gas, and sewer utility
services and the septic tank and storm drainage facilities currently available
to each material parcel of the Real Property and Other Real Property are
adequate for the present use of the Real Property and Other Real Property by
Seller, the Subsidiaries, and Enenco, are not being appropriated by Seller, any
Subsidiary, or Enenco but rather are being supplied to Seller, the Subsidiaries,
and Enenco by utility companies or municipalities, and to the knowledge of
Parent and Seller there is no condition which could reasonably be expected to
result in the termination of the present access from the Real Property or the
Other Real Property to such utility services and other facilities, except where
the termination would not have a Material Adverse Effect.
(d) Assessments or Hazards. None of Seller, any Subsidiary, or
Enenco has received any written notices from any Governmental Entity that the
assessed value of any material parcel of the Real Property or Other Real
Property has been determined to be materially greater than that upon which
county, township or school tax was paid for the 1996
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tax year applicable to each such tax, or, within past twelve months, in writing
from any insurance carrier of Seller, any Subsidiary, or Enenco of fire hazards
with respect to the Real Property or Other Real Property, except as set forth on
Schedule 5.1.14 hereto.
(e) Eminent Domain. None of Seller, any Subsidiary, or Enenco has
received any written notices from any Governmental Entity having the power of
eminent domain over the Real Property or the Other Real Property that such
Governmental Entity has commenced or intends to exercise the power of eminent
domain or a similar power with respect to all or any material part of the Real
Property or Other Real Property.
(f) No Violations. To the knowledge of Seller and Parent, the Real
Property or Other Real Property and the present uses thereof comply in all
material respects with all applicable Laws, and none of Seller, any Subsidiary,
or Enenco has received any written notices from any Governmental Entity that the
Real Property or Other Real Property or any improvements erected or situate
thereon, or the uses conducted thereon or therein, violate any applicable Laws,
except for violations that could not reasonably be expected to have a Material
Adverse Effect.
(g) Flood Plain. To the knowledge of Seller and Parent, and except
as set forth on Schedule 5.1.14(g), no material part of the Real Property or
Other Real Property (other than the Hightstown leased property) contains, is
located within, or abuts any flood plain, navigable water, or other body of
water, tideland, wetland, marshland, or any other area which is subject to
special state, federal, or municipal regulation, control, or protection.
5.1.15.Insurance. Set forth in Schedule 5.1.15 is a list of all
fire, liability, and other forms of insurance and all fidelity bonds held by or
applicable to Seller, the Subsidiaries, the Purchased Assets, the Business, or
Enenco setting forth, in respect of each such policy, the policy name, policy
number, carrier, term, type of coverage, and annual premium. Except as noted on
Schedule 5.1.15, all such insurance will remain, to the knowledge of Seller and
Parent, in full force and effect with respect to periods before the Closing;
provided, that Parent and Seller will continue to pay premiums on policies held
by or applicable to Seller and RII when due and will not otherwise take any
action to modify or cancel any such insurance policies except for renewals or
replacements of such policies made in the ordinary course of business. To the
knowledge of Seller and Parent, no event has occurred, including, without
limitation, the failure by Seller, or any Subsidiary or Enenco to give any
notice or information or Seller, any Subsidiary, or Enenco giving any inaccurate
or erroneous notice or information, which materially limits or impairs the
rights of Seller, such Subsidiary, or Enenco under any such insurance policies.
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5.1.16.Conduct of the Business Since the Interim Balance Sheet
Date. Since the Interim Balance Sheet Date neither Seller, any Subsidiary or, in
case of clauses (a), (c), (d), (i), or (j), Enenco has:
(a) incurred any liabilities, other than liabilities incurred in
the ordinary course of business consistent with past practice, or failed
to pay or discharge when due any liabilities of which the failure to pay
or discharge has caused or will cause any material damage or material loss
to it or its assets or properties;
(b) sold, encumbered, assigned, or transferred any of its assets
or properties (to the extent, in the case of Seller and RII, such assets
or properties would have been included in the Purchased Assets), except
for the replacement or betterment of equipment and the sale of Inventory
in the ordinary course of business consistent with past practice;
(c) made or suffered any amendment or termination (other than in
accordance with its terms) of any Contract listed on Schedule 5.1.10(a),
Permit, or Other Permit (as defined in Section 5.1.21), or canceled,
modified, or waived any substantial debts or claims held by it or waived
any rights of material value, whether or not in the ordinary course of
business;
(d) suffered any damage, destruction, or loss, whether or not
covered by insurance, of any item or items carried on its books of account
individually or in the aggregate at more than $250,000, or suffered any
repeated, recurring, or prolonged shortage, cessation, or interruption of
supplies or utility or other services required to conduct the Business;
(e) received notice of any actual, or written notice of any
threatened, labor trouble, strike, or other material occurrence, event, or
condition of any similar character;
(f) made binding commitments or Contracts for capital expenditures
or capital additions or betterments exceeding the amounts specified in
Schedule 5.1.16(f), except such as may be involved in ordinary repair,
maintenance, or replacement of the Purchased Assets or assets or
properties of any Acquired Subsidiaries;
(g) except in the ordinary course of business consistent with past
practice, increased the salaries or other compensation of, or made any
advance (excluding advances for ordinary and necessary business expenses)
or loan to, any of its employees or made any increase in, or any addition
to, other benefits to which any of its employees may be entitled;
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(h) except where the effect of the change would not be material,
changed any of the accounting principles followed by it or the methods of
applying such principles;
(i) entered into any transaction other than in the ordinary course
of business consistent with past practice involving in excess of $100,000
individually or $250,000 in the aggregate; or
(j) suffered any event or circumstance that individually or in the
aggregate has had or could reasonably be expected to have a Material
Adverse Effect.
5.1.17.Customers and Suppliers. Schedule 5.1.17 sets forth (a) a
list of the ten largest customers (excluding customers which are distributors or
agents, but including sales known to be through distributors or agents) of
Seller and the Subsidiaries (taken as a whole) based on sales during the fiscal
year ended December 31, 1996 and forecast sales for the year ended December 31,
1997, showing the approximate total sales by Seller and the Subsidiaries to each
such customer during such periods, and (b) a list of the nine largest suppliers
of Seller and the Subsidiaries (taken as a whole) based on purchases during the
fiscal year ended December 31, 1996, and the nine months ended September 30,
1997 showing the approximate total purchases by Seller and the Subsidiaries from
each such supplier during such periods.
5.1.18.Labor Matters.
(a) Seller is a not a party to or bound by any written employment,
consulting, collective bargaining agreement or other labor agreement, except as
set forth on Schedule 5.1.18(a). A copy of each such agreement has been provided
to Purchaser or included in the data room in Hightstown, New Jersey.
(b) Schedule 5.1.18(b) hereto contains a true and complete list of
all persons currently employed by the Seller solely in connection with the
Business as of December 29, 1997, including position, date of hire, salary or
hourly wage rate, a description of material compensation arrangements (other
than employee benefit plans set forth in Schedule 5.1.19), and a list of other
material terms of any and all agreements affecting such persons.
(c) Except as described on Schedule 5.1.18(c), Seller has not
agreed to recognize any union or other collective bargaining unit, nor has any
union or other collective bargaining unit been certified as representing any of
Seller's employees. Neither Parent nor Seller has any knowledge of any
organizational effort currently being made or threatened in writing by or on
behalf of any labor union with respect to employees of the Seller. There is
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no labor strike, slowdown, work stoppage, or lockout actually pending or, to the
knowledge of Parent and Seller, threatened within the preceding 12 months
against Seller.
(d) Except as described on Schedule 5.1.18(d), Seller (i) does not
have any written personnel policy applicable to Employees, (ii) is not or within
the past 5 years has not been in violation in any material respect of any
applicable Laws regarding employment and employment practices, including without
limitation, those Laws relating to terms and conditions of employment, wages,
and hours, occupational safety and health and workers' compensation or is
engaged in any unfair labor practices, (iii) does not have any unfair labor
practice charges or complaints pending or threatened in writing against it
before the National Labor Relations Board, (iv) does not have any grievances
pending or, to the knowledge of Parent and Seller, threatened in writing against
it, and (v) does not have any charges pending before the Equal Employment
Opportunity Commission of any state or local agency responsible for the
prevention of unlawful employment practices.
5.1.19.Employee Benefit Plans.
(a) All "employee benefit plans," as defined by Section 3(3) of
ERISA (including non-United States plans which are not subject to ERISA), and
all bonus or other incentive compensation, severance, disability, salary
continuation, vacation, holiday, educational assistance, and service award plan,
policy, or agreement as to which the Seller has any obligation or liability
(contingent or otherwise) with respect to Employees or Subsidiary Employees (the
"Employee Plans") are listed on Schedule 5.1.19(a). Schedule 5.1.19(a)
identifies the Employee Plans separately for each country.
(b) Seller has provided to Purchaser or included in the data room
in Hightstown, New Jersey, a correct and complete copy of the applicable plan
documents (except for post-retirement medical benefit and life insurance plans),
summary plan descriptions, and collective bargaining agreements pertaining to
post-retirement medical and life insurance benefit obligations to bargaining
unit Employees and Subsidiary Employees. Seller has provided, or will prior to
Closing provide, to Purchaser or, with respect to clause (ii) hereof, set forth
on Schedule 5.1.19(b) is, a correct and complete list of all (i) current
Employees and Subsidiary Employees, together with their date of hire, date of
birth, salary or hourly wage rate, and work location and (ii) former bargaining
unit Employees who are currently receiving post-retirement medical or life
insurance benefits.
(c) For purposes of this Agreement, (i) "Employees" shall mean (x)
current or former living employees of Seller, and (y) current employees of
Kronos Titan GmbH, Kronos International, Inc., Kronos Canada, Inc., and Societe
Industriele du Titane, SA, who perform and had performed services solely with
respect to the business of the Seller
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and Acquired Subsidiaries, and (ii) "Subsidiary Employees" shall mean current or
former living employees of Acquired Subsidiaries.
5.1.20.Litigation; Decrees.
(a) There are no judicial or administrative actions, proceedings,
or investigations pending or, to Parent's or Seller's knowledge, currently
threatened that question the validity of this Agreement or any action taken or
to be taken by Seller or any Subsidiary in connection with this Agreement.
Except as listed or described on Schedules 5.1.20(a), there are no (i) lawsuits,
written claims, administrative, or other proceedings or investigations relating
to the conduct of the Business or Enenco pending or, to Seller's or Parent's
knowledge, currently threatened by, against, or affecting Seller, any
Subsidiary, any of the Purchased Assets or Enenco or (ii) judgments, orders, or
decrees of any Governmental Entity binding on the Seller, any Subsidiary, any of
the Purchased Assets, or Enenco.
(b) All lawsuits within the past 3 years asserting that any
product manufactured or sold by Seller or any Subsidiary in the conduct of the
Business was defective or caused any injury or harm to any person, including
without limitations all such claims and allegations relating to returns,
warranty claims, failure to warn, breach of warranties of merchantability or
fitness for any purpose or use, or similar matters are described on Schedule
5.1.20(b). Schedule 5.1.20(b) sets forth, to the knowledge of Parent and Seller,
all complaints by customers of Seller and its Subsidiaries within the past
twelve months that products sold by Seller and its Subsidiaries have failed to
perform as anticipated.
5.1.21.Compliance With Law; Permits. To the knowledge of Parent
and Seller, Seller, the Subsidiaries, and Enenco have complied with each Law to
which Seller, any Subsidiary, Enenco, or its business, operations, assets, or
properties is subject and is not currently in violation in any respect of any of
the foregoing, except where the failure to comply or where such violation could
not reasonably be expected to have a Material Adverse Effect. To the knowledge
of Parent and Seller, Seller, each Subsidiary, and Enenco owns, holds,
possesses, or lawfully uses in the operation of its business all Permits and
Other Permits, as applicable, which are necessary for it to conduct its business
as now conducted or for the ownership and use of its assets, except where the
failure to own, hold, possess, or lawfully use any such Permit could not
reasonably be expected to have a Material Adverse Effect. All Permits are listed
and described on Schedule 1.1.8, and all licenses, permits, franchises,
authorizations, orders, registrations, certificates, variances, approvals, and
similar rights of any Acquired Subsidiary or Enenco issued by any Governmental
Entity (collectively, "Other Permits") are listed on Schedule 5.1.21(a). None of
Seller, any Subsidiary, or Enenco is in default, nor has any of Seller, Parent,
any Subsidiary or Enenco received any written notice of any claim of default,
with respect to any Permits or Other Permits, listed on Schedule 5.1.21(a)(1)
hereto, except for such defaults that could not reasonably be expected to
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have a Material Adverse Effect. To the knowledge of Seller and Parent, no
shareholder, director, officer, employee, or former employee of Seller, any
Subsidiary, or any Affiliates of Seller or any Subsidiary, or any other Person,
owns or has any material proprietary, financial, or other direct interest in any
Permits or any Other Permits which Seller or any Subsidiary owns, possesses, or
uses in the operation of the Business.
5.1.22.Environmental Matters. Except as set forth in Schedule
5.1.22, to the knowledge of Patent and Seller:
(a) the operation of the Business and the operation of Enenco's
business is in compliance with all Environmental Laws applicable to the
respective jurisdictions in which such Business or business is conducted, except
where the failure to comply would not have a Material Adverse Effect;
(b) (i) Seller, each Subsidiary, and Enenco has obtained and
currently maintains all Environmental Permits necessary for its operations and
is in compliance with such Environmental Permits, except where the failure to
have such Environmental Permits or be in compliance therewith would not have a
Material Adverse Effect, (ii) there are no judicial or administrative actions,
proceedings or investigations pending or currently threatened to revoke such
Environmental Permits, and (iii) neither Seller nor any Subsidiary has received
any written notice from any Governmental Entity or written notice from any
Person to the effect that there is lacking any material Environmental Permit
required for the current use or operation of any property owned, operated, or
leased by Seller, any Subsidiary, or Enenco;
(c) there are no judicial or administrative actions, proceedings,
or investigations pending or currently threatened against Seller, any
Subsidiary, or Enenco alleging the violation of, or liability pursuant to, any
Environmental Law or Environmental Permit, except for liabilities or violations
which could not reasonably be expected to have a Material Adverse Effect;
(d) none of Seller, any Subsidiary, or Enenco or, to Parent's or
Seller's knowledge any predecessor of Seller, any Subsidiary, or Enenco has
filed any material notice under any Environmental Law indicating past or present
treatment, storage, or disposal of or reporting a Release or currently
threatened Release of Hazardous Material into the environment, except for such
Releases that could not reasonably be expected to have a Material Adverse
Effect;
(e) none of Seller, any Subsidiary, or Enenco or, to Parent's or
Seller's knowledge, any of Seller's, any Subsidiary's, or Enenco's past or
current facilities and operations or any predecessor of Seller, any Subsidiary,
or Enenco, is subject to any outstanding written order, injunction, judgment,
decree, ruling, assessment, or arbitration
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award or any agreement with any Governmental Entity or other Person, or to any
federal, state, local, or foreign investigation respecting (i) Environmental
Laws or (ii) the Release or currently threatened Release of any Hazardous
Material, except in either case for such orders, injunctions, judgments,
decrees, rulings, assessments, arbitration awards, or agreements which could not
reasonably be expected to have a Material Adverse Effect;
(f) all the Real Property or Other Real Property owned by Seller,
any Subsidiary, or Enenco and all real property formerly owned, operated, or
leased by Seller, any Subsidiary, or Enenco or any predecessor of Seller, any
Subsidiary, or Enenco, is free of contamination by or from any Hazardous
Materials, except for such contamination that could not reasonably be expected
to have a Material Adverse Effect;
(g) none of the operations of Seller, any Subsidiary, or Enenco or
any predecessor of Seller, any Subsidiary, or Enenco or of any owner or operator
of premises currently leased or operated by Seller, any Subsidiary, or Enenco
involves or previously involved the generation, transportation, treatment,
storage, or disposal of hazardous waste, as defined under 40 C.F.R. Parts
260-270 or any state, local, or foreign equivalent, except for such as could not
reasonably be expected to have a Material Adverse Effect; and
(h) there is not now, nor has there been in the past, on, in, or
under the Real Property or any Other Real Property currently or formerly owned,
leased, or operated by Seller, any Subsidiary, Enenco or any predecessor of
Seller, any Subsidiary, or Enenco (i) any underground storage tanks,
above-ground storage tanks, dikes, or impoundments, (ii) any asbestos-containing
materials, (iii) any polychlorinated biphenyls or (iv) any radioactive
substances, except where the presence of such items could not reasonably be
expected to have a Material Adverse Effect.
(i) No facts or circumstances exist which could reasonably be
expected to result in the Seller, any Subsidiary, or Enenco incurring
Environmental Costs and Liabilities in an amount which could reasonably be
expected to have a Material Adverse Effect.
(j) For purposes of the foregoing Section 5.1.22:
"Environmental Costs and Liabilities" shall mean any and all
losses, liabilities, obligations, damages, fines, penalties, judgments,
actions, claims, costs, and expenses (including reasonable fees,
disbursements, and expenses of legal counsel, experts, engineers, and
consultants and the costs of investigation and feasibility studies,
remedial, or removal actions and cleanup activities) arising from or under
any Environmental Law or any order or agreement now in effect with any
Governmental Entity or other Person.
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"Environmental Law" means any Law as in effect on the Closing Date
(including common law) relating to the environment, natural resources, or
public and employee health and safety and includes, but is not limited to,
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. SS 9601, et seq., the Hazardous Materials Transportation Act, 49
U.S.C. SS 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. SS 6901, et seq., the Clean Water Act, 33 U.S.C. SS 1251 et seq.,
the Clean Air Act, 33 U.S.C. SS 2601, et seq., the Toxic Substances
Control Act, 15 U.S.C. SS 2601, et seq., the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. SS 136, et seq., the Oil
Pollution Act of 1990, 33 U.S.C. SS 2701, et seq., the Federal Safe
Drinking Water Act, 42 U.S.C. SS 300F, et seq., and the Occupational
Safety and Health Act, 29 U.S.C. SS651, et, seq.; as such Laws have been
amended or supplemented through the Closing Date, and the regulations
promulgated pursuant thereto through the Closing Date, and all analogous
state or local statutes in effect on the Closing Date.
"Environmental Permit" means any permit, approval, authorization,
license, variance, registration, or permission required under any
applicable Environmental Law.
"Hazardous Material" means any substance, material, or waste which
is regulated by any Governmental Entity as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous substance,"
"restricted hazardous waste," "contaminant," "toxic waste," or "toxic
substance" under any provision of Environmental Law, which includes, but
is not limited to, petroleum, petroleum products (including crude oil and
any fraction thereof), asbestos, asbestos-containing materials, urea
formaldehyde, and polychlorinated biphenyls.
"Release" means any release, spill, emission, leaking, pumping,
pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching, or migration on or into the environment or out of any
property.
5.1.23.Taxes.
(a) All Tax Returns (as defined in Section 5.1.23(g)) that are
required to be filed on or before the date hereof by Seller, any Subsidiary, or
Enenco have been duly filed on a timely basis with the appropriate Federal,
state, local and foreign governments or foreign agencies. All such Tax Returns
were complete and accurate in all material respects. Except as described in
Schedule 5.1.23(a), all Taxes owed by Seller, any Subsidiary or Enenco have been
paid by it, whether or not such Taxes are disputed. Except as described in
Schedule 5.1.23(a), none of Seller, any Subsidiary, or Enenco has executed or
filed with the Internal Revenue Service or any other taxing authority any
agreement extending the period for filing any Tax Return.
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(b) Except as described in Schedule 5.1.23(b), no claim for
assessment or collection of Taxes has been asserted against Seller, any
Subsidiary, or Enenco. Except as described in Schedule 5.1.23(b), none of
Seller, any Subsidiary, or Enenco is a party to any pending action, proceeding,
audit, or investigation by any Governmental Entity for the assessment or
collection of Taxes nor does Parent or Seller have knowledge of any such
currently threatened action, proceeding, or investigation.
(c) Except as described in Schedule 5.1.23(c), no waivers of
statutes of limitation in respect of any Tax Returns have been given or
requested by Seller, any Subsidiary, or Enenco, nor has Seller, any Subsidiary,
or Enenco agreed to any extension of time with respect to a Tax assessment or
deficiency. To the knowledge of Parent and Seller, no claim has been made by a
Governmental Entity in a jurisdiction where Seller, any Subsidiary, or Enenco
does not currently file Tax Returns that it is or may be subject to taxation by
that jurisdiction nor is Seller or Parent aware that any such assertion of
jurisdiction is currently threatened. No security interests have been imposed
upon or asserted against any of the Purchased Assets as a result of or in
connection with any failure, or alleged failure, to pay any Tax.
(d) Each of Seller, the Subsidiaries, and Enenco has withheld and
paid all Taxes required to be withheld in connection with any amounts paid or
owing to any employee, creditor, independent contractor, or other third party.
(e) The performance of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent event)
result in any payment that would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code. None of the Purchased Assets is (i)
"tax-exempt use" property within the meaning of Section 168(h) of the Code; (ii)
required to be treated as owned by another person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986; or (iii) "tax
exempt bond financed property" within the meaning of Section 168(g) of the Code.
(f) Except as described in Schedule 5.1.23(f), none of Seller, any
Subsidiary, or Enenco is a party to any tax allocation agreement, tax sharing
agreement, tax indemnity agreement, or similar agreement, arrangement, or
practice with respect to Taxes (including any advance pricing agreement, closing
agreement, private letter ruling, or other agreement relating to Taxes with any
Tax authority). Notwithstanding the foregoing, each of Seller, RII, and RIMC is
a party to an Income Tax sharing agreement with Parent.
(g) For purposes of this Agreement, the terms "Tax" and "Taxes"
shall mean all federal, state, local, or foreign Income Taxes, payroll, employee
withholding, unemployment insurance, and social security contributions (of
whatever nature, type, purpose
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and charged by whatever means), sales, use, service, service use, leasing,
leasing use, excise, franchise, gross receipts, value added, alternative or
add-on minimum, estimated, occupation, real and personal property, stamp,
transfer, workers' compensation, severance, windfall profits, environmental
including taxes under Section 59A of the Code), or other tax of the same or of a
similar nature, including any interest, penalty, or addition thereto, whether
disputed or not. The term "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating to Taxes or any
amendment thereto, and including any schedule or attachment thereto.
(h) Neither the Seller nor RII is a foreign person within the
meaning of Section 1445 of the Code.
5.1.24.Certain Business Practices and Regulations.
(a) To the knowledge of Seller and Parent, none of Seller, any
Subsidiary, Enenco, or any directors, officers, agents, or employees of Seller
or any Subsidiary has (i) used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds or violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended, or (iii) in their capacity as directors, officers, agents,
or employees of Seller or any Subsidiary made any other unlawful payment.
(b) To the knowledge of Parent and Seller, except as disclosed on
Schedule 5.1.24, none of (i) the officers or directors of Parent, or of any
Subsidiary or entity controlled by any of the foregoing, (ii) any security
holder who is known to the Parent to own of record or beneficially more than
five percent of any class of the Parent's voting securities, or (iii) any member
of the immediate family of any of the foregoing persons, has a direct or
indirect material interest in any transaction or series of transactions to which
the Seller or any of its Subsidiaries is or is to be a party, in which the
amount involved exceeds $60,000. Terms in this subsection not otherwise defined
in this Agreement have the meanings given them in Item 404 of Regulation S-K
promulgated by the U.S. Securities and Exchange Commission as in effect on the
Closing Date.
5.1.25.Warranties and Returns. Schedule 5.1.25 sets forth a
summary of present practices and policies followed by Seller and its
Subsidiaries with respect to guarantees, warranties, and servicing of any
products manufactured or sold and services rendered by it. Except as set forth
on Schedule 5.1.25, to the knowledge of Parent and Seller, there are no written
statements, citations, or decisions by any Governmental Entity stating that any
product actually sold by Seller or any Subsidiary is defective or unsafe or
fails to meet any standards promulgated by any such person within the past 3
years. Except as set forth on
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Schedule 5.1.25, there is not presently, nor has there been, any failure of a
product sold by Seller or any Subsidiary such as to require a general recall or
replacement campaign with respect to such product or a reformulation or change
of such product. Except as set forth on Schedule 5.1.25, to the knowledge of
Parent or Seller, there is no (a) fact relating to any product of Seller or any
Subsidiary that may reasonably be expected to impose upon Seller or any
Subsidiary a duty to recall any such product or a duty to warn customers of a
defect in any such product, (b) material design, manufacturing, or other defect
in any such product, or (c) material liability for warranty claims, returns, or
servicing with respect to any such product not fully reflected on the Interim
Balance Sheet.
5.1.26.No Implied Warranties. EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER SELLER NOR PARENT NOR
ANY SUBSIDIARY MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW
OR IN EQUITY, IN RESPECT OF SELLER OR ANY OF THE ASSETS, LIABILITIES OR
OPERATIONS OF SELLER OR ANY SUBSIDIARY, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED REPRESENTATION OR WARRANTY AS TO THE CONDITION, MERCHANTABILITY,
SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND PURCHASER, H&C AND H&C
AMERICA EXPRESSLY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY.
5.1.27.Parent's or Seller's Knowledge. As used in this Article V,
the terms "to Parent's knowledge," "to Seller's knowledge," and similar words or
phrases shall mean the actual knowledge, after due inquiry, of the persons
listed on Schedule 5.1.27.
5.2. Representations and Warranties of H&C, H&C America and Purchaser.
Each of H&C, H&C America and Purchaser, jointly and severally, makes the
following representations and warranties to Parent and Seller, each of which is
true and correct as of the date hereof and shall be true and correct as of the
Closing Date and, except as otherwise provided in Section 10.1, shall be
unaffected by any investigation heretofore or hereafter made by Parent or
Seller.
5.2.1. Corporate Organization. Each of H&C, H&C America and
Purchaser is a corporation duly organized, validly existing, and in good
standing under the laws of the state or jurisdiction of its organization and has
the requisite corporate power and authority to own, lease, or otherwise hold its
properties and assets and to carry on its business as presently conducted.
5.2.2. Authorization and Effect of Agreement. Each of H&C, H&C
America and Purchaser has the requisite corporate power to execute and deliver
this Agreement and the agreements to be entered into by them at the Closing
pursuant hereto (the
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"Purchaser Ancillary Documents") and to perform the transactions contemplated
hereby and thereby to be performed by it. The execution and delivery by each of
H&C, H&C America and Purchaser of this Agreement and the Purchaser Ancillary
Documents and the performance by it of the transactions contemplated hereby and
thereby to be performed by it have been or, in the case of the Purchaser
Ancillary documents, will at the Closing be, duly authorized by all necessary
corporate action on the part of each of H&C, H&C America and Purchaser. This
Agreement has been, and each Purchaser Ancillary Document will at the Closing
be, duly executed and delivered by duly authorized officers of each of H&C, H&C
America and Purchaser and, assuming the due execution and delivery of this
Agreement and, as applicable, any Purchaser Ancillary Document, by Parent and
Seller, constitutes a valid and binding obligation of Purchaser, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar Laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at Law).
5.2.3. No Restrictions Against Purchase of the Assets. The
execution and delivery of this Agreement and each Purchaser Ancillary Document
by each of H&C, H&C America and Purchaser does not or, in the case of the
Purchaser Ancillary Documents will not, and the performance by each of H&C, H&C
America and Purchaser of the transactions contemplated hereby or thereby to be
performed by it will not (a) conflict with the certificate or articles of
incorporation (or other organizational documents) or by-laws of H&C, H&C America
or Purchaser, (b) conflict with, or result in any violation of, or constitute a
default (with or without notice or lapse of time, or both) under, any provision
of any contract or permit to which H&C, H&C America or Purchaser is a party or
by which it is bound, or (c) constitute a violation of any Law, except in the
case of clauses (b) or (c) above, for such conflicts, violations, breaches, or
defaults that would not, individually or in the aggregate, (i) materially impair
the ability of Purchaser to perform its obligations hereunder or (ii) prevent or
materially delay the consummation of the purchase and sale of the Purchased
Assets contemplated hereby. No consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Governmental Entity is required
to be obtained or made by or with respect to H&C, H&C America or Purchaser in
connection with the execution and delivery of this Agreement by H&C, H&C America
or Purchaser or the performance by H&C, H&C America or Purchaser of the
transactions contemplated hereby to be performed by it, except for (i) such of
the foregoing are listed or described on Schedule 5.2.3 and (ii) any filings, if
required, with the Federal Trade Commission or Department or Justice pursuant to
the HSR Act.
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ARTICLE VI. PRE-CLOSING COVENANTS
6.1. Access to Information. Prior to the Closing, upon reasonable notice
from Purchaser to Seller, and subject to the provisions of that certain
confidentiality agreement between Parent and H&C dated as of September 29, 1997,
Seller will afford to the officers, attorneys, accountants, or other authorized
representatives (including, without limitation, environmental consultants) of
Purchaser reasonable access, after consultation with Seller, during normal
business hours to the employees, the Purchased Assets, facilities, and the books
and records of Seller and its Subsidiaries so as to afford Purchaser a full
opportunity to make such review, examination, and investigation of the Business
as Purchaser may desire to make, including without limitation an environmental
evaluation of Seller and its Subsidiaries reasonably satisfactory to Seller and
Parent. Purchaser will be permitted to make extracts from or to make copies of
such books and records as may be reasonably necessary in connection therewith.
Prior to the Closing, and subject to the provisions of that certain
confidentiality agreement between Parent and H&C dated as of September 29, 1997,
Seller will promptly furnish or cause to be furnished to Purchaser such
financial and operating data and other information as Purchaser may reasonably
request.
6.2. Conduct of Business. Except (x) as set forth in Schedule 6.2, or (y)
as consented to by H&C, H&C America and Purchaser in writing, during the period
from the date of the Agreement and continuing until the Closing, Seller will and
will cause the Subsidiaries to, and will use commercially reasonable efforts to
cause Enenco (to the extent it has the power to do so) to, (i) conduct the
Business and the business of Enenco only in the ordinary course of business and
consistent with past practices, (ii) maintain in good repair all of the
Purchased Assets and, in the case of Enenco, all of Enenco's assets, and (iii)
preserve intact the Seller's, its Subsidiaries' and Enenco's present business
operations, keep available the services of the Seller's, its Subsidiaries' and
Enenco's officers and employees, and preserve the Seller's, its Subsidiaries'
and Enenco's relationships with suppliers, customers, licensors, and others
having business relationships with the Seller, any Subsidiary or Enenco. Without
limiting the generality of the foregoing, the Seller will and will cause the
Subsidiaries to:
(a) not fail to pay or discharge when due any liabilities of which
the failure to pay or discharge may reasonably be expected to cause any
material damage or material loss to it or any of the Purchased Assets;
(b) not sell, assign, or transfer any of the Purchased Assets,
except in the ordinary course of business consistent with past practice,
and not permit any of the Purchased Assets to be subjected to any Lien
(other than the Permitted Liens);
(c) except as expressly contemplated by this Agreement, not make
or suffer any material amendment or termination of any Contract listed on
Schedule
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5.1.10 or Permit or waive any rights of substantial value, except in the
ordinary course of business;
(d) not make commitments or Contracts for capital expenditures in
excess of the amounts specified in Schedule 5.1.16(f), or except such as
may be involved in ordinary repair, maintenance, or replacement of the
Purchased Assets;
(e) not acquire or agree to acquire any assets that would
constitute Purchased Assets except in the ordinary course of business
consistent with past practice;
(f) not increase the salaries or other compensation of, or make
any advance (excluding advances for ordinary and necessary business
expenses) or loan to, any of its employees or make any increase in, or any
addition to, other benefits to which any of its employees may be entitled
except in the ordinary course of business consistent with past practice;
(g) except where the effect of such change would not be material,
not change any of the accounting principles followed by it or the methods
of applying such principles;
(h) not take or omit to take any action as a result of which any
representation or warranty of Parent or Seller in Article IV would be
rendered untrue or incorrect if such representation or warranty were made
immediately following the taking or failure to take such action;
(i) not enter into any Contract or other transaction (except as
contemplated by the Contracts specified in Schedule 5.1.10(a)(xiv) hereto)
with Parent or any Affiliate of Parent or any officer or director of
Parent or any Affiliate of Parent;
(j) maintain its books, accounts, and records in the usual,
regular, and ordinary manner or a basis consistent with prior years;
(k) maintain in full force and effect all insurance described in
Schedule 5.1.15, except for renewals and replacements in the ordinary
course of business consistent with past practice;
(l) not authorize, issue, or dispose of any shares of any Acquired
Subsidiary's capital stock or other equity securities nor grant any
option, warrant, or right calling for the authorization or issuance of
such shares; and
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(m) not commit to any of the foregoing.
6.3. Notification.
(a) Parent and Seller shall provide prompt written notice to H&C,
H&C America and Purchaser, and H&C, H&C America and Purchaser shall provide
prompt written notice to Parent and Seller (in each case within 5 business
days), of any litigation, arbitration, or administrative proceeding pending or,
to its knowledge, threatened against Parent, Seller, or any Subsidiary, on the
one hand, or H&C, H&C America, or Purchaser, on the other hand, which challenges
the transactions contemplated hereby.
(b) Parent and Seller will promptly notify Purchaser (in any event
within 15 business days) of any development or upon learning of additional
information causing or which constitutes or would at the Closing constitute a
breach of any of its representations and warranties contained in Sections 5.1.4
through 5.1.25 above. Unless Purchaser has the right to terminate this Agreement
pursuant to Section 11.1 below by reason of the development or information and
exercises that right pursuant to such Section 11.1 below, the written notice
pursuant to this Section 6.3(b) will be deemed to have qualified the
representations and warranties as to which such notice relates, and to have
cured any misrepresentation or breach of warranty that otherwise might have
existed hereunder by reason of the development.
(c) Each Party will give prompt written notice to the other Party
of any material adverse development causing or which constitutes a breach of any
of its own representations and warranties in Sections 5.1.1 through 5.1.3 and
5.2.1 through 5.2.3 above. No disclosure by any party pursuant to this Section
6.3(c), however, shall be deemed to amend or supplement the representations or
warranties of that Party or to prevent or cure any misrepresentation or breach
of warranty.
6.4. Governmental Filings. Each of H&C, H&C America, and Purchaser, on the
one hand, and Parent and Seller, on the other hand, shall as promptly as
practicable following the execution and delivery of this Agreement, file with
the United States Federal Trade Commission and the United States Department of
Justice, the notification and report form under the HSR Act required for the
transactions contemplated hereby and any supplemental information requested in
connection therewith pursuant to the HSR Act. Each of H&C, H&C America and
Purchaser, on the one hand, and Parent and Seller, on the other hand, shall as
promptly as practicable comply with any other Laws of any country and the
European Union which are applicable to any of the transactions contemplated
hereby and pursuant to which any consent, approval, order, or authorization of,
or registration, declaration, or filing with any Governmental Entity or any
other Person in connection with such transactions is necessary. Each of H&C, H&C
America and Purchaser, on the one hand, and Parent and Seller, on the other
hand, shall furnish to the other such necessary information and reasonable
assistance as
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the other may request in connection with its preparation of any filing,
registration, or declaration which is necessary under the HSR Act or any other
such Laws. Each of H&C, H&C America and Purchaser, on the one hand, and Parent
and Seller, on the other hand, shall keep each other apprised of the status of
any communications with, and any inquiries or requests for additional
information from, any Governmental Entity, and shall comply promptly with any
such inquiry or request.
6.5. Third Party Consents. Each of H&C, H&C America, and Purchaser, on the
one hand, and Parent and Seller, on the other hand, will cooperate and use their
respective commercially reasonable efforts to obtain as promptly as practicable
all consents, approvals, and waivers required by third Persons to transfer the
Purchased Assets (including the Contracts, the Leased Real Property, the
Permits, the Environmental Permits, and the Intellectual Property) to Purchaser
in a manner that will avoid any default, conflict, or termination of rights in
respect thereof.
6.6. Compliance with Industrial Site Recovery Act. Seller will comply
promptly with all requirements of the Industrial Site Recovery Act ("ISRA"), NJ
Stat. Ann. SS 13:1K-7 et seq., in connection with the transactions contemplated
by this Agreement as may be required by the New Jersey Department of
Environmental Protection ("NJDEP") and shall take all actions necessary to cause
the transaction contemplated hereby to be effected in compliance with ISRA. The
Seller, after consultation with Purchaser, will determine which actions must be
taken prior to or after the Closing to comply with ISRA, it being agreed that
the scope, extent, and method of such actions are matters to be agreed upon by
and between Seller (after consultation with Purchaser) and the NJDEP, provided
that such actions do not unreasonably interfere with the use of the facilities
by Purchaser. Seller will provide Purchaser with any documents to be submitted
to the NJDEP in a reasonable time (in any event within five days or such shorter
period necessary to meet the deadlines of NJDEP) prior to submission. All costs
and expenses incurred in connection with compliance with ISRA, including
reasonable attorneys fees, engineering and other professional or expert fees,
prior to or after the Closing will be borne solely and exclusively by Seller.
From and after the Closing Date, Purchaser will cooperate with Seller and will
provide Seller access to the facilities at reasonable times in order to
accomplish any actions required to comply with ISRA, in connection with this
transaction, or in connection with ECRA/ISRA Case No. 86917.
6.7. Confidentiality. Each of H&C, H&C America, and Purchaser, on the one
hand, and Parent and Seller, on the other hand, shall keep confidential all
information obtained by it or them with respect to the other in connection with
this Agreement and the negotiations preceding this Agreement, and will use such
information solely in connection with the transactions contemplated by this
Agreement, and if the transactions contemplated hereby are not consummated, each
shall, upon request, return to the other or destroy (and certify to the other
that it has so destroyed), without retaining a copy thereof, any schedules,
documents, or
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other written information, and any reports, notes, computer files, or other
evidence, whether written or electronic, that reflect, refer to or contain such
information obtained from the other in connection with this Agreement and the
transactions contemplated hereby. Notwithstanding the foregoing, no party shall
be required to keep confidential or return any information which (a) is required
to be disclosed by Law, pursuant to an order or request of a judicial authority
or Governmental Entity having competent jurisdiction, or pursuant to the rules
and regulations of any national stock exchange applicable to the disclosing
party and its Affiliates (provided the party seeking to disclose such
information provides the other party with reasonable prior notice thereof), or
(b) which can be shown to have been generally available to the public otherwise
than as a result of a breach of this Section 6.7.
6.8. No Solicitation. Except for the transactions contemplated by this
Agreement, from and after the date of this Agreement, neither Parent nor Seller
shall, nor shall they authorize or permit any officer, director, or employee of,
or any investment banker, attorney, accountant, or other representative retained
by, Parent, Seller, or any Subsidiary to, directly or indirectly, solicit,
initiate, encourage or entertain (including by way of furnishing information)
discussions, inquiries, offers, or proposals, or participate in any discussions
or negotiations for the purpose or with the intention of leading to any proposal
or offer from any Person which constitutes or concerns, or may reasonably be
expected to lead to, any proposal for a merger or other business combination
involving Seller or any Subsidiary or any proposal or offer to acquire any of
the outstanding shares of capital stock of Seller or any Subsidiary or any
material portion of the Purchased Assets.
6.9. Publicity. Prior to the Closing, no party to this Agreement will
issue or cause the publication of any press release or other public announcement
with respect to this Agreement or the transactions contemplated hereby without
the prior consent of all other parties, which consent will not be unreasonably
withheld; provided, however, that nothing herein will prohibit any party from
issuing or causing publication of any such press release or public announcement
to the extent that such party determines such action to be required by Law or
the rules of any national stock exchange applicable to it or its Affiliates, in
which event the party making such determination will allow all other parties a
period of time that is reasonable under the circumstances to comment on such
release or announcement in advance of its issuance.
6.10. Satisfaction of Conditions. Without limiting the generality or
effect of any provision of Article VII, prior to the Closing, each of the
parties will use commercially reasonable efforts with due diligence and in good
faith to satisfy promptly all conditions required hereby to be satisfied by such
party in order to expedite the consummation of the transactions contemplated
hereby. Without limiting the generality of the foregoing, if any Governmental
Entity having jurisdiction over any party issues or otherwise promulgates any
injunction, decree, or similar order prior to the Closing which prohibits the
consummation of
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the transactions contemplated hereby, the parties will use their respective
commercially reasonable efforts to have such injunction dissolved or otherwise
eliminated as promptly as possible and, prior to or after the Closing, to pursue
the underlying litigation diligently and in good faith.
6.11. Repayment of Indebtedness; Release of Liens. Parent and Seller
shall, at or immediately prior to the Closing, cause each of the Acquired
Subsidiaries to pay all amounts owing in respect of indebtedness including (A)
all obligations of any Acquired Subsidiary for borrowed money or evidenced by
bonds, debentures, notes, letters of credit, or similar instruments, (B) all
obligations as lessee under capital leases, (C) all obligations to pay the
deferred purchase price of property or securities, except accounts payable
arising in the ordinary course of business consistent with past practice, and
(D) all similar obligations to others guaranteed by any Acquired Subsidiary or
secured by a Lien or any of the assets of any Acquired Subsidiary. In addition,
Parent and Seller shall, at or immediately prior to the Closing, cause each of
the Acquired Subsidiaries to obtain the release of any Liens (other than
Permitted Liens) on the properties and assets of the Acquired Subsidiaries.
6.12. RII Distribution of Assets and Liabilities. Notwithstanding anything
to the contrary contained in this Agreement, it is contemplated that Parent,
Seller and RII will, prior to Closing, take or cause to be taken the following
actions:
(i)RII will distribute to Seller, by dividend, all of
its assets and liabilities (including, without limitation, the license
from RIMC); and
(ii)RII will be dissolved or liquidated.
6.13. Termination of Intercompany Agreements. Except as otherwise provided
on Schedule 6.13, all Contracts entered into prior to the Closing Date between
or among Parent, Seller, or RII or any Affiliate of Parent, Seller, or RII
(other than any Acquired Subsidiary), on the one hand, and any Acquired
Subsidiary, on the other hand, shall be terminated at or prior to the Closing
(without penalty, prejudice or cost to Purchaser).
6.14. Cancellation of Intercompany Notes. Parent and Seller shall take
such action as is necessary to cancel the intercompany notes of Rheox Ltd. and
Rheox GmbH listed on Schedule 6.14 hereto (the "Intercompany Notes") in exchange
for the issuance to Seller or RII of additional shares of capital stock of Rheox
Ltd. or Rheox Gmbh, as the case may be. Upon issuance of such additional shares
of capital stock, Seller shall promptly provide to Purchaser amended Schedules
5.1.2.B and 1.1.11.A to reflect the foregoing transactions.
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ARTICLE VII. CONDITIONS TO CLOSING
7.1. Conditions Precedent to Obligations of Purchaser. The obligations of
Purchaser under this Agreement to consummate the transactions contemplated
hereby will be subject to the satisfaction, at or prior to Closing, of all of
the following conditions, any one or more of which may be waived at the option
of Purchaser:
7.1.1. Representations, Warranties and Covenants.
(a) All representations and warranties of Parent and Seller made
in this Agreement or in any Exhibit, Schedule, or document delivered pursuant
hereto (including any Seller Ancillary Documents) which include any
qualification or limitation with respect to materiality (whether by reference to
"Material Adverse Effect" or otherwise) or any threshold amount (whether
expressed individually or in the aggregate), shall be true and correct in all
respects as of the date hereof and at and as of the Closing, and all
representations and warranties of Parent and Seller made in this Agreement or in
any Exhibit, Schedule, or document delivered pursuant hereto (including any
Seller Ancillary Documents) which are not so qualified or otherwise limited with
respect to materiality (whether by reference to "Material Adverse Effect" or
otherwise) or any threshold amount (whether expressed individually or in the
aggregate), shall be true and correct in all material respects as of the date
hereof and at and as of the Closing, in each case with the same effect as though
such representations and warranties were made at and as of the Closing.
(b) Parent and Seller shall have performed and complied with, in
all material respects, all the covenants and agreements required by this
Agreement to be performed or complied with prior to the Closing.
(c) H&C, H&C America, and Purchaser shall have received a
certificate, dated as of the Closing Date, executed on behalf of Parent and
Seller by authorized officers thereof, certifying in such detail as H&C, H&C
America, and Purchaser may reasonably request that the conditions specified in
Sections 7.1.1(a) and (b) hereof have been fulfilled.
7.1.2. Closing Documents. Parent and Seller shall have delivered
to H&C, the H&C Assignees, H&C America, and Purchaser the documents identified
in Section 8.1.
7.1.3. Governmental Consents or Approvals. Each of the approvals,
consents, or waivers of any Governmental Entity listed on Schedules 5.1.4 and
5.2.3 shall have been obtained.
7.1.4. HSR Act. If applicable, the waiting period under the HSR
Act shall have expired or terminated.
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7.1.5. No Adverse Proceedings. No suit, action, claim, or
governmental proceeding shall be pending against, and no order, decree, or
judgment of any court, agency, or Governmental Entity shall have been rendered
against, any party hereto which would render it unlawful, as of the Closing
Date, to effect the transactions contemplated by this Agreement in accordance
with its terms.
7.1.6. Third Party Consents. The Seller shall have obtained and
shall have delivered to H&C, H&C America, and Purchaser the third-party consents
(which shall be in form and substance reasonably satisfactory to H&C, H&C
America, and Purchaser and which in any event shall not, except with the prior
written consent of H&C, H&C America, and Purchaser, be conditioned upon or
subject to the payment of any additional consideration or modification of the
terms of any Contract or Permit included within the Purchased Assets or any
Other Permit) necessary to transfer the Purchased Assets listed on Schedule
7.1.6.
7.1.7. Material Adverse Effect. Between the date of this Agreement
and the Closing Date, there shall not have occurred any event or circumstance
that individually or in the aggregate has had or could reasonably be expected to
have a Material Adverse Effect.
7.1.8. ISRA Compliance. Seller shall have obtained a writing
executed by the NJDEP authorizing the transaction contemplated by this Agreement
to occur in accordance with ISRA, including, without limitation, any of the
following: (i) a determination that ISRA is not applicable to the transaction
pursuant to N.J.A.C. 7:26B-2.2; (ii) an approval of a Negative Declaration;
(iii) an approval of a Remedial Action Workplan; (iv) a No Further Action letter
as defined by N.J.S.A. 13:1K-9(d); (v) a Remedial Agreement pursuant to N.J.S.A.
13:1K-9(e); or (vi) an authorization to transfer operations pursuant to N.J.S.A.
13:1K-11.2 or N.J.S.A. 13:1K-11.5.
7.1.9. Transitional Services Agreements. Parent and Seller shall
have entered into the transitional services agreement(s) and other arrangements
described in more detail on Exhibit B hereto.
7.1.10.[Intentionally omitted].
7.1.11.Purchaser's Shareholders Approval. H&C shall have obtained
the requisite consent or vote of its shareholders to the consummation of the
transactions contemplated hereby.
7.1.12.Opinion of New Jersey Counsel. H&C, H&C America, and
Purchaser shall have received the opinion of McCarter & English, special counsel
to Parent, to the effect set forth on Exhibit D hereto.
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7.1.13.Tax Deeds. Parent and Seller shall have entered into the
U.K. Tax Deed and German Tax Deed in the form attached hereto as Exhibit E-1 and
E-2 hereto (the "Tax Deeds").
7.1.14.NL Software License. Parent shall have entered into the NL
Software License.
7.2. Conditions Precedent to Obligations of Seller and Parent. The
obligations of Seller and Parent under this Agreement to consummate the
transactions contemplated hereby will be subject to the satisfaction, at or
prior to the Closing, of all the following conditions, any one or more of which
may be waived at the option of Seller and Parent:
7.2.1. No Material Misrepresentation or Breach.
(a) All representations and warranties of H&C, H&C America, and
Purchaser made in this Agreement or in any Exhibit, Schedule, or document
delivered pursuant hereto (including any Purchaser Ancillary Document), shall be
true and correct in all material respects as of the date hereof and at and as of
the Closing, with the same effect as though such representations and warranties
were made at and as of the Closing.
(b) All of H&C, H&C America, and Purchaser shall have performed
and complied with, in all material respects, all the covenants and agreements
required by this Agreement to be performed or complied with prior to the
Closing.
(c) Parent and Seller shall have received a certificate, dated as
of the Closing Date, executed on behalf of each of H&C, H&C America, and
Purchaser by an authorized officer thereof, certifying in such detail as Parent
and Seller may reasonably request that the conditions specified in Sections
7.2.1(a) and (b) have been fulfilled.
7.2.2. Closing Documents. H&C, the H&C Assignees, H&C America, and
Purchaser shall have delivered to Parent and Seller the documents and other
items identified in Section 8.2.
7.2.3. Governmental Consents or Approvals. Each of the approvals,
consents, or waivers of any Governmental Entity listed on Schedules 5.1.4 and
5.2.3 shall have been obtained.
7.2.4. HSR Act. If applicable, the waiting period under the HSR
Act shall have expired or terminated.
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7.2.5. No Adverse Proceedings. No suit, action, claim, or
governmental proceeding shall be pending against, and no order, decree, or
judgment of any court, agency, or other Governmental Entity shall have been
rendered against, any party hereto which would render it unlawful, as of the
Closing Date, to effect the transactions contemplated by this Agreement in
accordance with its terms.
7.2.6. Transitional Services Agreements. Purchaser (or one or more
of its Affiliates) shall have entered into the transitional services
agreement(s) and other arrangements described in more detail on Exhibit B
hereto.
7.2.7. Tax Deeds. H&C (or its designee or assignee) shall have
entered into the Tax Deeds
7.2.8. NL Software License. H&C (or an H&C Assignee) shall have
entered into the NL Software License.
ARTICLE VIII. DOCUMENTS TO BE DELIVERED AT THE CLOSING
8.1. Documents to be Delivered by Parent and Seller. At the Closing,
Parent and Seller will deliver to H&C, the H&C Assignees, as applicable, H&C
America, and Purchaser, and will cause the Subsidiaries to deliver to the H&C,
H&C America, and Purchaser, the following, at the expense of Parent and Seller
and in proper form for recording when appropriate:
8.1.1. Transfer Documents. Such bills of sale, assignments, deeds,
and other instruments of transfer as Purchaser may reasonably request conveying
and transferring to Purchaser title to the Purchased Assets, which shall be in
form and substance reasonably satisfactory to Purchaser, on the one hand, and
Parent and Seller, on the other hand, including, without limitation, such
instruments of transfer and other documents relating to the transfer of the
shares of the Acquired Subsidiaries as are described in Schedules 8.1.1(a),
8.1.1(b), and 8.1.1(c).
8.1.2. Certified Resolutions. Certified resolutions of the Boards
of Directors of Parent, Seller, and RII approving the execution and delivery of
this Agreement and the Seller Ancillary Documents and authorizing the
consummation of the transactions contemplated hereby and thereby.
8.1.3. Officer's Certificate. A certificate, dated the Closing
Date, executed on behalf of the Parent and Seller in the form described in
Section 7.1.1.
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8.1.4. Good Standing Certificates. Governmental certificates
showing that Seller and each Subsidiary is duly incorporated and in good
standing in the state or jurisdiction of its incorporation and in good standing
in each state listed on Schedule 5.1.1 or 5.1.2, as applicable, certified as of
a date not more than 5 days before the Closing Date.
8.1.5. Other Documents. Such additional information and materials
as H&C, H&C America, and Purchaser shall reasonably request.
8.2. Documents to be Delivered by Purchaser. At the Closing, H&C, the H&C
Assignees, as applicable, H&C America and Purchaser will deliver to Parent and
Seller, at the expense of H&C, H&C America and Purchaser:
8.2.1. Purchase Price. A wire transfer of immediately available
funds in the amount of the Unadjusted Purchase Price as provided in Section 3.1.
8.2.2. Assumption Agreement. Such assumption agreements as Seller
may reasonably request relating to Purchaser's assumption of the Assumed
Liabilities.
8.2.3. Certified Resolutions. Certified resolutions of the Board
of Directors of H&C, H&C America, and Purchaser approving the execution and
delivery of this Agreement and the Purchaser Ancillary Documents and authorizing
the consummation of the transactions contemplated hereby and thereby.
8.2.4. Officer's Certificate. A certificate, dated the Closing
Date, executed on behalf of H&C, H&C America, and Purchaser in the form
described in Section 7.2.1.
8.2.5. Good Standing Certificates. Governmental certificates
showing that each of H&C, H&C America, and Purchaser is duly incorporated and in
good standing in the state of its incorporation certified as of a date not more
than 5 days before the Closing Date
8.2.6. Other Documents. Such additional information and materials
as Seller shall reasonably request.
ARTICLE IX. POST-CLOSING COVENANTS
9.1. Employee Benefits Plans and Practices.
(a) Employment.
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Bargaining Unit Employees. Purchaser shall assume on the Closing
Date the collective bargaining agreements set forth on Schedule 5.1.18(a) and
shall employ each of the United States bargaining unit Employees who are
employed on the Closing Date and are covered by such agreements; provided,
however, except to the extent of the amount accrued on the Closing Statement
prepared in accordance with Section 3.2(c), Seller shall remain responsible for
employee welfare benefits for U.S. bargaining unit Employees who are not
actively at work on the Closing Date until the date such employees commence
active work with Purchaser or any of its Affiliates.
Non-Bargaining Unit Employees. All of the non-bargaining unit
Employees (other than the individuals set forth on Schedule 9.1(a)) who are
actively working on the Closing Date shall be offered employment with the
Purchaser as of the Closing Date, and such Employees who continue employment
after the Closing Date shall be hereafter referred to as "Continued Employees."
Each such offer of employment to such non-bargaining unit Employees shall be at
the same salary and cash bonus opportunity (in the aggregate) or hourly wage
rate and position in effect on the Closing Date. Purchaser shall also offer
employment to each non-bargaining unit Employee who is employed but is
temporarily absent from active employment on the Closing Date upon termination
of such temporary absence within 6 months following the Closing Date provided
such Employee is able to perform the essential functions of the position he or
she previously held with the Seller prior to such absence, and any such U.S.
Employee shall be treated as a Continued Employee from and after his or her date
of employment with Purchaser.
(b) [Intentionally Omitted]
(c) Purchaser Benefit Plans. Effective immediately as of the
Closing Date, except as otherwise specifically provided in this Section 9.1,
Purchaser will provide or cause any of its subsidiaries to provide Continued
Employees at such time with coverage initially under the applicable benefit
plans described in Schedule 9.1(c) ("Purchaser Benefit Plans"). Purchaser has
provided or will provide prior to Closing (to the extent available prior to
Closing) a copy (or, if a copy is not available, a written description) of each
Purchaser Benefit Plan to Seller.
(d) Past Service Credit and Continued Credit. Purchaser shall
amend the Purchaser Benefit Plans to the extent necessary or appropriate to
credit Continued Employees under such plans for their period of employment with
the Seller or any of its Subsidiaries or Affiliates solely for purposes of
eligibility, vesting and eligibility for levels of benefits under such plans and
will waive pre-existing conditions to the same extent waived by Seller under
similar Employee Plans. Seller shall, subject to the Closing, fully vest
Continued Employees in their accrued benefits under the Seller's retirement
plans and continue to credit those Continued Employees who are presently
eligible for early retirement with their service
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with Purchaser and its subsidiaries or affiliates solely for purposes of
eligibility for early or normal retirement benefits under the Seller's
retirement plans.
(e) Unpaid Wages. On the Closing Date, Purchaser agrees that with
respect to current bargaining unit Employees on the Closing Date and Continued
Employees it shall be responsible and liable for (and Purchaser shall pay or
cause the relevant subsidiary to pay in the ordinary course) solely to the
extent accrued on the Closing Statement all accrued and unpaid wages for
services rendered, vacation, and cash bonuses. Seller shall pay all other salary
continuation payments (including, but not limited to, disability or paid leaves
of absence) to Employees with respect to the period prior to their commencement
of active work with Purchaser or any of its Affiliates.
(f) Union Benefit Plans. In the case of contracts relating to
employee benefits coverage for bargaining unit Employees, Purchaser may seek to
adopt or cause a subsidiary to adopt substantially identical contracts with
respect to the period following the Closing Date, and Seller shall reasonably
cooperate with and assist Purchaser with respect to such contracts.
(g) Medical and Death Benefits. Schedule 9.1.(g) lists the former
bargaining unit Employees or their surviving spouses who are covered by
post-retirement medical and life insurance benefits. Schedule 9.1.(g) lists the
type of post-retirement medical and life insurance plan applicable to such
former bargaining unit Employees (including the type of coverage (i.e., single
or family).
(i) Seller shall provide post-retirement medical benefits
in accordance with the current terms of the Employee Plans to any
Continued Employee who retires from Purchaser or its Affiliates prior to
1999 and was eligible for such benefits if they had retired on the Closing
Date.
(ii) Medical Claims. Seller shall continue to administer in
accordance with past practices all claims for medical and dental services
rendered before the Closing Date with respect to Employees.
(h) 401(k) Plan. After the Seller receives a favorable
determination by the Internal Revenue Service on the qualification of the NL
Industries Retirement Savings Plan under Section 401 of the Code, Seller shall
promptly cause such plan to transfer to Purchaser's 401(k) plan which Purchaser
shall cause to accept such transfer, in a trust-to-trust transfer in compliance
with applicable Laws, an amount in cash equal to the vested and non-vested
account balances as of the last day of a calendar month of all Continued
Employees and all bargaining unit Employees, together with earnings thereon at
the applicable rate available under such plan to the actual date of transfer.
Seller and Purchaser shall each provide the
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other with reasonable assurances that its 401(k) plan qualifies under Section
401 of the Code. Purchaser shall cause its 401(k) plan to comply with Code
Section 411(d)(6) with respect to the amounts so transferred.
(i) Amendment of Plans, Severance Pay. Nothing in this Agreement
shall limit, subject to applicable Laws, Purchaser's right, at any time, to
dismiss any or all Continued Employees or Subsidiary Employees at any time, with
or without cause, and to change the terms and conditions of their employment
(including compensation and employee benefits provided to them); provided that
any such Continued Employee or Subsidiary Employee dismissed without cause
within 12 months following the Closing Date shall be entitled to receive from
Purchaser severance pay, in accordance with the severance policy disclosed on
Schedule 5.1.18 (a complete and correct copy of each such policy has been
provided to Purchaser). Nothing in this Agreement shall preclude amendment or
termination of any of Purchaser Benefit Plans or the Employee Plans, as to which
Purchaser has no present intention to amend or terminate, at any time without
notice to Employees or any other affected individual. Purchaser has no present
intention to materially reduce the compensation of any Continued Employee or
Subsidiary Employee after Closing.
(j) Cooperation. Purchaser, Parent, Acquired Subsidiaries and
Seller agree to cooperate in collecting and providing information as may be
required by any of them in order to discharge its respective obligations under
this Section 9.1. Purchaser, Parent, Acquired Subsidiaries and Seller each
agrees to promptly make all payments and perform all obligations with respect to
which they have retained liability under Section 9.1.
(k) Employee Notices and Certificates. Purchaser shall be
responsible for issuing certificates or notices in lieu of certificates intended
to comply with the Health Insurance Portability and Accountability Act with
respect to Continued Employees, and Seller and Purchaser shall reasonably
cooperate with each other to ensure that such certificates or notices are timely
provided to such Employees. Purchaser agrees not to take any action or omit to
take any action in connection with the hiring process that would subject Seller
to any responsibility or liability under the Workers Adjustment and Retraining
Notification Act with respect to Continued Employees.
(l) Withholding. Seller agrees to transfer to Purchaser any
records (including, but not limited to, Forms W-4 and Employee Withholding
Allowance Certificates) relating to withholding and payment of income and
employment taxes (federal, state, and local) and FICA taxes with respect to
wages paid by Seller during the current calendar year to Continued Employees.
Purchaser agrees, to the extent permitted by applicable Law, to provide such
employees with Forms W-2, Wage and Tax Statements for the current calendar year
setting forth the wages and taxes withheld with respect to such employees for
the current calendar year by Seller and Purchaser, as predecessor and successor
employers, respectively.
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Seller and Purchaser also agree to comply with the filing requirements set forth
in Revenue Procedure 96-60 to implement this Section.
(m) Insurance. Seller shall maintain through the last day of the
calendar month in which the Closing Date occurs the insurance policies (and not
administration service obligation contracts) in effect immediately prior to the
Closing Date under the applicable Employee Plan.
(n) No Third Party Beneficiaries. Nothing contained in this
Section 9.1 shall be construed to grant to any Continued Employees a right to
employment by Purchaser for any particular length of time or to otherwise
provide to any such Continued Employee any rights or remedies under or by reason
of this Agreement.
(o) U.K. Pension Schedule. The parties will take such actions as
may be required to be taken pursuant to the U.K. pension schedule attached
hereto as Exhibit F, which schedule is deemed to be incorporated into this
Agreement for all purposes (including for the purposes of Article X hereof).
9.2. Maintenance of Books and Records. Seller shall and shall cause RII
to, and Purchaser shall and shall cause each Acquired Subsidiary to, preserve
until the eighth anniversary of the Closing Date all records possessed or to be
possessed by such party relating to any of the assets or liabilities of the
Business, or the operation of the Business, prior to the Closing Date. After the
Closing Date, where there is a legitimate purpose, such party shall provide the
other parties with access, upon prior reasonable written request specifying the
need therefor, during regular business hours, to (a) the officers and employees
of such party and (b) the books of account and records of such party, but, in
each case, only to the extent relating to the assets, liabilities or business of
the Business prior to the Closing Date, and the other parties and their
representatives shall have the right to make copies of such books and records;
provided, however, that the foregoing right of access shall not be exercisable
in such a manner as to interfere unreasonably with the normal operations and
business of such party; and provided, further that, as to so much of such
information as constitutes trade secrets or confidential business information of
such party, the requesting party and its officers, directors, and
representatives will use due care to not disclose such information except to the
extent such information (a) is required to be disclosed by Law or pursuant to an
order or request of a judicial authority or Governmental Entity having competent
jurisdiction (provided the party seeking to disclose such information provides
the other party or parties with reasonable prior notice thereof) or (b) which
can be shown to have been generally available to the public otherwise than as a
result of a breach of this Section 9.2. Such records may nevertheless be
destroyed by a party if such party sends to the other parties written notice of
its intent to destroy records, specifying with particularity the contents of the
records to be destroyed. Such records may then be destroyed after the 30th day
after such notice is given unless another party
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objects to the destruction, in which case the party seeking to destroy the
records shall either agree to retain such records or deliver such records to the
objecting party.
9.3. Payments Received. After the Closing, Seller will and will cause RII
to, and Purchaser will and will cause each Acquired Subsidiary to, hold and
promptly transfer and deliver to the other, from time to time as and when
received by them, any cash, checks with appropriate endorsements (using their
best efforts not to convert such checks into cash), or other property that they
may receive on or after the Closing which properly belongs to the other party,
including without limitation any insurance proceeds, and will account to the
other for all such receipts.
From and after the Closing, Purchaser shall have the right and authority
to endorse without recourse the name of Seller or RII on any check or other
evidence of indebtedness received by the Purchaser on account of the Business or
the Purchased Assets transferred to the Purchaser hereunder.
9.4. Use of Name. From and after the Closing Date, Parent and Seller will,
and will cause RII and each of its Affiliates to, sign such consents and take
such other action as Purchaser shall reasonably request in order to permit
Purchaser to use the name "Rheox," "Bentone," and variants thereof. From and
after the Closing Date, Seller will not itself, and will cause RII and its
Affiliates not to, use the name "Rheox," "Bentone," or any names similar thereto
or variants thereof and shall use commercially reasonable efforts to promptly
amend and cause RII and each Affiliate to amend its charter or other
organizational documents to remove such reference.
9.5. UCC Matters. From and after the Closing Date, Seller will and will
cause RII to promptly refer all inquiries with respect to ownership of the
Purchased Assets or the Business to Purchaser. In addition, Seller will and will
cause RII to execute such documents and financing and termination statements as
Purchaser may reasonably request from time to time to evidence transfer of the
Purchased Assets to Purchaser and the release of any Liens therefrom.
9.6. Covenant Not to Compete. Until the fifth anniversary of the Closing
Date (such period of time being referred to herein as the "Noncompetition
Term"), each of Parent and Seller severally agrees to refrain from, anywhere in
the world, directly or indirectly through any controlled Affiliate (whether
individually or as a principal, officer, director, employee, shareholder,
investor, consultant, advisor, partner, joint venturer, agent, equity owner, or
in any other capacity whatsoever):
(a) engaging or participating in any activity with respect to the
development, manufacturing, marketing, and sale of rheological products or
products
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using the same or similar chemistry ("Products") that compete with the
Business as presently conducted; provided, however, that the foregoing
shall not be construed to preclude Parent, Seller, or any of their
respective Affiliates from (i) making any investments in the securities of
any person, whether or not engaged in competition with the Business as
presently conducted, to the extent that such securities are actively
traded on a national securities exchange or in the over-the-counter market
in the United States or any foreign securities exchange and such
investment does not exceed five percent of the issued and outstanding
shares of such Person or give Parent, Seller, or any of their respective
Affiliates the right or power to control or participate directly in making
the policy decisions of such Person or (ii) acquiring all or substantially
all of the assets or voting stock of any person which is engaged primarily
in a business not in competition with the Business as presently conducted
but which has a direct or indirect division, subsidiary, or other business
unit which competes with the Business (the "Competing Business Unit"),
provided that Parent, Seller, or such Affiliates shall use their
respective commercially reasonable efforts to sell or otherwise dispose of
such Competing Business promptly following the consummation of such
acquisition; or
(b) causing or attempting to cause (A) any customer to whom the
Business supplies Products to terminate any purchase or other similar
Contract, or relationship with the Business after the Closing or to
replace the Business as a supplier of Products, in whole or in part, with
any other Person, or (B) any supplier from whom the Business purchases raw
materials and other products to terminate any supply or other similar
Contract or relationship with the Business; or
(c) except as otherwise contemplated by this Agreement
encouraging, soliciting, or inducing any manager, officer, supervisor, or
other employee of the Business to terminate his or her employment
relationship with the Business or to become employed by any Person other
than the Business.
Each of Parent and Seller severally acknowledges that the geographic boundaries,
scope of prohibited activities and the Noncompetition Term contained in this
Section 9.6 are reasonable and no broader than necessary to protect the
investment by Purchaser in the Purchased Assets being acquired pursuant to this
Agreement and Purchaser's and its Affiliates ongoing interests in the Business
and do not and will not impose any unreasonable burden upon any of Parent,
Seller, or their respective Affiliates. Each of Parent and Seller severally
agree that (i) any breach by it of any of the provisions contained in this
Section 9.6 would cause irreparable damage to Purchaser for which monetary
damages and other remedies at law may not be adequate, and (ii) Purchaser will
be entitled to seek a restraining order, an injunction, specific performance, or
other form of equitable or extraordinary relief from any court of competent
jurisdiction to restrain any threatened or further breach of this Section 9.6
above or to require any of Parent or Seller to perform his or its respective
obligations under this Section 9.6,
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which right to equitable or extraordinary relief will not be exclusive of but
will be in addition to all other remedies to which Purchaser may be entitled
under this Agreement, at law, or in equity (including, the right to recover
monetary damages). As consideration for the agreements set forth in this Section
9.6, Purchaser agrees to pay to Parent at the Closing $20,000,000 by delivery of
cash payable by wire transfer of immediately available funds.
9.7. Post-Closing Confidentiality.
(a) For a period of 5 years after the Closing Date, Parent and
Seller shall and shall cause RII, and shall cause their respective officers,
directors, employees, affiliates, agents, and other representatives to, hold in
confidence (and not release or disclose to any Person other than H&C, H&C
America, and Purchaser and their respective authorized representatives) and not
use for any purpose any (i) proprietary or other information regarding H&C, H&C
America, Purchaser, or any of their respective affiliates described to Seller or
Parent or any of the other foregoing persons in connection with the negotiation
or preparation of this Agreement or otherwise in connection with the
transactions contemplated hereby or (ii) proprietary or other information
relating to the Purchased Assets or the Business that remains after the Closing
in the possession of Parent or Seller or any of the other foregoing persons.
Notwithstanding the foregoing, the confidentiality obligations of this Section
9.7(a) shall not apply to information which (x) is required to be disclosed by
Law or pursuant to an order or request of a judicial authority or Governmental
Entity having competent jurisdiction (provided Parent or Seller provides H&C,
H&C America, and Purchaser with reasonable prior notice thereof), or (y) which
can be shown to have been generally available to the public otherwise than as a
result of a breach of this Section 9.7(a).
(b) For a period of 5 years after the Closing Date, Purchaser, H&C
America, and H&C shall and shall cause the Acquired Subsidiaries to, and shall
cause their respective officers, directors, employees, affiliates, agents, and
other representatives to, hold in confidence (and not release or disclose to any
Person other than Parent or Seller and their authorized representatives) and not
use for any purpose any proprietary or other information regarding Parent or
Seller or any of their respective Affiliates (other than any of the Acquired
Subsidiaries or any information relating to the Purchased Assets or Assumed
Liabilities) disclosed to Purchaser, H&C America, H&C, or any of the other
foregoing persons in connection with the negotiation or preparation of this
Agreement or otherwise in connection with the transactions contemplated hereby.
Notwithstanding the foregoing, the confidentiality obligations of this Section
9.7(b) shall not apply to information which (x) is required to be disclosed
pursuant to Law or an order or request of a judicial authority or Governmental
Entity having competent jurisdiction (provided Purchaser, H&C, or H&C America
provides Parent and Seller with reasonable prior notice thereof), or (y) which
can be shown to have been generally available to the public otherwise than as a
result of a breach of this Section 9.7(b).
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9.8. Post-Closing Notifications. Each of H&C, H&C America, and Purchaser
will, and will cause the Acquired Subsidiaries to, and Parent and Seller will,
comply with any post-Closing notification or other requirements, to the extent
then applicable to such party, of any antitrust, trade competition, investment,
or control, export, or other Law of any Governmental Entity having jurisdiction
over H&C, H&C America, Purchaser, Parent, Seller, or such Acquired Subsidiaries,
as applicable.
9.9. Transfer Taxes. All sales, use, transfer, stamp, conveyance, value
added or other similar taxes, duties, excises or governmental charges imposed by
any taxing jurisdiction, domestic or foreign, and all recording or filing fees,
notarial fees, and other similar costs of Closing with respect to the transfer
of the Purchased Assets or otherwise on account of this Agreement or the
transactions contemplated hereby will be borne one-half by H&C and Purchaser and
one-half by Parent and Seller.
9.10. Insurance. With respect to any loss, liability, or damage relating
to, resulting from, or arising out of the conduct of the Business on or prior to
the Closing Date which constitutes an Assumed Liability and for which Seller or
RII would be entitled to assert, or cause any Affiliate or other Person to
assert, a claim for recovery under any policy of insurance maintained by or for
the benefit of Seller or RII or Affiliate thereof in respect of the Business or
the Purchased Assets, at the request of Purchaser, Seller will use commercially
reasonable efforts to assert, or to assist Purchaser to assert, one or more
claims under such insurance covering such loss, liability, or damage if
Purchaser is not itself entitled to assert such claim but Seller is so entitled.
In the case of any damage to or destruction of the Purchased Assets or the
assets of the Acquired Subsidiaries occurring prior to Closing that is covered
by insurance maintained by Seller or RII or any Affiliate, Seller shall deliver
all insurance proceeds realized therefrom to Purchaser at Closing or as soon
thereafter as collected by Seller or RII or any Affiliate.
9.11. Restrictions on Hiring of Seller's Employees. Except as otherwise
contemplated by this Agreement, for a period of five years following the Closing
Date, H&C, H&C America, and Purchaser shall, and shall cause their respective
controlled Affiliates to, refrain from encouraging, soliciting, or inducing any
manager, officer, supervisor, or other employee of Parent, Seller or any
controlled Affiliate of Parent or Seller to terminate his or her employment
relationship with the such Person or to become employed by any Person other than
any such Person.
9.12. Certain Tax Matters.
(a) (i) Seller and Purchaser hereby agree to make an election
under Section 338(h)(10) of the Code to treat the purchase and sale of the
stock of RIMC pursuant to this Agreement as a sale of assets for federal
(and, to the extent applicable,
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State and local) Income Tax purposes. Allocation of the deemed purchase
price of RIMC's assets shall be determined in accordance with Section 3.3.
(ii) Seller and Purchaser agree to (A) sign all federal, state,
and local Tax Returns prepared in accordance with Sections 9.12(c) and (d)
hereof and all forms and documents relating to the Section 338(h)(10)
election as prepared by Purchaser; (B) do all other acts necessary to
ensure that the section 338(h)(10) election is timely and effectively
filed; (C) take all other actions as are required in order to give effect
to the election for state and local Income Taxes purposes to the greatest
extent permitted by Law; and (D) report all federal, state, and local
income Taxes in a manner consistent with such election.
(b) Any agreement between Parent, Seller, and RIMC regarding
allocation or payment of Income taxes or amounts in lieu of Taxes shall be
terminated at and as of the Closing.
(c) Seller will be responsible for the preparation and filing of
all Income Tax returns for RIMC for all periods as to which Income Tax returns
are due after the Closing Date (including the consolidated, unitary, and
combined Income Tax returns for Parent and Seller which include the operations
of RIMC for any period prior to the Closing Date). Seller will make all payments
required with respect to any such Tax return.
(d) Purchaser will be responsible for the preparation and filing
of all Income Tax returns for RIMC for all periods as to which Income Tax
returns are due after the Closing Date (other than for Income Taxes with respect
to periods for which the consolidated, unitary, and combined Income Tax returns
of Seller will include the operations of Seller and RIMC). Purchaser will make
all payments required with respect to any such Income Tax return; provided,
however, that Parent and Seller jointly and severally agree to reimburse
Purchaser concurrently therewith to the extent any payment Purchaser is making
relates to the operations of RIMC for any period ending on or before the Closing
Date.
9.13. German Tax Deed. Seller and Parent will indemnify and hold Purchaser
harmless from and against any Tax liability of Rheox GmbH, Bentone Chemie GmbH,
and Rheox Europe S.A./N.V. in accordance with the Tax Deed in the form of
Exhibit E-2.
ARTICLE X. SURVIVAL AND INDEMNIFICATION
10.1. Survival of Representations, Warranties, and Covenants.
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(a) Except as to (i) the representations and warranties contained
in Sections 5.1.1, 5.1.2.A, 5.1.2.B, 5.1.3, 5.2.1, and 5.2.2, which shall
survive the Closing until the expiration of the statute of limitations
applicable thereto and (ii) the representations and warranties contained in
Section 5.1.23, which shall survive the Closing until the expiration of the last
day on which any Tax may be validly assessed by the IRS or any other
Governmental Entity against Seller, any Subsidiary, the Purchased Assets, or the
Business, the representations and warranties of Seller and Parent and of H&C,
H&C America, and Purchaser contained in this Agreement shall survive the Closing
until the expiration of three years from the Closing Date; provided, however,
that no representation or warranty shall survive the Closing if the party for
whose benefit the representation of warranty is made had actual knowledge that
the representation or warranty was not true when made or at the time of Closing;
provided, further, that for the purposes of the preceding clause, the term
"actual knowledge" as it relates to H&C, H&C America, or Purchaser shall mean
the actual knowledge of Michael Parker, George Fairweather, Philip Brown, Mark
Barocas, Ian Burnley, and Judith Hackitt. Any claim for indemnification with
respect to any of such matters which is not asserted by notice given as herein
provided relating thereto within such specified period of survival may not be
pursued and is hereby irrevocably waived after such time. Any claim for an
Indemnifiable Loss (as defined in Section 10.2) asserted within such period of
survival as herein provided will be timely made for purposes hereof.
(b) Unless a specified post-Closing survival period is set forth
in this Agreement (in which event such specified period will control), (i) the
covenants in this Agreement (other than those contained in this Article X) will
survive the Closing and remain in effect for the applicable statute of
limitations, (ii) the covenant contained in Section 10.3(a)(iv) shall survive
until the expiration of four years from the Closing Date, and (iii) the other
covenants contained in this Article X and the covenant contained in Section 9.13
shall survive indefinitely.
10.2. Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnity Payment" means
any amount of Indemnifiable Losses required to be paid pursuant to this
Agreement, (ii) "Indemnitee" means any Person entitled to indemnification under
this Agreement, (iii) "Indemnifying Party" means any Person required to provide
indemnification under this Agreement, (iv) "Indemnifiable Losses" means any and
all damages, losses, liabilities, obligations, costs, and expenses, and any and
all claims, demands, or suits (by any Person, including without limitation any
Governmental Entity), including without limitation the costs and expenses of any
and all actions, suits, proceedings, demands, assessments, judgments,
settlements, and compromises relating thereto and including reasonable
attorneys' fees and out-of-pocket expenses in connection therewith, and (v)
"Third Party Claim" means any claim,
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action, or proceeding made or brought by any Person who or which is not a party
to this Agreement or an Affiliate of a party to this Agreement.
(b) Notwithstanding any other provision hereof or of any
applicable Law, no Indemnitee will be entitled to make a claim under Sections
10.3(a)(i) or 10.3(b)(i) against an Indemnifying Party in respect of any breach
of a representation or warranty (other than those contained in Sections 5.1.1,
5.1.2.A, 5.1.2.B, 5.1.3, 5.1.22, 5.1.23, 5.2.1, and 5.2.2), unless and until the
aggregate amount of claims in respect of breaches of representations and
warranties asserted for Indemnifiable Losses under Section 10.3(a)(i) or
10.3(b)(i), as applicable, exceeds $4,000,000, in which event the Indemnitee
will be entitled to make a claim against the Indemnifying Party to the extent
that such Indemnifiable Losses exceed $2,000,000.
(c) Notwithstanding any other provision hereof or of any
applicable Law, none of H&C, the H&C Assignees, H&C America, or Purchaser will
be entitled to make a claim against Parent or Seller pursuant to Section
10.3(a)(i) in respect of a breach of any representation or warranty contained in
Section 5.1.22 or pursuant to Section 10.3(a)(iv) unless and until the aggregate
amount of claims asserted for Indemnifiable Losses under such Sections exceeds
$500,000, in which event the H&C, the H&C Assignees, H&C America, and Purchaser
will be entitled to make a claim against Parent or Seller only to the extent of
further such Indemnifiable Losses; provided, however, that any such
Indemnifiable Losses under Section 10.3(a)(i) in respect of a breach of any
representation or warranty contained in Section 5.1.22 or pursuant to Section
10.3(a)(iv) hereof which exceed $20,000,000 shall be borne one-half by Parent
and Seller, and one-half by H&C, H&C America, and Purchaser.
(d) No Indemnifying Party shall be liable for Indemnifiable Losses
pursuant hereto (other than in respect of a breach of any representation and
warranty contained in Sections 5.1., 5.1.2.A, 5.1.2.B, 5.1.3, 5.2.1 and 5.2.2
and other than pursuant to a claim for indemnification pursuant to Section
10.3(a)(iii), Section 10.3(a)(v), or pursuant to the Tax Deeds) to the extent
(but only to the extent) that the aggregate amount of Indemnifiable Losses
exceeds $120,000,000.
(e) Except as otherwise expressly provided in this Agreement, all
Parties acknowledge and agree that the indemnification provisions in this
Article X shall be the exclusive remedy of Purchaser, H&C, H&C America, and
their Affiliates with respect to Seller, Parent and their Affiliates, and the
exclusive remedy of Seller, Parent and their Affiliates with respect to
Purchaser, H&C, H&C America, and their Affiliates with respect to any breach of
any representation, warranty, covenant, or agreement contained in this Agreement
or any certificate delivered pursuant hereto. Without limiting the generality of
the foregoing sentence, Purchaser, H&C, and H&C America understand and agree
that their right to indemnification under Section 10.3(a)(iv) shall constitute
its sole and exclusive remedy
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against Seller with respect to any environmental, health, or safety matter
relating to the past, current, or future facilities, properties, or operations
of Seller and the Subsidiaries, and all of their respective predecessors or
Affiliates, including without limitation any such matter arising under any
Environmental Laws, but excluding any such matter that constitutes a Retained
Liability. Subject to Purchaser's rights and remedies under this Agreement as
described in the preceding sentence, Purchaser, H&C, and H&C America each hereby
waives any right, whether arising at law or in equity, to seek contribution,
cost recovery, damages, or any other recourse or remedy from Seller, Parent, and
their respective Affiliates, and hereby release Seller, Parent, and their
respective Affiliates from any claim, demand, or liability, with respect to any
such environmental, health, or safety matter (including without limitation any
arising under any Environmental Laws, including without limitation under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), any analogous state law, or the common law).
10.3. Indemnification.
(a) Subject to Sections 10.1 and 10.2, Seller and Parent jointly
and severally agree to indemnify, defend, and hold harmless H&C, the H&C
Assignees, H&C America, and Purchaser and their respective Affiliates and
directors, officers, partners, employees, agents, and representatives (the "H&C
Indemnified Parties") from and against any and all Indemnifiable Losses to the
extent relating to, resulting from, or arising out of:
(i)any breach of representation or warranty of Seller or
Parent under the terms of this Agreement and any certificate delivered
pursuant hereto (which representations and warranties shall be deemed for
the purposes of this Section 10.3(a)(i) not to include any qualification
or limitation with respect to materiality (whether by reference to
"Material Adverse Effect" or otherwise), whether expressed individually or
in the aggregate);
(ii)any breach or nonfulfillment of any agreement or
covenant of Seller or Parent under the terms of this Agreement and any
certificate delivered pursuant hereto;
(iii)any Retained Liabilities;
(iv)subject to Section 10.5, any Environmental Claim or
Remedial Action based upon the operation of Seller, the Business, or any
of the Subsidiaries or any predecessor of the Seller, the Business, or any
of the Subsidiaries prior to the Closing or the ownership, use, or
operation at or on any of the real property owned, operated, or leased by
Seller or any Subsidiary or any predecessor thereof to the extent the
underlying claim is attributable to acts or omissions occurring prior to
the Closing,
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including liability imposed strictly under Environmental Laws. For the
purposes of the foregoing: "Environmental Claim" means any notice of
violation, action, claim, environmental lien, demand, abatement, or other
order or directive (conditional or otherwise) by any Governmental Entity
or any other Person for personal injury (including sickness, disease, or
death), tangible or intangible property damage, damage to the environment,
nuisance, pollution, contamination, or other adverse effects on the
environment, or for fines, penalties, or restrictions resulting from or
based upon (i) the existence, or the continuation of the existence, of a
Release (including, without limitation, sudden or non-sudden accidental or
non-accidental Releases) of, or exposure to, any Hazardous Substance,
odor, or audible noise in, into, or onto the environment (including,
without limitation, the air, soil, surface water, or groundwater) at, in,
by, from, or related to any property owned, operated, or leased by the
Seller or any activities or operations thereof; (ii) the transportation,
storage, treatment, or disposal of Hazardous Materials in connection with
any property owned, operated, or leased by the Seller or its operations or
facilities; or (iii) the violation, or alleged violation, of any
Environmental Law or Permit of or from any Governmental Entity relating to
environmental matters connected with any property owned, leased, or
operated by the Seller or any of the Subsidiaries; and "Remedial Action"
means all actions, including, without limitation, any capital
expenditures, required to (i) clean up, remove, treat, or in any other way
address any Hazardous Material or other substance; (ii) prevent the
Release or threat of Release, or minimize the further Release of any
Hazardous Material or other substance so it does not migrate or endanger
or threaten to endanger public health or welfare or the indoor or outdoor
environment; (iii) perform pre-remedial studies and investigations or
post-remedial monitoring and care; or (iv) bring facilities on any
property owned, operated, or leased by the Seller or any Subsidiary and
the facilities located and operations conducted thereon into compliance
with all Environmental Laws and Environmental Permits; provided, however,
no Remedial Action shall be undertaken unless required by a Governmental
Authority or Environmental Laws or is necessary to achieve or maintain
compliance with Environmental Laws; and
(v)the transactions to be effected pursuant to Section
6.12 hereto and the conduct of business by RIMC prior to Closing
(including without limitation, any obligations or liabilities of RIMC
relating to Taxes attributable to periods ending on or prior to the
Closing Date or to the pre-Closing portion of any taxable period that
includes but does not end on the Closing Date).
(b) Subject to Section 10.1 and 10.2, H&C, H&C America and
Purchaser jointly and severally agree to indemnify, defend, and hold harmless
Parent and Seller and their respect Affiliates and directors, officers,
partners, employees, agents, and representatives from
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and against any and all Indemnifiable Losses to the extent relating to,
resulting from, or arising out of:
(i)any breach of representation or warranty of H&C, H&C
America or Purchaser under the terms of this Agreement and any certificate
delivered pursuant hereto;
(ii)any breach or nonfulfillment of any agreement or
covenant of H&C, H&C America or Purchaser under the terms of this
Agreement and any certificate delivered pursuant hereto; and
(iii)any Assumed Liabilities.
10.4. Defense of Claims.
(a) If any Indemnitee receives notice of assertion or commencement
of any Third Party Claim against such Indemnitee with respect to which an
Indemnifying Party is obligated to provide indemnification under this Agreement,
the Indemnitee will give such Indemnifying Party reasonably prompt written
notice thereof, but in any event not later than 10 calendar days after receipt
of such notice of such Third Party Claim. Such notice will describe the Third
Party Claim in reasonable detail, will include copies of all material written
evidence thereof, and will indicate the estimated amount, if reasonably
practicable, of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to participate in, or, by
giving written notice to the Indemnitee, to assume, the defense of any Third
Party Claim at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel (reasonably satisfactory to the Indemnitee), and the
Indemnitee will cooperate in good faith in such defense.
(b) If, within 10 calendar days after giving notice of a Third
Party Claim to an Indemnifying Party pursuant to Section 10.4(a), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 10.4(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within 10 calendar days after receiving written notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps or
if the Indemnifying Party has not undertaken fully to indemnify the Indemnitee
in respect of all Indemnifiable Losses relating to the matter, the Indemnitee
may assume its own defense, and the Indemnifying Party will be liable for all
reasonable costs or expenses paid or incurred in connection therewith. Without
the prior written consent of the Indemnitee, the Indemnifying Party will not
enter into any
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settlement of any Third Party Claim which would lead to liability or create any
obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder.
(c) A failure to give timely notice or to include any specified
information in any notice as provided in Sections 10.4(a) or 10.4(b) will not
affect the rights or obligations of any party hereunder except and only to the
extent that, as a result of such failure, any party which was entitled to
receive such notice was actually prejudiced as a result of such failure.
(d) The Indemnifying Party will have a period of 30 calendar days
within which to respond in writing to any claim by an Indemnitee on account of
an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct
Claim"). If the Indemnifying Party does not so respond within such 30 calendar
day period, the Indemnifying Party will be deemed to have rejected such claim,
in which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article X.
(e) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an Indemnity Payment, is reduced by recovery,
settlement, or otherwise under or pursuant to any insurance coverage, or
pursuant to any claim, recovery, settlement, or payment by or against any other
Person, the amount of such reduction, less any costs, expenses, premiums or
taxes incurred in connection therewith will promptly be repaid by the Indemnitee
to the Indemnifying Party. Upon making any Indemnity Payment the Indemnifying
Party will, to the extent of such Indemnity Payment, be subrogated to all rights
of the Indemnitee against any Person that is not an Affiliate of the Indemnitee
in respect of the Indemnifiable Loss to which the Indemnity Payment related;
provided, however, that (i) the Indemnifying Party shall then be in compliance
with its obligations under this Agreement in respect of such Indemnifiable Loss
and (ii) until the Indemnitee recovers fully payment of its Indemnifiable Loss,
any and all claims of the Indemnifying Party against any such Person on account
of said Indemnity Payment will be subrogated and subordinated in right of
payment to the Indemnitee's rights against such Person. Without limiting the
generality or effect of any other provision hereof, each such Indemnitee and
Indemnifying Party will duly execute upon request all instruments reasonably
necessary to evidence and perfect the above-described subrogation and
subordination rights.
10.5. Conduct of Remedial Actions.
(a) The obligations of Seller and Parent to indemnify the H&C
Indemnified Parties for any Remedial Action pursuant to Sections 10.3(a)(i) (as
it relates to a breach of any representation or warranty contained in Section
5.1.22) or 10.3(a)(iv) hereof shall be subject to the following:
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(i)any Remedial Action (1) must be required by a
Governmental Authority or Environmental Laws or be necessary to achieve or
maintain compliance with Environmental Laws; (2) shall be performed in a
commercially reasonable, cost-effective manner; and (3) shall use cleanup
criteria no more stringent than (A) if specific applicable cleanup
criteria are specified by applicable Environmental Laws, that specific
cleanup criteria, or (B) otherwise, cleanup criteria that are commercially
reasonable and appropriate to comply with applicable Environmental Laws
(in all cases where permitted and appropriate such cleanup criteria shall
be that applicable to real property that is used for industrial purposes);
(ii)if a need for Remedial Action arises, Purchaser shall
provide Seller notice thereof as soon as reasonably practicable under the
circumstances; provided, however that the failure to give such notice to
Seller should not affect the obligations hereunder unless Seller has been
materially prejudiced as a result thereof; and
(iii)prior to the commencement of any Remedial Action,
Purchaser shall provide Seller with a plan as to its intended course of
action. Seller shall have the right to review such plan with Purchaser, to
consult with Purchaser with respect to the finalization and implementation
of such plan and, if Seller does not concur in Purchaser's proposed plan
of action, to provide alternative proposals for the undertaking and
completion of such Remedial Action. Notwithstanding the foregoing, if
Purchaser and Seller, after due consultation, cannot agree as to the
method of proceeding, or the reasonable costs and expenses to be incurred
in connection therewith, Purchaser shall have the right to assume the
obligation to complete such Remedial Action, which is subject to
indemnification hereunder.
(b) The party conducting the Remedial Action shall (i) comply in
all material respects with Environmental Laws, (ii) in a timely manner, but no
less often than once every three months, provide the other party with progress
reports with respect to the Remedial Action, and (iii) provide the other party
with all substantive correspondence to or from any Governmental Authority, all
reports, all sampling results, and all other relevant and significant documents
relating to the Remedial Action and endeavor to provide the other party with the
opportunity to participate in any material discussions with such Governmental
Authority.
(c) Any party incurring costs hereunder, a portion of which is to
be paid by another party hereto (for purposes of this Section 10.5, an
"Obligated Party") pursuant to Article X, shall deliver to the Obligated Party,
on a quarterly basis, invoices for any Remedial Action effected during such
quarterly period, along with appropriate back-up documentation, setting forth in
reasonable detail the work done during such period and a detailed break-down
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<PAGE>
of the fees and expenses incurred in connection therewith and included in such
invoice. The Obligated Party shall pay such invoices within 30 days after
receipt thereof, except with respect to any portion thereof which they claim by
written notice to the other party, delivered within 20 days after receipt of any
such invoice, does not conform to the terms of this indemnification plus, in the
event payment is not made within such 30 day period as required hereby, interest
thereon at a rate of seven percent (7%) per annum, accruing daily and
compounding annually.
(d) With respect to any invoices disputed by an Obligated Party
hereunder, the parties shall use reasonable efforts to resolve such matter or
matters on or before the due date of the relevant invoice; if the parties cannot
resolve any such dispute, said matters shall be referred for resolution to an
independent engineering consulting firm mutually agreed upon by the parties,
whose determination with respect to any such disputed matters shall be final and
binding upon Parent, Seller, H&C and Purchaser.
10.6. Adjustment to Purchase Price. Any Indemnity Payment hereunder shall
be treated as an adjustment to the Purchase Price.
ARTICLE XI. TERMINATION
11.1. Termination. Notwithstanding anything contained in this Agreement to
the contrary, this Agreement may be terminated at any time prior to the Closing,
if, in the case of a termination pursuant to Section 11.1(b), 11.1(d), or 11(e)
the party seeking to terminate is not then in material default or breach of any
representations, warranties, covenants, or agreements contained in this
Agreement:
(a) By the mutual written consent of H&C, H&C America, Purchaser,
Parent, and Seller;
(b) By H&C, H&C America, and Purchaser, on the one hand, or Parent
and Seller, on the other hand, if the Closing shall not have occurred on
or before February 20, 1998;
(c) By H&C, H&C America, and Purchaser, on the one hand, or Parent
and Seller, on the other hand, if there shall have been entered a final,
nonappealable order or injunction of any Governmental Entity restraining
or prohibiting the consummation of the transactions contemplated hereby or
any material part thereof;
(d) By H&C, H&C America, and Purchaser by giving written notice to
Seller at any time prior to the Closing in the event (A) Seller has within
the then
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previous 15 business days given Buyer any notice pursuant to Section
6.3(b) above and (B) the development that is the subject of the notice,
together with any developments that are or were the subject of any prior
notice pursuant to Section 6.3(b) (whether or not such prior notices were
given during the previous 15 business days), has had or could reasonably
be expected to have a Material Adverse Effect; or
(e) By H&C, H&C America, and Purchaser, on the one hand, or Parent
and Seller, on the other hand, if, prior to the Closing Date, the other
party is in breach in any material respect of any representation,
warranty, covenant, or agreement herein contained (other than a
representation and warranty which is subject to the notice provisions of
Section 6.3(b) and the termination provisions of Section 11.1(d) above)
and such breach shall not be cured within 5 business days of the date of
notice of breach served by the party claiming such breach.
11.2. Effect of Termination. If this Agreement is validly terminated
pursuant to Section 11.1, this Agreement, except for the provisions of Sections
6.7, 11.2, 12.3, 12.4, 12.5, 12.6, 12.7, 12.8, 12.9, 12.12, 12.13, 12.14, 12.15,
and 12.17, shall become null and void and of no further force and effect and all
obligations of the parties hereto shall terminate and there shall be no
liability or obligation of any party hereto, except that nothing in this Section
11.2 shall relieve any party from liability for its default under or breach of
any of its representations, warranties, covenants, or agreements under this
Agreement prior to its termination.
ARTICLE XII. MISCELLANEOUS PROVISIONS
12.1. Specific Performance. The parties recognize that if any other party
refuses to perform under the provisions of this Agreement, monetary damages
alone will not be adequate to compensate such party for its injuries. Each party
shall therefore be entitled, in addition to any other remedies that may be
available, to obtain specific performance of the terms of this Agreement. If any
action is brought to obtain specific performance of the terms of this Agreement,
the parties against whom such action is brought shall waive the defense that
there is an adequate remedy at Law. In the event of a default which results in
the filing of a lawsuit for damages, specific performance, or other remedies,
the prevailing party shall be entitled to reimbursement by the non-prevailing
party of reasonable legal fees and expenses incurred by them.
12.2. Notices. All notices and other communications required or permitted
hereunder will be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been duly given when delivered in person or when
dispatched by electronic facsimile transfer or one business day after having
been dispatched by an internationally recognized
64
<PAGE>
overnight courier service (providing regular international service) to the
appropriate party at the address specified below:
(a) If to Parent or Seller, to:
c/o NL Industries, Inc.
16825 Northchase Drive
Suite 1200
Houston, Texas 77060
Facsimile No.: (281) 423-3333
Attention: David B. Garten, Esq.
with a copy to:
Bartlit Beck Herman Palenchar & Scott
511 Sixteenth Street, Suite 700
Denver, Colorado 80202
Facsimile No.: (303) 592-3140
Attention: James L. Palenchar, Esq.
(b) If to H&C America or Purchaser, to:
Harrisons & Crosfield (America) Inc.
900 Market Street
Suite 200
Wilmington, Delaware 19801
Facsimile: (401) 732-2995
Attention: Mark Barocas
(c) If to H&C, to:
Harrisons & Crosfield plc
One Great Tower Street
London EC3R 5AH
Facsimile No.: 011-44-171-711-1473
Attention: Philip Brown
65
<PAGE>
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Facsimile No.: 212-310-8007
Attention: Jeffrey J. Weinberg, Esq.
or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.
12.3. Expenses. Except as otherwise expressly provided in this Agreement,
Parent and Seller will pay any expenses incurred by it or any of the
Subsidiaries incident to this Agreement and in preparing to consummate and
consummating the transactions provided for herein. H&C, H&C America and
Purchaser will pay any expenses incurred by them incident to this Agreement and
in preparing to consummate and consummating the transactions provided for
herein.
12.4. Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but will not be assignable or delegable by any party without
the prior written consent of the other party which shall not be unreasonably
withheld; provided, however, that (a) nothing in this Agreement is intended to
limit Purchaser's ability to sell or to transfer any or all of the Purchased
Assets following the Closing Date, (b) prior to the Closing, upon notice to
Seller, Purchaser may assign or delegate to any direct or indirect wholly owned
subsidiary of H&C America, H&C, or Purchaser the right to acquire part or all of
the Purchased Assets and its obligation to assume any Assumed Liabilities in
connection therewith provided that H&C and H&C America jointly and severally
guarantee the performance of such assignee or delegatee, (c) prior to Closing,
H&C shall notify Parent and Seller of the H&C Assignee(s) which have been
designated by it to purchase the Acquired Subsidiaries, and (d) each of H&C, the
H&C Assignees, H&C America and Purchaser may make a collateral assignment of its
rights under this Agreement to any lender who provides funds to H&C, the H&C
Assignees, H&C America and Purchaser for the acquisition of the Purchased Assets
provided that the rights of Seller and Parent under this Agreement are not
diminished or their obligations increased in any way by such collateral
assignment. Seller agrees to execute acknowledgments of such assignment(s) and
collateral assignments reflecting all of the conditions of such assignment(s)
and collateral assignments in such forms as H&C, H&C America and Purchaser or
H&C, H&C America's or Purchaser's lender(s) may from time to time reasonably
request. In the event of such a proposed assignment by H&C, H&C America and
Purchaser, the provisions of this Agreement shall inure to the benefit of and be
binding upon H&C's, H&C America's and Purchaser's assigns.
66
<PAGE>
12.5. Waiver. Purchaser (on behalf of itself, H&C and H&C America) and
Seller (on behalf of itself, Parent, and RII) by written notice to the other
referring to this Agreement may (a) extend the time for performance of any of
the obligations of the other under this Agreement, (b) waive any inaccuracies in
the representations or warranties of the other contained in this Agreement or in
any document delivered in connection herewith, (c) waive compliance with any of
the conditions or covenants of the other contained in this Agreement, or (d)
waive or modify performance of any of the obligations of the other under this
Agreement; provided, however, that no such party may, without the prior consent
of the other party in a writing referring to this Agreement, make or grant such
extension of time, waiver of inaccuracies, or compliance or waiver or
modification of performance with respect to its (or any of its Affiliates)
representations, warranties, conditions, or covenants hereunder. Except as
provided in the immediately preceding sentence, no action taken pursuant to this
Agreement will be deemed to constitute a waiver of compliance with any
representations, warranties, conditions, or covenants contained in this
Agreement and will not operate or be construed as a waiver of any subsequent
breach, whether of a similar or dissimilar nature.
12.6. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto and any other documents and instruments delivered pursuant
hereto) supersedes any other agreement, whether written or oral, that may have
been made or entered into by any party or any of their respective Affiliates (or
by any director, officer, or representative thereof) relating to the matters
contemplated hereby. This Agreement (together with the Exhibits and Schedules
hereto and any other documents and instruments delivered pursuant hereto)
constitutes the entire agreement by and among the parties hereto and there are
no agreements or commitments by or among such parties or their Affiliates except
as expressly set forth herein.
12.7. Amendments and Supplements. This Agreement may be amended or
supplemented at any time by additional written agreements referring to this
Agreement signed by the parties hereto.
12.8. Rights of the Parties. Except as provided in Articles II, IX and X
or in Section 12.4, nothing expressed or implied in this Agreement is intended
or will be construed to confer upon or give any person or entity other than the
parties hereto and their respective Affiliates any rights or remedies under or
by reason of this Agreement or any transaction contemplated hereby.
12.9. Brokers. H&C, H&C America and Purchaser agree to jointly and
severally indemnify and hold harmless Parent and Seller, and Seller and Parent
agree to jointly and severally indemnify and hold harmless H&C, H&C America and
Purchaser, from and against any liability, claim, loss, damage, or expense
incurred by H&C, H&C America and Purchaser or by Parent and Seller,
respectively, relating to any fees or commissions owed or allegedly
67
<PAGE>
owed to any broker, finder, or financial advisor as a result of actions taken by
H&C, H&C America or Purchaser or by Parent or Seller, respectively, in
connection with this Agreement or the transactions contemplated hereby.
12.10. Further Assurances. From time to time, as and when requested by
either party, the other party will execute and deliver, or cause to be executed
and delivered, all such documents and instruments as may be reasonably necessary
to consummate the transactions contemplated by this Agreement.
12.11. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware applicable to contracts
made and to be performed entirely in the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of conflict of
laws.
12.12. Severability. The parties agree that if one or more provisions
contained in this Agreement shall be deemed or held to be invalid, illegal or
unenforceable in any respect under any applicable Law, this Agreement shall be
construed with the invalid, illegal, or unenforceable provision deleted, and the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected or impaired thereby.
12.13. Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same agreement.
12.14. Titles and Headings. Titles and headings to sections herein are
inserted for convenience of reference only, and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
12.15. Passage of Title and Risk of Loss. Legal title, equitable title,
and risk of loss with respect to the Purchased Assets will not pass to Purchaser
(or the H&C Assignees, as applicable) until such Purchased Assets are
transferred at the Closing, which transfer, once it has occurred, will be deemed
effective for tax, accounting, and other computational purposes as of the time
of the close of business at on the Closing.
12.16. Certain Interpretive Matters and Definitions.
(a) Unless the context otherwise requires, (i) all references to
Sections, Articles, Schedules, or Exhibits are to Sections, Articles, Schedules,
or Exhibits of or to this Agreement, (ii) each term defined in this Agreement
has the meaning assigned to it, (iii) each accounting term not otherwise defined
in this Agreement has the meaning assigned to it in accordance with GAAP, (iv)
"or" is disjunctive but not necessarily exclusive, (v) words in the
68
<PAGE>
singular include the plural and vice versa, (vi) the term "affiliate" or
"Affiliate" has the meaning given to such term in Rule 12b-2 of Regulation 12B
under the 1934 Act, (vii) the phrase "liabilities" shall include, without
limitation, any direct or indirect indebtedness, guaranty, endorsement, claim,
loss, damage, deficiency, cost, expense, obligation or responsibility, whether
fixed or contingent, known or unknown, asserted or unasserted, choate or
inchoate, liquidated or unliquidated, secured or unsecured, (viii) the word
"including" and similar terms following any statement will not be construed to
limit the statement to matters listed after such word or term, whether a phrase
of nonlimitation such as "without limitation" is used, (ix) the term "person" or
"Person" shall mean any individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization, or other form of
business or legal entity or Governmental Entity and (x) references to any State
of Delaware or United States legal term for any action, remedy, method of
judicial proceeding, legal document, legal status, court, official or any other
legal concept shall, in respect of any foreign jurisdiction, be deemed to
include the legal concept which most nearly approximates in that jurisdiction to
the State of Delaware or United States legal term. All references to "$" or
dollar amounts will be to lawful currency of the United States of America.
(b) No provision of this Agreement will be interpreted in favor
of, or against, either of the parties hereto by reason of the extent to which
either such party or its counsel participated in the drafting thereof or by
reason of the extent to which any such provision is inconsistent with any prior
draft hereof or thereof.
69
<PAGE>
* * * * * * * * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NL INDUSTRIES, INC.
By: /s/ Joseph S. Compofelice
Name: Joseph S. Compofelice
Title: Vice President & Chief Financial Officer
RHEOX, INC.
By: /s/ Lawrence A. Wigdor
Name: Lawrence A. Wigdor
Title: President
RHEOX INTERNATIONAL, INC.
By: /s/ Lawrence A. Wigdor
Name: Lawrence A. Wigdor
Title: President
HARRISONS & CROSFIELD (AMERICA) INC.
By: /s/ Mark L. Barocas
Name: Mark L. Barocas
Title: President
70
<PAGE>
HARRISONS & CROSFIELD PLC
By: /s/ Philip Damian Brown
Name: Philip Damian Brown
Title: Company Secretary
ELEMENTIS ACQUISITION 98, INC.
By: /s/ Mark L. Barocas
Name: Mark L. Barocas
Title: President
71
<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(a)
NL Capital Corporation (formerly Rheox,
Inc.) Delaware 100
Rheox International, Inc. Delaware 100(d)
Bentone Sud, S.A. France 100
Rheox GmbH Germany 100(c)
Bentone-Chemie GmbH Germany 100(c)
Rheox Limited United Kingdom 100(c)
Abbey Chemicals Limited United Kingdom 100(c)
Rheox Europe S.A./N.V. Belgium 100(c)
RK Export, Inc. Barbados 100(b)
RIMC, Inc. Delaware 100(c)
Enenco, Inc. New York 50(a)(c)
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>
(a) Unconsolidated joint venture accounted for by the equity method.
(b) Registrant indirectly owns 100% with 50% owned by Kronos and 50% owned
by NL Capital Corporation.
(c) Company was sold in January 1998 to Elementis plc.
(d) Company was dissolved January 1998.
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 dated February 11, 1998, which includes an explanatory paragraph
for the 1997 change in accounting for environmental remediation costs in
accordance with Statement of Position 96-1, on our audits of the consolidated
financial statements and financial statement schedules of NL Industries, Inc. as
of December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NL
INDUSTRIES INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1995, 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 141,333
<SECURITIES> 0
<RECEIVABLES> 133,264
<ALLOWANCES> 4,039
<INVENTORY> 251,630
<CURRENT-ASSETS> 551,071
<PP&E> 946,086
<DEPRECIATION> 486,870
<TOTAL-ASSETS> 1,271,653
<CURRENT-LIABILITIES> 302,425
<BONDS> 740,334
0
0
<COMMON> 8,355
<OTHER-SE> (217,776)
<TOTAL-LIABILITY-AND-EQUITY> 1,271,653
<SALES> 894,149
<TOTAL-REVENUES> 915,667
<CGS> 611,882
<TOTAL-COSTS> 611,882
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 289
<INTEREST-EXPENSE> 75,759
<INCOME-PRETAX> 66,273
<INCOME-TAX> 278
<INCOME-CONTINUING> 66,495
<DISCONTINUED> 19,114
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,609
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NL
INDUSTRIES INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-TO-DATE
PERIODS ENDED MARCH 31, 1996, JUNE 30, 1996, SEPTEMBER 30, 1996 AND
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERNECE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 113,058 120,094 130,196 114,115
<SECURITIES> 0 0 0 0
<RECEIVABLES> 155,311 168,489 151,073 126,995
<ALLOWANCES> 3,979 3,221 3,946 3,813
<INVENTORY> 257,497 232,241 216,280 232,510
<CURRENT-ASSETS> 550,007 542,416 520,882 500,246
<PP&E> 942,100 937,931 955,293 956,897
<DEPRECIATION> 485,993 482,115 489,355 490,851
<TOTAL-ASSETS> 1,268,082 1,256,665 1,239,230 1,221,358
<CURRENT-LIABILITIES> 287,477 299,490 332,427 290,345
<BONDS> 760,624 742,919 711,846 737,100
0 0 0 0
0 0 0 0
<COMMON> 8,355 8,355 8,355 8,355
<OTHER-SE> (205,392) (198,087) (207,585) (211,836)
<TOTAL-LIABILITY-AND-EQUITY> 1,268,082 1,256,665 1,239,230 1,221,358
<SALES> 206,368 434,597 649,635 851,179
<TOTAL-REVENUES> 214,151 452,561 673,179 878,848
<CGS> 152,333 329,729 505,593 668,605
<TOTAL-COSTS> 152,333 329,729 505,593 668,605
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 89 (636) (539) 30
<INTEREST-EXPENSE> 17,866 35,182 53,400 69,333
<INCOME-PRETAX> 7,813 15,077 2,546 (10,234)
<INCOME-TAX> (1,493) (2,615) 203 (1,496)
<INCOME-CONTINUING> 6,314 12,448 2,724 (11,735)
<DISCONTINUED> 7,130 12,915 18,390 22,552
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 13,444 25,363 21,114 10,817
<EPS-PRIMARY> 0.26 0.49 0.41 0.21
<EPS-DILUTED> 0.26 0.49 0.41 0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NL
INDUSTRIES INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR-TO-DATE
PERIODS ENDED MARCH 31, 1997, JUNE 30, 1997, SEPTEMBER 30, 1997 AND
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<CASH> 77,662 74,579 102,214 106,145
<SECURITIES> 0 0 0 0
<RECEIVABLES> 151,844 157,691 150,498 129,578
<ALLOWANCES> 2,699 2,711 2,750 2,828
<INVENTORY> 194,033 188,544 172,308 192,780
<CURRENT-ASSETS> 444,722 442,302 447,679 454,532
<PP&E> 913,526 894,865 894,562 877,072
<DEPRECIATION> 472,279 466,331 470,636 465,843
<TOTAL-ASSETS> 1,141,368 1,121,807 1,123,162 1,098,192
<CURRENT-LIABILITIES> 224,506 226,038 264,086 276,385
<BONDS> 746,605 738,774 694,606 666,779
0 0 0 0
0 0 0 0
<COMMON> 8,355 8,355 8,355 8,355
<OTHER-SE> (245,550) (250,598) (237,028) (230,624)
<TOTAL-LIABILITY-AND-EQUITY> 1,141,368 1,121,807 1,123,162 1,098,192
<SALES> 204,389 418,743 629,086 837,240
<TOTAL-REVENUES> 206,812 427,505 640,804 856,607
<CGS> 167,175 339,854 502,353 649,945
<TOTAL-COSTS> 167,175 339,854 502,353 649,945
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 118 0 382
<INTEREST-EXPENSE> 16,175 32,715 49,160 65,759
<INCOME-PRETAX> (40,571) (44,665) (41,303) (27,689)
<INCOME-TAX> (404) (1,106) (1,714) 2,244
<INCOME-CONTINUING> (40,180) (43,608) (39,661) (29,875)
<DISCONTINUED> 4,459 10,142 15,956 20,402
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (35,721) (33,466) (23,705) (9,473)
<EPS-PRIMARY> (0.70) (0.65) (0.46) (0.19)
<EPS-DILUTED> (0.70) (0.65) (0.46) (0.19)
</TABLE>
