- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
Commission file number 1-3605
KAISER ALUMINUM & CHEMICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-0928288
(State of incorporation) (I.R.S. Employer Identification
No.)
6177 SUNOL BOULEVARD, PLEASANTON, CALIFORNIA 94566-7769
(Address of principal executive offices) (Zip Code)
(925) 462-1122
(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 (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No
----- ------
At November 2, 1998, the registrant had 46,171,365 shares of Common
Stock outstanding.
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KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 97.4 $ 15.8
Receivables 303.5 345.3
Inventories 519.7 568.3
Prepaid expenses and other current assets 119.2 121.3
------------------------------
Total current assets 1,039.8 1,050.7
Investments in and advances to unconsolidated affiliates 130.3 148.6
Property, plant, and equipment - net 1,156.1 1,171.8
Deferred income taxes 331.3 329.0
Other assets 330.2 317.2
------------------------------
Total $ 2,987.7 $ 3,017.3
==============================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 171.9 $ 176.2
Accrued interest 24.6 37.6
Accrued salaries, wages, and related expenses 76.3 97.9
Accrued postretirement medical benefit obligation -
current portion 45.3 45.3
Other accrued liabilities 146.7 145.9
Payable to affiliates 80.1 82.4
Long-term debt - current portion 2.0 8.8
------------------------------
Total current liabilities 546.9 594.1
Long-term liabilities 491.1 492.0
Accrued postretirement medical benefit obligation 704.0 720.3
Long-term debt 962.5 962.9
Minority interests 100.1 98.4
Redeemable preference stock 19.9 27.7
Commitments and contingencies
Stockholders' equity:
Preference stock 1.5 1.6
Common stock 15.4 15.4
Additional capital 2,024.6 1,939.8
Accumulated deficit (112.5) (152.3)
Less: Note receivable from parent (1,765.8) (1,682.6)
------------------------------
Total stockholders' equity 163.2 121.9
------------------------------
Total $ 2,987.7 $ 3,017.3
==============================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(In millions of dollars)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net sales $ 541.6 $ 634.1 $ 1,753.4 $ 1,778.6
------------------------------ ------------------------------
Costs and expenses:
Cost of products sold 460.6 523.6 1,466.3 1,473.6
Depreciation 22.1 22.9 67.3 68.8
Selling, administrative, research and development,
and general 28.0 33.0 88.5 93.5
Restructuring of operations - - - 19.7
------------------------------ ------------------------------
Total costs and expenses 510.7 579.5 1,622.1 1,655.6
------------------------------ ------------------------------
Operating income 30.9 54.6 131.3 123.0
Other income (expense):
Interest expense (27.7) (27.4) (82.6) (83.3)
Other - net 1.3 2.0 (.5) 1.2
------------------------------ ------------------------------
Income before income taxes and minority interests 4.5 29.2 48.2 40.9
Benefit (provision) for income taxes 6.7 (11.0) (8.5) (2.9)
Minority interests - .2 1.3 (.7)
------------------------------ ------------------------------
Net income $ 11.2 $ 18.4 $ 41.0 $ 37.3
============================== ==============================
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(In millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41.0 $ 37.3
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 67.3 68.8
Restructuring of operations - 19.7
Non-cash benefit for income taxes (8.3) (12.5)
Amortization of excess investment over equity in
unconsolidated affiliates 7.5 8.7
Amortization of deferred financing costs and net
discount on long-term debt 3.0 4.5
Equity in (income) loss of unconsolidated
affiliates, net of distributions .9 16.7
Minority interests (1.3) .7
Decrease (increase) in receivables 26.9 (61.2)
Decrease in inventories 48.6 5.7
Decrease in prepaid expenses and other assets 32.7 1.1
Decrease in accounts payable (4.3) (28.2)
Decrease in accrued interest (12.9) (10.8)
Decrease in payable to affiliates and accrued
liabilities (64.5) (29.8)
Increase (decrease) in accrued and deferred
income taxes 3.1 (1.6)
Other 7.4 3.9
------------------------------
Net cash provided by operating activities 147.1 23.0
------------------------------
Cash flows from investing activities:
Capital expenditures (52.3) (94.7)
Net proceeds from disposition of property and
investments 3.6 22.2
Other (3.4) (2.5)
------------------------------
Net cash used by investing activities (52.1) (75.0)
------------------------------
Cash flows from financing activities:
Borrowings under revolving credit facility, net - -
Borrowings of long-term debt - 19.0
Repayments of long-term debt (7.1) (8.6)
Decrease (increase) in restricted cash, net 3.3 (6.5)
Payments to parent - (8.6)
Incurrence of financing costs (.6) (.6)
Dividends paid (.5) (.4)
Capital contributions .1 -
Redemption of minority interests' preference stock (8.6) 2.7
------------------------------
Net cash used by financing activities (13.4) (3.0)
------------------------------
Net increase (decrease) in cash and cash equivalents during
the period 81.6 (55.0)
Cash and cash equivalents at beginning of period 15.8 81.3
------------------------------
Cash and cash equivalents at end of period $ 97.4 $ 26.3
==============================
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 92.6 $ 89.5
Income taxes paid 9.8 13.9
Tax allocation payments to Kaiser Aluminum Corporation 2.7 .9
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(In millions of dollars, except prices and per share amounts)
1. GENERAL
Kaiser Aluminum & Chemical Corporation (the "Company") is the
principal operating subsidiary of Kaiser Aluminum Corporation ("Kaiser").
Kaiser is a subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM and one of its
wholly owned subsidiaries together own approximately 63% of Kaiser's Common
Stock with the remaining approximately 37% publicly held.
The foregoing unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X as promulgated by the Securities and
Exchange Commission. Accordingly, these financial statements do not
include all of the disclosures required by generally accepted accounting
principles for complete financial statements. These unaudited interim
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31,
1997. In the opinion of management, the unaudited interim consolidated
financial statements furnished herein include all adjustments, all of which
are of a normal recurring nature, necessary for a fair statement of the
results for the interim periods presented.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities known to exist as of the
date the financial statements are published, and the reported amounts of
revenues and expenses during the reporting period. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation
of the Company's consolidated financial statements; accordingly, it is
possible that the actual results could differ from these estimates and
assumptions, which could have a material effect on the reported amounts of
the Company's consolidated financial position and results of operations.
Operating results for the quarter and nine-month period ended
September 30, 1998, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998.
See Note 5 regarding recent accounting pronouncements.
2. INVENTORIES
The classification of inventories is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------------------
<S> <C> <C>
Finished fabricated aluminum products $ 109.9 $ 103.9
Primary aluminum and work in process 187.3 226.6
Bauxite and alumina 101.0 108.4
Operating supplies and repair and maintenance parts 121.5 129.4
------------------------------
Total $ 519.7 $ 568.3
==============================
</TABLE>
Substantially all product inventories are stated at last-in, first-out
(LIFO) cost, not in excess of market. Replacement cost is not in excess of
LIFO cost.
3. CONTINGENCIES
ENVIRONMENTAL CONTINGENCIES
The Company is subject to a number of environmental laws, to fines or
penalties assessed for alleged breaches of such environmental laws, and to
claims and litigation based upon such laws. The Company currently is
subject to a number of lawsuits under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the
Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, along
with certain other entities, has been named as a potentially responsible
party for remedial costs at certain third-party sites listed on the
National Priorities List under CERCLA.
Based on the Company's evaluation of these and other environmental
matters, the Company has established environmental accruals primarily
related to potential solid waste disposal and soil and groundwater
remediation matters. At September 30, 1998, the balance of such accruals,
which are primarily included in Long-term liabilities, was $28.3. These
environmental accruals represent the Company's estimate of costs reasonably
expected to be incurred based on presently enacted laws and regulations,
currently available facts, existing technology, and the Company's
assessment of the likely remediation actions to be taken. The Company
expects that these remediation actions will be taken over the next several
years and estimates that annual expenditures to be charged to these
environmental accruals will be approximately $2.0 to $9.0 for the years
1998 through 2002 and an aggregate of approximately $7.0 thereafter.
The Company believes that it has insurance coverage available to
recover certain incurred and future environmental costs and is actively
pursuing claims in this regard. Through September 30, 1998, no accruals
have been made for any such insurance recoveries. However, subsequent to
September 30, 1998, KACC determined that recoveries totalling up to
approximately $34.0 are likely to be received during the fourth quarter of
1998 related to current and future claims against certain of its insurers.
It is currently estimated that approximately one-fourth to one-third of the
recoveries are allocable to previously accrued (expensed) items. The
amount ultimately allocated to previously expensed items will be reflected
in earnings during the fourth quarter of 1998. No assurances can be given
that the Company will be successful in other attempts to recover incurred
or future costs from other insurers or that the amount of any recoveries
received will ultimately be adequate to cover costs incurred.
As additional facts are developed and definitive remediation plans and
necessary regulatory approvals for implementation of remediation are
established or alternative technologies are developed, changes in these and
other factors may result in actual costs exceeding the current
environmental accruals. The Company believes that it is reasonably
possible that costs associated with these environmental matters may exceed
current accruals by amounts that could range, in the aggregate, up to an
estimated $18.0. As the resolution of these matters is subject to further
regulatory review and approval, no specific assurance can be given as to
when the factors upon which a substantial portion of this estimate is based
can be expected to be resolved. However, the Company is currently working
to resolve certain of these matters.
While uncertainties are inherent in the final outcome of these
environmental matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, management currently believes
that the resolution of such uncertainties should not have a material
adverse effect on the Company's consolidated financial position, results of
operations, or liquidity.
ASBESTOS CONTINGENCIES
The Company is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure to
asbestos during, and as a result of, their employment or association with
the Company or exposure to products containing asbestos produced or sold by
the Company. The lawsuits generally relate to products the Company has not
manufactured for at least 20 years. At September 30, 1998, the number of
such claims pending was approximately 86,400, as compared with 77,400 at
December 31, 1997. During the quarter and nine months ended September 30,
1998, approximately 5,500 and 16,000 of such claims were received and 3,000
and 7,000 of such claims were settled or dismissed, respectively. In
addition, the foregoing pending claims and settlement figures as of
September 30, 1998, do not reflect the fact that the Company has reached
agreements under which it will settle approximately 20,000 of the pending
asbestos-related claims over an extended period.
Based on past experience and reasonably anticipated future activity,
the Company has established an accrual for estimated asbestos-related costs
for claims filed and estimated to be filed through 2008. There are
inherent uncertainties involved in estimating asbestos-related costs, and
the Company's actual costs could exceed or be less than these estimates.
The Company's accrual was calculated based on the current and anticipated
number of asbestos-related claims, the prior timing and amounts of
asbestos-related payments, and the advice of Wharton Levin Ehrmantraut
Klein & Nash, P.A. with respect to the current state of the law related to
asbestos claims. Accordingly, an estimated asbestos-related cost accrual
of $164.9, before consideration of insurance recoveries, is included
primarily in Long-term liabilities at September 30, 1998. While the
Company does not presently believe there is a reasonable basis for
estimating such costs beyond 2008 and, accordingly, no accrual has been
recorded for such costs which may be incurred beyond 2008, there is a
reasonable possibility that such costs may continue beyond 2008, and such
costs may be substantial. The Company estimates that annual future cash
payments in connection with such litigation will be approximately $15.0 to
$26.0 for each of the years 1998 through 2002, and an aggregate of
approximately $64.0 thereafter.
The Company believes that it has insurance coverage available to
recover a substantial portion of its asbestos-related costs. The timing
and amount of future recoveries from the insurance carriers will depend on
the pace of claims review and processing by such carriers, and on the
resolution of any disputes which may arise in the course of discussions
regarding coverage under their policies. The Company believes, based on
prior insurance-related recoveries in respect of asbestos-related claims,
existing insurance policies, and the advice of Thelen Reid & Priest LLP
(formerly Thelen, Marrin, Johnson & Bridges LLP) with respect to applicable
insurance coverage law relating to the terms and conditions of those
policies, that substantial recoveries from the insurance carriers are
probable. Accordingly, an estimated aggregate insurance recovery of $131.9,
determined on the same basis as the asbestos-related cost accrual, is
recorded primarily in Other assets at September 30, 1998.
Management continues to monitor claims activity, the status of
lawsuits (including settlement initiatives), legislative progress, and
costs incurred in order to ascertain whether an adjustment to the existing
accruals should be made to the extent that historical experience may differ
significantly from the Company's underlying assumptions. While
uncertainties are inherent in the final outcome of these asbestos matters
and it is presently impossible to determine the actual costs that
ultimately may be incurred and insurance recoveries that will be received,
management currently believes that, based on the factors discussed in the
preceding paragraphs, the resolution of asbestos-related uncertainties and
the incurrence of asbestos-related costs net of related insurance
recoveries should not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
OTHER CONTINGENCIES
The Company is involved in various other claims, lawsuits, and other
proceedings relating to a wide variety of matters. While uncertainties are
inherent in the final outcome of such matters, and it is presently
impossible to determine the actual costs that ultimately may be incurred,
management currently believes that the resolution of such uncertainties and
the incurrence of such costs should not have a material adverse effect on
the Company's consolidated financial position, results of operations, or
liquidity.
See Note 10 of the Notes to Consolidated Financial Statements for the
year ended December 31, 1997.
4. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS
At September 30, 1998, the net unrealized gain on the Company's
position in aluminum forward sales and option contracts, based on an
average contract price of $.74 per pound of primary aluminum, natural gas,
fuel oil and diesel fuel forward purchase and option contracts, and forward
foreign exchange contracts, was approximately $17.6. Any gains or losses
on the derivative contracts utilized in the Company's hedging activities
are offset by losses or gains, respectively, on the transactions being
hedged. However, see Note 5 regarding a recent accounting pronouncement.
ALUMINA AND ALUMINUM
The Company's earnings are sensitive to changes in the prices of
alumina, primary aluminum and fabricated aluminum products, and also depend
to a significant degree upon the volume and mix of all products sold.
Primary aluminum prices have historically been subject to significant
cyclical fluctuations. Since 1993, the Average Midwest transaction price
for primary aluminum has ranged from approximately $.50 to $1.00 per pound.
Alumina prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.
From time to time in the ordinary course of business, the Company
enters into hedging transactions to provide price risk management in
respect of the net exposure of earnings resulting from (i) anticipated
sales of alumina, primary aluminum and fabricated aluminum products, less
(ii) expected purchases of certain items, such as aluminum scrap, rolling
ingot, and bauxite, whose prices fluctuate with the price of primary
aluminum. Forward sales contracts are used by the Company to effectively
fix the price that the Company will receive for its shipments. The Company
also uses option contracts (i) to establish a minimum price for its product
shipments, (ii) to establish a "collar" or range of prices for the
Company's anticipated sales, and/or (iii) to permit the Company to realize
possible upside price movements. As of September 30, 1998, the Company had
sold forward, at fixed prices, approximately 23,400 and 24,000 tons* of
primary aluminum with respect to 1998 and 1999, respectively. As of
September 30, 1998, the Company had also purchased put options to establish
a minimum price for approximately 11,250 tons of primary aluminum with
respect to 1998 and had entered into option contracts that established a
price range for an additional 57,900 and 124,500 tons for 1998 and 1999,
respectively. Additionally, at September 30, 1998, the Company also held
fixed price purchase contracts for 16,100 tons of primary aluminum with
respect to 1998.
As of September 30, 1998, the Company had sold forward virtually all
of the alumina available to it in excess of its projected internal smelting
requirements for 1998, 1999 and 2000 at prices indexed to future prices of
primary aluminum.
ENERGY
The Company is exposed to energy price risk from fluctuating prices
for fuel oil, diesel fuel, and natural gas consumed in the production
- ------------------
* All references to tons in this report refer to metric tons of 2,204.6
pounds.
process. Accordingly, the Company from time to time in the ordinary course
of business enters into hedging transactions with major suppliers of energy
and energy related financial instruments. As of September 30, 1998, the
Company had a combination of fixed price purchase and option contracts for
the purchase of approximately 45,000 MMBtu of natural gas per day during
the remainder of 1998. As of September 30, 1998, the Company also held a
combination of fixed price purchase and option contracts for an average of
232,000 and 245,000 barrels per month of fuel oil and diesel fuel for 1998
and 1999, respectively.
FOREIGN CURRENCY
The Company enters into forward exchange contracts to hedge material
cash commitments to foreign subsidiaries or affiliates. At September 30,
1998, the Company had net forward foreign exchange contracts totaling
approximately $168.8 for the purchase of 246.6 Australian dollars from
October 1998 through December 2000, in respect of its commitments for 1998
through 2000 expenditures denominated in Australian dollars.
See Note 11 of the Notes to Consolidated Financial Statements for the
year ended December 31, 1997.
5. RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS No. 130") was issued in June 1997 and was
adopted by the Company as of January 1, 1998. SFAS No. 130 requires the
presentation of an additional income measure (termed "comprehensive
income"), which adjusts traditional net income for certain items that
previously were only reflected as direct charges to equity (such as minimum
pension liabilities).
Statement of Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS No. 133") was issued
in June 1998 and requires companies to recognize all derivative instruments
as assets or liabilities in the balance sheet and to measure those
instruments at fair value. SFAS No. 133 must be adopted by the Company no
later than January 1, 2000, although earlier application is permitted. The
Company is currently evaluating how and when to implement SFAS No. 133.
Currently, the dollar amount of the Company's comprehensive income
adjustments is not significant so there is not a significant difference
between "traditional" net income and comprehensive income for the quarter
and nine-month periods ended September 30, 1998 and 1997. However,
differences between comprehensive income and traditional net income may
become significant in future periods as a result of SFAS No. 133. As
discussed more fully in Note 4, the intent of the Company's hedging program
is to "lock-in" a price (or range of prices) for products sold/used so that
earnings and cash flows are subject to reduced risk of volatility. Under
SFAS No. 133, the Company will be required to "mark-to-market" its hedging
positions at each period end in advance of reflecting the physical
transaction to which the hedge relates. Pursuant to SFAS No. 130, the
Company will reflect changes in the fair value of its open hedging
positions as an increase or reduction in stockholders' equity through
comprehensive income. Under SFAS No. 130, the impact of the changes in
fair value of financial instruments will reverse out of comprehensive
income (net of any fluctuations in other "open" positions) and will be
reflected in traditional net income when the subsequent physical
transaction occurs.
The combined result of SFAS No's. 130 and 133 will be that there will
be fluctuations in comprehensive income and stockholders' equity in periods
of price volatility, despite the fact that the Company's cash flow and
earnings will be "fixed" to the extent hedged. The amount of such
fluctuations could be significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
This section should be read in conjunction with the response to Item
1, Part I, of this Report.
This section contains statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements appear in a number of places in this section
(see, for example, "Recent Events and Developments," "Results of
Operations," and "Liquidity and Capital Resources"). Such statements can
be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans" or "anticipates"
or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. Readers are cautioned that any
such forward-looking statements are not guarantees of future performance
and involve significant risks and uncertainties, and that actual results
may vary materially from those in the forward-looking statements as a
result of various factors. These factors include the effectiveness of
management's strategies and decisions, general economic and business
conditions, developments in technology, new or modified statutory or
regulatory requirements, and changing prices and market conditions. This
section and the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, each identify other factors that could cause such
differences. No assurance can be given that these are all of the factors
that could cause actual results to vary materially from the forward-looking
statements.
RECENT EVENTS AND DEVELOPMENTS
Substantially all of the Company's hourly workforce at the Gramercy,
Louisiana, alumina refinery, Mead and Tacoma, Washington, aluminum
smelters, Trentwood, Washington, rolling mill, and Newark, Ohio, extrusion
facility were covered by a master labor agreement with the United
Steelworkers of America (the "USWA") which expired on September 30, 1998.
The Company has previously reported that it did not reach a settlement with
the USWA prior to the expiration of the master agreement and the USWA chose
to strike. Until the strike ends, the Company plans to run the facilities
using a combination of temporary workers, salaried employees, retirees and
others. Based on operating results to date, the Company believes that a
significant business interruption will not occur. The Company will
initially experience an adverse impact on its profitability until plant
operations and temporary workforce levels are stabilized at the five
facilities. The Company currently expects operations at those facilities
to be stabilized and able to run at, or near, full capacity, if it is
deemed appropriate to do so, at a level of profitability approximating pre-
strike levels (subject to market conditions) by the end of the fourth
quarter of 1998 or during the first quarter of 1999. However, no assurances
can be given that the Company's efforts to run the plants on a sustained
basis, without a business interruption or negative impact on the Company's
operating results will be successful.
The Company and the USWA are communicating and several meetings have
been held. However, no formal schedule for bargaining sessions has been
developed at this time. The objective of the Company has been and
continues to be to negotiate a fair labor contract that is consistent with
its business strategy and the commercial realities of the marketplace.
The Company has previously announced that it temporarily curtailed
three out of a total of eleven potlines at its Mead and Tacoma, Washington,
aluminum smelters at September 30, 1998, as a result of the USWA strike.
The curtailed potlines represent approximately 70,000 tons of annual
production out of a total production capacity of 273,000 tons per year at
the facilities. The Company has also announced that it has begun
preparations to restart all three curtailed lines. However, neither the
number of potlines nor the actual timing of any such restart has yet to be
determined and will be dependent upon market conditions and other factors.
During 1998, the Company's 90%-owned Volta Aluminium Company Limited
("Valco") smelter in Ghana reached an agreement with the Volta River
Authority ("VRA") to receive compensation in lieu of the power necessary to
run two potlines that were curtailed during February 1998 and April 1998.
The compensation is substantially mitigating the financial impact of the
curtailment. Valco had previously curtailed one additional potline in
January 1998, for which it received no compensation. Valco is now
operating only one of its five potlines, as compared to 1997, when Valco
operated four potlines. Each of Valco's potlines produces, on average,
approximately 40,000 tons of primary aluminum per year. As previously
announced, the Company has notified the VRA that it believes it had the
contractual rights at the beginning of 1998 to sufficient energy to run
four and one-half potlines for the balance of the year. Valco continues to
seek compensation from the VRA with respect to the January 1998 reduction
of its power allocation. Valco and the VRA also are in continuing
discussions concerning other matters, including steps that might be taken
to reduce the likelihood of power curtailments beyond 1998. No assurances
can be given as to the success of these discussions. In November 1998
Valco received notification from the VRA as to the facility's proposed
1999 power allocation. Valco anticipates making a formal response to the
VRA's proposal no later than early to mid-December. While the proposed
allocation would enable Valco to operate up to approximately three potlines,
any decisions by Valco to restart any of the currently curtailed potlines
will be makde only after further discussions with the VRA and after
consideratin of market and other economic factors.
The Company believes that it has insurance coverage available to
recover certain incurred and future environmental costs and is actively
pursuing claims in this regard. Through September 30, 1998, no accruals
have been made for any such insurance recoveries. However, subsequent to
September 30, 1998, KACC determined that recoveries totalling up to
approximately $34.0 million are likely to be received during the fourth
quarter of 1998 related to current and future claims against certain of
its insurers. It is currently estimated that approximately one-fourth to
one-third of the recoveries are allocable to previously accrued (expensed)
items. The amount ultimately allocated to previously expensed items will
be reflected in earnings during the fourth quarter of 1998. No assurances
can be given that the Company will be successful in other attempts to
recover incurred or future costs from other insurers or that the amount of
any recoveries received will ultimately be adequate to cover costs incurred.
The Company has previously disclosed that it set a goal of achieving
$120.0 million of pre-tax cost reductions and other profit improvements,
independent of metal price changes, with the full effect planned to be
realized in 1998 and beyond, measured against 1996 results. The Company
believes that its operations had achieved the run rate necessary to meet
this objective prior to the end of the third quarter, when the impact of
such items as the operating level at Valco, the USWA strike and foreign
currency changes are excluded from the analysis, and that it has
implemented the steps that will allow it to sustain the stated goal over
the long term. The Company remains committed to sustaining the full $120.0
million improvement and to generating additional profit improvements in
future years, however, no assurances can be given that the Company will be
successful in this regard.
In addition to working to improve the performance of the Company's
existing assets, the Company has expended significant efforts on analyzing
its existing asset portfolio with the intent of focusing its efforts and
capital in sectors of the industry that are considered most attractive.
Additional portfolio analysis and initiatives are ongoing.
RESULTS OF OPERATIONS
The table on the following page provides selected operational and
financial information on a consolidated basis with respect to the Company
for the quarter and nine-month periods ended September 30, 1998, and 1997.
As an integrated aluminum producer, the Company uses a portion of its
bauxite, alumina and primary aluminum production for additional processing
at certain of its other facilities. Intracompany shipments and sales are
excluded from the information set forth on the following page.
Interim results are not necessarily indicative of those for a full
year.
SELECTED OPERATIONAL AND FINANCIAL INFORMATION
(Unaudited)
(In millions of dollars, except shipments and prices)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Shipments: (1)
Alumina 644.6 579.2 1,721.7 1,457.0
Aluminum products:
Primary aluminum 61.5 86.4 210.3 246.9
Fabricated aluminum products 97.7 105.2 311.0 299.5
------------------------------ ------------------------------
Total aluminum products 159.2 191.6 521.3 546.4
============================== ==============================
Average realized sales price:
Alumina (per ton) $ 190 $ 200 $ 195 $ 196
Primary aluminum (per pound) .70 .76 .70 .75
Net sales:
Bauxite and alumina:
Alumina $ 122.6 $ 115.9 $ 336.4 $ 285.6
Other (2) (3) 24.7 27.1 77.2 80.2
------------------------------ ------------------------------
Total bauxite and alumina 147.3 143.0 413.6 365.8
------------------------------ ------------------------------
Aluminum processing:
Primary aluminum 94.6 145.0 326.6 409.5
Fabricated aluminum products 298.8 341.7 1,008.7 990.6
Other (3) .9 4.4 4.5 12.7
------------------------------ ------------------------------
Total aluminum processing 394.3 491.1 1,339.8 1,412.8
------------------------------ ------------------------------
Total net sales $ 541.6 $ 634.1 $ 1,753.4 $ 1,778.6
============================== ==============================
Operating income (loss):
Bauxite and alumina (4) $ 9.2 $ 8.8 $ 30.4 $ 14.8
Aluminum processing (4) (5) 38.8 64.1 152.7 161.6
Corporate (6) (17.1) (18.3) (51.8) (53.4)
------------------------------ ------------------------------
Total operating income $ 30.9 $ 54.6 $ 131.3 $ 123.0
============================== ==============================
Net income $ 11.2 $ 18.4 $ 41.0 $ 37.3
============================== ==============================
Capital expenditures $ 15.6 $ 25.9 $ 52.3 $ 94.7
============================== ==============================
</TABLE>
- ---------------
(1) In thousands of metric tons.
(2) Includes net sales of bauxite.
(3) Includes the portion of net sales attributable to minority interests
in consolidated subsidiaries.
(4) Operating income for the quarter and nine-month period ended September
30, 1998, reflects a reduced level of profitability and increased
costs related to preparation for the work stoppage at five locations
(see Recent Events). The third quarter profitability impact for the
Bauxite and alumina segment was nominal.
(5) Includes a pre-tax charge of $15.1 related to restructuring of
operations recorded in the quarter ended June 30, 1997.
(6) Includes a pre-tax charge of $4.6 related to restructuring of
operations recorded in the quarter ended June 30, 1997.
OVERVIEW
The Company's operating results are sensitive to changes in prices of
alumina, primary aluminum, and fabricated aluminum products, and also
depend to a significant degree on the volume and mix of all products sold
and on the Company's hedging strategies. Primary aluminum prices have
historically been subject to significant cyclical fluctuations. Alumina
prices as well as fabricated aluminum product prices (which vary
considerably among products) are significantly influenced by changes in the
price of primary aluminum but generally lag behind primary aluminum price
changes by up to three months.
During 1997, the Average Midwest Transaction Price ("AMT Price") for
primary aluminum remained fairly stable generally in the $.75 - $.80 range
through November and then declined during December to the $.70 - $.75
range. After beginning 1998 at approximately $.73, the AMT Price for
primary aluminum has declined throughout 1998 to approximately $.63 at the
end of September 1998. The AMT Price for primary aluminum for the week
ended October 30, 1998, was approximately $.62 per pound.
See Note 4 of the Notes to Interim Consolidated Financial Statements
for a discussion of the Company's hedging activities.
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO QUARTER AND
NINE MONTHS ENDED SEPTEMBER 30, 1997
SUMMARY
The Company reported net income of $11.2 million, for the third
quarter of 1998, compared to a net income of $18.4 million, for the same
period of 1997. Net sales in the third quarter of 1998 totaled $541.6
million compared to $634.1 million in the third quarter of 1997.
For the nine-month period ended September 30, 1998, net income was
$41.0 million, compared to net income of $37.3 million, for the nine-month
period ended September 30, 1997. Net sales for the nine-month period ended
September 30, 1998, were $1,753.4 million compared to $1,778.6 million for
the first nine months of 1997.
Results for the quarter and nine-month period ended September 30,
1998, included two essentially offsetting non-recurring items, a favorable
$8.3 million non-cash tax provision benefit resulting from the resolution
of certain matters and the unfavorable gross profit impact of preparing for
a strike by employees represented by the USWA at five locations.
Results for the nine-month period ended September 30, 1997, included
the effect of certain nonrecurring items including a $19.7 million
restructuring charge and an offsetting $12.5 million non-cash tax benefit
related to settlement of certain matters. Additionally, results for the
nine-month periods ended September 30, 1998, and 1997, included charges
related to additional litigation reserves of $3.9 million and $5.8 million,
respectively.
BAUXITE AND ALUMINA
Net sales of alumina increased by 6% for the quarter ended September
30, 1998, from the comparable prior year period, as a result of an 11%
increase in alumina shipments, offset by a 5% decrease in average realized
price. For the nine-month period ended September 30, 1998, net sales of
alumina increased by 18%, from the comparable period in the prior year due
to a 18% increase in alumina shipments. Increased shipments of alumina in
the quarter and nine-month period ended September 30, 1998, were due, in
part, to reduced intracompany usage of alumina at Valco.
On a comparative basis, operating income for the segment was flat for
the quarter, and up for nine-month period ended September 30, 1998,
primarily due to the price and volume factors discussed above.
ALUMINUM PROCESSING
Net sales of primary aluminum for the quarter ended September 30, 1998
decreased by 35% from the comparable prior year period as a result of a 28%
decrease in shipments, primarily due to the aforementioned Valco potline
curtailments, as well as a 7% decrease in average realized prices. Net
sales of fabricated aluminum products for the quarter ended September 30,
1998, were down 13% as compared to the prior year period as a result of a
7% decrease in shipments and a 6% decrease in average realized prices. The
decrease in fabricated aluminum product shipments from the third quarter of
1997 was the result of a reduced demand for engineered products resulting
from strikes at two major end users of such products and an inventory
destocking among customers of heat-treat general engineering products.
For the nine-month period ended September 30, 1998, net sales for the
aluminum processing segment decreased by approximately 5% compared to the
nine-month period ended September 30, 1997. Net sales of primary aluminum
for the 1998 period declined by 20% from the comparable prior year period
as a result of the price and volume factors discussed above. This decline
was partially offset on a year-to-date basis by a 2% increase in net sales
of fabricated aluminum products. The increase in net sales of fabricated
aluminum products on a year-to-date basis was the result of a 4% increase
in shipments offset by a 2% decrease in average realized prices. Increased
year-over-year shipments reflect increased demand in the first half of the
year, particularly for heat treat products.
Operating income for the aluminum processing segment declined in the
quarter and nine-month period ended September 30, 1998, from the comparable
prior year periods primarily due to the increased costs and reduced
profitability caused by preparations for a work stoppage at the Company's
five USWA locations (as further discussed above) and due to a decline in
the average realized price for primary aluminum. Reduced shipments of
primary aluminum in the third quarter of 1998, as well as on a year-to-date
basis, were substantially offset by compensation recorded by the Company
(which will be received over a 18-month period which began in July 1998)
for two of the three Valco potlines curtailed during 1998. Segment
operating income for the quarter and year-to-date periods ended September
30, 1998, was also impacted by the price and volume factors affecting
fabricated aluminum products discussed above.
Operating income for the quarter and nine-month period ended September
30, 1997, included approximately $2.7 million and $7.5 million,
respectively, from the settlement of certain issues related to energy
service contracts. Operating income for the nine-month period ended
September 30, 1997, also included a $15.1 million charge resulting from the
previously discussed restructuring of operations.
CORPORATE
Corporate operating expenses represent corporate general and
administrative expenses which are not allocated to the Company's business
segments. Operating results for the nine-month period ended September 30,
1997, include a pre-tax charge of approximately $4.6 million associated
with the Company's restructuring of operations.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
At September 30, 1998, the Company had working capital of $492.9
million, compared with working capital of $456.6 million at December 31,
1997. The increase in working capital primarily results from increases in
Cash and cash equivalents and decreases in accrued interest and accrued
salaries, wages and related expenses offset, in part, by decreases in
Receivables and Inventories.
INVESTING ACTIVITIES
Capital expenditures during the nine months ended September 30, 1998,
were $52.3 million and were used primarily to improve production
efficiency, reduce operating costs, expand capacity at existing facilities,
and construct new facilities. Total consolidated capital expenditures (of
which approximately 8% is expected to be funded by the Company's minority
partners in certain foreign joint ventures) are expected to be between
$75.0 and $125.0 million per annum in each of 1998 through 2000.
During 1998, the Micromill(TM) facility commenced shipments of
commercial products to customers, but the amount of such shipments has been
minimal. Additional product trials for international and domestic
customers were conducted in the third quarter. However, the Micromill(TM)
technology has not yet been fully implemented or commercialized, and there
can be no assurances that full implementation or commercialization will be
successful. In October 1998, the Company temporarily suspended
substantially all of its Micromill(TM) commercialization efforts and
temporarily transferred the employees of the Micromill(TM) facility to the
Company's strike affected plants in the State of Washington in order to
supplement the workforce at those locations. Re-commencement of the
commercialization efforts on the Micromill(TM) technology will depend on when
the strike ends, when the employees from the Micromill(TM) facility are no
longer needed at the strike affected plants and other economic
considerations.
Management continues to evaluate numerous projects, including the
Micromill(TM) technology, all of which would require substantial capital,
both in the United States and overseas.
FINANCING ACTIVITIES AND LIQUIDITY
At September 30, 1998, the Company had long-term debt of $964.5
million, compared with $971.7 million at December 31, 1997.
At September 30, 1998, $274.1 million (of which $74.1 million could
have been used for letters of credit) was available to the Company under
the Credit Agreement and no amounts were outstanding under the revolving
credit facility. Loans under the Credit Agreement bear interest at a
spread (which varies based on the results of a financial test) over either
a base rate or LIBOR at the Company's option. During the nine-month period
ended September 30, 1998, the average per annum interest rates on loans
outstanding under the Credit Agreement was approximately 9%. The Credit
Agreement does not permit the Company or Kaiser to pay any dividends on
their common stock.
Management believes that the Company's existing cash resources,
together with cash flows from operations and borrowings under the Credit
Agreement, will be sufficient to meet its working capital and capital
expenditure requirements for the next year. Additionally, with respect to
long-term liquidity, management believes that operating cash flow, together
with the expected ability to obtain both short and long-term financing,
should provide sufficient funds to meet the Company's working capital and
capital expenditure requirements.
OTHER MATTERS
YEAR 2000
The Company utilizes software and related technologies throughout its
business that will be affected by the date change to the year 2000. There
may also be technology embedded in certain of the equipment owned or used
by the Company that is susceptible to the year 2000 date change as well.
The Company has implemented a company-wide program to coordinate the year
2000 efforts of its individual business units and to track their progress.
The intent of the program is to make sure that critical items are
identified on a sufficiently timely basis to assure that the necessary
resources can be committed to address any material risk areas that could
prevent the Company's systems and assets from being able to meet the
Company's business needs and objectives. Year 2000 progress and readiness
has also been the subject of the Company's normal, recurring internal audit
function.
Each of the Company's business units has developed, or is completing,
year 2000 plans specifically tailored to their individual situations. A
wide range of solutions is being implemented, including modifying existing
systems and, in limited cases where it is cost effective, purchasing new
systems. Spending related to these projects, which began in 1997 and is
expected to continue through 1999, is currently estimated to be in the $10-
15 million range. System modification costs are being expensed as
incurred. Costs associated with new systems are being capitalized and will
be amortized over the life of the product. The Company has established an
internal goal of having all necessary system changes in place and tested by
mid-year 1999. The Company plans to commit the necessary resources to meet
this deadline.
In addition to addressing the Company's internal systems, the company-
wide program involves identification of key suppliers, customers, and other
third-party relationships that could be impacted by year 2000 issues. A
general survey has been conducted of the Company's supplier base. Direct
contact has been made, or is in progress, with parties which are deemed to
be particularly critical including financial institutions, power suppliers,
and customers, with which the Company has a material relationship.
Each business unit, including the corporate group, is developing a
contingency plan covering the steps that would be taken if a year 2000
problem were to occur despite the Company's best efforts to identify and
remediate all critical at-risk items. Each contingency plan will address,
among other things, matters such as alternative suppliers for critical
inputs, incremental standby labor requirements at the millennium to address
any problems as they occur, and backup processing capabilities for critical
equipment or processes. The goal of the contingency plans will be to
minimize any business interruptions and the associated financial
implications.
While the Company believes that its program is sufficient to identify
the critical issues and associated costs necessary to address possible year
2000 problems in a timely manner, there can be no assurances that the
program, or underlying steps implemented, will be successful in resolving
all such issues by the Company's mid-1999 goal or prior to the year 2000.
If the steps taken by the Company (or critical third parties) are not made
in a timely manner, or are not successful in identifying and remediating
all significant year 2000 issues, business interruptions or delays could
occur and could have a material adverse impact on the Company's results and
financial condition. However, based on the information the Company has
gathered to date and the Company's expectations of its ability to remediate
problems encountered, the Company currently believes that significant
business interruptions that would have a material impact on the Company's
results or financial condition will not be encountered.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Asbestos-related Litigation
The Company is a defendant in a number of lawsuits, some of which
involve claims of multiple persons, in which the plaintiffs allege that
certain of their injuries were caused by, among other things, exposure to
asbestos during, and as a result of, their employment or association with
the Company or exposure to products containing asbestos produced or sold by
the Company. The portion of Note 3 of the Notes to Interim Consolidated
Financial Statements contained in this report under the heading "Asbestos
Contingencies" is incorporated herein by reference. See Part I, Item 3.
"LEGAL PROCEEDINGS - Asbestos-related Litigation" in the Company's Form 10-
K for the year ended December 31, 1997.
United States of America v. Kaiser Aluminum & Chemical Corporation
On August 28, 1998, a Certificate of Completion was filed with the
United States District Court for the Eastern District of Washington,
evidencing completion of a program of plant improvements and operational
changes at the Company's Trentwood, Washington, facility, and the
attainment and maintenance of furnace compliance with the capacity standard
in the Washington State Implementation Plan. Thirty days thereafter, the
Consent Decree between the Company and the United States Environmental
Protection Agency was terminated.
Hammons v. Alcan Aluminum Corp. et al
On May 4, 1998, the United States Court of Appeals for the Ninth
Circuit denied the plaintiff's petition for a rehearing en banc. On August
12, 1998, the plaintiff filed a petition with the Supreme Court of the
United States for a writ of certiorari, which petition was denied on
October 19, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
3.1 Restated Certificate of Incorporation of Kaiser Aluminum &
Chemical Corporation (the "Company" or "KACC"), dated July
25, 1989, (incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1, dated August 25, 1989,
filed by KACC, Registration No. 33-30645).
3.2 Certificate of Retirement of KACC, dated February 7, 1990
(incorporated by reference to Exhibit 3.2 to the Report on
Form 10-K for the period ended December 31, 1989, filed by
KACC, File No. 1-3605).
3.3 Amended and Restated Bylaws of KACC, dated October 1, 1997.
*10.1 Letter Agreement, dated July 21, 1998, between the Company
and Lawrence L. Watts concerning employment and severance
matters.
*10.2 Agreement, effective January 1, 1999, between KACC and
Lawrence L. Watts concerning certain consulting services to
be provided to KACC.
*10.3 Employment agreement between KACC and Raymond J. Milchovich
made effective for the period from January 1, 1998, to
December 31, 2002.
*10.4 Time-Based Stock Option Grant Pursuant to the Kaiser 1997
Omnibus Stock Incentive Plan to Raymond J. Milchovich
effective July 2, 1998.
*10.5 Employment agreement between KACC and John T. La Duc made
effective for the period from January 1, 1998 to December
31, 2002.
*10.6 Time-Based Stock Option Grant Pursuant to the Kaiser 1997
Omnibus Stock Incentive Plan to John T. La Duc effective
July 10, 1998.
*27 Financial Data Schedule.
(b) Reports on Form 8-K.
No Report on Form 8-K was filed by the Company during the quarter
ended September 30, 1998.
- ---------------
* Filed herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized, who have signed this report on
behalf of the registrant as the principal financial officer and principal
accounting officer of the registrant, respectively.
KAISER ALUMINUM & CHEMICAL
CORPORATION
/s/ John T. La Duc
By: ----------------------------
John T. La Duc
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Daniel D. Maddox
By: ----------------------------
Daniel D. Maddox
Vice President and Controller
(Principal Accounting Officer)
Dated: November 16, 1998
July 21, 1998
Mr. Lawrence L. Watts
Kaiser Aluminum & Chemical Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77057
Dear Larry:
This letter reflects our agreement that the supplemental
non-recurring 1998 annual incentive payment to be paid to you
under our existing agreement will be in the amount of $335,000.
This amount will be paid promptly following the execution of this
letter and your consulting agreement.
Please acknowledge your acceptance of the foregoing and its
terms in the space provided below.
Very truly yours,
/s/ George T. Haymaker, Jr.
George T. Haymaker, Jr.
Chairman and Chief
Executive Officer
Agreed and accepted:
/s/ Lawrence L. Watts
Lawrence L. Watts
July 21, 1998
AGREEMENT
This Agreement is made and entered into to be effective as
of this January 1, 1999, by and between KAISER ALUMINUM &
CHEMICAL CORPORATION, a Delaware corporation with corporate
offices at 5847 San Felipe, Suite 2600, Houston, Texas 77257,
hereinafter referred to as "Kaiser", and Lawrence L. Watts, whose
address is 2372 Bering Drive, Apt B, Houston, TX 77057,
hereinafter referred to as "Consultant".
In consideration of the mutual promises made herein, the
parties agree as follows:
1. Consulting Services.
-------------------
A. The Company hereby retains Consultant's services
as a consultant. Consultant agrees to consult with and
advise the Company regarding (i) the management,
administration, organization, structure, policies and
operations of Kaiser, its business units, subsidiaries and
their respective successors, if any, (collectively, the
"Kaiser Entities"), (ii) developing, analyzing and
implementing strategic plans and transactions involving one
or more of the Kaiser Entities including, but not limited
to, the alumina business unit, (iii) information technology
and systems development, and (iv) such other similar matters
reasonably requested by Kaiser.
B. Consulting services may be requested by Kaiser
from time to time during the term of the Agreement. While
Kaiser may not utilize Consultant's services fully
throughout the term of this Agreement, Consultant agrees to
make his himself generally available upon Kaiser's
reasonable request during normal business hours and, if
requested by Kaiser, to devote his entire time, energy and
skill during normal business hours to the business and
affairs of Kaiser and the Kaiser Entities and to the
promotion of their interests. Consultant further agrees and
acknowledges that his engagement hereunder may require him
to undertake reasonable travel on behalf of Kaiser.
C. In connection with the services contemplated by
this Agreement, Consultant agrees to consult with and keep
the appropriate members of Kaiser's senior leadership and
the Board of Directors, officers, consultants and
representatives of the Kaiser Entities fully informed of
Consultant's efforts under this Agreement.
2. Term. This Agreement shall be for a term of one year
----
commencing on the effective date and terminating on December 31,
1999, unless otherwise terminated in accordance with the terms
and conditions of this Agreement.
3. Retainer, Payment and Automobile.
---------------------------------
A. As consideration for Consultant's willingness to
hold himself available to Kaiser and the Kaiser Entities
throughout the term of this Agreement and for providing the
consulting services contemplated by this Agreement, Kaiser
agrees to pay Consultant a retainer at a monthly rate equal
to Consultant's base pay prior to Consultant's termination
of employment with Kaiser. The retainer shall be payable by
Kaiser to Consultant in equal semimonthly installments of
Twelve Thousand Eighty Four Dollars ($12,084.00) to be paid
on the fifteenth (15th) and last day of each month during
which such compensation is due hereunder.
B. During the term of this Agreement, Kaiser agrees
that Consultant may retain the use of the automobile
provided by Kaiser at the time of Consultant's termination
of employment upon substantially the same terms and
conditions except as required under Kaiser's corporate
policies and procedures as a result of Consultant no longer
being employed by Kaiser.
4. Reimbursement for Expenses. Kaiser shall
--------------------------
reimburse Consultant upon the presentation of substantiating
invoices, for the following described expenses incurred by
Consultant in connection with, and as a necessity of, the
performance of his services hereunder:
A. All reasonable, normal, and necessary travel
expenses, including airline tickets, meals, lodging, rental
cars, and related expenses, incurred by Consultant while
away from his office, consistent with Kaiser's existing
policies.
B. Cost of telephone and facsimile when used on
behalf of Kaiser.
C. All other reasonable expenses incurred by
Consultant as the direct and necessary result of providing
the consulting services contemplated by this Agreement.
5. Independent Contractor.
----------------------
A. It is understood and agreed that Consultant is
acting as an independent contractor and not as an agent or
employee of Kaiser in the execution and performance of this
Agreement and that Consultant has no authority to act for,
legally represent, or otherwise bind or legally commit
Kaiser in any way.
B. It is further understood and agreed that
Consultant is not and will not be eligible to participate
in, or accrue benefits under any employee benefit plans of
Kaiser, including but not limited to pensions, insurance,
disability and/or vacation plans, for services performed
under this Agreement. This provision will not affect
Consultant's eligibility for such benefits based on services
previously performed by Consultant as an employee of Kaiser.
C. Finally, it is understood and agreed that
Consultant shall be solely responsible for paying, and
agrees to pay, any and all applicable federal, state, and
local taxes and fees in connection with his activities in
connection with this Agreement, and he will abide by all
applicable federal, state, and local laws in connection
therewith. Consultant acknowledges that Kaiser shall not
deduct or be responsible for the withholding of taxes of any
kind.
6. Protection of Proprietary or Confidential Information.
-----------------------------------------------------
A. Any and all communications between any of the
Kaiser Entities and Consultant shall be privileged and
confidential, subject to waiver only by the appropriate
Kaiser Entity, and may not be divulged by Consultant to any
third party without the prior written authorization of the
appropriate Kaiser Entity except to the extent necessary to
perform the services contemplated by this Agreement.
Consultant acknowledges that by reason of his experience
with Kaiser as an officer and employee prior to the
effective date of this Agreement he has had access to
proprietary and confidential information with respect to the
Kaiser, its business units, subsidiaries and affiliates and
their respective financial and business affairs and
strategic plans ("Confidential Information") and that he
will continue to be exposed to such information during his
engagement under this Agreement. In recognition of the
foregoing, Consultant agrees not to disclose, use, transfer
or sell, except in the course of Consultant's engagement
hereunder, any Confidential Information so long as such
information has not otherwise been disclosed or is not
otherwise in the public domain, except as required by law or
pursuant to legal process. Upon the request of Kaiser,
Consultant shall surrender to Kaiser any and all personal
property, software, disks, work papers, reports, manuals,
documents and the like (including all originals and copies
thereof) in his possession or control which contain any
Confidential Information.
B. Consultant further acknowledges (i) that the
Confidential Information constitutes valuable and unique
property, that irreparable damage would result to Kaiser if
any of the Confidential Information were disclosed to a
third party except as expressly provided in this Agreement,
(ii) that the appropriate amount of any money damages would
be difficult to ascertain, and (iii) that, as a result,
money damages would not be a sufficient remedy for a breach
or anticipated breach by Consultant of the foregoing
paragraph. Therefore, Consultant acknowledges that Kaiser
shall be entitled, in addition to any other rights and
remedies which may be available to Kaiser, to specific
performance and/or injunctive or other equitable relief as a
remedy for any such breach or anticipated breach of the
foregoing paragraph. If a court exercising applicable
jurisdiction determines that Kaiser is entitled to
injunctive and/or other equitable relief, Consultant agrees
to, and hereby does, waive any requirement for the securing
or posting of any bond in connection with any such remedy.
No failure or delay by Kaiser in exercising any right,
power, or privilege hereunder, at law or in equity, shall
operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude or limit any other or further
exercise thereof.
7. Non-Competition and Non-Disparagement.
-------------------------------------
A. Without the consent in writing of Kaiser,
Consultant will not for a period of eighteen (18) months
beginning on the effective date of this Agreement and ending
on June 30, 2000, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner,
partner, stockholder, employer or employee) in any business
in which he has been directly engaged, or has supervised or
advised in any manner, as an employee of Kaiser or an
officer of any of the Kaiser Entities and which is directly
in competition with a business conducted by any of the
Kaiser Entities; (ii) induce any customers of the Kaiser
Entities with whom Consultant has had or will have contacts
or relationships, directly or indirectly, during and within
the scope of his employment with Kaiser or during the term
of this Agreement to curtail or cancel their business with
any of the Kaiser Entities; (iii) solicit or canvas business
from any person who was a customer of any of the Kaiser
Entities at or during the two-year period immediately
preceding termination of Consultant's employment with Kaiser
or at any time during the term hereof; or (iv) induce, or
attempt to influence, any employee of any of the Kaiser
Entities to terminate his or her employment. The provisions
of clauses (i), (ii), (iii) and (iv) above are separate and
distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more
than of 5% of the equity securities of any company having
securities listed on an exchange or regularly traded in the
over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) above.
B. The foregoing covenants on the part of Consultant
shall be construed as agreements independent of any other
provision of this Agreement, and the existence of any claim
or cause of action by Consultant against Kaiser, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Kaiser of any of
those covenants.
C. Consultant shall not, at any time, make any
statement which might be reasonably regarded as disparaging
to any of the Kaiser Entities, their respective Boards of
Directors, Directors, officers, employees, operations,
businesses, business practices, strategic and business plans
or which may be reasonably expected to reflect unfavorably
on any Kaiser Entity, except as may be required by law.
8. Cooperation. Consultant agrees to cooperate with
-----------
Kaiser and each of the Kaiser Entities by making himself
available to testify on behalf of any of them in any action, suit
or proceeding, whether civil, criminal, administrative or
investigative, and to assist any of the Kaiser Entities in any
such action, suit or proceeding, by providing information and
meeting and consulting with the representatives or counsel of any
of the Kaiser Entities. Kaiser agrees to reimburse Consultant
for all reasonable expenses actually incurred in connection with
his provision of testimony or assistance.
9. Termination of Engagement.
--------------------------
A. Consultant may terminate this Agreement by giving
thirty (30) days' prior written notice of termination to
Kaiser.
B. Kaiser may terminate this Agreement upon the
earlier to occur of (i) the death or permanent disability
of Consultant such that Consultant is no longer capable in
the reasonable opinion of Kaiser to perform the services
contemplated by this Agreement, (ii) the conviction of
Consultant for the commission of any felony in any state or
federal court in the United States of America, or in any
jurisdiction where he is engaged, and (iii) Consultant's
breach of this agreement, which breach continues beyond the
thirty (30) day period beginning on the date Consultant
receives written notice of such breach from Kaiser.
C. Termination of Consultant's services hereunder by
Kaiser shall not be construed to be a breach of this
Agreement by Kaiser, and shall terminate all compensation
and benefits to which Consultant is entitled under this
Agreement. Further, in the event of such termination,
Kaiser shall have no further liability to Consultant under
this Agreement and all rights and obligations hereunder
shall cease, except for (i) the rights and obligations under
Sections 3 and 4 to the extent that Consultant has not been
paid his retainer for any period in which this Agreement
remained in effect and has not been reimbursed for his
expenses in accordance with the terms of this Agreement,
(ii) the rights and obligations under Section 6 regarding
protection of confidential information, (iii) the
obligations under Section 7 regarding, among other things,
Consultant's agreement not to compete or otherwise interfere
with the business or customers of any of the Kaiser
Entities, and (iv) all procedural and remedial provisions of
this Agreement.
10. Assignment. Consultant shall neither, without the
----------
prior written consent of Kaiser, assign this Agreement or any of
the rights hereunder, in whole or in part, nor delegate any of
the duties hereunder, in whole or in part.
11. Applicable Law. This Agreement is made in the State of
--------------
Texas and shall in all respects be governed by and construed in
accordance with the internal laws of Texas, without regard to the
rules of the conflict of laws of such state. Except as otherwise
permitted by Section 6 in connection with seeking specific
performance and/or injunctive or other equitable relief as a
remedy for any such breach or anticipated breach of Section 6 of
this Agreement, any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by
arbitration in Houston, Texas by three arbitrators in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association in effect at the time of submission to arbitration.
Judgment may be entered on the arbitrators' award in any court
having jurisdiction.
12. Notices. Where a notice is called for by this
-------
Agreement, it shall mean a notice in writing signed by the party
giving the notice and delivered to:
For Consultant: Lawrence L. Watts
For Kaiser: Kaiser Aluminum & Chemical Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77257-2887
Attention: Chairman
Any notice so delivered to the party to whom it is addressed
shall be deemed to have been given and received (i) if by
personal delivery, on the day of such delivery, (ii) if by
certified or registered mail, on the seventh day after mailing
thereof, (iii) if by facsimile, the day on which such facsimile
was sent and a confirmation of successful transmission is
received or (iv) if by next-day or overnight mail delivery, on
the day delivered, provided that if any such day is not a
--------
business day then the notice shall be deemed to have been given
and received on the business day next following such day.
13. Entire Agreement. This Agreement and the termination
----------------
letter entered into by Consultant and the Company, as amended or
supplemented, contain the entire understanding and agreement
between the parties hereto as to the subject matter hereof, and
supersede all prior or contemporaneous communication, agreements
and understandings between the parties, whether written or oral
with respect to the subject matter hereof and thereof.
14. Amendment. This Agreement can be amended,
---------
supplemented, or superseded only by an instrument in writing
signed by both of the parties hereto.
15. Severability. If any provision of this Agreement is
------------
held to be illegal, invalid, or unenforceable under present or
future laws effective during the term hereof, such provision
shall be fully severable and this Agreement and each separate
provision hereof shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised
a part of this Agreement, and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or
by its severance from this Agreement. In addition, in lieu of
such illegal, invalid, or unenforceable provision, there shall be
added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and
enforceable.
16. Headings. The headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the
meaning, interpretation, or scope of this Agreement.
17. Successors and Assigns. This Agreement shall inure to
----------------------
the benefit of and be binding upon the respective parties hereto,
their permitted respective successors and assigns.
18. Waiver of Default. Any waiver by either party of a
-----------------
breach of any provision of this Agreement shall not operate or be
construed as a waiver by such party of any subsequent breach of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
/s/ Lawrence L. Watts
- ----------------------------
LAWRENCE L. WATTS
KAISER ALUMINUM & CHEMICAL
CORPORATION
by:/s/ George T. Haymaker,Jr.
--------------------------
George T. Haymaker, Jr.
Chairman and Chief
Executive Officer
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made effective for the
period from January 1, 1998 to December 31, 2002, (such term
being hereinafter referred to as the "Employment Period") between
Kaiser Aluminum & Chemical Corporation, a Delaware corporation
("Company"), and Raymond J. Milchovich ("Executive").
WHEREAS, Executive is currently employed by the Company as a
senior executive; and
WHEREAS, the Company desires to secure the services of
Executive as President and Chief Operating Officer, and Executive
desires to perform such services for the Company, on the terms
and conditions as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements set forth below, it is mutually agreed
as follows:
1. Effective Date, Term and Duties. The term of
--------------------------------
employment of Executive by the Company hereunder shall be deemed
to have commenced on January 1, 1998 and end on December 31,
2002, (the "Employment Period") unless earlier terminated
pursuant to Section 4.
Executive shall have such duties as the Company may from
time to time prescribe consistent with his position as President
and Chief Operating Officer of the Company (the "Services").
Executive shall report directly to the Chief Executive Officer
and Chairman of the Company. Executive shall devote his full
time, attention, energies and best efforts to the business of the
Company. The Company shall maintain an office for Executive in
Pleasanton, California.
2. Compensation. The Company shall pay and Executive
------------
shall accept as full consideration for the Services compensation
consisting of the following:
2.1 Base Salary. Effective June 1, 1998, $475,000 per
-----------
year base salary, payable in installments in accordance with the
Company's normal payroll practices, less such deductions or
withholdings required by law. Base Salary shall be reviewed
annually by the Compensation Committee of the Company to evaluate
the performance of Executive and his duties hereunder, and in any
event will be adjusted for inflation consistent with the general
program of increases for other executives and management
employees.
2.2 Annual Bonus. A target bonus of $270,000
------------
(adjusted for inflation as determined by the Company's
Compensation Committee) per year ("Target Annual Bonus") shall be
payable based on the attainment by the Company of the Short-Term
Bonus Plan Objectives under the Company's Executive Bonus Plan
for each such year, which such Short-Term Bonus Plan Objectives
shall be agreed upon by the Executive and the Company annually
and shall be consistent with the Company's business plan for the
relevant year.
2.3 Long-Term Compensation. During June 1998
----------------------
Executive shall receive a stock option grant of 635,000 shares
under the Company's Stock Option Plan, which is a grant
equivalent to a value of five times Executive's annual long term
incentive target of $630,000, determined using Black Scholes
methodology and assumptions as described in Schedule A and with
an exercise price of $9.4063. The options will have an exercise
period of five years from date of grant. Such options shall be
in lieu of any payment of long-term incentive compensation under
the Company's Executive Bonus Plan ("Plan") for the five year
period beginning January 1, 1998, although Executive shall be
eligible for additional option grants at the discretion of the
Company's Compensation Committee. The options shall vest at the
rate of 20% per year, beginning on December 31, 1998, unless:
(i) Executive becomes employed by an affiliate or "spin-out" of
Kaiser Aluminum, in which case a pro rata amount of the options
will vest equal to the percentage of days during the Employment
Period which the Executive has been employed; or (ii) Executive's
service is terminated by the Company for any reason other than
for "Cause, or Executive's employment terminates by the
expiration of the Employment Period without an offer for
continued employment by the Company for a position of
responsibility comparable to that held by Executive at the
beginning of the Employment Period and on substantially the same
or improved terms and conditions, or Executive terminates his
employment for "Good Reason" or in event of a Change in Control,
in which cases vesting of all outstanding options is accelerated
as provided in Section 4.
Such option grant shall provide that upon exercise of any
option, Executive will be entitled to receive shares pursuant to
the Company's Stock Option Plan but also any securities that have
been distributed in respect to such shares. For example, if the
Company were to spin off part of its business as a new company
and distribute to its stockholders one share of stock of the new
company for each one share of stock under the Company's Stock
Option Plan, then, upon a subsequent exercise by Executive of the
stock options under the Company's Stock Option Plan, Executive
would also receive one new company share along with one share
under the Company's Stock Option Plan. All such grants shall be
governed by the Company's Stock Option Plan and by the agreement
executed by the Company and Executive at the time of the option
grant.
2.4 Indemnification. In the event Executive is
---------------
made, or threatened to be made, a party to any legal action or
proceeding, whether civil or criminal, by reason of the fact that
Executive is or was a director or officer of the Company or
serves or served any other corporation fifty percent (50%) or
more owned or controlled by the Company in any capacity at the
Company's request, Executive shall be indemnified by the Company,
and the Company shall pay Executive's related expenses when and
as incurred, all to the fullest extent permitted by law,
provided, however, that the Company shall have the right of
defense to any action or proceeding.
3. Benefits during Employment Period. Employee will be
---------------------------------
eligible to participate in the Company's employee benefit plans
of general application, including, without limitation, those
plans covering medical, disability and life insurance in
accordance with the rules established for individual
participation in any such plan and under applicable law.
Employee will be eligible for vacation and sick leave in
accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company
generally provides to its other employees of comparable position
and experience.
4. Benefits Upon Termination. Notwithstanding anything in
-------------------------
the Agreement to the contrary, if (i) Executive's employment is
terminated during the Employment Period for any reason other than
(a) termination by the Company for "Cause" (as defined in
Subsection 4.1), (b) acceptance by Executive of an offer of
employment with an affiliate of the Company, or (c) a voluntary
termination by Executive for other than "Good Reason"; or (ii)
Executive's employment terminates by the expiration of the
Employment Period without an offer for continued employment by
the Company for a position of responsibility comparable to that
held by Executive at the beginning of the Employment Period and
on substantially the same or improved terms and conditions, then
Executive will be entitled to receive the following benefits:
(A) An Early Retirement Lump Sum Payment by the
Company as described below:
The Early Retirement Lump Sum Payment by the
Company shall be equal to the excess, if any, of the sum of (i)
plus (ii) less the amount computed in accordance with (iii).
(i) The lump sum benefit from the Kaiser
Aluminum Salaried Employees Retirement Plan (KRP) that the
Executive would have been entitled to as of the date of his
actual termination calculated, for this purpose, as if the terms
of KRP in effect on such date were identical to the terms of KRP
in effect on the effective date of this Agreement (except for
such changes required to maintain the qualified status of KRP),
and as if the Executive qualified for a KRP Full Early Retirement
Pension; provided, however, in calculating such amount, his
actual age, credited service, social security benefits and final
average monthly compensation in effect on the date of his actual
termination shall be used as well as the daily yields on longer
term treasury issues and the PBGC applicable interest rates in
effect on such date.
(ii) The lump sum benefit from the Kaiser
Aluminum Supplemental Benefits Plan (KASBP) based on KRP
limitations, that the Executive would have been entitled to as of
the date of his actual termination calculated, for this purpose,
as if (i) the terms of KASBP in effect on such date were
identical to the terms of KASBP in effect on the effective date
of this Agreement, (ii) the Executive qualified for a KRP Full
Early Retirement Pension, and (iii) the other assumptions set
forth in "(i)" above including interest rates were in effect in
calculating the benefits under Section C-2(a) and (b) of KASBP.
(iii) An amount equal to the lump sum actuarial
equivalent of (a) the Executive's actual benefit payable from KRP
on account of his actual termination, plus (b) the Executive's
actual benefit payable from KASBP based on KRP limitations on
account of his actual termination.
(B) Full health benefits as if the Executive had qualified
for an Early Retirement Pension.
(C) A lump sum amount equal to Executive's base salary as
of the date of Executive's termination for a period equal to the
greater of (i) the number of months remaining in the Employment
Period or (ii) two years. In addition, Executive shall be
entitled to receive Executive's Target Annual Bonus for the year
of termination (but no less than $270,000) in one lump sum
payment. Such salary and Target Annual Bonus payments shall be
referred to as "Termination Pay". Such Termination Pay shall be
in lieu of any claims Executive may have had with respect to
termination benefits.
(D) All of the unvested stock options held by Executive on
the date of such termination that would have vested during the
Employment Period shall immediately vest and become exercisable
in full for the remaining portion of the period of five years
from date of grant.
4.1 Circumstances Under Which Termination Benefits
-----------------------------------------------
Would Not Be Paid. The Company shall not be obligated to pay
- -----------------
Executive the termination benefits pursuant to Section 4 if the
Executive's employment is terminated for Cause. For purposes of
this Agreement, "Cause" shall be limited to (1) Executive's gross
misconduct or fraud, in the performance of his employment; (2)
Executive's conviction or guilty plea with respect to any felony
(except for motor vehicle violations); or (3) Executive's
material breach of this Agreement after written notice delivered
to Executive of such breach and a reasonable opportunity to cure
such breach.
4.2 Constructive Termination. Notwithstanding
------------------------
anything in this Section 4 or Section 5 to the contrary, the
Employment Period will be deemed to have been terminated (a
"Constructive Termination") and Executive will be deemed to have
Good Reason for voluntary termination of the Employment Period
("Good Reason"), if there should occur:
(A) a material adverse change in Executive's position
causing it to be of materially less stature or responsibility
without Executive's written consent, and such a materially
adverse change shall in all events be deemed to occur if
Executive no longer serves as President and Chief Operating
Officer reporting to the Chief Executive Officer, unless
Executive consents in writing to such change;
(B) a reduction, without Executive's written consent,
in his level of base compensation (including base salary and
fringe benefits) by more than ten percent (10%) or a reduction by
more than ten percent (10%) in his Target Annual Bonus under the
CEO Bonus Plan; or
(C) a relocation of his principal place of employment
by more than 50 miles without Executive's consent.
4.3 Termination by Reason of Death or Disability. In
--------------------------------------------
the event of Employee's death during the Employment Period, the
Company shall pay to Employee or Employee's estate Employee's
Target Annual Bonus for the Company's fiscal year in which death
occurred or, if no such Target Annual Bonus has been scheduled,
an amount equal to the Target Annual Bonus paid to Employee for
the Company's fiscal year immediately preceding the year in which
death occurred. In addition, Employee's estate will receive
payment for all salary, bonuses and unpaid vacation accrued as of
the date of Employee's death and any other benefits payable under
the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of
death and in accordance with applicable law. In the event that,
during the term of this Agreement, Employee is unable to perform
his job due to disability (as determined under the Company's
long-term disability insurance program) for six (6) months in any
twelve (12) month period, the Company may, at its election,
terminate Employee's employment with the Company and such
termination shall be deemed to be a termination by the Company
other than for Cause and Employee shall be entitled to receive
the benefits set forth in Section 4 hereof.
5. Change in Control
-----------------
Should there occur a Change in Control (as defined
below), then the following provisions shall become applicable:
(A) During the period (if any) following a Change in
Control that Executive shall continue to provide the Services,
then the terms and provisions of this Agreement shall continue in
full force and effect, and Executive shall continue to vest in
all of his unvested stock options; or
(B) In the event of (x) a termination of the
employment by the Company other than for Cause or (y) a
termination of employment by Executive for any reason within
twelve (12) months following such Change in Control, the benefits
listed in Section 4 shall become due and payable:
For purposes of this Section 5, a Change of Control
shall be deemed to occur upon:
(I) the sale, lease, conveyance or other disposition
of all or substantially all of the Company's assets as an
entirety or substantially as an entirety to any person, entity or
group of persons acting in concert other than in the ordinary
course of business;
(II) any transaction or series of related transactions
(as a result of a tender offer, merger, consolidation or
otherwise) that results in any Person (as defined in Section
13(h)(8)(E) under the Securities Exchange Act of 1934) becoming
the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of more
than 50% of the aggregate voting power of all classes of common
equity of the Company, except if such Person is (A) a subsidiary
of the Company, (B) an employee stock ownership plan for
employees of the Company or (C) a company formed to hold the
Company's common equity securities and whose shareholders
constituted, at the time such company became such holding
company, substantially all the shareholders of the Company; or
(III) a change in the composition of the Company's
Board of Directors over a period of thirty-six (36) consecutive
months or less such that a majority of the then current Board
members ceases to be comprised of individuals who either (a) have
been Board members continuously since the beginning of such
period, or (b) have been elected or nominated for election as
Board members during such period by at least a majority of the
Board members described in clause (a) who were still in office at
the time such election or nomination was approved by the Board.
In the event that the severance and other benefits provided
to Executive (i) constitute "parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section 5, such
severance and benefits would be subject to the excise tax imposed
by Section 4999 of the Code, then Executive's severance benefits
under this Section 5 shall be payable either:
(a) in full,
(b) as to such lesser amount which would result in no
portion of such severance and other benefits being subject to
excise tax under Section 4999 of the Code, whichever of the
foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits under Section
5. Unless the Company and Executive otherwise agree in writing,
any determination required under this Section 5 shall be made in
writing by independent public accountants agreed to by the
Company and Executive (the "Accountants"), whose determination
shall be conclusive and binding upon Executive and the Company
for all purposes. For purposes of making the calculations
required by this Section 5, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and
may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order
to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section 5.
6. Dispute Resolution. The Company and Executive agree
------------------
that any dispute regarding the interpretation or enforcement of
this Agreement shall be decided by confidential, final and
binding arbitration conducted by Judicial Arbitration and
Mediation Services ("JAMS") under the then-existing JAMS rules,
rather than by litigation in court, trial by jury, administrative
proceeding, or in any other forum.
7. Cooperation with the Company After Termination of the
-----------------------------------------------------
Employment Period. Following termination of the Employment
- ------------------
Period by Executive, Executive shall fully cooperate with the
Company in all matters relating to the winding up of his pending
work on behalf of the Company and the orderly transfer of any
such pending work to other employees of the Company as may be
designated by the Company.
8. Confidentiality; Return of Property. Executive
-----------------------------------
acknowledges that the Employee Invention and Confidential
Information Agreement executed by Executive on October 28, 1996
shall continue in effect.
9. General.
-------
9.1 Waiver. Neither party shall, by mere lapse of
------
time, without giving notice or taking other action hereunder, be
deemed to have waived any breach by the other party of any of the
provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other shall
neither be construed as, nor constitute a, continuing waiver of
such breach or of other breaches by the same or any other
provision of this Agreement.
9.2 Severability. If for any reason a court of
------------
competent jurisdiction or arbitrator finds any provision of this
Agreement to be unenforceable, the provision shall be deemed
amended as necessary to conform to applicable laws or
regulations, or if it cannot be so amended without materially
altering the intention of the parties, the remainder of the
Agreement shall continue in full force and effect as if the
offending provision were not contained herein.
9.3 No Mitigation. Executive shall have no duty to
-------------
mitigate the Company's obligation with respect to the termination
payments set forth in Sections 4 or 5 by seeking other employment
following termination of his employment, nor shall such
termination payments be subject to offset or reductions by reason
of any compensation received by Executive from such other
employment. The Company's obligations to make payments under
Sections 4 or 5 shall not terminate in the event executive
accepts other full time employment.
9.4 Notices. All notices and other communications
-------
required or permitted to be given under this Agreement shall be
in writing and shall be considered effective upon personal
service or upon depositing such notice in the U.S. Mail, postage
prepaid, return receipt requested and addressed to the Chairman
of the Board of the Company as its principal corporate address,
and to Executive at his most recent address shown on the
Company's corporate records, or at any other address which he may
specify in any appropriate notice to the Company.
9.5 Counterparts. This Agreement may be executed in
------------
any number of counterparts, each of which shall be deemed an
original and all of which taken together constitutes one and the
same instrument and in making proof hereof it shall not be
necessary to produce or account for more than one such
counterpart.
9.6 Entire Agreement. The parties hereto acknowledge
----------------
that each has read this Agreement, understands it, and agrees to
be bound by its terms. The parties further agree that this
Agreement and the referenced stock option agreement constitute
the complete and exclusive statement of the agreement between the
parties and supersedes all proposals (oral or written),
understandings, representations, conditions, covenants, and all
other communications between the parties relating to the subject
matter hereof. The parties further agree that this Agreement
supersedes the employment agreement between the Company and
Executive dated October 28, 1996. Notwithstanding anything to
the contrary, Sections 4 and 5 of this Agreement shall govern all
options issued to Executive by the Company prior to and after the
effective date of this Agreement.
9.7 Governing Law. This Agreement shall be governed
-------------
by the law of the State of California.
9.8 Assignment and Successors. The Company shall have
--------------------------
the right to assign its rights and obligations under this
Agreement to an entity which acquires substantially all of the
assets of the Company. The rights and obligation of the Company
under this Agreement shall inure to the benefit and shall be
binding upon the successors and assigns of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
KAISER ALUMINUM & CHEMICAL
CORPORATION
By:/s/ George T. Haymaker, Jr.
--------------------------
Name: George T. Haymaker, Jr.
-----------------------
Title: Chief Executive Officer
-----------------------
EXECUTIVE
/s/ Raymond J. Milchovich
- ------------------------------
Raymond J. Milchovich
Schedule A
Assumptions in Calculation of Options
Option Value: $4.96
Stock Price: $9.4063
Risk Free Rate: 5.80% (The risk-free interest rate based on
estimated 5-year T-Bond rate.)
Term of Option: 5 years from Grant Date (1825 days)
Volatility Rate: 42.86% (Stock volatility derived from 3 years
of monthly data: 2/95-2/98)
Annual Dividend: $0.00
As a result, to grant $3,150,000 of value, the number of options
necessary will be 635,000.
TIME-BASED STOCK OPTION GRANT
PURSUANT TO THE KAISER
1997 OMNIBUS STOCK INCENTIVE PLAN
1. Grant of Stock Option. Kaiser Aluminum Corporation
---------------------
("KAC") and Kaiser Aluminium & Chemical Corporation ("KACC"),
both Delaware corporations (collectively, the "Company"), hereby
evidence that the Company has granted to RAYMOND J. MILCHOVICH
("Optionee") the right, privilege and option as herein set forth
(the "Stock Option") to purchase 635,000 shares of common stock,
$.01 par value per share, of KAC (as more fully described in
Optionee's Employment Agreement (the "Employment Agreement) with
the Company attached herewith as Attachment I, which is
incorporated herein and made a part hereof, the "Option Shares")
in accordance with the terms of this document (this "Stock Option
Grant").
The Stock Option is granted pursuant to the Kaiser 1997
Omnibus Stock Incentive Plan (the "Plan") and is subject to the
provisions of the Plan, a copy of which has been furnished to
Optionee and which is hereby incorporated in and made a part of
this Stock Option Grant, as well as to the provisions of this
Stock Option Grant. By acceptance of the Stock Option, Optionee
agrees to be bound by all of the terms, provisions, conditions
and limitations of the Plan and this Stock Option Grant.
All capitalized terms used herein shall have the meanings
provided in the Plan document unless otherwise specifically
provided in this Stock Option Grant or the Employment Agreement,
including Attachment II attached herewith, which is incorporated
-------------
herein and made a part hereof. The Stock Option is a
Nonqualified Stock Option under the Plan and is not intended to
qualify as an "incentive stock option" within the meaning of
Section 422 of the Code.
All Option Shares, when issued to Optionee upon the exercise
of this Stock Option, shall be fully paid and nonassessable.
2. Option Term. Subject to earlier termination as
-----------
provided herein, or in the Plan, the Stock Option shall expire on
July 2, 2003. The period during which the Stock Option is in
effect shall be referred to as the "Option Period".
3. Option Exercise Price. The exercise price per Option
---------------------
Share (including any Attributable Securities, as defined in
Attachment II) (the "Option Price") at which Optionee may
- -------------
purchase such Option Shares subject to the Stock Option shall be
equal to the remainder of (i) $9.4063 per Option Share minus (ii)
the amount per Option Share of Distributed Cash Value (as defined
in Attachment II) determined as of the date of exercise. Such
-------------
Option Price shall also be subject to adjustment as provided in
the Plan and this Stock Option Grant. The Company shall notify
Optionee within thirty (30) days of each change in the Option
Price.
4. Vesting. The Stock Option may be exercised during the
-------
Option Period only to the extent it has become a "Vested Option".
Provided Optionee's Qualified Service Period (as defined in
Attachment II) has not previously terminated, the Stock Option
- -------------
shall become a "Vested Option" as to 20% of the Option Shares as
of 12:01 a.m. Houston time on December 31, 1998, and an
additional 20% of the Option Shares as of 12:01 a.m. Houston time
on December 31, 1999, 2000, 2001, and 2002 respectively.
Notwithstanding the preceding sentence, the Stock Option shall
become a vested Option" to the extent that Sections 2, 3, 4 or 5
of the Employment agreement provide that the Stock Option shall
vest and become exercisable.
5. Method of Exercise. To exercise the Stock Option,
------------------
Optionee shall deliver written notice to the Company stating the
number of Option Shares with respect to which the Stock Option is
being exercised together with payment for such Option Shares.
Payment shall be made (i) in cash or its equivalent, (ii) by
tendering previously acquired Shares having an aggregate Fair
Market Value (as defined in the Plan) at the time of exercise
equal to the total Option Price (provided that the Shares which
are tendered must have been held by Optionee for at least six
months prior to their tender to satisfy the Option Price) or
(iii) by a combination of (i) and (ii).
6. Termination of Optionee's Employment. Termination of
------------------------------------
Optionee's employment as a regular full-time salaried employee of
KAC, a Subsidiary (as defined in Attachment II), or any branch,
-------------
unit or division of KAC or any Subsidiary ("Employment") shall
affect Optionee's rights under the Stock Option as follows:
(a) Termination by the Company for Cause. If
Optionee's Employment is terminated by the Company at any
time for Cause, (as defined in the Employment Agreement),
then (i) the Option Period shall terminate and (ii)
Optionee's right to exercise the Stock Option shall
terminate, in each case immediately upon Optionee's becoming
subject to termination of Employment for Cause.
(b) Termination by the Company Other than for Cause.
If Optionee's Employment is terminated by the Company prior
to January 1, 2003 other than as a result of termination of
Optionee's Employment for Cause, (as defined in the
Employment Agreement), then (i) the Stock Option and the
Option Period shall not terminate and (ii) the Stock Option
shall thereafter be exercisable as to all Option Shares from
and including the date of such termination through and
including the end of the Option Period.
(c) Other Termination. If Optionee's Qualified
Service Period terminates prior to January 1, 2003 other
than as a result of termination of Optionee's Employment by
the Company, then (i) the Stock Option and the Option Period
shall not terminate but the Stock Option shall thereafter be
exercisable in accordance with the provisions of Sections
2, 3, 4 or 5 of the Employment Agreement.
The Stock Option may be exercised by Optionee or, in the
case of death, by the executor or administrator of Optionee's
estate, or the person or persons to whom Optionee's rights under
the Stock Option shall pass by will or by the applicable laws of
descent and distribution, or in the case of Disability (as
defined in the Employment Agreement), by Optionee's personal
representative consistent with the provisions of the Employment
Agreement.
7. Reorganizations; Repurchase of Stock Option.
-------------------------------------------
(a) Freedom to Reorganize the Company and
Subsidiaries. The existence of the Stock Option shall not
affect in any way the right or power of the Company and its
Subsidiaries or the issuers of Attributable Securities or
its or their stockholders to make or authorize any and all
Distribution Events (as defined in Attachment II) and any
-------------
and all other adjustments, recapitalizations,
reorganizations or other changes in the capital structure or
business of the Company or its Subsidiaries or the issuers
of Attributable Securities, any and all issuances of bonds,
debentures, common stock, preferred or prior preference
stock, warrants, rights or other securities, whether or not
affecting the Option Shares or the rights thereof, any
dissolution or liquidation of the Company or any Subsidiary,
any sale or other divestiture or transfer of all or any part
of the assets or business of the Company or any Subsidiary
or any issuer of Attributable Securities and any and all
other corporate acts or proceedings, whether of a similar
character or otherwise (collectively, including any
Distribution Events, collectively, "Reorganizations").
(b) Spin-Offs. If the Board of Directors authorizes
any Distribution Event or other Reorganization as a result
of which holders of Shares (as defined in Attachment II)
--------------
become entitled, in their capacities as holders, to receive
Marketable Securities, the Board of Directors shall, to the
extent reasonably practicable, cause the Company to provide
for or require: (i) that the issuer(s) of such Marketable
Securities shall undertake to issue and deliver to Optionee,
upon any subsequent exercise of the Stock Option, such
Marketable Securities as Optionee would have received if
Optionee had so exercised the Stock Option prior to such
Distribution Event or other Reorganization and had
participated therein (and in any and all subsequent
Distribution Events or other Reorganizations) to the maximum
extent allowed to holders of Shares (including any
Attributable Securities) outstanding at the time of such
Distribution Event or other Reorganization; (ii) that such
Marketable Securities shall be so issued and delivered to
Optionee pursuant to an effective registration statement
under the Securities Act of 1933, as amended, or otherwise
free of any restriction on resale thereof by Optionee, other
than any restriction on resale arising from Optionee's being
an Affiliate or Insider (as such terms are defined in the
Plan) of such issuer; (iii) that such Marketable Securities
shall be so issued and delivered without any agreement,
condition, payment or other consideration being required of
Optionee or the Company; (iv) that such issuer(s) shall at
all times reserve for issuance a sufficient amount of such
Marketable Securities to fulfill all obligations
contemplated hereunder; and (v) that upon each such
issuance, such Marketable Securities shall be duly
authorized, validly issued, fully paid and nonassessable.
The Company shall also provide for or require that: (x) in
the event any such issuer shall fail or be unable to issue
and deliver to Optionee any Marketable Securities as
provided in the preceding sentence, such issuer shall be
obligated, in lieu of issuing and delivering such Marketable
Securities, to pay to Optionee in cash, immediately upon
exercise of the Stock Option, the Market Value of such
Marketable Securities determined as of the date of exercise
of the Stock Option; and (y) in the event the Company is
obligated to make a cash payment to Optionee pursuant to
Paragraph 8(b), such issuer shall be obligated to reimburse
the Company for a part of such payment proportionate to the
Distributed Cash Value attributable to Attributable
Securities of such issuer compared to the total amount of
Distributed Cash Value.
(c) Right to Repurchase Stock Option. Upon receipt of
a notice of exercise, the Company shall have the right but
not the obligation to repurchase, and thereby to satisfy all
of the Company's obligations under, the Stock Option as to
the number of Option Shares as to which the Stock Option is
exercised by paying Optionee in cash an amount, net of any
taxes required to be withheld, equal to the sum of (A) the
product of (i) the number of Option Shares as to which the
Stock Option is exercised multiplied by (ii) the amount,
determined as of such date of exercise, equal to the
remainder of (x) the Market Value of one Option Share minus
(y) the Option Price plus (B) the amount of cash, if any,
payable to Optionee pursuant to Paragraph 8(b).
8. Adjustments.
-----------
(a) In the event of any one or more Distribution
Events or other Reorganizations affecting the Stock Option
and not already adjusted for under Paragraph 7, the Option
Price and the number of Option Shares subject to the Stock
Option shall be appropriately adjusted by the Board of
Directors. In addition, the Board of Directors shall, as
permitted by Section 3.2, Section 16.2 and other provisions
of the Plan, construe and interpret the Plan and this Stock
Option Grant and make all appropriate adjustments in order
to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available to Optionee
under this Stock Option Grant and the Plan.
(b) Without limitation to the foregoing, in the event
that the amount of Distributed Cash Value as of any date of
exercise of the Stock Option is equal to or greater than
$9.4063 per Option Share, the Option Price shall be deemed
to be $.01 per Option Share and the Company, in addition to
issuing Option Shares to Optionee, shall pay to Optionee in
respect of each Option Share as to which the Stock Option is
exercised an amount of cash equal to the remainder of
(i) such amount of Distributed Cash Value per Option Share
minus (ii) $9.4063.
9. No Rights in Option Shares. Optionee shall have no
--------------------------
rights as a stockholder in respect of Option Shares until such
Optionee becomes the holder of record of such Option Shares.
10. Option Shares Reserved. The Company shall at all times
----------------------
during the Option Period reserve and keep available such number
of Shares as will be sufficient to satisfy the requirements of
this Stock Option.
11. Nontransferability of Stock Option. The Stock Option
----------------------------------
granted pursuant to this Stock Option Grant is not transferable
other than by will, the laws of descent and distribution or by
qualified domestic relations order. The Stock Option will be
exercisable during Optionee's lifetime only by Optionee or by
Optionee's guardian or legal representative. No right or benefit
hereunder shall in any manner be liable for or subject to any
debts, contracts, liabilities, or torts of Optionee.
12. Amendment and Termination. No amendment or termination
-------------------------
of the Stock Option shall be made by the Board of Directors or
the Committee (as defined in the Plan) at any time without the
written consent of Optionee. No amendment of the Plan will
adversely affect the rights, privileges and options of Optionee
under the Stock Option without the written consent of Optionee.
13. No Guarantee of Employment. The Stock Option shall not
--------------------------
confer upon Optionee any right with respect to continuance of
Employment or other service with the Company or any Subsidiary or
Affiliate, nor shall it interfere in any way with any right the
Company or any Subsidiary or Affiliate would otherwise have to
terminate such Optionee's Employment or other service at any
time.
14. Withholding of Taxes. The Company shall have the right
--------------------
to deduct or withhold, or require Optionee to remit to the
Company, an amount sufficient to satisfy all federal, state and
local taxes, domestic or foreign, required by law or regulation
to be withheld with respect to any taxable event arising under
this Stock Option Grant or any exercise or other action or event
hereunder.
15. No Guarantee of Tax Consequences. Neither the Company
--------------------------------
nor any Subsidiary or Affiliate, nor the Board of Directors or
any Committee, makes any commitment or guarantee that any federal
or state tax treatment will apply or be available to any person
eligible for benefits under the Stock Option.
16. Severability. In the event that any provision of the
------------
Stock Option shall be held illegal, invalid, or unenforceable for
any reason, such provision shall be fully severable, but shall
not affect the remaining provisions of the Stock Option, and the
Stock Option shall be construed and enforced as if the illegal,
invalid, or unenforceable provision had never been included
herein.
17. Governing Law. The Stock Option shall be construed in
-------------
accordance with the laws of the State of Texas to the extent
federal law does not supersede and preempt Texas law.
Executed effective as of the 2nd day of July, 1998.
"COMPANY"
KAISER ALUMINUM CORPORATION
By: /s/ George T. Haymaker, Jr.
Printed Name: George T. Haymaker,Jr.
-----------------------
Title: Chairman and CEO
-----------------
KAISER ALUMINUM & CHEMICAL CORPORATION
By: /s/ George T. Haymaker, Jr.
Printed Name: George T. Haymaker,Jr.
-----------------------
Title: Chairman and CEO
-----------------
Accepted effective as of the 10th day of July, 1998.
"OPTIONEE"
/s/ Raymond J. Milchovich
Printed Name: Raymond J. Milchovich
Title: President
Attachment II
Time-Based Stock Option Grant
Definitions Applicable to Certain Terms
"Affiliate" - see Section 2.1 of the Plan.
"Attributable Securities" - see the definition of "Option Share".
"Distributed Cash Value" means, as of any determination date, the
aggregate amount of cash (other than regular quarterly cash
dividends, if any) plus the aggregate value, as determined by the
Board of Directors as of the date of distribution, of all
property (other than cash and Attributable Securities)
distributed or set aside for distribution to the holder of one
Original Share and all Attributable Securities, if any, during
the period commencing January 1, 1998 and ending on the
determination date.
"Distribution Events" means any and all distributions, dividends,
recapitalizations, forward or reverse splits, reorganizations,
mergers, consolidations, spin-offs, combinations, repurchases,
share exchanges, or other similar or substantially equivalent
corporate transactions or events in which the holder of a
security becomes, as such, entitled to receive cash, securities
or other property in addition to or in exchange for or upon
conversion of such security.
"Employment" - see Paragraph 6 of this Stock Option Grant.
"Insider" - see Section 2.19 of the Plan.
"KAC" - see Paragraph 1 of this Stock Option Grant.
"KACC" - see Paragraph 1 of this Stock Option Grant.
"Market Value" means, as of any Trading Day, the average of the
highest and lowest sales prices as reported by the consolidated
tape (or, if such prices are not quoted, the average of the
quoted closing bid and asked prices) on such Trading Day for one
Option Share (including, as applicable, the Market Values of any
Attributable Securities). In the event that sales prices or
closing bid and asked prices are not quoted on a particular
Trading Day, the Market Value for that Trading Day shall be
deemed to be the Market Value for the immediately preceding
Trading Day. In the event that any Attributable Security shall
cease to be a Marketable Security, it shall thereupon be deemed
to have no further Market Value and shall be deemed instead to
have, as of the date it ceases to be a Marketable Security, such
Distributed Cash Value as shall be determined by the Board of
Directors.
"Marketable Securities" means securities (a) of a class that is
registered under the Securities Exchange Act of 1934, as amended,
(b) for which sales prices or bid and asked prices are regularly
quoted and (c) that, if issued and delivered to Optionee upon
exercise of the Stock Option, would not be subject to any
restriction on resale, other than any restriction arising from
Optionee's being an Affiliate or Insider (as such terms are
defined in the Plan) of the issuer of such Marketable Securities.
"Option Period" - see Paragraph 2 of this Stock Option Grant.
"Option Price" - see Paragraph 3 of this Stock Option Grant.
"Option Share" means (a) one Share as constituted on January 1,
1998 (an "Original Share") and (b) in the event of any one or
more successive Distribution Events, all Marketable Securities
("Attributable Securities") into which or for which an Original
Share or any Attributable Securities may be converted or
exchanged or that a Stockholder may have the right to receive in
respect of such Original Share or Attributable Securities.
"Optionee" - see Paragraph 1 of this Stock Option Grant.
"Original Share" - see the definition of "Option Share".
"Plan" - see Paragraph 1 of this Stock Option Grant.
"Qualified Service Period" means the period from and including
January 1, 1998 through and including the earlier of (a) December
31, 2002 or (b) the date immediately preceding the date of
termination of Optionee's Employment; provided, however, that if
-------- --------
Optionee's Employment has not terminated prior to the date that a
proposed transaction is announced by KAC that would cause KAC to
experience a change in control and such transaction is
subsequently consummated so that KAC experiences a change in
control, then Optionee's Qualified Service Period shall be deemed
to continue through the date of consummation of such transaction
and change in control unless Optionee's Employment is terminated
by the Company for Cause or by Optionee .
"Reorganization" - see Section 7(a) of this Stock Option Grant.
"Share" means one share of common stock, par value $.01 per
share, of KAC.
"Stock Option" - see Paragraph 1 of this Stock Option Grant.
"Subsidiary" - see Section 2.32 of the Plan. For avoidance of
doubt, KACC shall be considered a Subsidiary of KAC so long as
KAC has a majority voting interest in KACC, and KAC shall be
considered to have a majority voting interest whether it holds
such interest directly or indirectly through one or more
Subsidiaries.
"Trading Day" means as to an Option Share (including any
Attributable Securities) a day when the New York Stock Exchange
(or other principal securities exchange, including Nasdaq, on
which such securities are traded) is open.
EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") is made effective for the
period from January 1, 1998 to December 31, 2002, (such term
being hereinafter referred to as the "Employment Period") between
Kaiser Aluminum & Chemical Corporation, a Delaware corporation
("Company"), and John T. La Duc ("Executive").
WHEREAS, Executive is currently employed by the Company as a
senior executive; and
WHEREAS, the Company desires to secure the services of
Executive as Executive Vice President and Chief Financial
Officer, and Executive desires to perform such services for the
Company, on the terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements set forth below, it is mutually agreed
as follows:
1. Effective Date, Term and Duties. The term of
-------------------------------
employment of Executive by the Company hereunder shall be deemed
to have commenced on January 1, 1998 and end on December 31,
2002, (the "Employment Period") unless earlier terminated
pursuant to Section 4.
Executive shall have such duties as the Company may from
time to time prescribe consistent with his position as Executive
Vice President and Chief Financial Officer of the Company (the
"Services"). Executive shall report directly to the Chief
Executive Officer of the Company. Executive shall devote his
full time, attention, energies and best efforts to the business
of the Company. The Company shall maintain an office for
Executive in Houston, Texas.
2. Compensation. The Company shall pay and Executive
------------
shall accept as full consideration for the Services compensation
consisting of the following:
2.1 Base Salary. Effective June 1, 1998, $350,000 per
-----------
year base salary, payable in installments in accordance with the
Company's normal payroll practices, less such deductions or
withholdings required by law. Base Salary shall be reviewed
annually by the Compensation Committee of the Company to evaluate
the performance of Executive and his duties hereunder, and in any
event will be adjusted for inflation consistent with the general
program of increases for other executives and management
employees.
2.2 Annual Bonus. A target bonus of $200,000
------------
(adjusted for inflation as determined by the Company's
Compensation Committee) per year ("Target Annual Bonus") shall be
payable based on the attainment by the Company of the Short-Term
Bonus Plan Objectives under the Company's Executive Bonus Plan
for each such year, which such Short-Term Bonus Plan Objectives
shall be agreed upon by the Executive and the Company annually
and shall be consistent with the Company's business plan for the
relevant year.
2.3 Long-Term Compensation. During June 1998 Executive
----------------------
shall receive a stock option grant of 468,750 shares under the
Company's Stock Option Plan, which is a grant equivalent to a
value of five times Executive's annual long term incentive target
of $465,000, determined using Black Scholes methodology and
assumptions as described in Schedule A and with an exercise price
of $9.3125. The options will have an exercise period of five
years from date of grant. Such options shall be in lieu of any
payment of long-term incentive compensation under the Company's
Executive Bonus Plan ("Plan") for the five year period beginning
January 1, 1998, although Executive shall be eligible for
additional option grants at the discretion of the Company's
Compensation Committee. The options shall vest at the rate of 20%
per year, beginning on December 31, 1998, unless Executive's
service is terminated by the Company for any reason other than
for "Cause, or Executive terminates his employment for "Good
Reason" or in event of a Change in Control, in which cases
vesting of all outstanding options is accelerated as provided in
Section 4.
Such option grant shall provide that upon exercise of any
option, Executive will be entitled to receive shares pursuant to
the Company's Stock Option Plan but also any securities that have
been distributed in respect to such shares. For example, if the
Company were to spin off part of its business as a new company
and distribute to its stockholders one share of stock of the new
company for each one share of stock under the Company's Stock
Option Plan, then, upon a subsequent exercise by Executive of the
stock options under the Company's Stock Option Plan, Executive
would also receive one new company share along with one share
under the Company's Stock Option Plan. All such grants shall be
governed by the Company's Stock Option Plan and by the agreement
executed by the Company and Executive at the time of the option
grant.
2.4 Indemnification. In the event Executive is made,
----------------
or threatened to be made, a party to any legal action or
proceeding, whether civil or criminal, by reason of the fact that
Executive is or was a director or officer of the Company or
serves or served any other corporation fifty percent (50%) or
more owned or controlled by the Company in any capacity at the
Company's request, Executive shall be indemnified by the Company,
and the Company shall pay Executive's related expenses when and
as incurred, all to the fullest extent permitted by law,
provided, however, that the Company shall have the right of
defense to any action or proceeding.
3. Benefits during Employment Period. Employee will be
---------------------------------
eligible to participate in the Company's employee benefit plans
of general application, including, without limitation, those
plans covering medical, disability and life insurance in
accordance with the rules established for individual
participation in any such plan and under applicable law.
Employee will be eligible for vacation and sick leave in
accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company
generally provides to its other employees of comparable position
and experience.
4. Benefits Upon Termination. Notwithstanding anything in
-------------------------
the Agreement to the contrary, if (i) Executive's employment is
terminated during the Employment Period for any reason other than
(a) termination by the Company for "Cause" (as defined in
Subsection 4.1), (b) acceptance by Executive of an offer of
employment with an affiliate of the Company, or (c) a voluntary
termination by Executive for other than "Good Reason"; or (ii)
Executive's employment terminates by the expiration of the
Employment Period without an offer for continued employment by
the Company for a position of responsibility comparable to that
held by Executive at the beginning of the Employment Period and
on substantially the same or improved terms and conditions, then
Executive will be entitled to receive the following benefits:
(A) An Early Retirement Lump Sum Payment by the
Company as described below:
The Early Retirement Lump Sum Payment by the
Company shall be equal to excess, if any, of the sum of (i) plus
(ii) less the amount computed in accordance with (iii).
(i) The lump sum benefit from the Kaiser
Aluminum Salaried Employees Retirement Plan (KRP) that the
Executive would have been entitled to as of the date of his
actual termination calculated, for this purpose, as if the terms
of KRP in effect on such date were identical to the terms of KRP
in effect on the effective date of this Agreement (except for
such changes required to maintain the qualified status of KRP),
and as if: the Executive qualified for a KRP Full Early
Retirement Pension, provided, however, in calculating such
amount, his actual age, credited service, social security
benefits and final average monthly compensation in effect on the
date of his actual termination shall be used as well as the daily
yields on longer term treasury issues and the PBGC applicable
interest rates in effect on such date.
(ii)The lump sum benefit from the Kaiser
Aluminum Supplemental Benefits Plan (KASBP) based on KRP
limitations, that the Executive would have been entitled to as of
the date of his actual termination calculated, for this purpose,
as if: (i) the terms of KASBP in effect on such date were
identical to the terms of KASBP in effect on the effective date
of this Agreement, (ii) the Executive qualified for a KRP Full
Early Retirement Pension and (iii) the other assumptions set
forth in "(i)" above including interest rates were in effect in
calculating the benefits under Section C-2(a) and (b) of KASBP.
(iii) An amount equal to the lump sum actuarial
equivalent of (a) the Executive's actual benefit payable from KRP
on account of his actual termination, plus (b) the Executive's
actual benefit payable from KASBP based on KRP limitations on
account of his actual termination.
(B) Full health benefits as if the Executive had qualified
for an Early Retirement Pension.
(C) A lump sum amount equal to Executive's base salary as of
the date of Executive's termination for a period equal to the
greater of (i) the number of months remaining in the Employment
Period or (ii) two years. In addition, Executive shall be
entitled to receive Executive's Target Annual Bonus for the year
of termination (but no less than $200,000) in one lump sum
payment. Such salary and Target Annual Bonus payments shall be
referred to as "Termination Pay". Such Termination Pay shall be
in lieu of any claims Executive may have had with respect to
termination benefits.
(D) All of the unvested stock options held by Executive on
the date of such termination that would have vested during the
Employment Period shall immediately vest and become exercisable
in full for the remaining portion of the period of five years
from date of grant.
4.1 Circumstances Under Which Termination Benefits
----------------------------------------------
Would Not Be Paid. The Company shall not be obligated to pay
- -----------------
Executive the termination benefits pursuant to Section 4 if the
Executive's employment is terminated for Cause. For purposes of
this Agreement, "Cause" shall be limited to (1) Executive's gross
misconduct or fraud, in the performance of his employment; (2)
Executive's conviction or guilty plea with respect to any felony
(except for motor vehicle violations); or (3) Executive's
material breach of this Agreement after written notice delivered
to Executive of such breach and a reasonable opportunity to cure
such breach.
4.2 Constructive Termination. Notwithstanding
------------------------
anything in this Section 4 or Section 5 to the contrary, the
Employment Period will be deemed to have been terminated (a
"Constructive Termination") and Executive will be deemed to have
Good Reason for voluntary termination of the Employment Period
("Good Reason"), if there should occur:
(A) a material adverse change in Executive's position
causing it to be of materially less stature or responsibility
without Executive's written consent, and such a materially
adverse change shall in all events be deemed to occur if
Executive no longer serves as Executive Vice President and Chief
Financial Officer reporting to the Chief Executive Officer,
unless Executive consents in writing to such change;
(B) a reduction, without Executive's written consent,
in his level of base compensation (including base salary and
fringe benefits) by more than ten percent (10%) or a reduction by
more than ten percent (10%) in his Target Annual Bonus under the
Short-Term Incentive Plan; or
(C) a relocation of his principal place of employment
by more than 50 miles without Executive's consent.
4.3 Termination by Reason of Death or Disability. In
---------------------------------------------
the event of Employee's death during the Employment Period, the
Company shall pay to Employee or Employee's estate Employee's
Target Annual Bonus for the Company's fiscal year in which death
occurred or, if no such Target Annual Bonus has been scheduled,
an amount equal to the Target Annual Bonus paid to Employee for
the Company's fiscal year immediately preceding the year in which
death occurred. In addition, Employee's estate will receive
payment for all salary, bonuses and unpaid vacation accrued as of
the date of Employee's death and any other benefits payable under
the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of
death and in accordance with applicable law. In the event that,
during the term of this Agreement, Employee is unable to perform
his job due to disability (as determined under the Company's
long-term disability insurance program) for six (6) months in any
twelve (12) month period, the Company may, at its election,
terminate Employee's employment with the Company and such
termination shall be deemed to be a termination by the Company
other than for Cause and Employee shall be entitled to receive
the benefits set forth in Section 4 hereof.
5. Change in Control
-----------------
Should there occur a Change in Control (as defined
below), then the following provisions shall become applicable:
(A) During the period (if any) following a Change in
Control that Executive shall continue to provide the Services,
then the terms and provisions of this Agreement shall continue in
full force and effect, and Executive shall continue to vest in
all of his unvested stock options; or
(B) In the event of (x) a termination of the
employment by the Company other than for Cause or (y) a
termination of employment by Executive for any reason within
twelve (12) months following such Change in Control, the benefits
listed in Section 4 shall become due and payable.
For purposes of this Section 5, a Change of Control
shall be deemed to occur upon:
(I) the sale, lease, conveyance or other disposition
of all or substantially all of the Company's assets as an
entirety or substantially as an entirety to any person, entity or
group of persons acting in concert other than in the ordinary
course of business;
(II) any transaction or series of related transactions
(as a result of a tender offer, merger, consolidation or
otherwise) that results in any Person (as defined in Section
13(h)(8)(E) under the Securities Exchange Act of 1934) becoming
the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of more
than 50% of the aggregate voting power of all classes of common
equity of the Company, except if such Person is (A) a subsidiary
of the Company, (B) an employee stock ownership plan for
employees of the Company or (C) a company formed to hold the
Company's common equity securities and whose shareholders
constituted, at the time such company became such holding
company, substantially all the shareholders of the Company; or
(III) a change in the composition of the Company's
Board of Directors over a period of thirty-six (36) consecutive
months or less such that a majority of the then current Board
members ceases to be comprised of individuals who either (a) have
been Board members continuously since the beginning of such
period, or (b) have been elected or nominated for election as
Board members during such period by at least a majority of the
Board members described in clause (a) who were still in office at
the time such election or nomination was approved by the Board.
In the event that the severance and other benefits provided
to Executive (i) constitute "parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) but for this Section 5, such
severance and benefits would be subject to the excise tax imposed
by Section 4999 of the Code, then Executive's severance benefits
under this Section 5 shall be payable either:
(a) in full,
(b) as to such lesser amount which would result in no
portion of such severance and other benefits being subject to
excise tax under Section 4999 of the Code, whichever of the
foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by Executive on an after-tax
basis, of the greatest amount of severance benefits under Section
5. Unless the Company and Executive otherwise agree in writing,
any determination required under this Section 5 shall be made in
writing by independent public accountants agreed to by the
Company and Executive (the "Accountants"), whose determination
shall be conclusive and binding upon Executive and the Company
for all purposes. For purposes of making the calculations
required by this Section 5, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and
may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order
to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section 5.
6. Dispute Resolution. The Company and Executive agree
------------------
that any dispute regarding the interpretation or enforcement of
this Agreement shall be decided by confidential, final and
binding arbitration conducted by Judicial Arbitration and
Mediation Services ("JAMS") under the then-existing JAMS rules,
rather than by litigation in court, trial by jury, administrative
proceeding, or in any other forum.
7. Cooperation with the Company After Termination of the
-----------------------------------------------------
Employment Period. Following termination of the Employment
- ------------------
Period by Executive, Executive shall fully cooperate with the
Company in all matters relating to the winding up of his pending
work on behalf of the Company and the orderly transfer of any
such pending work to other employees of the Company as may be
designated by the Company.
8. Confidentiality; Return of Property. Executive
-----------------------------------
acknowledges that the Employee Invention and Confidential
Information Agreement executed by Executive shall continue in
effect.
9. General.
-------
9.1 Waiver. Neither party shall, by mere lapse of
------
time, without giving notice or taking other action hereunder, be
deemed to have waived any breach by the other party of any of the
provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other shall
neither be construed as, nor constitute a, continuing waiver of
such breach or of other breaches by the same or any other
provision of this Agreement.
9.2 Severability. If for any reason a court of
------------
competent jurisdiction or arbitrator finds any provision of this
Agreement to be unenforceable, the provision shall be deemed
amended as necessary to conform to applicable laws or
regulations, or if it cannot be so amended without materially
altering the intention of the parties, the remainder of the
Agreement shall continue in full force and effect as if the
offending provision were not contained herein.
9.3 No Mitigation. Executive shall have no duty to
mitigate the Company's obligation with respect to the termination
payments set forth in Sections 4 or 5 by seeking other employment
following termination of his employment, nor shall such
termination payments be subject to offset or reductions by reason
of any compensation received by Executive from such other
employment. The Company's obligations to make payments under
Sections 4 or 5 shall not terminate in the event executive
accepts other full time employment.
9.4 Notices. All notices and other communications
-------
required or permitted to be given under this Agreement shall be
in writing and shall be considered effective upon personal
service or upon depositing such notice in the U.S. Mail, postage
prepaid, return receipt requested and addressed to the Chairman
of the Board of the Company as its principal corporate address,
and to Executive at his most recent address shown on the
Company's corporate records, or at any other address which he may
specify in any appropriate notice to the Company.
9.5 Counterparts. This Agreement may be executed in
------------
any number of counterparts, each of which shall be deemed an
original and all of which taken together constitutes one and the
same instrument and in making proof hereof it shall not be
necessary to produce or account for more than one such
counterpart.
9.6 Entire Agreement. The parties hereto acknowledge
----------------
that each has read this Agreement, understands it, and agrees to
be bound by its terms. The parties further agree that this
Agreement and the referenced stock option agreement constitute
the complete and exclusive statement of the agreement between the
parties and supersedes all proposals (oral or written),
understandings, representations, conditions, covenants, and all
other communications between the parties relating to the subject
matter hereof. The parties further agree that this Agreement
supersedes the employment agreement between the Company and
Executive dated October 28, 1996. Notwithstanding anything to
the contrary, Sections 4 and 5 of this Agreement shall govern all
options issued to Executive by the Company prior to and after the
effective date of this Agreement.
9.7 Governing Law. This Agreement shall be governed
-------------
by the law of the State of Texas.
9.8 Assignment and Successors. The Company shall have
-------------------------
the right to assign its rights and obligations under this
Agreement to an entity which acquires substantially all of the
assets of the Company. The rights and obligation of the Company
under this Agreement shall inure to the benefit and shall be
binding upon the successors and assigns of the Company.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the date first above written.
KAISER ALUMINUM & CHEMICAL
CORPORATION
By: /s/ George T. Haymaker, Jr.
---------------------------
Name: George T. Haymaker, Jr.
------------------------
Title: Chief Executive Officer
------------------------
EXECUTIVE
/s/ John T. La Duc
- ------------------------------
John T. La Duc
Schedule A
Assumptions in Calculation of Options
Option Value: $4.96
Stock Price: $9.3125
Risk Free Rate: 5.80% (The risk-free interest rate based on
estimated 5-year T-Bond rate
Term of Option: 5 years from Grant Date (1825 days)
Volatility Rate: 42.86% (Stock volatility derived from 3 years
of monthly data: 2/95 - 2/98
Annual Dividend: $0.00
As a result, to grant $2,325,000 of value, the number of options
necessary will be 468,750.
TIME-BASED STOCK OPTION GRANT
PURSUANT TO THE KAISER
1997 OMNIBUS STOCK INCENTIVE PLAN
1. Grant of Stock Option. Kaiser Aluminum Corporation
---------------------
("KAC") and Kaiser Aluminium & Chemical Corporation ("KACC"),
both Delaware corporations (collectively, the "Company"), hereby
evidence that the Company has granted to JOHN T. LA DUC
("Optionee") the right, privilege and option as herein set forth
(the "Stock Option") to purchase 468,750 shares of common stock,
$.01 par value per share, of KAC (as more fully described in
Optionee's Employment Agreement (the "Employment Agreement) with
the Company attached herewith as Attachment I, which is
incorporated herein and made a part hereof, the "Option Shares")
in accordance with the terms of this document (this "Stock Option
Grant").
The Stock Option is granted pursuant to the Kaiser 1997
Omnibus Stock Incentive Plan (the "Plan") and is subject to the
provisions of the Plan, a copy of which has been furnished to
Optionee and which is hereby incorporated in and made a part of
this Stock Option Grant, as well as to the provisions of this
Stock Option Grant. By acceptance of the Stock Option, Optionee
agrees to be bound by all of the terms, provisions, conditions
and limitations of the Plan and this Stock Option Grant.
All capitalized terms used herein shall have the meanings
provided in the Plan document unless otherwise specifically
provided in this Stock Option Grant or the Employment Agreement,
including Attachment II attached herewith, which is incorporated
-------------
herein and made a part hereof. The Stock Option is a
Nonqualified Stock Option under the Plan and is not intended to
qualify as an "incentive stock option" within the meaning of
Section 422 of the Code.
All Option Shares, when issued to Optionee upon the exercise
of this Stock Option, shall be fully paid and nonassessable.
2. Option Term. Subject to earlier termination as
-----------
provided herein, or in the Plan, the Stock Option shall expire on
July 10, 2003. The period during which the Stock Option is in
effect shall be referred to as the "Option Period".
3. Option Exercise Price. The exercise price per Option
----------------------
Share (including any Attributable Securities, as defined in
Attachment II) (the "Option Price") at which Optionee may
- -------------
purchase such Option Shares subject to the Stock Option shall be
equal to the remainder of (i) $9.3125 per Option Share minus (ii)
the amount per Option Share of Distributed Cash Value (as defined
in Attachment II) determined as of the date of exercise. Such
-------------
Option Price shall also be subject to adjustment as provided in
the Plan and this Stock Option Grant. The Company shall notify
Optionee within thirty (30) days of each change in the Option
Price.
4. Vesting. The Stock Option may be exercised during the
-------
Option Period only to the extent it has become a "Vested Option".
Provided Optionee's Qualified Service Period (as defined in
Attachment II) has not previously terminated, the Stock Option
- -------------
shall become a "Vested Option" as to 20% of the Option Shares as
of 12:01 a.m. Houston time on December 31, 1998, and an
additional 20% of the Option Shares as of 12:01 a.m. Houston time
on December 31, 1999, 2000, 2001, and 2002 respectively.
Notwithstanding the preceding sentence, the Stock Option shall
become a "vested Option" to the extent that Sections 2, 3, 4 or 5
of the Employment agreement provide that the Stock Option shall
vest and become exercisable.
5. Method of Exercise. To exercise the Stock Option,
------------------
Optionee shall deliver written notice to the Company stating the
number of Option Shares with respect to which the Stock Option is
being exercised together with payment for such Option Shares.
Payment shall be made (i) in cash or its equivalent, (ii) by
tendering previously acquired Shares having an aggregate Fair
Market Value (as defined in the Plan) at the time of exercise
equal to the total Option Price (provided that the Shares which
are tendered must have been held by Optionee for at least six
months prior to their tender to satisfy the Option Price) or
(iii) by a combination of (i) and (ii).
6. Termination of Optionee's Employment. Termination of
------------------------------------
Optionee's employment as a regular full-time salaried employee of
KAC, a Subsidiary (as defined in Attachment II), or any branch,
-------------
unit or division of KAC or any Subsidiary ("Employment") shall
affect Optionee's rights under the Stock Option as follows:
(a) Termination by the Company for Cause. If Optionee's
Employment is terminated by the Company at any time for Cause,
(as defined in the Employment Agreement), then (i) the Option
Period shall terminate and (ii) Optionee's right to exercise
the Stock Option shall terminate, in each case immediately
upon Optionee's becoming subject to termination of Employment
for Cause.
(b) Termination by the Company Other than for Cause. If
Optionee's Employment is terminated by the Company prior to
January 1, 2003 other than as a result of termination of
Optionee's Employment for Cause, (as defined in the Employment
Agreement), then (i) the Stock Option and the Option Period
shall not terminate and (ii) the Stock Option shall thereafter
be exercisable as to all Option Shares from and including the
date of such termination through and including the end of the
Option Period.
(c) Other Termination. If Optionee's Qualified Service
Period terminates prior to January 1, 2003 other than as a
result of termination of Optionee's Employment by the Company,
then (i) the Stock Option and the Option Period shall not
terminate but the Stock Option shall thereafter be exercisable
in accordance with the provisions of Sections 2, 3, 4 or 5 of
the Employment Agreement.
The Stock Option may be exercised by Optionee or, in the case
of death, by the executor or administrator of Optionee's estate,
or the person or persons to whom Optionee's rights under the
Stock Option shall pass by will or by the applicable laws of
descent and distribution, or in the case of Disability (as
defined in the Employment Agreement), by Optionee's personal
representative consistent with the provisions of the Employment
Agreement.
7. Reorganizations; Repurchase of Stock Option.
-------------------------------------------
(a) Freedom to Reorganize the Company and Subsidiaries.
The existence of the Stock Option shall not affect in any way
the right or power of the Company and its Subsidiaries or the
issuers of Attributable Securities or its or their
stockholders to make or authorize any and all Distribution
Events (as defined in Attachment II) and any and all other
--------------
adjustments, recapitalizations, reorganizations or other
changes in the capital structure or business of the Company or
its Subsidiaries or the issuers of Attributable Securities,
any and all issuances of bonds, debentures, common stock,
preferred or prior preference stock, warrants, rights or other
securities, whether or not affecting the Option Shares or the
rights thereof, any dissolution or liquidation of the Company
or any Subsidiary, any sale or other divestiture or transfer
of all or any part of the assets or business of the Company or
any Subsidiary or any issuer of Attributable Securities and
any and all other corporate acts or proceedings, whether of a
similar character or otherwise (collectively, including any
Distribution Events, collectively, "Reorganizations").
(b) Spin-Offs. If the Board of Directors authorizes any
Distribution Event or other Reorganization as a result of
which holders of Shares (as defined in Attachment II) become
--------------
entitled, in their capacities as holders, to receive
Marketable Securities, the Board of Directors shall, to the
extent reasonably practicable, cause the Company to provide
for or require: (i) that the issuer(s) of such Marketable
Securities shall undertake to issue and deliver to Optionee,
upon any subsequent exercise of the Stock Option, such
Marketable Securities as Optionee would have received if
Optionee had so exercised the Stock Option prior to such
Distribution Event or other Reorganization and had
participated therein (and in any and all subsequent
Distribution Events or other Reorganizations) to the maximum
extent allowed to holders of Shares (including any
Attributable Securities) outstanding at the time of such
Distribution Event or other Reorganization; (ii) that such
Marketable Securities shall be so issued and delivered to
Optionee pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or otherwise free of
any restriction on resale thereof by Optionee, other than any
restriction on resale arising from Optionee's being an
Affiliate or Insider (as such terms are defined in the Plan)
of such issuer; (iii) that such Marketable Securities shall be
so issued and delivered without any agreement, condition,
payment or other consideration being required of Optionee or
the Company; (iv) that such issuer(s) shall at all times
reserve for issuance a sufficient amount of such Marketable
Securities to fulfill all obligations contemplated hereunder;
and (v) that upon each such issuance, such Marketable
Securities shall be duly authorized, validly issued, fully
paid and nonassessable. The Company shall also provide for or
require that: (x) in the event any such issuer shall fail or
be unable to issue and deliver to Optionee any Marketable
Securities as provided in the preceding sentence, such issuer
shall be obligated, in lieu of issuing and delivering such
Marketable Securities, to pay to Optionee in cash, immediately
upon exercise of the Stock Option, the Market Value of such
Marketable Securities determined as of the date of exercise of
the Stock Option; and (y) in the event the Company is
obligated to make a cash payment to Optionee pursuant to
Paragraph 8(b), such issuer shall be obligated to reimburse
the Company for a part of such payment proportionate to the
Distributed Cash Value attributable to Attributable Securities
of such issuer compared to the total amount of Distributed
Cash Value.
(c) Right to Repurchase Stock Option. Upon receipt of a
notice of exercise, the Company shall have the right but not
the obligation to repurchase, and thereby to satisfy all of
the Company's obligations under, the Stock Option as to the
number of Option Shares as to which the Stock Option is
exercised by paying Optionee in cash an amount, net of any
taxes required to be withheld, equal to the sum of (A) the
product of (i) the number of Option Shares as to which the
Stock Option is exercised multiplied by (ii) the amount,
determined as of such date of exercise, equal to the remainder
of (x) the Market Value of one Option Share minus (y) the
Option Price plus (B) the amount of cash, if any, payable to
Optionee pursuant to Paragraph 8(b).
8. Adjustments.
-----------
(a) In the event of any one or more Distribution Events or
other Reorganizations affecting the Stock Option and not
already adjusted for under Paragraph 7, the Option Price and
the number of Option Shares subject to the Stock Option shall
be appropriately adjusted by the Board of Directors. In
addition, the Board of Directors shall, as permitted by
Section 3.2, Section 16.2 and other provisions of the Plan,
construe and interpret the Plan and this Stock Option Grant
and make all appropriate adjustments in order to prevent
dilution or enlargement of the benefits or potential benefits
intended to be made available to Optionee under this Stock
Option Grant and the Plan.
(b) Without limitation to the foregoing, in the event that
the amount of Distributed Cash Value as of any date of
exercise of the Stock Option is equal to or greater than
$9.3125 per Option Share, the Option Price shall be deemed to
be $.01 per Option Share and the Company, in addition to
issuing Option Shares to Optionee, shall pay to Optionee in
respect of each Option Share as to which the Stock Option is
exercised an amount of cash equal to the remainder of (i) such
amount of Distributed Cash Value per Option Share minus
(ii) $9.3125.
9. No Rights in Option Shares. Optionee shall have no
--------------------------
rights as a stockholder in respect of Option Shares until such
Optionee becomes the holder of record of such Option Shares.
10. Option Shares Reserved. The Company shall at all times
----------------------
during the Option Period reserve and keep available such number
of Shares as will be sufficient to satisfy the requirements of
this Stock Option.
11. Nontransferability of Stock Option. The Stock Option
----------------------------------
granted pursuant to this Stock Option Grant is not transferable
other than by will, the laws of descent and distribution or by
qualified domestic relations order. The Stock Option will be
exercisable during Optionee's lifetime only by Optionee or by
Optionee's guardian or legal representative. No right or benefit
hereunder shall in any manner be liable for or subject to any
debts, contracts, liabilities, or torts of Optionee.
12. Amendment and Termination. No amendment or termination
-------------------------
of the Stock Option shall be made by the Board of Directors or
the Committee (as defined in the Plan) at any time without the
written consent of Optionee. No amendment of the Plan will
adversely affect the rights, privileges and options of Optionee
under the Stock Option without the written consent of Optionee.
13. No Guarantee of Employment. The Stock Option shall not
--------------------------
confer upon Optionee any right with respect to continuance of
Employment or other service with the Company or any Subsidiary or
Affiliate, nor shall it interfere in any way with any right the
Company or any Subsidiary or Affiliate would otherwise have to
terminate such Optionee's Employment or other service at any
time.
14. Withholding of Taxes. The Company shall have the right
--------------------
to deduct or withhold, or require Optionee to remit to the
Company, an amount sufficient to satisfy all federal, state and
local taxes, domestic or foreign, required by law or regulation
to be withheld with respect to any taxable event arising under
this Stock Option Grant or any exercise or other action or event
hereunder.
15. No Guarantee of Tax Consequences. Neither the Company
--------------------------------
nor any Subsidiary or Affiliate, nor the Board of Directors or
any Committee, makes any commitment or guarantee that any federal
or state tax treatment will apply or be available to any person
eligible for benefits under the Stock Option.
16. Severability. In the event that any provision of the
------------
Stock Option shall be held illegal, invalid, or unenforceable for
any reason, such provision shall be fully severable, but shall
not affect the remaining provisions of the Stock Option, and the
Stock Option shall be construed and enforced as if the illegal,
invalid, or unenforceable provision had never been included
herein.
17. Governing Law. The Stock Option shall be construed in
-------------
accordance with the laws of the State of Texas to the extent
federal law does not supersede and preempt Texas law.
Executed effective as of the 10th day of July, 1998.
"COMPANY"
KAISER ALUMINUM CORPORATION
By: /s/ George T. Haymaker, Jr.
Printed Name: George T. Haymaker,Jr.
----------------------
Title: Chairman and CEO
----------------
KAISER ALUMINUM & CHEMICAL CORPORATION
By: /s/ George T. Haymaker, Jr.
Printed Name: George T. Haymaker, Jr.
-----------------------
Title: Chairman and CEO
----------------
Accepted effective as of the 10th day of July, 1998.
"OPTIONEE"
/s/ John T. La Duc
Printed Name: John T. La Duc
---------------
Title: Executive Vice President and
Chief Financial Officer
-----------------------------
Attachment II
Time-Based Stock Option Grant
Definitions Applicable to Certain Terms
"Affiliate" see Section 2.1 of the Plan.
"Attributable Securities" see the definition of "Option Share".
"Distributed Cash Value" means, as of any determination date, the
aggregate amount of cash (other than regular quarterly cash
dividends, if any) plus the aggregate value, as determined by the
Board of Directors as of the date of distribution, of all
property (other than cash and Attributable Securities)
distributed or set aside for distribution to the holder of one
Original Share and all Attributable Securities, if any, during
the period commencing January 1, 1998 and ending on the
determination date.
"Distribution Events" means any and all distributions, dividends,
recapitalizations, forward or reverse splits, reorganizations,
mergers, consolidations, spin-offs, combinations, repurchases,
share exchanges, or other similar or substantially equivalent
corporate transactions or events in which the holder of a
security becomes, as such, entitled to receive cash, securities
or other property in addition to or in exchange for or upon
conversion of such security.
"Employment" see Paragraph 6 of this Stock Option Grant.
"Insider" see Section 2.19 of the Plan.
"KAC" see Paragraph 1 of this Stock Option Grant.
"KACC" see Paragraph 1 of this Stock Option Grant.
"Market Value" means, as of any Trading Day, the average of the
highest and lowest sales prices as reported by the consolidated
tape (or, if such prices are not quoted, the average of the
quoted closing bid and asked prices) on such Trading Day for one
Option Share (including, as applicable, the Market Values of any
Attributable Securities). In the event that sales prices or
closing bid and asked prices are not quoted on a particular
Trading Day, the Market Value for that Trading Day shall be
deemed to be the Market Value for the immediately preceding
Trading Day. In the event that any Attributable Security shall
cease to be a Marketable Security, it shall thereupon be deemed
to have no further Market Value and shall be deemed instead to
have, as of the date it ceases to be a Marketable Security, such
Distributed Cash Value as shall be determined by the Board of
Directors.
"Marketable Securities" means securities (a) of a class that is
registered under the Securities Exchange Act of 1934, as amended,
(b) for which sales prices or bid and asked prices are regularly
quoted and (c) that, if issued and delivered to Optionee upon
exercise of the Stock Option, would not be subject to any
restriction on resale, other than any restriction arising from
Optionee's being an Affiliate or Insider (as such terms are
defined in the Plan) of the issuer of such Marketable Securities.
"Option Period" see Paragraph 2 of this Stock Option Grant.
"Option Price" see Paragraph 3 of this Stock Option Grant.
"Option Share" means (a) one Share as constituted on January 1,
1998 (an "Original Share") and (b) in the event of any one or
more successive Distribution Events, all Marketable Securities
("Attributable Securities") into which or for which an Original
Share or any Attributable Securities may be converted or
exchanged or that a Stockholder may have the right to receive in
respect of such Original Share or Attributable Securities.
"Optionee" see Paragraph 1 of this Stock Option Grant.
"Original Share" see the definition of "Option Share".
"Plan" see Paragraph 1 of this Stock Option Grant.
"Qualified Service Period" means the period from and including
January 1, 1998 through and including the earlier of (a) December
31, 2002 or (b) the date immediately preceding the date of
termination of Optionee's Employment; provided, however, that if
-------- --------
Optionee's Employment has not terminated prior to the date that a
proposed transaction is announced by KAC that would cause KAC to
experience a change in control and such transaction is
subsequently consummated so that KAC experiences a change in
control, then Optionee's Qualified Service Period shall be deemed
to continue through the date of consummation of such transaction
and change in control unless Optionee's Employment is terminated
by the Company for Cause or by Optionee .
"Reorganization" see Section 7(a) of this Stock Option Grant.
"Share" means one share of common stock, par value $.01 per
share, of KAC.
"Stock Option" see Paragraph 1 of this Stock Option Grant.
"Subsidiary" see Section 2.32 of the Plan. For avoidance of
doubt, KACC shall be considered a Subsidiary of KAC so long as
KAC has a majority voting interest in KACC, and KAC shall be
considered to have a majority voting interest whether it holds
such interest directly or indirectly through one or more
Subsidiaries.
"Trading Day" means as to an Option Share (including any
Attributable Securities) a day when the New York Stock Exchange
(or other principal securities exchange, including Nasdaq, on
which such securities are traded) is open.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of the Company for the nine months ended
September 30, 1998, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000054291
<NAME> KAISER ALUMINUM & CHEMICAL CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 97
<SECURITIES> 0
<RECEIVABLES> 304
<ALLOWANCES> 6
<INVENTORY> 520
<CURRENT-ASSETS> 1,040
<PP&E> 1,156
<DEPRECIATION> 67
<TOTAL-ASSETS> 2,988
<CURRENT-LIABILITIES> 547
<BONDS> 963
20
2
<COMMON> 15
<OTHER-SE> 146
<TOTAL-LIABILITY-AND-EQUITY> 2,988
<SALES> 1,753
<TOTAL-REVENUES> 1,753
<CGS> 1,466
<TOTAL-COSTS> 1,466
<OTHER-EXPENSES> 156
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 48
<INCOME-TAX> 9
<INCOME-CONTINUING> 41
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
