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 - For the quarter ended September 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-640
NL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 13-5267260
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16825 Northchase Drive, Suite 1200, Houston, Texas 77060-2544
(Address of principal executive offices) (Zip Code)
(281)423-3300
(Registrant's telephone number, including area code)
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) had been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of common stock outstanding on November 12, 1996: 51,118,014
NL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1995
and September 30, 1996 3-4
Consolidated Statements of Operations - Three months
and nine months ended September 30, 1995 and 1996 5
Consolidated Statement of Shareholders' Deficit
- Nine months ended September 30, 1996 6
Consolidated Statements of Cash Flows - Nine
months ended September 30, 1995 and 1996 7-8
Notes to Consolidated Financial Statements 9-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 21
- 2 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, September 30,
1995 1996
------------ -------------
Current assets:
Cash and cash equivalents ...................... $ 141,333 $ 130,196
Accounts and notes receivable .................. 147,428 163,236
Refundable income taxes ........................ 4,941 2,643
Inventories .................................... 251,630 216,280
Prepaid expenses ............................... 3,217 6,736
Deferred income taxes .......................... 2,522 1,791
---------- ----------
Total current assets ....................... 551,071 520,882
---------- ----------
Other assets:
Marketable securities .......................... 20,944 22,354
Investment in joint ventures ................... 185,893 181,382
Prepaid pension cost ........................... 22,576 23,962
Deferred income taxes .......................... 788 --
Other .......................................... 31,165 24,712
---------- ----------
Total other assets ......................... 261,366 252,410
---------- ----------
Property and equipment:
Land ........................................... 22,902 22,001
Buildings ...................................... 166,349 163,249
Machinery and equipment ........................ 648,458 643,850
Mining properties .............................. 97,190 95,673
Construction in progress ....................... 11,187 30,520
---------- ----------
946,086 955,293
Less accumulated depreciation and depletion .... 486,870 489,355
---------- ----------
Net property and equipment ................. 459,216 465,938
---------- ----------
$1,271,653 $1,239,230
========== ==========
- 3 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND SHAREHOLDERS' DEFICIT December 31, September 30,
1995 1996
------------ -------------
Current liabilities:
Notes payable ................................ $ 39,247 $ 26,248
Current maturities of long-term debt ......... 43,369 98,573
Accounts payable and accrued liabilities ..... 165,985 159,512
Payable to affiliates ........................ 10,181 9,134
Income taxes ................................. 40,088 36,123
Deferred income taxes ........................ 3,555 2,837
----------- -----------
Total current liabilities ................ 302,425 332,427
----------- -----------
Noncurrent liabilities:
Long-term debt ............................... 740,334 711,846
Deferred income taxes ........................ 157,192 145,319
Accrued pension cost ......................... 69,311 57,541
Accrued postretirement benefits cost ......... 60,235 58,107
Other ........................................ 148,511 132,963
----------- -----------
Total noncurrent liabilities ............. 1,175,583 1,105,776
----------- -----------
Minority interest .............................. 3,066 257
----------- -----------
Shareholders' deficit:
Common stock ................................. 8,355 8,355
Additional paid-in capital ................... 759,281 759,281
Adjustments:
Currency translation ....................... (126,934) (123,702)
Pension liabilities ........................ (1,908) (1,908)
Marketable securities ...................... (525) 391
Accumulated deficit .......................... (481,432) (475,651)
Treasury stock ............................... (366,258) (365,996)
----------- -----------
Total shareholders' deficit .............. (209,421) (199,230)
----------- -----------
$ 1,271,653 $ 1,239,230
=========== ===========
Commitments and contingencies (Note 13)
See accompanying notes to consolidated financial statements.
- 4 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
---------------------- ---------------------
1995 1996 1995 1996
--------- --------- --------- ---------
Revenues and other income:
Net sales ................. $ 255,339 $ 248,462 $ 789,688 $ 752,064
Other, net ................ 7,060 5,013 16,075 25,890
--------- --------- --------- ---------
262,399 253,475 805,763 777,954
--------- --------- --------- ---------
Costs and expenses:
Cost of sales ............. 169,058 193,271 526,722 557,881
Selling, general and
administrative ........... 48,317 45,274 142,937 131,313
Interest .................. 20,325 18,472 62,053 56,127
--------- --------- --------- ---------
237,700 257,017 731,712 745,321
--------- --------- --------- ---------
Income (loss) before
income taxes and
minority interest .... 24,699 (3,542) 74,051 32,633
Income tax expense .......... 7,413 698 22,215 11,552
--------- --------- --------- ---------
Income (loss) before
minority interest .... 17,286 (4,240) 51,836 21,081
Minority interest ........... (140) 9 346 (33)
--------- --------- --------- ---------
Net income (loss) ..... $ 17,426 $ (4,249) $ 51,490 $ 21,114
========= ========= ========= =========
Net income (loss) per share
of common stock ............ $ .34 $ (.08) $ 1.00 $ .41
========= ========= ========= =========
Weighted average common and
common equivalent shares
outstanding ................ 51,628 51,118 51,522 51,376
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
- 5 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
Nine months ended September 30, 1996
(In thousands)
Adjustments
Additional -------------------------------------
Common paid-in Currency Pension Marketable Accumulated Treasury
stock capital translation liabilities securities deficit stock Total
--------- ---------- ----------- ------------ ---------- ----------- --------- ---------
Balance at December 31, 1995 $ 8,355 $ 759,281 $(126,934) $ (1,908) $ (525) $(481,432) $(366,258) $(209,421)
Net income .................. -- -- -- -- -- 21,114 -- 21,114
Dividends ................... -- -- -- -- -- (15,333) -- (15,333)
Adjustments ................. -- -- 3,232 -- 916 -- -- 4,148
Treasury stock reissued ..... -- -- -- -- -- -- 262 262
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at September 30, 1996 $ 8,355 $ 759,281 $(123,702) $ (1,908) $ 391 $(475,651) $(365,996) $(199,230)
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
- 6 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1995 and 1996
(In thousands)
1995 1996
--------- ---------
Cash flows from operating activities:
Net income ....................................... $ 51,490 $ 21,114
Depreciation, depletion and amortization ......... 29,208 30,154
Noncash interest expense ......................... 14,368 15,500
Deferred income taxes ............................ 18,245 (4,864)
Other, net ....................................... (8,382) (12,401)
--------- ---------
104,929 49,503
Change in assets and liabilities:
Accounts and notes receivable .................. (23,161) (21,289)
Inventories .................................... (14,067) 26,424
Prepaid expenses ............................... (3,302) (3,863)
Accounts payable and accrued liabilities ....... (2,905) (1,363)
Income taxes ................................... (18,217) (166)
Other, net ..................................... (1,794) (10,994)
Marketable trading securities, net ............. 26,337 --
--------- ---------
Net cash provided by operating activities .... 67,820 38,252
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................. (42,572) (52,328)
Purchase of minority interest .................... -- (5,168)
Investment in joint ventures, net ................ 1,664 4,123
Other, net ....................................... 68 478
--------- ---------
Net cash used by investing activities ........ (40,840) (52,895)
--------- ---------
- 7 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine months ended September 30, 1995 and 1996
(In thousands)
1995 1996
--------- ---------
Cash flows from financing activities:
Indebtedness:
Borrowings ....................................... $ 38,840 $ 64,712
Principal payments ............................... (47,401) (43,359)
Dividends .......................................... -- (15,333)
Other, net ......................................... 159 (202)
--------- ---------
Net cash provided (used) by financing
activities .................................... (8,402) 5,818
--------- ---------
Cash and cash equivalents:
Net change from:
Operating, investing and financing activities .... 18,578 (8,825)
Currency translation ............................. 3,093 (2,312)
Balance at beginning of period ..................... 131,124 141,333
--------- ---------
Balance at end of period ........................... $ 152,795 $ 130,196
========= =========
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized ............... $ 37,079 $ 31,485
Income taxes ....................................... 22,388 16,652
See accompanying notes to consolidated financial statements.
- 8 -
NL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
NL Industries, Inc. conducts its operations primarily through its wholly-
owned subsidiaries, Kronos, Inc. (titanium dioxide pigments, or "TiO2") and
Rheox, Inc. (specialty chemicals). Valhi, Inc. and Tremont Corporation, each
affiliates of Contran Corporation, hold 55% and 18%, respectively, of NL's
outstanding common stock. Contran holds, directly or through subsidiaries,
approximately 91% of Valhi's and 44% of Tremont's outstanding common stock.
The consolidated balance sheet of NL Industries, Inc. 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 September 30, 1996 and the consolidated statements
of operations, shareholders' deficit and cash flows for the interim periods
ended September 30, 1995 and 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. 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 and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Certain prior-year amounts have been
reclassified to conform to the 1996 presentation. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (the "1995 Annual Report").
Note 2 - Net income (loss) per share of common stock:
Net income (loss) per share of common stock is based on the weighted
average number of common shares and equivalents outstanding. Common stock
equivalents, consisting of nonqualified stock options, are excluded from the
computation when their effect is antidilutive.
- 9 -
Note 3 - Business segment information:
The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox.
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(In thousands)
Net sales:
Kronos ................... $ 222,799 $ 215,038 $ 689,520 $ 649,635
Rheox .................... 32,540 33,424 100,168 102,429
--------- --------- --------- ---------
$ 255,339 $ 248,462 $ 789,688 $ 752,064
========= ========= ========= =========
Operating income:
Kronos ................... $ 40,828 $ 9,640 $ 120,381 $ 64,555
Rheox .................... 9,762 9,831 29,726 32,952
--------- --------- --------- ---------
50,590 19,471 150,107 97,507
General corporate income
(expense):
Securities earnings, net . 1,489 1,190 5,884 3,631
Expenses, net ............ (7,055) (5,731) (19,887) (12,378)
Interest expense ......... (20,325) (18,472) (62,053) (56,127)
--------- --------- --------- ---------
$ 24,699 $ (3,542) $ 74,051 $ 32,633
========= ========= ========= =========
Note 4 - Inventories:
December 31, September 30,
1995 1996
------------ -------------
(In thousands)
Raw materials ............................ $ 35,075 $ 34,548
Work in process .......................... 9,132 7,556
Finished products ........................ 172,330 138,169
Supplies ................................. 35,093 36,007
-------- --------
$251,630 $216,280
======== ========
- 10 -
Note 5 - Marketable securities and securities transactions:
December 31, September 30,
1995 1996
------------ -------------
(In thousands)
Available-for-sale securities - noncurrent
marketable equity securities:
Unrealized gains ................................. $ 1,962 $ 2,183
Unrealized losses ................................ (2,770) (1,581)
Cost ............................................. 21,752 21,752
-------- --------
Aggregate market ............................. $ 20,944 $ 22,354
======== ========
Net gains from trading securities transactions are composed of:
Three months ended Nine months ended
September 30, September 30,
------------------- -----------------
1995 1996 1995 1996
------ ------ ------ -----
(In thousands)
Unrealized gains .............. $ 7 $ -- $1,122 $--
Realized gains ................ -- -- 50 --
------ ------ ------ ---
$ 7 $ -- $1,172 $--
====== ====== ====== ===
Note 6 - Investment in joint ventures:
December 31, September 30,
1995 1996
------------ -------------
(In thousands)
TiO2 manufacturing joint venture ............... $183,129 $179,423
Other .......................................... 2,764 1,959
-------- --------
$185,893 $181,382
======== ========
- 11 -
Note 7 - Other noncurrent assets:
December 31, September 30,
1995 1996
------------ -------------
(In thousands)
Intangible assets, net ......................... $11,803 $ 8,849
Deferred financing costs, net .................. 13,199 10,534
Other .......................................... 6,163 5,329
------- -------
$31,165 $24,712
======= =======
Note 8 - Accounts payable and accrued liabilities:
December 31, September 30,
1995 1996
------------ -------------
(In thousands)
Accounts payable ......................... $ 68,734 $ 58,568
-------- --------
Accrued liabilities:
Employee benefits ...................... 49,884 37,627
Environmental costs .................... 6,000 6,000
Interest ............................... 6,633 15,718
Miscellaneous taxes .................... 2,557 2,274
Other .................................. 32,177 39,325
-------- --------
97,251 100,944
-------- --------
$165,985 $159,512
======== ========
Note 9 - Other noncurrent liabilities:
December 31, September 30,
1995 1996
------------ -------------
(In thousands)
Environmental costs .......................... $112,827 $107,322
Insurance claims and expenses ................ 12,088 11,405
Employee benefits ............................ 13,148 12,096
Deferred technology fee income ............... 8,456 463
Other ........................................ 1,992 1,677
-------- --------
$148,511 $132,963
======== ========
- 12 -
Note 10 - Notes payable and long-term debt:
December 31, September 30,
1995 1996
------------ -------------
(In thousands)
Notes payable - Kronos (DM 56,000 and DM 40,000,
respectively) ....................................... $ 39,247 $ 26,248
======== ========
Long-term debt:
NL Industries:
11.75% Senior Secured Notes ...................... $250,000 $250,000
13% Senior Secured Discount Notes ................ 132,034 145,064
-------- --------
382,034 395,064
Kronos:
DM bank credit facility (DM 397,609 and
DM 490,609, respectively) ....................... 276,895 321,938
Joint venture term loan .......................... 73,286 61,714
Other ............................................ 13,672 11,094
-------- --------
363,853 394,746
-------- --------
Rheox:
Bank term loan ................................... 37,263 20,284
Other ............................................ 553 325
-------- --------
37,816 20,609
-------- --------
783,703 810,419
Less current maturities ............................ 43,369 98,573
-------- --------
$740,334 $711,846
======== ========
Note 11 - Income taxes:
The difference between the provision for income tax expense attributable
to income before income taxes and minority interest and the amount that would be
expected using the U.S. federal statutory income tax rate of 35% is presented
below.
Nine months ended
September 30,
--------------------
1995 1996
-------- --------
(In thousands)
Expected tax expense ................................... $ 25,918 $ 11,422
Non-U.S. tax rates ..................................... (1,501) (273)
Incremental tax on income of companies not included
in NL's consolidated U.S. federal income tax return ... 1,007 870
Valuation allowance .................................... (3,183) (1,150)
U.S. state income taxes ................................ 898 1,350
Other, net ............................................. (924) (667)
-------- --------
Income tax expense ............................... $ 22,215 $ 11,552
======== ========
- 13 -
Note 12 - Other income, net:
Three months ended Nine months ended
September 30, September 30,
------------------- --------------------
1995 1996 1995 1996
-------- -------- -------- --------
(In thousands)
Securities earnings:
Interest and dividends .......... $ 1,482 $ 1,190 $ 4,712 $ 3,631
Securities transactions ......... 7 -- 1,172 --
-------- -------- -------- --------
1,489 1,190 5,884 3,631
Pension curtailment gain .......... -- -- -- 4,791
Technology fee income ............. 2,685 2,606 7,990 8,280
Litigation settlement gain ........ -- -- -- 2,756
Currency transaction gains,
(losses), net .................... 1,122 624 (795) 4,491
Other, net ........................ 1,764 593 2,996 1,941
-------- -------- -------- --------
$ 7,060 $ 5,013 $ 16,075 $ 25,890
======== ======== ======== ========
Note 13 - Commitments and contingencies:
For descriptions of certain legal proceedings, income tax and other
commitments and contingencies related to the Company, reference is made to (i)
Part II, Item 1 -"Legal Proceedings," (ii) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, and (iii) the
1995 Annual Report.
- 14 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The Company's chemical operations are conducted in two business segments -
TiO2 conducted by Kronos and specialty chemicals conducted by Rheox.
Three months ended % Nine months ended %
September 30, Change September 30, Change
------------------ ------ ----------------- ------
1995 1996 1995 1996
------ ------ ------ ------
(In millions) (In millions)
Net sales:
Kronos ......... $222.8 $215.1 -3% $689.5 $649.7 -6%
Rheox .......... 32.5 33.4 +3% 100.2 102.4 +2%
------ ------ ------ ------
$255.3 $248.5 -3% $789.7 $752.1 -5%
====== ====== ====== ======
Operating income:
Kronos ......... $ 40.8 $ 9.7 -76% $120.4 $ 64.6 -46%
Rheox .......... 9.8 9.8 N/C 29.7 32.9 +11%
------ ------ ------ ------
$ 50.6 $ 19.5 -62% $150.1 $ 97.5 -35%
====== ====== ====== ======
Percent changes in TiO2:
Sales volume ............... +17% +3%
Average selling prices (in
billing currencies) ....... -15% -6%
Kronos' TiO2 operating income in the third quarter and first nine months
of 1996 decreased from the comparable periods in 1995 primarily due to the
decline in average TiO2 selling prices. Average TiO2 selling prices for the
third quarter of 1996 were 15% lower than the third quarter of 1995 and 6% lower
than the second quarter of 1996. Selling prices at the end of the third quarter
of 1996 were 15% lower than prices at the end of 1995. The Company expects
average TiO2 prices in the fourth quarter to be below the third quarter average.
While prices have declined, demand for TiO2 has grown. Kronos' third quarter
sales volumes increased 17% compared with the third quarter of 1995 with
improved sales volumes worldwide. Sales volumes for the first nine months in
1996 were 3% higher than the comparable period in 1995 primarily due to improved
sales volumes in the U.S.
Rheox's operating income of $9.8 million for the third quarter of 1996 was
even with the year-earlier period. Rheox's operating income in the first nine
months of 1996 includes a first-quarter $2.7 million gain related to the
curtailment of certain U.S. employee pension benefits.
Based on the continuing decline in TiO2 selling prices during the third
quarter and the current TiO2 industry pricing outlook, the Company expects its
fourth-quarter net loss will exceed that of the third quarter of 1996 and the
Board of Directors has suspended the regular quarterly dividend.
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 decreased the dollar value of sales for the third quarter and first
nine months of 1996 by $4 million and $7 million, respectively, compared to the
comparable 1995 periods.
- 15 -
The following table sets forth certain information regarding general
corporate income (expense).
Three months ended Nine months ended
September 30, Difference September 30, Difference
------------------ ---------- ----------------- ----------
1995 1996 1995 1996
----- ----- ---- ----
(In millions)
Securities earnings ...... $ 1.5 $ 1.2 $ (.3) $ 5.9 $ 3.6 $ (2.3)
Corporate expenses, net .. (7.1) (5.7) 1.4 (19.9) (12.4) 7.5
Interest expense ......... (20.3) (18.5) 1.8 (62.1) (56.1) 6.0
------- ------- ------- ------- ------- -------
$ (25.9) $ (23.0) $ 2.9 $ (76.1) $ (64.9) $ 11.2
======= ======= ======= ======= ======= =======
Securities earnings were lower due to lower average balances available for
investment. Net corporate expenses were lower in the third quarter and first
nine months of 1996 compared to the same periods in 1995 due to lower
environmental remediation costs. Interest expense was lower primarily due to
lower variable interest rates.
Income tax expense for the third quarter of 1996 differs from a normally-
expected effective tax rate because of losses in certain countries for which no
tax benefit is currently available and for which recognition of a deferred tax
asset is not appropriate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows from operating, investing and
financing activities for the nine months ended September 30, 1995 and 1996 are
presented below.
Nine months ended
September 30,
------------------
1995 1996
------- -------
(In millions)
Net cash provided (used) by:
Operating activities ............................... $ 67.8 $ 38.3
Investing activities ............................... (40.8) (52.9)
Financing activities ............................... (8.4) 5.8
------- -------
Net cash provided (used) by operating, investing
and financing activities ...................... $ 18.6 $ (8.8)
======= =======
The TiO2 industry is cyclical and changes in economic conditions within
the industry significantly impact the earnings and operating cash flows of the
Company. During the first nine months of 1996, declining TiO2 selling prices
unfavorably impacted Kronos' operating income and cash flows from operations
compared to the 1995 period. Average selling prices began a downward trend in
the last half of 1995 and the Company expects the trend to continue at least for
the remainder of the year. The Company expects prices will begin to increase
during 1997; however, no assurance can be given that price trends will conform
to the Company's expectations and future cash flows will be adversely affected
should price trends be lower than the Company's expectations.
The Company's cash flows from operations also declined in the first nine
months of 1995 due to an increase in working capital of $43 million, while
- 16 -
working capital remained about the same in the first nine months of 1996,
excluding the effect of currency translation. Net changes in working capital
used less cash in the 1996 period primarily due to TiO2 production curtailments
and higher sales volumes reducing inventory levels during 1996.
Certain of the Company's income tax returns in various U.S. and non-U.S.
jurisdictions are being examined and tax authorities have proposed or may
propose tax deficiencies. The Company has reached an agreement with the German
tax authorities regarding examinations which resolves certain significant tax
contingencies for years through 1990. The Company has received certain final
assessments and expects to pay tax deficiencies of approximately DM 49 million
($32 million at September 30, 1996), including interest, in the fourth quarter
of 1996 in final settlement of the agreed issues. Certain other German tax
contingencies remain outstanding and will continue to be litigated. Although the
Company believes that it will ultimately prevail, the Company has granted a DM
100 million ($66 million at September 30, 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 the
Company's favor in view of the inherent uncertainties involved in court rulings.
The Company believes that it has adequately provided accruals for additional
income taxes and related interest expense which may ultimately result from all
such examinations and believes that the ultimate disposition of such
examinations should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
Rheox acquired the minority interests of its non-U.S. subsidiaries for
$5.2 million in the first quarter of 1996.
The Company borrowed DM 95 million ($64 million when borrowed) under its
DM credit facility during the first nine months of 1996 and used the proceeds
primarily to fund operations. During October 1996, the Company borrowed DM 49
million ($32 million when borrowed) under the DM credit facility to fund the
German tax settlement payments described above. Repayments of indebtedness in
the first nine months of 1996 included payments of $17.2 million on the Rheox
bank term loan, $11.6 million on the joint venture term loan and DM 16 million
($10.4 million when repaid) on DM-denominated notes payable.
In the third quarter of 1996, the Company paid a quarterly dividend of
$.10 per share to shareholders aggregating $5.1 million. Dividends paid during
the first nine months of 1996 totaled $15.3 million. In October 1996, the
Company's Board of Directors suspended the Company's regular quarterly dividend.
At September 30, 1996, the Company had cash and cash equivalents
aggregating $130 million (36% held by non-U.S. subsidiaries) including
restricted cash and cash equivalents of $11 million. The Company's subsidiaries
had $5 million and $119 million available for borrowing at September 30, 1996
under existing U.S. and non-U.S. credit facilities, respectively, of which $82
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. In October 1996, the borrowing availability to pay German
income tax assessments under the DM credit facility was reduced by $32 million
related to the October 1996 borrowings described above. The Company is engaged
in discussions with its
- 17 -
lenders to modify the repayment terms and covenants of certain of its
indebtedness and to refinance certain other indebtedness.
The Company 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 the Company, 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,
the Company evaluates the potential range of its liability at sites where it has
been named as a PRP or defendant. The Company believes it has adequate accruals
($114 million at September 30, 1996) for reasonably estimable costs of such
matters. It is not possible to estimate the range of costs for certain sites.
The Company has estimated that the upper end of the range of reasonably possible
costs to the Company for sites for which it is possible to estimate costs is
approximately $175 million. The Company's estimates of such liabilities have not
been discounted to present value, and the Company has not recognized any
potential insurance recoveries. 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.
The Company 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 the
Company will not incur future liability in respect of this litigation, based on,
among other things, the results of such litigation to date, the Company believes
that the pending lead pigment and paint litigation is without merit. The Company
has not accrued any amounts for such pending litigation. Liability that may
result, if any, cannot be reasonably estimated. In addition, various legislation
and administrative regulations are, from time to time, enacted or proposed at
the state, local and federal levels seeking 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 the Company and other pigment
manufacturers have been successful. The Company currently believes the
disposition of all claims and disputes, individually and in the aggregate,
should not have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity. There can be no
assurance that additional matters of these types will not arise in the future.
The Company periodically evaluates its liquidity requirements, alternative
uses of capital, capital needs and availability of resources in view of, among
other things, its debt service and capital expenditure requirements and
estimated future operating cash flows. As a result of this process, the Company
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, the Company may also
review
- 18 -
opportunities for acquisitions or other business combinations in the chemicals
industry. In the event of any such transaction, the Company may consider using
available cash, issuing equity securities or increasing its indebtedness to the
extent permitted by the agreements governing the Company's existing debt.
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"
above, 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
filings with the Securities and Exchange Commission, and other public
statements.
- 19 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the 1995 Annual Report and the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996 for
descriptions of certain previously-reported legal proceedings.
Frank D. Seinfeld v. Harold C. Simmons, et al. (Superior Court of New
York, Bergen County, Chancery Division, No. C-336-96). Plaintiff brought this
action in September 1996 on behalf of himself and derivatively, on behalf of NL,
against the Company, Valhi and certain current and former members of the
Company's Board of Directors. The complaint alleges, among other things, that
the Company's August 1991 "Dutch auction" tender offer was an unfair and
wasteful expenditure of the Company's funds. Plaintiff seeks, among other
things, to rescind the Company's purchase of approximately 10.9 million shares
of its common stock from Valhi pursuant to the Dutch auction. The Company
believes, and understands that each of the other defendants believes, the
complaint is without merit. The Company intends, and believes that each of the
other defendants intends, to defend the action vigorously.
Ritchie v. NL Industries, et al. (Circuit Court of Marshall County,
West Virginia, No. 96-C-179M). In September 1996, the Company was served with a
complaint filed in West Virginia state court that seeks compensatory and
punitive damages for alleged personal injury caused by lead paint and asserts
causes of action against the Company and five other former manufacturers of lead
pigment for negligence, strict liability, breach of warranty, fraud, conspiracy,
market share liability and alternative liability. In October 1996, defendants
removed the case to federal court and filed motions to dismiss.
The City of New York, et al. v. Lead Industries Association, Inc., et
al. (No. 89-4617). In September 1996, defendants' request for permission to
appeal was denied.
Skipworth v. Sherwin-Williams Co., et al. (No. 92-3069). Oral argument
was held in this matter in the Pennsylvania Supreme Court in October 1996.
Wright, et al. v. Lead Industries Association, Inc., et al. (Nos. 94-
363042 and 94-363043). In September 1996, the remaining defendants' motion for
summary judgment was granted. Plaintiffs have appealed as to all defendants.
Gates v. American Cyanamid Co., et al. (I1996 - 2114). In July 1996,
the Company filed an answer denying plaintiff's allegations.
Hines v. Gates, et al. (96-616161). In July 1996, plaintiffs
voluntarily dismissed the complaint without prejudice.
NL Industries, Inc. v. Commercial Union Insurance Cos., et al. The
Company is seeking interlocutory appellate review of the previously-reported
ruling regarding contribution.
- 20 -
Granite City, Illinois smelter site. In August 1996, the district court
denied Granite City's and the PRP's motion for a temporary restraining order and
preliminary injunction seeking to enjoin the U.S. EPA from proceeding with the
residential component of the cleanup.
Wagner, et al. v. Anzon, Inc. and NL Industries, Inc. (No. 87-4420). In
September 1996, the Superior Court of Pennsylvania affirmed the judgment of the
jury verdict for the Company. Plaintiffs have filed an application for
reargument in the Superior Court, which the Company has opposed. The application
is pending before the Superior Court.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Eighth amendment to the Credit Agreement, dated September
17, 1996, between Rheox, Inc. and Subsidiaries, Guarantors and the
Chase Manhattan Bank (National Association) and the Nippon Credit
Bank, Ltd. as Co-Agents.
10.2 - Executive Severance Agreement effective as of February 16,
1994 by and between the Registrant and Joseph S. Compofelice.
10.3 - Executive Severance Agreement effective as of March 9, 1995
by and between the Registrant and Lawrence A. Wigdor.
27.1 - Financial Data Schedule for the nine months ended September
30, 1996.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended September 30, 1996 and
through the date of this report:
July 25, 1996 - reported Items 5 and 7.
October 23, 1996 - reported Items 5 and 7.
- 21 -
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.
NL INDUSTRIES, INC.
(Registrant)
Date: November 12, 1996 By /s/ Joseph S. Compofelice
- ------------------------ -------------------------
Joseph S. Compofelice
Vice President and
Chief Financial Officer
Date: November 12, 1996 By /s/ Dennis G. Newkirk
- ------------------------ ---------------------
Dennis G. Newkirk
Vice President and Controller
(Principal Accounting Officer)
- 22 -
EXHIBIT 10.1
THIS INSTRUMENT IS SECURED BY A DEED OF TRUST, ASSIGNMENT OF
PERMITS, RENTS AND BENEFITS, SECURITY AGREEMENT AND FIXTURE FILING,
DATED AS OF JUNE 18, 1991
EIGHTH AMENDMENT TO CREDIT AGREEMENT
EIGHTH AMENDMENT dated as of September 17, 1996 TO CREDIT AGREEMENT
dated as of March 20, 1991 among RHEOX, INC., a Delaware corporation (the
"Company"); RHEOX INTERNATIONAL, INC., a Delaware corporation (the "Subsidiary
Guarantor"); each of the lenders that is a signatory hereto (individually, a
"Bank" and, collectively, the "Banks"); THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank (National Association)), a New York state
banking corporation, and THE NIPPON CREDIT BANK, LTD., a Japanese banking
corporation acting through its New York branch, as co-agents for the Banks (each
in such capacity, a "Co-Agent" and, collectively, the "Co-Agents"); and THE
CHASE MANHATTAN BANK, as administrative agent for the Banks (in such capacity,
together with its successors in such capacity, the "Administrative Agent").
WHEREAS, the parties hereto are parties to a Credit Agreement dated
as of March 20, 1991 among the Company, the Subsidiary Guarantor, the Banks, the
Co-Agents and the Administrative Agent (as at any time amended or otherwise
modified, the "Credit Agreement"; terms defined therein having their respective
defined meanings when used herein unless otherwise defined herein);
WHEREAS, the Company has requested that the Credit Agreement be
amended in certain respects, and the Banks are willing to consent to such
amendments upon the terms and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Amendments. The Credit Documents are hereby amended
(effective as provided in Section 3 hereof) as follows:
A. Each reference in the Credit Agreement and the other Credit
Documents to the Credit Agreement shall be deemed to be a reference to the
Credit Agreement as amended hereby. Except as expressly provided in this
Section 1, the Credit Agreement shall remain unchanged and in full force
and effect.
B. Section 1.01 of the Credit Agreement is hereby amended by adding
the following new definitions and inserting the same in the appropriate
alphabetical locations:
"'Bankruptcy Code' shall mean the Federal Bankruptcy Code of
1978, as amended from time to time."
1
"'Subordinated Note' shall have the meaning assigned to such
term in Section 9.07(e) hereof."
"'Subordination Agreement' shall mean a Subordination
Agreement substantially in the form of Exhibit A to the Eighth
Amendment dated as of September 17, 1996 to this Agreement."
C. The definition of "Credit Documents" in Section 1.01 of the
Credit Agreement is hereby amended by inserting ", the Subordination
Agreement" after "the NL Guaranty".
D. Clause (a) of the definition of "Interest/Lease Expense" in
Section 1.01 of the Credit Agreement is hereby amended to read as follows:
"(a) all interest in respect of Indebtedness of the Company and its
Consolidated Subsidiaries (including imputed interest expense in
respect of Capital Lease Obligations, if any, but excluding interest
expense in respect of the Subordinated Note to the extent accrued
but not paid) paid, accrued or capitalized during such period;"
E. Clause (a) of the definition of "Leverage Ratio" in Section 1.01
of the Credit Agreement is hereby amended to read as follows:
"(a) the aggregate outstanding principal amount of Indebtedness
(other than Indebtedness evidenced by the Subordinated Note) of the
Company and its Consolidated Subsidiaries on such date by".
F. The definition of "Revolving Credit Termination Date" in Section
1.01 of the Credit Agreement is hereby amended to read as follows:
"'Revolving Credit Termination Date' shall mean December 31,
1997."
G. The last sentence of the definition of "Tangible Net Worth" in
Section 1.01 of the Credit Agreement is hereby amended to read as follows:
"Notwithstanding anything in this definition to the contrary,
neither (i) cumulative foreign currency translation gains (or
losses) nor (ii) the dividend evidenced by the Subordinated Note
shall be deemed to increase or decrease Tangible Net Worth."
H. Section 9.05 of the Credit Agreement is hereby amended by (i)
deleting "and" at the end of clause (h) thereof, (ii) replacing the period
at the end of clause (i) thereof with "; and" and (iii) inserting a new
clause (j) therein reading as follows:
"(j) the Company may enter into and issue the Subordinated
Note and make payments and otherwise perform its obligations in
respect thereof in accordance with the Subordination Agreement."
2
I. Section 9.07 of the Credit Agreement is hereby amended by (i)
relettering clauses (e), (f) and (g) thereof to be clauses (f), (g) and
(h) respectively and (ii) inserting a new clause (e) therein reading as
follows:
"(e) Indebtedness of the Company to NL evidenced by a
subordinated note (the "Subordinated Note") substantially in the
form of Exhibit B to the Eighth Amendment dated as of September 17,
1996 to this Agreement and in an original principal amount not
exceeding $100,000,000, provided that NL, the Company and the
Administrative Agent shall have executed and delivered the
Subordination Agreement;"
J. The proviso in Section 9.09 of the Credit Agreement is hereby
amended to read as follows:
"provided that (a) the Company may declare and pay the NL Dividend
in cash on the date the Term Loans are made hereunder and (b) the
Company may declare the dividend to be evidenced by the Subordinated
Note and may pay such dividend by issuing the Subordinated Note."
K. Section 9.18 of the Credit Agreement is hereby amended by (i)
replacing " and" at the end of clause (iii) thereof with a comma, (ii)
replacing the period at the end of clause (iv) thereof with " and" and
(iii) inserting a new clause (v) therein reading as follows:
"(v) the Company may enter into and issue the Subordinated Note and
make payments and otherwise perform its obligations in respect thereof in
accordance with the Subordination Agreement."
L. Clause (b) of Section 9.23 of the Credit Agreement is hereby
amended by inserting "the Subordinated Note (other than a modification,
supplement or waiver deferring part or all of the Company's payment
obligations thereunder) or" before "the Tax Sharing Agreement," therein.
M. The Credit Agreement is hereby amended by adding a new Section
9.29 thereto reading as follows:
"9.29 Subordinated Note. The Company will not, and will not
permit any of its Subsidiaries to, purchase, redeem, retire or
otherwise acquire for value, or set apart any money for a sinking,
defeasance or other analogous fund for the purchase, redemption,
retirement or other acquisition of, or make any voluntary payment or
prepayment of the principal of or interest on, or any other amount
owing in respect of, the Subordinated Note, except, subject to the
Subordination Agreement, for regularly scheduled payments of
interest thereon required pursuant thereto."
Section 2. Representations and Warranties. Each of the Company and
the Subsidiary Guarantor represents and warrants that:
3
A. The execution and delivery of this Amendment by it has been duly
authorized by all necessary corporate action on its part.
B. This Amendment has been duly executed and delivered by it, and
each of this Amendment and the Credit Agreement as modified hereby
constitute its legal, valid and binding obligation enforceable in
accordance with its respective terms subject, however, to the application
by a court of general principles of equity and to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally.
Section 3. Effectiveness. The amendments set forth in Section 1
hereof shall become effective upon the receipt by the Administrative Agent on or
before October 15, 1996 of (a) counterparts hereof duly executed and delivered
by the Company, the Banks and the Administrative Agent, (b) a Subordination
Agreement substantially in the form of Exhibit A hereto duly executed and
delivered by NL, the Company and the Administrative Agent and (c) evidence
reasonably satisfactory to it as to the truth of the representation contained in
Section 2.A hereof. If the Revolving Credit Commitments terminate on September
23, 1996 by reason of failure of the Administrative Agent to have received the
documents and evidence referred to in the preceding sentence on or before such
date, then, upon the receipt by the Administrative Agent of such documents and
evidence on or before October 15, 1996, the amendments set forth in Section 1
hereof shall become effective retroactive to September 23, 1996 and the
Revolving Credit Commitments shall be reinstated as of September 23, 1996.
Section 4. Counterparts. This Amendment may be executed in any
number of counterparts, each of which may be deemed an original but all of which
together shall constitute one and the same instrument.
Section 5. Governing Law. This Amendment shall be governed and
construed in accordance with the laws of the State of New York.
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers duly authorized as of the date first
above written.
RHEOX, INC.
By
Name:
Title:
THE CHASE MANHATTAN BANK,
as Co-Agent and
Administrative Agent
By_____________________________
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
as Co-Agent
By_____________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By_____________________________
Name:
Title:
5
THE NIPPON CREDIT BANK, LTD.
By_____________________________
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By_____________________________
Name:
Title:
RESTRUCTURED OBLIGATIONS BACKED
BY SENIOR ASSETS B.V.
BY CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., its Portfolio Advisor:
By_____________________________
Name:
Title:
STICHTING RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS 2 (ROSA2)
BY CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., its Portfolio Advisor:
By_____________________________
Name:
Title:
6
GIROCREDIT BANK,
NEW YORK
K BRANCH
By_____________________________
Name:
Title:
BANQUE PARIBAS
By_____________________________
Name:
By_____________________________
Name:
Title:
7
EXHIBIT 10.2
EXECUTIVE SEVERANCE AGREEMENT
Agreement made effective February 16, 1994, by and between NL INDUSTRIES,
INC., a New Jersey corporation (hereinafter called the "Company"), and Joseph S.
Compofelice (hereinafter called the "Executive").
Recitals
A. The Company considers it in the best interests of the Company and
its stockholders that its key management personnel be encouraged to
remain with the Company and to continue to devote their efforts to
the Company's business.
B. Executive is a key executive of the Company.
C. The Company recognizes that Executive's contribution to the growth
and success of the Company has been substantial.
NOW, THEREFORE, to assure the Company that it will have the continued
services of Executive and the availability of Executive's advice and counsel and
to induce Executive to remain in the employ of the Company, and for other good
and valuable consideration, the Company and Executive agree as follows:
1. Termination.
a. General. This Agreement is not an employment contract nor does
it in any way alter the status of Executive as an at-will
employee of the Company serving at the pleasure of the
Company. Executive's employment with the Company may be
terminated without notice (except as required by Section 2
hereof) at any time, for any reason (i) by the Company's Chief
Executive Officer or (ii) by Executive.
b. Termination by the Company. Executive shall be entitled to the
severance benefits set forth in Sections 3 and 4 upon
termination of Executive's employment by the Company unless
such termination is for cause (as defined below). Executive's
termination of employment with the Company by virtue of death,
disability (as defined below), or retirement (as defined
below) shall not be considered as a termination of Executive
by the Company. For purposes of this Agreement, "cause" shall
mean (i) Executive's conviction of any criminal violation
involving dishonesty, fraud or breach of trust or any felony
or (ii) Executive's willful engagement in gross misconduct in
the performance of his duties that materially and adversely
affects the financial condition of the Company. The Executive
shall be deemed to have a "disability" if, by reason of
physical or mental incapacity, Executive becomes unable to
perform his normal duties for more than 180 days in the
aggregate (excluding infrequent and temporary absence due to
ordinary transitory illness) during any 12-month period.
Executive shall be deemed to have "retired" upon Executive
1
reaching the age of 65; provided that Executive is no longer
employed by the Company.
c. Termination by the Employee. Executive shall not be entitled
to the severance benefits set forth in Sections 3 and 4 of
this Agreement upon termination of Executive's employment with
the Company by Executive unless such termination is for good
reason. For purposes of this Agreement, "good reason" shall
mean the occurrence of any one of the following events without
Executive's consent:
(i) the assignment of Executive to any duties substantially
inconsistent with his position, duties, responsibilities
or status with the Company immediately prior to such
assignment, or a substantial reduction of the duties or
responsibilities, as compared with the duties or
responsibilities immediately prior to such reduction;
(ii) a reduction by the Company in the amount of Executive's
annual base salary as in effect as of the date of this
Agreement or as the same may be increased from time to
time, except for across-the-board salary reductions
similarly affecting all executives of the Company;
(iii) the Company repudiates this Agreement or fails to obtain
a satisfactory agreement from any successor to assume
and agree to perform this Agreement, as contemplated by
Section 9.a. hereof; or
(iv) the Company modifies either the proportion of
Executive's annual bonus that is based upon the
Company's financial performance for the preceding year
or the percentage of Executive's annual bonus
attributable to the performance levels set forth by the
Company's Employee Incentive Bonus Plan, except for
across-the-board modifications similarly affecting all
executives of the Company.
2. Notice of Certain Terminations. In the event that either (i) the
Company shall terminate Executive for cause or (ii) Executive shall
resign for good reason, then any such termination shall be
communicated by written notice to the other party hereto. Any such
notice shall specify (a) the effective date of termination, which
shall not be more than 30 days after the date the notice is
delivered (the "Termination Date"); and (b) in reasonable detail the
facts and circumstances underlying a determination that the
termination is for cause or for good reason, as the case may be. If
within 15 days after any notice is given, the party receiving such
notice notifies the other party that a good faith dispute exists
concerning the characterization of the termination, the Termination
Date shall be the date on which such dispute is finally resolved
either by written agreement of the parties or by a final judicial
2
determination. Notwithstanding the pendency of any such dispute, the
Company shall continue Executive and his dependents as participants
in all medical, dental and any other health insurance and similar
benefit plans of the Company in which he or they were participating
when the notice giving rise to the dispute was given, until the
dispute is finally resolved. Benefits provided under this Section 2
are in addition to all other amounts due under this Agreement and
shall not be offset against, or reduce any other amounts due under,
this Agreement.
3. Termination Benefits. Subject to the conditions set forth in Section
1 and Section 6.b. hereof, the Company shall make the following
payments (subject to any applicable payroll or other taxes required
to be withheld) to Executive within 15 days of the Termination Date.
a. Base Salary and Bonus. The greater of (i) two times
Executive's effective annual base salary at the Termination
Date plus two times Executive's level "B" target bonus under
the Company's Employee Incentive Bonus Plan as in effect at
the Termination Date, it being understood that such level
shall in any event be a minimum of 100% of Executive's
effective annual base salary (the "Level B Target Bonus"), or
(ii) two times Executive's effective annual base salary plus
Executive's actual bonus for the two calendar year period
immediately prior to the Termination Date.
b. Accrued Amounts. (i) Accrued but unpaid salary and bonus
through the Termination Date and (ii) unpaid salary with
respect to any vacation days accrued but not taken as of the
Termination Date. For purposes of this Agreement only, bonus
payments shall accrue and be payable to Executive in an amount
equal to the pro rata portion of the Level B Target Bonus
calculated on a per diem basis.
4. Other Benefits. Subject to the conditions set forth in Sections 1
and 6.b. hereof, the following benefits (subject to any applicable
payroll or other taxes required to be withheld) shall be paid or
provided to Executive within 15 days of the Termination Date.
a. Insurance Benefits. Medical, dental and any other health
insurance, life insurance, accidental death and dismemberment
insurance and disability protection no less favorable to
Executive and his dependents covered thereby (including with
respect to any costs borne by Executive) than the greater of
the coverage provided on the date of execution of this
Agreement or the coverage provided by Company immediately
prior to the Termination Date for the period beginning on the
Termination Date and ending on the first to occur of (i) the
date of Executive's employment (including self-employment) in
a position providing substantially the same or greater
benefits as the Executive's assignment with the Company on the
3
Termination Date or (ii) the second anniversary of the
Termination Date.
b. Stock Awards. The Company shall pay to Executive the following
amounts in cash, or in the Company's common stock (valued at
the Fair Market Value, as defined below, on the day before the
Termination Date), or in any combination of cash and the
Company's common stock as determined by the Company in its
discretion.
(i) In respect of each option to purchase the Company's
common stock and any related stock appreciation right
("SAR") granted to Executive under the 1985 Long Term
Performance Incentive Plan of NL Industries, Inc., the
1989 Long Term Performance Incentive Plan of NL
Industries, Inc. or any predecessor or successor plan
(collectively, the "Performance Plan") that is
outstanding (and regardless of whether then vested) on
the day before the Termination Date (and that has not
been exercised) an amount equal to the excess, if any,
of the Fair Market Value per share of the Company's
common stock on the day before the Termination Date over
the exercise price, multiplied by the total number of
shares of the Company's common stock subject to such
option. Such payment shall be in consideration of a
cancellation of any rights which Executive may have in
such stock options and SARs.
(ii) In respect of each SAR unrelated to any options to
purchase common stock awarded to Executive under the
Performance Plan that is outstanding (and regardless of
whether then vested) on the day before the Termination
Date, an amount equal to an amount by which the Fair
Market Value on the day before the Termination Date of
each share of the Company's common stock subject to the
SAR exceeds the Fair Market Value of each such share on
the date the SAR was awarded, multiplied by the number
of shares of the Company's common stock subject to such
SAR. Such payment shall be in consideration of a
cancellation of any rights that Executive may have in
said SARs.
(iii) In respect of each restricted stock grant to Executive
under the Performance Plan outstanding (and regardless
of whether then vested) on the day before the
Termination Date (regardless of the performance of the
Company's common stock since the grant date), an amount
equal to the Fair Market Value of each share of the
Company's common stock subject to the restricted stock
grant, multiplied by the number of shares of the
Company's common stock subject to such stock grant. Such
payment shall be in consideration of a cancellation
4
of any rights which Executive may have in said stock
grants.
For purposes of this Section 4, "Fair Market Value" shall mean
the average of the highest and lowest sales prices of the
Company's common stock as reported on the consolidated tape of
the New York Stock Exchange on any relevant date for
valuation, or, if there be no such sale, the average of the
highest and lowest sales prices of each common stock as so
reported on the nearest preceding date upon which such sales
took place. In the event the shares of the Company's common
stock are no longer listed on the New York Stock Exchange, the
"Fair Market Value" of such shares shall be the average of the
representative bid and asked prices quoted in the NASDAQ
System as of 4:OO p.m., New York time, on the last trading day
prior to the Termination Date, or, if on any day such security
is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices in the domestic over-the-counter
market as last reported prior to the Termination Date by the
National Quotation Bureau, Incorporated, or any similar
successor organization. If at any time the Company's Common
Stock is not listed on any domestic security exchange or
quoted in the NASDAQ System or the domestic over-the-counter
market, "Fair Market Value" shall be determined in good faith
by the Company's Board of Directors in its discretion.
c. Savings Plan Benefits. The Company shall pay to Executive an
amount in cash equal to the unvested portion of the Company's
contributions to Executive's account under the Company's
Savings Plan for its employees or other plans "qualified"
underss.401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), to which the Company makes contributions
to employee accounts in effect as of the Termination Date (the
"Savings Plan"), plus an amount in cash equal to two times an
amount determined by multiplying the greater of Section 3.a(i)
and 3.a(ii) of this Agreement by the Company's additional
annual retirement contribution percentage determined by the
Company pursuant to the Savings Plan as in effect on the date
of execution of this Agreement or the Termination Date,
whichever is greater.
In addition, Executive shall be paid in cash an amount
equal to the Company's matching contributions determined
pursuant to the Savings Plan as in effect on the date of
execution of this Agreement or the Termination Date whichever
is greater which would have accrued to the benefit of
Executive had he continued his participation in, and elected
to make the maximum contributions under, the Savings Plan for
the period of 24 months from the Termination Date or until
December 31 of the year in which Executive would reach age 65,
whichever is the shorter period. The benefits received by
5
Executive pursuant to this Section 4.c. are in addition to
those then having vested prior to the Termination Date in
accordance with the terms of the Savings Plan. Awards in
shares of common stock of the Company or any predecessor or
successor corporation shall be valued for purposes of this
section 4.c. at their Fair Market Value, as defined above.
d. Supplemental Retirement Plans. The Company shall pay to
Executive an amount in cash equal to the vested and unvested
portions of the Company's contributions to the Executive's
account (and all accretions thereto in lieu of interest) under
the Company's Supplemental Retirement Plan, in effect as of
the Termination Date.
5. Retirement Plan. Following retirement and attainment of ages
specified in the Retirement Plan of NL Industries, Inc. (the "NL
Pension Plan"), Executive shall be entitled to all pension benefits
which are available to him under the NL Pension Plan in effect on
the Termination Date.
6. Benefits Valuation and Limitation.
a. Promptly following any Termination Date, and as of that date,
the Company will notify Executive of the itemized and
aggregate cash value of the payments and benefits, as
determined under Section 280G of the Code, received or to be
received by Executive in connection with the termination of
his employment (whether payable pursuant to the terms of this
Agreement or otherwise). At the same time, the Company shall
advise Executive of the portion of such payments or benefits
which constitute parachute payments within the meaning of the
Code and which may subject Executive to the payment of excise
taxes pursuant to Section 4999 and the expected amount of such
taxes (such payments or benefits being hereinafter referred to
as "Parachute Payments").
b. Notwithstanding the provisions of Sections 3 and 4 hereof, if
all or any portion of the payments or benefits provided under
Sections 3 or 4 either alone or together with other payments
or benefits which Executive has received or is then entitled
to receive from the Company and any of its subsidiaries would
constitute Parachute Payments, such payments or benefits
provided to Executive under Sections 3 and 4 shall be reduced
to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code;
but only if, by reason of such reduction, Executive's net
after-tax benefit shall exceed the net after-tax benefit if
such reduction were not made. "Net after-tax benefit" for
purposes of this Section 6.b. shall mean the sum of (i) the
total amount payable to Executive under Sections 3 and 4
hereof, plus (ii) all other payments and benefits which
Executive has received or is then entitled to receive from the
6
Company and any of its subsidiaries that would constitute a
Parachute Payment, less (iii) the amount of federal income
taxes payable with respect to the payment and benefits
described in (i) and (ii) above calculated at the maximum
marginal income tax rate for each year in which such payments
and benefits shall be paid to Executive (based upon the rate
in effect for such year as set forth in the Code at the
Termination Date), less (iv) the amount of excise taxes
imposed with respect to the payments and benefits described in
(i) and (ii) above by Section 4999 of the Code.
For purposes of this Section 6.b., Executive's base
amount, the present value of the Parachute Payments, the
amount of the excise tax and all other appropriate matters
shall be determined by the Company's independent auditors in
accordance with the principles of Section 280G of the Code and
based upon the advice of tax counsel selected by the Company,
which tax counsel shall be reasonably satisfactory to
Executive.
7. Mitigation. Executive is not required to seek other employment or
otherwise mitigate the amount of any payments to be made by the
Company pursuant to this Agreement. Except as otherwise provided in
Section 4.a. of this Agreement, the amount of any payments or other
benefits provided for in this Agreement shall not be reduced by any
compensation earned by Executive as the result of employment by
another employer after the Termination Date, or otherwise.
8. Continuing Obligations. Executive hereby agrees that all documents,
records, techniques, business secrets and other information which
have come and will come into his possession from time to time during
his employment by the Company shall be deemed to be confidential and
proprietary to the Company, and Executive further agrees to retain
in confidence any confidential information known to him concerning
the Company and its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
9. Successors.
a. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company, by Agreement in form and substance reasonably
satisfactory to Executive to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no
such succession had taken place. For purposes of this
Agreement, any determination as to whether the Company has
engaged in a transaction involving all or substantially all of
the business and/or assets of the Company shall be made by the
Board of Directors in its discretion, which determination
shall be final and binding on the parties.
7
For purposes of this Agreement, "Company" shall mean NL
Industries, Inc. and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law or
otherwise.
b. This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any
amounts are payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devises, legatee or
other designee or, if there be no such designee, to
Executive's estate.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be
deemed to have been duly given when actually delivered or mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Executive:
Mr. Joseph S. Compofelice
6 Southgate Drive
The Woodlands, Texas 77380
If to the Company:
NL Industries, Inc.
16825 Northchase Drive, Suite 1200
Houston, Texas 77060
ATTENTION: General Counsel
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
11. Governing Law. THE VALIDITY, INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL
LAWS, AND NOT THE CONFLICTS LAWS, OF THE STATE OF TEXAS.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge
is agreed to in writing signed by Executive and a duly authorized
officer of the Company. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
8
provisions or conditions at the same or any prior or subsequent
time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this Agreement.
13. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full
force and effect.
14. Assignability. This Agreement is personal in nature and neither of
the parties hereto shall, without the written consent of the other,
assign or transfer this Agreement or any rights or obligations
hereunder, as provided in Section 9. Without limiting the foregoing,
Executive's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or
trust or the laws of descent or distribution, and in the event of
any attempted assignment or transfer contrary to this paragraph the
Company shall have no liability to pay any amount so attempted to be
assigned or transferred.
15. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through December 31 of 1994; provided,
however, that beginning January 1, 1995 and each January 1
thereafter, the term of this Agreement shall automatically be
extended for one additional year unless the Company and Executive
have mutually agreed in writing to terminate this Agreement.
16. Enforcement Costs. In the event that either party files an action
against the other in any court to collect, enforce, protect or
preserve its rights under this Agreement, the prevailing party in
such action shall be entitled to receive reimbursement from such
other party of all reasonable costs and expenses, including
attorneys' fees, which such prevailing party incurred in prosecuting
or defending such action, as the case may be.
17. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original but all of which
taken together will constitute one and the same instrument.
18. Unsecured Obligation. All rights of Executive and Executive's spouse
or other beneficiaries under this Agreement shall at all times be
entirely unfunded and no provision shall at any time be made with
respect to segregating assets of the Company or payment of any
amounts due hereunder. Neither Executive nor his spouse or other
beneficiary shall have any interest in or rights against any
specific assets of the Company, and Executive and his spouse or
other beneficiary shall have only the rights of a general unsecured
creditor of the Company.
* * * * *
9
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on this ___ day of March, 1996.
NL INDUSTRIES, INC.
By: /s/ J. Landis Martin
Name: J. Landis Martin
Its: President and CEO
/s/Joseph S. Compofelice
10
EXHIBIT 10.3
EXECUTIVE SEVERANCE AGREEMENT
Agreement made effective March 9, 1995, by and between NL INDUSTRIES,
INC., a New Jersey corporation (hereinafter called the "Company"), and Lawrence
A. Wigdor (hereinafter called the "Executive").
Recitals
A. The Company considers it in the best interests of the Company and
its stockholders that its key management personnel be encouraged to
remain with the Company and to continue to devote their efforts to
the Company's business.
B. Executive is a key executive of the Company.
C. The Company recognizes that Executive's contribution to the growth
and success of the Company has been substantial.
NOW, THEREFORE, to assure the Company that it will have the continued
services of Executive and the availability of Executive's advice and counsel and
to induce Executive to remain in the employ of the Company, and for other good
and valuable consideration, the Company and Executive agree as follows:
1. Termination.
a. General. This Agreement is not an employment contract nor does
it in any way alter the status of Executive as an at-will
employee of the Company serving at the pleasure of the
Company. Executive's employment with the Company may be
terminated without notice (except as required by Section 2
hereof) at any time, for any reason (i) by the Company's Chief
Executive Officer or (ii) by Executive.
b. Termination by the Company. Executive shall be entitled to the
severance benefits set forth in Sections 3 and 4 upon
termination of Executive's employment by the Company unless
such termination is for cause (as defined below). Executive's
termination of employment with the Company by virtue of death,
disability (as defined below), or retirement (as defined
below) shall not be considered as a termination of Executive
by the Company. For purposes of this Agreement, "cause" shall
mean (i) Executive's conviction of any criminal violation
involving dishonesty, fraud or breach of trust or any felony
or (ii) Executive's willful engagement in gross misconduct in
the performance of his duties that materially and adversely
affects the financial condition of the Company. The Executive
shall be deemed to have a "disability" if, by reason of
physical or mental incapacity, Executive becomes unable to
perform his normal duties for more than 180 days in the
aggregate (excluding infrequent and temporary absence due to
ordinary transitory illness) during any 12-month period.
Executive shall be deemed to have "retired" upon Executive
1
reaching the age of 65; provided that Executive is no longer
employed by the Company.
c. Termination by the Employee. Executive shall not be entitled
to the severance benefits set forth in Sections 3 and 4 of
this Agreement upon termination of Executive's employment with
the Company by Executive unless such termination is for good
reason. For purposes of this Agreement, "good reason" shall
mean the occurrence of any one of the following events without
Executive's consent:
(i) the assignment of Executive to any duties substantially
inconsistent with his position, duties, responsibilities
or status with the Company immediately prior to such
assignment, or a substantial reduction of the duties or
responsibilities, as compared with the duties or
responsibilities immediately prior to such reduction;
(ii) a reduction by the Company in the amount of Executive's
annual base salary as in effect as of the date of this
Agreement or as the same may be increased from time to
time, except for across-the-board salary reductions
similarly affecting all executives of the Company;
(iii) the Company repudiates this Agreement or fails to obtain
a satisfactory agreement from any successor to assume
and agree to perform this Agreement, as contemplated by
Section 9.a. hereof; or
(iv) the Company modifies either the proportion of
Executive's annual bonus that is based upon the
Company's financial performance for the preceding year
or the percentage of Executive's annual bonus
attributable to the performance levels set forth by the
Company's Employee Incentive Bonus Plan, except for
across-the-board modifications similarly affecting all
executives of the Company.
2. Notice of Certain Terminations. In the event that either (i) the
Company shall terminate Executive for cause or (ii) Executive shall
resign for good reason, then any such termination shall be
communicated by written notice to the other party hereto. Any such
notice shall specify (a) the effective date of termination, which
shall not be more than 30 days after the date the notice is
delivered (the "Termination Date"); and (b) in reasonable detail the
facts and circumstances underlying a determination that the
termination is for cause or for good reason, as the case may be. If
within 15 days after any notice is given, the party receiving such
notice notifies the other party that a good faith dispute exists
concerning the characterization of the termination, the Termination
Date shall be the date on which such dispute is finally resolved
either by written agreement of the parties or by a final judicial
2
determination. Notwithstanding the pendency of any such dispute, the
Company shall continue Executive and his dependents as participants
in all medical, dental and any other health insurance and similar
benefit plans of the Company in which he or they were participating
when the notice giving rise to the dispute was given, until the
dispute is finally resolved. Benefits provided under this Section 2
are in addition to all other amounts due under this Agreement and
shall not be offset against, or reduce any other amounts due under,
this Agreement.
3. Termination Benefits. Subject to the conditions set forth in Section
1 and Section 6.b. hereof, the Company shall make the following
payments (subject to any applicable payroll or other taxes required
to be withheld) to Executive within 15 days of the Termination Date.
a. Base Salary and Bonus. The greater of (i) two times
Executive's effective annual base salary at the Termination
Date plus two times Executive's level "B" target bonus under
the Company's Employee Incentive Bonus Plan as in effect at
the Termination Date, it being understood that such level
shall in any event be a minimum of 100% of Executive's
effective annual base salary (the "Level B Target Bonus"), or
(ii) two times Executive's effective annual base salary plus
Executive's actual bonus for the two calendar year period
immediately prior to the Termination Date.
b. Accrued Amounts. (i) Accrued but unpaid salary and bonus
through the Termination Date and (ii) unpaid salary with
respect to any vacation days accrued but not taken as of the
Termination Date. For purposes of this Agreement only, bonus
payments shall accrue and be payable to Executive in an amount
equal to the pro rata portion of the Level B Target Bonus
calculated on a per diem basis.
4. Other Benefits. Subject to the conditions set forth in Sections 1
and 6.b. hereof, the following benefits (subject to any applicable
payroll or other taxes required to be withheld) shall be paid or
provided to Executive within 15 days of the Termination Date.
a. Insurance Benefits. Medical, dental and any other health
insurance, life insurance, accidental death and dismemberment
insurance and disability protection no less favorable to
Executive and his dependents covered thereby (including with
respect to any costs borne by Executive) than the greater of
the coverage provided on the date of execution of this
Agreement or the coverage provided by Company immediately
prior to the Termination Date for the period beginning on the
Termination Date and ending on the first to occur of (i) the
date of Executive's employment (including self-employment) in
a position providing substantially the same or greater
benefits as the Executive's assignment with the Company on the
3
Termination Date or (ii) the second anniversary of the
Termination Date.
b. Stock Awards. The Company shall pay to Executive the following
amounts in cash, or in the Company's common stock (valued at
the Fair Market Value, as defined below, on the day before the
Termination Date), or in any combination of cash and the
Company's common stock as determined by the Company in its
discretion.
(i) In respect of each option to purchase the Company's
common stock and any related stock appreciation right
("SAR") granted to Executive under the 1985 Long Term
Performance Incentive Plan of NL Industries, Inc., the
1989 Long Term Performance Incentive Plan of NL
Industries, Inc. or any predecessor or successor plan
(collectively, the "Performance Plan") that is
outstanding (and regardless of whether then vested) on
the day before the Termination Date (and that has not
been exercised) an amount equal to the excess, if any,
of the Fair Market Value per share of the Company's
common stock on the day before the Termination Date over
the exercise price, multiplied by the total number of
shares of the Company's common stock subject to such
option. Such payment shall be in consideration of a
cancellation of any rights which Executive may have in
such stock options and SARs.
(ii) In respect of each SAR unrelated to any options to
purchase common stock awarded to Executive under the
Performance Plan that is outstanding (and regardless of
whether then vested) on the day before the Termination
Date, an amount equal to an amount by which the Fair
Market Value on the day before the Termination Date of
each share of the Company's common stock subject to the
SAR exceeds the Fair Market Value of each such share on
the date the SAR was awarded, multiplied by the number
of shares of the Company's common stock subject to such
SAR. Such payment shall be in consideration of a
cancellation of any rights that Executive may have in
said SARs.
(iii) In respect of each restricted stock grant to Executive
under the Performance Plan outstanding (and regardless
of whether then vested) on the day before the
Termination Date (regardless of the performance of the
Company's common stock since the grant date), an amount
equal to the Fair Market Value of each share of the
Company's common stock subject to the restricted stock
grant, multiplied by the number of shares of the
Company's common stock subject to such stock grant. Such
payment shall be in consideration of a cancellation
4
of any rights which Executive may have in said stock
grants.
For purposes of this Section 4, "Fair Market Value" shall mean
the average of the highest and lowest sales prices of the
Company's common stock as reported on the consolidated tape of
the New York Stock Exchange on any relevant date for
valuation, or, if there be no such sale, the average of the
highest and lowest sales prices of each common stock as so
reported on the nearest preceding date upon which such sales
took place. In the event the shares of the Company's common
stock are no longer listed on the New York Stock Exchange, the
"Fair Market Value" of such shares shall be the average of the
representative bid and asked prices quoted in the NASDAQ
System as of 4:OO p.m., New York time, on the last trading day
prior to the Termination Date, or, if on any day such security
is not quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices in the domestic over-the-counter
market as last reported prior to the Termination Date by the
National Quotation Bureau, Incorporated, or any similar
successor organization. If at any time the Company's Common
Stock is not listed on any domestic security exchange or
quoted in the NASDAQ System or the domestic over-the-counter
market, "Fair Market Value" shall be determined in good faith
by the Company's Board of Directors in its discretion.
c. Savings Plan Benefits. The Company shall pay to Executive an
amount in cash equal to the unvested portion of the Company's
contributions to Executive's account under the Company's
Savings Plan for its employees or other plans "qualified"
underss.401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), to which the Company makes contributions
to employee accounts in effect as of the Termination Date (the
"Savings Plan"), plus an amount in cash equal to two times an
amount determined by multiplying the greater of Section 3.a(i)
and 3.a(ii) of this Agreement by the Company's additional
annual retirement contribution percentage determined by the
Company pursuant to the Savings Plan as in effect on the date
of execution of this Agreement or the Termination Date,
whichever is greater.
In addition, Executive shall be paid in cash an amount
equal to the Company's matching contributions determined
pursuant to the Savings Plan as in effect on the date of
execution of this Agreement or the Termination Date whichever
is greater which would have accrued to the benefit of
Executive had he continued his participation in, and elected
to make the maximum contributions under, the Savings Plan for
the period of 24 months from the Termination Date or until
December 31 of the year in which Executive would reach age 65,
whichever is the shorter period. The benefits received by
5
Executive pursuant to this Section 4.c. are in addition to
those then having vested prior to the Termination Date in
accordance with the terms of the Savings Plan. Awards in
shares of common stock of the Company or any predecessor or
successor corporation shall be valued for purposes of this
section 4.c. at their Fair Market Value, as defined above.
d. Supplemental Retirement Plans. The Company shall pay to
Executive an amount in cash equal to the vested and unvested
portions of the Company's contributions to the Executive's
account (and all accretions thereto in lieu of interest) under
the Company's Supplemental Retirement Plan, in effect as of
the Termination Date.
5. Retirement Plan. Following retirement and attainment of ages
specified in the Retirement Plan of NL Industries, Inc. (the "NL
Pension Plan"), Executive shall be entitled to all pension benefits
which are available to him under the NL Pension Plan in effect on
the Termination Date.
6. Benefits Valuation and Limitation.
a. Promptly following any Termination Date, and as of that date,
the Company will notify Executive of the itemized and
aggregate cash value of the payments and benefits, as
determined under Section 280G of the Code, received or to be
received by Executive in connection with the termination of
his employment (whether payable pursuant to the terms of this
Agreement or otherwise). At the same time, the Company shall
advise Executive of the portion of such payments or benefits
which constitute parachute payments within the meaning of the
Code and which may subject Executive to the payment of excise
taxes pursuant to Section 4999 and the expected amount of such
taxes (such payments or benefits being hereinafter referred to
as "Parachute Payments").
b. Notwithstanding the provisions of Sections 3 and 4 hereof, if
all or any portion of the payments or benefits provided under
Sections 3 or 4 either alone or together with other payments
or benefits which Executive has received or is then entitled
to receive from the Company and any of its subsidiaries would
constitute Parachute Payments, such payments or benefits
provided to Executive under Sections 3 and 4 shall be reduced
to the extent necessary so that no portion thereof shall be
subject to the excise tax imposed by Section 4999 of the Code;
but only if, by reason of such reduction, Executive's net
after-tax benefit shall exceed the net after-tax benefit if
such reduction were not made. "Net after-tax benefit" for
purposes of this Section 6.b. shall mean the sum of (i) the
total amount payable to Executive under Sections 3 and 4
hereof, plus (ii) all other payments and benefits which
Executive has received or is then entitled to receive from the
6
Company and any of its subsidiaries that would constitute a
Parachute Payment, less (iii) the amount of federal income
taxes payable with respect to the payment and benefits
described in (i) and (ii) above calculated at the maximum
marginal income tax rate for each year in which such payments
and benefits shall be paid to Executive (based upon the rate
in effect for such year as set forth in the Code at the
Termination Date), less (iv) the amount of excise taxes
imposed with respect to the payments and benefits described in
(i) and (ii) above by Section 4999 of the Code.
For purposes of this Section 6.b., Executive's base
amount, the present value of the Parachute Payments, the
amount of the excise tax and all other appropriate matters
shall be determined by the Company's independent auditors in
accordance with the principles of Section 280G of the Code and
based upon the advice of tax counsel selected by the Company,
which tax counsel shall be reasonably satisfactory to
Executive.
7. Mitigation. Executive is not required to seek other employment or
otherwise mitigate the amount of any payments to be made by the
Company pursuant to this Agreement. Except as otherwise provided in
Section 4.a. of this Agreement, the amount of any payments or other
benefits provided for in this Agreement shall not be reduced by any
compensation earned by Executive as the result of employment by
another employer after the Termination Date, or otherwise.
8. Continuing Obligations. Executive hereby agrees that all documents,
records, techniques, business secrets and other information which
have come and will come into his possession from time to time during
his employment by the Company shall be deemed to be confidential and
proprietary to the Company, and Executive further agrees to retain
in confidence any confidential information known to him concerning
the Company and its subsidiaries and their respective businesses so
long as such information is not publicly disclosed.
9. Successors.
a. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company, by Agreement in form and substance reasonably
satisfactory to Executive to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no
such succession had taken place. For purposes of this
Agreement, any determination as to whether the Company has
engaged in a transaction involving all or substantially all of
the business and/or assets of the Company shall be made by the
Board of Directors in its discretion, which determination
shall be final and binding on the parties.
7
For purposes of this Agreement, "Company" shall mean NL
Industries, Inc. and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law or
otherwise.
b. This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any
amounts are payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devises, legatee or
other designee or, if there be no such designee, to
Executive's estate.
10. Notices. For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be
deemed to have been duly given when actually delivered or mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Executive:
Dr. Lawrence A. Wigdor
If to the Company:
NL Industries, Inc.
16825 Northchase Drive, Suite 1200
Houston, Texas 77060
ATTENTION: General Counsel
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
11. Governing Law. THE VALIDITY, INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL
LAWS, AND NOT THE CONFLICTS LAWS, OF THE STATE OF TEXAS.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge
is agreed to in writing signed by Executive and a duly authorized
officer of the Company. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
8
provisions or conditions at the same or any prior or subsequent
time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this Agreement.
13. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full
force and effect.
14. Assignability. This Agreement is personal in nature and neither of
the parties hereto shall, without the written consent of the other,
assign or transfer this Agreement or any rights or obligations
hereunder, as provided in Section 9. Without limiting the foregoing,
Executive's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or
trust or the laws of descent or distribution, and in the event of
any attempted assignment or transfer contrary to this paragraph the
Company shall have no liability to pay any amount so attempted to be
assigned or transferred.
15. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through December 31 of 1995; provided,
however, that beginning January 1, 1996 and each January 1
thereafter, the term of this Agreement shall automatically be
extended for one additional year unless the Company and Executive
have mutually agreed in writing to terminate this Agreement.
16. Enforcement Costs. In the event that either party files an action
against the other in any court to collect, enforce, protect or
preserve its rights under this Agreement, the prevailing party in
such action shall be entitled to receive reimbursement from such
other party of all reasonable costs and expenses, including
attorneys' fees, which such prevailing party incurred in prosecuting
or defending such action, as the case may be.
17. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original but all of which
taken together will constitute one and the same instrument.
18. Unsecured Obligation. All rights of Executive and Executive's spouse
or other beneficiaries under this Agreement shall at all times be
entirely unfunded and no provision shall at any time be made with
respect to segregating assets of the Company or payment of any
amounts due hereunder. Neither Executive nor his spouse or other
beneficiary shall have any interest in or rights against any
specific assets of the Company, and Executive and his spouse or
other beneficiary shall have only the rights of a general unsecured
creditor of the Company.
* * * * *
9
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on this ___ day of March, 1996.
NL INDUSTRIES, INC.
By: /s/ J. Landis Martin
Name: J. Landis Martin
Its: President and CEO
/s/Lawrence A. Wigdor
10
5
1,000
9-MOS
DEC-31-1996
JAN-01-1996
SEP-30-1996
130,196
0
151,073
3,946
216,280
520,882
955,293
489,355
1,239,230
332,427
711,846
0
0
8,355
(207,585)
1,239,230
752,064
752,064
557,881
557,881
0
(539)
56,127
32,633
(11,552)
21,114
0
0
0
21,114
0.41
0.41
