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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
--------------
Commission File No. 0-25642
COMMONWEALTH INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3245741
(State of incorporation) (I.R.S. Employer Identification No.)
500 West Jefferson Street
19th Floor
Louisville, Kentucky 40202-2823
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 589-8100
----------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
The registrant had 15,949,000 shares of common stock outstanding at May 1, 1999.
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<PAGE>
COMMONWEALTH INDUSTRIES, INC.
FORM 10-Q
For the Quarter Ended March 31, 1999
INDEX
Part I - Financial Information
Item 1. Financial Statements (unaudited) Page Number
Condensed Consolidated Balance Sheet as of March 31, 1999
and December 31, 1998 3
Condensed Consolidated Statement of Income for the three
months ended March 31, 1999 and 1998 4
Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition 9-12
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(in thousands except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,551 $ 6
Accounts receivable, net 261 228
Inventories 171,248 174,968
Prepayments and other current assets 45,271 25,367
-------------- -------------
Total current assets 221,331 200,569
Property, plant and equipment, net 272,288 269,837
Goodwill, net 167,967 169,086
Other noncurrent assets 8,773 8,907
-------------- -------------
Total assets $ 670,359 $ 648,399
============== =============
Liabilities
Current liabilities:
Outstanding checks in excess of deposits $ - $ -
Accounts payable 70,052 54,244
Accrued liabilities 35,254 31,133
-------------- -------------
Total current liabilities 105,306 85,377
Long-term debt 125,000 125,000
Other long-term liabilities 8,708 8,859
Accrued pension benefits 16,340 15,930
Accrued postretirement benefits 86,942 86,704
-------------- -------------
Total liabilities 342,296 321,870
-------------- -------------
Commitments and contingencies - -
Stockholders' Equity
Common stock, $0.01 par value, 50,000,000 shares authorized,
15,949,000 and 15,944,000 shares outstanding at
March 31, 1999 and December 31, 1998, respectively 159 159
Additional paid-in capital 398,838 398,794
Accumulated deficit (68,252) (69,621)
Unearned compensation (551) (672)
Accumulated other comprehensive income:
Minimum pension adjustment (2,131) (2,131)
-------------- -------------
Total stockholders' equity 328,063 326,529
-------------- -------------
Total liabilities and stockholders' equity $ 670,359 $ 648,399
============== =============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Income
(in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Net sales $ 238,750 $ 248,927
Cost of goods sold 217,868 230,486
--------------- --------------
Gross profit 20,882 18,441
Selling, general and administrative expenses 11,962 10,232
Amortization of goodwill 1,119 1,119
--------------- --------------
Operating income 7,801 7,090
Other income (expense), net 425 325
Interest expense, net (5,299) (5,666)
--------------- --------------
Income before income taxes 2,927 1,749
Income tax expense (benefit) 761 (1,045)
--------------- --------------
Net income $ 2,166 $ 2,794
=============== ==============
Basic and diluted net income per share $ 0.14 $ 0.18
=============== ==============
Weighted average shares outstanding
Basic 15,949 15,947
Diluted 15,976 15,956
Dividends paid per share $ 0.05 $ 0.05
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Condensed Consolidated Statement of Cash Flow
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,166 $ 2,794
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 8,786 8,508
Issuance of common stock in connection with stock awards 44 72
Loss on disposal of property, plant and equipment - 5
Changes in assets and liabilities:
(Increase) in accounts receivable, net (33) (22)
Decrease (increase) in inventories 3,720 (13,638)
(Increase) in prepayments and other current assets (19,904) (229)
(Increase) in other noncurrent assets (166) (76)
Increase in accounts payable 15,808 7,154
Increase in accrued liabilities 4,121 4,498
Increase in other liabilities 497 1,204
------------ -----------
Net cash provided by operating activities 15,039 10,270
------------ -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (9,697) (6,690)
------------ -----------
Net cash (used in) investing activities (9,697) (6,690)
------------ -----------
Cash flows from financing activities:
(Decrease) in outstanding checks in excess of deposits - (6,658)
Proceeds from long-term debt 23,150 4,525
Repayments of long-term debt (23,150) (650)
Cash dividends paid (797) (797)
------------ -----------
Net cash (used in) financing activities (797) (3,580)
------------ -----------
Net (decrease) in cash and cash equivalents 4,545 -
Cash and cash equivalents at beginning of period 6 -
------------ -----------
Cash and cash equivalents at end of period $ 4,551 $ -
============ ===========
Supplemental disclosures:
Interest paid $ 1,548 $ 2,264
Income taxes paid 188 379
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
COMMONWEALTH INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying condensed consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all the disclosures normally required by generally accepted accounting
principles. The condensed consolidated financial statements have been prepared
in accordance with Commonwealth Industries, Inc.'s (the "Company's") customary
accounting practices and have not been audited. In the opinion of management,
all adjustments necessary to fairly present the results of operations for the
reporting interim periods have been made and were of a normal recurring nature.
2. Inventories
Effective January 1, 1999, the Company changed its inventory accounting method
for certain inventories from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method and modified the LIFO calculation for the
inventories historically recorded under the LIFO method. The Company believes
the adoption of the LIFO method for all aluminum sheet inventories is preferable
as LIFO is the inventory method most prevalent in the industry, provides a
consistent inventory accounting method for aluminum sheet inventories, and
results in more appropriate matching of cost of goods sold with related
revenues.
The effect of this change in accounting principle was to increase net income
reported for the three months ended March 31, 1999 by $1.2 million, or $0.07 per
basic and diluted share. The Company has omitted the disclosure of the
cumulative effect of this change on retained earnings as of the date of the
change and the pro forma effects of retroactive application due to such amounts
not being determinable.
(in thousands) March 31, 1999 December 31, 1998
- -------------- --------------- -----------------
Raw materials $ 31,579 $ 34,908
Work in process 64,528 74,960
Finished goods 56,089 49,079
Expendable parts and supplies 15,288 14,910
---------- ----------
167,484 173,857
LIFO reserve 10,077 3,659
---------- ----------
177,561 177,516
Lower of cost or market reserve (6,313) (2,548)
---------- ----------
$ 171,248 $ 174,968
========= =========
Inventories of approximately $136.7 million and $38.1 million, included in the
above totals (before the LIFO reserve and lower of cost or market reserve) at
March 31, 1999 and December 31, 1998, respectively, are accounted for under the
LIFO method of accounting while the remainder of the inventories are accounted
for under the FIFO and average-cost methods.
On March 31, 1999, the Company had deferred realized losses of $2.6 million on
closed futures contracts which are recorded as an increase to the carrying value
of inventory. The Company had deferred realized losses of $2.2 million at
December 31, 1998.
3. Provision for Income Taxes
The effective income tax rate for the quarter ended March 31, 1999 is less than
the the rate for the quarter ended March 31, 1998 primarily due to a $1.5
million favorable adjustment recorded in the first quarter of 1998 to the prior
year's tax expense. The adjustment resulted from the filing of amended federal
income tax returns for prior years.
<PAGE>
4. Net Income Per Share Computations
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:
<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
Income (numerator) amounts used for basic and diluted per share computations:
Net income $2,166 $2,794
====== ======
Shares (denominator) used for basic per share computations:
Weighted average shares of common stock outstanding 15,949 15,947
====== ======
Shares (denominator) used for diluted per share computations:
Weighted average shares of common stock outstanding 15,949 15,947
Plus: dilutive effect of stock options 27 9
------ ------
Adjusted weighted average shares 15,976 15,956
====== ======
Net income per share data:
Basic and diluted $0.14 $0.18
===== =====
Options to purchase 563,000 and 281,500 common shares for the three months ended
March 31, 1999 and 1998, respectively, were excluded from the calculations above
because the exercise prices on the options were greater than the average market
price for the periods.
</TABLE>
5. Information Concerning Business Segments
The Company has adopted Statement of Financial Accounting Standards No.131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"). Under SFAS No. 131, the Company has determined it has two reportable
segments: aluminum and electrical conduit. The aluminum segment manufactures
aluminum sheet for distributors and the transportation, construction, and
consumer durables end-use markets. The electrical conduit segment manufactures
flexible electrical wiring products for the commercial and do-it-yourself
markets.
The accounting policies of the reportable segments are the same as those
described in Note 1, "Basis of Presentation and Summary of Significant
Accounting Policies" in the Company's annual report to stockholders for the year
ended December 31, 1998. All intersegment sales prices are market based. The
Company evaluates the performance of its operating segments based upon operating
income.
The Company's reportable segments are strategic business units that offer
different products to different customer groups. They are managed separately
because each business requires different technology and marketing strategies.
Summarized financial information concerning the Company's reportable segments is
shown in the following table for the three months ended March 31, 1999 and 1998.
The "Other" column includes corporate related items, including elimination of
intersegment transactions, and as it relates to segment operating income, income
and expense not allocated to reportable segments.
<PAGE>
5. Information Concerning Business Segments (continued)
<TABLE>
<CAPTION>
Electrical
Aluminum Conduit Other Total
-------- ---------- ------- -----------
<S> <C> <C> <C> <C>
Three months ended March 31, 1999
- ---------------------------------
Net sales to external customers $208,844 $ 29,906 $ -- $238,750
Intersegment net sales 6,128 -- (6,128) --
Operating income 7,599 2,499 (2,297) 7,801
Depreciation and amortization 7,791 874 121 8,786
Total assets 565,074 105,119 166 670,359
Capital expenditures 6,963 2,734 -- 9,697
Three months ended March 31, 1998
- ---------------------------------
Net sales to external customers $218,234 $ 30,693 $ -- $248,927
Intersegment net sales 6,476 -- (6,476) --
Operating income 4,912 4,346 (2,168) 7,090
Depreciation and amortization 7,628 778 102 8,508
Total assets 582,675 96,865 125 679,665
Capital expenditures 6,194 496 -- 6,690
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains statements which are forward-looking rather
than historical fact. These forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and involve risks and uncertainties that could render them materially different,
including, but not limited to, the effect of global economic conditions, the
impact of competitive products and pricing, product development and
commercialization, availability and cost of critical raw materials, the rate of
technological change, product demand and market acceptance risks, capacity and
supply constraints or difficulties, and other risks detailed in the Company's
various Securities and Exchange Commission filings.
Overview
The Company manufactures non-heat treat coiled aluminum sheet for distributors
and the transportation, construction and consumer durables end use markets and
electrical flexible conduit and prewired armored cable for the non-residential
construction and renovation markets. The Company's principal raw materials are
aluminum scrap, primary aluminum, copper and steel. Trends in the demand for
aluminum sheet products in the United States and in the prices of aluminum
primary metal, aluminum scrap and copper commodities affect the business of the
Company. The Company's operating results also are affected by factors specific
to the Company, such as the margins between selling prices for its products and
its cost of raw material ("material margins") and its unit cost of converting
raw material into its products ("conversion cost"). While changes in aluminum
and copper prices can cause the Company's net sales to change significantly from
period to period, net income is more directly impacted by the fluctuation in
material margins.
During the first quarter of 1999, shipments of the Company's aluminum sheet
products increased by 9% from the first quarter of 1998. While overall demand
for aluminum sheet products remained strong, material margins for the first
quarter of 1999 declined from the fourth quarter of 1998 levels due to
seasonally tighter scrap spreads. The Company increased its maintenance spending
in its aluminum operations during the first quarter of 1999, especially in the
hot mill department, to support higher volumes, increase machine reliability,
and increase the probability of excellent quality and service to the Company's
customers.
Demand for the Company's electrical conduit and cable products continued to
exceed the Company's capacity to supply these products during the first quarter
of 1999. Despite this strength in demand, the material margins for the Company's
electrical conduit and cable products came under pressure during the first
quarter and are below the levels achieved last year. While the Company has been
adding additional electrical cable armoring capacity since the second quarter of
1997, this capacity only reached full production in the latter part of 1998 due
to substantial labor turnover and the time involved in employee skills training.
The strong market for electrical conduit also allowed the Company to concentrate
on higher margin products during the first quarter of 1999, even though net
dollar sales volume was down slightly from the prior year due to lower aluminum
and copper prices. Value added products such as MC cable represented a higher
ratio of Alflex's first quarter 1999 sales compared to the same period in the
prior year. In addition, the Company announced in the fourth quarter of 1998 the
decision to open a new plant in Rocky Mount, North Carolina during the second
quarter of 1999. This move will increase production and enhance the Company's
competitive position by placing that capacity closer to attractive markets along
the eastern United States.
Results of Operations for the three months ended March 31, 1999 and 1998
Net Sales. Net sales for the quarter ended March 31, 1999, decreased 4% to $239
million (including $29.9 million from Alflex) from $249 million (including $30.7
million from Alflex) for the same period in 1998. The decrease is due to lower
aluminum and copper prices in spite of higher shipments. Unit sales volume of
aluminum increased 10% to 239.8 million pounds for the first quarter of 1999
from 218.9 million pounds for the first quarter of 1998. Alflex unit sales
volume was 135.0 million feet for the first quarter of 1999 versus 125.6 million
feet for the comparable period in 1998.
Gross Profit. Gross profit for the quarter ended March 31, 1999, increased to
$20.9 million from $18.4 million for the same period in 1998. This increase was
attributable to increased sales volumes. The Company's unit manufacturing costs
decreased compared to the same period in 1998 as a result of the higher volumes
and material margins were higher in the first quarter of 1999 than in the first
quarter of 1998.
Operating Income. The Company produced operating income of $7.8 million for the
first quarter of 1999 compared with $7.1 million for the first quarter of 1998.
Selling, general and administrative expenses during the first quarter of 1999
were $12.0 million, compared with $10.2 million for the same period in 1998. The
increase was primarily due to increases at Alflex associated with higher sales
volume and the infrastructure required to support the growth of this business.
Net Income. Net income was $2.2 million for the quarter ended March 31, 1999,
compared with $2.8 million for the same period in 1998. Interest expense was
$5.3 million for the quarter ended March 31, 1999 compared to $5.7 million for
the first quarter of 1998. The decrease in the Company's interest expense is
primarily due to the reduction in amounts outstanding under the Company's
accounts receivable securitization facility. Income tax expense was $0.8 million
in the first quarter of 1999 compared to an income tax benefit of $1.0 million
for the same period in 1998. The change is primarily due to a $1.5 million
favorable adjustment recorded in the first quarter of 1998 to the prior year's
tax expense. The adjustment resulted from the filing of amended federal income
tax returns for prior years.
Liquidity and Capital Resources
The Company's sources of liquidity are cash flows from operations, the Company's
accounts receivable securitization facility described below and borrowings under
its $100 million revolving credit facility. The Company believes these sources
will be sufficient to fund its working capital requirements, capital
expenditures, debt service and dividend payments at least through 1999.
On September 26, 1997, the Company sold all of its trade accounts receivables to
a 100% owned subsidiary, Commonwealth Financing Corp. ("CFC"). Simultaneously,
CFC entered into a three-year accounts receivable securitization facility with a
financial institution and its affiliate, whereby CFC sells, on a revolving
basis, an undivided interest in certain of its receivables and receives up to
$150.0 million from an unrelated third party purchaser at a cost of funds linked
to commercial paper rates plus a charge for administrative and credit support
services. At March 31, 1999, the Company had outstanding $120.0 million under
the agreement and had $37.3 million of net residual interest in the securitized
receivables. The net residual interest in the securitized receivables is
included in other current assets in the Company's consolidated financial
statements.
Capital expenditures were $9.7 million during the quarter ended March 31, 1999.
At March 31, 1999, the Company had commitments of $7.0 million for the purchase
or construction of capital assets. Total capital expenditures for the year 1999
are expected to be approximately $36 million, all generally related to upgrading
and expanding the Company's manufacturing and other facilities, including the
completion of Alflex's new production and distribution facility in North
Carolina, and meeting environmental requirements.
Risk Management
The Company offers its customers multiple pricing methods, including fixed firm
prices. Purchases of metal for forward delivery as well as hedging with futures
contracts and options are used to reduce the Company's aggregate exposure to the
risk of changes in metal prices. This is accomplished by establishing at the
time of a customer's order a fixed margin between the cost of the metal and the
Company's product price to the customer. Gains and losses resulting from changes
in the market value of these futures contracts and options increase or decrease
cost of sales at the time of revenue recognition. At March 31, 1999, the Company
held purchase and sales commitments through 1999 totaling $70 million and $318
million, respectively. The Company held futures contracts, marked-to-market at
March 31, 1999, with a net unrealized loss of $4.8 million.
Before entering into futures contracts and options, the Company reviews the
credit rating of the counterparty and assesses any possible credit risk. While
the Company is exposed to certain losses in the event of non-performance by the
counterparties to these agreements, the Company does not anticipate
non-performance by such counterparties.
The Company has entered into interest rate swap agreements with a notional
amount of $51 million. With respect to these agreements, the Company pays a
fixed rate of interest and receives a LIBOR-based floating rate.
Year 2000 Readiness Disclosure
The Company is entering the final stages of a company-wide program to make its
computer systems year 2000 compliant. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a major system failure or miscalculations.
As of March 31, 1999, approximately 91 percent of the Company's core business
computer systems were Year 2000 compliant, with all computer systems, which
includes mainframe, server, desktop and portable computers, embedded systems, in
addition to the core business applications, expected to be compliant by the end
of the third quarter of 1999 as planned. The total cost of the program is
estimated to be $8.0 million, of which the Company has incurred approximately
$6.9 million through March 31, 1999, and is being funded through operating cash
flows. Maintenance or modification costs are expensed as incurred, while the
cost of systems being replaced is capitalized and amortized over the new
system's useful life. The Company presently believes that, with these
modifications and replacements, the Year 2000 issues will not pose significant
operational problems for the Company. However, if such modifications and
replacements in critical operations are not completed timely, the Year 2000
issues may have a material impact on the results of operations or financial
condition of the Company.
The Company recognizes the importance of readiness for potential worst case
scenarios relating to the Year 2000 issues. The Company is working to identify
scenarios requiring contingency plans and is assessing the Year 2000 compliance
efforts of external parties. The Company relies on a number of customers and
suppliers, including banks, telecommunication providers, utilities, and other
providers of goods and services. The inability of these third parties to conduct
their business for a significant period of time due to the Year 2000 issue could
have a material adverse impact on the Company's operations. The Company is
currently assessing the Year 2000 readiness of its most critical customers and
suppliers and planning a due diligence study of those customers and suppliers.
There can be no assurance that the systems of other companies that interact with
the Company will be sufficiently Year 2000 compliant. If a major supplier or
customer is unable to supply raw materials or receive the Company's products,
the Company's results of operations or financial condition could be materially
impacted.
The Company has notified recipients of previously made Year 2000 statements that
these statements, and any other Year 2000 statements released by the Company,
are retroactively identified and labeled in their entirety as Year 2000
Readiness Disclosures pursuant to Section 7(b) of the Year 2000 Information and
Readiness Disclosure Act of 1998. By doing so, these prior statements are
relieved from tort liability.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). The Statement establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in net income unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company will
adopt SFAS No. 133 in the Company's first quarter 2000 reporting as required.
Management is currently evaluating the impact of SFAS No. 133 on the Company's
future financial reporting.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to non-environmental legal proceedings and administrative
actions all of which are of an ordinary routine nature incidental to the
operations of the Company. Although it is impossible to predict the outcome of
any legal proceeding, in the opinion of management such proceedings and actions
should not, individually or in aggregate, have a material adverse effect on the
Company's financial condition, results of operations or cash flows, although
resolution in any year or quarter could be material to the results of operation
for that period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 1995 Stock Incentive Plan as amended and restated on April 23, 1999.
10.2 1997 Stock Incentive Plan as amended and restated on April 23, 1999.
10.3 1999 Executive Incentive Plan.
10.4 Supply agreement by and among Commonwealth Aluminum
Corporation, IMCO Recycling of Ohio Inc. and IMCO
Recycling Inc., effective as of April 1, 1999.
18 PricewaterhouseCoopers LLP letter regarding change in accounting
principle.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMONWEALTH INDUSTRIES, INC.
By: /s/ Donald L. Marsh, Jr.
------------------------
Donald L. Marsh, Jr.
Executive Vice President, Chief Financial
Officer and Secretary
Date: May 3, 1999
<PAGE>
Exhibit Index
Exhibit
Number Description
10.1 1995 Stock Incentive Plan as amended and restated on April23, 1999.
10.2 1997 Stock Incentive Plan as amended and restated on April 23, 1999.
10.3 1999 Executive Incentive Plan.
10.4 Supply agreement by and among Commonwealth Aluminum
Corporation, IMCO Recycling of Ohio Inc. and IMCO Recycling
Inc., effective as of April 1, 1999.
18 PricewaterhouseCoopers LLP letter regarding change in accounting
principle.
27 Financial Data Schedule.
COMMONWEALTH INDUSTRIES, INC.
1995 Stock Incentive Plan
As Amended and Restated on April 23, 1999
1. General. Pursuant to the terms and conditions of the
Commonwealth Industries, Inc. (formerly Commonwealth Aluminum Corporation) 1995
Stock Incentive Plan (the "Plan") hereinafter set forth, the Committee specified
in Section 2 from time to time granted or awarded to eligible employees (a)
options to purchase shares of the Common Stock, par value $.01 per share
("Common Stock"), of Commonwealth Industries, Inc. (the "Corporation") and (b)
restricted Common Stock. Options to purchase Common Stock also were granted to
non-employee directors of the Corporation in accordance with Section 16 of the
Plan. No further grants or awards shall be made under the Plan after April 17,
1997.
The purpose of the Plan is to enhance the ability of the
Corporation and its subsidiaries to attract and retain employees and directors
of outstanding ability and to provide employees and directors with an interest
in the Corporation parallel to that of the Corporation's stockholders.
2. Administration. The Plan shall be administered by the
Management Development and Compensation Committee of the Board of Directors (the
"Board") of the Corporation, or any successor committee appointed by the Board
(the "Committee"); which Committee shall at all times consist of two or more
directors, each of whom is a "Non-Employee Director" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act").
The Committee shall have full and final authority, in each
case subject to and consistent with the provisions of the Plan, to determine the
type, number and other terms and conditions of, and all matters relating to,
grants and awards, to prescribe grant and award agreements and rules and
regulations for the administration of the Plan and such agreements, to construe
and interpret the Plan and grant and award agreements and to correct defects,
supply omissions or reconcile inconsistencies therein, and to make all other
decisions and determinations as the Committee may deem necessary or advisable
for the administration of the Plan.
Any action of the Committee shall be final, conclusive and
binding on all persons, including the Corporation and its subsidiaries and
stockholders, employees of the Corporation or its subsidiaries who have received
grants or awards ("Participants") and persons claiming rights from or through a
Participant.
NY12524: 24220.11
-1-
<PAGE>
The Committee may delegate to officers or managers of the
Corporation or any subsidiary, or committees thereof, and to service providers,
the authority, subject to such terms as the Committee shall determine, to
perform administrative functions with respect to the Plan and grant and award
agreements.
The Committee and each member thereof shall be entitled to, in
good faith, rely or act upon any report or other information furnished to the
Committee by any officer or employee of the Corporation or a subsidiary, the
Corporation's independent public accountants or any other adviser, consultant or
service provider assisting in the administration of the Plan. Members of the
Committee and any officer or employee of the Corporation or a subsidiary acting
at the direction of, or on behalf of, the Committee shall not be personally
liable for any action or determination taken or made in good faith with respect
to the Plan, and shall, to the extent permitted by law, be fully indemnified by
the Corporation with respect to any such action or determination.
3. Eligibility. Individuals eligible to receive awards under
the Plan were the officers and other key employees of the Corporation and its
subsidiaries selected by the Committee and all non-employee directors. However,
except as provided in Section 16 hereof, no grant or award was made to a
director who was not an employee of the Corporation or its subsidiaries.
4. Shares Subject to the Plan. The total of the number of
shares of Common Stock which may be acquired upon the exercise of options
granted under the Plan and the number of shares of Common Stock awarded as
restricted Common Stock under the Plan shall not exceed 600,000; provided, that
for purposes of this limitation any option which is canceled or expires without
exercise, and any restricted Common Stock which is forfeited to the Corporation
pursuant to the terms of the award thereof, shall thereafter be deemed not to
have been granted or awarded. No employee shall be granted in any calendar year
options to purchase more than 100,000 shares of Common Stock. Shares of Common
Stock available for issue or distribution under the Plan shall be authorized and
unissued shares or shares acquired by the Corporation and held in treasury.
5. Stock Options. The Committee from time to time granted
options under the Plan to eligible employees. None of the options granted were
intended to be incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986.
The Committee established the option price at the time each
option was granted. The option price was not less than the fair market value of
the Common Stock on the date of grant.
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<PAGE>
Unless otherwise determined by the Committee, the fair market
value of the Common Stock, as used in this Section 5 and elsewhere in the Plan,
as of any given date shall be the mean between the highest and lowest reported
sales prices on that date of the Common Stock on the New York Stock Exchange
Composite Tape or, if not listed on such exchange, on any other national
securities exchange on which the Common Stock is listed or on NASDAQ, or, if no
Common Stock was traded on that date, on the next preceding day on which there
was such a trade.
Except as otherwise provided herein, options granted shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee, but in no event may options be exercisable
for a period of more than 10 years after their date of grant. The Committee may
alter or waive, at any time, any term or condition of an option that is not
mandatory under the Plan.
The option price of each share as to which an option is
exercised shall be paid in full at the time of such exercise. The payment shall
be made (a) in cash, (b) by surrender of shares of Common Stock owned by the
holder of the option for at least six months prior to exercise of the option,
(c) to the extent authorized by the Committee, by surrender of shares of Common
Stock owned by the holder of the option for less than six months prior to the
exercise of the option (including shares of Common Stock otherwise receivable
upon exercise of the option), (d) through simultaneous sale through a broker of
shares acquired upon exercise, as permitted under Regulation T of the Federal
Reserve Board, (e) through additional methods prescribed by the Committee or (f)
by a combination of any such methods. Any shares of Common Stock so delivered in
payment shall be valued at their fair market value on the exercise date, or on
such other date as determined by the Committee for administrative convenience.
Except as otherwise determined by the Committee at or
subsequent to grant, any option granted to an employee and outstanding at the
time of the termination of employment of that employee shall remain exercisable
as follows:
(a) In the event of the termination of employment of the
employee by reason of retirement on or after normal retirement date
pursuant to a retirement plan of the Corporation or any of its
subsidiaries or total and permanent disability, the holder may, at any
time within one year after that termination, but not later than the
date of expiration of the option, exercise the option to the same
extent, if any, as the option was exercisable at the date of
termination under the terms of the option. The option shall expire upon
the termination of employment to the extent it was not then
exercisable, and otherwise upon the earlier of the expiration of the
one-year period or the date of expiration of the option.
(b) In the event of the termination of employment by reason of
death of the employee, any person or persons (including the legal
representatives of the
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<PAGE>
estate of the employee) who is the holder of the option or to whom the
option shall pass by will or by the laws of descent and distribution
may, at any time within one year after the date of death but not later
than the date of expiration of the option, exercise the option to the
same extent, if any, as the option was exercisable at the date of death
under the terms of the option. The option shall expire on the date of
death to the extent it was not then exercisable, and otherwise upon the
expiration of the earlier of the one-year period or the date of
expiration of the option.
(c) In the event of the termination of employment for any
reason other than retirement, disability or death as aforesaid, the
option shall expire upon the termination of employment.
For purposes of the Plan a leave of absence, authorized in
writing by the Corporation or a subsidiary of the Corporation, for military
service or illness, or for any other purpose if the period of such leave does
not exceed 90 days, or for any other purpose if the leave exceeds 90 days but
reemployment is guaranteed by law or contract, shall not be deemed a termination
of employment.
No option may be transferred except by will or the laws of
descent and distribution, provided that the Committee may determine that an
option may be transferred pursuant to a qualified domestic relations order
within the meaning of Section 414(p) of the Code or by a Participant to one or
more members of the Participant's immediate family, or to trusts or partnerships
or limited liability companies established for such family members. For this
purpose, immediate family means, except as otherwise defined by the Committee,
the Participant's children, stepchildren, grandchildren, parents, stepparents,
grandparents, spouse, siblings (including half brothers and sisters), in-laws
and persons related by reason of legal adoption. Such transferees may transfer
an option only by will or the laws of descent or distribution. An option
transferred pursuant to this paragraph shall remain subject to the provisions of
the Plan, including, but not limited to, the provisions of this Section 5
relating to the exercise of the option upon the termination of employment of the
Participant and shall be subject to such other rules as the Committee shall
determine. Except in the case of a holder's incapacity, an option shall be
exercisable only by the holder thereof.
6. Restricted Common Stock. The Committee from time to time
awarded to eligible employees restricted Common Stock. The employment conditions
and the length of the period for vesting of restricted Common Stock were
established by the Committee at the time of award, except that each restriction
period was and shall be not less than 12 months.
Except as restricted under the terms of the Plan and any
agreement related to the restricted Common Stock, a Participant awarded
restricted Common Stock has all
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<PAGE>
the rights of a stockholder including, without limitation, the right to vote
restricted Common Stock.
If a stock certificate is issued in respect of shares of
restricted Common Stock, the certificate shall be registered in the name of the
Participant but shall be held by the Corporation for the account of the employee
until the end of the restriction period.
7. Change in Control. In the event of a Change in Control,
as hereafter defined:
(a) Any option outstanding as of the date such Change in
Control is determined to have occurred and not then exercisable in full shall
become fully exercisable; and
(b) The restrictions applicable to all shares of restricted
Common Stock shall lapse and such shares shall be deemed fully vested.
A "Change in Control" means the occurrence of any of the
following events:
(a) individuals who on April 17, 1997 constitute the Board
together with those individuals who first become directors after that date
(other than as a result of an actual or threatened election contest for
directors or an actual or threatened solicitation of proxies or consents by or
on behalf of any person other than the Board) and whose election or nomination
for election to the Board was approved by a vote of at least two-thirds of the
directors then in office who either were directors on April 17, 1997 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;
(b) any person (as defined in Section 3(a)(9) and used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) ("Person"), other than the
Corporation, a subsidiary of the Corporation, an employee benefit plan sponsored
or maintained by the Corporation or a subsidiary of the Corporation or an
underwriter temporarily holding securities pursuant to an offering of such
securities, becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act)("Beneficial Owner") of securities of the Corporation representing
20% or more of the combined voting power of the Corporation's then outstanding
securities eligible to vote for the election of directors (the "Corporation
Voting Securities") unless the Person became such a Beneficial Owner as a result
of a purchase of Corporation Voting Securities directly from the Corporation in
a transaction approved by a majority of the Continuing Directors or pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of paragraph (c)
of this definition;
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<PAGE>
(c) the approval by the stockholders of the Corporation of a
reorganization, merger, consolidation, exchange of shares or sale or other
disposition of all or substantially all the assets of the Corporation, or the
consummation of any such transaction if stockholder approval is not required or
obtained, other than any such transaction pursuant to which (i) the Beneficial
Owners of the Corporation Voting Securities outstanding immediately prior to the
transaction will be the Beneficial Owners of more than 60% of the outstanding
securities eligible to vote for the election of directors of the corporation
resulting from such transaction or of any corporation of which such corporation
is a wholly-owned subsidiary ("Parent Corporation"), (ii) no Person, other than
the corporation resulting from such transaction or Parent Corporation, a
subsidiary of such corporation or Parent Corporation or an employee benefit plan
sponsored or maintained by such corporation or Parent Corporation or a
subsidiary thereof, will become the Beneficial Owner of securities of such
corporation or Parent Corporation representing 20% or more of the combined
voting power of the then outstanding securities eligible to vote for the
election of directors of such corporation or Parent Corporation except to the
extent that such ownership existed with respect to the Corporation Voting
Securities prior to such transaction and (iii) individuals who are Continuing
Directors will constitute at least a majority of the members of the board of
directors of the corporation resulting from the transaction or Parent
Corporation; or
(d) the approval by stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person acquires Beneficial Ownership of
more than 20% of the Corporation Voting Securities as a result of the
acquisition of Corporation Voting Securities by the Corporation which, by
reducing the number of Corporation Voting Securities outstanding, increases the
percentage of shares beneficially owned by such Person, provided that if a
Change in Control would occur as a result of such an acquisition by the
Corporation (if not for the operation of this sentence), and after the
Corporation's acquisition such Person becomes the Beneficial Owner of additional
Corporation Voting Securities that increases the percentage of outstanding
Corporation Voting Securities beneficially owned by such person, then a Change
in Control shall occur.
8. Grant or Award Agreement. Each grant or award under the
Plan shall be evidenced by an agreement setting forth the terms and conditions,
as determined by the Committee, which shall apply to such grant or award, in
addition to the terms and conditions specified in the Plan.
9. Withholding. The Corporation may deduct from any payment to
be made pursuant to the Plan the amount of any taxes required by law to be
withheld therefrom, or require a Participant to pay to the Corporation in cash
such amount required
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<PAGE>
to be withheld prior to the issuance or delivery of any shares of Common Stock
or the payment of cash under the Plan. Such taxes may be paid in cash, by
surrender of shares of Common Stock or with shares of Common Stock otherwise to
be issued or delivered to the Participant, or by a combination thereof, or in
any other manner satisfactory to the Committee. Any shares of Common Stock so
delivered shall be valued at the fair market value thereof on the day
immediately prior to exercise or payment of a grant or award.
10. No Right to Employment. Nothing contained in the Plan or
in any grant of award under the Plan shall confer upon any employee any right
with respect to the continuation of employment with the Corporation or any of
its subsidiaries, or interfere in any way with the right of the Corporation to
terminate his or her employment at any time. Nor shall anything contained in the
Plan confer upon any employee or other person any claim or right to any grant or
award under the Plan.
11. Governmental Compliance. Each grant and award under the
Plan shall be subject to the requirement that if at any time the Committee shall
determine that the listing, registration or qualification of any shares issuable
or deliverable thereunder upon any securities exchange or under any Federal or
state law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition thereof or in connection therewith, such
grant or award may not be exercised and no shares may be delivered upon the
exercise or payment thereof unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Committee.
The Committee may require any person acquiring shares pursuant
to a grant or award to represent to and agree with the Corporation that such
person is acquiring the shares for investment and without a view to the
distribution thereof.
All certificates for shares of Common Stock delivered under
the Plan pursuant to a grant or award shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under any
federal or state law or regulation or the requirements of any stock exchange or
NASDAQ, and the Committee may cause a legend or legends to be endorsed upon any
such certificate to make reference to such restrictions.
It is intended that the Plan satisfy the requirements of Rule
16b-3 under the Exchange Act so that Participants will be entitled to the
benefit of that Rule or any other rule promulgated under Section 16 of the
Exchange Act and will not be subject to short-swing liability under Section 16.
Accordingly, if the operation of any provision of the Plan would conflict with
this intent, such provision to the extent possible shall be interpreted or
deemed amended so as to avoid such conflict.
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<PAGE>
12. Adjustments. In the event of any change in the outstanding
shares of Common Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spinoff, combination or exchange of
shares or other corporate change, or any distribution to holders of Common Stock
other than regular cash dividends, the number or kind of shares available for
options and awards under the Plan (including the calendar year limit on option
grants) may be adjusted by the Committee as it shall in its sole discretion deem
equitable and the number and kind of shares subject to any outstanding options
granted under the Plan and the purchase price thereof may be adjusted by the
Committee as it shall in its sole discretion deem equitable to preserve the
value of such outstanding options.
13. Amendment. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that (a) no amendment shall be
made without stockholder approval if such approval is necessary to satisfy any
applicable tax or regulatory law or regulation and the Board determines it is
appropriate to seek stockholder approval, and (b) upon or following the
occurrence of a Change in Control no amendment may adversely affect the rights
of any person in connection with a grant or award previously granted.
14. Governing Law. The Plan and any agreement evidencing a
grant or award shall be construed and its provisions enforced and administered
in accordance with the laws of the State of Delaware.
15. Effective Date. The Plan became effective on March 17,
1995. Subject to earlier termination pursuant to Section 13, the Plan shall have
a term of 10 years from its effective date.
16. Director Stock Options. Nonqualified options to purchase
1,000 shares of Common Stock (2,500 shares in the case of a non-employee
Chairman of the Board) were granted automatically to each director of the
Corporation who was a director but was not an employee of the Corporation or its
subsidiaries on the date of grant (a) upon the date such director joined the
Board and (b) on each succeeding January 1 through January 1, 1997. The option
price for each option was the fair market value of the Common Stock on the date
of grant of that option.
Each such option became exercisable one year from the date of
the grant thereof and shall terminate 10 years from the date of grant.
Except as expressly provided in this Section, any option
granted hereunder shall be subject to the terms and conditions of the Plan as if
the grant were made pursuant to Section 5 hereof.
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<PAGE>
17. No Rights Until Certificates Delivered. Except as
otherwise provided by the Committee in the applicable grant or award agreement,
no person shall have rights as a stockholder with respect to any shares of
Common Stock as a result of any grant or award until a certificate or
certificates evidencing such shares shall have been delivered to that person
and, subject to Section 12, no adjustment shall be made for dividends or
distributions or other rights in respect of any share for which the record date
is prior to the date on which such person shall become the holder of record
thereof.
NY12524: 24220.11
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COMMONWEALTH INDUSTRIES, INC.
1997 Stock Incentive Plan
As Amended and Restated April 23, 1999
1. Purpose. Pursuant to the terms and conditions of the
Commonwealth Industries, Inc. 1997 Stock Incentive Plan (the "Plan") hereinafter
set forth, the Committee specified in Section 2 may from time to time award to
eligible employees (a) options ("Options") to purchase shares of the Common
Stock, par value $.01 per share ("Common Stock"), of Commonwealth Industries,
Inc. (the "Company") and (b) restricted or unrestricted Common Stock. In
addition, Options and shares of Common Stock shall be granted to non-employee
directors of the Company as provided in Section 7. All such Options, restricted
and unrestricted Common Stock and shares are referred to herein as "Awards."
The purpose of the Plan is to enhance the ability of the
Company and its subsidiaries to attract and retain employees and directors of
outstanding ability and to provide employees and directors with an interest in
the Company parallel to that of the Company's stockholders.
2. Administration. The Plan shall be administered by the
Management Development and Compensation Committee of the Board of Directors (the
"Board") of the Company, or any successor committee appointed by the Board (the
"Committee"). It is intended that the Committee shall at all times consist of
two or more directors, each of whom is a non-employee director within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange
Act") and an outside director within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
The Committee shall have full and final authority, in each
case subject to and consistent with the provisions of the Plan, to select
employees of the Company or its subsidiaries who are to receive Awards, to make
Awards, to determine the type, number and other terms and conditions of, and all
matters relating to, Awards, to prescribe Award agreements and rules and
regulations for the administration of the Plan and such agreements, to construe
and interpret the Plan and Award agreements and to correct defects, supply
omissions or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee may deem necessary or advisable for the
administration of the Plan.
Any action of the Committee shall be final, conclusive and
binding upon all persons, including the Company and its subsidiaries and
stockholders, employees and directors who have been granted an Award
("Participants") and persons claiming rights from or through a Participant.
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NY12524: 25714.2
<PAGE>
The Committee may delegate to officers or managers of the
Company or a subsidiary of the Company, or committees thereof, and to service
providers, the authority, subject to such terms as the Committee shall
determine, to perform administrative functions with respect to the Plan and to
Award agreements.
The Committee and each member thereof shall be entitled, in
good faith, to rely or act upon any report or other information furnished to the
Committee by any officer or employee of the Company or a subsidiary of the
Company, the Company's independent public accountants or any other adviser,
consultant or service provider assisting in the administration of the Plan.
Members of the Committee and any officer or employee of the
Company or a subsidiary of the Company acting at the direction of, or on behalf
of, the Committee shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan or any Award agreement, and
shall, to the extent permitted by law, be fully indemnified by the Company with
respect to any such action or determination.
3. Eligibility. Individuals eligible to receive Awards shall
be the officers and other key employees of the Company and its subsidiaries
selected by the Committee and, solely as provided in Section 7, each member of
the Board who is not an employee of the Company or a subsidiary of the Company
("Non-Employee Director").
4. Shares Subject to the Plan. The maximum number of shares of
Common Stock available for the grant of Awards under the Plan shall be 2,600,000
(of which no more than 1,350,000 shares may be issued pursuant to Awards under
which a Participant may pay less for such shares than their Fair Market Value on
the date of purchase), subject to adjustment pursuant to Section 13 and to the
following provisions. If an Award granted under the Plan or the Company's 1995
Stock Incentive Plan ("1995 Plan") shall be canceled or expire without exercise
of the Award, the shares subject to such Award shall be added to the shares
available for Awards under the Plan. Any shares surrendered or withheld in
payment of the exercise price of an Option granted under the Plan or the 1995
Plan or in satisfaction of any tax liabilities resulting from an Award under the
Plan or the 1995 Plan, shall also be added to the number of shares available for
Awards under the Plan. Shares of Common Stock may be made available under the
Plan from authorized but unissued shares or from shares reacquired by the
Company.
The number of shares of Common Stock with respect to which
Options may be granted to any Participant during any calendar year shall not
exceed 100,000, subject to adjustment under Section 13.
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<PAGE>
5. Stock Options. The Committee may from time to time grant
Options under the Plan to eligible employees. Options may be either nonqualified
Options ("Nonqualified Stock Options") or Options which are intended to qualify
under Section 422 of the Code ("Incentive Stock Options").
The price at which shares may be purchased upon exercise of an
Option granted to an employee shall be fixed by the Committee, but shall be not
less than the Fair Market Value of the Common Stock on the day of grant.
Unless otherwise determined by the Committee, the "Fair Market
Value" of the Common Stock, as used in this Section 5 and elsewhere in the Plan,
as of any day, shall be the mean between the highest and lowest reported sales
price for that day of the Common Stock on the New York Stock Exchange Composite
Tape or, if not listed on such exchange, on any other national securities
exchange on which the Common Stock is listed or on NASDAQ, or, if no Common
Stock was traded on that day, on the next preceding day on which there was such
a trade.
Options granted to employees shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by the
Committee, but no Option shall be exercisable after the expiration of 10 years
from the date of grant. The Committee may alter or waive at any time any term or
condition of an Option that is not mandatory under the Plan.
The Option price of each share as to which an Option is
exercised shall be paid in full at the time of such exercise. The payment shall
be made (a) in cash, (b) by surrender of shares of Common Stock owned by the
holder of the Option for at least six months prior to exercise of the Option,
(c) to the extent authorized by the Committee, by surrender of shares of Common
Stock owned by the holder of the Option for less than six months prior to the
exercise of the Option (including shares of Common Stock otherwise receivable
upon exercise of the Option), (d) through simultaneous sale through a broker of
shares acquired upon exercise, as permitted under Regulation T of the Federal
Reserve Board, (e) through additional methods prescribed by the Committee or (f)
by a combination of any such methods. Any shares of Common Stock so delivered in
payment shall be valued at their Fair Market Value on the exercise date, or on
such other date as determined by the Committee for administrative convenience.
Except as otherwise determined by the Committee at or
subsequent to grant, any Option granted to an employee and outstanding at the
time of the termination of employment of that employee shall remain exercisable
as follows:
(a) In the event of the termination of employment of the
employee by reason of retirement on or after normal retirement date
pursuant to a retirement
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NY12524: 25714.2
<PAGE>
plan of the Company or any of its subsidiaries or total and permanent
disability, the holder may, at any time within one year after that
termination, but not later than the date of expiration of the Option,
exercise the Option to the same extent, if any, as the Option was
exercisable at the date of termination under the terms of the Option.
The Option shall expire upon the termination of employment to the
extent it was not then exercisable, and otherwise upon the earlier of
the expiration of the one-year period or the date of expiration of the
Option.
(b) In the event of the termination of employment by reason of
death of the employee, any person or persons (including the legal
representatives of the estate of the employee) who is the holder of the
Option or to whom the Option shall pass by will or by the laws of
descent and distribution may, at any time within one year after the
date of death but not later than the date of expiration of the Option,
exercise the Option to the same extent, if any, as the Option was
exercisable at the date of death under the terms of the Option. The
Option shall expire on the date of death to the extent it was not then
exercisable, and otherwise upon the expiration of the earlier of the
one-year period or the date of expiration of the Option.
(c) In the event of the termination of employment for any
reason other than retirement, disability or death as aforesaid, the
Option shall expire upon the termination of employment.
For purposes of the Plan a leave of absence, authorized in
writing by the Company or a subsidiary of the Company, for military service or
illness, or for any other purpose if the period of such leave does not exceed 90
days, or for any other purpose if the leave exceeds 90 days but reemployment is
guaranteed by law or contract, shall not be deemed a termination of employment.
No Option may be transferred except by will or the laws of
descent and distribution, provided that the Committee may determine that an
Option may be transferred pursuant to a qualified domestic relations order
within the meaning of Section 414(p) of the Code or by a Participant to one or
more members of the Participant's immediate family, or to trusts or partnerships
or limited liability companies established for such family members. For this
purpose, immediate family means, except as otherwise defined by the Committee,
the Participant's children, stepchildren, grandchildren, parents, stepparents,
grandparents, spouse, siblings (including half brothers and sisters), in-laws
and persons related by reason of legal adoption. Such transferees may transfer
an Option only by will or the laws of descent or distribution. An Option
transferred pursuant to this paragraph shall remain subject to the provisions of
the Plan, including, but not limited to, the provisions of this Section 5
relating to the exercise of the Option upon the termination of employment of the
Participant and shall be subject to such other rules as the
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<PAGE>
Committee shall determine. Except in the case of a holder's incapacity, an
Option shall be exercisable only by the holder thereof.
6. Restricted and Unrestricted Stock. The Committee may from
time to time award restricted or unrestricted Common Stock under the Plan to
eligible employees. Shares of restricted Common Stock may not be sold, assigned,
transferred or otherwise disposed of, or pledged or hypothecated as collateral
for a loan or as security for the performance of any obligation or for any other
purpose, for such period (the "Restricted Period") as the Committee shall
determine, except that the Restricted Period shall not be less than 12 months.
The Committee may define the Restricted Period in terms of the passage of time
or in any other manner it deems appropriate. The Committee may alter or waive at
any time any term or condition of restricted Common Stock that is not mandatory
under the Plan.
Unless otherwise determined by the Committee, upon termination
of a Participant's employment for any reason prior to the end of the Restricted
Period, the restricted Common Stock shall be forfeited and the Participant shall
have no right with respect to the Award.
Except as restricted under the terms of the Plan and any Award
agreement, any employee awarded restricted Common Stock shall have all the
rights of a stockholder including, without limitation, the right to vote
restricted Common Stock.
If a stock certificate is issued in respect of shares of
restricted Common Stock, the certificate shall be registered in the name of the
employee but shall be held by the Company for the account of the employee until
the end of the Restricted Period.
The Committee may also award restricted Common Stock in the
form of restricted Common Stock units having a value equal to an identical
number of shares of Common Stock. Payment of restricted Common Stock units shall
be made in shares of Common Stock or in cash or in a combination thereof (based
upon the Fair Market Value of Common Stock on the day the Restricted Period
expires), all as determined by the Committee in its sole discretion.
The transfer or sale of unrestricted shares of Common Stock
may be made on such terms and conditions as the Committee may determine, and
payment for such shares may be made in cash or in such other manner as may be
determined by the Committee, including full-recourse loans by the Company, which
may be secured by all or a portion of such shares of Common Stock.
7. Non-Employee Director Stock Options and Shares.
Nonqualified Stock Options to purchase 5,000 shares of Common Stock, the number
of shares being
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NY12524: 25714.2
<PAGE>
subject to adjustment pursuant to Section 13, shall be granted automatically to
each Non- Employee Director (a) upon the date such director joins the Board or
becomes a Non- Employee Director and (b) on each succeeding January 1 which is
not less than 90 days after the date referred to in clause (a). In addition, a
grant of shares of Common Stock having a Fair Market Value on the date of grant
of $15,000 (with cash in lieu of fractional shares) shall be made automatically
to each Non-Employee Director (a) upon the date such director joins the Board or
becomes a Non-Employee Director and (b) on each succeeding January 1 which is
not less than 90 days after the date referred to in clause (a).
The price at which shares may be purchased upon exercise of an
Option granted to a Non-Employee Director shall be the Fair Market Value of the
Common Stock on the day of grant.
Options granted to Non-Employee Directors shall become
exercisable one year from the date of the grant thereof or upon earlier
termination of service of that individual as a director for any reason and shall
terminate 10 years from the date of grant.
Except as expressly provided in this Section 7, any Option
granted to a Non-Employee Director under the Plan shall be subject to the
general terms and conditions of the Plan.
8. Change in Control. In the event of a Change in Control, as
hereinafter defined, (a) all Options shall become vested and exercisable in
full, (b) the restrictions applicable to all shares of restricted Common Stock
shall lapse and (c) all restricted Common Stock granted in the form of share
units shall be paid out in shares of Common Stock. The Committee may, in its
discretion, include such further provisions and limitations in any Award
agreement as it may deem equitable, and may, in its sole discretion, make
payments with respect to restricted Common Stock units in cash in an amount
equal to the Fair Market Value of the Award as of the Change in Control.
A "Change in Control" means the occurrence of any of the
following events:
(a) individuals who on April 17, 1997 constitute the Board
together with those individuals who first become directors after that date
(other than as a result of an actual or threatened election contest for
directors or an actual or threatened solicitation of proxies or consents by or
on behalf of any person other than the Board) and whose election or nomination
for election to the Board was approved by a vote of at least two-thirds of the
directors then in office who either were directors on the April 17, 1997 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;
-6-
NY12524: 25714.2
<PAGE>
(b) any person (as defined in Section 3(a)(9) and used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) ("Person"), other than the
Company, a subsidiary of the Company, an employee benefit plan sponsored or
maintained by the Company or a subsidiary of the Company or an underwriter
temporarily holding securities pursuant to an offering of such securities,
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act)("Beneficial Owner") of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding securities
eligible to vote for the election of directors (the "Company Voting Securities")
unless the Person became such a Beneficial Owner as a result of a purchase of
Company Voting Securities directly from the Company in a transaction approved by
a majority of the Continuing Directors or pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of paragraph (c) of this definition;
(c) the approval by the stockholders of the Company of a
reorganization, merger, consolidation, exchange of shares or sale or other
disposition of all or substantially all the assets of the Company, or the
consummation of any such transaction if stockholder approval is not required or
obtained, other than any such transaction pursuant to which (i) the Beneficial
Owners of the Company Voting Securities outstanding immediately prior to the
transaction will be the Beneficial Owners of more than 60% of the outstanding
securities eligible to vote for the election of directors of the corporation
resulting from such transaction or of any corporation of which such corporation
is a wholly-owned subsidiary ("Parent Corporation"), (ii) no Person, other than
the corporation resulting from such transaction or Parent Corporation, a
subsidiary of such corporation or Parent Corporation or an employee benefit plan
sponsored or maintained by such corporation or Parent Corporation or a
subsidiary thereof, will become the Beneficial Owner of securities of such
corporation or Parent Corporation representing 20% or more of the combined
voting power of the then outstanding securities eligible to vote for the
election of directors of such corporation or Parent Corporation except to the
extent that such ownership existed with respect to the Company Voting Securities
prior to such transaction and (iii) individuals who are Continuing Directors
will constitute at least a majority of the members of the board of directors of
the corporation resulting from the transaction or Parent Corporation; or
(d) the approval by stockholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person acquires Beneficial Ownership of
more than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which, by reducing the number of
Company Voting Securities outstanding, increases the percentage of shares
beneficially owned by such Person, provided that if a Change in Control would
occur as a result of such an acquisition by the
-7-
NY12524: 25714.2
<PAGE>
Company (if not for the operation of this sentence), and after the Company's
acquisition such Person becomes the Beneficial Owner of additional Company
Voting Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, then a Change in Control shall
occur.
9. Award Agreement. Each Award under the Plan shall be
evidenced by an agreement setting forth the terms and conditions, as determined
by the Committee, in addition to those set forth in the Plan, which shall apply
to such Award.
10. Withholding. The Company may deduct from any payment to be
made pursuant to the Plan the amount of any taxes required by law to be withheld
therefrom, or require a Participant to pay to the Company in cash such amount
required to be withheld prior to the issuance or delivery of any shares of
Common Stock or the payment of cash under the Plan. Such taxes may be paid in
cash, by surrender of shares of Common Stock or with shares of Common Stock
otherwise to be issued or delivered to the Participant, or by a combination
thereof, or in any other manner satisfactory to the Committee. Any shares of
Common Stock so delivered shall be valued at the Fair Market Value thereof on
the day immediately prior to exercise or payment of an Award.
11. No Right of Continued Employment. Nothing contained in the
Plan or in any Award shall confer upon any employee any right with respect to
the continuation of employment with the Company or any of its subsidiaries or
interfere in any way with the right of the Company to terminate his or her
employment at any time. Nor shall anything contained in the Plan confer upon any
employee or other person any claim or right to any Award under the Plan.
12. Governmental Compliance. Each Award granted under the Plan
shall be subject to the requirement that if at any time the Committee shall
determine that the listing, registration or qualification of any shares issuable
or deliverable thereunder upon any securities exchange or under any Federal or
state law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition thereof or in connection therewith, such
Award may not be exercised and no shares may be delivered upon the exercise or
payment thereof unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
The Committee may require any person acquiring shares pursuant
to an Award to represent to and agree with the Company that such person is
acquiring the shares for investment and without a view to the distribution
thereof.
All certificates for shares of Common Stock delivered under
the Plan pursuant to an Award shall be subject to such stock-transfer orders and
other restrictions
-8-
NY12524: 25714.2
<PAGE>
as the Committee may deem advisable under any federal or state law or regulation
or the requirements of any stock exchange or NASDAQ, and the Committee may cause
a legend or legends to be endorsed upon any such certificate to make reference
to such restrictions.
It is intended that the Plan satisfy the requirements of Rule
16b-3 under the Exchange Act so that Participants will be entitled to the
benefit of that Rule or any other rule promulgated under Section 16 of the
Exchange Act and will not be subject to short-swing liability under Section 16.
Accordingly, if the operation of any provision of the Plan would conflict with
this intent, such provision to the extent possible shall be interpreted or
deemed amended so as to avoid such conflict.
13. Adjustments. In the event of any change in the outstanding
shares of Common Stock (including, but not limited to, the number thereof) by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spinoff, combination or exchange of shares or other corporate change, or of any
distribution to holders of Common Stock other than regular cash dividends, the
number or kind of shares available for Awards under the Plan (including the
calendar year limit on certain Awards) and the number of Options and shares to
be issued to Non-Employee Directors may be adjusted by the Committee as it shall
in its sole discretion deem equitable and the number and kind of shares subject
to any outstanding Awards and the exercise price thereof may be adjusted by the
Committee as it shall in its sole discretion deem equitable to preserve the
value of such Awards.
14. No Segregation of Cash or Shares. The Plan is intended to
be an "unfunded" plan for incentive and deferred compensation. Nothing contained
herein shall give any person any rights greater than those of a general creditor
of the Company. The Committee may, in its sole discretion, authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or payments with respect to Awards, provided
that the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
15. No Rights Until Certificates Delivered. Except as
otherwise provided by the Committee in the applicable Award agreement, no person
shall have rights as a stockholder with respect to any shares of Common Stock as
a result of any Award until a certificate or certificates evidencing such shares
shall have been delivered to that person and, subject to Section 13, no
adjustment shall be made for dividends or distributions or other rights in
respect of any share for which the record date is prior to the date on which
such person shall become the holder of record thereof.
16. Amendment. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that (a) no amendment shall be
made without stockholder approval if such approval is necessary to satisfy any
applicable tax or
-9-
NY12524: 25714.2
<PAGE>
regulatory law or regulation and the Board determines it is appropriate to seek
stockholder approval, and (b) upon or following the occurrence of a Change in
Control no amendment may adversely affect the rights of any person in connection
with an Award previously granted.
17. Governing Law. The Plan and any Award agreement shall be
construed and its provisions enforced and administered in accordance with the
laws of the State of Delaware.
18. Effective Date. The Plan became effective on April 17,
1997.
19. Term of Plan. Subject to earlier termination pursuant to
Section 16, the Plan shall have a term of 10 years from its effective date.
-10-
NY12524: 25714.2
COMMONWEALTH INDUSTRIES, INC.
1999 EXECUTIVE INCENTIVE PLAN
1. Purpose. The purpose of the 1999 Executive Incentive Plan (the
"Plan") is to advance the interests of Commonwealth Industries, Inc. (the
"Company") and it stockholders by providing incentives in the form of special
bonus awards to certain executives of the Company and any of its subsidiaries or
other related business units or entities ("Affiliates") who contribute
significantly to the strategic and long-term performance objectives and growth
of the Company and its Affiliates.
2. Administration. The Plan shall be administered by the Management
Development and Compensation Committee of the Board of Directors (the
"Committee"), as such committee is from time to time constituted. The Committee
may delegate its duties and powers in whole or in part (i) to any subcommittee
thereof consisting solely of at least two "outside directors," as defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) to the extent consistent with Section 162(m) of the Code, to any other
individual or individuals.
The Committee has all the powers vested in it by the terms of
the Plan set forth herein, such powers to include the exclusive authority to
select the executives to be granted bonus awards (the "Special Bonuses") under
the Plan, to determine the size and terms of the Special Bonus made to each
individual selected (subject to the limitation imposed below), to modify the
terms of any Special Bonus that has been granted (except with respect to any
modification which would increase the amount of compensation payable to a
"Covered Employee," as such term is defined in Section 162(m) of the Code), to
determine the time when Special Bonuses will be awarded, to establish
performance objectives in respect of Special Bonuses and to certify that such
performance objectives were attained. The Committee is authorized to interpret
the Plan, to establish amend and rescind any rules and regulations relating to
the Plan, and to make any other determinations which it deems necessary or
desirable for the administration of the Plan. The Committee may correct any
defect or supply any administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect. Any decision of the Committee in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. No member of the Committee and no officer of the Company shall be
liable for anything done or omitted to be done by him or her, by any other
member of the Committee or by any officer of the Company in connection with the
performance of duties under the Plan, except for his or her own willful
misconduct or as expressly provided by statute.
3. Participation. The Committee shall have exclusive power (except as
may be delegated as permitted herein) to select the executives of the Company
and its Affiliates who may participate in the Plan and be granted Special
Bonuses under the Plan ("Participants").
4. Special Bonuses under the Plan.
(a) In General. The Committee shall determine the amount of a
Special Bonus to be granted to each Participant in accordance with subsection
(b) below.
<PAGE>
(b) Special Bonuses. (i) The Committee may in its discretion
award a Special Bonus to a Participant who it reasonably believes may be a
Covered Employee for the taxable year of the Company in which such Special Bonus
would be deductible, under the terms and conditions of this subsection (b).
Subject to clause (iii) of this Section 4(b), the amount of a Participant's
Special Bonus shall be an amount determinable from written performance goals
approved by the Committee while the outcome is substantially uncertain and no
more than 90 days after the commencement of the period to which the performance
goal relates or, if less, the number of days which is equal to 25 percent of the
relevant performance period. The maximum aggregate limit on Special Bonuses that
may be awarded this Plan to any Participant during the period commencing on the
Effective Date and ending on the fourth anniversary of the Effective Date is $5
million.
(ii) The amount of any Special Bonus will be based on
objective performance goals established by the Committee. The performance
criteria for Special Bonuses made under the Plan will be based upon one or more
of the following criteria as determined by the Board: (A) before or after tax
net income; (B) earnings per share; (C) book value per share; (D) stock price;
(E) return on stockholders' equity; (F) the relative performance of peer group
companies; (G) expense management; (H) return on investment; (I) improvements in
capital structure; (J) profitability of an identifiable business unit or
product; (K) profit margins; (L) budget comparisons; and (M) total return to
stockholders.
(iii) The Committee shall determine whether the performance
goals have been met with respect to any affected Participant and, if they have,
so certify and ascertain the amount of the applicable Special Bonus. No Special
Bonuses will be paid until such certification is made by the Committee.
(iv) The provisions of this Section 4(b) shall be administered
and interpreted in accordance with Section 162(m) of the Code to ensure the
deductibility by the Company or its affiliates of the payment of Special
Bonuses.
5. Designation of Beneficiary by Participant. The Committee or its
delegate shall create a procedure whereby a Participant may file, on a form to
be provided by the Committee, a written election designation of one or more
beneficiaries with respect to the amount, if any, payable in the event of the
Participant's death. The Participant may amend such beneficiary designation in
writing at any time prior to the Participant's death, without the consent of any
previously designated beneficiary. Such designation or amended designation, as
the case may be, shall not be effective unless and until received by the duly
authorized representatives of the Committee or its delegate prior to the
Participant's death. In the absence of any such designation, the amount payable,
if any, shall be delivered to the legal representative of such Participant's
estate.
<PAGE>
6. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right
to be paid a Special Bonus under the Plan. Determinations made by the Committee
under the Plan need not be uniform and may be made selectively among eligible
individuals under the Plan, whether or not such eligible individuals are
similarly situated. Neither the Plan nor any action taken hereunder shall be
construed as giving any employee or other person any right to continue to be
employed by or perform services for the Company of any Affiliate, and the right
to terminate the employment of or performance of services by any Participant at
any time and for any reason is specifically reserved to the Company and its
Affiliates.
(b) Except as may be approved by the Committee, a
Participant's rights and interest under the Plan may not be assigned or
transferred, hypothecated or encumbered in whole or in part either directly or
by operation of law or otherwise (except in the event of a Participant's death)
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner; provided, however, that,
subject to applicable law, any amounts payable to any Participant hereunder are
subject to reduction to satisfy any liabilities owed to the Company or any of
its Affiliates by the Participant.
(c) The Committee shall have the authority to determine in its
sole discretion the applicable performance period relating to any Special Bonus
and to include with respect to any award any change in control provision.
(d) The Company and its Affiliates shall have the right to
deduct from any payment made under the Plan any federal, state, local or foreign
income or other taxes required by law to be withheld with respect to such
payment.
(e) The Company is the sponsor and legal obligor under the
Plan, and shall make all payments hereunder, other than any payments to be made
by any of the Affiliates, which shall be made by such Affiliate, as appropriate.
Nothing herein is intended to restrict the Company from charging an Affiliate
that employs a Participant for all or a portion of the payments made by the
Company hereunder. The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure the payment
of any amounts under the Plan, and rights to payment hereunder shall be no
greater than the rights of the Company's unsecured, subordinated creditors, and
shall be subordinated to the claims of the customers and clients of the Company.
All expenses involved in administering the Plan shall be borne by the Company.
(f) The validity, construction, interpretation, administration
and effect of the Plan and rights relating to the Plan and to Special Bonuses
granted under the Plan, shall be governed by the substantive laws, but not the
choice of law rules, of the State of Delaware.
(g) The Plan shall be effective as of April 23, 1999 (the
"Effective Date"), subject to the affirmative vote of the holders of a majority
of all shares of Common Stock of the Company present in person or by proxy at
the Annual Meeting of the Company to be held on April 23, 1999.
7. Plan Amendment or Suspension. The Plan may be amended or suspended in
whole or in part at any time and from time to time by the Committee.
8. Plan Termination. This Plan shall terminate upon the adoption of a
resolution of the Committee terminating the Plan.
9. Actions and Decisions Regarding the Business or Operations
of the Company and/or its Affiliates. Notwithstanding anything in the Plan to
the contrary, neither the Company nor any of its Affiliates nor their respective
officers, directors, employees or agents shall have any liability to any
Participant (or his or her beneficiaries or heirs) under the Plan or otherwise
on account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company or
any Affiliates.
FINAL
SUPPLY AGREEMENT
BY AND AMONG
COMMONWEALTH ALUMINUM CORPORATION
IMCO RECYCLING OF OHIO INC.
AND
IMCO RECYCLING INC.
<PAGE>
TABLE OF CONTENTS
I. Expansion of Facility .................................. 1
II. Agreement to Sell and to Purchase ........................ 1
III. Term...................................................... 2
IV. Tolling Operation......................................... 3
V. Price, Packaging and Terms and Conditions of Sale......... 4
VI. Warranty and Related Rights............................... 4
VII. Force Majeure............................................. 5
VIII. Proprietary and Confidential Information.................. 5
IX. Notices and Communication................................. 7
X. Independent Status of Parties and Limitation of Authority. 8
XI. Patent Infringement....................................... 8
XII. Indemnity................................................. 8
XIII. Option to Purchase and Right of First Refusal............. 9
XIV. Termination............................................... 9
XV. Representations........................................... 10
XVI. Miscellaneous............................................. 11
Exhibit "A" (Quality).............................................. 15
Exhibit "B" (Scrap Receiving Procedures)........................... 22
Exhibit "C" (Contract Recoveries).................................. 26
Exhibit "D" (Volume and Price)..................................... 30
Exhibit "E" (Base Price Adjustments)............................... 34
Exhibit "F" (Waste Minimization)................................... 36
Exhibit "G" (Option to Purchase and Right of First Refusal)........ 38
<PAGE>
Page 4
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is made and entered into
effective as of this 1st day of April, 1999, by and among Commonwealth Aluminum
Corporation, a Delaware corporation with its principal place of business at 500
West Jefferson, Citizens Plaza, 18th Floor, Louisville, Kentucky 40202 ("Buyer"
or "Commonwealth"), IMCO Recycling of Ohio Inc., a Delaware corporation with its
principal place of business at 7335 Newport Road S.E., Uhrichsville, Ohio 44683
("Supplier") and IMCO Recycling Inc., a Delaware corporation with its principle
place of business at 5215 N. O'Connor Blvd., Suite 940, Irving, Texas 75039
("IMCO").
WHEREAS, Buyer is engaged in the business of producing aluminum rolled
products at its rolling mill facility in Uhrichsville, Ohio (the "Mill"); and
WHEREAS, Supplier is engaged in the business of recycling and
processing aluminum at its aluminum recycling and processing facility in
Uhrichsville, Ohio (the "Facility"); and
WHEREAS, the parties desire to enter into a Supply Agreement whereby
Supplier will provide tolling services to Buyer so as to satisfy certain of
Buyer's requirements of secondary aluminum in the form of ingot and molten
metal, and Buyer will purchase said services from Supplier.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, the adequacy and sufficiency of which are hereby acknowledged,
and intending to be legally bound, the parties agree as follows:
ARTICLE I. EXPANSION OF FACILITY
1.01 EXPANSION OF FACILITY BY SUPPLIER. Subject to the terms of this
Agreement, Supplier agrees to complete the installation of two (2) reverberatory
furnaces (the "Reverb Furnaces") in the Facility as soon as reasonably
practicable after all environmental and construction permits required for the
installation of the Reverb Furnaces have been procured by Supplier. Supplier
agrees to use its commercially reasonable best efforts to obtain all permits
required to construct the Reverb Furnaces. Supplier and Buyer anticipate that
the Reverb furnaces will be operational by January 1, 2000. In the event that
the Reverb furnaces are not fully operational within thirty (30) days of such
date, then the Supplier and Buyer shall negotiate in good faith appropriate
changes to this Agreement.
ARTICLE II. AGREEMENT TO SELL AND TO PURCHASE
2.01 PURCHASE OF REQUIREMENTS. Subject to the terms and provisions of
Exhibit "D" hereto, Supplier shall be Buyer's exclusive source of secondary
ingot and molten metal with respect to the Scrap Based Alloys used by the Mill
in conformance with the specifications detailed in Exhibit "A" hereto (the
"Product") up to the Target Volume. For purposes of this Agreement, "Scrap Based
Alloys" shall refer to all aluminum alloys except alloys 1100, 1350, 8111 and
5052 and any additional high purity alloys which may be excluded by mutual
agreement as listed in the Registration Record of Aluminum Association
Designation and Chemical Composition Limits for Wrought Aluminum and Wrought
Aluminum Alloys ("Green Sheet"). Buyer shall, however, be permitted to purchase
nominal quantities of primary alloys and other "sweeteners" from vendors other
than Supplier to achieve the standards set forth for Scrap Based Alloys in the
Green Sheet. In determining the source of raw materials to be used in the
production of Buyer's alloys, it is the intent of Buyer to maximize the use of
Scrap (as defined in Section 4.01(a) below) in the composition of Scrap Based
Alloys. Notwithstanding anything in this Section 2.01 to the contrary, Buyer has
arrangements for tolling with certain of its sheet customers, and such
arrangements shall not be deemed to be a violation of this Agreement; provided
however, that Buyer shall notify Supplier in writing of all such arrangements,
and provided further that the aggregate annual volume for all such third party
tolling of Scrap Based Alloys shall not exceed eight percent (8%) of the Target
Volume.
2.02 SUPPLY OBLIGATIONS. Subject to the terms of this Agreement,
Supplier shall toll/convert sufficient quantities of Buyer's Scrap (defined
below) as ordered by Buyer from time to time so as to satisfy the Target
Volume(s) as set forth in Exhibit "D". Supplier shall not be prohibited from
selling any ingot or molten metal it produces at the Facility to purchasers
other than Buyer, provided that Supplier at all times meets its supply
obligations to Buyer hereunder. Notwithstanding the foregoing, Buyer shall be
the principal customer of the Facility, and for so long as Buyer is not in
violation of this Agreement Buyer's orders shall receive priority scheduling
over Supplier's other customers at the Facility.
In the event Supplier agrees to sell or toll any ingot, molten metal or
any other product or accepts any Scrap at the Facility for any purchaser other
than Buyer, Supplier shall not comingle the scrap, waste, dunnage, or finished
products relating to any other purchasers with those of Buyer. Supplier shall
maintain and make available to Buyer accurate and complete records of the Scrap,
waste, dunnage, and finished products relating to services performed for Buyer
under this Agreement and separate records for services provided or products
produced for other purchasers. The exact content of said records shall include
such detail as may reasonably be requested by Buyer from time to time.
ARTICLE III. TERM
3.01 TERM. This Agreement shall be effective as of the date first
written above (the "Effective Date"). Subject to the installation of the Reverb
Furnaces as provided in Section 1.01, the obligations of the parties with
respect to the delivery and processing of Scrap (as defined in Section 4.01)
shall commence April 1, 1999 and shall be in effect for a ten (10) year term
thereafter. For purposes of this Agreement the term "Contract Year" shall refer
to consecutive twelve (12) month periods commencing April 1st of each calendar
year. Similarly "Contract Quarter" shall refer to each consecutive three (3)
month period during the term of this Agreement.
ARTICLE IV. TOLLING OPERATION
4.01 TOLLING OPERATION.
(a) Buyer will purchase Scrap, as defined below, to be delivered to
Supplier to be tolled/processed into Product. Upon request by Buyer, Supplier
will, at its expense, receive and accept said Scrap. For purposes of this
Agreement, Scrap shall include and be classified into the categories listed in
Part I of Exhibit "C" (the "Scrap"). Buyer shall make available for the use of
Supplier, and Supplier shall at its expense pick up or cause to be picked up,
dross from the Mill for its use in the tolling/processing of Scrap for Buyer
hereunder. The quantities of Scrap and dross supplied by Buyer shall be
sufficient so that, assuming the Supplier obtains recovery rates set forth in
Exhibit "C", Supplier will be able to process the Target Volume (defined in
Exhibit "D").
(b) Supplier shall at its expense load or cause to be loaded onto
Buyer's trucks all saltcake and rotary furnace baghouse dust generated as a
result of Supplier's tolling/converting operations for Buyer. Supplier shall be
solely responsible for disposing of all waste, impurities, refuse or other
substance or material produced as a result of the Facility operations not
otherwise required to be delivered to Buyer hereunder. Buyer shall indemnify and
hold Supplier, its officers, directors and shareholders harmless from any and
all damages, losses, liabilities, suits, actions, demands, proceedings (whether
legal or administrative), and expenses (including but not limited to attorneys'
fees) suffered by Supplier which arise directly or indirectly out of Buyer's
treatment, storage, recycling or disposal of saltcake and rotary furnace
baghouse dust. Buyer shall from time to time provide to Supplier the information
and documentation reasonably requested by Supplier regarding the disposal or
recycling of saltcake and rotary furnace baghouse dust by Buyer.
(c) Supplier shall, as part of its tolling operations, supply and at
all times maintain at its expense a sufficient number of crucibles and low
profile sow molds necessary to comply with its supply obligations under this
Agreement.
(d) Except as otherwise provided in Section 7.01, Supplier shall at all
times during its period of performance of this Agreement, provide and augment as
necessary a work force and Facility Capacity fully adequate to perform and
comply with this Agreement. The term "Facility Capacity" as used herein shall
include but shall not be limited to, engineers, skilled and unskilled workmen,
supervision, materials, supplies, tools, equipment and facilities.
4.02. TITLE. All Scrap supplied by Buyer to Supplier hereunder, as well
as the resulting Product, shall remain the sole property of and be at all times
titled in the name of Buyer, and Supplier shall execute and deliver to Buyer
upon reasonable request by and at the expense of Buyer, documentation to
evidence and/or perfect such retention of title.
ARTICLE V. PRICE, PACKAGING AND TERMS AND CONDITIONS OF SALE
5.01 PRICE. The compensation and remuneration which Buyer shall be
required to pay Supplier in consideration of Supplier's performance of its
obligations hereunder is set forth in Exhibit "D" hereto.
5.02 PACKAGING AND DELIVERY PROCEDURE. Packaging, preparation for
transport, delivery, and identification of Product items shall be in accordance
with Exhibit "A" hereto. Supplier shall, at its expense, deliver or cause to be
delivered to the Mill all Product processed pursuant to this Agreement.
5.03 TERMS AND CONDITIONS OF SALE. All orders placed and services
performed pursuant to this Agreement shall be subject to the terms of this
Agreement. Notwithstanding the fact that either party may submit purchase
orders, acknowledgments, invoices, or similar documentation, any terms or
conditions contained in said documents inconsistent with or contrary to the
terms of this Agreement shall be superseded by the terms hereof.
5.04 INSPECTION OF SUPPLIER'S FACILITY. Supplier shall grant to Buyer
access to the Facility and to its books and records during normal business hours
upon prior written notice for the purpose of verifying Supplier's compliance
with the terms of this Agreement.
ARTICLE VI. WARRANTY AND RELATED RIGHTS
6.01 WARRANTY. Supplier warrants that the Product will meet the
specifications set forth in Exhibit "A" in all material respects. In the event
Supplier fails to achieve the recovery rates set forth in Exhibit "C", Supplier
shall be obligated to pay the penalty set forth therein either in cash or such
other method acceptable to Buyer.
6.02 QUALITY. The Product shall meet the manufacturing, design,
performance, and appearance specifications as described in Exhibit "A". Should
any of the Product fail to meet said specifications, Buyer and Supplier shall
immediately initiate the procedures set forth in Exhibit "A". In no event shall
Buyer be entitled to consequential damages, but this exclusion shall in no event
limit or restrict Buyer's right to recover direct and incidental damage for
Supplier's breach and the Non-conformance Penalty described in Exhibit "A",
Paragraph 5.
6.03 DISCLAIMER OF OTHER WARRANTIES. EXCEPT FOR THE WARRANTIES
CONTAINED IN THIS ARTICLE VI, SUPPLIER MAKES NO WARRANTY THAT THE PRODUCT
COVERED BY THIS AGREEMENT IS MERCHANTABLE OR FIT FOR ANY PARTICULAR PURPOSE AND
THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, WHICH EXTEND BEYOND THIS ARTICLE
VI.
ARTICLE VII. FORCE MAJEURE
7.01 FORCE MAJEURE. In any event, and in addition to all other
limitations stated herein, the parties hereto shall not be liable for any act,
omission, result, or consequence, including but not limited to any delay in
delivery or performance, which is due to any act of God, the prior performance
of any government order, fire, flood, or casualty, government regulation or
requirement, shortage or failure of raw material, supplies, fuel, power or
transportation, breakdown of equipment, or any other cause beyond said party's
reasonable control whether of a similar or dissimilar nature to those above
enumerated, or due to any strike, labor dispute or difference with workers,
regardless of whether or not said party is capable of settling such labor
problem.
Upon the occurrence of any of the events described in this Section
7.01, Supplier shall have the obligation to use its reasonable best efforts to
supply the Product to the Buyer from its affiliated plants if the Facility is
not able, as a result of one of the events described herein, to process the
quantities of Scrap and dross set forth on Exhibit "D" at any time during the
term of this Agreement.
ARTICLE VIII. PROPRIETARY AND CONFIDENTIAL INFORMATION
8.01 PROPRIETARY INFORMATION. Buyer and Supplier acknowledge that, in
the course of performing their duties under this Agreement, they will
necessarily be supplied with confidential and/or proprietary information of the
other party concerning business affairs, methods of operation, processes and
other information.
(a) For purposes of this Article VIII, the term "Confidential
Information" shall mean any and all proprietary, trade secret, technical and
other confidential information concerning the business or affairs of the
provider, including but not limited to:
(i) information concerning the design or method of production
of any of the provider's products or services, including but not
limited to all records, files, memorandum, reports, price lists,
customer lists, drawings, plans, sketches, documents, equipment,
production specifications, manufacturing processes and methods,
production machinery, quality assurance methods, accounting systems,
and the like;
(ii) discoveries, inventions, copyrights, whether patentable
or not, and including, without limitation, the nature and result of
research, development, manufacturing, marketing, planning and other
business activities and all designs, concepts, processes and
operational techniques in connection with Supplier's rotary furnaces;
(iii) ideas, concepts and mathematical formulas which comprise
all of said confidential information.
(b) It is agreed that the Confidential Information shall include all
information described in Section 8.01(a) except for --------------- any
information:
(i) which is already in recipient's possession, by recipient's development;
(ii) which is generally available to the public or which
becomes generally available to the public through no act or failure to
act on the part of recipient or recipient's agents or employees;
(iii) which is disclosed to recipient on a non-confidential
basis by a third party having no obligation to provide it on a
confidential basis or to refrain from so doing; or
(iv) which the recipient can demonstrate by written record was
independently developed by persons who did not have access to
provider's information.
Specific information disclosed shall not be deemed to be in recipient's
possession, or part of public knowledge or literature, or available to recipient
merely because it can be assembled by selection of information previously in
recipient's possession or part of the public knowledge or literature or
available to recipient from a source other than the provider.
8.02 NON-DISCLOSURE. The parties hereby acknowledge that all
Confidential Information has been developed or acquired at considerable expense,
and has independent economic value from not being known or readily ascertainable
by others, and hereby covenant and agree that each will not, nor permit any
subsidiary, affiliate or employee to, communicate or divulge to, or use for the
benefit of itself or any other person, firm, association, or corporation,
without the prior written consent of the other party, any Confidential
Information or Know how (as defined in Section 8.03 below) that may be
communicated to, acquired by, or learned by the other party in the course of or
as a result of this Agreement.
8.03 KNOW HOW. The parties hereby recognize that the other party has a
property interest not only in the actual Confidential Information but also in
the ideas, concepts, and mathematical formulas ("Know how") which comprises said
information. In addition to each party's duty not to disclose said Know how as
provided in Section 8.02, each party further agrees that it will not integrate
any of the Know how into any of its products or processes which it develops.
8.04 LABELING CONFIDENTIAL INFORMATION. The failure of either party to
designate or label any property or information as confidential, proprietary or
trade secret shall in no way affect the property's classification as such. In no
instance shall any information disclosed to the other party, regardless of
whether said information would constitute Confidential Information, be
reproduced by the other party in any form whatsoever.
8.05 RETURN OF INFORMATION. Each party agrees, upon request of the
other party, to promptly deliver to the other party all drawings, blueprints,
manuals, letters, notes, notebooks, reports, computer software, compilations of
information and all other material or copies thereof, in whatever form,
including without limitation, electronic media or other tangible forms of any
information, obtained from the other party, regardless of whether said
information would constitute Confidential Information, which is in said party's
possession or under said party's control.
8.06 USE BY PARTY'S EMPLOYEES AND AGENTS. The parties hereby agree to
limit the number of employees and agents that have access to the Confidential
Information to those whose knowledge of such information is essential for said
party to satisfy its obligations under this Agreement. Each party shall use its
reasonable best efforts to ensure that its employees and agents do not utilize
the Confidential Information except in the performance of their duties to said
party.
8.07 EQUITABLE RELIEF. The parties hereby acknowledge and agree that a
breach by it of the provisions of this Article VIII would cause the other party
irreparable injury and damage which could not be reasonably or adequately
compensated by damages at law. Therefore, each party expressly agrees that in
addition to any other remedies provided for by law, in equity or pursuant to
this Agreement, either party shall be entitled to injunctive or other equitable
relief to prevent a breach of this Article VIII by the other party.
ARTICLE IX. NOTICES AND COMMUNICATION
9.01 NOTICES AND COMMUNICATION. Any notice or other communication
required or permitted hereunder shall be sufficiently given if delivered in
person, sent registered mail, postage prepaid, or by electronic transmission
confirmed by the recipient addressed as follows:
As to Buyer: Commonwealth Aluminum Corporation
500 West Jefferson
Citizens Plaza, 18th Floor
Louisville, Kentucky 40202
Attention: John Wasz, Vice President Materials
With a copy to: Shottenstein, Zox & Dunn
41 S. High Street, Suite 2600
Columbus, Ohio 43215
Attention: Richard A. Barnhart
As to Supplier: IMCO Recycling Inc.
5215 North O'Connor Blvd.
Suite 940
Central Tower at Williams Square
Irving, Texas 75039
Attention: President
The date upon which any such communication is personally delivered or,
if such communication is transmitted by mail or electronic transmission, the
date upon which it is received by the addressee, shall be deemed the effective
date of such communication. Each party shall promptly advise the other in
writing in the event of any change in their respective addresses.
ARTICLE X. INDEPENDENT STATUS OF PARTIES
10.01 INDEPENDENT STATUS OF PARTIES. This Agreement does not appoint
either party the other's agent, or partner for any purpose whatsoever, nor does
it grant to either party any right or authority to create any obligation or
responsibility, expressed or implied, on behalf of or in the name of the other
party, nor to bind the other party in any manner whatsoever. No partnership or
joint venture is intended nor is created as a result of this Agreement, but
rather the parties' relationship shall be that of a Supplier/Customer and except
as otherwise provided herein, each shall be solely answerable for the cost and
expenses, consequences and damages arising out of their own acts and from the
operation and maintenance of their respective businesses.
ARTICLE XI. PATENT INFRINGEMENT
11.01 PATENT INFRINGEMENT. Supplier shall, at its own expense, defend
any suit or proceeding brought against Buyer to the extent the same is based
upon a claim that any Product furnished by Supplier hereunder constitutes an
infringement of any patent of the United States, and Supplier shall pay all
damages and costs awarded in such action against buyer. In case any Product
furnished hereunder is in such suit held to constitute infringement and their
use or sales enjoined, Supplier shall, at its expense, either:
(a) procure for buyer the rights to continue using said Product;
(b) replace them with non-infringing Products;
(c) modify them so they become non-infringing, provided that the
Products are so modified to Buyer's satisfaction; or
(d) remove them and refund the purchase price and the transportation
costs thereof.
ARTICLE XII. INDEMNITY
12.01 BUYER'S INDEMNITY. Buyer hereby agrees to indemnify and hold
Supplier, its officers, directors and shareholders harmless from and against any
and all damages, losses, liabilities, suits, actions, demands, proceedings
(whether legal or administrative), and expenses (including but not limited to
attorneys' fees) arising, directly or indirectly, out of any action or failure
to act by Buyer, its employees or agents or any negligence, breach of this
Agreement, or misrepresentation, on the part of Buyer, its employees or agents.
Notwithstanding anything contained in this Agreement to the contrary, Supplier
shalI only be entitled to recover direct and incidental damages and not
consequential damages.
12.02 SUPPLIER'S INDEMNITY. Supplier hereby agrees to indemnify and
hold Buyer, its officers, directors and shareholders harmless from and against
any and all damages, losses, liabilities, suits, actions, demands, proceedings
(whether legal or administrative), and expenses (including but not limited to
attorneys' fees) arising, directly or indirectly, out of any action or failure
to act by Supplier, its employees or agents or any negligence, breach of this
Agreement, or misrepresentation, on the part of Supplier, its employees or
agents. Notwithstanding anything contained this Agreement to the contrary, Buyer
shall only be entitled to recover direct and incidental damages and not
consequential damages.
ARTICLE XIII. OPTION TO PURCHASE AND RIGHT OF FIRST REFUSAL
13.01 OPTION TO PURCHASE RELATING TO FACILITY. IMCO hereby reaffirms
Buyer's Option to Purchase the Facility as set forth in Exhibit "G".
13.02 RIGHT OF FIRST REFUSAL RELATING TO FACILITY. IMCO hereby
reaffirms Buyer's Right of First Refusal relating to the Facility as set forth
in Exhibit "G".
ARTICLE XIV. TERMINATION
14.01 TERMINATION. (a) Either of the parties hereto may terminate this
Agreement by notice in writing to the other party in any of the following
events:
(i) Any attempted assignment of this Agreement by the other party except as
provided in Section 16.01 of this ------------- Agreement;
(ii) Dissolution or liquidation of the other party;
(iii) Application for or appointment of a receiver by the
non-terminating party;
(iv) Assignment for the benefit of creditors by the non-terminating party;
(v) Appointment of a committee of creditors or a liquidating agent by the
non-terminating party;
(vi) An offer of composition or extension to creditors
generally by the non-terminating party;
(vii) The adjudication of the non-terminating party as
bankrupt or insolvent;
(viii) The non-terminating party files a voluntary petition
for bankruptcy or admits in writing that it is unable to pay its debts
as they become due;
(ix) Either party fails to cure a default hereunder, other
than as a result of Buyer's failure to make payments when due hereunder
or Supplier's failure to deliver the Product when said delivery is
required hereunder, within sixty (60) days after receipt of written
notice thereof; or
(x) Subject to Section 7.01, delivery or payments not made when due after
the expiration of a sixty (60) day ------------- grace period.
The grace periods provided for in Subparts (ix) and (x) shall be extended during
such period as the Parties are negotiating in good faith with regard to a
legitimate dispute with respect to the Parties' obligations hereunder.
(b) In the event of a termination of this Agreement pursuant to the
provisions of this Article XIV, except under Section 14.01(a)(x), any orders
outstanding as of the effective date of termination shall be filled in
accordance with the terms of this Agreement, and any excess inventory will be
properly picked up by Buyer.
(c) No termination of this Agreement shall in any way affect the
obligation of the other party with regard to the provisions of this Agreement
previously matured and/or in effect, including, but not limited to, the
obligations relating to confidentiality under Article VIII hereof, the right to
enforce any remedy for the breach of any terms of this Agreement or the
indemnity obligations under Article XII, and Section 4.01(b).
(d) Buyer may terminate this Agreement in accordance with the terms of
Section 5 of Exhibit "A." ------------
ARTICLE XV. REPRESENTATIONS
15.01 REPRESENTATIONS OF BUYER.
(a) Authorization and Validity of Agreement. The execution, delivery
and performance by Buyer of this Agreement have been duly authorized by its
Board of Directors. No other corporate action on the part of Buyer is necessary
for the execution, delivery and performance by Buyer of this Agreement. This
Agreement has been duly executed and delivered by Buyer and is a legal, valid
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceedings therefor may be brought.
(b) No Conflict. Neither the execution and delivery of this Agreement,
nor any other agreement or instrument executed and delivered by Buyer under this
Agreement does (i) conflict with, violate or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or accelerate or
permit the acceleration of the performance under, the Certificate or Articles of
Incorporation or Bylaws, as amended, of Buyer, or any contract, judgment, order,
award or decree to which Buyer is a party or is subject to by which it is bound
or to which any of its assets is subject; (ii) require the approval, consent,
authorization or other order or action of any court, governmental authority or
regulatory body or filing or registration therewith or notice thereto; (iii)
result in the violation by Buyer of any law, rule, regulation or order of any
jurisdiction; or (iv) require the consent, approval or authorization of any
other person.
15.02 REPRESENTATIONS OF SUPPLIER.
(a) Authorization and Validity of Agreement. The execution, delivery
and performance by Supplier of this Agreement have been duly authorized by its
Board of Directors. No other corporate action on the part of Supplier is
necessary for the execution, delivery and performance by Supplier of this
Agreement. This Agreement has been duly executed and delivered by Supplier and
is a legal, valid and binding obligation of Supplier, enforceable against
Supplier in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceedings therefor may be brought.
(b) No Conflict. Neither the execution and delivery of this Agreement,
nor any other agreement or instrument executed and delivered by Supplier under
this Agreement does (i) conflict with, violate or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or accelerate
or permit the acceleration of the performance under, the Certificate of
Incorporation or Bylaws, as amended, of Supplier, or any contract, judgment,
order, award or decree to which Supplier is a party or is subject or by which it
is bound or to which any of its assets is subject; (ii) require the approval,
consent, authorization or other order or action of any court, governmental
authority or regulatory body or filing or registration therewith or notice
thereto; (iii) result in the violation by Supplier of any law, rule, regulation
or order of any jurisdiction; or (iv) except as set forth in Paragraph 5, Part C
of Exhibit "G," require the consent, approval or authorization of any other
person.
ARTICLE XVI. MISCELLANEOUS
16.01 BENEFIT AND ASSIGNMENT. Subject to the restrictions contained in
this Agreement prohibiting the assignment of this Agreement, this Agreement
shall inure to the benefit of, and be binding upon, the respective successors
and assigns of the parties hereto. This Agreement shall not be assigned by
either party without the express written consent of the other which consent
shall not be unreasonably withheld or delayed. If Buyer or Supplier proposes to
assign this Agreement in accordance with the terms of this Section 16.01 then
Buyer or Supplier, as the case may be, agrees to cause the person or entity to
whom this Agreement will be assigned or transferred to assume in writing Buyer's
or Supplier's, as the case may be, obligations under this Agreement.
Notwithstanding anything contained herein to the contrary, either party shall
have the right to assign this Agreement to its direct or indirect wholly owned
subsidiary. In addition, notwithstanding any provision herein to the contrary,
no provision in this Agreement shall affect in any way the right or power of
either Buyer or Supplier, or their respective shareholders, to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes in
their respective capital structure or business, or any merger or consolidation
of either of them, or any other corporate act or proceeding respecting them,
whether of a similar character or otherwise. Notwithstanding anything in this
Agreement to the contrary, the assignment of this Agreement by either party to a
direct or indirect wholly owned subsidiary or any adjustment, recapitalization,
reorganization, or other change or merger or consolidation described above shall
in no way release said assignor of its obligations and duties under this
Agreement.
16.02 NON-WAIVER. The failure of either party at any time to enforce
any provision of this Agreement shall not be construed to be a waiver of such
provision of the right of the respective party hereunder to enforce any such
provision.
16.03 SEVERABILITY. If any provision of this Agreement or the
application thereof to any party or circumstance shall for any reason and to any
extent be deemed invalid or unenforceable, the remainder of this Agreement and
application of such provision to the other parties and other circumstances shall
not be affected thereby, but rather the invalid or unenforceable provisions as
applied to the particular party or circumstance shall be modified to the extent
necessary so as to render said provision valid and enforceable while to the
greatest extent possible accomplishing the intended purpose of said provision.
16.04 ENTIRE AGREEMENT. This writing constitutes the entire Agreement
between the parties relating to the sale of the Products described herein during
the specific term, and any extensions thereof, and supersedes all previous
contracts, including but not limited to, the Supply Agreement entered into
between the parties hereto on March 2, 1992 (the "1992 Agreement"). As of the
date hereof, the 1992 Agreement is hereby terminated and shall be null, void and
of no further force and effect. Neither party to this Agreement makes any
representation to the other party except as expressly set forth in this
Agreement. No modification or waiver of any of the terms of this Agreement shall
bind either party unless in writing signed by duly authorized representatives of
both Buyer and Supplier.
16.05 CAPTIONS. Captions of the sections of this Agreement are for
convenience and reference only and the words contained therein shall in no way
be held to explain, modify, amplify, or aid in the interpretation, construction,
or meaning of the provisions of this Agreement.
16.06 GOVERNING LAW. This Agreement shall be construed under and
enforced according to the laws of the State of Ohio, without giving effect to
the conflict of law principles thereof, and any action arising out of or related
to this Agreement shall be venued in a federal or state court of appropriate
jurisdiction in the State of Ohio. The parties hereby consent to the
jurisdiction of the said courts.
16.07 FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, Buyer and Supplier shall use their reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
reasonably necessary, proper or advisable to make effective as promptly and
practicable the transactions contemplated by this Agreement and to cooperate
with each other in connection with the foregoing.
16.08 FINDER'S AND BROKER'S FEES. Buyer and Supplier each represent and
warrant to the other that there are no claims (or any basis for any claims) for
brokerage commissions, finder's fees or like payments in connection with this
Agreement or the transactions contemplated hereby resulting from any action
taken by either of them or on behalf of either party.
16.09 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.10 SUBSTANTIATION. For purposes of substantiating each party's
financial information or data which relates to each party's obligations under
this Agreement, each party shall record and account for such items in a manner
which is consistent with its historical practice applied in a consistent manner
or if it is determined such party's independent certified public accountants
that it is appropriate to change said historical practice, then in a manner in
conformity with generally accepted accounting principles with all said changes
being fully disclosed to the other party.
16.11 PUBLICITY. Neither party shall use the name of the other in
publicity releases or advertising or for other promotional purposes, without
securing the prior written approval of the other party hereto, unless in the
opinion of counsel to such disclosing party, such disclosure is required by law
in which event a copy will be provided to the non-disclosing party.
[signature page to follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the date first written above by their duly authorized representatives.
BUYER:
COMMONWEALTH ALUMINUM CORPORATION
By:
Name:
Title:
SUPPLIER:
IMCO RECYCLING OF OHIO INC.
By:
Name:
Title:
IMCO:
IMCO RECYCLING INC.
By:
Name:
Title:
<PAGE>
EXHIBIT "A"
QUALITY
1. PURPOSE AND INTENT.
Both parties desire to provide a system of measuring quality
requirements that is flexible over the term of this Agreement. The parties have
chosen the method set forth herein in order to be responsive to caster process
improvements and product mix changes which have occurred and are expected to
occur at the Mill.
Subject to the terms of this Agreement, Supplier intends to meet
Buyer's requirements with a combination of melting technologies. Supplier will
install the Reverb Furnaces to address Buyer's need for molten metal and for
quality improvements. Rotary salt furnaces will remain an important part of the
supply activity, and this Exhibit "A" covers both reverberatory and rotary
melting technologies. Quality targets may differ depending on the melting
technologies and furnaces used.
2. KEY END OF LINE OUTPUT ("KELO")
An initial list of KELOs is set forth on Schedule 1 to this Exhibit
"A". Schedule 1 is the prioritized list of the initial group of KELOs to be
managed using the Quality Management System ("QMS") described below in this
Exhibit "A", and sets forth the agreed upon targets and/or ranges to be used by
the Working Group as a starting point for the QMS process. Schedule 1 indicates
that some data is in "to be agreed" or "TBA" status. The parties agree to
negotiate in good faith to resolve all "TBAs" on Schedule 1 within six (6)
months from the Effective Date. The parties shall meet at least annually to
mutually review and revise the list of KELOs set forth on Schedule 1.
3. QUALITY MANAGEMENT SYSTEM
A. Exchange of Statistical Data. Supplier shall collect and provide
data on Buyer's proposed KELOs in control chart format for joint review by Buyer
and Supplier. Supplier shall provide initial run charts for each KELO within
sixty (60) days of the Effective Date.
B. Establishment of Standing Committees. The parties shall establish
two standing committees: the Working Group and the Steering Committee. The
Working Group shall be comprised of Buyer's Mill management personnel and
Supplier's Facility management personnel. Supplier shall provide weekly evidence
of process performance at a meeting to be held each week by appropriate Mill and
Facility personnel. The Working Group shall meet at least quarterly to discuss
quality status and establish action plans and timetables. The Steering Committee
shall be comprised of corporate officers from both parties. The Steering
Committee will meet at least twice annually to (1) review KELOs, and (2) resolve
disputes within the Working Group. In addition to the responsibilities described
herein, each of the Working Group and Steering Committee shall continuously
review opportunities to introduce new technology to the process and to develop
cost savings opportunities. The Steering Committee shall review annually the net
cost savings and cost increases generated as a result of QMS activites and
technology improvements. The Steering Committee may review and recommend pricing
adjustments if it determines the net change is significant.
C. Functionality. Schedule 1 is the active KELO list agreed to by the
parties. The Working Group shall promptly determine the control and capability
status of each active KELO. Some of the important quality variables may relate
to incoming Scrap quality, and would therefore be reported to by Supplier Buyer
as an opportunity to improve the Scrap supply. Selections of variables to be
monitored must be supported by "cause and effect" analysis. Other variables may
include but are not limited to:
1. KELOs; 2. Supplier process variables which directly affect KELOs; 3.
Supplier process variables which impact KELOs as a result of the mixing of
Supplier produced product with other components of the metal stream for Buyer's
continuous casting operations.
The Working Group shall have the responsibility of "translating" the
KELO targets to process variable targets for metal delivered to Buyer by
Supplier. Once the Reverb Furnaces are operating at the Facility, the parties
expect the delivery variables to be adjusted appropriately. Supplier shall
provide weekly evidence of process performance regarding active KELOs at the
Buyer-Supplier weekly meeting.
The parties shall evaluate process control status, process means and
process capability indices ("Cpk's"), relative to Buyer's stated requirements.
Key variables as selected in this process will be categorized as "in control and
capable", or "in control but not capable", or "not in control."
The initial list of variables, targets and/or ranges, measurement methods
and control tools is attached in Schedule 1 to ---------- this Exhibit "A".
- -----------
4. PROCESS IMPROVEMENT AND CONFORMANCE (The Working Group)
The Working Group, once it has identified the control and capability
status of each KELO, shall develop action plans to eliminate out-of-control and
Cpk issues. Action plans shall be reviewed and updated at each meeting of the
Working Group. The Working Group shall meet formally at least once per calendar
quarter to review conformance status. "Conformance" means Supplier is managing
processes to deliver variables in statistical control and capable at the Cpk
level of 1.33. The Working Group shall agree on measurement methodology and
selection of control tools to be utilized to monitor process performance (i. e.
type of statistical process control chart). Changes to process targets or ranges
will be considered at each Working Group meeting. The party desiring the change
shall support the need for change with factual analysis.
In the event of a condition of non-conformance being discovered by
either party, a special meeting of the Working Group shall be convened. Supplier
shall either (a) correct non-conformance immediately, or (b) propose a
corrective action plan and schedule to Buyer.
5. CONSEQUENCES OF FAILURE TO MANAGE CONFORMANCE AND REGULAR OVERSIGHT (The
Steering Committee)
The Steering Committee shall meet at least twice annually to monitor
the performance of the Working Group, determine whether changes to KELOs are
appropriate based on Buyer's customer requirements and deal with the
consequences of chronic non-conformance issues.
The primary tool for addressing non-conformance shall be the activities
of the Working Group, which is expected to quickly identify, correct and monitor
non-conformance issues. "Non-conformance" is defined as a lack of maintaining
control or capability of one of the agreed active quality variables or KELOs
after control and capability have been established, or unreasonable delays which
last beyond agreed schedules for corrective action plans associated with control
and capability of active quality variables.
The existence of chronic non-conformance requires action by the
Steering Committee. The Steering Committee may recommend that Buyer and/or
Supplier budget and spend capital necessary to relieve a chronic non-conformance
situation, for example. Buyer has the right to levy a monetary penalty (the
"Non-conformance Penalty") against Supplier as a tool for focusing Supplier's
efforts on non-conformance resolution. The Non-conformance Penalty may be due in
response to either:
o Supplier's failure to notify Buyer of a non-conformance issue in a timely
manner; or o Supplier's failure to implement an agreed corrective action plan
within the mutually-agreed time limit.
The Non-conformance Penalty, if applicable, will be determined each
Contract Quarter by statistically determining the "percentage-out-of-compliance"
for each KELO using the specification limits listed in Schedule 1. Buyer has the
right to assess a penalty in an amount not to exceed the product of (x) $0.01
per pound, multiplied by (y) the total "percent-out-of-compliance," multiplied
by (z) the total pounds of Product delivered during the Contract Quarter. In no
event shall the Non-conformance Penalty amount exceed the Buyer's good faith
determination of the actual demonstrated financial impact to Buyer.
The Non-conformance Penalty shall be phased as set forth in the following
schedule:
ROTARY FURNACES
April 1, 1999 through September 30, 1999 No Non-conformance Penalties
apply.
October 1, 1999 through March 31, 2000 Fifty percent (50%) of any
Non-conformance Penalty amount shall apply.
April 1, 2000 through June 30, 2000 Sixty-seven percent (67%) of any
Non-conformance Penalty amount shall apply.
July 1, 2000 through September 30, 2000 Eighty-four percent (84%) of any
Non-conformance Penalty amount shall apply.
After September 30, 2000 One hundred percent (100%) of any Non-conformance
Penalty amount shall apply.
EACH REVERB FURNACE
1st day through the 90th day after the Reverb No Non-conformance Penalties.
Furnace Commission Date
91st day through the 180th day after the Fifty percent (50%) of any Non-
Reverb Furnace Commission Date conformance Penalty amount shall apply.
After the 180th day One hundred percent (100%) of any Non-conformance
Penalty amount shall apply.
For the purposes of this Agreement, the "Reverb Furnace Commission Date" means,
for each Reverb Furnace, the date on which such Reverb Furnace enters full
production.
In the event of Supplier's chronic non-performance, then Buyer may terminate
this Agreement with one (1) year's prior written notice. If Buyer gives written
notice to Supplier that Buyer considers Supplier to be chronically
non-performing, and if Supplier disputes Buyer's determination, the parties
agree to arbitrate the sole issue whether Supplier is chronically
non-performing. The parties shall select a three (3) member arbitration panel
pursuant to, and the arbitration shall be conducted in accordance with, the
commercial arbitration rules of the American Arbitration Association ("AAA").
All costs for the arbitration shall be shared equally between the parties. The
decision of the arbitrator shall be final and binding on both parties.
6. CONFIDENTIAL INFORMATION
Neither party shall be obliged to disclose its respective Confidential
Information, except as may be set forth elsewhere in this Agreement. The parties
agree to execute the spirit of this Exhibit "A" without divulging Confidential
Information.
7. INTENT OF THE PARTIES REGARDING FUTURE INVESTMENT
As a part of this Agreement Supplier will install the Reverb Furnaces
in order to provide the quality and quantity of Product desired by Buyer. It is
the stated belief of both parties that after the Reverb Furnaces are
commissioned, Supplier can attain Buyer's quality requirements using
commercially reasonable operating practices, commercially reasonable statistical
measurement techniques and commercially reasonable cause and effect analysis.
The Quality Management System is not intended to replace or supercede the
capital expenditures programs of either party. Non-conformance Penalties, as
described above, will not accrue solely due to Supplier's failure to authorize
any additional capital expenditure after the installation of the Reverb
Furnaces. The parties shall use their commercially reasonable best efforts to
resolve future capital expenditure issues based on sound economic justification,
as practiced by the two parties in accordance with sound business judgement.
8. GENERAL QUALITY REQUIREMENTS.
A. Supplier shall operate its equipment in control, in accordance with
accepted industry practices with the intent to provide a reliable, high quality
supply of Product to Buyer.
(1) Melters.
(a) Melters shall be properly hot cleaned weekly.
(b) When filling crucibles Supplier shall minimize the
transfer of salts, skim, and salt cake into crucibles.
(2) Crucibles.
(a) Supplier shall maintain crucibles in a clean condition.
(b) Prior to weighing molten shipments, Supplier shall check
crucibles and remove any dross, salt cake, etc from the crucible.
(c) Each molten shipment is to be accompanied by chemical
analysis, sample button, and shipment weight.
(3) Sows.
(a) Ingot shall be skimmed and poured so that the surface is
free of surface and /or entrained salts, excessive skim, surface
contaminants, corrosion, or seams and folds caused by multiple pours.
(b) Ingots shall have minimum shrinkage cavities and/or
internal voids.
(c) Each ingot must be poured level so that they can be
stacked properly.
(d) There will be no excessive splashing on the sides of
ingots.
(e) Each ingot must clearly display the heat number and the
material designator on the side of the ingot.
(f) Ingots which are out of specification with respect to the
stated alloy will be clearly marked with respect to such elements.
(g) Each sow shipment is to be accompanied by chemical
analysis, sample button, and shipment weight.
(h) Ingots will be low profile.
<PAGE>
Schedule 1 to Exhibit "A"
- ------------ ----------- --------- ---------------------------------
Priority KELO Process Rotary Furnace (RSF)
Variable
- ------------ ----------- --------- ---------------------------------
Limit, Range
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
A Mg Content Mg burnout will be limited to
meet the following remaining Mg levels
Scrap ave Mg. min
------ -------- ---
Mg
--
UBC TBA TBA
Ptd Siding 0.1 TBA
MLC 0.3 TBA
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
A Delivery 1350 F + 25 F/ - 100 F
Temp
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
A Inclusions Metal must be free of salts,
spinels, carbides, and oxides.
Supplier and Buyer shall work jointly
to establish an acceptable, practical
quantitative inclusions measurement.
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
Mg level see above
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
Furnace Limit tap temperature to 1400F
temp
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
A Timeliness Deliver molten to meet caster
of daily production requirements
Delivery given 8 hour notice of change
to molten demand and 24 hour
notice of alloy change
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
A Alloy Blend TBA
Chemistry
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
B Alkali Na 0.0075% maximum
metal
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
Ca 0.0075% maximum
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
Li 0.010% maximum
- ------------ ----------- --------- ---------------------------------
- ------------ ----------- --------- ---------------------------------
Schedule 1 to Exhibit "A"(continued)
- ------------------------ ------------
- ------------------------ ------------
- ------------------------ ------------
Measurement Method Control
Tool
- ------------------------ ------------
- ------------------------ ------------
Quantometer Individual
(I)
Weighted average each Moving
month, or periodic Range (MR)
sampling, or use data
from individually
melted scraps
- ------------------------ ------------
- ------------------------ ------------
T/C, chart by crucible I, MR
- ------------------------ ------------
- ------------------------ ------------
Until inclusion I, MR
measurement method is
established, the
intent is to control,
and measure key
process variables
to achieve the KELO.
- ------------------------ ------------
- ------------------------ ------------
see above see above
- ------------------------ ------------
- ------------------------ ------------
measure by handheld TC control
and log temperature chart
when tapping
- ------------------------ ------------
- ------------------------ ----------
monitor in daily supv. notify of
meetings exceptions
- ------------------------ ----------
- ------------------------ ----------
Process TBA Supplier
to blend
available
scraps to
meet Buyer
target
blend
- ------------ ----------- ---------
- ------------ ----------- ---------
chart by crucible I, MR,
report
monthly
- ------------ ----------- ---------
- ------------ ----------- ---------
chart by crucible I, MR,
report
monthly
- ------------ ----------- ---------
- ------------ ----------- ---------
monitor by crucible notify of
exceptions
- ------------ ----------- ---------
- ------------ ----------- ---------
Schedule 1 to Exhibit "A"(continued)
- ---------------------------------------- --------------------- --------------
Reverb Furnace
- ---------------------------------------- --------------------- --------------
Limit, Range Measurement Method Control Tool
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
Mg burnout will be limited to meet the Same as RSF Same as RSF
following remaining Mg levels
Scrap ave Mg. min. Mg
- ----- ------- -------
UBC 1.1% TBA
Ptd Siding 0.5 TBA
MLC 0.8 TBA
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
1350 F +/- 25 F Same as RSF Same as RSF
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
Same as RSF Same as RSF Same as RSF
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
see above see above see above
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
Limit bath temperature to 1450F chart by furnace chart
using bath recorder
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
Same as RSF Same as RSF Same as RSF
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
Same as RSF Same as RSF Same as RSF
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
Same as RSF Same as RSF Same as RSF
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
Same as RSF Same as RSF Same as RSF
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
Same as RSF Same as RSF Same as RSF
- ---------------------------------------- --------------------- --------------
- ---------------------------------------- --------------------- --------------
<PAGE>
EXHIBIT "B"
SCRAP RECEIVING PROCEDURES
I. Scope. Scrap receiving procedures are to be implemented and maintained
as agreed to by Supplier and Commonwealth. Proposed changes will be
submitted by Supplier to Commonwealth for review prior to
implementation. Supplier agrees to implement any reasonable changes to
the Scrap receiving procedures proposed by Commonwealth.
II. Purpose. The receipt, acceptance, and data entry of Scrap must be consistent
with Commonwealth's system to assure:
o Timely delivery, Scrap mix and control of raw material inventory through
delivery appointment scheduling.
o Quality of Scrap conforms to published specifications and yields expected
recoveries and chemistries.
o Open purchase order balances are managed at current status.
o Vendors are promptly advised of weight differences, rejections and/or proposed
downgrades.
o Detailed record of delivery performance, quality, and traceability
by vendor is readily accessible and such data is furnished to
Commonwealth monthly.
o Timely and accurate issuance of Scrap payments.
o Assessment of current raw material inventories by type and forecasting of
future requirements.
III. Delivery Appointment Scheduling.
A. All deliveries of raw materials must be assigned an
appointment number for a specific date and time. Appointment
numbers should be sequential (nonrepeating) and indicate the
calendar month.
1. A designated employee from Commonwealth should issue
delivery appointments to Commonwealth's vendors.
2. All appointments must be entered into the
Commonwealth mainframe computer at the time of
issuance. Any Commonwealth vendor requesting an
appointment must indicate Commonwealth's P.O. number
and applicable scrap type. No appointment will be
given without this information.
B. The delivery appointment schedule is to be printed daily.
Appointments may be made as far in advance as practical
according to Scrap mix requirements, inventory control, and
toll customer priority. Delivery appointment schedule will
include the following:
o Commonwealth Vendor (P.O. issued to)
o P.O. Number
o Appointment (Release) No.
o Type of Material
o Delivery Date and Time
IV. Delivery Documentation.
A. A complete manifest or packing list indicating the applicable
Commonwealth purchase order and a bill of lading must
accompany each load.
B. If load documents presented are incomplete or do not
correspond to delivery appointment information, the load is to
be held. Supplier is to notify the designated Commonwealth raw
material buyer of any discrepancies. Commonwealth will contact
its vendor for resolution.
C. Once all delivery documentation is in order, the Supplier
operator will gross weigh the vehicle and initiate internal
receiving documents (scrap report sheet and/or weight
certificate).
V. Unloading.
A. Supplier's receiving inspector should compare the physical
seal numbers to those indicated on delivery documents for
agreement and that the seal is intact. If the numbers do not
agree or the seal is broken or missing, proper notation must
be made on the Bill of Lading and the internal receiving
report.
B. Supplier's receiving inspector should compare actual package
type and item count to the supplier's packing list. If a
packing list is missing or a discrepancy exists in material
type and/or count, notations are to be made on the Bill of
Lading and the internal receiving report.
C. Each delivery lot must be identified by a tag or paint with
the corresponding Scrap receiving report or weight ticket
number. The method of marking must be sufficient to identify
the load at a future date.
D. Separate scale weights must be obtained for each Scrap type
unloaded from mixed loads. Care should be taken to record the
correct purchase order for each Scrap type. No more than two
(2) Scrap types will be allowed per load. Commonwealth will
endeavor to ensure that each Scrap type will weigh at least
ten thousand (10,000) pounds per load.
VI. Inspection.
A. Supplier's receiving inspector must ensure that the physical
Scrap (type and package) agrees with the purchase order
description.
B. Loose material packed in boxes should be dumped into storage
bins or bunkers for thorough inspection, whenever possible.
C. A hand-held magnet should be passed over as much material as
possible to detect the presence of iron or steel.
D. Each package must be manually inspected for contamination,
(i.e., chrome, plastic, dirt, rubber, radiators, wire, etc.).
Maximum allowable grease and/or oil is 1% by weight. If
present, a sample should be taken and measured by Supplier.
If sufficient contamination is evident to cause the entire lot or load
to be rejected, unloading should cease and Commonwealth's designated raw
material buyer notified immediately. The Scrap Rejection form should be
completed and faxed to Commonwealth. All packages should be put back on the
delivery vehicle.
If contamination is present, but, in the opinion of Supplier's
inspector, it is not sufficient to warrant outright rejection, the Request for
Downgrade form should be prepared and faxed to the Commonwealth. Commonwealth
will discuss with the vendor and notify Supplier of the determination. The load
is to be held until final resolution.
All Scrap loads that are downgraded will be identified for separate
processing to the extent that downgrading resulted from excessive dirt, oil or
other unmeasurable contaminants. Such scrap will be processed on a "best
efforts" basis. Where excessive contaminants are measurable, such excessive
contamination amounts will be credited to Supplier for recovery calculation
purposes.
VII. Moisture Testing (UBCs).
A. Moisture testing procedures must be approved by Commonwealth
in advance. Supplier's present testing procedure is an
approved procedure.
B. Visually inspect and verify the Scrap as specified in Part VI
(Inspection).
C. All lots or loads of UBC, tagged or marked with ID number (see
Section V.C above), must be held, intact, until the moisture
test results are known.
D. Moisture tests must be completed within twenty-four (24) hours of
load delivery.
E. Moisture test results and overall average are to be recorded on the
Moisture Test form.
In the event the average moisture content exceeds the present allowable
limit of four percent (4%), Commonwealth is to be notified. Commonwealth will
advise Supplier of the vendor's decision. Supplier and Commonwealth will from
time to time mutually review the allowable moisture content limit.
Accepted moisture deductions are to be clearly noted on the test result
form and attached to all other internal receiving documents. Excessive moisture
that, in the sole opinion of the receiving inspector, may cause a safety hazard,
is cause for rejection without testing.
VIII. Received Weights and Data Entry.
A. Supplier shall supply to Commonwealth information on received
material within twenty-four (24) hours of delivery.
B. Supplier's net received weight will be the governing payable
weight. If the net received weight is less than the shipping
claimed weight, for any item or lot, by one-half of one
percent (0.5%) or more, the load and delivery vehicle are to
be held and Commonwealth notified immediately. Commonwealth
will notify the vendor of the weight discrepancy. Commonwealth
will advise Supplier of disposition.
IX. Inventory Control.
A. Supplier shall physically inventory Commonwealth's Scrap and
Product in a manner that prevents mixing Commonwealth Scrap
and Product with Supplier's other customers' scrap and in a
manner that enables identification.
B. Commonwealth shall have the right to audit, upon reasonable
notice, Supplier's inventory records and physical inventory
that relate to Commonwealth's Scrap and Product. Commonwealth
anticipates auditing the Scrap inventory twice each calendar
year.
X. Scale Accuracy. Supplier and Commonwealth will develop a scale accuracy
program for all scales that will, at a minimum, meet the requirements of
Commonwealth's scale certification procedures. This program will contain, at a
minimum, (a) a statistically- based methodology to verify scale accuracy, (b)
the use of a mutually agreeable third party for certification, and (c)
Commonwealth's right to have audit and oversight privileges.
<PAGE>
EXHIBIT "C"
CONTRACT RECOVERIES
I. Minimum Scrap Recovery Percentages. The following table sets forth the
minimum Scrap recovery percentages that Supplier must achieve in order to avoid
Recover Penalties:
Rotary Furnace Reverberatory Furnace
Material Type Recovery Percentage Recovery Percentage
Used Beverage Containers 88.5 88.75
Painted Siding 91.0 91.0
New Painted Siding TBA1 TBA1
Mixed Low Copper Clip 95.0 96.0
New Segregated Aluminum Scrap 95.0 97.0
Bailed Foil 96.0 96.0
Class I 95.5 95.5
Class II 93.0 93.0
Class III 92.0 92.0
Food Container 90.0 90.0
Litho Sheet (Ink Coated) TBA1 TBA1
Dross/Concentrates Best Effort Best Effort
Other Scraps Best Effort Best Effort
Filters, socks, etc. Best Effort Best Effort
II. Other Conditions.
A. All materials must be weighed going in and out of the Facility on
Supplier's scales that have been verified in accordance with Part X of Exhibit
"B."
B. All Scrap shall be inspected and rejected by Supplier if it contains
radioactive material.
C. All shredded Scrap shall be processed for iron and heavy metal
(lead, zinc, etc.) removal.
D. All Scrap, including UBCs, will be inspected for
contamination. All Scrap must pass accepted industry standards
for contamination of moisture, dirt, plastic, paper, iron,
heavy metals, and lead. Excessive contamination will result in
rejection of Scrap.
E. UBC Scrap recoveries will be adjusted by Supplier for moisture
content greater than two percent (2%). Testing methods will be
in accordance with industry standards and will be approved by
both parties in writing in advance.
F. Recoveries for Class Scrap and Bailed Foil will be adjusted by
Supplier for excess moisture and oil.
G. The parties agree that the recovery percentages set forth in
Part I of this Exhibit "C" have been established based on the
current commercially recognized composition of each Scrap type
as it relates to gauge, paints and coatings. Significant
changes in melting technologies, composition of Scrap type or
similar items will obligate both parties to review and
appropriately adjust the applicable recovery percentages upon
occurrence of such change.
III. Recovery Calculations for Each Scrap Type
A. Recovery = "Weight Out"
"Weight In"
Weight Out = net weight of actual molten aluminum and/or aluminum ingot
Weight In = scale receipt weight less Dunnage, Moisture deduct (if applicable),
and Contaminants Dunnage = skids, banding, packaging, etc. Contaminants =
magnetic separation material, heavy metals, dirt and debris, as agreed to by
Supplier and Buyer; Moisture = determined in accordance with Parts I.D. and E.
above
The definitions set forth above are consistent with the past
practice of calculating "Recovery" and shall not be changed
without each party's written agreement.
B. Supplier will be responsible for documenting deductions and
reporting them to Buyer on a timely basis.
C. Loads with obvious contaminants which do not meet the
specifications described in Exhibit "B" will be set aside for
disposition. Buyer shall have the responsibility of
negotiating adjustments with its vendors for loads which do
not meet specifications regarding contamination.
D. Supplier shall keep records by Scrap type for a period of at least two
(2) years.
E. Supplier shall report recovery percentages monthly to Buyer.
IV. Recovery Penalties and Incentives
A. Supplier will pay Buyer a penalty for overall recovery
shortfalls and Buyer will pay Supplier an incentive for
overall recovery surpluses.
B. Each reconciliation of recoveries will occur annually as of
the end of each Contract Year and shall be completed within
sixty (60) days after such date.
C. The reconciliation shall be supported by a physical inventory
observed by the Commonwealth Finance Division's designated
representative.
D. The surplus or shortfall for each Scrap type will be calculated as
follows:
If the MR>AR (shortfall), the calculation shall be
made as follows:
(MR-AR) x (V)
If the AR>MR (surplus), the calculation shall be made
as follows:
(AR-GR) x (V)
Where MR = Minimum recovery set forth in Part I. AR =
Actual recovery from Part III.A.
V = Annual Volume for that Scrap type in pounds
The incentive/penalty for recovery surpluses/shortfalls shall be
computed for each Scrap type except those processed on a "best efforts"
basis. The recovery surplus or shortfall (in pounds) for each Scrap
type will be computed and combined to result in a composite surplus or
shortfall for each Contract Year. If there is a composite shortfall,
Supplier will pay a penalty amount to Buyer. Similarly, if there is a
composite surplus, Buyer will pay an incentive amount to Supplier,
subject to the limitations of this Part IV. The value of the
surplus/shortfall shall be computed as follows:
(AVG. COST) x (VOL)
Where:
AVG. COST = Buyer's composite weighted average
acquisition cost during each Contract Year
for all Scrap types for which a minimum
recovery applies. By mutual written
agreement, Buyer and Supplier may use
another calculation method to determine
the average Scrap cost.
VOL = The sum of all surpluses less the sum of
all shortfalls as computed in this Part IV
divided by the composite MR in the case of
a composite surplus or by the composite AR
in the case of a composite shortfall. A
positive VOL indicates a composite
surplus. A negative VOL indicates a
composite shortfall.
Buyer and Supplier will evenly divide any surplus value amount. Where
actual recovery results in a shortfall, Supplier shall pay Buyer for
the entire calculated shortfall amount. Sample calculations appear on
Schedule 1 to this Exhibit "C".
<PAGE>
EXHIBIT "D"
VOLUME AND PRICE
1. The target volume for this Agreement shall be twenty-eight (28) million
pounds of Scrap per month (the "Target Volume"). Supplier shall be
Buyer's exclusive source of Product up to the Target Volume. For the
purposes of this Agreement, "Maximum Volume" means one hundred ten
percent (110%) of the Target Volume.
2. Buyer shall furnish Supplier with a written ninety (90) day month by
month rolling forecast of Buyer's estimated volume requirements (the "Forecast")
on or before the first day of each month during the term of this Agreement. The
Forecast shall estimate Buyer's volume requirements for each of the subsequent
three months. Buyer agrees that it will purchase a minimum of ninety percent
(90%) of the volume of Product listed in the Forecast for the second month, and
Supplier agrees that it will accept orders from Buyer for a maximum of one
hundred ten percent (110%) of the volume of Product listed in the Forecast for
the second month, except for the month of February. The parties hereby
acknowledge that the forecast for the third month in each Forecast shall be
utilized for planning purposes only, and Buyer shall incur no obligation to
purchase the volume of Product set forth in the third month of each Forecast. If
the Buyer's forecast for the third month exceeds the Maximum Volume, Supplier
will endeavor to meet this short-term need, but in no event is Supplier
obligated to toll/convert more than the Maximum Volume. In the event the Buyer's
forecast for the third month exceeds the Maximum Volume, Buyer must first offer
Supplier the opportunity to toll/convert the volumes in excess of the Maximum
Volume for that month, but in the event the parties cannot agree on the terms of
such excess volume tolling/conversion, Buyer shall be able to toll/convert such
excess volumes for that month outside the scope of and not subject to the terms
of this Agreement.
3. If Buyer notifies Supplier in writing of a sustained need to increase
the Target Volume, Supplier agrees to increase the Target Volume to a
maximum of thirty-four (34) million pounds per month no later than one
hundred eighty (180) days after the date of Buyer's written request,
subject to agreement between Buyer and Seller concerning the pricing
for the pounds of Product that exceed the initial Target Volume, but in
the event the parties cannot agree on the pricing of such excess volume
tolling/conversion, Buyer shall be able to toll/convert such excess
volumes outside the scope of and not subject to the terms of this
Agreement
4. Buyer shall have an exclusive right to the melting capacity of the
Reverb Furnaces to be installed at the Facility. Supplier agrees to use its
reasonable efforts to maximize throughput of Scrap through its
shredding/delaquering system. Supplier estimates that the Reverb Furnaces will
have a capacity of approximately fourteen (14) million equivalent scrap melted
pounds per month in the aggregate. If, after installation and commissioning of
the Reverb Furnaces, Buyer is unable to provide Supplier with at least twelve
(12) million pounds of Scrap per month for melting in the Reverb Furnaces, then
Supplier will have the right to charge Buyer a penalty of $0.01 per pound for
all pounds under the forty-two (42) million pounds per Contract Quarter target
level. If, after installation and commissioning of the Reverb Furnaces, Supplier
is unable to melt available Scrap through the Reverb Furnaces at a minimum
monthly rate of twelve (12) million pounds, Buyer will have the right to charge
Supplier a penalty of $0.01 for each pound under the forty-two (42) million
pounds per Contract Quarter target level. These penalties will be kept via an
accrual system and will be reviewed and payable within thirty (30) days of the
end of each Contract Quarter. Notwithstanding anything in this paragraph to the
contrary, the penalties described in this paragraph shall be waived in the event
Buyer and Supplier have mutually agreed before hand to make adjustments so that
either party may undertake major maintenance.
5. Supplier shall provide the services described herein to Buyer,
effective April 1, 1999 in the case of rotary furnace melted scrap and,
effective upon the Reverb Furnace Commission Date in the case of
reverberatory furnace melted scrap, at the initial base tolling prices
per pound of Scrap (the "Base Prices") as follows:
Shred and Delac Non-Shred and Delac
Rotary Furnace Melted Scrap: $.06082 $.05741
Reverberatory Furnace: $.05335 $.05000
Melted Scrap
The Base Prices shall apply to input pounds processed at the Facility
for Buyer's account. However, upon written agreement between Buyer and
Seller, the Base Prices may be adjusted to a pounds out basis using the
recoveries as agreed to in Exhibit "C".
The Base Prices described above shall be adjusted from time to time as
set forth in Exhibit "E". Supplier shall invoice Buyer monthly for
services provided. Terms of payment shall be net 30 days.
6. When total pounds processed per Contract Quarter exceed the Maximum
Volume (on a quarterly basis), those pounds in excess of the Maximum
Volume (on a quarterly basis) shall receive a discount of $0.003 per
pound. If the Target Volume is subsequently revised as set forth in
Paragraph 3 above, Buyer and Seller agree to negotiate new incremental
discounts at the same time pricing for the new Target Volume is
negotiated.
7. If total pounds processed in any given Contract Quarter are below
eighty percent (80%) of the quarterly Target Volume, and Buyer has not
used a third party supplier of scrap, ingot or molten metal, Buyer
shall pay Supplier an unused capacity fee of one hundred eighty
thousand dollars ($180,000) per Contract Quarter. The unused capacity
fee described in this paragraph shall be payable within thirty (30)
days of the end of each Contract Quarter. The unused capacity fee shall
be waived in the event Buyer and Supplier have mutually agreed before
hand to make adjustments so that either party may undertake major
maintenance. If total pounds processed in any given Contract Quarter
falls below the quarterly Target Volume, and Buyer has used a third
party supplier of scrap, ingot or molten metal, then Buyer will be
deemed to be in default of this Agreement.
8. When total pounds processed through the Reverb Furnaces exceed
forty-two (42) million pounds per Contract Quarter, and quarterly total
volume at the Facility exceeds ninety (90) million pounds, those pounds
processed through the Reverb Furnaces in excess of forty-two (42)
million pounds per Contract Quarter shall receive a discount of $0.006
per pound.
9. In addition to the Base Prices described in Paragraph 3 above, Buyer
shall pay to Supplier an additional tolling fee equal to sixty thousand
dollars ($60,000) per month with respect to the period commencing on
the Effective Date through and extending until March 31, 2003. Such
additional tolling fee will be invoiced at the beginning of each month
and will be due net thirty (30) days.
10. Additional charges to Buyer over and above the Base Prices set forth above
shall be as follows:
a. Flux: Supplier shall invoice Buyer for the flux used on rotary
furnace melted Scrap volumes only at the actual demonstrated
cost of flux used each month. Buyer and Supplier may agree on
a per pound average flux price for rotary furnace melted
tonnage and quantity used based on nominal flux percentages or
actual flux used.
b. Landfill: Cost of landfilling salt cake produced from rotary
furnace production only shall be to Buyer's account based on
Exhibit "F". Buyer and Supplier may make alternative
arrangements for the handling of said salt cake by mutual
consent.
c. Other charges: Supplier will invoice Buyer for other charges
outside the scope of this Agreement as the parties may
mutually agree. Such charges include but are not limited to
excess lime charges, hazardous waste landfill charges and
excess baghouse bag costs.
11. Notwithstanding anything to the contrary in this Exhibit "D", in the
event Supplier shall at any time charge and invoice any other customer
of Supplier at the Facility at more favorable prices for substantially
similar tolling/conversion services with respect to scrap materials
substantially similar to those tolled/converted pursuant to this
Agreement, Buyer shall be entitled to the benefit of an adjustment in
the price charged by Supplier hereunder effective as of the date such
more favorable price is first charged to such other customer in order
that no customer of Supplier shall enjoy pricing for substantially
similar products and services which is more favorable than pricing
experienced by Buyer.
12. The average monthly level of magnesium in UBCs will be 0.70% or
greater. For each month that the level is below 0.70%, then Supplier
shall pay Buyer for said lost magnesium at the market price. Buyer
shall calculate the amount of the lost magnesium by using the monthly
weighted average of UBCs. This calculation, invoicing and reimbursement
shall be consistent with the past practice adopted by both parties.
<PAGE>
EXHIBIT "E"
BASE PRICE ADJUSTMENTS
The Base Prices for both rotary melted volumes and reverberatory melted
volumes in the Agreement shall be adjusted as follows:
1. Labor. Twenty-five percent (25%) of each Base Price shall be adjusted
by the percentage of the increase or decrease in the Supplier's base
average hourly wage for hourly employees at the Facility (the "Supplier
Base Average Hourly Wage"). The Supplier Base Average Hourly Wage and
Buyer's base average hourly wage (the "Buyer Base Average Hourly Wage")
shall be the respective wage for each party used to arrive at the new
rotary rates to be effective as of April 1, 1999. After this base wage
is determined, subsequent increases or decreases shall be calculated
using the average hourly increase or decrease percentage.
Any adjustment in the Supplier Base Average Hourly Wage shall be
computed at such times as wage rates are adjusted and shall be
effective on the first day of the month following such wage rate
adjustments.
Supplier is permitted to take the full percentage of its labor increase
as long as, prior to the application of this increase, the Supplier
Base Average Hourly Wage then in effect is less than the Buyer Base
Average Hourly Wage then in effect by $1.00 or more.
2. Natural Gas. Fifteen percent (15%) of each Base Price shall be adjusted
by the percentage increase or decrease in the ------------ burner-tip price
which Supplier pays for natural gas at the Facility. The parties agree that the
natural gas price used for purposes of establishing the Base Price in the
Agreement is the average burner-tip price Supplier pays for natural gas at the
Facility during the first calendar quarter of 1999, which amount is $3.20/MCF.
Supplier agrees to coordinate its natural gas procurement with Buyer and to
appoint Buyer as its agent for such purposes if Buyer so desires. To the extent
Supplier is purchasing gas either directly or indirectly on the spot market, the
adjustment to Base Price described in this Paragraph 2 shall be calculated
quarterly by determining Supplier's weighted average gas price for each quarter
and comparing such price to the first calendar quarter 1999 gas price. Such
adjustment in the Base Prices will be effective on the first day of the
following quarter. To the extent Supplier is purchasing gas on a fixed price
basis, a change in natural gas price during any month will result in a Base
Price adjustment to be effective on the first day of the following month.
3. Materials and Supplies. Twenty percent (20%) of each Base Price shall
be adjusted by the percentage increase or decrease in the Product Price
Index - Industrial Commodities, using commodity codes (03) through
(15), as published monthly by the Untied States Department of Labor
(the "Index"). Adjustments shall be computed annually based on the
percentage change in the Index at the third month prior to the end of
each Contract Year. Such adjustment shall be effective on the first day
of the following Contract Year. However, if the percentage change in
the Index for any Contract Quarter exceeds two (2%) percent, the Base
Price adjustment will be computed at the end of such Contract Quarter
and shall be effective on the first day of the following Contract
Quarter.
4. Fixed. Forty percent (40%) of each Base Price shall remain fixed.
<PAGE>
EXHIBIT "F"
WASTE MINIMIZATION
I. Supplier shall not be subject to the waste minimization penalties set
forth in Part II of this Exhibit "F" unless Supplier's waste generation
levels exceed the following percentages for each type of Scrap charged
by Supplier as set forth below:
Waste Generation as a
Scrap Type Percentage of Pounds Charged
All non-UBC Scrap 15
UBCs 10
Dross 52 @ 60% metallics
70 @ 50% metallics
II. Waste Minimization Penalty
A. The waste penalty volume will be calculated as follows by
determining the actual waste volume, in pounds, and
subtracting the calculated waste volume in pounds.
- "Actual" annual waste volume is determined by Supplier's statistically
certified scale weights.
- "Calculated" waste volume is determined by the sums
of the annual pounds charged multiplied by the
percentage shown in Paragraph I above for each Scrap
type.
B. If the waste penalty volume calculated in Part II.A above is
negative, there is no penalty.
If the waste penalty volume calculated in Part II.A above is
positive, Supplier will be required to provide for disposal of
such excess volume of saltcake at its expense.
III. Other Conditions
A. Waste generation will be reported to Buyer monthly.
B. The reconciliation of waste minimization will occur annually at the
end of each Contract Year.
C. The reconciliation will be supported by an annual physical
inventory audited by Buyer's Chief Financial Officer or his
designated representative.
D. Supplier will be responsible for disposal of all non-hazardous
delacquer kiln waste.
E. Supplier will be responsible for loading saltcake and rotary
baghouse dust at the Facility onto trucks designated by Buyer.
<PAGE>
EXHIBIT "G"
RIGHT OF FIRST REFUSAL AND OPTION TO PURCHASE
A. OPTION TO PURCHASE. Subject to the provisions set forth below, IMCO
hereby grants to Commonwealth an option to purchase (the "Option")
IMCO's Uhrichsville, Ohio facility (plant, property and equipment) (the
"Facility").
1. At End of Agreement Term. Subject to Section 2 below of this
Paragraph A, the Option will be exercisable during the ninety
(90) calendar days ending on the last day of the ninth
Contract Year of the Agreement. If Commonwealth exercises the
Option, the purchase and sale of the Facility will have a
closing date effective as of the end of the tenth Contract
Year.
The price of the Facility will be an amount equal to five (5)
times the Average EBITDA. For the purposes of this Agreement,
the "Average EBITDA" is equal to the quotient of (x) the sum
of the EBITDA (earnings before interest, taxes, depreciation
and amortization) of the Facility for each of the three
calendar years ending on or before the first day of the tenth
Contract Year, divided by (y) three. The computation of
Average EBITDA will be made on a consolidated basis in
accordance with the books and records of the Facility and
IMCO, maintained in accordance with generally accepted
accounting principles, consistently applied.
2. IMCO Change of Control. In the event of an IMCO Change of Control
(defined below), the Option would become ------------------------ exercisable
for a ninety (90) calendar day period (or, if such ninety (90) period would
adversely affect the consummation of the IMCO Change in Control, the greatest
number of days that would not adversely affect such transaction; provided,
however, such period shall be at least thirty (30) calendar days) following
notification by IMCO to Commonwealth of an IMCO Change of Control. If the Option
is exercised pursuant to an IMCO Change of Control, the price of the Facility
will be an amount equal to the product of (x) the EBITDA of the Facility for the
most recently completed calendar year ended on or before the date of the IMCO
Change of Control, multiplied by (y) the Option Multiple. The "Option Multiple"
is a number determined by dividing (a) the aggregate value of the transaction
which represented or resulted in the IMCO Change of Control by (b) the
consolidated EBITDA of IMCO Recycling Inc. for the most recently completed
calendar year ended on or before the IMCO Change of Control.
For the purposes of this Agreement, an "IMCO Change of
Control" shall mean any of the following: (a) any merger or
consolidation pursuant to which shares of IMCO's Common Stock
would be converted into cash, securities, or other property,
or any sale, lease, exchange or other disposition (excluding a
disposition by way of mortgage, pledge or hypothecation), in
one transaction or a series of related transactions, of all or
substantially all of the assets of IMCO (an "IMCO Business
Combination"), in each case unless, following such IMCO
Business Combination, all or substantially all of the holders
of the outstanding Common Stock of IMCO immediately prior to
such IMCO Business Combination beneficially own, directly or
indirectly, more than 50.1% of the outstanding common stock or
equivalent equity interests of the corporation or legal entity
resulting from such IMCO Business Combination (including,
without limitation, a corporation which as a result of such
transaction owns IMCO or all or substantially all of IMCO's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such IMCO Business Combination, of the
outstanding IMCO Common Stock, or (b) any individual or entity
(or group of individuals or entities acting in concert), other
than IMCO or any successor to IMCO or any subsidiary of IMCO,
or any employee benefit plan of IMCO or any subsidiary of IMCO
(including any trustee of such plan or plans) becomes a
beneficial owner for purposes of Section 13(d) of the
Securities Exchange Act of 1934 of 50.1% or more of IMCO's
then outstanding securities having the right to vote in an
election of directors. Expressly excepted from the definition
of IMCO Change of Control under this Section 2 shall be an
event described in clauses (a) and/or (b) of this definition
which is accomplished as a management-led buyout or
management-led purchase of all or substantially all of the
business, securities, or assets of IMCO and/or its
subsidiaries.
3. Termination of Option. In the event of a Commonwealth Change
of Control (defined below), the Option shall immediately
thereupon terminate and will not be exercisable by
Commonwealth, its successor(s) or assign(s).
For the purposes of this Agreement, a "Commonwealth Change of
Control" shall mean any of the following: (a) any merger or
consolidation pursuant to which shares of Commonwealth's
Common Stock would be converted into cash, securities, or
other property, or any sale, lease, exchange or other
disposition (excluding a disposition by way of mortgage,
pledge or hypothecation), in one transaction or a series of
related transactions, of all or substantially all of the
assets of Commonwealth (a "Commonwealth Business
Combination"), in each case unless, following such
Commonwealth Business Combination, all or substantially all of
the holders of the outstanding Common Stock of Commonwealth
immediately prior to such Commonwealth Business Combination
beneficially own, directly or indirectly, more than 50.1% of
the outstanding common stock or equivalent equity interests of
the corporation or legal entity resulting from such
Commonwealth Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns Commonwealth or all or substantially all of
Commonwealth's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Commonwealth Business
Combination, of the outstanding Commonwealth Common Stock, or
(b) any individual or entity (or group of individuals or
entities acting in concert), other than Commonwealth or any
successor to Commonwealth or any subsidiary of Commonwealth,
or any employee benefit plan of Commonwealth or any subsidiary
of Commonwealth (including any trustee of such plan or plans)
becomes a beneficial owner for purposes of Section 13(d) of
the Securities Exchange Act of 1934 of 50.1% or more of
Commonwealth's then outstanding securities having the right to
vote in an election of directors. Expressly excepted from the
definition of Commonwealth Change of Control under this
section 2. shall be an event described in clauses (a) and/or
(b) of this definition which is accomplished as a
management-led buyout or management-led purchase of all or
substantially all of the business, securities, or assets of
Commonwealth and/or its subsidiaries.
B. RIGHT OF FIRST REFUSAL. Subject to the provisions set forth below, IMCO
hereby grants to Commonwealth a right of first refusal to purchase the
Facility (the "Right of First Refusal").
1. Third Party Offer. In the event that IMCO receives an offer from a third
party (other than an affiliate of IMCO) to ----------------- purchase solely the
Facility (an IMCO Change of Control or other event pursuant to which all or
substantially all of the assets and business of IMCO are to be transferred to a
third party shall not be deemed an offer to purchase solely the Facility), which
offer IMCO finds acceptable, then IMCO will notify Commonwealth of such offer.
Commonwealth will have ninety (90) calendar days (or, if such ninety (90) day
period would adversely affect the consummation of the purchase by the third
party, the greatest number of days that would not adversely affect such
transaction; provided, however, such period shall be at least thirty (30)
calendar days) from the date of IMCO's notification to exercise its Right of
First Refusal on the same terms and conditions as the terms and conditions of
such offer. Transfers to direct or indirect wholly-owned subsidiaries of IMCO or
other affiliates of IMCO shall not be subject to this Section B.
2. IMCO Decision to Sell. In the event that IMCO decides to sell
the Facility, IMCO will notify Commonwealth of its intent to
sell and IMCO's "asking price" for the Facility. Commonwealth
may exercise its right of first refusal and enter into
negotiations to purchase the Facility. If an agreement is not
reached within ninety (90) calendar days from the date of
IMCO's notification to Commonwealth, then Commonwealth's Right
of First Refusal hereunder shall lapse, and IMCO may thereupon
terminate the negotiations with Commonwealth and enter into
negotiations with other parties; provided, however, that the
purchase price agreed to by IMCO and the third party for the
Facility shall be within five percent (5%) of IMCO's "asking
price.".
3. Termination of Right of First Refusal. In the event of a
Commonwealth Change of Control, Commonwealth's Right of First
Refusal under this Section B shall thereupon immediately
terminate and shall not be exercisable by Commonwealth, its
successor(s) or assign(s).
C. GENERAL.
1. IMCO agrees to grant to Commonwealth sufficient opportunity to
perform a due diligence review and title review of the
Facility during the respective period(s) following
notification of exercise and prior to closing of the exercise
of the Option or the Right of First Refusal, as the case may
be, including access to IMCO Facility properties and documents
during normal business hours (subject to mutually satisfactory
confidentiality agreements regarding the subject matter
thereof to be entered between IMCO and Commonwealth with
respect thereto).
2. All notices contemplated under this Exhibit "G" shall be in
writing and sent to the addresses and individuals in strict
accordance with the provisions of Article XI of the Agreement.
3. Notwithstanding any provision contained herein to the
contrary, (a) Commonwealth shall not have the right to
exercise its rights under Section A. or Section B. above in
the event that at such time, Commonwealth is in material
default of any of its material obligations under the
Agreement, and (b) the rights of Commonwealth and obligations
of IMCO under this Exhibit "G" shall terminate and expire at
the expiration of the term of the Agreement or when the
Agreement is otherwise no longer in force and effect.
4. At the option of either IMCO or Commonwealth, the parties
agree to negotiate in good faith written agreements containing
ordinary and customary terms and setting forth in additional
detail the rights and obligations of the respective parties
regarding the Option and Right of First Refusal as
contemplated hereunder, including summary memoranda or similar
notifications in recordable form to be filed with the
appropriate recording agencies, if the parties so desire.
5. IMCO's obligations hereunder are also subject in all respect
to IMCO's securing the prior written consent or waiver of its
senior secured lenders before the Option or Right of First
Refusal can become effective.
- --------
1 For those scrap types designated "TBA", IMCO and Commonwealth will conduct
joint melt loss studies using industry accepted practices. These studies will be
conducted within six (6) months after the Effective Date for rotary salt
furnaces and within six (6) months after installation of the reverberatory
furnaces. The data from these studies will be used to establish recovery
guarantees to be mutually agreed to pursuant to good faith negotiations between
the parties.
May 3, 1999
Commonwealth Industries, Inc.
500 West Jefferson Street
Citizens Plaza - 19th Floor
Louisville, Kentucky 40202-2823
We are providing this letter to you for inclusion as an exhibit to your Form
10-Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting for certain
inventories from the FIFO inventory accounting method to the LIFO inventory
accounting method contained in the Company's Form 10-Q for the quarter ended
March 31, 1999. Based on our reading of the data and discussions with Company
officials of the business judgment and business planning factors relating to the
change, we believe management's justification to be reasonable. Accordingly, in
reliance on management's determination as regards elements of business judgment
and business planning, we concur that the newly adopted accounting principle
described above is preferable in the Company's circumstances to the method
previously applied.
We have not audited any financial statements of Commonwealth Industries, Inc. as
of any date or for any period subsequent to December 31, 1998, nor have we
audited the application of the change in accounting principle disclosed in Form
10-Q of Commonwealth Industries, Inc. for the three months ended March 31, 1999;
accordingly, our comments are subject to revision on completion of an audit of
the financial statements that include the acounting change.
/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
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<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
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0
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