<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
Commission file number 0-27918
CENTURY ALUMINUM COMPANY
(Exact name of Registrant as specified in its Charter)
DELAWARE 13-3070826
(State of Incorporation) (IRS Employer Identification No.)
2511 GARDEN ROAD
BUILDING A, SUITE 200
MONTEREY, CALIFORNIA 93940
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (408) 642-9300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The registrant had 20,000,000 shares of common stock outstanding at
July 31, 1998.
<PAGE> 2
CENTURY ALUMINUM COMPANY
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1 - Financial Statements Page Number
<S> <C>
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997.......................................................... 1
Consolidated Statements of Operations for the three months
and six months ended June 30, 1998 and 1997.................................... 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997................................................... 3
Notes to the Consolidated Financial Statements................................. 4-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 10-14
Part II - Other Information
Item 1 - Legal Proceedings................................................................ 15
Item 6 - Exhibits and Reports on Form 8-K................................................. 15
Signatures................................................................................ 16
Exhibit Index............................................................................. 17
</TABLE>
<PAGE> 3
CENTURY ALUMINUM COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- --------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash ................................................................. $ 2,452 $ 42
Restricted cash equivalents .......................................... 5,809 5,805
Accounts receivable, trade - net ..................................... 82,232 111,146
Due from affiliates .................................................. 12,443 8,362
Inventories .......................................................... 174,851 170,085
Prepaid and other assets ............................................. 8,136 8,082
-------- --------
Total current assets ............................................ 285,923 303,522
PROPERTY, PLANT AND EQUIPMENT - NET ....................................... 206,718 198,341
OTHER ASSETS .............................................................. 7,205 5,285
-------- --------
TOTAL ........................................................... $499,846 $507,148
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade .............................................. $ 35,437 $ 51,411
Due to affiliates .................................................... 6,428 10,560
Accrued and other current liabilities ................................ 32,766 22,364
Accrued employee benefits costs - current portion .................... 32,459 38,663
-------- --------
Total current liabilities ....................................... 107,090 122,998
-------- --------
REVOLVING TERM LOAN ....................................................... 60,423 58,950
ACCRUED PENSION BENEFITS COSTS - Less current portion ..................... 9,361 12,139
ACCRUED POSTRETIREMENT BENEFITS COSTS - Less current portion .............. 121,983 118,532
DUE TO AFFILIATES ......................................................... 608 6,673
OTHER LIABILITIES ......................................................... 24,897 24,310
-------- --------
Total noncurrent liabilities .................................... 217,272 220,604
-------- --------
CONTINGENCIES AND COMMITMENTS (Note 4)
SHAREHOLDERS' EQUITY:
Common Stock (one cent par value, 50,000,000 shares authorized;
20,000,000 shares outstanding at June 30, 1998 and December 31, 1997) 200 200
Additional paid-in capital ........................................... 161,953 161,953
Retained earnings .................................................... 13,331 1,393
-------- --------
Total shareholders' equity ...................................... 175,484 163,546
-------- --------
TOTAL ........................................................... $499,846 $507,148
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE> 4
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES:
Third-party customers ......... $ 139,070 $ 165,024 $ 292,427 $ 330,728
Related parties ............... 17,692 26,453 40,725 52,280
--------- --------- --------- ---------
156,762 191,477 333,152 383,008
COST OF GOODS SOLD ................. 144,936 179,896 307,814 364,481
--------- --------- --------- ---------
GROSS PROFIT ....................... 11,826 11,581 25,338 18,527
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ....... 4,338 5,605 8,795 9,907
--------- --------- --------- ---------
OPERATING INCOME ................... 7,488 5,976 16,543 8,620
INTEREST EXPENSE - Net ............. (454) (953) (1,142) (1,694)
NET GAIN (LOSS) ON FORWARD CONTRACTS 5,497 (466) 6,524 507
OTHER INCOME (EXPENSE) ............. 140 (157) (147) (336)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ......... 12,671 4,400 21,778 7,097
INCOME TAX EXPENSE ................. (4,561) (1,617) (7,840) (2,588)
--------- --------- --------- ---------
NET INCOME ......................... $ 8,110 $ 2,783 $ 13,938 $ 4,509
========= ========= ========= =========
EARNINGS PER COMMON SHARE
Basic ......................... $ 0.41 $ 0.14 $ 0.70 $ 0.23
========= ========= ========= =========
Diluted ....................... $ 0.40 $ 0.14 $ 0.69 $ 0.22
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic ........................... 20,000 20,000 20,000 20,000
========= ========= ========= =========
Diluted ......................... 20,275 20,234 20,267 20,243
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE ......... $ 0.05 $ 0.05 $ 0.10 $ 0.10
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 5
CENTURY ALUMINUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ................................................ $ 13,938 $ 4,509
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ...................... 9,780 9,630
Deferred income taxes .............................. -- (3,374)
Pension and other postretirement benefits .......... (5,530) (3,840)
Change in operating assets and liabilities:
Accounts receivable, trade - net .............. 28,914 (30,884)
Due from affiliates ........................... (4,081) (851)
Inventories ................................... (4,766) 13,836
Prepaids and other assets ..................... (684) (2,941)
Accounts payable, trade ....................... (15,974) 14,120
Due to affiliates ............................. (10,197) (6,823)
Accrued and other current liabilities ......... 10,402 1,282
Other - net ................................... 293 417
--------- ---------
Net cash provided by (used in) operating
activities......................................... 22,095 (4,919)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ................. (19,154) (10,993)
Restricted cash deposits .................................. (4) --
--------- ---------
Net cash used in investing activities .............. (19,158) (10,993)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings ................................................ 115,104 120,258
Repayment of borrowings ................................... (113,631) (98,282)
Dividends ................................................. (2,000) (2,000)
--------- ---------
Net cash provided by (used in) financing
activities......................................... (527) 19,976
--------- ---------
NET INCREASE IN CASH ............................................. 2,410 4,064
CASH, BEGINNING OF PERIOD ........................................ 42 112
--------- ---------
CASH, END OF PERIOD .............................................. $ 2,452 $ 4,176
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 6
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1998 AND 1997
(Dollars in Thousands Except as Otherwise Noted)
(Unaudited)
1. GENERAL
Century Aluminum Company ("Century" or the "Company") is a holding company
whose principal subsidiary is Century Aluminum of West Virginia, Inc. ("Century
of West Virginia"), which operates a primary aluminum reduction facility and an
aluminum fabrication facility in Ravenswood, West Virginia. Century of West
Virginia, through its wholly-owned subsidiary Berkeley Aluminum, Inc.
("Berkeley"), holds a 26.67% interest in a partnership which operates a primary
aluminum reduction facility in Mt. Holly, South Carolina ("MHAC") and a 26.67%
undivided interest in the property, plant and equipment comprising MHAC.
Glencore AG and Vialco Holdings Ltd., which are wholly-owned subsidiaries
of Glencore International AG (together with its subsidiaries, the "Glencore
Group") own 7,925,000 common shares, or 39.6% of the common shares outstanding
of the Company. Century and the Glencore Group enter into various transactions
such as the purchase and sale of primary aluminum, scrap aluminum, alumina and
metals risk management.
The accompanying unaudited interim consolidated financial statements of the
Company should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 1997. In management's opinion, the
unaudited interim consolidated financial statements reflect all adjustments,
which are of a normal and recurring nature, which are necessary for a fair
presentation, in all material respects, of financial results for the interim
periods presented. Operating results for the first six months of 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. Certain reclassifications of prior-period information were
made to conform to the current presentation.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
--------------- ---------------
<S> <C> <C>
Raw Materials ........................ $ 67,566 $ 62,440
Work-in-process ...................... 66,550 62,675
Finished goods ....................... 22,118 23,199
Operating and other supplies ......... 18,617 18,206
Unrealized losses on forward
contracts............................ -- 3,565
--------------- ---------------
$ 174,851 $ 170,085
=============== ===============
</TABLE>
At June 30, 1998 and December 31, 1997, approximately 89% of inventories
were valued at the lower of last-in, first-out ("LIFO") cost or market. The
excess of the LIFO cost (or market, if lower) of inventory over the first-in,
first-out ("FIFO") cost was approximately $20,273 and $16,670 at June 30, 1998
and December 31, 1997, respectively.
4
<PAGE> 7
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1998 AND 1997
3. BANK REVOLVING CREDIT FACILITY
On January 30, 1996, Century of West Virginia and Berkeley entered into a
three-year bank revolving credit facility ("Facility") with BankAmerica Business
Credit, Inc. ("Bank of America"). The Facility provides for a revolving credit
facility that consists of borrowings and letters of credit up to $150,000 in the
aggregate. On May 11, 1998, the Company and Bank of America agreed to amend and
extend the Facility to January 30, 2001.
Subject to certain limitations, the Company may select base rate or LIBOR
loans. Under the terms of the agreement, through January 31, 1999, the interest
rate is (i) for base rate loans, 0.5% in excess of the base rate, which is the
rate publicly announced from time to time by Bank of America as its reference
rate, or (ii) for LIBOR loans, 1.75% in excess of the one-, two-, three- or
six-month LIBOR as quoted from time to time by Bank of America. After January
31, 1999, the interest rate margins on base rate loans will range from 0.25% to
0.75% and on LIBOR loans from 1.5% to 2.0% based on the attainment of certain
financial ratios. The interest rate on the borrowings under the Facility was
8.18% on June 30, 1998. Borrowings of $60,423 as of June 30, 1998 are
collateralized by Century of West Virginia's and Berkeley's inventory and
receivables and are guaranteed by the Company.
4. CONTINGENCIES AND COMMITMENTS
Environmental Contingencies
The Company's operations are subject to various environmental laws and
regulations. The Company has spent, and expects to spend in the future,
significant amounts for compliance with those laws and regulations.
Pursuant to an order issued in September 1994 under Section 3008(h) (the
"3008(h) order") of the Resource Conservation and Recovery Act ("RCRA"), Century
of West Virginia is performing remediation measures at a former oil pond area
and in connection with cyanide contamination in the groundwater, and is
conducting a RCRA facility investigation ("RFI") and a corrective measures study
("CMS") to evaluate and develop corrective alternatives for any areas that have
contamination exceeding certain levels. The Company completed initial sampling
and analysis and submitted its initial findings to the Environmental Protection
Agency ("EPA"). The EPA has requested that the Company perform additional field
work and testing. As a result, the Company anticipates that the RFI will not be
completed before late 1998. Once the RFI and CMS are complete, the EPA will
assess the need for clean-up, and if any clean-up is required, a subsequent
order will be issued. At this time, the Company is unable to determine the
extent of clean-up measures, if any, that may be required. However, the Company
is aware of some environmental contamination at Century of West Virginia, and it
is likely that clean-up activities will be required in at least some areas of
the facility. The Company believes a significant portion of this contamination
is attributable to the operations of a prior owner and will be the financial
responsibility of that owner, as discussed below.
5
<PAGE> 8
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1998 AND 1997
Prior to the Company's acquisition of the Century of West Virginia
facility, Kaiser Aluminum & Chemical Corporation ("Kaiser") owned and operated
the facility for approximately thirty years. Many of the conditions which the
Company is required to investigate under the 3008(h) order arise out of
activities which occurred during Kaiser's ownership and operation, and with
respect to those conditions, Kaiser will be responsible for the costs of the RFI
and required cleanup under the terms of the purchase agreement ("Kaiser Purchase
Agreement"). In addition, Kaiser retained title to certain land within the
Century of West Virginia premises and retains full responsibility for those
areas. Under current environmental laws and regulations, the Company may be
required to remediate any contamination discovered during or after completion of
the RFI, which contamination was discharged from areas which Kaiser previously
owned or operated, or for which Kaiser has retained ownership or responsibility.
However, if such remediation is required, the Company believes that Kaiser will
be liable for some or all of the costs thereof pursuant to the Kaiser Purchase
Agreement.
The Company is aware of two areas of contamination in the soil and
groundwater at its previously-owned Vialco facility. At the first of these
areas, the Company has removed quantities of contaminated soils and has
transported and disposed of such soils in approved facilities. In addition, it
has begun a bioremediation program which it believes will fulfill the remaining
legal requirements with respect to such soils. In the second area, the Company
believes that a substantial amount of the contamination originated from an
adjacent refinery owned by Hess Oil Virgin Islands, Inc. ("HOVIC"). The Company
further believes that the vast majority of any contamination which did not
originate from HOVIC was caused by releases on the property which predated
Vialco's ownership and will not be the legal responsibility of Vialco. Pursuant
to the Acquisition Agreement by which Vialco sold the premises to St. Croix
Alumina, L.L.C., a subsidiary of Alcoa Alumina and Chemicals L.L.S. ("St.
Croix"), Vialco retained liability for environmental conditions existing at the
time of the sale only to the extent such conditions arose from operation of the
facility by Vialco. In addition, indemnification arises only if the conditions
require remediation or give rise to claims under the laws in effect at the time
of sale. Finally, St. Croix may not request indemnity from Vialco until St.
Croix has spent $300 on such environmental conditions and Vialco's indemnity is
capped at $18,000. Management of the Company does not believe that the retained
liability, if any, will have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
It is the Company's policy to accrue for costs associated with
environmental assessments and remedial efforts when it becomes probable that a
liability has been incurred and the costs can be reasonably estimated. The
aggregate environmental related accrued liabilities were $1,374 and $1,052 at
June 30, 1998 and December 31, 1997, respectively. All accruals have been
recorded without giving effect to any possible future insurance or Kaiser
indemnity proceeds. With respect to ongoing environmental compliance costs,
including maintenance and monitoring, such costs are expensed as incurred.
6
<PAGE> 9
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1998 AND 1997
Because of the issues and uncertainties described above, and the Company's
inability to predict the requirements of future environmental laws, there can be
no assurance that future capital expenditures and costs for environmental
compliance will not have a material adverse effect on the Company's future
financial condition, results of operations or liquidity. Based upon all
available information and after consultation with counsel, management does not
believe that the outcome of these environmental matters will have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
Legal Contingencies
Century of West Virginia is a named defendant (along with other companies)
in approximately 4,095 civil actions brought by individuals seeking to recover
significant compensatory and/or punitive damages in connection with various
asbestos-related diseases. However, counsel for the plaintiffs have represented
that Century of West Virginia will be dismissed from 2,412 cases because the
plaintiffs in these cases had no contact with the Century of West Virginia
facility. All of the remaining 1,683 plaintiffs have been employees of
independent contractors who claim to have been exposed to asbestos in the course
of performing services at various facilities, including the Century of West
Virginia facility. The cases are typically resolved based upon factual
determinations as to the facilities at which the plaintiffs worked, the periods
of time during which work was performed, the type of work performed and the
conditions in which work was performed. If the plaintiffs' work was performed
during the period when Kaiser owned the Century of West Virginia facility,
Kaiser has retained responsibility, pursuant to the terms of the Kaiser Purchase
Agreement, for defense and indemnity. If a plaintiff is shown to have worked at
the Century of West Virginia facility after the time Century of West Virginia
purchased the facility from Kaiser, Kaiser assumes the defense and liability,
subject to a reservation of rights against Century of West Virginia. The Company
believes it is unlikely that existing or potential plaintiffs were exposed to
asbestos at the Century of West Virginia facility after Century of West Virginia
purchased the facility from Kaiser, although nineteen plaintiffs have claimed
they were exposed during this period of time. Claims with nine of these
plaintiffs have been settled for nominal amounts or dismissed. Therefore, while
the impact of the asbestos proceedings is impossible to predict, the Company
believes that the ultimate resolution will not have a material adverse effect on
the Company's financial condition, results of operations or liquidity.
The Company has pending against it or may be subject to various other
lawsuits, claims and proceedings related primarily to employment, commercial,
environmental and safety and health matters. Although it is not presently
possible to determine the outcome of these matters, management believes their
ultimate disposition will not have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
7
<PAGE> 10
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1998 AND 1997
Commitments
The Company and a public utility have a fixed price power supply agreement,
covering the period from July 1, 1996 through July 31, 2003.
On January 23, 1996, the Company and the Pension Benefit Guaranty
Corporation ("PBGC") entered into an agreement (the "PBGC Agreement") which
provided that the Company make scheduled cash contributions to its pension plan
for hourly employees in 1996, 1997, 1998 and 1999. The Company made its
scheduled contributions in 1996 and 1997 and estimates that its scheduled
contributions in each of the remaining years will be $7,000 above the minimum
required contributions under Section 412 of the Internal Revenue Code. The
Company has granted the PBGC a first priority security interest in (i) the
property, plant and equipment at its Century of West Virginia facility and (ii)
all of the outstanding shares of Berkeley. In addition, Century must grant the
PBGC a first priority security interest in the first $50,000 of the property,
plant and equipment of any business or businesses that the Company acquires. The
Company, in its discretion, may, however, substitute Berkeley's undivided
interest in the Mt. Holly Facility in lieu of any such after-acquired property,
plant and equipment as well as the shares of Berkeley.
The Company has provided a $27,500 letter of credit to ensure its
performance under the Owners Agreement governing MHAC. Pursuant to the amended
Owners Agreement, the Company's obligation to maintain the letter of credit was
terminated during the quarter ended June 30, 1998.
5. FIXED-PRICE COMMITMENTS AND FORWARD CONTRACTS
The Company had fixed price commitments to sell 299.1 million pounds and
298.4 million pounds of primary and scrap aluminum and aluminum sheet and plate
products at June 30, 1998 and 1997, respectively. In addition, the Company had
fixed price commitments to purchase 115.6 million pounds and 67.8 million pounds
of aluminum and alloy raw materials at June 30, 1998 and 1997, respectively.
The Company is in a net long metal position and, therefore, is exposed to
the influence of the commodity price of primary aluminum on the selling prices
for its products. In order to reduce this exposure, the Company has entered into
forward sales contracts for primary aluminum that will be settled in cash. At
June 30, 1998, the Company had forward sales contracts with the Glencore Group
for 93.8 million pounds scheduled for settlement at various dates in 1998 and
1999.
All gains and losses from forward contract activity are being reported
separately in the statements of operations. Unrealized gains or losses on the
forward primary aluminum contracts, realized gains or losses from the cash
settlement of the forward primary aluminum contracts, unrealized losses on fixed
price purchase and sale commitments and reversals of prior period unrealized
losses are reported as either gains or losses on forward contracts.
8
<PAGE> 11
CENTURY ALUMINUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1998 AND 1997
The Company entered into a long-term supply agreement for 936 million
pounds of alumina annually, beginning January 1, 1996. The Company will pay a
fixed price for alumina with fixed annual price increases of approximately 2.5%
through 2001. Pricing for the years 2002 through 2006 will be subject to
agreement between the parties.
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1998 1997
------ ------
Cash paid for:
<S> <C> <C>
Interest ............................ $2,972 $2,164
Income taxes ........................ 7,279 5,598
Cash received from income tax
refunds............................. 5,560 --
</TABLE>
7. SUBSEQUENT EVENT
On August 7, 1998, the Company announced that Century and Glencore Group
have entered into an agreement with the state of Victoria in Australia to
acquire Aluminium Smelters of Victoria Pty ("Aluvic"), a wholly owned holding
company of the state. Aluvic's principal holding is a 25 percent direct interest
in a joint venture that owns the 345,000 metric-ton-per-year aluminum smelter at
Portland, in Victoria. The managing partner in the joint venture is Alcoa of
Australia Limited, which holds a 45 percent interest. Other members of this
venture, each with a 10 percent share, are China International Trust and
Investment Corporation, Eastern Aluminium and Marubeni.
The Portland joint venture agreement stipulates that existing owners have
first right of refusal to acquire the share being sold by the state of Victoria.
The acquisition of the 25 percent interest in the Portland Smelter by
Century/Glencore Group joint venture, therefore, depends on existing owners
declining to purchase Aluvic's share. They must exercise their purchase rights
before August 24, 1998.
The purchase price, subject to adjustment, is approximately $290 million.
Glencore Group and Century intend to finance a significant portion of the
purchase price with non-recourse project bonds. The Company intends to finance
any remaining requirements through direct borrowings.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is an integrated manufacturer of primary aluminum and a broad
range of value-added and specialized flat-rolled sheet and plate aluminum
products. The aluminum industry is highly cyclical and the market price of
aluminum (which trades as a commodity) has been volatile from time to time. In
turn, prices of flat-rolled sheet and plate aluminum products have reflected
this volatility as well as fluctuations attributable to general and
industry-specific economic conditions. However, there is less price volatility
in the higher value-added products such as plate. The principal elements
comprising the Company's cost of goods sold are raw materials, energy and labor.
The major raw materials and energy sources used by the Company in its production
process are alumina, aluminum scrap, coal tar, pitch, petroleum coke, aluminum
fluoride and electricity.
Selling by funds, consumer hesitation in anticipation of lower prices, and
economic uncertainty in Asian markets have influenced the cash price for primary
aluminum on the London Metals Exchange ("LME"). The average cash price per tonne
in the second quarter of 1998 was $1,363. This is a decline of $100 per tonne
from 1998's first quarter average of $1,463 and a decline of $221 per tonne from
1997's second quarter average of $1,584.
Demand for flat rolled products in the United States in the second quarter
of 1998 was about level with demand in the second quarter of 1997, with the
transportation market showing strength and the building and construction market
benefiting from a comparatively mild winter.
RESULTS OF OPERATIONS
The following table sets forth, for the three and six months ended June
30,1998 and 1997, the percentage relationship to net sales of certain items
included in the Company's condensed consolidated statements of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 92.5 94.0 92.4 95.2
------ ------ ------ ------
Gross profit 7.5 6.0 7.6 4.8
Selling, general and administrative expenses 2.8 2.9 2.6 2.6
------ ------ ------ ------
Operating income 4.7 3.1 5.0 2.2
Net gain (loss) on forward contracts 3.5 (0.2) 2.0 0.1
Interest and other expense (0.2) (0.6) (0.4) (0.5)
------ ------ ------ ------
Income before income taxes 8.0 2.3 6.6 1.8
Income tax expense 2.9 0.8 2.4 0.7
====== ====== ====== ======
Net income 5.1% 1.5% 4.2% 1.1%
====== ====== ====== ======
</TABLE>
10
<PAGE> 13
The following table sets forth, for the periods indicated, the pounds and the
average sales price per pound for certain of the Company's products (pounds in
thousands):
<TABLE>
<CAPTION>
FLAT-ROLLED SHEET AND PLATE PRODUCTS PRIMARY ALUMINUM
DIRECT (1) TOLL DIRECT (1)
--------------------- --------------------- ---------------------
POUNDS $/POUND POUNDS $/POUND POUNDS $/POUND
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1st Qtr 1998 114,618 $ 1.23 7,154 $ 0.31 44,779 $ 0.74
2nd Qtr 1998 103,355 $ 1.23 9,592 $ 0.26 38,022 $ 0.71
------- ------- ------- ------- ------- -------
Total 217,973 $ 1.23 16,746 $ 0.28 82,801 $ 0.72
======= ======= ======= ======= ======= =======
1st Qtr 1997 138,916 $ 1.10 12,017 $ 0.32 47,666 $ 0.74
2nd Qtr 1997 134,411 $ 1.14 13,130 $ 0.29 46,059 $ 0.76
------- ------- ------- ------- ------- -------
Total 273,327 $ 1.12 25,147 $ 0.31 93,725 $ 0.75
======= ======= ======= ======= ======= =======
</TABLE>
(1) Does not include forward sales contracts without physical delivery.
Net Sales. Net sales during the three and six months ended June 30, 1998 were
$156.8 million and $333.2 million, a decrease of $34.7 million (or 18.1%) and
$49.9 million (or 13.0%) from comparable 1997 periods. The Company shipped 112.9
million and 234.7 million pounds of sheet and plate products in the three and
six months ended June 30, 1998 versus 147.5 million and 298.5 million pounds
shipped in the comparable 1997 periods. Most of the declines were in products
that have been de-emphasized as a result of the rolling operations restructuring
completed in 1997.
Lower sheet and plate volume had the effect of decreasing revenue by $36.3
million and $64.6 million during the comparable three and six months ended June
30, 1998 and 1997. The volume decline was partially offset by $9.6 million and
$25.0 million improvements in the mix and price of sheet and plate products sold
during the comparable 1998 and 1997 periods. Lower sales of primary products
reduced revenue by $8.0 million and $10.3 million during the comparable 1998 and
1997 periods.
Cost of Goods Sold. Cost of goods sold during the comparable three and six
months ended June 30, 1998 and 1997 decreased $35.0 million (or 19.4%) and $56.7
million (or 15.5%). Most of these declines in cost are attributable to the
reduced volumes, but the Company's cost of goods sold also benefited from the
influence of lower LME prices on its scrap aluminum inputs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.3 million and $1.1 million during the
comparable three and six months ended June 30, 1998 and 1997. The decrease was
due principally to lower legal and credit related expenses.
Net Gains on Forward Contracts. Lower LME prices during the first six months of
1998 improved the market value of the Company's forward contracts. As a result,
the Company recorded net gains on forward contracts of $5.5 million and $6.5
million during the three and six
11
<PAGE> 14
months ended June 30, 1998. During comparable periods of 1997, the Company
recorded a net loss on forward contracts of $0.5 million and a net gain of $0.5
million.
Net Income. As a result of improved price realizations for sheet and plate
products, lower costs for scrap aluminum inputs and forward contract gains, net
income for the three and six months ended June 30, 1998 and 1997 increased $5.3
million and $9.4 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1998 and 1997 was $178.8 and $180.5 million,
respectively. The Company's liquidity requirements arise from working capital
needs, capital investments and debt service.
The Company's statements of cash flows for the six months ended June 30,
1998 and 1997 are summarized below (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net cash provided by (used in) operating
activities........................................ $ 22,095 $ (4,919)
Net cash used in investing activities ............. (19,158) (10,993)
Net cash provided by (used in) financing
activities......................................... (527) 19,976
-------- --------
Increase in cash .................................. $ 2,410 $ 4,064
======== ========
</TABLE>
In the six months ended June 30, 1998, operating activities provided $22.1
million in net cash to the Company. Net income and a reduction in accounts
receivable, caused by changes in product/customer mix and trade accounts
receivable terms, added to the positive cash flow. This was partially offset by
payments for metal purchases, maintenance expenditures, and capital expenditures
that were accrued at December 31, 1997. Operating activities used $4.9 million
during the six months ended June 30 1997, due primarily to lower earnings and
the growth in the Company's accounts receivable as a result of increased sales
to third parties.
Capital expenditures were $19.2 million in the first six months of 1998
compared to $11.0 million in the first six months of 1997. The Company used
these expenditures to purchase, modernize or upgrade production equipment,
maintain its facilities and comply with environmental regulations. A significant
portion of the expenditures in the first six months of 1998 were for the
expansion of the Company's heat-treated plate production capacity.
Net cash used in financing activities in the first six months of 1998 was
$0.5 compared to net cash provided of $20.0 million in the first six months of
1997. The Company paid dividends in the first six months of 1998 and 1997 of
$1.0 and $2.0 million, or $0.05 and $0.10 per common share, respectively. The
cash provided by operations was sufficient to fund the Company's working capital
needs and investing activities in the first six months of 1998, so very little
additional borrowing was required.
On January 30, 1996, Century of West Virginia and Berkeley entered into a
bank revolving credit facility ("Facility") with BankAmerica Business Credit,
Inc. ("Bank of America"). The Facility provides for a revolving credit facility
that consists of borrowings and letters of credit up
12
<PAGE> 15
to $150 million in the aggregate. On May 11, 1998, the Company and Bank of
America agreed to amend and extend the Facility to January 30, 2001. See Note 3
to the Consolidated Financial Statements.
Pursuant to an agreement with the Pension Benefit Guaranty Corporation
("PBGC Agreement"), the Company is required to make scheduled contributions to
its pension plan for hourly employees with respect to 1998 and 1999. The Company
estimates that each of these scheduled contributions will be approximately $7.0
million above the minimum required contributions under Section 412 of the
Internal Revenue Code.
The Company believes that cash flow from operations and funds available
under the Facility will be sufficient to fund its working capital requirements,
capital expenditures and debt service requirements in the near term and for the
foreseeable future.
METALS RISK MANAGEMENT
Century produces primary aluminum products and manufactures aluminum sheet
and plate products and manages the risks of each accordingly. The Company is in
a net long metal position and, therefore, is exposed to the influence of the
commodity price of primary aluminum on the selling prices for its products. In
order to reduce this exposure, the Company has entered into forward sales
contracts for primary aluminum that will be settled in cash. At June 30, 1998,
the Company had forward sales contracts with the Glencore Group for 93.8 million
pounds of primary aluminum scheduled for settlement at various dates in 1998 and
1999. Based on market prices at June 30, 1998, these contracts could be settled
by the Glencore Group paying less than $0.1 million to the Company. The actual
settlement will be based on market prices on the respective settlement dates.
ENVIRONMENTAL EXPENDITURES AND OTHER CONTINGENCIES
It is the Company's policy to accrue for costs associated with
environmental assessments and remedial efforts when it becomes probable that a
liability has been incurred and the cost can be reasonably estimated. The
aggregate environmental related accrued liabilities were $1.4 million at June
30, 1998 and $1.1 million at December 31, 1997, respectively. The Company has
incurred and, in the future, will continue to incur capital expenditures and
operating expenses for matters relating to environmental control, remediation,
monitoring and compliance. The Company believes that compliance with current
environmental laws and regulations is not likely to have a material adverse
effect on the Company's financial condition, results of operations or liquidity;
however, environmental laws and regulations have changed rapidly in recent years
and the Company may become subject to more stringent environmental laws and
regulations in the future. In addition, the Company may be required to conduct
remediation activities in the future pursuant to various orders issued by the
EPA and West Virginia Department of Environmental Protection. There can be no
assurance that compliance with more stringent environmental laws and regulations
that may be enacted in the future, or future remediation costs, would not have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
The Company is a defendant in several actions relating to various aspects
of its business. While it is impossible to predict the ultimate disposition of
any litigation, the Company does not
13
<PAGE> 16
believe that any of these lawsuits, either individually or in the aggregate,
will have a material adverse effect on the Company's financial condition,
results of operations or liquidity. See Note 4 to Consolidated Financial
Statements.
OTHER
The Company has reviewed its business systems to identify areas that could
be impacted by the "Year 2000" issue. The Year 2000 issue results from software
systems that only allow for the last two digits, rather than four digits, for
the applicable year. If left uncorrected, errors could occur in computations
that are dependent upon dates. As a result of its review, the Company has begun
a multi-phase project to significantly enhance its business systems.
The Company will replace its existing financial systems and adopt
electronic tracking for its production processes and inventory. Initial work
will be completed in mid 1999 at a cost of approximately $8.0 million, with a
substantial portion of this amount capitalized. In addition, work is currently
being done to the business systems that will not be replaced to make them Year
2000 compliant.
The Company is in the process of assessing Year 2000 compliance for its
operating systems and for key suppliers and service providers.
14
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended June 30, 1998, the Company and plaintiffs agreed
to settle the November 17, 1996 suit filed purportedly on behalf of a proposed
class believed to consist of approximately 150 salaried employees and retirees
of Century of West Virginia. The matter was settled for a nominal amount.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.34 - Tenth Amendment to Loan and Security Agreement by and among
Century Aluminum of West Virginia, Inc. and Berkeley Aluminum, Inc. and
BankAmerica Business Credit, Inc., entered into as of May 11, 1998.
Exhibit 10.35 - Employment Agreement between Century Aluminum Company and
Lawrence B. Frost.
Exhibit 10.36 - Severance Protection Agreement between Century Aluminum
Company and Lawrence B. Frost.
Exhibit 10.37 - Century Aluminum Company 1996 Stock Incentive Plan
Implementation Guidelines.
Exhibit 10.38 - Century Aluminum Company Incentive Compensation Plan.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1998.
15
<PAGE> 18
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.
Century Aluminum Company
Date: August 13, 1998 By: /s/ Craig A. Davis
--------------- --------------------------------------------------
Craig A. Davis
Chairman/Chief Executive Officer
Date: August 13, 1998 By: /s / David W. Beckley
--------------- --------------------------------------------------
David W. Beckley
Executive Vice-President/Chief Financial Officer
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ----------------- ---------------------------------------------------------------- ---------------------
<S> <C>
10.34 Tenth Amendment to Loan and Security Agreement 18 - 41
by and among Century Aluminum of West Virginia,
Inc. and Berkeley Aluminum, Inc. and BankAmerica
Business Credit, Inc. entered into as of May 11, 1998
10.35 Employment Agreement between Century Aluminum 42 - 52
Company and Lawrence B. Frost
10.36 Severance Protection Agreement between Century 53 - 75
Aluminum Company and Lawrence B. Frost
10.37 Century Aluminum Company 1996 Stock Incentive 76 - 82
Plan Implementation Guidelines
10.38 Century Aluminum Company Incentive 83 - 87
Compensation Plan
</TABLE>
17
<PAGE> 1
EXHIBIT 10.34
TENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is entered into as of May 11, 1998 by and among Century Aluminum of West
Virginia, Inc. (formerly known as Ravenswood Aluminum Corporation), a Delaware
corporation ("Ravenswood"), and Berkeley Aluminum, Inc., a Delaware corporation
("Berkeley"; together with Ravenswood, referred to hereinafter each individually
as a "Borrower" and collectively as the "Borrowers"), the financial institutions
listed on the signature pages hereof (such financial institutions, together with
their respective successors and assigns, are referred to hereinafter each
individually as a "Lender" and collectively as the "Lenders") and BankAmerica
Business Credit, Inc., a Delaware corporation, as agent for the Lenders (in its
capacity as agent, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Agent and the financial institutions from
time to time a party thereto have entered into that certain Loan and Security
Agreement dated as of January 30, 1996 (as from time to time amended, restated,
supplemented or otherwise modified, the "Loan Agreement");
WHEREAS, the Loan Agreement has been amended on February 27, 1996, on
March 27, 1996, on July 22, 1996, on December 20, 1996, on February 7, 1997, on
July 18, 1997, on November 7, 1997, on February 13, 1998 and on March 16, 1998;
and
WHEREAS, the Borrowers and the Lenders wish to further amend the Loan
Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or extensions of credit heretofore, now or hereafter
made to or for the benefit of the Borrowers by the Lenders, the parties hereto
hereby agree as follows:
1. Definitions. Unless otherwise specified herein, capitalized terms used
in this Amendment shall have the same meanings assigned to them in the
Loan Agreement.
2. Amendment of Loan Agreement. Subject to the conditions contained in
Section 3 below, the Loan Agreement is hereby amended, effective as of
the date hereof, as follows:
(a) The definitions of "Adjusted Tangible Assets" and "Adjusted
Tangible Net Worth" are hereby deleted from Section 1.1 of the
Loan Agreement.
(b) The definition of "Applicable Margin" appearing in Section 1.1
of the Loan Agreement is hereby amended and restated to read
in its entirety as follows:
18
<PAGE> 2
"'Applicable Margin' means on any date the
applicable per annum percentage set forth below based
upon the Level as shown in the certificate of the
chief financial officer of each Borrower described in
Section 7.2(d) then most recently delivered to the
Agent and the Lenders:
Base LIBOR
Level Rate Margin Rate Margin
----- ----------- -----------
I 0.250% 1.500%
II 0.375% 1.625%
III 0.500% 1.750%
IV 0.750% 2.000%
; provided, however, that for the period from June 1,
1998 through and including the later of (x) January
31, 1999 and (y) the date of the required delivery by
the Borrowers to the Agent of the certificate
pursuant to Section 7.2(d) with respect to the
Borrowers' Fiscal Year ending December 31, 1998, the
Applicable Margins shall be Level III; provided
further, however, that, if the Borrowers shall have
failed to deliver to the Agent and the Lenders by the
date required hereunder any certificate pursuant to
Section 7.2(d), then from the date such certificate
was required to be delivered until the date of such
delivery the Applicable Margins shall be deemed to be
Level IV. Except as otherwise expressly provided in
the immediately preceding sentence, each change in
the Applicable Margins shall take effect with respect
to all outstanding Loans on the Business Day
immediately succeeding the day on which such
certificate is received by the Agent. Notwithstanding
the foregoing, no reduction in the Applicable Margins
shall be effected if a Default or an Event of Default
shall have occurred and be continuing on the date
when such change would otherwise occur, it being
understood that on the Business Day immediately
succeeding the day on which such Default or Event of
Default is either waived or cured (assuming no other
Default or Event of Default shall be then pending),
the Applicable Margins shall be reduced (on a
prospective basis) in accordance with the then most
recently delivered certificate."
(c) The definition of "Capital Expenditures" appearing in Section
1.1 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:
"'Capital Expenditures' means all payments
due (whether or not paid) during a Fiscal Year in
respect of the cost of any fixed asset or
improvement, or replacement, substitution, or
addition thereto, which has a useful life of more
than one year, including, without limitation, those
19
<PAGE> 3
costs arising in connection with the direct or
indirect acquisition of such asset by way of
increased product or service charges or offset items
or in connection with a Capital Lease. Restricted
Investments permitted under Section 9.10(v) shall be
deemed to be Capital Expenditures for purposes of
this Agreement. In connection therewith, and without
limiting the generality of the preceding sentence,
any support, either in the form of Ravenswood's
making a loan to Century or by the issuance of any
Century Letter of Credit, provided to Century by
Ravenswood in connection with a Permitted Century
Restricted Investment shall be deemed to be a Capital
Expenditure of Ravenswood, in an amount equal to the
principal amount of the loan or the face principal
amount of such Century Letter of Credit, for purposes
of this Agreement, provided, however, that if any
Century Letter of Credit expires or is canceled
without a drawing occurring thereunder, then the
amount of the Capital Expenditure related to such
Century Letter of Credit shall be deemed to have been
reversed."
(d) The following definition of "Century Letter of Credit" is
hereby added to Section 1.1 of the Loan Agreement in the
appropriate alphabetical order:
"'Century Letter of Credit' means any letter
of credit that may be issued under the terms and
conditions of this Agreement at the request of
Ravenswood and Century and for the account of Century
in connection with a Permitted Century Restricted
Investment. All references to a 'Letter of Credit' or
the 'Letters of Credit' in this Agreement shall be
deemed to include reference to the Century Letters of
Credit, and all references to the applicable Borrower
with respect to the Century Letters of Credit shall
be deemed to be references to Ravenswood."
(e) The following definition of "Century SPV Subsidiary" is hereby
added to Section 1.1 of the Loan Agreement in the appropriate
alphabetical order:
"'Century SPV Subsidiary' means a Subsidiary
of Century formed to hold the equity interests or
assets being acquired in connection with a Permitted
Century Restricted Investment in which Ravenswood
provides support to Century as more specifically
described in Section 9.10(v)(m)."
(f) The definition of "Fixed Charges" appearing in Section 1.1 of
the Loan Agreement is hereby amended and restated to read in
its entirety as follows:
"'Fixed Charges' means for any period as to
the Borrowers and Century on a consolidated basis,
the sum of (a) interest expense, plus (b) income
taxes paid (excluding, for Fiscal Year 1996, not more
than $8,000,000 of income taxes paid in such Fiscal
Year which were deferred from Fiscal Year 1995), plus
(c) pension contributions paid (excluding the initial
payment of $12,500,000 made in Fiscal Year 1996
pursuant to the PBGC Debt Agreement), plus (d)
post-retirement benefits (other than
20
<PAGE> 4
pension benefits) paid, plus (e) all amounts paid by
or allocated to Berkeley as a partner in the
Partnership under that certain sale and leaseback
transaction between the Partnership and Berkeley
County, South Carolina of certain items of personal
property located at the Mount Holly South Carolina
facility."
(g) The definition of "Level" appearing in Section 1.1 of the Loan
Agreement is hereby amended and restated to read in its
entirety as follows:
"'Level' means, in reference to the
Applicable Margin, and includes, Level I, Level II,
Level III or Level IV, whichever is in effect at the
relevant time."
(h) The definition of "Level I" appearing in Section 1.1 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"'Level I' shall exist when the Fixed Charge
Coverage Ratio for the previous four fiscal quarter
period is greater than or equal to 1.95 to 1.0."
(i) The definition of "Level II" appearing in Section 1.1 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"'Level II' shall exist when the Fixed
Charge Coverage Ratio for the previous four fiscal
quarter period is greater than or equal to 1.85 to
1.0 but less than 1.95 to 1.0."
(j) The definition of "Level III" appearing in Section 1.1 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"'Level III' shall exist when the Fixed
Charge Coverage Ratio for the previous four fiscal
quarter period is greater than or equal to 1.75 to
1.0 but less than 1.85 to 1.0."
(k) The following definition of "Level IV" is hereby added to
Section 1.1 of the Loan Agreement in the appropriate
alphabetical order:
"'Level IV' shall exist when the Fixed
Charge Coverage Ratio for the previous four fiscal
quarter period is less than 1.75 to 1.0."
(l) The following definition of "Permitted Century Restricted
Investment" is hereby added to Section 1.1 of the Loan
Agreement in the appropriate alphabetical order:
"'Permitted Century Restricted Investment'
means a Restricted Investment by any Century SPV
Subsidiary that is permitted under Section 9.10(v)."
21
<PAGE> 5
(m) The definition of "Restricted Investment" appearing in Section
1.1 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:
"'Restricted Investment' means any
acquisition of property by either Borrower, any of
their respective Subsidiaries, Century or any of the
Century SPV Subsidiaries in exchange for cash or
other property, whether in the form of an acquisition
of stock, debt, or other indebtedness or obligation,
or the purchase or acquisition of any other property,
or a loan, advance, capital contribution, or
subscription, except acquisitions of the following:
(a) Equipment or Real Estate to be used in the
business of a Borrower so long as the acquisition
costs thereof constitute Capital Expenditures
permitted hereunder, and Equipment or Real Estate to
be used in the business of a Century SPV Subsidiary;
(b) goods held for sale or lease or to be used by a
Borrower or a Century SPV Subsidiary in the ordinary
course of business; (c) current assets arising from
the sale or lease of goods or the rendition of
services in the ordinary course of business of a
Borrower or a Century SPV Subsidiary; (d) direct
obligations of the United States of America, or any
agency thereof, or obligations guaranteed by the
United States of America, provided that such
obligations mature within one year from the date of
acquisition thereof; (e) certificates of deposit
maturing within one year from the date of
acquisition, bankers' acceptances, Eurodollar bank
deposits, or overnight bank deposits, in each case
issued by, created by, or with a bank or trust
company organized under the laws of the United States
or any state thereof having capital and surplus
aggregating at least $100,000,000; (f) commercial
paper given a rating of "A2" or better by Standard &
Poor's Corporation or "P2" or better by Moody's
Investors Service, Inc. and maturing not more than 90
days from the date of creation thereof; and (g)
assets acquired by Century as permitted by Section
9.28."
(n) The definition of "Stated Termination Date" appearing in
Section 1.1 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"'Stated Termination Date' means the fifth
Anniversary Date."
(o) The definition of "Subsidiary" appearing in Section 1.1 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"'Subsidiary' of a Person means any
corporation, association, partnership, joint venture
or other business entity of which more than fifty
percent (50.0%) of the voting stock or other equity
interests (in the case of Persons other than
corporations) is owned or controlled directly or
indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof.
Unless the context otherwise clearly requires,
references herein to a 'Subsidiary' refer to a
Subsidiary of a Borrower."
22
<PAGE> 6
(p) The following definition of "Suppressed Availability" is
hereby added to Section 1.1 of the Loan Agreement in the
appropriate alphabetical order:
"'Suppressed Availability' means the amount
by which Availability-Berkeley and
Availability-Ravenswood would be increased if each
were not limited by the specific dollar amounts
referred to in clause (a) of each such definition."
(q) The definition of "Unused Letter of Credit Subfacility"
appearing in Section 1.1 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"'Unused Letter of Credit Subfacility' means
an amount equal to $55,000,000 minus the sum of (a)
the aggregate undrawn amount of all outstanding
Letters of Credit plus (b) the aggregate unpaid
reimbursement obligations with respect to all Letters
of Credit."
(r) Section 2.4(a) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"(a) Agreement to Cause Issuance. Subject to
the terms and conditions of this Agreement, and in
reliance upon the representations and warranties of
the Borrowers herein set forth, the Agent agrees to
take reasonable steps to cause to be issued for the
account of each Borrower (or, in the case of the
Century Letters of Credit, for the account of
Century, it being understood and agreed, however,
that all references to the 'applicable Borrower' with
respect to a Letter of Credit shall, when used in
connection with the Century Letters of Credit, be
deemed to be references to Ravenswood) and to provide
credit support or other enhancement in connection
with one or more stand-by or documentary letters of
credit (each such letter of credit, a 'Letter of
Credit' and such letters of credit, collectively, the
'Letters of Credit', and such terms shall include the
Century Letters of Credit) in accordance with this
Section 2.4 from time to time during the term of this
Agreement."
(s) Sub-paragraph (1) of Section 2.4(c) of the Loan Agreement is
hereby amended and restated to read in its entirety as
follows:
"(1) The Borrower (or Century, in the case
of the Century Letters of Credit) for which a Letter
of Credit is requested shall have delivered to the
proposed issuer of such Letter of Credit, at such
times and in such manner as such proposed issuer may
prescribe, an application in form and substance
satisfactory to such proposed issuer for the issuance
of the Letter of Credit and such other documents as
may be required pursuant to
23
<PAGE> 7
the terms thereof, and the form and terms of the
proposed Letter of Credit shall be satisfactory to
the Agent and such proposed issuer; and"
(t) Sub-paragraph (1) of Section 2.4(d) of the Loan Agreement is
hereby amended and restated to read in its entirety as
follows:
"(1) Request for Issuance. Ravenswood shall
give the Agent five (5) Business Days' prior written
notice, containing the original signature of an
authorized officer of the applicable Borrower (and,
in the case of the Century Letters of Credit, also
containing the original signature of an authorized
officer of Century), requesting the issuance of a
Letter of Credit. The Agent will use its best efforts
and offer its standard letter of credit
indemnifications to induce an issuer to issue Letters
of Credit hereunder. Such notice shall be irrevocable
and shall specify the original face amount of the
Letter of Credit requested, the effective date (which
date shall be a Business Day) of issuance of such
requested Letter of Credit, whether such Letter of
Credit may be drawn in a single or in partial draws,
the date on which such requested Letter of Credit is
to expire (which date shall be a Business Day), the
purpose for which such Letter of Credit is to be
issued, and the beneficiary of the requested Letter
of Credit. Ravenswood shall attach to such notice the
proposed form of the Letter of Credit that the Agent
is requested to cause to be issued."
(u) Section 2.4(e) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"(e) Payments Pursuant to Letters of Credit.
(1) Payment of Letter of Credit
Obligations. Each Borrower agrees to reimburse the
issuer for any draw under any Letter of Credit issued
for its benefit immediately upon demand, and to pay
the issuer of the Letter of Credit the amount of all
other obligations and other amounts payable to such
issuer under or in connection with any Letter of
Credit immediately when due, irrespective of any
claim, setoff, defense or other right which either
Borrower may have at any time against such issuer or
any other Person. In addition, each of Ravenswood and
Century agrees to reimburse the issuer for any draw
under any Century Letter of Credit immediately upon
demand, and to pay the issuer of the Century Letter
of Credit the amount of all other obligations and
other amounts payable to such issuer under or in
connection with any Century Letter of Credit
immediately when due, irrespective of any claim,
setoff, defense or other right which either Borrower
or Century may have at any time against such issuer
or any other Person.
(2) Revolving Loans to Satisfy
Reimbursement Obligations. In the event that the
issuer of any Letter of Credit honors a
24
<PAGE> 8
draw under such Letter of Credit and the applicable
Borrower (or Century, in the case of the Century
Letters of Credit) shall not have repaid such amount
to the issuer of such Letter of Credit pursuant to
Section 2.4(e)(1), the Agent shall, upon receiving
notice thereof, notify each Lender thereof, and each
Lender shall unconditionally pay to the Agent, for
the account of such issuer, as and when provided
hereinbelow, an amount equal to such Lender's Pro
Rata Share of the amount of such payment in Dollars
and in same day funds. If the Agent so notifies the
Lenders prior to 11:00 a.m. (Chicago time) on any
Business Day, each Lender shall make available to the
Agent the amount of such payment, as provided in the
immediately preceding sentence, on such Business Day.
Such amounts paid by the Lenders to the Agent shall
constitute Revolving Loans which shall be deemed to
have been requested by Ravenswood on behalf of the
applicable Borrower (or on behalf of itself, in the
case of the Century Letters of Credit) pursuant to
Section 2.2 as set forth in Section 4.4."
(v) Sub-paragraph (4) of Section 2.4(f) of the Loan Agreement is
hereby amended and restated to read in its entirety as
follows:
"(4) Obligations Irrevocable. The
obligations of each Lender to make payments to the
Agent with respect to any Letter of Credit or with
respect to any credit support or enhancement provided
through the Agent with respect to a Letter of Credit,
and the obligations of each Borrower to make payments
to the Agent, for the account of the Lenders, shall
be irrevocable, not subject to any qualification or
exception whatsoever, including, without limitation,
any of the following circumstances:
(i) any lack of validity or
enforceability of this Agreement or any of the other
Loan Documents;
(ii) the existence of any claim,
setoff, defense or other right which either Borrower
(or Century, in the case of the Century Letters of
Credit) may have at any time against a beneficiary
named in a Letter of Credit or any transferee of any
Letter of Credit (or any Person for whom any such
transferee may be acting), any Lender, the Agent, the
issuer of such Letter of Credit, or any other Person,
whether in connection with this Agreement, any Letter
of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying
transactions between either Borrower, Century or any
other Person and the beneficiary named in any Letter
of Credit);
(iii) any draft, certificate or any
other document presented under the Letter of Credit
proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
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<PAGE> 9
(iv) the surrender or impairment of
any security for the performance or observance of any
of the terms of any of the Loan Documents; or
(v) the occurrence of any Default
or Event of Default."
(w) Section 2.4(g) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"(g) Recovery or Avoidance of Payments. In
the event any payment by or on behalf of either
Borrower (or Century, in the case of the Century
Letters of Credit) received by the Agent with respect
to any Letter of Credit (or any guaranty by either
Borrower or Century or reimbursement obligation of
either Borrower or Century relating thereto) and
distributed by the Agent to the Lenders on account of
their respective participations therein is thereafter
set aside, avoided or recovered from the Agent in
connection with any receivership, liquidation or
bankruptcy proceeding, the Lenders shall, upon demand
by the Agent, pay to the Agent their respective Pro
Rata Shares of such amount set aside, avoided or
recovered, together with interest at the rate
required to be paid by the Agent upon the amount
required to be repaid by it."
(x) Section 2.6 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"2.6 FX Transactions. Ravenswood may request
and BABC may, in its sole and absolute discretion,
arrange for Ravenswood to enter into FX Transactions
with the Bank. Each Borrower agrees to indemnify and
hold BABC harmless from all losses, liabilities,
costs, expenses and claims incurred by BABC arising
from or related to such FX Transactions pursuant to
the FX Indemnity. Each Borrower agrees to pay the
Bank all amounts owing to the Bank pursuant to the FX
Transactions. Ravenswood agrees that it shall provide
to the Bank and BABC a certified copy of resolutions
of the Board of Directors of Ravenswood authorizing
Ravenswood to enter into the FX Transactions with the
Bank prior to Ravenswood's entering into any FX
Transaction with the Bank. Ravenswood understands and
agrees that the Bank shall require Ravenswood to pay
to the Bank sufficient cash to settle each FX
Transaction one (1) Business Day prior to the
settlement date of each FX Transaction. Ravenswood
further agrees to negotiate with the Bank to enter
into an International Foreign Exchange Master
Agreement relating to the FX Transactions on or
before July 15, 1998. Each Borrower acknowledges and
agrees that Ravenswood's entering into the FX
Transactions with the Bank (a) is in the sole and
absolute discretion of the Bank, (b) is subject to
all rules and regulations of the Bank, and (c) is due
26
<PAGE> 10
to the Bank relying on the FX Indemnity of BABC to
the Bank with respect to all risks of loss associated
with the FX Transactions."
(y) Section 3.7 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"3.7 Audit Fees. So long as an Event of
Default shall have occurred and be continuing or if
the Borrowers' aggregate Availability (including for
this purpose the Borrowers' aggregate Suppressed
Availability) is less than $25,000,000 at any time,
the Borrowers agree to pay to the Agent, solely for
its own account, all costs and fees reasonably
incurred by the Agent's internal auditors in
connection with audits of the Borrower performed by
such auditors during the term of this Agreement
(including reasonably incurred travel and other
out-of-pocket expenses in connection with such
audits) and each auditor of the Agent shall be billed
at a rate of $500 per day, all of which shall be
payable by Borrowers on demand."
(z) Article 3 of the Loan Agreement is hereby amended by the
addition thereto of a new Section 3.8, which new Section 3.8
shall read in its entirety as follows:
"3.8 Agent's Fee. The Borrowers agree to pay
to the Agent, for its own account, an agent's fee
(the 'Agent's Fee'), payable quarterly in advance,
with each quarterly payment to be in the amount of
$6,250. The initial Agent's Fee shall be payable as
of June 1, 1998, and on the first day of each
September, December, March and June thereafter. All
such Agent's Fees, once paid, shall be fully earned
and nonrefundable."
(aa) The following sentence is hereby added to the end of Section
4.2 of the Loan Agreement, immediately following the last
sentence thereof:
"If this Agreement is terminated at any time prior to
January 31, 2000, other than as a result of
acceleration of the Loans, the Borrowers shall pay to
the Agent, for the account of the Lenders, an early
termination fee equal to $150,000; provided that no
early termination fee shall be payable if either (i)
the Revolving Credit Loans are refinanced prior to
January 31, 2000 by a facility agented by Bank of
America or any of its Affiliates, or (ii) the
Revolving Credit Loans are refinanced prior to
January 31, 2000 in connection with a Restricted
Investment (whether refinanced concurrently with or
following such Restricted Investment) by a facility
agented by a Person other than Bank of America or any
of its Affiliates, provided that, as a condition
precedent to the effectiveness of this clause (ii),
either (A) a majority in number of the Lenders (which
majority must include BABC or another Affiliate of
Bank of America) participate in such refinancing, or
(B) both of the following conditions are satisfied:
(1) the Borrowers shall have given both BABC and Bank
of America the opportunity to offer to
27
<PAGE> 11
the Borrowers a refinancing commitment letter for the
purpose of extending such refinancing prior to or at
the same time as the Borrowers solicit refinancing
commitments from other lenders, and both of BABC and
Bank of America shall have declined to offer a
refinancing commitment upon the terms requested by
the Borrowers, and (2) if the Borrowers accept a
refinancing commitment from a lender other than BABC
or Bank of America and close such refinancing
transaction, the Borrowers shall deliver a copy of
the executed loan document to the Agent, which shall
evidence to the Agent in the exercise of its
reasonable discretion that the terms and conditions
accepted by the Borrowers from the other lender(s)
were the same as or more favorable to the Borrowers
than those requested by the Borrowers in clause (i)
above."
(bb) The first sentence of Section 4.5 of the Loan Agreement is
hereby amended and restated to read in its entirety as
follows:
"Aggregate principal and interest payments shall be
apportioned ratably among the Lenders (according to
the unpaid principal balance of the Loans to which
such payments relate held by each Lender) and
payments of the fees (excluding, however, the Agent's
Fee) shall, as applicable, be apportioned ratably
among the Lenders."
(cc) Subparagraph (c) of Section 6.9 of the Loan Agreement is
hereby amended and restated to read in its entirety as
follows:
"(c) If an Event of Default shall have
occurred and be continuing or if the Borrowers'
aggregate Availability (including for this purpose
the Borrowers' aggregate Suppressed Availability) is
less than $25,000,000 at any time, the Agent may at
its election, and at the direction of the Majority
Lenders, the Agent shall, send a notice (an
'Activation Notice') to each bank at which a Payment
Account or lock-box is maintained directing that all
amounts from time to time on deposit therein shall be
transferred on a daily basis to a collection account
in the name of Agent for the benefit of the Lenders.
Otherwise, all such amounts on deposit shall be
transferred to the applicable Borrower's disbursement
accounts."
(dd) Section 9.10 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.10 Capital Change; Restricted
Investments. None of Century, any Century SPV
Subsidiary, the Borrowers or the Borrowers'
respective Subsidiaries shall make any change in its
capital structure which could have a Material Adverse
Effect or, except as otherwise permitted hereby, make
any Restricted Investment, including without
limitation, any Restricted Investment by either
Borrower in Glencore, Vialco Holdings, any Affiliate
of Glencore or Vialco Holdings, the Discontinued
28
<PAGE> 12
Subsidiaries, Vialco, RRC or any Subsidiary of either
Borrower, other than (i) Restricted Investments by
Ravenswood in Berkeley and RISC existing as of the
date hereof, (ii) existing investments by Ravenswood
in RRC and Vialco, (iii) the existing investment by
Berkeley in the Partnership and capital contributions
by Berkeley to the Partnership as required from time
to time under the Owners Agreement as in effect on
the Closing Date, (iv) existing investments by
Century in Ravenswood, and (v) Restricted Investments
by any Century SPV Subsidiary or by either Borrower
in the equity interests or assets of another Person
(the "Target"), provided that:
(a) the Target is
engaged in a line or lines of business of the type
described in Section 9.18 or, in the case of a
Restricted Investment by any Century SPV Subsidiary,
in such line or lines of business or in lines of
semi-fabricated and fabricated aluminum businesses;
(b) on the date of
such Restricted Investment and after giving effect
thereto, no Event of Default shall have occurred and
be continuing, including, without limitation,
pursuant to Sections 9.23 or 9.25;
(c) such Restricted
Investment shall not subject the Agent or any Lender
to regulatory or third party approvals in connection
with the exercise of its rights and remedies under
this Agreement or any of the other Loan Documents;
(d) such Restricted
Investment shall be consensual and shall have been
approved by the Target's board of directors or other
governing body;
(e) except for
Restricted Investments by the Century SPV
Subsidiaries that are otherwise permitted under the
terms of this Section 9.10(v), the business and
assets of the Target acquired in such Restricted
Investment shall be acquired free and clear of all
Liens except to the extent permitted pursuant to
Section 9.19;
(f) except for
Restricted Investments by the Century SPV
Subsidiaries that are otherwise permitted under the
terms of this Section 9.10(v), no Debt, contingent
obligations, Guaranties or other liabilities shall be
incurred or assumed in connection with such
Restricted Investment except to the extent permitted
pursuant to Section 9.13;
(g) the sum of (x) all
amounts incurred or assumed in connection with all
Restricted Investments by the Borrowers described in
this Section 9.10(v) (including all Debt, Guaranties,
29
<PAGE> 13
contingent obligations and other liabilities incurred
or assumed by the Borrowers in connection therewith),
plus (y) all cash consideration paid and all
transaction costs incurred in connection with all
Restricted Investments by the Borrowers and the
Century SPV Subsidiaries described in this Section
9.10(v), shall not exceed $30,000,000 in the
aggregate during the period of time commencing on May
11, 1998 and through and including the date of any
such Restricted Investment, provided that, in the
case of Restricted Investments by the Century SPV
Subsidiaries, the amounts included in the calculation
of this sum shall be limited to the amounts contained
in the support provided to Century by Ravenswood
(whether by Ravenswood's making a loan to Century or
by the issuance of any Century Letter of Credit) in
connection with such Restricted Investments;
(h) the Agent shall receive
(i) not less than ten (10) Business Days' prior
written notice of such proposed Restricted Investment
by either Borrower, which notice shall include a
reasonably detailed description thereof, together
with copies of the legal documents relating to such
Restricted Investment and a certificate of an officer
of the Borrowers demonstrating in reasonable detail
that such Restricted Investment is permitted under
the terms of this Agreement, and (ii) not less than
five (5) Business Days' prior written notice of such
proposed Restricted Investment by any Century SPV
Subsidiary, which notice shall include a reasonably
detailed description thereof, together with a
certificate of an officer of Century stating that
such Restricted Investment is permitted under the
terms of this Agreement;
(i) except for Restricted
Investments by the Century SPV Subsidiaries that are
otherwise permitted under the terms of this Section
9.10(v), on or prior to the date of such Restricted
Investment, the Agent shall have received, in form
and substance satisfactory to the Agent, all lien
search results and other documents reasonably
requested by the Agent;
(j) the Borrowers'
aggregate Availability, after giving effect to the
payment of the cash portion of the purchase price of,
and all closing fees, costs and expenses related to,
such Restricted Investment but without including in
the calculation of Availability any assets acquired
in such Restricted Investment, and with all
obligations of the Borrowers being current, exceeds
$20,000,000 and is projected by the Borrowers to
exceed $20,000,000 for the period of ninety (90) days
after the date of such Restricted Investment;
(k) the Century SPV
Subsidiaries and the Borrowers together shall not
acquire the equity interests and/or assets of more
than two Targets;
30
<PAGE> 14
(l) in the case of a Borrower's
making such Restricted Investment, all of the
following terms and conditions shall also apply:
(i) on or prior to the
proposed date of such Restricted Investment, the
Agent will be granted a first and prior perfected
security interest in all equity interests and all
Accounts, Inventory and General Intangibles being
acquired pursuant to such Restricted Investment
(subject only to Permitted Liens in the case of the
acquired assets);
(ii) if such Restricted
Investment is an acquisition of equity interests, the
acquired Target shall become a wholly-owned
Subsidiary of such Borrower;
(iii) if such Restricted
Investment is an acquisition of equity interests,
after such acquisition is completed neither Borrower
shall be permitted to make any further Restricted
Investments in the acquired Target;
(iv) if such Restricted
Investment is an acquisition of the assets of a
Target, such assets shall be acquired directly by
such Borrower;
(v) if such Restricted
Investment is an acquisition of the assets of a
Target, any Accounts and Inventory acquired by such
Borrower pursuant to such Restricted Investment shall
not be included in determining such Borrower's
Availability until the Agent shall have completed a
satisfactory review of such Accounts and Inventory;
and
(vi) the Borrowers shall
have executed such documents and taken such actions
as may be required by the Agent in connection with
the pledging of equity interests and assets as
outlined in clause (l)(i) above; and
(m) in the case of any
Century SPV Subsidiary's making such Restricted
Investment, all of the following terms and conditions
shall also apply:
(i) in connection with such
Restricted Investment, Ravenswood shall provide
support to Century either by making a loan from
Ravenswood to Century or by requesting that a Century
Letter of Credit be issued under the terms and
conditions of this Agreement, and the sum of the
aggregate principal amount of all such loans and the
aggregate face amount of all such Century Letters of
Credit
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<PAGE> 15
shall not exceed the difference between (x)
$30,000,000 and (y) all amounts incurred, assumed
and/or paid in connection with all Restricted
Investments by the Borrowers during the period of
time commencing on May 11, 1998 and through and
including the date of such Restricted Investment; and
in either such case Century shall execute and deliver
to Ravenswood a promissory note in the principal
amount of such loan or the face amount of such
Century Letter of Credit, which note shall be payable
to the order of Ravenswood, and endorsed by
Ravenswood to the order of the Agent and delivered to
the Agent, and which note shall otherwise be
satisfactory in form and substance to the Agent;
(ii) on or prior to the
proposed date of such Restricted Investment, to
secure the payment of the promissory note described
in the preceding clause (i), Century shall grant or
cause to be granted to Ravenswood, and Ravenswood
shall assign to the Agent, a first and prior
perfected security interest in the equity of such
Century SPV Subsidiary, and Century shall agree that
it shall not sell, transfer, convey, pledge or
otherwise assign, dispose of or grant a lien on or a
security interest in such equity of such Century SPV
Subsidiary, and Century shall agree that it shall
not, and it shall not permit such Century SPV
Subsidiary to, sell, transfer, convey or otherwise
assign or dispose of the equity being acquired by
such Century SPV Subsidiary pursuant to such
Restricted Investment (it being understood and
agreed, however, that Century or such Century SPV
Subsidiary may pledge or grant a lien on or a
security interest in the equity being acquired by
such Century SPV Subsidiary);
(iii) Century and/or such
Century SPV Subsidiary shall have executed such
documents and taken such actions as may be required
by the Agent in connection with the pledging of the
equity interests described in the preceding clause
(ii); and
(iv) concurrently with the
first such occasion in which Ravenswood shall provide
support to Century as described in the preceding
clause (i), Century and the Borrowers shall pay to
the Agent, for the account of the Lenders, a
transaction fee in the amount of $75,000, which
transaction fee shall be fully earned by the Lenders
as of the date of payment thereof, and such fee shall
constitute a Revolving Loan which shall be deemed to
have been requested by Ravenswood on behalf of
Century and the Borrowers pursuant to Section 2.2 as
set forth in Section 4.4."
(ee) Section 9.12 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.12 Guaranties. Neither Borrower and none
of their respective Subsidiaries shall make, issue,
or become liable on any Guaranty, except
32
<PAGE> 16
Guaranties in favor of the Agent, except (i) the
Letter of Credit, if any, issued to ASC in connection
with that certain letter agreement dated as of
November 21, 1995 between ASC and Century, as in
effect on the Closing Date, (ii) in accordance with
the terms hereof, such Letters of Credit as
Ravenswood may be required to provide pursuant to
Section 3.11 of the Supply Agreement, as in effect on
the Closing Date, (iii) other Letters of Credit
issued in accordance with the terms of this
Agreement, and (iv) the Guaranty provided by
Ravenswood in favor of the Agent and the Lenders in
accordance with the terms hereof with respect to the
Century Letters of Credit."
(ff) Section 9.15 of the Loan Agreement is hereby amended by adding
a new "clause (vi)" immediately following "clause (v)", which
new "clause (vi)" shall read in its entirety as follows:
"(vi) Additional Transaction with Century:
Ravenswood may make a loan to Century in accordance
with the terms of this Agreement in connection with
any Permitted Century Restricted Investment and/or
provide a Guaranty in favor of the Agent and the
Lenders in accordance with the terms of this
Agreement with respect to the Century Letters of
Credit."
(gg) Section 9.21 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.21 New Subsidiaries. Neither Borrower and
none of their respective Subsidiaries shall, directly
or indirectly, organize, create, acquire or permit to
exist any Subsidiary other than those specifically
identified by the Borrowers to the Agent on the
Closing Date pursuant to Section 8.5, except that (a)
either Borrower may form a wholly-owned Subsidiary
for the sole purpose of owning all of the capital
stock of a Subsidiary (other than Berkeley)
specifically identified by the Borrowers to the Agent
on the Closing Date pursuant to Section 8.5; (b)
Century may form a Subsidiary for the purpose of
holding all or certain of the Discontinued Operations
prior to the IPO; and (c) the Borrowers may form
and/or acquire wholly-owned Subsidiaries in
connection with Restricted Investments by the
Borrowers permitted under Section 9.10(v)."
(hh) Section 9.23 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.23 Capital Expenditures. Neither Borrower
shall make or incur any Capital Expenditures if,
after giving effect thereto, the aggregate amount of
all Capital Expenditures by the Borrowers on a
consolidated basis would exceed $60,000,000 during
Fiscal Year 1998, $40,000,000 during Fiscal Year 1999
or $40,000,000 during Fiscal Year 2000 and each
33
<PAGE> 17
Fiscal Year thereafter. Any amount of such limitation
not spent in any one Fiscal Year may be spent in the
succeeding Fiscal Year(s), provided that, on the date
of any such carryover, no Event of Default shall have
occurred and be continuing."
(ii) Section 9.24 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.24 Intentionally Omitted."
(jj) Section 9.25 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.25 Fixed Charge Coverage Ratio. The
Borrowers will maintain a Fixed Charge Coverage Ratio
for each period set forth below of not less than the
ratio set forth below opposite such period:
Period Ratio
- ------- ---------
the four consecutive fiscal quarters 1.60:1.00
ended March 31, 1998
the four consecutive fiscal quarters 1.65:1.00
ended June 30, 1998
the four consecutive fiscal quarters 1.65:1.00
ended September 30, 1998
the four consecutive fiscal quarters 1.65:1.00
ended December 31, 1998
the four consecutive fiscal quarters 1.70:1.00
ended March 31, 1999
the four consecutive fiscal quarters 1.80:1.00
ended June 30, 1999
the four consecutive fiscal quarters 1.85:1.00
ended September 30, 1999
the four consecutive fiscal quarters 1.85:1.00
ended December 31, 1999
the four consecutive fiscal quarters 1.90:1.00
ended March 31, 2000
34
<PAGE> 18
the four consecutive fiscal quarters 1.90:1.00
ended June 30, 2000
the four consecutive fiscal quarters 1.90:1.00
ended September 30, 2000
the four consecutive fiscal quarters 1.90:1.00"
ended December 31, 2000 and on the
last day of each fiscal quarter thereafter
(kk) Section 9.28 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.28 Century. Century shall be a holding
company with no assets and no Debts other than (i)
the capital stock of Ravenswood, (ii) the Parent
Guaranty, (iii) the obligation to pay certain
intercompany accounts to Vialco as permitted in
Section 9.15(iii), (iv) prior to the IPO, the
Discontinued Operations, (v) a guaranty by Century in
favor of the West Virginia Workers' Compensation
Division, pursuant to which Century guarantees the
payment of all obligations owed by Ravenswood under
the workers' compensation laws of West Virginia;
provided that the payment of any and all obligations
of Ravenswood to Century arising under or in
connection with such guaranty shall be subordinate in
payment to the payment of the Obligations, (vi) the
equity interests in the Century SPV Subsidiaries, and
equity interests and assets acquired by the Century
SPV Subsidiaries and Debts incurred by the Century
SPV Subsidiaries in connection with a Permitted
Century Restricted Investment, (vii) equity interests
in other Subsidiaries of Century that are not Century
SPV Subsidiaries, and (viii) such assets as are
necessary or incidental to the conduct of its
business. On or prior to the date on which the IPO is
consummated, Century shall divest the Discontinued
Operations. Except as provided in the preceding
sentence, Century shall not pay any Distributions to
Glencore prior to the IPO. After the IPO has been
consummated, Glencore shall own no more than
forty-nine percent (49%) of the outstanding capital
stock of Century."
(ll) Section 14.12(a) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"(a) Each of the Lenders agrees that it shall not,
without the express consent of all Lenders, and that
it shall, to the extent it is lawfully entitled to do
so, upon the request of all Lenders, set off against
the Obligations, any amounts owing by such Lender to
either Borrower or any accounts of either Borrower
now or hereafter maintained with such Lender. Each of
the Lenders further agrees that it shall not, unless
specifically requested to do so by the Agent, take or
cause to be taken any action to enforce its
35
<PAGE> 19
rights under this Agreement or against either
Borrower, including, without limitation, the
commencement of any legal or equitable proceedings,
to foreclose any Lien on, or otherwise enforce any
security interest in, any of the Collateral."
(mm) Clause (f) of Section 15.7 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"(f) costs of appraisals, inspections, and
verifications of the Collateral permitted hereunder,
including, without limitation, travel, lodging, and
meals for inspections of the Collateral and each
Borrower's operations by the Agent's and each of the
Lenders' agents plus, so long as an Event of Default
shall have occurred and be continuing or the
Borrowers' aggregate Availability (including for this
purpose the Borrowers' aggregate Suppressed
Availability) is less than $25,000,000 at any time,
the Agent's then customary charge for field
examinations and audits and the preparation of
reports thereof (such charge is currently $500 per
day (or portion thereof) for each agent or employee
of the Agent with respect to each field examination
or audit);"
3. Conditions. The effectiveness of the amendments stated in this
Amendment is subject to the following conditions precedent or
concurrent:
(a) Amendment. This Amendment shall have been duly executed by all
parties hereto and Century Aluminum Company, and delivered to
the Agent;
(b) No Default. No Default or Event of Default under the Loan
Agreement, as amended hereby, shall have occurred and be
continuing;
(c) Warranties and Representations. The warranties and
representations of each Borrower contained in this Amendment,
the Loan Agreement, as amended hereby, and the other Loan
Documents shall be true and correct as of the effective date
hereof and as of the date of the Borrowers' execution hereof,
with the same effect as though made on each such date, except
to the extent that such warranties and representations
expressly relate to an earlier date, in which case such
warranties and representations shall have been true and
correct as of such earlier date;
(d) Officer's Certificates. An Officer's Certificate of each
Borrower shall have been duly executed and delivered to the
Agent certifying that (i) there have been no amendments or
other modifications to the certificate of incorporation or
bylaws of such Borrower since the Closing Date (except, in the
case of Ravenswood, for the amendment relating to its name
change), (ii) such Borrower is in good standing in its state
of incorporation, the state in which the principal place of
business of such Borrower is located and all states in which
its activities require it to be qualified and/or licensed to
do business other than states in which the failure to be
qualified
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<PAGE> 20
and in good standing would not have a Material Adverse Effect,
(iii) such Borrower has the corporate power and authority to
execute, deliver and perform this Amendment, and (iv) the
persons executing this Amendment are the duly elected and
qualified officers of such Borrower and are authorized to
execute this Amendment on behalf of such Borrower;
(e) Amendment Fee. The Borrowers shall have paid to the Agent, for
the account of the Lenders, an amendment fee in the amount of
$150,000, which amendment fee shall be fully earned by the
Lenders as of the date of payment thereof; and
(f) Agent's Fee. The Borrowers shall have paid to the Agent, for
its own account, the initial Agent's Fee in the amount of
$6,250, which Agent's Fee shall be fully earned by the Agent
as of the date of payment thereof.
4. Representations and Warranties. The Borrowers jointly and severally
represent and warrant to the Agent and the Lenders that the execution,
delivery and performance by each Borrower of this Amendment and the
related Loan Documents are within each such Person's corporate powers,
have been duly authorized by all necessary corporate action (including,
without limitation, all necessary shareholder approval) of each such
Person, have received all necessary governmental approvals, and do not
and will not contravene or conflict with any provision of law
applicable to any such Person, the certificate or articles of
incorporation or bylaws of any such Person, or any order, judgment or
decree of any court or other agency of government or any contractual
obligation binding upon any such Person; and this Amendment, the Loan
Agreement and each Loan Document, each as amended hereby, is the legal,
valid and binding obligation of each Borrower, as applicable,
enforceable against each such Person in accordance with its terms.
5. No Waiver of Past Defaults. Nothing contained herein shall be deemed to
constitute a waiver of any Default or Event of Default that may
heretofore or hereafter occur or have occurred and be continuing or,
except as expressly provided herein, to modify any provision of the
Loan Agreement.
6. Reference to and Effect Upon Loan Agreement and other Loan Documents.
The Loan Agreement and the other Loan Documents, as amended hereby,
shall remain in full force and effect and are each hereby ratified and
confirmed, and those provisions of the Loan Agreement and the other
Loan Documents which by their respective terms continue beyond the
indefeasible payment in full of all of the Borrowers' Obligations shall
so continue. The execution, delivery and effectiveness of this
Amendment shall be limited precisely as written and shall not be deemed
to (i) be a consent to any waiver or modification of any other term or
condition of any Loan Document or (ii) prejudice any right, power or
remedy which the Agent or any Lender may now have or may have in the
future under or in connection with any Loan Document. Upon the
effectiveness of this Amendment, each reference in the Loan Agreement
to "this Agreement", "hereunder", "hereof", "herein" or words of
similar import shall mean and be a reference to the Loan Agreement as
amended hereby.
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<PAGE> 21
7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an
original, but all such counterparts shall constitute one and the same
instrument.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS (AS OPPOSED TO
CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NEW YORK.
9. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
10. Successors and Assigns. This Amendment shall be binding upon, and shall
inure to the sole benefit of, the Borrowers, the Agent and the Lenders,
and their respective successors and assigns.
11. Continued Effectiveness. Notwithstanding anything contained herein, the
terms of this Amendment are not intended to and do not serve to effect
a novation as to the Loan Agreement; instead, it is the express
intention of the parties hereto to reaffirm the Obligations created
under the Loan Agreement which are secured by the Collateral. The Loan
Agreement, as amended hereby, and each of the other Loan Documents
shall remain in full force and effect.
12. Costs, Expenses and Indemnity. The Borrowers affirm and acknowledge
that Section 15.7 and Section 15.11 of the Loan Agreement apply to this
Amendment and the transactions and agreements and documents
contemplated hereunder.
[signature page follows]
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<PAGE> 22
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first above written.
CENTURY ALUMINUM OF WEST VIRGINIA, INC.
(formerly known as Ravenswood Aluminum Corporation),
as Borrower
By: /s/ David W. Beckley
- ---------------------------------
Title: Vice President
- ---------------------------------
BERKELEY ALUMINUM, INC.,
as Borrower
By: /s/ David W. Beckley
- ---------------------------------
Title: Vice President
- ---------------------------------
BANKAMERICA BUSINESS CREDIT, INC.,
as Agent and Lender
By: /s/ Matt J. Downs
- ---------------------------------
Title: Vice President
- ---------------------------------
LASALLE BUSINESS CREDIT, INC., as Lender
By: /s/ Herbert M. Kidd, II
- ---------------------------------
Title: First Vice President
- ---------------------------------
GREEN TREE FINANCIAL SERVICING
CORPORATION, also known as GREEN TREE
CREDIT CORP., as Lender
By: /s/ C. A. Gouskos
- ----------------------------------------------
Title: Senior Vice President - General Manager
- ----------------------------------------------
FLEET CAPITAL CORPORATION, as Lender
By: /s/ Audrey A. Pengelly
- ---------------------------------
Title: Senior Vice President
- ---------------------------------
HELLER FINANCIAL, INC., as Lender
By: /s/ Albert J. Forzano
- ----------------------------------------------
Title: Vice President
- ----------------------------------------------
39
<PAGE> 23
CONSENT OF THE GUARANTOR
The undersigned, CENTURY ALUMINUM COMPANY, a Delaware corporation (the
"Guarantor"), (i) consents to and approves the execution and delivery of this
Amendment by the parties hereto, (ii) agrees that this Amendment does not and
shall not limit or diminish in any manner the obligations of the Guarantor under
that certain Guaranty dated as of January 30, 1996 (the "Guaranty"), executed by
the Guarantor and delivered to the Agent, or under any of the other documents
executed and delivered by the Guarantor in connection with the Guaranty, and
agrees that such obligations of the Guarantor would not be limited or diminished
in any manner even if the Guarantor had not executed this Amendment, (iii)
agrees that this Amendment shall not be construed as requiring the consent of
the Guarantor in any other circumstance, (iv) reaffirms its obligations under
the Guaranty and such other related documents, and (v) agrees that the Guaranty
and such other related documents remain in full force and effect and are hereby
ratified and confirmed. Without limiting the generality of the foregoing, the
Guarantor agrees to perform and comply with each of the covenants contained in
sections 9.9 through 9.28 of the Loan Agreement, as amended by this Amendment,
which by their terms refer to the Guarantor, and further agrees not to cause or
permit either Borrower to violate any of such covenants.
The Guarantor further agrees that all terms, conditions and provisions
of the Loan Agreement relating to Letters of Credit (as defined in the Loan
Agreement) shall be deemed to apply to the Century Letters of Credit (as defined
in this Amendment), and that all agreements of the Borrowers contained in the
Loan Agreement with respect to the Letters of Credit shall be deemed to be
agreements of the Guarantor with respect to the Century Letters of Credit. In
furtherance and not in limitation of the foregoing:
(1) The Guarantor hereby specifically agrees to protect,
indemnify, pay and save the Lenders and the Agent harmless
from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) which any Lender or the Agent may
incur or be subject to as a consequence, direct or indirect,
of the issuance of any Century Letter of Credit or the
provision of any credit support or enhancement in connection
therewith.
(2) As among the Guarantor, the Lenders, and the Agent, the
Guarantor, subject to paragraphs (3) and (4) below, assumes
all risks of the acts and omissions of, or misuse of any of
the Century Letters of Credit by, the respective beneficiaries
of such Century Letters of Credit. In furtherance and not in
limitation of the foregoing, subject to the provisions of the
application for the issuance of the Century Letters of Credit,
the Lenders and the Agent shall not be responsible for: (A)
the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any Person in
connection with the application for and issuance of and
presentation of drafts with respect to any of the Century
Letters of Credit, even if it should prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or
forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign
any Century Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part,
40
<PAGE> 24
which may prove to be invalid or ineffective for any reason;
(C) the failure of the beneficiary of any Century Letter of
Credit to comply duly with conditions required in order to
draw upon such Century Letter of Credit; (D) errors,
omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (E) errors in
interpretation of technical terms; (F) any loss or delay in
the transmission or otherwise of any document required in
order make a drawing under any Century Letter of Credit or of
the proceeds thereof; (G) the misapplication by the
beneficiary of any Century Letter of Credit of the proceeds of
any drawing under such Century Letter of Credit; or (H) any
consequences arising from causes beyond the control of the
Lenders or the Agent, including, without limitation, any act
or omission, whether rightful or wrongful, of any present or
future de jure or de facto Governmental Authority. None of the
foregoing shall affect, impair or prevent the vesting of any
rights or powers of the Agent or any Lender under this
Consent.
(3) In furtherance and extension, and not in limitation, of the
specific provisions set forth above, any action taken or
omitted by the Agent or any Lender under or in connection with
any of the Century Letters of Credit or any related
certificates, if taken or omitted in the absence of gross
negligence or willful misconduct, shall not put the Agent or
any Lender under any resulting liability to either Borrower or
the Guarantor or relieve each Borrower or the Guarantor of any
of its obligations under the Loan Agreement or hereunder to
any such Person.
(4) Nothing contained in this Consent shall be deemed to govern
the relation of the Guarantor and the issuer of any Century
Letter of Credit; it being understood that the Guarantor may
be requested to execute and deliver to the issuer of any
Century Letter of Credit such documents and agreements as such
issuer may require to issue such Century Letter of Credit.
Dated: as of May 11, 1998
CENTURY ALUMINUM COMPANY
By: /s/ Daniel J. Krofcheck
------------------------------------
Title: Treasurer
------------------------------------
41
<PAGE> 1
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
Agreement, made as of the 15 day of April, 1998 by and between
Century Aluminum Company, a Delaware corporation (the "Company"), and Lawrence
B. Frost (the "Executive"). RECITALS
A. The Company desires to employ Executive as Executive Vice President;
and
B. Executive is willing to accept such employment on the terms and
conditions set forth in this Agreement.
THE PARTIES AGREE as follows:
1. Position and Term of Employment. Executive's employment hereunder
shall commence as of April 15, 1998 and shall end April 14, 2001, unless
terminated sooner pursuant to Section 7 of this Agreement or extended by the
mutual agreement of the parties. During the term hereof, Executive shall be
employed as Executive Vice President of the Company and shall devote his full
business time, skill, attention and best efforts in carrying out his duties and
promoting the best interests of the Company. Executive shall also serve as a
director and/or officer of one or more of the Company's subsidiaries as may be
requested from time to time by the Board of Directors. Subject always to the
instructions and control of the Board of Directors of the Company, Executive
shall report to the Chief Executive Officer of the Company and shall be
responsible for the development and implementation of the Company's long-term
growth strategy and the Company's efforts in corporate and business development.
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<PAGE> 2
Executive shall not at any time while employed by the Company
or any of its affiliates (as defined in the Severance Protection Agreement
between the Company and Executive dated the date hereof (the "SPA")), without
the prior consent of the Board of Directors, knowingly acquire any financial
interests, directly or indirectly, in or perform any services for or on behalf
of any business, person or enterprise which undertakes any business in
substantial competition with the business of the Company and its affiliates or
sells to or buys from or otherwise transacts business with the Company and its
affiliates; provided that Executive may acquire and own not more than five
percent (5%) of the outstanding capital stock of any public corporation which
sells or buys from or otherwise transacts business with the Company and its
affiliates.
2.1 Base Salary. (a) (i) Executive shall be paid an
initial salary at the monthly rate of $21,666.68, which shall be paid in
accordance with the Company's normal payroll practice with respect to salaried
employees, subject to applicable payroll taxes and deductions (the "Base
Salary"). Executive's Base Salary shall be subject to review and possible change
in accordance with the usual practices and policies of the Company. However,
Executive's base annual salary shall not be reduced to less than $260,000.
(ii) If for any reason other than Executive's
voluntary resignation or termination pursuant to Section 7(a) or (c) hereof,
Executive does not continue to be employed by the Company, Executive shall
continue to receive an amount equal to his then current Base Salary plus an
annual performance bonus equal to the highest annual bonus payment Executive has
received in the previous three years for the then remaining balance of the term
of this Agreement. In no event shall such payment be less than one year's base
salary plus such highest annual bonus. The foregoing amounts shall be paid to
Executive over the remaining term of this
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<PAGE> 3
Agreement or one year (whichever is applicable) in accordance with the Company's
payroll and bonus payment policies. Notwithstanding the foregoing, no payments
under this subparagraph (ii) shall be made if the Company makes all payments to
Executive required to be made, if any, under the SPA.
(b) If Executive resigns voluntarily or ceases to be employed
by the Company (or any affiliate) for any reason described in Section 7(a) or
(c) of this Agreement, all benefits described in Sections 2 and 4 hereof shall
terminate (except to the extent previously earned or vested).
(c) If Executive's employment shall have been terminated
pursuant to Section 7(b), the Company shall pay in equal monthly installments
for the then remaining balance of the term of this Agreement to Executive (or
his beneficiaries or personal representatives, as the case may be) disability
benefits at a rate per annum equal to one hundred percent (100%) of his then
current Base Salary, plus amounts equal to the highest annual bonus as provided
in clause (ii) of Section 2.1 (a), less payments and benefits, if any, received
under any disability plan or insurance provided by the Company and less any
"sick leave" payments received from the Company for the applicable period.
2.2 Bonuses. Executive shall be eligible for an annual
performance bonus for calendar years beginning after December 31, 1997, in
amounts between 30 percent and 75 percent of his Base Salary upon achievement by
the Company of targets as determined by the Compensation Committee of the Board
of Directors of the Company.
2.3 Expenses. During the term hereof, the Company shall pay or
reimburse Executive in accordance with the Company's normal practices (i) any
travel, hotel and other
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<PAGE> 4
expenses or disbursements reasonably incurred or paid by Executive in connection
with the services performed by Executive hereunder and (ii) reasonable expenses
incurred in connection with Executive's relocation to the Monterey, California
area; in each case upon presentation by Executive of itemized accounts of such
expenditures or such other supporting information as the Company may require.
3.1 Incentive Plan. Century will grant to Executive, effective
as of April 15, 1998, ten-year options (the "Options") to purchase shares of
Company Common Stock ("Shares") under the Company's 1996 Stock Incentive Plan
(the "Plan") as follows:
(a) Seventy five thousand (75,000) shares at an exercise price
per share equal to $15.25.
(b) In addition, Executive may be granted additional options
to purchase shares as may hereafter be determined by the Compensation Committee
of the Board of Directors of the Company under the Plan.
(c) Of the Shares described in Section 3.1(a), Options to
purchase twenty five thousand (25,000) Shares will vest effective April 15, 1998
(the "Effective Date"), Options to purchase twenty five thousand (25,000) Shares
will vest one year after the Effective Date, and Options to purchase twenty five
thousand (25,000) Shares will vest two years after the Effective Date; provided,
however, that except to the extent provided in the SPA, the Plan or in Section
3.3 hereof, such vesting shall only occur if Executive is an employee of the
Company (or any affiliate) on the relevant vesting date. The Company shall
maintain the Plan and issue the Options in a manner such that, to the maximum
extent possible, the Options are treated as
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<PAGE> 5
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended.
3.2 Performance Share Unit Awards. The Company hereby grants
to Executive, effective the date hereof, seventy-five thousand (75,000)
performance share units. Upon vesting of the performance share units, the
Company shall provide to Executive one Share per performance share unit. The
performance share units shall vest as follows:
(a) Twenty five thousand (25,000) performance share units on
the third anniversary of the Effective Date, twenty five thousand (25,000)
performance share units on the fourth anniversary of the Effective Date, and
twenty five thousand (25,000) performance share units on the fifth anniversary
of the Effective Date; provided, however, that, except to the extent otherwise
provided in the SPA, the Plan or Section 3.3 hereof, such vesting shall only
occur if Executive is an employee of the Company (or any affiliate) on the
relevant vesting date.
(b) In addition, Executive may be granted additional
performance share units as may hereafter be determined by the Compensation
Committee of the Board of Directors of the Company under the Plan.
3.3 Effect of Termination of Employment. (a) If Executive
shall resign voluntarily or cease to be employed by the Company (or an
affiliate) for any reason described in Section 7(c) of this Agreement, except as
provided in the SPA, all benefits described in Section 3 hereof shall terminate
(except to the extent previously earned or vested).
(b) If Executive shall die or become disabled, all Options and
performance shares units which have not vested will accelerate and vest
immediately, and, in the event of Executive's
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<PAGE> 6
death, all Option rights provided under this Agreement will transfer to
Executive's representative. All then unexercised Options will be cancelled one
year after Executive dies or becomes disabled.
4.1 Other Benefits. Executive shall be entitled to (i)
participate in life, medical, dental, hospitalization, disability and life
insurance benefit plans made available by the Company to its salaried employees
and shall also be eligible to participate in existing retirement or pension
plans offered by the Company to its salaried employees, but, except as otherwise
provided in Section 4.2, subject in each case to the terms and requirements of
each such plan or program.
4.2 Supplemental Executive Retirement Benefit.
(a) Benefit, Service Credit and Offsets. The Company agrees to
provide Executive with a Supplemental Executive Retirement Benefit ("SERB")
providing an annual retirement benefit beginning at age sixty-two (62) or
thereafter, equal to the benefits which would have accrued to Executive under
the Salaried Employees Retirement Plan (the "Pension Plan") and the
contributions which would have been made to the Salaried Employee Defined
Contribution Retirement Plan (the "Defined Contribution Plan") on behalf of
Executive (hereinafter collectively referred to as the "Qualified Plans"),
computed as follows:
(i) The limitation on benefits and contributions with
respect to such employees under Section 415 of the Internal Revenue Code of
1986, as at any time amended, and the regulations thereunder (hereinafter the
"Code") shall not be given effect;
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<PAGE> 7
(ii) Such accrued benefits and deemed contributions
shall be determined without giving effect to the one hundred and fifty thousand
dollar ($150,000) limitation of Code Section 401 (a)(17), or any successor
thereto; and
(iii) Any and all amounts due Executive under the
Qualified Plans shall be credited toward and shall reduce the benefits payable
under the SERB.
(b) Vesting. Notwithstanding the provisions of the Qualified
Plans, the SERB shall be fully vested and there shall be no reduction in the
benefits hereunder because of the number of years of service of Executive.
(c) Time and Method of Payment of Benefits. Benefit payments
hereunder shall be made to Executive in the same manner as provided under the
Qualified Plans. Except as otherwise provided in the Qualified Plans, no
benefits shall be payable hereunder prior to death, disability or severance of
employment.
(d) Prohibition on Assignment. Executive's right to benefit
payments under this Section 4.2 are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by creditors of Executive or Executive's beneficiary.
(e) Source of Payments. All benefits under this Section 4.2
shall be paid in cash from the general funds of the Company, and no special or
separate fund shall be established or other segregation of assets made to assure
such payments; provided, however, that the Company may establish a bookkeeping
reserve to meet its obligations hereunder. It is the intention of the
48
<PAGE> 8
parties that the arrangements be unfunded for tax purposes and for purposes of
Title I of the Employee Retirement Income Security Act of 1974.
(f) Executive's Status. Executive shall have the status of a
general unsecured creditor of the Company and the SERB shall constitute a mere
promise to make benefit payments in the future.
(g) Survival of Benefit. The SERB shall survive any
termination (or non-renewal) of this Agreement, including, without limitation, a
termination pursuant to Section 7(c) hereof.
5. Confidential Information. Except as specifically permitted
by this Section 5, and except as required in the course of his employment with
the Company, while in the employ of the Company or thereafter, Executive will
not communicate or divulge to or use for the benefit of himself or any other
person, firm, association, or corporation without the prior written consent of
the Company, any Confidential Information (as defined herein) owned, or used by
the Company or any of its affiliates that may be communicated to, acquired by or
learned of by Executive in the course of, or as a result of, Executive's
employment with the Company or any of its affiliates. All Confidential
Information relating to the business of the Company or any of its affiliates
which Executive shall use or prepare or come into contact with shall become and
remain the sole property of the Company or its affiliates.
"Confidential Information" means information not generally
known about the Company and its affiliates, services and products, whether
written or not, including information relating to research, development,
purchasing, marketing plans, computer software or programs,
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<PAGE> 9
any copyrightable material, trade secrets and proprietary information,
including, but not limited to, customer lists.
Executive may disclose Confidential Information to the extent
it (i) becomes part of the public domain otherwise than as a result of
Executive's breach hereof or (ii) is required to be disclosed by law. If
Executive is required by applicable law or regulation or by legal process to
disclose any Confidential Information, Executive will provide the Company with
prompt notice thereof so as to enable the Company to seek an appropriate
protective order.
Upon request by the Company, Executive agrees to deliver to
the Company at the termination of Executive's employment, or at such other times
as the Company may request, all memoranda, notes, plans, records, reports and
other documents (and all copies thereof) containing Confidential Information
that Executive may then possess or have under his control.
6. Assignment of Patents and Copyrights. Executive shall
assign to the Company all inventions and improvements within the existing or
contemplated scope of the Company's business made by Executive while in the
Company's employ, together with any such patents or copyrights as may be
obtained thereon, both domestic and foreign. Upon request by the Company and at
the Company's expense, Executive will at any time during his employment with the
Company and after termination regardless of the reason therefor, execute all
proper papers for use in applying for, obtaining and maintaining such domestic
and foreign patents and/or copyrights as the Company may desire, and will
execute and deliver all proper assignments therefor.
7. Termination.
(a) This Agreement shall terminate upon Executive's
death.
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<PAGE> 10
(b) The Company may terminate Executive's employment
hereunder upon fifteen (15) days' written notice if in the opinion of
the Board of Directors, Executive's physical or mental disability has
continued or is expected to continue for one hundred and eighty (180)
consecutive days and as a result thereof, Executive will be unable to
continue the proper performance of his duties hereunder. For the
purpose of determining disability, Executive agrees to submit to such
reasonable physical and mental examinations, if any, as the Board of
Directors may request and hereby authorizes the examining person to
disclose his findings to the Board of Directors of the Company.
(c) The Company may terminate Executive's employment
hereunder "for cause" (as hereinafter defined). If Executive's
employment is terminated for cause, Executive's salary and all other
rights not then vested under this Agreement shall terminate upon
written notice of termination being given to Executive. As used herein,
the term "for cause" means the occurrence of any of the following:
(i) Executive's disregard of a direct,
material order of the Executive Committee or the
Board of Directors of the Company, the substance of
which order is (a) a proper duty of Executive
pursuant to this Agreement, (b) permitted by law and
(c) otherwise permitted by this Agreement, which
disregard continues after fifteen (15) days'
opportunity and failure to cure; or
(ii) Executive's conviction for a felony or
any crime involving moral turpitude.
8. Successors and Assigns. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company and
their respective legal representatives, successors and assigns. Neither this
Agreement nor any of the duties or obligations hereunder shall be assignable by
Executive.
9. Governing Law; Jurisdiction. This Agreement shall be
interpreted and construed in accordance with the laws of the State of
California. Each of the Company and
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<PAGE> 11
Executive consents to the jurisdiction of any state or federal court sitting in
California, in any action or proceeding arising out of or relating to this
Agreement.
10. Headings. The paragraph headings used in this Agreement
are for convenience of reference only and shall not constitute a part of this
Agreement for any purpose or in any way affect the interpretation of this
Agreement.
11. Severability. If any provision, paragraph or subparagraph
of this Agreement is adjudged by any court to be void or unenforceable in whole
or in part, this adjudication shall not affect the validity of the remainder of
this Agreement.
12. Complete Agreement. This document embodies the complete
agreement and understanding among the parties, written or oral, which may have
related to the subject matter hereof in any way and shall not be amended orally,
but only by the mutual agreement of the parties hereto in writing, specifically
referencing this Agreement.
13. Counterparts. This Agreement may be executed in one or
more separate counterparts, all of which taken together shall constitute one and
the same Agreement.
CENTURY ALUMINUM COMPANY
By: /s/ Gerald J. Kitchen
Title: Executive Vice President
/s/ Lawrence B. Frost
Lawrence B. Frost
52
<PAGE> 1
EXHIBIT 10.36
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT, made as of the 15th day of April 1998, by and between
the Company (as hereinafter defined) and Lawrence B. Frost (the "Executive").
W I T N E S S E T H :
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or the occurrence of a Change in Control and
to ensure his continued dedication and efforts in such event without undue
concern for his personal financial and employment security; and
WHEREAS, the Executive is the Executive Vice President Officer of the
Company and in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this
53
<PAGE> 2
Agreement with the Executive to provide the Executive with certain benefits in
the event his employment is terminated as a result of, or in connection with, a
Change in Control;
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is hereby agreed as follows:
1. Term of Agreement. This Agreement shall commence effective upon 15
April 1998, and shall continue in effect until January 1, 2001, provided,
however, that commencing on January 1, 2001 and on each January 1 thereafter,
the term of this Agreement shall automatically be extended for one (1) year,
subject, however, to termination as provided in the last sentence of this
Section 1; and provided, further, however, that the term of this Agreement shall
not expire prior to the later of (i) the expiration of eighteen (18) months
after the occurrence of a Change in Control during the term of this Agreement,
or (ii) until such time as all benefits to be provided for hereunder have been
provided in full. Except as otherwise provided herein, this Agreement and the
rights and obligations of each party shall terminate if the Executive or the
Company terminates the Executive's employment prior to the occurrence of a
Change in Control.
2. Definitions.
2.1 Accrued Compensation. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all amounts
earned or accrued through the Termination Date (as hereinafter defined) but not
paid as of the Termination Date, including (i) base salary, (ii) reimbursement
for reasonable and necessary expenses incurred by the Executive on behalf of the
Company during the period ending on the Termination Date, (iii) vacation pay,
and (iv) bonuses and incentive compensation (other than the "Pro Rata Bonus" (as
hereinafter defined)).
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<PAGE> 3
2.2 Cause. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive (a) has disregarded a direct,
material order of the Board or the Executive Committee of the Board, the
substance of which order is (i) a proper duty of the Executive under the terms
of his Employment Agreement, (ii) permitted by law, and (iii) otherwise
permitted by his Employment Agreement, which disregard continues after fifteen
(15) days' opportunity and failure to cure, or (b) has been convicted of a
felony or any crime involving moral turpitude.
2.3 Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(a) An acquisition (other than directly from the Company)
of any voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or 14(d) of
the 1934 Act) immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty
percent (20%) or more of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, that in determining whether a
Change in Control has occurred, Voting Securities which are acquired in a
Non-Control Acquisition (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (1) an employee benefit plan (or a trust forming a
part thereof) maintained by (x) the Company or (y) any corporation or other
Person of which a majority of its voting power or its equity securities or
equity interest is owned directly or indirectly by the Company (a "Subsidiary"),
(2) the Company or any Subsidiary, or (3) any Person in connection with a
Non-Control Transaction (as hereinafter defined);
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<PAGE> 4
(b) The individuals who, as of the date hereof, are members
of the Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the Board; provided, however, that if the election, or
nomination for election by the Company's stockholders, of any new director was
approved by a vote of at least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Agreement, be considered a member of the
Incumbent Board; provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or
reorganization involving the Company, unless
(i) the stockholders of the Company,
immediately before such merger, consolidation or reorganization, own, directly
or indirectly immediately following such merger, consolidation or
reorganization, at least seventy percent (70%) of the combined voting power of
the outstanding voting securities of the corporation resulting from such merger
or consolidation or reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement providing
for such merger,
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consolidation or reorganization constitute at least two-thirds
of the members of the board of directors of the Surviving Corporation, and
(iii) no Person (other than the Company, any
Subsidiary, any employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or any Subsidiary, or any
Person who, immediately prior to such merger, consolidation or reorganization,
had Beneficial Ownership of fifteen percent (15%) or more of the then
outstanding Voting Securities) has Beneficial Ownership of fifteen percent (15%)
or more of the combined voting power of the Surviving Corporation's then
outstanding voting securities (a transaction described in clauses (i) through
(iii) above shall herein be referred to as a "Non-Control Transaction");
(2) A complete liquidation or dissolution of the
Company; or
(3) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any Person (other than
a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities
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which increases the percentage of the then outstanding Voting Securities
beneficially owned by the Subject Person, then a Change in Control shall occur.
(d) Notwithstanding anything contained in this
Agreement to the contrary, if the Executive's employment is terminated prior to
a Change in Control and the Executive reasonably demonstrates that such
termination (i) was at the request of a third party who had indicated an
intention or taken steps reasonably calculated to effect a Change in Control and
who effectuates a Change in Control (a "Third Party") or (ii) otherwise occurred
in connection with, or in anticipation of, a Change in Control which actually
occurs, then for all purposes of this Agreement, the date of a Change in Control
with respect to the Executive shall mean the date immediately prior to the date
of such termination of the Executive's employment.
2.4 Company. For purposes of this Agreement, the "Company"
shall mean Century Aluminum Company, a Delaware corporation, and shall include
its Successors and Assigns (as hereinafter defined). As used in this Agreement,
the term "affiliates" shall include any company controlled by, controlling, or
under common control with, the Company.
2.5 Disability. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform his duties with the Company for a period of one hundred
eighty (180) consecutive days and the Executive has not returned to his full
time employment prior to the Termination Date as stated in the Notice of
Termination (as hereinafter defined).
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2.6 Good Reason.
(a) For purposes of this Agreement, "Good Reason"
shall mean the occurrence after a Change in Control of any of the events or
conditions described in subsections (1) through (9) hereof:
(1) a change in the Executive's status,
title, position or responsibilities (including reporting responsibilities)
which, in the Executive's reasonable judgment, represents an adverse change from
his status, title, position or responsibilities as in effect at any time within
one year preceding the date of a Change in Control or at any time thereafter;
the assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his status, title,
position or responsibilities as in effect at any time within one year preceding
the date of a Change in Control or at any time thereafter; or any removal of the
Executive from or failure to reappoint or reelect him to any of such offices or
positions, except in connection with the termination of his employment for
Disability, Cause, as a result of his death or by the Executive other than for
Good Reason;
(2) a reduction in the Executive's base
salary or the failure of the Company to (i) pay to the Executive an annual bonus
in cash at least equal to the annual bonus paid to the Executive for the most
recently completed fiscal year prior to the Change in Control, such bonus to be
paid no later than the end of the third month of the fiscal year next following
the fiscal year for which the annual bonus is awarded, unless the Executive
shall elect to defer the receipt of such annual bonus, (ii) increase the
Executive's base salary and annual bonus consistent with the Company's practice
prior to the Change in Control or, if greater, as the same may be increased from
time to time for other key executive officers of the Company and its
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affiliated companies, or (iii) pay to the Executive any compensation or benefits
to which he is entitled within five (5) days of the date due;
(3) the Company's requiring the Executive to
be based at any place outside a 30-mile radius from the Company's principal
executive offices prior to the Change in Control, except for reasonably required
travel on the Company's business which is not materially greater than such
travel requirements prior to the Change in Control;
(4) the failure by the Company to (A)
continue in effect (without reduction in benefit level and/or reward
opportunities) any material compensation or employee benefit plan (including,
without limitation, long-term disability, medical, dental, life insurance,
flexible spending account, pre-tax insurance premiums, vacation pay, pension and
profit-sharing) in which the Executive was participating at any time within one
year preceding the date of a Change in Control or at any time thereafter, unless
such plans are replaced with plans that provide substantially equivalent
compensation or benefits to the Executive, (B) provide the Executive with
compensation and benefits, in the aggregate, at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under each other
employee benefit plan, program and practice in which the Executive was
participating at any time within one year preceding the date of a Change in
Control or at any time thereafter, or (C) permit the Executive to participate in
any or all incentive, savings, retirement plans and benefit plans, fringe
benefits, practices, policies and programs applicable generally to other key
executives of the Company and its affiliated companies;
(5) the insolvency or the filing (by any
party, including the Company) of a petition for bankruptcy of the Company, which
petition is not dismissed within sixty (60) days;
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(6) any material breach by the Company of
any provision of this Agreement;
(7) any purported termination of the
Executive's employment for Cause by the Company which does not comply with the
terms of Section 2.2;
(8) the disposition of all, or substantially
all, of the assets of the Company; or
(9) the failure of the Company to obtain an
agreement, satisfactory to the Executive, from any Successors and Assigns to
assume and agree to perform this Agreement, as contemplated in Section 6 hereof.
(b) Any event or condition
described in Section 2.6(a)(1) through (9) above which occurs prior to a Change
in Control but which the Executive reasonably demonstrates (1) was at the
request of a Third Party, or (2) otherwise arose in connection with, or in
anticipation of, a Change in Control which actually occurs, shall constitute
Good Reason for purposes of this Agreement notwithstanding that it occurred
prior to the Change in Control.
2.7 Highest Annual Bonus. For purposes of this Agreement,
"Highest Annual Bonus" shall mean an amount equal to the highest annual bonus
paid or payable to the Executive for any of the five most recently completed
fiscal years prior to the Change in Control (or such shorter period that the
Executive has been employed).
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2.8 Highest Base Salary. For purposes of this Agreement,
"Highest Base Salary" shall mean the Executive's annual base salary at the
highest rate in effect during the five-year period (or such shorter period that
the Executive has been employed) prior to the Change in Control, and shall
include all amounts of his base salary that are deferred under the qualified and
non-qualified employee benefit plans of the Company or any other agreement or
arrangement.
2.9 Notice of Termination. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a written
notice of termination from the Company of the Executive's employment which
indicates the specific termination provision in this Agreement relied upon and
which sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. The Notice of Termination shall also specify the
relevant Termination Date.
2.10 Pro Rata Bonus. For purposes of this Agreement, "Pro Rata
Bonus" shall mean an amount equal to the Highest Annual Bonus multiplied by a
fraction, the numerator of which is the number of days elapsed in the fiscal
year through the Termination Date and the denominator of which is 365.
2.11 Successors and Assigns. For purposes of this Agreement,
"Successors and Assigns"' shall mean a corporation or other entity acquiring all
or substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
2.12 Termination Date. For purposes of this Agreement,
"Termination Date" shall mean in the case of the Executive's death, his date of
death, in the case of the Executive's resignation for any reason, the last day
of his employment, and in all other cases, the date specified in the Notice of
Termination; provided, however, that if the Executive's employment is
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terminated by the Company for Cause or due to Disability, the date specified in
the Notice of Termination shall be at least 30 days from the date the Notice of
Termination is given to the Executive, provided, that in the case of Disability
the Executive shall not have returned to the full-time performance of his duties
during such period of at least 30 days.
3. Termination of Employment.
3.1 If, during the term of this Agreement, the Executive's
employment with the Company shall be terminated within eighteen (18) months
following a Change in Control, the Executive shall be entitled to the following
compensation and benefits:
(a) If the Executive's employment with the Company
shall be terminated (1) by the Company for Cause or Disability, (2) by reason of
the Executive's death, or (3) by the Executive other than for Good Reason, the
Company shall pay to the Executive the Accrued Compensation and, if such
termination is other than by the Company for Cause, a Pro Rata Bonus.
(b) If the Executive's employment with the Company
shall be terminated for any reason other than as specified in Section 3.1(a),
the Executive shall be entitled to the following:
(i) the Company shall pay the Executive all
Accrued Compensation and a Pro Rata Bonus;
(ii) the Company shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, in a
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single payment an amount in cash equal to three times the sum of (A) the Highest
Base Salary and (B) the Highest Annual Bonus;
(iii) for a period of thirty-six (36) months
after the Termination Date (the "Continuation Period"), the Company shall, at
its expense, continue on behalf of the Executive and his dependents and
beneficiaries all employee benefits provided (x) to the Executive at any time
during the one year period prior to the Change in Control or at any time
thereafter or (y) to other similarly situated executives who continue in the
employ of the Company during the Continuation Period, including, but not limited
to, long-term disability, medical, dental, life insurance, flexible spending
account and pre-tax insurance premiums but excluding pension and profit-sharing
benefits. The coverage and benefits (including deductibles and costs) provided
in this Section 3.1(b)(iii) during the Continuation Period shall be no less
favorable to the Executive and his dependents and beneficiaries than the most
favorable of such coverages and benefits during any of the periods referred to
in clauses (x) and (y) above. The Company's obligation hereunder with respect to
the foregoing benefits shall be limited to the extent that the Executive obtains
any such benefits pursuant to a subsequent employer's benefit plans, in which
case the Company may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate coverages and benefits
of the combined benefit plans is no less favorable to the Executive than the
coverages and benefits required to be provided hereunder. This subsection (iii)
shall not be interpreted so as to limit any benefits to which the Executive, his
dependents or beneficiaries may be entitled under any of the Company's employee
benefit plans, programs or practices following the Executive's termination of
employment, including, without limitation, retiree medical and life insurance
benefits;
(iv) the Company shall pay to the Executive
in a single payment an amount in cash equal to the excess of (A) the
Supplemental Retirement Benefit (as defined below) had (w) the Executive
remained employed by the Company for an additional three (3)
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complete years of credited service, (x) his annual compensation during such
period been equal to the Highest Base Salary and the Highest Annual Bonus, (y)
the benefit accrual formulas of each retirement plan remained no less
advantageous to the Executive than those in effect immediately preceding the
date on which a Change in Control occurred and the Company made employer
contributions to each defined contribution plan in which the Executive was a
participant at the Termination Date in an amount equal to the amount of such
contribution for the plan year immediately preceding the Termination Date, and
(z) he been fully (100%) vested in his benefit under each retirement plan in
which the Executive was a participant, over (B) the lump sum actuarial
equivalent of the aggregate retirement benefit the Executive is actually
entitled to receive under such retirement plans. For purposes of this subsection
(iv), the "Supplemental Retirement Benefit" shall mean the lump sum actuarial
equivalent of the aggregate retirement benefit the Executive would have been
entitled to receive under the Company's supplemental and other retirement plans
(the "Pension Plans"). For purposes of this subsection (iv), the "actuarial
equivalent" shall be determined in accordance with the actuarial assumptions
used for the calculation of benefits under the Pension Plans as applied prior to
the Termination Date in accordance with such plans' past practices; and
(v) (A) the restrictions on any outstanding incentive
awards (including restricted stock and performance share units) granted to the
Executive under the 1996 Stock Incentive Plan or under any other incentive plan
or arrangement shall lapse and such incentive awards shall become 100% vested
and all stock options granted to the Executive shall become immediately
exercisable and shall become 100% vested (and restrictions on any stock issued
upon exercise of stock options shall lapse), and (B) the Executive shall have
the right to require the Company to purchase, for cash, any shares of
unrestricted stock or shares purchased upon exercise of any options at a price
equal to the fair market value of such shares on the date of purchase by the
Company.
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(c) The amounts provided for in Sections 3.1(a),
3.1(b)(i), 3.1(b)(ii) and 3.1(b)(iv) shall be paid in a single lump sum cash
payment within five (5) days after the Executive's Termination Date (or earlier,
if required by applicable law).
(d) The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Executive in any
subsequent employment except as provided in Section 3.1(b)(iii). Notwithstanding
the foregoing, the Executive agrees that during the Continuation Period, he
shall not (i) solicit any employees of the Company to leave the Company's employ
to work for any company with which the Executive is employed, or (ii) employ any
employee who is employed by the Company at any time during the Continuation
Period. A breach of either of the foregoing covenants will result in the
Executive forfeiting any further benefits to which he is entitled pursuant to
Section 3.1(b)(iii), although the Executive shall not be required to return any
payments to the Company which have been made to the Executive prior to the date
of such breach.
3.2 (a) The severance pay and benefits provided for in this Section 3
shall be in lieu of any other severance or termination pay to which the
Executive may be entitled under any employment agreement or any Company
severance or termination plan, program, practice or arrangement.
(b) The Executive's entitlement to any other compensation
benefits shall be determined in accordance with the Company's employee benefit
plans and other applicable programs, policies and practices then in effect.
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(c) Notwithstanding anything to the contrary in this
Agreement, in the event the Executive is terminated by the Company after the
occurrence of a Change in Control and is subsequently rehired by the Company at
any time thereafter, the Executive shall not be entitled to any further benefits
under Section 3.1(b)(iii) of this Agreement although the Executive shall not be
required to return any payments to the Company which have been made to the
Executive prior to the date the Executive is rehired.
4. Notice of Termination. Following a Change in Control, any purported
termination of the Executive's employment by the Company shall be communicated
by Notice of Termination to the Executive. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
5. Excise Tax Payments.
(a) In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")) to the Executive or for his benefit paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, his employment with the Company or a change
in ownership or effective control of the Company or of a substantial portion of
its assets (each a "Payment" and collectively, the "Payments"), would be subject
to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive will be
entitled to receive an additional payment (a "Gross-Up Payment"), such that the
net amount retained by the Executive, after deduction and/or payment of any
Excise Tax on the Payments and the Gross-Up Payment and any federal, state and
local income tax on the Gross-Up Payment (including any interest or penalties,
other than interest and penalties imposed by reason of the Executive's
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failure to file timely a tax return or pay taxes shown due on his return,
imposed with respect to such taxes), shall be equal to the Payments.
Notwithstanding the foregoing, the Company shall only be required to make a
Gross-Up Payment with respect to parachute payments (as defined in Section
280G(b)(2) of the Code) arising from or relating to the acceleration, vesting or
lapsing of restrictions of incentive awards, including without limitation, stock
options, performance share units and restricted stock; any such Gross-Up Payment
shall be made with respect to the full amount of such parachute payments without
regard to the base amount (as defined in Section 280G(b)(3) of the Code).
(b) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by an accounting firm selected by the
Company and reasonably acceptable to the Executive which is designated as one of
the five largest accounting firms in the United States (the "Accounting Firm").
The Accounting Firm shall provide its determination (the "Determination"),
together with detailed supporting calculations and documentation to the Company
and the Executive within five days of the Termination Date if applicable, or
such other time as requested by the Executive (provided the Executive reasonably
believes that any of the Payments may be subject to the Excise Tax) and if the
Accounting Firm determines that no Excise Tax is payable by the Executive as
provided in Section 5(a) above, it shall furnish the Executive with an opinion
reasonably acceptable to the Executive to such effect. Within ten days of the
delivery of the Determination to the Executive, the Executive shall have the
right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if
any, as determined pursuant to this Paragraph 5(b) shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. The existence of the Dispute shall not in any way affect the
Executive's right to receive the Gross-Up Payment in accordance with the
Determination. Upon the final resolution of a Dispute, the Company shall
promptly pay to the Executive any additional amount required by such resolution.
If there is no Dispute, the
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Determination shall be binding, final and conclusive upon the Company and the
Executive subject to the application of Section 5(c) below.
(c) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a
portion thereof) will be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion thereof) which should have been
paid will not have been paid (an "Underpayment"). An Underpayment shall be
deemed to have occurred (i) upon notice (formal or informal) to the Executive
from any governmental taxing authority that the Executive's tax liability
(whether in respect of the Executive's current taxable year or in respect of any
prior taxable year) may be increased by reason of the imposition of the Excise
Tax on a Payment or Payments with respect to which the Company has failed to
make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii)
by reason of a determination by the Company (which shall include the position
taken by the Company, together with its consolidated group, on its federal
income tax return) or (iv) upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall promptly notify the
Company and the Company shall promptly, but in any event, at least five days
prior to the date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up Payment equal to
the amount of the Underpayment plus any interest and penalties (other than
interest and penalties imposed by reason of the Executive's failure to file
timely a tax return or pay taxes shown due on the Executive's return) imposed on
the Underpayment. An Excess Payment shall be deemed to have occurred upon a
Final Determination (as hereinafter defined) that the Excise Tax shall not be
imposed upon a Payment or Payments (or portion thereof) with respect to which
the Executive had previously received a Gross-Up Payment. A "Final
Determination" shall be deemed to have occurred when the Executive has received
from the applicable government taxing authority a refund of taxes or other
reduction in the Executive's tax liability by reason of the Excess Payment and
upon either (x) the date a determination is made by, or an agreement is entered
into
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with, the applicable governmental taxing authority which finally and
conclusively binds the Executive and such taxing authority, or in the event that
a claim is brought before a court of competent jurisdiction, the date upon which
a final determination has been made by such court and either all appeals have
been taken and finally resolved or the time for all appeals has expired or (y)
the statute of limitations with respect to the Executive's applicable tax return
has expired. If an Excess Payment is determined to have been made, the amount of
the Excess Payment shall be treated as a loan by the Company to the Executive
and the Executive shall pay to the Company on demand (but not less than 10 days
after the determination of such Excess Payment and written notice has been
delivered to the Executive) the amount of the Excess Payment plus interest at an
annual rate equal to the Applicable Federal Rate provided for in Section 1274(d)
of the Code from the date the Gross-Up Payment (to which the Excess Payment
relates) was paid to the Executive until the date of repayment to the Company.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event that, according to the Determination, an Excise Tax
will be imposed on any Payment or Payments, the Company shall pay to the
applicable government taxing authorities as Excise Tax withholding, the amount
of the Excise Tax that the Company has actually withheld from the Payment or
Payments.
6. Successors' Binding Agreement.
(e) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its Successors and Assigns and the Company shall
require any Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
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(f) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
7. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become due as a result of (a) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (b) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement (including,
but not limited to, any such fees and expenses incurred in connection with the
Dispute and any other matter arising under Section 5, including the existence
and amount of any Excess Payment or Underpayment and issues with respect to the
Gross-Up Payment, whether as a result of any applicable government taxing
authority proceeding, audit or otherwise, or by any other plan or arrangement
maintained by the Company under which the Executive is or may be entitled to
receive benefits), provided, however, that any such action by the Executive is
commenced in good faith and for good reason, and (c) the Executive's hearing
before the Board as contemplated in Section 2.2 of this Agreement; provided,
however, that the circumstances set forth in clauses (a) and (b) (other than as
a result of the Executive's termination of employment under circumstances
described in Section 2.3(d)) occurred on or after a Change in Control.
8. Notices. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses for the parties set forth
on Exhibit A hereto or to any other addresses as the respective parties may
designate by notice delivered pursuant to this Section 8, provided that all
notices to the Company
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shall be directed to the attention of the Board with a copy to the Secretary of
the Company. All notices and communications shall be deemed to have been
received on the date of delivery thereof or on the third business day after the
mailing thereof, except that notice of change of address shall be effective only
upon receipt.
9. Non-Exclusivity of Rights. Except as otherwise provided in Section
3.2(a), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company and for which the Executive may qualify,
nor shall anything herein limit or reduce such rights as the Executive may have
under any other agreements with the Company. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company shall be payable in accordance with such plan or program,
except as explicitly modified by this Agreement.
10. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
11. Modification, Waiver and Miscellaneous. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the Executive and the
Company. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
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12. Governing Law and Jurisdiction. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof. Any claims
arising under or related to this Agreement shall be settled by binding
arbitration pursuant to the rules of the American Arbitration Association or
such other rules as to which the parties may agree. The arbitration shall take
place in New York, New York within thirty (30) days following service of notice
of such dispute by one party on the other. The arbitration shall be conducted
before a panel of three (3) arbitrators, one to be selected by each of the
parties and the third to be selected by the other two. The panel of arbitrators
shall have no authority to order a modification or amendment of this Agreement.
The parties agree to abide by all awards rendered in such proceedings. Such
awards shall be final and binding on all parties, and may be filed with the
clerk of one or more courts, state or federal, having jurisdiction over the
party against whom such award is rendered or such party's property as a basis of
judgment and of the issuance of execution for its collection.
13. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
CENTURY ALUMINUM COMPANY
By: /s/ Gerald J. Kitchen
----------------------------------
Executive Vice President
/s/ Lawrence B. Frost
----------------------------------
Lawrence B. Frost
74
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EXHIBIT A
If to the Company:
at its principal executive offices
If to the Executive:
3488 Knollwood Drive NW
Atlanta, GA 30305
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<PAGE> 1
EXHIBIT 10.37
CENTURY ALUMINUM COMPANY
1996 STOCK INCENTIVE PLAN
IMPLEMENTATION GUIDELINES
[PERFORMANCE SHARE AWARDS]
1. PURPOSE
These guidelines ("Guidelines") are intended to provide direction for
implementation of the Company's 1996 Stock Incentive Plan (the "Plan")
with respect to Performance Share Awards. The Plan is intended to
advance the interests of the Company by enabling Executive Officers and
other key employees of the Company and its Subsidiaries to acquire
proprietary interests in the Company, which interests are
"performance-based compensation" within Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated
thereunder, through achievement by the Company of specified future
performance and earnings goals.
2. DEFINITIONS
A. "Award" shall be as defined in Section 4.
B. "Award Factor" shall be the percentage of each Participant's Award
that is payable for any of the Plan Periods as follows:
(1) If Cumulative Earnings Before Taxes are at least 5%
greater than Target, then 110% of the Award, and then
increasing in additional 10% increments for each
additional 5% that Cumulative Earnings Before Tax
exceed the Target for the same period; provided,
however, that in no event shall the Award Factor
exceed 150%.
(2) 100% of the Award if Cumulative Earnings Before Tax
are at least 100% of Target for the same period but
not equal to or greater than 105% of such Target.
(3) 85% of the Award if Cumulative Earnings Before Tax
are at least 90% of Target for the same period but
are not equal to or greater than such Target.
(4) 70% of the Award if Cumulative Earnings Before Tax
are least 80% of Target for the same period but are
not 90% or more of such Target.
(5) 60% of the Award if Cumulative Earnings Before Tax
are less than 80% of Target, but 70% or more of
Target, for the same period, but ROI of the Company
exceeds Industry ROI for all companies set forth in
Section 2.H.
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<PAGE> 2
(6) 50% of the Award if Cumulative Earnings Before Tax
are less than 70% of the Target, but 60% or more of
Target, for the same period, but ROI of the Company
exceeds Industry ROI for any four of the six
companies set forth in Section 2.H.
(7) Zero if Cumulative Earnings Before Tax are less than
60% of the Target.
C. "Board" shall mean the Board of Directors of the Company.
D. "Committee" shall mean the Compensation Committee of the Board
of Directors of the Company, two members or more of whom shall
be directors who are not employees of the Company or any
Subsidiary.
E. "Company" shall mean Century Aluminum Company.
F. "Cumulative Earnings Before Tax" shall mean the aggregate
Earnings Before Tax during any of the Plan Periods.
G. "Earnings Before Tax" shall mean the earnings before all
taxes, and after deducting interest expense, on income of the
Company as reported in the annual audited financial statements
after adjustment for accrual for payments to be made under
this Plan, but, at the discretion of the Board, excluding
non-recurring items.
H. "Industry ROI" shall mean for Alumax Inc., the Aluminum
Company of America, Commonwealth Industries, Inc., Reynolds
Metals Company, Alcan Aluminum Limited and Kaiser Aluminum and
Chemical Corporation, the returns on invested capital for each
of the Plan Periods thereafter determined in each case in the
same manner as ROI of the Company, except that in each case,
as applicable, average minority shareholder interest, if any,
shall be added to average invested capital. For the purposes
of the comparisons contained in Section 2.B, (5) and (6), ROI
for each of the companies and the Company shall be carried out
to as many decimal places as required so that no two ROI's are
the same.
I. "Initial Periods" shall mean (a) calendar year 1998 and (b)
calendar years 1998 and 1999.
J. "Participant" shall mean any full-time salaried employee of
the Company or a Subsidiary designated as a Participant by the
Committee.
K. "Performance Shares" shall have the meaning set forth in the
Plan and shall entitle the grantee to receive one share of the
Company's common stock for each Performance Share awarded.
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<PAGE> 3
L. "Plan Periods" shall mean overlapping periods of three
consecutive calendar years each, the first of which shall
commence January 1, 1998, and end December 31, 2000.
M. "ROI" shall mean the arithmetic average of the returns on
invested capital of the Company, stated as a percent, for each
of the calendar years of each Plan Period. It shall be
computed by dividing the Earnings Before Tax, after adding any
interest expense for such year, by the average of the
shareholders' equity plus borrowings of the Company, the
average in each case to be the sum of the shareholders' equity
plus borrowings on the last day of the immediately preceding
calendar year and on the last day of the calendar year in
question, in all respects as these items appear in the audited
financial statements of the Company.
N. "Section" shall mean a section of these Guidelines.
O. "Subsidiary" shall mean any corporation the voting stock of
which is 50% or more is owned, directly or indirectly, by the
Company.
P. "Target" shall mean the cumulative annual earnings before
income taxes established by the Committee as the goal for the
Initial Periods and for each of the Plan Periods, which goal
shall be guided by the cumulative forecasted earnings before
income taxes of the Company for the first three years of each
Five-Year Plan as contained in and submitted to the Board
annually in the document entitled "Century Aluminum Company's
Five Year Profit Plan". The Committee may use as its guide for
the Initial Periods and the first of the Plan Periods the
Profit Plan present to the Board by the Company on December
18, 1997.
3. TERM
Implementation of these Guidelines shall commence as of January 1,
1998, and shall continue until such time as terminated by the Board.
4. AWARD
A. AWARD. The Committee shall, on or before each May 15 during
the Initial Periods and each of the Plan Periods, make an
award of Performance Shares to each Participant, which award
shall be communicated in writing to each Participant by the
Chief Executive Officer of the Company. Awards shall be issued
as provided in Section 5. The Award for each Participant shall
be determined by creating a monetary award, and converting
that monetary award to Performance Share units. The monetary
award shall be a percentage of such Participant's base salary
(within the allowable range), which percentage shall be
established by the Committee at the beginning of each of the
Plan Periods. The allowable percentages are as follows:
78
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<TABLE>
<CAPTION>
Participant's Position Range of Allowable Percentages
---------------------- ------------------------------
<S> <C>
CEO and COO 80 - 100%
EVPs and Sr. VPs 60 - 80%
VPs 45 - 60%
Business Unit Heads 30 - 45%
Sr. Operating/Corporate Staff 15 - 30%
</TABLE>
The number of Performance Shares shall be determined by dividing the
Participant's monetary award by the average closing price for the Company's
common stock for the month preceding the month in which the grant is made.
B. TARGET AWARD; ADJUSTED AWARD.
1. TARGET AWARD. If the Company's Cumulative Earnings Before
Tax are at least 100% of Target but not equal to or greater
than 105% of such Target, then Participants shall be issued
the number of shares equal to the number of Performance Share
units in Participants' awards.
2. ADJUSTED AWARD. If the Award Factor is other than
as described in Section 4.B.(1), the Target Awards shall be
adjusted upward or downward as follows:
(a) If a Participant's Award Factor is 105% or greater,
the number of Performance Shares in excess of the
100% award shall be calculated by dividing the
Participant's monetary award in excess of 100% by the
greater of the stock value on the date of the initial
grant of the Performance Shares or the average stock
price for the month immediately preceding the month
in which the Performance Shares are issued. An
example of how this provision is intended to operate
is attached to these Guidelines as Exhibit A.1.
(b) If a Participant's Award Factor is less than 100% of
Target, the number of Performance Shares shall be
calculated by recalculating the Participant's
monetary Award by the applicable Award Factor and
converting the monetary award to Performance Share
units by the stock value used in calculating the
Target Award. An example of how this provision is
intended to operate is illustrated on Exhibit A.2.
5. ISSUANCE OF AWARDS
A. On or before March 15 (or, if required, such later date when
the annual audited financial statement of the Company and the
other companies referred to in the definition of Industry ROI
are available) of each calendar year, the Company shall, in
respect of the Initial Period or Plan Period which has just
ended, issue to each Participant Performance Shares in an
amount equal to such Participant's Award multiplied by the
applicable Award Factor.
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B. Except as provided in Section 5.C., no grant with respect to
any Award shall be made to a Participant who is not employed
full time by the Company or a Subsidiary on the 31st day of
December preceding the date of issuance provided in Section
5.A.
C. In the event of death, permanent disability or retirement of a
Participant in any year following an Award, the Participant or
his representative or designated beneficiaries shall be
entitled to receive a portion of the amount calculated under
Section 5.A., and payable in the year following death,
permanent disability or retirement, determined by multiplying
such amount by a fraction, the numerator of which is the
number of weeks of full employment during any of the Initial
Periods or Plan Periods and the denominator of which is 52 for
the first Initial Period, 104 for the second Initial Period
and 156 for any Plan Period.
D. If an employee is selected as a Participant at any time other
than the beginning of any given Initial Period or Plan Period,
such Participant shall be entitled to receive a portion of the
amount calculated under Section 5.A. by multiplying such
amount by a fraction the numerator of which is the number of
months that such employee was a Participant under the plan
during any of the Initial Period or Plan Periods and the
denominator of which is number of months in the applicable
period. For the purposes of this Section 5.D. an employee
shall be deemed to have been a Participant under the Plan as
of January 1 of the calendar year in which such employee was
first selected a Participant if such selection occurred on or
before May 15 of such calendar year and if such selection
occurred after May 15 of any calendar year the employee shall
be deemed to have first become a Participant on January 1 of
the calendar year immediately following the employee's
election as a Participant.
6. ADMINISTRATION
A. Each grant of a Performance Share shall be evidenced by an
agreement executed on behalf of the Company by an officer
designated by the Compensation Committee and accepted by the
recipient. Such agreement shall state that such award is
subject to all the terms and provisions of the Plan.
B. Full power and authority to amend, modify, terminate,
construe, interpret and administer these Guidelines shall be
vested in the Committee. Any interpretation of these
Guidelines by the Committee or any administrative act by the
Committee shall be final and binding on all Participants.
7. NON-ASSIGNABILITY
Nothing in these Guidelines shall be deemed to make rights granted
pursuant hereto assignable or transferable by a Participant except
pursuant to the laws of descent and distribution. No rights under these
Guidelines may be hypothecated or encumbered in any manner whatsoever,
and creditors of Participants shall have no right or power to obtain
all or any portion of grants made hereunder. Any attempted assignment,
80
<PAGE> 6
hypothecation or encumbrance by a Participant shall be null and void.
Each Participant may, however, designate one or more beneficiaries
under the Plan on a form to be supplied by the Secretary of the Company
Adopted by the Board on May 4, 1998.
/s/ Craig A. Davis
----------------------------------
Craig A. Davis, Chairman
/s/ Gerald J. Kitchen
- ---------------------------------------
Gerald J. Kitchen, Secretary
81
<PAGE> 7
E X H I B I T A
Assume a Participant whose base salary is $200,000 is given a 75% Target Award
and that the Company's common stock has an average closing price of $15 in the
month preceding the month in which the grant is made. This Participant would
have a Target Award of 10,000 Performance Shares ($200,000 x 75% / 15 = 10,000).
1. Award Factor Greater Than Target
If the Company achieves 105% of Target, the Participant's monetary
award (pursuant to the Award Factor described in Section 2.B.(1)) would
be $165,000 ($150,000 x 110%). The $15,000 by which the adjusted
monetary award exceeds 100% of the target monetary award would be
converted to Performance Shares as follows:
a. If the Company's average stock price in the month preceding
the date in which the grant vests is $15 or less, the
additional Award would be 1,000 Performance Shares ($15,000 /
15 = 1,000), and the Participant's total Award would be 11,000
Performance Shares.
b. If the Company stock in the month preceding the date in which
the grant vests is greater than $15 (e.g. $20), the adjusted
Award would be calculated using the higher share value
($15,000 / 20 = 750), and the Participant's total Award in
this case would be 10,750 Performance Shares.
2. Award Factor Less Than Target
If the Company achieves 90% of Target, the Participant's monetary award
would be $127,500 ($150,000 x 85% = $127,500), and the Award would be
8,500 Performance Shares ($127,500 / 15 = 8,500).
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<PAGE> 1
EXHIBIT 10.38
CENTURY ALUMINUM COMPANY
INCENTIVE COMPENSATION PLAN
1. NAME
The name of this Plan is the Incentive Compensation Plan ("Plan") of
Century Aluminum Company and its Subsidiaries.
2. PURPOSE
The purpose of the Plan is to motivate, through incentive awards paid
in cash in accordance with the provisions hereof, employees of the Company and
its Subsidiaries who occupy key executive positions and who can contribute to
the growth and profits of the Company and its Subsidiaries.
3. DEFINITIONS
A. "Average Total Capitalization" shall mean the average of the
Total Capitalization at the end of the current year and at the
end of the immediately preceding year.
B. "Board" shall mean the Board of Directors of the Company.
C. "Committee" shall mean the Compensation Committee of the Board
of Directors of the Company, two members or more of whom shall
be directors who are not employees of the Company or any
Subsidiary.
D. "Company" shall mean Century Aluminum Company.
E. "Net Earnings" shall mean earnings after deduction for
incentive compensation, and interest expense, and after
provision for income taxes using the consolidated effective
income tax rate. Non-recurring items may be excluded at the
discretion of the Board.
F. "Participant" shall mean any full-time salaried employee of
the Company or of a Subsidiary who is selected by the
Committee to receive an award under this Plan.
G. "Reserve" shall mean the incentive compensation reserve
account established by the Company for purposes of payments
under the Plan.
H. "ROI" shall mean return on investment, which shall be Net
Earnings divided by Average Total Capitalization.
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<PAGE> 2
I. "Subsidiary" shall mean any corporation the voting stock of
which is owned 50% or more, directly or indirectly, by the
Company.
J. "Total Capitalization" shall mean the sum of the capital
stock, paid-in capital and retained earnings of the Company
and the aggregate borrowings of the Company as of the end of
the year.
4. RESERVE
A. The Company shall maintain a Reserve to which shall be
credited, in the discretion of the Board, and based upon the
recommendation of the Compensation Committee, in each year
during which the Plan remains in effect, an amount which shall
not exceed the following:
(i) $500,000 if the ROI is 7.0% or less;
(ii) $1,000,000 if the ROI is greater than 7.0% but less
than 10%; or
(iii) If the ROI is 10% or greater, the sum of the maximum
contribution pursuant to Section 4.A(ii) plus 3% of
that portion of Net Earnings which results in an ROI
of 10% or greater.
B. Subject to Section 4.D., no amount shall be credited to the
Reserve if the ROI is 6% or lower.
C. Any amount transferred to the Reserve for a particular year,
which is not awarded in such year, may be awarded by the
Committee in a subsequent year or years.
D. The Board, upon the recommendation of the Committee, may
establish an initial reserve which shall not exceed
$1,000,000.
5. AWARDS
A. For the calendar year 1997, and for each year thereafter
during which the Plan shall remain in effect, the Committee
shall determine the following, in its discretion, on or before
December 15 of such year:
(i) The amount to be credited to the Reserve for such
year in accordance with Section 4;
(ii) The total dollar amount of the awards for such year
to be awarded to all Participants,
(iii) The dollar amount of the award or the percentage of
the total awards for such year to be awarded to each
Participant.
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<PAGE> 3
On or before March 15 of the following year, the Committee
shall verify that the amount theretofore credited to the
Reserve for such year does not exceed the maximum allowable
amount in accordance with Section 4. If the amount of such
credit exceeds the allowed maximum, an appropriate adjustment
shall be made thereto, and, if necessary, a pro rata
adjustment to any awards shall be made. Awards in respect of
such year shall be paid on or before March 31 of the following
year.
B. Awards shall be payable under this Plan only up to the amount
of funds in the Reserve.
6. DESIGNATION OF AWARDS TO PARTICIPANTS
A. Awards shall be made to a Participant who contributes
materially to the success of the Company's business by his or
her ability, ingenuity and industry in achieving the following
objectives of a division or department of the Company or of
the Company and its Subsidiaries as a whole:
(i) successful achievement of planned programs for growth
and profit, including capital expenditures, annual
profit plans, and long-range plans;
(ii) expansion through the discovery, development or
acquisition of new enterprises or products;
(iii) greater efficiency in existing research, processing,
manufacturing and marketing operations, including
product improvements;
(iv) reduction in costs and expenses; or
(v) development of management through recruitment,
training, transfer, promotion and through appropriate
recognition of high potential and talent.
B. The amount, if any, awarded to a Participant shall be within the full
discretion of the Committee. If an award is made, it shall be a
percentage of a Participant's base salary on November 30 of the
calendar year for which an award is made, or such earlier date during
such year as his or her employment may have terminated, provided such
termination was due to the death, disability or retirement. Suggested
ranges are as follows:
85
<PAGE> 4
<TABLE>
<CAPTION>
Suggested Ranges
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Position
CEO 50% 100%
COO 35% 75%
EVP 35% 75%
VP 35% 75%
Business Unit Head 25% 40%
Senior Operating Staff 10% 30%
- -------------------------------------------------------------------------------------------------
</TABLE>
An award shall be paid only to a Participant who is employed by, or is
upon an approved leave of absence from, the Company or a Subsidiary on
the last business day of the year for which an award is made, unless
termination of employment during such year was due to death,
disability, retirement or other reason approved by the Committee. If an
award has been made to a Participant for any year and the employment of
such Participant by the Company or a Subsidiary has been terminated
prior to the last business day of such year other than by death,
disability, retirement or other reason approved by the Committee, no
award shall be payable to such Participant, and the amount of any award
to such Participant for such year, shall be credited to the Reserve.
Awards made to Participants shall be paid in cash and debited to the
Reserve. Each cash award shall be paid to a Participant, or in the
event of the death of a Participant prior to the payment thereof, to
his or her beneficiary or if no beneficiary has been designated or if a
beneficiary who has been designated dies prior to the receipt of
payment, to the personal representative of the Participant, no later
than March 31 of the year following the year for which such award is
made.
7. PARTICIPATION
An employee eligible to be a Participant hereunder shall participate in
awards only to the extent that the Committee may from time to time
determine, and any Participant who participates in one year may be
excluded from participation in any other year.
8. TERM
The Plan shall continue until such time as it shall be terminated by
action of the Board; provided, however, that upon any termination of
the Plan, awards already made to Participants shall continue to be
subject to the provisions of the Plan.
9. ADMINISTRATION
A. Full power and authority to amend, modify or terminate the
Plan shall rest in the Board.
86
<PAGE> 5
B. Full power and authority to construe, interpret and administer
the Plan shall be vested in the Committee. Any interpretation
of the Plan by the Committee or any administrative act by the
Committee shall be final and binding on all Participants.
C. The members of the Committee may appoint from their number
such committees with such powers as they shall determine, may
authorize one or more of their number or any agent to execute
or deliver any instrument or instruments in their behalf, and
may employ such counsel, agents and other services as they may
require in carrying out their duties.
10. GOVERNING LAW
This Plan shall be governed by the laws of the State of Delaware.
Adopted by the Board of Directors on May 4, 1998.
/s/ Craig A. Davis
--------------------------
Craig A. Davis
/s/ Gerald J. Kitchen
- --------------------------------
Gerald J. Kitchen, Secretary
87
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CENTURY ALUMINUM
COMPANY CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANACIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,452
<SECURITIES> 0
<RECEIVABLES> 82,232
<ALLOWANCES> 0
<INVENTORY> 174,851
<CURRENT-ASSETS> 285,923
<PP&E> 206,718
<DEPRECIATION> 0
<TOTAL-ASSETS> 499,846
<CURRENT-LIABILITIES> 107,090
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 161,953
<TOTAL-LIABILITY-AND-EQUITY> 499,846
<SALES> 333,152
<TOTAL-REVENUES> 333,152
<CGS> 307,814
<TOTAL-COSTS> 307,814
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,142
<INCOME-PRETAX> 21,778
<INCOME-TAX> 7,840
<INCOME-CONTINUING> 13,938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,938
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.69
</TABLE>
