<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
<TABLE>
<S> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER 1-12374
ALUMAX INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-2762395
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
</TABLE>
3424 PEACHTREE ROAD, N.E., SUITE 2100
ATLANTA, GEORGIA 30326
(PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (404) 846-4600
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<C> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
Common Stock, $0.01 par value per share New York Stock Exchange
(including Stock Purchase
Rights relating thereto)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
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 at least the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of January 31, 1998, 53,424,939 shares of the common stock of the
registrant were issued and outstanding. The aggregate market value of the common
stock held by non-affiliates of the registrant was $1,822,145,616 as determined
by the January 31, 1998 closing price of $34.875 for one share of common stock
on the New York Stock Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders of the registrant to
be held on May 28, 1998. Certain information therein is incorporated by
reference into Part III hereof.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Alumax Inc. ("Alumax" or the "Company") is the third largest aluminum
company in the United States and the fourth largest in North America, based on
sales, and operates over 70 plants and other manufacturing and distribution
facilities in 22 states, Canada, Western Europe, Mexico, Australia, the People's
Republic of China and Poland. The Company is an integrated producer of aluminum
products, operating in a single segment: aluminum processing. Using alumina
purchased from one principal supplier, the Company produces primary aluminum
employing an electrolytic process at five reduction plants in the United States
and Canada. Primary products are sold externally or further processed by Alumax
into a broad range of semi-fabricated and fabricated products. The Company's
products are sold to a wide variety of markets, including transportation,
distributors, building and construction, consumer durables, and packaging.
Since becoming an independent public corporation in November 1993, Alumax
has taken several significant steps to increase stockholder value, position the
Company for future growth and strengthen its balance sheet. Alumax has devised
and implemented a four-point business strategy designed to (i) enhance the
Company's position as a low-cost producer of primary aluminum; (ii) grow in
transportation, aluminum's largest and fastest growing market; (iii) emphasize
the manufacture of more specialized, value-added products; and (iv) expand in
emerging global markets where the Company believes it will be able to capitalize
on its product strengths.
The four-point strategy has been complemented by the Company's continuing
efforts to increase its operational strengths and efficiencies, principally by
improving its business and product mix, enhancing the market share and unit
volume growth prospects of its downstream businesses, reducing controllable
costs and improving productivity. The Company has reconfigured its asset base by
(i) disposing of various businesses and assets which did not generate, and
offered limited prospects of yielding, acceptable returns or which were not
integral to the Company's long-range business activities and (ii) reinvesting
the proceeds derived from such dispositions into businesses having greater
potential for future growth. In the four years ended December 31, 1997, sales of
non-essential businesses and assets generated approximately $775 million in
cash, while over $1 billion was utilized for strategic acquisitions and business
expansion purposes. The Company will continue to manage its asset base actively
with a view toward strengthening the growth prospects of its downstream
businesses.
In addition to the measures described above, the Company announced in
November 1997 implementation of a performance improvement plan with an initial
target of increasing its annual pretax operating earnings by approximately $100
million by 1999. Working in tandem with this plan will be a new value
measurement system to be used for management incentive compensation purposes
beginning in 1998. For additional information concerning the performance
improvement plan and the value measurement system, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Introduction"
included elsewhere herein.
As part of its effort to enhance stockholder value, the Company began
acquiring shares of its Common Stock pursuant to a stock repurchase program
announced in July 1996. That program authorizes the Company to purchase up to
2.5 million shares of Common Stock from time to time on the open market or
pursuant to negotiated transactions at price levels the Company deems
attractive. Open market transactions were effected at various times during the
fourth quarter of 1997 and resulted in the Company repurchasing 1.8 million
common shares at an aggregate cost of $59.1 million, or an average of $32.60 per
share. In February 1998, the Board of Directors amended the program to provide
that purchases reported to, and ratified by, the Board of Directors or by the
Executive Committee of the Board shall not be counted in determining compliance
with the 2.5 million share limitation.
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The table below sets forth certain information concerning the Company's
production, metal shipments and net sales by class of product during the last
three years. As used herein, a "tonne" means a metric ton equal to 2,204.6
pounds.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Production and metal shipments (in thousands of tonnes):
Sources of metal (unaudited):
Primary aluminum production............................ 708.6 686.3 650.9
Metal purchases (including scrap aluminum)............. 353.7 419.6 355.3
-------- -------- --------
Total............................................. 1,062.3 1,105.9 1,006.2
======== ======== ========
Metal shipments (unaudited):
Aluminum processing (including tolling)(1):
Primary products....................................... 779.8 787.7 732.0
Semi-fabricated products............................... 632.9 575.5 424.0
Fabricated products(2)(3).............................. 99.9 134.3 143.1
Intercompany........................................... (474.5) (415.4) (325.6)
-------- -------- --------
Total............................................. 1,038.1 1,082.1 973.5
======== ======== ========
Net sales by class of product (in millions):
Aluminum processing(1):
Primary products....................................... $1,390.3 $1,335.5 $1,300.0
Semi-fabricated products............................... 1,833.7 1,643.1 1,320.1
Fabricated products(3)................................. 540.7 863.2 967.9
Intercompany........................................... (833.8) (682.5) (661.9)
-------- -------- --------
Total............................................. $2,930.9 $3,159.3 $2,926.1
======== ======== ========
</TABLE>
- ---------------
(1) Certain reclassifications have been made to prior years' information to
conform with the 1997 presentation.
(2) Included in Fabricated products metal shipments are billet shipments of
30.3, 28.6 and 26.8 thousand tonnes for the years ended December 31, 1997,
1996 and 1995, respectively.
(3) On September 25, 1996, the Company sold certain fabricated products
businesses in Western Europe and in the United States. Sales related to
these businesses totaled $363.3 million and $485.0 million in 1996 and 1995,
respectively. Shipments related to these businesses totaled 46.3 and 60.7
thousand tonnes in 1996 and 1995, respectively.
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Information concerning the estimated distribution of the Company's sales
for the last three years is presented below. Sales to distributors have
increased significantly over the last two years as a result of the January 1996
acquisition of Cressona Aluminum Company and the Company's efforts to diversify
its product lines.
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE
OF SALES DOLLARS
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Primary aluminum and other raw material sales............... 19% 22% 26%
Processed product sales by market:*
Building and construction................................. 25 30 34
Distributors.............................................. 22 16 10
Transportation............................................ 15 17 15
Consumer durables......................................... 4 3 5
Packaging................................................. 4 4 4
Electrical................................................ 3 2 2
Other..................................................... 8 6 4
--- --- ---
Total............................................. 100% 100% 100%
=== === ===
</TABLE>
- ---------------
* Includes both semi-fabricated products and fabricated products. Transportation
consists primarily of sales to the automotive, truck, trailer and railcar
markets. Alumax does not have significant sales to the aircraft manufacturing
market.
Additional operating and geographic area financial information is presented
in Note 16 to the Financial Statements included elsewhere herein.
PRIMARY ALUMINUM PRICES
The aluminum industry is highly cyclical in nature. The Company's results
of operations and financial condition depend to a large degree on primary
aluminum prices, as well as conditions in the building and construction and
transportation industries. This price sensitivity affects the realized selling
prices of substantially all of the Company's products to varying degrees, with
less impact on the more specialized and value-added products.
Primary aluminum prices, which are determined by worldwide supply and
demand conditions, declined significantly from 1989 through 1993 but have shown
general improvement over the last four years. The most commonly used index of
pricing in the aluminum industry is the average price per tonne as reflected by
the London Metal Exchange (the "LME"). The LME index is not necessarily
representative of prices actually realized by the Company but generally
approximates the trend with respect to Alumax's realized prices (exclusive of
the effects of the Company's price risk management strategy described below).
Using the LME index, the cyclical nature of aluminum pricing is illustrated in
the table below.
LME AVERAGE ANNUAL CASH PRICE*
(HIGH GRADE CONTRACT)
<TABLE>
<CAPTION>
US$ PER US$ PER
YEAR TONNE POUND
---- ------- -------
<S> <C> <C>
1980.................... 1,810 .82
1981.................... 1,300 .59
1982.................... 1,010 .46
1983.................... 1,480 .67
1984.................... 1,280 .58
1985.................... 1,080 .49
1986.................... 1,190 .54
1987.................... 1,590 .72
1988.................... 2,580 1.17
1989.................... 1,950 .88
</TABLE>
<TABLE>
<CAPTION>
US$ PER US$ PER
YEAR TONNE POUND
---- ------- -------
<S> <C> <C>
1990.................... 1,640 .74
1991.................... 1,300 .59
1992.................... 1,250 .57
1993.................... 1,140 .52
1994.................... 1,480 .67
1995.................... 1,810 .82
1996.................... 1,510 .68
1997.................... 1,600 .73
1998-First Quarter
(through January
31)................... 1,486 .67
</TABLE>
- ---------------
* Adjusted for years prior to, and including, 1987 to reflect the introduction
of High Grade Contract.
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<PAGE> 5
Market fundamentals relative to the supply and consumption of aluminum have
improved significantly since 1993, when aluminum prices reached historic lows on
an inflation-adjusted basis. The LME cash price increased substantially during
1994 and in early 1995, reaching a high of $.97 per pound during January 1995.
Inventory de-stocking and generally weaker economic conditions worldwide during
the second half of 1995, along with significant restarts of previously idled
production capacity, led to reported inventory (consisting of producer plus LME
terminal stocks) increases that lasted through January 1996. The level of
reported inventory remained relatively unchanged through August 1996, with ingot
stocks on the LME alone increasing through early November. During this period of
relatively flat overall consumption, producer and consumer activity on the LME
was subdued, which resulted in the LME cash price declining from $.75 per pound
at the beginning of January 1996 to an average of $.61 per pound during October
1996. Since that time, industry fundamentals improved, reported inventories
declined, and the LME cash price increased to an August 1997 average of $.78 per
pound. The LME cash price has since declined. Financial and currency problems in
Asia, which have clouded the near-term outlook for aluminum consumption, have
contributed significantly to this decline. At January 31, 1997, the LME cash
price was $.69 per pound.
Historically, the Company priced its primary aluminum production at market,
with realized prices closely tracking cyclical shifts in market prices. To
maintain market based pricing while entering into forward fixed price
arrangements required by certain customers and suppliers, the Company utilizes
futures contracts which effectively convert forward fixed price arrangements to
market prices as of specified settlement dates. The Company also may, from time
to time, establish a floor selling price for varying quantities of future
production. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Risk Management" and Note 15 to the Financial
Statements included elsewhere herein.
ALUMINUM PROCESSING
Primary products
The Company, through Alumax Primary Aluminum Corporation and several other
wholly-owned subsidiaries, produces and markets t-ingot and a variety of premium
primary products, including extrusion billet, slab and foundry ingot. These
products are consumed by both the Company's downstream operations and third
party customers, in rolling mills, extrusion plants, foundries and remelt
operations. In 1997, approximately 60 percent of the Company's primary aluminum
production was sold to its downstream operations. The Company believes, based on
its ownership interest in the facilities described below and upon reports of
industry analysts, that the average primary aluminum reduction costs at its
facilities are well within the lower half of all aluminum reduction facilities
in the western world. The Company is committed both to maximizing its earnings
from the sale of premium primary products and to improving its cost position
relative to other primary aluminum producers.
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The table below summarizes the capacity of the five primary aluminum
reduction facilities in which the Company has an ownership interest and reflects
the Company's share of capacity.
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP ALUMAX'S SHARE OF
INTEREST AS OF TOTAL AMOUNT OF TOTAL ANNUAL
FACILITY DECEMBER 31, 1997 NAMEPLATE CAPACITY NAMEPLATE CAPACITY
- -------- ----------------- ------------------ ------------------
(TONNES PER YEAR)
<S> <C> <C> <C>
Lauralco
Deschambault, Quebec....................... 100.00% 235,000 235,000
Intalco
Ferndale, Washington....................... 61.00% 278,500 169,900
Eastalco
Frederick, Maryland........................ 61.00% 174,000 106,100
Mt. Holly
Goose Creek, South Carolina................ 50.33% 205,000 103,200
ABI
Becancour, Quebec.......................... 24.95% 372,000 92,800
--------- -------
Total.............................. 1,264,500 707,000
========= =======
</TABLE>
During 1997, the above facilities produced an aggregate of 1,264,235 tonnes
of aluminum, of which the Company's share was 707,405 tonnes. The Company's
smelter network is currently operating at or above full nameplate capacity.
Production enhancements put into place in 1997 and prior periods at Lauralco and
Intalco have increased the total nameplate capacity of these facilities by
20,000 and 8,000 tonnes, respectively.
A Japanese consortium, led by a subsidiary of Mitsui & Co. Ltd., owns an
aggregate 39 percent undivided interest in each of the Intalco and Eastalco
facilities. Subsidiaries of Century Aluminum Company, a publicly traded domestic
corporation, and Sudelektra Holding AG, a Swiss corporation, together own 49.67
percent of Mt. Holly. For information with respect to the sale by the Company of
a 23 percent undivided interest in the Mt. Holly facility in January 1996 and a
14 percent undivided interest in each of the Intalco and Eastalco facilities in
March 1995, see Note 2 to the Financial Statements included elsewhere herein.
Primary aluminum is produced by the reduction of alumina, which is refined
from bauxite, in a series of pots (potline) through an electrolytic process. The
Company does not mine bauxite or refine alumina. Alcoa of Australia Limited
("Alcoa of Australia") has been the Company's principal supplier of alumina for
over 20 years and currently provides substantially all of the alumina for the
Company's reduction operations under a long-term contract which, with renewal
options, expires in increments between 2007 and 2018. Pricing under the contract
is determined in part on a cost basis and in part on a market basis, providing
the Company with protection against spot market price extremes during periods of
tight supply. The contract also provides the Company with a secure source of
supply from a reliable, high-quality producer, which reportedly has the lowest
costs of production in the world. The Company believes that any additional
supplies of alumina it may require, from time to time in the foreseeable future,
in excess of that supplied by Alcoa of Australia can be obtained at competitive
prices. While there has been no interruption in supply during the period that
Alcoa of Australia has supplied the Company's alumina requirements, an extended
interruption of supply of alumina from Alcoa of Australia could have a material
adverse effect on the Company's operations. Other raw materials needed for the
production of aluminum, such as petroleum coke, coal tar pitch and aluminum
fluoride, are purchased from third parties. The Company believes that it can
continue to obtain adequate supplies of these materials at competitive market
prices.
The primary aluminum reduction process, which strips the oxygen atoms from
the alumina molecule, requires substantial amounts of electric power. Lauralco,
Intalco, Eastalco, Mt. Holly and ABI purchase electricity under long-term
contracts which expire in the years 2014, 2001, 2003, 2005 and 2014,
respectively, subject to certain extension provisions. Except for Intalco, each
facility's contract is with a single supplier. Power rates for all of the
electricity supplied to ABI and Lauralco are linked to the prevailing price of
aluminum. In late 1995, Intalco entered into a series of new long-term power
contracts with the Bonneville Power Administration (the "BPA") and British
Columbia Power Exchange Corporation to provide for all of
5
<PAGE> 7
its electricity needs from September 1996 through 2001. Under these contracts,
Intalco's power costs are no longer linked to the price of aluminum but are set
at a fixed rate. A group of industrial consumers of electricity and a group
representing environmental interests had challenged the power supply agreement
with BPA (along with other similar BPA agreements with other parties). In 1997,
the United States Court of Appeals for the Ninth Circuit denied the claims of
these groups and upheld the validity and legality of the power supply agreement
with BPA. Mt. Holly entered into a new electric power supply agreement in 1997,
while Eastalco amended its existing power supply agreement during the year. With
respect to Eastalco, the electric rates payable were significantly reduced. As
to Mt. Holly, the electric rates payable were significantly reduced for the
first three years of the agreement. Thereafter, Mt. Holly has the opportunity to
achieve even greater reductions in the cost of electric power through limited
access to the open market. However, this limited access also exposes Mt. Holly
to limited market risk. In addition, each agreement provides Mt. Holly and
Eastalco, respectively, with certain other benefits and, despite Mt. Holly's
limited exposure to market risk, secures for both facilities a stable and
reliable supply of electric power during the "transition period" of the electric
industry from a regulated monopoly to open competition. The Company expects to
meet its power requirements over the foreseeable future pursuant to the
aforementioned contracts. Interruptions of power supply could have a material
adverse impact on the Company by increasing the cost of production of primary
aluminum or necessitating a reduction in production.
Alumax Primary Aluminum Corporation and the Government of British Columbia
are proceeding with a planning and feasibility study for the construction of a
primary aluminum reduction plant of not less than 250,000 tonnes in British
Columbia, Canada. The planning and feasibility study will be conducted based
upon a memorandum of understanding executed by the parties on January 8, 1998.
Completion of the planning and feasibility study is expected to occur no later
than December 31, 1998.
For information with respect to the credit agreement entered into in 1990
with a group of banks to finance the construction of the Lauralco primary
aluminum reduction facility, see Note 6 to the Financial Statements included
elsewhere herein.
Semi-fabricated products
Alumax Extrusions. Alumax Extrusions, Inc., a wholly owned subsidiary
("Alumax Extrusions"), manufactures a broad line of soft-alloy extruded
products, as well as secondary billet to be sold to third parties, at eleven
plants located in Pennsylvania, Tennessee, Florida, Arkansas, Georgia,
Mississippi, Illinois, South Dakota, Utah, North Carolina and its international
operation in Monterrey, Mexico. Alumax Extrusions has recently added a twelfth
manufacturing facility in Morris, Illinois, utilizing an idle plant previously
operated by Alumax Mill Products. The Morris facility provides adequate space to
accommodate a further expansion of Alumax Extrusions' manufacturing capacity in
a location well situated to serve the growing needs of its transportation and
service center customers. The Company believes that Alumax Extrusions has the
world's largest soft alloy extrusion manufacturing capacity. Its shower and bath
enclosures are distributed through eight service centers in California, Florida,
Georgia, North Carolina, Pennsylvania, Texas and Washington, with a ninth
service center to be added in Iowa during the second quarter of 1998. The
Mexican operation consists of a three-press extrusion plant in Monterrey, with
distribution facilities in Mexico City, Guadalajara and Hermosillo. Except for
the plants located in North Carolina and Monterrey, the eight service centers,
and the distribution facilities in Guadalajara and Hermosillo, which are leased,
Alumax Extrusions owns all of the aforementioned plants and facilities.
Alumax Extrusions operates as a unified manufacturing support group with a
total of 43 presses that range in size from 700 to 6,000 tons. Its integrated
resources include complete melting, alloying and casting facilities for 25
alloys, one of the industry's largest in-house shops for the design and
production of tooling and dies, and facilities for fabrication, assembly,
painting and anodizing. Press operations utilize both direct and indirect
technology. The wide range of press sizes and capacities offers scheduling
flexibility and increased manufacturing efficiency.
Alumax Extrusions' product line includes extruded aluminum alloys,
semi-fabricated and fabricated parts and components from extruded aluminum
alloys, and secondary extrusion billet. Available in circle sizes up to
6
<PAGE> 8
20 inches, product classifications extend to standard and custom extruded shapes
(solids, semi-hollows and hollows), standard and specialty rod and bar, seamless
and structural pipe and tube, seamless mechanical pipe and tube, and seamless
tubular bus conductors. Alumax Extrusions also produces DIAMONDBACK(R) Slip-
Resistant Systems, an integrated line of components and accessories that are
designed for improved safety on access, walking and working surfaces.
Alumax Extrusions has made many advancements with improved process control
systems, including Computer Integrated Manufacturing (CIM). With the exception
of the recently added Morris, Illinois facility, all domestic locations are
certified under the ISO 9000 international quality standard. Alumax Extrusions
believes that its diversified customer base helps to minimize the impact of
seasonal and cyclical fluctuations in markets such as building and construction.
To provide greater focus on its key markets, Alumax Extrusions markets and
sells its products through three distinct business units: Alumax Building and
Construction Products, located in Plant City, Florida; Alumax Distribution and
Industrial Products (formerly the Cressona Aluminum Company business unit),
located in Cressona, Pennsylvania; and Alumax Transportation Products, located
in West Chicago, Illinois. Although headquartered at different locations, all
three business units are supported by the unified manufacturing group. The goal
of this structure is to provide specialized sales and service designed to
satisfy customer requirements in the areas represented by the three business
units.
Alumax Building and Construction Products ("AB&CP") markets and sells
extrusions to the residential and commercial window and door market. Utilizing
seven paint lines, approximately 75 percent of the products are sold with
thermal set polyester paint, Kynar resin coatings, anodized finishes, or high
performance coatings for corrosive environments. Representative products include
window and door frames; bath and shower enclosures; patio and pool enclosures;
stadium seating; light poles and flagpoles; bridges, rail and decking; and
colored architectural shapes.
Alumax Distribution and Industrial Products ("AD&IP") markets and sells
extrusions to the service center industry. It also services key original
equipment manufacturers' accounts in the machinery and equipment, electrical
switchgear and transmission, recreation, medical, and consumer durables markets.
AD&IP offers a broad product line of standard and custom extruded shapes,
extensive capabilities in pipe and tube, large circle size profiles, and tight
tolerance products that utilize indirect extrusion technology.
Alumax Transportation Products ("ATP") markets and sells extrusions to the
automotive, truck, truck trailer, marine, and railcar markets. Representative
products include extruded profiles for automotive space frames, anti-lock brake
parts, automotive air bag components, bumper beam components, seating and window
components, truck and trailer bodies, recreational vehicle parts, and railcar
structural members.
Alumax Extrusions has developed or holds intellectual property rights
relating to the following products and processes: DIAMONDBACK(R); ECON-O-ROD;
ACC-U-ROD(R); ECON-O-PLATE(R); ACC-U-PLATE(R); AluShield(TM); Fluorocarbon
Coated Conduit System (ALX-1); and Retrogression Heat Treatment (RHT) and
Compression-fit (CF) technologies.
Alumax Mill Products. Alumax Mill Products produces flat rolled products
with both painted and mill finishes at mills in Lancaster, Pennsylvania and
Texarkana, Texas. In addition, it operates a facility in Lancaster, Pennsylvania
which produces semi-fabricated cast aluminum plate, engineered to meet highly
specialized industrial applications. In November 1997, Alumax Mill Products
entered into a new five-year operating lease, renewable for up to two additional
years, covering the Texarkana mill. The new leasing arrangement enabled the
Company to forego a previously planned capital investment of $97 million to
purchase the Texarkana facility.
Alumax Mill Products produces semi-fabricated products, including sheet,
plate, circles and blanks, which are used for building products, transportation
products, consumer durables, machinery and equipment and in other industrial
applications. Representative products include gutters, downspouts, siding,
soffits, high grade painted or anodized quality building panels, truck trailer
side panels, automotive heat shields, cable wrap, flexible conduit, computer
base plates, seating brackets, air bags, heater cores, evaporators, wheel rims,
license plates, and appliance panels for washers, dryers and ranges.
7
<PAGE> 9
To provide greater focus on its key markets, Alumax Mill Products markets
and sells its products through AB&CP, AD&IP, and ATP. The goal of this structure
is to provide specialized sales and service designed to satisfy customer
requirements in the areas represented by these three business units.
Some of Alumax Mill Products' markets are seasonal, notably the building
and construction market in which demand is generally lower in the fall and
winter seasons than in the spring and summer when the weather is more suitable
for construction.
Alumax Mill Products implemented a restructuring plan in 1994 with a view
toward consolidating, streamlining and modernizing its business. This
restructuring plan has been substantially completed. As part of the plan, Alumax
Mill Products closed its Morris, Illinois mill (which was acquired by Alumax
Extrusions in the fourth quarter of 1997) and its Riverside, California mill and
has expanded and modernized the overall capabilities of the Lancaster and
Texarkana mills. Costs of the expansion and modernization totaled approximately
$91 million. The restructuring plan also provided for the construction of a
separate cast aluminum plate facility adjacent to the Lancaster mill at a cost
of approximately $26 million. This facility began commercial production in the
third quarter of 1996.
Alumax Foils. Alumax Foils' facility in St. Louis, Missouri uses the
continuous casting process to produce aluminum sheet which is then processed
through rolling mills and heat treating ovens to manufacture foil in various
thicknesses, widths, tempers and alloys. Foil products are sold primarily to
commercial users in the flexible packaging, converter, food service and
pharmaceutical industries. The nature of these products and diversity of
customers reduces the impact on Alumax Foils of seasonal fluctuations. Alumax
Foils also owns and operates a facility in Russellville, Arkansas which, when
fully operational, will expand its overall production capacity by approximately
30 percent. Construction was completed in 1996, with the first customer
shipments commencing in the first half of 1997. The Russellville plant includes
two wide rolling mills, annealing ovens and ancillary equipment, all dedicated
primarily to the production of light-gauge converter foil. See "Other
Activities."
Fabricated products
Kawneer. Kawneer designs, manufactures and markets architectural aluminum
products and is a leading producer of such products in the United States and
Canada. Kawneer also sells its products for use in major construction projects
in foreign countries where it does not have production facilities, particularly
in the Far East.
Kawneer products are manufactured mainly from extruded aluminum shapes
which are fabricated into curtain wall, storefront and entrance systems,
windows, framing and decorative aluminum products which are anodized or painted.
Kawneer operates five integrated architectural plants, 15 service centers and
two additional manufacturing locations in the United States, which include
plants owned by Kawneer in Arkansas, California, Georgia, Indiana, Michigan,
Pennsylvania and Tennessee. Distribution is principally through dealers, most of
whom are glazing contractors. These products also may be sold to building
contractors and owners, and Kawneer has acted as a subcontractor for entire wall
or window systems on selected major projects.
Demand for Kawneer's products generally follows the seasonal and cyclical
trends of the nonresidential construction industry. Kawneer believes that it is
well positioned to participate in the modest rate of growth expected to occur in
this market over the near term and remains committed to continue its efforts
aimed at reducing costs, improving productivity, and enhancing product quality
and customer service.
Kawneer also operates two integrated architectural plants in Canada which
provide most of the product that is sold for large overseas projects, as well as
two service centers.
Alumax Europe N.V. Alumax Europe N.V., a wholly-owned subsidiary ("Alumax
Europe"), was organized in 1997 to manage the Company's international operations
in the United Kingdom, France, Germany and The Netherlands. It also participates
in a joint venture in Morocco. Two manufacturing plants located in France, and
one each in England and Germany, three of which are owned and one of which is
leased, provide architectural aluminum products very similar to those produced
by Kawneer operations in the
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<PAGE> 10
United States. These products are marketed under the Kawneer name in the United
Kingdom and Western Europe. Alumax Europe also operates service centers in
France, Poland and Morocco. Other international operations of Alumax Europe
include plants it operates in Wales and The Netherlands that produce custom
extrusions for sale throughout Western Europe. These plants also provide
extruded products to Alumax Europe's architectural operations for further
processing into architectural building products and systems. Billet needed for
the extrusion operations is supplied by a casting plant in The Netherlands. This
plant converts scrap and aluminum ingot into billet on a tolling basis and for
intra-company use and outside sales. In addition, Alumax Europe pursues other
business opportunities throughout Europe, including former Eastern Bloc
countries.
AEMP. Alumax Engineered Metal Processes ("AEMP") is engaged in the
commercial production of semi-solid aluminum forged automotive components that
offer high mechanical properties and near-net-shape configurations using AEMP's
proprietary, semi-solid forging technology. Although AEMP's marketing activities
have focused almost exclusively on the automotive aluminum forged market,
efforts are under way to expand into other industrial markets. Representative
products include cylinder housings, fuel rails, transmission and engine
brackets, suspension and rocker arm assembly components.
AEMP's forging operations are conducted at plants located in Jackson,
Tennessee and Bentonville, Arkansas, both of which are currently producing
automotive components on a commercial scale. A scrap reclamation facility is
also located at the Jackson site to produce aluminum alloy for the forging
operations. These operations have incurred losses since commercial production
commenced, and both the Jackson and Bentonville plants are currently operating
at rates below their design capacity.
To provide greater focus on its key markets, AEMP markets and sells its
products through ATP. The goal of this structure is to provide specialized sales
and service designed to satisfy automotive customer requirements.
In 1997, AEMP implemented a reorganization and action plan designed to
maintain its position as a world leader in semi-solid forging technology and to
meet the competitive requirements of commercial production. The reorganization
and action plan is intended to improve operating performance as AEMP continues
to move from development toward full commercial production. The plan includes
combining AEMP's three engineering facilities in St. Louis, Missouri into one;
ramping up the Jackson scrap reclamation facility for full production; reducing
the salaried and hourly workforce; making the Bentonville plant a satellite
plant to the Jackson facility; and intensifying efforts to increase the overall
productivity and efficiency of plant operations. AEMP has also ceased production
of several components that did not fit its market strategy and profitability
goals. All current and potential business has been reviewed to determine the
niche products that fit the technology offered and that meet AEMP's strategic
objectives. Production is expected to increase during 1998 with the introduction
of several new products that take advantage of the various capabilities provided
by semi-solid aluminum forging. Management intends to monitor the implementation
of the reorganization and action plan which is targeted at making this business
profitable by the end of 1999. Total assets of AEMP were approximately $115
million at December 31, 1997.
OTHER ACTIVITIES
Asia-Pacific Operations
To further its objective to participate in growth opportunities in emerging
global markets, the Company, through a wholly owned subsidiary, has entered into
a joint venture with Yunnan Aluminum Processing Factory in Kunming, China,
providing for the annual production of 8,000 to 10,000 tonnes of light gauge
aluminum foil for China's packaging market. Alumax has a 56 percent interest in
the joint venture and will invest a total of $38 million in cash to develop a
continuous cast foil operation. As of December 31, 1997, the Company had
invested approximately $24 million in the joint venture. Alumax Foils is
expected to provide training, as well as management and technical assistance, to
the joint venture. Production is expected to begin in the latter half of 1998.
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In addition to the Kunming joint venture, Alumax leases an extrusions plant
near Melbourne, Australia that produces thin-walled aluminum tubing. The Company
is actively exploring other business opportunities throughout the Asia-Pacific
region through Alumax Asia Pacific Pty Limited, a wholly owned subsidiary.
Alumax Materials Management
In 1996, the Company organized Alumax Materials Management, Inc. ("AMM"), a
wholly owned subsidiary, to provide certain services to other subsidiaries of
the Company. These services include primary products sales and customer service,
centralized procurement of all non-primary metal and selected non-metal inputs,
and use of the futures markets to hedge certain risks related to primary
aluminum prices, fixed forward sales, metal inventory positions, and energy
costs. AMM is also responsible for the centralized procurement of certain
shipping and freight services.
Product Distribution
Alumax produces and distributes products at all stages of the aluminum
product chain, from primary ingot to fabricated finished products, for a variety
of industrial, commercial and consumer markets. To reach these markets the
Company uses most common forms of product distribution channels -- wholesale
distributors, original equipment manufacturers, traders, retail consumer goods
outlets, agents, manufacturers' representatives, general line and specialized
dealers, and direct sales. Many intermediate products, such as ingot, sheet and
plate, are distributed to other aluminum producers and fabricators for further
processing and distribution through many of these same channels.
Competition
The markets for most aluminum products are highly competitive. Primary
aluminum ingot is a commodity product, traded extensively on world metal
markets, and is thus very price sensitive. The market for premium ingot products
is also highly sensitive to pricing, but the Company believes that quality and
service are also important factors in competing with other premium product
manufacturers. Semi-fabricated and fabricated aluminum products compete
extensively on price, quality and service, not only within the aluminum products
industry but also with other materials, such as plastics, steel, copper, glass,
wood, fiberglass, zinc, lead, magnesium and paper. In markets where aluminum
products compete with other materials, the diverse characteristics of aluminum
are also significant factors in its competitiveness, particularly its light
weight and recyclability.
Price competition, product range and quality, and the ability to provide
technical assistance to customers are important aspects of the Company's overall
strategy. A number of producers with which the Company competes are
substantially larger in terms of total assets, operations and sales. Among the
Company's principal competitors are Alcan Aluminium Limited, Aluminum Company of
America, Reynolds Metals Company, Kaiser Aluminum Company, Commonwealth
Industries, Inc. and Easco, Inc.
Research and Development
The Company continues to explore new technology, processes and products in
the aluminum industry. Research and development activities are conducted at the
Company's technical center in Golden, Colorado, and at various operating
facilities. Expenditures for research and development totaled $10.9 million,
$19.2 million and $18.0 million in 1997, 1996 and 1995, respectively.
Patents and Trademarks
The Company owns or licenses a significant number of patents relating to
various products and processes. The Company does not consider its business to be
materially dependent on any one particular patent or patent license. The Company
also owns a large number of trademarks, including the "Alumax" and "Kawneer"
trademarks, which the Company believes may be material to its business.
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Employee and Labor Relations
At year-end 1997, the Company employed approximately 14,400 people
worldwide, including approximately 12,000 employees in the United States.
Approximately 4,800 employees are represented by labor unions under separate
labor agreements with various unions. Management considers its employee
relations to be good.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, local and foreign laws
and regulations including, among others, the Clean Air Act (including the 1990
amendments thereto), the Resource Conservation and Recovery Act and the Clean
Water Act and the regulations promulgated in connection therewith, concerning
the discharge of contaminants which may be emitted into the air and discharged
into the waterways and governing the use, discharge and disposal of hazardous
materials and wastes. The Company believes its manufacturing facilities are in
substantial compliance with current laws and regulations. Compliance with
current laws and regulations has not had, and is not expected to have, a
material adverse effect on the Company's financial condition or results of
operations. Based on historical trends toward tighter environmental standards,
it appears likely that the Company will incur additional expenditures to remain
in compliance with federal and state environmental laws.
The Company also is involved in certain claims and legal proceedings that
relate to the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") or similar state laws that impose environmental liability. These
matters include pending claims and proceedings in which the Company has been
named as a defendant or "potentially responsible party" with respect to the
disposal of hazardous substances at 38 waste disposal sites which, in most
instances, were owned or operated by third parties. CERCLA and state laws can
impose joint and several liability on generators of hazardous substances placed
in waste disposal sites for investigative, remedial and other costs associated
with cleanup of those sites if hazardous substances have been released into the
environment. The Company's ultimate liability in connection with present and
future environmental claims will depend on many factors, including its
volumetric share of the waste at a given site, the remedial action required, the
total cost of remediation and the financial viability and participation of the
other entities which also sent waste to the site. Based upon current law and
information known to the Company concerning the size of the sites known to it,
their years of operation, the number of other financially viable and
participating past users and the amount of available insurance coverage,
Management believes that it has adequate reserves so that anticipated and
estimable liabilities that may result from these matters, and anticipated
expenditures for remediation programs it may be required to undertake, either
individually or in the aggregate, are not expected to have a material adverse
effect on the financial condition or ongoing results of operations of the
Company. The Company is unaware of any additional environmental matters which,
based on information currently known to the Company, would have a material
effect upon the Company's financial condition or ongoing results of operations.
See "Legal Proceedings" below.
Legislation that would reauthorize and amend CERCLA is expected to be
reintroduced before Congress. The prospects for such legislative effort are
uncertain, as are any potential substantive changes that might result or affect
the Company's liability for cleanup costs in both pending and future claims.
The Company's expenditures for environmental remediation and compliance
amounted to $6.1 million in 1997, $12.9 million in 1996 and $12.7 million in
1995. Of those amounts, $4.4 million, $8.8 million and $9.0 million,
respectively, was capitalized and the balance, net of insurance recoveries, was
charged to reserves. Based on available information, the Company anticipates
making capital and operating expenditures of approximately $9.6 million and $6.1
million in 1998 and 1999, respectively, for environmental remediation and
compliance.
ITEM 2. PROPERTIES
Information in response to this Item is set forth in "Business" under Item
1 above.
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ITEM 3. LEGAL PROCEEDINGS
Tax Dispute Regarding Consolidation with Amax
The Internal Revenue Service (the "IRS") asserted that Alumax and certain
of its subsidiaries were improperly included in the 1984, 1985, and 1986
consolidated income tax returns of the Company's former parent corporation, AMAX
Inc. ("Amax"), and on that basis has assessed a federal income tax deficiency
against Alumax of $129 million. In response to the IRS' notice of deficiency,
the Company filed a petition in the United States Tax Court (the "Court")
seeking a re-determination in respect of the purported deficiency. The parties
waived their rights to a trial and the matter was submitted to the Court for
decision based upon the pleadings, stipulations, memoranda and other documents
submitted to the Court by the parties. On September 30, 1997, the Court entered
a decision in favor of the IRS, opining that Amax did not have the 80 percent
control necessary to consolidate. As a result of the ruling, the Company
recorded a charge of $108.6 million in the third quarter of 1997. On October 27,
1997, the Company paid an aggregate of $411 million to the IRS, representing the
expected deficiency and estimated accrued interest. The payment was funded from
cash on hand and borrowings of $355 million under the Company's revolving credit
facility. On December 24, 1997, the Company filed a notice of appeal of the
Court's decision to the United States Court of Appeals for the Eleventh Circuit.
In connection with the merger of Amax into Cyprus Minerals Company and the
public distribution of all of the Company's outstanding common shares in
November 1993, the Company and Amax entered into a tax disaffiliation agreement,
dated as of May 24, 1993 (the "Tax Disaffiliation Agreement"), defining the
rights and obligations of the Company and Amax following the consummation of
those transactions. Under the terms of the Tax Disaffiliation Agreement, the
Company has assumed responsibility for all proceedings relating to the
above-described deficiency and payment of any additional taxes, along with
penalties and interest, which may ultimately be due.
Payment of the above-described deficiency and interest provided certain tax
benefits to the Company that offset in 1997, and will offset, within a
prescribed carry-forward period, a portion of the cost of paying the deficiency
and interest. In addition, under the terms of the Tax Disaffiliation Agreement,
Cyprus Amax Minerals Company will share certain tax benefits which will become
available to it in the event the adverse determination is ultimately upheld.
Stringfellow
In 1983, the United States and the State of California commenced an action
under CERCLA in the United States District Court for the Central District of
California against the Company and 30 other potentially responsible parties in
connection with the Stringfellow disposal site located at Glen Avon, California.
In a proceeding in the United States District Court for the Central District of
California, it was determined that both the defendants and the State of
California are responsible for certain costs associated with the cleanup of the
Stringfellow site. The issue of the allocation of liability among the defendants
and the State was tried before a Special Master who filed his Findings of Fact,
Conclusions of Law and Report and Recommendation of the Special Master Regarding
the State Share Fact Finding Hearing on November 30, 1993. On January 23, 1995,
the United States District Court entered an order adopting the findings,
conclusions and recommendations of the Special Master with certain
modifications, which did not adversely impact the Company. The order allocates
liability on the basis of two different types of legal claims, each of which has
a different legal standard of apportionment. As to CERCLA claims, the order
allocates liability as follows: 65 percent to the State, ten percent to
Stringfellow Quarry Company and 25 percent to all other parties (including the
Company). As to the claims asserted against the State under state law theories
such as negligence and breach of a mandatory duty, the order allocates 100
percent of the liability to the State.
On July 16, 1996, the State of California filed a motion for
reconsideration of the District Court's liability rulings against the State,
based upon the United States Supreme Court's decision in Seminole Tribe of
Florida v. Florida. That decision, issued in March 1996, reversed an earlier
Supreme Court decision which held that Congress had the authority to abrogate
protections of the Eleventh Amendment of the Constitution barring certain suits
against states in federal courts, including under CERCLA. In the motion, the
State contends that
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the Eleventh Amendment is a jurisdictional bar which cannot be waived through
conduct in litigation and that the State has not expressly waived its Eleventh
Amendment immunity. Consequently, the State argues that the liability rulings
against the State must be reversed or the defendants' counterclaims limited to
defensive recoupment. The defendants filed an opposition to that motion on
August 2, 1996, which maintains that Seminole Tribe does not alter prior law by
recognizing the Eleventh Amendment as a jurisdictional bar nor does the case
address the doctrine of defensive recoupment. The opposition also asserts that
Seminole Tribe does not affect the question of waiver of Eleventh Amendment
immunity by conduct in litigation or the District Court's prior finding that the
State waived its Eleventh Amendment immunity through its conduct of the lawsuit.
Oral argument on the State's motion, as well as on a motion filed by the
defendants for a ruling that CERCLA liability cannot be imposed upon them
retroactively and a joint motion of the United States and the defendants for
entry of a judgment which will permit the parties to appeal, was made before the
Special Master on November 13 and 14, 1996. The Special Master has not ruled on
the motions or submitted written recommendations to the District Court, after
which the parties will be afforded an opportunity to present objections prior to
entry of an order by the court.
Based on information presently available, the Company does not believe that
any liability imposed in connection with the Stringfellow site will have a
material adverse effect on the Company's financial condition or ongoing results
of operations given the nature and extent of its involvement at the site and
available reserves.
Proceedings Relating to the Howmet Acquisition
In December 1990, the Company and two of its subsidiaries, among others,
were named as third-party defendants in a CERCLA action arising out of the
operation of the Blackbird Mine, a cobalt mine in Lemhi County, Idaho. The
third-party action was initiated by M.A. Hanna Company, Noranda Mining Company
and certain of their affiliates, all of which were defendants in a lawsuit
brought by the State of Idaho in the United States District Court for the
District of Idaho in 1983 seeking recovery of response costs incurred as a
result of alleged contamination resulting from cobalt mining in and around the
Blackbird Mine. The Company has been involved as a result of its 1983
acquisition of Howmet Corporation from Pechiney, a French corporation. It is
alleged that Howmet, along with certain of its predecessors and subsidiaries,
owned and operated the Blackbird Mine and engaged in extensive mining
activities.
On June 21, 1993, the Department of Justice filed an action in the United
States District Court for the District of Idaho against the Company, one of its
subsidiaries and several other defendants seeking response costs and natural
resource damages occurring at or near the Blackbird Mine. On October 29, 1993,
the Department of Justice agreed to dismiss the Company as a defendant in such
action; however, a subsidiary of the Company remains a defendant.
Under the terms of an agreement with Pechiney, the Company, subject to
limited contributions, will be indemnified against liabilities associated with
the Blackbird Mine as well as other claims and suits arising from activities
predating and unrelated to the aluminum businesses acquired by the Company in
1983. The Company assigned certain rights in respect of insurance coverage to
Pechiney, but is entitled to receive a portion of any recoveries obtained by
Pechiney.
On August 22, 1991, the Company and certain of its subsidiaries filed an
action for declaratory relief seeking coverage for environmental claims and
damages for breach of contract against the primary and excess insurance carriers
which issued insurance policies to the Howmet corporate entities acquired by the
Company in 1983. The action was brought in the Superior Court of New Jersey,
Morris County and was consolidated with a similar suit between former affiliates
of the acquired entities and the carriers. A motion for summary judgment filed
by the insurance carriers with respect to the Blackbird Mine site on the basis
that Idaho law should be applied to that claim and coverage is not available
under Idaho law has been granted, in part, by the Court. A hearing on a motion
for reconsideration of that ruling filed by Pechiney and the Company was held on
October 23, 1997. While the Court indicated it did not intend to alter the prior
ruling, no order has been issued. If the order is entered as indicated, Pechiney
and the Company intend to appeal the ruling, although neither the ruling nor an
adverse decision on the appeal will result in additional liability to the
Company for
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the Blackbird Mine site, based upon the terms of the Company's agreement with
Pechiney, but could reduce or eliminate any insurance recovery for amounts
already expended by the Company in connection with that site.
The Company believes that it has adequate reserves so that payments to be
made and reasonably anticipated contributions required under the settlement
agreement with Pechiney will not have a material adverse effect on the financial
condition or ongoing results of operations of the Company.
Cressona Consent Decree
The Company acquired Cressona Aluminum Company ("Cressona") on January 31,
1996. Cressona is subject to a consent decree (the "Consent Decree") entered
into with the United States of America to settle an action brought on behalf of
the United States Environmental Protection Agency (the "EPA"). That action was
initiated in the United States District Court for the Eastern District of
Pennsylvania on September 10, 1992, in respect of the remediation and disposal
of polychlorinated biphenyls ("PCBs") discovered at Cressona's facility at
Cressona, Pennsylvania. The PCBs were ingredients in lubricants and hydraulic
fluids used at that facility by the prior owner.
The Consent Decree, which was filed in the action on August 3, 1993,
specified actions that Cressona would undertake to fully characterize and
determine the extent of PCB contamination at the facility as well as criteria
and conditions to be met with respect to the remediation of such contamination.
In addition, the Consent Decree imposed certain reporting requirements,
established dates for the performance of specified actions to be taken, and
provided for stipulated penalties for failure to comply with requirements of the
Consent Decree or for discharges of PCBs in excess of specified concentrations.
Cressona has either substantially complied with the provisions of the Consent
Decree or sought modification of those requirements from the EPA. Cressona has
provided the EPA with extensive information to characterize the nature and
extent of the PCB contamination, has performed substantial remedial work and
proposed measures for remediation of the remaining contamination. The precise
nature and extent of further remedial activities which will be required and the
costs of those activities cannot be determined with certainty at this time and
may be subject to change depending upon results of further monitoring at the
facility as well as EPA concurrence with the additional remedial actions
proposed by Cressona. However, the Company believes that Cressona has adequate
reserves so that reasonably anticipated and estimable costs for remediation of
PCB contamination at the Cressona, Pennsylvania facility will not have a
material adverse effect on the financial condition or ongoing results of
operations of the Company.
Other Environmental Matters
In addition to the Stringfellow and Blackbird Mine litigation, the Company
has been named as a defendant or identified as a potentially responsible party
at 36 other pending sites which, in most instances, were owned or operated by
third parties, including some sites relating to operations of the Pechiney
subsidiaries acquired in 1983. Unlike the Blackbird Mine and three other
mining-related sites, claims against the Company at sites relating to the
aluminum businesses acquired in 1983 do not fall within the indemnification
obligations of the Company's settlement agreement with Pechiney. In addition,
the Company and its subsidiaries have been named as defendants or potentially
responsible parties at sites associated with operations of its subsidiaries
which are unrelated to the Howmet acquisition. At virtually all sites, the
Company is one of many potentially responsible parties who are alleged to be
jointly and severally responsible for the response costs associated with the
sites.
Management periodically evaluates the Company's potential liability for
remediation and related costs at both its own and other parties' sites. Such
evaluations are based upon then current information, including alternative
methods of remediation, estimated costs for implementation of such alternatives,
the nature and the extent of the Company's involvement at the site in question,
and anticipated contributions of other potentially responsible parties. Once it
becomes probable that the Company will incur costs in connection with
remediation of a site and such costs can be reasonably estimated, the Company
establishes or adjusts its reserve for those projected costs.
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Due to uncertainties associated with developing case law relating to
insurance coverage for environmental claims and remediation costs, insurance
recoveries are not considered in estimating the Company's share of remediation
costs at a site unless an insurance carrier has agreed to pay a portion of those
costs. Projections of remediation costs by their nature are imprecise and
reserves accrued by the Company are based on Management's best estimate of such
costs based upon available information about known sites. It is not possible to
predict the amount or timing of future remediation costs which may be ultimately
determined or project costs for sites which may be identified in the future. It
should be recognized that a number of the Company's present and past facilities
have been in operation for many years and additional remediation activities may
be required as environmental laws and circumstances continue to evolve. The
Company believes that it has adequate reserves so that anticipated and estimable
liabilities that may result from sites known to it, and anticipated expenditures
for remediation programs it may be required to undertake, either individually or
in the aggregate, are not expected to have a material adverse effect on the
financial condition or ongoing results of operations of the Company.
Other Legal Proceedings
Justice Department Inquiry. In August 1994, Alumax received a civil
investigative demand from the Antitrust Division of the Department of Justice
requesting documents and information principally relating to reductions in the
production of primary aluminum during the period from 1991 to the date of
demand. Alumax cooperated with the Department in connection with the inquiry. By
letter dated May 9, 1997, the Department of Justice advised the Company that the
investigation relating to the demand had been closed.
Antitrust Action. Alumax and four other producers of primary aluminum,
together with The Aluminum Association, an industry trade association, were
served with a summons and complaint in March 1996, alleging violations of
California's State antitrust act (the Cartwright Act). The suit was originally
filed in the Superior Court for Los Angeles County, but was removed by the
defendants to the United States District Court for the Central District of
California. Plaintiff alleges that the defendants conspired, together with the
United States Government and the governments of several other sovereign nations,
to fix the prices of primary aluminum by agreeing to reduce production. The
allegations arise from the Memorandum of Understanding Concerning the Aluminum
Market ("MOU") negotiated by the United States and other governments in 1993 and
1994, and executed by them in Brussels in 1994, and the actions of the
defendants alleged to have been undertaken in connection with the MOU.
The complaint was brought by a California bicycle manufacturer as a
purported class action on behalf of all direct and indirect purchasers of
primary aluminum and aluminum products produced during the period from January
1, 1994 to March 5, 1996. The complaint seeks injunctive relief and recovery of
damages that, when trebled, are alleged to be in excess of $26 billion.
Following removal of the action to the District Court, the defendants filed a
motion to dismiss. Upon considering that motion, plaintiff's opposition and the
defendants' reply, the Court by order dated May 28, 1996, converted the motion
to dismiss to a motion for summary judgment by the defendant-aluminum producers.
In the same order, the Court granted The Aluminum Association's motion to
dismiss for lack of personal jurisdiction. Following the filing of briefs in
support and in opposition to summary judgment, the Court granted summary
judgment in favor of the defendant-aluminum producers and dismissed the
complaint with prejudice by order dated July 1, 1996. The Court denied
plaintiff's subsequent motion for reconsideration by order entered on July 16,
1996.
On July 18, 1996, the plaintiff filed a notice of appeal to the United
States Court of Appeals for the Ninth Circuit from the United States District
Court's orders granting The Aluminum Association's motion to dismiss and the
aluminum producers' motion for summary judgment and the order denying the
plaintiff's motion for reconsideration. Following the submission of briefs by
the parties, oral argument on the appeal was heard on December 3, 1997, after
which the Court of Appeals entered an order on December 11, 1997, affirming the
decision of the District Court. The plaintiff has requested rehearing by the
Court of Appeals.
Patent Infringement Action. On August 17, 1995, the Company filed suit in
the United States District Court for the Eastern District of Arkansas against
Hot Metal Molding, Inc. alleging infringement of a process patent, United States
Patent 4687042 (the "042 patent"), held by the Company which is used in
semi-solid
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forming applications. The litigation is in the discovery phase and was recently
expanded by order of the Court to include Ormet Primary Aluminum Corporation
("Ormet"), the exclusive North American licensee of Pechiney Corporation's
technology for casting thixotropic billet, and certain subsidiaries and
affiliates of Buhler International AG, a Swiss manufacturer of die casting
machines. Ormet has filed counterclaims alleging that the patent is invalid,
void and unenforceable and is seeking a declaratory judgment that the 042 patent
would not be infringed by the use of Ormet's billet in any diecasting
application. On October 3, 1997, certain defendants sought leave of the District
Court to file counterclaims against the Company, alleging violations of Sections
1 and 2 of the Sherman Act and Section 4 of the Clayton Act for which they seek
injunctive relief and treble damages in an unspecified amount. In addition, the
Company has sought leave to amend its complaint to add claims that the
subsidiaries and affiliates of Buhler International have infringed the 042
patent and that certain of the defendants have infringed other patents held by
the Company relating to the casting of billet used in semi-solid forming
applications. On January 19, 1998, the Court entered its order granting all
parties leave to amend their pleadings. The Company believes that the
counterclaims are without merit and intends to vigorously oppose them.
Other. In addition to the matters described above, the Company and its
subsidiaries are also involved in the defense and handling of various judicial
proceedings and claims arising out of alleged defects in its products as well as
other matters occurring in the ordinary course of business. Management believes,
taking into account its reserves and insurance coverage, that these matters,
either individually or in the aggregate, will not have a material adverse effect
on the financial condition or ongoing results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 1, 1998, the names, offices with the Company, ages and years
of service as an officer of all Executive Officers of the Company were as
follows:
<TABLE>
<CAPTION>
YEARS AS
NAME OFFICE AGE OFFICER
---- ------ --- --------
<S> <C> <C> <C>
Allen Born Chairman and Chief Executive Officer 64 4
Thomas G. Johnston President and Chief Operating Officer 55 --
Jay M. Linard Senior Vice President and Group Executive 52 1
Robert P. Wolf Senior Vice President and General Counsel 54 8
Michael T. Vollkommer Vice President and Chief Financial Officer 39 4
Christian A. Carrington Vice President, Strategic Planning and Corporate
Development 47 --
Helen M. Feeney Vice President and Corporate Secretary 57 4
Philip Gaetano Vice President, Human Resources and
Administration 38 --
Eugene R. Greenberg Vice President 59 1
Kevin J. Krakora Vice President and Controller 42 --
Philippe G. Thaure Vice President 60 7
Thomas L. Gleason Treasurer 46 1
</TABLE>
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There are no family relationships, by blood, marriage or adoption, between
the above officers. All officers are elected until the next annual meeting of
the Board of Directors or until their respective successors are chosen and
qualified. There is no arrangement or understanding between any of the above
officers and any other person pursuant to which he or she was selected as an
officer.
The principal occupations and positions for the past five years of each of
the Executive Officers of the Company are as follows:
MR. BORN has been a Director of the Company since 1985, Chairman since
April 1993 and Chairman and Chief Executive Officer since November 1993.
For more than five years prior to November 1993, he had been Chief
Executive Officer of Amax and also served as Chairman of that company from
June 1988 to November 1993. Mr. Born was also Co-Chairman of Cyprus Amax
Minerals Company from November 1993 to November 1995 and Vice Chairman of
that company from November 1995 to May 1996.
MR. JOHNSTON was elected President and Chief Operating Officer of
Alumax in December 1997, after having been an Executive Vice President
since March 1997. He joined Alumax in December 1996 as head of the
Company's interests in the Pacific Rim. Prior thereto, he had been Chairman
and Chief Executive Officer of Aztec Mining Company Limited for more than
five years.
MR. LINARD was elected a Senior Vice President of Alumax in September
1997, after having been a Vice President since December 1996. He was
designated Group Executive for the Company's semi-fabricated businesses in
December 1997. Mr Linard has also been President of Alumax Extrusions,
Inc., a wholly owned subsidiary of the Company and formerly named Cressona
Aluminum Company, for more than five years.
MR. WOLF was elected Senior Vice President and General Counsel of
Alumax in March 1997, after having been Vice President and General Counsel
for more than five years. He also served as Secretary of Alumax from
November 1989 to November 1993.
MR. VOLLKOMMER was elected Vice President and Chief Financial Officer
of Alumax in December 1997, after having been Vice President, Strategic
Planning and Corporate Development since June 1997. Prior thereto, he had
been a Vice President of Alumax since December 1995 and Controller since
February 1994. Prior to joining the Company in January 1994, Mr. Vollkommer
served as Director of Accounting at Amax.
MR. CARRINGTON was elected Vice President, Strategic Planning and
Corporate Development in January 1998. Prior thereto, he developed and
managed the Latin American corporate finance advisory practices at both
Ernst & Young and Coopers & Lybrand for more than five years
MRS. FEENEY has been Vice President and Corporate Secretary of Alumax
since November 1993. For more than five years prior thereto, she had been
Corporate Secretary of Amax.
MR. GAETANO was elected Vice President, Human Resources and
Administration in January 1998. For more than five years prior thereto, he
held various executive and senior managerial positions in the human
resources field at Marcam Corporation, Fisher Scientific International, GE
Capital Corporation and Dun & Bradstreet Corporation.
MR. GREENBERG has been a Vice President of Alumax since December 1996
and President of Alumax Materials Management, Inc., a wholly owned
subsidiary of the Company, since September 1996. Before joining Alumax in
February 1996, Mr. Greenberg was Vice President -- Materials of
Commonwealth Aluminum Company from 1991.
MR. KRAKORA was elected Vice President and Controller of Alumax in
June 1997, after having been Vice President, Finance of Kawneer Company,
Inc., a wholly owned subsidiary of the Company, from 1994. Prior thereto,
he served four years as the Director of Finance and later Vice President
and Controller for Liebert Customer Service and Support, a division of
Emerson Electric Co.
17
<PAGE> 19
MR. THAURE has been a Vice President of Alumax for more than five
years and President of Alumax International Company and Alumax Technology
Corporation, each a wholly owned subsidiary of the Company, since February
1994. For more than five years prior thereto, he had been a Vice President
of Alumax Primary Aluminum Corporation, a wholly owned subsidiary of
Alumax.
MR. GLEASON has been Treasurer of the Company since November 1996. For
more than five years prior thereto, he held various executive and
managerial positions with Royal Bank of Canada, most recently serving as
Vice President of Corporate Banking for the Eastern region of the United
States.
18
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock, par value $.01 per share, of the Company (the "Common
Stock") is listed on the New York, London, Toronto and Brussels Stock Exchanges.
The following table sets forth on a quarterly basis the high and low sales
prices of the Common Stock on the New York Stock Exchange for the two most
recent fiscal years:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter............................................. $40 $26 5/8
Second Quarter............................................ $36 1/2 $29 1/8
Third Quarter............................................. $34 $29
Fourth Quarter............................................ $34 1/8 $30 5/8
1997
First Quarter............................................. $40 3/8 $33 7/8
Second Quarter............................................ $39 1/8 $34 1/4
Third Quarter............................................. $45 1/4 $37 3/8
Fourth Quarter............................................ $42 1/4 $30 1/2
</TABLE>
The Company paid no dividends on the Common Stock in 1997 or 1996 and does
not expect to do so over the foreseeable future. Future Common Stock dividend
decisions will take into account several factors, including the then current
business results and cash requirements of the Company. In addition, the Company
has a loan agreement that contains, among other things, restrictions on the
payment of dividends by the Company. See Note 6 to the Financial Statements
included elsewhere herein.
At December 31, 1997, there were 9,343 holders of record of the Company's
Common Stock.
19
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information of the
Company for each of the five years ended December 31, 1997 which has been
derived from the audited Financial Statements of the Company. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which follows this
section, and the Financial Statements and related notes included elsewhere
herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales...................................... $2,930.9 $3,159.3 $2,926.1 $2,754.5 $2,347.3
======== ======== ======== ======== ========
Earnings (loss) from operations.............. $ 293.0 $ 231.9 305.8 $ 134.0 $ (116.1)
Gain on sales of assets(a)................... 242.9 128.8 6.6
Interest expense, net(b)..................... (57.8) (62.8) (65.4) (72.6) (76.5)
Other income, net............................ 2.0 10.6 7.3 4.4 6.0
Income tax (provision) benefit(c)............ (203.5) (172.6) (139.1) (25.7) 52.1
Cumulative effect of accounting changes(d)... (3.8)
-------- -------- -------- -------- --------
Net earnings (loss).......................... $ 33.7 $ 250.0 $ 237.4 $ 46.7 $ (138.3)
======== ======== ======== ======== ========
Earnings (loss) applicable to common
shares.................................... $ 33.7 $ 240.7 $ 228.1 $ 37.4 $ (147.6)
======== ======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE(E)(F)
Basic........................................ $ 0.62 $ 5.26 $ 5.11 $ 0.84 $ (3.33)
Diluted...................................... $ 0.60 $ 4.53 $ 4.34 $ 0.84 $ (3.33)
FINANCIAL POSITION
Working Capital.............................. $ 754.3 $ 660.6 $ 767.9 $ 706.9 $ 571.9
Property, plant and equipment, net........... 2,026.9 2,027.4 1,611.9 1,523.3 1,571.1
Total assets................................. 3,453.0 3,298.7 3,135.0 2,958.8 2,973.6
Long-term debt............................... 955.6 672.0 708.9 851.9 925.2
Total debt................................... 1,002.0 710.4 845.9 915.5 988.2
Stockholders' equity......................... 1,621.7 1,640.8 1,399.3 1,162.1 1,099.6
OTHER DATA
Total debt to invested capital............... 38.2% 30.2% 37.7% 44.1% 47.3%
Return on sales.............................. 1.1% 7.9% 8.1% 1.7% (5.9)%
Return on average stockholders' equity....... 2.1% 16.4% 18.5% 4.1% (12.0)%
Return on average invested capital........... 3.0% 13.5% 14.1% 4.8% (4.2)%
Book value per share(g)...................... $ 30.37 $ 30.00 $ 25.73 $ 21.45 $ 20.38
</TABLE>
- ---------------
(a) Included in 1996 was a pretax gain of $71.7 ($36.7 after tax) related to
the sale of certain fabricated products businesses, a pretax gain of $92.8
($55.1 after tax) related to the sale of mining interests and a pretax gain
of $78.4 ($48.6 after tax) related to the sale of a 23 percent interest in
the Mt. Holly primary aluminum reduction plant. Included in 1995 was a
pretax gain of $128.8 ($81.3 after tax) related to the sale of a 14 percent
interest in each of the Intalco and Eastalco primary aluminum reduction
plants. Included in 1994 was a pretax gain of $6.6 ($4.0 after tax) related
to the sale of an Australian mining investment.
(b) Includes capitalized interest of $1.6 in 1997, $7.5 in 1996, and $5.4 in
1995.
(c) Included in 1997 was a $108.6 provision associated with a United States Tax
Court decision concerning an alleged income tax deficiency.
(d) The 1993 results included a charge of $3.8 (net of $2.0 tax benefit) for
postemployment benefits related to the adoption of SFAS No. 112.
(e) The computation of diluted earnings per common share for the years ended
1994 and 1993 excluded preferred stock of 9,600,000 shares because their
effects were antidilutive. Per share data for 1993 was calculated on a pro
forma basis using 44,354,000 average shares outstanding from November 15,
1993 through December 31, 1993, as if such shares were outstanding
throughout the year.
(f) In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Prior year amounts have
been restated in accordance with this Statement.
(g) Book value per share amounts were determined as if the Series A Preferred
Stock, which was converted to Common Stock in December 1996, had been
converted to Common Stock in each year presented.
20
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Millions of dollars, except per tonne amounts)
INTRODUCTION
The Company is an integrated producer of aluminum products, operating in a
single segment: aluminum processing. Using purchased alumina, the raw material
used to produce aluminum, the Company produces primary aluminum through an
eloctrolytic process. Primary aluminum products are sold externally or further
processed into a broad range of semi-fabricated and fabricated products. The
Company's products are sold to a wide variety of markets, including
transportation, distributors, building and construction, consumer durables, and
packaging. The following should be read in conjunction with the Company's
consolidated Financial Statements and notes thereto, which are contained
elsewhere herein.
Net earnings for the year ended December 31, 1997 totaled $33.7 as compared
with net earnings of $250.0 for the year ended December 31, 1996 and $237.4 for
the year ended December 31, 1995.
Since becoming an independent public corporation in late 1993, Management
has made significant progress in implementing a strategic plan designed to
enhance stockholder value, strengthen the Company's balance sheet, and position
the Company for future growth. A key element of that plan was repositioning the
Company in order to take advantage of faster growth markets for aluminum, such
as the domestic transportation and distributor markets, and to exit mature,
slower growth markets. From 1993 through 1996, a series of actions related to
this strategy was completed. The Company's aluminum sheet business was
restructured. The Company exited the low margin can sheet market and sold its
sheet distribution business. Several non-core assets and businesses were also
sold raising proceeds that totaled $770. In that same period, over $1 billion
was invested into business expansion including the acquisition of Cressona
Aluminum Company.
In 1997, the Company continued its growth and expansion efforts by
investing an additional $165 in its operations. In addition, the Company
commenced implementation of three major programs focused on the continued
enhancement of stockholder value. One, implementation of a performance
improvement plan designed to increase the Company's annual pretax operating
earnings by approximately $100 by 1999. Two, design and implementation of a new
value measurement system for use in management incentive compensation to
effectively link the level of incentive compensation to the creation of
stockholder value. And three, the repurchase of 1.8 million shares of the
Company's outstanding common stock in connection with a stock repurchase program
originally announced in July 1996.
The performance improvement plan, announced in the fourth quarter of 1997,
has an initial target of increasing the Company's annual pretax operating
earnings by about $100 by 1999, without regard to any changes in aluminum
pricing. The Company is targeting approximately $69 of the performance
improvements to come from operating cost efficiencies and from actions to bring
all of Alumax's operations up to a level of the Company's best practices. In
addition, approximately $18 of the performance improvements are targeted to come
from gains in productivity and through workforce attrition. An additional $13 in
charges and write-offs incurred in 1997 as part of the consolidation and action
plan at the Company's semi-solid forging operations are also included in the
improvement level. There are also on-going efforts to increase the level of
targeted performance improvements under the plan.
The Company also announced a new value measurement system to be used for
management incentive compensation, commencing in 1998. This new value
measurement system was designed to include a focus on stockholder return. This
new measurement system will reward employees based upon improvements to
stockholder return, as well as improvements in the Company's financial returns
compared to its cost of capital.
In the fourth quarter of 1997, the Company repurchased approximately 1.8
million shares of its outstanding common stock in connection with its ongoing
stock repurchase program announced in July 1996. These repurchases were financed
by internal cash flow generated from the reduction of working capital in the
fourth quarter of 1997. The stock repurchase program authorizes the Company to
purchase up to 2.5 million shares from time to time, on the open market or
pursuant to negotiated transactions, at price levels deemed attractive by the
Company.
21
<PAGE> 23
On September 30, 1997, the United States Tax Court ruled in favor of the
Internal Revenue Service (the "IRS") in an action filed by the Company to
contest an IRS notice of deficiency related to consolidation of the Company in
the income tax returns of the Company's former parent, AMAX Inc., for 1984, 1985
and 1986. Although the Company is appealing that ruling, the Company paid $411
to the IRS, representing the expected deficiency and estimated accrued interest
in order to stop any further accrual of interest. See "Legal Proceedings -- Tax
Dispute Regarding Consolidation with Amax."
Management believes the Company has the financial capability to continue to
execute its strategic plan for growth and development. The Company's balance
sheet remains strong. Total stockholders' equity exceeded $1.6 billion at
December 31, 1997, up almost 50 percent since the Company became an independent
public corporation. The ratio of total debt to capital was 38 percent at
December 31, 1997, compared with 30 percent and 38 percent at December 31, 1996
and 1995, respectively.
22
<PAGE> 24
EARNINGS FROM OPERATIONS
Earnings from operations for the year ended December 31, 1997 totaled
$293.0 compared with earnings of $231.9 for the year ended December 31, 1996 and
$305.8 for the year ended December 31, 1995. The increase in 1997 earnings from
operations was primarily the result of higher average aluminum prices. The
benefit from higher average aluminum prices was partially offset by a decrease
in external shipments and by the costs associated with the reorganization
efforts at the Company's semi-solid forging operations. Included in 1997
earnings was $1.4 related to the liquidation of LIFO inventories. Earnings for
both 1997 and 1996 were negatively impacted by operating losses from the
Company's semi-solid forging operations.
The lower 1996 earnings from operations compared with 1995 were
attributable to lower average aluminum prices and higher raw material, research,
business and product development costs. Included in 1996 earnings was $3.7
related to the liquidation of LIFO inventories and $2.1 from the sale of
pollution credits. Included in 1995 earnings was a $7.3 reduction in the sheet
mill operations' restructuring liability to account for lower than expected
costs, $5.1 in gains on sales of assets, and $1.4 related to the liquidation of
LIFO inventories.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Aluminum processing:(1)
Primary products....................................... $1,390.3 $1,335.5 $1,300.0
Semi-fabricated products............................... 1,833.7 1,643.1 1,320.1
Fabricated products(2)................................. 540.7 863.2 967.9
Intercompany........................................... (833.8) (682.5) (661.9)
-------- -------- --------
$2,930.9 $3,159.3 $2,926.1
======== ======== ========
Earnings from operations:
Aluminum processing....................................... $ 342.3 $ 275.6 $ 339.7
Corporate................................................. (49.3) (43.7) (33.9)
-------- -------- --------
$ 293.0 $ 231.9 $ 305.8
======== ======== ========
Sources and shipments (thousands of tonnes):
Sources of metal (unaudited)
Primary aluminum production............................ 708.6 686.3 650.9
Aluminum purchases..................................... 353.7 419.6 355.3
-------- -------- --------
1,062.3 1,105.9 1,006.2
======== ======== ========
Metal shipments (unaudited):
Aluminum processing:(1)
Primary products....................................... 779.8 787.7 732.0
Semi-fabricated products............................... 632.9 575.5 424.0
Fabricated products(2)(3).............................. 99.9 134.3 143.1
Intercompany........................................... (474.5) (415.4) (325.6)
-------- -------- --------
1,038.1 1,082.1 973.5
======== ======== ========
</TABLE>
- ---------------
(1) Certain reclassifications have been made to prior years' information to
conform with the 1997 presentation.
(2) On September 25, 1996, the Company sold certain fabricated products
businesses in Western Europe and in the United States. Sales related to
these businesses totaled $363.3 and $485.0 in 1996 and 1995, respectively.
Shipments related to these businesses totaled 46.3 and 60.7 thousand tonnes
in 1996 and 1995, respectively.
(3) Included in Fabricated products metal shipments were billet shipments of
30.3, 28.6 and 26.8 thousand tonnes for the years ended December 31, 1997,
1996 and 1995, respectively.
23
<PAGE> 25
NET SALES AND SHIPMENTS
The Company generated sales of $2,930.9 on aluminum shipments of
approximately 1.0 million tonnes in 1997. Sales of $3,159.3 in 1996 and $2,926.1
in 1995 were generated on aluminum shipments of approximately 1.1 and 1.0
million tonnes, respectively. The decrease in 1997 net sales and shipments was
largely the result of lower volumes due to the sale of certain fabricated
products operations ("Fab Products") in Western Europe and in the United States
in September 1996.
The Company's net sales are also sensitive to changes in the world pricing
of primary aluminum. The price sensitivity affects the realized selling prices
of substantially all of the Company's products to varying degrees, with less
impact on the more specialized and value-added products. In 1997, the LME cash
price averaged $1,600 per tonne compared with $1,510 and $1,810 per tonne in
1996 and 1995, respectively. The LME price increased from a January 1997 average
of $1,580 to a monthly average peak of $1,710 in August 1997 and averaged $1,530
in December 1997. Net sales for 1997 reflect the impact of the annual average
price increase. Sales growth of eight percent in 1996 was attributable to
increased shipments offset somewhat by a decline in pricing.
Primary products' net sales in 1997 increased four percent. Substantially
all of the increase was a result of higher average realized selling prices.
Internal consumption of primary products grew by 15 percent in 1997 compared to
1996. The increase in internal consumption was driven by the integration of the
Company's expanded extrusion operations. The January 31, 1996 acquisition of
Cressona Aluminum Company ("Cressona") more than doubled the capacity of the
Company's extrusion operations. The Company's total primary aluminum production
in 1997 increased approximately three percent over 1996.
Primary products' net sales increased three percent in 1996 on shipment
increases of eight percent. Primary production rose in 1996 as idled capacity
restarts of approximately 90,000 tonnes, which were announced in November 1995,
were completed in January 1996. The Company's smelter network has been operating
at or above full nameplate capacity since January 1996. The increase in
shipments was partially offset by lower average realized selling prices during
1996 as compared with 1995.
Semi-fabricated products' net sales for 1997 increased 12 percent as a
result of increased shipments. The increase in shipments was primarily
attributable to the Company's extrusion operations. The 1996 acquisition of
Cressona, which more than doubled the capacity of the Company's extrusion
business, created an organization which the Company believes has the world's
largest soft-alloy extrusion manufacturing capacity. Additionally, continued
growth in the Company's extrusion operations in the transportation and service
center businesses contributed to the increase. Semi-fabricated products' net
sales also benefited from an increase in shipments by the Company's sheet mill
operations.
Semi-fabricated products' net sales in 1996 increased 24 percent over 1995,
principally due to shipment increases of 36 percent. Substantially all of the
1996 increase in shipments was generated as a result of the acquisition of
Cressona. Slightly offsetting the impact of higher shipments were lower prices
in the Company's sheet mill operations.
Fabricated products' net sales for 1997 decreased 37 percent principally
due to the September 1996 sale of Fab Products. Increased sales in the Company's
domestic building and construction operations and European secondary aluminum
and extrusion operations were more than offset by the effects of the sale of Fab
Products, which had sales of $363.3 in 1996.
Fabricated products' net sales in 1996 declined 11 percent on a six percent
decline in shipments. The Company sold Fab Products, which had sales of $485.0
in 1995 and $363.3 in 1996 through the date of disposition, on September 25,
1996. The decline in sales was partially offset by an increase in sales to the
domestic building and construction market.
COST AND EXPENSES
The Company's cost and expenses were $2,637.9 for 1997 compared with
$2,927.4 for 1996 and $2,620.3 for 1995. The decrease in 1997 was largely
attributable to lower volumes resulting from the sale of Fab
24
<PAGE> 26
Products and decreases in external purchases of aluminum. Additionally, as a
result of actions under the performance improvement plan, savings of $12.3 were
realized in the fourth quarter of 1997. These savings included $9.8 from
improvements in production efficiencies and best practices throughout the
Company's businesses and $2.5 from productivity gains and workforce attrition.
The increase in total cost and expense levels in 1996 as compared with 1995
reflects the expanded volume from the Company's extrusion operations combined
with increases in raw material, research, business and product development
costs, partially offset by a volume reduction associated with the Fab Products
disposition.
Depreciation expense increased 11 percent in 1997, which was commensurate
with the Company's level of capital spending since 1995. In 1996, depreciation
expense increased 27 percent compared with 1995 with most of this increase the
result of expansion of the Company's extrusions business and the effects of
capital spending programs.
OTHER ITEMS AFFECTING NET EARNINGS
Other income, net
Other income, net, for the years ended December 31, 1997, 1996 and 1995 was
$2.0, $10.6 and $7.3, respectively. Included in 1996 and 1995, respectively,
were $18.6 and $11.6 for dividends received from Mexican mining operations. The
Company sold its investment in the Mexican mining operations during 1996.
Interest expense, net
Gross interest expense was $62.5, $74.1 and $81.6 for the years ended
December 31, 1997, 1996 and 1995. Gross interest expense in 1997 decreased
because of lower interest rates and a lower average level of borrowings compared
with 1996. Gross interest expense in 1996 decreased because of lower interest
rates compared with 1995. Interest income for the years ended December 31, 1997,
1996 and 1995 was $3.1, $3.8 and $10.8, respectively. Interest income was higher
in 1995 because of higher interest rates and higher overall cash balances.
Capitalized interest was $1.6, $7.5 and $5.4 in 1997, 1996 and 1995,
respectively.
Income taxes
The income tax provision for the year ended December 31, 1997 was $203.5
compared with an income tax provision of $172.6 and $139.1 in 1996 and 1995,
respectively. Included in 1997 was a $108.6 charge related to an alleged income
tax deficiency. The Internal Revenue Service (the "IRS") asserted that Alumax
and certain of its subsidiaries were improperly included in the 1984, 1985 and
1986 consolidated income tax returns of AMAX Inc. ("Amax"), the Company's former
parent company, and on that basis assessed a federal income tax deficiency
against Alumax of $129. In response to the IRS' notice of deficiency, the
Company filed a petition in the United States Tax Court (the "Court"), seeking a
redetermination in respect of the purported deficiency. The parties waived their
rights to a trial and the matter was submitted to the Court for decision based
upon the pleadings, stipulations, memoranda and other documents submitted to the
Court by the parties. On September 30, 1997, the Court entered a decision in
favor of the IRS, opining that Amax did not have the 80 percent control
necessary to consolidate. On October 27, 1997, the Company paid an aggregate of
$411 to the IRS, representing the expected deficiency and estimated accrued
interest. The payment was funded from cash on hand and borrowings of $355 under
the Company's revolving credit facility. On December 24, 1997, the Company filed
a notice of appeal of the Court's decision to the United States Court of Appeals
for the Eleventh Circuit.
Effective tax rates differ from the statutory rate due to provisions for
prior years, provisions for state and foreign taxes and the charge related to
the alleged income tax deficiency. In addition, the 1996 repatriation of foreign
earnings associated with the sale of Fab Products' businesses in Western Europe
also contributed to a higher effective tax rate than the statutory rate. In the
first quarter of 1995, the Company reversed a $13.4 federal income tax valuation
allowance in anticipation of utilization of the asset. This deferred tax asset
was subsequently realized.
25
<PAGE> 27
STRATEGIC TRANSACTIONS
The Company periodically implements strategic actions which it believes
afford it the opportunity to redeploy resources to enhance profitability and
growth. During 1996 and 1995 the following notable strategic transactions
occurred:
<TABLE>
<CAPTION>
DISPOSITION ACQUISITION PRE-TAX AFTER-TAX
PROCEEDS COST GAIN GAIN
----------- ----------- ------- ---------
<S> <C> <C> <C> <C>
1996:
Fab Products.................................. $246.6 $ 71.7 $ 36.7
Mexican Mining Investment..................... 160.0 92.8 55.1
Excess Primary Aluminum Capacity.............. 89.3 78.4 48.6
Cressona Aluminum Company..................... $436.5
------ ------ ------ ------
$495.9 $436.5 $242.9 $140.4
====== ====== ====== ======
1995:
Excess Primary Aluminum Capacity.............. $147.6 $128.8 $ 81.3
====== ====== ======
</TABLE>
Dispositions
In September 1996, the Company sold certain fabricated products businesses
in Western Europe and in the United States for $246.6 in cash, net of cash sold
of $5.4. The Company recorded an after-tax gain of $36.7, net of a $35.0 tax
provision, in the third quarter of 1996.
In June 1996, the Company sold its investment in Mexican mining interests
for total consideration of $160 in cash. The Company recorded an after-tax gain
of $55.1, net of a $37.7 tax provision, in the second quarter of 1996.
In January 1996, the Company sold a 23 percent undivided interest in its
Mt. Holly primary aluminum reduction facility for $89.3, which the Company
applied to the early retirement of a $90.7 promissory note due in May 1996. The
Company recorded an after-tax gain of $48.6, net of a $29.8 tax provision, in
the first quarter of 1996. This transaction reduced the Company's ownership in
the Mt. Holly facility to 50.33 percent.
In March 1995, the Company sold a 14 percent undivided interest in each of
the Company's Intalco and Eastalco primary aluminum reduction facilities for
cash proceeds of $147.6, resulting in an after-tax gain of $81.3, net of a $47.5
tax provision, recorded in the first quarter of 1995. This transaction reduced
the Company's ownership in each facility to 61 percent.
Acquisition
On January 31, 1996, the Company purchased all of the common shares of
privately held Cressona for a cash cost, including expenses, of $436.5, net of
$3.1 of cash acquired. In conjunction with the acquisition, accounts payable,
debt and other liabilities of $87.4 were acquired. Cressona was a leading
manufacturer of extruded aluminum products and is now an integral part of Alumax
Extrusions, Inc.
The transaction was accounted for as a purchase and the results of
operations of Cressona have been included in the consolidated financial
statements since January 31, 1996. The acquisition was financed with cash on
hand and $375 of borrowings obtained under a $400 bridge loan facility. All of
these borrowings have been repaid and the facility has been terminated.
26
<PAGE> 28
Pro Forma Information
The following summary presents Alumax's unaudited pro forma consolidated
net sales, net earnings, and basic earnings per common share for 1996 and 1995,
respectively, as if the acquisition of Cressona and the sale of Fab Products
each occurred on January 1, 1996 and 1995. The pro forma adjustments for 1996
include the addition of Cressona's operating results for the month of January
1996. Since the acquisition occurred on January 31, 1996, the Company's actual
results include Cressona from February 1, 1996 through December 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales................................................... $ 2,830.3 $ 2,910.1
Net earnings................................................ $ 243.6 $ 238.6
Basic earnings per common share............................. $ 5.12 $ 5.14
</TABLE>
The pro forma results are based upon certain assumptions and estimates,
which the Company believes are reasonable. The pro forma results do not purport
to be indicative of results that actually would have been obtained had these
transactions occurred on January 1, 1996 or 1995, nor are they intended to be a
projection of future results.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Operations used cash of $80.3 in 1997, compared with cash provided of
$193.0 in 1996 and $254.7 in 1995. The lower cash flow in 1997 was primarily the
result of the payment of $411 to the IRS related to an alleged income tax
deficiency. Lower cash flow in 1996 compared with 1995 cash flow was directly
related to the decrease in earnings from operations partially offset by working
capital reductions, net of the effects of the Cressona acquisition and the sale
of Fab Products. Cash flow in 1995 was negatively affected by $3.0 due to
advance payments from a customer received in 1993 for future shipments of
primary aluminum. In addition, the Company incurred $14.9 of cash costs during
1995 related to the 1993 restructuring of its sheet mill operations, which has
been substantially completed.
If the LME cash prices in 1998 were to remain at levels comparable to those
that prevailed in 1997 ($1,600 per tonne), and based on certain other
assumptions, the Company would expect to generate cash flow from operating
activities in excess of $560.
Investing activities
Cash used in investing activities was $159.8 in 1997 compared with cash
used of $177.7 and $62.9 in 1996 and 1995, respectively. Capital expenditures
were $165.4 in 1997 compared with $243.2 in 1996 and $213.7 in 1995. As
described above under "Strategic Transactions," the Company received net cash of
$59.4 and $147.6 in connection with notable strategic transactions during 1996
and 1995, respectively. Additional proceeds of $5.6, $6.1 and $3.2 were received
in 1997, 1996 and 1995, respectively, from the sale of various other assets.
During 1998, capital expenditures are expected to approximate $190 as the
Company continues its program of investing capital in new markets, technology
and facilities. Included in these expenditures are completion of the
state-of-the-art Morris, Illinois extrusion facility, completion of continuous
homogenizing furnaces at the Company's Intalco and Eastalco primary aluminum
reduction facilities, and the balance of spending on the Yunnan aluminum foil
joint venture in China. Capital expenditures in 1997 included initial spending
on the Morris, Illinois extrusions facility, completion of upgrades to the
Lancaster, Pennsylvania and Texarkana, Texas rolling mills, completion of the
Russellville, Arkansas foil facility, continued spending on Eastalco's
point-feed conversion, and progress payments on the Yunnan aluminum foil
venture.
During 1996, the Company, through a subsidiary, entered into a joint
venture with Yunnan Aluminum Processing Factory in Kunming, China for the annual
production of 8,000 to 10,000 tonnes of light gauge aluminum foil for China's
packaging market. Alumax will invest a total of $38 of cash in the joint venture
to
27
<PAGE> 29
develop a continuous cast foil operation. As of December 31, 1997, the Company
had invested approximately $24 of cash in the joint venture.
Financing activities
Financing activities during 1997 provided $232.5 of cash compared with cash
used of $186.6 in 1996 and $78.9 in 1995. On October 27, 1997, the Company
borrowed $355 under the revolving credit facility to pay the alleged deficiency
and accrued interest due to the IRS based on the United States Tax Court ruling.
At December 31, 1997, the balance owed under the revolving credit facility was
$330. The Company borrowed $375 under available credit facilities in January
1996 to finance the acquisition of Cressona. During 1996, these borrowings were
fully repaid. Total debt repayments of $552.3 in 1996 also include $136.6 of
early retirements, principally consisting of $39.3 of Cressona debt acquired and
a $90.7 promissory note due in May 1996. Debt repayments of $69.6 in 1995
included early retirements and prepayments of $7.6. There were no new borrowings
in 1995. Dividends totaling $9.3 per annum were paid in 1996 and 1995 to holders
of Alumax $4.00 Series A Convertible Preferred Stock ("Preferred Stock"). In
December 1996, all of the outstanding Preferred Stock was converted into shares
of Alumax Common Stock. At December 31, 1997, 1996 and 1995, the Company's total
debt to invested capital was 38.2 percent, 30.2 percent and 37.7 percent,
respectively. Total debt outstanding was $1,002.0, $710.4 and $845.9, at
December 31, 1997, 1996 and 1995, respectively.
In May 1995, the Company entered into a $400 revolving credit facility (the
"Credit Facility") to replace its then existing revolving credit facility, which
was terminated. During 1997, the credit agreement was amended, increasing the
total amount available under the facility to $800. The Credit Facility has a
term of five years, expiring in October 2002, with no provision for reduction in
commitments. Interest on outstanding balances will be based on either a base
rate or LIBOR option. The Credit Facility restricts the incurrence of
indebtedness by subsidiaries, as well as financial and other covenants. Under
the Credit Facility, the Company and its consolidated subsidiaries collectively
are required to maintain tangible net worth of at least $900 at any time, and
the Company and certain of its subsidiaries, excluding the Lauralco Project
Group (see Note 6 to the Financial Statements included elsewhere herein), are
collectively required to maintain a ratio of tangible net assets to funded debt
of at least 2.0 to 1.0 at any time.
For further information relating to the Company's loan and credit
facilities and for a description of certain provisions contained in a loan
agreement which restrict the Company's ability to pay dividends, see Note 6 to
the Financial Statements included elsewhere herein. Under this restriction, at
December 31, 1997, $442.2 of retained earnings were available for the payment of
dividends on common stock.
Management believes current cash balances, anticipated cash flows from
operations and available funds from the revolving credit facility described
above are sufficient to meet the Company's planned level of capital spending and
to service its debt.
In November 1997, Alumax Mill Products entered into a new five-year
operating lease, renewable for up to two additional years, covering the
Texarkana rolling mill facility. The new leasing arrangement enabled the Company
to forego a previously planned capital investment of $97 to purchase the
Texarkana facility. Annual rent expense is expected to be reduced by
approximately $4.6 under the new lease.
In the fourth quarter of 1997, the Company began acquiring shares of its
common stock in connection with a stock repurchase program announced in July
1996. That program authorizes the Company to purchase up to 2.5 million common
shares from time to time on the open market or pursuant to negotiated
transactions at price levels the Company deems attractive. The Company purchased
1.8 million shares of common stock in 1997 at an aggregate cost of $59.1. The
purpose of the stock repurchase program is to help the Company achieve its
long-term goal of enhancing stockholder value. In February 1998, the Board of
Directors amended the program to provide that purchases reported to, and
ratified by, the Board of Directors or by the Executive Committee of the Board
shall not be counted in determining compliance with the 2.5 million share
limitation.
28
<PAGE> 30
On November 4, 1996, the Company announced that it was redeeming all of the
outstanding shares of its Preferred Stock, par value $1.00 per share, on
December 18, 1996. In December 1996, the outstanding shares of Preferred Stock
were converted into approximately 9.6 million shares of Alumax Common Stock.
Risk Management
The Company utilizes certain financial instruments in connection with its
risk management. The risk of loss related to counterparty nonperformance under
financial instrument agreements at December 31, 1997 was not significant.
The Company enters into forward fixed price arrangements that are required
by certain customers and suppliers. The Company may utilize futures or option
contracts to hedge risks associated with forward fixed price arrangements. The
Company may also utilize futures or option contracts to manage price risk
associated with changes in inventory levels. The net amount of such contracts
was approximately 313,425 tonnes at December 31, 1997 and included varying
maturity dates through 2003. Gains or losses with respect to these positions are
reflected in earnings concurrent with consummation of the underlying fixed price
transactions. Periodic value fluctuations of the futures contracts approximately
offset the value fluctuations of the underlying fixed price transactions.
The Company also may, from time to time, establish a floor selling price
for varying quantities of future production. This may be accomplished by
entering into forward sales of primary aluminum, purchasing put options, or by
entering into forward sales of primary aluminum and purchases of call options,
which together provide the same price protection as purchasing put options in a
manner which correlates with the Company's production and sales of primary
aluminum. This strategy may be modified from time to time. At December 31, 1997,
the Company's commitments with respect to these financial instruments covered
approximately 234,450 tonnes of future production. The book value and market
value of these financial instruments were $5.4 and $22.5, respectively, at
December 31, 1997.
Certain of the Company's foreign operating expenditures are denominated in
currencies other than the operations' functional currencies, which expose the
Company to exchange rate risks. In order to mitigate its exposure to exchange
rate risk where these conditions exist, the Company may utilize forward or
option contracts on foreign currencies. At December 31, 1997, the Company had
outstanding $214.9 in such contracts which mature at various dates through June
1999. The gains or losses related to these contracts are deferred and included
in the measurement of the related foreign denominated transactions. If these
contracts had been terminated at December 31, 1997, the Company would have
incurred a loss of approximately $4.5.
The Company's debt instruments and related interest rate hedges are
susceptible to market fluctuations based on changes in the cost of borrowing. At
December 31, 1997, the fair value of total debt approximated book value. The
Lauralco credit facility, which has a variable interest rate, required the
Company to establish facilities to effectively limit the interest rate exposure
of the commitment. To meet this requirement, the Company has obtained interest
rate swaps with notional amounts totaling $400 through October 26, 2000 and
interest rate caps with a notional amount of $150 expiring October 26, 1998.
This program is designed to effectively cap interest rate exposure at a maximum
of approximately nine percent through October 26, 2000. The effective rate on
this debt amounted to 8.4 percent, 8.5 percent and 9.2 percent for the years
ended December 31, 1997, 1996 and 1995, respectively. The Company would have
paid approximately $32.3 to terminate these interest rate agreements at December
31, 1997.
The Company also purchases natural gas for its operations and enters into
forward contracts to manage the volatility in prices. At December 31, 1997, none
of these contracts was material.
Environmental Matters
The Company has been named as a defendant or identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws by governmental agencies and
private parties at 38 pending waste disposal sites which, in most instances,
were owned and operated by third parties. Management periodically evaluates such
matters and records or
29
<PAGE> 31
adjusts liability reserves for remediation and other costs and potential damages
when expenditures for such costs are considered probable and can be reasonably
estimated.
The Company's ultimate liability in connection with present and future
environmental claims will depend on many factors, including its volumetric share
of the waste at a given site, the remedial action required, the total cost of
remediation and the financial viability and participation of the other entities
which also sent waste to the site. Based upon current law and information known
to the Company concerning the size of the sites known to it, anticipated costs
of remediation, their years of operation, and the number of potentially
responsible parties, Management believes that it has adequate reserves for the
Company's probable share of the estimated aggregate liability for the costs of
remedial actions and related costs and expenses and that such liability and
related costs and expenses should not have a material adverse effect on the
financial condition or ongoing results of operations of the Company. In
addition, the Company establishes reserves for remedial measures required from
time to time at its own facilities. Any expenditures for remediation programs it
may be required to undertake, either individually or in the aggregate, are not
expected to have a material adverse effect on the financial condition or ongoing
results of operations of the Company. The Company's environmental reserves
totaled $29.6 at December 31, 1997 and 1996. Management believes that the
reasonably probable outcomes of these matters will not materially exceed
established reserves. Although the Company believes it has coverage for some
environmental claims under certain insurance policies, insurance recoveries are
not considered in estimating the Company's share of remediation costs at a site
unless an insurance carrier has agreed to pay a portion of such costs. Insurance
recoveries were not considered in establishing reserves for any of these sites
absent an agreement between the carriers and the Company.
Management does not anticipate that commitments, operating expenses or
capital expenditures for environmental compliance through and including the next
fiscal year will have a material adverse effect on the Company's financial
condition or ongoing results of operations. Based on historical trends toward
tighter environmental standards, it appears likely that the Company will incur
additional expenditures to remain in compliance with federal and state
environmental laws. See also "Business -- Environmental Matters" under Item 1
and "Legal Proceedings" under Item 3 in Part I hereof.
Impact of the Year 2000 Issue
The "Year 2000 Issue" resulted from the use of two digits rather than four
digits to define the applicable year in certain computer programs. With the
coming millennium, any of the Company's computer programs that have two digit
date-sensitive software may interpret a date of "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
Management is in the process of evaluating the effect of the Year 2000
Issue on the Company. Based on preliminary findings, the total cost of
addressing the Year 2000 Issue is not expected to have a material effect on the
Company's business, financial condition or results of operations. However,
Management is in the process of completing its assessment of the potential
impact of the Year 2000 Issue on the Company and the potential exposure of the
Company to related problems of its customers and suppliers. There can be no
assurance that such exposures or the costs of remediating any problems
associated therewith will not materially affect the Company's future business,
financial condition or results of operations.
Cautionary Statement Regarding Forward-Looking Information
Certain statements and information contained in this Annual Report on Form
10-K, including in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and under "Business" in Item 1 and under
"Legal Proceedings" in Item 3, are forward-looking statements that reflect
Management's current plans, objectives and expectations for the future, which
are based on prevailing circumstances and information available at this time.
Accordingly, such statements and information involve inherent risks and
uncertainties, and actual results may differ materially from those discussed
therein. Forward-looking statements contained herein include: (i) statements
made concerning Management's
30
<PAGE> 32
expectations with respect to the Company's strategic plan for growth and its
performance improvement plan (including all statements of targeted performance
improvements); (ii) statements made regarding expected future cash flow from
operating activities; (iii) statements regarding Management's expectations with
respect to the future profitability of the Company's semi-solid forging
operations; and (iv) statements made regarding the Company's current
expectations or beliefs with respect to the outcome and impact on the Company's
business, financial condition or results of operations of the Year 2000 Issue
and pending litigation and other claims, disputes or legal proceedings. Factors
that could cause actual results to differ from those discussed in the
forward-looking statements include: fluctuations in commodity prices (including
prices of aluminum and alumina), changes in competitive conditions, government
regulation, aluminum market conditions, changes in labor relations, the outcome
of pending litigation and other claims, domestic and international market
conditions and general economic conditions. In addition, actual results may
differ as a result of other factors not enumerated herein, as well as changes in
current circumstances, that are impossible to predict at this time.
31
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 33
Statements of Earnings for the Years Ended December 31,
1997, 1996 and 1995....................................... 34
Statements of Financial Position at December 31, 1997 and
1996...................................................... 35
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995....................................... 36
Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995.................... 37
Notes to Financial Statements............................... 38
</TABLE>
32
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Alumax Inc.
We have audited the accompanying statements of financial position of Alumax
Inc. and its subsidiaries as of December 31, 1997 and 1996, and the related
statements of earnings, cash flows and changes in stockholders' equity for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alumax Inc. and its
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
January 27, 1998
33
<PAGE> 35
ALUMAX INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
NOTE 1997 1996 1995
---- --------- --------- ---------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NET SALES.................................................. $2,930.9 $3,159.3 $2,926.1
Cost and expenses:
Cost of goods sold....................................... 2,234.1 2,522.0 2,285.7
Selling and general...................................... 250.9 267.3 225.5
Depreciation and amortization............................ 152.9 138.1 109.1
-------- -------- --------
2,637.9 2,927.4 2,620.3
-------- -------- --------
EARNINGS FROM OPERATIONS................................... 293.0 231.9 305.8
Gain on sales of assets.................................... 2 -- 242.9 128.8
Interest expense, net...................................... 13 (57.8) (62.8) (65.4)
Other income, net.......................................... 14 2.0 10.6 7.3
-------- -------- --------
EARNINGS BEFORE INCOME TAXES............................... 237.2 422.6 376.5
Income tax provision....................................... 4 203.5 172.6 139.1
-------- -------- --------
NET EARNINGS............................................... 33.7 250.0 237.4
Preferred dividends........................................ 10 -- (9.3) (9.3)
-------- -------- --------
EARNINGS APPLICABLE TO COMMON SHARES....................... $ 33.7 $ 240.7 $ 228.1
======== ======== ========
Earnings per common share:
Basic.................................................... 10 $ 0.62 $ 5.26 $ 5.11
======== ======== ========
Diluted.................................................. 10 $ 0.60 $ 4.53 $ 4.34
======== ======== ========
Weighted average shares outstanding:
Basic.................................................... 10 54.7 45.7 44.6
======== ======== ========
Diluted.................................................. 10 55.7 55.2 54.8
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
ALUMAX INC.
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
NOTE 1997 1996
---- ----------- -----------
(MILLIONS OF DOLLARS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $ 27.0 $ 34.6
Accounts receivable, less allowance for doubtful accounts
(1997 -- $13.2; 1996 -- $16.6)......................... 487.1 439.1
Inventories............................................... 3 533.8 519.9
Deferred income taxes..................................... 4 94.7 54.5
Other current assets...................................... 23.7 37.7
-------- --------
Total current assets.............................. 1,166.3 1,085.8
-------- --------
Noncurrent Assets:
Property, plant and equipment, net........................ 5 2,026.9 2,027.4
Deferred income taxes..................................... 4 38.4 40.4
Other assets.............................................. 221.4 145.1
-------- --------
Total noncurrent assets........................... 2,286.7 2,212.9
-------- --------
TOTAL ASSETS................................................ $3,453.0 $3,298.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 145.3 $ 162.6
Accrued liabilities....................................... 220.3 224.2
Current maturities of long-term debt...................... 6 46.4 38.4
-------- --------
Total current liabilities......................... 412.0 425.2
-------- --------
Noncurrent Liabilities:
Long-term debt............................................ 6 955.6 672.0
Deferred income taxes..................................... 4 193.1 154.0
Postretirement health care................................ 8 164.8 161.8
Other liabilities......................................... 105.8 244.9
-------- --------
Total noncurrent liabilities...................... 1,419.3 1,232.7
-------- --------
Commitments and Contingencies............................... 9
Stockholders' Equity:
Preferred stock of $1.00 par value -- authorized
50,000,000 shares...................................... 10 -- --
Common stock of $.01 par value -- authorized 200,000,000
shares; issued and outstanding 53,390,250 shares in
1997 and 54,692,057 shares in 1996..................... 10 .6 .5
Paid-in capital........................................... 935.8 920.2
Retained earnings......................................... 758.0 724.3
Cumulative foreign currency translation adjustment........ (13.6) (4.2)
Common stock in treasury, at cost -- 1,812,900 shares in
1997................................................... 10 (59.1) --
-------- --------
Total stockholders' equity........................ 1,621.7 1,640.8
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $3,453.0 $3,298.7
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
ALUMAX INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
NOTE 1997 1996 1995
---- --------- --------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................ $ 33.7 $ 250.0 $ 237.4
Reconciliation of net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 152.9 138.1 109.1
Provision for doubtful accounts......................... .9 5.2 2.7
Gain on sales of assets................................. 2 (4.3) (242.1) (133.9)
Deferred income taxes................................... 4 .9 47.7 50.8
Other noncash items..................................... 15.7 8.5 5.7
Changes in operating assets and liabilities, net of
effects of acquisition/dispositions:
Accounts receivable.................................. (48.9) (25.4) .3
Inventories.......................................... 3 (13.9) 17.7 (60.0)
Other current assets................................. 16.3 (21.8) 57.4
Accounts payable and accrued liabilities............. (21.2) 9.8 (51.2)
Net change in other noncurrent assets and
liabilities........................................ (212.4) 5.3 36.4
------- ------- -------
Net cash provided by (used in) operating
activities......................................... (80.3) 193.0 254.7
------- ------- -------
INVESTING ACTIVITIES:
Dispositions, net of cash sold.......................... 5.6 502.0 150.8
Acquisitions, net of cash acquired...................... -- (436.5) --
Capital expenditures.................................... (165.4) (243.2) (213.7)
------- ------- -------
Net cash used in investing activities................ (159.8) (177.7) (62.9)
------- ------- -------
FINANCING ACTIVITIES:
Repayments of debt...................................... 6 (63.4) (552.3) (69.6)
Proceeds from debt...................................... 6 355.0 375.0 --
Dividends paid.......................................... 10 -- (9.3) (9.3)
Repurchases of common stock............................. 10 (59.1) -- --
------- ------- -------
Net cash provided by (used in) financing
activities......................................... 232.5 (186.6) (78.9)
------- ------- -------
Net increase (decrease) in cash and equivalents........... (7.6) (171.3) 112.9
Cash and equivalents at beginning of year................. 34.6 205.9 93.0
------- ------- -------
Cash and equivalents at end of year....................... $ 27.0 $ 34.6 $ 205.9
======= ======= =======
Supplemental Cash Flow Information:
Income taxes paid, net.................................. $ 430.0 $ 98.0 $ 84.0
Interest paid, net of amounts capitalized............... $ 58.9 $ 66.5 $ 72.8
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 38
ALUMAX INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
NOTE SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---- ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock
At January 1..................................... -- -- 2.3 $ 2.3 2.3 $ 2.3
Conversion to common stock....................... 10 -- -- (2.3) (2.3) -- --
---- ------ ---- ------ ---- ------
At December 31................................... -- -- -- -- 2.3 $ 2.3
==== ====== ==== ====== ==== ======
Common Stock
At January 1..................................... 54.7 $ .5 44.8 $ .4 44.6 $ .4
Conversion of preferred stock.................... 10 -- -- 9.6 .1 -- --
Employee stock issuances......................... 7 .5 .1 .3 -- .2 --
Repurchase common stock.......................... 10 (1.8) -- -- -- -- --
---- ------ ---- ------ ---- ------
At December 31................................... 53.4 $ .6 54.7 $ .5 44.8 $ .4
==== ====== ==== ====== ==== ======
Paid-in Capital
At January 1..................................... $920.2 $909.5 $903.8
Conversion of preferred stock.................... 10 -- 2.2 --
Employee stock issuances......................... 7 15.6 8.5 5.7
------ ------ ------
At December 31................................... $935.8 $920.2 $909.5
====== ====== ======
Retained Earnings
At January 1..................................... $724.3 $483.6 $255.5
Net earnings..................................... 33.7 250.0 237.4
Dividends on preferred stock..................... 10 -- (9.3) (9.3)
------ ------ ------
At December 31................................... $758.0 $724.3 $483.6
====== ====== ======
Cumulative Foreign Currency Translation Adjustment
At January 1..................................... $ (4.2) $ 3.5 $ .1
Adjustment for foreign currency translation...... (9.4) (7.7) 3.4
------ ------ ------
At December 31................................... $(13.6) $ (4.2) $ 3.5
====== ====== ======
Common Stock in Treasury
At January 1..................................... 10 -- --
Common stock repurchases......................... 1.8 $(59.1)
---- ------
At December 31................................... 1.8 $(59.1)
==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 39
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The financial statements include the
consolidated accounts of all majority-owned subsidiaries over which Alumax Inc.
("Alumax" or the "Company") maintains control. Investments in companies over
which the Company has significant influence, but not a controlling interest, are
carried on the equity method of accounting. Investments in companies over which
the Company lacks significant influence are carried on the cost method of
accounting. All significant intercompany accounts and transactions have been
eliminated.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires Management to make
estimates and assumptions that may affect the reported amounts of certain assets
and liabilities and disclosure of contingencies at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents -- Cash equivalents consist of highly liquid investments,
which are readily convertible into cash, with a maturity at the date of
acquisition of three months or less.
Financial Instruments -- The Company may, from time to time, utilize
certain financial instruments in connection with risk management. The fair value
of financial instruments is determined by reference to market value quotes,
where available, and other valuation techniques, as appropriate. Amounts to be
paid or received on interest rate swaps and caps are included in interest
expense on an accrual basis, as they effectively limit the interest rate
exposure of the Company's debt commitments.
Certain of the Company's foreign operating expenditures are denominated in
currencies other than the operations' functional currencies, which expose the
Company to exchange rate risks. In order to mitigate its exposure to exchange
rate risk where conditions exist, the Company may utilize forward or option
contracts on foreign currencies. Amounts paid or received on settlement of such
contracts are deferred and included in the measurement of the related foreign
denominated transactions.
The Company's results of operations and financial condition depend to a
large degree on primary aluminum prices. In order to reduce this exposure, the
Company may enter into future, forward and option contracts. Amounts paid or
received on settlement of future, forward and option contracts, including any
cost to purchase the contracts, are deferred and recognized as a component of
the related transaction and included in costs and expenses, except for amounts
paid or received on settlement of aluminum contracts by the primary reduction
facilities, which are included in net sales.
All of the Company's financial instruments have been designated as hedges
and are closely monitored to ensure that correlation between changes in the fair
value of financial instruments and changes in the fair value associated with the
underlying hedged items exists to such a degree that they substantially offset.
In the event a high degree of correlation is not maintained, or anticipated
transactions do not occur, deferred gains or losses on the affected financial
instruments are recognized in earnings immediately. At December 31, 1997, all of
the Company's financial instruments qualified for deferral accounting treatment.
Inventories -- Inventories are stated at the lower of cost or market, with
cost for a substantial portion of U.S. inventories determined under the last-in,
first-out (LIFO) method. The cost of other inventories is principally determined
under the first-in, first-out (FIFO) method.
Property, Plant and Equipment -- Property, plant and equipment is recorded
at cost. Depreciation and amortization of property, plant and equipment is
computed principally on the straight-line method over the estimated useful lives
of the assets. Certain pre-operating costs attributable to new operations of
major facilities are deferred and amortized over a period of approximately three
years. In determining impairment of
38
<PAGE> 40
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
facilities to be disposed, the Company includes direct holding costs during the
disposal period in its measurement of net realizable value.
Stock-Based Compensation -- Compensation cost is measured under the
intrinsic value based method. Pro forma disclosures of net income and earnings
per share are presented, as if the fair value based method had been applied.
Revenue Recognition -- The Company recognizes revenue when title passes to
the customer.
Reclassifications -- Certain reclassifications have been made to prior
years' financial statements to conform with the 1997 presentation.
NOTE 2. STRATEGIC TRANSACTIONS
The Company periodically implements strategic actions, which it believes
afford it the opportunity to redeploy resources to enhance profitability and
growth. During 1996 and 1995 the following notable strategic transactions
occurred:
<TABLE>
<CAPTION>
DISPOSITION ACQUISITION PRE-TAX AFTER-TAX
PROCEEDS COST GAIN GAIN
----------- ----------- ------- ---------
<S> <C> <C> <C> <C>
1996:
Fab Products.................................. $246.6 $ 71.7 $ 36.7
Mexican Mining Investment..................... 160.0 92.8 55.1
Excess Primary Aluminum Capacity.............. 89.3 78.4 48.6
Cressona Aluminum Company..................... $436.5
------ ------ ------ ------
$495.9 $436.5 $242.9 $140.4
====== ====== ====== ======
1995:
Excess Primary Aluminum Capacity.............. $147.6 $128.8 $ 81.3
====== ====== ======
</TABLE>
Dispositions
On September 25, 1996, the Company sold certain fabricated products
businesses ("Fab Products") in Western Europe and in the United States for
$246.6 in cash, net of cash sold of $5.4. The Company recorded an after-tax gain
of $36.7, net of a $35.0 tax provision, in the third quarter of 1996.
In June 1996, the Company sold its investment in Mexican mining interests
for $160 in cash. The Company recorded an after-tax gain of $55.1, net of a
$37.7 tax provision, in the second quarter of 1996.
In January 1996, the Company sold a 23 percent undivided interest in its
Mt. Holly primary aluminum reduction facility for $89.3, which the Company
applied to the early retirement of a $90.7 promissory note due in May 1996. The
Company recorded an after-tax gain of $48.6, net of a $29.8 tax provision, in
the first quarter of 1996. This transaction reduced the Company's ownership in
the Mt. Holly facility to 50.33 percent.
In March 1995, the Company sold a 14 percent undivided interest in each of
the Company's Intalco and Eastalco primary aluminum reduction facilities for
cash proceeds of $147.6, resulting in an after-tax gain of $81.3, net of a $47.5
tax provision, recorded in the first quarter of 1995. This transaction reduced
the Company's ownership in each facility to 61 percent.
Acquisition
On January 31, 1996, the Company purchased all of the common shares of
privately held Cressona Aluminum Company ("Cressona") for a cash cost, including
expenses, of $436.5, net of $3.1 of cash acquired. In conjunction with the
acquisition, accounts payable, debt and other liabilities of $87.4 were
39
<PAGE> 41
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
acquired. Cressona was a leading manufacturer of extruded aluminum products and
is now an integral part of Alumax Extrusions, Inc.
The transaction has been accounted for as a purchase and the results of
operations of Cressona have been included in the consolidated financial
statements since January 31, 1996. The acquisition was financed with cash on
hand and $375 of borrowings obtained under a $400 bridge loan facility. All of
these borrowings have been repaid and the facility has been terminated.
Pro Forma Information
The following summary presents Alumax's unaudited pro forma consolidated
net sales, net earnings, and basic earnings per common share for 1996 and 1995,
respectively, as if the acquisition of Cressona and the sale of Fab Products
each occurred on January 1, 1996 and 1995. The pro forma adjustments for 1996
include the addition of Cressona's operating results for the month of January
1996. Since the acquisition occurred on January 31, 1996, the Company's actual
results include Cressona from February 1, 1996 through December 31, 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net sales................................................... $2,830.3 $2,910.1
Net earnings................................................ $ 243.6 $ 238.6
Basic earnings per common share............................. $ 5.12 $ 5.14
</TABLE>
The pro forma results were based upon certain assumptions and estimates,
which the Company believes are reasonable. The pro forma results do not purport
to be indicative of results that actually would have been obtained had these
transactions occurred on January 1, 1996 or 1995, nor are they intended to be a
projection of future results.
NOTE 3. INVENTORIES
Inventories, at December 31, were comprised of:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Raw materials............................................... $300.6 $323.7
Work in process ............................................ 110.7 87.3
Finished products........................................... 122.5 108.9
------ ------
$533.8 $519.9
====== ======
</TABLE>
Approximately 78 percent of inventory at December 31, 1997 and 1996 has
been determined under the LIFO cost basis. The excess of replacement cost over
the LIFO basis of such inventory was approximately $82.6 and $74.0 at December
31, 1997 and 1996, respectively. The reduction in levels of LIFO valued
inventories during 1997, 1996, and 1995 resulted in $1.4, and $3.7, and $1.4 of
pre-tax income related to LIFO liquidation, respectively.
40
<PAGE> 42
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The income tax provision was comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................... $108.6 $ 84.1 $ 67.8
Foreign................................................... 3.0 34.0 10.5
State..................................................... 6.5 13.1 10.3
------ ------ ------
118.1 131.2 88.6
------ ------ ------
Deferred:
Federal................................................... 79.9 36.8 43.9
Foreign................................................... 2.0 4.3 5.0
State..................................................... 3.5 .3 1.6
------ ------ ------
85.4 41.4 50.5
------ ------ ------
Total............................................. $203.5 $172.6 $139.1
====== ====== ======
</TABLE>
The domestic and foreign components of earnings before income taxes were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Domestic.................................................... $231.8 $396.4 $338.1
Foreign..................................................... 5.4 26.2 38.4
------ ------ ------
Total............................................. $237.2 $422.6 $376.5
====== ====== ======
</TABLE>
Reconciliation of the differences between income taxes computed at federal
statutory tax rates and the Company's consolidated income tax provision follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Tax at federal statutory rate............................... $ 83.0 $ 147.9 $131.8
Foreign tax credits......................................... -- (110.4) --
Tax consolidation case...................................... 108.6 -- --
Sale of foreign businesses.................................. -- 86.8 --
Foreign taxes in excess of federal statutory rate........... 3.1 29.2 2.1
State income taxes, net of federal income tax benefit....... 6.5 10.2 7.7
Valuation allowance reversal................................ -- -- (13.4)
Other, net.................................................. 2.3 8.9 10.9
------ ------- ------
Total............................................. $203.5 $ 172.6 $139.1
====== ======= ======
</TABLE>
The 1996 foreign provision for income taxes included $28.7 of dividend
withholding taxes.
41
<PAGE> 43
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The approximate tax effects of cumulative temporary differences at December
31 were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accrued expenses............................................ $ 50.3 $ 52.2
Book versus tax basis of inventory.......................... (11.3) (2.2)
Tax credit carryforwards.................................... 52.8 --
Allowance for doubtful accounts............................. 2.9 4.5
------- -------
Current, net................................................ 94.7 54.5
------- -------
Book versus tax basis of depreciable assets................. (248.3) (208.0)
Foreign capital cost allowance carryforward................. 57.8 59.8
Postretirement health care accrual.......................... 57.7 56.6
Other....................................................... (21.9) (22.0)
------- -------
Noncurrent, net............................................. (154.7) (113.6)
------- -------
Total, net........................................ $ (60.0) $ (59.1)
======= =======
</TABLE>
At December 31, 1997, the Company had $139.2 in foreign capital cost
allowance carryforwards which accrued in periods prior to becoming an
independent public corporation in 1993. The Company has not provided for
domestic income taxes or foreign withholding taxes on $39.1 of foreign
subsidiaries' undistributed earnings as of December 31, 1997, which are
reinvested indefinitely.
The Internal Revenue Service (the "IRS") asserted that Alumax and certain
of its subsidiaries were improperly included in the 1984, 1985, and 1986
consolidated income tax returns of AMAX Inc. (the Company's former parent) and
on that basis has assessed a federal income tax deficiency against Alumax of
$129. In response to the IRS' notice of deficiency, the Company filed a petition
in the United States Tax Court (the "Court") seeking a redetermination in
respect of the purported deficiency. The parties waived their rights to a trial
and the matter was submitted to the Court for decision based upon the pleadings,
stipulations, memoranda and other documents submitted to the Court by the
parties. On September 30, 1997, the Court entered a decision in favor of the IRS
opining that AMAX Inc. did not have the 80 percent control necessary to
consolidate. As a result of the ruling, the Company recorded a charge of $108.6
in the third quarter of 1997. On October 27, 1997, the Company paid an aggregate
of $411 to the IRS, representing the expected deficiency and estimated accrued
interest. The payment was funded from cash on hand and borrowings of $355 under
the Company's revolving credit facility. On December 24, 1997, the Company filed
a notice of appeal of the Court's decision to the United States Court of Appeals
for the Eleventh Circuit.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment at December 31, were as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land and improvements....................................... $ 62.3 $ 60.4
Machinery and equipment..................................... 2,766.4 2,634.6
Buildings................................................... 283.5 267.3
Other....................................................... 147.6 145.0
--------- ---------
3,259.8 3,107.3
Less -- accumulated depreciation and amortization........... (1,320.0) (1,216.3)
--------- ---------
1,939.8 1,891.0
Construction in progress.................................... 87.1 136.4
--------- ---------
$ 2,026.9 $ 2,027.4
========= =========
</TABLE>
42
<PAGE> 44
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. DEBT
Debt at December 31, consisted of:
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Lauralco debt, payable 1998 to 2003 -- variable rate........ $ 607.5 $645.0
Revenue and pollution control bonds, payable 1998 to
2015 -- 3.9% to 9.5%...................................... 62.0 62.9
Revolving credit -- variable rate........................... 330.0 --
Other....................................................... 2.5 2.5
-------- ------
1,002.0 710.4
Less -- current maturities.................................. (46.4) (38.4)
-------- ------
Total long-term debt.............................. $ 955.6 $672.0
======== ======
</TABLE>
A project finance credit agreement was arranged in 1990 with a group of
banks permitting borrowings of up to $750 to finance construction of a primary
aluminum reduction plant in Quebec, Canada ("Lauralco Project Group"). The
credit agreement required the Company to establish facilities to effectively
limit the interest rate exposure on half of the commitment (Note 15). The
Company's rights to the Lauralco Project Group, including its ownership of the
reduction plant and its rights to various operating agreements, are pledged as
collateral under the credit agreement. The net book value of reduction plant
assets pledged was approximately $903.2 at December 31, 1997.
The project finance credit agreement contains, among other restrictions,
provisions limiting the declaration or payment of dividends to the Company by
certain subsidiaries engaged in Lauralco activities. Additionally, the project
finance credit agreement contains provisions restricting the payment of
dividends on the Alumax Common Stock. At December 31, 1997, $442.2 of retained
earnings were available for the payment of dividends on common stock under this
restriction.
In May 1995, the Company entered into a $400 revolving credit facility (the
"Credit Facility") to replace its then existing revolving credit facility, which
was terminated. During 1997, the credit agreement was amended, increasing the
total amount available under the facility to $800. The Credit Facility has a
term of five years, expiring in October 2002, with no provision for reduction in
commitments. Interest on outstanding balances will be based on either a base
rate or LIBOR option. The Credit Facility restricts the incurrence of
indebtedness by subsidiaries, as well as financial and other covenants. Under
the Credit Facility, the Company and its consolidated subsidiaries are
collectively required to maintain tangible net worth of at least $900 at any
time, and the Company and certain of its subsidiaries, excluding the Lauralco
Project Group, are collectively required to maintain a ratio of tangible net
assets to funded debt of at least 2.0 to 1.0 at any time.
Commitment and facility fees for revolving credit arrangements amounted to
$.6 in 1997. The annual principal payments of long-term debt for the five-year
period ending December 31, 2002 are: 1998-$46.4; 1999-$69.4; 2000-$69.4,
2001-$91.9 and 2002-$445.0.
NOTE 7. EMPLOYEE PENSION AND THRIFT PLANS
Pension plans cover substantially all employees of the Company and are
generally non-contributory. The benefits of salaried employee plans are based on
the projected unit credit method. The benefits of hourly employee plans are
based on the unit credit method. The Company's funding policy is to meet minimum
funding requirements.
43
<PAGE> 45
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost was comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost -- benefits earned during the period........... $ 19.3 $ 19.3 $ 15.6
Interest cost on projected benefit obligations.............. 24.8 23.7 20.9
Actual return on assets..................................... (66.8) (37.0) (42.9)
Net amortization and deferral............................... 37.1 11.9 22.4
------ ------ ------
Net periodic pension cost................................. $ 14.4 $ 17.9 $ 16.0
====== ====== ======
</TABLE>
The following table sets forth the funded status of the Company's pension
plans and amounts recognized in its statements of financial position at December
31, 1997 and 1996 for its pension plans:
<TABLE>
<CAPTION>
ASSETS EXCEED ABO EXCEEDS
ABO ASSETS
--------------- --------------
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $206.6 $234.3 $101.4 $14.8
====== ====== ====== =====
Accumulated benefit obligation (ABO)................... $225.2 $257.1 $113.9 $16.8
====== ====== ====== =====
Projected benefit obligation........................... $249.9 $314.9 $152.3 $19.2
Plan net assets at fair value.......................... 298.8 336.5 106.7 10.7
------ ------ ------ -----
Plan net assets in excess of (less than) projected
benefit obligation................................... 48.9 21.6 (45.6) (8.5)
Unrecognized net (gain) loss........................... (16.6) (6.6) 15.0 5.5
Unrecognized prior service cost........................ 22.1 15.3 3.1 1.3
Unrecognized transition amounts........................ (5.2) (6.5) .3 .6
------ ------ ------ -----
Prepaid (accrued) pension costs........................ $ 49.2 $ 23.8 $(27.2) $(1.1)
====== ====== ====== =====
</TABLE>
Plan assets consisted of approximately 60 percent equities, 37 percent
fixed income and 3 percent cash and cash equivalents at December 31, 1997.
Key economic assumptions used in the above calculations at December 31,
were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Settlement discount rate.................................... 7.0% 7.5% 7.0%
Rate of compensation increases.............................. 5.0% 5.0% 5.0%
Expected long-term rate of return........................... 9.0% 9.0% 9.0%
</TABLE>
Defined contribution employee thrift plans cover substantially all salaried
and certain hourly employees. Employee contributions are matched through Company
issuances of Alumax Common Stock. Alumax Common Stock issuances amounted to
$6.5, $5.3 and $4.9 in 1997, 1996 and 1995, respectively. Total administrative
expenses of these plans paid by the Company amounted to $5.7, $5.6 and $5.3 in
1997, 1996 and 1995, respectively.
NOTE 8. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. A majority of the
Company's domestic employees may become eligible for such benefits if they reach
normal or, in certain cases, early retirement age while working for the Company.
44
<PAGE> 46
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of periodic cost for these postretirement benefits were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost -- benefits earned during the period........... $ 3.5 $ 3.8 $ 3.7
Interest cost on accumulated postretirement benefit
obligation................................................ 9.9 9.2 10.0
Amortization of prior service cost related to plan
amendments................................................ (4.7) (5.2) (5.3)
Amortization of (gains) losses.............................. (.1) .6 (.4)
----- ----- -----
Net periodic cost........................................... $ 8.6 $ 8.4 $ 8.0
===== ===== =====
</TABLE>
The actuarial and recorded liabilities for these postretirement benefits,
none of which have been funded at December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees.................................................. $ 65.6 $ 62.2
Fully eligible active plan participants................... 19.3 18.4
Other active participants................................. 62.9 54.2
Unrecognized prior service cost related to plan
amendments............................................. 16.1 22.4
Unrecognized net gain..................................... .9 4.6
------ ------
Liability for postretirement health care and life insurance
benefits.................................................. $164.8 $161.8
====== ======
</TABLE>
For measurement purposes, a 9.1 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease gradually to 4.7 percent through the year 2006 and remain at
that level thereafter. An increase in the assumed health care cost trend rates
by one percent in each year would increase the APBO as of December 31, 1997 by
10 percent and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by 11 percent. The
weighted-average discount rate used in determining the APBO as of December 31,
1997 and 1996 was 7.0 and 7.5 percent, respectively.
In addition to providing postretirement benefits to eligible retired
employees, the Company provides specified postemployment benefits to certain
former or inactive employees. Substantially all domestic employees may become
eligible to receive these benefits, which are either self-insured or provided
through the Company's insurance carriers.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Minimum commitments under long-term noncancelable operating leases,
principally for operating and office facilities, totaled $88.5 at December 31,
1997. Lease commitments for future periods are as follows: 1998-$17.9,
1999-$15.3, 2000-$13.1, 2001-$11.3, 2002-$10.1 and 2003 to 2009-$20.8. Rent
expense amounted to $23.0, $23.0 and $25.8 in 1997, 1996 and 1995, respectively.
The Company arranged for letters of credit in the amount of $100.5 at December
31, 1997, primarily relating to collateral support for certain financing
arrangements and a power contract guarantee.
In November 1997, Alumax Mill Products entered into a new five-year
operating lease, renewable for up to two additional years, covering the
Texarkana rolling mill facility. The new leasing arrangement enabled the Company
to forego a previously planned capital investment of $97 to purchase the
Texarkana facility.
The Company has a noncancelable long-term contract for the purchase of
alumina and both noncancelable and cancelable contracts for electric power for
its primary aluminum reduction plants. Power contracts for each plant, except
for Intalco, and the alumina contract are with single suppliers. The power
contracts expire in the years 2001 through 2014, subject to certain extension
provisions. The alumina contract,
45
<PAGE> 47
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
with renewal options, expires in increments between 2007 and 2018. Contracted
amounts of alumina and power approximate the Company's anticipated requirements.
During 1996, the Company, through a subsidiary, entered into a joint
venture with Yunnan Aluminum Processing Factory in Kunming, China for the annual
production of 8,000 to 10,000 tonnes of light gauge aluminum foil for China's
packaging market. Alumax will invest a total of $38 of cash in the joint venture
to develop a continuous cast foil operation. As of December 31, 1997, the
Company had invested approximately $24 of cash in the joint venture.
The Company has been named as a defendant or identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") and similar state laws by governmental agencies and
private parties at 38 pending waste disposal sites which, in most instances,
were owned and operated by third parties. Management periodically evaluates such
matters and records or adjusts liability reserves for remediation and other
costs and potential damages when expenditures for such costs are considered
probable and can be reasonably estimated.
The Company's ultimate liability in connection with present and future
environmental claims will depend on many factors, including its volumetric share
of the waste at a given site, the remedial action required, the total cost of
remediation and the financial viability and participation of the other entities
which also sent waste to the site. Based upon current law and information known
to the Company concerning the size of the sites known to it, anticipated costs
of remediation, their years of operation, and the number of potentially
responsible parties, Management believes that it has adequate reserves for the
Company's probable share of the estimated aggregate liability for the costs of
remedial actions and related costs and expenses and that such liability and
related costs and expenses should not have a material adverse effect on the
financial condition or ongoing results of operations of the Company. In
addition, the Company establishes reserves for remedial measures required from
time to time at its own facilities. Any expenditures for remediation programs it
may be required to undertake, either individually or in the aggregate, are not
expected to have a material adverse effect on the financial condition or ongoing
results of operations of the Company. The Company's environmental reserves
totaled $29.6 at December 31, 1997 and 1996. Management believes that the
reasonably probable outcomes of these matters will not materially exceed
established reserves. Although the Company believes it has coverage for some
environmental claims under certain insurance policies, insurance recoveries are
not considered in estimating the Company's share of remediation costs at a site
unless an insurance carrier has agreed to pay a portion of such costs. Insurance
recoveries were not considered in establishing reserves for any of these sites
absent an agreement between the carriers and the Company.
Management does not anticipate that commitments, operating expenses or
capital expenditures for environmental compliance through and including the next
fiscal year will have a material adverse effect on the Company's financial
condition or results of operations. Based on historical trends toward tighter
environmental standards, it appears likely that the Company will incur
additional expenditures to remain in compliance with federal and state
environmental laws.
NOTE 10. STOCKHOLDERS' EQUITY
Preferred Stock
On November 4, 1996, the Company announced that it was redeeming all of the
outstanding shares of the $4.00 Series A Convertible Preferred Stock ("Preferred
Stock"), par value $1.00 per share, on December 18, 1996. Each share of the
Preferred Stock was redeemable at a price of $52.40 per share, plus an amount
equal to the quarterly dividend accrued on each share through the redemption
date for a total cash redemption price of $52.60 per share. As an alternative to
redemption, each share of the Preferred Stock was convertible at the option of
the holder into 4.11489 shares of the Company's Common Stock until the close of
business on
46
<PAGE> 48
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 4, 1996. In December 1996, the outstanding shares of Preferred Stock
were converted into approximately 9.6 million shares of Alumax Common Stock.
Common Stock
As of December 31, 1997, authorized and unissued shares of Alumax Common
Stock were reserved for the following purposes: 2,650,000 for issuance of stock
options and other stock compensation plans, 832,100 for issuance under employee
thrift and 695,600 for issuance pursuant to employee deferred compensation
agreements.
Earnings Per Share
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Prior year amounts have been
restated in accordance with this Statement. Basic earnings per share is computed
by dividing net earnings available to common stockholders by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed similarly but reflects the potential dilution
that could occur if options were exercised or convertible securities were
converted into common stock. The following table calculates basic earnings per
common share and diluted earnings per common share at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Basic Earnings per common share:
Net earnings.............................................. $ 33.7 $250.0 $237.4
Deduct -- Series A Convertible Preferred dividends........ -- (9.3) (9.3)
------ ------ ------
Earnings applicable to common shares...................... $ 33.7 $240.7 $228.1
Average common shares outstanding (in thousands).......... 54,735 45,731 44,637
------ ------ ------
Basic earnings per common share............................. $ 0.62 $ 5.26 $ 5.11
====== ====== ======
Diluted earnings per common share:
Earnings applicable to common shares...................... $ 33.7 $240.7 $228.1
Add -- Series A Convertible Preferred dividends........... -- 9.3 9.3
------ ------ ------
Net earnings.............................................. $ 33.7 $250.0 $237.4
Average common shares outstanding (in thousands).......... 54,735 45,731 44,637
Add -- Conversion of preferred stock (in thousands)....... -- 8,801 9,601
Add -- Options and performance accelerated restricted
stock awards (in thousands)............................ 986 679 523
------ ------ ------
Average diluted shares outstanding (in thousands)......... 55,721 55,211 54,761
------ ------ ------
Diluted earnings per common share........................... $ 0.60 $ 4.53 $ 4.34
====== ====== ======
</TABLE>
Treasury Stock
In the fourth quarter of 1997, the Company began acquiring shares of its
common stock in connection with a stock repurchase program announced in July
1996. That program authorizes the Company to purchase up to 2.5 million common
shares from time to time on the open market or pursuant to negotiated
transactions at price levels the Company deems attractive. The Company purchased
1.8 million shares of common stock in 1997 at an aggregate cost of $59.1. The
purpose of the stock repurchase program is to help the Company achieve its
long-term goal of enhancing stockholder value. In February 1998, the Board of
Directors amended the program to provide that purchases reported to, and
ratified by, the Board of Directors or by the Executive Committee of the Board
shall not be counted in determining compliance with the 2.5 million share
limitation.
47
<PAGE> 49
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. STOCK-BASED COMPENSATION
Under its 1993 Long-Term Incentive Plan ("Long-Term Plan"), the Company may
grant stock options, stock appreciation rights, restricted stock and other
stock-based awards to salaried employees for up to an aggregate of 5,210,129
shares of common stock. The 1995 Employee Equity Ownership Plan ("Equity
Ownership Plan") provides for discretionary stock option grants to salaried
employees in lower grade levels up to an aggregate of 1,000,000 shares of common
stock. Under its Non-Employee Directors Stock Compensation Plan ("Directors
Stock Plan"), the Company is authorized to grant options up to an aggregate of
750,000 shares of common stock. Upon joining the Board of Directors, each
non-employee director of the Company was provided with a one time stock option
grant of 10,000 shares of common stock. Annually, stock grants for 1,250 shares
of common stock are issued to each non-employee director.
Options granted under the Long-Term Plan and the Equity Ownership Plan
generally vest two years after issue and have a term of ten years. Options
granted under the Directors Stock Plan vest ratably over three years. The
exercise price of options granted under each plan generally equals the market
price of the Company's stock on the date of grant. However, options may be
granted with differing vesting periods, terms and exercise prices. In 1996,
total options of 1,327,650 were granted, of which 687,800 were granted with a
vesting period of one to three years and a term of six years.
In 1993 certain former AMAX Inc. executives became executives of the
Company and were awarded 623,350 options, not pursuant to the Long-Term Plan.
These options, which have a market based exercise price of $23.61 and vest
ratably over five years, were granted in consideration of the cancellation
without payment of rights which the executives may have had under severance
policies of AMAX Inc.
The Company may grant performance accelerated restricted stock to key
management employees under the terms of the Long-Term Plan. The annual stock
awards vest approximately ten years after grant date with accelerated vesting if
the Company meets certain cumulative net income objectives.
A summary of the status of the stock compensation plans as of December 31,
and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------- --------------------------
WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994............ 1,920,675 $25.41
Granted (option value -- $11.30).......... 821,850 $33.13
Exercised................................. (3,333) $19.44
Cancelled................................. (38,342) $25.50
---------
Outstanding at December 31, 1995............ 2,700,850 $27.76 296,008 $23.09
========= ======
Granted (option value -- $11.24).......... 869,117 $32.16
Granted (option value -- $8.92)........... 458,533 $38.12
Exercised................................. (144,200) $26.80
Cancelled................................. (106,159) $31.87
---------
Outstanding at December 31, 1996............ 3,778,141 $29.95 1,463,484 $25.59
========= ======
Granted (option value -- $11.30).......... 1,024,850 $32.56
Exercised................................. (226,916) $26.40
Cancelled................................. (100,475) $32.31
---------
Outstanding at December 31, 1997............ 4,475,600 $30.68 2,289,405 $28.35
========= ========= ======
Range of option exercise prices:
$19.44 -- $27.13 (average life -- 6.5
years).................................. 1,475,775 $25.09 1,351,105 $25.22
========= ====== ========= ======
$30.63 -- $40.13 (average life -- 8.1
years).................................. 2,999,825 $33.43 938,300 $32.85
========= ====== ========= ======
</TABLE>
The following pro forma summary presents the Company's net earnings, basic
earnings per share and diluted earnings per share for the years ended December
31, 1997, 1996 and 1995 as if compensation cost had
48
<PAGE> 50
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
been measured under the fair value based method. The effects of the fair value
of stock options in the following pro forma disclosure are not likely to be
representative of the effects for future years because outstanding options vest
over a period of up to three years and awards are generally made during the
fourth quarter of each year.
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Pro Forma Information:
Net earnings.............................................. $26.6 $247.1 $237.2
Basic earnings per common share........................... $0.49 $ 5.20 $ 5.11
Diluted earnings per common share......................... $0.48 $ 4.48 $ 4.33
</TABLE>
The pro forma adjustments are determined using an option valuation model.
Option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from traded options,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in Management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options. The following assumptions were used for the years ended December
31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate..................................... 5.8% 5.9% 5.5%
Expected life............................................... 5.0 5.0 5.0
Expected volatility......................................... 26.0% 26.0% 26.0%
Expected dividend yield..................................... -- -- --
</TABLE>
The Company also granted performance accelerated restricted stock awards of
65,350 and 13,900 shares to certain employees in March and December 1997,
respectively. The fair value per share on the date of the grants was $37.50 and
$32.56, respectively. In 1996 and 1995, the Company granted performance
accelerated restricted stock awards of 64,680 and 62,100 shares, respectively.
The fair value per share on the date of the grants in 1996 and 1995 was $34.25
and $27.50, respectively. During the years ended December 31, 1997, 1996 and
1995, compensation cost of $2.4, $1.7 and $1.0, respectively, has been
recognized in connection with these awards.
NOTE 12. STOCKHOLDER RIGHTS AGREEMENT
On February 22, 1996, the Executive Committee of the Board of Directors of
the Company declared a dividend distribution of one right (a "Right") for each
outstanding share of Common Stock held of record at the close of business on
February 22, 1996. The Rights attach automatically to each share of Common Stock
outstanding as of February 22, 1996, and to each share of Common Stock issued
after February 22, 1996.
Each Right entitles the holder to purchase from the Company one
one-hundredth of a share of the Company's Participating Preferred Stock at an
exercise price of $130, subject to certain adjustments. The Rights will not be
exercisable or transferable apart from the Common Stock until either the tenth
business day after the announcement by a person or group of the commencement of
a tender or exchange offer for 15 percent or more of the Voting Stock or the
first date of announcement by the Company that a person or group has acquired
beneficial ownership of 15 percent or more of the Voting Stock (an "Acquiring
Person"). "Voting Stock" means shares of capital stock of the Company entitled
to vote generally in the election of directors. If the Company is consolidated
or merged with another company or 50 percent or more of its consolidated assets
or earning power are sold and, at the time, an Acquiring Person controls the
Company's Board of Directors, each holder of a Right will have the right to
receive, upon exercise at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which have a market
value of twice the then current exercise price of the Right. If any person
becomes an Acquiring Person, each holder of a Right other than by the Acquiring
Person (whose Rights will be void) will have the right to
49
<PAGE> 51
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
receive, upon exercise at the then current exercise price of the Right, that
number of shares of Common Stock having a market value of twice the exercise
price of the Right. The Rights will expire on February 22, 2006 and may be
redeemed for $.01 per Right at any time prior to the time an Acquiring Person
becomes such. Until a Right is exercised, the record holder will have no rights
as a stockholder of the Company.
After the announcement that an Acquiring Person has become such and prior
to the acquisition by an Acquiring Person of 50 percent or more of the
outstanding Voting Stock, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such Acquiring Person) at an exchange ratio
of one share of Common Stock, or one one-hundredth of a share of the Company's
Participating Preferred Stock, per Right, subject to adjustment.
The Company's Board of Directors may amend the Rights Agreement, in any
respect, until the time an Acquiring Person becomes such. Thereafter, the
Company's Board of Directors may amend the Rights Agreement in any respect not
materially adverse to Rights holders generally.
NOTE 13. INTEREST EXPENSE, NET
Interest expense, net was comprised of:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Interest expense....................................... $(62.5) $(74.1) $(81.6)
Interest income........................................ 3.1 3.8 10.8
Capitalized interest................................... 1.6 7.5 5.4
------ ------ ------
$(57.8) $(62.8) $(65.4)
====== ====== ======
</TABLE>
NOTE 14. OTHER INCOME, NET
Other income, net for the years ended December 31, 1997, 1996 and 1995 was
$2.0, $10.6 and $7.3, respectively. Included in 1996 and 1995 respectively, were
$18.6 and $11.6 for dividends received from Mexican mining operations. The
Company sold its investments in the Mexican mining operations during 1996.
NOTE 15. FINANCIAL INSTRUMENTS
The Company utilizes certain financial instruments in connection with its
risk management. The risk of loss related to counter party nonperformance under
financial instrument agreements at December 31, 1997 was not significant.
The Company enters into forward fixed price arrangements that are required
by certain customers and suppliers. The Company may utilize futures or option
contracts to hedge risks associated with forward fixed price arrangements. The
Company may also utilize futures or option contracts to manage price risk
associated with changes in inventory levels. The net amount of such contracts
was approximately 313,425 tonnes at December 31, 1997 and included varying
maturity dates through 2003. Gains or losses with respect to these positions are
reflected in earnings concurrent with consummation of underlying fixed price
transactions. Periodic value fluctuations of the futures contracts approximately
offset the value fluctuations of the underlying fixed price transactions.
The Company also may, from time to time, establish a floor selling price
for varying quantities of future production. This may be accomplished by
entering into forward sales of primary aluminum, purchasing put options, or by
entering into forward sales of primary aluminum and purchases of call options,
which together provide the same price protection as purchasing put options in a
manner which correlates with the Company's production and sales of primary
aluminum. This strategy may be modified from time to time. At December 31, 1997,
the net amount of the Company's commitments with respect to these financial
50
<PAGE> 52
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
instruments covered approximately 234,450 tonnes of future production. The book
value and market value of these financial instruments were $5.4 and $22.5
respectively, at December 31, 1997.
Certain of the Company's foreign operating expenditures are denominated in
currencies other than the operations' functional currencies, which expose the
Company to exchange rate risks. In order to mitigate its exposure to exchange
rate risk where these conditions exist, the Company may utilize forward or
option contracts on foreign currencies. At December 31, 1997, the Company had
outstanding $214.9 in such contracts which mature at various dates through June
1999. The gains or losses related to these contracts are deferred and included
in the measurement of the related foreign denominated transactions. If these
contracts had been terminated at December 31, 1997, the Company would have
incurred a loss of approximately $4.5.
The Company's debt instruments and related interest rate hedges are
susceptible to market fluctuations based on changes in the cost of borrowing. At
December 31, 1997, the fair value of total debt approximated book value. The
Lauralco credit facility, which has a variable interest rate, required the
Company to establish facilities to effectively limit the interest rate exposure
of the commitment. To meet this requirement, the Company has obtained interest
rate swaps with notional amounts totaling $400 through October 26, 2000 and
interest rate caps having a notional amount of $150 through October 26, 1998.
This program is designed to effectively cap interest rate exposure at a maximum
of approximately nine percent through October 26, 2000. The effective rate on
this debt amounted to 8.4 percent, 8.5 percent and 9.2 percent for the years
ended December 31, 1997, 1996 and 1995, respectively. The Company would have had
to pay approximately $32.3 to terminate these interest rate agreements at
December 31, 1997.
The Company also purchases natural gas for its operations and enters into
forward contracts to manage the volatility in prices. At December 31, 1997, none
of these contracts was material.
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and equivalents and trade accounts
receivable. The fair value of these financial instruments approximated book
value at December 31, 1997. The Company places its cash and equivalents with
high credit quality institutions. At times, such investments may be in excess of
the Federal Deposit Insurance Corporation insurance limit. The Company routinely
assesses the financial strength of its customers and, as a consequence, believes
that its trade accounts receivable credit risk exposure is not significant.
NOTE 16. OPERATIONS AND GEOGRAPHIC DATA
The Company is an integrated producer of aluminum products, operating in a
single segment: aluminum processing. Alumax is the third largest aluminum
company in the United States and the fourth largest in North America, based on
sales, and operates over 70 plants and other manufacturing and distribution
facilities in 22 states, Canada, Western Europe, Mexico, Australia, the People's
Republic of China and Poland. Using alumina purchased from one principal
supplier, the Company produces primary aluminum at five reduction plants in the
United States and Canada. Primary products are sold externally or further
processed by Alumax into a broad range of semi-fabricated and fabricated
products. The Company's products are sold to a wide variety of markets,
including transportation, distributors, building and construction, consumer
durables, and packaging.
51
<PAGE> 53
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Domestic and Canadian sales and earnings from operations are combined in
the geographic data below, as Canadian assets are primarily aluminum reduction
facilities that toll alumina for U.S. operations and sales. Sales of primary
products to affiliated customers are accounted for at prices comparable to
unaffiliated customer sales.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operations data:
Net sales to unaffiliated customers:
Aluminum processing
Primary products....................................... $1,390.3 $1,335.5 $1,300.0
Semi-fabricated products............................... 1,833.7 1,643.1 1,320.1
Fabricated products.................................... 540.7 863.2 967.9
Intercompany........................................... (833.8) (682.5) (661.9)
-------- -------- --------
$2,930.9 $3,159.3 $2,926.1
======== ======== ========
Earnings from operations:
Aluminum processing....................................... $ 342.3 $ 275.6 $ 339.7
Corporate and other....................................... (49.3) (43.7) (33.9)
-------- -------- --------
$ 293.0 $ 231.9 $ 305.8
======== ======== ========
Identifiable assets:
Aluminum processing....................................... $3,128.7 $3,063.7 $2,718.7
Corporate and other....................................... 324.3 235.0 416.3
-------- -------- --------
$3,453.0 $3,298.7 $3,135.0
======== ======== ========
Geographic data:
Net sales:
United States and Canada.................................. $3,556.0 $3,532.4 $3,208.6
Europe and other international............................ 208.7 309.4 379.4
Intercompany.............................................. (833.8) (682.5) (661.9)
-------- -------- --------
$2,930.9 $3,159.3 $2,926.1
======== ======== ========
Earnings from operations:
United States and Canada.................................. $ 287.4 $ 219.9 $ 273.9
Europe and other international............................ 5.6 12.0 31.9
-------- -------- --------
$ 293.0 $ 231.9 $ 305.8
======== ======== ========
Identifiable assets:
United States and Canada.................................. $3,307.2 $3,171.7 $2,820.6
Europe and other international............................ 145.8 127.0 314.4
-------- -------- --------
$3,453.0 $3,298.7 $3,135.0
======== ======== ========
</TABLE>
A significant portion of the Company's sales are to the building and
construction, transportation and distributors markets. Concentrations of credit
risk with respect to the trade receivables, relating to sales into these as well
as other markets, are limited due to the large number of customers and the
widely dispersed geographic areas in which the Company's businesses operate. The
Company's one principal supplier of alumina has been its supplier for over 20
years under a long-term contract which, with renewal options, expires in
increments between 2007 and 2018. An extended interruption of alumina supply
from this supplier could have a material adverse effect on the Company's
operations. In addition, each of the Company's primary aluminum reduction
plants, except for Intalco, is supplied by a single source of electric power.
Although the Company may experience power curtailments from time to time, a
sudden and extended interruption of power
52
<PAGE> 54
ALUMAX INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
at one or more of its primary aluminum reduction plants could have a material
adverse effect on the Company's operations.
NOTE 17. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 QUARTERS 1996 QUARTERS
--------------------------------- ---------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $701.8 $730.9 $717.1 $781.1 $802.6 $851.4 $809.1 $696.2
------ ------ ------ ------ ------ ------ ------ ------
Earnings from operations........ $ 58.2 $ 71.0 $ 66.6 $ 97.2 $ 75.1 $ 64.4 $ 44.4 $ 48.1
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)(a).......... $ 26.7 $ 35.8 $(76.0) $ 47.2 $ 95.4 $ 83.1 $ 52.4 $ 19.1
====== ====== ====== ====== ====== ====== ====== ======
Earnings (loss) per share: (b)
Basic......................... $ .49 $ .65 $(1.38) $ .87 $ 2.08 $ 1.80 $ 1.11 $ .35
====== ====== ====== ====== ====== ====== ====== ======
Diluted(c).................... $ .48 $ .64 $(1.38) $ .86 $ 1.73 $ 1.50 $ .95 $ .35
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(a) Included in the third quarter of 1997 was a $108.6 provision associated with
a United States Tax Court decision concerning an alleged income tax
deficiency and a $6.1 after-tax charge related to consolidation efforts at
the Company's semi-solid forging business. Included in 1996 was a first
quarter after-tax gain of $48.6 related to the sale of a 23 percent interest
in the Mt. Holly primary aluminum reduction plant, a second quarter
after-tax gain of $55.1 related to the sale of mining interests and a third
quarter after-tax gain of $36.7 related to the sale of Fab Products.
(b) In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Prior period amounts
have been restated in accordance with this Statement.
(c) The computation of diluted loss per common share for the third quarter of
1997 excluded 1,199,000 of potential common shares because their effect was
antidilutive. The computation of diluted earnings per common share for the
fourth quarter of 1996 included the effect of the conversion of the
Preferred Stock as if it had occurred at the beginning of the quarter.
53
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference to
the sections entitled "Information Concerning Directors and Nominees", "Security
Ownership" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders
(the "Proxy Statement").
Information concerning Executive Officers required by this Item is
incorporated herein by reference to the section in Part I hereof entitled
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference to
the sections entitled "Directors' Meetings, Compensation and Committees,"
"Executive Compensation" and "Common Stock Performance Graph" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference to
the section entitled "Security Ownership" in the Proxy Statement. Alumax knows
of no arrangements, including any pledges by any person of its securities, the
operation of which may at a subsequent date result in a change in control of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference to
the sections entitled "Certain Transactions" and "Executive Employment and
Separation Agreements" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. The Company's
financial statements, the notes thereto and the report of the independent
accountants are set forth on pages 33 through 53 of this Form 10-K.
The following report and additional financial data should be read in
conjunction with the Company's financial statements:
Independent Accountant's Report of Coopers & Lybrand L.L.P. dated January
27, 1998 on the Company's financial statement schedule filed as a part
hereof for the fiscal years ended December 31, 1997, 1996 and 1995.
Schedule II -- Valuation and Qualifying Accounts for the fiscal years ended
December 31, 1997, 1996 and 1995.
Schedules other than the one referred to above are omitted because they are
not required or the information is included in the financial statements or the
notes thereto.
54
<PAGE> 56
EXHIBITS. Unless otherwise indicated, exhibits are incorporated by
reference to the exhibits filed with the Company's Registration Statement on
Form S-1 (Commission File No. 33-69442).
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.02 Agreement and Plan of Distribution, dated as of May 24,
1993, by and between AMAX Inc. and Alumax Inc.
2.03 Tax Disaffiliation Agreement, dated as of May 24, 1993, by
and between AMAX Inc. and Alumax Inc.
2.04 Amendment No. 1 to the Agreement and Plan of Distribution,
dated as of November 15, 1993, by and between AMAX Inc.
and Alumax Inc.*
3.01 Restated Certificate of Incorporation of the Company*
3.02 Restated By-laws of Alumax Inc., as amended on September 5,
1996, filed as Exhibit 3.01 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1996 and incorporated herein by reference.
4.01 Form of Common Stock Certificate
4.02 Rights Agreement, dated as of February 22, 1996, between
Alumax Inc. and Chemical Mellon Shareholder Services,
L.L.C., as Rights Agent, including as Exhibit A the forms
of Rights Certificate and Election to Exercise and as
Exhibit B the form of Certificate of Designation and Terms
of Participating Preferred Stock of the Company, filed as
Exhibit 4 to the Company's Current Report on Form 8-K,
dated February 22, 1996 and incorporated herein by
reference.
4.03 Credit Agreement, dated as of September 14, 1990, as amended
as of November 13, 1990 and as further amended as of
February 19, 1991, by and among Aluminerie Lauralco, Inc.,
as Borrower, Canalco, Inc., as Continuing Guarantor, and
Bank of Montreal and National Westminster Bank PLC, as
Arrangers, Bank of Montreal, as Agent, and the Banks named
therein
4.04 Amended and Restated Credit Agreement, dated as of October
9, 1997, among Alumax Inc., Royal Bank of Canada, as
Agent, Arranger and Letter of Credit Issuer, Canadian
Imperial Bank of Commerce, as Administrative Agent, and
the Banks signatory thereto, filed as Exhibit 4.01 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997 and incorporated herein by
reference
Note: No other long-term debt instrument issued by the Company
exceeds 10% of the consolidated total assets of the
Company and its subsidiaries. In accordance with paragraph
4(iii) of Item 601 of Regulation S-K, the Company will
furnish to the Commission upon request copies of long-term
debt instruments and related agreements
10.01 Form of Alumax Inc. Excess Benefit Plan***(-)
10.02 1993 Long-Term Incentive Plan (as Amended and Restated and
as Further Amended on October 3, 1996)***(-)
10.03 Deferred Compensation Plan (as Amended on October 3,
1996)***(-)
10.04 1993 Annual Incentive Plan (as Amended and Restated and as
Further Amended on October 3, 1996)***(-)
10.05 Executive Separation Policy*(-)
10.06 Non-Employee Directors Stock Compensation Plan (as Amended
on October 3, 1996)***(-)
10.07 Non-Employee Directors Deferred Compensation Plan (as
Amended on October 3, 1996)***(-)
10.08 Participation Agreement, dated as of November 25, 1997,
among Alumax Mill Products, Inc., Alumax Inc., BMO Leasing
(U.S.), Inc. and Bank of Montreal**
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.09 Master Lease, Deed of Trust and Security Agreement, dated as
of November 25, 1997, among BMO Leasing (U.S.), Inc.,
Alumax Mill Products, Inc. and Ward Williford, Esq.**
10.10 Restated Sales Agreement, dated as of January 1, 1986, as
amended and supplemented as of April 8, 1992 and April 9,
1992, by and between Alcoa of Australia Limited and Alumax
Inc. (Certain portions of this agreement have been deleted
and filed separately with the Secretary of the Securities
and Exchange Commission pursuant to a request for
confidential treatment.)
10.11 Power Sales Agreement, dated September 28, 1995, as amended,
between Intalco Aluminum Corporation and Bonneville Power
Administration (Certain portions of this agreement have
been deleted and filed separately with the Secretary of
the Securities and Exchange Commission pursuant to a
request for confidential treatment.)****
10.12 Power Sales Agreement, dated as of October 1, 1995, between
British Columbia Power Exchange Corporation and Intalco
Aluminum Corporation (Certain portions of this agreement
have been deleted and filed separately with the Secretary
of the Securities and Exchange Commission pursuant to a
request for confidential treatment.)****
10.13 Electric Service Agreement, dated as of November 11, 1994,
between Eastalco Aluminum Company and The Potomac Edison
Company, filed as Exhibit 10.02 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 1997 and incorporated herein by reference
10.14 Amendment No. 1 to Electric Service Agreement, dated October
10, 1997, between Eastalco Aluminum Company and The
Potomac Edison Company**
10.15 Agreement, dated as of July 1, 1997, by and between the
South Carolina Public Service Authority and Alumax of
South Carolina, Inc., filed as Exhibit 10.01 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997 and incorporated herein by
reference
10.16 Electricity Contract, dated February 1, 1990, as amended on
October 15, 1992, by and between Aluminerie Lauralco, Inc.
and Hydro-Quebec (Certain portions of this agreement have
been deleted and filed separately with the Secretary of
the Securities and Exchange Commission pursuant to a
request for confidential treatment.)
10.17 Employment Agreement, as Amended and Restated as of December
5, 1996, between Alumax Inc. and C. Allen Born***(-)
10.18 Employment Agreement, dated as of December 4, 1997, between
Alumax Inc. and Thomas G. Johnston**(-)
10.19 Agreement, dated as of November 15, 1993, as amended as of
February 3, 1994, among AMAX Inc., Alumax Inc. and Helen
M. Feeney*(-)
10.20 Agreement, dated as of March 10, 1994, between Alumax Inc.
and Helen M. Feeney, amending the Agreement, dated as of
November 15, 1993, as amended as of February 3,
1994*****(-)
10.21 Grantor Trust Agreement, dated as of April 1, 1997, between
Alumax Inc. and The Chase Manhattan Bank**(-)
10.22 Purchase Agreement, dated as of June 24, 1996, between
Euramax International, Ltd. and Alumax Inc., filed as
Exhibit 10.01 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference.
10.23 Agreement, dated as of June 28, 1996, by and between Minas
Penoles, S.A. de C.V. and The Fresnillo Company, filed as
Exhibit 10.01 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference.
11.01 Calculation of Earnings per Common Share**
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.01 Subsidiaries of the Company**
23.01 Consent of Coopers & Lybrand L.L.P.**
24.01 Power of Attorney**
27.01 Financial Data Schedule** (For SEC use only)
</TABLE>
- ---------------
* Previously filed as an exhibit to the Company's 1993 Annual Report on
Form 10-K and incorporated herein by reference.
** Filed herewith.
*** Previously filed as a exhibit to the Company's 1996 Annual Report on Form
10-K and incorporated herein by reference.
**** Previously filed as an exhibit to Amendment No. 1 to the Company's 1995
Annual Report on Form 10-K/A and incorporated herein by reference.
***** Previously filed as an exhibit to Amendment No. 1 to the Company's 1993
Annual Report on Form 10-K/A and incorporated herein by reference.
(-) Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 601 of Regulation S-K.
REPORTS ON FORM 8-K. During the quarter ended December 31, 1997, the
Company filed a Report on Form 8-K, dated October 1, 1997, reporting under Item
5 the United States Tax Court's decision in favor of the Internal Revenue
Service in a suit against Alumax regarding an alleged income tax deficiency.
57
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on February 6, 1998.
Alumax Inc.
By /s/ HELEN M. FEENEY
------------------------------------
HELEN M. FEENEY
Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on February 6, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
* Chairman, Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
ALLEN BORN
* Director
- -----------------------------------------------------
J. DENNIS BONNEY
* Director
- -----------------------------------------------------
HAROLD BROWN
* Director
- -----------------------------------------------------
L. DON BROWN
* Director
- -----------------------------------------------------
PIERRE DES MARAIS II
* Director
- -----------------------------------------------------
JAMES C. HUNTINGTON, JR.
* Director
- -----------------------------------------------------
W. LOEBER LANDAU
* Director
- -----------------------------------------------------
PAUL W. MACAVOY
* Director
- -----------------------------------------------------
ANNE WEXLER
* Vice President and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
MICHAEL T. VOLLKOMMER
* Vice President and Controller (Principal
- ----------------------------------------------------- Accounting Officer)
KEVIN J. KRAKORA
*By /s/ HELEN M. FEENEY
--------------------------------------------------
HELEN M. FEENEY
As Attorney-in-Fact for each
of the persons indicated
</TABLE>
58
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Alumax Inc.
Our report dated January 27, 1998, on our audits of the financial
statements of Alumax Inc. is included on page 33 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed under Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
January 27, 1998
59
<PAGE> 61
ALUMAX INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------- ------------ ----------------------- --------------- ----------
ADDITIONS
-----------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES EXPENSES FROM RESERVE(A) PERIOD
----------- ------------ ---------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Reserves deducted from assets
Accounts receivable, trade......... $16.6 $0.9 $ -- $ (4.3) $13.2
Year Ended December 31, 1996
Reserves deducted from assets
Accounts receivable, trade......... $17.7 $5.2 $ -- $ (6.3) $16.6
Year Ended December 31, 1995
Reserves deducted from assets
Deferred income taxes.............. $13.4 $ -- $ -- $(13.4) $ --
Accounts receivable, trade......... $20.1 $2.7 $ -- $ (5.1) $17.7
</TABLE>
- ---------------
(a) 1996 amount includes $4.1 related to write-offs, net of recoveries, and $2.2
related to divestitures, net of acquisitions, which occurred in 1996.
60
<PAGE> 62
EXHIBIT INDEX
Unless otherwise indicated, exhibits are incorporated by reference to
exhibits filed with the Company's Registration Statement on Form S-1 (Commission
File No. 33-69442).
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.02 Agreement and Plan of Distribution, dated as of May 24,
1993, by and between AMAX Inc. and Alumax Inc.
2.03 Tax Disaffiliation Agreement, dated as of May 24, 1993, by
and between AMAX Inc. and Alumax Inc.
2.04 Amendment No. 1 to the Agreement and Plan of Distribution,
dated as of November 15, 1993, by and between AMAX Inc.
and Alumax Inc.*
3.01 Restated Certificate of Incorporation of the Company*
3.02 Restated By-laws of Alumax Inc., as amended on September 5,
1996, filed as Exhibit 3.01 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1996 and incorporated herein by reference
4.01 Form of Common Stock Certificate
4.02 Rights Agreement, dated as of February 22, 1996, between
Alumax Inc. and Chemical Mellon Shareholder Services,
L.L.C., as Rights Agent, including as Exhibit A the forms
of Rights Certificate and Election to Exercise and as
Exhibit B the form of Certificate of Designation and Terms
of Participating Preferred Stock of the Company, filed as
Exhibit 4 to the Company's Current Report on Form 8-K,
dated February 22, 1996, and incorporated herein by
reference
4.03 Credit Agreement, dated as of September 14, 1990, as amended
as of November 13, 1990 and as further amended as of
February 19, 1991, by and among Aluminerie Lauralco, Inc.,
as Borrower, Canalco, Inc., as Continuing Guarantor, and
Bank of Montreal and National Westminster Bank PLC, as
Arrangers, Bank of Montreal, as Agent, and the Banks named
therein
4.04 Amended and Restated Credit Agreement, dated as of October
9, 1997 among Alumax Inc., Royal Bank of Canada, as Agent,
Arranger And Letter of Credit Issuer, Canadian Imperial
Bank of Commerce, as Administrative Agent, and the Banks
signatory thereto, filed as Exhibit 4.01 to the Company's
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997 and incorporated herein by
reference
Note: No other long-term debt instrument issued by the Company
Exceeds 10% of the consolidated total assets of the
Company and its subsidiaries. In accordance with paragraph
4(iii) of Item 601 of Regulation S-K, the Company will
furnish to the Commission upon request copies of long-term
debt instruments and related agreements
10.01 Form of Alumax Inc. Excess Benefit Plan***(-)
10.02 1993 Long-Term Incentive Plan (as Amended and Restated and
as Further Amended on October 3, 1996)***(-)
10.03 Deferred Compensation Plan (as Amended on October 3,
1996)***(-)
10.04 1993 Annual Incentive Plan (as Amended and Restated and as
Further Amended on October 3, 1996)***(-)
10.05 Executive Separation Policy*(-)
10.06 Non-Employee Directors Stock Compensation Plan (as Amended
on October 3, 1996)***(-)
10.07 Non-Employee Directors Deferred Compensation Plan (as
Amended on October 3, 1996)***(-)
10.08 Participation Agreement, dated as of November 25, 1997,
among Alumax Mill Products, Inc., Alumax Inc., BMO Leasing
(U.S.), Inc. and Bank of Montreal**
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.09 Master Lease, Deed of Trust and Security Agreement, dated as
of November 25, 1997, among BMO Leasing (U.S.), Inc.,
Alumax Mill Products, Inc. and Ward Williford, Esq.**
10.10 Restated Sales Agreement, dated as of January 1, 1986, as
Amended and supplemented as of April 8, 1992 and April 9,
1992, by and between Alcoa of Australia Limited and Alumax
Inc. (Certain portions of this agreement have been deleted
and filed separately with the Secretary of the Securities
and Exchange Commission pursuant to a request for
confidential treatment.)
10.11 Power Sales Agreement, dated September 28, 1995, as amended,
Between Intalco Aluminum Corporation and Bonneville Power
Administration (Certain portions of this agreement have
been deleted and filed separately with the Secretary of
the Securities and Exchange Commission pursuant to a
request for confidential treatment.)****
10.12 Power Sales Agreement, dated as of October 1, 1995, between
British Columbia Power Exchange Corporation and Intalco
Aluminum Corporation (Certain portions of this agreement
have been deleted and filed separately with the Secretary
of the Securities and Exchange Commission pursuant to a
request for confidential treatment.)****
10.13 Electric Service Agreement, dated as of November 11, 1994,
between Eastalco Aluminum Company and The Potomac Edison
Company, filed as Exhibit 10.02 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 1997 and incorporated herein by reference
10.14 Amendment No. 1 to Electric Service Agreement, dated October
10, 1997, between The Potomac Edison Company and Eastalco
Aluminum Company**
10.15 Agreement, dated as of July 1, 1997, by and between the
South Carolina Public Service Authority and Alumax of
South Carolina, Inc., filed as Exhibit 10.01 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997 and incorporated herein by
reference.
10.16 Electricity Contract, dated February 1, 1990, as amended on
October 15, 1992, by and between Aluminerie Lauralco, Inc.
and Hydro-Quebec (Certain portions of this agreement have
been deleted and filed separately with the Secretary of
the Securities and Exchange Commission pursuant to a
request for confidential treatment.)
10.17 Employment Agreement, As Amended and Restated as of December
5, 1996, between Alumax Inc. and C. Allen Born***(-)
10.18 Employment Agreement, dated as of December 4, 1997, between
Alumax Inc. and Thomas G. Johnston**(-)
10.19 Agreement, dated as of November 15, 1993, as amended as of
February 3, 1994, among AMAX Inc., Alumax Inc. and Helen
M. Feeney*(-)
10.20 Agreement, dated as of March 10, 1994, between Alumax Inc.
and Helen M. Feeney, amending the Agreement, dated as of
November 15, 1993, as amended as of February 3,
1994*****(-)
10.21 Grantor Trust Agreement, dated as of April 1, 1997, between
Alumax Inc. and The Chase Manhattan Bank**(-)
10.22 Purchase Agreement, dated as of June 24, 1996, between
Euramax International, Ltd. and Alumax Inc., filed as
Exhibit 10.01 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference.
10.23 Agreement, dated as of June 28, 1996, by and between Minas
Penoles, S.A. de C.V. and The Fresnillo Company, filed as
Exhibit 10.01 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference.
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
11.01 Calculation of Earnings per Common Share**
21.01 Subsidiaries of the Company**
23.01 Consent of Coopers & Lybrand L.L.P.**
24.01 Power of Attorney**
27.01 Financial Data Schedule** (For SEC use only)
</TABLE>
- ---------------
* Previously filed as an exhibit to the Company's 1993 Annual Report on Form
10-K and incorporated herein by reference.
** Filed herewith.
*** Previously filed as an exhibit to the Company's 1996 Annual Report on
Form 10-K and incorporated herein by reference.
**** Previously filed as an exhibit to Amendment No. 1 to the Company's 1995
Annual Report on Form 10-K/A and incorporated herein by reference.
***** Previously filed as an exhibit to Amendment No. 1 to the Company's 1993
Annual Report on Form 10-K/A and incorporated herein by reference.
(-) Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 601 of Regulation S-K.
<PAGE> 1
EXHIBIT 10.08
PARTICIPATION AGREEMENT
dated as of November 25, 1997
among
ALUMAX MILL PRODUCTS,
INC.,
as Lessee
ALUMAX INC.,
as Guarantor,
BMO Leasing (U.S.), Inc.,
as Agent Lessor and Lessor,
BANK OF MONTREAL,
as Lender,
and
BANK OF MONTREAL,
as Administrative Agent and Arranger
--------------------
Lease Financing of Texarkana, Texas
Rolling Mill and Related Equipment
for
ALUMAX MILL PRODUCTS, INC.
<PAGE> 2
TABLE OF
CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
Parties............................................................................................1
Recitals...........................................................................................1
ARTICLE I DEFINITIONS; INTERPRETATION ........................................................1
ARTICLE II INTENTIONALLY OMITTED...............................................................2
ARTICLE III FUNDING OF ADVANCES ................................................................2
Section 3.1 Advances ......................................................................2
Section 3.2. Lessors' Commitments ..........................................................2
Section 3.3. Lenders' Commitments ..........................................................2
Section 3.4. Procedures for Advance ........................................................3
Section 3.5. Interest Rate..................................................................3
Section 3.6. Interest Period Selection/Continuation/Conversion
Elections .....................................................................3
ARTICLE IV YIELD; INTEREST; FEES ..............................................................4
Section 4.l. Yield .........................................................................4
Section 4.2. Interest on Loans .............................................................4
Section 4.3. Prepayments....................................................................4
Section 4.4. Fees...........................................................................5
Section 4.5. Place and Manner of Payments ..................................................5
Section 4.6. Pro Rata Treatment ............................................................5
Section 4.7. Sharing of Payments ...........................................................5
ARTICLE V CERTAIN INTENTIONS OF THE PARTIES ..................................................6
Section 5.1. Nature of Transaction .........................................................6
Section 5.2. Amounts Due Under the Master Lease ............................................7
ARTICLE VI CONDITIONS PRECEDENT TO ACQUISITION DATE ...........................................7
Section 6.1. Acquisition Date ..............................................................7
ARTICLE VII DISTRIBUTIONS......................................................................10
Section 7.1. Basic Rent ...................................................................10
Section 7.2. Purchase Payments by the Lessee ..............................................10
Section 7.3. Payment of Loan Balance ......................................................11
Section 7.4. Sales Proceeds of Remarketing of Property.....................................11
Section 7.5. Supplemental Rent ............................................................12
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 7.6. Distribution of Payments after Lease Event of Default.........................12
Section 7.7. Other Payments................................................................13
Section 7.8. Casualty and Condemnation Amounts.............................................13
Section 7.9. Order of Application..........................................................14
Section 7.10. Payments to Account...........................................................14
ARTICLE VIII REPRESENTATIONS....................................................................14
Section 8.1. Representations of the Participants...........................................14
Section 8.2. Representations of the Lessee and the Guarantor ..............................15
ARTICLE IX PAYMENT OF CERTAIN EXPENSES .......................................................19
Section 9.1. Transaction Expenses..........................................................19
Section 9.2. Stamp Taxes...................................................................19
ARTICLE COVENANTS AND AGREEMENTS .................................................................19
Section 10.1. Covenants of the Guarantor....................................................19
Section 10.2. Affirmative Covenant of the Agent Lessor......................................26
ARTICLE XI RENEWALS...............................................................................27
Section 11.1. Extensions of Maturity Date and Expiration Date;
Replacement of Participants...................................................27
Section 11.2. Replacement of Defaulting Participant ........................................28
ARTICLE XII TRANSFERS OF PARTICIPANTS INTERESTS ..................................................28
Section 12.1. Assignments...................................................................28
Section 12.2. Participations ...............................................................29
Section 12.3. Withholding Taxes; Disclosure of Information; Pledge
Under Regulation A............................................................29
ARTICLE XIII INDEMNIFICATION ....................................................................30
Section 13.1. General Indemnification.......................................................30
Section 13.2. End of Term Indemnity ........................................................32
Section 13.3. Environmental Indemnity.......................................................33
Section 13.4. Proceedings in Respect of Claims..............................................34
Section 13.5. General Tax Indemnity.........................................................35
Section 13.6. Indemnity Payments in Addition to Lease Obligations ..........................38
Section 13.7. Rate Determinations...........................................................38
Section 13.8. Funding Indemnity ............................................................38
Section 13.9. Change of Law.................................................................39
Section 13.10. Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of, LIBOR .........................................................39
Section 13.11. Increased Cost and Reduced Return.............................................39
Section 13.12. Lending Offices...............................................................41
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 13.13. Discretion of Lenders or Lessors as to Manner of Funding .....................41
Section 13.14. Capital Adequacy..............................................................41
ARTICLE XIV THE AGENT LESSOR .......................................................................42
Section 14.1. Appointment and Authorization ...............................................42
Section 14.2. Delegation of Duties .........................................................43
Section 14.3. Agent Lessor and Affiliates ..................................................43
Section 14.4. Action by Agent Lessor .......................................................43
Section 14.5. Consultation with Experts ....................................................43
Section 14.6. Exculpatory Provisions .......................................................43
Section 14.7. Reliance on Communications ...................................................43
Section 14.8. Notice of Default ............................................................44
Section 14.9. Non-Reliance on Agent Lessor and Other Participant ...........................44
Section 14.10. Indemnification ..............................................................45
Section 14.11. Failure to Act................................................................45
Section 14.12. Resignation and Removal.......................................................45
Section 14.13. Distributions ................................................................46
Section 14.14. Rights of Lessee .............................................................46
ARTICLE XV MISCELLANEOUS ...........................................................................46
Section 15.1. Survival of Agreements .......................................................46
Section 15.2. No Broker ....................................................................46
Section 15.3. Notices ......................................................................47
Section 15.4. Counterparts .................................................................47
Section 15.5. Amendments ...................................................................47
Section 15.6. Headings .....................................................................47
Section 15.7. Parties in Interest ..........................................................47
Section 15.8. Governing Law ................................................................48
Section 15.9. Severability .................................................................48
Section 15.10. Liability Limited.............................................................48
Section 15.11. Further Assurances............................................................49
Section 15.12. [Intentionally Omitted] ......................................................49
Section 15.13. [Intentionally Omitted] ......................................................49
Section 15.14. Waiver of Jury Trial..........................................................49
Section 15.15. No Participant Responsible for Other Participants ............................49
Section 15.16. Each Lessor to Have an Undivided Interest ....................................49
Section 15.17. Simultaneous Transaction......................................................49
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
Appendix A -- Definitions
Schedule I -- Commitments
Schedule II -- Notice Information, Wire Instructions and Funding Offices
Schedule III -- Subsidiaries
Schedule IV -- Indebtedness and Liens
Schedule V -- Litigation
Exhibit A-1 -- Form of Legal Opinion of Lessee and Guarantor (R. Wolf)
Exhibit A-2 -- (Irell & Manella LLP)
Exhibit B -- Form of Funding Request
Exhibit C -- Form of Interest Period
Selection/Continuation/Conversion Notice
Exhibit D-1-A -- Form of Secretary's Certificate
Exhibit D-1-B -- Form of Secretary's Certificate
Exhibit D-1-C -- Form of Secretary's Certificate
Exhibit D-2 -- Form of Responsible Officer's Certificate
Exhibit E -- [Intentionally omitted]
Exhibit F -- Form of Assignment Agreement
Exhibit G -- Form of Legal Opinion of Local Counsel to Lessee
</TABLE>
-iv-
<PAGE> 6
PARTICIPATION
AGREEMENT
THIS PARTICIPATION AGREEMENT (this "Participation Agreement"), dated as
of November 25, 1997, is entered into by and among ALUMAX INC., a Delaware
corporation, as the Guarantor (the "Guarantor"); ALUMAX MILL PRODUCTS, INC., a
Delaware corporation, as the Lessee (the "Lessee"); BMO LEASING (U.S.), INC., a
Delaware corporation, as a Lessor (together with any permitted successors and
assigns thereto, each a "Lessor" and collectively the "Lessors"); BMO LEASING
(U.S.), INC., as Agent Lessor for the Lessors (in such capacity, the "Agent
Lessor"); BANK OF MONTREAL, a Canadian banking organization ("BMO"), and the
other various financial institutions as are or may from time to time become
lenders (the "Lenders") under the Loan Agreement; and BMO as Administrative
Agent (in such capacity, the "Administrative Agent") for the Lenders and as
Arranger (in such capacity, the "Arranger").
W I T N E S S E T H:
WHEREAS, on the Acquisition Date, the Agent Lessor will purchase the
Property and enter into the Ground Lease;
WHEREAS, the Agent Lessor desires to lease to the Lessee, and the
Lessee desires to lease from the Agent Lessor, the Property including its rights
under the Ground Lease; and
WHEREAS, the Lessors are willing to provide a portion of the funding of
the costs of the acquisition of the Property; and
WHEREAS, the Lenders are willing to provide financing for the remaining
portion of the costs of acquisition of the Property; and
WHEREAS, to secure such financing (a) the Lessors will have the benefit
of (i) the Guaranty from the Guarantor and (ii) a first priority Lien on the
Property and (b) the Lenders will have the benefit of (i) the Guaranty from the
Guarantor, (ii) a Lien on the Agent Lessor's right, title and interest in the
Property, and (iii) an assignment of certain of the Agent Lessor's rights
against the Lessee under the Lease;
Now THEREFORE, in consideration of the mutual agreements contained in
this Participation Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix A hereto
for all purposes hereof (as such Appendix A may be amended, supplemented,
amended and restated or otherwise modified in writing by agreement of the
parties from time to time, "Appendix A
<PAGE> 7
to this Participation Agreement"); and the rules of interpretation set forth in
Appendix A to this Participation Agreement shall apply to this Participation
Agreement.
ARTICLE II
INTENTIONALLY OMITTED
ARTICLE III
FUNDING OF ADVANCES
Section 3.1. Advances. Subject to the conditions and terms hereof, the
Agent Lessor shall take the following actions on the Acquisition Date at the
written request of the Lessee with respect to the Property:
(a) the Agent Lessor shall make the Advance (out of funds
provided by the Lessors and the Lenders) at the request and direction
of the Lessee, for the purpose of financing the acquisition of the
Property, and the proceeds of the Advance shall be paid directly to
such parties designated in writing by the Lessee to the Agent Lessor;
(b) the Agent Lessor shall acquire the Property (using funds
provided by the Lessors and the Lenders) and enter into the Ground
Lease; and
(c) the Agent Lessor shall lease (or in the case of the Ground
Lease sublease) the Property to the Lessee under the Master Lease.
Notwithstanding any other provision hereof, the Agent Lessor shall not be
obligated to make the Advance with respect to acquisition of the Property if the
amount of the Advance would exceed the Fair Market Sales Value of Property as
set forth in the Appraisal thereof delivered pursuant to Section 6.1(d).
Section 3.2. Lessors' Commitments. Subject to the conditions and terms
hereof and the other Operative Documents, each of the Lessors shall make
available to the Agent Lessor on the Acquisition Date an amount (relative to
such Lessor, a "Lessor Amount") in immediately available funds equal to such
Lessor's Commitment Percentage of the amount of the Advance. Notwithstanding any
other provision hereof, no Lessor shall be obligated to make available any
Lessor Amount if, after giving effect to the proposed Lessor Amount, the
outstanding aggregate amount of such Lessor's Amount would exceed its Lessor
Commitment.
Section 3.3. Lenders' Commitments. Subject to the conditions and terms
hereof and the other Operative Documents, each of the Lenders shall make a Loan
to the Agent Lessor on the Acquisition Date in an amount (relative to such
Lender, a "Loan") in immediately available funds equal to such Lender's
Commitment Percentage of the amount of the Advance being funded on the
Acquisition Date. Notwithstanding any other provision hereof, no Lender shall be
obligated to make any Loan if, after giving effect to the proposed Loan,
-2 -
<PAGE> 8
the outstanding aggregate amount of such Lender's Loan would exceed its Loan
Commitment.
Section 3.4. Procedures for Advance. With respect to the Advance, the
Lessee shall give the Agent Lessor and the Administrative Agent prior written
notice pursuant to a Funding Request substantially in the form of Exhibit B (a
"Funding Request"), which Funding Request shall be delivered not later than 9:00
a.m. (Chicago time), one (1) Business Day prior to the proposed Acquisition
Date, specifying the proposed Acquisition Date, and the amount of Advance
requested. Such Loans and Lessor Amounts made with respect to the Advance on the
Acquisition Date, shall initially be Base Rate Loan/Lessor Amounts. Subject to
timely delivery of a Funding Request and the other terms and conditions of the
Operative Documents, each Participant shall make its Commitment Percentage of
the requested Advance available to the Agent Lessor by 1:00 p.m., Chicago time,
on the requested Acquisition Date. The Agent Lessor and the Administrative Agent
shall calculate the amounts of the Lessor Amounts and the Loans required to fund
the requested Advance.
Section 3.5. Interest Rate; Yield Rate. Each Loan and Lessor Amount
shall accrue interest or Yield, as the case may be, by reference to the Base
Rate or the Eurodollar Rate in accordance with Section 3.6.
Section 3.6. Interest Period Selection/Continuation/Conversion
Elections. By delivering an Interest Period Selection/Continuation/Conversion
Notice to the Agent Lessor and Administrative Agent with respect to Lessor
Amounts and Loans, respectively, the Lessee may from time to time during the
Basic Lease Term irrevocably select, by no later than 10:00 a.m. (Chicago time)
on the date three (3) Business Days' prior to the selected Interest Period, that
all or any portion of the outstanding Loans and Lessor Amounts be, in the case
of Base Rate Loans/Lessor Amounts, converted into Eurodollar Loans/Lessor
Amounts or, in the case of Eurodollar Loans/Lessor Amounts, converted into Base
Rate Loans/Lessor Amounts or continued as Eurodollar Rate Loans/Lessor Amounts
and, with respect to Eurodollar Loans/Lessor Amounts, select the duration for
the next succeeding Interest Period; provided, however, that (i) in the absence
of a delivery of an Interest Period Selection/Continuation/Conversion Notice
with respect to any Eurodollar Loan/Lessor Amount at least three (3) Business
Days before the last day of the then current Interest Period with respect
thereto, Lessee shall be deemed to have selected that such Eurodollar
Loan/Lessor Amount be converted into a Base Rate Loan/Lessor Amount on such last
day, (ii) each such conversion or continuation shall be pro rated among the
applicable outstanding Loans and Lessor Amounts of all Participants, (iii) no
portion of any Loan or Lessor Amount may be continued as, or converted into, a
Eurodollar Loan/Lessor Amount when any Lease Default or Lease Event of Default
has occurred and is continuing, and (iv) the outstanding Loans and Lessor
Amounts may not be apportioned into more than three (3) separate Loans and three
(3) separate Lessor Amounts pursuant to this Section 3.6 at any one time.
Each Interest Period Selection/Continuation/Conversion Notice so
delivered or deemed delivered by the Lessee shall be deemed an effective
election by the Lessors of the method for computing interest on the Loans under
the Loan Agreement.
-3 -
<PAGE> 9
ARTICLE IV
YIELD; INTEREST; FEES
Section 4.1. Yield. (a) The amount of the Lessor Amounts outstanding
from time to time shall accrue yield ("Yield") at the Yield Rate, calculated
using the actual number of days elapsed and, when the Yield Rate is based on the
Eurodollar Rate, a 360-day year basis and, if calculated at the Base Rate a 365-
or, if applicable, 366-, day year basis. If all or any portion of the Lessor
Amounts, any Yield payable thereon or any other amount payable hereunder shall
not be paid when due (whether at stated maturity, acceleration thereof or
otherwise), such overdue amount shall bear interest at a rate per annum which is
equal to the Overdue Rate. Upon the occurrence, and during the continuance of an
Event of Default, the Lessor Amounts and, to the extent permitted by law, Yield
on the Lessor Amounts and any other amounts owing hereunder or under the other
Operative Documents shall bear interest, payable on demand, at the Overdue Rate.
The Administrative Agent shall, as soon as practicable, but in no event later
than 12:00 (noon), Chicago time, two Business Days before the effectiveness of
each Eurodollar Rate, cause to be determined such Eurodollar Rate, the resulting
Yield and Lessor Basic Rent, and notify each Lessor thereof.
(b) The Administrative Agent shall distribute, in accordance with
Article VII, the Lessor Basic Rent and all other amounts due with respect to the
Lessor Amounts paid to the Administrative Agent by the Lessee under the Master
Lease from time to time.
(c) Yield on outstanding Lessor Amounts shall be due and payable by
Lessee in cash on each Scheduled Payment Date.
(d) If not repaid sooner, the outstanding aggregate Lessor Amounts
shall be repaid in full on the Maturity Date.
Section 4.2. Interest on Loans. (a) Each Loan shall accrue interest
computed and payable in accordance with the terms of the Loan Agreement. Each
Loan shall become due and payable at the dates and times provided under the Loan
Agreement.
(b) The Administrative Agent shall distribute, in accordance with
Article VII, the Lender Basic Rent and all other amounts due with respect to the
Loans paid to the Administrative Agent by the Lessee under the Master Lease from
time to time.
Section 4.3. Prepayments. (a) Voluntary Prepayments. The Lessee shall
have the right to prepay an amount equal to the aggregate outstanding Lease
Balance in whole, but not in part, pursuant to the exercise of the purchase
option permitted under the Master Lease without premium or penalty.
(b) Mandatory Prepayments. All amounts payable by the Lessee pursuant
to Article XV, XVI, XVIII or XX of the Master Lease shall be applied to the
Loans and the Lessor Amounts in the manner set forth in Article VII.
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(c) Notice. The Lessee will provide notice to the Administrative Agent
of any prepayment by 10:00 A.M. (Chicago time) at least three (3) Business Days
prior to the date of prepayment.
Section 4.4. Fees. The Lessee agrees to pay (as a part of Supplemental
Rent) the fees set forth in, and in accordance with, the Arranger's Fee Letter.
Section 4.5. Place and Manner of Payments. Except as otherwise
specifically provided herein, all payments by the Lessee hereunder, under the
Master Lease or under any other Operative Document shall be made to the
Administrative Agent in Dollars in immediately available funds, without offset,
deduction, counterclaim or withholding of any kind, to the Account in Chicago,
Illinois not later than 1:00 p.m. (Chicago time) on the date when due. Payments
received after such time shall be deemed to have been received on the next
succeeding Business Day. The Lessee shall, at the time it makes any payment
under any Operative Document, specify to the Administrative Agent the Loans and
Lessor Amounts, fees or other amounts payable by the Lessee hereunder to which
such payment is to be applied (and in the event that it fails so to specify, or
if such application would be inconsistent with the terms hereof, the
Administrative Agent shall distribute such payment to the Lenders and the
Lessors in such manner as the Administrative Agent may determine in good faith
to be appropriate in respect of obligations owing by Lessee, subject to the
terms of Section 4.6). The Administrative Agent will distribute such payments to
such Lenders and Lessors in accordance with Article VII, if any such payment is
received prior to 1:00 p.m. (Chicago time) on a Business Day in like funds as
received at or prior to such time, and otherwise the Administrative Agent will
distribute such payment to such Lenders and Lessors on the next succeeding
Business Day. Whenever any payment hereunder shall be stated to be due on a day
which is not a Business Day, the due date thereof shall be extended to the next
Business Day (subject to accrual of interest and fees for the period of such
extension), except that in the case of Eurodollar Loans/Lessor Amounts, if the
extension would cause the payment to be made in the next following calendar
month, then such payment shall instead be made on the next preceding Business
Day.
Section 4.6. Pro Rata Treatment. Except to the extent otherwise
provided herein, each payment or repayment of principal on any outstanding Loan
or Lessor Amount and each payment of interest or Yield shall be allocated pro
rata among the relevant Lenders and Lessors, as the case may be, in accordance
with the respective principal amounts of their outstanding Loans or Lessor
Amounts, as the case may be.
Section 4.7. Sharing of Payments. The Participants agree among
themselves that, in the event that any Participant shall obtain payment in
respect of any Loan or Lessor Amount or any other obligation owing to such
Participant under the Operative Documents through the exercise of a right of
setoff, banker's lien or counterclaim, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Participant
under any applicable bankruptcy, insolvency or other similar law or otherwise,
or by any other means, in excess of its pro rata share of such payment as
provided for in this Agreement, such Participant shall promptly purchase from
the other Participants a participation in such Loans
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or Lessor Amounts and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all
Participants share such payment in accordance with their respective ratable
shares as provided for in this Agreement. The Participants further agree among
themselves that if payment to a Participant obtained by such Participant through
the exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Participant
which shall have shared the benefit of such payment shall, by repurchase of a
participation theretofore sold, return its share of that benefit (together with
its share of any accrued interest payable with respect thereto) to each
Participant whose payment shall have been rescinded or otherwise restored. The
Lessee agrees that any Participant so purchasing such a participation may, to
the fullest extent permitted by law and in accordance with the Operative
Documents, exercise all rights of payment, including setoff, banker's lien or
counterclaim, with respect to such participation as fully as if such Participant
were a holder of such Loan or Lessor Amount or other obligation in the amount of
such participation. Except as otherwise expressly provided herein, if any
Participant, the Agent Lessor or the Administrative Agent shall fail to remit to
the Administrative Agent, the Agent Lessor or any other Participant an amount
payable by such party to the Administrative Agent, the Agent Lessor or such
other Participant pursuant to the Operative Documents on the date when such
amount is due, such payments shall be made together with interest thereon for
each day from the date such amount is due until the date such amount is paid to
the Administrative Agent, the Agent Lessor or such other Participant at a rate
per annum equal to the Federal Funds Rate. If under any applicable bankruptcy,
insolvency or other similar law, any Participant receives a secured claim in
lieu of a setoff to which this Section 4.7 applies, such Participant shall, to
the extent practicable, exercise its rights in respect of such secured claim in
a manner consistent with the rights of the Participants under this Section 4.7
to share in the benefits of any recovery on such secured claim.
ARTICLE V
CERTAIN INTENTIONS OF THE PARTIES
Section 5.1. Nature of Transaction. (a) The parties hereto intend that
(i) for financial accounting purposes with respect to the Lessee and Guarantor,
the Agent Lessor will be treated as the owner and the lessor of the Property and
the Lessee will be treated as the lessee of the Property and (ii) for all other
purposes, including federal and all state and local income tax purposes, state
real estate and commercial law and bankruptcy purposes,
(A) the Lease will be treated as a financing arrangement,
(B) the Lessors and the Lenders will be deemed lenders making
loans to the Lessee in an amount equal to the sum of the Lessor Amounts and the
aggregate outstanding principal amount of the Loans, which amounts are secured
by the Property, and
(C) the Lessee will be treated as the owner of the Property and
will be entitled to all tax benefits ordinarily available to an owner of
property similar to the Property for such tax purposes. Nevertheless, the Lessee
acknowledges and agrees
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that neither the Agent Lessor, the Administrative Agent nor any of the
Lessors or Lenders has made any representations or warranties to the
Lessee concerning the tax, accounting or legal characteristics of the
Operative Documents and that the Lessee has obtained and relied upon
such tax, accounting and legal advice concerning the Operative
Documents as it deems appropriate. Each Tax Indemnee represents and
warrants that it will not, prior to the termination of the Master
Lease, claim ownership of (or any tax benefits, including depreciation,
with respect to) the Property for any income tax purposes (unless
required to do so by a Governmental Authority), it being understood
that the Lessee is and will remain the owner of the Property for such
income tax purposes until the termination of the Master Lease.
(b) Specifically, without limiting the generality of clause (a) of this
Section 5.1, the parties hereto intend and agree that in the event of any
insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State or Commonwealth thereof affecting either Lessee,
Guarantor, the Lessors, or any Participant or any collection actions, the
transactions evidenced by the Operative Documents shall be regarded as loans
made by the Lessors and the Lenders as unrelated third party lenders to the
Lessee.
Section 5.2. Amounts Due Under the Master Lease. Anything herein or
elsewhere to the contrary notwithstanding, it is the intention of Lessee, the
Lessors and the Lenders that: (i) the amount and timing of installments of Basic
Rent due and payable from time to time from the Lessee under the Master Lease
shall be equal to the aggregate payments due and payable as principal and
interest on the Loans and principal and Yield on the Lessor Amounts on each
Scheduled Payment Date and each Fixed Rent Payment Date, as applicable; (ii) if
the Lessee elects the Purchase Option or becomes obligated to purchase the
Property under the Master Lease, the Loans, the Lessor Amounts, and all interest
and Yield thereon and all fees and other obligations of the Lessee with respect
to the Operative Documents and the Property owing to the Administrative Agent,
the Agent Lessor, the Lessors and the Lenders shall be immediately due and
payable in full by the Lessee; (iii) if the Lessee properly elects the
Remarketing Option, the Lessee shall only be required to pay to the
Administrative Agent the proceeds of the sale of the Property (up to, and not in
excess of the aggregate of the Lessor Amounts then outstanding), the Loan
Balance and any amounts due pursuant to Article XIII hereof and Section 20.2 of
the Master Lease (which aggregate amounts may be less than the Lease Balance);
and (iv) upon an Event of Default resulting in an acceleration of the Lessee's
obligation to purchase the Property under the Master Lease, the amounts then due
and payable by the Lessee under the Master Lease shall include all amounts
necessary to pay in full the Lease Balance, plus all other amounts then due from
the Lessee to the Participants under the Operative Documents.
ARTICLE VI
CONDITIONS PRECEDENT TO ACQUISITION DATE
Section 6.1. Acquisition Date. The closing date with respect to the
acquisition of the Property (the "Acquisition Date") shall occur on the date
specified in the Funding Request, provided that on or prior to such date all the
conditions precedent thereto set forth in this
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Section 6.1 shall have been satisfied or waived by the applicable parties as set
forth herein. All rights and obligations of the parties under the Operative
Documents (each subject to any conditions specified therein), the obligation of
the Lessors to acquire the Property on the Acquisition Date, the obligation of
each Lessor to make available any related Lessor Amount on the Acquisition Date
and the obligation of each Lender to make any related Loan on the Acquisition
Date, are subject to satisfaction or waiver of the following conditions
precedent:
(a) Funding Request. Each of the Administrative Agent and the Agent
Lessor shall have received a fully executed counterpart of the Funding
Request in accordance with Section 3.4.
(b) Fees. All fees due and payable pursuant to this Participation
Agreement shall have been paid.
(c) Representations and Warranties. On the Acquisition Date, the
representations and warranties of Lessee and Guarantor in this Agreement
and in each of the other Operative Documents shall be true and correct in
all material respects as though made on and as of such date, except to the
extent such representations or warranties relate solely to an earlier date,
in which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date.
(d) Appraisal. On or prior to the Acquisition Date, the Agent Lessor
and the Administrative Agent shall have received an Appraisal of the
Property, in form and substance reasonably satisfactory to the
Administrative Agent and the Agent Lessor, which Appraisal shall show that
the Fair Market Sales Value of the Property is not less than the
Acquisition Cost for the Property.
(e) Operative Documents. The Operative Documents shall have been
executed and delivered by the parties thereto.
(f) Certificates. The Agent Lessor and the Administrative Agent shall
have received a Secretary's Certificate, of each of the Lessee and
Guarantor, in substantially the form of Exhibit D-1 attached hereto and a
Responsible Officer's Certificate of each of the Lessee and Guarantor, in
substantially the form of Exhibit D-2 attached hereto, addressed to the
Administrative Agent, the Agent Lessor, each Lender and each Lessor and
dated as of the Acquisition Date.
(g) Evidence of Property Insurance. The Agent Lessor and the
Administrative Agent shall have received evidence that the insurance
maintained by the Lessee with respect to the Property satisfies the
requirements set forth in Article XIII of the Master Lease, setting forth
the respective coverage, limits of liability, carrier, policy number and
period of coverage.
(h) Environmental Audit. On or prior to the Acquisition Date, the Agent
Lessor and the Administrative Agent shall have received an Environmental
Audit with
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respect to the Property in form and substance reasonably satisfactory to
the Agent Lessor and the Administrative Agent.
(i) Deed. The Agent Lessor shall have received on or prior to the
Acquisition Date a Deed with respect to the Property being purchased on the
Acquisition Date, conveying fee simple title to the Property (except for
the leasehold granted by the Ground Lease) to the Agent Lessor and
containing all customary seller's warranties and subject only to Permitted
Property Liens.
(j) Bill of Sale. On or prior to the Acquisition Date, the Agent Lessor
shall have received a bill of sale (a "Bill of Sale"), conveying title to
the Agent Lessor in the Property (except for the leasehold granted by the
Ground Lease).
(k) Purchase Contract. On or prior to the Acquisition Date, the Agent
Lessor shall have received a copy of the purchase contract for the Property
and Lessee shall assign the right to purchase or designate Agent Lessor as
the party to be conveyed title to the Property.
(1) Ground Lease. On or prior to the Acquisition Date, Agent Lessor and
Lessee shall have entered into the Ground Lease.
(m) Lessor Financing Statements. On or prior to the Acquisition Date,
the Lessee shall have delivered to the Agent Lessor all Lessor Financing
Statements relating to the Property as the Agent Lessor may reasonably
request in order to protect the interests of the Agent Lessor and each of
the Lessors under the Master Lease to the extent the Master Lease
constitutes a security agreement.
(n) Recordation of Lessor Mortgage and Lessor Financing Statements;
Search Results. Each of the Participants shall have received (x) evidence
reasonably satisfactory to it that each of (i) the Master Lease and any
other instrument constituting a Lessor Mortgage and (ii) the Lessor
Financing Statements, in each case relating to the Property, has been, or
are being, recorded in a manner sufficient properly to perfect each of
their interests therein and (y) copies of file search reports from the
Uniform Commercial Code filing officer (i) in Bowie County, Texas or (ii)
in the jurisdiction in which is located the chief executive office of the
Lessee, setting forth the results of such Uniform Commercial Code file
searches.
(o) Property Survey. On or prior to the Acquisition Date, the Lessee
shall have delivered to each of the Agent Lessor and the Administrative
Agent a survey of the land leased by the Ground Lease certified to the
Participants and the title company and otherwise in form reasonably
acceptable to the Participants.
(p) Title Insurance. On or prior to the Acquisition Date, the Lessee
shall have delivered to the Administrative Agent and the Agent Lessor a
commitment to deliver an insurance policy covering the Property in favor of
the Agent Lessor, the Administrative Agent and the Participants,
respectively, such policy in an amount of
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$1,000,000.00 and to be reasonably satisfactory to the Required Lenders and
the Lessors with such customary endorsements and affirmative issued by the
title company as a routine matter, if requested by the Agent Lessor or the
Administrative Agent.
(q) No Default. There shall not have occurred and be continuing any
Default or Event of Default under any of the Operative Documents, and no
Default or Event of Default under any of the Operative Documents will have
occurred after giving effect to the acquisition of the Property and
cancellation or termination of the US West Agreements and cancellation or
release of all security interests thereunder.
(r) Opinions of Counsel. The Agent Lessor and the Administrative Agent
shall have received opinions of counsel, addressed to the Administrative
Agent, the Agent Lessor, each Lender and each Lessor, substantially in the
form of the opinions attached hereto as Exhibits A-1, A-2 and G.
(s) Plans and Specifications. On or prior to the Acquisition Date, the
Agent Lessor shall have received copies of any existing Material plans and
specifications for the Property.
(t) Good Standing. On or prior to the Acquisition Date, the Agent shall
have received copies of certificates of good standing, existence or its
equivalent, certified as of a recent date by the appropriate governmental
authorities of the state of incorporation of each of Lessee and Guarantor
and, for the Lessee, of the State of Texas.
All documents and instruments required to be delivered pursuant to this
Section 6.1 shall be delivered at such location as may be determined by the
Agent Lessor, the Administrative Agent and the Lessee.
ARTICLE VII
DISTRIBUTIONS
Section 7.1. Basic Rent. Each payment of Basic Rent (and any payment of
interest or Yield on overdue installments of Basic Rent, to the extent permitted
by Applicable Law) received by the Administrative Agent shall be distributed by
the Administrative Agent to the Lessors and the Lenders pro rata in accordance
with, and for application to, the Lender Basic Rent and Lessor Basic Rent then
due, as well as any interest or Yield on overdue installments of Basic Rent due
to the Lessors or the Lenders (to the extent permitted by Applicable Law).
Section 7.2. Purchase Payments by the Lessee. Any payment received by
the Administrative Agent as a result of:
(a) the purchase of the Property in connection with the
exercise of the Purchase Option under Section 18.1 of the Master Lease,
or compliance with the
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obligation to purchase (or cause its designee to purchase) the Property
in accordance with Section 18.2 or 18.3 of the Master Lease; or
(b) compliance with the obligation to purchase the Property in
accordance with Section 16.2(f) of the Master Lease; or
(c) any amounts received pursuant to Section 20.3(b) of the
Master Lease; or
(d) the payment of the Lease Balance with respect to the
Property in accordance with Section 15.1 of the Master Lease or Section
4.3(b) of the Participation Agreement;
shall be distributed by the Administrative Agent to the Lessors and the Lenders
pro rata without priority of one over the other, in the proportion that the
Participant Balance of each of the Lenders and the Lessor bears to the aggregate
of all of the Participant Balances.
Section 7.3. Payment of Loan Balance. The payment of the Loan Balance
to the Administrative Agent pursuant to Section 20.2(f) of the Master Lease
shall be promptly distributed to the Lenders for application to pay in full the
Participant Balance of each Lender.
Section 7.4. Sales Proceeds of Remarketing of Property. Any payments
received by the Administrative Agent as proceeds from the sale of the Property
sold pursuant to the exercise of the Remarketing Option pursuant to Article XX
of the Master Lease, together with any payment made as a result of an appraisal
pursuant to Section 13.2, shall be distributed by the Administrative Agent in
the following order of priority:
first, an amount equal to (x) the aggregate Lessor Balance
minus (y) 3% of the sum of (i) the largest principal amount outstanding
of Lessor Amounts at any one time prior to the distribution hereunder
and (ii) the largest principal amount outstanding of Loans at any one
time prior to the distribution hereunder (such amount under clause (y),
the "Equity Amount"), shall be distributed to the Lessors for
application to the Participant Balance of each Lessor, pro rata among
the Lessors, without priority of one over the other, in the proportion
that the Participant Balance of each such Lessor bears to the aggregate
Participant Balances of all Lessors;
second, to the extent not previously paid as required by
Section 7.3 hereof, an amount equal to Loan Balance shall be
distributed to the Lenders as set forth in Section 7.3;
third, an amount equal to the Equity Amount shall be
distributed to the Lessors for application to pay in full the
Participant Balance of each Lessor, pro rata among the Lessors, without
priority of one over the other, in the proportion that the Participant
Balance of each such Lessor bears to the aggregate Participant Balance
of all Lessors,
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fourth, the balance, if any, shall be promptly paid to the
Administrative Agent to be distributed as provided in Section 20.2(h)
of the Master Lease.
Section 7.5. Supplemental Rent. All payments of Supplemental Rent
received by the Administrative Agent (excluding any amounts payable pursuant to
the preceding provisions of this Article VII) shall be distributed promptly by
the Administrative Agent upon receipt thereof to the Persons entitled thereto
pursuant to the Operative Documents.
Section 7.6. Distribution of Payments after Lease Event of Default. (a)
During the continuance of a Lease Event of Default and subject to clause (b) and
(c) below, all proceeds from the sale of the Property shall be distributed by
the Administrative Agent in the following order of priority:
first, so much of such payment or amount as shall be required
to pay or reimburse the Administrative Agent and the Agent Lessor for
any tax, fees, expense, indemnification or other loss incurred by the
Administrative Agent or the Agent Lessor (to the extent incurred in
connection with any duties as the Administrative Agent or Agent Lessor,
as the case may be), shall be distributed to the Administrative Agent
and the Agent Lessor without priority of one over the other for their
own accounts in accordance with the amount of such payment or amount
payable to such Person;
second, so much of such payments or amounts as shall be
required to pay the Lenders and the Lessors the amounts payable to them
pursuant to any expense reimbursement or indemnification provisions of
the Operative Documents shall be distributed to each such Lender and
Lessor without priority of one over the other in accordance with the
amount of such payment or payments payable to each such Person;
third, an amount equal to the aggregate Lessor Balance minus
the Equity Amount shall be distributed to the Lessors for application
to the Participant Balance of each Lessor, pro rata among the Lessors,
without priority of one over the other, in the proportion that the
Participant Balance of each such Lessor bears to the aggregate
Participant Balances of all Lessors;
fourth, to the Lenders for application to pay in full the Loan
Balance, pro rata among the Lenders, without priority of one over the
other, in the proportion that the Participant Balance of each such
Lender bears to the aggregate Participant Balances of all Lenders;
fifth, an amount equal to the Equity Amount shall be
distributed to the Lessors for application to pay in full the
Participant Balance of each Lessor, pro rata among the Lessors without
priority of one over the other in the proportion that the Participant
Balance of each such Lessor bears to the aggregate Participant Balance
of all Lessors;
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sixth, the balance, if any, of such payment or amounts
remaining thereafter shall be promptly distributed to, or as
directed by, the Lessee.
(b) All payments received and amounts realized by the Administrative
Agent in connection with any Casualty or Condemnation during the continuance of
a Lease Event of Default shall be distributed by the Administrative Agent as
follows:
(i) in the event that the Agent Lessor (at the direction of
the Lessors) and the Administrative Agent elect to pay all or a portion
of such amounts to the Lessee for the repair of damage caused by such
Casualty or Condemnation in accordance with Section 14.1(a) of the
Master Lease, then such amounts shall be distributed to such Lessee,
and
(ii) in the event that the Agent Lessor (at the direction of
the Lessors) and the Administrative Agent elect to apply all or a
portion of such amounts to the purchase price of the related Property
in accordance with Section 14.1(a) and Article XV of the Master Lease,
then such amounts shall be distributed in accordance with clause (a).
Section 7.7. Other Payments. (a) Except as otherwise provided in
Sections 7.1, 7.2, 7.6 and clause (b) below, any payment received by the
Administrative Agent for which no provision as to the application thereof is
made in the Operative Documents or elsewhere in this Article VII (including any
balance remaining after the application in full of amounts to satisfy any
expressed provision) shall be distributed pro rata among the Lenders and the
Lessors without priority of one over the other, in the proportion that the
Participant Balance of each bears to the aggregate of all the Participant
Balances.
(b) Except as otherwise provided in Sections 7.1, 7.2 and 7.6, all
payments received and amounts realized by the Administrative Agent or the Agent
Lessor under the Master Lease or otherwise with respect to the Property to the
extent received or realized at any time after the indefeasible payment in full
of the Participant Balances of all of the Lenders and the Lessors and any other
amounts due and owing to the Lenders or the Lessors, shall be distributed
forthwith by the Administrative Agent or the Agent Lessor, as the case may be,
to or as directed by, the Lessee.
(c) Except as otherwise provided in Sections 7.1 and 7.2, any payment
received by the Administrative Agent or the Agent Lessor for which provisions as
to the application thereof is made in an Operative Document but not elsewhere in
this Article VII shall be distributed forthwith by the Agent Lessor or the
Administrative Agent to the Person and for the purpose for which such payment
was made in accordance with the terms of such Operative Document.
Section 7.8. Casualty and Condemnation Amounts. Subject to Section
7.6(b), any amounts payable to the Administrative Agent as a result of a
Casualty or Condemnation pursuant to Section 14.1 of the Master Lease and the
Assignment of Lease and Rent shall be distributed as follows:
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(a) all amounts payable to the Lessee for the repair of damage
caused by such Casualty or Condemnation in accordance with Section
14.1(a) of the Master Lease shall be distributed to the Lessee, and
(b) all amounts that are to be applied to the purchase price
of the related Property in accordance with Section 14.1(a) and Article
XV of the Master Lease shall be distributed by the Administrative Agent
to the Lenders and the Lessors pro rata without priority of one over
the other, in the proportion that the Participant Balance of each bears
to the aggregate of all of the Participant Balances.
Section 7.9. Order of Application. To the extent any payment made to
any Lender or any Lessor pursuant to Sections 7.2, 7.3, 7.4, 7.6 or 7.7 is
insufficient to pay in full the Participant Balance of such Lender or Lessor,
then each such payment shall first be applied to accrued interest or Yield and
then to principal on the Loans or the Lessor Amounts, as applicable.
Section 7.10. Payments to Account. All payments made to the
Administrative Agent pursuant to the Operative Documents shall be made to the
Account.
ARTICLE VIII
REPRESENTATIONS
Section 8.1. Representations of the Participants. Each Participant
represents and warrants to each other Participant, the Agent Lessor, the
Administrative Agent and the Lessee that:
(a) ERISA. Such Participant is not and will not be making its
Loans or funding its Lessor Amounts hereunder, and is not performing
its obligations under the Operative Documents, with the assets of an
"employee benefit plan" (as defined in Section 3(3) of ERISA) which is
subject to Title I of ERISA, or "plan" (as defined in Section
4975(e)(1) of the Code).
(b) Status. Such Participant meets at least one of the
definitions (other than as a "Lessor" or a "Lender") of the
term "Eligible Assignee."
(c) Securities. Each Participant is participating in the
Transactions for its own account and not with a view toward
redistribution; provided that disposition of its rights hereunder shall
remain in its control, to the extent otherwise permitted by, and the
foregoing shall not affect the ability of any Participant to assign or
sell participations in its rights in accordance with, the Operative
Documents.
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Section 8.2. Representations the Lessee and the Guarantor. Lessee, as
to itself, and Guarantor, as to itself and where applicable the Restricted
Subsidiaries, hereby represent and warrant to each Participant, the Agent Lessor
and the Administrative Agent that:
(a) Corporate Organization and Authority. The Lessee,
Guarantor and each Restricted Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all requisite power and authority
and all licenses and permits necessary in any respect material to the
Lessee or to the Guarantor and the Restricted Subsidiaries taken as a
whole to own and operate its properties and to carry on its business as
now conducted and as presently proposed to be conducted and is duly
licensed or qualified and in good standing as a foreign corporation in
each jurisdiction in which the nature of the business transacted by it
or the nature of the Company Property owned or leased by it makes such
licensing or qualification necessary and in which the failure to be so
licensed or qualified would have a Material Adverse Effect. Schedule
III hereto contains a complete and correct list of all Subsidiaries of
the Guarantor as of the date hereof and correctly sets forth, as to
each, whether or not it constitutes a Restricted Subsidiary, the
jurisdiction of incorporation, and the percentage of the issued and
outstanding shares of such Subsidiary owned by the Guarantor or by
Subsidiaries of the Guarantor. All of the issued and outstanding shares
of capital stock of each such Restricted Subsidiary are valid and fully
paid and nonassessable and all such shares of Restricted Subsidiaries
indicated in Schedule III as owned by the Guarantor or a Restricted
Subsidiary are owned, beneficially and of record, by the Guarantor or
such Restricted Subsidiary, free of any Lien.
(b) Outstanding Debt. Schedule IV hereto correctly describes
all Indebtedness of the Guarantor and its Restricted Subsidiaries in
excess of $5,000,000 and generally identifies all Liens securing such
Indebtedness.
(c) Financial Statements. The consolidated and consolidating
balance sheets of the Guarantor and its Consolidated Subsidiaries as at
December 31, 1996, and the related consolidated statements of income,
stockholders' equity and changes in financial position (or cashflow)
for the fiscal year ending on such date, accompanied, in the case of
the consolidated balance sheets and statements, by reports thereon
containing opinions by Coopers & Lybrand L.L.P., and the unaudited
consolidated balance sheet of the Guarantor and its Consolidated
Subsidiaries as at September 30, 1997 and the related consolidated
statements of income, retained earnings and changes in financial
position (or cash flow) for the nine (9) months ending on such date
(copies of which have been furnished to the Agent Lessor, the
Administrative Agent and each Participant), have been prepared in
accordance with GAAP and present fairly the financial position of the
Guarantor and its Consolidated Subsidiaries or Restricted Subsidiaries,
as the case may be as of such dates and the results of their operations
and changes in their financial position for the periods covered
thereby. Since September 30, 1997 and through the date hereof, there
has been no material adverse change in the condition, financial or
otherwise, of the Guarantor and its Consolidated Subsidiaries from that
shown on the above-described balance sheet as of
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such date. It is understood that the adverse ruling in the tax dispute
in respect of the consolidation of the tax returns of the Guarantor and
its Subsidiaries with those of AMAX Inc. for 1984, 1985 and 1986, which
is referred to in Section 8.2(j) below and is described in the
Guarantor's Exchange Act Reports (as defined below) does not and a
subsequent adverse ruling thereon on appeal shall not, constitute a
"material adverse change".
(d) Full Disclosure. The financial statements referred to in
Section 8.2(c) do not, nor does any written statement furnished by or
on behalf of the Guarantor to the Agent Lessor, the Administrative
Agent and each Participant in connection with the negotiation of this
Participation Agreement and the Transactions, contain any untrue
statement of a material fact or omit a material fact necessary to make
the material statements contained therein or herein, in light of the
circumstances under which they were made, not misleading except for
such thereof as were corrected in subsequent written statements
furnished the Agent Lessor, the Administrative Agent and each
Participant, the Agent Lessor, the Administrative Agent and each
Participant acknowledging that as to any projections furnished to the
Agent Lessor, the Administrative Agent or any Participant, the
Guarantor only represents that the same were prepared on the basis of
information and estimates the Guarantor believes to be reasonable.
(e) Pending Litigation. Excluding issues and matters relating
to taxes, which are specifically referred to in Section 8.2(j) hereof,
and excluding any other proceedings or disputes reflected in the
Guarantor's filings with the Securities and Exchange Commission ("SEC")
on Form 10-K for the year ended December 31, 1996 or on Form 10-Q for
the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997
(the "Exchange Act Reports") or reflected on Schedule V hereto, as of
the date hereof, there are no proceedings pending or, to the knowledge
of the Guarantor, threatened against or affecting the Guarantor or any
Restricted Subsidiary in any court or before any governmental authority
or arbitration board or tribunal in which, either individually or in
the aggregate, there is a reasonable possibility of an adverse decision
which could result in a Material Adverse Effect or could result in the
Guarantor's obligations under any of the Operative Documents being
declared invalid. Neither the Guarantor nor any Restricted Subsidiary
is in default with respect to any material order of any court or
governmental authority or arbitration board or tribunal.
(f) Financing is Legal and Authorized. The execution and
delivery of the Operative Documents, the Transactions and compliance by
the Guarantor and the Lessee with all of the provisions of the
Operative Documents are within the respective corporate powers of the
Guarantor and the Lessee and have been duly authorized by proper
corporate action on the part of the Guarantor and the Lessee and will
not violate any provisions of any applicable law or order of any court
or governmental authority or agency of competent jurisdiction and
after giving effect to the acquisition of the Property by the Agent
Lessor and cancellation or termination of the US West Agreements and
cancellation or release of all security interest thereunder will not
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conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute a default under, the Restated
Certificate of Incorporation or by-laws of the Guarantor and the
Certificate of Incorporation or by-laws of the Lessee or constitute a
material conflict with or breach or default under any material
indenture or other material agreement or instrument to which the
Guarantor or any Restricted Subsidiary is a party or by which any of
them may be bound or result in the imposition of any Liens on any
Company Property of the Guarantor or of any Restricted Subsidiary not
permitted hereby.
(g) Intentionally Omitted.
(h) No Defaults. No Default or Event of Default has occurred
and is continuing, and after giving effect to the acquisition of the
Property by the Agent Lessor and cancellation or termination of the US
West Agreements and cancellation or release of all security interest
thereunder the Guarantor and its Restricted Subsidiaries are not in
material breach of any contract or agreement where such breach may have
a Material Adverse Effect.
(i) Governmental Consent. No approval, authorization, consent
or withholding of objection on the part of any regulatory body, state,
federal or local, is necessary in connection with the execution and
delivery by either the Guarantor or the Lessee of the Operative
Documents or compliance by either the Guarantor or the Lessee with any
of the provisions thereof.
(j) Taxes. All tax returns required to be filed by the
Guarantor or any Consolidated Subsidiary in any jurisdiction have, in
fact, been filed, and all taxes, assessments, fees and other
governmental charges upon the Guarantor or any Consolidated Subsidiary
or upon any of their respective properties, income or franchises, which
are shown to be due and payable in such filed returns have been paid.
The only dispute with respect to the consolidation of the tax returns
of the Guarantor and its Subsidiaries with those of AMAX Inc. is a
dispute concerning the inclusion of the Guarantor and its Subsidiaries
in the consolidated returns of AMAX Inc. for 1984, 1985 and 1986, which
dispute is described in the Guarantor's Exchange Act Reports. Such tax
dispute was decided adversely to the Guarantor by the United States Tax
Court in a decision dated September 30, 1997. As of the date hereof,
the Guarantor has paid the expected deficiency with accrued interest.
There are no other material controversies known to the Guarantor with
respect to other federal or state income tax matters of the Guarantor
and its Subsidiaries in which there is a reasonable possibility of an
adverse decision which would result in a Material Adverse Effect. The
provisions for taxes on the books of the Guarantor and each Subsidiary
are adequate in all material respects for all open years, and for its
current fiscal year.
(k) Not an Investment Company. The Guarantor is not an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
(1) Intentionally Omitted.
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(m) ERISA. Each Plan, and, to the knowledge of the Guarantor,
each Multiemployer Plan, is in material compliance in all respects
with, and has been administered in all respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or State
law except where failure to be so in compliance or to be so
administered should not result in a Material Adverse Effect.
(n) Compliance with Environmental and Other Laws. (i) Neither
the Guarantor nor any of its Restricted Subsidiaries is (A) in material
default as of the date hereof with respect to any order, writ,
injunction or decree of any court or (B) in default as of the date
hereof in any material respect under any law, ordinance, order,
regulation, license or demand (including ERISA, the Occupational Safety
and Health Act of 1970 and Environmental Laws) of any federal, state,
municipal or other governmental agency, default with respect to or
under which would have a Material Adverse Effect.
(ii) As of the date hereof, the Guarantor and the Lessee are
in compliance with all applicable state and federal environmental,
health and safety statutes and regulations, including, without
limitation, regulations promulgated under the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. ss.ss.6901 et seq., except where
failure to be in compliance would not have a Material Adverse Effect.
After giving effect to applicable reserves on the books of the
Guarantor and its Restricted Subsidiaries for environmental remediation
and related costs and based on current information available to the
Guarantor with respect to the cost of remediation, the nature and
extent of the Guarantor's involvement in sites which are currently
known to require remediation and the anticipated contributions of other
potentially responsible parties as well as applicable insurance, the
Guarantor believes that the anticipated and estimable liabilities of
the Guarantor and its Restricted Subsidiaries resulting from
environmental matters and required expenditures for remediation
programs it may be required to undertake will not have a Material
Adverse Effect.
(o) Offer of Securities. Neither Lessee nor Guarantor nor any
Person authorized to act on their behalf has, directly or indirectly,
offered any interest in the Property or any other interest similar
thereto (the sale or offer of which would be integrated with the sale
or offer of such interest in the Property), for sale to, or solicited
any offer to acquire any of the same from, any Person other than each
Participant and the Administrative Agent, the Agent Lessor and other
similar financial institutions.
(p) Property. The Property and the contemplated use thereof by
the Lessee and its agents, assignees, employees, lessees, licensees and
tenants will comply in all Material respects with all Requirements of
Law (including, without limitation, all zoning and land use laws and
Environmental Laws) and Material Insurance Requirements, except for
such Requirements of Law as it shall be contesting in good faith by
appropriate proceedings. There is no action, suit or proceeding
(including any proceeding in condemnation or eminent domain or under
any Environmental Law) pending or, to the best of its knowledge,
threatened with respect to the Property
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which materially adversely affects the title to, or the use, operation
or value of, the Property. No Casualty with respect to the Property has
occurred which Casualty has had a Material Adverse Effect on the
Property.
(q) Permits and Utilities. The Property has available all
Material services and other utilities necessary for use and operation
of the Property for its primary intended purposes including, without
limitation, adequate water, gas and electrical supply, storm and
sanitary sewerage facilities, telephone, other required public
utilities and means of access between the Property and public highways
for pedestrians and motor vehicles. All Material utilities serving the
Property, are located in, and vehicular access to the Property is
provided by, either public rights-of-way abutting the Property or
Appurtenant Rights. Lessee has obtained, and has and will keep in full
force and effect, all Material operating permits necessary to allow for
the Property to be operated in accordance with its intended use.
(r) Intentionally Omitted.
(s) Insurance. Lessee has obtained insurance coverage covering
the Property which meets the requirements of the Master Lease, and such
coverage is in full force and effect.
(t) Flood Hazard Areas. No portion of the Property is located
in an area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency.
ARTICLE IX
PAYMENT OF CERTAIN EXPENSES
Section 9.1. Transaction Expenses. The Lessee shall pay, or cause to be
paid, from time to time all Transaction Expenses in respect of the Transactions
within thirty (30) days after the Lessee has received written invoices therefor.
Section 9.2. Stamp Taxes. The Lessee shall pay or cause to be paid any
and all stamp, transfer and other similar taxes, fees and excise, if any,
including any interest and penalties, which are payable in connection with the
Transactions.
ARTICLE X
OTHER COVENANTS AND AGREEMENTS
Section 10.1. Covenants of the Guarantor. The Guarantor covenants and
agrees with the Arranger, the Agent Lessor, the Administrative Agent, the
Lessors and the Lenders that, so long as this Participation Agreement shall
remain in effect or any amounts constituting Rent shall be unpaid or any amounts
payable under the Operative Documents shall remain payable by the Guarantor,
unless the Required Participants shall otherwise consent in writing, the
Guarantor will, and will cause each of its Restricted Subsidiaries to:
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<PAGE> 25
(a) Corporate Existence, Etc. The Guarantor will preserve and
keep in force and effect, and will cause each Restricted Subsidiary to
preserve and keep in force and effect, its corporate existence and all
material franchises, licenses and permits necessary to the proper
conduct of its business provided, however, that neither the Guarantor
nor any Restricted Subsidiary shall be required to preserve any such
franchise, license or permit or, in the case of any Restricted
Subsidiary, its corporate existence, if the Guarantor shall determine
that the preservation thereof is no longer desirable in the conduct of
the business of the Guarantor and its Restricted Subsidiaries taken as
a whole.
(b) Insurance. The Guarantor will maintain, and will cause
each Restricted Subsidiary to maintain, insurance coverage from
financially sound and reputable insurers in such forms and amounts,
with such deductibles and against such risks, as is, taken as a whole,
generally consistent with those maintained by manufacturing companies
with similar revenues and asset values, with due regard to the nature
of their assets and business, their loss experience, and conditions in
the insurance markets.
(c) Taxes, Claims for Labor and Materials, Compliance with
Laws. (i) The Guarantor will promptly pay and discharge, and will cause
each Restricted Subsidiary promptly to pay and discharge, all lawful
taxes, assessments and governmental charges or levies imposed upon it
or upon or in respect of all or any part of its property or business
and all claims for work, labor or materials which, if unpaid, might
become a Lien or charge upon any Company Property material to the
Guarantor and its Restricted Subsidiaries taken as a whole unless
permitted by Section 10.1(k) hereof; provided the Guarantor or such
Restricted Subsidiary shall not be required to pay any such tax,
assessment, charge, levy, account payable or claim if (i) the validity,
applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or
sale of any Company Property of the Guarantor or such Restricted
Subsidiary or any material interference with the use thereof by the
Guarantor or such Restricted Subsidiary, and (ii) the Guarantor or such
Restricted Subsidiary shall set aside on its books reserves deemed by
the Guarantor in its reasonable business judgment to be adequate with
respect thereto or such greater amount as may be required by GAAP.
(ii) The Guarantor will comply, and will cause each Restricted
Subsidiary to comply, with all laws, ordinances or governmental rules
and regulations to which it is subject, including without limitation,
the Occupational Safety and Health Act of 1970, as amended, ERISA and
all laws, ordinances, governmental rules and regulations relating to
environmental protection in all applicable jurisdictions, the violation
of which would have a Material Adverse Effect.
(d) Maintenance of Properties and Business. The Guarantor will
maintain, preserve and keep, and will cause each Restricted Subsidiary
to maintain, preserve and keep, its material properties which are
necessary in any respect material to the Guarantor and its Restricted
Subsidiaries taken as a whole for the conduct of its
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<PAGE> 26
business (whether owned in fee or a leasehold interest) in good repair
and working order (ordinary wear and tear excepted) and from time to
time will make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be
maintained; provided, however, that nothing in this Section l0.l(d)
shall prevent the Guarantor or any Restricted Subsidiary from
discontinuing the operation and maintenance of any of its Company
Properties if such discontinuance is, in the judgment of the Guarantor,
desirable in the conduct of the business of the Guarantor or such
Restricted Subsidiary, as the case may be.
(e) Nature of Business. Neither the Guarantor nor any
Restricted Subsidiary will engage in any business or activity if, as a
result, the general nature of the business, taken on a consolidated
basis, which would then be engaged in by the Guarantor and its
Restricted Subsidiaries would be substantially changed from the general
nature of the business engaged in by the Guarantor and its Subsidiaries
on the date of this Participation Agreement.
(f) Reports and Rights of Inspection. The Guarantor will keep,
and will cause each Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings
or transactions of or in relation to the business and affairs of the
Guarantor or such Subsidiary in accordance with GAAP and will furnish
to the Administrative Agent with sufficient copies for each
Participant:
(i) Quarterly Statements. As soon as available and in
any event within 90 days after the end of each quarterly
fiscal period (except the last) of each fiscal year, copies of
consolidated balance sheets as of the close of such quarterly
period, and consolidated statements of income and changes in
financial position (or cash flow) for such quarterly period
and for the portion of the fiscal year then ended, in each
case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, as set
forth in the Guarantor's Form 10-Q report filed with the SEC
and certified as presenting fairly the consolidated financial
condition of the Guarantor and its Consolidated Subsidiaries
as of the end of such period and the results of their
operations for such period, subject to changes resulting from
year-end adjustments (which the certificate shall indicate are
not expected to be material or, if expected to be material,
the nature and scope thereof shall be specified) and to
footnote disclosures, by the chief financial officer or chief
accounting officer of the Guarantor;
(ii) Annual Statements. As soon as available and in
any event within 120 days after the close of each fiscal year
of the Guarantor, copies of consolidated and consolidating
balance sheets as of the close of such fiscal year and
consolidated statements of income, retained earnings and
changes in financial position (or cash flow) for such fiscal
year, and accompanied in the case of said consolidated
statements, by an opinion thereon of independent certified
public accountants of recognized national standing, which
opinion shall
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state that said consolidated financial statements fairly
present the consolidated financial condition and results of
operations of the Guarantor and its Consolidated Subsidiaries
as at the end of, and for, such fiscal year in accordance with
GAAP, and a certificate of such accountants stating that, in
making the examination necessary for their opinion, they
obtained no knowledge, except as specifically stated, of any
Default.
(iii) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report,
notice or proxy statement sent by the Guarantor to its
stockholders generally, and of each regular or periodic
report, and any registration statement or prospectus filed by
the Guarantor or any Subsidiary with the SEC or any successor
agency;
(iv) Officers' Certificates. Within the periods provided
in paragraphs (i) and (ii) above, a certificate of an
Authorized Financial Officer of the Guarantor stating that
such Authorized Financial Officer has reviewed the provisions
of this Participation Agreement and setting forth: (A) the
information and computations (in sufficient detail) required
in order to establish whether the Guarantor was in compliance
with the requirements of Sections 10.1(g), (h), (i) and (j)
hereof at the end of the period covered by the financial
statements then being furnished, and (B) to the best of such
officer's knowledge, whether there exists on the date of the
certificate or existed at any time during the period covered
by such financial statement any Default or Event of Default
and, if any such condition or event exists on the date of the
certificate or existed during such period, specifying the
nature and period of existence thereof and the action the
Guarantor is taking, has taken or proposes to take with
respect thereto; and
(v) Notices of Default and Rating Change. Promptly after
knowledge thereof shall have come to the attention of the
chief financial officer of the Guarantor, notice of any
Default or Event of Default hereunder and of any change in the
S&P Rating.
Without limiting the foregoing, the Guarantor will permit Administrative Agent
and each Participant (or such Persons as any Participant may designate), upon
reasonable notice, to visit and inspect, under the Guarantor's guidance, books
of account, records, reports and other papers of the Guarantor, to make copies
and extracts therefrom (except with respect to confidential or proprietary
information), and to discuss the Guarantor's affairs, finances and accounts with
its officers and employees, all at such reasonable times and as often as may be
reasonably requested, provided that the Guarantor may establish reasonable
procedures for joint visits and inspections if more than one Bank requests the
right to visit and inspect.
All information which is furnished to or obtained by any Participant
pursuant to this Participation Agreement shall be received and held in
confidence unless or until the same has been publicly disclosed (other than by
or on behalf of any Participant);
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<PAGE> 28
provided, however, that no Participant shall in any way be inhibited in
the use of such information in order to determine and enforce
compliance with the terms and conditions of this Participation
Agreement or take any lawful action which it deems necessary to protect
its interests herein and in the Notes and the Certificates, and
provided, further, that any Participant may furnish any such
information in compliance with any court order or to any regulatory
body, agency, authority or commission to whose jurisdiction such
Participant may be subject, to its independent accountants, to any
Person to whom such holder owes any duty of disclosure, to any
affiliate of such Participant which needs to know such information in
connection with approving or evaluating such Participant's
participation in this Participation Agreement or monitoring compliance
herewith and to any Person to whom such holder is considering selling a
participation herein or in any Note or Certificate or assigning its
interest hereunder; provided, however, in making any such use, such
Participant shall take all reasonable measures to preserve the
confidentiality of any such information including, without limitation,
obtaining a written undertaking of any Person to whom such information
may be furnished to maintain the confidentiality thereof in accordance
with this Participation Agreement and shall furnish copies of such
undertaking to the Guarantor.
(g) Net Worth. The Guarantor shall at all times maintain
Tangible Net Worth of not less than $900,000,000.
(h) Leverage Ratio. The Guarantor will not permit the ratio of
Restricted Tangible Net Assets to Restricted Funded Debt to be less
than 2.0 to 1 at any time.
(i) Sale Leasebacks. The Guarantor will not, nor will it
permit any of its Restricted Subsidiaries to, enter into any sale and
leaseback transaction covering any fixed or capital Company Property,
except for sale and leaseback transactions which either (i)
collectively cover Company Property the aggregate fair market value of
which, as determined for each item of Company Property as at the time
such Company Property became the subject of such a transaction, does
not exceed 5% of Tangible Net Worth, as determined on the date of the
most recent such transaction or (ii) relate solely to Property acquired
after the date hereof and are entered into within 180 days after any
such acquisition; provided that in no event shall the aggregate fair
market value of all such Company Property referred to in the foregoing
clauses (i) and (ii), as determined for each item of Company Property
as at the time such Company Property became the subject of such a
transaction, exclusive of operating or "true" leases, exceed 20% of
Tangible Net Worth, as determined on the date of the most recent such
transaction.
(j) Indebtedness. The Guarantor will not permit any of its
Subsidiaries to create, incur or suffer to exist any Indebtedness other
than:
(i) Indebtedness outstanding on the date hereof and
either listed on Schedule IV hereto or being in an amount of
$5,000,000 or less in each instance and not greater than
$10,000,000 in the aggregate (exclusive of
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indebtedness listed on Schedule IV) and any extension, renewal
or replacement thereof that does not increase the aggregate
principal amount of the Indebtedness (including, for purposes
of this paragraph (a), unfunded commitments) so extended,
renewed or replaced;
(ii) Indebtedness to the Guarantor or to other
Subsidiaries of the Guarantor;
(iii) Indebtedness of any Unrestricted Subsidiary in
respect of which neither the Guarantor nor any other
Restricted Subsidiary is directly or contingently liable, by
Guarantee or otherwise;
(iv) Indebtedness secured by the Liens referred to in
paragraphs (vii) and (viii) of Section 10.1(k) hereof, and any
extension, renewal or replacement thereof which does not
increase the indebtedness thereby secured or extend the Liens
to other property; and
(v) Indebtedness for working capital, trade financing
and cash management activities, provided that the aggregate
outstanding principal amount thereof plus the aggregate amount
of obligations not constituting Indebtedness secured by Liens
permitted by Section 10.1(k)(i) hereof shall not represent
more than 15% of Tangible Net Worth at the time of incurrence
of each such obligation or item of Indebtedness.
(k) Limitation on Liens. The Guarantor will not, and will not
permit any Restricted Subsidiary to, create or incur, or suffer to be
incurred or to exist, any Lien of any kind on its or their Company
Property, whether now owned or hereafter acquired, or upon any income
or profits therefrom, or transfer any Company Property for the purpose
of subjecting the same to the payment of obligations in priority to the
payment of its or their general creditors, or acquire or agree to
acquire, or permit any Restricted Subsidiary to acquire or agree to
acquire, any Company Property or assets upon conditional sales
agreements or other title retention devices, except:
(i) Liens in existence on the date hereof and listed
in Schedule IV hereto;
(ii) Liens imposed by any governmental authority or
instrumentality to secure the performance of conditions to
governmental grants or advances which are not repayable absent
a failure to satisfy such conditions or for taxes, assessments
or charges which are not in any instance yet due or which are
being contested in good faith and by appropriate proceedings
if adequate reserves with respect thereto are maintained on
the books of the Guarantor or the affected Restricted
Subsidiaries, as the case may be, in accordance with GAAP;
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<PAGE> 30
(iii) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which are not overdue for a period
of more than 30 days after the Guarantor is notified of same
or which are being contested in good faith and by appropriate
proceedings and Liens securing judgments but only to the
extent for an amount and for a period not resulting in a Lease
Event of Default under Section 16.1(h) of the Master Lease;
(iv) pledges or deposits under worker's
compensation, unemployment insurance and other social security
legislation;
(v) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the
ordinary course of business;
(vi) easements, rights-of-way, restrictions and
other similar encumbrances incurred in the ordinary course of
business and encumbrances consisting of zoning restrictions,
easements, licenses, restrictions on the use of Company
Property or minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in any
case materially detract from the value of the Company Property
subject thereto or interfere with the ordinary conduct of the
business of the Guarantor or any of its Restricted
Subsidiaries;
(vii) Liens on Company Property of any corporation
which becomes a Restricted Subsidiary of the Guarantor after
the date of this Participation Agreement, provided that such
Liens are in existence at the time such corporation becomes a
Restricted Subsidiary of the Guarantor and were not created in
anticipation thereof;
(viii) Liens upon real and/or tangible personal
Company Property acquired after the date hereof (by purchase,
construction or otherwise) by the Guarantor or any of its
Restricted Subsidiaries, each of which Liens either (A)
existed on such Company Property before the time of its
acquisition and was not created in anticipation thereof, or
(B) was created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance
or refund, the cost (including the cost of construction) of
such Company Property; provided that no such Lien shall extend
to or cover any Property of the Guarantor or such Restricted
Subsidiary other than the Company Property so acquired and
improvements thereon; and provided, further, that the
principal amount of Indebtedness secured by any such Lien
shall at no time exceed 80% of the fair market value (as
determined in good faith by a responsible officer of the
Guarantor) of such Company Property at the time it was
acquired (by purchase, construction or otherwise);
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(ix) additional Liens upon real and/or personal
Company Property created after the date hereof; provided that
the aggregate amount of obligations secured thereby shall not
represent more than 15% of Tangible Net Worth as of the date
each such obligation is incurred; and
(x) any extension, renewal or replacement of the
foregoing, provided, however, that the Liens permitted
hereunder shall not be spread to cover any additional
Indebtedness or Company Property (other than a substitution of
like Company Property).
(1) Prohibition of Fundamental Changes. The Guarantor will not
merge, consolidate or amalgamate with any Person unless the Guarantor
is the surviving corporation and immediately after giving effect to
that transaction there is no Default hereunder, or liquidate, wind up
or dissolve (or suffer any liquidation or dissolution). The Guarantor
will not permit any Restricted Subsidiary to merge, consolidate or
amalgamate with any other Person unless (A) immediately after giving
effect thereto there is no Default hereunder, (B) if the transaction is
between a Restricted Subsidiary and an Unrestricted Subsidiary, the
conditions to designating the Subsidiary which will not survive into a
Subsidiary of the other type (as set forth in the definition of the
term "Restricted Subsidiary") could be satisfied immediately prior to
the transaction in question and (C) if the survivor of the transaction
will not be a Subsidiary, the Guarantor or immediate parent of the
Restricted Subsidiary will receive consideration in connection with
such transaction which would satisfy the requirements of the
immediately following sentence had the Restricted Subsidiary in
question been sold. The Guarantor will not, nor will it permit any of
its Restricted Subsidiaries to, convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions,
all or any part of its business or Company Property, whether now owned
or hereafter acquired (including, without limitation, receivables and
leasehold interests) except for fair market value in exchange for
reasonable consideration (as determined by the Board of Directors of
the Guarantor in any transaction, or series of related transactions,
involving consideration exceeding $100,000,000 in cash or Company
Property).
Section 10.2. Affirmative Covenant of the Agent Lessor. The Agent
Lessor covenants and agrees with the Arranger, the Lessee, the Guarantor, the
Administrative Agent and the Lenders that, so long as this Participation
Agreement shall remain in effect or the principal or interest on any Loan, or
any fees or any other expenses or amounts payable under any Operative Document
to the Administrative Agent or the Lenders shall be unpaid, unless the Required
Lenders shall otherwise consent in writing, the Agent Lessor will, upon the
written request of the Required Lenders after the occurrence and during the
continuance of an Event of Default qualify to do business in every jurisdiction
where such qualification is necessary for the Agent Lessor to exercise its
remedies under the Master Lease or any other Operative Document.
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ARTICLE XI
RENEWALS
Section 11.1. Extensions of Maturity Date and Expiration Date; Replacement
of Participants. (a) So long as the Lessee has not elected the Remarketing
Option, the Lessee may, on any date between 365 days and 180 days prior to the
Maturity Date, direct a written request to the Agent Lessor and the
Administrative Agent that the Expiration Date then in effect under the Master
Lease be extended to the date occurring one (1) year or two (2) years after such
Expiration Date and concurrently therewith request that the Administrative Agent
and the Agent Lessor direct a written request to the Lessors and the Lenders
that the applicable Maturity Date be extended to the same date (each such
additional year or two (2) years, a "Renewal Term"). In no event may the
Expiration Date or the Maturity Date be extended more than once if for a
two-year Renewal Term or twice if for a one-year renewal term pursuant to this
Section l1.1(a). Each Participant may grant or deny its consent to a Renewal
Term in its sole discretion by notifying the Administrative Agent and the Agent
Lessor in writing (with a copy to the Lessee); provided, however, that any
Participant that fails to respond to such request for a Renewal Term within
sixty (60) days after its receipt thereof shall be deemed to have denied such
request for a Renewal Term.
(b) In connection with a written request of the Lessee for a Renewal
Term, upon the request of the Lessee, the Administrative Agent and the Agent
Lessor shall be permitted to replace any non-consenting Participant and any
Participant that fails to respond to the Administrative Agent's and the Agent
Lessor's written request for a Renewal Term within the time period specified in
clause (a) above (each, a "Non-Consenting Participant") with a replacement bank
or other financial institution (a "Replacement Participant") satisfactory to the
Lessee, the Lessors and the Lenders, with such replacement to be effective as of
the Expiration Date and Maturity Date in effect prior to the requested Renewal
Term; provided, however, that (i) such replacement does not conflict with any
Requirement of Law, (ii) the Replacement Participant shall purchase from the
Non-Consenting Participant (A) at par, all Loans, in the case of a Lender, and
all Lessor Amounts, in the case of a Lessor, (B) all accrued interest, in the
case of a Lender, and all accrued Yield, in the case of a Lessor, and (C) all
other amounts owing to such Non-Consenting Participant on or prior to the date
of replacement, in each case, (iii) the Lessee shall be liable to such
Non-Consenting Participant under Section 13.10 if any Loan or Lessor Amount, as
the case may be, owing to such Non-Consenting Participant shall be prepaid (or
purchased) other than on the last day of the Interest Period or Interest Periods
relating thereto, (iv) such replacement shall be made in accordance with the
provisions of Article XII (provided that the Lessee or the relevant Replacement
Participant shall be obligated to pay the Transaction Expenses arising in
connection therewith), and (v) the Replacement Participant shall have agreed to
be subject to all of the terms and conditions of the applicable Operative
Documents (including the extension of the Maturity Date contemplated by the
relevant request for a Renewal Term and the related extension). The
Administrative Agent, the Agent Lessor and Lessee hereby agree to cooperate with
each other in an effort to arrange one or more Replacement Participants as
contemplated by this Section 11.1(b).
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(c) Except as otherwise provided in this Article XI, all other terms of
the Operative Documents shall remain unchanged and with the same force and
effect (including the pricing categories and pricing ratios), and there shall
not be any additional up-front fee in connection with such Renewal Term;
provided that Fixed Rent shall continue to be paid annually at the same rate as
set forth in the Master Lease.
Section 11.2. Replacement of Defaulting Participant. The Lessee shall have
the right (but not the obligation) to require any Defaulting Participant to
assign and delegate in accordance with Section 12.1 all of such Lender's or
Lessor's total Loans or Lessor Amounts, as the case may be, and Commitment, if
any, to any other financial institution that, in each case, is willing to accept
such assignment and delegation and is reasonably satisfactory to the
Administrative Agent, Agent Lessor and Lessee.
ARTICLE XII
TRANSFERS OF PARTICIPANTS' INTERESTS
Section 12.1. Assignments. Each Participant may, from time to time, with the
consent of the Guarantor and the Administrative Agent (which will not in any
instance be unreasonably withheld), assign to other financial institutions part
of the indebtedness evidenced by the Loan Commitments or the Lessor Commitments
then owned by it pursuant to written agreements executed by the assignor, the
assignee and the Guarantor, which agreements shall specify in each instance the
portion of the indebtedness evidenced by the Loan Commitments or the Lessor
Commitments which are to be assigned to each such assignor and the portion of
the Loan Commitment or the Lessor Commitment of the assignor (the "Assignment
Agreements"), provided that the Guarantor may in its sole discretion withhold
its consent to any assignment by a Participant of less than all of its Loan
Commitment or the Lessor Commitment if as a result thereof the assignor will
have a Commitment hereunder of less than $10,000,000 (or $5,000,000 if the
assignee thereof will have a Commitment hereunder of at least $10,000,000 in all
cases as adjusted proportionately to reflect payments of Fixed Rent) or the
assignee will have a Commitment hereunder of less than $10,000,000 (or
$5,000,000 if the assignor thereof will have a Commitment hereunder of at least
$10,000,000 in all cases as adjusted proportionately to reflect payments of
Fixed Rent), further provided that nothing herein contained shall restrict, or
be deemed to require any consent as a condition to, or require payment of any
fee in connection with, any sale, discount or pledge by any Participant of any
Note or Certificate or other obligation hereunder to a Federal Reserve Bank.
Upon the execution of each Assignment Agreement by the assignor, the assignee
and the Guarantor (i) such assignee shall thereupon become a "Participant" (and
either a "Lessor" or "Lender" as the case may be, or both) for all purposes of
this Participation Agreement with a Commitment in the amount set forth in such
Assignment Agreement and with all the rights, powers and obligations afforded a
Participant hereunder, (ii) the assignor shall have no further liability for
funding the portion of its Commitment assumed by such other Participant and
(iii) the address for notices to such Participant shall be as specified in the
Assignment Agreement executed by it. Concurrently with the execution and
delivery of such Assignment Agreement, and upon return to the Agent Lessor of
the outstanding Note or Certificate (as the case may be) of the Assignor, the
Agent Lessor shall execute and deliver a Note or
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Certificate (as the case may be) to the assignee Participant in the amount of
its Commitment to the assignee and a new Note or Certificate (as the case may
be) to the assignor Participant in the amount of its Commitment after giving
effect to the reduction occasioned by such assignment, all such Note or
Certificate (as the case may be) to constitute "Notes" or "Certificates" for all
purposes of this Participation Agreement, and there shall be paid to the
Administrative Agent, as a condition to such assignment, an administrative fee
of $3,500 plus any out-of-pocket costs and expenses incurred by it in effecting
such assignment, such fee to be paid by the assignor or the assignee as they may
mutually agree, but under no circumstances shall any portion of such fee be
payable by or charged to the Guarantor.
Section 12.2. Participations. Each Participant shall have the right at its
own cost to grant participations (to be evidenced by one or more agreements or
certificates of participation) in the Advances by such Participant at any time
and from time to time to one or more other financial institutions, provided that
no such participant shall have any rights under this Participation Agreement or
any Note or Certificate (the participant's rights against the Participant
granting its participation to be those set forth in the participation agreement
between the participant and such Participant). Each such Participant shall be
entitled to the benefits of yield protection provisions hereof to the extent
such Participant would have been so entitled had no such participation been
sold, but such Participant shall not be entitled to any additional benefits as a
result of, and shall indemnify the Lessee against, any claim arising out of the
sale of such participation.
Section 12.3. Withholding Taxes; Disclosure of Information; Pledge Under
Regulation A. (a) If any Participant (or the assignee of or subparticipant of a
Participant, each a "Transferee") is organized under the laws of any
jurisdiction other than the United States or any State thereof, then such
Participant or the Transferee of such Participant, as applicable, shall (as a
condition precedent to acquiring or participating in such Loan or Lessor Amount
and as a continuing obligation to the Lessor and the Lender) (i) furnish to each
of the Administrative Agent, the Agent Lessor and the Lessee in duplicate, for
each taxable year of such Participant or Transferee during the term of the
Lease, a properly completed and executed copy of either Internal Revenue Service
Form 4224 or Internal Revenue Service Form 1001 and any additional form (or such
other form) as is necessary to claim complete exemption from United States
withholding taxes (wherein such Transferee claims entitlement to complete
exemption from United States withholding taxes on all payments hereunder), and
(ii) provide to each of the Administrative Agent, the Agent Lessor and the
Lessee a new Internal Revenue Service Form 4224 or Internal Revenue Service Form
1001 and any such additional form (or any successor form or forms) upon the
expiration or obsolescence of any previously delivered form and comparable
statements in accordance with applicable United States laws and regulations and
amendments duly executed and completed by such Participant or Transferee, and to
comply from time to time with all applicable United States laws and regulations
with regard to such withholding tax exemption. By its acceptance of a
participation or assignment hereunder, each Transferee shall be deemed bound by
the provisions set forth in this Article XII.
(b) Any Participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Article
XII, disclose to such assignee
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or participant or proposed assignee or participant, any information relating to
Lessee, Guarantor or the Transactions, subject to appropriate confidentiality
requirements relating to such information.
(c) Anything in this Article XII to the contrary notwithstanding, any
Participant may without the consent of Lessee or Guarantor, the Administrative
Agent or the Agent Lessor, assign and pledge all or any portion of the Notes
held by it to any Federal Reserve Bank, the United States Treasury or to any
other financial institution as collateral security pursuant to Regulation A of
the F.R.S. Board and any operating circular issued by the Federal Reserve System
and/or the Federal Reserve Bank or otherwise; provided, any payment by Lessee or
Guarantor for the benefit of the assigning or pledging Participant shall be
deemed to satisfy such Lessee's or Guarantor's obligations with respect thereto.
(d) If any Participant determines, as a result of any change in
Applicable Law, regulation or treaty, or in any official application or
interpretation thereof, that it is unable to submit any form or certificate that
such Participant is obligated to submit pursuant to subsection (a) of this
Section 12.3 or that such Participant is required to withdraw or cancel any such
form or certificate previously submitted or any such form or certificate
otherwise becomes ineffective or inaccurate, such Participant shall promptly
notify the Lessee, Agent Lessor and the Administrative Agent of such fact and
such Participant shall to that extent not be obligated to provide any such form
or certificate and will be entitled to withdraw or cancel any affected form or
certificate, as applicable. In the event any Participant so notifies the Lessee,
Agent Lessor and the Administrative Agent, such Participant agrees that it will
at any time thereafter at the request of the Lessee assign its Notes and/or
Lessor Amounts and rights and obligations hereunder to another lender or lessor
as the case may be designated by the Lessee and approved by the Administrative
Agent and the Agent Lessor (which approvals will not be unreasonably withheld)
under and pursuant to Section 12.1 hereof (except that the assignment and
retention minimums shall not apply) upon payment to it of the amount of
principal and accrued and unpaid interest and fees owing it as of the date such
assignment becomes effective.
ARTICLE XIII
INDEMNIFICATION
Section 13.1. General Indemnification. The Lessee agrees to assume liability
for, and to indemnify, protect, defend, save and keep harmless each Indemnitee,
on an After Tax Basis, from and against any and all Claims that may be imposed
on, incurred by or asserted against such Indemnitee (whether because of action
or omission by such Indemnitee or otherwise, except to the extent otherwise
provided in this Section 13.1), unless such Indemnitee shall be indemnified as
to any such Claim by any other Person and unless such Claim arises or accrues
prior to the applicable Acquisition Date or after the Expiration Date, in any
way relating to or arising out of:
(a) any of the Operative Documents or any of the Transactions,
and any amendment, modification or waiver in respect thereof;
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(b) the Property or any part thereof or interest therein;
(c) the purchase, design, construction, preparation,
installation, inspection, delivery, nondelivery, acceptance, rejection,
ownership, management, possession, operation, rental, lease, sublease,
repossession, maintenance, repair, alteration, modification, addition
or substitution, storage, transfer of title, redelivery, use,
financing, refinancing, disposition, operation, condition, sale, return
or other disposition of all or any part or any interest in the Property
or the imposition of any Lien (or incurring of any liability to refund
or pay over any amount as a result of any Lien) thereon, including,
without limitation: (1) Claims or penalties arising from any violation
of law or in tort (on the basis of strict liability or otherwise), (2)
latent or other defects, whether or not discoverable, (3) any Claim
based upon a violation or alleged violation of the terms of any
restriction, easement, condition or covenant or other matter affecting
title to the Property, (4) the making of any modifications to the
Property in violation of any Material Insurance Requirements imposed by
any insurance policies required to be maintained by the Lessee pursuant
to the Master Lease which are in effect at the time such modifications
are made with respect to the Property or any part thereof, (5) any
Claim for patent, trademark or copyright infringement, and (6) Claims
arising from any public improvements with respect to the Property
resulting in any change or special assessments being levied against the
Property or any plans to widen, modify or realign any street or highway
adjacent to the Property, or any Claim for utility "tap-in" fees;
(d) the breach by Lessee or Guarantor of any covenant,
representation or warranty made by it or deemed made by it in any
Operative Document or any certificate required to be delivered by any
Operative Document;
(e) the existence of any Lien on or with respect to the
Property, any Basic Rent or Supplemental Rent, title thereto, or any
interest therein including any Liens which arise out of the possession,
use, occupancy, construction, repair or rebuilding of the Property or
by reason of labor or materials furnished or claimed to have been
furnished to the Lessee, or any of its contractors or agents or by
reason of the financing of any personalty or equipment purchased or
leased by the Lessee or modifications to the Property constructed by
the Lessee, except Lessor Liens and Liens in favor of the Lenders or
the Lessors;
(f) subject to the accuracy of any Participant's
representation set forth in Section 8.1(a), as to such Participant, the
Transactions in respect of a prohibited transaction under ERISA or the
Code.
Provided, however, that the Lessee shall not be required to indemnify any
Indemnitee under this Section 13.1 for any of the following: (1) any Claim to
the extent resulting from the willful misconduct or gross negligence of such
Indemnitee (it being understood that the Lessee shall be required to indemnify
an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee
caused or contributed to such Claim or the breach of any representation,
warranty or covenant of such Indemnitee set forth in any Operative
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Document, (2) any Claim resulting from Lessor Liens which the Agent Lessor, the
Administrative Agent or any of the Lessors or Lenders is responsible for
discharging under the Operative Documents, (3) any Claim arising from a breach
or alleged breach by the Lenders or the Lessors of any agreement entered into in
connection with the assignment or participation of any Loan or Lessor Amount and
(4) any Claim arising in respect of the Property in the period after the Lessee
ceases to lease the Property from the Lessors under the related Master Lease,
provided that the circumstances giving rise to such Claim occur after such
period. It is expressly understood and agreed that the indemnity provided for
herein shall survive the expiration or termination of and shall be separate and
independent from any remedy under the Master Lease or any other Operative
Document, provided, however, that no Indemnitee shall have the right to assign
or otherwise transfer its rights hereunder to any purchaser of its interest in
the Master Lease or the Property other than as permitted by Article XII hereof.
Without limiting the express rights of any Indemnitee under this Section 13.1,
this Section 13.1 shall be construed as an indemnity only and not a guaranty of
residual value of the Property or as a guaranty of the Notes.
Section 13.2. End of Term Indemnity. (a) If the Lessee elects the
Remarketing Option and there would, after giving effect to the proposed
remarketing transactions, be a Shortfall Amount, then prior to the Expiration
Date and as a condition to the Lessee's right to complete the remarketing of the
Property pursuant to Article XX of the Master Lease, the Lessee shall cause to
be delivered to the Agent Lessor at least one hundred twenty (120) days prior to
the Expiration Date, at the Lessee's sole cost and expense, a report from the
Appraiser in form and substance reasonably satisfactory to the Agent Lessor, the
Administrative Agent and the Participants (the "End of the Term Report" ) which
shall state the Appraiser's conclusions as to the reason for any decline in the
Fair Market Sales Value of any of the Property from that anticipated for such
date in the Appraisal delivered with respect to the Property.
(b) If the Lessee elects the Remarketing Option, on or prior to the
Expiration Date the Lessee shall pay to the Agent Lessor for the account of each
of the Lessors an amount (not to exceed the Shortfall Amount) equal to the
portion of the Shortfall Amount that the End of the Term Report demonstrates was
the result of a decline in the Fair Market Sales Value of the Property due to
any of the following, but in all cases only to the extent in breach or violation
of any of the Operative Documents and not otherwise consented to pursuant to
Section 15.5 hereof:
(i) extraordinary use; failure to maintain, repair, restore,
rebuild or replace; failure to comply with all applicable laws; failure
to use; workmanship; method of installation or removal or maintenance,
repair, rebuilding or replacement (excepting in each case ordinary wear
and tear); or
(ii) any Modification made to, or any rebuilding of, the
Property or any part thereof by the Lessee; or
(iii) the existence of any Environmental Violations, the
indemnity for which shall not exceed the cost of the remediation
thereof; or
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(iv) any restoration or rebuilding carried out by the
Lessee, or
(v) any condemnation of any portion of any of the Property
pursuant to Article XIV of the Master Lease; or
(vi) any use of any of the Property or any part thereof by
the Lessee or any sublessee other than aluminum rolling mill facility
as contemplated by the Appraisal; or
(vii) any grant, release, dedication, transfer, annexation or
amendment made pursuant to Section 11.2 of the Master Lease; or
(viii) the failure of the Lessors to have good and marketable
title to the Property free and clear of all Liens (excluding Permitted
Property Liens); or
(ix) the existence of any sublease relating to the Property
that shall survive the Expiration Date.
Section 13.3. Environmental Indemnity. Without limitation of the other
provisions of this Article XIII, the Lessee and Guarantor hereby agree to
indemnify, hold harmless and defend each Indemnitee from and against any and all
Claims, arising in whole or in part, out of:
(a) lack of compliance with Environmental Laws; or any act or
omission causing an environmental condition that requires remediation
or disposition thereof or would allow any Governmental Authority to
record a Lien on the Property and the cost of disposition or
remediation of any such environmental condition or costs and damage
resulting from death or injury associated therewith; or
(b) any residual contamination on or under the Property, or
affecting any natural resources, and to any contamination of any
property or natural resources arising in connection with the
generation, use, handling, storage, transport or disposal of any
Hazardous Materials (or the Release thereof), and irrespective of
whether any of such activities were or will be undertaken in accordance
with applicable laws, regulations, codes and ordinances;
provided, however, that the Lessee and Guarantor shall not be required to
indemnify any Indemnitee under this Section 13.3 for any Claim to the extent
resulting from the willful misconduct or gross negligence of such Indemnitee and
with respect to matters not caused by an act or omission of the Lessee such
indemnification shall include only defense costs of Indemnitee. It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or termination of the Lease Term with respect to any Claim to the
extent it is based on facts or circumstances arising prior to or during the
Lease Term, and shall be separate and independent from any remedy under the
Lease or any other Operative Document; provided, however, that no Indemnitee
shall have the right to assign or
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otherwise transfer its rights hereunder to any purchaser of its interest in the
Lease or the Property other than as permitted by Article XII hereof.
Section 13.4. Proceedings in Respect of Clans. If any Claim shall be brought
against any Indemnitee, such Indemnitee shall promptly notify the Lessee of the
commencement thereof, and the Lessee shall be entitled, at the Lessee's expense,
to participate in, or, to the extent that the Lessee desires to, assume and
control the defense thereof; provided, however, that the Lessee shall have
acknowledged in writing its obligation fully to indemnify such Indemnitee in
respect of such Claim, except to the extent the Claim arose due to the willful
misconduct or gross negligence of such Indemnitee, and the Lessee shall keep
such Indemnitee fully apprised of the status of such action, suit or proceeding
and shall provide such Indemnitee with all information with respect to such
action, suit or proceeding as such Indemnitee shall reasonably request, and
provided, further, that the Lessee shall not be entitled to assume and control
the defense of any such action, suit or proceeding if and to the extent that,
(A) such Indemnitee has obtained and provided Lessee with a copy of a reasonable
good faith written opinion of counsel that, (x) such action, suit or proceeding
involves a reasonable risk of imposition of criminal liability on the Indemnitee
or will involve a reasonable risk of the sale, forfeiture or loss of, or the
creation of any Lien (other than a Permitted Property Lien) on the Property or
any part thereof unless, in the case of civil liability, the Lessee shall have
posted a bond or other security reasonably satisfactory to the relevant
Indemnitees in respect to such risk or (y) the control of such action, suit or
proceeding would involve an actual or potential conflict of interest, (B) such
proceeding predominantly involves Claims not fully indemnified by the Lessee
which the Lessee and the Indemnitee have been unable to sever from the
indemnified Claim(s), or (C) an Event of Default under the Lease has occurred
and is continuing. The Indemnitee will join in the Lessee's efforts to sever
such action. The Indemnitee may participate at its own expense and with its own
counsel in any proceeding conducted by the Lessee in accordance with the
foregoing. The Lessee shall not enter into any settlement or other compromise
with respect to any Claim which is entitled to be indemnified under Section 13.1
or 13.3 without prior written consent of the Indemnitee, which consent shall not
be unreasonably withheld, unless such settlement unconditionally releases the
Indemnitee from all liabilities associated with such Claim and does not involve
an admission of liability of such Indemnitee.
Each Indemnitee shall at the expense of the Lessee supply the Lessee
with such information and documents reasonably requested by the Lessee as are
necessary or advisable for the Lessee to participate in any Claim to the extent
permitted by Section 13.1 or 13.3. Each Indemnitee shall at the expense of the
Lessee cooperate fully with the Lessee in the defense of all Claims for which
indemnification has been requested and in which the Lessee has assumed and is
controlling the defense. No Indemnitee shall enter into any settlement or other
compromise or make any admission against interest, except as required by law,
without the prior written consent of the Lessee, unless such Indemnitee waives
its rights to be indemnified under this Article XIII.
Upon satisfaction of any Claim by the Lessee pursuant to Section 13.1
or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further
action, shall be subrogated to any and all claims that such Indemnitee may have
relating thereto (other than claims in
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respect of insurance policies maintained by such indemnitee at its own expense),
and such Indemnitee shall execute such instruments of assignment and conveyance,
evidence of claims and payment and such other documents, instruments and
agreements as may be necessary to preserve any such claims and otherwise
cooperate with the Lessee and give such further assurances as are necessary or
advisable to enable the Lessee vigorously to pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable.
Section 13.5 General Tax Indemnity. (a) Indemnification. The Lessee shall
pay and assume liability for, and does hereby agree to indemnify, protect and
defend the Property and all Tax Indemnitees, and hold them harmless against, all
Impositions on an After Tax Basis.
(b) Contests. If any Claim in respect of an Imposition shall be made
against any Tax Indemnitee or if any proceeding shall be commenced against any
Tax Indemnitee (including a written notice of such proceeding) as to which the
Lessee may have an indemnity obligation pursuant to this Section 13.5, or if any
Tax Indemnitee shall determine that any Imposition to which the Lessee may have
an indemnity obligation pursuant to this Section 13.5 may be payable, such Tax
Indemnitee shall promptly (and in any event, within thirty (30) days) notify the
Lessee in writing (provided that failure to so notify the Lessee within thirty
(30) days shall not alter such Tax Indemnitee's rights under this Section 13.5
except to the extent such failure precludes or prejudices the ability to contest
such Imposition) and shall not take any action with respect to such Claim,
proceeding or Imposition without the written consent of the Lessee (such consent
not to be unreasonably withheld or unreasonably delayed) for thirty (30) days
after the receipt of such notice by the Lessee; provided, however, that in the
case of any such Claim or proceeding, if such Tax Indemnitee shall be required
by law or regulation to take action prior to the end of such thirty (30) day
period, such Tax Indemnitee shall, in such notice to the Lessee, so inform the
Lessee and such Tax Indemnitee shall not take any action with respect to such
Claim, proceeding or Imposition without the consent of the Lessee (such consent
not to be unreasonably withheld or unreasonably delayed) for ten (10) days after
the receipt of such notice by the Lessee unless such Tax Indemnitee shall be
required by law or regulation to take action prior to the end of such ten (lO)
day period.
The Lessee shall be entitled for a period of thirty (30) days from
receipt of such notice from such Tax Indemnitee (or such shorter period as such
Tax Indemnitee has notified the Lessee is required by law or regulation for such
Tax Indemnitee to commence such contest), to request in writing that such Tax
Indemnitee contest the Imposition at the Lessee's expense. If (x) such contest
can be pursued in the name of the Lessee and independently from any other
proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee
has not agreed to indemnify such Tax Indemnitee, (y) such contest must be
pursued in the name of such Tax Indemnitee, but can be pursued independently
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from any other proceeding involving a Tax liability of such Tax Indemnitee for
which the Lessee has not agreed to indemnify such Tax Indemnitee or (z) such Tax
Indemnitee so requests, then the Lessee shall have the right to control the
contest of such Claim, provided that in the case of a contest described in
clause (y), if such Tax Indemnitee obtains and provides the Lessee with the
reasonable good faith opinion of such Tax Indemnitee's counsel that such contest
by the Lessee could have a material adverse impact on the business or operations
of such Tax Indemnitee, including an explanation to the Lessee of such
determination, such Tax Indemnitee may elect to control or reassert control of
the contest, and provided that by taking control of the contest, the Lessee
acknowledges that it is responsible for the Imposition ultimately determined to
be due by reason of such Claim, and provided, further, that in determining the
application of clauses (x) and (y) above, each Tax Indemnitee shall take any and
all reasonable steps to segregate Claims for any Taxes for which the Lessee
indemnifies hereunder from Taxes for which the Lessee is not obligated to
indemnify hereunder, so that the Lessee can control the contest of the former.
In all other Claims requested to be contested by the Lessee, such Tax Indemnitee
shall control the contest of such Claim, acting through counsel reasonably
acceptable to the Lessee. In no event shall the Lessee be permitted to contest
(or such Tax Indemnitee required to contest) any Claim, (A) if such Tax
Indemnitee provides the Lessee with a legal opinion of counsel reasonably
acceptable to the Lessee that such action, suit or proceeding involves a
reasonable risk of imposition of criminal liability or will involve a material
risk of the sale, forfeiture or loss of, or the creation of any Lien (other than
a Permitted Lien) on any Property or any part thereof unless the Lessee shall
have posted and maintained a bond or other security reasonably satisfactory to
the relevant Tax Indemnitee in respect to such risk, (B) if an Event of Default
has occurred and is continuing, (C) unless the Lessee shall have agreed to pay
and shall pay, to such Tax Indemnitee on demand all reasonable out-of-pocket
costs, losses and expenses that such Tax Indemnitee may incur in connection with
contesting such Imposition including all reasonable legal, accounting and
investigatory fees and disbursements, or (D) if such contest shall involve the
payment of the Tax prior to the contest, unless the Lessee shall provide to such
Tax Indemnitee an interest-free advance in an amount equal to the Imposition
that the Indemnitee is required to pay (with no additional net after-tax costs
to such Tax Indemnitee). In addition for Tax Indemnitee controlled contests and
Claims contested in the name of such Tax Indemnitee in a public forum, no
contest shall be required: (A) unless the amount of the potential indemnity
(taking into account all similar or logically related Claims that have been or
could be raised in any audit involving any or all such Tax Indemnitees with
respect to any period for which the Lessee may be liable to pay an indemnity
under this Sec 13.5(b)) exceeds $250,000 and (B) unless, if requested by such
Tax Indemnitee, the Lessee shall have provided to such Tax Indemnitee an opinion
of counsel selected by the Lessee (which may be in-house counsel) (except, in
the case of income taxes indemnified hereunder, in which case such opinion shall
be an opinion of independent tax counsel selected by such Tax Indemnitee and
reasonably acceptable to the Lessee) that a reasonable basis exists to contest
such Claim. In no event shall a Tax Indemnitee be required to appeal an adverse
judicial determination to the United States Supreme Court.
The party conducting the contest shall consult in good faith with the
other party and its counsel with respect to the contest of such Claim for Taxes
(or Claim for refund) but the
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decisions regarding what actions to be taken shall be made by the controlling
party in its sole judgment, provided, however, that if such Tax Indemnitee is
the controlling party and the Lessee recommends the acceptance of a settlement
offer made by the relevant Governmental Authority and such Tax Indemnitee
rejects such settlement offer then the amount for which the Lessee will be
required to indemnify such Tax Indemnitee with respect to the Taxes subject to
such offer shall not exceed the amount which it would have owed if such
settlement offer had been accepted. In addition, the controlling party shall
keep the non-controlling party reasonably informed as to the progress of the
contest, and shall provide the non-controlling party with a copy of (or
appropriate excerpts from) and reports or Claims issued by the relevant auditing
agents or taxing authority to the controlling party thereof, in connection with
such Claim or the contest thereof.
Each Tax Indemnitee shall, at the Lessee's expense, supply the Lessee
with such information and documents reasonably requested by the Lessee as are
necessary or advisable for the Lessee to participate in any action, suit or
proceeding to the extent permitted by this Section 13.5(b). Notwithstanding
anything in this Section 13.5(b) to the contrary, no Tax Indemnitee shall enter
into any settlement or other compromise or fail to appeal an adverse ruling with
respect to any Claim which is entitled to be indemnified under this Section 13.5
(and with respect to which contest is required under this Section 13.5(b))
without the prior written consent of the Lessee, unless such Tax Indemnitee
waives its right to be indemnified under this Section 13.5 with respect to such
Claim.
Notwithstanding anything contained herein to the contrary, a Tax
Indemnitee will not be required to contest (and the Lessee shall not be
permitted to contest) a Claim with respect to the imposition of any Tax if such
Tax Indemnitee shall waive its right to indemnification under this Section 13.5
with respect to such Claim (and any Claim with respect to such year or any other
taxable year the contest of which is materially adversely affected as a result
of such waiver).
(c) [Intentionally omitted]
(d) Payments. Any Imposition indemnifiable under this Section 13.5
shall be paid directly when due to the applicable taxing authority if direct
payment is practicable and permitted. If direct payment to the applicable taxing
authority is not permitted or is otherwise not made, any amount payable to a Tax
Indemnitee pursuant to Section 13.5 shall be paid within thirty (30) days after
receipt of a written demand therefor from such Tax Indemnitee accompanied by a
written statement describing in reasonable detail the amount so payable, but not
before two (2) Business Days prior to the date that the relevant Taxes are due.
Any payments made pursuant to this Section 13.5 shall be made directly to such
Tax Indemnitee entitled thereto or the Lessee, as the case may be, in
immediately available funds at such bank or to such account as specified by the
payee in written directions to the payor, or, if no such direction shall have
been given, by check of the payor payable to the order of the payee by certified
mail, postage prepaid at its address as set forth in Schedule II hereto. Upon
the request of any Tax Indemnitee with respect to a Tax that the Lessee is
required to pay, the Lessee shall furnish to such Tax Indemnitee the original or
a certified copy of a
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receipt for the Lessee's payment of such Tax or such other evidence of payment
as is reasonably acceptable to such Tax Indemnitee.
(e) Reports. In the case of any report, return or statement required to
be filed with respect to any Taxes that are subject to indemnification under
this Section 13.5 and of which the Lessee has knowledge, the Lessee shall
promptly notify such Tax Indemnitee of such requirement and, at the Lessee's
expense (i) if the Lessee is permitted (unless otherwise required by such Tax
Indemnitee) by Applicable Law, timely file such report, return or statement in
its own name or (ii) if such report, return or statement is required to be in
the name of or filed by such Tax Indemnitee or such Tax Indemnitee otherwise
requests that such report, return or statement be filed in its name, prepare and
finish such statement for filing by such Tax Indemnitee in such manner as shall
be satisfactory to such Tax Indemnitee and send the same to such Tax Indemnitee
for filing no later than fifteen (15) days prior to the due date therefor. In
any case in which such Tax Indemnitee will file any such report, return or
statement, the Lessee shall, upon written request of such Tax Indemnitee,
provide such Tax Indemnitee with such information as is reasonably necessary to
allow such Tax Indemnitee to file such report, return or statement and the Tax
Indemnitee shall provide the Lessee with an information copy or a copy of any
such report, return or statement.
(f) [Intentionally omitted]
Section 13.6. Indemnity Payments in Addition to Lease Obligations. The
Lessee acknowledges and agrees that the Lessee's obligations to make indemnity
payments under this Article XIII are separate from, in addition to, and do not
reduce, Lessee's obligation to pay any amounts owing from time to time under the
Lease.
Section 13.7. Rate Determinations. The Administrative Agent shall determine
each interest rate applicable to the Loans and Lessor Amounts hereunder in
accordance herewith, and its determination thereof if reasonably made shall be
prima facie correct, subject to a showing of error.
Section 13.8. Funding Indemnity. In the event any Lender or Lessor shall
incur any loss, cost or expense (including, without limitation, any loss, cost
or expense incurred by reason of the liquidation or re-employment of deposits or
other funds acquired by such Lender or Lessor to fund or maintain any Eurodollar
Loan/Lessor Amount or the relending or reinvesting of such deposits or amounts
paid or prepaid to such Lender or Lessor, and any loss of profit) as a result
of:
(a) any payment or prepayment of a Eurodollar Loan/Lessor
Amount on a date other than the last day of its Interest Period for any
reason; or
(b) any failure by the Lessee to make any payment of a
Eurodollar Loan/Lessor Amount when due (whether by acceleration,
mandatory prepayment or otherwise),
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then, upon the demand of such Lender or Lessor, the Lessee shall pay to such
Lender or Lessor such amount as will reimburse such Lender or Lessor for such
loss, cost or expense. If any Lender or Lessor makes such a claim for
compensation, it shall provide to the Lessee a certificate executed by an
officer of such Lender or Lessor setting forth the amount of such loss, cost or
expense in reasonable detail (including an explanation of the basis for and the
computation of such loss, cost or expense) and such certificate shall be deemed
prima facie correct.
Section 13.9. Change of Law. Notwithstanding any other provisions of this
Participation Agreement, if at any time any change in applicable law or
regulation or in the interpretation thereof makes it unlawful for any Lender or
Lessor to make or continue to maintain Eurodollar Loans/Lessor Amounts or to
give effect to its obligations to make Eurodollar Loans/Lessor Amounts as
contemplated hereby, such Lender or Lessor shall promptly give notice thereof to
the Lessee and the Administrative Agent, and such Lender's or Lessor's
obligations to make or maintain Eurodollar Loans/Lessor Amounts under this
Participation Agreement shall terminate until it is no longer unlawful for such
Lender or Lessor to make or maintain Eurodollar Loans/Lessor Amounts. To the
extent required to comply with any such law as changed, the Lessee shall prepay
on demand the outstanding principal amount of any affected Eurodollar
Loans/Lessor Amounts, together with all interest accrued thereon and all other
amounts then due and payable to such Lender or Lessor under this Agreement;
provided, however, subject to all of the terms and conditions of this
Participation Agreement, the Lessee may then elect to convert the principal
amount of the affected Eurodollar Loan/Lessor Amount from such Lender or Lessor
to a Base Rate Loan/Lessor Amount from such Lender or Lessor that shall not be
converted ratably by the Lenders or Lessors but only from such affected Lender
or Lessor.
Section 13.10. Unavailability of Deposits or Inability to Ascertain, or
Inadequacy of, LIBOR. If on or prior to the first day of any Interest Period for
any Eurodollar Loans/Lessor Amounts the Administrative Agent is advised by the
Required Lenders or Required Lessors that deposits in United States Dollars (in
the applicable amounts) are not being offered to them in the relevant market for
such Interest Period, then the Administrative Agent shall forthwith give notice
thereof to the Lessee and the Lenders and Lessors, whereupon until the
Administrative Agent notifies the Lessee that the circumstances giving rise to
such suspension no longer exist, the obligations of the Lenders or Lessors to
continue or convert Eurodollar Loans shall be suspended.
Section 13.11. Increased Cost and Reduced Return. If on or after the date
hereof, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender or Lessor
(or its Lending Office) with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency:
(a) shall subject any Lender or Lessor (or its Lending Office)
to any tax, duty or other charge with respect to its Eurodollar
Loans/Lessor Amounts, or shall change the basis of taxation of payment
to any Lender or Lessor (or its Lending
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Office) of the principal of or interest on its Eurodollar Loans/Lessor
Amounts or any other amounts due under this Participation Agreement in
respect of its Eurodollar Loans/Lessor Amounts or its obligation to
make Eurodollar Loans/Lessor Amounts (except for changes involving the
imposition or increase of a tax on the overall net income or gross
receipts of such Lender or Lessor or its Lending Office); or
(b) shall impose, modify or deem applicable any reserve,
special deposit or similar requirements (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal
Reserve System against assets of, deposits with or for the account of,
or credit extended by, any Lender or Lessor (or its Lending Office) or
shall impose on any Lender or Lessor (or its Lending Office) or on the
United States market for certificates of deposit or the London
interbank market any other condition affecting its Eurodollar
Loans/Lessor Amounts;
and the result of any of the foregoing is to increase the cost to such Lender or
Lessor (or its Lending Office) of making or maintaining any Eurodollar
Loan/Lessor Amount, or to reduce the amount of any sum received or receivable by
such Lender or Lessor (or its Lending Office) under this Participation
Agreement, by an amount deemed by such Lender or Lessor to be material, then,
within 15 days after demand by such Lender or Lessor (with a copy to the
Administrative Agent), the Lessee shall pay to such Lender or Lessor such
additional amount or amounts as will compensate such Lender or Lessor for such
increased cost or reduction. A certificate of any Lender or Lessor claiming
compensation under this Section 13.11 and setting forth the additional amount or
amounts to be paid to it hereunder shall be prima facie correct subject to a
showing of error. In determining such amount, such Lender or Lessor may use any
reasonable averaging and attribution methods. A Lender or Lessor shall not be
entitled to compensation under this Section 13.11 with respect to any adoption
or change for any period which is more than thirty days prior to the date it
notifies the Lessee of the adoption or change giving rise to the request for
compensation (except to the extent the adoption or change has a retroactive
effective date in which case such Lender or Lessor shall also be entitled to
compensation for the period given retroactive effect to the extent not covered
by the thirty (30) day period prior to such notice) and any Lender or Lessor
desiring to claim compensation hereunder shall notify the Lessee of the adoption
or change giving rise to the claim in question as promptly as practicable and in
any event within thirty days after becoming aware of same.
Without limiting the generality of the foregoing, the Lessee shall pay
to each Lender and Lessor, so long as such Lender or Lessor shall be required
under regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency liabilities, additional interest on the unpaid principal
amount of each Eurodollar Loan/Lessor Amount of such Lender or Lessor, from the
effective date of such requirement until such principal amount is paid in full,
at an interest rate per annum equal at all times to the remainder obtained by
subtracting (i) LIBOR for the Interest Period for such Eurodollar Loan/Lessor
Amount from (ii) the rate obtained by dividing such LIBOR by a percentage equal
to 100% minus the Eurodollar Reserve Percentage of such Lender or Lessor for
such Interest Period, payable on each date on which interest is payable on such
Eurodollar Loan/Lessor Amount. Such additional
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interest shall be determined by such Lender or Lessor and notified to the Lessee
through the Administrative Agent, and such determination shall be prima facie
correct, subject to showing of error.
Section 13.12. Lending Offices. Each Lender and Lessor may, at its option,
elect to make its Loans or Lessor Amounts hereunder at the branch, office or
affiliate specified on the appropriate signature page hereof (each a "Lending
Office") for each type of Loan available hereunder or at such other of its
branches, offices or affiliates as it may from time to time elect and designate
in a notice to the Lessee and the Administrative Agent (but such funds shall in
any event be made available to the Lessee at the office of the Administrative
Agent as herein provided for), provided that the Lessee shall not be required to
reimburse any Lender or Lessor under any of the provisions of this Article 3 for
any cost which such Lender or Lessor would not have incurred but for changing
its lending or funding branch unless the Lessee consented to such change after
being advised by such Lender or Lessor of any increased costs then existing for
which such Lender or Lessor could claim reimbursement from the Lessee if such
Lender or Lessor made the change in its lending or funding branch in question.
Section 13.13. Discretion of Lenders or Lessors as to Manner of Funding.
Notwithstanding any other provision of this Agreement, each Lender and Lessor
shall be entitled to fund and maintain its funding of all or any part of its
Loans and Lessor Amounts in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations under this
Agreement shall be made as if each Lender and Lessor had actually funded and
maintained each Eurodollar Loan/Lessor Amount through the purchase of deposits
in the relevant market having a maturity corresponding to such Loan's or
Lessor's Amount Interest Period and bearing an interest rate equal to LIBOR for
such Interest Period.
Section 13.14. Capital Adequacy. If any Lender or Lessor shall determine
that the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof or compliance
by such Lender or Lessor (or its Lending Office) with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender's or Lessor's capital as a
consequence of its obligations hereunder or credit extended by it hereunder to a
level below that which such Lender or Lessor could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's or
Lessor's policies with respect to capital adequacy) by an amount deemed by such
Lender or Lessor to be material, then from time to time as specified by such
Lender or Lessor the Lessee shall pay to such Lender or Lessor, such additional
amount or amounts as will compensate such Lender or Lessor for such reduction. A
certificate of any Lender or Lessor claiming compensation under this Section
13.14 and setting forth the additional amount or amounts to be paid to it
hereunder shall be prima facie evidence thereof subject to a showing of error.
In determining such amount, such Lender or Lessor may use any reasonable
averaging and attribution methods.
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Section 13.15. Participant Replacement. If any Lender or Lessor requests
compensation for increased costs or other amounts pursuant to Sections 13.11 or
13.14, or suspends its obligation to make Eurodollar Loans/Lessor Amounts under
Section 13.9 or 13.11 hereof or the Lessee is required to make any reduction or
withholding with respect to any payment due any Lender or Lessor hereunder (each
Lender or Lessor hereby undertaking to promptly notify the Lessee if it becomes
aware of circumstances which would require such a reduction or withholding), or
if any Lender or Lessor fails or would not be able to comply with its
obligations under this Participation Agreement (in any such case a "Replaceable
Lender or Lessor") the Lessee may, with the consent of the Agent Lessor and
Administrative Agent, or if the Replaceable Lender or Lessor is the
Administrative Agent or Agent Lessor, with the consent of the Agent Lessor or
the Administrative Agent and Required Participants, which consent in either case
shall not be unreasonably withheld, propose that another bank or lessor (a
"Replacement Lender or Lessor"), which bank or lessor may be an existing
Participant, be substituted for and replace the Replaceable Lender or Lessor for
purposes of this Participation Agreement. If a Replacement Lender or Lessor is
so substituted for the Replaceable Lender or Lessor, the Replaceable Lender or
Lessor shall enter into an Assignment Agreement with the Replacement Lender or
Lessor, the Lessee, the Agent Lessor and the Administrative Agent (or the other
Lender or Lessor, if either the Agent Lessor or the Administrative Agent is the
Replaceable Lender or Lessor) to assign and transfer to the Replacement Lender
or Lessor the Replaceable Lender or Lessor's Commitment and Lessor Amounts or
Loans hereunder pursuant to and in accordance with the provisions and
requirements of Section 12.1 and, as a condition to its execution thereof, the
Replaceable Lender or Lessor shall concurrently receive the full amount of its
Loan or Lessor Amounts, as the case may be, interest (or Yield as the case may
be) thereon and all accrued fees to which it is entitled under this
Participation Agreement.
ARTICLE XIV
THE AGENT LESSOR
Section 14.1. Appointment and Authorization. Each Lessor irrevocably
appoints and authorizes BMO Leasing (U.S.), Inc. as Agent Lessor (in such
capacity as Agent Lessor hereunder and under the other Operative Documents, the
"Agent Lessor") of such Lessor to enter into the Operative Documents (including,
without limitation, the Master Lease and each Lease Supplement) on behalf of
such Lessor and to act as specified herein and in the other Operative Documents,
and each such Lessor hereby authorizes the Agent Lessor as agent for such
Lessor, to take such action on its behalf under the provisions of this
Participation Agreement and the other Operative Documents and to exercise such
powers and perform such duties as are expressly delegated by the terms hereof
and thereof, together with such other powers as are reasonably incidental
thereto (including, without limitation, the execution and delivery from time to
time in accordance with the provisions and terms hereof and the various other
documents, conveyances, terminations, assignments and instruments contemplated
herein to be delivered by the Agent Lessor on behalf of the Lessors). Each
action taken by the Agent Lessor under any Operative Document shall be deemed to
be on behalf of each the Lessors, unless otherwise indicated. Notwithstanding
any
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provision to the contrary elsewhere herein or in the other Operative Documents,
the Agent Lessor shall not have any duties or responsibilities, except those
expressly set forth herein and therein, or any fiduciary relationship with any
Lessor, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Participation Agreement or
any of the other Operative Documents, or shall otherwise exist against the Agent
Lessor.
Section 14.2. Delegation of Duties. The Agent Lessor may execute any of its
duties hereunder or under the other Operative Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent Lessor shall not be responsible for
the negligence or misconduct of any agents or attorneys in fact selected by it
with reasonable care.
Section 14.3. Agent Lessor and Affiliates. The Agent Lessor shall have the
same rights and powers under this Participation Agreement and under the other
Operative Documents as any other Lessor, and may exercise or refrain from
exercising the same as though it were not the Agent Lessor.
Section 14.4. Action by Agent Lessor. The obligations of the Agent Lessor
hereunder and under the other Operative Documents are only those expressly set
forth herein and therein. Without limiting the generality of the foregoing, the
Agent Lessor shall not be required to take any action with respect to any
Default or Event of Default, except as expressly provided herein and in the
other Operative Documents.
Section 14.5. Consultation with Experts. The Agent Lessor may consult with
legal counsel (who may be counsel for Lessee, Guarantor, a Participant, the
Administrative Agent, the Arranger or any Affiliate of any of them), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
Section 14.6. Exculpatory Provisions. Neither the Agent Lessor nor any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be responsible for or have any duty to ascertain, inquire into or verify
(a) any statement, warranty or representation made in connection with the
Operative Documents; (b) the performance or observance of any of the covenants
or agreements of Lessee or Guarantor; (c) the satisfaction of any condition
precedent specified herein or in any other Operative Document; (d) the validity,
effectiveness or genuineness of any of the Operative Documents or any other
instrument or writing furnished in connection herewith or therewith; (e) the use
of the proceeds of the Advance; (f) the existence of any Default or Event of
Default; or (g) the properties, books or records of Lessee or Guarantor.
Section 14.7. Reliance on Communications. The Agent Lessor shall be entitled
to rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it in good faith to be genuine and correct
and to have been signed, sent or made by the proper Person or
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Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to Lessee or Guarantor), independent accountants and other
experts selected by the Agent Lessor with reasonable care. The Agent Lessor may
deem and treat the Participants as the owner of their respective interests
hereunder and under the other Operative Documents for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Agent Lessor in accordance with Section 12.1 of the Participation
Agreement. The Agent Lessor, acting in its capacity as Agent Lessor, shall be
fully justified in failing or refusing to take any action under this
Participation Agreement or under any of the other Operative Documents unless it
shall first receive such advice or concurrence of the Lessors as it deems
appropriate or it shall first be indemnified to its satisfaction by the
Participants against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Agent Lessor
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder or under any of the other Operative Documents in accordance with a
request of the Lessors and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Participants (including their
successors and assigns).
Section 14.8. Notice of Default. The Agent Lessor shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent Lessor has received notice from a Participant, Lessee
or Guarantor referring to the Operative Document, describing such Default or
Event of Default and stating that such notice is a "notice of default" and has
received evidence that the matter referenced constitutes an Event of Default. In
the event that the Agent Lessor receives such a notice, the Agent Lessor shall
give prompt notice thereof to the Participants. The Agent Lessor shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lessors.
Section 14.9. Non-Reliance on Agent Lessor and Other Participants. Each
Participant expressly acknowledges that neither the Agent Lessor (other than in
its role as Participant) nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates has made any representations or warranties to it
and that no act by the Agent Lessor or any affiliate thereof hereafter taken,
including any review of the affairs of Lessee or Guarantor, shall be deemed to
constitute any representation or warranty by the Agent Lessor to any
Participant. Each Participant represents to the Agent Lessor that it has,
independently and without reliance upon the Agent Lessor or any other
Participant, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial, and other conditions, prospects and
creditworthiness of Lessee and Guarantor and made its own decision to make its
proportionate share of the Advances hereunder and under the other Operative
Documents and enter into this Participation Agreement and the other Operative
Documents. Each Participant also represents that it will, independently and
without reliance upon the Agent Lessor or any other Participant, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Participation Agreement, and to make such
investigation as it deems necessary to inform itself as to the business, assets,
operations, property, financial and other conditions, prospects and
creditworthiness of Lessee and
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Guarantor. Except for notices, reports and other documents expressly required to
be furnished to the Participants by the Agent Lessor hereunder, the Agent Lessor
shall not have any duty or responsibility to provide any Participant with any
credit or other information concerning the business, operations, assets,
property, financial or other conditions, prospects or creditworthiness of Lessee
and Guarantor which may come into the possession of the Agent Lessor or any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates.
Section 14.10. Indemnification. The Lessors agree to indemnify the Agent
Lessor in its capacity as such (to the extent not reimbursed by Lessee or
Guarantor and without limiting the obligation of Lessee and Guarantor to do so),
ratably according to their respective Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Agent Lessor in
its capacity as such in any way relating to or arising out of this Participation
Agreement or the other Operative Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Agent Lessor under or in connection with
any of the foregoing; provided that no Lessor shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of the Agent Lessor. If any indemnity
furnished to the Agent Lessor for any purpose shall, in the opinion of the Agent
Lessor, be insufficient or become impaired, the Agent Lessor may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
Section shall survive the payment in full of the Obligations and all other
amounts payable hereunder and under the other Operative Documents.
Section 14.11. Failure to Act. Except for action expressly required of the
Agent Lessor hereunder, the Agent Lessor shall in all cases be fully justified
in failing or refusing to act hereunder unless it shall be indemnified to its
satisfaction by the Lessors against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
Section 14.12. Resignation and Removal. The Agent Lessor may resign at any
time upon at least thirty (30) days' prior notice to the Lessee and the
Participants, and may be removed as such at any time by vote of the Required
Lessors and notice to the retiring Agent Lessor, the Administrative Agent and
the Lessee. In the event of any such resignation or removal, the Required
Lessors shall as promptly as practicable (but with five (5) Business Days' prior
written notice being given to the Lessee) appoint a successor Agent Lessor,
provided that such successor Agent Lessor shall be approved by the
Administrative Agent, and, unless an Event of Default is continuing, be approved
by the Lessee (which approval shall not be unreasonably withheld or delayed)
and, if the Lessee has not responded within such five Business Day period, the
Lessee shall be deemed to have approved such new Agent Lessor. If no successor
Agent Lessor shall have been so appointed and shall have accepted such
appointment within thirty (30) days after either the retiring Agent Lessor's
giving of
-45-
<PAGE> 51
notice of resignation or the Required Lessors' vote to remove the retiring Agent
Lessor, then the retiring Agent Lessor may, on behalf of the Lessors, appoint a
successor Agent Lessor (subject, absent a Lease Event of Default, to the
reasonable approval of the Lessee), which shall be a commercial bank organized
under the laws of the United States of America or of any State thereof or under
the laws of another country that is doing business in the United States and
having a combined capital, surplus and undivided profits of at least
$100,000,000, or a wholly owned subsidiary of such bank. Upon its acceptance of
its appointment, such successor Agent Lessor shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Agent Lessor, and the retiring Agent Lessor shall be discharged from all further
duties and obligations as Agent Lessor under this Participation Agreement and
under the other Operative Documents. After any retiring Agent Lessor's
resignation or removal hereunder as Agent Lessor, the provisions of this
Participation Agreement and of the other Operative Documents shall continue to
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent Lessor under this Participation Agreement. No resignation or
renewal of the Agent Lessor may become effective until a successor Agent Lessor
has been appointed as provided above.
Section 14.13. Distributions. The Agent Lessor shall, as promptly as
practicable, distribute to each Participant its appropriate portion, if any, of
payments received (in good, collected funds) by the Agent Lessor from Lessee or
Guarantor for the account of the Participants or of any such payments so
received for the account of such Participant.
Section 14.14. Rights of Lessee. Except where Lessee is expressly referenced
in this Article XIV, (w) the Agent Lessor shall act solely as agent of the
Lessors and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency or trust with or for Lessee, (x) this
Article XIV is for the benefit of the Agent Lessor and the Participants only,
(y) Lessee shall have no right to enforce any part of this Article XIV and shall
have no rights as third party beneficiary or otherwise therein, and (z) this
Article XIV may be amended by the approval of Agent Lessor and the Required
Participants, without any need to obtain the approval of Lessee.
ARTICLE XV
MISCELLANEOUS
Section 15.1. Survival of Agreements. All representations, warranties and
covenants made herein or in other Operative Document shall survive the execution
and delivery of this Participation Agreement and of the Notes, and shall
continue in full force and effect with respect to the date as of which they were
made as long as any Loans or Lessor Amounts are outstanding hereunder. All
indemnities shall survive the termination of this Participation Agreement and
the payment of the Loans and Lessor Amounts.
Section 15.2. No Broker. Each of the parties hereto represents to the
others that it has not retained or employed any broker, finder or financial
adviser to act on its behalf in connection with this Participation Agreement or
the transactions contemplated herein or in the other Operative Documents nor has
it authorized any broker, finder or financial adviser
-46-
<PAGE> 52
retained or employed by any other Person so to act. Any party which is in breach
of this representation shall indemnify and hold the other parties harmless from
and against any liability arising out of such breach of this representation.
Section 15.3. Notices. All communications provided for herein shall be in
writing or by telex or by telecopy, except as otherwise specifically provided
for hereinabove, addressed to the appropriate party at their respective
addresses set forth opposite their respective signatures hereto, or at such
other address as shall be designated by any party hereto in a written notice to
each other party pursuant to this Section 15.3. Any notice in writing shall be
deemed to have been given or made when served personally or when received if
sent by United States mail, and any notice given by telex or telecopy means
shall be deemed given when transmitted (answerback confirmed); provided that
any notice to the Administrative Agent, the Agent Lessor or any Participant
under Article III or Sections 4.3 and 4.5 hereof shall only be effective upon
receipt.
Section 15.4. Counterparts. This Participation Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 15.5. Amendments. No provision of this Participation Agreement may
be amended or waived except in writing signed by the Lessee, the Guarantor and
the Required Participants and, if the rights or duties of the Administrative
Agent or the Agent Lessor are affected thereby, by the Administrative Agent
and/or the Agent Lessor (as appropriate); provided that no such amendment or
waiver shall, unless signed by a Participant, (i) increase or extend the
Commitment of such Participant or subject such Participant to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or
Yield on any Lessor Amount from such Participant or any fees due such
Participant hereunder or (iii) change the stated time or manner of any payment
of principal of or interest on any Loan or Yield on any Lessor Amount from such
Participant or any fees due such Participant hereunder, and no such amendment
shall, unless signed by all Participants, change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, the Lessor
Amounts, or the number of Participants, required for the Participants or any of
them to take any action under this Section 15.5 or any other provisions of this
Participation Agreement or the other Operative Documents.
Section 15.6. Headings. The Table of Contents and headings of the various
Articles and Sections of this Participation Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
Section 15.7. Parties in Interest. Except as expressly provided herein, none
of the provisions of this Participation Agreement is intended for the benefit of
any Person except the parties hereto. The Lessee shall not assign or transfer
any of its rights or obligations under the Operative Documents except in
accordance with the terms and conditions thereof.
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<PAGE> 53
Section 15.8. GOVERNING LAW; SUBMISSION TO JURISDlCTION. THIS PARTICIPATION
AGREEMENT AND (UNLESS EXPRESSLY STATED OTHERWISE) THE OTHER OPERATIVE DOCUMENTS
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF
ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS PARTICIPATION AGREEMENT, THE
OTHER OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO TO LAYING OF
THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
Section 15.9. Severability. Any provision of this Participation Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 15.10. Liability Limited. (a) The parties hereto agree that except
as specifically set forth herein or in any other Operative Document, no Lessor
shall have any personal liability whatsoever to any Participant or their
respective successors and assigns for any claim based on or in respect hereof or
any of the other Operative Documents or arising in any way from the transactions
contemplated hereby or thereby and recourse, if any, shall be solely had against
such Lessor's interest in the Property; provided, however, that each Lessor
shall be liable in its individual capacity (a) for its own willful misconduct or
gross negligence, (b) breach of any of its representations, warranties or
covenants under the Operative Documents, or (c) for any Tax based on or measured
by any fees, commission or compensation received by it for acting as a Lessor as
contemplated by the Operative Documents. It is understood and agreed that,
except as provided in the preceding sentence: (i) no Lessor shall have any
personal liability under any of the Operative Documents as a result of acting
pursuant to and consistent with any of the Operative Documents; (ii) all
obligations of each Lessor to any Lender are solely nonrecourse obligations
except to the extent that such Lessor has received payment from others
(including, without limitation, obligations with respect to the Loans); and
(iii) all such personal liability of any Lessor is expressly waived and released
as a condition of, and as consideration for, the execution and delivery of the
Operative Documents by such Lessor.
(b) No Participant shall have any obligation to any other Participant
or to Lessee, the Lessors or the Lenders with respect to transactions
contemplated by the Operative Documents, except those obligations of such
Participant expressly set forth in the Operative Documents or except as set
forth in the instruments delivered in connection therewith, and no Participant
shall be liable for performance by any other party hereto of such other party's
obligations under the Operative Documents except as otherwise so set forth.
-48-
<PAGE> 54
Section 15.11. Further Assurances. The parties hereto shall promptly cause
to be taken, executed, acknowledged or delivered, at the sole expense of the
Lessee, all such further acts, conveyances, documents and assurances as the
other parties may from time to time reasonably request in order to carry out and
preserve the security interests and liens (and the priority thereof) intended to
be created pursuant to this Participation Agreement, the other Operative
Documents, and the transactions thereunder. The Lessee, at its own expense and
without need of any prior request from any other party, shall take such action
as may be necessary, or as so requested, in order to maintain and protect all
security interests provided for hereunder or under any other Operative Document.
Section 15.12. [Intentionally Omitted].
Section 15.13. [Intentionally Omitted].
Section 15.14. WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY WAIVE
(TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHTS THEY MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS PARTICIPATION AGREEMENT OR ANY OTHER
OPERATIVE DOCUMENT OR THE TRANSACTIONS AND AGREEMENTS CONTEMPLATED HEREBY AND
THEREBY.
Section 15.15. No Participant Responsible for Other Participants. The
obligations of each Participant under this Participation Agreement and the other
Operative Documents are several and not joint; and, in the event of a failure by
a Participant to perform any of its obligations hereunder or under any other
Operative Document, neither the Agent Lessor nor the Administrative Agent nor
any other Participant (other than the defaulting Participant) shall have any
liability as a consequence thereof.
Section 15.16. Each Lessor to Have an Undivided Interest. The Agent Lessor
hereby confirms that it is holding the Property on behalf of the Lessors, each
of which shall hold an undivided interest in the Property (and all proceeds
thereof), in each case such interest to be equal to the Commitment of such
Lessor relative to the aggregate amount of the Lessor Commitment of all Lessors.
Section 15.17. Simultaneous Transaction. The parties acknowledge and agree
that each of Lessee's and Guarantor's representations, warranties, covenants and
satisfaction of conditions is made as of the Acquisition Date and predicated
upon the acquisition of the Property from the current owner thereof and
cancellation or termination of the U.S. West Agreements and cancellation or
release of all security interests thereunder.
-49-
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
ALUMAX INC., as Guarantor
By /s/ Marc Crown
--------------------------------
Marc Crown
Its Assistant Treasurer
Address for Notices:
3424 Peachtree Road, N.E.
Suite 2100
Atlanta, Georgia 30326
Attention: Assistant Treasurer
Facsimile No: (404) 846-4657
with a copy to:
Alumax Inc.
3424 Peachtree Road, N.E.
Suite 2100
Atlanta, Georgia 30326
Attention: Senior Vice President and
General Counsel
Facsimile: (404) 846-4769
S-1
<PAGE> 56
ALUMAX MILL PRODUCTS, INC., as Lessee
By /s/ Marc Crown
-------------------------------------
Marc Crown
Its Assistant Treasurer
Address for Notices:
c/o Alumax Inc.
3424 Peachtree Road, N.E.
Suite 2100
Atlanta, Georgia 30326
Attention: Assistant Treasurer
Facsimile No: 404-846-4657
with a copy to:
Alumax Inc.
3424 Peachtree Road, N.E.
Suite 2100
Atlanta, Georgia 30326
Attention: Senior Vice President and
General Counsel
Facsimile: (404) 846-4769
S-2
<PAGE> 57
BMO LEASING (U.S.), INC., as Agent Lessor
and as a Lessor
By /s/ Ernest C. Cechetto
--------------------------------------
Ernest C. Cechetto
Its Managing Director
Addresses for Notices:
111 West Monroe Street
Chicago, Illinois 60603
Attention: Terri Perez-Ford
Facsimile: (312) 750-3827
Lending Office:
111 West Monroe Street
Chicago, Illinois 60603
S-3
<PAGE> 58
BANK OF MONTREAL, as Administrative
Agent and as a Lender
By /s/ Ernest C. Cechetto
--------------------------------
Ernest C. Cechetto
Its Managing Director
Addresses for Notices:
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Terri Perez-Ford
Facsimile: (312) 750-3827
Lending Office:
115 South LaSalle Street
Chicago, Illinois 60603
S-4
<PAGE> 59
SCHEDULE I
TO PARTICIPATION AGREEMENT
COMMITMENTS
<TABLE>
<CAPTION>
COMMITMENT
PARTICIPANT COMMITMENT PERCENTAGE
<S> <C> <C>
LENDERS
Bank of Montreal $81,929,093.51 84.50%
LESSORS
BMO Leasing (U.S.), Inc. $15,028,413.75 15.50%
TOTAL $96,957,507.26 100%
</TABLE>
I-1
<PAGE> 60
SCHEDULE II
TO PARTICIPATION AGREEMENT
Notice Information, Wire Instructions and Funding Offices, Lessee,
Administrative Agent, Lessors, Lenders and Guarantor:
<TABLE>
<CAPTION>
AGENT LESSOR: LESSEE AND GUARANTOR:
<S> <C>
BMO LEASING (U.S.), INC. ALUMAX INC.
311 West Monroe Street 3424 Peachtree Road, N.E.
Chicago, Illinois 60603 Suite 2100
Atlanta, Georgia 30326
Attention: Terri Perez-Ford
Facsimile No.: (312) 750-3827 Attention:
-------------------
Wire Transfer Instructions: Facsimile No.: (404) 846-4541
Bank: Harris Trust and Savings Bank
ABA Number: 071-000-288 Wire Transfer Instructions:
Account Name: BMO Leasing Bank: Chase Manhatten Bank, New York
Account Number: 1814165 ABA Number: 021000021
Ref: Alumax Mill Products, Inc. - Account Name: Alumax Inc.
Synthetic Lease Account Number: 9101428028
Ref:
------------------------------------
LENDERS AND ADMINISTRATIVE AGENT:
BANK OF MONTREAL
115 South LaSalle Street
Chicago, Illinois 60603
Attention: Terri Perez-Ford
Facsimile No.: (312) 750-3827
Wire Transfer Instructions:
Bank: Harris Bank
ABA Number: 071-000-288
Account Name: Bank of Montreal
Account Number 124-8566
Ref: Alumna Mill Products, Inc. -
Synthetic Lease
</TABLE>
II-1
<PAGE> 61
SCHEDULE III
SUBSIDIARIES
THE COMPANY'S SUBSIDIARIES ARE AS FOLLOWS:
RESTRICTED SUBSIDIARIES:
<TABLE>
<CAPTION> Percentage of Voting
Stock or Other Equity
Name of Jurisdiction of Interest Owned Directly
Subsidiary Organization By The Company
- ---------- --------------- -----------------------
<S> <C> <C>
Alumax Inc. Nevada 100%
Alumax Aluminum Corporation Delaware 100%
Alumax Astechnology, Inc. Delaware 100%
Alumax Becancour, Inc. Delaware 100%
Alumax Employee Services, Inc. Delaware 100%
Alumax Engineered Metal Processes, Inc. Delaware 100%
Alumax Extrusions, Inc. Pennsylvania 100%
Alumax Extrusions, Inc. New York 100%
Alumax Foil Industrial Redevelopment Corp. Missouri 100%
Alumax Foils, Inc. Delaware 100%
Alumax International Company Nevada 100%
Alumax Japan, Inc. Delaware 100%
Alumax of Maryland, Inc. Delaware 100%
Alumax Materials Management, Inc. Delaware 100%
Alumax Mill Products, Inc. Delaware 100%
Alumax Primary Aluminum Corporation Delaware 100%
Alumax Quebec, Inc. Wyoming 100%
Alumax Remelt Corporation Delaware 100%
Alumax Retiree Services, Inc. Delaware 100%
Alumax 6100 South Broadway
Redevelopment Corporation Missouri 100%
Alumax of South Carolina, Inc. Delaware 100%
Alumax Technical Center, Inc. Delaware 100%
Alumax Technical Services, Inc. Delaware 100%
Alumax Technology Corporation Delaware 100%
Alumax Warehouse Corporation Delaware 100%
Alumax of Washington, Inc. Delaware 100%
Alumet Corporation Delaware 100%
Eastalco Aluminum Company Delaware 100%
Hillyard Aluminum Recovery Corporation Delaware 100%
Intalco Aluminum Corporation Delaware 100%
Kawneer Company, Inc. Delaware 100%
Kawneer Europe, Inc. Delaware 100%
Kawneer France, Inc. Delaware 100%
Kawneer Germany, Inc. Delaware 100%
Kawneer Polska Sp. zo.o. Poland 100%
Mt. Holly Plantation, Inc. Delaware 100%
Murphy Properties, Inc. Delaware 100%
Alumax Asia Limited Hong Kong 100%
Alumax Asia Pacific Pty. Limited Australia 100%
Alumax de Mexico, S.A. de C.V. Mexico 100%
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
Percentage of Voting
Stock or Other Equity
Name of Jurisdiction of Interest Owned Directly
Subsidiary Organization By The Company
---------- --------------- -----------------------
<S> <C> <C>
Alumax Extrusions Australia Pty. Limited Australia 100%
Alumax Extrusions B.V. The Netherlands 100%
Alumax Extrusions Limited United Kingdom 100%
Alumax Holdings B.V. The Netherlands 100%
Alumax Holdings de Mexico, S.A. de C.V. Mexico 100%
Alumax Extrusions Mexico, S.A. de C.V. Mexico 100%
Comercializadora Alumax Extrusions
Mexico, S.A. de C.V. Mexico 100%
Alumax Holdings S.A. France 100%
Alumax Polska Sp. zo.o. Poland 100%
Alumax Recycling B.V. The Netherlands 100%
Alumax S.A. Spain 100%
Alumax U.K. Limited United Kingdom 100%
Amax Holdings Australia Limited Australia 100%
Amax Resources Australia Limited Australia 100%
Asesoria Mexicana Empresarial, S.A. de C.V. Mexico 100%
Intalco Aluminum Company, Ltd. Alberta, Canada 100%
Kawneer Deutschland G.m.b.H. Germany 100%
Kawneer Company Canada Limited Ontario, Canada 100%
Kawneer Europe B.V. The Netherlands 100%
Kawneer France S. A. France 100%
Kawneer Installations Limited Ontario, Canada 100%
Kawneer Maroc S.A. Morocco 100%
Kawneer U.K. Limited United Kingdom 100%
</TABLE>
SUBSIDIARIES (OTHER THAN RESTRICTED SUBSIDIARIES):
<TABLE>
<CAPTION>
Percentage of Voting
Stock or Other Equity
Name of Jurisdiction of Interest Owned Directly
Subsidiary Organization By The Company
---------- --------------- -----------------------
<S> <C> <C>
Alamo Resources Corporation Delaware 100%
Alumax PD Holdings Pte. Ltd. Singapore 50%
Aluminerie Lauralco, Inc. Delaware 100%
Amax Asia, Inc. Delaware 100%
Canalco, Inc. Delaware 100%
Honduras-Rosario Mining Company Delaware 100%
Lauralco Quebec, Inc. Delaware 100%
Lauralco Superieur, Inc. Delaware 100%
Lauralco Trois-Rivieres, Inc. Delaware 100%
Rosario Mining of Nicaragua, Inc. Delaware 100%
Rosario Resources Corporation New York 100%
The Durango Corporation Delaware 100%
The Fresnillo Company New York 100%
Yunnan Xinmeilu Aluminum Foil Co., Ltd. China 56%
</TABLE>
<PAGE> 63
SCHEDULE IV
TO PARTICIPATION AGREEMENT
INDEBTEDNESS IN EXCESS OF $5,000,000
OF COMPANY AND RESTRICTED SUBSIDIARIES
OUTSTANDING AT NOVEMBER 25, 1997
I. INDEBTEDNESS
1. ALUMAX MILL PRODUCTS, INC. TEXARKANA FACILITY LEVERAGED LEASE FINANCING
Lease Agreement dated as of November 25, 1986, between Connecticut
National Bank, as Owner Trustee for the benefit of U.S. West Capital
Corporation under an Owner Trust Agreement dated as of November 25,
1986, and Alumax Mill Products, Inc.
Guaranty of Alumax Inc. dated as of July 30, 1993, Re: Obligations of
Alumax Mill Products, Inc. Amended and Restated Reimbursement Agreement
dated as of July 5, 1995, between Alumax Inc. and Union Bank of
Switzerland, New York Branch.
* To be cancelled upon the Texarkana Restructuring (November 25, 1997)
2. ALUMAX INC. AMENDED AND RESTATED CREDIT AGREEMENT
U.S. $800,000,000 Revolving Credit Agreement dated as of May 19, 1995,
and as amended by the First Amendment to Credit Agreement, dated as of
May 30, 1997, and the Second Amendment dated October 9, 1997, among
Alumax Inc., The Banks Signatory Thereto, Royal Bank of Canada, as
Agent, Arranger, and Letter of Credit Issuer, and Canadian Imperial
Bank of Commerce, as Administrative Agent.
11/25
-----
Current Percent: N/A
Current Balance: $410,000,000
3. $9,880,000 FREDERICK COUNTY, MARYLAND, ECONOMIC DEVELOPMENT REVENUE
REFUNDING BONDS, SERIES 1992 (ALUMAX OF MARYLAND, INC. PROJECT)
Loan Agreement dated January 1, 1992, by and between Alumax of
Maryland, Inc. and County Commissioners of Frederick County.
Current Percent: 7.25%
Current Balance: $9,880,000
1
<PAGE> 64
4. CITY OF YANKTON, SOUTH DAKOTA, $9,000,000 PRINCIPAL AMOUNT OF
INDUSTRIAL DEVELOPMENT REFUNDING REVENUE BONDS, SERIES A (ALUMAX
PROJECT)
Loan Agreement dated May 21, 1997, by and between City of Yankton,
South Dakota and Alumax Extrusions, Inc., Alumax Project Series 1997.
Guaranty Agreement dated May 21, 1997, executed by Alumax Inc. in favor
of The First National Bank of Chicago, as Trustee.
Current Percent: 4.00%
Current Balance: $9,000,000
5. PLANNED INDUSTRIAL EXPANSION AUTHORITY OF THE CITY OF ST. LOUIS
$7,500,000 INDUSTRIAL DEVELOPMENT REFUNDING REVENUE BONDS, SERIES 1992
(ALUMAX FOILS, INC. PROJECT)
Amended and Restated Lease Agreement between Planned Industrial
Expansion Authority of the City of St. Louis and Alumax 6100 South
Broadway Redevelopment Corporation dated as of June 1, 1992.
Current Percent: 3.7955%
Current Balance: $6,835,000
6. DEVELOPMENT AUTHORITY OF GWINNETT COUNTY $5,250,000 INDUSTRIAL
DEVELOPMENT REVENUE BONDS, SERIES 1984 (KAWNEER COMPANY, INC. PROJECT)
Loan Agreement dated as of June 1, 1984, by and between the Development
Authority of Gwinnett County, Georgia, and Kawneer Company, Inc.
Guaranty Agreement dated as of June 1, 1984, executed by Alumax Inc. in
favor of SunTrust Bank, as Trustee.
Guaranty Agreement dated as of June 1, 1984, executed by Alumax Inc. in
favor of Bankers Trust Company.
Current Percent: 9.5%
Current Balance: $5,250,000
2
<PAGE> 65
7. $27,450,000 BERKELEY COUNTY, SOUTH CAROLINA POLLUTION CONTROL REFUNDING
REVENUE BONDS (ALUMAX PROJECT) SERIES 1996
Loan Agreement dated September 1, 1996, by and between Berkeley County,
South Carolina and Alumax of South Carolina, Inc., relating to
Pollution Control Refunding Revenue Bonds Series 1996.
Guaranty Agreement dated September 1, 1996, executed by Alumax Inc. in
favor of The Bank of New York, as Trustee.
Current Percent: 4.00%
Current Balance: $27,450,000
8. LETTERS OF CREDIT
<TABLE>
<CAPTION>
Bank Maturity Date Amount
---- ------------- ------
<S> <C> <C>
Royal Bank of Canada 02/27/98 $24,457,000
Commerzbank 03/01/98 $10,000,000
Fuji Bank 04/30/98 $14,569,000
Credit Lyonnais* 12/30/97 $44,767,049
PNC Bank 09/15/98 $ 6,969,777
Royal Bank of Canada 09/18/98 $27,901,233
Union Bank of Switzerland* 12/31/97 $39,000,000
Bank of America 05/20/98 $ 9,147,946
</TABLE>
* To be cancelled upon the Texarkana Restructuring (November 25, 1997)
9. GUARANTIES
Guaranty dated August 20, 1996, on behalf of Alumax Materials
Management, Inc. in favor of J. Aron & Co. in an amount not to exceed
$6,000,000.
Guaranty dated July 15, 1996, on behalf of Alumax Materials Management,
Inc. in favor of AIG Trading Corp. in an amount not to exceed
$6,000,000.
Guaranty dated October 30, 1996, on behalf of Alumax Materials
Management, Inc. in favor of Morgan Guaranty Trust Co. in an amount not
to exceed $6,000,000.
Guaranty dated June 5, 1996, on behalf of Alumax Materials Management,
Inc. in favor of Morgan Stanley & Co. International Limited in an
amount not to exceed $6,000,000.
3
<PAGE> 66
Guaranty dated April 26, 1993, on behalf of Intalco Aluminum
Corporation in favor of Washington Department of Ecology in the amount
of $12,391,500.
Guaranty dated May 23, 1997, on behalf of Alumax Materials Management,
Inc. in favor of Prudential-Bache (International) Limited in an amount
not to exceed $6,000,000.
Guaranty dated September 20, 1997, on behalf of Alumax Materials
Management, Inc. in favor of Lehman Brothers, Inc. in an amount not to
exceed $6,000,000.
Guaranty dated September 4, 1997, on behalf of Alumax of South
Carolina, Inc. in favor of South Carolina Public Service Authority
securing payment of power charges at the Mt. Holly facility.
Guaranty dated October 1, 1995, on behalf of Intalco Aluminum
Corporation in favor of British Columbia Power Exchange Corporation
securing payment of power charges at the Intalco facility.
Guaranty dated February 1, 1990, on behalf of Aluminerie Lauralco,
Inc., in favor of Hydro Quebec, securing payment of power charges at
the Deschambault facility.
II. MATERIAL LIENS
ALUMAX MILL PRODUCTS, INC. TEXARKANA FACILITY LEVERAGE LEASE FINANCING
A Deed of Trust (With Security Agreement) dated as of November 25,
1986, which was given as part of the Agreement referenced in Schedule
I, Indebtedness, Item 1, by Alumax Mill Products, Inc. in favor of
Gilman N. Gauvin, as Trustee for the benefit of The Connecticut
National Bank, was executed in connection with the conveyance of a
security interest in the land at the Texarkana facility.
* To be cancelled upon the Texarkana Restructuring (November 25, 1997)
4
<PAGE> 67
SCHEDULE V
TO PARTICIPATION AGREEMENT
LITIGATION
None.
<PAGE> 68
EXHIBIT A-1
TO PARTICIPATION AGREEMENT
FORM OF LEGAL OPINION OF
R.P. WOLF, ESQ.
November 25, 1997
To the Participants, Administrative
Agent and Agent Lessor party to
the Participation Agreement
referred to below
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of Alumax Inc., a
Delaware corporation (the "Company"), and in such capacity have overseen and
participated in the provision of legal advice and assistance to the Company and
Alumax Mill Products, Inc., a Delaware corporation and a wholly owned subsidiary
of the Company (the "Lessee"), in connection with the negotiation of and the
closing of the transactions contemplated by (i) the Participation Agreement (the
"Participation Agreement"), dated as of November 25, 1997, among the Lessee, the
Company, Agent Lessor, Lessors, Lenders, the Administrative Agent and the
Arranger and (ii) each of the other Operative Documents. Terms used herein and
not defined shall have their respective defined meanings as set forth in
Appendix A to the Participation Agreement.
In rendering the opinions expressed below, I have examined originals,
conformed copies, or copies otherwise identified to my satisfaction of such
corporate records, agreements, and instruments of the Company and Lessee, such
certificates of public officials and of officers, employees, and agents of the
Company and Lessee and such other agreements and documents as I have deemed
necessary for the purpose of expressing the opinions herein. Though I have
examined such matters of law as I deemed necessary for the purpose of expressing
the opinions herein, please note that with respect to the opinion expressed in
Paragraph 2 below and the incorporation of the term "applicable" therein, my
opinion is limited to a review of only those laws and regulations that, based
upon my review of the Operative Documents, I have considered to be applicable to
the transactions contemplated thereby. Also, for purposes of the opinion
expressed in Paragraph 1 below as to the due qualification to transact business
as a foreign corporation in certain jurisdictions, I have relied solely upon a
review of a certificate of the Secretary of State (or other similar official)
of each such jurisdiction.
For purposes of my opinion expressed in Paragraph 2 hereof, I have not
made any independent review or investigation of any agreements or instruments to
which the Lessee or
<PAGE> 69
Company is bound, except I have reviewed or caused to be reviewed those
agreements and instruments listed on Schedule I hereto (hereinafter referred to
as "Material Agreements"), and such opinion is based upon the audited
consolidated financial statements of the Company as at and for the year ended
December 31, 1996, without giving effect to any obligations incurred under the
Operative Documents. Schedule I sets forth all agreements and instruments
entered into by the Company or Lessee and deemed by the Company to be "material
contracts" of the Company under item 601(b)(10)(i) and (ii) of Regulation S-K
("Regulation S-K") promulgated by the Securities and Exchange Commission (the
"Commission") or otherwise entered into by the Company or Lessee and filed by
the Company with the Commission as an exhibit under Item 601(b)(4) of
Regulation S-K. Furthermore, for purposes of my opinion expressed in Paragraph 3
hereof, I have not examined plaintiff or defendant indexes in any federal, state
or other court or any other tribunal.
During the course of all such examinations, I have assumed (i) the
genuineness of all signatures other than those of the Company and Lessee on the
Operative Documents, (ii) the authenticity of all documents submitted to me as
originals, (iii) the conformity to the original documents of all documents
submitted to me as certified, conformed, facsimile, or photographic copies, and
(iv) that certificates and telephonic and telecopy confirmations given by public
officials have been properly given and are accurate. I have further assumed,
except where this opinion expressly addresses such matters as to the Company and
Lessee, (i) the power and authority of all parties to enter into the
transactions contemplated by the Operative Documents and (ii) the due
authorization and valid execution and delivery by such parties of the agreements
and instruments necessary in connection with such transactions.
Based upon and subject to the foregoing and subject to the
qualifications set forth herein, I am of the opinion that:
1. The Company has the necessary corporate power to execute
and deliver the Participation Agreement and Guaranty and to perform its
obligations thereunder. The Lessee has the necessary corporate power to
execute and deliver the Participation Agreement and other Operative
Documents and to perform its obligations thereunder. The Company is
duly qualified to transact business in all jurisdictions where the
failure to qualify would have a Material Adverse Effect. The Lessee is
duly qualified to transact business in the State of Texas and in all
other jurisdictions, where the failure to qualify would have a Material
Adverse Effect.
2. The execution and delivery by the Company and Lessee of the
Operative Documents to which they are a party and the performance by
the Company and Lessee of their respective obligations under such
Operative Documents (i) do not and will not, to my knowledge, violate
(a) any provision of applicable law or regulation or (b) any order or
decree known to me by which the Company or Lessee, or any of their
respective Company Properties, may be bound, which in either case (a)
or (b) would result in a Material Adverse Effect; (ii) do not and will
not violate any provision of the charter or by-laws of the Company or
Lessee; and (iii) do not
A-1-2
<PAGE> 70
and will not result in the breach of, or constitute a default or
require any consent under, or result in the creation of any Lien upon,
any of the properties, revenues, or assets of the Company or Lessee
under any Material Agreement other than the US West Agreements.
3. Except as to the matters disclosed in Section 8.2(j) of the
Participation Agreement, reflected in the Company's filings with the
Commission on Form 10-K for the year ended December 31, 1996 or on Form
10-Q for the quarters ended March 31, June 30 and September 30, 1997 or
reflected on Schedule V to the Participation Agreement, there are no
legal or arbitral proceedings, and no proceedings by or before any
governmental or regulatory authority or agency, pending or threatened
against or affecting the Company, any of its Restricted Subsidiaries or
Lessee, or any of their respective properties known to me the outcome
of which I have reasonable cause to believe could be expected to have a
Material Adverse Effect.
This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated. Opinions
rendered herein are as of the date hereof, and I make no undertaking and
expressly disclaim any duty to supplement such opinions if, after the date
hereof, facts or circumstances come to my attention or changes in the law occur
which could affect such opinions.
In rendering the foregoing opinions, I am expressing no opinion as to
matters of law other than the General Corporation Law of the State of Delaware
and the federal laws of the United States of America. I am admitted to practice
law only in the Commonwealth of Virginia and before certain federal courts. I am
not licensed to practice law in the State of Texas, the State of Delaware, or
the State of New York.
This opinion is rendered solely for the benefit of the Participants,
the Administrative Agent, the Agent Lessor, their prospective or actual
successors and assigns, and their legal advisors and accountants and only with
respect to the transactions described herein. No further distribution or use of
this opinion is authorized and this opinion may not be quoted in full or in part
or otherwise referred to in any financial statements, nor may it be filed with
or furnished to any governmental agency (other than those examining the
Participants, the Administrative Agent, Agent Lessor, or their successors and
assigns) or other party without the prior written consent of the undersigned.
Very truly yours,
R. P. Wolf
Enclosures: Schedule I
A-1-3
<PAGE> 71
SCHEDULE I - OPINION LETTER OF R. P. WOLF
TO FINANCIAL INSTITUTIONS PARTY TO THE FIRST AMENDMENT
MATERIAL AGREEMENTS OF ALUMAX INC.
AND ITS RESTRICTED SUBSIDIARIES
1. Bridge Loan Agreement, dated as of January 17, 1996, among Alumax
Inc., The Chase Manhattan Bank, N.A., as Syndication Agent, Royal Bank of
Canada, as Documentation and Administrative Agent, and the Bank's signatory
thereto.
2. Amended and Restated Credit Agreement, dated as of October 9, 1997,
by and among Alumax Inc., Royal Bank of Canada, as Agent, Arranger and Letter of
Credit Issuer and Canadian Imperial Bank of Commerce, as Administrative Agent.
3. Lease Agreement, dated as of November 25, 1986, by and between
Connecticut National Bank as Owner Trustee for the benefit of U.S. West Capital
Corporation under an Owner Trust Agreement, dated as of November 25, 1986, and
Alumax Mill Products, Inc. (US West Agreements).
4. Facility Purchase Agreement, executed and effective as of September
18, 1996, among Alumax Mill Products, Inc., Fleet National Bank and U.S. West
Financial Services, Inc. (US West Agreements).
5. Purchase Agreement, dated as of June 24, 1996, between Euramax
International plc and Alumax Inc.
6. Acquisition Agreement, dated as of January 26, 1996, between Alumax
of South Carolina, Inc. and Glencore Primary Aluminum Company, LLC.
7. Stock Purchase Agreement by and among the Shareholders of Cressona
Aluminum Company, as Sellers, and Alumax Inc., as Purchaser, dated October 6,
1995.
8. Acquisition Agreement among Eastalco Aluminum AluTrlinum Company,
Eastalco Venture, Alumax of Maryland, Inc. and Alumet Corporation, Atmos
(U.S.A.) Incorporated and Mitalco Inc., dated March 31, 1995.
9. Restated Sales Agreement, dated as of January 1, 1986, as amended
and supplemented as of April 8, 1992, and April 9, 1992, by and between Alcoa of
Australia Limited and Alumax Inc.
10. Power Sales Agreement, dated as of October 1, 1995, between British
Columbia Power Exchange Corporation and Intalco Aluminum Corporation.
11. Power Sales Agreement, dated September 28, 1995, as amended,
between Intalco Aluminum Corporation and Bonneville Power Administration.
<PAGE> 72
12. Electric Service Agreement, dated as of November 11, 1994, as
amended October 10, 1997, by and between Eastalco Aluminum Company and The
Potomac Edison Company.
13. South Carolina Public Service Authority Service Agreement for Large
Power Electric Service, made and entered in July 1, 1997, by and between the
South Carolina Public Service Authority and Alumax of South Carolina, Inc.
14. Rights Agreement, dated as of February 22, 1996, between Alumax
Inc. (the "Company") and Chemical Mellon Shareholder Services, L.L.C., as Rights
Agent.
-2-
<PAGE> 73
EXHIBIT A-2
TO PARTICIPATION AGREEMENT
FORM OF LEGAL OPTION OF
IRELL & MANELLA LLP
November 25, 1997
To the Administrative Agent,
Agent Lessor and Participants to the
Participation Agreement referred to below.
Dear Sirs:
In connection with the Participation Agreement, dated as of November
25, 1997 (the "Participation Agreement"), among Alumax Mill Products, Inc., a
Delaware corporation (the "Lessee"), Alumax Inc., a Delaware corporation (the
"Guarantor"), BMO Leasing (U.S.), Inc., as Agent Lessor and Lessor and Bank of
Montreal as Administrative Agent, Lender and Arranger, we, as counsel for the
Lessee and Guarantor, have examined such corporate records, certificates and
other documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion, including, but not limited to, the
following:
A. the Participation Agreement;
B. the Master Lease;
C. the Loan Agreement;
D. each Note;
E. the Assignment of Lease and Rent;
F. the Deed;
G. the Lessor Mortgage;
H. the Guaranty; and
I. the Ground Lease.
<PAGE> 74
November 25, 1997
Page 2
Terms used herein and not defined shall have their respective defined meanings
as set forth in Appendix A to the Participation Agreement.
In all of our examinations of documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies and the
authenticity of the originals of such latter documents, the lack of undisclosed
modifications or amendments to any documents, and the accuracy of the factual
statements contained in all documents reviewed by us. With your permission, we
have relied as to certain matters on information obtained from public officials,
officers of the Guarantor and Lessee and other sources believed by us to be
reliable.
On the basis of the foregoing, and in reliance thereon, and subject to
the limitations, qualifications and exceptions set forth herein, we are of the
opinion that:
(1) The Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
(2) The Lessee is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
(3) The execution and delivery by Guarantor of those Operative
Documents to which Guarantor is a party have been duly and validly
authorized by all necessary corporate action by Guarantor.
(4) The execution and delivery by Lessee of those Operative
Documents to which Lessee is a party have been duly and validly
authorized by all necessary corporate action by Lessee.
(5) Each Operative Document to which Guarantor is a party has
been executed and delivered by Guarantor and constitutes a legal and
binding obligation of Guarantor, enforceable against Guarantor in
accordance with the respective terms thereof.
(6) Each Operative Document to which Lessee is a party has
been duly executed and delivered by Lessee (with respect to the Ground
Lease, to the extent the Delaware General Corporation Law is applicable
to the due execution and delivery thereof) and each such Operative
Document (other than the Ground Lease) constitutes a legal and binding
obligation of Lessee, enforceable against Lessee in accordance with the
respective terms thereof.
<PAGE> 75
November 25, 1997
Page 3
(7) There are no regulatory consents, authorizations,
approvals or filings required to be obtained or made by the Lessee or
Guarantor under the Federal laws of the United States, the laws of the
State of New York or the General Corporation Law of the State of
Delaware for the execution and delivery of the Operative Documents by
the Lessee and Guarantor on the date hereof pursuant thereto, or for
the performance by the Lessee and Guarantor of their respective
obligations under the Operative Documents.
The opinions set forth in Paragraphs 5 and 6 above are subject to and
limited by the following:
a. The effect of bankruptcy, insolvency, reorganization,
moratorium and other laws and court decisions of general application (including,
without limitation, laws relating to fraudulent conveyances, preferences and
equitable subordination) and other legal or equitable principles relating to,
limiting or affecting the enforcement of creditors' rights generally.
b. The discretion of any court of competent jurisdiction in
awarding equitable remedies including, but not limited to, specific performance
or injunctive relief.
c. We express no opinion regarding the enforceability of any
(i) rights or remedies involving any real or personal property security for the
obligations of Guarantor or Lessee, and (ii) rights or remedies against Lessee
or Guarantor arising out of, involving or resulting from the characterization of
the obligation of Lessee as other than an obligation to repay money borrowed by
Lessee from Agent Lessor and the Lessors. We note that the enforcement of the
obligations of Lessee and Guarantor may be affected by the existence of real and
personal property security for such obligations.
d. The effects of judicially created rules of public policy
limiting the extent to which indemnity agreements and exculpatory clauses will
be enforced.
We express no opinion as to the laws of any jurisdiction except the
laws of the State of New York and, to the extent specifically referred to
herein, the federal laws of the United States and the General Corporation Law of
the State of Delaware, in each case as in effect on the date hereof. In this
regard, no opinion is expressed as to the enforceability of certain remedies
relating to real property, which are governed by the laws of the State of Texas,
the situs of the Property.
For purposes of our opinion in Paragraphs 5 and 6 above, we have
assumed, with your permission, that the relationship between Lessors (including
Agent Lessor) and
<PAGE> 76
November 25, 1997
Page 4
Lessee under the Operative Documents is that of lender and borrower and not that
of lessor and lessee.
In rendering this opinion, to the extent that the obligations of Lessee
and/or Guarantor under the Operative Documents may be dependent upon such
matters, we have assumed that (a) Agent Lessor, the Lessors, the Administrative
Agent and the Lenders have duly and validly executed and delivered each of the
Operative Documents to be executed by them and such agreements are legal, valid
and binding obligations of Agent Lessor, the Lessors, the Administrative Agent
and the Lenders, as the case may be, enforceable against them in accordance with
their respective terms, (b) consideration for the obligations of Lessee and
Guarantor under the Operative Documents has been given by Agent Lessor, the
Lessors, the Administrative Agent and the Lenders, (c) Agent Lessor, the
Lessors, the Administrative Agent and the Lenders are duly qualified and validly
existing under the laws of the jurisdiction of their respective organization and
have obtained, and kept in force at all relevant times, all licenses, permits
and qualifications necessary for them to transact its business, and obtain and
enforce contractual rights, in the State of New York, (d) Agent Lessor, the
Lessors, the Administrative Agent and the Lenders have the power and authority
to deliver and perform the Operative Documents to which they are respectively a
party and have taken all necessary action to authorize the execution, delivery
and performance of each of the Operative Documents to which they are
respectively a party.
This opinion is rendered as of the date hereof, and we make no
undertaking and expressly disclaim any duty to supplement this opinion if, after
the date hereof, facts and circumstances come to our attention or changes in the
law occur which could affect this opinion.
This opinion is rendered solely for the benefit of Agent Lessor, the
Lessors, the Administrative Agent and the Lenders in connection with the
subject transaction, and may not be relied upon for any other purpose. This
opinion may not be furnished to, used, circulated, quoted or referred to by, any
other person without our prior written consent; provided, however that Agent
Lessor, Administrative Agent and any other Lessor or Lender may furnish this
opinion to a financial institution in connection with a proposed assignment of
Agent Lessor's, Administrative Agent's or such Lessor's or Lender's interest or
grant of a participation therein.
Very truly yours,
IRELL & MANELLA LLP
<PAGE> 77
EXHIBIT B
(TO PARTICIPATION AGREEMENT)
FORM OF FUNDING REQUEST
November __, 1997
TO: the Agent Lessor and the Administrative Agent, pursuant to the
Participation Agreement (the "Participation Agreement") dated as of
November __, 1997 among the Lessee, the Guarantor, the Agent Lessor,
the Lessors, the Lenders, the Administrative Agent and the Arranger as
the same may be amended, supplemented, amended and restated or
otherwise modified from time to time (capitalized terms used herein
shall have the meanings ascribed thereto in the Participation
Agreement).
FROM: Alumax Mill Products, Inc. ("Lessee")
RE: Acquisition Date
1. This irrevocable Funding Request is hereby delivered by Lessee pursuant
to Section 3.4(a) of the Participation Agreement.
2. The Acquisition Date is scheduled for November 25, 1997.
3. The amount of the Advance is $96,957,507.26.
4. The Loans and Lessor Amounts will be Base Rate Loans/Lessor Amounts.
5. Funds shall be sent by wire transfer as follows:
a. Each Lessor and Lender shall transfer its Commitment Percentage
of $ __________ to the following account of Agent Lessor:
Bank:
ABA Number:
Account Name:
Account Number:
Ref:
Further Credit to:
[amount to be provided by the Lessee]
b. Lessee hereby instructs Agent Lessor to distribute the funds as
follows:
[information to be provided by the Lessee]
<PAGE> 78
In connection with such requested Advance, the Lessee hereby represents
and warrants to you as follows:
a. On the Acquisition Date, both immediately before and after
giving effect to the requested Advance and the application of
the proceeds thereof, the statements made by the Lessee and
the Guarantor in Section 8.2 of the Participation Agreement
are true and correct in all material respects, except to the
extent such statements relate solely to an earlier date, in
which case such statements shall have been true and correct in
all material respects on and as of such earlier date.
b. All of the conditions precedent set forth in Article VI of the
Participation Agreement applicable to the Advance have been or
will be satisfied or will be waived on the Acquisition Date.
IN WITNESS WHEREOF, I have signed my name this ____ day of November,
1997.
ALUMAX MILL PRODUCTS, INC.
By:
-------------------------------
Name:
Title:
B-2
<PAGE> 79
EXHIBIT C
(TO PARTICIPATION AGREEMENT)
FORM OF INTEREST PERIOD SELECTION/
CONTINUATION/CONVERSION NOTICE
RE: ALUMAX MILL PRODUCTS, INC.
To: Agent Lessor and Administrative Agent
This Interest Period Selection/Continuation/Conversion Notice is
delivered to you pursuant to Section 3.6 of the Participation Agreement
dated as of November_, 1997 (the "Participation Agreement"), among the
Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the
Administrative Agent and the Arranger as the same may be amended,
supplemented, amended and restated or otherwise modified from time to
time.
Alumax Mill Products, Inc. (the "Lessee") hereby requests that on ____,
19_, all or any portion of the currently outstanding principal amount of the
Loans and Lessor Amounts:
(1) which are currently [Base Rate Loans/Lessor Amounts]
[Eurodollar Loans/Lessor Amounts with an Interest Period ending on_____
___, 19_],
(2) be [continued as] [converted into],
(3) [Base Rate Loans/Lessor Amounts] [Eurodollar Loans/Lessor
Amounts having an Interest Period of ____ months].
Any and all capitalized terms used in this Notice for
Selection/Continuation/ Conversion shall have the meaning ascribed thereto in
the Participation Agreement, unless specifically defined herein.
The Lessee hereby certifies, represents and warrants that no Lease
Default or Lease Event of Default exists or will (after giving effect to the
selection, continuation or conversion requested hereby) exist.
<PAGE> 80
The Lessee has caused this notice to be executed and delivered by its
Responsible Officer this ____________ day of ______________, 19___.
ALUMAX MILL PRODUCTS, INC.
By:
------------------------------------
Name:
Title:
C-2
<PAGE> 81
EXHIBIT D-1-A
(TO PARTICIPATION AGREEMENT)
FORM OF SECRETARY'S CERTIFICATE
The undersigned, __________________ [Assistant] Secretary of [Name of
Guarantor/Lessee], a Delaware corporation (["Guarantor"]["Lessee"]), pursuant to
the Participation Agreement dated as of November 25, 1997 (the "Participation
Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the
Lenders, the Administrative Agent and the Arranger as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time, does
hereby certify as follows (capitalized terms used herein shall have the meanings
ascribed thereto in the Participation Agreement):
1. Attached hereto as Exhibit A is a true, correct and
complete copy of [Guarantor's/Lessee's] Restated Certificate of
Incorporation, as amended, and in effect on the date hereof, certified
by the Secretary of State of the State of Delaware.
2. Attached hereto as Exhibit B is a true, correct and
complete copy of [Guarantor's/Lessee's] By-Laws, as amended, and in
effect on the date hereof, and such by-laws have been in full force and
effect since ______________, 19_ without modification or amendment.
IN WITNESS WHEREOF, I have signed my name this day ____________ of
____________, 199___.
------------------------------------------
[Assistant] Secretary as aforesaid
I, __________________, [Vice] President of [Name of Guarantor/Lessee],
hereby certify that _______________________________ is on the date hereof the
duly elected, qualified and acting [Assistant] Secretary of [Name of
Guarantor/Lessee], and that the signature set forth above is such person's true
and correct signature.
Dated:____________, 199_____
---------------------------------------
[Vice] President as aforesaid
<PAGE> 82
EXHIBIT D-1-B
(TO PARTICIPATION AGREEMENT)
FORM OF SECRETARY'S CERTIFICATE
The undersigned, _______________ [Assistant] Secretary of [Name of
Guarantor/Lessee], a Delaware corporation (["Guarantor"]["Lessee"]), pursuant to
the Participation Agreement dated as of November 25, 1997 (the "Participation
Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the
Lenders, the Administrative Agent and the Arranger as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time, does
hereby certify that (capitalized terms used herein shall have the meanings
ascribed thereto in the Participation Agreement) attached hereto as Exhibit C
are true, correct and complete copies of all resolutions adopted by the Board of
Directors of [Guarantor/Lessee] relating to the Participation Agreement and the
other Operative Documents to which [Guarantor/Lessee] is a party, which
resolutions have not been amended or rescinded and are in full force and effect
on the date hereof.
IN WITNESS WHEREOF, I have signed my name this day ___________ of
____________, 199_.
---------------------------------------
[Assistant] Secretary as aforesaid
I, ___________________, [Vice] President of [Name of Guarantor/Lessee],
hereby certify that __________________________________ is on the date hereof
the duly elected, qualified and acting [Assistant] Secretary of [Name of
Guarantor/Lessee], and that the signature set forth above is such person's true
and correct signature.
Dated:________________ , 199___
---------------------------------------
[Vice] President as aforesaid
<PAGE> 83
EXHIBIT D-1-C
(TO PARTICIPATION AGREEMENT)
FORM OF SECRETARY'S CERTIFICATE
The undersigned, ________________ [Assistant] Secretary of [Name of
Guarantor/Lessee], a Delaware corporation (["Guarantor"]["Lessee"]), pursuant to
the Participation Agreement dated as of November 25, 1997 (the "Participation
Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the
Lenders, the Administrative Agent and the Arranger as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time, does
hereby certify that (capitalized terms used herein shall have the meanings
ascribed thereto in the Participation Agreement) the following individuals on
the date hereof are duly appointed, qualified and authorized pursuant to the
resolutions referred to in paragraph 3 above to execute and deliver the
Operative Documents and any other documents to be executed on behalf of
[Guarantor/Lessee] in connection with the transactions contemplated by the
Participation Agreement, and the signature of such individuals appearing on such
documents are the respective genuine signatures of each such person:
NAME SIGNATURE
------------------ -----------------------
------------------ -----------------------
IN WITNESS WHEREOF, I have signed my name this day __________ of
____________, 199_____.
--------------------------------------------
[Assistant] Secretary as aforesaid
I, ______________________, [Vice] President of [Name of
Guarantor/Lessee], hereby certify that __________________________ is on the date
hereof the duly elected, qualified and acting [Assistant] Secretary of [Name of
Guarantor/Lessee], and that the signature set forth above is such person's true
and correct signature.
Dated:___________, 199___
--------------------------------------------
[Vice] President as aforesaid
<PAGE> 84
EXHIBIT D-2
(TO PARTICIPATION AGREEMENT)
FORM OF RESPONSIBLE OFFICER'S CERTIFICATE
Pursuant to the Participation Agreement dated as of November 25, 1997
(the "Participation Agreement"), among the Lessee, the Guarantor, the Agent
Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger as
the same may be amended, supplemented, amended and restated or otherwise
modified from time to time, I, [name of Responsible Officer], [position of
Responsible Officer] of [Guarantor/Lessee] (the ["Guarantor"/"Lessee"]), do
hereby certify as follows (capitalized terms used herein shall have the meanings
ascribed thereto in the Participation Agreement):
1. To my knowledge, the representations and warranties of the
[Guarantor/Lessee] contained in the Participation Agreement and other Operative
Documents to which it is a party are true, correct and complete in all material
respects on and as of the date hereof with the same effect as if such
representations and warranties had been made on and as of the date hereof,
except to the extent such statements relate solely to an earlier date, in which
case such statements shall have been true and correct in all material respects
on and as of such earlier date.
2. To my knowledge, no Lease Default or Lease Event of Default has
occurred and is continuing under any Operative Document to which the
[Guarantor/Lessee] is a party.
3. To my knowledge, each Operative Document to which the
[Guarantor/Lessee] is a party is in full force and effect with respect to it.
4. The [Guarantor/Lessee] has duly performed and complied with all
conditions contained in the Participation Agreement or in any other Operative
Document required to be performed or complied with by it on or prior to the date
hereof, where failure to perform such obligation shall have a Material Adverse
Effect.
IN WITNESS WHEREOF, I have signed my name this _____ day of
___________, 199___ and certify that I am the [position of Responsible Officer]
of the [Guarantor/Lessee].
[GUARANTOR/LESSEE]
By:
------------------------------
Name:
Title:
<PAGE> 85
EXHIBIT E
(TO PARTICIPATION AGREEMENT)
[INTENTIONALLY OMITTED]
<PAGE> 86
EXHIBIT F
(TO PARTICIPATION AGREEMENT)
FORM OF ASSIGNMENT AGREEMENT
To: Alumax Mill Products, Inc., as the Lessee
BMO Leasing (U.S.), Inc., as Agent Lessor
Bank of Montreal, as Administrative Agent
Reference is made to Section 12.1 of the Participation Agreement dated
as of November 25, 1997 (the "Participation Agreement"), among the Lessee, the
Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent
and the Arranger as the same may be amended, supplemented, amended and restated
or otherwise modified from time to time (the "Participation Agreement").
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings given thereto in the Participation Agreement.
[Name of assigning Participant] (the "Assignor") and [Name of Eligible
Lender Assignee/Eligible Lessor Assignee] hereby agree as follows:
1. The Assignor hereby sells and assigns, without recourse, to
the Assignee, and the Assignee hereby purchases and assumes from the
Assignor, a [____]% interest in and to all the Assignor's rights and
obligations under the Operative Documents as of the Effective Date (as
defined below) (including, without limitation, such percentage interest
in the [Lender] [Lessor] Commitment of the Assignor on the Effective
Date and such percentage interest in each [Loan] [Lessor Amounts] owing
to the Assignor outstanding on the Effective Date together with such
percentage interest in all unpaid [interest] [Yield] and fees
(excluding those fees under Section 4.4 of the Participation Agreement)
accrued to the Effective Date).
2. The Assignor (a) represents and warrants that as of the
date hereof its [Lender] [Lessor] Commitment (without giving effect to
assignments thereof which have not yet become effective) is
$[___________ ], and the outstanding aggregate principal balance of its
[Loans] [Lessor Amounts] (without giving effect to assignments thereof
which have not yet become effective) is $ _____________] and (b) makes
no representation or warranty and assumes no responsibility (i) with
respect to any statements, warranties or representations made in or in
connection with any Operative Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of any
Operative Document or any other instrument or document furnished
thereunder or pursuant thereto, except that it represents and warrants
that it is the legal and beneficial owner of the interests being
assigned by it hereunder and that such interests are free and clear of
adverse claims, and (ii) with respect to the financial position of the
Lessee or the Guarantor or the performance or observance by the Lessee
or the Guarantor of any of their respective obligations under any
Operative
<PAGE> 87
Document or any other instrument or document furnished thereunder or
pursuant thereto.
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment Agreement; (b) confirms that
it has received a copy of each of the Participation Agreement, the
Lease and the Loan Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 10.1(f) of the
Participation Agreement and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to
enter into this Assignment Agreement; (c) agrees that it will,
independently and without reliance upon the Administrative Agent, the
Agent Lessor, the Assignor or any other Participant and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under any Operative Document; (d) appoints and authorizes the
Administrative Agent and the Agent Lessor, as applicable, to take such
action on its behalf and to exercise such powers under the Operative
Documents as are delegated to the Administrative Agent and the Agent
Lessor, as applicable, by the terms thereof, together with such powers
as are reasonably incidental thereto; and (e) agrees that it will
perform in accordance with its terms all the obligations which by the
terms of the Operative Documents are required to be performed by it as
a Participant.
4. From and after the Effective Date (a) the Assignee shall be
party to and be bound by the provisions of the Operative Documents as a
[Lender] [Lessor] and, to the extent of its interests assigned by this
Assignment Agreement, have the rights and obligations of a ["Lender"]
["Lessor"] and as a "Participant" thereunder and (b) the Assignor
shall, to the extent of its interests assigned by this Assignment
Agreement, relinquish its rights and be released from its obligations
under the Operative Documents.
5. This Assignment Agreement will be delivered to each of the
Administrative Agent and the Agent Lessor together with a transfer fee
of $3,500 payable by the Assignor or the Assignee to the Administrative
Agent for its own account.
[6. The Assignor shall surrender to the Administrative Agent
its Note or Notes representing the Assignor's interest in and to all
the Assignor's rights and obligations under the Operative Documents,
and the Administrative Agent will (upon execution and delivery thereof
by the Agent Lessor) promptly provide to the Assignor and the Assignee
separate promissory notes in the amount of their respective interests
substantially in the form of the original Note (each such note with a
notation thereon that it is given in substitution for and replacement
of the original Note or any replacement notes thereof).]**
- -------------------
** This Section to apply only if the Assignor is a Lender.
F-2
<PAGE> 88
7. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8. The effective date of this Assignment Agreement shall be
___________________, 19___ (the "Effective Date").
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered by their respective duly authorized
officers as of the date first written above.
Adjusted Commitment [ ]
---------------------------
as Assignor
Commitment to make Loans:
$
---------------------
Commitment Percentage: % By:
------ -------------------------
Name:
Commitment to advance Title:
Lessor Amounts:
$
---------------------
Commitment Percentage: %
------
Commitment [ ]
---------------------------
as Assignee
Commitment to make Loans:
$
---------------------
Commitment Percentage: % By:
------ -------------------------
Name:
Commitment to advance Title:
Lessor Amounts:
$
---------------------
Commitment Percentage: %
------
Address for Notices:
-----------------------------
-----------------------------
-----------------------------
Attention:
--------------------
Telecopy ( ) -
--- ----- --------
Telecopy ( ) -
--- ----- --------
F-3
<PAGE> 89
Agreed to and Accepted:
ALUMAX MILL PRODUCTS, INC.,
as Lessee
By:
------------------------------
Name:
Title:
BANK OF MONTREAL,
as Administrative Agent
By:
------------------------------
Name:
Title:
BMO LEASING (U.S.), INC.,
as Agent Lessor
By:
------------------------------
Name:
Title:
F-4
<PAGE> 90
EXHIBIT G
(TO PARTICIPATION AGREEMENT)
FORM OF LEGAL OPTION OF LOCAL COUNSEL TO LESSEE
November 25, 1997
To the Parties Listed on
Schedule A attached hereto
Re: Alumax Mill Products, Inc. - Lease Financing of Rolling Mill and Related
Equipment
Ladies and Gentlemen:
We have acted as special counsel in the State of Texas (the "State")
for Alumax Mill Products, Inc., a Delaware corporation ("Lessee"), in connection
with the transactions contemplated by that certain Participation Agreement
(herein so called) dated as of November 25, 1997, by and among Lessee, the
Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent
and the Arranger (as each of such terms are defined in the Participation
Agreement). Although we are serving as special counsel to Lessee, as to matters
governed by laws other than the State, you are, unless otherwise denoted herein,
relying upon the opinions of separate counsel.
This opinion is rendered to you at the request of Borrower pursuant to
Section 6.1 of the Participation Agreement. Capitalized terms used but not
otherwise defined herein have the respective meanings specified in Appendix A to
the Participation Agreement.
I.
Documents Reviewed
In connection with the opinions contained herein, we have examined and
are familiar with originals of or copies identified to our satisfaction of the
documents listed on Schedule B attached hereto (the "Subject Documents"). In
addition, we have examined and are familiar with such legal matters as we have
deemed necessary for purposes of rendering this opinion.
II.
Opinions
Based solely upon our review of the Subject Documents, and subject to
the qualifications and assumptions set for herein, it is our opinion that:
<PAGE> 91
To the Parties Listed on
Schedule A attached hereto
November 25, 1997
Page 2
1. The Ground Lease and, to the extent Texas law is applicable to the
Master Lease, the Master Lease, each constitutes the legal, valid and binding
obligation of the parties thereto and is enforceable against each party in
accordance with the terms thereof.
2. The Deed is in form sufficient under the laws of the State of Texas
to convey all interests in the property described therein intended to be
conveyed thereby, and such instrument, when filed or recorded in the Real
Property Records of Bowie County, Texas (the "Recording Office") will have been
filed or recorded in the appropriate public offices in the State in which such
filing and recording is necessary to convey valid title to the property
described therein to the Agent Lessor.
3. If the transaction contemplated by the Master Lease is characterized
as a lease transaction, the Master Lease is in form sufficient under the laws of
the State of Texas to demise to the Lessee a valid leasehold interest in the
Property. The Master Lease or the Memorandum of Lease, when recorded with the
Recording Office, will have been filed or recorded in all public offices in the
State of Texas in which such filing or recording is necessary to provide
constructive notice of the Master Lease to third Persons and to establish of
record the interest of the Agent Lessor thereunder.
4. If the transactions as provided in the Master Lease are
characterized as a loan transaction:
(a) Section 25.2 of the Master Lease is effective to create a
power of sale in favor of the Lessee; and
(b) The Master Lease is in form sufficient under the laws of
the State of Texas to create a valid lien or security interest in favor
of the Agent Lessor, and to secure all the obligations of the Lessee
under the Subject Documents, in the Property. The Master Lease or the
Memorandum of Lease, when recorded with the Recording Office, will have
been filed or recorded in all public offices in the State of Texas in
which such filing or recording is necessary to perfect the lien of the
Agent Lessor thereunder to the extent that the Property constitutes
real estate. The Master Lease provides the Agent Lessor with remedies
customarily obtained by lenders in the State of Texas in connection
with the type of loan and security provided thereby.
5. The Assignment of Lease and Rent is in form sufficient under the
laws of the State of Texas to create a valid lien or security interest in favor
of the Lenders in the collateral described therein, and when recorded with the
Recording Office, will have been filed or recorded in all public offices in the
State of Texas in which such filing or recording is necessary to perfect
<PAGE> 92
To the Parties Listed on
Schedule A attached hereto
November 25, 1997
Page 3
the lien of the Lenders thereunder to the extent that such collateral
constitutes real estate. The Assignment of Lease and Rent provides the Lenders
with remedies customarily obtained by lenders in the State of Texas in
connection with the type of loan and security provided for thereby.
6. The law (statutory or otherwise) of the State of Texas does not
require a lienholder to make an election of remedies where such lienholder holds
security interests and liens on both the real and the personal property of a
debtor or to take recourse first or solely against or otherwise exhaust its
remedies against its collateral before otherwise proceeding to enforce against
such debtor the obligations of such debtor.
7. The UCC Financing Statements which are to be recorded or filed
within the State, the forms of which are attached as Schedule C hereto, are in
form sufficient under the laws of the State for filing, or recording, and when
recorded with the Recording Office and the Texas Secretary of State will have
been filed or recorded in all public offices in the State in which such filing
or recording is necessary to perfect the interest of the Agent Lessor in the
collateral described therein, to the extent the same can be perfected by filing
or recording in the State.
8. Assuming that the Agent Lessor is qualified to transact business in
the State of Texas, to the best of our knowledge, neither the execution and
delivery of the Subject Documents, nor the fulfillment of or the compliance with
the provisions thereof by the Agent Lessor results in a violation of, or
contravenes any statute, law, rule, code, ordinance or regulation of the State
of Texas to which the Agent Lessor is subject.
9. It is our opinion that a Texas court in a properly presented case
should apply the laws of the State of Texas to the perfection of the lien and
security interest in the Property and the rights and remedies of the Trustee and
the Agent Lessor with respect to the Property (collectively, the "Remedies
Provisions") as provided in Section 26.8 of the Master Lease. In delivering such
opinion, we are relying in part on Tex.Bus.Comm.Code, ss.35.51(b). Although
no Texas courts have decided a case under Tex.Bus.Comm.Code, ss.35.51(b), we
believe that a Texas court sitting and applying the laws of the State in a
properly presented case should characterize the Master Lease as a "qualified"
transaction with a reasonable relationship to the State of Texas and will uphold
and enforce such choice of law provision. In rendering the opinions set forth
herein, we are expressly assuming, without opining, that the Subject Documents
are enforceable, and that any references in the provisions of the Master Lease
to the other Subject Documents, or to any remedies available to the Trustee or
Agent Lessor under any or all of the Subject Documents, are valid and effective.
We render no opinion, express or implied, as to the effect, if any, of (i) the
effectiveness or enforceability of such remedies or (ii) the validity of any
provisions of any of the Subject Documents which purport to be governed by the
laws of a
<PAGE> 93
To the Parties Listed on
Schedule A attached hereto
November 25, 1997
Page 4
jurisdiction other than the State. We render no opinion as to the effect of the
reference to the laws of the State of New York or New York procedures contained
in the Master Lease or any of the other Subject Documents.
You have further requested our opinion as to whether a Texas court in a
properly presented case should apply the laws of the State of New York to the
Subject Documents, except to the extent of the Ground Lease and the Remedies
Provisions of the Master Lease. Each of the remaining Subject Documents is, by
its terms, governed by the laws of the State of New York, and in rendering the
opinions contained herein, we are in no manner expressly or impliedly rendering
opinions as to the laws of the State of New York. We are advised that the
parties have determined based on a series of financing transactions that the
State of New York has a significant relationship to the Subject Documents which
are not the subject of Texas law and that the State of New York has a
significant relationship to the obligations of the Lessee thereunder. Assuming
such determination is correct, we are of the opinion that a Texas court in a
properly presented case should apply the laws of the State of New York to the
Subject Documents except to the extent of the Remedies Provisions of the Master
Lease. This opinion is based in part on Tex.Bus.Comm.Code, ss.35.51(b), although
no Texas courts have decided a case under such statute.
10. Except for the filings and recordings described above, no approval,
consent, or filing or registration with, any governmental authority or
regulatory body in the State of Texas is required to be made or taken in the
State of Texas to establish, protect and preserve title to, interests in, liens
on and security interests in the Property as contemplated by the Subject
Documents, except for UCC continuation statements.
11. Assuming without opining that the transaction contemplated by the
Master Lease is characterized as a loan for federal income tax purposes, except
for federal, state and local franchise, withholding and income taxes, no taxes,
fees or other charges imposed by the State of Texas, Bowie County or any other
local governmental entity are payable by the Agent Lessor or the Lenders solely
as a result of the execution, delivery, recordation or filing (where applicable)
of the Subject Documents and all other instruments delivered in connection with
the transactions contemplated thereby (except for nominal filing or recording
fees payable at the time of filing or recording).
12. Assuming without opining that the transaction contemplated by the
Subject Documents is a loan, and assuming without opining that a court would
find that the laws of the State of Texas would apply to such transaction
notwithstanding the parties' choice of New York law, we believe that a Texas
court sitting and applying the laws of the State in a properly
<PAGE> 94
To the Parties Listed on
Schedule A attached hereto
November 25, 1997
Page 5
presented case would give effect to the usury savings provisions set forth in
Section 26.13 of the Master Lease.
III.
Qualifications
The opinions expressed herein are subject to and limited by the
following additional qualifications, assumptions and exclusions:
(a) The opinion as to the enforceability of the Subject
Documents is subject to the qualification that enforcement of the
Ground Lease and the Master Lease is limited by the following: (i) the
rights of the United States under the Federal Tax Lien Act of 1966, as
amended; (ii) principles of equity which may limit the availability of
certain equitable remedies; (iii) bankruptcy, insolvency,
reorganization, liquidation, conservatorship, receivership, fraudulent
or preferential conveyance, moratorium and other laws applicable to
creditors' rights or the collection of debtors' obligations generally;
and (iv) the power of courts to award damages in lieu of granting
equitable remedies. As to the matters specified in (ii) and (iv) above,
such matters will not render the Ground Lease nor the Master Lease
invalid as a whole nor preclude (x) the acceleration of the obligation
of Lessee to repay the indebtedness, upon default by Lessee in the
payment of such indebtedness or upon a material default in any other
material provision of the Master Lease, and (y) the foreclosure of the
lien of the Master Lease in accordance with the laws of the State, of
the lien on and security interest in the collateral created by the
Master Lease upon maturity or upon acceleration described in
subparagraph (b) above.
(b) Without opining as to the character of the transaction
contemplated by the Master Lease as a loan or lease, the opinion as to
the enforceability of the Master Lease and the Ground Lease is further
subject to the qualification that the enforceability of certain of the
remedial, waiver and other provisions of the Master Lease and the
Ground Lease is further limited by applicable laws of the State and the
United States in addition to those described in subparagraph (a) above;
however, such applicable laws do not, in our opinion, substantially
interfere with the practical realization of the essential benefits
expressed in the Master Lease or the Ground Lease, except for the
economic consequences which might result from any procedural delay
which may result therefrom, nor does such unenforceability render the
Master Lease or the Ground Lease invalid as a whole or substantially
interfere with the principal benefits and/or security provided thereby.
<PAGE> 95
To the Parties Listed on
Schedule A attached hereto
November 25, 1997
Page 6
(c) No opinion is expressed regarding the enforceability of
any of the provisions of the Ground Lease or the Master Lease which
purport to: (i) confer self-help or equitable remedies such as specific
performance or injunctive relief; (ii) establish evidentiary standards
for suits or proceedings or restrict, limit or deny access to courts;
(iii) waive or release the legal rights, benefits or claims of any
party in advance; (iv) allow or authorize the delay or omission of any
remedy, indemnity or consent judgment; (v) avoid or ignore the
doctrines of mortgagee-in-possession or commercial influence; (vi)
establish non-culpability for actions taken by or on behalf of Agent
Lessor or any other person; (vii) take possession of rents, profits or
issues derived from the Property or purport to establish the assignment
of rents, profits and issues from the Property as a direct or absolute
assignment (as opposed to a collateral assignment) thereof prior to the
time Agent Lessor obtains possession thereof through foreclosure of the
liens against or a judicial appointment of receivership for the
Property in question, or take some action which is judicially deemed to
be the equivalent thereof; (viii) allow Agent Lessor to take possession
of any of the real property collateral for the transaction prior to an
order of a competent jurisdiction or a valid foreclosure upon such
collateral or as to any personal property collateral for the
transaction prior to full compliance by Agent Lessor of the applicable
terms of the Uniform Commercial Code in effect; (ix) authorize Agent
Lessor or any other party to act as attorney-in-fact for the Lessee;
(x) appoint a receiver to the extent the appointment of a receiver is
governed by applicable statutory requirements and to the extent any
such provision of the Master Lease may not be in compliance with such
statutory requirements; (xi) establish waiver and define rights
relating to subrogation, exculpation, waiver, ratification of future
acts, trespass, conversions, gross negligence or fraud; (xii) relate to
arbitration or appraisal remedies and rights; and (xiii) permit the
Agent Lessor to accelerate the maturity of the indebtedness evidenced
and governed by the Master Lease without notice to the Lessee.
As to the matters specified in this subparagraph (c), without
opining as to the character of this transaction contemplated by the
Master Lease as a loan or a lease, in our opinion, the unenforceability
of such provisions will not render the Master Lease invalid as a
whole, nor preclude (y) the acceleration of the obligation of Lessee to
repay such indebtedness, upon default by Lessee, the payment of such
indebtedness or upon a material default in any other material provision
of the Master Lease, and (z) the foreclosure of the lien of the Master
Lease in accordance with the laws of the State, of the lien on and
security interest in the collateral created by the Master Lease upon
maturity or upon acceleration described in subparagraph (b) above.
(d) We express no opinion herein as to: (i) the effect of any
land use or environmental law, rule, regulation or ordinance; (ii) the
perfection of any security interest
<PAGE> 96
To the Parties Listed on
Schedule A attached hereto
November 25, 1997
Page 7
in collateral to the extent that it purports to secure any indebtedness
arising other than under the Master Lease; and (iii) the validity or
enforceability of any security interest in or assignment of any account
receivable with respect to which the account debtor is the United
States or any agency, department or instrumentality of the United
States.
(e) No examination of title to the Property was undertaken,
nor is any opinion expressed (i) with respect thereto or (ii) with
respect to the adequacy of the description of the collateral or the
creation or perfection or priority of any liens or security interests
to be created or modified pursuant to the Master Lease and financing
statements. To the extent title to any real or personal property is
required to be held by any party in order to perform its obligations
under the Master Lease or the Ground Lease, we have assumed, without
any investigation, that such party holds title adequate to perform its
obligations.
(f) The opinions rendered herein are based upon the further
assumptions that: (i) the drafts of the Subject Documents reviewed by
us have been duly executed by the parties thereto; (ii) each of the
parties to the Subject Documents has all the legal capacity, power and
authority required for it to enter into the Subject Documents to which
it is a party, and to perform its respective obligations thereunder;
(iii) all such matters have received any corporate or other
authorization required by any applicable charter, bylaw, law or
regulation; (iv) all documents submitted to us as originals are
authentic and all documents submitted to us as copies are true and
correct reproductions of the originals of such documents; (v) each of
the agreements made by the parties to the Subject Documents and every
Subject Document executed by the parties to the Subject Documents is
valid, binding and enforceable against parties to the Subject Documents
as appropriate to the extent that such validity, binding effect and
enforceability affects the opinions herein expressed; and (iv) all
individuals executing the Subject Documents are sui juris.
(g) No opinion is given or expressed, nor should any opinion
be inferred or implied, as to: (i) the financial ability of the Lessee
or any other obliger pursuant to the Subject Documents to meet or
satisfy their respective obligations thereunder; (ii) the truthfulness,
completeness or accuracy of any applications, reports, plans,
documents, financial statements or other matters furnished to parties
to the Subject Documents or their agents or representatives by Lessee
or any other obligor under the Subject Documents or by any party acting
by, for or at the discretion of Lessee or any other obligers or in
conjunction with the transaction as evidenced by the Subject Documents;
(iii) the truthfulness, completeness or accuracy of any representation,
warranty, certification or statement by Lessee and all other parties to
the Subject Documents or any document or item referred to or described
in the Subject Documents; and (iv) the
<PAGE> 97
To the Parties Listed on
Schedule A attached hereto
November 25, 1997
Page 8
compliance by the Lessee or any other person or entity with applicable
federal and state securities laws and/or regulations in connection with
the transactions as evidenced by the Subject Documents.
(h) The qualification of any opinion or statement herein by
the use of words "knowledge", "current actual knowledge" or "to our
knowledge" or "known to us" means that during the course of our
representation of Lessee in connection with the subject transaction, no
facts or circumstances has come to the attention of the attorneys
involved in such representation which gives such attorneys actual
knowledge of the existence of the documents or facts so qualified.
Furthermore, except as otherwise expressly set forth herein, we have
not undertaken any investigation to determine the existence of such
documents or facts, and no inference as to our knowledge thereof shall
be drawn from the fact of our representation of any party or otherwise.
(i) We have further assumed, with your permission, that each
of the parties to the Subject Documents is duly organized, validly
existing and in good standing under the laws of its state of
incorporation, and has all requisite corporate power and authority to
execute, deliver and perform their obligations under the Subject
Documents.
IV.
Scope and General Statements
This opinion is provided for the purpose of complying with the
requirements of the Participation Agreement, and without prior consent, may not
be relied upon, used, circulated, quoted or otherwise referred to in any manner
by any person, firm or governmental authority or entity whatsoever other than
reliance thereon by Agent Lessor and the other addressees of this opinion
letter, any participants of Agent Lessor and Agent Lessor's successors and
assigns, solely for the purposes of consummating the transaction evidenced by
the Subject Documents, except to the extent, and only to the extent, required by
applicable governmental regulations or requirements. This opinion shall not be
construed as or be deemed to be a guaranteeing or insuring instrument. Further,
although we have acted as special counsel in the specific manner delineated
herein for Lessee in connection with the transactions relating to or in respect
of the Participation Agreement, our representation has been limited to specific
matters from time to time referred to us for substantive legal attention by
Lessee, and factual matters or agreements pertaining to the Participation
Agreement, the Subject Documents, and the Property may exist of which we have no
knowledge or information. However, we have no current actual knowledge of any
facts or circumstances which would make any opinion expressed herein incorrect
or subject to question or require further investigation of any laws, facts or
circumstances.
<PAGE> 98
To the Parties Listed on
Schedule A attached hereto
November 25, 1997
Page 9
This opinion is rendered as of the date hereof, and we undertake no,
and hereby disclaim any, obligation to advise you of any changes in or any new
developments which might affect any matters or opinions set forth herein. We are
licensed to practice law only in the State of Texas, and we express no opinion
with respect to any laws other than the laws of the State of Texas upon the
validity, binding effect and enforceability of the Master Lease and the Ground
Lease.
WINSTEAD SECHREST & MINICK P.C.,
a Professional Corporation
By: /s/ J. Kenneth Kopf
-----------------------------------
J. Kenneth Kopf
<PAGE> 99
Schedule A
Addressees of Opinion Letter
BMO Leasing (U.S.), Inc.
311 West Monroe Street
Chicago, IL 60603
Bank of Montreal
115 South LaSalle Street
Chicago, IL 60603
Chapman and Cutler
111 West Monroe Street
Chicago, IL 60603-4080
Schedule A, Addressees of Opinion Letter - Solo Page
<PAGE> 100
APPENDIX A
TO PARTICIPATION AGREEMENT
A. Interpretation. In each Operative Document, unless a clear contrary
intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and
assigns are permitted by the Operative Documents, and reference to a
Person in a particular capacity excludes such Person in any other
capacity or individually;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement, document or instrument
(including any Operative Document) means such agreement, document or
instrument as amended or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms of the
other Operative Documents, and reference to any promissory note
includes any promissory note which is an extension or renewal thereof
or a substitute or replacement therefor;
(v) reference in any Operative Document to any Article,
Section, Appendix, Schedule or Exhibit means such Article or Section
thereof or Appendix, Schedule or Exhibit thereto;
(vi) "hereunder," "hereof", "hereto" and words of similar
import shall be deemed references to an Operative Document as a whole
and not to any particular Article, Section or other provision thereof;
and
(vii) "including" (and with correlative meaning "include")
means including without limiting the generality of any description
preceding such term.
B. Computation of Time Periods. Unless otherwise specified in any
Operative Document, for purposes of computation of periods of time under the
Operative Documents, the word "from" means "from and including" and the words
"to" and "until" each mean "to but excluding."
C. Accounting Terms and Determinations. Unless otherwise specified in
any Operative Document, all terms of an accounting character used therein shall
be interpreted, and all accounting determinations hereunder shall be made in
accordance with GAAP applied (to the extent relevant) on a basis consistent
(except for changes concurred in by the Lessee's or the Guarantor's independent
public accountants or otherwise required by a change in GAAP) with the most
recent financial statements of the Lessee and the Guarantor delivered to the
Administrative Agent, the Agent Lessor and the Participants.
<PAGE> 101
D. Conflict in Operative Documents. If there is any conflict between
any Operative Documents, such Operative Documents shall be interpreted and
construed, if possible, so as to avoid or minimize such conflict but, to the
extent (and only to the extent) of such conflict, the Participation Agreement
shall prevail and control.
E. Legal Representation of the Parties. The Operative Documents were
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring the Operative Documents to
be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
F. Defined Terms. Unless a clear contrary intention appears, terms
defined herein have the respective indicated meanings when used in each
Operative Document.
"Account" means the account identified by the Administrative Agent into
which all payments by the Lessee under the Operative Documents shall be made.
The Account shall be specified on Schedule II to the Participation Agreement.
"Acquisition Cost" means the amount of the Advance made available to
the Lessee for the purpose of acquiring the Property as such amount is set forth
in the Funding Request relating to the acquisition of the Property.
"Acquisition Date" is defined in Section 6.1 of the Participation
Agreement.
"Administrative Agent" means BMO in its capacity as Administrative
Agent, and any successors or permitted assigns thereto in such capacity.
"Advance" means the advance of funds to the Lessee pursuant to Article
III of the Participation Agreement.
"Affiliate" means any Person (a) which directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under common
Control with, a Person or (b) which is the beneficial owner of 10% or more of
any class of the Voting Stock of such Person.
"After Tax Basis" means, with respect to any payment to be received,
the amount of such payment increased so that, after deduction of the amount of
all Taxes required to be paid by the recipient (less any Tax savings realized
and the present value of any Tax savings projected to be realized by the
recipient as a result of the payment of the indemnified amount) with respect to
the receipt by the recipient of such amounts, such increased payment (as so
reduced) is equal to the payment otherwise required to be made.
"Agent Lessor" means BMO Leasing (U.S.), Inc., a Delaware corporation,
together with its successors permitted pursuant to Section 14.12 of the
Participation Agreement.
"Aggregate Commitment Amount" means, $96,957,507.26.
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"ALTA/ACSM" is defined in Section 6.1(o) of the Participation
Agreement.
"Applicable Law" means all Federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting the Property or the demolition, construction,
use or alteration thereof, in force and effect at the relevant point in time,
including any that require repairs, modifications or alterations in or to the
Property or in any way limits the use and enjoyment thereof (including all
building, zoning and fire codes and the Americans with Disabilities Act of 1990,
42 U.S.C. S 1201 et seq. and any other similar federal, state or local laws or
ordinances and the regulations promulgated thereunder) and all Environmental
Laws, and all permits, certificates of occupancy, licenses, authorizations and
regulations relating thereto, and all covenants, agreements, restrictions and
encumbrances contained in any instruments which are either of record or known to
the Lessee affecting the Property, the Appurtenant Rights and any easements,
licenses or other agreements entered into pursuant to Section 11.2 of the Master
Lease.
"Appraisal" means an appraisal by the Appraiser of the Fair Market
Sales Value of the Property.
"Appraiser" means the appraiser which prepared an Appraisal of the
Property or an up-date to an Appraisal of the Property as selected by the
Administrative Agent, Lessee and the Agent Lessor.
"Appurtenant Rights" means, with respect to the Land, (i) all
agreements, easements, rights of way or use, rights of ingress or egress,
privileges, appurtenances, tenements, and other rights and benefits belonging or
pertaining to the Land or the Improvements thereon, including, without
limitation, the use of any streets, ways, alleys, vaults or strips of land
adjoining, abutting, adjacent or contiguous to the Land and (ii) all permits,
licenses and rights, whether or not of record, appurtenant to the Land.
"Arranger" means BMO in its capacity as Arranger and any successors and
assigns thereto in such capacity.
"Arranger's Fee Letter" means that certain engagement letter and
attached indicative term sheet dated as of October 27, 1997, between the
Guarantor and the Arranger.
"Assignment of Lease and Rent" means the Assignment of Lease and Rent
dated as of November 25, 1997, from the Agent Lessor, as assignor, to the
Administrative Agent for the benefit of the Lenders, as assignee.
"Authorized Financial Officer" of any Person means the Chief Financial
Officer, Chief Accounting Officer, Treasurer or Assistant Treasurer or such
other Persons as any such officer may from time to time designate in writing to
the Administrative Agent and the Agent Lessor.
"Bankruptcy Code" is defined in Section 5.1(e) of the Loan Agreement.
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"Base Rate" means for any day the greater of:
(i) the rate of interest announced by the Administrative Agent from
time to time as its prime commercial rate for Dollar loans made in the United
States (it being understood that such rate may not be the Administrative Agent's
best or lowest rate), with any change in the Base Rate resulting from a change
in said prime commercial rate to be effective as of the date of the relevant
change in said prime commercial rate; and
(ii) the sum of (x) the rate for that day set forth opposite the
caption "Federal Fund (Effective)" in the daily statistical release designated
as "Composite 3:30 P.M. Quotations for U.S. Governmental Securities", or any
successor publication, published by the Federal Reserve Bank of New York or, if
such publication shall be suspended or terminated, the arithmetic average of the
rates quoted to the Administrative Agent as the prevailing rates per annum
(rounded upward, if necessary, to the next higher 1/100 of 1%) bid at
approximately 11:00 A.M. (New York time) (or as soon thereafter as is
practicable) on such day by two or more New York Federal funds dealers of
recognized standing selected by the Administrative Agent for the purchase at
face value of Federal funds in the secondary market in an amount comparable to
the Loan amount owed to the Administrative Agent for which such rate is being
determined, plus (y) 1/2 of 1%.
"Base Rate Loan/Lessor Amount" means a Loan or Lessor Amount, as the
case may be, bearing interest at the Base Rate.
"Basic Rent" means the sum of (i) the Lender Basic Rent and (ii) the
Lessor Basic Rent, calculated as of the applicable date on which Basic Rent is
due.
"Bill of Sale" is defined in Section 6.1(j) of the Participation
Agreement.
"BMO" means Bank of Montreal (Chicago Branch), a Canadian banking
organization.
"Break Costs" means an amount equal to the amount, if any, required to
compensate any Participant for any additional losses (including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or funds acquired by such Participant to fund its
obligations under the Operative Documents) it may incur as a result of (x)
Lessee's payment of any Rent other than on a Scheduled Payment Date, (y)
Lessee's payment of the Lease Balance on any date other than a Scheduled Payment
Date, or (z) as a result of any conversion of the London Interbank Offered Rate
in accordance with Section 13.9 or 13.10 of the Participation Agreement. A
statement as to the amount of such loss, cost or expense, prepared in good faith
and in reasonable detail and submitted by such Participant, as the case may be,
to the Lessee, shall be correct and binding on the Lessee absent manifest error.
"Business Day" means any day other than a Saturday or Sunday on which
banks are generally open for business in Chicago, Illinois and New York, New
York and, when used with reference to a Eurodollar Loan/Lessor Amount, a day on
which banks are also open for business and dealing in Dollar deposits in London,
England.
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"Capital Lease Obligations" shall mean, for any Person, all obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Company Property to the extent such obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board), and, for purposes
of this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP (including such Statement No.
13).
"Casualty" means any damage or destruction of all or any portion of the
Property as a result of a fire, flood, earthquake or other similar occurrence.
"Certifying Party" is defined in Section 22.1 of the Master Lease.
"Claims" means any and all obligations, dimunition in value, damages,
liabilities, losses, actions, Environmental Law orders, Environmental Law
notices, suits, judgments, penalties, fines, claims, demands, settlements, costs
and expenses (including, without limitation, reasonable legal fees and expenses)
of any nature whatsoever.
"Code" means the Internal Revenue Code of 1986, as the same may be
amended from time to time.
"Commitment" means (i) as to any Lender, its Loan Commitment, and (ii)
as to any Lessor, its Lessor Commitment.
"Commitment Percentage" means, with respect to any Participant, the
percentage set forth opposite such Participant's name under the heading
"Commitment Percentage" on Schedule I to the Participation Agreement, as such
Schedule may be amended, supplemented, amended and restated or otherwise
modified from time to time.
"Company Property" shall mean, as to any Person, any interest of any
kind of such Person in property or assets, whether real, personal or mixed, and
whether tangible or intangible.
"Condemnation" means, with respect to the Property, any condemnation,
requisition, confiscation, seizure or other taking or sale of the use, access,
occupancy, easement rights or title to the Property or any part thereof, wholly
or partially (temporarily or permanently), by or on account of any actual or
threatened eminent domain, proceeding or other taking of action by any Person
having the power of eminent domain, including an action by a Governmental
Authority to change the grade of, or widen the streets adjacent to, the Property
or alter the pedestrian or vehicular traffic flow to the Property so as to
result in change in access to the Property, or by or on account of an eviction
by paramount title or any transfer made in lieu of any such proceeding or
action. A "Condemnation" shall be deemed to have occurred on the earliest of the
dates that use, occupancy or title vests in the condemning authority.
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"Consolidated Subsidiary" shall mean, for any Person, each Subsidiary
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated with
the financial statements of such Person in accordance with GAAP.
"Contract" means (a) any agreement (whether bi-lateral or executory or
non-executory and whether a Person entitled to rights thereunder is so entitled
directly or as a third-party beneficiary), including an indenture, lease or
license or (b) any deed or other instrument of conveyance.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, and
"Controlling" and "Controlled" shall have meanings correlative thereto.
"Deed" means a quitclaim deed with respect to the real property
comprising the Property, in conformity with Applicable Law and appropriate for
recording with the applicable Governmental Authorities, conveying title to such
real property to the Agent Lessor, subject only to Permitted Property Liens.
"Default" means any condition, occurrence or event which, after notice
or lapse of time or both, would constitute an Event of Default.
"Defaulting Participant" means, at any time, any Participant that, at
such time (a) has failed to make an Advance of a Loan or Lessor Amount, as the
case may be, required pursuant to the terms of the Participation Agreement, (b)
has failed to pay to the Administrative Agent, the Agent Lessor, any Lender, or
any Lessor an amount owed by such Participant pursuant to the terms of the
Operative Documents, or (c) has been declared insolvent or has become subject to
a bankruptcy or insolvency proceeding or to a receiver, trustee or similar
official, or (d) in the case of any Lessor, a Loan Agreement Event of Default
with respect thereto shall have occurred and be continuing.
"Dollars" and "$" mean dollars in lawful currency of the United States
of America.
"Eligible Assignee" means an Eligible Lessor Assignee or an Eligible
Lender Assignee, as the case may be.
"Eligible Lender Assignee" means any Lender or any Affiliate or
Subsidiary of a Lender; and any other commercial bank or other financial
institution with combined capital and surplus in excess of $50,000,000.
"Eligible Lessor Assignee" means any Lessor or any Affiliate or
Subsidiary of a Lessor; and any other commercial bank or other financial
institution with combined capital and surplus in excess of $50,000,000.
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"End of the Term Report" is defined in Section 13.2(a) of the
Participation Agreement.
"Environmental Audit" means a Phase One environmental site assessment
(the scope and performance of which meets or exceeds the then most current ASTM
Standard Practice E1527 for Environmental Site Assessments: Phase One
Environmental Site Assessment Process) of the Property.
"Environmental Laws" means any and all applicable laws, statutes,
rules, regulation or ordinances of any Governmental Authority regulating or
imposing liability or standards of conduct concerning protection of human health
or the environment in connection with the use, storage, handling, disposal,
treatment, generation, discharge, emission or disposal of any hazardous, toxic
or dangerous materials, substances, chemicals, wastes or pollutants that from
time to time are defined as a hazardous waste, hazardous substances or
pollutants under the Resource Conservation and Recovery Act of 1976, as amended,
42 U.S.C. ss.ss.6091, et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, 42 U.S.C. ss.ss.9601, et seq., as
amended, the Clean Air Act, 42 U.S.C. ss.7401, et seq., the Toxic Substance
Control Act, 15 U.S.C. ss.206, et seq., and any other similar law, statute,
rule, regulation or ordinance adopted from time to time by any Governmental
Authority.
"Environmental Violation" means, with respect to the Property, any
activity, occurrence or condition that constitutes a violation, which violation
results in material non-compliance with any applicable Environmental Laws.
"Equipment" means equipment, apparatus, fittings and personal property
of every kind and nature whatsoever purchased, leased or otherwise acquired by
the Agent Lessor using the proceeds of the Loans and/or the Lessor Amounts and
now or subsequently attached to, contained in or used or usable in any way in
connection with any operation of the Property, including but without limiting
the generality of the foregoing, the items of equipment set forth in Schedule II
to the Master Lease. Notwithstanding the foregoing, any equipment or personal
property constituting Excluded Equipment shall not be "Equipment" for purposes
of the Operative Documents.
"Equity Amount" shall have the meaning provided in Section 7.4 of the
Participation Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may be amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Guarantor is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Guarantor is a member.
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"Eurodollar Loan/Lessor Amount" means a Loan or Lessor Amount as the
case may be, bearing interest at the Eurodollar Rate.
"Eurodollar Rate" means with respect to an Interest Period for
Eurodollar Loans/Lessor Amounts, (a) the LIBOR Index Rate for such Interest
Period, if such rate is available, and (b) if the LIBOR Index Rate is
unavailable or cannot be determined generally or for the Interest Period in
question, the arithmetic average of the rates of interest per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) at which deposits in U.S.
dollars in immediately available funds are offered to the Administrative Agent
at 11:00 a.m. (London, England time) two (2) Business Days before the beginning
of such Interest Period by three (3) or more major banks in the interbank
eurodollar market selected by the Administrative Agent for a period equal to
such Interest Period and in an amount equal to or comparable to the principal
amount of such Eurodollar Loans/Lessor Amount outstanding from the
Administrative Agent.
"Eurodollar Reserve Percentage" means for any day during an Interest
Period for a Eurodollar Loan/Lessor Amount, the rate at which reserves
(including, without limitation, any supplemental, marginal and emergency
reserves) are imposed on such day by the Board of Governors of the Federal
Reserve System (or any successor) on "Eurocurrency liabilities", as defined in
such Board's Regulation D, (or in respect of any other category of liabilities
that includes deposits by reference to which the interest rate on Eurodollar
Loan/Lessor Amounts is determined on any category of extension of credit or
other assets that include loans by non-United States offices of any Bank to
United States residents) subject to any amendments of such reserve requirement
by such Board or its successor, taking into account any transitional adjustments
thereto. For purposes of this definition, the Eurodollar Loan/Lessor Amounts
shall be deemed to be Eurocurrency liabilities as defined in Regulation D
without benefit or credit for any prorations, exemptions or offsets under
Regulation D.
"Event of Default" means a Lease Event of Default or a Loan Agreement
Event of Default.
"Exchange Act Reports" is defined in Section 8.2(e) of the
Participation Agreement.
"Excepted Payments" means:
(a) all indemnity payments (including indemnity payments made
pursuant to Article XIII of the Participation Agreement) to which the
Administrative Agent, the Arranger, the Agent Lessor, any Lender, any
Lessor or any of their respective Affiliates, agents, officers,
directors or employees is entitled;
(b) any amounts (other than Basic Rent or amounts payable by
Lessee pursuant to Section 15.2 of the Master Lease or Articles XVI,
XVIII or XX of the Master Lease) payable under any Operative Document
to reimburse the Administrative Agent, the Arranger, the Agent Lessor,
any Lender, any Lessor or any of their respective Affiliates (including
the reasonable expenses of the Administrative
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Agent, the Arranger, the Agent Lessor, any Lender, any Lessor or such
Affiliates incurred in connection with any such payment) for performing
or complying with any of the obligations of the Lessee under and as
permitted by any Operative Document;
(c) any insurance proceeds (or payments with respect to risks
self-insured or policy deductibles) under liability policies payable to
the Agent Lessor or any Lessor;
(d) any insurance proceeds under policies maintained by any
Participant;
(e) Transaction Expenses or other amounts or expenses paid or
payable to or for the benefit of the Administrative Agent, the
Arranger, the Agent Lessor, any Lender or any Lessor; and
(f) any payments in respect to interest to the extent
attributable to payments referred to in clauses (a) through (e) above.
"Excluded Equipment" means the equipment and personal property listed
on Schedule III of the Master Lease.
"Expiration Date" means the earlier of the date the Master Lease shall
have been terminated in accordance with the provisions of the Master Lease or
any of the other Operative Documents and the Maturity Date; provided, however,
with respect to Article XX of the Master Lease, the Expiration Date shall be the
later of (i) the Maturity Date and (ii) the Extended Expiration Date.
"Expiration Date Purchase Obligation" means the Lessee's obligation,
pursuant to Section 18.2 of the Master Lease, to purchase the Property on the
Expiration Date.
"Extended Expiration Date" is defined in Section 20.3(a) of the Master
Lease.
"Fair Market Sales Value" means the amount, which in any event shall
not be less than zero, that would be paid in cash in an arm's-length transaction
between an informed and willing purchaser and an informed and willing seller,
neither of whom is under any compulsion to purchase or sell, respectively, for
the ownership of the Property. The Fair Market Sales Value of the Property shall
be determined based on the assumption that, except for purposes of Article XVI
of the Master Lease and Section 13.2 of the Participation Agreement, the
Property is in the condition and state of repair required under Section 9.1 of
the Master Lease and the Lessee is in compliance with the other requirements of
the Operative Documents relating to the condition of the Property.
"Federal Funds Rate" means, for any day or period, as applicable, the
rate per annum (rounded upwards, if necessary, to the nearest 1/l00th of it) at
which Federal funds in the amount equal to the principal amount of the related
Loans or Lessor Amounts are offered in the interbank market to BMO as of 10:00
A.M., Chicago time, on such day for such day or for such period, as applicable.
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"F.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"Fixed Rent" means the amounts designated as "Fixed Rent" for the Loans
and the Lessor Amounts as set forth in Schedule IV to the Master Lease (which
amounts are intended to amortize the Loans and the Lessor Amounts).
"Fixed Rent Payment Date" means each date set forth under the heading
"Fixed Rent Payment Dates" in Schedule IV to the Master Lease or, if such date
is not a Business Day, the next succeeding Business Day.
"Funded Debt" shall mean, on any date and for any Person, without
duplication, (i) all Indebtedness of such Person for money borrowed (including
Capital Lease Obligations), whether issued, assumed or Guaranteed, which has a
final maturity (or which, pursuant to its terms, is renewable or extendible at
the option of such Person, without regard to whether such option is subject to
specified conditions, for a period ending or to a date) more than 12 months
after such date, notwithstanding the fact that payments in respect thereof
(whether installment, serial maturity or sinking fund payments or otherwise) are
required to be made by such Person, less than 12 months after the date of the
computation thereof, (ii) Guarantees by such Person of Funded Debt of other
Persons or of dividends and (iii) in the case of any Restricted Subsidiary, all
preferred stock of such Restricted Subsidiary. Notwithstanding the foregoing,
the term "Funded Debt" shall not include deferred revenue accounts arising from
forward sales.
"Funding Request" is defined in Section 3.4 the Participation
Agreement.
"GAAP" means generally accepted accounting principles in the United
States of America.
"Governmental Action" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, written
interpretations, decrees, licenses, exemptions, publications, filings, notices
to and declarations of or with, or required by, any Governmental Authority, or
required by any Applicable Law, and shall include, without limitation, all
environmental and operating permits and licenses that are required for the full
use, occupancy, zoning and operation of the Property.
"Governmental Authority" means any federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Gross Remarketing Proceeds" is defined in Section 20.2(h) of the
Master Lease.
"Ground Lease" means that certain Ground Lease dated the Acquisition
Date between Agent Lessor and Lessee with respect to the land described on
Schedule I of the Master Lease.
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"Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interests of any Person or an agreement to purchase, sell or lease (as
lessee or lessor) Property or services primarily for the purpose of enabling a
debtor to make payment of such debtor's obligations or an agreement to assure a
creditor against loss, and including, without limitation, causing a bank or
other financial institution to issue a letter of credit or other similar
instrument for the benefit of another Person, but excluding endorsements for
collection or deposit in the ordinary course of business. The terms "Guarantee"
and "Guaranteed" used as a verb shall have a correlative meaning.
"Guaranty" means the Guaranty dated as of November 25, 1997, made by
the Guarantor in favor of each of the Agent Lessor, the Lessors, the
Administrative Agent and the Lenders, as the same may be amended, supplemented,
amended and restated or otherwise modified from time to time.
"Hazardous Materials" means any hazardous, toxic or dangerous
materials, substances, chemicals, wastes or pollutants that from time to time
are defined by or pursuant to or are regulated under any Environmental Laws,
including asbestos, polychlorinated biphenyls, petroleum, petroleum derivatives
or by-products, other hydrocarbons, urea formaldehyde and any material,
substance, pollutant or waste that is defined as a hazardous waste under
Environmental Laws or defined as a hazardous substance under Environmental Laws.
"Impositions" means any and all liabilities, losses, expenses and costs
for fees, taxes, levies, imposts, duties, charges, assessments or withholdings
of any nature ("Taxes") (including, without limitation, (i) real and personal
property taxes, and taxes in the nature of property taxes; (ii) sales, use,
rent, intangibles, excise and other similar taxes (iii) transfer, conveyance,
mortgage, stamp and documentary recording taxes and fees; (iv) franchise,
income, value added, gross receipts, privilege and doing business taxes, license
and registration fees; and (v) assessments on the Property, including
assessments for public improvements or benefits (whenever commenced or
completed) which at any time may be levied, assessed or imposed by any Federal,
state or local authority upon or with respect to (a) any Tax Indemnitee, the
Property or any part thereof or interest therein, or the Lessee or any sublessee
or user of the Property; (b) the Notes or other Indebtedness with respect to the
Property or transfer thereof; (c) the rentals, receipts, earnings or income
arising from the Property or any part thereof or interest therein or the sale or
disposition thereof; (d) the Operative Documents or any payment made or accrued
pursuant thereto; or (e) otherwise in connection with the transactions
contemplated by the Operative Documents.
Notwithstanding the foregoing (except as provided in the final
paragraph of this definition) the term "Imposition" shall not mean or include:
(i) Taxes (other than Taxes that are, or are in the nature of,
sales, use, rental, transfer or property taxes) that are based upon or
measured by the overall net income, gross receipts or capital gains of
any Tax Indemnitee (including, without
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limitation, franchise or doing business Taxes) provided that this
clause (i) shall not be interpreted to prevent a payment from being
made on an After Tax Basis if such payment is otherwise required to be
so made; provided, further, that this clause (i) shall not apply to any
Taxes imposed on the Agent Lessor as a result of its compliance with
the terms of Section 10.2 of the Participation Agreement during the
continuance of an Event of Default;
(ii) any Tax for so long as it is being contested in
accordance with the provisions of Section 13.5(b) of the Participation
Agreement, provided that the foregoing shall not limit Lessee's
obligation under such Section to advance to such Tax Indemnitee amounts
with respect to Taxes that are being contested in accordance therewith
or any expenses incurred in connection therewith with such contest;
(iii) Taxes payable by a Tax Indemnitee resulting from, or
that would not have been imposed but for the existence of, any Lessor
Lien created by or through such Tax Indemnitee or an Affiliate thereof
and not caused by acts or omissions of Lessee;
(iv) any Tax imposed by its express terms in lieu of or in
substitution for a Tax not subject to indemnity pursuant to the
provisions of Section 13.5 of the Participation Agreement;
(v) Taxes imposed on or with respect to or payable by any
Tax Indemnities based on measured by or imposed with respect to any
fees received by such Tax Indemnities;
(vi) any Taxes imposed against or payable by a Tax
Indemnitee resulting from or that would not have been imposed but for,
the gross negligence (or negligence with respect to the handling of
funds) or willful misconduct of such Tax Indemnitee;
(vii) Taxes imposed on or payable by a Tax Indemnitee to the
extent such Taxes would not have been imposed but for a breach by the
Tax Indemnitee or any Affiliate thereof of any representations,
warranties or covenants set forth in the Operative Documents (unless
such breach is caused by the Lessee's breach of its representations,
warranties or covenants set forth in the Operative Documents); or
(viii) any Tax imposed with respect to, or that would not have
been imposed but for, any voluntary transfer, sale, financing or other
voluntary disposition by a Tax Indemnitee (other than a transfer
contemplated and permitted by the Operative Documents) of any interest
in any Property or any interest in or created pursuant to, the
Operative Documents.
Notwithstanding the foregoing, no exclusion from the definition of
Impositions set forth above shall apply to any Taxes or any increase in Taxes
imposed on a Tax Indemnitee net of any decrease in Taxes realized by such Tax
Indemnitee, to the extent that such tax increase or decrease would not have
occurred if on the Acquisition Date the Agent Lessor
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had advanced funds for the Property acquisition in the form of a loan secured by
the Property in an amount equal to the Acquisition Cost, with debt service for
such loan equal to the Basic Rent payable on each Scheduled Payment Date and a
principal balance at the maturity of such loan in an amount equal to the then
outstanding amount of the Advances at the end of the term of the Master Lease,
as determined by such Tax Indemnitee, which determination shall be deemed prima
facie correct.
"Improvements" means all buildings, structures, fixtures, Equipment and
other improvements of every kind existing at any time and from time to time
(including those purchased with amounts advanced by the Participants pursuant to
the Participation Agreement) on or under the Land to be acquired pursuant to the
terms of the Operative Documents and all easements for offsite improvements,
including, without limitation, railroad spur and drill tracks and all utility
and roadway easements, if any, together with any and all appurtenances to such
buildings, structures or improvements, including sidewalks, utility pipes,
conduits and lines, parking areas and roadways, and, subject to the Master
Lease, including all Modifications and other additions to or changes in the
Improvements at any time.
"Indebtedness" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred in the ordinary course of business so long as such trade accounts
payable are payable within ninety (90) days of the date the respective goods or
services are delivered or rendered; (c) Indebtedness of others secured by a Lien
on the Property of such Person, whether or not the respective Indebtedness so
secured has been assumed by such Person; (d) obligations of such Person in
respect of letters of credit or similar instruments issued or accepted by banks
and other financial institutions for account of such Person; (e) Capital Lease
Obligations of such Person; and (f) Indebtedness of others Guaranteed by such
Person. Notwithstanding the foregoing, the term "Indebtedness" shall not include
swap or other agreements not constituting Indebtedness for borrowed money,
entered into to hedge against fluctuations in the prices of commodities and
currencies, deferred revenue accounts arising from forward sales or guarantees
of either thereof.
"Indemnitee" means each Lender, each Lessor, the Administrative Agent
and the Agent Lessor.
"Insolvency" means, with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"Insolvent" means pertaining to a condition of Insolvency.
"Insurance Requirements" means all terms and conditions of any
insurance policy required by the Master Lease to be maintained by the Lessee.
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"Interest Period" means, with respect to each Eurodollar Loan/Lessor
Amount, the period commencing on (and including) the date such Eurodollar
Loan/Lessor Amount is continued as, or converted into, a Eurodollar Loan/Lessor
Amount pursuant to Section 3.4 or 3.6 of the Participation Agreement, and ending
on but excluding the numerically corresponding day one (1), two (2), three (3)
or six (6) months thereafter, as selected (or deemed selected) by the Lessee
from time to time pursuant to an Interest Period
Selection/Continuation/Conversion Notice; provided, however, that the foregoing
provisions in clauses (a) and (b) relating to Interest Periods are subject to
the following:
(i) Interest Periods commencing on the same date for
Eurodollar Loans/Lessor Amounts comprising part of the same Advance
shall be of the same duration;
(ii) if any Interest Period would otherwise end (or if
payments are otherwise due with respect to Eurodollar Loans/Lessor
Amounts) on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the
immediately preceding Business Day;
(iii) any Interest Period that would otherwise extend beyond
the Expiration Date shall end on the Expiration Date; and
(iv) if any Interest Period begins on a day for which there
is no numerically corresponding day in a calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month.
"Interest Period Selection/Continuation/Conversion Notice" means a
notice duly executed by a Responsible Officer of the Lessee substantially in the
form of Exhibit C to the Participation Agreement.
"Interest Rate" is defined in Section 2.4(a) of the Loan Agreement.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"Land" means the real property leased pursuant to the Ground Lease and
described on Schedule I to the Master Lease, and includes all Appurtenant Rights
attached thereto.
"Lease Balance" means, as of any date of determination, an amount equal
to the sum, without duplication, of the Loan Balance and the Lessor Balance and
all other amounts owing by the Lessee under the Operative Documents (including
without limitation, accrued and unpaid Rent and Supplemental Rent, if any).
"Lease Default" means any event or condition which, with the lapse of
time or the giving of notice, or both, would constitute a Lease Event of
Default.
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"Lease Event of Default" is defined in Section 16.1 of the Master
Lease.
"Lease Term" means the period commencing on (and including) the
Acquisition Date and ending on (but excluding) the Expiration Date.
"Lender Basic Rent" means, as determined as of any Scheduled Payment
Date, the sum of (a) the interest due on the Loans, determined in accordance
with Section 2.4 of the Loan Agreement and excluding (i) any interest at the
applicable Overdue Rate on any installment of Basic Rent not paid when due and
(ii) any fine, penalty, interest or cost assessed or added under any agreement
with a third party for nonpayment or late payment of Lender Basic Rent plus (b)
the Fixed Rent due under the Master Lease with respect to the Loans.
"Lenders" is defined in the introductory paragraph of the Participation
Agreement.
"Lending Office" is defined in Section 13.12 of the Participation
Agreement.
"Lessee" means Alumax Mill Products, Inc., a Delaware corporation.
"Lessor Amount" is defined in Section 3.2 of the Participation
Agreement.
"Lessor Balance" means, as of any date of determination, an amount
equal to the sum of the outstanding Lessor Amounts together with all accrued and
unpaid Yield thereon.
"Lessor Basic Rent" means, as determined as of any Scheduled Payment
Date, the sum of (a) the amount of accrued Yield due on the Lessor Amounts,
determined in accordance with Section 4.1 of the Participation Agreement as of
any Scheduled Payment Date and excluding (i) any interest at the applicable
Overdue Rate on any installment of Lessor Basic Rent not paid when due and (ii)
any fine, penalty, interest or cost assessed or added under any agreement with a
third party for nonpayment or late payment of Lessor Basic Rent plus (b) the
Fixed Rent due under the Master Lease with respect to the Lessor Amounts.
"Lessor Commitment" means the Commitment of each Lessor in the amount
set forth on Schedule I of the Participation Agreement, as such Schedule may be
amended, supplemented, amended and restated, reduced or otherwise modified from
time to time.
"Lessor Financing Statements" means UCC financing statements
appropriately completed and executed for filing in the applicable jurisdiction
in order to protect the Agent Lessor's and the Lenders' interest under the
Master Lease to the extent the Master Lease is a security agreement.
"Lessor Lien" means any Lien, true lease or sublease or disposition of
title arising as a result of (a) any claim against any Participant not resulting
from the transactions contemplated by the Operative Documents, (b) any act or
omission of any Participant which is not required or permitted by the Operative
Documents or is in violation of any of the terms of the Operative Documents, (c)
any claim against any Participant, with respect to Taxes or Transaction Expenses
against which the Lessee is not required to indemnify any
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Participant, pursuant to Article IX of the Participation Agreement, or (d) any
claim against the Agent Lessor arising out of any transfer by the Agent Lessor
of all or any portion of the interest of the Agent Lessor in the Property or the
Operative Documents other than the transfer of title to or possession of the
Property by the Agent Lessor pursuant to and in accordance with the Master
Lease, the Loan Agreement or the Participation Agreement (but excluding any
transfer pursuant to Section 12.1 of the Participation Agreement) or pursuant to
the exercise of the remedies set forth in Section 16.2 of the Master Lease.
"Lessor Margin" means, with respect to the Lessor Amounts on any day,
the percentage set forth below opposite the highest of the long-term debt
ratings of Guarantor in effect for such date for the Lessor Amount bearing yield
at the Eurodollar Rate:
<TABLE>
<CAPTION>
S&P RATINGS LIBO MARGIN
<S> <C>
A- or greater .550%
BBB+ .575%
BBB .625%
BBB- .725%
BB+ or lower .925%
</TABLE>
"Lessor Mortgage" means the Master Lease and any and all other security
instruments in appropriate recordable form in Bowie County, Texas sufficient to
grant to the Agent Lessor a first priority Lien on the Property.
"Lessors" is defined in the introductory paragraph of the Participation
Agreement.
"LIBOR Index Rate" means, for any Interest Period, the rate per annum
(rounded upwards, if necessary, to the next higher one hundred-thousandth of a
percentage point) for deposits in U.S. Dollars for a period equal to such
Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m.
(London, England time) on the day two Business Days before the commencement of
such Interest Period.
"Lien" means, with respect to any asset, any mortgage, deed of trust,
lien, pledge, charge, security interest or encumbrance of any kind, or any other
type of preferential arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the purposes of the Operative
Documents, the Lessee or the Guarantor shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" is defined in Section 3.3(b) of the Participation Agreement.
"Loan Agreement" means the Loan Agreement, dated as of November 25,
1997, among the Agent Lessor, as borrower thereunder, the Lenders, and the
Administrative
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Agent, as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time.
"Loan Agreement Event of Default" is defined in Section 5.1 of the Loan
Agreement.
"Loan Balance" means, as of any date of determination, an amount equal
to the sum of the outstanding Loans together with all accrued and unpaid
interest thereon pursuant to the Loan Agreement.
"Loan Commitment" means the Commitment of each Lender in the amount set
forth on Schedule I to the Participation Agreement, as such Schedule may be
amended, supplemented, amended and restated or otherwise modified from time to
time.
"Loan Documents" means the Loan Agreement and the Notes.
"Loan Margin" means, with respect to the Loans on any day, the
percentage set forth below opposite the highest of the long-term debt ratings of
Guarantor in effect for such day for the Loan bearing interest at the Eurodollar
Rate:
<TABLE>
<CAPTION>
S&P RATINGS LIBO MARGIN
<S> <C>
A- or greater .250%
BBB+ .275%
BBB .325%
BBB- .425%
BB+ or lower .625%
</TABLE>
"Marketing Period" means the period commencing on the date 180 days
prior to the Expiration Date and ending on the Expiration Date.
"Master Lease" means the Master Lease, Deed of Trust and Security
Agreement, dated as of November 25, 1997, among the Agent Lessor, the Lessee and
the Trustee as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time.
"Material" and "Materially" mean material to (i) the ability of the
Guarantor or the Lessee to perform its obligations under the Operative Documents
to which it is a party, or (ii) the value or condition of the Property, except
as used in other defined terms in this Appendix A or the Operative Documents or
where the context in which used clearly indicates a different meaning.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the Property, business, operations, financial condition, liabilities or
capitalization of the Guarantor and its Subsidiaries taken as a whole, (b) the
ability of the Guarantor to perform its Obligations under any of the Operative
Documents, (c) the validity or enforceability of any of the
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Operative Documents, (d) the rights and remedies of the Participants, the Agent
and the Administrative Agent under any of the Operative Documents or (e) the
timely payment of the principal of or interest or Yield on the Note or
Certificates or other amounts payable in connection therewith. No claim,
liability or circumstance shall be deemed to have a Material Adverse Effect if
the same can be discharged by the payment of money in an amount not exceeding
$50,000,000 in excess of applicable reserves and tax benefits reasonably
anticipated in connection with such payment plus the amount the Guarantor in
good faith reasonably believes can be recovered out of insurance or from
creditworthy third parties. The adverse ruling in the tax dispute in respect of
the consolidation of the tax returns of the Guarantor and its Subsidiaries with
those of AMAX Inc. for 1984, 1985 and 1986, which is referred to Section 8.2(j)
hereof and is described in the Guarantor's Exchange Act Reports does not, and a
subsequent adverse ruling thereon on appeal shall not, constitute a Material
Adverse Effect.
"Maturity Date" means with respect to the Loans and the Lessor Amounts,
the fifth (5th) anniversary of the Acquisition Date, unless the Maturity Date is
extended pursuant to Section 2.7 of the Loan Agreement and Section 11.1 of the
Participation Agreement.
"Mill Facility" means the facility, of which the Property is a part,
leased, operated or owned by Lessee located in Texarkana, Texas and commonly
known as the Texarkana Mill.
"Modifications" is defined in Section 10.1 of the Master Lease.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means any multiple employer plan, as defined in
Section 3(37) of ERISA to which contributions have been made by the Guarantor or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Proceeds" means all amounts received by the Agent Lessor in
connection with any Casualty or Condemnation or any sale of the Property
pursuant to the Agent Lessor's exercise of remedies under Section 16.2 of the
Master Lease or the Lessee's exercise of the Remarketing Option under Article XX
of the Master Lease and all interest earned thereon, less the expense of
claiming and collecting such amounts, including all costs and expenses in
connection therewith for which the Agent Lessor or any Participant is entitled
to be reimbursed pursuant to the Master Lease.
"Non-Consenting Participant" is defined in Section ll.l(b) of the
Participation Agreement.
"Notes" is deemed in Section 2.2 of the Loan Agreement.
"Obligations" means all obligations (monetary or otherwise) of Lessee
arising under or in connection with any of the Operative Documents.
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"Operative Documents" means the following:
(a) the Participation Agreement;
(b) the Master Lease;
(c) the Loan Agreement;
(d) each Note;
(e) the Assignment of Lease and Rent;
(f) the Deed;
(g) the Lessor Mortgage;
(h) the Lessor Financing Statements;
(i) the Arranger's Fee Letter;
(j) the Guaranty, and
(k) the Ground Lease.
"Other Plan" means an employee pension benefit plan (other than a Plan
or a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code.
"Overdue Rate" means, with respect to any Loan or Lessor Amount, the
Base Rate or the Adjusted Eurodollar Rate then in effect for such Loan or Lessor
Amount, as the case may be, plus two percent (2%).
"Participant Balance" means, with respect to any Participant as of any
date of determination: (i) with respect to any Lender, an amount equal to the
aggregate outstanding Loans of such Lender, together with all accrued and unpaid
interest thereon or (ii) with respect to any Lessor, an amount equal to the
aggregate outstanding Lessor Amounts of such Lessor, together with all amounts
of accrued and unpaid Yield thereon.
"Participants" means, collectively, each Lender and each Lessor, and
their successors and assigns.
"Participation Agreement" means the Participation Agreement dated as
of November 25, 1997 among the Lessee, Guarantor, the Agent Lessor, the Lessors,
the Lenders, the Administrative Agent and the Arranger.
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"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Permitted Property Liens" means, with respect to the Property, any of
the following:
(i) the respective rights and interests of the parties to
the Operative Documents as provided in the Operative Documents;
(ii) the rights of any sublessee under a sublease permitted
by the terms of the Master Lease;
(iii) Liens for Taxes that either are not yet subject to
interest or penalties or are being contested in accordance with the
provisions of Section 12.1 of the Master Lease;
(iv) Liens arising by operation of law, materialmen's,
mechanics', workers', repairmen's, employees', carriers',
warehousemen's and other like Liens relating to the construction of the
Improvements or in connection with any Modifications or arising in the
ordinary course of business for amounts that either are not more than
sixty (60) days past due or are being contested in good faith by
appropriate proceedings, so long as such proceedings satisfy the
conditions for the continuation of proceedings set forth in Section
12.1 of the Master Lease;
(v) Liens of any of the types referred to in clause (iv)
above that have been bonded for not less than the full amount in
dispute (or as to which other security arrangements reasonably
satisfactory to the Agent Lessor have been made), which bonding (or
arrangements) shall comply with applicable Requirements of Law, and has
effectively stayed any execution or enforcement of such Liens;
(vi) Liens arising out of judgments or awards with respect
to which appeals or other proceedings for review are being prosecuted
in good faith and for the payment of which adequate reserves have been
provided as required by GAAP or other appropriate provisions have been
made, so long as such proceedings have the effect of staying the
execution of such judgments or awards and satisfy the conditions for
the continuation of proceedings set forth in Section 12.1 of the Master
Lease;
(vii) easements, rights of way and other encumbrances on
title to real property pursuant to Section 11.2 of the Master Lease or
shown on the title policy or UCC searches delivered to Administrative
Agent pursuant to the Participation Agreement;
(viii) Lessor Liens; or
(ix) Liens described on the title insurance policy delivered
with respect to the Property pursuant to Section 6.1(p) of the
Participation Agreement, other than Liens described in clause (iv) or
(vi) above that are not removed within sixty (60) days of their
discovery by Lessee.
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"Person" means any natural person, corporation, trust, joint venture,
association, company, partnership or government, or any agency or political
subdivision thereof.
"Plan" shall mean an employee benefit or other plan established and
maintained by the Guarantor or any ERISA Affiliate and that is covered by Title
IV of ERISA other than a Multiemployer Plan.
"Property" means (i) the Agent Lessor's interest in the Ground Lease,
(ii) all of the buildings and Improvements at any time located on or under the
Land and (iii) the Equipment.
"Property Cost" means the sum of the Acquisition Cost.
"Purchase Contract" means that certain Facility Purchase Agreement
dated as of September 18, 1996 between Lessee and Fleet National Bank, not in
its individual capacity but solely as the Owner Trustee for U S West Financial
Services, Inc. ("Seller"), together with the designation letter from Lessee
acknowledged by Seller to convey the property described therein to Agent Lessor.
"Purchase Notice" means an irrevocable written notice by the Lessee
delivered to the Agent Lessor pursuant to Section 18.1 of the Master Lease,
notifying the Agent Lessor of the Lessee's intention to exercise its option
pursuant to such Section, and identifying the proposed purchase date therefor.
"Purchase Option" means the Lessee's option to purchase all (but not
less than all) of the Property in accordance with the provisions of Section 18.1
of the Master Lease.
"Purchase Option Price" is defined in Section 18.1 of the Master
Lease.
"Ouarterly Payment Date" means the last day of each February, May,
August and November or, if any such day is not a Business Day, the next
succeeding Business Day.
"Release" means any release, pumping, pouring, emptying, injecting,
escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or
emission of a Hazardous Material.
"Remarketing Option" is defined in Section 20.1 of the Master Lease.
"Renewal Term" is defined in clause (a) of Section 11.1 of the
Participation Agreement.
"Rent" means, collectively, the Basic Rent and the Supplemental Rent,
in each case payable under the Master Lease.
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"Reorganization" means with respect to any Multiemployer Plan, the
condition that such Plan is in reorganization within the meaning of such term as
used in Section 4241 of ERISA.
"Replacement Participant" is defined in Section ll.l(b) of the
Participation Agreement.
"Requesting Party" is defined in Section 22.1 of the Master Lease.
"Required Lenders" means, at any time, Lenders having Loans outstanding
representing at least 66-2/3% of the aggregate Loans outstanding; provided,
however, that if any Lender shall be a Defaulting Participant at such time, then
there shall be excluded from the determination of "Required Lenders" such
Defaulting Participant's principal balance of the Loans owing to such Defaulting
Participant.
"Required Lessors" means, at any time, Lessors having Lessor Amounts
representing at least 66-2/3% of the aggregate Lessor Amount outstanding;
provided however that if any Lessor shall be a Defaulting Participant at such
time, then there should be excluded from the definition of "Required Lessors",
the amount of the Lessor Amount owing to such Defaulting Participant.
"Required Modification" is defined in Section 10.1 of the Master Lease.
"Required Participants" means at any time Participants representing
66-2/3% of the aggregate of Loans and Lessor Amounts outstanding; provided,
however, that there shall be excluded therefrom any Defaulting Participant's
Loans or Lessor Amounts, as the case may be.
"Requirement of Law" means, as to any Person (a) the partnership
agreement, certificate of incorporation, bylaws or other organizational or
governing documents of such Person, and (b) all Federal, state, county,
municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting the Property, the
Improvements or the demolition, construction, use or alteration thereof, whether
now or hereafter enacted and in force, including any that require repairs,
modifications or alterations in or to the Property or in any way limit the use
and enjoyment thereof (including all building, zoning and fire codes and the
Americans with Disabilities Act of 1990, 42 U.S.C. S 1201 et seq. and any other
similar Federal, state or local laws or ordinances and the regulations
promulgated thereunder) and any that may relate to environmental requirements
(including all Environmental Laws), and all permits, certificates of occupancy,
licenses, authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances contained in any instruments which are
either of record or known to Lessee affecting the Property, the Appurtenant
Rights and any easements, licenses or other agreements entered into pursuant to
Section 11.2 of the Master Lease.
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"Responsible Officer" means the Chairman of the Board, President, any
Vice President, the Secretary, the Treasurer, any Assistant Secretary, or any
Assistant Treasurer of such Person.
"Responsible Officer's Certificate" means a certificate signed by any
Responsible Officer in substantially the form of Exhibit D-2 to the
Participation Agreement, which certificate shall certify as true and correct the
subject matter being certified to in such certificate.
"Restricted Funded Debt" shall mean on any date, all Funded Debt of the
Guarantor and its Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP.
"Restricted Subsidiary" shall mean any Subsidiary of the Guarantor
which is identified as a Restricted Subsidiary on Schedule III hereto or which,
after the date of this Agreement, is designated by the Guarantor (by resolution
of its Board of Directors and prior notice to the Administrative Agent) to be a
Restricted Subsidiary, provided that any Restricted Subsidiary may be
redesignated by the Guarantor (by the same procedure) as an Unrestricted
Subsidiary in accordance with the provisions of this definition. Any such
designation or redesignation may be made more than once with respect to any
Subsidiary of the Guarantor. Notwithstanding the foregoing: (i) no Restricted
Subsidiary may be designated an Unrestricted Subsidiary unless (A) such
Subsidiary, at the time of such designation, does not own, directly or
indirectly, any capital stock of any other Restricted Subsidiary or have any
Lien upon any of the assets of any other Restricted Subsidiary and (B)
immediately prior to and after such designation no Default shall exist; and (ii)
no Unrestricted Subsidiary may be designated a Restricted Subsidiary unless (A)
at the time of such designation, such Subsidiary does not have outstanding any
obligations with respect to a sale or leaseback transaction which would have
been prohibited under Section 10.1(i) hereof had such Subsidiary been a
Restricted Subsidiary at the time of such transaction and (B) immediately prior
to and after such designation no Default shall exist and the representations and
warranties made by the Guarantor in Section 8.2 of the Participation Agreement
shall be true on and as of the date of such designation with the same force and
effect as if made on and as of such date.
"Restricted Tangible Net Assets" shall mean, on any date, all Property
of the Guarantor and its Restricted Subsidiaries (including the amount of any
investment in any Person, other than an Unrestricted Subsidiary and other than a
Person that was an Unrestricted Subsidiary at the time of the investment but is
not a Subsidiary on the date of determination, valued at the cost of the equity
interest of the Guarantor and its Restricted Subsidiaries in such Person) which
in accordance with GAAP are classified as assets and appear on the asset side of
the consolidated balance sheet of the Guarantor and its Restricted Subsidiaries,
less, without duplication, (i) the liabilities of the Guarantor and its
Restricted Subsidiaries which in accordance with GAAP are classified as
liabilities and appear on the liability side of such consolidated balance sheet,
excluding any Funded Debt, capital stock and surplus, surplus reserves,
provisions for deferred income taxes and minority interests in Restricted
Subsidiaries, (ii) depreciation and valuation reserves and other reserves and
items deductible in accordance with GAAP other than contingency reserves not
allocated to a
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particular purpose, (iii) goodwill, trade names and trademarks, patents, patent
application, copyrights, franchises, licenses, permits, unamortized debt
discount and expense, research, development or experimental expense not properly
carried in inventory, organizations expenses and other similar intangible
assets, (iv) minority interests, if any, in Restricted Subsidiaries and (v)
treasury shares, if any, carried as an asset on such balance sheet.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc.
"S&P Rating" shall mean at any time the rating assigned by Standard &
Poor's Corporation to the outstanding unsecured long-term senior indebtedness of
the Guarantor. References to specific ratings are references to such ratings as
currently defined by Standard & Poor's Corporation and in the event Standard &
Poor's Corporation changes its rating system, each reference to a particular S&P
Rating shall be deemed to be a reference to the rating under such new or changed
rating system which most closely approximates the credit quality of the
particular rating as currently defined. If for any reason an S&P Rating is
unavailable for the long-term unsecured indebtedness of the Guarantor, and such
a rating is available from one or more other nationally recognized rating
agency, then the Administrative Agent, after consultation with the Guarantor and
approval of the Required Participants, shall select one of such available rating
systems to be used in lieu of the S&P Rating and the Guarantor and the Required
Participants shall then negotiate in good faith for an amendment to this
agreement substituting such new ratings for the S&P Rating. If no such
substitute rating is available or agreed to, then in that event (i) the
applicable margin shall be determined by the Administrative Agent, after
consultation with the Guarantor, so as to approximate the Administrative Agent's
estimate of what the ratings of long-term unsecured senior indebtedness of the
Guarantor would have been had S&P Ratings been available, the determination of
the Administrative Agent to be final and conclusive provided that it has been
made in good faith, and (ii) changes in the applicable Lessor Margin and Loan
Margin shall become effective as of and on the date of a change in the rating
used to determine the same.
"Scheduled Payment Date" means:
(a) as to any Eurodollar Loan/Lessor Amount, the last day of
each applicable Interest Period (and, if any such Interest Period shall
exceed three (3) months, on each date occurring every three (3) months
after the first day of such Interest Period) and the Maturity Date; and
(b) as to any Base Rate Loan/Lessor Amount, each Quarterly
Payment Date and the Maturity Date; provided, however, that if any such
day is not a Business Day, then the "Scheduled Payment Date" shall be
the immediately succeeding Business Day (except as otherwise required
by clause (ii) of the proviso in the definition of "Interest Period"
with respect to Eurodollar Loans/Lessor Amounts).
"Shortfall Amount" means, as of the Expiration Date, an amount equal to
(i) the Lease Balance, minus (ii) the Loan Balance received by the
Administrative Agent from the Lessee pursuant to Section 20.2(f) of the Master
Lease, minus (iii) the aggregate amount of
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the highest, binding, written, unconditional, irrevocable offer to purchase the
Property obtained by the Lessee pursuant to Section 20.2(a) of the Master Lease;
provided, however, that if the sale of the Property to the Person submitting
such offer is not consummated on or prior to the Expiration Date, then the term
"Shortfall Amount" shall mean an amount equal to (i) the Lease Balance, minus
(ii) the Loan Balance received by the Administrative Agent pursuant to Section
20.2(f) of the Master Lease.
"Significant Casualty" means a Casualty that the Administrative Agent
and the Agent Lessor determines in their reasonable good faith judgment based
upon consultation with a qualified professional (a) renders the Property
unsuitable for continued use as property of the type of the Property immediately
prior to such Casualty, or (b) is so substantial in nature that restoration of
the Property to substantially its condition as it existed immediately prior to
such Casualty would be impracticable or impossible.
"Significant Condemnation" means (a) a Condemnation that involves a
taking of the Agent Lessor's entire title to the Land, or (b) a Condemnation
that the Administrative Agent and the Agent Lessor determines in their
reasonable good faith judgment based upon consultation with a qualified
professional (i) renders the Property unsuitable for continued use as property
of the type of the Property immediately prior to such Condemnation, or (ii) is
so substantial in nature that restoration of the Property to substantially its
condition as it existed immediately prior to such Condemnation would be
impracticable or impossible.
"Subsidiary" shall mean, for any Person, any corporation, partnership
or other entity of which at least a majority of the securities or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
of such corporation, partnership or other entity (irrespective of whether or not
at the time securities or other ownership interests of any other class or
classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. "Wholly Owned Subsidiary" shall mean any such corporation,
partnership or other entity of which all of the equity securities or other
ownership interests (other than, in the case of a corporation, directors'
qualifying shares) are so owned or controlled.
"Supplemental Rent" means all amounts, liabilities and obligations
(other than Basic Rent) which the Lessee assumes or agrees to pay to the
Administrative Agent, any Participant or any other Person under the Master
Lease, or under any of the other Operative Documents and any amount payable
under the Ground Lease.
"Survey" is defined in Section 6.l(o) of the Participation Agreement.
"Tangible Net Worth" shall mean, as at any date, the sum for the
Guarantor and its Consolidated Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following: (a) the gross
book value of assets (excluding goodwill, patents, trademarks, tradenames,
organization expense, treasury stock,
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<PAGE> 125
unamortized debt discount and expense, deferred charges and other like
intangibles) minus (b) the sum of the following: (i) reserves applicable to the
assets referred to in the foregoing clause (a), and (ii) all liabilities
(including accrued and deferred income taxes and subordinated Indebtedness).
"Tax Indemnitee" means each Lender, each Lessor, the Administrative
Agent and the Agent Lessor.
"Taxes" is defined in the definition of Impositions.
"Telerate Page 3750" means the display designated as "Page 3750" on
the Telerate Service (or such other page as may replace Page 3750 on that
service or such other services as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for U.S. Dollar deposits).
"Termination Date" is defined in Section 15.2 of the Master Lease.
"Transaction Expenses" means all reasonable costs and expenses incurred
in connection with the preparation, execution and delivery of the Operative
Documents and the Transactions including without limitation:
(a) the reasonable fees, out-of-pocket expenses and
disbursements of Chapman and Cutler, special counsel for the
Administrative Agent and Arranger, Agent Lessor and Lessors, and such
fees, expenses and disbursements of counsel for the Lessee, in
negotiating the terms of the Operative Documents and the other
transaction documents, preparing for the closing under, and rendering
opinions in connection with, such transactions and in rendering other
services customary for counsel representing parties to transactions of
the types involved in the Transactions;
(b) the reasonable fees, out-of-pocket expenses and
disbursements of one special counsel for the Administrative Agent,
Arranger, Agent Lessor and Lessors in connection with (1) any
amendment, supplement, waiver or consent with respect to any Operative
Documents requested or approved by Lessee, and (2) any enforcement of
any rights or remedies against Lessee in respect of the Operative
Documents that arise after an Event of Default;
(c) any and all Taxes and fees incurred in recording,
registering or filing any Operative Document or any other transaction
document, any deed, declaration, mortgage, security agreement, notice
or financing statement with any public office, registry or governmental
agency in connection with the Transactions.
(d) all reasonable out-of-pocket expenses, disbursements and
costs of the Administrative Agent, Arranger and the Agent Lessor paid
or incurred in connection with the Transactions;
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(e) all title fees, premiums and escrow costs and other
expenses relating to title insurance and the closings contemplated by
the Operative Documents;
(f) all expenses relating to property surveys and
Environmental Audits; and
(g) all fees and other expenses relating to Appraisals.
"Transactions" shall mean the transactions contemplated by the
Operative Documents.
"Transferee" is defined in Section 12.3 of the Participation Agreement.
"Trustee" means Ward Williford, Esq., as deed of trust trustee under
the Master Lease.
"Unfunded Current Liability" of any Plan means the amount, if any, by
which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year exceeds the fair market value
of the assets allocable thereto, each determined in accordance with Statement of
Financial Accounting Standards No. 87, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan.
"Uniform Commercial Code" and "UCC" means the Uniform Commercial Code
as in effect in any applicable jurisdiction.
"Unrestricted Subsidiary" shall mean any Subsidiary of the Guarantor
other than a Restricted Subsidiary.
"U S West Agreements" means any documents or agreements to be
conveyed, assigned, terminated or canceled pursuant to the terms of the Purchase
Contract.
"Yield" is defined in Section 4.1(a) of the Participation Agreement.
"Yield Rate" means the sum of the Base Rate or the LIBOR Rate, as
applicable, plus the Lessor Margin.
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<PAGE> 1
EXHIBIT 10.09
================================================================================
MASTER LEASE, DEED OF TRUST AND SECURITY AGREEMENT
THIS DOCUMENT SECURES FUTURE ADVANCES
Dated as of November 25, 1997
among
BMO LEASING (U.S.), INC.,
as the Agent Lessor for the Lessors,
and
ALUMAX MILL PRODUCTS, INC.
as the Lessee,
and
WARD WILLIFORD, ESQ.,
as the Trustee pursuant to Section 25.2 hereof
================================================================================
This Master Lease, Deed of Trust and Security Agreement is recorded in
connection with a lien in favor of the Lenders under the Loan Agreement
simultaneously created as of the date hereof. This Master Lease, Deed of Trust
and Security Agreement has been executed in several counterparts. To the extent,
if any, that this Master Lease, Deed of Trust and Security Agreement constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no lien on this Master Lease, Deed of
Trust and Security Agreement may be created through the transfer or possession
of any counterpart other than the original counterpart containing the receipt
therefor executed by BANK OF MONTREAL as the Administrative Agent for the
Lenders, on or following the signature page hereof. This counterpart is not the
original counterpart
ATTENTION OF RECORDING OFFICERS: Certain of the Property is or will become
"fixtures" (as that term is defined in the Uniform Commercial Code) on the real
estate described in Schedule I attached hereto and this instrument, upon being
filed for record in the real estate records, shall operate also as a financing
statement upon such of the Property which is or may become fixtures. The Lessee
has an interest of record in the Property. This instrument is to be recorded in,
among other places, the real estate records of the county in which such property
is located.
This Document Prepared By
and Return To:
James R. Theiss
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603-4080
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS ........................................ 1
ARTICLE II MASTER LEASE ....................................... 2
Section 2.1. Acceptance and Lease of Property .................. 2
Section 2.2. Acceptance Procedure .............................. 2
Section 2.3. Lease Term ........................................ 2
Section 2.4. Intentionally omitted ............................. 2
Section 2.5. Each Lessor to Have an Undivided Interest ......... 2
ARTICLE III PAYMENT OF RENT .................................... 2
Section 3.1. Rent .............................................. 2
Section 3.2. Payment of Rent ................................... 3
Section 3.3. Supplemental Rent ................................. 3
Section 3.4. Method of Payment ................................. 3
ARTICLE IV QUIET ENJOYMENT; RIGHT TO INSPECT .................. 4
Section 4.1. Quiet Enjoyment ................................... 4
Section 4.2. Right to Inspect .................................. 4
ARTICLE V NET LEASE .......................................... 4
Section 5.1. Net Lease ......................................... 4
Section 5.2. No Termination or Abatement ....................... 5
ARTICLE VI SUBLEASES .......................................... 6
ARTICLE VII LESSEE ACKNOWLEDGMENTS ............................. 6
Section 7.1. Condition of the Property ......................... 6
Section 7.2. Risk of Loss ...................................... 7
ARTICLE VIII POSSESSION AND USE OF THE PROPERTY ................. 7
Section 8.1. Utility Charges ................................... 7
Section 8.2. Use of the Property ............................... 7
Section 8.3. Compliance with Requirements of Laws and Insurance
Requirements ...................................... 7
Section 8.4. Assignment by Lessee .............................. 7
ARTICLE IX MAINTENANCE AND REPAIR; RETURN ..................... 8
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE X MODIFICATIONS ................................................ 8
ARTICLE XI NO LIENS; EASEMENTS .......................................... 9
Section 11.1. No Liens ................................................... 9
Section 11.2. Grants and Releases of Easements; Agent Lessor and
Lessors' Waivers ........................................... 10
ARTICLE XII PERMITTED CONTESTS ........................................... 11
ARTICLE XIII INSURANCE .................................................... 11
Section 13.1. Public Liability and Workers' Compensation Insurance ....... 11
Section 13.2. Hazard and Other Insurance ................................. 12
Section 13.3. Insurance Coverage ......................................... 12
ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS ............. 13
Section 14.1. Casualty and Condemnation .................................. 13
Section 14.2. Environmental Matters ...................................... 15
ARTICLE XV TERMINATION OF LEASE ......................................... 16
Section 15.1. Termination upon Certain Events ............................ 16
Section 15.2. Termination Procedures ..................................... 16
ARTICLE XVI EVENTS OF DEFAULT ............................................ 17
Section 16.1. Lease Events of Default .................................... 17
Section 16.2. Remedies ................................................... 19
Section 16.3. Waiver of Certain Rights ................................... 22
Section 16.4. Deed of Trust Remedies ..................................... 22
ARTICLE XVII AGENT LESSOR'S RIGHT TO CURE ................................. 23
Section 17.1. The Agent Lessor's Right to Cure the Lessee's Lease
Defaults ................................................... 23
ARTICLE XVIII PURCHASE PROVISIONS .......................................... 23
Section 18.1. Purchase of the Property ................................... 23
Section 18.2. Expiration Date Purchase Obligation ........................ 24
Section 18.3. Acceleration of Purchase Obligation ........................ 24
ARTICLE XIX EXTENSION OF EXPIRATION DATE ................................. 24
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XX REMARKETING OPTION .......................................... 25
Section 20.1. Option to Remarket ........................................ 25
Section 20.2. Procedures During Remarketing ............................. 26
Section 20.3. Remedies for Failed Remarketing ........................... 28
Section 20.4. No Sale of Property ....................................... 29
ARTICLE XXI PROCEDURES RELATING TO PURCHASE OR REMARKETING OPTIONS ...... 29
Section 21.1. Provisions Relating to the Exercise of Purchase Option or
Obligation and Conveyance upon Remarketing; Conveyance
upon Certain Other Events ................................. 29
ARTICLE XXII ESTOPPEL CERTIFICATES ....................................... 31
Section 22.1. Estoppel Certificates ..................................... 31
ARTICLE XXIII ACCEPTANCE OF SURRENDER ..................................... 31
ARTICLE XXIV NO MERGER OF TITLE .......................................... 31
ARTICLE XXV INTENT OF THE PARTIES ....................................... 32
Section 25.1. Ownership of the Property ................................. 32
Section 25.2. Liens and Security Interests .............................. 32
Section 25.3. Security Agreement ........................................ 38
Section 25.4. Fixture Filing ............................................ 38
Section 25.5. Successor Trustees ........................................ 38
ARTICLE XXVI MISCELLANEOUS ............................................... 39
Section 26.1. Severability; Perpetuities ................................ 39
Section 26.2. Amendments and Modifications .............................. 39
Section 26.3. No Waiver ................................................. 40
Section 26.4. Notices ................................................... 40
Section 26.5. Successors and Assigns .................................... 40
Section 26.6. Headings and Table of Contents ............................ 40
Section 26.7. Counterparts .............................................. 40
Section 26.8. Governing Law ............................................. 40
Section 26.9. Original Lease ............................................ 40
Section 26.10. Time of Essence ........................................... 41
Section 26.11. Memorandum of Lease ....................................... 41
Section 26.12. The Trustee ............................................... 41
Section 26.13. Usury ..................................................... 41
Signature ..................................................................... 42
</TABLE>
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<PAGE> 5
ATTACHMENTS TO MASTER LEASE AND DEED OF TRUST:
SCHEDULE I -- Legal Description of Land
SCHEDULE II -- Description of Improvements
SCHEDULE III -- Description of Equipment
SCHEDULE IV -- Fixed Rent Payments
EXHIBIT A -- Memorandum of Lease
-iv-
<PAGE> 6
MASTER LEASE, DEED OF TRUST AND SECURITY AGREEMENT
THIS DOCUMENT SECURES FUTURE ADVANCES
THIS MASTER LEASE, DEED OF TRUST AND SECURITY AGREEMENT (this "Master
Lease"), dated as of November 25, 1997 among ALUMAX MILL PRODUCTS, INC., a
Delaware corporation, as Lessee with offices located at 1480 Manheim Pike,
Lancaster, Pennsylvania 17604 (the "Lessee"), BMO LEASING (U.S.), INC., a
Delaware corporation, as agent for the Lessors and whose principal offices are
located at 115 South LaSalle Street, Chicago, Illinois (in such capacity, the
"Agent Lessor") and WARD WILLIFORD, ESQ., as Deed of Trust Trustee for the use
and benefit of the Agent Lessor, whose principal offices are located at 3131
Turtle Creek Boulevard, Suite 101, Dallas, Texas 75219 (the "Trustee").
W I T N E S S E T H:
WHEREAS, pursuant to a Participation Agreement dated as of the date
hereof (as amended, modified, restated or supplemented from time to time, the
"Participation Agreement"), among the Lessee, the Guarantor, the Agent Lessor,
the various financial institutions as are or may from time to time become
Lessors hereunder (the "Lessors") or lenders under the Loan Agreement (the
"Lenders"), and Bank of Montreal, as Arranger (in such capacity, the
"Arranger"), and as Administrative Agent (in such capacity, the "Administrative
Agent") for the Lenders, the Lenders and the Lessors have agreed to finance the
acquisition of the Property;
WHEREAS, on the Acquisition Date, the Agent Lessor (on behalf of the
Lessors) will acquire the Property from a third party designated by the Lessee;
WHEREAS, the Agent Lessor desires to lease to the Lessee, and the
Lessee desires to lease from the Agent Lessor, the Property, subject to the
terms of this Master Lease;
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Unless the context shall otherwise require, capitalized terms used but
not defined herein shall have the meanings assigned thereto in Appendix A to the
Participation Agreement; and the rules of interpretation set forth in Appendix A
to the Participation Agreement shall apply to this Master Lease.
<PAGE> 7
ARTICLE II
MASTER LEASE
Section 2.1. Acceptance and Lease of Property. Subject to the
conditions set forth in the Participation Agreement, including without
limitation the satisfaction or waiver of the conditions set forth in Article VI
thereof, the Agent Lessor hereby agrees to (a) accept, pursuant to the terms of
the Participation Agreement, delivery on the Acquisition Date of the Property
(except the Ground Lease) by the seller thereof, (b) enter into the Ground
Lease, and (c) simultaneously demise and lease to the Lessee hereunder for the
Lease Term, the Agent Lessor's interest in the Property, including the Ground
Lease and the Lessee hereby agrees, subject to the satisfaction or waiver of the
conditions set forth in Article VI of the Participation Agreement, expressly for
the direct benefit of the Agent Lessor and the Lessors, to lease from the Agent
Lessor for the Lease Term the interest of the Agent Lessor in the Property,
including the Ground Lease.
Section 2.2. Acceptance Procedure. The Lessee hereby agrees that the
execution and delivery by it of this Master Lease shall, without further act,
constitute the irrevocable acceptance by the Lessee of all of the Property and
rights under the Ground Lease for all purposes of this Master Lease and the
other Operative Documents on the terms set forth therein and herein, and that
the Property including the Ground Lease shall be deemed to be included in the
leasehold estate of this Master Lease and shall be subject to the terms and
conditions of this Master Lease.
Section 2.3. Lease Term. The term of this Master Lease shall be for the
Lease Term.
Section 2.4. Intentionally omitted.
Section 2.5. Each Lessor to Have an Undivided Interest. Each party to
this Master Lease hereby acknowledges that Section 15.16 of the Participation
Agreement applies in full force and effect to this Master Lease and each other
Operative Document.
ARTICLE III
PAYMENT OF RENT
Section 3.1. Rent. (a) During the Lease Term, the Lessee shall pay
Basic Rent to the Agent Lessor on each Scheduled Payment Date, on the date
required under Section 20.2(f) in connection with the Lessee's exercise of the
Remarketing Option and, on any date on which this Master Lease shall terminate;
provided however that Fixed Rent shall be paid on each Fixed Rent Payment Date.
(b) Neither the Lessee's inability or failure to take possession of all
or any portion of the Property when delivered by the Agent Lessor, nor the
inability or failure of the Agent
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<PAGE> 8
Lessor to deliver all or any portion of the Property to the Lessee on or before
the Acquisition Date, whether or not attributable to any act or omission of the
Lessee, but excluding any act or omission of the Agent Lessor or any Lessor,
shall delay or otherwise affect the Lessee's obligation to pay Rent for the
Property in accordance with the terms of this Master Lease.
Section 3.2. Payment of Rent. Rent shall be paid absolutely net to the
Agent Lessor so that this Master Lease shall yield to the Agent Lessor for the
benefit of the Lessors the full amount thereof, without setoff, deduction or
reduction.
Section 3.3. Supplemental Rent. The Lessee shall pay to the Agent
Lessor any and all Supplemental Rent promptly as the same shall become due and
payable, and if the Lessee fails to pay any Supplemental Rent and such failure
shall continue beyond the cure period provided in Section 16.1(b), the Agent
Lessor shall have all rights, powers and remedies provided for herein or by law
or equity or otherwise in the case of nonpayment of Basic Rent. The Lessee shall
pay to the Agent Lessor, as Supplemental Rent, among other things, on demand, to
the extent permitted by applicable Requirements of Law, interest at the
applicable Overdue Rate on any installment of Basic Rent not paid when due for
the period for which the same shall be overdue and on any payment of
Supplemental Rent not paid when due or demanded by the Agent Lessor for the
period from the due date or the date of any such demand, as the case may be,
until the same shall be paid. The expiration or other termination of the
Lessee's obligations to pay Basic Rent hereunder shall not limit or modify the
obligations of the Lessee with respect to Supplemental Rent, except as otherwise
specifically provided herein or in any instrument effecting such termination.
Unless expressly provided otherwise in this Master Lease, in the event of any
failure on the part of the Lessee to pay and discharge any Supplemental Rent as
and when due, the Lessee shall also promptly pay and discharge any fine,
penalty, interest or cost which may be assessed or added against any Participant
by a third party as a direct result of such nonpayment or late payment of such
Supplemental Rent, all of which shall also constitute Supplemental Rent.
Section 3.4. Method of Payment. Each payment of Rent payable by the
Lessee to the Agent Lessor under this Master Lease or any other Operative
Document shall be made by the Lessee to the Administrative Agent as assignee of
the Agent Lessor under the Assignment of Lease and Rent (or, upon reasonable
prior written notice from the Administrative Agent that the Loans and all other
amounts owing to the Lenders under the Loan Agreement and the other Operative
Documents have been paid in full and all Commitments of the Lenders have been
permanently terminated, to the Agent Lessor) prior to 1:00 p.m., (Chicago time)
to the Account in immediately available funds consisting of lawful currency of
the United States of America on the date when such payment shall be due, unless
such scheduled date shall not be a Business Day, in which case such payment
shall be made on the next succeeding Business Day. Payments received after 1:00
p.m., (Chicago time) on the date due shall for the purpose of Section 16.1
hereof be deemed received on such day; provided, however, that for the purposes
of the second sentence of Section 3.3, such payments shall be deemed received on
the next succeeding Business Day and shall accrue interest at the Overdue Rate
as provided in such Section 3.3.
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<PAGE> 9
ARTICLE IV
QUIET ENJOYMENT; RIGHT TO INSPECT
Section 4.1. Quiet Enjoyment. Subject to the terms of each of the
Operative Documents, the Lessee shall peaceably and quietly have, hold and enjoy
the Property for the Lease Term, free of any claim or other action by the Agent
Lessor or the Lessors or anyone claiming by, through or under the Agent Lessor
or the Lessors (other than the Lessee). Such right of quiet enjoyment is
independent of, and shall not affect the rights of the Agent Lessor or the
Lessors (or anyone claiming by, through or under the Agent Lessor or the
Lessors) otherwise to initiate legal action to enforce, the obligations of the
Lessee under this Master Lease.
Section 4.2. Right to Inspect. During the Lease Term, the Lessee shall
upon reasonable notice (except that no notice shall be required if a Lease Event
of Default has occurred and is continuing), and from time to time, permit the
Agent Lessor, any Lessor, the Administrative Agent, any Lender, and their
respective authorized representatives to inspect the Property, subject to the
Lessee's normal safety procedures, during normal business hours; provided that
such inspections shall be coordinated by the Administrative Agent and shall not
unreasonably interfere with the Lessee's business operations at the Property.
ARTICLE V
NET LEASE
Section 5.1. Net Lease. This Master Lease shall constitute a net lease.
Any provision of this Master Lease or any other Operative Document to the
contrary notwithstanding, this Master Lease shall not terminate, nor shall the
Lessee be entitled to any abatement, suspension, deferment, reduction, setoff,
counterclaim, or defense with respect to the Rent, nor shall the obligations of
the Lessee hereunder be affected (except by the gross negligence or willful
misconduct of the Administrative Agent or Agent Lessor or as expressly herein
permitted and by performance of the obligations in connection therewith) by
reason of: (i) any defect in the condition, merchantability, design,
construction, quality or fitness for use of the Property or any part thereof, or
the failure of the Property to comply with all Requirements of Law, including
any inability to occupy or use the Property by reason of such non-compliance;
(ii) any damage to, removal, abandonment, salvage, loss, contamination of or
Release from, scrapping or destruction of or any requisition or taking of the
Property or any part thereof; (iii) any restriction, prevention or curtailment
of or interference with construction on or any use of the Property or any part
thereof including eviction; (iv) any defect in title of or rights to the
Property or Ground Lease or any Lien on such title or rights or on the Property
or Ground Lease; (v) any change, waiver, extension or indulgence in respect of
any obligation or liability of or by the Administrative Agent, the Agent Lessor
or any Participant; (vi) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceedings
relating to the
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<PAGE> 10
Lessee, the Guarantor, the Administrative Agent, the Agent Lessor, any
Participant or any other Person, or any action taken with respect to this Master
Lease by any trustee or receiver of the Lessee, the Guarantor, the
Administrative Agent, the Agent Lessor, any Participant or any other Person, or
by any court in any such proceeding; (vii) any claim that the Lessee has or
might have against any Person, including without limitation the Administrative
Agent, the Agent Lessor, any Participant, or any vendor, manufacturer,
contractor of or for the Property; (viii) any failure on the part of the Agent
Lessor or any other Lessor to perform or comply with any of the terms of this
Master Lease, of any other Operative Document or of any other agreement;
provided that Lessee does not waive any Claim against Agent Lessor or any Lessor
or any bankruptcy recoupment right of Lessee; (ix) any invalidity or
unenforceability or disaffirmance of this Master Lease against or by the Lessee
or any provision hereof or any of the other Operative Documents or any provision
of any thereof; (x) the impossibility of performance by the Lessee, the Lessors
or all of them; (xi) any action by any court, administrative agency or other
Governmental Authority; or (xii) any other cause or circumstances whether
similar or dissimilar to the foregoing and whether or not the Lessee shall have
notice or knowledge of any of the foregoing. The Lessee's agreement in the
preceding sentence shall not affect any claim, action or right the Lessee may
have against the Lessors or any other Participants. The parties intend that the
obligations of the Lessee hereunder shall be covenants and agreements that are
separate and independent from any obligations of the Agent Lessor or the Lessors
hereunder or under any other Operative Documents, and the obligations of the
Lessee shall continue unaffected unless the obligations shall have been modified
or terminated in accordance with an express provision of this Master Lease.
Section 5.2. No Termination or Abatement. The Lessee shall, to the
extent permitted by Applicable Law, remain obligated under this Master Lease in
accordance with its terms and shall not take any action to terminate, rescind or
avoid this Master Lease (except as provided herein), notwithstanding any action
for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting any Participant, or any action with respect to this Master
Lease which may be taken by any trustee, receiver or liquidator of any
Participant or by any court with respect to any Participant. The Lessee hereby
waives, to the extent permitted by Applicable Law, all right (i) to terminate or
surrender this Master Lease (except as provided herein) or (ii) to avail itself
of any abatement, suspension, deferment, reduction, setoff, counterclaim or
defense with respect to any Rent. The Lessee shall remain obligated under this
Master Lease in accordance with its terms and the Lessee hereby waives, to the
extent permitted by Applicable Law, any and all rights now or hereafter
conferred by statute or otherwise to modify or to avoid strict compliance with
its obligations under this Master Lease. Notwithstanding any such statute or
otherwise, the Lessee shall, to the extent permitted by Applicable Law, be bound
by all of the terms and conditions contained in this Master Lease.
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<PAGE> 11
ARTICLE VI
SUBLEASES
The Lessee may sublease the Property or any portion thereof to any
Person; provided, however, that: (a) no sublease or other relinquishment of
possession of the Property shall in any way discharge or diminish any of the
Lessee's obligations to the Agent Lessor or the Lessors hereunder and the Lessee
shall remain directly and primarily liable under this Master Lease as to the
portion of the Property so sublet; (b) each sublease of the Property shall
expressly be made subject to and subordinated to this Master Lease and to the
rights of the Agent Lessor and the Lessors hereunder; (c) each sublease shall
expressly provide for the surrender of the Property or portion thereof by the
applicable sublessee at the election of the Administrative Agent or the Agent
Lessor (as applicable) after the occurrence of a Lease Event of Default; and (d)
each sublease shall expressly provide for termination on or prior to the
Expiration Date or the Extended Expiration Date (if applicable) unless the
Lessee elects to purchase the Property pursuant to Section 18.1.
ARTICLE VII
LESSEE ACKNOWLEDGMENTS
Section 7.1. Condition of the Property. THE LESSEE ACKNOWLEDGES AND
AGREES THAT ALTHOUGH THE AGENT LESSOR WILL OWN AND HOLD TITLE TO THE PROPERTY,
THE LESSEE IS SOLELY RESPONSIBLE FOR THE PROPERTY AND ANY ALTERATIONS OR
MODIFICATIONS THERETO. THE LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS
LEASING THE PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) BY THE ADMINISTRATIVE AGENT, THE AGENT LESSOR, ANY LESSOR
OR ANY LENDER AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE
(EXCLUDING LESSOR LIENS), (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF,
(C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT
SHOW AND (D) VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE
ACQUISITION DATE. NEITHER THE ADMINISTRATIVE AGENT, NOR THE AGENT LESSOR, NOR
ANY LESSOR NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO
HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (OTHER THAN FOR LESSOR LIENS
ATTRIBUTABLE TO SUCH LESSOR OR SUCH LENDER), VALUE, SUITABILITY, USE, CONDITION,
DESIGN, OPERATION, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF
EXCEPT WITH RESPECT TO ITS OR THEIR AUTHORITY TO ENTER INTO AND PERFORM THIS
LEASE), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND NEITHER THE
ADMINISTRATIVE AGENT, NOR THE AGENT LESSOR, NOR ANY LESSOR NOR ANY LENDER SHALL
BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR
LESSOR LIENS ATTRIBUTABLE TO SUCH LESSOR OR SUCH LENDER) OR THE FAILURE OF THE
PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW.
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Section 7.2. Risk of Loss. During the Lease Term the risk of loss of or
decrease in the enjoyment and beneficial use of the Property as a result of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise is assumed by the Lessee, and neither Agent Lessor nor any
Lessor shall in any event be answerable or accountable therefor.
ARTICLE VIII
POSSESSION AND USE OF THE PROPERTY
Section 8.1. Utility Charges. The Lessee shall pay or cause to be paid
all charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on the Property during the
Lease Term. The Lessee shall be entitled to receive any credit or refund with
respect to any utility charge paid by the Lessee and the amount of any credit or
refund received by the Agent Lessor or the Lessors on account of any utility
charges paid by the Lessee, net of the costs and expenses reasonably incurred by
the Agent Lessor or the Lessors in obtaining such credit or refund, shall be
promptly paid over to the Lessee.
Section 8.2. Use of the Property. The Lessee covenants that the
Property will be used as a rolling mill facility. The Lessee shall pay, or cause
to be paid, all charges and costs required in connection with the use of the
Property as contemplated by this Master Lease. Lessee shall not commit or permit
any waste of the Property or any part thereof.
Section 8.3. Compliance with Requirements of Laws and Insurance
Requirements. Subject to the terms of Article XII relating to permitted
contests, the Lessee, at its sole cost and expense, shall (a) comply in all
material respects with all Requirements of Law (including all Environmental
Laws) and Insurance Requirements relating to the Property, including the use,
construction, operation, maintenance, repair and restoration thereof and the
remarketing thereof pursuant to Article XX, whether or not compliance therewith
shall require structural or extraordinary changes in the Property or interfere
with the use and enjoyment of the Property, and (b) procure, maintain and comply
with all licenses, permits, orders, approvals, consents and other authorizations
required for the construction, use, maintenance repair, restoration and
operation of the Property (except where the failure to comply pursuant to clause
(a) or to procure or maintain such licenses or other authorizations pursuant to
clause (b) would not have a Material Adverse Effect).
Section 8.4. Assignment by Lessee. The Lessee may not assign this
Master Lease or any of its rights or obligations hereunder in whole or in part
to any Person, except that the Lessee may sublease the Property or portion
thereof as permitted under Article VI and the Lessee may assign this Master
Lease to any other Restricted Subsidiary in connection with the assignment or
transfer of all or substantially all of the assets owned by Lessee located at
the Mill Facility to such Restricted Subsidiary.
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ARTICLE IX
MAINTENANCE AND REPAIR; RETURN
The Lessee, at its sole cost and expense, shall maintain the Property
in good condition (ordinary wear and tear excepted) and make all necessary
repairs thereto, of every kind and nature whatsoever, whether interior or
exterior, ordinary or extraordinary, structural or nonstructural or foreseen or
unforeseen, in each case as required by all Requirements of Law and Insurance
Requirements (except where the failure to comply would not have a Material
Adverse Effect) or as otherwise reasonably determined by the Lessee to be
necessary for the use and operation of the Property.
Neither the Agent Lessor nor any Lessor shall under any circumstances
be required to build any improvements on the Property, make any repairs,
replacements, alterations or renewals of any nature or description to the
Property, make any expenditure whatsoever in connection with this Master Lease
(other than for the initial Advance made in accordance with and pursuant to the
terms of the Participation Agreement) or maintain the Property in any way. The
Lessee waives any right to (i) require the Agent Lessor or any Lessor to
maintain, repair, or rebuild all or any part of the Property or (ii) make
repairs at the expense of the Agent Lessor or any Lessor pursuant to any
Requirement of Law, Insurance Requirement, contract, agreement, or covenant,
condition or restriction in effect at any time during the Lease Term.
The Lessee shall, upon the expiration or earlier termination of this
Master Lease (other than as a result of the Lessee's purchase of the Property
from the Lessors as provided herein), vacate and surrender the Property to the
Agent Lessor in its then current "AS IS" condition, subject to the Lessee's
obligations under Articles VIII, IX, X, XI, XIII, XIV and XX.
ARTICLE X
MODIFICATIONS
During the Lease Term, the Lessee, at its sole cost and expense, may at
any time and from time to time make alterations, renovations, improvements and
additions to the Property or any part thereof and substitutions and replacements
therefor (collectively, "Modifications"); provided, however, that:
(a) except for any Modification required to be made pursuant
to a Requirement of Law (a "Required Modification"), no Modification
shall be made if it would materially adversely affect the value or
useful life of the Property or any part thereof from that which existed
immediately prior to such Modification (assuming the Property was then
in the condition required by this Master Lease);
(b) the Modification shall be done in a good and workmanlike
manner;
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(c) the Modification shall comply in all material respects
with all Requirements of Law (including all Environmental Laws) and
Insurance Requirements applicable to the Modification, including the
obtaining of all permits and certificates of occupancy;
(d) subject to the terms of Article XII relating to permitted
contests, the Lessee shall pay all costs and expenses and shall
discharge (or cause to be insured or bonded over) within sixty (60)
days after the same shall be filed (or otherwise become effective) any
Liens arising with respect to the Modification; and
(e) such Modifications shall comply with Article IX.
All Modifications shall be subject to this Master Lease and title
thereto shall immediately vest in the Agent Lessor; provided however, that
Modifications that (x) are not Required Modifications, (y) were not financed by
the Participants and (z) are removable without impairing the value or utility of
the Property, shall be the property of the Lessee and shall not be subject to
this Master Lease. So long as no Lease Event of Default has occurred and is
continuing, the Lessee may place upon the Property any trade fixtures,
machinery, equipment, inventory or other property belonging to the Lessee or
third parties and may remove the same at any time during the Lease Term,
subject, however, to the terms of Article IX; provided, however, that the Lessee
shall keep and maintain at the Property and shall not remove any Property
financed or otherwise paid for by any Participant pursuant to the Participation
Agreement except in connection with the repair or replacement of the Property
and the removal and replacement of any Property reasonably determined by Lessee
to be obsolete.
ARTICLE XI
NO LIENS; EASEMENTS
Section 11.1. No Liens. (a) The Lessee agrees that except as otherwise
provided herein and subject to the terms of Article XII relating to permitted
contests, the Lessee shall not directly or indirectly create or allow to remain,
and shall promptly (and in any event within sixty (60) days after notice thereof
is received by the Lessee from any Person) discharge at its sole cost and
expense, any Lien (other than any Lessor Lien), defect, attachment, levy, title
retention agreement or claim upon the Property or any Lien, attachment, levy or
claim with respect to the Rent or with respect to any amounts held by the
Administrative Agent, the Agent Lessor or any Participant pursuant to the Loan
Agreement or the other Operative Documents, other than (i) Permitted Property
Liens, and (ii) Liens on machinery, equipment, general intangibles and other
personal property not financed by the proceeds of the Loans or Lessor Amounts
and not otherwise prohibited under any other Operative Document. The Company
will not grant or permit to exist any Liens on any asset now or hereafter used
in the operation of the Mill Facility if the loss or removal of the assets
subject to such Liens would impair in any material respect the current value of
the Property, taken as a whole, or its present utility and operating efficiency,
taken as a whole.
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(b) Nothing contained in this Master Lease shall be construed as
constituting the consent or request of the Agent Lessor, any Lessor, the
Administrative Agent or any other Participant, expressed or implied, to or for
the performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to the Property
or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE ADMINISTRATIVE
AGENT NOR THE AGENT LESSOR NOR ANY LESSOR NOR ANY LENDER IS OR SHALL BE LIABLE
FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE,
OR TO ANYONE HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE ADMINISTRATIVE AGENT,
THE AGENT LESSOR, ANY LESSOR OR ANY LENDER IN AND TO THE PROPERTY.
Section 11.2. Grants and Releases of Easements; Agent Lessor and
Lessors' Waivers. Provided that no Lease Event of Default shall have occurred
and be continuing and subject to the provisions of Articles VII, IX and X and
Section 8.3, the Agent Lessor and each Lessor hereby consent in each instance to
the following actions by the Lessee, in the name and stead of the Agent Lessor
and the Lessors, but at the Lessee's sole cost and expense: (a) the granting of
easements, licenses, rights-of-way and other rights and privileges in the nature
of easements reasonably necessary or desirable for the use, repair, or
maintenance of the Property as herein provided; (b) the release of existing
easements or other rights in the nature of easements which are for the benefit
of the Property; (c) if required by applicable Governmental Authority in
connection with the construction, the dedication or transfer of unimproved
portions of the Property for road, highway or other public purposes; (d) the
execution of amendments to any covenants and restrictions affecting the
Property; and (e) the execution or release of any similar agreements; provided,
however, that in each case (i) such grant, release, dedication, transfer or
amendment does not materially impair the value or remaining useful life of the
Property, (ii) such grant, release, dedication, transfer or amendment is, in the
Lessee's judgment, reasonably necessary in connection with the use, maintenance,
alteration or improvement of the Property, (iii) such grant, release,
dedication, transfer or amendment will not cause the Property or any portion
thereof to fail to comply with the provisions of this Master Lease or any other
Operative Document or in any material respect with any Requirements of Law
(including, without limitation, all applicable zoning, planning, building and
subdivision ordinances, all applicable restrictive covenants and all applicable
architectural approval requirements), (iv) all governmental consents or
approvals required prior to such grant, release, dedication, transfer,
annexation or amendment have been obtained, and all filings required prior to
such action have been made, (v) the Lessee shall remain obligated under this
Master Lease, and under any instrument executed by the Lessee consenting to the
assignment of the Agent Lessor's and the Lessors' interests in this Master Lease
as security for indebtedness, in each such case in accordance with their terms,
as though such grant, release, dedication, transfer or amendment had not been
effected, and (vi) the Lessee shall pay and perform any obligations of the Agent
Lessor and the Lessors under such grant, release, dedication, transfer or
amendment. Without limiting the effectiveness of the foregoing, provided that no
Lease Event of Default shall have occurred and be continuing, the Agent Lessor
shall, upon the
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request of the Lessee, and at the Lessee's sole cost and expense, execute and
deliver any instruments necessary or appropriate to confirm any such grant,
release, dedication, transfer, annexation or amendment to any Person permitted
under this Section 11.2, including landlord waivers with respect to any of the
foregoing.
ARTICLE XII
PERMITTED CONTESTS
If, to the extent and for so long as (a) a test, challenge, appeal or
proceeding for review of any Applicable Law relating to the Property or for
removal of a Lien shall be prosecuted diligently and in good faith in
appropriate proceedings by the Lessee, and, with respect to Liens, Lessee shall
have posted reasonable collateral therefor if requested by Agent Lessor, or (b)
compliance with such Applicable Law shall have been excused or exempted by a
valid nonconforming use, variance permit, waiver, extension or forbearance, the
Lessee shall not be required to comply with such Applicable Law or remove such
Lien, but only if and so long as any such test, challenge, appeal, proceeding,
waiver, extension, forbearance or noncompliance shall not, in the reasonable
opinion of the Agent Lessor and the Administrative Agent, involve (A) any risk
of criminal liability being imposed on any Lessor or any Lender or (B) any risk
of (1) foreclosure, forfeiture or loss of the Property, or any material part
thereof, or (2) the nonpayment of Rent or (C) any substantial risk of (1) the
sale of, or the creation of, any Lien (other than a Permitted Property Lien or
contested Lien) on any part of the Property, (2) civil liability being imposed
on any Lender, any Lessor, or the Property, or (3) enjoinment of, or
interference with, the use, possession or disposition of the Property in any
material respect.
Neither the Agent Lessor nor any Lessor will be required to join in any
proceedings pursuant to this Section 12.1 unless a provision of any Applicable
Law requires or, in the good faith opinion of the Lessee, it is advisable for
the prosecution of such contest, that such proceedings be brought by or in the
name of such party; and in that event such party will join in the proceedings or
permit them or any part thereof to be brought in its name if and so long as (i)
the Lessee has not elected the Remarketing Option, and (ii) the Lessee pays all
related expenses and indemnifies such party with respect to such proceedings.
ARTICLE XIII
INSURANCE
Section 13.1. Public Liability and Workers' Compensation Insurance. (a)
During the Lease Term, the Lessee shall procure and carry, at the Lessee's sole
cost and expense, commercial general liability insurance for claims for injuries
or death sustained by persons or damage to property while on the Property and
such other public liability coverages as are ordinarily procured by the Lessee
or its Affiliates who own or operate similar properties, in all cases consistent
with the requirements established under Section 10.1(b) of the Participation
Agreement. The policy shall be endorsed to name the Agent Lessor, the
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Administrative Agent and the Participants as additional insureds. The policy
shall also specifically provide that the policy shall be considered primary
insurance which shall apply to any loss or claim before any contribution by any
insurance which the Agent Lessor, the Administrative Agent and the Participants
may have in force.
(b) The Lessee shall, in connection with the operation of the Property,
comply with applicable workers' compensation laws.
Section 13.2. Hazard and Other Insurance. During the Lease Term, the
Lessee shall keep, or cause to be kept, the Property insured against loss or
damage by fire, earthquake, windstorm, flood and other risks on terms and in
amounts reasonably determined to be necessary in Lessee's prudent business
judgment, giving due regard to the requirements established under Section
l0.l(b) of the Participation Agreement. During the construction of any Material
Modifications, the Lessee shall also maintain or cause to be maintained
builders' risk insurance to the extent, and on terms and in amounts reasonably
determined by the Lessee to be necessary giving due regard to the requirements
established under Section l0.l(b) of the Participation Agreement. All insurance
proceeds in respect of any loss or occurrence for which the proceeds related
thereto are (i) less than or equal $5,000,000 in the absence of the occurrence
and continuance of an Event of Default, shall be adjusted by and paid (subject
to the terms of Section 14.1 hereof) to the Lessee for application toward the
reconstruction, repair or refurbishment of the Property, and (ii) greater than
$5,000,000 shall be adjusted jointly by the Lessee and the Agent Lessor (unless
an Event of Default has occurred and is continuing, in which case such proceeds
shall be adjusted solely by the Agent Lessor) and held by the Agent Lessor for
application in accordance with Article XIV.
Section 13.3. Insurance Coverage. (a) The Lessee shall furnish the
Agent Lessor and the Administrative Agent with certificates showing the
insurance required under Sections 13.1 and 13.2 to be in effect and naming the
Agent Lessor, the Administrative Agent and the Participants as additional
insureds with respect to liability coverage (excluding worker's compensation
insurance), naming the Agent Lessor, the Administrative Agent and the Lenders,
the Lessors and the Lessee as their interests may appear with respect to
casualty coverage and naming the Agent Lessor on behalf of the Lessors and the
Administrative Agent on behalf of the Lenders as their interests may appear,
each as loss payee with respect to casualty coverage and showing the mortgagee
endorsement required by Section 13.3(c) with respect to such coverage. All such
insurance shall be at the cost and expense of the Lessee. Such certificates
shall include a provision for no less than thirty (30) days' advance written
notice by the insurer to the Agent Lessor and the Administrative Agent in the
event of cancellation of such insurance. In addition, the Lessee shall cause the
Agent Lessor, the Administrative Agent and the Participants to be named as
additional insureds under each liability policy maintained in connection with
construction of any Improvements or Modifications.
(b) The Lessee agrees that the insurance policy or policies required by
Section 13.1 shall include an appropriate clause providing that it will not be
invalidated should the Lessee waive, in writing, prior to a loss, any or all
rights of recovery against any party for losses
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covered by such policy, and that the insurance in favor of the Agent Lessor, the
Administrative Agent, the Lessors and the Lenders and their respective rights
under and interests in such policies shall not be invalidated or reduced by any
act or omission (including breach of warranty) or negligence of the Lessee or
any other Person having any interest in the Property other than the Lessors and
the Lenders. The Lessee hereby waives any and all such rights against the
Lessors and the Lenders to the extent of payments made under such policies.
(c) All insurance policies required by Section 13.2 shall include a
standard mortgagee endorsement in favor of the Agent Lessor, the Administrative
Agent and the Participants.
(d) Neither the Agent Lessor nor any of the Lessors shall carry
separate insurance concurrent in kind or form or contributing in the event of
loss with any insurance required under this Article XIII except that Agent
Lessor and any Lessor may, at such party's expense, carry separate liability
insurance so long as (i) the Lessee's insurance is designated as primary and in
no event excess or contributory to any insurance such party may have in force
which would apply to a loss covered under the Lessee's policy and (ii) each such
insurance policy will not cause the Lessee's insurance required under this
Article XIII to be subject to a coinsurance exception of any kind.
(e) The Lessee shall pay as they become due all premiums for the
insurance required by Section 13.1 and Section 13.2, and shall renew or replace
each policy prior to the expiration date thereof. Throughout the Lease Term, at
the time each of the Lessee's insurance policies is renewed (but in no event
less frequently than once each year), the Lessee shall deliver to the Agent
Lessor and the Administrative Agent certificates of insurance evidencing that
all insurance required by this Article XIII is being maintained by the Lessee
and is in effect.
ARTICLE XIV
CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS
Section 14.1. Casualty and Condemnation. (a) Subject to the provisions
of this Article XIV, if all or a portion of the Property is damaged or destroyed
in whole or in part by a Casualty or if the use, access, occupancy, easement
rights or title to the Property or any part thereof, is the subject of a
Condemnation, then
(i) in the case of a Casualty that is not a Significant
Casualty, any insurance proceeds payable with respect to such Casualty
shall be paid directly to the Lessee, or if received by the Agent
Lessor or any other Lessor, shall be paid over to the Lessee for the
reconstruction, refurbishment and repair of the Property, and if such
Casualty is a Significant Casualty, any insurance proceeds payable with
respect to such Casualty (except to the extent such insurance proceeds
relate to interruption of or damage to the Lessee's business operations
or loss of or damage to assets of the Lessee or others
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which is not Property) shall be paid to the Administrative Agent to be
applied in the discretion of the Lessee (unless there has occurred and
is continuing an Event of Default, in which case such insurance
proceeds shall be applied in the discretion of the Agent Lessor and the
Administrative Agent) to the restoration of the Property or toward the
payment of the Lease Balance, unless the Lessee has elected to remedy
the loss or damage resulting from the Significant Casualty in
accordance with Section 15.1 and has satisfied all requirements
thereof, in which case, all insurance proceeds shall be paid directly
to the Lessee and
(ii) in the case of a Condemnation (that is not a Significant
Condemnation) of any part of the Property, any award or compensation
relating thereto shall be paid to the Lessee and in the case of a
Significant Condemnation such award or compensation shall be paid to
the Administrative Agent to be applied in the Lessee's discretion
(unless there has occurred and is continuing an Event of Default, in
which case such award or condemnation proceeds shall be applied in the
discretion of the Agent Lessor and the Administrative Agent) to the
restoration of the Property or toward the payment of the Lease Balance
unless the Lessee has elected to remedy the loss or damage resulting
from the Significant Condemnation in accordance with Section 15.1, and
has satisfied all requirements thereto, in which case, all awards and
compensation shall be paid directly to the Lessee;
provided, however, that, in each case, if a Lease Event of Default shall have
occurred and be continuing, such award, compensation or insurance proceeds
relating to the Property (excluding any award, compensation or insurance
proceeds relating to interruption of or damage to the Lessee's business
operations or loss of or damage to assets of the Lessee or others which is not
Property) shall be paid directly to the Administrative Agent or, if received by
the Lessee, shall be held in trust for the Lessors and the Lenders, and shall be
paid by the Lessee to the Account to be distributed in accordance with the
provisions of Article VII of the Participation Agreement. All amounts held by
the Administrative Agent, the Agent Lessor or any Participant when a Lease Event
of Default exists hereunder on account of any award, compensation or insurance
proceeds either paid directly to the Lessors or the Lenders or turned over to
the Lessors or the Lenders shall at the option of the Administrative Agent
either be (i) paid to the Lessee for the repair of damage caused by such
Casualty or Condemnation in accordance with clause (d) of this Section 14.1, or
(ii) applied to the purchase price of the Property on the Termination Date in
accordance with Article XV.
(b) The Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust, settle or appeal any claim for any award, compensation or
insurance payment on account of any such Casualty or Condemnation and shall pay
all expenses thereof. At the Lessee's reasonable request, and at the Lessee's
sole cost and expense, the Agent Lessor shall participate in any such
proceeding, action, negotiation, prosecution or adjustment. The Agent Lessor,
the Administrative Agent, the Participants and the Lessee agree that this Master
Lease shall control the rights of the parties in and to any such award,
compensation or insurance payment.
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(c) If a Casualty shall occur or any party shall receive notice of an
actual, pending or threatened Condemnation involving a Material impairment of
the value of the Property or any interest therein, Lessee or such party, as the
case may be, shall give notice thereof to the Agent Lessor, the Lessee and the
Administrative Agent promptly after the occurrence of such Casualty or receipt
of such notice.
(d) If pursuant to this Section 14.1 and Section 15.1 hereof this
Master Lease shall continue in full force and effect following a Casualty or
Condemnation with respect to the Property, the Lessee shall, at its sole cost
and expense (and, without limitation, if any award, compensation or insurance
payment is not sufficient to restore the Property in accordance with this clause
(d), the Lessee shall pay the shortfall except for any amount caused by the
gross negligence or willful misconduct of Administrative Agent or Agent Lessor),
promptly and diligently repair any damage to the Property caused by such
Casualty or Condemnation in conformity with the requirements of Articles IX and
X using the as-built Plans and Specifications for the Property (as modified to
give effect to any subsequent Modifications, any Condemnation affecting the
Property and all applicable Requirements of Law and as modified as reasonably
requested by the Lessee and reasonably consented to by the Agent Lessor, so long
as such modifications do not materially impair the utility, operation, function
or value so as to restore the Property to at least the same condition,
operation, function and value as existed immediately prior to such Casualty or
Condemnation (assuming the Property was then in the condition required by this
Lease) with such Modification as the Lessee may elect in accordance with Section
10.1. In such event, title to the Property shall remain with the Agent Lessor
subject to the terms of this Master Lease. Upon completion of such restoration,
the Lessee shall furnish to the Agent Lessor and the Administrative Agent an
architect's certificate of substantial completion and a Responsible Officer's
Certificate confirming that such restoration has been completed pursuant to this
Master Lease.
(e) In no event shall a Casualty or Condemnation affect the Lessee's
obligations to pay Rent pursuant to Section 3.1 or to perform its obligations
and pay any amounts due on the Expiration Date or pursuant to Articles XVIII and
XXI.
Section 14.2. Environmental Matters. Promptly upon the Lessee's
obtaining knowledge of the existence of an Environmental Violation which might
reasonably Materially impair the value of the Property, the Lessee shall notify
the Agent Lessor and the Administrative Agent in writing of such Environmental
Violation. If the Environmental Violation would permit the Agent Lessor to
terminate this Master Lease under Section 15.1 and the Agent Lessor elects not
to terminate this Master Lease pursuant to Section 15.1, at Lessee's sole cost
and expense, the Lessee shall, subject to the provisions of Article XII relating
to permitted contests and Article XV and except for any matter caused by
Administrative Agent's or Agent Lessor's gross negligence or wilfull misconduct,
promptly and diligently commence any response, clean up, remedial or other
action necessary to remove, clean up or remediate the Environmental Violation in
accordance with the terms of Section 8.3. The Lessee shall, upon completion of
remedial action by the Lessee, cause to be prepared by an environmental
consultant reasonably acceptable to the Lessors a report describing the
Environmental Violation and the actions taken by the Lessee (or its agents) in
response to such Environmental Violation, and a statement by the consultant that
the
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Environmental Violation has been remedied in compliance in all material respects
with applicable Environmental Laws. Each such Environmental Violation shall be
remedied prior to the Expiration Date unless the Property has been purchased by
the Lessee in accordance with Sections 15.1, 18.1 or 18.2. Nothing in this
Article XIV shall reduce or limit the Lessee's obligations under Sections 13.1,
13.2 or 13.3 of the Participation Agreement.
ARTICLE XV
TERMINATION OF LEASE
Section 15.1. Termination upon Certain Events. If any of the following
occurs with respect to the Property:
(i) a Significant Condemnation occurs; or
(ii) a Significant Casualty occurs; or
(iii) an Environmental Violation occurs or is discovered which
will cost in excess of $5,000,000 to remedy;
and the Agent Lessor shall have given written notice (a "Termination Notice") to
the Lessee that, as a consequence of such event, this Master Lease is to be
terminated, then the Lessee may elect to either (a) remedy the loss or damage
resulting from the Significant Condemnation, Significant Casualty or such
Environmental Violation and restore the value of the Property and deliver to
Agent Lessor cash collateral or a letter of credit reasonably acceptable to
Agent Lessor from a bank reasonably acceptable to Agent Lessor in the amount
reasonably estimated by Agent Lessor to be necessary to remedy the loss or
damage resulting from the Significant Casualty, Significant Condemnation or such
Environmental Violation and restore the value of the Property or (b) purchase
the interest of the Agent Lessor in the Property on or prior to the later of ten
(10) Business Days after delivery of such notice or the next occurring Scheduled
Payment Date by paying to the Administrative Agent an amount equal to the Lease
Balance.
Section 15.2. Termination Procedures. On the date of the payment by the
Lessee of the Lease Balance in accordance with Section 15.1 (such date, the
"Termination Date"), this Master Lease shall terminate and, concurrent with the
Administrative Agent's receipt of such payment,
(a) the Agent Lessor shall execute and deliver to the Lessee
(or to the Lessee's designee) at the Lessee's cost and expense: (x) a
special warranty deed (warranting as to Lessor Liens only) with respect
to the Property, and (y) an assignment of the entire interest of the
Agent Lessor and Lessors in the Property (which shall include an
assignment of all of the right, title and interest of the Agent Lessor
in and to any Net Proceeds with respect to the Property not previously
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received by the Agent Lessor), in each case in recordable form and
otherwise in conformity with local custom and free and clear of any
Lessor Liens attributable to the Lessors;
(b) the Property shall be conveyed to the Lessee (or to the
Lessee's designee) "AS IS" and in its then present physical condition;
and
(c) in the case of a termination pursuant to clause (i) or
(ii) of Section 15.1, the Agent Lessor shall convey to the Lessee any
Net Proceeds with respect to any Casualty or Condemnation relating to
the Property received by the Agent Lessor and not previously paid to
the Lessee or at the request of the Lessee, such amounts shall be
applied against sums due hereunder.
ARTICLE XVI
EVENTS OF DEFAULT
Section 16.1. Lease Events of Default. The occurrence of any one or
more of the following events (whether such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) shall constitute a
"Lease Event of Default":
(a) the Lessee shall fail to make payment of any Basic Rent
upon the same becoming due and payable and such failure shall continue
unremedied for a period of five (5) Business Days after Lessee's
receipt of notice thereof from Administrative Agent or Agent Lessor; or
the Lessee shall fail to make payment upon the same becoming due and
payable of the Lease Balance, Purchase Option Price, Loan Balance or
Lessor Balance, including, without limitation, amounts due pursuant to
Sections 15.1, 15.2, 18.1, 18.2, 18.3 or 20.2 hereof; or
(b) the Lessee shall fail to make payment of any Supplemental
Rent (other than as specified in clause (a) above) due and payable
within five (5) Business Days after receipt of notice thereof from the
Administrative Agent or the Agent Lessor; or
(c) the Lessee shall fail to maintain in effect insurance as
required by Article XIII of this Master Lease; or
(d) the Lessee or the Guarantor shall fail to observe or
perform in any material respect any term, covenant or condition
applicable to it under Article XX of this Agreement; or
(e) the Lessee or the Guarantor shall fail to observe or
perform in any material respect any term, covenant or condition
applicable to it under any Operative Document to which it is party
(other than those described in Section 16.1(a), (b), (c)
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or (d) hereof) and, in each such case, such failure shall have
continued unremedied for thirty (30) days after written notice thereof
has been given to the Lessee or the Guarantor by the Administrative
Agent or Agent Lessor; or
(f) any representation or warranty made or deemed made by the
Lessee or the Guarantor in any Operative Document to which it is a
party or which is contained in any certificate, document or financial
or other statement furnished at any time under or in connection with
any Operative Document shall prove to have been incorrect, false or
misleading in any material respect on or as of the date made or deemed
made; or
(g) Default shall be made in the payment of the principal of
or interest on any Indebtedness of the Guarantor or any Restricted
Subsidiary (other than Indebtedness under the Operative Documents) in
either case aggregating more than $20,000,000, as and when the same
shall become due and payable by the lapse of time, by declaration, by
call for redemption, by acceleration or otherwise, and such default
shall continue beyond any period of grace or notice, if any, allowed
with respect thereto; or
(h) Any event specified in any note, agreement, indenture or
other document evidencing or relating to Indebtedness of the Guarantor
or any Restricted Subsidiary shall occur if the effect of such event is
to cause, or (with the giving of any notice) to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause, $50,000,000 or more of such Indebtedness
to become due, or to be prepaid in full (whether by redemption,
purchase, offer to purchase or otherwise), prior to its stated maturity
and any applicable period of grace or notice has lapsed with respect to
such default; provided that no such event shall constitute an Event of
Default hereunder if and so long as the Guarantor or the indebted
Restricted Subsidiary (as applicable) shall be contesting in good faith
whether such event has occurred and the Guarantor and its Restricted
Subsidiaries make no payments or concessions (whether in the form of
collateral, increased interest or fees, more rapid amortization, more
restrictive terms or otherwise) in consideration of a resolution of
such contest; or
(i) Final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 is or are outstanding against the
Guarantor or any Restricted Subsidiary or against any Company Property
of either and any one of such judgments has remained unpaid, unvacated,
unbonded or unstayed by appeal or otherwise for a period of ninety (90)
days from the date of its entry; or
(j) Any Person or two or more Persons acting in concert shall
have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended or any successor regulation) of more than 50%
of the voting stock of the Guarantor; or during any period of thirteen
(13) consecutive calendar months (or, if shorter, the maximum period
which would incorporate only one regularly scheduled annual meeting of
the Guarantor), a majority of the Board of Directors of the Guarantor
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shall no longer be composed of individuals (i) who were members of said
Board on the first day of such period, (ii) whose election or
nomination to said Board was approved by individuals referred to in
clause (i) above constituting at the time of such election or
nomination at least a majority of said Board or (iii) whose election or
nomination to said Board was approved by individuals referred to in
clauses (i) and (ii) above constituting at the time of such election or
nomination at least a majority of said Board; or
(k) A custodian, receiver, liquidator or trustee of the
Guarantor or any Restricted Subsidiary, or of any of the Company
Property of either, is appointed or takes possession and such
appointment or possession remains uncontested or in effect for more
than sixty (60) days; or the Guarantor or any Restricted Subsidiary
generally fails to pay its debts as they become due or admits in
writing its inability to pay its debts as they mature; or the Guarantor
or any Restricted Subsidiary is adjudicated bankrupt or insolvent; or
any of the material property of either is sequestered by court order
and the order remains in effect for more than sixty (60) days; or a
petition is filed against the Guarantor or any Restricted Subsidiary
under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or subsequently in effect, and is not stayed
or dismissed within sixty (60) days after filing; or
(l) The Guarantor or any Restricted Subsidiary makes an
assignment for the benefit of creditors or files a petition in
voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or subsequently in effect; or consents to the filing of any petition
against it under any such law; or consents to the appointment of or
taking possession by a custodian, receiver, trustee or liquidator of
the Guarantor, any Restricted Subsidiary, or any of the property of
either.
Section 16.2. Remedies. Upon the occurrence of any Lease Event of
Default and at any time thereafter, the Agent Lessor may, so long as such Lease
Event of Default is continuing, do one or more of the following (and in such
order) as the Agent Lessor in its sole discretion shall determine, without
limiting any other right or remedy the Agent Lessor may have on account of such
Lease Event of Default (including, without limitation, the obligation of the
Lessee to purchase the Property as set forth in Section 18.3):
(a) The Agent Lessor may (i) declare the entire outstanding
Lease Balance to be due and payable together with accrued unpaid Rent
and any other amounts payable under the Operative Documents, and/or
(ii) make demand upon the Guarantor;
(b) The Agent Lessor may, by notice to the Lessee, rescind or
terminate this Master Lease as of the date specified in such notice;
provided, however, no reletting, reentry or taking of possession of the
Property (or any portion thereof) by the Agent Lessor will be construed
as an election on the Agent Lessor's part to terminate this Master
Lease unless a written notice of such intention is given to the Lessee;
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(c) The Agent Lessor may (i) demand that the Lessee, and the
Lessee shall upon the written demand of the Agent Lessor, return the
Property promptly to the Agent Lessor in the manner and condition
required by, and otherwise in accordance with all of the provisions of,
Articles VII and IX and Section 8.3 hereof as if the Property were
being returned at the end of the Lease Term, and neither the Agent
Lessor nor any Lessor shall be liable for the reimbursement of the
Lessee for any costs and expenses incurred by the Lessee in connection
therewith, and (ii) without prejudice to any other remedy which the
Lessors may have for possession of the Property, and to the extent and
in the manner permitted by Applicable Law, enter upon the Property and
take immediate possession (to the exclusion of the Lessee) of the
Property or any part thereof and expel or remove the Lessee and any
other Person who may be occupying the Property, by summary proceedings
or otherwise, all without liability to the Agent Lessor for or by
reason of such entry or taking of possession, whether for the
restoration of damage to property caused by such taking or otherwise
except to the extent any such damage is attributable to the gross
negligence or willful misconduct of the Agent Lessor or its agents and,
in addition to the other damages of the Lessors, the Lessee shall be
responsible for all costs and expenses incurred by the Agent Lessor,
the Administrative Agent, the Lessors and/or the Lenders in connection
with any reletting, including, without limitation, reasonable brokers'
fees and all costs of any alterations or repairs made by any such
party;
(d) As more fully set forth in Section 16.4 hereof (and
consistent with the intent of the parties as detailed in Article XXV
hereof), the Agent Lessor may exercise all remedies available to a
mortgagee under law or equity, as the Agent Lessor may determine;
(e) The Agent Lessor may, at its option, elect not to
terminate this Master Lease and continue to collect all Basic Rent,
Supplemental Rent, and all other amounts due to the Agent Lessor
(together with all reasonable costs of collection) and enforce the
Lessee's obligations under this Master Lease as and when the same
become due, or are to be performed, and at the option of the Agent
Lessor, upon any abandonment of the Property by the Lessee, the Agent
Lessor may elect not to terminate this Master Lease and may make the
necessary repairs in order to relet the Property, and relet the
Property or any part thereof for such term or terms (which may be for a
term extending beyond the Lease Term of this Master Lease) and at such
rental or rentals and upon such other terms and conditions as the Agent
Lessor in its reasonable discretion may deem advisable; and upon each
such reletting all rentals actually received by the Agent Lessor from
such reletting shall be applied to the Lessee's obligations hereunder
and the other Operative Documents in the manner provided in Section 7.6
of the Participation Agreement. If such rentals received from such
reletting during any period are less than the Rent with respect to the
Property to be paid during that period by the Lessee hereunder, the
Lessee shall pay any deficiency, as calculated by the Agent Lessor, to
the Administrative Agent on the next Scheduled Payment Date;
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(f) Unless the Property has been sold in its entirety, the
Agent Lessor may, whether or not the Agent Lessor shall have exercised
or shall thereafter at any time exercise any of its rights under clause
(d) or (e) of this Section 16.2 with respect to the Property or any
portion thereof, demand, by written notice to the Lessee specifying a
date not earlier than twenty (20) days after the date of such notice,
that the Lessee purchase, on the date specified in such notice, the
Property in accordance with the provisions of Article XXI and Section
18.3;
(g) The Agent Lessor may exercise any other right or remedy
that may be available to it under Applicable Law, or proceed by
appropriate court action (legal or equitable) to enforce the terms
hereof or to recover damages for the breach hereof. Separate suits may
be brought to collect any such damages for any period(s), and such
suits shall not in any manner prejudice the Agent Lessor's right to
collect any such damages for any subsequent period(s), or the Agent
Lessor may defer any such suit until after the expiration of the Lease
Term, in which event such suit shall be deemed not to have accrued
until the expiration of the Lease Term; or
(b) The Agent Lessor may retain and apply against the Lease
Balance all sums which the Agent Lessor would, absent such Lease Event
of Default, be required to pay to, or turn over to, the Lessee pursuant
to the terms of this Master Lease.
The Agent Lessor shall be entitled to enforce payment of the
indebtedness and performance of the obligations secured hereby and to exercise
all rights and powers under this instrument or under any of the other Operative
Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the obligations secured hereby may now or
hereafter be otherwise secured, whether by mortgage, security agreement, pledge,
lien, assignment or otherwise. Neither the acceptance of this instrument nor its
enforcement shall prejudice or in any manner affect the Agent Lessor's right to
realize upon or enforce any other security now or hereafter held by the Agent
Lessor, it being agreed that the Agent Lessor shall be entitled to enforce this
instrument and any other security now or hereafter held by the Agent Lessor in
such order and manner as the Agent Lessor may determine in its absolute
discretion. No remedy herein conferred upon or reserved to the Agent Lessor is
intended to be exclusive of any other remedy herein or by law provided or
permitted, but each shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. Every power or remedy given by any of the Operative Documents to the
Agent Lessor or to which it may otherwise be entitled, may be exercised,
concurrently or independently, from time to time and as often as may be deemed
expedient by the Agent Lessor. In no event shall the Agent Lessor, in the
exercise of the remedies provided in this instrument (including, without
limitation, in connection with the assignment of rents to Agent Lessor, or the
appointment of a receiver and the entry of such receiver onto all or any part of
the Property), be deemed a "mortgagee in possession," and the Agent Lessor shall
not in any way be made liable for any act, either of commission or omission, in
connection with the exercise of such remedies.
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If, pursuant to the exercise by the Agent Lessor of its remedies
pursuant to this Section 16.2, the Lease Balance and all other amounts due and
owing from the Lessee under this Master Lease and the other Operative Documents
have been paid in full, then the Agent Lessor shall remit to the Lessee any
excess amounts received by the Agent Lessor.
To the extent the amount the Lessee may reasonably expect to receive
from a sale of the Excluded Equipment and the amount the Lessors may reasonably
expect to receive from a sale of the Property would be maximized if the same
were sold jointly, the Lessee and Agent Lessor shall cooperate to develop a
mutually acceptable program for the sale of all such assets but in no event
shall either party be obligated to sell its assets for less than fair value as
reasonably determined by it and in no event shall Agent Lessor be precluded from
selling the Property at any time or the Lessee be precluded from selling the
Excluded Equipment at any time.
Section 16.3. Waiver of Certain Rights. (a) To the maximum extent
permitted by law, the Lessee hereby waives the benefit of any appraisement,
valuation, stay, extension, reinstatement and redemption laws now or hereafter
in force and all rights of marshalling in the event of any sale of the Property
or any interest therein, (b) if this Master Lease shall be terminated pursuant
to Section 16.2, the Lessee waives, to the fullest extent permitted by law, (i)
any notice of re-entry or the institution of legal proceedings to obtain
re-entry or possession; (ii) any right of redemption, re-entry or repossession;
(iii) the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt or limiting the Agent Lessor with respect to the
election of remedies; and (iv) any other rights which might otherwise limit or
modify any of the Agent Lessor's rights or remedies under this Article XVI.
Section 16.4. Deed of Trust Remedies. Without limiting any other
remedies set forth in this Master Lease, and also, without limiting the
generality of Article XXV hereof, the Trustee, for the benefit and at the
direction of the Agent Lessor may proceed by a suit or suits in equity or at
law, whether for a foreclosure hereunder, or (to the extent permitted by law)
for the sale of the Property, or against the Lessee on a recourse basis for the
Lease Balance, or for the specific performance of any covenant or agreement
contained herein or in aid of the execution of any power granted herein, or for
the appointment of a receiver pending any foreclosure hereunder or the sale of
the Property, or for the enforcement of any other appropriate legal or equitable
remedy. The Trustee and the Agent Lessor shall have all rights available to a
deed of trust trustee or a beneficiary of a deed of trust under the laws of the
State of Texas, including, without limitation, all rights granted a trustee or
beneficiary under Chapter 51.002 - 51.006 et. seq. of the Texas Property Code
(as amended, the "Deed of Trust Law"). In the event that any provisions of this
Master Lease shall be inconsistent with the Deed of Trust Law, the provisions of
the Deed of Trust Law shall take precedence over such provision of this Master
Lease, but shall not invalidate or render unenforceable any other provision of
this Master Lease that can be construed in a manner consistent with the Deed of
Trust Law. If any provision of this Master Lease shall grant the Trustee or the
Agent Lessor any rights or remedies upon default of the Lessee which are more
limited than the rights that would otherwise be vested in the Agent Lessor under
the Deed of Trust Law in the absence of such provision, the Trustee and the
Agent Lessor shall
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be vested with the rights granted in the Deed of Trust Law to the full extent
permitted by law.
ARTICLE XVII
AGENT LESSOR'S RIGHT TO CURE
Section 17.1. The Agent Lessor's Right to Cure the Lessee's Lease
Defaults. The Agent Lessor, without waiving or releasing any obligation or Lease
Event of Default, may (but shall be under no obligation to) remedy any Lease
Event of Default for the account and at the sole cost and expense of the Lessee,
including the failure by the Lessee to maintain the insurance required by
Article XIII, and may, to the fullest extent permitted by law, and
notwithstanding any right of quiet enjoyment in favor of the Lessee, enter upon
the Property following the occurrence and during the continuance of a Lease
Event of Default for such purpose and take all such action thereon as may be
reasonably necessary or appropriate therefor. No such entry shall be deemed an
eviction of the Lessee. All reasonable out-of-pocket costs and expenses so
incurred (including reasonable fees and expenses of counsel), together with
interest thereon at the Overdue Rate from the date on which such sums or
expenses are paid by the Agent Lessor, shall be paid by the Lessee to the Agent
Lessor as Supplemental Rent.
ARTICLE XVIII
PURCHASE PROVISIONS
Section 18.1. Purchase of the Property. Subject to the conditions
contained herein, and without limitation of the Lessee's purchase obligation
pursuant to Section 18.2 or 18.3, the Lessee shall have the irrevocable option
on any Business Day to purchase all (but not less than all) of the Property at a
price equal to the Lease Balance on the date of such purchase (the "Purchase
Option Price"). The Lessee's exercise of its option pursuant to this Section
18.1 shall be subject to the following conditions:
(i) the Lessee shall have delivered a Purchase Notice to the
Agent Lessor and the Administrative Agent not less than five (5) days
prior to such purchase, specifying the date of such purchase;
(ii) no Lease Event of Default shall have occurred and then
be continuing; and
(iii) the Lessee shall not have delivered (or, if delivered,
shall have rescinded) a written notice of the Lessee's exercise of the
Remarketing Option pursuant to Section 20.1(a).
If the Lessee exercises its option pursuant to this Section 18.1 then,
upon the Administrative Agent's receipt of all amounts due in connection
therewith, the Agent Lessor
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shall transfer to the Lessee or its designees all of the Agent Lessor's and the
Lessors' right, title and interest in and to the Property in accordance with the
procedures set forth in Section 21.1(a), such transfer to be effective as of the
date specified in the Purchase Notice. The Lessee may designate, in a notice
given to the Agent Lessor and the Administrative Agent not less than five (5)
Business Days prior to the closing of such purchase (time being of the essence),
the transferee or transferees to whom the conveyance shall be made (if other
than to the Lessee), in which case such conveyance shall (subject to the terms
and conditions set forth herein) be made to such designee; provided, however,
that such designation of a transferee or transferees shall not cause either the
Lessee or the Guarantor to be released, fully or partially, from any of their
respective obligations under this Master Lease or the Guaranty, including,
without limitation, the obligation to pay to the Agent Lessor the Lease Balance
on the date specified in the Purchase Notice.
Section 18.2. Expiration Date Purchase Obligation. Unless (a) the
Lessee shall have properly exercised its option pursuant to Section 18.1 and
purchased the Property pursuant thereto, or (b) the Lessee shall have properly
exercised the Remarketing Option and shall have fulfilled all of the
requirements of Article XX, then, subject to the terms, conditions and
provisions set forth in this Article, and in accordance with the terms of
Section 21.1(a), the Lessee (or its designee) shall purchase from the Agent
Lessor, and the Agent Lessor shall convey to the Lessee (or its designee), on
the Expiration Date (giving effect to any extensions thereof in connection with
the extension of the Expiration Date and the provisions of Article XIX hereof)
all of the interest of the Agent Lessor and the Lessors in the Property for an
amount equal to the Lease Balance. The Lessee may designate, in a notice given
to the Agent Lessor and the Administrative Agent not less than ten (10) Business
Days prior to the closing of such purchase (time being of the essence), the
transferee or transferees to whom the conveyance shall be made (if other than to
the Lessee), in which case such conveyance shall (subject to the terms and
conditions set forth herein) be made to such designee; provided, however, that
such designation of a transferee or transferees shall not cause either the
Lessee or the Guarantor to be released, fully or partially, from any of its
obligations under this Master Lease or the Guaranty, including, without
limitation, the obligation to pay the Agent Lessor the Lease Balance on the
Expiration Date.
Section 18.3. Acceleration of Purchase Obligation. The Lessee shall be
obligated to purchase for an amount equal to the Lease Balance all of the
interest of the Agent Lessor and the Lessors in the Property (notwithstanding
any prior election to exercise its Purchase Option pursuant to Section 18.1)
automatically and without notice upon the occurrence of any Lease Event of
Default described in clause (l) of Section 16.1. Any purchase under this Section
18.3 shall be in accordance with the procedures set forth in Section 21.1(a).
ARTICLE XIX
EXTENSION OF EXPIRATION DATE
The Lessee may extend the Expiration Date subject to, and in accordance
with, the terms and conditions of Section 11.1 of the Participation Agreement.
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ARTICLE XX
REMARKETING OPTION
Section 20.1. Option to Remarket. Subject to the fulfillment of each of
the conditions set forth in this Section 20.1, the Lessee shall have the option
(the "Remarketing Option") to remarket and complete the sale of the Property for
the Agent Lessor.
The Lessee's effective exercise and consummation of the Remarketing
Option shall be subject to the due and timely fulfillment of each of the
following provisions as of the dates set forth below. Failure by the Lessee to
timely satisfy in any material respect any of the following provisions of this
Section 20.1, or any of the provisions of Section 20.2, shall be deemed to be an
election by the Lessee, without further act thereby, of its Purchase Option for
the Property and any previous election of the Remarketing Option shall
automatically terminate.
(a) Unless a longer period is called for pursuant to any Requirement of
Law, on any date between 365 days and 180 days prior to the Expiration Date, the
Lessee shall give to the Agent Lessor and the Administrative Agent written
notice of the Lessee's exercise of the Remarketing Option, which exercise shall
be irrevocable by the Lessee.
(b) Not later than ninety (90) days prior to the Expiration Date, the
Lessee shall deliver to the Agent Lessor an Environmental Audit for the
Property. Such Environmental Audit shall be prepared by an environmental
consultant selected by the Agent Lessor and reasonably acceptable to the Lessee
and shall contain conclusions indicating that the consultant found no
Environmental Violations at the Property. If any such Environmental Audit
indicates any exceptions calling for a Phase Two environmental assessment, the
Lessee shall have also delivered prior to the Expiration Date a Phase Two
environmental assessment by such environmental consultant and a written
statement by such environmental consultant indicating that all such exceptions
have been remedied in compliance in all material respects with Applicable Law or
shall have delivered to Agent Lessor cash collateral or a letter of credit
reasonably acceptable to Agent Lessor from a bank reasonably acceptable to Agent
Lessor in the amount reasonably estimated by Agent Lessor to be necessary to
remedy such exceptions.
(c) On the date of the Lessee's notice to the Agent Lessor of the
Lessee's exercise of the Remarketing Option, no Lease Event of Default or Lease
Default shall exist, and, thereafter, no Lease Event of Default or Lease Default
shall occur.
(d) [Intentionally Omitted.]
(e) The Lessee shall have completed in all material respects all
Modifications, restoration and rebuilding of the Property pursuant to Sections
10.1 and 14.1 (as the case may be) and shall have fulfilled all of the
conditions and requirements in connection therewith pursuant to such Sections,
in each case prior to the date on which the Agent Lessor receives the Lessee's
notice of the Lessee's intention to exercise the Remarketing Option
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(time being of the essence), regardless of whether the same shall be within the
Lessee's control. The Lessee shall have also paid to the extent due the cost of
all Modifications commenced prior to the Expiration Date. The Lessee shall not
have been excused pursuant to Section 12.l from complying with any Applicable
Law that involved the extension of the ultimate imposition of such Applicable
Law beyond the Expiration Date unless the Lessee shall have provided for
adequate bond to secure any required payments. Any Permitted Property Liens
(other than Lessor Liens) on the Property that were contested by the Lessee
shall have been removed on or prior to the Expiration Date and the Agent Lessor
shall have received evidence satisfactory to it that all Liens (other than
Lessor Liens and uncontested Permitted Property Liens of the type described in
clauses (i), (vii), (viii) and (x) of the definition thereof) have been removed.
The Property shall be in good operating condition, ordinary wear and tear
excepted.
Section 20.2. Procedures During Remarketing. (a) During the Marketing
Period, the Lessee shall, as nonexclusive agent for the Agent Lessor, use its
commercial best efforts to sell the interest of the Agent Lessor in the Property
and will attempt to obtain the highest purchase price therefor and for not less
than the Fair Market Sales Value. The Lessee will be responsible for hiring
brokers and making the Property available for inspection by prospective
purchasers. The Lessee shall promptly upon reasonable request permit during
normal business hours inspection of the Property and any maintenance records
relating to the Property by the Agent Lessor, any Participant and any potential
purchasers, and the Lessee and the Lessee shall otherwise do all things
necessary to sell and deliver possession of the Property to any purchaser. All
such marketing of the Property shall be at the Lessee's sole expense.
(b) The Lessee shall use commercial best efforts to procure written
bids from one or more bona fide prospective purchasers. No such purchaser shall
be the Lessee, the Guarantor or any Affiliate thereof. The written offer must
specify the Expiration Date as the closing date. The Agent Lessor and each
Lessor shall have the right, but shall be under no duty, to solicit bids, to
inquire into the efforts of the Lessee to obtain bids or otherwise to take
action in connection with any such sale which action does not materially impair
Lessee's efforts.
(c) The Lessee shall submit all bids to the Agent Lessor promptly upon
receipt, and the Agent Lessor and each Lessor will have the right to submit any
one or more bids. Any sale by the Lessee shall be for the highest cash bid
submitted to the Agent Lessor or any bid that exceeds the Lease Balance and is
approved by Lessee. The determination of the highest bid shall be made by the
Agent Lessor prior to the end of the Marketing Period, but in any event, the
Agent Lessor shall have no obligation to approve any bid for the Property unless
the highest bid for the Property equals or exceeds the Lease Balance. All bids
shall be on an all-cash basis.
(d) In connection with any such sale of the Property, the Lessee shall,
on or before the Expiration Date, and at its own cost, transfer possession of
the Property to the purchaser thereof by surrendering the same into the
possession of such purchaser free and clear of all Liens other than Lessor Liens
and such other Permitted Liens as may be agreed to with the
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Purchaser, in good operating condition (as modified by Modifications permitted
by this Lease), ordinary wear and tear excepted (or in such condition as the
purchaser is willing to accept), and in compliance in all material respects with
all Applicable Law and the provisions of this Master Lease. The Lessee will
provide to the purchaser all customary "seller's" indemnities if necessary to
effectuate the sale (including, without limitation, a reasonable and customary
environmental indemnity to the extent the same are required by the purchaser)
and representations and warranties regarding title, absence of Liens (except
Lessor Liens and any negotiated "permitted liens") and the condition of the
Property by the Lessee. The Lessee shall have obtained, at its cost and expense
(or as may otherwise be agreed to with the Purchaser), all required governmental
and regulatory consents and approvals and shall have made all filings as
required by Applicable Law in order to carry out and complete the transfer of
the Property by the Lessee. The Lessee shall, on and within a reasonable time
before and after the Expiration Date, cooperate with the Agent Lessor and the
purchaser of the Property in order to facilitate the ownership and operation by
such purchaser of the Property after the Expiration Date, which cooperation
shall include the following, all of which the Lessee shall do on or before the
Expiration Date, or as soon thereafter as is reasonably practicable: providing
all books, records data and technical information regarding the maintenance and
operation of the Property; providing a current copy of the Plans and
Specifications, granting or assigning all licenses to the extent necessary for
the operation and maintenance of the Property and cooperating in seeking and
obtaining all necessary Governmental Action; provided that Lessee shall not be
required to transfer or reveal any proprietary information, license or
intellectual property right. As to the Lessors, any such sale shall be made on
an "as is, with all faults" basis without representation or warranty by the
Agent Lessor or any other Lessor other than the absence of Lessor Liens
attributable to such Lessor. Any agreement as to such sale shall be made subject
to the rights of the Lessors hereunder.
(e) The Lessee shall pay directly, and not from the sale proceeds, all
prorations, credits, costs and expenses of the sale of the Property customarily
paid by a seller, whether incurred by the Lessors or the Lessee, including,
without limitation, to the extent customarily paid by a seller the cost of all
title insurance, surveys, environmental reports, appraisals, transfer taxes, the
reasonable attorneys' fees of the Lessors, the Lessee's attorneys' fees,
commissions, escrow fees, recording fees, and all applicable documentary and
other transfer taxes.
(f) The Lessee shall pay to the Administrative Agent on the earlier of
90 days after the notice delivered pursuant to Section 20.1(a) hereof or the
Expiration Date (or in the case of Supplemental Rent, to the Person entitled
thereto) an amount equal to the Loan Balance plus all accrued and unpaid Rent
(including Supplemental Rent, if any) and all other amounts hereunder which have
accrued or will accrue prior to or as of the date of payment, in the type of
funds specified in Section 3.4 hereof.
(g) The Lessee shall pay to the Administrative Agent on or prior to the
Expiration Date the amounts, if any, required to be paid pursuant to Section
13.2 of the Participation Agreement.
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(h) The sale of the Property shall be consummated on or before the
Expiration Date and the gross proceeds (the "Gross Remarketing Proceeds") of the
sale of the Property (less any marketing, closing or other costs, prorations or
commissions) shall be paid directly to the Administrative Agent; provided,
however, that if the sum of (x) the Gross Remarketing Proceeds from such sale
plus (y) the Loan Balance received by the Administrative Agent pursuant to
Section 20.2(f) exceeds the Lease Balance as of such date, then the excess shall
promptly be paid to the Lessee.
(i) Except as expressly set forth herein, the Lessee shall have no
right, power or authority to bind the Agent Lessor or any Participant in
connection with any proposed sale of the Property.
(j) During the Marketing Period, the obligation of the Lessee to pay
Rent with respect to the Property (including the installment of Rent due on the
Expiration Date) shall continue undiminished until payment in full of the Lease
Balance and all other amounts due to the Participants under the Operative
Documents.
Section 20.3. Remedies for Failed Remarketing. If the Lessee
effectively elects the Remarketing Option and each of the conditions and
requirements in Sections 20.1 and 20.2 shall have been satisfied, but
nevertheless the Lessee is unable to obtain bids reasonably satisfactory to the
Lessors, and the sale of the Property is not consummated prior to the end of the
Marketing Period, the Agent Lessor shall by written notice to the Lessee choose
one or both of the following remedies:
(a) Continue Remarketing Efforts. At the request of the Agent
Lessor, the Lessee shall continue to market the Property on behalf of
the Agent Lessor for up to an additional six (6) months and at the sole
cost and expense of Lessee, and during such extended marketing period
continue to comply with the requirements of Articles IX, X, XI, XIII,
XIV and XX (to the extent relevant) at Lessee's sole cost and expense.
The Agent Lessor shall by written notice to the Lessee indicate the
duration of such extended marketing period (the last day of such
period, the "Extended Expiration Date"), and the Agent Lessor shall
have the option to accelerate or shorten such Extended Expiration Date
at any time by prior written notice to Lessee. If, at the end of the
Extended Expiration Date, the Lessee is still unable to obtain bids
satisfactory to the Lessors, and the sale of the Property is not
consummated prior to the end of the Extended Expiration Date, then the
provisions of Section 20.3(b) hereof shall apply.
(b) Return. Demand that the Property be returned to the Agent
Lessor, whereupon the Lessee shall do each of the following at its own
cost and expense:
(i) execute and deliver to the Agent Lessor and the
Agent Lessor's title insurance company an affidavit as to the
absence of any Liens (other than Permitted Liens of the type
described in clause (i), (vii), (viii) or (x) of the
definition thereof), and shall execute and deliver to the
Agent Lessor and the other Lessors a statement of termination
of this Master Lease;
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(ii) transfer possession of the Property to the
Agent Lessor or any Person designated by the Agent Lessor, by
surrendering the same into the possession of the Agent Lessor
or such Person, as the case may be, in the condition required
by this Master Lease and in compliance in all Material
respects with Applicable Law; and
(iii) cooperate fully with the Agent Lessor, the
other Lessors and/or any Person designated by the Agent Lessor
to receive the Property which cooperation shall include: if
Agent Lessor is unable to obtain a commercially reasonable
operator of the Property, upon requested by the Agent Lessor,
the Lessee hereby agrees to enter into an operating agreement
and in connection therewith to serve as the operator of the
Property; such agreement to be on market terms established in
good faith and reasonably acceptable to the Agent Lessor and
Lessee, providing copies of all books, records, data and
technical information regarding the maintenance and operation
of the Property, providing a current copy of the Plans and
Specifications, to the extent permitted by any Requirement of
Law, granting or assigning all assignable licenses necessary
for the operation and maintenance of the Property and
cooperating reasonably in seeking and obtaining all necessary
Governmental Action; provided that Lessee shall not be
required to transfer or reveal any proprietary information,
license or intellectual property right. The obligations of the
Lessee under this paragraph shall survive the expiration or
termination of this Master Lease.
Section 20.4. No Sale of Property. If the Lessee effectively elects the
Remarketing Option and each of the conditions and requirements in Sections 20.1
and 20.2 shall have been satisfied, but nevertheless the Lessee is unable to
obtain a bid acceptable hereunder during the Remarketing Period or any extension
thereof pursuant to Section 20.3(a) and the Property is not sold (due either to
the Agent Lessor's rejection of any bids or the failure to obtain any bids),
there shall not be deemed to be a Lease Event of Default by virtue of such
failure to sell the Property and the Lessee shall only be obligated to make the
payments referred to in Sections 3.4, 20.2(e), (f) and (g) hereof.
ARTICLE XXI
PROCEDURES RELATING TO PURCHASE OR REMARKETING OPTIONS
Section 21.1. Provisions Relating to the Exercise of Purchase Option or
Obligation and Conveyance upon Remarketing; Conveyance upon Certain Other
Events. (a) In connection with any termination of this Master Lease pursuant to
the terms of Article XV, in connection with the Lessee's purchase of the
Property in accordance with Section 18.1 or in connection with the Lessee's
Expiration Date Purchase Obligation or obligations under Section 16.2(f) or
18.3, then, upon the date on which this Master Lease is to terminate and upon
tender by the Lessee of the amounts set forth in Article XV, Sections 16.2(f),
18.1, 18.2 or 18.3, as applicable:
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(i) the Agent Lessor shall execute and deliver to the Lessee
(or to the Lessee's designee) at the Lessee's cost and expense and in
form reasonably acceptable to Lessee: (x) a special warranty deed
(warranting as to Lessor Liens only) with respect to the Property with
a covenant against grantor's acts, and (y) an assignment of the entire
interest of the Agent Lessor in the Property (which shall include an
assignment of all of the right, title and interest of the Agent Lessor
and the Lessors in and to any Net Proceeds with respect to the Property
not previously received by the Agent Lessor and an assignment of leases
of the Property), in each case in recordable form and otherwise in
conformity with local custom and free and clear of the Lien of the
Lessor Mortgage and any Lessor Liens;
(ii) the Property shall be conveyed to the Lessee (or its
designee) "AS IS" and in its then present physical condition; and
(iii) the Agent Lessor shall execute and deliver to Lessee (or
its designee) and the Lessee's title insurance company an affidavit as
to the Agent Lessor's title and Lessor Liens attributable to it and
shall execute and deliver to the Lessee a statement of termination of
this Master Lease.
(b) If the Lessee exercises the Remarketing Option pursuant to Article
XX and a satisfactory purchaser is obtained, then the Lessee shall, on the
Expiration Date, and at its own cost, transfer possession of the Property to the
independent purchaser thereof, by surrendering the same into the possession of
such purchaser free and clear of all Liens other than Lessor Liens and the lien
of the Lessor Mortgage (except as otherwise agreed to by Lessee with the
purchaser), in good condition (as modified by Modifications permitted by this
Master Lease), ordinary wear and tear excepted (except as otherwise agreed to by
Lessee with the purchaser), and in compliance in all material respects with
Applicable Law. The Lessee shall reasonably cooperate with the Agent Lessor, the
other Lessors and the independent purchaser of the Property in order to
facilitate the purchase by such purchaser of the Property, which cooperation
shall include the following, all of which the Lessee shall do (or cause to be
done) on or before the Expiration Date or as soon thereafter as is reasonably
practicable: providing copies of all books, records, data and technical
information regarding the maintenance and operation of the Property; providing a
current copy of the Plans and Specifications; to the extent permitted by any
Requirement of Law, granting or assigning all licenses necessary for the
operation and maintenance of the Property; and cooperating in seeking and
obtaining all necessary Governmental Action; provided that Lessee shall not be
required to transfer or reveal any proprietary information, license or
intellectual property right. The obligations of the Lessee under this paragraph
shall survive the expiration or termination of this Master Lease. The Lessors
agree to cooperate and execute such documents as are necessary to facilitate the
foregoing.
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ARTICLE XXII
ESTOPPEL CERTIFICATES
Section 22.1. Estoppel Certificates. At any time and from time to time
upon not less than ten (10) Business Days' prior request by the Agent Lessor or
of the Lessee (the "Requesting Party"), the other party (whichever party shall
have received such request, the "Certifying Party") shall furnish to the
Requesting Party a certificate signed by a Responsible Officer certifying that
this Master Lease is in full force and effect (or that this Master Lease is in
full force and effect as modified and setting forth the modifications); the
dates to which the Basic Rent and Supplemental Rent have been paid; to the best
knowledge of the signer of such certificate, whether or not the Requesting Party
is in default under any of its obligations hereunder and, if so, the nature of
such alleged default; and such other matters under this Master Lease as the
Requesting Party may reasonably request.
Any such certificate furnished pursuant to this Article XXII may be
relied upon by the Requesting Party, and any existing or prospective mortgagee,
purchaser or lender, and any accountant or auditor, of, from or to the
Requesting Party (or any Affiliate thereof).
ARTICLE XXIII
ACCEPTANCE OF SURRENDER
No surrender to the Agent Lessor or any Lessor of this Master Lease or
of the Property or of any part of any thereof or of any interest therein shall
be valid or effective unless agreed to and accepted in writing by the Agent
Lessor and, prior to the payment or performance of all obligations under the
Loan Agreement and termination of the Commitments, the Administrative Agent, and
no act by the Agent Lessor or any Lessor or any Lender or any representative or
agent of any Lessor or any Lender, other than a written acceptance, shall
constitute an acceptance of any such surrender.
ARTICLE XXIV
NO MERGER OF TITLE
There shall be no merger of this Master Lease or of the leasehold
estate created hereby by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly, in whole or in part, (a) this Master Lease
or the leasehold estate created hereby or any interest in this Master Lease or
such leasehold estate, (b) the fee estate in the Property, except as may
expressly be stated in a written instrument duly executed and delivered by the
appropriate Person or (c) a beneficial interest in any Lessor.
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ARTICLE XXV
INTENT OF THE PARTIES
Section 25.1. Ownership of the Property. (a) The parties hereto intend
that (i) for financial accounting purposes with respect to the Lessee, the Agent
Lessor will be treated as the owner and lessor of an undivided interest in the
Property and the Lessee will be treated as the lessee of the Property and (ii)
for all other purposes, including federal and all state and local income tax
purposes, state real estate and commercial law and bankruptcy purposes, (A) this
Master Lease will be treated as a financing arrangement, (B) the Lessors and the
Lenders will be deemed lenders making loans to the Lessee in an amount equal to
the sum of the Lessor Amounts and the outstanding principal amount of the Loans,
which loans are secured by the Property and (C) the Lessee will be treated as
the owner of the Property and will be entitled to all tax benefits ordinarily
available to an owner of properties like the Property for such tax purposes.
Nevertheless, the Lessee acknowledges and agrees that none of the Administrative
Agent, the Agent Lessor, the Arranger or any Participant has made any
representations or warranties to the Lessee concerning the tax, accounting or
legal characteristics of the Operative Documents and that the Lessee has
obtained and relied upon such tax, accounting and legal advice concerning the
Operative Documents as it deems appropriate. The parties hereto will not take
any position inconsistent with the intentions expressed herein.
(b) It is the intent of the parties hereto that this Master Lease
grants a security interest and deed of trust lien, as the case may be, on the
Property to and for the benefit of the Agent Lessor for the benefit of the
Lessors and the other Participants to secure the Lessee's performance under and
payment of all amounts under the Lease and the other Operative Documents.
Section 25.2. Liens and Security Interests. (a) Specifically, without
limiting the generality of Section 25.1, the Agent Lessor and the Lessee intend
and agree that in the event of any insolvency or receivership proceedings or a
petition under the United States bankruptcy laws or any other applicable
insolvency laws or statute of the United States of America or any State or
Commonwealth thereof affecting the Lessee, any Lessor, any Lender or any
collection actions, the transactions evidenced by the Operative Documents shall
be regarded as loans made by the Lenders and the Lessors as unrelated third
party lenders to the Lessee secured by the Property (it being understood that
the Lessee has GRANTED, BARGAINED, SOLD, CONVEYED and CONFIRMED, and hereby
GRANTS, BARGAINS, SELLS, CONVEYS and CONFIRMS, and grants a security interest in
the Property (consisting of a security agreement with respect to that portion of
the Property constituting personal property and deed of trust with respect to
that portion of the Property constituting a leasehold and real property) IN
TRUST all with POWER OF SALE to the Trustee and its successors and assigns in
trust for the use and benefit of the Agent Lessor (for the benefit of the
Lessors and the Lenders) to secure all Lessor Amounts and Loans advanced by the
Participants for the acquisition of the Property in an original principal amount
of $96,957,507.26 and maturing on November 24, 2002, together with Yield or
interest, as
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applicable, thereon, and all other amounts payable under the Operative Documents
in connection therewith, effective on the date hereof).
(b) Specifically, but without limiting the generality of Section 25.1,
the Agent Lessor and the Lessee further intend and agree that, for the purpose
of securing the Obligation of the Lessee for the repayment of the
above-described loans from the Lessors and the Lenders to the Lessee and to
further secure the Lessee's Obligations, (i) this Master Lease shall also be
deemed to be a security agreement and financing statement within the meaning of
Article 9 of the Uniform Commercial Code and a real property deed of trust; (ii)
the conveyance provided for hereby and in Article II of this Master Lease shall
be deemed to be a grant by the Lessee to the Trustee and its successors and
assigns in trust for the use and benefit of the Agent Lessor (for the benefit of
the Lessors and the Lenders) of a mortgage lien and security interest in all of
the right, title and interest of the Lessee in and to the Property and all
proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, investments, securities or other property (it being understood that the
Lessee hereby mortgages and warrants and grants a security interest in the
Property to the Trustee and its successors and assigns in trust for the use and
benefit of the Agent Lessor for the benefit of the Lessors and the Lenders to
secure all Loans and Lessor Amounts advanced by the Participants for the
acquisition of the Property, together with Yield or interest thereon, and all
other amounts payable under the Operative Documents in connection therewith);
(iii) the possession by the Agent Lessor or any of its agents of notes and such
other items of property as constitute instruments, money, negotiable documents
or chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9-305 of the
Uniform Commercial Code; and (iv) notifications to Persons holding such
property, and acknowledgments, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of the Lessee shall be deemed
to have been given for the purpose of perfecting such security interest under
any Requirement of Law. The Agent Lessor and the Lessee shall, to the extent
consistent with this Master Lease, take such actions and execute, deliver, file
and record such other documents, financing statements and mortgages as may be
necessary to ensure that, if the Lease was deemed to create a security interest
in the Property in accordance with this Section 25.2, such security interest
would be deemed to be a perfected security interest (subject only to Permitted
Property Liens) and will be maintained as such throughout the Lease Term.
(c) Specifically, but without limiting the foregoing or the generality
of Section 25.1, Lessee hereby grants, bargains, sells, warrants, conveys,
aliens, remises, releases, assigns, sets over and confirms to the Trustee and
its successors and assigns in trust for the use and benefit of the Agent Lessor
all of Lessee's right, title, and interest in and to the following
(collectively, the "Mortgaged Property"): (i) the Property (as described in
Schedule II attached hereto) and Appurtenant Rights relating thereto and all
proceeds, both cash and noncash thereof; (ii) all easements, rights-of-way,
strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights,
waters, water courses, water rights, minerals, flowers, shrubs, crops, trees,
timber and other emblements, and all estates, rights, titles, interests,
tenements, hereditaments and appurtenances, reversions and remainders
whatsoever, in any way belonging, relating or appertaining to the Property or
any part thereof, whether now owned or hereafter acquired by Lessee; (iii) all
right, title and interest
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of Lessee in any and all leases, rental agreements and arrangements of any sort
now or hereafter affecting the Property or any portion thereof and providing for
or resulting in the payment of money to Lessee for the use of the Property or
any portion thereof, whether the user enjoys the Property or any portion thereof
as tenant for years, licensee, tenant at sufferance or otherwise, and
irrespective of whether such leases, rental agreements and arrangements be oral
or written, and including any and all extensions, renewals and modifications
thereof (the "Subject Leases") and guaranties of the performance or obligations
of any tenants or lessees thereunder, together with all income, rents, issues,
profits and revenues from the Subject Leases (including all tenant security
deposits and all other tenant deposits, whether held by Lessee or in a trust
account, and all other deposits and escrow funds relating to any Subject
Leases), and all the estate, right, title, interest, property, possession, claim
and demand whatsoever at law, as well as in equity, of Lessee of, in and to the
same; provided, however, that although this Master Lease contains (and it is
hereby agreed that this Master Lease contains) a present, current, unconditional
and absolute assignment of all of said income, rents, issues, profits and
revenues, Lessee shall collect and apply such rental payments and revenues as
provided in the Lease and the other Operative Documents; (iv) all right, title
and interest of Lessee in, to and under all franchise agreements, management
contracts, consents, authorizations, certificates and other rights of every kind
and character of any Governmental Authority affecting the Property, to the
extent the same are transferable, service contracts, utility contracts, leases
of equipment, documents and agreements relating to the construction of any
Improvements (including any and all construction contracts, architectural
contracts, engineering contracts, designs, plans, specifications, drawings,
surveys, tests, reports, bonds and governmental approvals) and all other
contracts, licenses and permits now or hereafter affecting the Property or any
part thereof and all guaranties and warranties with respect to any of the
foregoing (the "Subject Contracts"); (v) all right, title and interest of Lessee
in any insurance policies or binders now or hereafter relating to the Property,
including any unearned premiums thereon, as further provided in this Master
Lease; (vi) all right, title and interest of Lessee in any and all awards,
payments, proceeds and the right to receive the same, either before or after any
foreclosure hereunder, as a result of any temporary or permanent injury or
damage to, taking of or decrease in the value of the Property by reason of
casualty, condemnation or otherwise as further provided in this Master Lease;
(vii) all right, title and interest of Lessee in all utility, escrow and all
other deposits (and all letters of credit, certificates of deposit, negotiable
instruments and other rights and evidence of rights to cash) now or hereafter
relating to the Property or the purchase, construction or operation thereof;
(viii) all claims and causes of action arising from or otherwise related to any
of the foregoing, and all rights and judgments related to any legal actions in
connection with such claims or causes of action; and (ix) all Modifications
(except as set forth in Article X hereof), extensions, additions, improvements,
betterments, renewals and replacements, substitutions, or proceeds of any of the
foregoing acquired with proceeds of any of the property described hereinabove;
all of which foregoing items are hereby declared and shall be deemed to be a
portion of the security for the indebtedness and Obligations herein described, a
portion of the above described collateral being located upon the Land; provided
that the Excluded Equipment described on Schedule III hereto are not subject to
this Master Lease.
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(d) Power of Sale. Without limiting any other remedies set forth
herein, in the event that a court of competent jurisdiction rules that this
Master Lease constitutes a mortgage, deed of trust or other secured financing
with respect to the Property as is the intent of the parties pursuant to Article
XXV hereof, then the Agent Lessor and the Lessee agree that (i) the Lessee
hereby grants to the Trustee and its successor and assigns in trust for the use
and benefit of the Agent Lessor (for the benefit of the Lessors and the Lenders)
a Lien against the Property (including the leasehold estate therein) WITH POWER
OF SALE to the extent permitted by law, and that, upon the occurrence and during
the continuance of any Lease Event of Default, the Trustee may, and is hereby
irrevocably empowered to, with or without entry, and to the extent permitted by
applicable law, sell or cause the sale of the Property or any part or parts
thereof at one or more public auctions as an entirety or in parcels as the
Trustee may elect free from any equity of redemption for cash, on credit, or for
other property, for immediate or future delivery, and on such terms as the
Trustee shall deem advantageous and proper, such sale or sales to be made in
such manner and upon such notice and advertisement as may be required by
applicable law, or in the absence of any such requirements, as the Trustee may
deem appropriate, and to make conveyance to the purchase or purchasers.
WAIVER: THE LESSEE ACKNOWLEDGES AND AGREES THAT IF IT DEFAULTS, A NON-JUDICIAL
FORECLOSURE SALE OF THE PROPERTY, IF PERMITTED BY APPLICABLE LAW, MAY BE
CONDUCTED WITHOUT A HEARING OF ANY KIND AND WITHOUT NOTICE BEYOND THE
PUBLICATION AND POSTING OF THE NOTICE OF SALE AS REQUIRED BY LAW. THE LESSEE
HEREBY WAIVES TO THE EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHTS IT MAY HAVE
TO ANY SUCH HEARING AND NOTICE.
Without limiting the generality of the foregoing, the Agent Lessor (or,
to the extent required by law, the Trustee) may, if at the time such action may
be lawful and always subject to compliance with any mandatory legal
requirements, direct the Trustee to enforce its trust and to sell the Property,
as an entirety or in parcels, by one sale or by several sales, held at one time
or at different times, all as the Trustee acting may elect, each sale to be held
at the location within the county courthouse designated for the holding of
non-judicial foreclosure sales by the Commissioners Court of any county in which
a part of the Property constituting real property to be sold is situated (or if
no area has been so designated, then in an area within said courthouse described
in the notice referred to below in this section and to be made on the first
Tuesday of some month between the hours of 10:00 A.M. and 4:00 P.M. to the
highest bidder for cash at public venue, after the Trustee (or a person or
persons selected by the Trustee) and Agent Lessor shall have given notices of
the proposed sale in the manner hereinafter set forth, and to make due
conveyance to the purchaser or purchasers, with special warranty of title or no
warranty of title to such purchaser or purchasers binding upon the Lessee and
its heirs, executors, administrators, and successors. Such sale must begin at
the time stated in the notice referred to below in this section or not later
than three hours after that time. The Lessee, for itself, its heirs and assigns,
and for anyone who may claim by, through or under the Lessee, hereby expressly
and specifically waives all rights to a marshaling of the assets of the Lessee,
including the Property, or to a sale in inverse order of alienation.
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The Trustee (or a person or persons selected by the Trustee) shall give
notice of each such proposed sale by posting written notice of the time, place,
and terms of sale at the courthouse door, and by filing a copy of such written
notice in the office of the county clerk, of the county in which the sale is to
be made at least twenty-one (21) days preceding the date of the sale. In
addition to the foregoing notice or notices to be posted and filed by the
Trustee (or a person or persons selected by the Trustee), the Agent Lessor
shall, at least twenty-one (21) days preceding the date of sale, serve or cause
to be served written notice of the proposed sale by certified mail on each
debtor obligated to pay such indebtedness according to the records of the Agent
Lessor. The service of such notice shall be completed five (5) days after the
deposit of the notice, enclosed in a postpaid wrapper, properly addressed to
each such debtor at the most recent address (which shall be within the United
States of America) as shown by the records of the Agent Lessor, in a post office
or official depository under the care and custody of the United States Postal
Service. The affidavit of any person having knowledge of the facts to the effect
that such service was completed shall be prima facie evidence of the fact of
service. In this respect and to the full extent it may legally do so, the
Lessee also expressly covenants, stipulates, and agrees that: (i) the address of
the Lessee set out in Section 26.4 hereof shall be deemed and considered
conclusively to be and remain at all times the most recent address of all
debtors obligated to pay such indebtedness as shown by the records of the Agent
Lessor, provided that such address may be changed to some other address within
the United States of America from time to time only by express written notice of
change thereof signed by the Lessee and actually delivered to and received by
the Agent Lessor and setting forth a new address which shall be within the
United States of America and which shall be deemed and considered conclusively
to be and remain at all times thereafter the recent address of the Lessee as
shown by the records of the Agent Lessor until changed in the manner herein
provided, (ii) the records of the Agent Lessor shall not be deemed to reflect
any change in the name or identity of the Lessee (to whom notice of a proposed
sale shall be required to be mailed as provided for above) unless and until
express written notice of such change signed by the Lessee shall have been
actually delivered to and received by the Agent Lessor, and (iii) no notice of
such sale or sales other than the notices hereinabove provided shall be required
to be given to the Lessee (or anyone who may claim by, through or under the
Lessee) or any other persons and any other notice (including, without
limitation, any notice of acceleration of, or intent to accelerate, the unpaid
balance of the Notes and Certificates) is expressly waived.
The provisions of this section with respect to posting, serving, filing,
and giving notices of sale are intended to comply with the provisions of section
51.002 of the Property Code of the State of Texas (such section 51.002 being
referred to as the "Subject Statute"). In the event the requirement for any
notice, or the posting, serving, filing, or giving thereof, under the Subject
Statute shall be eliminated or the prescribed manner of posting, serving,
filing, or giving same is modified by future amendment to the Subject Statute,
the requirement for such particular notice shall be stricken from, or the manner
of posting, serving, filing, or giving any notice hereunder modified in, this
Master Lease in conformity with such amendment. The manner herein prescribed for
posting, serving, filing, or giving any notice, other than that to be posted and
filed or caused to be posted or filed by the Trustee, shall not be deemed
exclusive but such notice or notices may be posted, served, filed, or given in
any other manner which may be permitted by applicable law. Further, in
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relation to this Master Lease and the exercise of any power of sale by the
Trustee hereunder, if the Subject Statute shall be amended or modified to
require any other notice or the posting, filing, serving, or giving thereof or
any statute hereafter enacted shall require any other notice or the posting,
filing, serving, or giving thereof, the Trustee or the person selected by him is
hereby authorized and empowered by the Lessee to give such notice or make such
posting, filing, serving, or giving thereof; provided, however, the Lessee
waives such other notice or the posting, filing, serving, or giving thereof to
the full extent the Lessee may lawfully so do. Any provisions of this paragraph,
or any amendments to or modifications of the Subject Statute to the contrary
notwithstanding, the time periods provided for in the immediately preceding
paragraph in respect of which the notices provided for in said paragraph are to
be given shall not be shortened or eliminated as a result of any such amendment
or modification.
In addition to any other remedies granted in this Master Lease to the
Agent Lessor or the Trustee (including specifically, but not limited to, the
right to proceed against all the Property in accordance with the rights and
remedies in respect to those portions of the Property which are real property
pursuant to section 9.501(d) of the Uniform Commercial Code), the Agent Lessor
may proceed under the Uniform Commercial Code as to all or any part of the
personal property (tangible or intangible) and fixtures included with the
Property (such portion of the Property being referred to herein as the
"Personalty") and shall have and may exercise with respect to the Personalty all
the rights, remedies, and powers of a secured party under the Uniform Commercial
Code, including, without limitation, the right and power to sell, at one or more
public or private sales, or otherwise dispose of, lease, or utilize the
Personalty and any part or parts thereof in any manner authorized or permitted
under the Uniform Commercial Code after default by a debtor, and to apply the
proceeds thereof toward payment of any costs and expenses and attorney's fees
and legal expenses thereby incurred by the Agent Lessor, and toward payment of
the Indebtedness Hereby Secured in such order or manner as provided herein. Any
requirement of said Code for reasonable notification shall be met by mailing
written notice to the Lessee at its address set forth in Section 26.4 at least
ten (10) days prior to the sale or other event for which such notice is
required.
(e) The Agent Lessor may proceed to protect and enforce its rights by a
suit or suits in equity or at law, or for the specific performance of any
covenant or agreement contained herein or in the Operative Documents, or in aid
of the execution of any power herein or therein granted, or for the foreclosure
of the deed of trust lien created by this Master Lease, or for the enforcement
of any other appropriate legal or equitable remedy. Upon the bringing of any
suit to foreclose the deed of trust lien created by this Master Lease or to
enforce any other remedy available hereunder, the plaintiff shall be entitled as
a matter of right, without notice and without giving bond to the Lessee or
anyone claiming under, by or through it, and without regard to the solvency or
insolvency of the Lessee or the then value of the premises, to have a receiver
appointed of all the Property and of the earnings, income, rents, issues,
profits and proceeds thereof, with such power as the court making such
appointment shall confer, and the Lessee does hereby irrevocably consent to such
appointment.
-37-
<PAGE> 43
(f) In case of any sale of the Property, or of any part thereof,
pursuant to any judgment or decree of any court or otherwise in connection with
the enforcement of any of the terms of this Master Lease, the principal of the
Notes and Certificates, if not previously due, and the interest and Yield
accrued thereon, shall at once become and be immediately due and payable; also
in the case of any such sale, the Agent Lessor may bid and become the purchaser,
and the purchaser or purchasers, for the purpose of making settlement for or
payment of the purchase price, shall be entitled to turn in and use the Notes
and Certificates and any claims for interest, Yield and Break Costs due and
unpaid thereon, in order that there may be credited as paid on the purchase
price the sum apportionable and applicable to the Notes and Certificates,
including principal, interest, Yield and Break Costs thereof, out of the net
proceeds of such sale after allowing for the proportion of the total purchase
price required to be paid in actual cash. If at any foreclosure proceeding the
Property shall be sold for a sum less than the total amount of indebtedness for
which judgment is therein given, the judgment creditor shall be entitled to the
entry of a deficiency decree against the Lessee and against the property of the
Lessee for the amount of such deficiency. THE LESSEE, FOR ITSELF AND ON BEHALF
OF ALL FUTURE OWNERS OF THE PROPERTY, WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ITS RIGHTS AND BENEFITS UNDER THE PROVISIONS OF SECTIONS 51.003, 51.004
AND 51.005 OF THE TEXAS PROPERTY CODE, AS MAY BE AMENDED FROM TIME TO TIME.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS AGREED THAT THE BID
PRICE FOR THE PROPERTY WHICH IS ACCEPTED BY THE TRUSTEE, AGENT LESSOR OR ANY
SUCCESSOR OR SUBSTITUTE SECURITY TRUSTEE AT ANY FORECLOSURE SALE OF THE PROPERTY
SHALL BE CONCLUSIVELY PRESUMED TO BE THE FAIR MARKET VALUE OF THE PROPERTY.
Section 25.3. Security Agreement. This Master Lease shall constitute a
security agreement as defined in the Uniform Commercial Code and the Guarantor
hereby grants to the Agent Lessor a security interest within the meaning of the
Uniform Commercial Code in favor of the Agent Lessor on the Property and any
proceeds thereof and other rights described in the granting clauses of this
Article XXV.
Section 25.4. FIXTURE FILING. CERTAIN OF THE PROPERTY IS OR WILL BECOME
"FIXTURES" (AS THAT TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE) ON THE REAL
ESTATE DESCRIBED IN SCHEDULE I ATTACHED HERETO AND THIS MASTER LEASE, UPON BEING
FILED FOR RECORD IN THE REAL ESTATE RECORDS SHALL OPERATE ALSO AS A FINANCING
STATEMENT UPON SUCH OF THE GRANTED PROPERTY WHICH IS OR MAY BECOME FIXTURES. THE
LESSEE HAS AN INTEREST OF RECORD IN THE GRANTED PROPERTY.
Section 25.5. Successor Trustees. In the case of the absence of the
Trustee from the State of Texas, or his death, refusal, or failure to act, or in
the event the Agent Lessor should elect at any time (with or without cause) to
remove the Trustee then acting, a successor or substitute may be named,
constituted, and appointed by the Agent Lessor, without further formality than
an appointment and designation in writing, which appointment and designation
shall be full evidence of the right and authority to make the same and of all
facts therein recited; and this conveyance shall vest in the successor or
substitute Trustee (herein, the "Successor or Substitute Trustee") the title,
powers, and duties
-38-
<PAGE> 44
conferred on the Trustee named herein and the conveyance by the Substitute or
Successor Trustee to the purchaser at any sale made pursuant hereto shall be
valid and effective as fully as hereinabove provided in the case of a conveyance
by the Trustee. Such right to appoint a Successor or Substitute Trustee shall
exist as often as and whenever the Trustee, original, successor, or substitute,
cannot or will not act or has been removed. The Lessee specifically covenants
and stipulates that: the recitals in the conveyance made to the purchaser either
by the Trustee or any Successor or Substitute Trustee, shall be full proof and
evidence of the matters therein stated as to such purchaser; no other proof
shall be requisite of the request by the Agent Lessor on the Trustee or on any
Successor or Substitute Trustee to enforce this Master Lease, or the due,
timely, and proper posting, filing, and giving of all notices and making of the
sale, or any particulars thereof, or of the inability, refusal, or failure of
the Trustee or any Successor or Substitute Trustee to act, or of the removal of
the Trustee or any Substitute or Successor Trustee, or of the appointment of a
Successor or Substitute Trustee, as herein provided, either as to the legality
of his appointment or otherwise, or of the contingencies which brought about the
failure or inability of the Trustee or any Successor or Substitute Trustee to
act or of its removal, as the case may be; all prerequisites of said sale shall
be presumed to have been performed; and any sale made under the powers granted
herein shall be a perpetual bar against the Lessee, its heirs and assigns and
anyone who claims by, through or under the Lessee.
ARTICLE XXVI
MISCELLANEOUS
Section 26.1. Severability; Perpetuities. If any term or provision of
this Master Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Master Lease and any other application of
such term or provision shall not be affected thereby. If any right or option of
the Lessee provided in this Master Lease, including any right or option
described in Article XIV, XV, XVIII or XX, would, in the absence of the
limitation imposed by this sentence, be invalid or unenforceable as being in
violation of the rule against perpetuities or any other rule of law relating to
the vesting of an interest in or the suspension of the power of alienation of
property, then such right or option shall be exercisable only during the period
which shall end twenty-one (21) years after the date of death of the last
survivor of the descendants of John F. Kennedy, the former President of the
United States, Henry Ford, the deceased automobile manufacturer, and John D.
Rockefeller, the founder of the Standard Oil Company, known to be alive on the
date of the execution, acknowledgment and delivery of this Master Lease.
Section 26.2. Amendments and Modifications. Subject to the
requirements, restrictions and conditions set forth in Section 15.5 of the
Participation Agreement, neither this Master Lease nor any provision hereof may
be amended, waived, discharged or terminated except by an instrument in writing
in recordable form signed by the parties hereto.
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<PAGE> 45
Section 26.3. No Waiver. No failure by the Agent Lessor, the Lessee,
the Administrative Agent or any Participant to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy upon a
default hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such default, shall constitute a waiver of any such
default or of any such term. To the fullest extent permitted by law, no waiver
of any default shall affect or alter this Master Lease, and this Master Lease
shall continue in full force and effect with respect to any other then existing
or subsequent default.
Section 26.4. Notices. All notices, demands, requests, consents,
approvals and other communications hereunder shall be in writing and directed to
the address set forth on the signature page of the Participation Agreement, and
deemed received in accordance with the provisions of Section 15.3 of the
Participation Agreement. The Guarantor may designate a new address or facsimile
number for receipt of notices hereunder by giving notice of such change to the
Administrative Agent in the manner and in accordance with the provisions of
Section 15.3 of the Participation Agreement.
Section 26.5. Successors and Assigns. All the terms and provisions of
this Master Lease shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 26.6. Headings and Table of Contents. The headings and table of
contents in this Master Lease are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.
Section 26.7. Counterparts. This Master Lease may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall together constitute one and the same instrument.
SECTION 26.8. GOVERNING LAW. THIS MASTER LEASE SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS; provided that the
creation of the deed of trust contemplated by Section 25.2 hereof, the
perfection of the Lien and security interest in the Property and the rights and
remedies of the Trustee and the Agent Lessor with respect to the Property, as
provided herein and by the laws of the State of Texas, shall be governed by and
construed in accordance with the internal laws of the State of Texas without
regard to principles of conflicts of laws.
Section 26.9. Original Lease. The single executed original of this
Master Lease marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on
the signature page thereof and containing the receipt thereof of Bank of
Montreal, as Administrative Agent for the Lenders therefor on or following the
signature page thereof shall be the Original Executed Counterpart of this Master
Lease (the "Original Executed Counterpart"). To the extent that this Master
Lease constitutes chattel paper, as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction, no security
interest in
-40-
<PAGE> 46
this Master Lease may be created through the transfer or possession of any
counterpart other than the Original Executed Counterpart.
Section 26.10. Time of Essence. With respect to each of the Lessee's
and the Agent Lessor's obligations hereunder, time is of the essence, and each
such party hereby acknowledges and confirms the foregoing.
Section 26.11. Memorandum of Lease. On the Acquisition Date, the Lessee
and the Agent Lessor agree to execute the Memorandum of Lease attached hereto as
Exhibit A and to cause the same to be recorded in the office of the Recorder for
Bowie County, Texas.
Section 26.12. The Trustee. The Trustee is appointed hereunder, and
joins in this Master Lease, solely for the purpose of effecting the intentions
of the parties set forth in Section 25.2 hereof in the State of Texas. The
Trustee shall at all times be under the control of, and act pursuant to the
directions of, the Agent Lessor, and the Lessee shall have no power to control
or direct the Trustee. The Trustee may be removed or replaced in the discretion
of the Agent Lessor. The Lessee shall pay all fees and expenses of the Trustee
in connection with this Master Lease and the transactions contemplated hereby,
including all fees and expenses incurred in the exercise of any remedies
hereunder.
Section 26.13. Usury. It is the intent of Lessee and the Participants
and all other parties to the Operative Documents to conform to and contract in
strict compliance with applicable usury law from time to time in effect. All
agreements between the Participants and Lessee (or any other party liable with
respect to the indebtedness under the Operative Documents) are hereby limited by
the provisions of this paragraph, which shall override and control all such
agreements, whether now existing or hereafter arising and whether written or
oral. In no way, nor in any event or contingency shall the interest contracted
for, charged or received under the Operative Documents exceed the maximum rate
of interest lawfully permitted to be charged under Applicable Law (the "Maximum
Rate"). If, from any possible construction of any Operative Document, interest
would otherwise be payable in excess of the Maximum Rate, any such construction
shall be subject to the provisions of this paragraph and such Operative Document
shall be automatically reformed and the interest payable shall be automatically
reduced to the Maximum Rate, without the necessity of execution of any amendment
of new document. If the holder hereof shall ever receive anything of value which
is characterized as interest under Applicable Law and which would apart from
this provision be in excess of the Maximum Rate, an amount equal to the amount
which would have been excessive interest shall, without penalty, be applied as a
credit against the then unpaid amounts due under the Operative Documents or
refunded promptly to the party paying such amount. The right to accelerate
payment of any indebtedness created under the Operative Documents does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration, and the Participants do not intend to charge or
receive any unearned interest in the event of acceleration.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 47
Non-Liability of Trustee. The Trustee shall not be liable for any error
of judgment or act done by Trustee in good faith, or be otherwise responsible or
accountable to Grantor under any circumstances whatsoever, nor shall Trustee be
personally liable, in case of entry by him or her or anyone entering by virtue
of the powers herein granted upon the Mortgaged Premises, for debts contracted
or liability or damages incurred in the management or operation of the Mortgaged
Premises, or otherwise. The Trustee shall have the right to rely on any
instrument, document or signature authorizing or supporting any action taken or
proposed to be taken by the Trustee hereunder, believed by the Trustee in good
faith to be genuine. Trustee shall be entitled to reimbursement for expenses
incurred by him or her in the performance of his or her duties hereunder and to
reasonable compensation for such of his or her services hereunder as shall be
rendered. Grantor will, from time to time, pay the compensation due to Trustee
hereunder and reimburse Trustee for, and save him or her harmless from and
against, any and all liability and expenses which may be incurred by him or her
in the performance of his or her duties hereunder. For purposes of this
paragraph the term "Trustee" shall also include any person appointed substitute
trustee pursuant to the provisions of this Deed of Trust.
IN WITNESS WHEREOF, the parties have caused this Master Lease to be
duly executed and delivered as of the date first above written.
ALUMAX MILL PRODUCTS, INC., a Delaware
corporation, as Lessee
By: /s/ Marc Crown
------------------------------------
Marc Crown
Its Assistant Treasurer
BMO LEASING (U.S.), INC., a Delaware
corporation, as Agent Lessor
By: /s/ Ernest C. Cechetto
------------------------------------
Ernest C. Cechetto
Its Managing Director
/s/ Ward Williford
----------------------------------------
Ward Williford, a Deed of Trust Trustee
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<PAGE> 48
THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART, Receipt of this
original counterpart of the foregoing Lease is hereby acknowledged as of the
date hereof.
BANK OF MONTREAL, as Administrative
Agent for the Lenders
By: /s/ Ernest C. Cechetto
------------------------------------
Ernest C. Cechetto
Its Managing Director
-43-
<PAGE> 49
STATE OF GEORGIA )
) SS.
COUNTY OF FULTON )
I, the undersigned, a Notary Public in and for said County, in the
State aforesaid, do hereby certify that Marc Crown, Assistant Treasurer of
ALUMAX MILL PRODUCTS, a Delaware corporation as Lessee aforesaid, who is
personally known to me to be the same person whose name is subscribed to the
foregoing instrument as such Assistant Treasurer, appeared before me this day in
person and acknowledged that he signed and delivered the said instrument as his
own free and voluntary act as the free and voluntary act and deed of said
corporation for the uses and purposes therein set forth.
Given under my hand and notarial seal, this 25th day of November, 1997.
/s/ Cynthia A. Jordan
-----------------------------------
Notary Public
Cynthia A. Jordan
-----------------------------------
(TYPE OR PRINT NAME)
(SEAL)
Commission Expires:
Notary Public, Gwinnett County, Georgia
My Commission Expires September 8, 1998
- ---------------------------------------
<PAGE> 50
STATE OF GEORGIA )
) SS.
COUNTY OF FULTON )
I, the undersigned, a Notary Public in and for said County, in the
State aforesaid, do hereby certify that Ernest C. Cechetto, Managing Director of
BANK OF MONTREAL, a Canadian chartered bank, as Administrative Agent aforesaid,
who is personally known to me to be the same person whose name is subscribed to
the foregoing instrument as such Managing Director, appeared before me this day
in person and acknowledged that he signed and delivered the said instrument as
his own free and voluntary act and as the free and voluntary act and deed of
said Administrative Agent for the uses and purposes therein set forth.
Given under my hand and notarial seal, this 25th day of November, 1997.
/s/ Cynthia A. Jordan
-----------------------------------
Notary Public
Cynthia A. Jordan
-----------------------------------
(TYPE OR PRINT NAME)
(SEAL)
Commission Expires:
Notary Public, Gwinnett County, Georgia
My Commission Expires September 8, 1998
- ---------------------------------------
-2-
<PAGE> 51
STATE OF GEORGIA )
) SS.
COUNTY OF FULTON )
I, the undersigned, a Notary Public in and for said County, in the
State aforesaid, do hereby certify that Ernest C. Cechetto, Managing Director of
BMO LEASING (U.S.) INC., a Delaware corporation, as Agent Lessor aforesaid, who
is personally known to me to be the same person whose name is subscribed to the
foregoing instrument as such Managing Director, appeared before me this day in
person and acknowledged that he signed and delivered the said instrument as his
own free and voluntary act and as the free and voluntary act and deed of said
Agent Lessor for the uses and purposes therein set forth.
Given under my hand and notarial seal, this 25th day of November, 1997.
/s/ Cynthia A. Jordan
-----------------------------------
Notary Public
Cynthia A. Jordan
-----------------------------------
(TYPE OR PRINT NAME)
(SEAL)
Commission Expires:
Notary Public, Gwinnett County, Georgia
My Commission Expires September 8, 1998
- ---------------------------------------
-2-
<PAGE> 52
STATE OF TEXAS )
) SS.
COUNTY OF DALLAS )
This instrument was acknowledged before me on November 24, 1997, by
Ward Williford, as Trustee aforesaid, who, being duly sworn, did say that he
executed this instrument as his free act and deed on behalf of said corporation.
/s/ Gwen G. Behrens
--------------------------------------------
Notary Public
--------------------------------------------
Print Name of Notary here
(SEAL)
Commission Expires: --------------------------
GWEN G. BEHRENS
Notary Public
State of Texas
Commission Expires 8-18-98
- --------------------------- --------------------------
<PAGE> 53
SCHEDULE I
BEING part of the George Brinlee Headright Survey, A-18, and being a portion of
a certain 21.255 acre tract of land described as Tract No. 2 and a portion of a
certain 69.036 acre tract of land described as Tract No. 3, all in the Deed from
R.P. Cheatham and wife, Clara Mae Cheatham to Texarkana Industrial Foundation,
Inc., dated August 25, 1972, recorded in Volume 549, pages 768-772 of the Deed
Records of Bowie County, Texas and being more fully described as follows:
BEGINNING at an iron pipe for corner at the northwest corner of said 21.255 acre
tract, said point being on the south right of way line of Interstate Highway No.
30;
THENCE South 00 degrees 39 minutes 34 seconds East with the east right of way
line of an old public road, same being a fence line, and being the west line of
said 21.255 acre tract, 468.53 feet to an angle point;
THENCE South 00 degrees 40 minutes 34 seconds West with the east right of way
line of said public road, same being a fence line, and being the west line of
said 21.255 acre tract, 215.18 feet to an angle point;
THENCE South 02 degrees 31 minutes 22 seconds West with the east right of way
line of said public road, same being the west line of said 21.255 acre tract and
being along a fence line, 515.51 feet to an angle point;
THENCE South 03 degrees 27 minutes 35 seconds West with the east right of way
line of said public road, same being the west line of said 21.255 acre tract
and being along a fence line, 287.11 feet to an iron pipe for corner on the
north right of way line of Brinlee Road, said point being in a curve to the
left;
THENCE southeasterly with the right of way line, same being the arc of a curve
having a radius of 522.96 feet through a central angle of 17 degrees 24 minutes
30 seconds for a distance of 158.89 feet to a point at the end of said curve;
THENCE North 88 degrees 18 minutes 18 seconds East with the north right of way
line of said Brinlee Road, 668.48 feet to an iron pipe for corner;
THENCE North 89 degrees 27 minutes 30 seconds East along the north right of way
line of said Brinlee Road, same being a fence line, 826.09 feet to a point for
corner;
THENCE North 00 degrees 32 minutes 30 seconds, 1336.21 feet to a point for
corner on the north right of way line of Interstate Highway No. 30;
THENCE North 82 degrees 15 minutes 10 seconds West with the south right of way
line of said Interstate Highway No. 30, 796.09 feet to an angle point in the
said right of way line;
THENCE North 85 degrees 07 minutes 10 seconds West, continuing with said
Interstate Highway No. 30 right of way line, 799.16 feet to the POINT OF
BEGINNING and containing 52.728 acres of land, more or less.
<PAGE> 54
SCHEDULE II
DESCRIPTION OF PROPERTY
<TABLE>
<CAPTION>
ITEM # DESCRIPTION RCN EUL FMV
- ------ ----------- --- --- ---
<S> <C> <C> <C> <C>
1 SCALPER (FOUNDATION) 194,550 40 121,267
2 SCALPER (EQUIPMENT) 3,996,099 25 2,490,855
3 PREHEAT FURNACES (FOUNDATION) 526,265 40 328,032
4 PREHEAT FURNACES (ELECTRICAL) 590,465 25 368,050
5 PREHEAT FURNACES (MAIN UNIT) 3,654,733 18 2,278,074
6 PREHEAT FURNACES (CHARGING EQUIP) 773,988 15 482,443
7 PREHEAT FURNACES (REFRACTORY) 417,436 6 260,197
8 HOT MILL (FOUNDATION) 3,840,677 40 2,393,977
9 HOT MILL (PULPIT) 126,973 35 79,145
10 HOT MILL (MAIN EQUIPMENT) 38,496,775 33 23,995,870
11 HOT MILL (SWITCHGEAR) 34,655 30 21,601
12 HOT MILL (FEEDBACK DEVICE) 51,061 20 31,827
13 ROLL GRINDER (FOUNDATION) 124,162 40 77,393
14 ROLL GRINDER (MAIN UNIT) 1,298,741 25 809,534
15 COLD MILL (FOUNDATION) 2,211,455 40 1,378,447
16 COLD MILL (MAIN UNIT) 22,212,926 33 13,845,796
17 COLD MILL (SWITCHGEAR) 161,935 30 100,938
18 EDGE TRIM LINE (FOUNDATION) 562,961 40 350,906
19 EDGE TRIM LINE (MAIN UNIT) 3,118,013 18 1,943,525
20 TENSION LEVELLER (FOUNDATION) 756,776 40 471,715
21 TENSION LEVELLER 7,410,632 18 4,619,207
22 TENSION LEVELLER (PC CONTROL) 569,506 12 354,986
23 ANNEALING FURNACES (FOUNDATION) 313,149 40 195,193
24 ANNEALING FURNACES (SHELL) 641,623 25 399,937
25 ANNEALING FURNACES (CONTROL ZONE) 991,144 20 617,801
26 ANNEALING FURNACES (MECHANICAL) 2,159,229 18 1,345,894
27 ANNEALING FURNACES (ANALYZER) 60,455 12 37,683
28 ANNEALING FURNACES (REFRACTORY) 745,383 6 464,613
29 COATING LINE (FOUNDATION) 288,648 40 179,920
30 COATING LINE (EQUIPMENT) 5,414,829 12 3,375,180
31 COATING LINE (USED) 9,887,849 12 6,163,310
32 CRANES 2,824,259 25 1,760,422
33 CRANES 185,943 20 115,902
34 MOBILE EQUIPMENT 259,953 22 162,034
35 PACKING LINE EQUIPMENT 182,530 18 113,775
36 DATA PROCESSING 463,468 8 288,890
37 MISC PURCHASES (TANKS) 218,262 20 136,047
38 MISC PURCHASES 56,459 18 35,192
39 MISC PURCHASES (MISC) 1,804,835 12 1,124,992
40 MISC PURCHASES (TEL) 228,627 10 142,508
41 PLANT GROUNDS 235,677 40 134,261
</TABLE>
Page 1
<PAGE> 55
<TABLE>
<CAPTION>
ITEM # DESCRIPTION RCN EUL FMV
- ------ ----------- --- --- ---
<S> <C> <C> <C> <C>
42 PLANT GROUNDS 62,094 35 35,374
43 PLANT GROUNDS 57,375 18 32,686
44 PLANT GROUNDS 535,103 12 304,840
45 BUILDINGS AND FACILITIES 4,431,437 40 2,524,522
46 BUILDINGS AND FACILITIES 1,178,335 30 671,279
47 BUILDINGS AND FACILITIES 19,145 25 10,907
48 BUILDINGS AND FACILITIES 45,904 22 26,151
49 ELECTRICAL 1,295,473 30 738,011
50 ELECTRICAL 7,617 20 4,339
51 NAT GAS DIST 106,955 30 60,931
52 CITY WATER SYSTEM 48,938 30 27,879
53 COOLING WATER SYSTEM 263,031 35 149,845
54 COOLING WATER SYSTEM 89,594 25 51,040
55 COOLING WATER SYSTEM 447,958 20 255,195
56 COOLING WATER SYSTEM 86,216 12 49,116
57 COMPRESSED AIR SYSTEM 239,031 30 136,172
58 COMPRESSED AIR SYSTEM 6,939 25 3,953
59 COMPRESSED AIR SYSTEM 143,942 15 82,001
60 FIRE PROTECTION SYSTEM 457,633 30 260,706
61 SANITARY SEWER SYSTEM 71,604 30 40,792
NON SEVERABLE IMPROVEMENTS
62 SCALPER ADDITIONS 803,378 500,763
63 PREHEAT ADDITIONS 2,496,269 1,555,978
64 HOT MILL ADDITIONS 5,334,751 3,325,265
65 ROLL SHOP ADDITIONS 167,801 104,594
66 COLD MILL ADDITIONS 4,029,102 2,511,426
67 EDGE TRIM LINE ADDITIONS 194,506 121,240
68 LEVELLER ADDITIONS 1,442,483 899,131
69 ANNEALING ADDITIONS 4,886,674 3,045,969
70 WASTE WATER IMPROVEMENTS 438,455 273,298
71 PACKOUT ADDITIONS 299,280 186,548
72 PAINT/COATING LINE ADDITIONS 11,853,319 7,388,429
</TABLE>
Page 2
<PAGE> 56
SCHEDULE III
DESCRIPTION OF EXCLUDED EQUIPMENT
<TABLE>
<S> <C> <C> <C>
71 ROLL SHOP 2,051,537 1,313,001
72 SCALPER 105,070 67,246
73 PREHEAT 3,399,398 2,175,644
74 HOT MILL 3,757,306 2,404,707
75 COLD MILL 3,550,296 2,144,218
76 ANNEALERS 4,505,015 2,883,248
77 FINISHING 363,931 232,919
78 EDGE TRIM LINE 208,370 133,359
79 PRO ECO LEVELLER 1,423,350 910,956
80 PAINT/COAT LINE 169,543 108,509
81 PACKOUT 292,476 187,187
82 HERR-VOSS LEVELLER 2,500,000 1,600,021
83 STAMCO SLITTER 1,250,000 800,011
84 STAMCO HVY G LEVELLER 2,500,000 1,600,021
85 CIN SLITTER 2,000,000 1,280,017
86 HUNTER LEVELLER 3,000,000 1,920,025
</TABLE>
<PAGE> 57
SCHEDULE IV
FIXED RENT PAYMENTS
<TABLE>
<CAPTION>
FIXED RENT OUTSTANDING OUTSTANDING
PAYMENT DATE LOANS LESSOR AMOUNTS BALANCE DUE
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
November 24, 1998 $81,109,802.57 $14,878,129.61 $95,987,932.19
November 24, 1999 $80,290,511.64 $14,727,845.48 $95,018,357.11
November 24, 2000 $79,471,220.70 $14,577,561.34 $94,048,782.04
November 24, 2001 $78,651,929.77 $14,427,277.20 $93,079,206.97
November 24, 2002 $77,832,638.83 $14,276,993.06 $92,109,631.90
</TABLE>
<PAGE> 1
EXHIBIT 10.14
AMENDMENT NO. 1 TO
ELECTRIC SERVICE AGREEMENT
DATED NOVEMBER 1, 1994
This AMENDMENT No. 1 TO ELECTRIC SERVICE AGREEMENT DATED NOVEMBER 11,
1994, made this 10th day of October , 1997, between EASTALCO ALUMINUM COMPANY, a
Delaware corporation and a wholly-owned subsidiary of Alumax Inc. ("Eastalco")
and THE POTOMAC EDISON COMPANY, d.b.a. Allegheny Power, a Maryland and Virginia
corporation and a wholly-owned subsidiary of Allegheny Energy, Inc. ("Potomac").
RECITALS
1. Eastalco and Potomac are parties to an Electric Service Agreement dated
November 11, 1994, (the "ESA" or the "Agreement") whereby Potomac, a public
utility engaged in the production, transmission, distribution and sale of
electric power and energy, sells such electric power and energy to Eastalco at
its aluminum reduction facility near Buckeystown Station, Frederick County,
Maryland.
2. The initial term of the ESA is for a period of seven years commencing April
1, 1993, with an automatic renewal for a first subsequent term of eighteen
months which would expire on September 30, 2001, unless either party gives
written notice of cancellation prior to April 1, 1998. Thereafter, the ESA shall
be renewed automatically for additional subsequent terms of one year each,
unless either party gives written notice of cancellation at least thirty months
prior to the expiration of any subsequent term.
3. Eastalco and Potomac have engaged in negotiations and reached agreement to
amend and extend the ESA for a fixed term through March 31, 2003, with certain
optional renewals. Eastalco and Potomac, therefore, reaffirm the ESA in its
entirety, amended as described below.
AGREEMENT
1. DEFINITIONS..
In addition to the terms defined above, the terms capitalized below
shall have the meaning set forth in the ESA, as amended by this Amendment No. 1.
2. MODIFICATION OF TERMS OF THE ESA.
A. Paragraph 2. TERM OF AGREEMENT. The provision shall be
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deleted and replaced with:
2. TERM OF AGREEMENT.
This Agreement shall become effective at 12:01 a.m., January 1, 1998,
or at 12:01 a.m. on the first day of the first month following receipt
of all required final orders by regulatory agencies (i) approving
Amendment No. 1 to the Agreement and/or (ii) approving any tariffs or
agreements necessitated by Amendment No. 1, whichever is later. In the
event that any necessary approvals are not received prior to January 1,
1998, billing will be made in accordance with the operation and billing
provisions of this Agreement as amended by Amendment No. 1, with an
appropriate adjustment to reflect the actual effective date being made
following approval. In the event that any final orders approving
Amendment No. 1 contain conditions which materially affect the rights
and responsibilities of either party, the affected party at its sole
option may declare Amendment No. 1 terminated. If Amendment No. 1 is
terminated as described above, or if Amendment No. 1 does not receive
all required final orders as described above, the original unamended
Agreement shall remain in effect, except that the written notice of
cancellation required by Paragraph 2 to be given prior to April 1,
1998, shall be required to be given prior to April 1, 1998, or sixty
(60) days after a final order approving Amendment No. 1 containing
conditions which materially affect the rights and responsibilities of
either party or a final decision denying approval of Amendment No. 1,
whichever is later.
Unless terminated earlier pursuant to Sub-Paragraph 3.2.1.
3, Sub-Paragraph 14.17, Sub-Paragraph 14.18 or Sub-Paragraph 14.19,
this Agreement will expire at 12: 01 a.m., April 1, 2003, provided one
or both parties give written notice of cancellation at least twelve
(12) months prior to expiration. If neither party gives such notice,
following the initial term this Agreement will be renewed annually for
subsequent terms of twelve (12) months unless either party gives
written notice of cancellation at least six (6) months prior to the
expiration of any term.
The parties intend for the services, prices and other terms
herein to be effective notwithstanding the availability to Eastalco of
retail access prior to April 1, 2003.
B. Sub-Paragraph 3.1. SALE OF SYSTEM CAPACITY. The provisions of
Sub-Paragraphs 3.1., 3.1.1., 3.1.2., and 3.1.3. shall be deleted and replaced
with the following:
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3.1. SALE OF SYSTEM CAPACITY.
Unless otherwise excused under the terms of this Agreement,
during all months of the year, Potomac shall make available to Eastalco
at least 110,000 kilowatts of System Capacity during Load Reduction
Periods and 350,000 kilowatts during other hours.
C. Sub-Paragraph 3.2.1.1. shall be amended by deleting "System Demand"
and inserting "Billing Capacity" in its place.
D. Sub-Paragraph 3.2.1.2. CAPACITY CHARGE. Sub-Paragraph 3.2.1.2. shall
be deleted in its entirety and the following inserted in its place:
3.2.1.2. An Additional Capacity Charge shall be billed as
follows:
<TABLE>
<S> <C>
1998 $135,000 per month
1999 $138,000 per month
2000 $119,000 per month
2001 and after $116,000 per month
</TABLE>
E. Sub-Paragraph 3.2.1.3. Capacity Charge. The following is added
following Sub-Paragraph 3.2.1.2.:
3.2.1.3. The Capacity Charge and Additional Capacity Charge
shall remain in effect until modified pursuant to an agreement
or proceeding before the Maryland Public Service Commission
pursuant to which base rates are generally adjusted. If in
said agreement or proceeding the base rates for Eastalco are
not established pursuant to the Stipulation Regarding the
Establishment of Rates Under the Power Contract Between
Potomac Edison and Eastalco dated June 15, 1993 (the
"Stipulation") and the result is less favorable to Eastalco
than rates would be if established on such an allocation, then
Eastalco shall have the option to terminate this Agreement on
six (6) months written notice given within twelve (12) months
after the order becomes final, except that no such termination
shall be effective before March 31, 2000. Nothing herein shall
prevent Eastalco from providing such notice more than six (6)
months prior to March 31, 2000, but termination will not
become effective until March 31, 2000. Until termination of
this Agreement by Eastalco is effective, base rates for
Eastalco shall be as ordered in such order.
F. Sub-Paragraph 3.2.2. BILLING CAPACITY. Sub-Paragraph 3.2.2. shall be
deleted in its entirety and the following inserted in its place:
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3.2.2. BILLING CAPACITY.
For all months, Billing Capacity shall be the
greatest of:
3.2.2.1. .30 times (the sum of System Energy and
Off-System Energy divided by the number of hours in the
Billing Period); or,
3.2.2.2. .25 times the Maximum Instantaneous Demand;
or,
3.2.2.3. 110,000 kilowatts plus any Undermodulation
Increment pursuant to Sub-Paragraph 7.2.2.2.; or,
3.2.2.4. The highest result established by the
application of Sub-Paragraphs 3.2.2.1. through 3.2.2.3. above
during any of the three preceding months, except that only
months billed after Amendment No. 1 becomes effective may be
used in this calculation.
G. Sub-Paragraph 3.4. UNDERMODULATION CHARGE. Shall be deleted in its
entirety.
H. Sub-Paragraph 4.1. SALE OF CONTRACT ENERGY The provisions of
Sub-Paragraph 4.1 shall be amended by deleting the first sentence and by
deleting "310,000" wherever it appears and inserting "350,000" in its place.
I. Sub-Paragraph 4.2.2. PRICE OF SYSTEM ENERGY. The provisions of
Sub-Paragraph 4.2.2. shall be amended to read:
4.2.2. PRICE OF SYSTEM ENERGY
The price payable for System Energy shall be the sum
of the amounts set forth in Sub-Paragraphs 4.2.2.1., 4.2.2.2.,
and 4.2.3.
J. Sub-Paragraph 4.2.2.2. The provisions of Sub-Paragraph 4.2.2.2.
shall be amended to read:
4.2.2.2. The Incremental Energy multiplied by the Incremental
Energy Charge which shall mean the greater of: (i) the hourly
incremental Actual Cost of energy to Potomac, before sales to
non-affiliated utilities incurred during the hours of
Incremental Energy use during the Billing Period, plus 3.20
mills per kilowatt-hour (for billing periods during calendar
years 1998 and 1999) or 2.85 mills per kilowatt-hour (for
billing periods during calendar years 2000 through the term of
this Agreement), adjusted for Maryland gross receipts tax (or
such other applicable tax as may be enacted) and applicable
siting charges, or (ii) the Base Energy Charge.
K. Sub-Paragraph 4.2.2.3. The following is added following
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Sub-Paragraph 4.2.2.2.:
4.2.2.3. In the event that Potomac's fuel rate (or any
separately stated cost recovery method which may take its
place) ceases to become a separately stated rate and becomes
part of base rates in Maryland, the rate included with base
rates shall be the effective rate for purposes of
Sub-Paragraph 4.2.2.1.
L. Sub-Paragraph 4.4. PROFIT SHARING AGREEMENT shall be amended by
adding as its first sentence: "The Profit Sharing Surcharge shall be effective
through March 31, 2000, but shall cease thereafter."
M. Sub-Paragraph 4.4.2. shall be amended by deleting all but the first
sentence.
N. Paragraph 6. SALE OF IDLE CAPACITY. Shall be amended by deleting
"240,000" or "130,000" or "200,000" wherever they appear and inserting "110,000"
in their places.
O. Sub-Paragraph 7.1. DEFINITION OF LOAD REDUCTION PERIOD.
Sub-Paragraph 7.1 shall be deleted in its entirety and the following inserted in
its place:
7.1 DEFINITION OF LOAD REDUCTION PERIOD .
Potomac may designate as a Load Reduction Period any
number of hours during any day of any month that Potomac
reasonably believes will be a day on which exists the
potential for a shortage of generating capacity dedicated to
serving regulated load (including capacity owned or leased by
Allegheny subsidiaries Potomac, Monongahela Power Company, and
West Penn Power Company and capacity obtained under PURPA or
similar obligations); provided that (i) the designated hours
shall be only between 7 a.m. and 10 p.m., Monday through
Saturday, and (ii) the total number of Load Reduction Period
hours shall not exceed sixty (60) in any calendar week or five
hundred forty (540) in any calendar year. Potomac shall not
use a Load Reduction Period for economic purposes.
P. Sub-Paragraph 7.2. NOTICE OF REDUCED LOAD. SubParagraph 7.2 shall be
amended by deleting the existing provision in its entirety and inserting the
following in its place:
7.2. NOTICE OF REDUCE LOAD.
7.2.1. Potomac will give notice of a Load Reduction Period to
Eastalco no later than two hours prior to and no earlier than
four hours prior to the beginning of
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the Load Reduction Period.
Q. Sub-Paragraph 7.2.2. NOTICE OF RECUR LOAD. The following is added
following Sub-Paragraph 7.2.1.:
7.2.2. Together with notice of a Load Reduction Period,
Potomac will provide a non-binding estimate of the total
number of kilowatts by which Eastalco will be required to
reduce its load supplied by Potomac, and a nonbinding estimate
of the number of available kilowatts of Off-System Power and
the price of such Off-System Power Potomac will make available
to Eastalco during the designated Load Reduction Period.
Eastalco will have the option of reducing its load as metered
or purchasing Off-System Power (as specified in Paragraph 10)
or any combination thereof to reduce its load the total number
of kilowatts designated by Potomac in the notice. Eastalco
will notify Potomac of the number of kilowatts it will reduce
its load as metered, if any, (referred to as the "Committed
Load Modulation") within two hours of the notice of a Load
Reduction Period. The Committed Load Modulation will reduce
the amount of Off-System Power secured by Potomac. Eastalco
will reduce its load as metered by the number of kilowatts it
designates through changes not exceeding 50,000 kilowatts
every ten minutes, unless requested by Potomac to reduce its
load in larger blocks.
7.2.2.1. If Eastalco fails to notify Potomac of its
selected option as specified in Sub-Paragraph 7.2.2.,
then Eastalco will be deemed to have agreed to zero
Committed Load Modulation and Potomac will provide
Off-System Power in an amount up to Eastalco's actual
load during the Load Reduction Period, less 110,000
kilowatts.
7.2.2.2. If Eastalco notifies Potomac that it will
reduce its load as metered but fails to achieve the
Committed Load Modulation, then an amount equal to
the greatest undermodulation during the entire Load
Reduction Period for the affected Billing Period will
be added to the Billing Capacity (the
"Undermodulation Increment"). If there is more than
one Load Reduction Period during the affected Billing
Period, additions of any Undermodulation Increments
will be cumulative.
R. Paragraph 8. POTENTIAL PEAK HOURS. shall be deleted in its entirety.
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S. Sub-Paragraph 9.1.2. EMERGENCY FOR PRESERVATION OF SYSTEM INTEGRITY.
shall be amended by deleting "400,000" and inserting "560,000' in its place.
T. Sub-Paragraph 9.1.4. RESTORATION TO NORMAL OPERATIONS. shall be
amended by deleting "shall not declare any hour in a Recovery Period to be a
Potential Peak Hour nor shall it declare another emergency under Sub-Paragraph
9.1.2. or 9.2.; however, Potomac may declare Load Reduction Periods that include
hours in a Recovery Period" and replacing it with "may declare another
emergency under 9.1.2. or 9.2. and Load Reduction Periods that include hours in
a Recovery Period, but Eastalco will only be obligated to reduce load to the
extent Potomac actually delivers Off-System Power under Paragraph 10.1"
U. Paragraph 10. OPERATIONS DURING LOAD REDUCTION PERIODS AND FIRM LOAD
EMERGENCIES. shall be amended by deleting "200,000" and replacing it with
"110,000."
V. Sub-Paragraph 10.1. OBLIGATION OF POTOMAC. The provisions of
Sub-Paragraph 10.1 shall be amended by deleting "100,000 kilowatt-hours per hour
of the difference between Eastalco's average load of the previous week and
200,000 kilowatt-hours per hour" and inserting "240,000 kilowatt-hours per
hour."
W. Sub-Paragraph 10.2. PRICING. shall be deleted in its entirety and
the following inserted in its place:
10.2. PRICING
Potomac agrees to furnish Eastalco with the lowest
cost Off-System Power available and deliverable. The price
payable by Eastalco for Off-System Power during Load Reduction
Periods shall be the Actual Cost to Potomac plus 2 mills per
kilowatt-hour. The price payable by Eastalco for Off-System
Power during a Firm Load Emergency shall be Potomac's Actual
Cost. The price in either event shall include gross receipts
tax (or such other applicable tax as may be enacted), if
applicable. Potomac shall furnish Eastalco with a nonbinding
estimate of such price at the time it gives notice of a Load
Reduction Period under Sub-Paragraph 7.2. or a Firm Load
Emergency under Sub-Paragraph 9.2.4. If Eastalco does not
respond to such notice, Potomac will provide Off-System Power
(to the extent available and deliverable) in an amount up to
Eastalco's actual load during the Firm Load Emergency or Load
Reduction Period, less 110,000 kilowatts.
X. Sub-Paragraph 10.3 . INSUFFICIENT POWER. Shall be amended by
deleting "shall not declare any hour in a Recovery Period to be a Potential Peak
Hour nor shall it declare another
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emergency under Sub-Paragraph 9.1.2. or 9.2.; however, Potomac may declare Load
Reduction Periods that include hours in a Recovery Period" and replacing it with
"may declare another emergency under 9.1.2. or 9.2. and Load Reduction Periods
that include hours in a Recovery Period, but Eastalco will only be obligated to
reduce load to the extent Potomac actually delivers Off-System Power under
Paragraph 10.1"
Y. Paragraph 14. MISCELLANEOUS. The following SubParagraphs 14.16.,
14.17., 14.18. and 14.19. are added:
14.16. RIGHT OF FIRST REFUSAL.
14.16.1. GRANT OF RIGHT OF FIRST REFUSAL.
14.16.1.1. If upon expiration of the term of
this Agreement Eastalco elects to access the electric
power market to obtain electric power from a source
other than Potomac ("Retail Access")or to
self-generate, Eastalco shall grant to Potomac, its
affiliates, and successors and assigns of Potomac and
their affiliates (jointly referred to as "Allegheny
Affiliates"), a right of first refusal ("Right") to
provide electric power to Eastalco at a price no
higher than the avoidable cost (as defined in
Sub-Paragraph 14.16.3.2.) of Eastalco's preferred
alternative power supply from a written, enforceable
offer submitted or offered to or obtained by Eastalco
from such third party supplier; provided, however,
that the Allegheny Affiliates supply of such electric
power pursuant to such Right shall be equivalent to
the offer of Eastalco's preferred alternative power
supply and in accord with a reasonable and mutually
acceptable agreement.
14.16.1.2. If upon expiration of this
Agreement Eastalco does not elect Retail Access or
self-generation, then Allegheny Affiliates shall not
be granted, nor shall they possess such Right, unless
or until Eastalco elects Retail Access or
self-generates, provided however, that except as may
be set forth in Sub-Paragraph 14.16.3., in no event
will such Right exist or be available to any
Allegheny Affiliate beyond the period described in
Sub-Paragraph 14.16.2.1.
14.16.1.3. The Allegheny Affiliates shall
not have the Right if this Agreement is terminated by
Eastalco pursuant to either Sub-Paragraph 3.2.1.3.,
14.17, 14.18 or 14.19., regardless of
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whether Eastalco elects Retail Access or
selfgenerates.
14.16.2. APPLICABILITY.
14.16.2.1. The Allegheny Affiliates shall
have the right to use the Right as often as Eastalco
shall solicit bids and/or receive offers (under terms
equivalent to the offer of Eastalco's preferred
alternative power supply and in accordance with a
reasonable and mutually acceptable agreement),
following expiration of this Agreement, for all
months and for the same amount of electric power each
month following the expiration of the Agreement
through March, 2005 or for no months.
14.16.2.2. This right applies only to the
electric power requirements of the two existing
Eastalco potlines and auxiliary loads for those
potlines, as of the date Amendment No. 1 to this
Agreement becomes effective.
14.16.3. AVOIDABLE COST.
14.16.3.1. If Eastalco's alternative supply
is a potential purchase from a third party generator,
utility or marketer, the avoidable cost shall be the
cost of power that would be purchased from the third
party generator, utility or marketer, taking into
account the present value of any benefits or costs
offered by the supplier that would occur after March
31, 2005. In the event that Eastalco's preferred
alternative power supply that the Allegheny
Affiliates must match incorporates benefits extending
past March 31, 2005, the Allegheny Affiliates shall
have the right to match the entire term with the
associated benefits or costs, provided, however, that
such right to match the entire term shall not apply
if the alternative supply is a generation facility as
described in Sub-Paragraph 14.16.3.2., unless
Eastalco specifically agrees.
14.16.3.2. If the alternative supply is a
new generator in service, or capable of being or
projected to be in service, by April 1, 2003 but not
under construction as of September 1, 1997, and in
which Eastalco or any of its affiliates has an
interest by ownership, lease or similar arrangement,
then the avoidable cost shall be the
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costs of fuel, and variable operating and maintenance
costs that can be avoided as a result of not
operating the generator to supply Eastalco.
14.16.4. PROCEDURE.
14.16.4.1. Following each bid solicitation
and/or offer received by Eastalco, pursuant to
SubParagraph 14.16.2.1. hereof, Eastalco shall
provide to the Allegheny Affiliate identified as the
affiliate to exercise the Right, a written
description of Eastalco's preferred alternative
supply of electric power available to Eastalco, which
notice shall include, at a minimum, the price for
such electric power, the term, delivery points, and
such other information that Eastalco may provide or,
subject to any confidentiality obligations of
Eastalco, the Allegheny Affiliate reasonably requires
to develop a matching offer. Eastalco shall provide
the written description certified by an officer of
Eastalco. Upon receipt of such description, the
Allegheny Affiliate shall have thirty (30) days to
inform Eastalco that it has decided to exercise such
Right at the price and upon the terms provided in the
notice from Eastalco. If the Allegheny Affiliate
fails to exercise the Right within such period, the
Right for that period only shall be deemed to have
been forfeited by such Affiliate and Eastalco shall
exercise its option with its preferred alternative
supplier. If the bid period is shorter than the total
period specified in 14.16.2, the Allegheny Affiliate
will retain the Right for the remaining bids
solicited by and/or offers received by Eastalco
during this period.
14.16.4.2. In no event shall any Allegheny
Affiliate be entitled to review, inspect, copy or
study any document, information, or data that
Eastalco may receive from any third party supplier.
Potomac and/or the Allegheny Affiliate shall have the
right to retain an independent third party reasonably
acceptable to Eastalco to audit, at any time, the
preferred alternative supply offer to Eastalco in
order to verify said offer. The third party shall
maintain the confidentiality of the offer and shall
provide no information or documents to Potomac and
shall only confirm or deny that Eastalco's preferred
alternative supply offer is as set forth in the
notice to Potomac as provided in subparagraph
14.16.4.1.
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14.17. PURPA SURCHARGE.
If Potomac is permitted to recover the costs of any qualifying
facility as defined by the Public Utilities Regulatory Policy Act
("PURPA costs"), including but not limited to costs associated with the
project currently known as AES Warrior Run, whether as a surcharge or
by inclusion of such cost in determination of other charges and whether
determined in Maryland Public Service Commission proceeding in which
rates generally are adjusted or in a more limited proceeding or in an
agreement approved by the Maryland Public Service Commission, Eastalco
shall pay the costs as allocated in said proceeding or agreement to
Eastalco. If in said agreement or proceeding said costs for Eastalco
are not established pursuant to the Stipulation Regarding the
Establishment of Rates Under the Power Contract Between Potomac Edison
and Eastalco dated June 15, 1993 (the "Stipulation") and the result is
less favorable to Eastalco than rates would be if established on such
an allocation, then Eastalco shall have the option to terminate this
Agreement on six (6) months written notice given within twelve (12)
months after the order becomes final, except that no such termination
shall be effective before March 31, 2000. Nothing herein shall prevent
Eastalco from providing such notice more than six (6) months prior to
March 31, 2000, but termination will not become effective until March
31, 2000. Until termination of this Agreement by Eastalco is effective,
rates for Eastalco shall be as specified in such order.
14.18. TRANSITION OF STRANDED COSTS.
In the event that transition or stranded costs are required to
be collected by Potomac from Eastalco during the initial term or any
renewal periods of this Agreement pursuant to a statute or an order
from any agency having jurisdiction and the result is less favorable to
Eastalco than had any such order or requirement not been issued, then
Eastalco shall have the option to terminate this Agreement on six (6)
months written notice given within twelve (12) months after the order
becomes final, except that no such termination shall be effective until
the later of March 31, 2000 or the time transition or stranded costs
are required to be collected by Potomac from Eastalco. Nothing herein
shall prevent Eastalco from providing such notice more than six (6)
months prior to March 31, 2000, but termination will not become
effective until March 31, 2000. Nothing herein precludes either Potomac
or Eastalco from taking any position at any time before
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any agency having jurisdiction on any aspect of the issue of transition
or stranded costs.
Z. Paragraph 15. DEFINITIONS.
The following Sub-Paragraphs shall be deleted:
15.28. "Load Modulation"
15.45. "Potential Peak Hours"
The following Sub-Paragraphs shall be added:
following Sub-Paragraph 15.4:
15.4a. "Allegheny Affiliates" shall have the meaning
set forth in Sub-Paragraph 14.16.
following Sub-Paragraph 15.17:
15.17a. "Committed Load Modulation" shall have the
meaning set forth in Sub-Paragraph 7.2.2.
following Sub-Paragraph 15.24:
15.24a. "Full Retail Access" shall mean the
availability to Eastalco of retail access to generation
suppliers other than Potomac under the laws of Maryland and/or
regulations of the Maryland Public Service Commission.
following Sub-Paragraph 15.54:
15.54a. "Stipulation" shall mean the "Stipulation
Regarding the Establishment of Rates Under the Power Contract
Between Potomac Edison and Eastalco" dated June 15, 1993.
Sub-Paragraph 15.4. "Allegheny" shall be amended to read:
15.4. "Allegheny" shall mean Allegheny Energy, Inc., a
Maryland corporation and the parent corporation of Potomac.
Sub-Paragraph 15.5. "Allegheny System" shall be amended by deleting "Potomac,
the Monongahela Power Company and the West Penn Power Company."
Sub-Paragraph 15.19. "Effective Cost of Power" shall be amended to read:
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15.19 "Effective Cost of Power" shall mean the quotient of (i)
the sum of all charges by Potomac that Eastalco reasonably
would have incurred for one year of operation at then current
average plant load (but no more than 350,000 kilowatts),
divided by (ii) then current average plant load times the
number of hours in the year less 34 million kilowatt-hours.
The calculation of Effective Cost of Power shall be made in
accordance with the formula set forth in Schedule A attached
hereto, amended as necessary to reflect this Agreement as
amended.
Sub-Paragraph 15.42.4. "Operating Flexibility" shall be amended by deleting "or
8."
Sub-Paragraph 15.58. "System Demand" shall be amended by deleting "purchased
during such hour."
Sub-Paragraph 15.60 "Undermodulation Charges shall be retitled "Undermodulation
Increment" and shall be amended to read:
15.60. "Undermodulation Increment" shall have the meaning set
forth in Sub-Paragraph 7.2.2.2.
AA. The Table of Contents of the ESA shall be amended to reflect the
deletion, addition and amendments to the titles of the Paragraphs and
Sub-Paragraphs set forth above.
BB. The Stipulation Regarding the Establishment of Rates under the
Power Contract between Potomac Edison and Eastalco, entered into in June, 1993,
shall remain effective.
3. CONFIDENTIALITY.
This Amendment No. 1 and any data exchanged by Eastalco and Potomac
and/or provided by either or both to the Maryland Public Service Commission or
to any other person, heretofore and/or hereafter, as part of the negotiation and
approval process for this Amendment No. 1, are considered proprietary and
confidential by Potomac Edison and Eastalco, and the parties agree to keep them
confidential. Accordingly, this Amendment No. 1 and any associated filings,
including any necessary or required changes in Potomac's tariff, will be filed
with the Maryland Public Service Commission with a request that they be treated
in a confidential manner. This provision shall survive any termination or
expiration of the ESA.
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4. COUNTER PARTS.
This Amendment No. 1 will be signed in counterparts, each of which will
be an original.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 on the
date first set forth above.
WITNESS: THE POTOMAC EDISON COMPANY
/s/ /s/ Michael P. Morrell
- --------------------------------- -------------------------------
By: Michael P. Morrell
Vice President
WITNESS: EASTALCO ALUMINUM COMPANY
/s/ /s/ Peter E. Aylen
- --------------------------------- -------------------------------
By: Peter E. Aylen
Vice President
Mlb
Eaamendl.fin
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EXHIBIT 10.18
ALUMAX INC.
- --------------------------------------------------------------------------------
Employment Agreement
for
Thomas G. Johnston
- --------------------------------------------------------------------------------
December 4, 1997
<PAGE> 2
ALUMAX INC.
- --------------------------------------------------------------------------------
Employment Agreement
for
Thomas G. Johnston
- -------------------------------------------------------------------------------
Page
----
1. Employment.................................................. 1
2. Period of Employment........................................ 1
(a) Duration Under Normal Circumstances.................... 1
(b) Termination Events..................................... 1
3. Duties During the Period of Employment...................... 1
4. Location of Employment...................................... 2
5. Current Cash Compensation................................... 2
6. Performance Accelerated Restricted Stock.................... 2
7. Employee Benefits........................................... 2
(a) Vacation and Sick Leave................................ 2
(b) Regular Reimbursed Business Expenses................... 2
(c) Employee Benefit Plans or Arrangements................. 2
(d) Employer's Executive Compensation Plans................ 3
(e) Financial and Tax Advice............................... 3
8. Termination................................................. 3
(a) Death or Retirement.................................... 3
(b) Disability............................................. 4
(c) Voluntary Termination by Employee without Good Reason.. 5
(d) Voluntary Termination by Employee with Good Reason,
or by Employer without Cause........................... 5
(e) Termination in Connection with Change in Control....... 7
(f) Termination by Employer with Cause..................... 9
(g) Expiration of Period of Employment..................... 9
(h) Date of Payment........................................ 9
9. Definitions................................................. 9
10. Excise Tax Gross-up......................................... 13
11. Non-Competition and Non-Disclosure; Employee Cooperation.... 15
<PAGE> 3
Page
----
12. Governing Law; Disputes; Arbitration........................ 16
13. Notices..................................................... 17
14. Withholding................................................. 17
15. Mitigation.................................................. 17
16. Successors; Binding Agreement............................... 17
17. Pension Credit and Additional Pension Credit................ 17
18. Miscellaneous............................................... 18
<PAGE> 4
EMPLOYMENT AGREEMENT
AGREEMENT, effective as of December 1, 1997, by and between Alumax Inc.,
a Delaware corporation ("Employer"), and Thomas G. Johnston, an individual
("Employee").
WHEREAS, Employer and Employee wish to enter into an Employment Agreement
setting forth the terms and conditions of the Employee's employment by the
Employer; and
WHEREAS, such Employment Agreement was approved by the Human Resources and
Compensation Committee of the Board of Directors of Employer at a meeting held
on December 4, 1997.
IN CONSIDERATION OF the mutual covenants herein contained, and other good
and valuable consideration, the parties hereto agree as follows:
1. Employment. Employer hereby agrees to employ Employee, and Employee
agrees to serve, as President of Employer, during the Period of Employment as
defined in Section 2.
2. Period of Employment
(a) Duration Under Normal Circumstances. The "Period of Employment"
shall be the five-year period commencing December 4, 1997 (the
"Commencement Date"), and ending on December 31, 2002.
(b) Termination Events. Notwithstanding anything in this Section 2 to
the contrary, the Period of Employment shall terminate upon the earliest to
occur of the following:
(i) the retirement of Employee, with the consent of Employer,
prior to reaching age 65;
(ii) the Disability (as defined in Section 9) of Employee and
the expiration of the 30-day period referred to in the definition of
Disability without the actions referred to therein being taken by
Employee;
(iii) the death of Employee;
(iv) the 90th day after service of notice by Employee to
Employer, in accordance with the provisions of Section 13, that
Employee elects to terminate the Period of Employment (a "voluntary
termination by Employee"); and
(v) the 90th day after service of notice by Employer to
Employee, in accordance with the provisions of Section 13, that
Employer elects to terminate the Period of Employment (a "voluntary
termination by Employer"), other than a termination by Employer with
Cause (in which event the Period of Employment shall promptly
terminate upon service of such notice).
3. Duties During the Period of Employment. Employee shall devote his full
business time, attention and best efforts to the affairs of Employer and its
subsidiaries during the Period of Employment and shall have such duties,
responsibilities and authority as shall be assigned to him from time to time by
the Chief Executive Officer or the Board of Directors of Employer and as shall
be consistent with the position and title of President. Employee may engage in
other activities, such as activities involving charitable, educational,
religious and similar types of organizations (all of which are deemed to benefit
Employer),
<PAGE> 5
speaking engagements, and similar type activities, and may serve on the board
of directors of other corporations approved by the Board of Directors of
Employer, in each case to the extent that such other activities do not
materially detract from or limit the performance of his duties under this
Agreement, or inhibit or conflict in any material way with the business of
Employer and its subsidiaries.
4. Location of Employment. During the Period of Employment, Employer may
only require Employee to be based in or within 45 miles of Atlanta, Georgia,
except that Employer may require Employee to be based more than 45 miles from
Atlanta, Georgia if the relocation is to a principal executive office of
Employer; provided, however, that the Employer shall pay to, or reimburse
Employee for, on an after-tax basis, all reasonable expenses of relocation
incurred and substantiated by Employee in connection with any such relocation
and indemnify Employee, on an after-tax basis, against any loss actually
realized on the sale of Employee's principal residence within twelve months of
such relocation if Employee has reasonably cooperated with Employer in
connection with such sale.
5. Current Cash Compensation. Employer shall pay to Employee during the
Period of Employment a base annual salary of not less than $500,000 (or such
greater amount as may have been approved by the Board of Directors or the
Committee in its sole discretion), payable in substantially equal monthly
installments during each calendar year, or portion thereof, of the Period of
Employment; provided, however, that Employer agrees to review such base annual
salary annually and in light of such review may, in the sole discretion of the
Board of Directors of Employer or the Committee, increase such salary, taking
into account such factors as it deems pertinent.
6. Performance Accelerated Restricted Stock. Immediately on the
Commencement Date, Employee shall be granted PARS or Performance Awards for the
three (3) year Performance Periods ending December 31, 1997 and December 31,
1998. Employee's PARS Awards, subject to achievement of Performance Objectives
for each Performance Period, shall be 7,400 shares of Stock for the Performance
Period ending December 31, 1997 and 6,500 shares of Stock for the Performance
Period ending December 31, 1998, which Awards shall be treated in all respects
as if they had been granted on March 3, 1995 and March 8, 1996, respectively.
Such PARS Awards shall be subject to all terms, conditions and provisions of the
Alumax Inc. 1993 Long Term Incentive Plan (as the same may be modified,
replaced, or added to by Employer from time to time).
7. Employee Benefits
(a) Vacation and Sick Leave. Employee shall be entitled to five weeks
paid annual vacation, all paid Employer holidays and reasonable sick leave.
(b) Regular Reimbursed Business Expenses. Employer shall reimburse
Employee for all expenses and disbursements reasonably incurred and
substantiated by Employee in the performance of his duties during the
Period of Employment.
(c) Employee Benefit Plans or Arrangements. In addition to the cash
compensation provided for in Section 5 hereof, Employee, subject to meeting
eligibility requirements and to the provisions of this Agreement, shall be
entitled to participate without discrimination or duplication in all
employee (including executive) benefit plans of Employer, as presently in
effect or as they may be modified or added to by Employer from time to
time, to the extent such plans are available to other similarly situated
executives or employees of Employer, including, without limitation, plans
providing retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance.
-2-
<PAGE> 6
(d) Employer's Executive Compensation Plans. In addition to the cash
compensation provided for in Section 5 hereof and the employee benefits of
Employer provided for in paragraph (c) of this Section 7, Employee, subject to
meeting eligibility requirements and to the provisions of this Agreement, shall
be entitled to participate without discrimination or duplication in all
executive compensation plans of Employer, as presently in effect or as they may
be modified or added to by Employer from time to time, to the extent such
plans are available to similarly situated executives or employees of Employer,
including, without limitation, the Alumax Inc. Executive Separation Policy, the
Alumax Inc. 1993 Annual Incentive Plan and the Alumax Inc. 1993 Long Term
Incentive Plan (as the same may be modified, replaced, or added to by Employer
from time to time), and other stock option plans, performance share plans,
management incentive plans, deferred compensation plans, severance policies and
supplemental retirement plans; provided that such compensation plans and
programs, in the aggregate, shall provide Employee with benefits and
compensation and incentive reward opportunities substantially no less favorable
than those provided by Employer for Employee under such plans and programs as
in effect on the date of this Agreement. To the extent terms of any such
policies, plans or programs, in effect at the time of termination of Employee's
employment by Employer, provide for or would afford Employee greater or more
favorable benefits than those provided to Employee under the terms and
conditions of this Agreement, such more favorable terms, without duplication,
shall be applied.
(e) Financial and Tax Advice. During (i) the Period of Employment, (ii)
the 12-month period following the termination of the Period of Employment as a
result of death or Disability, and (iii) the eighteen (18) month period
following the voluntary termination by Employee with Good Reason (as defined in
Section 9) or the voluntary termination by Employer without Cause (as defined
in Section 9), and (iv) the thirty (30) month period following the voluntary
termination by Employee with Good Reason or the voluntary termination by
Employer without Cause in connection with a Change in Control (as defined in
Section 9), or such shorter period provided in Section 8, Employer shall
provide Employee (or, if Employee shall have died, his estate) at Employer's
expense, third-party professional financial and tax advisory services,
primarily oriented to planning in light of Employee's entitlement to
compensation and employee benefits and appropriate in light of the financial
circumstances of Employee (or his estate).
8. Termination
(a) Death or Retirement. If the Period of Employment terminates pursuant
to paragraph (b) of Section 2 as a result of (1) the death of Employee, or (2)
the retirement of Employee with the consent of Employer, prior to reaching age
65, Employee (or Employee's estate) will be entitled to receive only:
(i) the base salary otherwise payable under Section 5 through the end
of the month in which Employee's employment is terminated, together with
salary, compensation or benefits which have been earned or become payable
as of the date of termination but which have not yet been paid to Employee;
(ii) a prorated portion of the award to Employee for the year of
termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same
may be modified, replaced or added to by Employer from time to time,
assuming all applicable targets for the year of termination had been met,
with such award prorated based on the number of days during the year of
Employee's termination which precede such termination;
-3-
<PAGE> 7
(iii) the PARS or other Performance Awards to Employee for the
Performance Periods in progress as of the date of termination under the
Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified,
replaced or added to by Employer from time to time, assuming all applicable
Performance Objectives for such Performance Periods had been met, with such
PARS or other Performance Awards payable in shares of Stock or cash as
determined by the Committee administering such Plan in its discretion and
any unvested outstanding PARS not earned during completed Performance
Periods will be fully vested and payable in shares of Stock or cash as
determined by the Committee administering such Plan in its discretion;
(iv) such other awards or bonuses as the Board of Directors may in
its sole discretion determine;
(v) during the 12-month period following the termination of
Employee's employment as a result of the death or retirement of Employee,
maintenance in effect for the continued benefit of Employee's dependents of
all insured and self-insured employee medical and dental benefit plans in
which Employee was participating immediately prior to termination provided
that such continued participation is possible under the general terms and
conditions of such plans (and any applicable funding media) and Employee's
dependents continue to pay an amount equal to the Employee's regular
contribution for such participation;
(vi) during the 12-month period following the termination of
Employee's employment as a result of the death or retirement of Employee,
the financial and tax advice set forth in paragraph (e) of Section 7; and
(vii) such other compensation and benefits, if any, as shall be
determined to be applicable in accordance with Employer's plans and
practices as in effect on the date of termination.
(b) Disability. If the Period of Employment terminates pursuant to
paragraph (b) of Section 2 as a result of Disability, Employee will be entitled
to receive only:
(i) the base salary otherwise payable under Section 5 through the end
of the month in which Employee's employment is terminated, together with
salary, compensation or benefits which have been earned or become payable
as of the date of termination but which have not yet been paid to Employee;
(ii) each month during the 12-month period following the month in
which Employee's employment is terminated, the excess of (1) base annual
salary at the rate in effect under Section 5 on the date of termination,
over (2) the amount, if any, payable to Employee under Employer's
disability plan(s) or other arrangements for disability compensation;
(iii) a prorated portion of the award to Employee for the year of
termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same
may be modified, replaced or added to by Employer from time to time,
assuming all applicable targets for the year of termination had been met,
with such award prorated based on the number of days during the year of
Employee's termination which precede such termination;
-4-
<PAGE> 8
(iv) the PARS or other Performance Awards to Employee for the
Performance Periods in progress as of the date of termination under the
Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified,
replaced or added to by Employer from time to time, assuming all applicable
Performance Objectives for such Performance Periods had been met, with such
PARS or other Performance Awards payable in shares of Stock or cash as
determined by the Committee administering such Plan in its discretion, and
any unvested outstanding PARS not earned during completed Performance
Periods will be fully vested and payable in shares of Stock or cash as
determined by the Committee administering such Plan in its discretion;
(v) term life insurance coverage at the expense of Employer for the
period from the date of termination of Employee's employment to the
expiration of the Period of Employment, including any extensions thereof in
a face amount equal to the coverage maintained for Employee under
then-existing Employer benefit plans for which Employee shall have the
right to designate the beneficiaries, such coverage to be maintained in the
face amount which would from time to time be applicable under such plans,
provided such coverage may be discontinued if at any time Employee accepts
full time employment with another employer;
(vi) during the 12-month period following the termination of
Employee's employment (or, if shorter, during the period until the
commencement of equivalent benefits from a new employer), the financial and
tax advice set forth in paragraph (3) of Section 7; and
(vii) such other compensation and benefits, if any, as shall be
determined to be applicable in accordance with Employer's plans and
practices as in effect on the date of termination.
(c) Voluntary Termination by Employee without Good Reason. If the Period of
Employment terminates pursuant to paragraph (b) of Section 2 as a result of a
voluntary termination by Employee without Good Reason, Employee will be entitled
to receive only:
(i) the base salary otherwise payable under Section 5 through the end
of the day on which Employee's employment is terminated, together with
salary, compensation or benefits which have been earned or become payable
as of the date of termination but which have not yet been paid to Employee;
(ii) to the extent possible, the opportunity to convert group and
individual life insurance and disability insurance policies of Employer
then in effect for Employee to individual policies of Employee upon the
same terms as similarly situated employees of Employer may apply for such
conversions; and
(iii) such other compensation and benefits, if any, as shall be
determined to be applicable in accordance with Employer's plans and
practices in effect on the date of termination.
(d) Voluntary Termination by Employee with Good Reason or by Employer
without Cause. If the Period of Employment terminates pursuant to paragraph (b)
of Section 2 as a result of a voluntary termination by Employee with Good
Reason, or a voluntary termination by Employer without Cause, then Employee will
be entitled to receive only:
-5-
<PAGE> 9
(i) the base salary otherwise payable under Section 5 through the end
of the month in which Employee's employment is terminated, together with
salary, compensation or benefits which have been earned or become payable
as of the date of termination but which have not yet been paid to the
Employee;
(ii) a prorated portion of the award to Employee for the year of
termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same
may be modified, replaced or added to by Employer from time to time,
assuming all applicable targets for the year of termination had been met,
with such award prorated based on the number of days during the year of
Employee's termination which precede such termination;
(iii) the PARS or other Performance Awards to Employee for the
Performance Periods in progress as of the date of termination under the
Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified,
replaced or added to by Employer from time to time, assuming all applicable
Performance Objectives for such Performance Periods had been met, with such
PARS or other Performance Awards payable in shares of Stock or cash as
determined by the Committee administering such Plan in its discretion, and
any unvested outstanding PARS not earned during completed Performance
Periods will be fully vested and payable in shares of Stock or cash as
determined by the Committee administering such Plan in its discretion;
(iv) a lump-sum severance payment in an amount equal to the product
of (A) the base annual salary at the rate in effect under Section 5 on the
date of termination plus the award to Employee for the year of termination
under the Alumax Inc. 1993 Annual Incentive Plan, as the same may be
modified, replaced or added to by Employer from time to time, assuming all
applicable targets for the year of termination had been met, multiplied by
(B) one and one-half (1.5), or severance under the Company's generally
applicable plans whichever is greater; provided that the payment made
pursuant to this paragraph (iv) shall be repaid by Employee in the event
Employee violates in any material respect the provisions of Section 7
hereof;
(v) maintenance in effect for the continued benefit of Employee and
his dependents for a period terminating on the earlier of (A) eighteen (18)
months after the date of termination of employment or such longer period
under applicable plans, including severance plans, or (B) the commencement
of equivalent benefits from a new employer of:
(A) all insured and self-insured medical and dental benefit
plans in which Employee was participating immediately prior to
termination, provided that Employee's continued participation is
possible under the general terms and conditions of such plans (and any
applicable funding media) and Employee continues to pay an amount
equal to Employee's regular contribution for such participation; and
(B) the group and individual life insurance and disability
insurance policies of Employer then in effect for Employee; provided,
however, that if Employer so elects, or if such continued
participation is not possible under the general terms and conditions
of such plans or under such policies, Employer shall, in lieu of the
foregoing, arrange to have issued for the benefit of Employee and
Employee's dependents individual policies of insurance providing
benefits substantially similar (on an after-tax basis) to those
described in this paragraph (v),
-6-
<PAGE> 10
or, if such insurance is not available at a reasonable cost to
Employer, Employer shall otherwise provide Employee and Employee's
dependents equivalent benefits (on an after-tax basis); provided
further that, in no event shall Employee be required to pay any
premiums or other charges in an amount greater than that which
Employee would have paid in order to participate in Employer's plans
and policies;
(vi) for a period terminating on the earlier of (A) eighteen (18)
months after the date of termination of employment or (B) the commencement
of equivalent benefits from a new employer, the financial and tax advice
set forth in paragraph (e) of Section 7;
(vii) for a period terminating eighteen (18) months after the date of
termination of employment, the benefits equivalent on an after-tax basis to
the additional benefits Employee would have received under the employee
benefit and executive compensation plans, whether or not qualified for
federal income tax purposes (including, without limitation, all qualified
and non-qualified retirement plans, pension plans, profit sharing and other
defined contribution plans and excess benefit plans, but specifically
excluding incentive compensation, stock option and performance share plans)
in which Employee was participating immediately prior to termination, as if
Employee had received credit under such plans for service and age with
Employer during such period following Employee's termination, with such
benefits payable by Employee at the same times and in the same manner as
such benefits would have been received by Employee under such plans; and
(viii) such other compensation and benefits, if any, as shall be
determined to be applicable in accordance with Employer's plans and
practices in effect on the date of termination.
(e) Termination in Connection with Change in Control. If the Period of
Employment terminates pursuant to paragraph (b) of Section 2 as a result of a
voluntary termination by Employee with Good Reason, or a voluntary termination
by Employer without Cause in connection with a Change in Control (as defined in
Section 9), Employee will be entitled to receive only:
(i) the base salary otherwise payable under Section 5 through the end
of the month in which Employee's employment is terminated, together with
salary, compensation or benefits which have been earned or become payable
as of the date of termination but which have not yet been paid to Employee;
(ii) a prorated portion of the award to Employee for the year of
termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same
may be modified, replaced or added to by Employer from time to time,
assuming all applicable targets for the year of termination had been met,
with such award prorated based on the number of days during the year of
Employee's termination which precede such termination;
(iii) the PARS or other Performance Awards to the Employee for the
Performance Periods in progress as of the date of termination under the
Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified,
replaced or added to by Employer from time to time, assuming all applicable
Performance Objectives for such Performance Periods had been met, with such
PARS or other Performance Awards payable in shares of Stock or cash as
determined by the Committee administering such Plan in its discretion and
any unvested outstanding PARS not earned during completed Performance
Periods will be
-7-
<PAGE> 11
fully vested and payable in shares of Stock or cash as determined by the
Committee administering such Plan in its discretion;
(iv) a lump-sum severance payment in an amount equal to the product
of (a) the base annual salary at the rate in effect under Section 5 on
the date of termination plus the award to Employee for the year of
termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same
may be modified, replaced or added to by Employer from time to time,
assuming all applicable targets for the year of termination had been met
multiplied by (b) two and one-half (2.5); provided that the payment made
pursuant to this paragraph (iv) shall be repaid by Employee in the event
Employee violates in any material respect the provisions of Section 11
hereof;
(v) maintenance in effect for the continued benefit of Employee
and his dependents for a period terminating on the earlier of (A) thirty
(30) months after date of termination of employment or (B) the
commencement of equivalent benefits from a new employer of:
(A) all insured and self insured medical and dental benefit plans in
which Employee was participating immediately prior to termination,
provided that Employee's continued participation is possible under
the general terms and conditions of such plans (and any applicable
funding media) and Employee continues to pay an amount equal to
Employee's regular contribution for such participation; and
(B) the group and individual life insurance and disability insurance
policies of Employer then in effect for Employee; provided, however,
that if Employer so elects, or if such continued participation is
not possible under the general terms and conditions of such plans or
under such policies, Employer shall, in lieu of the foregoing,
arrange to have issued for the benefit of Employee and Employee's
dependents individual policies of insurance providing benefits
substantially similar (on and after-tax basis) to those described in
this paragraph (v), or, if such insurance is not available at a
reasonable cost to Employer, Employer shall otherwise provide
Employee and Employee's dependents equivalent benefits (on an
after-tax basis); provided further that, in no event shall Employee
be required to pay any premiums or other charges in an amount
greater than that which Employee would have paid in order to
participate in Employer's plans and policies;
(vi) for a period terminating on the earlier of (A) thirty (30)
months after date of termination of employment or (B) the commencement of
equivalent benefits from a new employer, the financial and tax advice set
forth in paragraph (e) of Section 7.
(vii) for a period terminating thirty (30) months after the date of
termination of employment the benefits equivalent on an after-tax basis
to the additional benefits Employee would have received under the
employee benefit and executive compensation plans, whether or not
qualified for federal income tax purposes (including, without limitation,
all qualified and non-qualified retirement plans, pension plans,
profit-sharing and other defined contribution plans and excess benefit
plans, but specifically excluding incentive compensation, stock option
and performance share plans) in which Employee was participating
immediately prior to termination, as if Employee has received credit
under such plans for service and age with Employer during such period
following Employee's
-8-
<PAGE> 12
termination, with such benefits payable by Employer at the same times
and in the same manner as such benefits would have been received by
Employee under such plans; and
(f) Termination by Employer with Cause. If the Period of Employment
terminates pursuant to paragraph (b) of Section 2 as a result of a
voluntary termination by Employer with Cause, Employee will be entitled to
receive only:
(i) the base salary otherwise payable under Section 5 through
the day on which Employee's employment is terminated, together with
salary, compensation or benefits which have been earned or become
payable as of the date of termination but which have not yet been paid
to Employee;
(ii) such other compensation and benefits, if any, as shall be
determined to be applicable under the circumstances in accordance with
Employer's plans and practices in effect on the date of termination.
(g) Expiration of Period of Employment. If the employment of Employee
by Employer terminates upon expiration of the Period of Employment (as
defined in Section 2(a) of this Agreement), Employee will be entitled to
receive, in addition to payments and benefits otherwise available in
connection with retirement of Employee, without discrimination or
duplication, only:
(i) all PARS and other Performance Awards to Employee for the
Performance Periods in progress as of the date of expiration under the
Alumax Inc. 1993 Long Term Incentive Plan, as the same may be
modified, replaced or added to by Employer from time to time, assuming
all applicable Performance Objectives for such Performance Periods had
been met, with such PARS or other Performance Awards payable in shares
of Stock or cash as determined by the Committee administering such
Plan in its discretion and any unvested outstanding PARS not earned
during completed Performance Periods will be fully vested and payable
in shares of Stock or cash as determined by the Committee
administering such Plan in its discretion;
(ii) all outstanding options to acquire Stock of Employer
previously granted to Employee under the Alumax Inc. 1993 Long Term
Incentive Plan, as the same may be modified, replaced or added to by
Employer from time to time, and any other stock option plans of
Employer, on a fully vested basis as if all conditions to vesting had
been satisfied.
(h) Date of Payment. Except as otherwise provided herein, all cash
payments and lump-sum awards required to be made pursuant to the provisions
of paragraphs (a) through (g) of this Section 8 shall be made no later than
the fifteenth day following the date of Employee's termination.
9. Definitions. For purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below:
"Beneficial Owner," with respect to any securities, shall mean any
person who, directly or indirectly, has or shares the right to vote or
dispose of such securities or otherwise has "beneficial ownership" of such
securities (within the meaning of Rule 13d-3 and Rule 13d-5 (as such Rules
are in effect on the date of this Agreement) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), including pursuant to any
agreement, arrangement or understanding (whether or not in writing);
provided, however, that (i) a person shall not be deemed the Beneficial
Owner of any
-9-
<PAGE> 13
security as a result of any agreement, arrangement or understanding to vote
such security (x) arising solely from a revocable proxy or consent
solicited pursuant to, and in accordance with, the applicable provisions of
the Exchange Act and the rules and regulations thereunder or (y) made in
connection with, or otherwise to participate in, a proxy or consent
solicitation made, or to be made, pursuant to, and in accordance with, the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, in either case described in clause (x) or clause (y) above
whether or not such agreement, arrangement or understanding is also then
reportable by such person on Schedule 13D under the Exchange Act (or any
comparable or successor report), and (ii) a person engaged in business as
an underwriter of securities shall not be deemed to be the Beneficial Owner
of any securities acquired through such person's participation in good
faith in a firm commitment underwriting until the expiration of forty days
after the date of such acquisition.
"Cause" shall mean (i) the willful engaging by Employee in conduct
which is not authorized by the Board of Directors of Employer or within the
normal course of Employee's business decisions and is known by Employee to
be materially detrimental to the best interests of Employer or any of its
subsidiaries, (ii) the willful engaging by Employee in conduct which
Employee knows is, or has substantial reason to believe to be, illegal to
the extent of a felony violation, or the equivalent seriousness under laws
other than those of the United States, and which has effects on Employer or
Employee materially injurious to Employer, (iii) the engaging by Employee
in any willful and conscious act of serious dishonesty, in each case which
the Board of Directors of Employer reasonably determines affects adversely,
or could in the future affect adversely, the value, reliability or
performance of Employee to Employer in a material manner, (iv) the willful
and continued failure by Employee to perform substantially his duties to
Employer under this Agreement (including any sustained and unexcused
absence of Employee from the performance of his duties under this
Agreement, which absence has not been certified in writing as due to
physical or mental illness in accordance with the procedures set forth in
this Section 9 under "Disability"), after a written demand for substantial
performance has been delivered to Employee by the Board of Directors
specifically identifying the manner in which Employee has failed to
substantially perform his duties, or (v) the sustained and unexcused
absence of Employee from the performance of his duties under this Agreement
for a period of 180 days or more within a period of 365 consecutive days,
regardless of the reason for such absence, unless Employee demonstrates
that such absence is due to Disability. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the Board of
Directors of Employer or based upon the advice of counsel for Employer
shall be conclusively presumed to be done, or omitted to be done, in good
faith and in the best interests of Employer, and shall not be deemed to
constitute Cause under subdivisions (ii) or (iii) of this definition.
Notwithstanding the foregoing, there shall not be deemed to be a voluntary
termination by Employer with Cause unless and until there shall have been
delivered to Employee a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership
of the Board of Directors of Employer at a meeting of such Board held after
reasonable notice to Employee and at which Employee has an opportunity,
together with his counsel, to be heard before such Board, finding that, in
the good faith opinion of such Board, Employee was guilty of the conduct
set forth above and specifying the particulars thereof in detail.
"Change in Control" shall mean the satisfaction of one or more of the
following conditions:
(i) any person is or becomes the Beneficial Owner, directly or
indirectly, of securities of Employer representing 20 percent or more
of the combined voting power of Employer's then-outstanding securities
(a "20% Beneficial Owner"); provided, however, that (a) the term "20%
Beneficial Owner" shall not include any Beneficial Owner who has
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<PAGE> 14
crossed such 20 percent threshold solely as a result of an acquisition of
securities directly from Employer, or solely as a result of an acquisition
by Employer of Employer securities, until such time thereafter as such
person acquires additional voting securities other than directly from
Employer and, after giving effect to such acquisition, such person would
constitute a 20% Beneficial Owner; and (b) with respect to any person
eligible to file a Schedule 13G pursuant to Rule 13d-1(b)(1) under the
Exchange Act with respect to Employer securities (an "Institutional
Investor"), there shall be excluded from the number of securities deemed to
be beneficially owned by such person a number of securities representing
not more than 10 percent of the combined voting power of Employer's
then-outstanding securities;
(ii) during any period of two consecutive years beginning after the
commencement of the Period of Employment, individuals who at the beginning
of such period constitute the Board of Directors of Employer together with
those individuals who first become Directors during such period (other than
by reason of an agreement with Employer in settlement of a proxy contest
for the election of directors) and whose election or nomination for
election to the Board was approved by a vote of at least two-thirds (2/3)
of the Directors then still in office who either were Directors at the
beginning of the period or whose election or nomination for election was
previously so approved (the "Continuing Directors"), cease for any reason
to constitute a majority of the Board of Directors of Employer;
(iii) the stockholders of Employer approve a merger, consolidation,
recapitalization or reorganization of Employer, or a reverse stock split of
any class of voting securities of Employer, or the consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of Employer or the surviving entity
outstanding immediately after such transaction being beneficially owned by
persons who together owned at least 75% of the combined voting power of the
voting securities of Employer outstanding immediately prior to such
transaction, with the relative voting power of each such continuing holder
compared to the voting power of each other continuing holder not
substantially altered as a result of the transaction; provided that, for
purposes of this paragraph (iii), such continuity of ownership (and
preservation of relative voting power) shall be deemed to be satisfied if
the failure to meet such 75% threshold (or to preserve such relative voting
power) is due solely to the acquisition of voting securities by an employee
benefit plan of Employer or such surviving entity or of any subsidiary of
Employer or such surviving entity;
(iv) the stockholders of Employer approve a plan of complete
liquidation or dissolution of Employer or an agreement for the sale or
disposition of all or substantially all the assets of Employer; or
(v) any other event which the Board of Directors of Employer (not
taking into account any vote of Employee) determines shall constitute a
Change in Control for purposes of this Agreement; provided, however, that a
Change in Control shall not be deemed to have occurred if any of the
following conditions (each, an "exception") is satisfied:
(1) Unless a majority of the Continuing Directors of Employer
(not taking into account any vote of Employee) determines that for
purposes of any or all of the provisions of this Agreement the
exception set forth in this paragraph
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<PAGE> 15
(1) shall not apply, none of the foregoing conditions would
have been satisfied but for one or more of the following persons
acquiring or otherwise becoming the Beneficial Owner of
securities of Employer: (A) any person who has entered into a
binding agreement with Employer, which agreement has been
approved by two-thirds (2/3) of the Continuing Directors,
limiting the acquisition of additional voting securities by such
person, the solicitation of proxies by such person or proposals
by such person concerning a business combination with Employer (a
"Standstill Agreement"); (B) any employee benefit plan, or
trustee or other fiduciary thereof, maintained by Employer or any
subsidiary of Employer; (C) any subsidiary of Employer; or (D)
Employer.
(2) Unless a majority of the Continuing Directors of
Employer (not taking into account any vote of Employee)
determines that for purposes of any or all of the provisions of
this Agreement the exception set forth in this paragraph (2)
shall not apply, none of the foregoing conditions would have
been satisfied but for the acquisition by Employer of another
entity (whether by merger or consolidation, the acquisition of
stock or assets, or otherwise) in exchange, in whole or in part,
for securities of Employer, provided that, immediately following
such acquisition, the Continuing Directors constitute a majority
of the Board of Directors of Employer, or a majority of the
board of directors of any other surviving entity, and, in either
case, no agreement, arrangement or understanding exists at that
time which would cause such Continuing Directors to cease
thereafter to constitute a majority of the Board of Directors or
of such other board of directors.
(3) Unless a majority of the Continuing Directors of
Employer (not taking into account any vote of Employee)
determines that for purposes of any or all of the provisions of
this Agreement the exception set forth in this paragraph (3)
shall not apply, none of the foregoing conditions would have
been satisfied but for Employee, or a person in which Employee
has a one-half of one percent (0.5%) or greater equity interest,
either singly or acting in concert with one or more other
persons, becoming a 20% Beneficial Owner.
(4) Employee determines that, for purposes of any or all
of the provisions of this Agreement, none of the foregoing
conditions shall be deemed to have been satisfied.
(5) A majority of the Continuing Directors (not taking
into account any vote of Employee) determines that a Change of
Control shall not be deemed to have occurred.
"Committee" shall mean the Human Resources and Compensation Committee of
the Employer's Board of Directors.
"Disability" shall mean the absence of Employee from his duties with
Employer on a full-time basis for one hundred eighty (180) days within any
period of three hundred and sixty-five (365) consecutive days as a result of
Employee's incapacity due to physical or mental illness as certified in writing
by a physician selected by Employee and reasonably acceptable to Employer (it
being understood that such physician shall be deemed to be reasonably
acceptable to Employer if, within a period of fifteen (15) days after Employee
notifies Employer of the name of such physician, Employer does not object to
the use of such physician), unless within thirty (30) days after written notice
to Employee by Employer, in accordance with the
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<PAGE> 16
provisions of Section 16, that Employee's employment is being terminated by
reason of such absence, Employee shall have returned to the full performance of
Employee's duties and shall have presented to Employer a written certificate of
Employee's good health prepared by a physician selected by Employee and
reasonably acceptable to Employer.
"PARS" shall mean Performance Accelerated Restricted Stock Units awarded to
participants pursuant to the Alumax Inc. 1993 Long Term Incentive Plan, as the
same may be modified, replaced or added to by Employee from time to time.
"Stock" shall mean Employer's Common Stock, $.01 par value, and such
securities as may be substituted (or resubstituted) for Stock.
Voluntary termination by Employee with "Good Reason" shall mean a voluntary
termination by Employee resulting from the Employer (i) reducing Employee's base
annual salary as in effect immediately prior to such reduction or reducing in a
material respect Employee's opportunity to earn incentive compensation as
provided in Section 7(d) of this Agreement, (ii) assigning Employee duties or
responsibilities which are materially inconsistent with such position, (iii)
removing Employee from or failing to reappoint or reelect Employee to such
position, except in connection with a termination as a result of death,
Disability, voluntary termination by Employee, retirement by Employee,
termination with Cause or expiration of the Period of Employment specified in
Section 2(a) of this Agreement or (iv) otherwise materially breaching its
obligations under this Agreement, in each case after notice in writing from
Employee to Employer and a period of 30 days after such notice during which
Employer fails to correct such conduct.
10. Excise Tax Gross-up. In the event that Employee becomes entitled to
one or more payments (with a "payment" including, without limitation, the
vesting of an option or other non-cash benefit or property, whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with
Employer or any affiliated company) (the "Total Payments"), which are or become
subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), (or any similar tax that may hereafter be imposed) (the
"Excise Tax"), Employer shall pay to Employee at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Employee, after
reduction for any Excise Tax (including any penalties or interest thereon) on
the Total Payments and any federal, state and local income or employment tax and
Excise Tax on the Gross-up Payment provided for by this Section 13, but before
reduction for any federal, state or local income or employment tax on the Total
Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount
equal to the product of any deductions disallowed for federal, state or local
income tax purposes because of the inclusion of the Gross-up Payment in
Employee's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax,
(i) the Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) of the Code
shall be treated as subject to the Excise Tax, unless, and except to the
extent that, in the written opinion of independent compensation consultants
or auditors of nationally recognized standing selected by Employer and
reasonably acceptable to Employee ("Independent Auditors"), the Total
Payments (in whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent reasonable
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<PAGE> 17
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax,
(ii) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Total Payments or (B) the amount of excess parachute payments
within the meaning of Section 280G(b)(1) of the Code (after applying clause
(i) above), and
(iii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by Employer's Independent Auditors appointed
pursuant to clause (i) above in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment, Employee
shall be deemed (A) to pay federal income taxes at the highest marginal rate of
federal income taxation for the calendar year in which the Gross-up Payment is
to be made; (B) to pay any applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes if paid in
such year (determined without regard to limitations on deductions based upon the
amount of Employee's adjusted gross income); and (C) to have otherwise allowable
deductions for federal, state and local income tax purposes at least equal to
those disallowed because of the inclusion of the Gross-up Payment in Employee's
adjusted gross income. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
the Gross-up Payment is made, Employee shall repay to Employer at the time that
the amount of such reduction in Excise Tax is finally determined (but, if
previously paid to the taxing authorities, not prior to the time the amount of
such reduction is refunded to Employee or otherwise realized as a benefit by
Employee) the portion of the Gross-up Payment that would not have been paid if
such Excise Tax had been applied in initially calculating the Gross-up Payment,
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the Gross-up Payment
is made (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-up Payment), Employer shall make
an additional Gross-up Payment in respect of such excess (plus any interest and
penalties payable with respect to such excess) at the time that the amount of
such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the thirtieth day
(or such earlier date as the Excise Tax becomes due and payable to the taxing
authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, Employer shall pay to Employee on such day an estimate,
as determined by Employer's Independent Auditors appointed pursuant to clause
(i) above, of the minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In
the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
Employer to Employee, payable on the fifth day after demand by Employer
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code). If more than one Gross-up Payment is made, the amount of each Gross-up
Payment shall be computed so as not to duplicate any prior Gross-up Payment.
Employer shall have the right to control all proceedings with the Internal
Revenue Service that may arise in connection with the determination and
assessment of any Excise Tax and, at its sole option, Employer may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with any taxing authority in respect of such Excise Tax (including any interest
or penalties thereon); provided, however, that Employer's control
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<PAGE> 18
over any such proceedings shall be limited to issues with respect to which a
Gross-up Payment would be payable hereunder and Employee shall be entitled to
settle or contest any other issue raised by the Internal Revenue Service or any
other taxing authority. Employee shall cooperate with Employer in any
proceedings relating to the determination and assessment of any Excise Tax and
shall not take any position or action that would materially increase the amount
of any Gross-up Payment hereunder.
11. Non-Competition, Non-Disparagement and Non-Disclosure; Employee
Cooperation
(a) Without the consent in writing of the Board of Directors of
Employer, upon termination of Employee's employment for any reason,
Employee will not for a period of three years thereafter, 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 as an executive, during the
last two years prior to such termination and which is directly in
competition with a business conducted by Employer or any of its
subsidiaries; (ii) induce any customers of Employer or any of its
subsidiaries with whom Employee has had contacts or relationships, directly
or indirectly, during and within the scope of his employment with Employer
or any of its subsidiaries, to curtail or cancel their business with such
companies or any of them; (iii) solicit or canvass business from any person
who was a customer of Employer or any of its subsidiaries at or during the
two-year period immediately preceding termination of Employee's employment;
or (iv) induce, or attempt to influence, any employee of Employer or any of
its subsidiaries to terminate his employment; provided, however, that the
limitation contained in clause (i) above shall not apply if Employee's
employment is terminated as a result of a voluntary termination by Employee
with Good Reason, a voluntary termination by Employer without Cause or
retirement upon reaching age 65 or thereafter; and provided further, that
the limitation contained in clause (i) above shall not prohibit Employee
from engaging in any business directly competitive with Employer or any of
its subsidiaries as a director, consultant or private investor upon
retirement upon reaching age 62 or thereafter with the consent of a
majority of the Board of Directors of Employer, which consent shall not be
unreasonably withheld. The provisions of subparagraphs (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 1/2
of 1% 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) of this paragraph (a).
(b) Employee shall not, at any time during the Period of Employment
or following Employee's termination of employment for any reason
whatsoever, make any statement which might be reasonably regarded as
disparaging to the Employer, its Board of Directors, Directors, officers,
employees, operations, businesses, business practices, strategic and
business plans or which may be reasonably expected to reflect unfavorably
on the Employer, except as may be required by law.
(c) Employee shall not, at any time during the Period of Employment or
following Employee's termination of employment for any reason whatsoever,
disclose, use, transfer or sell, except in the course of employment with
Employer, any confidential or proprietary information of Employer and its
subsidiaries 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.
(d) Employee agrees to cooperate with Employer, by making himself
available to testify on behalf of Employer or any subsidiary or affiliate
of Employer, in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, and to assist Employer, or any subsidiary
or affiliate of Employer in any such action, suit or proceeding, by
providing information and meeting and consulting with the Board of
Directors of Employer or its representatives or counsel, or
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<PAGE> 19
representatives or counsel of Employer, or any subsidiary or affiliate of
Employer, as requested by such Board of Directors, representatives or
counsel. Employer agrees to reimburse the Employee, on an after-tax basis,
for all expenses actually incurred in connection with his provision of
testimony or assistance.
12. Governing Law; Disputes; Arbitration
(a) This Agreement is governed by and is to be construed, administered
and enforced in accordance with the laws of the State of Delaware, without
regard to the conflict of laws principles thereof. If under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation, ordinance or principle of law, such
portion shall be deemed to be modified or altered to the extent necessary
to conform thereto or, if that is not possible, to be omitted from this
Agreement; and the invalidity of any such portion shall not affect the
force, effect and validity of the remaining portion hereof.
(b) All reasonable costs and expenses (including fees and
disbursements of counsel) incurred by Employee in seeking to enforce rights
pursuant to this Agreement shall be paid or reimbursed to Employee
promptly by Employer, whether or not Employee is successful in asserting
such rights, except that Employee shall repay to Employer any such amounts
to the extent that an arbitrator or court issues a final, unappealable
order setting forth a determination that Employee's claim was frivolous
or advanced by Employee in bad faith; provided, however, that with respect
to any Change in Control, the Board of Directors of Employer may determine
that the repayment by Employee contemplated by the immediately preceding
clause of this paragraph shall not apply to any claims arising out of such
Change in Control, which determination shall thereafter be irrevocable with
respect to such claims.
(c) Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Atlanta,
Georgia 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. For purposes of settling any
dispute or controversy arising hereunder or for the purpose of entering any
judgment upon an award rendered by the arbitrators, Employer and Employee
hereby consent to the jurisdiction of any or all of the following courts:
(i) the United States District Court for the Northern District of Georgia,
(ii) any of the courts of the State of Georgia, or (iii) any other court
having jurisdiction. Employer and Employee further agree that any service
of process or notice requirements in any such proceeding shall be satisfied
if the rules of such court relating thereto have been substantially
satisfied. Employer and Employee hereby waive, to the fullest extent
permitted by applicable law, any objection which it may now or hereafter
have to such jurisdiction and any defense of inconvenient forum. Employer
and Employee hereby agree that a judgment upon an award rendered by the
arbitrators may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Subject to Section 12(b), Employer
shall bear all costs and expenses arising in connection with any
arbitration proceeding pursuant to this Section 12. Notwithstanding any
provision in this Section 12, Employee shall be entitled to seek specific
performance of Employee's right to be paid during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Initials Employer:_____________ Employee:_____________
(d) Any amounts that have become payable pursuant to the terms of this
Agreement or any judgment by a court of law or a decision by arbitrators
pursuant to this Section 12 but which are
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<PAGE> 20
not timely paid shall bear interest at the prime rate in effect at the
time such payment first becomes payable, as quoted by The Chase Manhattan
Bank, New York, New York.
13. Notices. All notices under this Agreement shall be in writing and
shall be deemed effective when received (in Employer's case, by its Secretary)
or seventy-two (72) hours after deposit thereof in the U.S. mails, postage
prepaid, for delivery as registered or certified mail, addressed, in the case
of Employee, to him at his address specified below, and in the case of
Employer, to its principal United States corporate headquarters, attention of
the Secretary, or to such other address as Employee or Employer may by notice
designate in writing at any time or from time to time to the other party. In
lieu of notice by deposit in the U.S. mail, a party may give notice by personal
delivery, prepaid cable, telegram, telex or telecopy and such notice shall be
effective twenty-four (24) hours after it has been properly sent.
14. Withholding. All payments to be made to Employee under this
Agreement will be subject to required withholding taxes and other deductions.
15. Mitigation. Employee shall not be required to mitigate the amount of
any payment Employer becomes obligated to make to Employee in connection with
this Agreement, by seeking other employment or otherwise, and except as
expressly provided in this Agreement, amounts or other benefits to be paid or
provided to Employee pursuant to this Agreement shall not be reduced by reason
of Employee obtaining other employment or receiving similar payments or benefits
from another employer.
16. Successors; Binding Agreement
(a) Any Successor (as hereinafter defined) to Employer shall be bound
by this Agreement. Employer will seek to have any Successor assent to the
fulfillment by Employer of its obligations under this Agreement at
Employee's request. Failure of Employer to obtain such assent within thirty
(30) days after such request shall constitute Good Reason for termination
by Employee of Employee's employment and, upon a voluntary termination by
Employee pursuant to Section 2, shall entitle Employee to the benefits
provided in Section 8(e). For purposes of this Agreement, "Successor" shall
mean any person that succeeds to, or has the practical ability to control
(either immediately or with the passage of time), Employer's business
directly, by merger or consolidation, or indirectly, by purchase of the
Employer's voting securities, all or substantially all of its assets or
otherwise.
(b) For purposes of this Agreement, "Employer" shall include any
corporation or other entity which is the surviving or continuing entity in
respect of any amalgamation, merger, consolidation, dissolution, asset
acquisition or other form of business combination.
17. Pension Credit
(a) The Employee shall be entitled to a supplemental pension benefit
equal to the excess, if any, of (x) over (y) where (x) and (y) are as
defined below:
(x) the pension benefit that would have been payable to the
Employee under the Alumax Retirement Plan for Salaried Employees, as
it may from time to time be amended (or any successor plan which is a
defined benefit plan) (the "Plan"), if the periods of employment with
AMAX Inc. or Aztec Mining Company Limited and the period April 1, 1994
through October 31, 1996 were included in Employee's Benefit Service
(as defined in the Plan). The pension benefit determined under this
clause (x) shall be determined
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<PAGE> 21
without regard to any limits imposed by the Internal Revenue Code
(currently Sections 401(a)(17) and 415).
(y) the pension benefit paid or payable under any defined
benefit plan (whether or not qualified under the Internal Revenue
Code) sponsored by AMAX Inc. or Alumax Inc. for which any of the
periods of service are included in the calculation of the pension
benefit calculated under clause (x) above.
The supplemental pension benefit shall commence as of the same date
and shall be paid in the same form as Employee's benefit under the Plan.
(b) The benefit entitlements of Employee provided in this Section 16
shall survive any termination of the Period of Employment pursuant to Section 2.
18. Miscellaneous.
(a) Except to the extent that the terms of this Agreement confer
benefits that are more favorable to Employee than are available under any
other employee benefit or executive compensation plan of Employer in which
Employee is a participant, Employee's rights under any such employee (including
executive) benefit plan or executive compensation or severance plan shall be
determined in accordance with the terms of such plan (as it may be modified or
added to by Employer from time to time).
(b) This Agreement constitutes the entire understanding between Employer
and Employee relating to employment of Employee by Employer and its
subsidiaries and supersedes and cancels all prior agreements and understandings
with respect to the subject matter of this Agreement and such other written
agreements, including the Executive Separation Policy of the Employer.
Employee shall not be entitled to any payment or benefit under this Agreement
which duplicates a payment or benefit received or receivable by Employee under
such prior agreements and understandings or under any employee (including
executive) benefit plan or executive compensation plan of the Employer.
(c) This Agreement may be amended but only by a subsequent written
agreement of the parties.
(d) This Agreement shall be binding upon and shall inure to the benefit
of Employee, his heirs, executors, administrators and beneficiaries, and shall
be binding upon and inure to the benefit of Employer and its successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the year and day first above written.
ALUMAX INC.
By /s/ HELEN M. FEENEY
--------------------
Vice President
/s/ THOMAS G. JOHNSTON
-----------------------
Thomas G. Johnston
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Address of Employee for Purposes of Notices:
-------------------------------------------
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EXHIBIT 10.21
GRANTOR TRUST AGREEMENT
THIS AGREEMENT, amended and restated as of the first day of April, 1997, is
between Alumax, Inc. a corporation organized and existing under the laws of the
state of Delaware (the "Company"), and The Chase Manhattan Bank, a New York
banking corporation having its principal office in New York (the "Trustee").
RECITALS
A. The Company is obligated to pay deferred compensation or other executive
compensation to certain employees of the Company or its subsidiaries (the
"Participants") and their beneficiaries (the "Beneficiaries") under the Alumax
Inc. Deferred Compensation Plan, 1993 Long Term Incentive Plan, 1993 Stock
Option Subplan for Key Employees, 1995 Employee Equity Ownership Plan, 1993
Annual Incentive Plan, and employment agreements and other arrangements
(collectively, the "Plans"); and
B. The Company has granted and may in the future from time to time grant
stock units, in the form of Performance Accelerated Restricted Stock or
otherwise to the Participants, and enter into other compensatory arrangements,
in each case requiring deferred payment of compensation relating thereto to the
Participants and their Beneficiaries; and
C. Pursuant to an agreement made as of October 10, 1994, by and between the
Company and E. William Smethurst, Jr., the Company previously established this
Trust as an irrevocable grantor trust which is not intended to be qualified
under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), to provide assurance to its key management employees (the
"Participants") and their surviving spouses, dependent children, beneficiaries
or estates (collectively, the "Beneficiaries") that the Company will be able to
meet its obligations with respect to their benefits under the Plans in the
future by application of the procedures governing the Trust; and
<PAGE> 2
2
D. The Trust is intended to be a grantor trust, of which the Company is the
grantor, within the meaning of subpart E, part I, subchapter J. chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
E. Amounts transferred to the Trust, as determined by the Company from time
to time in its sole discretion, and the earnings thereon shall be used by the
Trustee solely in satisfaction of the liabilities of the Company with respect to
the Participants in the Plans and their Beneficiaries and such utilization shall
be in accordance with the procedures set forth herein, except that all such
amounts held at any time shall be subject to the claims of general creditors of
the Company in the event of bankruptcy or insolvency, as defined in section 2.1;
and
F. Any amount transferred by the Company to the Trust and the earnings
thereon shall revert to the Company only upon satisfaction of all liabilities of
the Company under the Plans, except that all such amounts held at any time under
this Agreement shall be subject to the claims of general creditors of the
Company in the event of bankruptcy or insolvency, as defined in section 2.1; and
G. To provide for more efficient administration of the Trust in order to
best enable the Company to meet all of its obligations under the Plans, the
Company desired to amend and restate this Agreement.
AGREEMENT
In consideration of the premises and mutual and independent promises
herein, the parties hereto covenant and agree as follows.
ARTICLE I
Establishment of Trust
1.1. Trust Fund. The Company hereby establishes with the Trustee a Trust
consisting of such sums of money, and such other property, acceptable to the
Trustee, as shall from time to time be paid or
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delivered to the Trustee by the Company and the earnings and profits thereon.
Such property may consist of shares of the Company's Common Stock ("Shares").
All such money and property, all investments made therewith and proceeds
thereof, less the payments or other distributions which, at the time of
reference, shall have been made by the Trustee, as authorized herein, shall be
referred to herein as the "Trust Fund" and shall be held by the Trustee, IN
TRUST, in accordance with the provisions of this Agreement.
The Trust Fund shall be re-valued by the Trustee as of the last business
day of each calendar year at current market values, as determined by the
Trustee. The Trustee shall determine the fair market value or fair value of
securities or other property held in the Trust Fund based upon one or more of
the following: information and financial publications of general circulation,
statistical and valuation services, records of security exchanges, appraisals by
qualified persons, transactions and bona fide offers in assets of the type in
question, valuations provided by Investment Managers, and other information
customarily used in the valuation of property. An Investment Manager shall
certify, at the request of the Trustee, the value of any securities or other
property held in any Investment Account managed by such Investment Manager, and
such certification shall be regarded as a direction with regard to such
valuation. The Trustee shall be entitled to rely upon such valuation for all
purposes under this Trust Agreement. The Trustee shall hold, manage, invest and
otherwise administer the Trust Fund pursuant to the terms of this Agreement.
Except as otherwise expressly provided herein, this Trust shall be irrevocable
and no part of the Trust Fund shall revert, or be paid to, the Company.
1.2. Contributions. The Trustee shall be responsible only for
contributions actually received by it hereunder and the earnings on such
contributions. The amount of each contribution by the Company to the Trust shall
be determined in the sole discretion of the Company, and the Trustee and the
Trust Agent, as described in Section 3.1, shall have no duty or responsibility
with respect thereto, except as other expressly agreed to by the Trustee.
A separate bookkeeping account ("Deferral Account") shall be established and
maintained with respect to each Participant to which shall be credited and
debited amounts as provided below. At the time of each contribution, the Company
shall certify to the Trustee the portion of the contribution to be
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allocated to each Participant's Deferral Account. The Trustee shall hold,
invest and reinvest the assets of each Participant's Deferral Account in
accordance with Article V below. A Participant's Deferral Account shall not be
reduced except upon payment of benefits from the account, a decrease in the
value of the Account, or otherwise as provided in this Trust Agreement.
ARTICLE II
Purpose of Trust
2.1. Effect of Bankruptcy or Insolvency on Trust Distribution. The assets
of the Trust shall be subject only to the claims of the Company's general
creditors in the event of the Company's bankruptcy or insolvency. The Company
shall be considered "bankrupt" or "insolvent" if the Company is (A) unable to
pay its debts when due or (B) engaged as a debtor in a proceeding under the
Bankruptcy Code, 11 U.S.C. ss. 101 et seq. The Secretary of the Company must
give written timely notification to the Trustee of the Company's bankruptcy or
insolvency. Upon receipt of such a notice, or upon actual knowledge of the
Trustee, or upon receipt of a written allegation from a person or entity
claiming to be a creditor of the Company that the Company is bankrupt or
insolvent, the Trustee shall discontinue payments to Participants and
Beneficiaries. The Trustee shall, as soon as practicable thereafter, determine
whether the Company is bankrupt or insolvent. In determining whether the Company
is bankrupt or insolvent, the Trustee may rely conclusively upon, and be
protected in so relying upon, records of a court of competent jurisdiction or a
report issued by a national credit reporting agency showing that the Company is
or is not bankrupt or insolvent. If the Trustee determines, based on such
information, that the Company is bankrupt or insolvent, the Trustee shall hold
the assets of the Trust for the benefit of the Company's general creditors, and
deliver any undistributed assets to satisfy the claims of such creditors as a
court of competent jurisdiction may direct. If the Trustee is required to make
any distribution for the benefit of creditors, the Trust Agent shall cause such
distribution to be charged pro rata against all of the assets of Separate
Accounts established.
The Trustee shall resume payments to Participants or Beneficiaries only
after it has determined that the Company is not bankrupt or insolvent, is no
longer bankrupt or insolvent (if the Trustee
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determined that the Company was bankrupt or insolvent), or pursuant to an order
of a court of competent jurisdiction. Except as expressly provided above, unless
the Trustee has actual knowledge of the Company's bankruptcy or insolvency, the
Trustee shall have no duty to inquire whether the Company is bankrupt or
insolvent.
If the Trustee discontinues payment of benefits from the Trust pursuant to
this Section 2.1 and subsequently resumes such payments, the first payment
following such discontinuance shall include the aggregate amount of all payments
which would have been made to each Participant or Beneficiary during the period
of such discontinuance, less the aggregate amount of payments made to the
Participant or Beneficiary by the Company, as certified by the Company to the
Trustee and the Trust Agent, in lieu of the payments provided for hereunder
during any such period of discontinuance.
For purposes of this Section 2.1, actual knowledge of the Trustee shall
mean knowledge obtained by written notice or other written communication to the
trust department of the Trustee as provided in Section 13.6.
2.2. Vehicle to Meet Obligations. The Company represents and agrees that
the Trust established under this Agreement does not fund and is not intended to
fund any or all of the Plans or any other employee benefit plan or program of
the Company. This Trust is and is intended to be a depository arrangement with
the Trustee for the setting aside of cash and other assets of the Company as and
when it so determines, in its sole discretion, for the meeting of part or all of
its future obligations to some or all of the Participants and their
Beneficiaries under the Plans. The Company further represents that each Plan is
a deferred compensation plan for a select group of management and highly
compensated employees and as such is exempt from the application of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), except for the
disclosure requirements applicable to such plans for which the Company bears
full responsibility as to compliance. The Company further represents that no
Plan is qualified under Section 401 of the Code and therefore is not subject to
any of the Code requirements applicable to tax-qualified plans.
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ARTICLE III
Trust Agent
3.1. Initial Appointment of Trust Agent. By its acceptance of this Trust,
the Trustee hereby agrees to the designation by the Company of the Secretary of
the Company as the Trust Agent ("Trust Agent") under this Agreement. The Trustee
shall have no responsibility for the performance of the duties of the Trust
Agent.
3.2. Removal of the Trust Agent. Prior to a Change in Control, the Company
may direct the Trustee to terminate the Trust Agent by written notice to the
Trust Agent and to appoint a successor agent as directed by the Company, such
appointment to be effective as provided in Section 3.3. Following a Change in
Control, the Trust Agent serving at the time of such Change in Control shall
continue to serve in such capacity until the Trust terminates or until the agent
resigns in accordance with Section 3.3.
3.3. Resignation of the Trust Agent. The Trust Agent may resign at any time
by delivery of written notice of resignation to the Trustee and the Company. If
the notice of resignation is received by the Company prior to a Change in
Control, the Company shall appoint a successor Trust Agent. If such notice of
resignation is received by the Company following a Change in Control, the
Trustee shall appoint a successor Trust Agent in its discretion, which successor
shall be a compensation or actuarial consulting firm having a national
reputation. Any such resignation or any termination of the Trust Agent pursuant
to Section 3.2 shall take effect as of a future date specified in the notice of
same, which date shall not be earlier than the date 60 days after the day on
which the notice is delivered, or such earlier date as may be agreed to by the
Trust Agent and the Trustee; provided, however, that any resignation following a
Change in Control shall not be effective until such time as a successor Trust
Agent has been appointed and is ready to assume such responsibility. The
successor Trust Agent shall, as a condition to such appointment, agree in
writing to be bound by the terms of this Agreement and to perform the duties and
assume the responsibilities assigned to the Trust Agent under this Agreement. As
soon as practicable after a Trust Agent has resigned or has been terminated it
shall deliver to the successor Trust Agent all reports, records, documents, and
other written information in its possession
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regarding the Plans, the Trust and the Participants and Beneficiaries in the
Plans, and thereupon shall be entitled to all unpaid fees, compensation and
reimbursement to which it is entitled under this Agreement and shall be
relieved of all responsibilities and duties under this Agreement.
3.4. Records. The Trust Agent shall maintain or cause to be maintained all
the Participant records contemplated by this Agreement. The Trust Agent shall
also prepare and distribute Participant's statements which shall include income
tax information, if that information is supplied to the Trust Agent by the
Company, or its delegate, with respect to payments to Participants and their
Beneficiaries and shall perform such other duties and responsibilities as the
Trustee determines is necessary or advisable to achieve the objectives of this
Agreement. Any tax information applicable to a Participant or Beneficiary
including any required tax withholding shall be supplied to the Trust Agent by
the Company and the Trust Agent shall have no responsibility for the accuracy of
such information.
3.5. Participant Information. The Company shall furnish to the Trust Agent
all the information necessary to determine the benefits payable to or with
respect to each Participant in the Plans, including any benefits payable after a
Participant's death and the recipient of same. The Company shall from time to
time, and at least annually, and promptly upon the request of the Trust Agent,
furnish updated information to the Trust Agent. Based on the foregoing
information the Trust Agent shall prepare an annual benefits statement in
respect to each Participant and shall furnish a copy of same to the Participant
or his Beneficiary and to the Company. In the event the Company refuses or
neglects to provide updated Participant information, as contemplated herein, the
Trust Agent shall rely upon the most recent information furnished to it by the
Company, provided, however, that following a Change in Control, the Trust Agent
shall rely solely on (i) information furnished to it by the Company prior to a
Change in Control, (ii) information furnished to it by the Company following a
Change in Control which does not decrease the rights of a Participant to whom it
pertains and (iii) any information received by it from a participant unless the
Trust Agent actually knows that such information is false. The Trust Agent has
no responsibility to verify information provided to it by the Company or any
Participant.
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3.6. Benefit Payments. Upon proper notification from the Company prior to a
Change in Control or, following a Change in Control, based on such information
as the Trust Agent shall be entitled to rely upon pursuant to Section 3.5, the
Trust Agent shall prepare a certification to the Trustee that a Participant's
benefits under the Plan have become payable and shall furnish a copy of such
certification to the Participant or to the Beneficiary of a deceased
Participant. Such certification shall include the amount of such benefits, the
terms of payment, the amount of any taxes required to be withheld from such
amount, if such information is supplied to the Trust Agent by the Company or its
delegate, and the name, address and social security number of the recipient.
Upon the receipt of such certified statement, the Trustee shall commence cash
distributions from the Trust Fund in accordance therewith to the person or
persons so indicated and to the Company with respect to taxes required to be
withheld and the Trust Agent shall charge the payments against the Participant's
Deferral Account. If at any time any Participant's Deferral Account with respect
to any Plan or benefit has been exhausted, no additional amounts shall be
payable from the Trust with respect to such Plan or benefit. The Company shall
have full responsibility for the payment of all withholding taxes to the
appropriate taxing authority and shall also furnish each Participant or
Beneficiary with the appropriate tax information form evidencing such payment
and the amount thereof.
3.7. Company's Liability Not Limited to Assets. Nothing provided in this
Agreement shall relieve the Company of its liabilities to pay the benefits
provided under the Plans except to the extent such liabilities are met by
application of Trust Fund assets.
3.8. Form of Benefit Payments.
All payments shall be in cash except that the Trustee may, at the direction
of the Secretary of the Company or other administrator appointed for purposes of
this Trust by the Human Resources and Compensation Committee of the Company's
Board of Directors (the "Committee"), distribute assets held in the Trust
including Shares.
For the purpose of making cash payments or to satisfy various withholding
or other obligations hereunder, if all or part of the principal of the Trust
shall consist of securities (including Shares) or other property which do not
have a readily ascertainable market value, the Company may purchase from the
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Trust (or it may substitute new assets for) such assets at its option for the
amount it then designates as the market value; provided that the Secretary shall
certify to the Trustee that such market value as been determined on the same
basis utilized for purposes of valuing the Trust Fund as provided in Section
1.1. of this Agreement. The Trustee may conclusively, without further inquiry,
rely upon the value determined by the Company and the Secretary.
ARTICLE IV
Administration
4.1. Plan Documents and Authorizations. The Company shall provide the Trust
Agent with a certified copy of each Plan and all amendments thereto and of the
resolutions of the Board of Directors of the Company approving the Plans and all
amendments thereto, promptly upon their adoption. The Company shall file with
the Trustee and the Trust Agent a certified list of the names and specimen
signatures of the officers of the Company, the members of the Committee and any
person authorized to act for them. Prior to a Change in Control, the Company
shall promptly notify the Trustee and the Trust Agent of the addition or
deletion of any person's name to or from such list, respectively. Following a
Change in Control, deletion of any person from such list may only be made with
the consent of such person. Additions to such list following a Change in Control
may be made only to the extent necessary to replace any person deleted hereunder
and then only with the consent of a majority of the persons who remain on such
list. Until receipt by the Trustee and/or the Trust Agent of proper notice that
any person is no longer authorized so to act, the Trustee or the Trust Agent may
continue to rely on the authority of the person. All certifications, notices and
directions by any such authorized person or persons to the Trustee or Trust
Agent shall be in writing signed by such person or persons, provided that the
Committee may certify to the Trustee and the Trust Agent one or more of its
members to act on behalf of the entire committee and the Trustee and the Trust
Agent may rely on the actions of such person or persons until notified in
writing that such certification has been revoked. The Trustee and the Trust
Agent may rely on any such certification, notice or direction purporting to have
been signed by or on behalf of such person or persons that the Trustee or the
Trust Agent reasonably believes to have been signed thereby. The Trustee and the
Trust Agent shall have no responsibility for acting or not acting in reliance
upon any notification believed by the Trustee or the Trust Agent to have been
so
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signed by a duly authorized officer or agent of the Company. Prior to a Change
in Control, the Company, and following a Change in Control, the Trust Agent
shall be responsible for keeping accurate books and records (in the case of the
Trust Agent, to the extent possible based on the information described in
Section 3.5) with respect to the employees of the Company, their compensation
and their rights and interests under the Plans.
4.2. Contributions. The Company shall make its contributions to the Trust
in accordance with appropriate corporate action and the Trustee shall have no
responsibility with respect thereto, except to add to the Trust Fund any such
contributions received.
4.3. No Duty of Inquiry. No person dealing with the Trustee shall be under
any obligation to see to the proper application of any money paid or property
delivered to the Trustee or to inquire into the Trustee's authority as to any
transaction.
4.4. Method of Distribution. The Trustee shall distribute cash or property
from the Trust Fund in accordance with Article III hereof. The Trustee may make
any distribution required hereunder by mailing its check for the specified
amount, or delivering the specified property, to the person to whom such
distribution or payment is to be made, at such address as may have been last
furnished to the Trustee, or prior to a Change in Control if no such address
shall have been so furnished, to such person in care of the Company.
4.5. Actions by Company. If at any time there is no person authorized to
act under this Agreement on behalf of the Company, the Board of Directors of
the Company shall have the authority to act on behalf of the Company hereunder.
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ARTICLE V
Trust Investments
5.1 Establishment of Investment Accounts.
(a) The Company may direct the Trustee to establish one or more separate
investment accounts within the Trust Fund, each separate account being
hereinafter referred to as an "Investment Account." The Trustee shall transfer
to each such Investment Account such portion of the assets of the Trust as the
Company directs. The Trustee shall be under no duty to question, and shall not
incur any liability on account of following any direction of the Company. The
Trustee shall be under no duty to review the investment guidelines, objectives
and restrictions established, or the specific investment directions given, by
the Company for any Investment Account, or to make suggestions to the Company in
connection therewith.
(b) All interest, dividends and other income received with respect to, and
any proceeds received from the sale or other disposition of, securities or other
property held in an Investment Account shall be credited to and reinvested in
such Investment Account. All expenses of the Trust which are allocable to a
particular Investment Account shall be so allocated and charged. The Company may
direct the Trustee to eliminate an Investment Account, and the Trustee shall
thereupon dispose of the assets of such Investment Account and reinvest the
proceeds thereof in accordance with the directions of the Company.
5.2 Investment Manager Appointment.
(a) The Company may appoint one or more investment managers ("Investment
Managers"), pursuant to a written investment management agreement describing the
powers and duties of the Investment Manager, to direct the investment and
reinvestment of all or a portion of an
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Investment Account. The Company shall be responsible for ascertaining that while
each Investment Manager is acting in that capacity hereunder, the following
requirements are satisfied:
(1) The Investment Manager is either (i) registered as an investment
adviser under the Investment Adviser Act of 1940, as amended, (ii) a
bank as defined in that Act, or (iii) an insurance company qualified to
perform the services described in (b) below under the laws of more
than one state; and
(ii) The Investment Manager has the power to manage, acquire or
dispose of any assets of the Plans for which it is responsible
hereunder.
The Company shall furnish the Trustee with written notice of the appointment of
each Investment Manager hereunder, and of the termination of any such
appointment. Such notice shall specify the assets which shall constitute the
Investment Account. The Trustee shall be fully protected in relying upon the
effectiveness of such appointment and the Investment Manager's continuing
satisfaction of the requirements set forth above until it receives written
notice from the Company to the contrary.
(b) The Trustee shall conclusively presume that each Investment Manager,
under its investment management agreement, is entitled to act, in directing the
investment and reinvestment of the Investment Account for which it is
responsible, in its sole and independent discretion and without limitation,
except for any limitations which from time to time the Company and the Trustee
agree in writing shall modify the scope of such authority.
(c) The Trustee shall have no liability (i) for the acts or omissions of
any Investment Manager, (ii) for following directions, including investment
directions of an Investment Manager or the Company, which are given in
accordance with this Trust Agreement, or (iii) for any loss of any kind which
may result by reason of the manner of division of the Trust Fund or Investment
Accounts.
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(d) If the Trustee concludes that it may be subject to a conflict of
interest with respect to a transaction relating to securities or other property
held in the Trust Fund which might affect, or have the appearance of affecting,
the performance of its fiduciary responsibilities under this Agreement, the
Trustee may, in its discretion, select a third party to exercise the Trustee's
fiduciary responsibilities with respect to the transaction. Provided that the
third party is reasonably acceptable to the Company and satisfies the criteria
set forth in Section 5.2(a)(i) hereof, the Company shall engage such third party
as an Investment Manager for the limited purpose described in the previous
sentence. The Trustee shall pay the fees of such an Investment Manager with
respect to this limited engagement.
5.3 Company Directed Investment Accounts.
The Trustee shall, if so directed in writing by the Company, segregate all
or a portion of the Trust Fund held by it into one or more separate investment
accounts to be known as Company Directed Accounts, with respect to which the
Company shall have the powers and duties granted to an Investment Manager under
this Agreement. The Company, by written notice to the Trustee, may at any time
relinquish its powers under this Section 5.3 and direct that a Company Directed
Account shall no longer be maintained. In addition, during any time when there
is no Investment Manager with respect to an Investment Account (such as before
an investment management agreement takes effect or after it terminates), the
Company shall direct the investment and reinvestment of such Investment Account.
Whenever the Company is directing the investment and reinvestment of an
Investment Account or a Company Directed Account, the Company shall have the
powers and duties which an Investment Manager would have under this Trust
Agreement if an Investment Manager were then serving and the Trustee shall be
protected in relying on the Company's directions without reviewing investments
or making suggestions to the same extent as it would be protected under this
Trust Agreement if it had relied on the directions of an Investment Manager.
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5.4 Trustee Directed Investment Accounts.
The Trustee shall have no duty or responsibility to direct the investment
and reinvestment of the Trust Fund or any Investment Account unless expressly
agreed to in writing between the Trustee and the Company. In the event that the
Trustee enters into such an agreement, it shall have the powers and duties of an
Investment Manager under this Trust Agreement with regard to such Investment
Account.
ARTICLE VI
Powers of the Trustee
6.1 Investment Powers of the Trustee. The Trustee shall have and exercise
the following powers and authority (i) over Investment Accounts where it has
express investment management discretion as provided in Section 5.4 and (ii)
upon direction of the Investment Manager or the Company, as the case may be, for
all other Investment Accounts:
(a) To purchase, receive or subscribe for any securities or other
property and to retain in trust such securities or other property;
(b) To acquire and hold employer securities and real property provided
that the Trustee shall not dispose of any Shares deposited with the
Trust prior to the date on which such Shares are no longer subject to
a risk of forfeiture or transferability restrictions pursuant to the
Plans or any other compensatory arrangement theretofore established
with respect to which the Trust is then holding Shares; provided
further that in the event of a Change in Control (as defined in the
1993 Long Term Incentive Plan), the Trustee may elect to surrender to
the Company, within the 60-day period immediately following such Change
in Control, any Shares then held by the Trust in exchange for a cash
payment equal to the Change in Control Stock Value (as defined in the
1993 Long Term Incentive Plan).
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(c) To sell for cash or on credit, to grant options, convert, redeem,
exchange for other securities or other property, to enter into standby
agreements for future investment, either with or without a standby fee,
or otherwise to dispose of any securities or other property at any time
held by it;
(d) To settle, compromise or submit to arbitration any claims, debts,
or damages, due or owing to or from the trust to commence or defend
suits or legal proceedings and to represent the trust in all suits or
legal proceedings in any court of law or before any other body or
tribunal;
(e) To trade in financial options and futures, including index options
and options on futures and to execute in connection therewith such
account agreements and other agreements in such form and upon such
terms as the Investment Manager or the Company shall direct;
(f) To exercise all voting rights, tender or exchange rights, any
conversion privileges, subscription rights and other rights and
powers available in connection with any securities or other property at
anytime held by it; to oppose or to consent to the reorganization,
consolidation, merger or readjustment of the finances of any
corporation, company or association, or to the sale, mortgage, pledge
or lease of the property of any corporation, company or association or
any of the securities which may at any time be held by it and to do any
act with reference thereto, including the exercise of options, the
making of agreements or subscriptions and the payment of expenses,
assessments or subscriptions, which may be deemed necessary or
advisable by the Investment Manager or Company in connection therewith,
and to hold and retain any securities or other property which it may so
acquire; and to deposit any property with any protective,
reorganization or similar committee, and to pay and agree to pay part
of the expenses and compensation of any such committee and any
assessments levied with respect to property so deposited;
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(g) To exercise in accordance with the direction of the Secretary of
the Company all tender offer rights with respect to all securities
issued by the Company which are held by it;
(h) To invest all or a portion of the Trust Fund in contracts issued by
insurance companies, including contracts under which the insurance
company holds Plan assets in a separate account or commingled separate
account managed by the insurance company; the Trustee shall be entitled
to rely upon any written directions of the Company or the Investment
Manager under this Section 6.1, and the Trustee shall not be
responsible for the terms of any insurance contract that it is directed
to purchase and hold or for the selection of the issuer thereof or for
performing any functions under such contract (other than the execution
of any documents incidental thereto on the instructions of the Company
or the Investment Manager);
(i) To manage, administer, operate, lease for any number of years,
develop, improve, repair, alter, demolish, mortgage, pledge, grant
options with respect to, or otherwise deal with any real property or
interest therein at any time held by it, and to hold any such real
property in its own name or in the name of a nominee, with or without
the addition of words indicating that such property is held in a
fiduciary capacity, all upon such terms and conditions as may be deemed
advisable by the Investment Manager or the Company;
(j) To renew, extend or participate in the renewal or extension of any
mortgage, upon such terms as may be deemed advisable by the Investment
Manager or the Company, and to agree to a reduction in the rate of
interest on any mortgage or of any guarantee pertaining thereto in any
manner and to any extent that may be deemed advisable by the Investment
Manager or the Company for the protection of the Trust Fund or the
preservation of the value of the investment; to waive any default,
whether in the performance of any covenant or condition of any mortgage
or in the performance of any guarantee, or to enforce any such default
in such manner and to
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such extent as may be deemed advisable by the Investment Manager or the
Company; to exercise and enforce any and all rights of foreclosure, to
bid on property on foreclosure, to take a deed in lieu of foreclosure
with or without paying consideration therefor, and in connection
therewith to release the obligation on the bond secured by such
mortgage, and to exercise and enforce in any action, suit or proceeding
at law or in equity any rights or remedies in respect to any such
mortgage or guarantee;
(k) To hold part or all of the Trust Fund uninvested to the extent that
the directing party ascertains as reasonable and necessary for limited
periods of time;
(l) To loan pursuant to separate agreement as may be agreed upon any
securities to brokers or dealers and to secure the same in any manner,
and during the term of any such loan to permit the loaned securities to
be transferred into the name of and voted by the borrower or others; to
purchase, enter, sell, hold, and generally deal in any manner in and
with contracts for the immediate or future delivery of financial
instruments of any issuer or of any other property; to grant, purchase,
sell, exercise, permit to expire, permit to be held in escrow, and
otherwise to acquire, dispose of, hold and generally deal in any manner
with and in all forms of options in any combination; and, in connection
with its exercise of the powers granted in this Trust Agreement, to
deposit any securities or other property as collateral with any
broker-dealer or other person, to permit securities or other property to
be held by or in the name of others or in transferable form, to retain
any form of securities or other property received as a result of the
exercise of any of the foregoing powers whether or not investment in
such securities or other property is otherwise authorized under this
Trust Agreement and to hold and administer any securities or other
property with respect to which the foregoing powers have or may be
exercised, including any securities or collateral acquired by it or in
any property received as a result of its exercise of
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such powers, as a part of the account subject to the foregoing powers,
or in any sub-account, which property may be invested in securities or
other property of different types than the securities or other property
otherwise held in the account;
(m) To employ suitable agents and counsel and to pay their reasonable
and proper expenses and compensation;
(n) To purchase and sell foreign exchange and contracts for foreign
exchange, including transactions entered into with the Trustee, its
agents or subcustodians;
(o) To form corporations and to create trusts to hold title to any
securities or other property, all upon such terms and conditions as may
be deemed advisable by the Investment Manager or Company;
(p) To deposit and hold funds in any type of interest bearing deposit
accounts (including, but not limited to savings accounts, money
market accounts, and certificates of deposit or non-interest bearing
deposit accounts at the Trustee.
Except as otherwise provided in this Trust Agreement, the Investment
Manager of an Investment Account or the Company in the case of a Company
Directed Account shall have the power and authority to be exercised in its sole
discretion at any time and from time to time, to issue orders for the purchase
or sale of securities directly to a broker. Written notification of the issuance
of each such order shall be given promptly to the Trustee by the Investment
Manager or the Company and the confirmation of each such order shall be
confirmed to the Trustee by the broker. Unless otherwise directed by the Company
or Investment Manager, such notification shall be authority for the Trustee to
pay for securities purchased or to deliver securities sold as the case may be.
Upon the direction of the Investment Manager or the Company, the Trustee will
execute and deliver appropriate trading
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authorizations, but no such authorization shall be deemed to increase the
liability or responsibility of the Trustee under this Trust Agreement.
The Trustee shall transmit promptly to the Company or the Investment
Manager, as the case may be, all notices of conversion, redemption, tender,
exchange, subscription, class action, claim insolvency proceedings or other
rights or powers relating to any of the securities in the Trust Fund, which
notices are received by the Trustee from its agents or custodians, from issuers
of the securities in question and from the party (or its agents) extending such
rights. The Trustee shall have no obligation to determine the existence of any
conversion, redemption, tender, exchange, subscription, class action, claims in
insolvency proceedings or other right or power relating to any of the securities
in the Trust of which notice was given prior to the purchase of such securities
by the Trust, and shall have no obligation to exercise any such right or power
unless the Trustee is informed of the existence of the right or power.
The Trustee shall not be liable for any untimely exercise or assertion of
such rights or powers described in the paragraph immediately above in connection
with securities or other property of the Trust at any time held by it unless (i)
it or its agents or custodians are in actual possession of such securities or
property and (ii) it receives directions to exercise any such rights or powers
from the Company or the Investment Manager, as the case may be, and both (i) and
(ii) occur at least three business days prior to the date on which such rights
or powers are to be exercised.
If the Trustee is directed by the Company or an Investment Manager to
purchase securities issued by any foreign government or agency thereof, or by
any corporation or other entity domiciled outside of the United States, it shall
be the responsibility of the Company or Investment Manager, as the case may be,
to be aware of any laws or regulations of any foreign countries or any United
States territory or possession which shall apply in any manner whatsoever to
such securities, and the custody
<PAGE> 20
20
of such securities and all procedures to be followed with respect to the holding
and exercise of rights shall be subject to procedures issued by the Trustee for
global custody.
Notwithstanding any powers granted to the Trustee pursuant to this Trust
Agreement or to applicable law, the Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
6.2 Administrative Powers of the Trustee.
(a) Notwithstanding the appointment of an Investment Manager, the Trustee
shall have the following powers and authority, to be exercised in its sole
discretion, with respect to the Trust:
(i) To employ suitable agents, custodians and counsel and to pay their
reasonable expenses and compensation;
(ii) To appoint ancillary trustees to hold any portion of the assets of the
trust and to pay their reasonable expenses and compensation;
(iii) To register any securities held by it hereunder in its own name or
in the name of a nominee with or without the addition of words indicating
that such securities are held in a fiduciary capacity and to hold any
securities in bearer form and to deposit any securities or other property
in a depository or clearing corporation;
(iv) To make, execute and deliver, as Trustee, any and all deeds, leases,
mortgages, conveyances, waivers, releases or other instruments in writing
necessary or desirable for the accomplishment of any of the foregoing
powers;
(v) Generally to do all ministerial acts, whether or not expressly
authorized, which the Trustee may deem necessary or desirable in carrying
out its duties under this Trust Agreement.
<PAGE> 21
21
(b) The Trustee may consult with legal counsel concerning questions which
may arise with reference to this Trust Agreement and its powers and duties
hereunder in the event that (i) Trustee has not received a direction in the
usual periods of time for such communications or (ii) Trustee has not received
representations to its satisfaction that a direction is a proper one under the
Trust or applicable law. The written opinion of such counsel shall be full and
complete protection of the Trustee in respect to any action taken or suffered by
the Trustee hereunder in good faith reliance on the opinion.
ARTICLE VII.
Responsibility of Trustee; Indemnification; Contribution
7.1 Responsibility of Trustee
(a) The Trustee shall incur no liability to any person in discharging its
duties hereunder for any action taken or omitted in good faith in conformity
with the terms of this Trust Agreement. Each direction, notice, request or
approval (whether or not certified to the Trustee in writing) by the Company,
shall constitute a certification by the Company to the Trustee that such
direction is in conformity with the terms of the Plan and applicable law. Under
no circumstances shall the Trustee incur liability to any person for any
indirect, consequential or special damages (including, without limitation, lost
profits) of any form, whether or not foreseeable and regardless of the form of
the action in which such a claim may be brought, with respect to the Trust or
its role as Trustee.
(b) The Trustee shall have no obligation to undertake, defend or continue
to maintain any action or proceeding arising in connection with the Trust,
unless and until the Company agrees in writing to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto, to be primarily liable for such
payment and to make periodic payments in respect of such fees and expenses
during the course of such proceedings. If
<PAGE> 22
22
the Company thereafter does not pay such costs, expenses and liabilities in a
reasonably timely manner, the Trustee shall discontinue participation in such
action or proceeding, and charge the assets of the Trust to the extent
sufficient for any unpaid fees and expenses.
The Trustee shall not be under any duty to require payment of any
contributions to the Trust Fund, or to see that any payment made to it is
computed in accordance with the provisions of the Plans, or otherwise be
responsible for the adequacy of the Trust Fund to meet and discharge any
liabilities under the Plans.
7.2 Indemnification and Contribution
(a) The Company shall indemnify and save harmless the Trustee for and from
any loss, claim or expense (including reasonable attorneys' fees) arising (a)
out of any matter as to which this Trust Agreement provides that the Trustee is
directed, protected, not liable, or not responsible, or (b) by reason of any
breach of any statutory or other duty owed to the Plans by the Company, any
Investment Manager or any delegate of either of them (and for the purposes of
this sentence the Trustee shall not be considered to be such a delegate).
(b) The Trustee, its affiliates, and their officers, agents and employees
may bring action against the Company to contribute to the satisfaction of any
damages, claims, losses, liabilities, demands, penalties, obligations, or costs
to the extent that they (i) are subject to indemnification under Subsection (a)
and (ii) are caused by the culpable conduct of the Company, or any of its
affiliates or agents.
(c) The foregoing rights of indemnification and contribution shall not
supersede any common law or equitable rights or remedies which may be
available.
<PAGE> 23
23
ARTICLE VIII
Expenses
8.1. Taxes. The Company agrees that all income, deductions and credits of
each Account under the Trust belong to it as owner for income tax purposes and
will be included on the Company's income tax returns. The Company shall pay any
Federal, state and local taxes on the Trust, or any part thereof, and on the
income therefrom.
8.2. Compensation. The Trustee shall be entitled to such compensation and
fees for its services under this Agreement as shall be set forth in its
Published Schedule of Compensation in effect at the time such compensation is
payable. The Trust Agent (other than the Secretary of the Company) shall also be
entitled to such compensation and fees for its services under this Agreement as
is agreeable to the Company, the Trustee, and the Trust Agent. Such expenses and
compensation shall be a charge on the Trust and shall constitute a lien against
the Trust Fund until paid by the Company. Such compensation, fees and
reimbursement for expenses and liability described in Section 7.2 shall be paid
to the Trustee or the Trust Agent by the company directly; but if the Company
shall fail to do so, the Trustee shall be entitled to withdraw all amounts to
which it is entitled pro rata from the assets of all Accounts. To the extent the
Trust is not sufficient, the additional amounts due shall constitute a lien
against the Trust Fund.
ARTICLE IX
Trust Records and Accounts
9.1. Trust Records. The Trustee shall maintain records with respect to the
Trust Fund that show all its receipts and disbursements hereunder. The records
of the Trustee with respect to the Trust Fund shall be open to inspection by the
Company, the Trust Agent and Participants, or their representatives, at all
reasonable times during normal business hours of the Trustee and may be audited
not more frequently than once each fiscal year by an independent certified
public accountant engaged by the Company; provided, however, the Trustee shall
be entitled to additional compensation from the Company, as mutually agreed upon
by the Company and the Trustee, in respect of audits or auditors'
<PAGE> 24
24
requests which the Trustee determines to exceed the ordinary course of the usual
scope of such examination of its records.
9.2. Settlement of Accounts. Within a reasonable time after the close of
each fiscal year of the Company (or, in the Trustee's discretion, at more
frequent intervals), or of any termination of the duties of the Trustee
hereunder, the Trustee shall prepare and deliver to the Company and the Trust
Agent a statement of transactions reflecting its acts and transactions as
Trustee during such fiscal year, portion thereof or during such period from the
close of the last fiscal year or last statement period to the termination of the
Trustee's duties, respectively, including a statement of the then current value
of the Trust Fund. Any such statement shall be deemed an account stated and
accepted and approved by the Company, and the Trustee shall be relieved and
discharged, as if such account had been settled and allowed by a judgment or
decree of a court of competent jurisdiction, unless protested by written notice
to the Trustee within sixty (60) days of receipt thereof by the Company. The
Trustee shall have the right to apply at any time to a court of competent
jurisdiction for judicial settlement of any account of the Trustee not
previously settled as herein provided or for the determination of any question
of construction or for instructions. In any such action or proceeding it shall
be necessary to join as parties only the Trustee and the Company (although the
Trustee may also join such other parties as it may deem appropriate), and any
judgment or decree entered therein shall be conclusive.
ARTICLE X
Trustee Resignation and Removal
10.1. Resignation of Trustee. The Trustee may resign at any time by
delivering written notice thereof to the Company; provided, however, that no
such resignation shall take effect until the earlier of (i) sixty (60) days from
the date of delivery of such notice to the Company or (ii) the appointment of a
successor trustee. Notwithstanding the foregoing, following a Change in Control,
the Trustee's resignation shall not be effective until a successor trustee has
been appointed and is ready to act hereunder.
<PAGE> 25
25
10.2. Removal of Trustee. The Trustee may be removed by the Company at any
time prior to a Change in Control, pursuant to a resolution of the Board of
Directors of the Company removing the Trustee and appointing a successor
trustee, upon delivery to the Trustee of a certified copy of such resolution.
Such removal shall become effective sixty (60) days' after receipt by the
Trustee of such resolution, unless the Trustee shall agree to an earlier
effective date. Following a Change in Control, the Trustee may not be removed.
10.3. Appointment of a Successor Trustee. Upon the resignation or removal
of the Trustee prior to a Change in Control, a successor trustee shall be
appointed by the Company. Following a Change in Control, any successor trustee
shall be appointed by the Committee subject to approval by a majority of the
then Participants (excluding Beneficiaries). Such successor trustee shall be a
bank or trust company incorporated under the laws of the United States or a
State within the United States and having assets in excess of $500,000,000. Such
appointment shall take effect upon the delivery to the Trustee of (a) a written
appointment of such successor trustee, duly executed by the Company or the
Committee, as the case may be, and (b) an acceptance by such successor trustee.
Any successor trustee shall have all the rights, powers and duties granted the
Trustee hereunder.
10.4. Petition for Successor. If, within sixty (60) days of the delivery of
the Trustee's written notice of resignation, a successor trustee shall not have
been appointed, the Trustee may apply to any court of competent jurisdiction for
the appointment of a successor trustee.
10.5. Transfer of Trust. Upon the resignation or removal of the Trustee and
the appointment of a successor trustee, and after the acceptance and approval of
its account, the Trustee shall transfer and deliver the Trust Fund to such
successor. Under no circumstances shall the Trustee transfer or deliver the
Trust Fund to any successor which is not a bank or trust company as hereinabove
defined.
ARTICLE XI
Termination
11.1. Termination of the Trust. The Trust may be terminated at any time
by the Company, pursuant to a resolution of the Board of Directors thereof, with
the written consent of a majority of the
<PAGE> 26
26
then Participants (excluding Beneficiaries), upon delivery to the Trustee of a
certified copy of such resolution and a written instrument of termination duly
executed and acknowledged in the same form as this Agreement together with a
certification, in such form as the Trustee may require, that the consent of Plan
Participants has been obtained; provided further that in the event of a Change
in Control the Trust may not be terminated without the written consent of a
majority of the persons who are then Participants. However, the Trust may not be
terminated in the event of the Company's bankruptcy or insolvency, as defined in
Section 2.1, and, in such case, distributions will be in accordance with that
Article.
11.2. Distribution Upon Termination. Upon the termination of the Trust, the
Trustee shall, after the acceptance and approval of its account, distribute to
each Participant or his Beneficiary in accordance with the written directions
of the Trust Agent the amount credited to any of the Participant's Deferral
Accounts. After satisfaction of all liabilities with respect to all Participants
in the Plans and their Beneficiaries as certified to by the Trust Agent, the
Trustee shall distribute any assets remaining in the Trust Fund to the Company
in accordance with its written direction. Upon completing such distributions,
the Trustee shall be relieved and discharged. The powers of the Trustee shall
continue as long as any part of the Trust Fund remains in its possession.
ARTICLE XII
Amendment
Prior to a Change in Control, this Agreement may be amended, in whole or in
part, at any time and from time to time, by the Company, pursuant to a
resolution of the Board of Directors thereof by delivery to the Trustee of a
certified copy of such resolution and a written instrument duly executed and
acknowledged in the same form as this Agreement, except that the duties and
responsibilities of the Trustee shall not be increased without the Trustee's
written consent. Following a Change in Control, this Agreement may not be
amended, except as may be required to comply with applicable law, as determined
by the Trustee in consultation with its counsel, or with the written consent of
a majority of the persons who are then Participants.
<PAGE> 27
27
ARTICLE XIII
Miscellaneous
13.1. Governing Law. This Agreement shall be construed and interpreted
under, and the Trust hereby created shall be governed by, the laws of the State
of New York insofar as such laws do not contravene any applicable Federal laws,
rules or regulations. The United States District Court for the Southern District
of New York shall have the sole and exclusive jurisdiction over any lawsuit or
other judicial proceeding relating to or arising from this Agreement. If that
court lacks federal subject matter jurisdiction, the Supreme Court of the State
of New York, New York County shall have sole and exclusive jurisdiction. Either
of these courts shall have proper venue for any such lawsuit or judicial
proceeding, and the parties waive any objection to venue or their convenience as
a forum. The parties agree to submit to the jurisdiction of any of the courts
specified and to accept service of process to vest personal jurisdiction over
them in any of these courts. The parties further hereby knowingly, voluntarily
and intentionally waive, to the fullest extent permitted by applicable law, any
right to a trial by jury with respect to any such lawsuit or judicial proceeding
arising or relating to this Agreement or the transactions contemplated hereby.
13.2. Gender. Neither the gender nor the number (singular or plural) of any
word shall be construed to exclude another gender or number when a different
gender or number would be appropriate.
13.3. No Rights to Particular Assets. No Participant or Beneficiary shall
have any preferred claim on, or any beneficial ownership interest in, any assets
of the Trust before such assets are paid to the Participant or Beneficiary, as
provided in Article III, and all rights created under the Trust and each Plan
shall be unsecured rights of the Participant or Beneficiary against the Company.
No rights or interest of any Participant or Beneficiary under any Plan shall be
transferable or assignable or shall be subject to alienation, anticipation or
encumbrance, and no right or interest of any Participant or Beneficiary in any
such Plan shall be subject to any garnishment, attachment or execution.
Notwithstanding anything to the contrary, the Trust shall at all times remain
subject to claims of general creditors of the Company in the event of the
Company's bankruptcy or insolvency as provided herein.
<PAGE> 28
28
13.4. Successors. This Agreement shall be binding upon and inure to the
benefit of any successor to the Company or its business as the result of merger,
consolidation, reorganization, transfer of assets or otherwise and any
subsequent successor thereto. In the event of any such merger, consolidation,
reorganization, transfer of assets or other similar transaction, the successor
to the Company or its business or any subsequent successor thereto shall
promptly notify the Trustee in writing of its successorship. In no event shall
any such transaction described herein suspend or delay the rights of
Participants or Beneficiaries to receive benefits hereunder.
13.5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute only one Agreement.
13.6. Notices. Communication to the Trustee shall be sent to The Chase
Manhattan Bank, New York, New York or to such other address as the Trustee may
specify in writing. Communications to the Company shall be sent to the attention
of the Secretary of the Company at the Company's principal offices or to such
other address as the Secretary of the Company may specify in writing. No
communication shall be binding upon the Trustee or the Company until received.
13.7. Change in Control. For purposes of this trust "Change in Control"
shall mean the occurrence of any of the following events after consummation of
the spin-off of Stock by AMAX Inc. which resulted in the registration of Stock
under Section 12 of the Exchange Act:
(i) any person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 20 percent or more of the
combined voting power of the Company's then-outstanding securities (a "20%
Beneficial Owner"); provided however, that (a) the term "20% Beneficial Owner"
shall not include any Beneficial Owner who has crossed such 20 percent threshold
solely as a result of an acquisition of securities directly from the Company, or
solely as a result of an acquisition by the Company of Company securities, until
such time thereafter as such person acquires additional voting securities other
than directly from the Company and, after giving effect to such acquisition,
such person would constitute a 20% Beneficial Owner, and (b) with respect to any
person eligible to file a Schedule 1 3G pursuant to Rule 1 3d-1 (b)(l) under the
Exchange Act with respect to Company securities (an
<PAGE> 29
29
"Institutional Investor"), there shall be excluded from the number of
securities deemed to be beneficially owned by such person a number of securities
representing not more than 10 percent of the combined voting power of the
Company's then-outstanding securities;
(ii) during any period of two consecutive years beginning after the Stock
first became registered under Section 12 of the Exchange Act, individuals who at
the beginning of such period constitute the Board together with those
individuals who first became Directors during such period (other than by reason
of an agreement with the Company in settlement of a proxy contest for the
election of directors) and whose election or nomination for election to the
Board was approved by a vote of at least two-thirds (2/3) of the Directors then
still in office who either were Directors at the beginning of the period or
whose election or nomination for election was previously so approved (the
"Continuing Directors"), cease for any reason to constitute a majority of the
Board;
(iii) the stockholders of the Company approve a merger, consolidation,
recapitalization or reorganization of the Company, or a reverse stock split of
any class of voting securities of the Company, or the consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the Company or the surviving entity
outstanding immediately after such transaction being beneficially owned by
persons who together owned at least 75% of the combined voting power of the
voting securities of the Company outstanding immediately prior to such
transaction, with the relative voting power of each such continuing holder
compared to the voting power of each other continuing holder not substantially
altered as a result of the transaction; provided that, for purposes of this
paragraph (iii), such continuity of ownership (and preservation of relative
voting power) shall be deemed to be satisfied if the failure to meet such 75%
threshold (or to preserve such relative voting power) is due solely to the
acquisition of voting securities by an employee benefit plan of the Company or
such surviving entity or any subsidiary of the Company or such surviving entity;
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the sale or
disposition of all or substantially all the assets of the Company; or
<PAGE> 30
30
(v) any other event which a majority of the members of the Committee who
are Continuing Directors determines shall constitute a Change in Control for
purposes of this Plan; provided, however that a Change in Control shall not be
deemed to have occurred if one of the following exceptions applies:
(1) Unless a majority of the members of the Committee who are Continuing
Directors determines that the exception set forth in this paragraph (1)
shall not apply, none of the foregoing conditions would have been satisfied
but for one or more of the following persons acquiring or otherwise
becoming the Beneficial Owner of securities of the Company: (A) any person
who has entered into a binding agreement with the Company, which agreement
has been approved by two-thirds (2/3) of the Continuing Directors, limiting
the acquisition of additional voting securities by such person, the
solicitation of proxies by such person or proposals by such person
concerning a business combination with the Company (a "Standstill
Agreement"); (B) any employee benefit plan, or trustee or other fiduciary
thereof, maintained by the Company or any subsidiary of the Company; (C)
any subsidiary of the Company; or (D) the Company.
(2) Unless a majority of the members of the Committee who are Continuing
Directors determines that the exception set forth in this paragraph (2)
shall not apply, none of the foregoing conditions would have been satisfied
but for the acquisition by the Company of another entity (whether by merger
or consolidation, the acquisition of stock or assets, or otherwise) in
exchange, in whole or in part, for securities of the Company, provided
that, immediately following such acquisition, the Continuing Directors
constitute a majority of the Board, or a majority of the board of directors
of any other surviving entity, and, in either case, no agreement,
arrangement or understanding exists at that time which would cause such
Continuing Directors to cease thereafter to constitute a majority of the
Board or of such other board of directors.
(3) A majority of the members of the Committee who are Continuing Directors
determines that a Change in Control shall be deemed not to have occurred.
Notwithstanding the foregoing, unless otherwise determined by a majority of
the Committee who are Continuing Directors, no Change in Control shall be
deemed to have occurred with
<PAGE> 31
31
respect to a particular Participant if the Change in Control results from
actions or events in which such Participant is a participant in a capacity
other than solely as an officer, employee, or director of the Company.
For purposes of the foregoing definition of Change in Control, the term
"Beneficial Owner," with respect to any securities, shall mean any person
who, directly or indirectly, has or shares the right to vote or dispose of
such securities or otherwise has "beneficial ownership" of such securities
(within the meaning of Rule 1 3d-3 and Rule 1 3d-5 (as such Rules are in
effect on the effective date of the Plan) under the Exchange Act, including
pursuant to any agreement, arrangement, or understanding (whether or not in
writing); provided, however, that (i) a person shall not be deemed the
Beneficial Owner of any security as a result of any agreement, arrangement,
or understanding to vote such security (A) arising solely from a revocable
proxy or consent solicited pursuant to, and in accordance with, the
applicable provisions of the Exchange Act and the rules and regulations
thereunder or (B) made in connection with, or otherwise to participate in,
a proxy or consent solicitation made, or to be made, pursuant to, and in
accordance with, the applicable provisions of the Exchange Act and the
rules and regulations thereunder, in either case described in clause (A) or
clause (B) above whether or not such agreement, arrangement or
understanding is also then reportable by such person on Schedule 13D under
the Exchange Act (or any comparable or successor report), and (ii) a person
engaged in business as an underwriter of securities shall not be deemed to
be the Beneficial Owner of any securities acquired through such person's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
Notwithstanding the foregoing, a Change of Control shall only be treated as
having occurred if the Company or the Executive Benefits Committee notifies the
Trustee in writing that such an event has occurred
<PAGE> 32
32
In witness of the foregoing, the parties hereto have caused this amended
and restated Trust Agreement to be duly executed and their respective corporate
seals to be hereto affixed this day of April, 1997.
THE CHASE MANHATTAN BANK
By: /s/
------------------------------------
Vice President
ALUMAX, INC.
By: /s/
------------------------------------
Vice President & Corporate Secretary
<PAGE> 1
EXHIBIT 11.01
ALUMAX INC.
CALCULATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Basic Earnings per common share:
1. Net earnings............................ $ 33.7 $ 250.0 $ 237.4
2. Deduct -- Series A Convertible Preferred
Dividends............................... (9.3) (9.3)
------- ------- -------
3. Earnings applicable to common shares.... $ 33.7 $ 240.7 $ 228.1
======= ======= =======
4. Average common shares outstanding
(in thousands).......................... 54,735 45,731 44,637
======= ======= =======
5. Basic earnings per common share
(line 3 divided by line 4).............. $ 0.62 $ 5.26 $ 5.11
======= ======= =======
Diluted earnings per common share:
6. Earnings applicable to common shares.... $ 33.7 $ 240.7 $ 228.1
7. Add -- Series A Convertible Preferred
Dividends............................... 9.3 9.3
------- ------- -------
8. Net earnings............................ $ 33.7 $ 250.0 $ 237.4
======= ======= =======
9. Average diluted shares outstanding (in
thousands).............................. 55,721 55,211 54,761
======= ======= =======
10. Diluted earnings per common share
(line 8 divided by line 9).............. $ 0.60 $ 4.53 $ 4.34
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.01
ALUMAX INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction
of
Name of Subsidiary Corporation
- ------------------ ------------
<S> <C>
Alamo Resources Corporation Delaware
Alumax Inc. Nevada
Alumax Aluminum Corporation Delaware
Alumax Becancour, Inc. Delaware
Alumax Employee Services, Inc. Delaware
Alumax Engineered Metal Processes, Inc. Delaware
Alumax Extrusions, Inc. Pennsylvania
Alumax Extrusions, Inc. New York
Alumax Foil Industrial Redevelopment Corporation Missouri
Alumax Foils, Inc. Delaware
Alumax International Company Nevada
Alumax Japan, Inc. Delaware
Alumax Materials Management, Inc. Delaware
Alumax Mill Products, Inc. Delaware
Alumax Primary Aluminum Corporation Delaware
Alumax Retiree Services, Inc. Delaware
Alumax Semi-Fabricated Products, Inc. Delaware
Alumax Quebec, Inc. Wyoming
Alumax 6100 South Broadway Redevelopment Corporation Missouri
Alumax of South Carolina, Inc. Delaware
Alumax Technical Center, Inc. Delaware
Alumax Technical Services, Inc. Delaware
Alumax Technology Corporation Delaware
Alumax Warehouse Corporation Delaware
Alumax of Washington, Inc. Delaware
Alumet Corporation Delaware
Canalco, Inc. Delaware
Eastalco Aluminum Company Delaware
Hillyard Aluminum Recovery Corporation Delaware
Intalco Aluminum Corporation Delaware
Kawneer Company, Inc. Delaware
Kawneer Europe, Inc. Delaware
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Jurisdiction
of
Name of Subsidiary Incorporation
- ------------------ -------------
<S> <C>
Kawneer Germany, Inc. Delaware
Mt. Holly Plantation, Inc. Delaware
Murphy Properties, Inc. Delaware
Alumax Asia Limited Hong Kong
Alumax Asia Pacific Pty. Limited Australia
Alumax de Mexico, S.A. de C.V. Mexico
Alumax Europe N.V. Belgium
Alumax Extrusions Australia Pty. Limited Australia
Alumax Extrusions B.V. The Netherlands
Alumax Extrusions Limited United Kingdom
Alumax Extrusions Mexico, S.A. de C.V. Mexico
Alumax Holdings B.V. The Netherlands
Alumax Holdings de Mexico, S.A. de C.V. Mexico
Alumax Holdings S.A. France
Alumax PD Holdings Pte Ltd. (50% Shareholder) Singapore
Alumax Polska Sp. zo.o. Poland
Alumax Recycling B.V. The Netherlands
Alumax S.A. Spain
Alumax U.K. Limited United Kingdom
Aluminerie Lauralco, Inc. Delaware
Amax Asia, Inc. Delaware
Asesoria Mexicana Empresarial, S.A. de C.V. Mexico
Comercializadora Alumax Extrusions
Mexico, S.A. de C.V. Mexico
Honduras-Rosario Mining Company Delaware
Intalco Aluminum Company, Ltd. Alberta, Canada
Kawneer Deutschland G.m.b.H. Germany
Kawneer Company Canada Limited Ontario, Canada
Kawneer Europe B.V. The Netherlands
Kawneer France S.A. France
Kawneer Installations Limited Ontario, Canada
Kawneer Maroc S.A. (75% Shareholder) Morocco
Kawneer Polska Sp. zo.o. Poland
Kawneer U.K. Limited United Kingdom
Lauralco Quebec, Inc. Delaware
Lauralco Superieur, Inc. Delaware
Lauralco Trois-Rivieres, Inc. Delaware
Rosario Mining of Nicaragua, Inc. Delaware
Rosario Properties, Inc. Delaware
Rosario Resources Corporation New York
The Durango Corporation Delaware
The Fresnillo Company, Inc. New York
Yunnan Xinmeilu Aluminum Foil Col., Ltd. (56% Shareholder) China
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Alumax Inc. on Form S-8 (File Nos. 33-83006, 33-83008, 33-83010,
33-86338, 333-26511 and 333-39079) of our report dated January 27, 1998, on our
audits of the consolidated financial statements and financial statement
schedule of Alumax Inc. as of December 31, 1997 and 1996, and for the years
ended December 31, 1997, 1996, 1995, which report is included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
February 6, 1998
<PAGE> 1
EXHIBIT 24.01
POWER OF ATTORNEY
WITH RESPECT TO ANNUAL REPORT ON FORM 10-K
UNDER THE SECURITIES EXCHANGE ACT OF 1934
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and
directors, individually and collectively, hereby constitute and appoint Allen
Born, Helen M. Feeney, and Michael T. Vollkommer, and each of them, their true
and lawful attorneys and agents to execute and deliver on behalf of any one or
more of them, in any one or more of their various capacities as officer or
director of the registrant, the Alumax Inc. Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, and any and all required amendments and
supplements thereto, filed with the Securities and Exchange Commission pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
undersigned and each of them hereby ratifying and confirming all that said
attorneys and agents, and each of them, shall do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has signed his or her name
hereto on the date set opposite his or her name.
February 5, 1998 /s/ Allen Born
----------------------------------------------------
Allen Born, as Chairman, Chief Executive Officer
and Director (Principal Executive Officer)
February 5, 1998 /s/ Michael T. Vollkommer
----------------------------------------------------
Michael T. Vollkommer, as Vice President and
Chief Financial Officer (Principal Financial Officer)
February 5, 1998 /s/ Kevin J. Krakora
---------------------------------------------
Kevin J. Krakora, as Vice President and Controller
(Principal Accounting Officer)
<PAGE> 2
February 5, 1998 /s/ J. Dennis Bonney
---------------------------------------------
J. Dennis Bonney, as Director
February 5, 1998 /s/ Harold Brown
---------------------------------------------
Harold Brown, as Director
February 5, 1998 /s/ L. Don Brown
---------------------------------------------
L. Don Brown, as Director
February 5, 1998 /s/ Pierre Des Marais II
---------------------------------------------
Pierre Des Marais II, as Director
February 5, 1998 /s/ James C. Huntington Jr.
---------------------------------------------
James C. Huntington Jr., as Director
February 5, 1998 /s/ W. Loeber Landau
---------------------------------------------
W. Loeber Landau, as Director
February 5, 1998 /s/ Paul W. MacAvoy
---------------------------------------------
J. Paul W. MacAvoy, as Director
February 5, 1998 /s/ Anne Wexler
---------------------------------------------
Anne Wexler, as Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K OF ALUMAX INC FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 27
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<RECEIVABLES> 500
<ALLOWANCES> 13
<INVENTORY> 534
<CURRENT-ASSETS> 1,166
<PP&E> 3,347
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<CURRENT-LIABILITIES> 412
<BONDS> 956
0
0
<COMMON> 1
<OTHER-SE> 1,621
<TOTAL-LIABILITY-AND-EQUITY> 3,453
<SALES> 2,931
<TOTAL-REVENUES> 2,931
<CGS> 2,234
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<INCOME-PRETAX> 237
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<EPS-DILUTED> 0.60
</TABLE>
