<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required] - For the quarter ended March
31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-10126
Tremont Corporation
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 76-0262791
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1999 Broadway, Suite 4300, Denver, Colorado 80202
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-5652
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 within the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding on April 30, 1996: 7,396,192
<PAGE> 2
TREMONT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1995
and March 31, 1996 3-4
Consolidated Statements of Operations - Three
months ended March 31, 1995 and 1996 5
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 1996 6
Consolidated Statements of Cash Flows - Three
months ended March 31, 1995 and 1996 7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 21-22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K. 23
</TABLE>
- 2 -
<PAGE> 3
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1995* 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,650 $ 2,228
Accounts and notes receivable 4,104 4,094
Refundable income taxes 225 225
Receivable from related parties 274 761
Prepaid expenses 257 234
------------- -------------
Total current assets 7,510 7,542
------------- -------------
Other assets:
Investment in NL 31,586 32,005
Investment in TIMET 49,474 64,238
Investment in joint ventures 4,795 4,992
Receivable from related parties 27,990 28,012
Deferred income taxes 248 381
Other 12,520 8,165
------------- -------------
Total other assets 126,613 137,793
------------- -------------
Net property and equipment 755 742
------------- -------------
$ 134,878 $ 146,077
============= =============
</TABLE>
_______________________________
* Reclassified
-3-
<PAGE> 4
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995* 1996
------------ ------------
<S> <C> <C>
Current liabilities:
Notes payable $ 2,500 $ -
Accounts payable and accrued liabilities 4,631 4,042
Payable to related parties 491 432
------------ ------------
Total current liabilities 7,622 4,474
------------ ------------
Noncurrent liabilities:
Payable to related parties 3,450 3,500
Insurance claims and claim expenses 12,778 12,665
Accrued postretirement benefit cost 22,123 22,082
Other 4,000 4,000
------------ ------------
Total noncurrent liabilities 42,351 42,247
------------ ------------
Minority interest 1,246 1,304
------------ ------------
Stockholders' equity:
Common stock 7,550 7,550
Additional paid-in capital 231,815 231,815
Accumulated deficit (146,796) (132,539)
Adjustments:
Currency translation (3,145) (3,934)
Marketable securities (62) 180
Pension liabilities (2,107) (1,424)
------------ ------------
87,255 101,648
Less treasury stock, at cost 3,596 3,596
------------ ------------
Total stockholders' equity 83,659 98,052
------------ ------------
$ 134,878 $ 146,077
============ ============
</TABLE>
Commitments and contingencies (Note 7)
___________________________________
* Reclassified
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months
ended March 31,
-----------------------------
1995* 1996
---------- ---------
<S> <C> <C>
Equity in earnings (loss) of:
TIMET $ (2,972) $ 1,324
NL Industries 1,418 1,450
---------- ---------
(1,554) 2,774
General corporate expenses, net 609 366
Interest expense - 130
---------- ---------
Income (loss) before income taxes
and minority interest (2,163) 2,278
Income tax expense - -
Minority interest - (57)
---------- ---------
Net income (loss) $ (2,163) $ 2,221
========== =========
Net income (loss) per common share $ (.29) $ .29
========== =========
Weighted average common shares outstanding 7,354 7,666
========== =========
</TABLE>
____________________________
* Reclassified
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Adjustments
Additional --------------------------------------
Common paid-in Accumulated Currency Marketable Pension
stock capital deficit translation securities liabilities
----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 7,550 $ 231,815 $(146,796) $ (3,145) $ (62) $ (2,107)
Net income - - 2,221 - - -
Reduction of interest in TIMET
(Note 1) - - 12,036 (173) - 683
Adjustments, net - - - (616) 242 -
------- --------- --------- -------- ------ -----------
Balance at March 31, 1996 $ 7,550 $ 231,815 $(132,539) $ (3,934) $ 180 $ (1,424)
======= ========= ========= ======== ====== ===========
<CAPTION>
Total
Treasury stockholders'
stock equity
---------- ------------
<S> <C> <C>
Balance at December 31, 1995 $ (3,596) $ 83,659
Net income - 2,221
Reduction of interest in TIMET
(Note 1) - 12,546
Adjustments, net - (374)
--------- --------
Balance at March 31, 1996 $ (3,596) $ 98,052
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 7
TREMONT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------------
1995* 1996
------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,163) $ 2,221
Depreciation and amortization 17 13
Postretirement benefits (229) (41)
Losses (earnings) of affiliates in excess of distributions 1,554 (1,858)
Other, net (39) (149)
Change in assets and liabilities:
Accounts and notes receivable (344) 27
Accounts with related parties (257) (569)
Accounts payable and accrued liabilities (570) (589)
Income taxes (6) -
Other, net (35) (90)
Dispositions of marketable trading securities 3,244 -
------- ----------
Net cash provided from (used by) operating activities 1,172 (1,035)
------- ----------
Cash flows from investing activities:
Loans to related parties (2,500) -
Proceeds from the disposition of property held for sale - 3,000
Other, net 29 63
------- ----------
Net cash provided from (used by) investing activities (2,471) 3,063
------- ----------
Cash flows from financing activities:
Borrowings from related parties - 50
Reductions of indebtedness - (2,500)
------- ----------
Net cash used by financing activities - (2,450)
------- ----------
Net decrease in cash and cash equivalents (1,299) (422)
Balance at beginning of period 3,809 2,650
------- ----------
Balance at end of period $ 2,510 $ 2,228
======= ==========
Supplemental disclosures - cash paid for:
Interest $ - $ 61
Income taxes 6 -
</TABLE>
___________________________________
* Reclassified
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 8
TREMONT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Tremont Corporation is principally a holding company with operations
conducted through its 46%-owned subsidiary, Titanium Metals Corporation
("TIMET"), and 18%-owned affiliate, NL Industries, Inc. Contran Corporation
holds, directly or through subsidiaries, approximately 44% of Tremont's
outstanding common stock and 54% of NL's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of the children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee. Mr. Simmons may be deemed to
control each of Contran, NL and Tremont.
On February 15, 1996, TIMET completed the acquisition of the titanium
metals business of IMI plc and affiliates ("IMI") as described in Note 3 which
reduced Tremont's ownership in TIMET from 75% to 46%. As a result of its
reduced ownership level, Tremont has ceased to consolidate TIMET and instead
reports its interest in TIMET by the equity method of accounting. Tremont
accounted for this transaction as a reduction of interest in an affiliate and,
accordingly, recorded a $12.5 million increase to stockholders' equity in the
first quarter of 1996. The change in stockholders' equity resulted from the
difference between Tremont's postacquisition 46% interest in TIMET and its 75%
preacquisition interest in TIMET.
The consolidated balance sheet of Tremont Corporation and subsidiaries
(collectively, the "Company") at December 31, 1995 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 1996, the consolidated statements of
operations and cash flows for the interim periods ended March 31, 1995 and 1996
and the consolidated statement of stockholders' equity for the interim period
ended March 31, 1996 have been prepared by the Company, without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. Prior period amounts have
been reclassified to conform to the current year presentation. The results of
operations for the interim periods are not necessarily indicative of the
operating results for a full year or of future operations.
Certain information normally included in financial statements prepared
in accordance with generally accepted accounting principles has been condensed
or omitted. The accompanying consolidated financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 Annual Report").
Note 2 - Income (loss) per common share:
Income (loss) per common share is based on the weighted average number
of common shares and equivalents outstanding. Common stock equivalents,
consisting of nonqualified stock options, are excluded from the calculation
when their effect is antidilutive or not material.
-8-
<PAGE> 9
Note 3 - Unconsolidated affiliates and joint ventures:
See Item 2 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for summarized information relating to the
results of operations, financial position and cash flows of TIMET and NL, which
information is incorporated herein by reference.
TIMET
On February 15, 1996, TIMET completed an agreement to acquire IMI's
titanium metals business (the "IMI Titanium Acquisition"). IMI previously
conducted its titanium business principally through its wholly-owned United
Kingdom subsidiary, IMI Titanium Ltd. (now known as TIMET UK), and its United
States subsidiary, IMI Titanium, Inc. (now known as TIMET Castings). TIMET UK
is Western Europe's largest producer of titanium ingot and mill products for
aerospace and industrial applications. TIMET Castings manufactures titanium
castings principally for aerospace applications and golf club heads. IMI
conveyed all of its titanium related business to TIMET in exchange for newly
issued shares of TIMET's Class A common stock valued at $70 million, and TIMET
issued $20 million of TIMET's subordinated debt to IMI in exchange for a like
amount of debt previously owed to IMI by TIMET UK. After the transaction,
TIMET was owned 46.3% by Tremont, 37.9% by IMI, 15.4% by UTSC, and .4% by
management. In connection with the IMI Titanium Acquisition, Tremont was
granted a three year option to purchase up to an additional 8% of TIMET's
then-outstanding common stock from IMI for $16 million. Tremont assigned to
UTSC the right to acquire from IMI up to 2% of TIMET's then-outstanding common
stock for $4 million under the option. TIMET accounted for the IMI Titanium
Acquisition by the purchase method of accounting.
The following pro forma financial information has been prepared assuming
the IMI Titanium Acquisition occurred at the beginning of fiscal 1995. The pro
forma financial information is not necessarily indicative of the results which
actually would have been obtained if the IMI Titanium Acquisition had been
effected at such earlier date or of the results which may be obtained in the
future.
<TABLE>
<CAPTION>
Three Months
Ended
-------------------------------
March 31, March 31,
1995 1996
---------- ----------
(In millions)
<S> <C> <C>
Equity in earnings (loss) of:
TIMET $ (4.7) $ 3.1
NL 1.4 1.4
---------- ----------
$ (3.3) $ 4.5
========== ==========
Net income (loss) $ (3.9) $ 4.1
========== ==========
Net income (loss) per common share $ (.53) $ .55
========== ==========
</TABLE>
NL Industries
Tremont holds 9.1 million shares or 18% of NL's outstanding
common stock. At March 31, 1996, the net carrying amount of the Company's
investment in NL was about $3.50 per share while the market price of NL common
stock was $13.25 per share.
-9-
<PAGE> 10
Joint Ventures
Investment in joint ventures represents the Company's (i) 32% equity
interest in Basic Investments, Inc. ("BII"), which, among other things,
provides utility services in the industrial park where one of TIMET's plants is
located, and (ii) 12% interest in Victory Valley Land Company, L.P. ("VVLC"),
which is actively engaged in efforts to develop certain real estate. BII,
through a wholly-owned subsidiary, owns an additional 50% interest in VVLC.
Note 4 - Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ -------------
(In thousands)
<S> <C> <C>
Accounts payable $ 35 $ -
Accrued liabilities:
Postretirement benefit cost 1,819 1,819
Other 2,777 2,223
---------- -------------
$ 4,631 $ 4,042
========== =============
</TABLE>
Note 5 - Income taxes:
The difference between the income tax benefit (expense) attributable to
the Company's pretax income (loss) and the amounts that would be expected using
the U.S. federal statutory income tax rate of 35% is presented below.
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1995 1996
-------- --------
(In thousands)
<S> <C> <C>
Expected income tax benefit (expense) $ 757 $ (797)
Incremental tax and rate differences on equity
in income of companies not included in the
consolidated tax group - 30
Utilization of net operating loss carryforward - 731
Valuation allowance (761) 32
Other, net 4 4
-------- --------
Income tax expense $ - $ -
======== ========
</TABLE>
-10-
<PAGE> 11
Note 6 - Related party transactions:
Current receivables from related parties at December 31,1995 and March
31, 1996 represent amounts due under loss sharing arrangements with NL and
Baroid Corporation and interest due from TIMET. Noncurrent receivables from
related parties include $22.5 million of loans and interest due from TIMET with
the balance principally representing additional amounts due under loss sharing
arrangements. Current payables to related parties principally include amounts
due to NL and TIMET under intercorporate services agreements and interest due
to Contran. Noncurrent payables to related parties represent loans from
Contran.
Note 7 - Commitments and contingencies:
For information concerning certain legal proceedings, income tax and
other contingencies related to the Company, TIMET and NL, see (i) Item 2 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," (ii) Part II, Item 1 -- "Legal Proceedings," and (iii) the 1995
Annual Report, including certain information concerning TIMET's and NL's legal
proceedings incorporated therein by reference.
[Remainder of page intentionally left blank.]
-11-
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward - Looking Information
The statements contained in this Report on Form 10-Q ("Quarterly
Report") which are not historical facts, including, but not limited to,
statements found under the captions "Results of Operations" and "Liquidity and
Capital Resources", both contained in 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 Quarterly
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 Quarterly Report
and in the 1995 Annual Report, including, without limitation, the portions of
such reports under the captions referenced above, and the uncertainties set
forth from time to time in the Company's, TIMET's and NL's other public reports
and filings and public statements.
RESULTS OF OPERATIONS:
General
Tremont Corporation is principally a holding company with operations
conducted through TIMET and NL. The Company currently holds 46% of the
outstanding common stock of TIMET and 18% of NL's outstanding common stock.
The results of Tremont, TIMET, NL, and other items are discussed below.
TIMET
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1995 1996 Change
-------- ------- --------
(In millions)
<S> <C> <C> <C>
Net sales $ 41.7 $ 107.6 $ 65.9
======= ======= ========
Operating income (loss):
Before special charges $ (1.6) $ 11.0 $ 12.6
Special charges - (4.2) (4.2)
------- ------- --------
(1.6) 6.8 8.4
General corporate income (expense) .1 (.1) (.2)
Interest expense 2.5 3.5 (1.0)
------- ------- --------
Income (loss) before income tax (4.0) 3.2 7.2
Income tax expense - (.7) (.7)
Preacquisition earnings - (.4) (.4)
------- ------- --------
Net income (loss) $ (4.0) $ 2.1 $ 6.1
======= ======= ========
Tremont's equity in TIMET's
income (loss) $ (3.0) $ 1.3 $ 4.3
======= ======= ========
</TABLE>
-12-
<PAGE> 13
For the first quarter of 1996, sales volume of titanium sponge, ingot
and mill products increased to 8.4 million pounds compared to 4.6 million
pounds in the year-ago period. Shipments from TIMET UK and TIMET Castings
aggregated 2.6 million pounds in the first quarter of 1996. TIMET UK's sales
were $32.0 million in the first quarter of 1996 while TIMET Castings' sales
were $10.7 million. Average selling prices in the first quarter of 1996 were
up approximately 18% over the first quarter of 1995. The selling price
increases reflect both the pass-through of cost increases, particularly raw
material costs, and real price improvement associated with increased market
demand. Although TIMET and the titanium industry are continuing to experience
a significant increase in the cost of certain raw materials, TIMET's increased
selling prices more than offset those cost increases. Prices on recent orders
for titanium products have continued to increase relative to 1995 levels,
although there can be no assurance that this trend will continue.
Operating levels at TIMET's plants in the first quarter of 1996 were
higher than the same period in 1995 and contributed to the better operating
results. The VDP titanium sponge plant operated near its practical capacity of
20 million pounds annually in the first quarter of 1996 compared to about 75%
of practical capacity in 1995. Depreciation expense increased $1 million in
the first quarter of 1996 over the year ago period principally as a result of
the IMI Titanium Acquisition. TIMET presently expects its VDP plant to operate
near practical capacity in 1996 if current conditions continue. TIMET also
expects to restart production of titanium sponge at its original Kroll-leach
facility during 1996 in response to demand for certain grades of titanium
sponge. Anticipated costs to restart the Kroll-leach facility at a projected
annual production rate of approximately 4 million pounds are estimated to be
less than $1 million, of which approximately $.3 million was incurred in the
first quarter of 1996.
TIMET's operating income in the first quarter of 1996 included $1.4
million related to equity in earnings of THT compared to $.7 million in the
year ago period.
Special charges included $3 million related to compensation of TIMET's
officers in consideration for their services in connection with the IMI
Titanium Acquisition, and $1.2 million related to integration costs.
Interest expense increased in the first quarter of 1996 principally due
to higher average borrowings under TIMET's U.S. credit agreement and the $20
million of subordinated debt issued to IMI in connection with the IMI Titanium
Acquisition.
TIMET's income tax rate varies from the U.S. statutory rate primarily
due to net operating loss carry forward utilization against U.S. pre-tax
income. Statement of Financial Accounting Standards ("SFAS") No. 109 requires
a valuation allowance when it is more likely than not that some portion or all
of the deferred tax assets will not be realized. TIMET may release a portion
of its deferred tax asset valuation allowance in 1996, potentially resulting in
a significant tax benefit, if it concludes that the "more likely than not"
realization criteria of SFAS No. 109 are met. TIMET evaluates its deferred tax
valuation allowance quarterly.
NL Industries
The Company's 18% interest in NL is reported by the equity method.
Tremont reports its 18% interest in NL by the equity method due to the fact
that Tremont and NL may be deemed to be under common control by reason of stock
ownership and common directors and executive officers. The information
included below relating to the financial position, results of operations and
liquidity and capital resources of NL has been summarized from reports filed
with the Securities and Exchange Commission by NL (File No. 1-640), which
reports contain more detailed information concerning NL, including complete
financial statements on NL's historical basis of accounting.
Tremont's equity in earnings of NL differs from the amount that would be
expected by applying Tremont's ownership percentage to NL's separately-reported
earnings because of the effect of
-13-
<PAGE> 14
amortization of purchase accounting adjustments made by Tremont in conjunction
with the acquisitions of its interest in NL. Amortization of such basis
differences generally reduces earnings attributable to NL as reported by
Tremont.
NL's chemical operations are conducted in two business segments -- TiO(2)
conducted by Kronos and specialty chemicals conducted by Rheox.
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1995 1996 Change
------ ------ --------
(In millions, except percentages)
<S> <C> <C> <C>
Net sales:
Kronos $217.4 $206.3 -5%
Rheox 33.5 34.1 +2%
------ ------
$250.9 $240.4 -4%
====== ======
Operating income:
Kronos $ 32.5 $ 29.5 -9%
Rheox 9.5 12.4 +31%
------ ------
42.0 41.9 N/C
General corporate items:
Securities earnings, net 2.5 1.3
Expenses, net (4.6) (5.0)
Interest expense (20.7) (19.1)
------ ------
19.2 19.1
Income tax expense (5.8) (5.7)
Minority interest (.3) -
------ ------
Net income $ 13.1 $ 13.4 $ .3
====== ======= =======
Tremont's equity in NL's earnings,
including amortization of basis differences $ 1.4 $ 1.4 $ -
====== ======== =======
Percent changes in TiO(2):
Sales volume -11%
Average selling prices (in billing currencies) +5%
</TABLE>
Kronos' TiO(2) operating income in the first quarter of 1996 decreased
from the first quarter of 1995 as higher average selling prices were more than
offset by lower production and sales volumes. Kronos' first quarter sales
volumes declined 11% from the record sales volumes of the first quarter of 1995.
Slow economic activity in markets in which Kronos sells TiO(2) contributed to
continued soft demand during the first quarter of 1996. While average TiO(2)
selling prices for the first quarter of 1996 were 5% higher than the first
quarter of 1995, average prices for the quarter were 3% lower than the fourth
quarter of 1995. Kronos anticipates TiO(2) demand will remain soft through at
least the first half of 1996.
Rheox's operating results for the first quarter of 1996 improved
compared to the first quarter of 1995 on higher sales volumes and selling
prices and included a $2.7 million gain related to the curtailment of certain
U.S. employee pension benefits.
-14-
<PAGE> 15
A significant amount of sales are denominated in currencies other than
the U.S. dollar, and fluctuations in the value of the U.S. dollar relative to
other currencies increased the dollar value of sales for the first quarter of
1996 by $5 million compared to the first quarter of 1995.
Securities earnings were lower due to lower average balances available
for investment. Interest expense was lower primarily due to lower variable
interest rates.
LIQUIDITY AND CAPITAL RESOURCES:
Tremont
Tremont, with its 46% interest in TIMET and 18% interest in NL at March
31, 1996, is principally a holding company. At March 31, 1996, Tremont had
parent level cash and cash equivalents of approximately $.7 million and its 9.1
million shares of NL common stock had an aggregate market value of about $120
million. NL resumed cash dividends in the first quarter of 1996 at the rate of
$.10 per NL share per quarter. At this rate, Tremont would receive dividends
aggregating about $.9 million each quarter.
Tremont's intercompany loans plus accrued interest to TIMET aggregated
$22.5 million at March 31, 1996 including $2.5 million advanced in the first
quarter of 1995. TIMET's subordinated debt to Tremont accrues interest at
10.4% and is payable quarterly. Tremont expects to receive about $.5 million
of interest payments from TIMET each quarter related to its intercompany loans.
Such loans are due January 1, 2000, although TIMET's U.S. credit facility and
other agreements currently prohibit repayments of principal on such loans,
except for repayments from a percentage of the proceeds of a public offering of
TIMET's equity securities as discussed below.
Tremont has a $15 million revolving credit agreement with Contran
Corporation maturing in January 1998. The loan is collateralized by 2.5
million shares of NL common stock and accrues interest, at Tremont's option, at
either the prime rate plus 3/4% or LIBOR plus 2% (8.6% at March 31, 1996). At
March 31, 1996, $3.5 million was outstanding under this credit agreement. In
June 1995, Tremont borrowed $2.5 million under a margin loan with an investment
bank which was repaid on March 28, 1996. Tremont also had approximately $9
million of letters of credit outstanding under a third party credit agreement
at March 31, 1996.
Other than as discussed above, Tremont has not guaranteed any
indebtedness of TIMET. Nevertheless, Tremont may elect to provide additional
funds to TIMET in the future. In order to meet its obligations, Tremont may
seek to borrow additional amounts against a portion of its interest in NL, sell
certain assets, and/or enter into other transactions to manage its liquidity,
which transactions may involve related parties. Tremont believes it will be
able, through some combination of the aforementioned measures, to satisfy its
needs for liquidity to meet its obligations. Additional information regarding
Tremont's liquidity and capital resources is described below under "TIMET".
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements and estimated future
operating cash flows. As a result of this process, the Company has in the past
and may in the future seek to raise additional capital, restructure ownership
interests, refinance or restructure indebtedness, sell marketable securities or
other assets, or take a combination of such steps or other steps to increase or
manage its liquidity and capital resources. In the normal course of business,
the Company may investigate, evaluate and discuss acquisition, joint venture
and other business combination opportunities in the titanium and specialty
metal industries, and in this regard TIMET has been exploring a potential
strategic relationship with a large titanium producer in Russia. In the event
of any future acquisition or joint venture opportunities, 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.
-15-
<PAGE> 16
TIMET
Summarized historical balance sheet and cash flow information of TIMET
is presented below.
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
----------- ---------
(In millions)
<S> <C> <C>
Cash and cash equivalents $ - $ .5
Other current assets 103.6 210.6
Investment in joint ventures 13.9 15.5
Other noncurrent assets 6.4 17.2
Property and equipment 124.9 178.6
----------- ---------
$ 248.8 $ 422.4
=========== =========
Current liabilities $ 97.1 $ 182.5
Long-term debt 21.5 .1
Capital lease obligation to related parties - 9.6
Payable to related parties 23.9 42.8
Accrued postretirement benefits cost 28.2 28.1
Deferred income taxes .8 7.9
Other noncurrent liabilities 9.2 10.4
Class B redeemable common stock - 1.5
Stockholders' equity:
Capital and retained earnings 70.2 142.3
Adjustments, principally minimum
pension liabilities (2.1) (2.8)
----------- ---------
68.1 139.5
----------- ---------
$ 248.8 $ 422.4
=========== =========
</TABLE>
<TABLE>
<CAPTION>
Three months ended
-----------------------------
April 2, March 31,
1995 1996
---------- ---------
(In millions)
<S> <C> <C>
Net cash provided (used) by:
Operating activities $ (2.8) $ (11.0)
Investing activities:
Capital expenditures (1.1) (2.4)
Purchase of IMI titanium business - (2.3)
Other, net .4 .2
Financing activities:
Net borrowings 1.2 14.0
Loans from related parties 2.5 -
Foreign currency translation .1 -
Cash acquired, net - 1.9
---------- -------
$ .3 $ .4
========== =======
Cash paid for:
Interest $ 1.7 $ 2.3
Income taxes - -
Acquisition of IMI titanium business:
Cash and cash equivalents $ - $ 1.2
Noncash assets - 143.6
Liabilities - (72.5)
Common stock issued to IMI - (70.0)
---------- -------
Cash paid $ - $ 2.3
========== =======
</TABLE>
-16-
<PAGE> 17
TIMET's results for the first quarter of 1996 were significantly
improved over the year ago period and continued to include significant noncash
items. Depreciation expense increased to $3.9 million in the first quarter of
1996 compared to $2.9 million for the same period in 1995 principally as a
result of the IMI Titanium Acquisition. TIMET recorded $4.2 million of special
charges in the first quarter of 1996 related to the IMI Titanium Acquisition
(approximately $1.5 million of which was noncash). TIMET's cash flow from
operations in the first quarter of 1996 was negatively impacted by increases in
inventories and accounts receivable, which were partially offset by increases
in accounts payable and accrued liabilities. Cash flow from operating
activities in the first quarter of 1995 was adversely impacted by relative
changes in assets and liabilities.
TIMET's capital expenditures in the first quarter of 1996 were $2.4
million compared to $1.1 million in the year-ago period. TIMET estimates
capital expenditures in 1996 will be approximately $15 million, including $10
million relating to TIMET UK and TIMET Castings, substantially all of which is
expected to be supplied by cash flow from operating activities. TIMET's 1996
capital expenditures are expected to be primarily directed toward manufacturing
process improvements, principally at TIMET UK and TIMET Castings.
Reductions of indebtedness in the first quarter of 1996 include $.8
million of installments on the term loan portion of TIMET's U.S. credit
facility. TIMET's net repayment of bank debt aggregated $1.0 million in the
first quarter of 1995.
TIMET consumed significant amounts of cash in the first quarter of 1996
and each of the past three years to fund operating losses, capital
expenditures, working capital and debt service, including about $16 million
consumed by TIMET for such items in the first quarter of 1996. The consumption
of cash has required TIMET to both increase its bank borrowings and obtain
additional financial support from its stockholders. TIMET has taken and
continues to take measures to manage its near-term and long-term liquidity
requirements including, among other things, refinancing certain debt,
containment of capital expenditures, a public offering of TIMET's equity
securities as discussed below, and other efforts to control both costs and the
level of working capital.
TIMET's $90 million U.S. credit facility provides for term loans which
aggregated $24 million at March 31, 1996. The balance of the facility is
available as a revolving credit/letter of credit facility. Borrowings under
the revolving portion are limited to a formula-determined amount of accounts
receivable and inventories (the "borrowing base"). Interest accrues at the
prime rate plus 2% to 2.5%. The weighted average interest rate on outstanding
revolver and term loan borrowings was 10.5% at March 31, 1996. The credit
facility presently expires in early fiscal 1997. TIMET has reached an
understanding with its lead lender for a one-year extension of the maturity
date of its U.S. credit facility, a 1.5% reduction in the effective interest
rates, and an increase in borrowing availability thereunder up to a maximum of
$105 million, subject to definitive documents and acceptance of such terms by
the remaining lenders. Borrowings are collateralized by substantially all of
TIMET's U.S. assets. The credit facility prohibits the payment of dividends on
TIMET's common stock in excess of 20% of TIMET's net income in any fiscal year,
limits TIMET's additional indebtedness and transactions with affiliates,
requires the maintenance of certain financial amounts and contains other
covenants customary in transactions of this type. At March 31, 1996, TIMET had
about $7 million of borrowings available under its U.S. credit facility.
In connection with the IMI Titanium Acquisition, TIMET UK entered into a
short-term L.10 million overdraft/revolving credit facility. The agreement
restricts payments of dividends from TIMET UK, loans and other transactions
with related parties and contains other covenants customary in transactions of
this type. Borrowings under this agreement are collateralized by substantially
all of TIMET UK's assets and accrue interest at the bank's base rate plus 2%.
No borrowings were outstanding under this facility at March 31, 1996.
-17-
<PAGE> 18
Also in connection with the IMI Titanium Acquisition, TIMET issued $20
million of subordinated debt to IMI. The subordinated debt accrues interest at
10.4% and requires quarterly principal payments of $1.25 million beginning in
1997 through 1999, except that principal payments in 1997 are subject to
achievement of certain financial tests under TIMET's U.S. credit facility. The
balance is due on December 31, 1999. The terms of the notes to both Tremont
and IMI require TIMET to apply not less than an aggregate of one-third of the
net proceeds to TIMET from any public offering of its securities to prepayment
of principal and accrued interest outstanding thereunder. The terms of TIMET's
U.S. credit facility currently permit TIMET to apply a maximum of one-third of
the net proceeds from any public offering of its securities to repay
shareholder indebtedness to IMI and Tremont. TIMET has reached an
understanding with its lead lender that under certain circumstances TIMET will
be entitled to repay such shareholder indebtedness (which does not include
certain capital lease obligations to IMI) in full.
TIMET has filed a registration statement with the Securities and
Exchange Commission (the "Commission") to permit TIMET to offer 14.5 million
shares of TIMET's common stock to the public (the "Offerings"). TIMET is to
offer 6.2 million of the shares and will use the proceeds to repay debt,
including TIMET's debt to Tremont and IMI. The remaining shares are to be
offered by UTSC and IMI. Tremont expects to participate as a selling
stockholder only if the underwriters' overallotment options are exercised. All
of the shares offered under the overallotment options, if any, will be sold by
Tremont. Sales of shares pursuant to the Offerings will be made only pursuant
to an effective registration statement under the Securities Act of 1933 and no
assurance can be given that the Offerings will be completed.
At March 31, 1996 TIMET had $81 million of debt outstanding under its
U.S. credit facility, $22.5 million of indebtedness to Tremont and $20 million
of indebtedness to IMI, excluding capital leases. TIMET expects the net
proceeds to it from the Offerings will be approximately $123.2 million. TIMET
expects to use $42.5 million of the net proceeds to repay all existing
indebtedness, excluding capital leases, to stockholders and $80.6 million to
repay a portion of its bank indebtedness. To the extent that the net proceeds
from the Offerings exceed an amount necessary to repay all indebtedness
referred to above, TIMET expects to use the balance for general corporate
purposes.
Additional information regarding TIMET's liquidity and capital resources
is described above under "Tremont".
-18-
<PAGE> 19
NL Industries
Summarized historical balance sheet and cash flow information of NL is
presented below.
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ ---------
(In millions)
<S> <C> <C>
Cash, cash equivalents and securities $ 141.3 $ 113.1
Other current assets 409.7 436.9
Noncurrent securities 20.9 24.2
Investment in joint ventures 185.9 184.6
Other noncurrent assets 54.6 53.2
Property and equipment 459.2 456.1
--------- ---------
$ 1,271.6 $ 1,268.1
========= =========
Current liabilities $ 302.4 $ 287.5
Long-term debt 740.3 760.6
Deferred income taxes 157.2 151.2
Accrued postretirement benefits cost 60.2 59.7
Other noncurrent liabilities 217.8 205.8
Minority interest 3.1 .3
Stockholders' deficit:
Capital and retained earnings (80.0) (71.7)
Adjustments, principally foreign
currency translation (129.4) (125.3)
--------- ---------
(209.4) (197.0)
--------- ---------
$ 1,271.6 $ 1,268.1
========= =========
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1995 1996
------- --------
(In millions)
<S> <C> <C>
Net cash provided (used) by:
Operating activities $ (2.3) $ (31.3)
Investing activities:
Capital expenditures (12.4) (12.3)
Other, net (2.3) (3.7)
Financing activities:
Net borrowings (repayments) (10.5) 25.1
Other, net - (5.5)
------- --------
$ (27.5) $ (27.7)
======= =========
Cash paid for:
Interest, net of amounts capitalized $ 5.0 $ 6.6
Income taxes 2.2 6.6
</TABLE>
-19-
<PAGE> 20
The TiO2 industry is cyclical, with a peak in selling prices in early
1990 and a trough in the third quarter of 1993. Although selling prices
increased significantly since the 1993 trough, prices began declining during
the last half of 1995. NL's cash flows from operations declined during the
first quarter of 1996 primarily due to changes in NL's inventories, receivables
and payables (excluding the effect of currency translation).
Certain of NL's income tax returns in various U.S. and non-U.S.
jurisdictions, including Germany, are being examined and tax authorities have
proposed or may propose tax deficiencies. NL has reached an agreement in
principle with the German tax authorities regarding examinations which will
resolve certain significant tax contingencies for years through 1990. NL
expects to finalize assessments and pay tax deficiencies of approximately DM 50
million ($34 million at March 31, 1996), including interest, in settlement of
these issues during 1996. Certain other German tax contingencies remain
outstanding and will continue to be litigated. Although NL believes that it
will ultimately prevail, NL has granted a DM 100 million ($68 million at March
31, 1996) lien on its Nordenham, Germany TiO2 plant in favor of the German tax
authorities until the litigation is resolved. No assurance can be given that
this litigation will be resolved in NL's favor in view of the inherent
uncertainties involved in court rulings. NL believes that it has adequately
provided accruals for additional income taxes and related interest expense
which may ultimately result from all such examinations and believes that the
ultimate disposition of such examinations should not have a material adverse
effect on NL's consolidated financial position, results of operations or
liquidity.
Rheox acquired the minority interests of its non-U.S. subsidiaries for
$5.2 million in the first quarter of 1996.
NL borrowed DM 50 million ($35 million when borrowed) under its DM
credit facility during the first quarter of 1996. Repayments of indebtedness
in the same period included payments of $5.8 million on the Rheox bank term
loan and $3.9 million on the joint venture term loan.
In the first quarter of 1996, NL resumed its quarterly dividend by
paying a $.10 per share dividend to shareholders aggregating $5.1 million.
NL's ability to continue paying dividends in the near term is contingent upon,
among other things, meeting certain covenants of its Senior Notes.
At March 31, 1996, NL had cash and cash equivalents aggregating $113
million (27% held by non-U.S. subsidiaries) including restricted cash and cash
equivalents of $11 million. NL's subsidiaries had $15 million and $152 million
available for borrowing at March 31, 1996 under existing U.S. and non-U.S.
credit facilities, respectively, of which $85 million of the non-U.S. amount is
available only for (i) permanently reducing the DM term loan or (ii) paying
future German income tax assessments, as described above.
NL has been named as a defendant, potentially responsible party ("PRP"),
or both, in a number of legal proceedings associated with environmental
matters, including waste disposal sites or facilities currently or formerly
owned, operated or used by NL, many of which disposal sites or facilities are
on the U.S. Environmental Protection Agency's (the "U.S. EPA") Superfund
National Priorities List or similar state lists. On a quarterly basis, NL
evaluates the potential range of its liability at sites where it has been named
as a PRP or defendant. NL believes it has adequate accruals ($100 million at
March 31, 1996 with respect to domestic sites) for reasonably estimable costs
of such matters. It is not possible to estimate the range of costs for certain
sites. NL has estimated that the upper end of the range of reasonably possible
costs to NL for sites for which it is possible to estimate costs is
approximately $165 million. NL's estimates of such liabilities have not been
discounted to present value, and NL has not recognized any potential insurance
recoveries. 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.
-20-
<PAGE> 21
NL is also a defendant in a number of legal proceedings seeking damages
for personal injury and property damage arising from the sale of lead pigments
and lead-based paints. Although no assurance can be given that NL will not
incur liability in respect of this litigation, based on, among other things,
the results of such litigation to date, NL believes that the pending lead
pigment and paint litigation is without merit. NL has not accrued any amounts
for such pending litigation. Liability that may result, if any, cannot be
reasonably estimated. In addition, various legislation and administrative
regulations have, from time to time, been enacted or proposed at the state,
local and federal levels that seek to 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 to
effectively overturn court decisions in which NL and other pigment
manufacturers have been successful. NL currently believes the disposition of
all claims and disputes, individually and in the aggregate, should not have a
material adverse effect on NL'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.
NL periodically evaluates its liquidity requirements, alternative uses
of capital, capital needs and availability of resources in view of, among other
things, its debt service and capital expenditure requirements and estimated
future operating cash flows. As a result of this process, NL has in the past
and may in the future seek to reduce, refinance, repurchase or restructure
indebtedness, raise additional capital, 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, NL may also review
opportunities for the acquisition of businesses and assets in the chemicals
industry. In the event of any future acquisition, NL may consider using
available cash, issuing equity securities or increasing its indebtedness to the
extent permitted by the agreements governing NL's existing debt.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to the 1995 Annual Report for descriptions of certain
legal proceedings.
Reference is made to the discussion appearing in the 1995 Annual Report
regarding an action filed against the Company in connection with the 1991
purchase by the Company of shares of NL stock from Valhi, Inc., a company that
may be deemed to be controlled by Harold Simmons (Alan Russell Kahn vs. Tremont
Corporation, et al., No. 12339). Plaintiff has filed an appeal of this case
with the Delaware Supreme Court following the earlier verdict by the Delaware
Chancery Court in favor of the defendants. The Company believes the appeal is
without merit. The Company intends, and understands that the other defendants
intend, to vigorously defend this appeal.
TIMET
In April 1996, TIMET Castings received a letter from a golf club
manufacturer, Ray Cook Golf Company ("Ray Cook"), claiming breach of contract
and trademark infringement. Ray Cook asserts damages in the approximate amount
of $.6 million for lost profits and delivery delays relating to the production
of golf club heads by TIMET Castings. TIMET is currently investigating these
claims. At March 31, 1996, TIMET had not accrued any amounts related to this
matter.
TIMET is conducting an additional study and assessment work as required
by the California Regional Water Quality Control Board -- Los Angeles Region
related to soil and possible groundwater contamination at TIMET Castings'
Pomona, California facility. The site is near an area
-21-
<PAGE> 22
that has been designated as a U.S. Environmental Protection Agency "Superfund"
site. At March 31, 1996, TIMET had accrued $.6 million related to this matter.
NL Industries, Inc.
Information called for by this item regarding NL's legal proceedings is
incorporated herein by reference to Part II, Item 1 -- "Legal Proceedings" of
NL's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
attached hereto as Exhibit 99.1.
Item 5. Other Information.
Under the Investment Company Act of 1940 (the "1940 Act"), companies
such as mutual funds that engage in the investment business are subject to
regulation by the Commission as investment companies. The 1940 Act defines an
investment company to include an issuer that (i) is engaged or proposes to
engage in the business of investing, reinvesting, owning, holding or trading in
securities, and (ii) owns or proposes to acquire investment securities having a
value exceeding 40% of the fair value of such issuer's total assets on an
unconsolidated basis (exclusive of cash and cash items). Investment securities
are defined generally to include all securities other than those issued by
majority- owned subsidiaries of the issuer.
Tremont is, and has been for the past several years, primarily engaged
in the business of operating manufacturing businesses through TIMET and NL.
Tremont does not now nor has it ever engaged or intended to engage in the
business of investing, reinvesting, owning, holding or trading of securities.
Nevertheless, following the IMI Titanium Acquisition, Tremont ceased to own a
majority of TIMET's common stock. As a result, the TIMET common stock and NL
shares held by Tremont might both be deemed to be investment securities.
Based on the technical provisions of the 1940 Act and because Tremont
believes that regulation as an investment company would be undesirable for a
company that engages in a manufacturing business, Tremont has taken the steps
necessary to give itself the benefit of a temporary exemption under the 1940
Act, and may seek an order from the Commission that Tremont is primarily
engaged, through TIMET and NL, in a non-investment company business. Tremont
intends to study the future direction and opportunities available to Tremont
with a view to obviating, within one year (the time period afforded by the
exemption), any argument concerning Tremont's possible status as an investment
company under the 1940 Act.
-22-
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
9.1 - Amendment No. 3 to Investors' Agreement between
Union Titanium Sponge Corporation, Toho Titanium
Co., Ltd., Nippon Mining Co., Ltd., Mitsui & Co.,
Ltd., Mitsui & Co., (U.S.A.), Inc., Titanium Metals
Corporation and the Registrant, dated May 30, 1990.
10.1 - Amendment No. 4 to the Sponge Purchase Agreement
dated May 30, 1990 between Titanium Metals
Corporation and Union Titanium Sponge Corporation.
10.2 - L.10 million short term credit facility of TIMET
UK, Ltd. with Lloyd's Bank.
27.1 - Financial Data Schedule for the three-month period
ended March 31, 1996.
99.1 - Part II, Item 1 of a Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996 filed by NL
Industries, Inc. (File No. 1-640).
(b) Reports on Form 8-K and Form 8-K/A filed by the Registrant for
the quarter ended March 31, 1996 and for the month of April 1996:
January 4, 1996 - Reported Items 5 and 7
January 26, 1996 - Reported Items 5 and 7
February 15, 1996 - Reported Items 5 and 7
April 29, 1996 - Reported Items 5 and 7
-23-
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TREMONT CORPORATION
------------------------------
(Registrant)
Date: May , 1996 By /s/ Joseph S. Compofelice
- ------------------ -----------------------------------------
Joseph S. Compofelice
Vice President and
Chief Financial Officer
By /s/ Mark A. Wallace
-----------------------------------------
Mark A. Wallace
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ------------------- ----
<S> <C> <C> <C>
9.1 - Amendment No. 3 to Investors' Agreement between Union Titanium Sponge Corporation, Toho Titanium Co.,
Ltd., Nippon Mining Co., Ltd., Mitsui & Co., Ltd., Mitsui & Co., (U.S.A.), Inc., Titanium Metals
Corporation and the Registrant, dated May 30, 1990.
10.1 - Amendment No. 4 to the Sponge Purchase Agreement dated May 30, 1990 between Titanium Metals Corporation
and Union Titanium Sponge Corporation.
10.2 - L.10 million short term credit facility of TIMET UK, Ltd. with Lloyd's Bank.
27.1 - Financial Data Schedule for three-month period ended March 31, 1996.
99.1 - Part II, Item 1 of a Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 filed by NL
Industries, Inc. (File No. 1-640).
</TABLE>
<PAGE> 1
AMENDMENT NO. 3, dated as of May 2, 1996, to the INVESTORS' AGREEMENT,
dated May 30, 1990, among UNION TITANIUM SPONGE CORPORATION (the "Investor"), a
Delaware corporation, TOHO TITANIUM CO., LTD., a Japanese corporation, NIPPON
MINING & METALS CO. LTD. , a Japanese corporation, NIPPON STEEL CORPORATION, a
Japanese corporation, MITSUI & CO., LTD., a Japanese corporation, MITSUI & CO.
(U.S.A.), INC., a New York corporation, TREMONT CORPORATION (formerly Baroid
Corporation), a Delaware corporation, and TITANIUM METALS CORPORATION (formerly
Titanium Metals Corporation of America) ("TMC"), a Delaware corporation (as
previously amended December 21, 1990 and December 17, 1992, the "Investors'
Agreement"). Capitalized terms appearing herein and not otherwise defined are
used as defined in the Investors' Agreement.
WHEREAS, the parties desire to amend the Investors' Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 1.1 of the Investors' Agreement is hereby amended by
the addition at the appropriate position in said Section 1.1 of new defined
terms "TMC Class A Stock," "TMC Class B Stock" and "1996 Public Offering" as
follows:
TMC CLASS A COMMON STOCK: The Class A Common Stock,
par value $.01 per share, of TMC.
TMC CLASS B COMMON STOCK: The Class B Common Stock,
par value $.01 per share, of TMC.
1996 PUBLIC OFFERING: The Public Offering made (or which
was proposed to be made) by TMC pursuant to a registration statement
on Form S-1 (Registration No. 333-2940) filed with the Securities and
Exchange Commission by TMC on April 2, 1996, as amended.
2. The definition of "Adjusted Outstanding TMC Voting Securities"
contained in Section 1.1 of the Investors' Agreement is hereby amended to read
in its entirety as follows:
ADJUSTED OUTSTANDING TMC VOTING SECURITIES: As of any
date of determination, the sum of
(a) the shares of TMC Voting Securities outstanding at
the date of Amendment No. 3 to this Agreement (i.e.,
387,097 shares of TMC Class A Common Stock),
plus
(b) any and all shares of TMC Voting Securities issued in
connection with the 1996 Public Offering; provided,
however, that in the event the Investor sells in the
1996 Public Offering a number of shares of TMC Voting
Securities equal to or less than that number (the
"Maximum Disposition Number") specified by TMC as
being the maximum number of shares the Investor may
sell and still retain 10% of the Adjusted Oustanding
TMC Voting Securities (after giving effect to the
1996 Public Offering, but not taking into account
this proviso), then there shall be
<PAGE> 2
counted only such number of shares of TMC Voting
Securities issued in the 1996 Public Offering as
would cause the Investor to own as near as possible
to (but not less than) 10% of the Adjusted
Outstanding TMC Voting Securities (it being agreed
that, as a condition to the operation of this clause
(b), TMC shall provide the Investor with written
notices specifying (i) the Maximum Disposition Number
not later than the day immediately preceding the
pricing of the 1996 Public Offering and (ii) the
number of shares of TMC Voting Securities issued in
the 1996 Public Offering that are included in the
definition of Adjusted Outstanding TMC Voting
Securities pursuant to this clause (b) (after giving
effect to the 1996 Public Offering and this proviso)
no later than the first Business Day immediately
following the closing of the 1996 Public Offering),
plus
(c) subject to the proviso below, all shares of TMC
Voting Securities issued following the closing of the
1996 Public Offering, including without limitation,
any shares of TMC Voting Securities issued by way of
stock dividend or stock split,
less
(d) any shares of TMC Voting Securities issued after the
date of Amendment No. 3 to this Agreement in respect
of the 1,430 shares of TMC Class B Common Stock
issued to management of TMC effective February 15,
1996, and
less
(e) shares of TMC Voting Securities issued pursuant to
any existing or future employee or director stock
option or stock compensation plan (to the extent such
shares have not been purchased by TMC in the open
market);
provided, however, that if the issuance of the shares referred to in
clause (c) above (for purposes of this proviso, "Dilutive Shares")
would, absent any action on the part of the Investor, cause either (1)
the ownership of the Investor to fall below 10% of the Adjusted
Outstanding TMC Voting Securities (as defined without giving effect to
this proviso) or (2) the termination of this Agreement pursuant to
Section 28 hereof (either, a "Dilutive Consequence"), then the
following provisions (A)-(F) shall apply:
(A) if TMC desires to include such Dilutive Shares in the
calculation of the "Adjusted Outstanding TMC Voting
Securities," it will give written notice to the
Investor (a "Dilutive Issuance Notice"), either prior
to or within 30 days
-2-
<PAGE> 3
after the issuance of such Dilutive Shares, which
notice shall specify the number of Dilutive Shares
issued or estimated to be issued (i.e., TMC is not
required to provide a Dilutive Issuance Notice with
respect to any given Dilutive Shares, but if it does
not provide a Dilutive Issuance Notice with respect
to such Dilutive Shares in the timeframe provided,
such Dilutive Shares will not be included in the
calculation of the Adjusted Outstanding TMC Voting
Securities at any time thereafter);
(B) if the Investor, following the receipt of a Dilutive
Issuance Notice, desires to prevent the occurrence of
the Dilutive Consequence, it may, at its options,
purchase in the public trading market during the 15
trading day period following its receipt of the
Dilutive Issuance Notice the shares of TMC Voting
Securities necessary to prevent the occurrence of the
Dilutive Consequence;
(C) in the event the Investor is unable to purchase, or
does not elect to purchase pursuant to clause (B)
above, all or any portion of the shares of TMC Voting
Securities necessary to prevent the occurrence of the
Dilutive Consequence, but desires to so prevent a
Dilutive Consequence, it may give written notice to
TMC (a "Makeup Share Purchase Notice"), within 30
days following the Investors' receipt of the Dilutive
Issuance Notice, of the Investors' desire to purchase
directly from TMC the balance of the TMC Voting
Securities necessary to prevent the occurrence of the
Dilutive Consequence which it did not purchase in the
market under (B) above (such balance referred to as
the "Makeup Shares"), which notice shall (i) specify
the number of Makeup Shares to be purchased by the
Investor and (ii) contain the Investor's agreement to
hold the Makeup Shares in compliance with Section 16
of this Agreement, unless the Dilutive Shares have
been (or will be) registered pursuant to the
Securities Act, in which case the Investor shall
instead purchase TMC Voting Securities registered in
such registration;
(D) TMC may thereafter elect to sell the Makeup Shares to
the Investor, but shall not be obligated to do so; in
the event TMC elects to sell the Makeup Shares to the
Investor, (i) the purchase price therefor shall be
the price per share at which the Dilutive Shares were
(or are to be) sold and (ii) the closing of any such
sale shall take place within 45 days following the
Investor's receipt of the Dilutive Issuance Notice,
with TMC to deliver to the Investor a certificate
representing the Makeup Shares (together with an
opinion of counsel of TMC substantially in the form
of the opinion delivered June 28, 1995 in connection
with the
-3-
<PAGE> 4
recapitalization of TMC on such date) against a wire
transfer of immediately available funds into an
account designated by TMC for the purchase price
therefor;
(E) in the event that TMC gives a Dilutive Issuance
Notice with respect to any given Dilutive Shares
pursuant to the provisions of (A) above and either
(i) the Investor does not send a timely Makeup Share
Purchase Notice to TMC or (ii) following TMC's
receipt of a timely Makeup Share Purchase Notice from
the Investor under (C), TMC agrees to sell to the
Investor the Makeup Shares, then in either such case
the Dilutive Shares in question will, upon and
following (but not before) the issuance of the Makeup
Shares (or 45 days following the giving of the
Dilutive Issuance Notice in the event the Investor
does not issue a Makeup Share Purchase Notice or,
having issued a Makeup Share Purchase Notice, does
not purchase the Makeup Shares unless UTSC shall have
provided TMC with a written opinion of counsel to the
effect that such purchase woud be unlawful), be
included in the calculation of the Adjusted
Outstanding TMC Voting Securities; and
(F) unless included in the calculation of the Adjusted
Outstanding TMC Voting Securities pursuant to (E)
above, the Dilutive Shares in question will not be
included in the calculation of the Adjusted
Outstanding TMC Voting Securities.
3. The first sentence of the definition of "Registrable
Securities" contained in Section 1.1 of the Investors' Agreement is hereby
amended to read in its entirety as follows:
(a) Any shares of TMC Voting Securities held by the Investor
immediately following the closing of the 1996 Public Offering,
(b) any shares of TMC Voting Securities purchased by the
Investor from IMI plc or any of its Affiliates pursuant to the
terms of the option assigned in part by Tremont to the
Investor under the terms of that certain Assignment Agreement
dated as of February 15, 1996, between Tremont and the
Investor, (c) any shares of TMC Voting Securities issued as
Makeup Shares (as provided in the definition of Adjusted
Outstanding TMC Voting Securities), and (d) any TMC Voting
Securities issued or issuable with respect to any shares of
TMC Voting Securities referred to in clause (a), (b), or (c)
by way of stock dividend or stock split in connection with a
combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise.
4. Section 4.2(b) of the Investors' Agreement is hereby amended
to change the reference to "sections 4.1(b) and 4.2(a)(iv)" appearing in lines
6 and 7 to read "section 4.1(b)."
5. Section 20.1(a) of the Investors' Agreement is hereby amended
to change the penultimate sentence therein to read in its entirety as follows:
-4-
<PAGE> 5
TMC shall have no further obligations under this section 20 after two
registration statements, prepared and filed pursuant to this section
20, registering any of the Investors' Registrable Securities shall
have become effective, provided that a registration statement shall
not be counted against the limit of two if the number of shares
proposed by the Investor for inclusion in such registration statement
shall have been reduced pursuant to section 22.2(a).
6. Section 22.3 of the Investors' Agreement is hereby amended to
(a) change the reference to "120" appearing in line 10 thereof to read "180"
and (b) change the reference to "90" appearing in line 15 thereof to read
"180."
7. The Investors' Agreement is hereby amended by the addition of
a new Section 32 to read in its entirety as follows:
32. NON-REVIVAL OF RIGHTS. Whenever the existence of
any right granted to the Investor or Investor Group under this
Agreement depends upon the Investor or Investor Group holding a
specified percentage of the Adjusted Outstanding TMC Voting
Securities, such rights shall become inapplicable to the Investor or
the Investor Group, as the case may be, whenever the Investor or the
Investor Group ceases to hold the specified percentage of the Adjusted
Outstanding TMC Voting Securities, and such right shall not thereafter
be subject to revival by virtue of any subsequent increase in the
holdings of TMC Voting Securities by the Investor or the Investor
Group.
8. Except as specifically amended hereby, the Investors'
Agreement, as heretofore amended, shall continue in full force and effect.
9. This Amendment No. 3 to the Investors' Agreement shall be
effective as of the closing of the 1996 Public Offering, but shall terminate
and be null and void if the 1996 Public Offering does not occur prior to
September 1, 1996.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Amendment No. 3 has been executed by each of
the parties hereto as of the date last written below.
UNION TITANIUM SPONGE CORPORATION
By: /s/ Mitsutoshi Yasuda
------------------------------------
Name: Mitsutoshi Yasuda
Title: Chairman
Date: May 1, 1996
TOHO TITANIUM CO., LTD.
By: /s/ Mitsutoshi Yasuda
------------------------------------
Name: Mitsutoshi Yasuda
Title: President
Date: May 1, 1996
NIPPON MINING & METALS CO., LTD
By: /s/ Shinichi Tajiri
------------------------------------
Name: Shinichi Tajiri
Title: Director
Date: April 30, 1996
-6-
<PAGE> 7
NIPPON STEEL CORPORATION
By: /s/ Yoshitaka Shibusawa
------------------------------------
Name: Yoshitaka Shibusawa
Title: General Manager
Titanium Div.
Date: May 2, 1996
MITSUI & CO., LTD.
By: /s/ Tetsuya Matsuoka
------------------------------------
Name: Tetsuya Matsuoka
Title: General Manager
Non-Ferrous Metals Second Div
Non-Ferrous Metals Group
Date: May 2, 1996
MITSUI & CO. (U.S.A.), INC.
By: /s/ Kazuo Tasaka
------------------------------------
Name: Kazuo Tasaka
Title: SVP & General Manager
Date: May 2, 1996
-7-
<PAGE> 8
TREMONT CORPORATION
By: /s/ ROBERT E. MUSGRAVES
------------------------------------
Name: Robert E. Musgraves
Title: Vice President
Date: May 2, 1996
TITANIUM METALS CORPORATION
By: /s/ ROBERT E. MUSGRAVES
------------------------------------
Name: Robert E. Musgraves
Title: Vice President
Date: May 2, 1996
-8-
<PAGE> 1
AMENDMENT NO. 4, dated as of May 2, 1996, between Titanium
Metals Corporation ("TMC"), a Delaware corporation, and Union Titanium Sponge
Corporation ("UTSC"), a Delaware corporation, to the Sponge Purchase Agreement,
dated as of May 30, 1990, as amended (the "Sponge Agreement"), between TMC and
UTSC.
WHEREAS, TMC, UTSC and Tremont Corporation ("Tremont"), a
Delaware corporation, have agreed to amend as of the date hereof the Investors'
Agreement, dated as of May 30, 1990, as amended (the "Investors' Agreement"),
between TMC, UTSC, the shareholders of UTSC and Tremont;
WHEREAS, in consideration of such amendment to the Investors'
Agreement, TMC, UTSC and Tremont have agreed to amend the Sponge Agreement; and
WHEREAS, by letter agreement dated November 10, 1995, TMC and
UTSC agreed to certain modifications in the Sponge Agreement which have not
previously been incorporated into a formal amendment to the Sponge Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms used herein without definition
shall have the meaning specified in the Sponge Agreement.
2. Section 3 of the Sponge Agreement is hereby amended
to add after the words "Contract Year" in the sixth line of such Section 3, a
new proviso to read in its entirety as follows:
"(other than in the * Contract Year, during which the Buyer
shall have the right to purchase * pounds of Sponge from the
Seller)"
3. Section 5(a)(iv) of the Sponge Agreement is hereby
amended to read in its entirety as follows:
"(iv) The per pound price of the * of Sponge sold
and purchased on or after * shall be * ,
and the per pound price of Sponge sold and purchased thereafter shall
be * , subject to the limitations in Section 5(c) hereof."
4. Section 5 of the Sponge Agreement is hereby amended
to add a new Section 5(c) to read in its entirety as follows:
"(c) In no event shall * include an * in the *
* of Sponge that results from or is otherwise attributable to
a * (or series of * ) in
excess of * (other than one required for compliance with
government
* - CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPERATELY
WITH THE COMMISSION.
<PAGE> 2
regulations) in connection with the VDP Plant unless UTSC has approved
such * by written notice to TMC,
which approval shall be based on UTSC's sole discretion after
consideration of the benefit to be received by UTSC in exchange for
such * ."
5. Section 7(iv) of the Sponge Agreement is hereby
amended in its entirety as follows:
"(iv) The Seller shall provisionally invoice the Buyer at * for
the * of Sponge purchased on or after * ,
* , and after the purchase and sale of the * of
Sponge, the Seller shall provisionally invoice the Buyer in accordance
with the Seller's standard costs calculated in accordance with Exhibit
B."
6. Except as expressly amended hereby, the Sponge
Agreement, as heretofore amended, shall continue in full force and effect.
7. This Amendment No. 4 to the Sponge Purchase
Agreement shall be effective as of the closing of the 1996 Public Offering (as
defined in Amendment No. 3 to the Investors' Agreement), but shall terminate
and be null and void if the 1996 Public Offering does not occur prior to
September 1, 1996.
* - CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPERATELY
WITH THE COMMISSION.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date above first written.
TITANIUM METALS CORPORATION
By: /s/ Robert E. Musgraves
-----------------------------------
Name: Robert E. Musgraves
Title:
UNION TITANIUM SPONGE CORPORATION
By: /s/ Mitsutoshi Yasuda
-----------------------------------
Name: Mitsutoshi Yasuda
Title: Chairman
<PAGE> 1
31st January 1996 Exhibit 10.2
L. 5,000,000 REVOLVING LOAN FACILITY
We, Lloyds Bank Plc (the "Bank") are pleased to offer to IMI Titanium Limited
(the "Borrower") a loan facility of up to L.5,000,000 (five million pounds
sterling) (the "Facility") upon and subject to the terms and conditions of this
letter.
1. DEFINITIONS
"Business Day" means a day other than a Saturday or a Sunday on which banks and
foreign exchange markets are open in London and (where relevant) in the
principal financial centre (as determined by the Bank) of the relevant Optional
Currency(ies).
"Current Account" means the sterling current account of the Borrower with the
Bank's Birmingham Corporate Branch.
"Dollars" means the lawful currency of the United States of America and, in
relation to all payments and transfers of funds to be made hereunder in
Dollars, such funds as are customary on the date payment is made for settlement
of international banking transactions through the New York Clearing House
Interbank Payments System (or such other Dollar funds as may be specified by
the Bank to the Borrower in writing).
"Equivalent Amount" means the sterling equivalent of the relevant amount of an
Optional Currency, as conclusively determined by the Bank on the basis of its
spot buying rate for such Optional Currency against sterling at or about 10
a.m. 2 Business Days prior to the day such calculation falls to be made.
"Event of Default" means an event described in Clause 9 hereof or any
circumstance which with the giving of notice and/or the passing of time could
become such an event.
"Expiry Date" means the date which is 364 days after the date of this letter.
"Facility Limit" means L.5,000,000 subject to any cancellation or other
reduction thereof within the terms of this letter.
"Financial Statement" means at any particular time the then latest audited
consolidated balance sheet and profit and loss account of the Borrower and its
Subsidiary Undertakings together with the notes to both.
"Interest Period" means the period of 3 months for which a drawing hereunder is
made.
"Notification Date" means in respect of a drawing hereunder in an Optional
Currency, the date falling 2 Business Days prior to the date of drawing and in
respect of any other drawing, the date on which such drawing is required.
<PAGE> 2
"Offered Rate" means the rate at which deposits in the amount and currency of
the drawing for the term of the relevant Interest Period are offered to the
Bank as determined by the Bank in the London interbank market at or about 11
a.m. (or such later time as may be agreed between the Bank and the Borrower in
respect of a particular drawing and Interest Period) on the relevant
Notification Date.
"Optional Currency" means Dollars and any other major currency, other than
sterling and the European Currency Unit, as agreed between the Bank and the
Borrower and which in the Bank's opinion is readily available to the Bank at
the time of any drawing as deposits in the London interbank market in the
amount of such drawing for the relevant Interest Period.
"Subsidiary Undertaking" shall have the meaning ascribed to it in Section 258
of the Companies Act 1985. During any period in which the Borrower does not
have a Subsidiary Undertaking all references herein to "Subsidiary
Undertakings" of the Borrower and "consolidated" shall be ignored and the
appropriate text read and construed accordingly.
"Total Outstandings" means at any particular time the aggregate principal
amount of all sterling drawing and the then Equivalent Amount of all Optional
Currency drawings outstanding at such time.
Word denoting the singular number only shall include the plural and vice versa.
2. AMOUNT & AVAILABILITY
(a) Subject to the terms hereof the Facility shall remain available until
and may be utilised on any Business Day prior to the Expiry Date
provided that no utilisation may be effected on any particular day if
the amount thereof would otherwise cause the Total Outstandings on
that day to exceed the Facility Limit.
If at any time the Bank shall determine that the Total Outstandings
exceed the Facility Limit by more than 10% then the Borrower shall
repay to the Bank on demand in one or more of the currencies (as the
Bank shall specify) in which drawings are outstanding at such time an
amount equal or equivalent to the amount by which the Facility Limit
is exceeded.
(b) The proceeds of each drawing in sterling will be credited to the
Current Account unless prior to the date of payment of such proceeds
and in respect of those particular proceeds the Bank shall have
received written notice from the Borrower to the contrary. The
proceeds of each drawing in an Optional Currency shall be credited to
such account as the Borrower shall from time to time advise the Bank
by written notice prior to 10 a.m. on the relevant Notification Date.
All such proceeds shall be utilised by the Borrower for working
capital purposes.
<PAGE> 3
(c) All moneys from time to time outstanding hereunder shall be repaid by
the Borrower in the currency in which they are outstanding on or
before the date which is 3 months after the Expiry Date. Any amount
of the Facility undrawn on the Expiry Date shall be canceled
forthwith.
3. TERMS OF OPERATION
The Borrower may make drawings from time to time hereunder in sterling and
Optional Currencies, subject to receipt by the Bank of notice from the Borrower
by 10 a.m. on the Notification Date therefor specifying the amount and currency
required. The amount or Equivalent Amount of each drawing shall be at least
L.250,000 and a multiple of 50,000 units of the currency of the drawing. Each
drawing shall be in one currency only and shall be repaid in the currency
advanced on the last day of its Interest Period.
Each drawing shall bear interest at 2% pre annum above the Offered Rate except
that in respect to drawings denominated in sterling that rate shall be
increased by an amount which the Bank shall determine from time to time to be
necessary to compensate the Bank for the cost or loss to it of complying with
any liquidity, monetary control or prudential requirements of the Bank of
England existing from time to time. The Borrower shall pay interest on each
drawing in arrear in the currency of the drawing on the last day of its
Interest Period.
4. ADDITIONAL COSTS
(a) If the applicant of or introduction of or any change in any applicable
law, regulation, requirement, directive or request or any change in
the interpretation thereof by any governmental, fiscal, monetary or
other authority charged with the administration thereof or by any
self-regulating organization or court of competent jurisdiction (in
any case whether or not having the force of law) shall subject the
Bank to any tax, duty or other charge with respect hereto or change
the basis of taxation on any amounts payable to the Bank hereunder
(except in respect of tax on the overall net income of the Bank) or
impose, modify or deem applicable requirements in respect of any
liquid asset, special or other deposit or prudential or cash ratio or
other requirements against, or the allocation by the Bank of capital
in support of, any assets or liabilities or contingent liabilities of,
deposits with or for the account of or advances of commitments made by
the Bank, and this shall increase the cost to the Bank of maintaining
the Facility or shall reduce the amount of principal or interest
receivable by the Bank or shall otherwise reduce the return to the
Bank hereunder by an amount which the Bank deems material, the
Borrower shall pay to the Bank upon demand such additional amounts as
are necessary to compensate the Bank against such increased cost or
reduction.
(b) All reasonable legal, valuation and other costs and expenses including
any stamp and other duties and registration fees on a full indemnity
basis and value added tax thereon incurred by the Bank in the
preparation of this letter and any guarantee or security given
pursuant hereto and in connection with the enforcement, administration
and preservation of its rights under the Facility shall be payable by
the Borrower on demand.
<PAGE> 4
5. CANCELLATION
The Borrower may by not less than 5 Business Days' prior written notice cancel
any part of the Facility Limit which will be utilised at the expiration of the
said notice in an amount of L.250,000 or any multiple thereof. Such notice
shall specify the date of cancellation and the amount by which the Facility
Limit is to be reduced. No part of the Facility Limit which has been canceled
may be re-instated.
6. CONDITIONS PRECEDENT & SECURITY
(a) The obligations of the Bank hereunder shall not come into effect
unless and until it has received in form and substance satisfactory to
it:
(i) a copy of this letter duly signed by way of acceptance on
behalf of the Borrower;
(ii) a certified copy of the board resolution of the Borrower
authorising acceptance of this letter and nominating the
person(s) authorised to sign this letter on its behalf, and
the person(s) authorised to give and confirm notices of
drawing and other communications required hereunder, together
with their duly authenticated specimen signatures; and
(iii) the security described in Clause 6(b) hereof together with
such evidence as the Bank shall require to confirm that such
security is in full force and effect.
(b) All amounts owing to the Bank under or pursuant to the Facility shall
at all times be secured by an unlimited debenture in the Bank's
standard form from the Borrower.
Such security and all other security held by the bank now or in the
future shall be continuing security not only for the Facility but also
for all other moneys obligations and liabilities whether certain or
contingent at any time due owing or incurred by the Borrower to the
Bank.
7. REPRESENTATION & WARRANTIES
(a) The Borrower hereby represents and warrants to the Bank that:
(i) all action necessary to authorise its execution of this letter
and the security documents required pursuant to the terms of
this letter and its performance of its respective obligations
hereunder and thereunder has been duly taken and neither such
execution nor such performance will constitute or result in
any breach of any agreement, law, requirement or regulation;
<PAGE> 5
(ii) to the best of its knowledge, and save as otherwise disclosed
to and accepted by the Bank in writing, no material
litigation, administrative or judicial proceedings are
presently pending or threatened against it or any of its
Subsidiary Undertakings;
(iii) to the best of its knowledge, and save as otherwise disclosed
to and accepted by the Bank in writing, there has been no
material adverse change in the financial condition of it
on-going operations of its Subsidiary Undertakings since the
date of the Financial Statement received by the Bank prior to
the date of this letter; and
(iv) no Event of Default has occurred and is continuing.
(b) The Borrower shall be deemed to repeat the representations and
warranties set out in Clause 7(a) thereof on each day on which any
amount remains owing to the Bank hereunder or for as long as the Bank
is under any obligation to make the Facility available in each case
as if made at each such time with reference to the facts and
circumstances then existing.
8. UNDERTAKINGS OF THE BORROWER
For as long as the Bank is under any obligation to make the Facility available
or for as long as any moneys or liabilities are owing or incurred to the Bank
hereunder the Borrower:
(a) shall not without the prior written consent of the Bank:
(i) materially change the nature of its business as now conducted;
(ii) create or permit to subsist or arise any mortgage, charge,
pledge or lien or any other security interest or encumbrance
(other than a lien arising solely by operation of law in the
ordinary course of business) over any of its present or future
undertakings, property, revenue or assets (except as provided
herein);
(iii) enter into or permit to subsist any transaction which, in
legal terms, is not secured indebtedness but which in the
Bank's opinion has an economic or a financial or commercial
effect similar to that of secured indebtedness; or
(iv) part with, sell, transfer, lease or otherwise dispose of (or
attempt or agree to do any such thing) the whole or any
material part of its undertaking, property, revenue or assets
(either by a single transaction or a number of transactions
whether related or not) other than for full value on an arm's
length basis; and
(b) shall supply to the Bank's Corporate Banking Birmingham Office:
<PAGE> 6
(i) as soon as practicable (and in any event within 150 days after
the close of each of its financial years) copies of its
Financial Statement as the Bank may from time to time require
for that financial year;
(ii) as soon as practicable (and in any event within 30 days of the
end of each of its financial quarters) copies of the
management accounts of the Borrower for that quarter, such
accounts to be in form, substance and content acceptable to
the Bank and to be certified by a director of the Borrower;
and
(iii) promptly on request, such other information regarding the
financial condition or the business of the Borrower as the
Bank may reasonably require; and
(c) shall immediately upon becoming aware of the same give the Bank
written notice of the occurrence of any Event of Default.
9. EVENTS OF DEFAULT
In the event that:
(a) the Borrower fails to pay any sum due hereunder on its due date;
(b) the Borrower defaults in the due performance or observance of any
obligation accepted or undertaking given by it to the Bank or any
representation warranty or statement made or deemed made by the
Borrower herein or pursuant hereto proves to be incorrect or
misleading;
(c) any other indebtedness of the Borrower becomes due or capable of being
declared due prior to the stated due date for payment thereof or the
Borrower defaults in the payment when due of any indebtedness or
defaults in paying on the due date any sum payable by it under any
guarantee, indemnity or similar undertaking given by it or steps are
taken to enforce any security for any liability of the Borrower
present or future;
(d) an encumbrancer takes possession or a receiver or similar official is
appointed of any of the assets or undertaking of the Borrower or a
petition is presented for the making of any administration order or
any judgement made against the Borrower is not paid out, stayed or
discharged within 14 days;
(e) proceedings are commenced or a petition is presented ( and is not
dismissed within 30 days) or an order is made or an effective
resolution is passed for the winding up of the Borrower or the
Borrower is or becomes insolvent or stops or threatens to stop payment
of its debts generally or is deemed unable to pay its debts (whether
withing the meaning of Section 123 of the Insolvency Act 1986 or
otherwise) or the directors of the Borrow become obliged to convene a
meeting pursuant to Section 142 of the Companies Act 1985 or the
Borrower makes or seeks to make any arrangements or compensation with
its creditors (whether under Part I of the Insolvency Act 1986 or
otherwise);
<PAGE> 7
(f) any guarantee, other security or other arrangements relied upon by the
Bank in connection with the Facility ceases to be continuing or ceases
to remain in full force and effect or in the Bank's opinion becomes in
jeopardy or if any provision thereof is not complied with for any
reason whatsoever.
(g) the Borrower ceases or threatens to cease to carry on its business in
the normal course or fails to maintain or breaches any franchise,
license or right necessary to conduct its business or breach any
legislation relating to its business, including without limitation any
applicable environmental protection laws; or
(h) the persons who now have control of the Borrowers cease to have
control of the Borrower ("control" having the meaning ascribed to it
in Section 840 of the Income and Corporation Taxes Act 1988) or voting
control of the Borrower is acquired by any person, or company or group
of connected persons (as defined in Section 839 of the Income and
Corporation Taxes Act 1988) not having control of the Borrower at the
date hereof
then the Bank shall have the right at any time or times thereafter to declare
its commitments hereunder canceled and/or all amounts then outstanding
hereunder payable on demand, whereupon such commitments shall be so canceled
and/or such outstandings shall be so payable, and/or to declare the Facility
immediately due and payable, whereupon the Borrower shall pay to the Bank the
total principal amount outstanding hereunder in the currency(ies) advanced
together with accrued interest thereon and any other amounts payable hereunder.
The Bank shall have the right at the time of making such demand or at any time
thereafter to convert all amounts then due and payable hereunder in an Optional
Currency into sterling at the Bank's spot selling rate for such Optional
Currency against sterling at that time.
If any amount is not paid when due hereunder (including under this clause) the
Borrower shall pay to the Bank on demand interest on such sum (whether before
or after judgement) at 3% per annum above the cost to the Bank as certified by
the Bank of funding such sum on the London interbank market for such period or
consecutive periods as the Bank in its sole discretion may select running from
the date of such default to the date of receipt of such sum in full by the
Bank. Interest, if unpaid, shall be added to the sum in default on the last
day of each such period or at 3 monthly intervals whichever is more frequent.
<PAGE> 8
10. INDEMNITIES
The Borrower shall indemnify the Bank, without prejudice to any of the Bank's
other rights hereunder, against any loss or expense as certified by the Bank
including legal expenses on a full indemnity basis and loss of profit and loss
arising from the funding by the Bank of the Facility which the Bank may incur
or sustain as a consequence of (a) the occurrence of any Event of Default or
any failure by the Borrower to pay any sum demanded by the Bank as a result
thereof, (b) any repayment of any drawing or part thereof being made otherwise
than on the last day of its Interest Period, or (c) any amount payable to the
bank hereunder in one currency being converted into another currency, whether
pursuant to any judgement or order or otherwise.
11. NOTICES
(a) All communications from the Borrower in respect of the Facility:
(i) shall be irrevocable and shall, unless otherwise specified in
this letter, be sent to the Bank at Loans Administration
Department Bank House, Wine Street, Bristol, BS1 2AN or to
such other address as the Bank may notify in writing to the
Borrower from time to time; and
(ii) unless required by the terms of this letter to be a written
notice (in which case the communication must be given by
letter), may be given to the Bank over the telephone or by
facsimile or telex transmission. All such communications shall
be confirmed by letter within 3 Business Days but, whether or
not any such confirmation is received, any such communication
received by the Bank purporting to be given by an authorised
officer of the Borrower and believed by the Bank to be genuine
shall have the same validity as a written notice duly signed
by an authorised signatory.
(b) Any notice or demand to be given by the Bank shall be given in writing
or by telex and without prejudice to any other effective mode of
service shall be deemed to have seen sufficiently served if sent to
the Borrower at its address given above to its registered office for
the time being if given by post on the day following that on which it
was posted and if given by telex at the time of despatch.
12. PAYMENTS
(a) All payments due from the Borrower hereunder be made without any
deduction or withholding of any nature whatsoever.
(b) The Borrower hereby authorises the Bank to debit the Current Account
with the amount of all sterling payments due to the bank from time to
time under the terms of this letter and undertakes to ensure that
there will be sufficient cleared funds available on that account or
sufficient availability within any agreed overdraft thereon by noon on
any relevant date to cover all such payments falling due on that date.
<PAGE> 9
(c) Each sum due from the Borrower hereunder in a currency other than
sterling shall be paid in freely transferable and immediately
available same day funds to such bank account in the relevant
financial centre as the Bank shall from time to time require by such
hour local time as may be necessary to ensure payment for value the
due date.
13. MISCELLANEOUS
(a) No failure or delay on the part of the Bank to exercise its rights
shall operate as a waiver thereof nor shall any single exercise or any
partial exercise or waiver of any such right exclude any other or
further exercise thereof.
(b) The Bank may at any time whether before or after any demand hereunder
for payment without notice to the Borrower apply any moneys standing
to the credit of the Borrower on any account and whether subject to
notice or not and whether dominated in sterling or in any other
currency in or towards satisfaction of any liabilities of the Borrower
under this letter.
(c) If the due date for any payment or the last day of any Interest Period
would otherwise fall on a non-Business Day, the effective date shall
be the next succeeding Business Day.
(d) This letter shall be binding upon and shall inure to the benefit of
the Bank and the Borrower and their respective successors and assigns,
provided that the Borrower shall not assign any of its rights or
transfer any of its obligations hereunder without the prior written
consent of the Bank.
(e) All calculations in respect of interest due to the Bank under the
Facility shall be on the basis of the actual number of days elapsed
and a 365 day year in the case of sterling and a 360 day year in the
case of an Optional Currency.
(f) In this letter reference to any statutory provision shall be deemed to
mean and to include a reference to any modification or re-enactment
thereof for the time being in force.
(g) This letter shall be governed by and construed in accordance with
English law.
<PAGE> 10
14. PERIOD OF OFFER
The offer of the Facility is open for acceptances by returning the attached
duplicate of this letter with the acknowledgment duly signed by authorised
officers of the Borrowers to be received by the Bank's Corporate &
Institutional Banking Division not later than one month hence failing which the
offer will lapse.
Yours faithfully,
For and on behalf of Lloyds Bank Plc
/s/ R.J. SURREY
R.J. Surrey,
Senior Manager
We hereby acknowledge and accept the terms of your offer dated 31st January
1996 of which this is a duplicate and agree all the terms and conditions
therein contained.
Dated this 13th day of February, 1996
Pursuant to a Resolution of the Board dated 13th of February, 1996
For and on behalf of IMI Titanium Limited.
/s/ ANDREW R. DIXEY /s/ BRIAN J. HADLEY
<PAGE> 11
31 January 1996
FACILITY LETTER
We Lloyds Bank Plc (the "Bank") are pleased to offer to IMI Titanium Limited
(the "Company") an overdraft facility on the following terms and conditions.
AMOUNT The maximum aggregate amount outstanding under the
facilities at any one time shall not exceed
L.5,000,000 and for the purpose of determining
whether the total amount owing is at any particular
time within or in excess of this limit, amounts owing
in a currency other than sterling shall be converted
into sterling on the basis of the Bank's exchange
rate for buying that currency at that time.
This facility may be drawn by way of:
(i) Overdraft
AVAILABILITY Any amounts from time to time owing under the
facility are repayable on demand but it is the Bank's
present intention to make the facility available
until 31 January 1997 or such later date as may from
time to time be advised in writing by the Bank. All
moneys from time to time owing to the Bank under this
facility shall be repaid no later than the agreed
expiry date. The amounts owing at any time may
include interest, costs or charges debited to the
Company's account in accordance with the terms of
this letter.
The Bank shall have the right at the time of making
demand or at any time thereafter to convert all
amounts then due and payable in a currency other than
sterling (whether due and payable under the overdraft
facility (or in connection with one or more of the
Other Facilities referred to below)) into sterling at
the Bank's exchange rate for selling that currency
against sterling at that time. The Bank shall as
soon as possible after such conversion advise you of
the sterling amount then owing.
<PAGE> 12
INTEREST - OVERDRAFT
Interest will be payable on amounts owing at 2% per
annum over the Bank's Base Rate from time to time
(currently 8.25% per annum in total).
Interest will be debited to the relevant borrower's
account or, in the case of interest calculated in
accordance with the previous paragraph, to the
account of such borrower(s) as the Bank shall
determine quarterly in arrears (normally on the 10th
of each of March, June, September and December or on
the next working day) and additionally on the date
upon which the facility ceases to be available.
The Bank's Base Rate may be varied (either up or
down) by the Bank at any time. Notices of changes
will be displayed in all UK branches of the Bank and
in the press.
INTEREST - CURRENCY BORROWINGS
Interest will be payable on amounts owing at 2% per
annum over the Lloyds Banks Short Term Offer Rate
(LBSTOR) from time to time.
Interest will be debited to the relevant borrower's
account or, in the case of interest calculated in
accordance with the previous paragraph, to the
account of such borrower(s) as the Bank shall
determine quarterly in arrears (normally on the 10th
of each March, June, September, December or on the
next working day) and additionally on the date upon
which the facility ceases to be available.
The Bank's Base Rate may be varied (either up or
down) by the Bank at any time. Notices of changes
will be displayed in all UK branches of the Bank and
in the press.
OTHER FACILITIES
In addition to the short term borrowing facility, we
are pleased to offer to you the facilities numbered 1
to 3 below.
These additional facilities will be available upon
such terms and conditions as shall from time to time
be required by the Bank and may be canceled by the
Bank at any time, but it is the Bank's present
intention to keep these facilities in place for the
period of availability of the overdraft facility.
Your liability in respect of any utilisation of these
facilities may, however, extend beyond such period of
availability.
<PAGE> 13
(1) a foreign exchange facility of L.3,000,000 for spot
and forward exchange contracts of up to 1 year. The
Bank will be happy to explain to the Company how it
calculates exposure against these limits, but
reserves the right to vary the calculation method
from time to time. Upon request the Bank will at any
time advise the Company of the amount of exposure it
had recorded against the limit.
(2) an indemnity line of L.1,000,000 to cover bonds and
guarantees issued by the Bank or its correspondents
on the Company's behalf. The total value of all such
bonds and guarantees that may be outstanding at any
one time may not exceed the limit detailed above and
have an expiry date within 12 months. You should note
that the total liability of the Bank under certain
custom and excise guarantees is twice the amount
quoted on the guarantee.
(3) a BACS and Open Credit facility of L.1,600,000 to
cover computerised sterling payment instructions that
may be delivered direct by the Company to BACS
Limited. The limit detailed above is the maximum
total value of such instructions for payment, and to
cover arrangements to cash the Company's cheques at
other banks or at branches of the Bank other than
branch. The limit detailed above is the maximum
value of cheques that may at any one time have been
cashed but not yet forwarded to the Bank's branch for
payment.
A LOAN FACILITY OF L.5,000,000 is to be made available to IMI Titanium Limited
under and subject to the terms and conditions set out in the Facility Letter
dated 31 January 1996.
COSTS AND CHARGES
Charges will be payable on each account quarterly as
per the agreed tariff.
These charges will be debited to IMI Titanium Limited
and may be varied by the Bank at any time and notice
of changes will be advised to the Company.
An arrangement fee of L.15,000 is payable. This will
be debited to the Company's account in the next few
days.
Charges in respect of Guarantees, Bonds and
Indemnities issues on your behalf will be charged as
follows:
HM Customs & Excise Duty Deferment Bonds 1.25% p.a.
(minimum of L.150), payable quarterly in advance.
All other Guarantees, Bonds and Indemnities 2% p.a.
(minimum of L.150), payable quarterly in advance.
<PAGE> 14
SECURITY It is a condition of the facility that amounts owing
shall be secured by the following. Any security
which is not already in place is to be provided to
the Bank in a form acceptable to the Bank.
an unlimited debenture in the Bank's standard form
from the Company.
CONDITIONS PRECEDENT
a letter of Subordination in the Bank's standard
form from the Subordinator.
No dividend payment to be made without the consent
of the Bank.
FINANCIAL INFORMATION
Whilst the facility remains available you should
provide the Bank copies of:
(a) your consolidated audited annual accounts,
(b) your quarterly management accounts,
as soon as possible after the end of the period to
which they relate which shall not be later than 150
days in respect to your annual accounts.
or 30 days in respect to your management accounts
from the end of each relevant period.
PERIOD OF OFFER Please confirm your acceptance of the facility
offered by returning the attached duplicate of this
letter with the acknowledgment signed in accordance
with the bank mandate currently held by the Bank. If
such confirmation is not received by Corporate
Banking, PO Box 908, 1 Cornwall Street, Birmingham B3
2DS by 29 February 1996 the offer will lapse.
Yours faithfully
/s/ J.N. MORTELL
JN MORTELL
Manager
ACCEPTED IN ACCORDANCE WITH
RESOLUTIONS OF THE BOARD DATED
17 JULY 1992
/s/ ANDREW R. DIXEY /s/ BRIAN J. HADLEY
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,228
<SECURITIES> 0
<RECEIVABLES> 7,743
<ALLOWANCES> 2,663
<INVENTORY> 0
<CURRENT-ASSETS> 7,542
<PP&E> 1,369
<DEPRECIATION> 627
<TOTAL-ASSETS> 146,077
<CURRENT-LIABILITIES> 4,474
<BONDS> 3,500
<COMMON> 7,550
0
0
<OTHER-SE> 90,502
<TOTAL-LIABILITY-AND-EQUITY> 146,077
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 2,278
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,221
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
<PAGE> 1
EXHIBIT 99.1
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1995 Annual Report for descriptions
of certain previously-reported legal proceedings.
Gates v. American Cyanamid Co., et al. (I1996-2114). In April
1996, the Company was served with a complaint filed in New York state court
which seeks compensatory and punitive damages for personal injury purportedly
caused by lead paint and alleges causes of action against the Company and other
former lead pigment manufacturers and the Lead Industries Association for
negligence, strict products liability, fraud, concert of action, civil
conspiracy, enterprise liability, market share liability and alternative
liability. The complaint also asserts causes of action against the landlords of
the apartments in which plaintiff has lived since 1977. The Company intends to
file an answer denying plaintiff's allegations.
Hines v. Gates, et al. (96-616161). In May 1996, the Company
was served with a complaint filed in Michigan state court seeking recovery for
personal injury purportedly caused by lead paint and alleging causes of action
on behalf of plaintiff against the Company, other former lead pigment
manufacturers and others for negligence, negligent failure to warn, breach of
warranty, alternative liability and concert of action. The complaint also
asserts causes of action against plaintiff's landlord. The Company intends to
file an answer denying plaintiff's allegations.
Skipworth v. Sherwin-Williams Co., et al. In April 1996, the
Pennsylvania Supreme Court granted a petition to hear plaintiffs' appeal from
the appellate court decision in defendants' favor.
City of New York, et al. v. Lead Industries Association, et
al. In February 1996, defendants' motion for summary judgment on the basis that
the fraud claim is time-barred was denied. Defendants have appealed.
NL Industries, Inc. v. Commercial Union Insurance Cos., et al.
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 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.
Portland, Oregon smelter site. The U.S. EPA has issued a
proposed Record of Decision Amendment changing portions of the cleanup remedy
selected for
-19-
<PAGE> 2
the site. The U.S. EPA estimates the cost of the proposed remedy to be from $10
million to $13 million.
People of the State of Illinois v. NL Industries, Inc., et al.
The Appeals Court has granted the State's motion to reconsider the Court's
affirmance of the dismissal of this case. In addition, 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 has notified the
U.S. EPA that it intends to comply with the order.
-20-
