-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GPiHwpcNCHTCNYLNENdK5DCjZg90PFbZ5jEJGjc4SejBmh52zWHvrvEI6N5cq8od uAkmUUvnY4rQLkAIKUo3Dw== 0000950144-98-001022.txt : 19980210 0000950144-98-001022.hdr.sgml : 19980210 ACCESSION NUMBER: 0000950144-98-001022 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980209 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALUMAX INC CENTRAL INDEX KEY: 0000912600 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 132762395 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12374 FILM NUMBER: 98525291 BUSINESS ADDRESS: STREET 1: 3424 PEACHTREE RD NE STREET 2: STE 2100 CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4048464600 MAIL ADDRESS: STREET 1: ALUMAX INC STREET 2: 3424 PEACHTREE RD NE STE 2100 CITY: ATLANTA STATE: GA ZIP: 30326 10-K405 1 ALUMAX 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-12374 ALUMAX INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-2762395 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
3424 PEACHTREE ROAD, N.E., SUITE 2100 ATLANTA, GEORGIA 30326 (PRINCIPAL EXECUTIVE OFFICES) TELEPHONE NUMBER: (404) 846-4600 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS: ON WHICH REGISTERED: Common Stock, $0.01 par value per share New York Stock Exchange (including Stock Purchase Rights relating thereto)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] As of January 31, 1998, 53,424,939 shares of the common stock of the registrant were issued and outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant was $1,822,145,616 as determined by the January 31, 1998 closing price of $34.875 for one share of common stock on the New York Stock Exchange. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for the Annual Meeting of Stockholders of the registrant to be held on May 28, 1998. Certain information therein is incorporated by reference into Part III hereof. ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL Alumax Inc. ("Alumax" or the "Company") is the third largest aluminum company in the United States and the fourth largest in North America, based on sales, and operates over 70 plants and other manufacturing and distribution facilities in 22 states, Canada, Western Europe, Mexico, Australia, the People's Republic of China and Poland. The Company is an integrated producer of aluminum products, operating in a single segment: aluminum processing. Using alumina purchased from one principal supplier, the Company produces primary aluminum employing an electrolytic process at five reduction plants in the United States and Canada. Primary products are sold externally or further processed by Alumax into a broad range of semi-fabricated and fabricated products. The Company's products are sold to a wide variety of markets, including transportation, distributors, building and construction, consumer durables, and packaging. Since becoming an independent public corporation in November 1993, Alumax has taken several significant steps to increase stockholder value, position the Company for future growth and strengthen its balance sheet. Alumax has devised and implemented a four-point business strategy designed to (i) enhance the Company's position as a low-cost producer of primary aluminum; (ii) grow in transportation, aluminum's largest and fastest growing market; (iii) emphasize the manufacture of more specialized, value-added products; and (iv) expand in emerging global markets where the Company believes it will be able to capitalize on its product strengths. The four-point strategy has been complemented by the Company's continuing efforts to increase its operational strengths and efficiencies, principally by improving its business and product mix, enhancing the market share and unit volume growth prospects of its downstream businesses, reducing controllable costs and improving productivity. The Company has reconfigured its asset base by (i) disposing of various businesses and assets which did not generate, and offered limited prospects of yielding, acceptable returns or which were not integral to the Company's long-range business activities and (ii) reinvesting the proceeds derived from such dispositions into businesses having greater potential for future growth. In the four years ended December 31, 1997, sales of non-essential businesses and assets generated approximately $775 million in cash, while over $1 billion was utilized for strategic acquisitions and business expansion purposes. The Company will continue to manage its asset base actively with a view toward strengthening the growth prospects of its downstream businesses. In addition to the measures described above, the Company announced in November 1997 implementation of a performance improvement plan with an initial target of increasing its annual pretax operating earnings by approximately $100 million by 1999. Working in tandem with this plan will be a new value measurement system to be used for management incentive compensation purposes beginning in 1998. For additional information concerning the performance improvement plan and the value measurement system, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Introduction" included elsewhere herein. As part of its effort to enhance stockholder value, the Company began acquiring shares of its Common Stock pursuant to a stock repurchase program announced in July 1996. That program authorizes the Company to purchase up to 2.5 million shares of Common Stock from time to time on the open market or pursuant to negotiated transactions at price levels the Company deems attractive. Open market transactions were effected at various times during the fourth quarter of 1997 and resulted in the Company repurchasing 1.8 million common shares at an aggregate cost of $59.1 million, or an average of $32.60 per share. In February 1998, the Board of Directors amended the program to provide that purchases reported to, and ratified by, the Board of Directors or by the Executive Committee of the Board shall not be counted in determining compliance with the 2.5 million share limitation. 1 3 The table below sets forth certain information concerning the Company's production, metal shipments and net sales by class of product during the last three years. As used herein, a "tonne" means a metric ton equal to 2,204.6 pounds.
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- Production and metal shipments (in thousands of tonnes): Sources of metal (unaudited): Primary aluminum production............................ 708.6 686.3 650.9 Metal purchases (including scrap aluminum)............. 353.7 419.6 355.3 -------- -------- -------- Total............................................. 1,062.3 1,105.9 1,006.2 ======== ======== ======== Metal shipments (unaudited): Aluminum processing (including tolling)(1): Primary products....................................... 779.8 787.7 732.0 Semi-fabricated products............................... 632.9 575.5 424.0 Fabricated products(2)(3).............................. 99.9 134.3 143.1 Intercompany........................................... (474.5) (415.4) (325.6) -------- -------- -------- Total............................................. 1,038.1 1,082.1 973.5 ======== ======== ======== Net sales by class of product (in millions): Aluminum processing(1): Primary products....................................... $1,390.3 $1,335.5 $1,300.0 Semi-fabricated products............................... 1,833.7 1,643.1 1,320.1 Fabricated products(3)................................. 540.7 863.2 967.9 Intercompany........................................... (833.8) (682.5) (661.9) -------- -------- -------- Total............................................. $2,930.9 $3,159.3 $2,926.1 ======== ======== ========
- --------------- (1) Certain reclassifications have been made to prior years' information to conform with the 1997 presentation. (2) Included in Fabricated products metal shipments are billet shipments of 30.3, 28.6 and 26.8 thousand tonnes for the years ended December 31, 1997, 1996 and 1995, respectively. (3) On September 25, 1996, the Company sold certain fabricated products businesses in Western Europe and in the United States. Sales related to these businesses totaled $363.3 million and $485.0 million in 1996 and 1995, respectively. Shipments related to these businesses totaled 46.3 and 60.7 thousand tonnes in 1996 and 1995, respectively. 2 4 Information concerning the estimated distribution of the Company's sales for the last three years is presented below. Sales to distributors have increased significantly over the last two years as a result of the January 1996 acquisition of Cressona Aluminum Company and the Company's efforts to diversify its product lines.
APPROXIMATE PERCENTAGE OF SALES DOLLARS ------------------ 1997 1996 1995 ---- ---- ---- Primary aluminum and other raw material sales............... 19% 22% 26% Processed product sales by market:* Building and construction................................. 25 30 34 Distributors.............................................. 22 16 10 Transportation............................................ 15 17 15 Consumer durables......................................... 4 3 5 Packaging................................................. 4 4 4 Electrical................................................ 3 2 2 Other..................................................... 8 6 4 --- --- --- Total............................................. 100% 100% 100% === === ===
- --------------- * Includes both semi-fabricated products and fabricated products. Transportation consists primarily of sales to the automotive, truck, trailer and railcar markets. Alumax does not have significant sales to the aircraft manufacturing market. Additional operating and geographic area financial information is presented in Note 16 to the Financial Statements included elsewhere herein. PRIMARY ALUMINUM PRICES The aluminum industry is highly cyclical in nature. The Company's results of operations and financial condition depend to a large degree on primary aluminum prices, as well as conditions in the building and construction and transportation industries. This price sensitivity affects the realized selling prices of substantially all of the Company's products to varying degrees, with less impact on the more specialized and value-added products. Primary aluminum prices, which are determined by worldwide supply and demand conditions, declined significantly from 1989 through 1993 but have shown general improvement over the last four years. The most commonly used index of pricing in the aluminum industry is the average price per tonne as reflected by the London Metal Exchange (the "LME"). The LME index is not necessarily representative of prices actually realized by the Company but generally approximates the trend with respect to Alumax's realized prices (exclusive of the effects of the Company's price risk management strategy described below). Using the LME index, the cyclical nature of aluminum pricing is illustrated in the table below. LME AVERAGE ANNUAL CASH PRICE* (HIGH GRADE CONTRACT)
US$ PER US$ PER YEAR TONNE POUND ---- ------- ------- 1980.................... 1,810 .82 1981.................... 1,300 .59 1982.................... 1,010 .46 1983.................... 1,480 .67 1984.................... 1,280 .58 1985.................... 1,080 .49 1986.................... 1,190 .54 1987.................... 1,590 .72 1988.................... 2,580 1.17 1989.................... 1,950 .88
US$ PER US$ PER YEAR TONNE POUND ---- ------- ------- 1990.................... 1,640 .74 1991.................... 1,300 .59 1992.................... 1,250 .57 1993.................... 1,140 .52 1994.................... 1,480 .67 1995.................... 1,810 .82 1996.................... 1,510 .68 1997.................... 1,600 .73 1998-First Quarter (through January 31)................... 1,486 .67
- --------------- * Adjusted for years prior to, and including, 1987 to reflect the introduction of High Grade Contract. 3 5 Market fundamentals relative to the supply and consumption of aluminum have improved significantly since 1993, when aluminum prices reached historic lows on an inflation-adjusted basis. The LME cash price increased substantially during 1994 and in early 1995, reaching a high of $.97 per pound during January 1995. Inventory de-stocking and generally weaker economic conditions worldwide during the second half of 1995, along with significant restarts of previously idled production capacity, led to reported inventory (consisting of producer plus LME terminal stocks) increases that lasted through January 1996. The level of reported inventory remained relatively unchanged through August 1996, with ingot stocks on the LME alone increasing through early November. During this period of relatively flat overall consumption, producer and consumer activity on the LME was subdued, which resulted in the LME cash price declining from $.75 per pound at the beginning of January 1996 to an average of $.61 per pound during October 1996. Since that time, industry fundamentals improved, reported inventories declined, and the LME cash price increased to an August 1997 average of $.78 per pound. The LME cash price has since declined. Financial and currency problems in Asia, which have clouded the near-term outlook for aluminum consumption, have contributed significantly to this decline. At January 31, 1997, the LME cash price was $.69 per pound. Historically, the Company priced its primary aluminum production at market, with realized prices closely tracking cyclical shifts in market prices. To maintain market based pricing while entering into forward fixed price arrangements required by certain customers and suppliers, the Company utilizes futures contracts which effectively convert forward fixed price arrangements to market prices as of specified settlement dates. The Company also may, from time to time, establish a floor selling price for varying quantities of future production. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management" and Note 15 to the Financial Statements included elsewhere herein. ALUMINUM PROCESSING Primary products The Company, through Alumax Primary Aluminum Corporation and several other wholly-owned subsidiaries, produces and markets t-ingot and a variety of premium primary products, including extrusion billet, slab and foundry ingot. These products are consumed by both the Company's downstream operations and third party customers, in rolling mills, extrusion plants, foundries and remelt operations. In 1997, approximately 60 percent of the Company's primary aluminum production was sold to its downstream operations. The Company believes, based on its ownership interest in the facilities described below and upon reports of industry analysts, that the average primary aluminum reduction costs at its facilities are well within the lower half of all aluminum reduction facilities in the western world. The Company is committed both to maximizing its earnings from the sale of premium primary products and to improving its cost position relative to other primary aluminum producers. 4 6 The table below summarizes the capacity of the five primary aluminum reduction facilities in which the Company has an ownership interest and reflects the Company's share of capacity.
PERCENTAGE OWNERSHIP ALUMAX'S SHARE OF INTEREST AS OF TOTAL AMOUNT OF TOTAL ANNUAL FACILITY DECEMBER 31, 1997 NAMEPLATE CAPACITY NAMEPLATE CAPACITY - -------- ----------------- ------------------ ------------------ (TONNES PER YEAR) Lauralco Deschambault, Quebec....................... 100.00% 235,000 235,000 Intalco Ferndale, Washington....................... 61.00% 278,500 169,900 Eastalco Frederick, Maryland........................ 61.00% 174,000 106,100 Mt. Holly Goose Creek, South Carolina................ 50.33% 205,000 103,200 ABI Becancour, Quebec.......................... 24.95% 372,000 92,800 --------- ------- Total.............................. 1,264,500 707,000 ========= =======
During 1997, the above facilities produced an aggregate of 1,264,235 tonnes of aluminum, of which the Company's share was 707,405 tonnes. The Company's smelter network is currently operating at or above full nameplate capacity. Production enhancements put into place in 1997 and prior periods at Lauralco and Intalco have increased the total nameplate capacity of these facilities by 20,000 and 8,000 tonnes, respectively. A Japanese consortium, led by a subsidiary of Mitsui & Co. Ltd., owns an aggregate 39 percent undivided interest in each of the Intalco and Eastalco facilities. Subsidiaries of Century Aluminum Company, a publicly traded domestic corporation, and Sudelektra Holding AG, a Swiss corporation, together own 49.67 percent of Mt. Holly. For information with respect to the sale by the Company of a 23 percent undivided interest in the Mt. Holly facility in January 1996 and a 14 percent undivided interest in each of the Intalco and Eastalco facilities in March 1995, see Note 2 to the Financial Statements included elsewhere herein. Primary aluminum is produced by the reduction of alumina, which is refined from bauxite, in a series of pots (potline) through an electrolytic process. The Company does not mine bauxite or refine alumina. Alcoa of Australia Limited ("Alcoa of Australia") has been the Company's principal supplier of alumina for over 20 years and currently provides substantially all of the alumina for the Company's reduction operations under a long-term contract which, with renewal options, expires in increments between 2007 and 2018. Pricing under the contract is determined in part on a cost basis and in part on a market basis, providing the Company with protection against spot market price extremes during periods of tight supply. The contract also provides the Company with a secure source of supply from a reliable, high-quality producer, which reportedly has the lowest costs of production in the world. The Company believes that any additional supplies of alumina it may require, from time to time in the foreseeable future, in excess of that supplied by Alcoa of Australia can be obtained at competitive prices. While there has been no interruption in supply during the period that Alcoa of Australia has supplied the Company's alumina requirements, an extended interruption of supply of alumina from Alcoa of Australia could have a material adverse effect on the Company's operations. Other raw materials needed for the production of aluminum, such as petroleum coke, coal tar pitch and aluminum fluoride, are purchased from third parties. The Company believes that it can continue to obtain adequate supplies of these materials at competitive market prices. The primary aluminum reduction process, which strips the oxygen atoms from the alumina molecule, requires substantial amounts of electric power. Lauralco, Intalco, Eastalco, Mt. Holly and ABI purchase electricity under long-term contracts which expire in the years 2014, 2001, 2003, 2005 and 2014, respectively, subject to certain extension provisions. Except for Intalco, each facility's contract is with a single supplier. Power rates for all of the electricity supplied to ABI and Lauralco are linked to the prevailing price of aluminum. In late 1995, Intalco entered into a series of new long-term power contracts with the Bonneville Power Administration (the "BPA") and British Columbia Power Exchange Corporation to provide for all of 5 7 its electricity needs from September 1996 through 2001. Under these contracts, Intalco's power costs are no longer linked to the price of aluminum but are set at a fixed rate. A group of industrial consumers of electricity and a group representing environmental interests had challenged the power supply agreement with BPA (along with other similar BPA agreements with other parties). In 1997, the United States Court of Appeals for the Ninth Circuit denied the claims of these groups and upheld the validity and legality of the power supply agreement with BPA. Mt. Holly entered into a new electric power supply agreement in 1997, while Eastalco amended its existing power supply agreement during the year. With respect to Eastalco, the electric rates payable were significantly reduced. As to Mt. Holly, the electric rates payable were significantly reduced for the first three years of the agreement. Thereafter, Mt. Holly has the opportunity to achieve even greater reductions in the cost of electric power through limited access to the open market. However, this limited access also exposes Mt. Holly to limited market risk. In addition, each agreement provides Mt. Holly and Eastalco, respectively, with certain other benefits and, despite Mt. Holly's limited exposure to market risk, secures for both facilities a stable and reliable supply of electric power during the "transition period" of the electric industry from a regulated monopoly to open competition. The Company expects to meet its power requirements over the foreseeable future pursuant to the aforementioned contracts. Interruptions of power supply could have a material adverse impact on the Company by increasing the cost of production of primary aluminum or necessitating a reduction in production. Alumax Primary Aluminum Corporation and the Government of British Columbia are proceeding with a planning and feasibility study for the construction of a primary aluminum reduction plant of not less than 250,000 tonnes in British Columbia, Canada. The planning and feasibility study will be conducted based upon a memorandum of understanding executed by the parties on January 8, 1998. Completion of the planning and feasibility study is expected to occur no later than December 31, 1998. For information with respect to the credit agreement entered into in 1990 with a group of banks to finance the construction of the Lauralco primary aluminum reduction facility, see Note 6 to the Financial Statements included elsewhere herein. Semi-fabricated products Alumax Extrusions. Alumax Extrusions, Inc., a wholly owned subsidiary ("Alumax Extrusions"), manufactures a broad line of soft-alloy extruded products, as well as secondary billet to be sold to third parties, at eleven plants located in Pennsylvania, Tennessee, Florida, Arkansas, Georgia, Mississippi, Illinois, South Dakota, Utah, North Carolina and its international operation in Monterrey, Mexico. Alumax Extrusions has recently added a twelfth manufacturing facility in Morris, Illinois, utilizing an idle plant previously operated by Alumax Mill Products. The Morris facility provides adequate space to accommodate a further expansion of Alumax Extrusions' manufacturing capacity in a location well situated to serve the growing needs of its transportation and service center customers. The Company believes that Alumax Extrusions has the world's largest soft alloy extrusion manufacturing capacity. Its shower and bath enclosures are distributed through eight service centers in California, Florida, Georgia, North Carolina, Pennsylvania, Texas and Washington, with a ninth service center to be added in Iowa during the second quarter of 1998. The Mexican operation consists of a three-press extrusion plant in Monterrey, with distribution facilities in Mexico City, Guadalajara and Hermosillo. Except for the plants located in North Carolina and Monterrey, the eight service centers, and the distribution facilities in Guadalajara and Hermosillo, which are leased, Alumax Extrusions owns all of the aforementioned plants and facilities. Alumax Extrusions operates as a unified manufacturing support group with a total of 43 presses that range in size from 700 to 6,000 tons. Its integrated resources include complete melting, alloying and casting facilities for 25 alloys, one of the industry's largest in-house shops for the design and production of tooling and dies, and facilities for fabrication, assembly, painting and anodizing. Press operations utilize both direct and indirect technology. The wide range of press sizes and capacities offers scheduling flexibility and increased manufacturing efficiency. Alumax Extrusions' product line includes extruded aluminum alloys, semi-fabricated and fabricated parts and components from extruded aluminum alloys, and secondary extrusion billet. Available in circle sizes up to 6 8 20 inches, product classifications extend to standard and custom extruded shapes (solids, semi-hollows and hollows), standard and specialty rod and bar, seamless and structural pipe and tube, seamless mechanical pipe and tube, and seamless tubular bus conductors. Alumax Extrusions also produces DIAMONDBACK(R) Slip- Resistant Systems, an integrated line of components and accessories that are designed for improved safety on access, walking and working surfaces. Alumax Extrusions has made many advancements with improved process control systems, including Computer Integrated Manufacturing (CIM). With the exception of the recently added Morris, Illinois facility, all domestic locations are certified under the ISO 9000 international quality standard. Alumax Extrusions believes that its diversified customer base helps to minimize the impact of seasonal and cyclical fluctuations in markets such as building and construction. To provide greater focus on its key markets, Alumax Extrusions markets and sells its products through three distinct business units: Alumax Building and Construction Products, located in Plant City, Florida; Alumax Distribution and Industrial Products (formerly the Cressona Aluminum Company business unit), located in Cressona, Pennsylvania; and Alumax Transportation Products, located in West Chicago, Illinois. Although headquartered at different locations, all three business units are supported by the unified manufacturing group. The goal of this structure is to provide specialized sales and service designed to satisfy customer requirements in the areas represented by the three business units. Alumax Building and Construction Products ("AB&CP") markets and sells extrusions to the residential and commercial window and door market. Utilizing seven paint lines, approximately 75 percent of the products are sold with thermal set polyester paint, Kynar resin coatings, anodized finishes, or high performance coatings for corrosive environments. Representative products include window and door frames; bath and shower enclosures; patio and pool enclosures; stadium seating; light poles and flagpoles; bridges, rail and decking; and colored architectural shapes. Alumax Distribution and Industrial Products ("AD&IP") markets and sells extrusions to the service center industry. It also services key original equipment manufacturers' accounts in the machinery and equipment, electrical switchgear and transmission, recreation, medical, and consumer durables markets. AD&IP offers a broad product line of standard and custom extruded shapes, extensive capabilities in pipe and tube, large circle size profiles, and tight tolerance products that utilize indirect extrusion technology. Alumax Transportation Products ("ATP") markets and sells extrusions to the automotive, truck, truck trailer, marine, and railcar markets. Representative products include extruded profiles for automotive space frames, anti-lock brake parts, automotive air bag components, bumper beam components, seating and window components, truck and trailer bodies, recreational vehicle parts, and railcar structural members. Alumax Extrusions has developed or holds intellectual property rights relating to the following products and processes: DIAMONDBACK(R); ECON-O-ROD; ACC-U-ROD(R); ECON-O-PLATE(R); ACC-U-PLATE(R); AluShield(TM); Fluorocarbon Coated Conduit System (ALX-1); and Retrogression Heat Treatment (RHT) and Compression-fit (CF) technologies. Alumax Mill Products. Alumax Mill Products produces flat rolled products with both painted and mill finishes at mills in Lancaster, Pennsylvania and Texarkana, Texas. In addition, it operates a facility in Lancaster, Pennsylvania which produces semi-fabricated cast aluminum plate, engineered to meet highly specialized industrial applications. In November 1997, Alumax Mill Products entered into a new five-year operating lease, renewable for up to two additional years, covering the Texarkana mill. The new leasing arrangement enabled the Company to forego a previously planned capital investment of $97 million to purchase the Texarkana facility. Alumax Mill Products produces semi-fabricated products, including sheet, plate, circles and blanks, which are used for building products, transportation products, consumer durables, machinery and equipment and in other industrial applications. Representative products include gutters, downspouts, siding, soffits, high grade painted or anodized quality building panels, truck trailer side panels, automotive heat shields, cable wrap, flexible conduit, computer base plates, seating brackets, air bags, heater cores, evaporators, wheel rims, license plates, and appliance panels for washers, dryers and ranges. 7 9 To provide greater focus on its key markets, Alumax Mill Products markets and sells its products through AB&CP, AD&IP, and ATP. The goal of this structure is to provide specialized sales and service designed to satisfy customer requirements in the areas represented by these three business units. Some of Alumax Mill Products' markets are seasonal, notably the building and construction market in which demand is generally lower in the fall and winter seasons than in the spring and summer when the weather is more suitable for construction. Alumax Mill Products implemented a restructuring plan in 1994 with a view toward consolidating, streamlining and modernizing its business. This restructuring plan has been substantially completed. As part of the plan, Alumax Mill Products closed its Morris, Illinois mill (which was acquired by Alumax Extrusions in the fourth quarter of 1997) and its Riverside, California mill and has expanded and modernized the overall capabilities of the Lancaster and Texarkana mills. Costs of the expansion and modernization totaled approximately $91 million. The restructuring plan also provided for the construction of a separate cast aluminum plate facility adjacent to the Lancaster mill at a cost of approximately $26 million. This facility began commercial production in the third quarter of 1996. Alumax Foils. Alumax Foils' facility in St. Louis, Missouri uses the continuous casting process to produce aluminum sheet which is then processed through rolling mills and heat treating ovens to manufacture foil in various thicknesses, widths, tempers and alloys. Foil products are sold primarily to commercial users in the flexible packaging, converter, food service and pharmaceutical industries. The nature of these products and diversity of customers reduces the impact on Alumax Foils of seasonal fluctuations. Alumax Foils also owns and operates a facility in Russellville, Arkansas which, when fully operational, will expand its overall production capacity by approximately 30 percent. Construction was completed in 1996, with the first customer shipments commencing in the first half of 1997. The Russellville plant includes two wide rolling mills, annealing ovens and ancillary equipment, all dedicated primarily to the production of light-gauge converter foil. See "Other Activities." Fabricated products Kawneer. Kawneer designs, manufactures and markets architectural aluminum products and is a leading producer of such products in the United States and Canada. Kawneer also sells its products for use in major construction projects in foreign countries where it does not have production facilities, particularly in the Far East. Kawneer products are manufactured mainly from extruded aluminum shapes which are fabricated into curtain wall, storefront and entrance systems, windows, framing and decorative aluminum products which are anodized or painted. Kawneer operates five integrated architectural plants, 15 service centers and two additional manufacturing locations in the United States, which include plants owned by Kawneer in Arkansas, California, Georgia, Indiana, Michigan, Pennsylvania and Tennessee. Distribution is principally through dealers, most of whom are glazing contractors. These products also may be sold to building contractors and owners, and Kawneer has acted as a subcontractor for entire wall or window systems on selected major projects. Demand for Kawneer's products generally follows the seasonal and cyclical trends of the nonresidential construction industry. Kawneer believes that it is well positioned to participate in the modest rate of growth expected to occur in this market over the near term and remains committed to continue its efforts aimed at reducing costs, improving productivity, and enhancing product quality and customer service. Kawneer also operates two integrated architectural plants in Canada which provide most of the product that is sold for large overseas projects, as well as two service centers. Alumax Europe N.V. Alumax Europe N.V., a wholly-owned subsidiary ("Alumax Europe"), was organized in 1997 to manage the Company's international operations in the United Kingdom, France, Germany and The Netherlands. It also participates in a joint venture in Morocco. Two manufacturing plants located in France, and one each in England and Germany, three of which are owned and one of which is leased, provide architectural aluminum products very similar to those produced by Kawneer operations in the 8 10 United States. These products are marketed under the Kawneer name in the United Kingdom and Western Europe. Alumax Europe also operates service centers in France, Poland and Morocco. Other international operations of Alumax Europe include plants it operates in Wales and The Netherlands that produce custom extrusions for sale throughout Western Europe. These plants also provide extruded products to Alumax Europe's architectural operations for further processing into architectural building products and systems. Billet needed for the extrusion operations is supplied by a casting plant in The Netherlands. This plant converts scrap and aluminum ingot into billet on a tolling basis and for intra-company use and outside sales. In addition, Alumax Europe pursues other business opportunities throughout Europe, including former Eastern Bloc countries. AEMP. Alumax Engineered Metal Processes ("AEMP") is engaged in the commercial production of semi-solid aluminum forged automotive components that offer high mechanical properties and near-net-shape configurations using AEMP's proprietary, semi-solid forging technology. Although AEMP's marketing activities have focused almost exclusively on the automotive aluminum forged market, efforts are under way to expand into other industrial markets. Representative products include cylinder housings, fuel rails, transmission and engine brackets, suspension and rocker arm assembly components. AEMP's forging operations are conducted at plants located in Jackson, Tennessee and Bentonville, Arkansas, both of which are currently producing automotive components on a commercial scale. A scrap reclamation facility is also located at the Jackson site to produce aluminum alloy for the forging operations. These operations have incurred losses since commercial production commenced, and both the Jackson and Bentonville plants are currently operating at rates below their design capacity. To provide greater focus on its key markets, AEMP markets and sells its products through ATP. The goal of this structure is to provide specialized sales and service designed to satisfy automotive customer requirements. In 1997, AEMP implemented a reorganization and action plan designed to maintain its position as a world leader in semi-solid forging technology and to meet the competitive requirements of commercial production. The reorganization and action plan is intended to improve operating performance as AEMP continues to move from development toward full commercial production. The plan includes combining AEMP's three engineering facilities in St. Louis, Missouri into one; ramping up the Jackson scrap reclamation facility for full production; reducing the salaried and hourly workforce; making the Bentonville plant a satellite plant to the Jackson facility; and intensifying efforts to increase the overall productivity and efficiency of plant operations. AEMP has also ceased production of several components that did not fit its market strategy and profitability goals. All current and potential business has been reviewed to determine the niche products that fit the technology offered and that meet AEMP's strategic objectives. Production is expected to increase during 1998 with the introduction of several new products that take advantage of the various capabilities provided by semi-solid aluminum forging. Management intends to monitor the implementation of the reorganization and action plan which is targeted at making this business profitable by the end of 1999. Total assets of AEMP were approximately $115 million at December 31, 1997. OTHER ACTIVITIES Asia-Pacific Operations To further its objective to participate in growth opportunities in emerging global markets, the Company, through a wholly owned subsidiary, has entered into a joint venture with Yunnan Aluminum Processing Factory in Kunming, China, providing for the annual production of 8,000 to 10,000 tonnes of light gauge aluminum foil for China's packaging market. Alumax has a 56 percent interest in the joint venture and will invest a total of $38 million in cash to develop a continuous cast foil operation. As of December 31, 1997, the Company had invested approximately $24 million in the joint venture. Alumax Foils is expected to provide training, as well as management and technical assistance, to the joint venture. Production is expected to begin in the latter half of 1998. 9 11 In addition to the Kunming joint venture, Alumax leases an extrusions plant near Melbourne, Australia that produces thin-walled aluminum tubing. The Company is actively exploring other business opportunities throughout the Asia-Pacific region through Alumax Asia Pacific Pty Limited, a wholly owned subsidiary. Alumax Materials Management In 1996, the Company organized Alumax Materials Management, Inc. ("AMM"), a wholly owned subsidiary, to provide certain services to other subsidiaries of the Company. These services include primary products sales and customer service, centralized procurement of all non-primary metal and selected non-metal inputs, and use of the futures markets to hedge certain risks related to primary aluminum prices, fixed forward sales, metal inventory positions, and energy costs. AMM is also responsible for the centralized procurement of certain shipping and freight services. Product Distribution Alumax produces and distributes products at all stages of the aluminum product chain, from primary ingot to fabricated finished products, for a variety of industrial, commercial and consumer markets. To reach these markets the Company uses most common forms of product distribution channels -- wholesale distributors, original equipment manufacturers, traders, retail consumer goods outlets, agents, manufacturers' representatives, general line and specialized dealers, and direct sales. Many intermediate products, such as ingot, sheet and plate, are distributed to other aluminum producers and fabricators for further processing and distribution through many of these same channels. Competition The markets for most aluminum products are highly competitive. Primary aluminum ingot is a commodity product, traded extensively on world metal markets, and is thus very price sensitive. The market for premium ingot products is also highly sensitive to pricing, but the Company believes that quality and service are also important factors in competing with other premium product manufacturers. Semi-fabricated and fabricated aluminum products compete extensively on price, quality and service, not only within the aluminum products industry but also with other materials, such as plastics, steel, copper, glass, wood, fiberglass, zinc, lead, magnesium and paper. In markets where aluminum products compete with other materials, the diverse characteristics of aluminum are also significant factors in its competitiveness, particularly its light weight and recyclability. Price competition, product range and quality, and the ability to provide technical assistance to customers are important aspects of the Company's overall strategy. A number of producers with which the Company competes are substantially larger in terms of total assets, operations and sales. Among the Company's principal competitors are Alcan Aluminium Limited, Aluminum Company of America, Reynolds Metals Company, Kaiser Aluminum Company, Commonwealth Industries, Inc. and Easco, Inc. Research and Development The Company continues to explore new technology, processes and products in the aluminum industry. Research and development activities are conducted at the Company's technical center in Golden, Colorado, and at various operating facilities. Expenditures for research and development totaled $10.9 million, $19.2 million and $18.0 million in 1997, 1996 and 1995, respectively. Patents and Trademarks The Company owns or licenses a significant number of patents relating to various products and processes. The Company does not consider its business to be materially dependent on any one particular patent or patent license. The Company also owns a large number of trademarks, including the "Alumax" and "Kawneer" trademarks, which the Company believes may be material to its business. 10 12 Employee and Labor Relations At year-end 1997, the Company employed approximately 14,400 people worldwide, including approximately 12,000 employees in the United States. Approximately 4,800 employees are represented by labor unions under separate labor agreements with various unions. Management considers its employee relations to be good. ENVIRONMENTAL MATTERS The Company is subject to various federal, state, local and foreign laws and regulations including, among others, the Clean Air Act (including the 1990 amendments thereto), the Resource Conservation and Recovery Act and the Clean Water Act and the regulations promulgated in connection therewith, concerning the discharge of contaminants which may be emitted into the air and discharged into the waterways and governing the use, discharge and disposal of hazardous materials and wastes. The Company believes its manufacturing facilities are in substantial compliance with current laws and regulations. Compliance with current laws and regulations has not had, and is not expected to have, a material adverse effect on the Company's financial condition or results of operations. Based on historical trends toward tighter environmental standards, it appears likely that the Company will incur additional expenditures to remain in compliance with federal and state environmental laws. The Company also is involved in certain claims and legal proceedings that relate to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state laws that impose environmental liability. These matters include pending claims and proceedings in which the Company has been named as a defendant or "potentially responsible party" with respect to the disposal of hazardous substances at 38 waste disposal sites which, in most instances, were owned or operated by third parties. CERCLA and state laws can impose joint and several liability on generators of hazardous substances placed in waste disposal sites for investigative, remedial and other costs associated with cleanup of those sites if hazardous substances have been released into the environment. The Company's ultimate liability in connection with present and future environmental claims will depend on many factors, including its volumetric share of the waste at a given site, the remedial action required, the total cost of remediation and the financial viability and participation of the other entities which also sent waste to the site. Based upon current law and information known to the Company concerning the size of the sites known to it, their years of operation, the number of other financially viable and participating past users and the amount of available insurance coverage, Management believes that it has adequate reserves so that anticipated and estimable liabilities that may result from these matters, and anticipated expenditures for remediation programs it may be required to undertake, either individually or in the aggregate, are not expected to have a material adverse effect on the financial condition or ongoing results of operations of the Company. The Company is unaware of any additional environmental matters which, based on information currently known to the Company, would have a material effect upon the Company's financial condition or ongoing results of operations. See "Legal Proceedings" below. Legislation that would reauthorize and amend CERCLA is expected to be reintroduced before Congress. The prospects for such legislative effort are uncertain, as are any potential substantive changes that might result or affect the Company's liability for cleanup costs in both pending and future claims. The Company's expenditures for environmental remediation and compliance amounted to $6.1 million in 1997, $12.9 million in 1996 and $12.7 million in 1995. Of those amounts, $4.4 million, $8.8 million and $9.0 million, respectively, was capitalized and the balance, net of insurance recoveries, was charged to reserves. Based on available information, the Company anticipates making capital and operating expenditures of approximately $9.6 million and $6.1 million in 1998 and 1999, respectively, for environmental remediation and compliance. ITEM 2. PROPERTIES Information in response to this Item is set forth in "Business" under Item 1 above. 11 13 ITEM 3. LEGAL PROCEEDINGS Tax Dispute Regarding Consolidation with Amax The Internal Revenue Service (the "IRS") asserted that Alumax and certain of its subsidiaries were improperly included in the 1984, 1985, and 1986 consolidated income tax returns of the Company's former parent corporation, AMAX Inc. ("Amax"), and on that basis has assessed a federal income tax deficiency against Alumax of $129 million. In response to the IRS' notice of deficiency, the Company filed a petition in the United States Tax Court (the "Court") seeking a re-determination in respect of the purported deficiency. The parties waived their rights to a trial and the matter was submitted to the Court for decision based upon the pleadings, stipulations, memoranda and other documents submitted to the Court by the parties. On September 30, 1997, the Court entered a decision in favor of the IRS, opining that Amax did not have the 80 percent control necessary to consolidate. As a result of the ruling, the Company recorded a charge of $108.6 million in the third quarter of 1997. On October 27, 1997, the Company paid an aggregate of $411 million to the IRS, representing the expected deficiency and estimated accrued interest. The payment was funded from cash on hand and borrowings of $355 million under the Company's revolving credit facility. On December 24, 1997, the Company filed a notice of appeal of the Court's decision to the United States Court of Appeals for the Eleventh Circuit. In connection with the merger of Amax into Cyprus Minerals Company and the public distribution of all of the Company's outstanding common shares in November 1993, the Company and Amax entered into a tax disaffiliation agreement, dated as of May 24, 1993 (the "Tax Disaffiliation Agreement"), defining the rights and obligations of the Company and Amax following the consummation of those transactions. Under the terms of the Tax Disaffiliation Agreement, the Company has assumed responsibility for all proceedings relating to the above-described deficiency and payment of any additional taxes, along with penalties and interest, which may ultimately be due. Payment of the above-described deficiency and interest provided certain tax benefits to the Company that offset in 1997, and will offset, within a prescribed carry-forward period, a portion of the cost of paying the deficiency and interest. In addition, under the terms of the Tax Disaffiliation Agreement, Cyprus Amax Minerals Company will share certain tax benefits which will become available to it in the event the adverse determination is ultimately upheld. Stringfellow In 1983, the United States and the State of California commenced an action under CERCLA in the United States District Court for the Central District of California against the Company and 30 other potentially responsible parties in connection with the Stringfellow disposal site located at Glen Avon, California. In a proceeding in the United States District Court for the Central District of California, it was determined that both the defendants and the State of California are responsible for certain costs associated with the cleanup of the Stringfellow site. The issue of the allocation of liability among the defendants and the State was tried before a Special Master who filed his Findings of Fact, Conclusions of Law and Report and Recommendation of the Special Master Regarding the State Share Fact Finding Hearing on November 30, 1993. On January 23, 1995, the United States District Court entered an order adopting the findings, conclusions and recommendations of the Special Master with certain modifications, which did not adversely impact the Company. The order allocates liability on the basis of two different types of legal claims, each of which has a different legal standard of apportionment. As to CERCLA claims, the order allocates liability as follows: 65 percent to the State, ten percent to Stringfellow Quarry Company and 25 percent to all other parties (including the Company). As to the claims asserted against the State under state law theories such as negligence and breach of a mandatory duty, the order allocates 100 percent of the liability to the State. On July 16, 1996, the State of California filed a motion for reconsideration of the District Court's liability rulings against the State, based upon the United States Supreme Court's decision in Seminole Tribe of Florida v. Florida. That decision, issued in March 1996, reversed an earlier Supreme Court decision which held that Congress had the authority to abrogate protections of the Eleventh Amendment of the Constitution barring certain suits against states in federal courts, including under CERCLA. In the motion, the State contends that 12 14 the Eleventh Amendment is a jurisdictional bar which cannot be waived through conduct in litigation and that the State has not expressly waived its Eleventh Amendment immunity. Consequently, the State argues that the liability rulings against the State must be reversed or the defendants' counterclaims limited to defensive recoupment. The defendants filed an opposition to that motion on August 2, 1996, which maintains that Seminole Tribe does not alter prior law by recognizing the Eleventh Amendment as a jurisdictional bar nor does the case address the doctrine of defensive recoupment. The opposition also asserts that Seminole Tribe does not affect the question of waiver of Eleventh Amendment immunity by conduct in litigation or the District Court's prior finding that the State waived its Eleventh Amendment immunity through its conduct of the lawsuit. Oral argument on the State's motion, as well as on a motion filed by the defendants for a ruling that CERCLA liability cannot be imposed upon them retroactively and a joint motion of the United States and the defendants for entry of a judgment which will permit the parties to appeal, was made before the Special Master on November 13 and 14, 1996. The Special Master has not ruled on the motions or submitted written recommendations to the District Court, after which the parties will be afforded an opportunity to present objections prior to entry of an order by the court. Based on information presently available, the Company does not believe that any liability imposed in connection with the Stringfellow site will have a material adverse effect on the Company's financial condition or ongoing results of operations given the nature and extent of its involvement at the site and available reserves. Proceedings Relating to the Howmet Acquisition In December 1990, the Company and two of its subsidiaries, among others, were named as third-party defendants in a CERCLA action arising out of the operation of the Blackbird Mine, a cobalt mine in Lemhi County, Idaho. The third-party action was initiated by M.A. Hanna Company, Noranda Mining Company and certain of their affiliates, all of which were defendants in a lawsuit brought by the State of Idaho in the United States District Court for the District of Idaho in 1983 seeking recovery of response costs incurred as a result of alleged contamination resulting from cobalt mining in and around the Blackbird Mine. The Company has been involved as a result of its 1983 acquisition of Howmet Corporation from Pechiney, a French corporation. It is alleged that Howmet, along with certain of its predecessors and subsidiaries, owned and operated the Blackbird Mine and engaged in extensive mining activities. On June 21, 1993, the Department of Justice filed an action in the United States District Court for the District of Idaho against the Company, one of its subsidiaries and several other defendants seeking response costs and natural resource damages occurring at or near the Blackbird Mine. On October 29, 1993, the Department of Justice agreed to dismiss the Company as a defendant in such action; however, a subsidiary of the Company remains a defendant. Under the terms of an agreement with Pechiney, the Company, subject to limited contributions, will be indemnified against liabilities associated with the Blackbird Mine as well as other claims and suits arising from activities predating and unrelated to the aluminum businesses acquired by the Company in 1983. The Company assigned certain rights in respect of insurance coverage to Pechiney, but is entitled to receive a portion of any recoveries obtained by Pechiney. On August 22, 1991, the Company and certain of its subsidiaries filed an action for declaratory relief seeking coverage for environmental claims and damages for breach of contract against the primary and excess insurance carriers which issued insurance policies to the Howmet corporate entities acquired by the Company in 1983. The action was brought in the Superior Court of New Jersey, Morris County and was consolidated with a similar suit between former affiliates of the acquired entities and the carriers. A motion for summary judgment filed by the insurance carriers with respect to the Blackbird Mine site on the basis that Idaho law should be applied to that claim and coverage is not available under Idaho law has been granted, in part, by the Court. A hearing on a motion for reconsideration of that ruling filed by Pechiney and the Company was held on October 23, 1997. While the Court indicated it did not intend to alter the prior ruling, no order has been issued. If the order is entered as indicated, Pechiney and the Company intend to appeal the ruling, although neither the ruling nor an adverse decision on the appeal will result in additional liability to the Company for 13 15 the Blackbird Mine site, based upon the terms of the Company's agreement with Pechiney, but could reduce or eliminate any insurance recovery for amounts already expended by the Company in connection with that site. The Company believes that it has adequate reserves so that payments to be made and reasonably anticipated contributions required under the settlement agreement with Pechiney will not have a material adverse effect on the financial condition or ongoing results of operations of the Company. Cressona Consent Decree The Company acquired Cressona Aluminum Company ("Cressona") on January 31, 1996. Cressona is subject to a consent decree (the "Consent Decree") entered into with the United States of America to settle an action brought on behalf of the United States Environmental Protection Agency (the "EPA"). That action was initiated in the United States District Court for the Eastern District of Pennsylvania on September 10, 1992, in respect of the remediation and disposal of polychlorinated biphenyls ("PCBs") discovered at Cressona's facility at Cressona, Pennsylvania. The PCBs were ingredients in lubricants and hydraulic fluids used at that facility by the prior owner. The Consent Decree, which was filed in the action on August 3, 1993, specified actions that Cressona would undertake to fully characterize and determine the extent of PCB contamination at the facility as well as criteria and conditions to be met with respect to the remediation of such contamination. In addition, the Consent Decree imposed certain reporting requirements, established dates for the performance of specified actions to be taken, and provided for stipulated penalties for failure to comply with requirements of the Consent Decree or for discharges of PCBs in excess of specified concentrations. Cressona has either substantially complied with the provisions of the Consent Decree or sought modification of those requirements from the EPA. Cressona has provided the EPA with extensive information to characterize the nature and extent of the PCB contamination, has performed substantial remedial work and proposed measures for remediation of the remaining contamination. The precise nature and extent of further remedial activities which will be required and the costs of those activities cannot be determined with certainty at this time and may be subject to change depending upon results of further monitoring at the facility as well as EPA concurrence with the additional remedial actions proposed by Cressona. However, the Company believes that Cressona has adequate reserves so that reasonably anticipated and estimable costs for remediation of PCB contamination at the Cressona, Pennsylvania facility will not have a material adverse effect on the financial condition or ongoing results of operations of the Company. Other Environmental Matters In addition to the Stringfellow and Blackbird Mine litigation, the Company has been named as a defendant or identified as a potentially responsible party at 36 other pending sites which, in most instances, were owned or operated by third parties, including some sites relating to operations of the Pechiney subsidiaries acquired in 1983. Unlike the Blackbird Mine and three other mining-related sites, claims against the Company at sites relating to the aluminum businesses acquired in 1983 do not fall within the indemnification obligations of the Company's settlement agreement with Pechiney. In addition, the Company and its subsidiaries have been named as defendants or potentially responsible parties at sites associated with operations of its subsidiaries which are unrelated to the Howmet acquisition. At virtually all sites, the Company is one of many potentially responsible parties who are alleged to be jointly and severally responsible for the response costs associated with the sites. Management periodically evaluates the Company's potential liability for remediation and related costs at both its own and other parties' sites. Such evaluations are based upon then current information, including alternative methods of remediation, estimated costs for implementation of such alternatives, the nature and the extent of the Company's involvement at the site in question, and anticipated contributions of other potentially responsible parties. Once it becomes probable that the Company will incur costs in connection with remediation of a site and such costs can be reasonably estimated, the Company establishes or adjusts its reserve for those projected costs. 14 16 Due to uncertainties associated with developing case law relating to insurance coverage for environmental claims and remediation costs, insurance recoveries are not considered in estimating the Company's share of remediation costs at a site unless an insurance carrier has agreed to pay a portion of those costs. Projections of remediation costs by their nature are imprecise and reserves accrued by the Company are based on Management's best estimate of such costs based upon available information about known sites. It is not possible to predict the amount or timing of future remediation costs which may be ultimately determined or project costs for sites which may be identified in the future. It should be recognized that a number of the Company's present and past facilities have been in operation for many years and additional remediation activities may be required as environmental laws and circumstances continue to evolve. The Company believes that it has adequate reserves so that anticipated and estimable liabilities that may result from sites known to it, and anticipated expenditures for remediation programs it may be required to undertake, either individually or in the aggregate, are not expected to have a material adverse effect on the financial condition or ongoing results of operations of the Company. Other Legal Proceedings Justice Department Inquiry. In August 1994, Alumax received a civil investigative demand from the Antitrust Division of the Department of Justice requesting documents and information principally relating to reductions in the production of primary aluminum during the period from 1991 to the date of demand. Alumax cooperated with the Department in connection with the inquiry. By letter dated May 9, 1997, the Department of Justice advised the Company that the investigation relating to the demand had been closed. Antitrust Action. Alumax and four other producers of primary aluminum, together with The Aluminum Association, an industry trade association, were served with a summons and complaint in March 1996, alleging violations of California's State antitrust act (the Cartwright Act). The suit was originally filed in the Superior Court for Los Angeles County, but was removed by the defendants to the United States District Court for the Central District of California. Plaintiff alleges that the defendants conspired, together with the United States Government and the governments of several other sovereign nations, to fix the prices of primary aluminum by agreeing to reduce production. The allegations arise from the Memorandum of Understanding Concerning the Aluminum Market ("MOU") negotiated by the United States and other governments in 1993 and 1994, and executed by them in Brussels in 1994, and the actions of the defendants alleged to have been undertaken in connection with the MOU. The complaint was brought by a California bicycle manufacturer as a purported class action on behalf of all direct and indirect purchasers of primary aluminum and aluminum products produced during the period from January 1, 1994 to March 5, 1996. The complaint seeks injunctive relief and recovery of damages that, when trebled, are alleged to be in excess of $26 billion. Following removal of the action to the District Court, the defendants filed a motion to dismiss. Upon considering that motion, plaintiff's opposition and the defendants' reply, the Court by order dated May 28, 1996, converted the motion to dismiss to a motion for summary judgment by the defendant-aluminum producers. In the same order, the Court granted The Aluminum Association's motion to dismiss for lack of personal jurisdiction. Following the filing of briefs in support and in opposition to summary judgment, the Court granted summary judgment in favor of the defendant-aluminum producers and dismissed the complaint with prejudice by order dated July 1, 1996. The Court denied plaintiff's subsequent motion for reconsideration by order entered on July 16, 1996. On July 18, 1996, the plaintiff filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit from the United States District Court's orders granting The Aluminum Association's motion to dismiss and the aluminum producers' motion for summary judgment and the order denying the plaintiff's motion for reconsideration. Following the submission of briefs by the parties, oral argument on the appeal was heard on December 3, 1997, after which the Court of Appeals entered an order on December 11, 1997, affirming the decision of the District Court. The plaintiff has requested rehearing by the Court of Appeals. Patent Infringement Action. On August 17, 1995, the Company filed suit in the United States District Court for the Eastern District of Arkansas against Hot Metal Molding, Inc. alleging infringement of a process patent, United States Patent 4687042 (the "042 patent"), held by the Company which is used in semi-solid 15 17 forming applications. The litigation is in the discovery phase and was recently expanded by order of the Court to include Ormet Primary Aluminum Corporation ("Ormet"), the exclusive North American licensee of Pechiney Corporation's technology for casting thixotropic billet, and certain subsidiaries and affiliates of Buhler International AG, a Swiss manufacturer of die casting machines. Ormet has filed counterclaims alleging that the patent is invalid, void and unenforceable and is seeking a declaratory judgment that the 042 patent would not be infringed by the use of Ormet's billet in any diecasting application. On October 3, 1997, certain defendants sought leave of the District Court to file counterclaims against the Company, alleging violations of Sections 1 and 2 of the Sherman Act and Section 4 of the Clayton Act for which they seek injunctive relief and treble damages in an unspecified amount. In addition, the Company has sought leave to amend its complaint to add claims that the subsidiaries and affiliates of Buhler International have infringed the 042 patent and that certain of the defendants have infringed other patents held by the Company relating to the casting of billet used in semi-solid forming applications. On January 19, 1998, the Court entered its order granting all parties leave to amend their pleadings. The Company believes that the counterclaims are without merit and intends to vigorously oppose them. Other. In addition to the matters described above, the Company and its subsidiaries are also involved in the defense and handling of various judicial proceedings and claims arising out of alleged defects in its products as well as other matters occurring in the ordinary course of business. Management believes, taking into account its reserves and insurance coverage, that these matters, either individually or in the aggregate, will not have a material adverse effect on the financial condition or ongoing results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 1997. EXECUTIVE OFFICERS OF THE REGISTRANT As of February 1, 1998, the names, offices with the Company, ages and years of service as an officer of all Executive Officers of the Company were as follows:
YEARS AS NAME OFFICE AGE OFFICER ---- ------ --- -------- Allen Born Chairman and Chief Executive Officer 64 4 Thomas G. Johnston President and Chief Operating Officer 55 -- Jay M. Linard Senior Vice President and Group Executive 52 1 Robert P. Wolf Senior Vice President and General Counsel 54 8 Michael T. Vollkommer Vice President and Chief Financial Officer 39 4 Christian A. Carrington Vice President, Strategic Planning and Corporate Development 47 -- Helen M. Feeney Vice President and Corporate Secretary 57 4 Philip Gaetano Vice President, Human Resources and Administration 38 -- Eugene R. Greenberg Vice President 59 1 Kevin J. Krakora Vice President and Controller 42 -- Philippe G. Thaure Vice President 60 7 Thomas L. Gleason Treasurer 46 1
16 18 There are no family relationships, by blood, marriage or adoption, between the above officers. All officers are elected until the next annual meeting of the Board of Directors or until their respective successors are chosen and qualified. There is no arrangement or understanding between any of the above officers and any other person pursuant to which he or she was selected as an officer. The principal occupations and positions for the past five years of each of the Executive Officers of the Company are as follows: MR. BORN has been a Director of the Company since 1985, Chairman since April 1993 and Chairman and Chief Executive Officer since November 1993. For more than five years prior to November 1993, he had been Chief Executive Officer of Amax and also served as Chairman of that company from June 1988 to November 1993. Mr. Born was also Co-Chairman of Cyprus Amax Minerals Company from November 1993 to November 1995 and Vice Chairman of that company from November 1995 to May 1996. MR. JOHNSTON was elected President and Chief Operating Officer of Alumax in December 1997, after having been an Executive Vice President since March 1997. He joined Alumax in December 1996 as head of the Company's interests in the Pacific Rim. Prior thereto, he had been Chairman and Chief Executive Officer of Aztec Mining Company Limited for more than five years. MR. LINARD was elected a Senior Vice President of Alumax in September 1997, after having been a Vice President since December 1996. He was designated Group Executive for the Company's semi-fabricated businesses in December 1997. Mr Linard has also been President of Alumax Extrusions, Inc., a wholly owned subsidiary of the Company and formerly named Cressona Aluminum Company, for more than five years. MR. WOLF was elected Senior Vice President and General Counsel of Alumax in March 1997, after having been Vice President and General Counsel for more than five years. He also served as Secretary of Alumax from November 1989 to November 1993. MR. VOLLKOMMER was elected Vice President and Chief Financial Officer of Alumax in December 1997, after having been Vice President, Strategic Planning and Corporate Development since June 1997. Prior thereto, he had been a Vice President of Alumax since December 1995 and Controller since February 1994. Prior to joining the Company in January 1994, Mr. Vollkommer served as Director of Accounting at Amax. MR. CARRINGTON was elected Vice President, Strategic Planning and Corporate Development in January 1998. Prior thereto, he developed and managed the Latin American corporate finance advisory practices at both Ernst & Young and Coopers & Lybrand for more than five years MRS. FEENEY has been Vice President and Corporate Secretary of Alumax since November 1993. For more than five years prior thereto, she had been Corporate Secretary of Amax. MR. GAETANO was elected Vice President, Human Resources and Administration in January 1998. For more than five years prior thereto, he held various executive and senior managerial positions in the human resources field at Marcam Corporation, Fisher Scientific International, GE Capital Corporation and Dun & Bradstreet Corporation. MR. GREENBERG has been a Vice President of Alumax since December 1996 and President of Alumax Materials Management, Inc., a wholly owned subsidiary of the Company, since September 1996. Before joining Alumax in February 1996, Mr. Greenberg was Vice President -- Materials of Commonwealth Aluminum Company from 1991. MR. KRAKORA was elected Vice President and Controller of Alumax in June 1997, after having been Vice President, Finance of Kawneer Company, Inc., a wholly owned subsidiary of the Company, from 1994. Prior thereto, he served four years as the Director of Finance and later Vice President and Controller for Liebert Customer Service and Support, a division of Emerson Electric Co. 17 19 MR. THAURE has been a Vice President of Alumax for more than five years and President of Alumax International Company and Alumax Technology Corporation, each a wholly owned subsidiary of the Company, since February 1994. For more than five years prior thereto, he had been a Vice President of Alumax Primary Aluminum Corporation, a wholly owned subsidiary of Alumax. MR. GLEASON has been Treasurer of the Company since November 1996. For more than five years prior thereto, he held various executive and managerial positions with Royal Bank of Canada, most recently serving as Vice President of Corporate Banking for the Eastern region of the United States. 18 20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock, par value $.01 per share, of the Company (the "Common Stock") is listed on the New York, London, Toronto and Brussels Stock Exchanges. The following table sets forth on a quarterly basis the high and low sales prices of the Common Stock on the New York Stock Exchange for the two most recent fiscal years:
HIGH LOW ---- --- 1996 First Quarter............................................. $40 $26 5/8 Second Quarter............................................ $36 1/2 $29 1/8 Third Quarter............................................. $34 $29 Fourth Quarter............................................ $34 1/8 $30 5/8 1997 First Quarter............................................. $40 3/8 $33 7/8 Second Quarter............................................ $39 1/8 $34 1/4 Third Quarter............................................. $45 1/4 $37 3/8 Fourth Quarter............................................ $42 1/4 $30 1/2
The Company paid no dividends on the Common Stock in 1997 or 1996 and does not expect to do so over the foreseeable future. Future Common Stock dividend decisions will take into account several factors, including the then current business results and cash requirements of the Company. In addition, the Company has a loan agreement that contains, among other things, restrictions on the payment of dividends by the Company. See Note 6 to the Financial Statements included elsewhere herein. At December 31, 1997, there were 9,343 holders of record of the Company's Common Stock. 19 21 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information of the Company for each of the five years ended December 31, 1997 which has been derived from the audited Financial Statements of the Company. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," which follows this section, and the Financial Statements and related notes included elsewhere herein.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) OPERATING RESULTS Net sales...................................... $2,930.9 $3,159.3 $2,926.1 $2,754.5 $2,347.3 ======== ======== ======== ======== ======== Earnings (loss) from operations.............. $ 293.0 $ 231.9 305.8 $ 134.0 $ (116.1) Gain on sales of assets(a)................... 242.9 128.8 6.6 Interest expense, net(b)..................... (57.8) (62.8) (65.4) (72.6) (76.5) Other income, net............................ 2.0 10.6 7.3 4.4 6.0 Income tax (provision) benefit(c)............ (203.5) (172.6) (139.1) (25.7) 52.1 Cumulative effect of accounting changes(d)... (3.8) -------- -------- -------- -------- -------- Net earnings (loss).......................... $ 33.7 $ 250.0 $ 237.4 $ 46.7 $ (138.3) ======== ======== ======== ======== ======== Earnings (loss) applicable to common shares.................................... $ 33.7 $ 240.7 $ 228.1 $ 37.4 $ (147.6) ======== ======== ======== ======== ======== EARNINGS (LOSS) PER COMMON SHARE(E)(F) Basic........................................ $ 0.62 $ 5.26 $ 5.11 $ 0.84 $ (3.33) Diluted...................................... $ 0.60 $ 4.53 $ 4.34 $ 0.84 $ (3.33) FINANCIAL POSITION Working Capital.............................. $ 754.3 $ 660.6 $ 767.9 $ 706.9 $ 571.9 Property, plant and equipment, net........... 2,026.9 2,027.4 1,611.9 1,523.3 1,571.1 Total assets................................. 3,453.0 3,298.7 3,135.0 2,958.8 2,973.6 Long-term debt............................... 955.6 672.0 708.9 851.9 925.2 Total debt................................... 1,002.0 710.4 845.9 915.5 988.2 Stockholders' equity......................... 1,621.7 1,640.8 1,399.3 1,162.1 1,099.6 OTHER DATA Total debt to invested capital............... 38.2% 30.2% 37.7% 44.1% 47.3% Return on sales.............................. 1.1% 7.9% 8.1% 1.7% (5.9)% Return on average stockholders' equity....... 2.1% 16.4% 18.5% 4.1% (12.0)% Return on average invested capital........... 3.0% 13.5% 14.1% 4.8% (4.2)% Book value per share(g)...................... $ 30.37 $ 30.00 $ 25.73 $ 21.45 $ 20.38
- --------------- (a) Included in 1996 was a pretax gain of $71.7 ($36.7 after tax) related to the sale of certain fabricated products businesses, a pretax gain of $92.8 ($55.1 after tax) related to the sale of mining interests and a pretax gain of $78.4 ($48.6 after tax) related to the sale of a 23 percent interest in the Mt. Holly primary aluminum reduction plant. Included in 1995 was a pretax gain of $128.8 ($81.3 after tax) related to the sale of a 14 percent interest in each of the Intalco and Eastalco primary aluminum reduction plants. Included in 1994 was a pretax gain of $6.6 ($4.0 after tax) related to the sale of an Australian mining investment. (b) Includes capitalized interest of $1.6 in 1997, $7.5 in 1996, and $5.4 in 1995. (c) Included in 1997 was a $108.6 provision associated with a United States Tax Court decision concerning an alleged income tax deficiency. (d) The 1993 results included a charge of $3.8 (net of $2.0 tax benefit) for postemployment benefits related to the adoption of SFAS No. 112. (e) The computation of diluted earnings per common share for the years ended 1994 and 1993 excluded preferred stock of 9,600,000 shares because their effects were antidilutive. Per share data for 1993 was calculated on a pro forma basis using 44,354,000 average shares outstanding from November 15, 1993 through December 31, 1993, as if such shares were outstanding throughout the year. (f) In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share." Prior year amounts have been restated in accordance with this Statement. (g) Book value per share amounts were determined as if the Series A Preferred Stock, which was converted to Common Stock in December 1996, had been converted to Common Stock in each year presented. 20 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Millions of dollars, except per tonne amounts) INTRODUCTION The Company is an integrated producer of aluminum products, operating in a single segment: aluminum processing. Using purchased alumina, the raw material used to produce aluminum, the Company produces primary aluminum through an eloctrolytic process. Primary aluminum products are sold externally or further processed into a broad range of semi-fabricated and fabricated products. The Company's products are sold to a wide variety of markets, including transportation, distributors, building and construction, consumer durables, and packaging. The following should be read in conjunction with the Company's consolidated Financial Statements and notes thereto, which are contained elsewhere herein. Net earnings for the year ended December 31, 1997 totaled $33.7 as compared with net earnings of $250.0 for the year ended December 31, 1996 and $237.4 for the year ended December 31, 1995. Since becoming an independent public corporation in late 1993, Management has made significant progress in implementing a strategic plan designed to enhance stockholder value, strengthen the Company's balance sheet, and position the Company for future growth. A key element of that plan was repositioning the Company in order to take advantage of faster growth markets for aluminum, such as the domestic transportation and distributor markets, and to exit mature, slower growth markets. From 1993 through 1996, a series of actions related to this strategy was completed. The Company's aluminum sheet business was restructured. The Company exited the low margin can sheet market and sold its sheet distribution business. Several non-core assets and businesses were also sold raising proceeds that totaled $770. In that same period, over $1 billion was invested into business expansion including the acquisition of Cressona Aluminum Company. In 1997, the Company continued its growth and expansion efforts by investing an additional $165 in its operations. In addition, the Company commenced implementation of three major programs focused on the continued enhancement of stockholder value. One, implementation of a performance improvement plan designed to increase the Company's annual pretax operating earnings by approximately $100 by 1999. Two, design and implementation of a new value measurement system for use in management incentive compensation to effectively link the level of incentive compensation to the creation of stockholder value. And three, the repurchase of 1.8 million shares of the Company's outstanding common stock in connection with a stock repurchase program originally announced in July 1996. The performance improvement plan, announced in the fourth quarter of 1997, has an initial target of increasing the Company's annual pretax operating earnings by about $100 by 1999, without regard to any changes in aluminum pricing. The Company is targeting approximately $69 of the performance improvements to come from operating cost efficiencies and from actions to bring all of Alumax's operations up to a level of the Company's best practices. In addition, approximately $18 of the performance improvements are targeted to come from gains in productivity and through workforce attrition. An additional $13 in charges and write-offs incurred in 1997 as part of the consolidation and action plan at the Company's semi-solid forging operations are also included in the improvement level. There are also on-going efforts to increase the level of targeted performance improvements under the plan. The Company also announced a new value measurement system to be used for management incentive compensation, commencing in 1998. This new value measurement system was designed to include a focus on stockholder return. This new measurement system will reward employees based upon improvements to stockholder return, as well as improvements in the Company's financial returns compared to its cost of capital. In the fourth quarter of 1997, the Company repurchased approximately 1.8 million shares of its outstanding common stock in connection with its ongoing stock repurchase program announced in July 1996. These repurchases were financed by internal cash flow generated from the reduction of working capital in the fourth quarter of 1997. The stock repurchase program authorizes the Company to purchase up to 2.5 million shares from time to time, on the open market or pursuant to negotiated transactions, at price levels deemed attractive by the Company. 21 23 On September 30, 1997, the United States Tax Court ruled in favor of the Internal Revenue Service (the "IRS") in an action filed by the Company to contest an IRS notice of deficiency related to consolidation of the Company in the income tax returns of the Company's former parent, AMAX Inc., for 1984, 1985 and 1986. Although the Company is appealing that ruling, the Company paid $411 to the IRS, representing the expected deficiency and estimated accrued interest in order to stop any further accrual of interest. See "Legal Proceedings -- Tax Dispute Regarding Consolidation with Amax." Management believes the Company has the financial capability to continue to execute its strategic plan for growth and development. The Company's balance sheet remains strong. Total stockholders' equity exceeded $1.6 billion at December 31, 1997, up almost 50 percent since the Company became an independent public corporation. The ratio of total debt to capital was 38 percent at December 31, 1997, compared with 30 percent and 38 percent at December 31, 1996 and 1995, respectively. 22 24 EARNINGS FROM OPERATIONS Earnings from operations for the year ended December 31, 1997 totaled $293.0 compared with earnings of $231.9 for the year ended December 31, 1996 and $305.8 for the year ended December 31, 1995. The increase in 1997 earnings from operations was primarily the result of higher average aluminum prices. The benefit from higher average aluminum prices was partially offset by a decrease in external shipments and by the costs associated with the reorganization efforts at the Company's semi-solid forging operations. Included in 1997 earnings was $1.4 related to the liquidation of LIFO inventories. Earnings for both 1997 and 1996 were negatively impacted by operating losses from the Company's semi-solid forging operations. The lower 1996 earnings from operations compared with 1995 were attributable to lower average aluminum prices and higher raw material, research, business and product development costs. Included in 1996 earnings was $3.7 related to the liquidation of LIFO inventories and $2.1 from the sale of pollution credits. Included in 1995 earnings was a $7.3 reduction in the sheet mill operations' restructuring liability to account for lower than expected costs, $5.1 in gains on sales of assets, and $1.4 related to the liquidation of LIFO inventories.
YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 1995 -------- -------- -------- Net sales: Aluminum processing:(1) Primary products....................................... $1,390.3 $1,335.5 $1,300.0 Semi-fabricated products............................... 1,833.7 1,643.1 1,320.1 Fabricated products(2)................................. 540.7 863.2 967.9 Intercompany........................................... (833.8) (682.5) (661.9) -------- -------- -------- $2,930.9 $3,159.3 $2,926.1 ======== ======== ======== Earnings from operations: Aluminum processing....................................... $ 342.3 $ 275.6 $ 339.7 Corporate................................................. (49.3) (43.7) (33.9) -------- -------- -------- $ 293.0 $ 231.9 $ 305.8 ======== ======== ======== Sources and shipments (thousands of tonnes): Sources of metal (unaudited) Primary aluminum production............................ 708.6 686.3 650.9 Aluminum purchases..................................... 353.7 419.6 355.3 -------- -------- -------- 1,062.3 1,105.9 1,006.2 ======== ======== ======== Metal shipments (unaudited): Aluminum processing:(1) Primary products....................................... 779.8 787.7 732.0 Semi-fabricated products............................... 632.9 575.5 424.0 Fabricated products(2)(3).............................. 99.9 134.3 143.1 Intercompany........................................... (474.5) (415.4) (325.6) -------- -------- -------- 1,038.1 1,082.1 973.5 ======== ======== ========
- --------------- (1) Certain reclassifications have been made to prior years' information to conform with the 1997 presentation. (2) On September 25, 1996, the Company sold certain fabricated products businesses in Western Europe and in the United States. Sales related to these businesses totaled $363.3 and $485.0 in 1996 and 1995, respectively. Shipments related to these businesses totaled 46.3 and 60.7 thousand tonnes in 1996 and 1995, respectively. (3) Included in Fabricated products metal shipments were billet shipments of 30.3, 28.6 and 26.8 thousand tonnes for the years ended December 31, 1997, 1996 and 1995, respectively. 23 25 NET SALES AND SHIPMENTS The Company generated sales of $2,930.9 on aluminum shipments of approximately 1.0 million tonnes in 1997. Sales of $3,159.3 in 1996 and $2,926.1 in 1995 were generated on aluminum shipments of approximately 1.1 and 1.0 million tonnes, respectively. The decrease in 1997 net sales and shipments was largely the result of lower volumes due to the sale of certain fabricated products operations ("Fab Products") in Western Europe and in the United States in September 1996. The Company's net sales are also sensitive to changes in the world pricing of primary aluminum. The price sensitivity affects the realized selling prices of substantially all of the Company's products to varying degrees, with less impact on the more specialized and value-added products. In 1997, the LME cash price averaged $1,600 per tonne compared with $1,510 and $1,810 per tonne in 1996 and 1995, respectively. The LME price increased from a January 1997 average of $1,580 to a monthly average peak of $1,710 in August 1997 and averaged $1,530 in December 1997. Net sales for 1997 reflect the impact of the annual average price increase. Sales growth of eight percent in 1996 was attributable to increased shipments offset somewhat by a decline in pricing. Primary products' net sales in 1997 increased four percent. Substantially all of the increase was a result of higher average realized selling prices. Internal consumption of primary products grew by 15 percent in 1997 compared to 1996. The increase in internal consumption was driven by the integration of the Company's expanded extrusion operations. The January 31, 1996 acquisition of Cressona Aluminum Company ("Cressona") more than doubled the capacity of the Company's extrusion operations. The Company's total primary aluminum production in 1997 increased approximately three percent over 1996. Primary products' net sales increased three percent in 1996 on shipment increases of eight percent. Primary production rose in 1996 as idled capacity restarts of approximately 90,000 tonnes, which were announced in November 1995, were completed in January 1996. The Company's smelter network has been operating at or above full nameplate capacity since January 1996. The increase in shipments was partially offset by lower average realized selling prices during 1996 as compared with 1995. Semi-fabricated products' net sales for 1997 increased 12 percent as a result of increased shipments. The increase in shipments was primarily attributable to the Company's extrusion operations. The 1996 acquisition of Cressona, which more than doubled the capacity of the Company's extrusion business, created an organization which the Company believes has the world's largest soft-alloy extrusion manufacturing capacity. Additionally, continued growth in the Company's extrusion operations in the transportation and service center businesses contributed to the increase. Semi-fabricated products' net sales also benefited from an increase in shipments by the Company's sheet mill operations. Semi-fabricated products' net sales in 1996 increased 24 percent over 1995, principally due to shipment increases of 36 percent. Substantially all of the 1996 increase in shipments was generated as a result of the acquisition of Cressona. Slightly offsetting the impact of higher shipments were lower prices in the Company's sheet mill operations. Fabricated products' net sales for 1997 decreased 37 percent principally due to the September 1996 sale of Fab Products. Increased sales in the Company's domestic building and construction operations and European secondary aluminum and extrusion operations were more than offset by the effects of the sale of Fab Products, which had sales of $363.3 in 1996. Fabricated products' net sales in 1996 declined 11 percent on a six percent decline in shipments. The Company sold Fab Products, which had sales of $485.0 in 1995 and $363.3 in 1996 through the date of disposition, on September 25, 1996. The decline in sales was partially offset by an increase in sales to the domestic building and construction market. COST AND EXPENSES The Company's cost and expenses were $2,637.9 for 1997 compared with $2,927.4 for 1996 and $2,620.3 for 1995. The decrease in 1997 was largely attributable to lower volumes resulting from the sale of Fab 24 26 Products and decreases in external purchases of aluminum. Additionally, as a result of actions under the performance improvement plan, savings of $12.3 were realized in the fourth quarter of 1997. These savings included $9.8 from improvements in production efficiencies and best practices throughout the Company's businesses and $2.5 from productivity gains and workforce attrition. The increase in total cost and expense levels in 1996 as compared with 1995 reflects the expanded volume from the Company's extrusion operations combined with increases in raw material, research, business and product development costs, partially offset by a volume reduction associated with the Fab Products disposition. Depreciation expense increased 11 percent in 1997, which was commensurate with the Company's level of capital spending since 1995. In 1996, depreciation expense increased 27 percent compared with 1995 with most of this increase the result of expansion of the Company's extrusions business and the effects of capital spending programs. OTHER ITEMS AFFECTING NET EARNINGS Other income, net Other income, net, for the years ended December 31, 1997, 1996 and 1995 was $2.0, $10.6 and $7.3, respectively. Included in 1996 and 1995, respectively, were $18.6 and $11.6 for dividends received from Mexican mining operations. The Company sold its investment in the Mexican mining operations during 1996. Interest expense, net Gross interest expense was $62.5, $74.1 and $81.6 for the years ended December 31, 1997, 1996 and 1995. Gross interest expense in 1997 decreased because of lower interest rates and a lower average level of borrowings compared with 1996. Gross interest expense in 1996 decreased because of lower interest rates compared with 1995. Interest income for the years ended December 31, 1997, 1996 and 1995 was $3.1, $3.8 and $10.8, respectively. Interest income was higher in 1995 because of higher interest rates and higher overall cash balances. Capitalized interest was $1.6, $7.5 and $5.4 in 1997, 1996 and 1995, respectively. Income taxes The income tax provision for the year ended December 31, 1997 was $203.5 compared with an income tax provision of $172.6 and $139.1 in 1996 and 1995, respectively. Included in 1997 was a $108.6 charge related to an alleged income tax deficiency. The Internal Revenue Service (the "IRS") asserted that Alumax and certain of its subsidiaries were improperly included in the 1984, 1985 and 1986 consolidated income tax returns of AMAX Inc. ("Amax"), the Company's former parent company, and on that basis assessed a federal income tax deficiency against Alumax of $129. In response to the IRS' notice of deficiency, the Company filed a petition in the United States Tax Court (the "Court"), seeking a redetermination in respect of the purported deficiency. The parties waived their rights to a trial and the matter was submitted to the Court for decision based upon the pleadings, stipulations, memoranda and other documents submitted to the Court by the parties. On September 30, 1997, the Court entered a decision in favor of the IRS, opining that Amax did not have the 80 percent control necessary to consolidate. On October 27, 1997, the Company paid an aggregate of $411 to the IRS, representing the expected deficiency and estimated accrued interest. The payment was funded from cash on hand and borrowings of $355 under the Company's revolving credit facility. On December 24, 1997, the Company filed a notice of appeal of the Court's decision to the United States Court of Appeals for the Eleventh Circuit. Effective tax rates differ from the statutory rate due to provisions for prior years, provisions for state and foreign taxes and the charge related to the alleged income tax deficiency. In addition, the 1996 repatriation of foreign earnings associated with the sale of Fab Products' businesses in Western Europe also contributed to a higher effective tax rate than the statutory rate. In the first quarter of 1995, the Company reversed a $13.4 federal income tax valuation allowance in anticipation of utilization of the asset. This deferred tax asset was subsequently realized. 25 27 STRATEGIC TRANSACTIONS The Company periodically implements strategic actions which it believes afford it the opportunity to redeploy resources to enhance profitability and growth. During 1996 and 1995 the following notable strategic transactions occurred:
DISPOSITION ACQUISITION PRE-TAX AFTER-TAX PROCEEDS COST GAIN GAIN ----------- ----------- ------- --------- 1996: Fab Products.................................. $246.6 $ 71.7 $ 36.7 Mexican Mining Investment..................... 160.0 92.8 55.1 Excess Primary Aluminum Capacity.............. 89.3 78.4 48.6 Cressona Aluminum Company..................... $436.5 ------ ------ ------ ------ $495.9 $436.5 $242.9 $140.4 ====== ====== ====== ====== 1995: Excess Primary Aluminum Capacity.............. $147.6 $128.8 $ 81.3 ====== ====== ======
Dispositions In September 1996, the Company sold certain fabricated products businesses in Western Europe and in the United States for $246.6 in cash, net of cash sold of $5.4. The Company recorded an after-tax gain of $36.7, net of a $35.0 tax provision, in the third quarter of 1996. In June 1996, the Company sold its investment in Mexican mining interests for total consideration of $160 in cash. The Company recorded an after-tax gain of $55.1, net of a $37.7 tax provision, in the second quarter of 1996. In January 1996, the Company sold a 23 percent undivided interest in its Mt. Holly primary aluminum reduction facility for $89.3, which the Company applied to the early retirement of a $90.7 promissory note due in May 1996. The Company recorded an after-tax gain of $48.6, net of a $29.8 tax provision, in the first quarter of 1996. This transaction reduced the Company's ownership in the Mt. Holly facility to 50.33 percent. In March 1995, the Company sold a 14 percent undivided interest in each of the Company's Intalco and Eastalco primary aluminum reduction facilities for cash proceeds of $147.6, resulting in an after-tax gain of $81.3, net of a $47.5 tax provision, recorded in the first quarter of 1995. This transaction reduced the Company's ownership in each facility to 61 percent. Acquisition On January 31, 1996, the Company purchased all of the common shares of privately held Cressona for a cash cost, including expenses, of $436.5, net of $3.1 of cash acquired. In conjunction with the acquisition, accounts payable, debt and other liabilities of $87.4 were acquired. Cressona was a leading manufacturer of extruded aluminum products and is now an integral part of Alumax Extrusions, Inc. The transaction was accounted for as a purchase and the results of operations of Cressona have been included in the consolidated financial statements since January 31, 1996. The acquisition was financed with cash on hand and $375 of borrowings obtained under a $400 bridge loan facility. All of these borrowings have been repaid and the facility has been terminated. 26 28 Pro Forma Information The following summary presents Alumax's unaudited pro forma consolidated net sales, net earnings, and basic earnings per common share for 1996 and 1995, respectively, as if the acquisition of Cressona and the sale of Fab Products each occurred on January 1, 1996 and 1995. The pro forma adjustments for 1996 include the addition of Cressona's operating results for the month of January 1996. Since the acquisition occurred on January 31, 1996, the Company's actual results include Cressona from February 1, 1996 through December 1996.
FOR THE YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 ---------- ---------- Net sales................................................... $ 2,830.3 $ 2,910.1 Net earnings................................................ $ 243.6 $ 238.6 Basic earnings per common share............................. $ 5.12 $ 5.14
The pro forma results are based upon certain assumptions and estimates, which the Company believes are reasonable. The pro forma results do not purport to be indicative of results that actually would have been obtained had these transactions occurred on January 1, 1996 or 1995, nor are they intended to be a projection of future results. LIQUIDITY AND CAPITAL RESOURCES Operating activities Operations used cash of $80.3 in 1997, compared with cash provided of $193.0 in 1996 and $254.7 in 1995. The lower cash flow in 1997 was primarily the result of the payment of $411 to the IRS related to an alleged income tax deficiency. Lower cash flow in 1996 compared with 1995 cash flow was directly related to the decrease in earnings from operations partially offset by working capital reductions, net of the effects of the Cressona acquisition and the sale of Fab Products. Cash flow in 1995 was negatively affected by $3.0 due to advance payments from a customer received in 1993 for future shipments of primary aluminum. In addition, the Company incurred $14.9 of cash costs during 1995 related to the 1993 restructuring of its sheet mill operations, which has been substantially completed. If the LME cash prices in 1998 were to remain at levels comparable to those that prevailed in 1997 ($1,600 per tonne), and based on certain other assumptions, the Company would expect to generate cash flow from operating activities in excess of $560. Investing activities Cash used in investing activities was $159.8 in 1997 compared with cash used of $177.7 and $62.9 in 1996 and 1995, respectively. Capital expenditures were $165.4 in 1997 compared with $243.2 in 1996 and $213.7 in 1995. As described above under "Strategic Transactions," the Company received net cash of $59.4 and $147.6 in connection with notable strategic transactions during 1996 and 1995, respectively. Additional proceeds of $5.6, $6.1 and $3.2 were received in 1997, 1996 and 1995, respectively, from the sale of various other assets. During 1998, capital expenditures are expected to approximate $190 as the Company continues its program of investing capital in new markets, technology and facilities. Included in these expenditures are completion of the state-of-the-art Morris, Illinois extrusion facility, completion of continuous homogenizing furnaces at the Company's Intalco and Eastalco primary aluminum reduction facilities, and the balance of spending on the Yunnan aluminum foil joint venture in China. Capital expenditures in 1997 included initial spending on the Morris, Illinois extrusions facility, completion of upgrades to the Lancaster, Pennsylvania and Texarkana, Texas rolling mills, completion of the Russellville, Arkansas foil facility, continued spending on Eastalco's point-feed conversion, and progress payments on the Yunnan aluminum foil venture. During 1996, the Company, through a subsidiary, entered into a joint venture with Yunnan Aluminum Processing Factory in Kunming, China for the annual production of 8,000 to 10,000 tonnes of light gauge aluminum foil for China's packaging market. Alumax will invest a total of $38 of cash in the joint venture to 27 29 develop a continuous cast foil operation. As of December 31, 1997, the Company had invested approximately $24 of cash in the joint venture. Financing activities Financing activities during 1997 provided $232.5 of cash compared with cash used of $186.6 in 1996 and $78.9 in 1995. On October 27, 1997, the Company borrowed $355 under the revolving credit facility to pay the alleged deficiency and accrued interest due to the IRS based on the United States Tax Court ruling. At December 31, 1997, the balance owed under the revolving credit facility was $330. The Company borrowed $375 under available credit facilities in January 1996 to finance the acquisition of Cressona. During 1996, these borrowings were fully repaid. Total debt repayments of $552.3 in 1996 also include $136.6 of early retirements, principally consisting of $39.3 of Cressona debt acquired and a $90.7 promissory note due in May 1996. Debt repayments of $69.6 in 1995 included early retirements and prepayments of $7.6. There were no new borrowings in 1995. Dividends totaling $9.3 per annum were paid in 1996 and 1995 to holders of Alumax $4.00 Series A Convertible Preferred Stock ("Preferred Stock"). In December 1996, all of the outstanding Preferred Stock was converted into shares of Alumax Common Stock. At December 31, 1997, 1996 and 1995, the Company's total debt to invested capital was 38.2 percent, 30.2 percent and 37.7 percent, respectively. Total debt outstanding was $1,002.0, $710.4 and $845.9, at December 31, 1997, 1996 and 1995, respectively. In May 1995, the Company entered into a $400 revolving credit facility (the "Credit Facility") to replace its then existing revolving credit facility, which was terminated. During 1997, the credit agreement was amended, increasing the total amount available under the facility to $800. The Credit Facility has a term of five years, expiring in October 2002, with no provision for reduction in commitments. Interest on outstanding balances will be based on either a base rate or LIBOR option. The Credit Facility restricts the incurrence of indebtedness by subsidiaries, as well as financial and other covenants. Under the Credit Facility, the Company and its consolidated subsidiaries collectively are required to maintain tangible net worth of at least $900 at any time, and the Company and certain of its subsidiaries, excluding the Lauralco Project Group (see Note 6 to the Financial Statements included elsewhere herein), are collectively required to maintain a ratio of tangible net assets to funded debt of at least 2.0 to 1.0 at any time. For further information relating to the Company's loan and credit facilities and for a description of certain provisions contained in a loan agreement which restrict the Company's ability to pay dividends, see Note 6 to the Financial Statements included elsewhere herein. Under this restriction, at December 31, 1997, $442.2 of retained earnings were available for the payment of dividends on common stock. Management believes current cash balances, anticipated cash flows from operations and available funds from the revolving credit facility described above are sufficient to meet the Company's planned level of capital spending and to service its debt. In November 1997, Alumax Mill Products entered into a new five-year operating lease, renewable for up to two additional years, covering the Texarkana rolling mill facility. The new leasing arrangement enabled the Company to forego a previously planned capital investment of $97 to purchase the Texarkana facility. Annual rent expense is expected to be reduced by approximately $4.6 under the new lease. In the fourth quarter of 1997, the Company began acquiring shares of its common stock in connection with a stock repurchase program announced in July 1996. That program authorizes the Company to purchase up to 2.5 million common shares from time to time on the open market or pursuant to negotiated transactions at price levels the Company deems attractive. The Company purchased 1.8 million shares of common stock in 1997 at an aggregate cost of $59.1. The purpose of the stock repurchase program is to help the Company achieve its long-term goal of enhancing stockholder value. In February 1998, the Board of Directors amended the program to provide that purchases reported to, and ratified by, the Board of Directors or by the Executive Committee of the Board shall not be counted in determining compliance with the 2.5 million share limitation. 28 30 On November 4, 1996, the Company announced that it was redeeming all of the outstanding shares of its Preferred Stock, par value $1.00 per share, on December 18, 1996. In December 1996, the outstanding shares of Preferred Stock were converted into approximately 9.6 million shares of Alumax Common Stock. Risk Management The Company utilizes certain financial instruments in connection with its risk management. The risk of loss related to counterparty nonperformance under financial instrument agreements at December 31, 1997 was not significant. The Company enters into forward fixed price arrangements that are required by certain customers and suppliers. The Company may utilize futures or option contracts to hedge risks associated with forward fixed price arrangements. The Company may also utilize futures or option contracts to manage price risk associated with changes in inventory levels. The net amount of such contracts was approximately 313,425 tonnes at December 31, 1997 and included varying maturity dates through 2003. Gains or losses with respect to these positions are reflected in earnings concurrent with consummation of the underlying fixed price transactions. Periodic value fluctuations of the futures contracts approximately offset the value fluctuations of the underlying fixed price transactions. The Company also may, from time to time, establish a floor selling price for varying quantities of future production. This may be accomplished by entering into forward sales of primary aluminum, purchasing put options, or by entering into forward sales of primary aluminum and purchases of call options, which together provide the same price protection as purchasing put options in a manner which correlates with the Company's production and sales of primary aluminum. This strategy may be modified from time to time. At December 31, 1997, the Company's commitments with respect to these financial instruments covered approximately 234,450 tonnes of future production. The book value and market value of these financial instruments were $5.4 and $22.5, respectively, at December 31, 1997. Certain of the Company's foreign operating expenditures are denominated in currencies other than the operations' functional currencies, which expose the Company to exchange rate risks. In order to mitigate its exposure to exchange rate risk where these conditions exist, the Company may utilize forward or option contracts on foreign currencies. At December 31, 1997, the Company had outstanding $214.9 in such contracts which mature at various dates through June 1999. The gains or losses related to these contracts are deferred and included in the measurement of the related foreign denominated transactions. If these contracts had been terminated at December 31, 1997, the Company would have incurred a loss of approximately $4.5. The Company's debt instruments and related interest rate hedges are susceptible to market fluctuations based on changes in the cost of borrowing. At December 31, 1997, the fair value of total debt approximated book value. The Lauralco credit facility, which has a variable interest rate, required the Company to establish facilities to effectively limit the interest rate exposure of the commitment. To meet this requirement, the Company has obtained interest rate swaps with notional amounts totaling $400 through October 26, 2000 and interest rate caps with a notional amount of $150 expiring October 26, 1998. This program is designed to effectively cap interest rate exposure at a maximum of approximately nine percent through October 26, 2000. The effective rate on this debt amounted to 8.4 percent, 8.5 percent and 9.2 percent for the years ended December 31, 1997, 1996 and 1995, respectively. The Company would have paid approximately $32.3 to terminate these interest rate agreements at December 31, 1997. The Company also purchases natural gas for its operations and enters into forward contracts to manage the volatility in prices. At December 31, 1997, none of these contracts was material. Environmental Matters The Company has been named as a defendant or identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws by governmental agencies and private parties at 38 pending waste disposal sites which, in most instances, were owned and operated by third parties. Management periodically evaluates such matters and records or 29 31 adjusts liability reserves for remediation and other costs and potential damages when expenditures for such costs are considered probable and can be reasonably estimated. The Company's ultimate liability in connection with present and future environmental claims will depend on many factors, including its volumetric share of the waste at a given site, the remedial action required, the total cost of remediation and the financial viability and participation of the other entities which also sent waste to the site. Based upon current law and information known to the Company concerning the size of the sites known to it, anticipated costs of remediation, their years of operation, and the number of potentially responsible parties, Management believes that it has adequate reserves for the Company's probable share of the estimated aggregate liability for the costs of remedial actions and related costs and expenses and that such liability and related costs and expenses should not have a material adverse effect on the financial condition or ongoing results of operations of the Company. In addition, the Company establishes reserves for remedial measures required from time to time at its own facilities. Any expenditures for remediation programs it may be required to undertake, either individually or in the aggregate, are not expected to have a material adverse effect on the financial condition or ongoing results of operations of the Company. The Company's environmental reserves totaled $29.6 at December 31, 1997 and 1996. Management believes that the reasonably probable outcomes of these matters will not materially exceed established reserves. Although the Company believes it has coverage for some environmental claims under certain insurance policies, insurance recoveries are not considered in estimating the Company's share of remediation costs at a site unless an insurance carrier has agreed to pay a portion of such costs. Insurance recoveries were not considered in establishing reserves for any of these sites absent an agreement between the carriers and the Company. Management does not anticipate that commitments, operating expenses or capital expenditures for environmental compliance through and including the next fiscal year will have a material adverse effect on the Company's financial condition or ongoing results of operations. Based on historical trends toward tighter environmental standards, it appears likely that the Company will incur additional expenditures to remain in compliance with federal and state environmental laws. See also "Business -- Environmental Matters" under Item 1 and "Legal Proceedings" under Item 3 in Part I hereof. Impact of the Year 2000 Issue The "Year 2000 Issue" resulted from the use of two digits rather than four digits to define the applicable year in certain computer programs. With the coming millennium, any of the Company's computer programs that have two digit date-sensitive software may interpret a date of "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. Management is in the process of evaluating the effect of the Year 2000 Issue on the Company. Based on preliminary findings, the total cost of addressing the Year 2000 Issue is not expected to have a material effect on the Company's business, financial condition or results of operations. However, Management is in the process of completing its assessment of the potential impact of the Year 2000 Issue on the Company and the potential exposure of the Company to related problems of its customers and suppliers. There can be no assurance that such exposures or the costs of remediating any problems associated therewith will not materially affect the Company's future business, financial condition or results of operations. Cautionary Statement Regarding Forward-Looking Information Certain statements and information contained in this Annual Report on Form 10-K, including in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and under "Business" in Item 1 and under "Legal Proceedings" in Item 3, are forward-looking statements that reflect Management's current plans, objectives and expectations for the future, which are based on prevailing circumstances and information available at this time. Accordingly, such statements and information involve inherent risks and uncertainties, and actual results may differ materially from those discussed therein. Forward-looking statements contained herein include: (i) statements made concerning Management's 30 32 expectations with respect to the Company's strategic plan for growth and its performance improvement plan (including all statements of targeted performance improvements); (ii) statements made regarding expected future cash flow from operating activities; (iii) statements regarding Management's expectations with respect to the future profitability of the Company's semi-solid forging operations; and (iv) statements made regarding the Company's current expectations or beliefs with respect to the outcome and impact on the Company's business, financial condition or results of operations of the Year 2000 Issue and pending litigation and other claims, disputes or legal proceedings. Factors that could cause actual results to differ from those discussed in the forward-looking statements include: fluctuations in commodity prices (including prices of aluminum and alumina), changes in competitive conditions, government regulation, aluminum market conditions, changes in labor relations, the outcome of pending litigation and other claims, domestic and international market conditions and general economic conditions. In addition, actual results may differ as a result of other factors not enumerated herein, as well as changes in current circumstances, that are impossible to predict at this time. 31 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................... 33 Statements of Earnings for the Years Ended December 31, 1997, 1996 and 1995....................................... 34 Statements of Financial Position at December 31, 1997 and 1996...................................................... 35 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995....................................... 36 Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995.................... 37 Notes to Financial Statements............................... 38
32 34 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Alumax Inc. We have audited the accompanying statements of financial position of Alumax Inc. and its subsidiaries as of December 31, 1997 and 1996, and the related statements of earnings, cash flows and changes in stockholders' equity for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Alumax Inc. and its subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Atlanta, Georgia January 27, 1998 33 35 ALUMAX INC. STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- NOTE 1997 1996 1995 ---- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NET SALES.................................................. $2,930.9 $3,159.3 $2,926.1 Cost and expenses: Cost of goods sold....................................... 2,234.1 2,522.0 2,285.7 Selling and general...................................... 250.9 267.3 225.5 Depreciation and amortization............................ 152.9 138.1 109.1 -------- -------- -------- 2,637.9 2,927.4 2,620.3 -------- -------- -------- EARNINGS FROM OPERATIONS................................... 293.0 231.9 305.8 Gain on sales of assets.................................... 2 -- 242.9 128.8 Interest expense, net...................................... 13 (57.8) (62.8) (65.4) Other income, net.......................................... 14 2.0 10.6 7.3 -------- -------- -------- EARNINGS BEFORE INCOME TAXES............................... 237.2 422.6 376.5 Income tax provision....................................... 4 203.5 172.6 139.1 -------- -------- -------- NET EARNINGS............................................... 33.7 250.0 237.4 Preferred dividends........................................ 10 -- (9.3) (9.3) -------- -------- -------- EARNINGS APPLICABLE TO COMMON SHARES....................... $ 33.7 $ 240.7 $ 228.1 ======== ======== ======== Earnings per common share: Basic.................................................... 10 $ 0.62 $ 5.26 $ 5.11 ======== ======== ======== Diluted.................................................. 10 $ 0.60 $ 4.53 $ 4.34 ======== ======== ======== Weighted average shares outstanding: Basic.................................................... 10 54.7 45.7 44.6 ======== ======== ======== Diluted.................................................. 10 55.7 55.2 54.8 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 34 36 ALUMAX INC. STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, ---------------------------- NOTE 1997 1996 ---- ----------- ----------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) ASSETS Current Assets: Cash and equivalents...................................... $ 27.0 $ 34.6 Accounts receivable, less allowance for doubtful accounts (1997 -- $13.2; 1996 -- $16.6)......................... 487.1 439.1 Inventories............................................... 3 533.8 519.9 Deferred income taxes..................................... 4 94.7 54.5 Other current assets...................................... 23.7 37.7 -------- -------- Total current assets.............................. 1,166.3 1,085.8 -------- -------- Noncurrent Assets: Property, plant and equipment, net........................ 5 2,026.9 2,027.4 Deferred income taxes..................................... 4 38.4 40.4 Other assets.............................................. 221.4 145.1 -------- -------- Total noncurrent assets........................... 2,286.7 2,212.9 -------- -------- TOTAL ASSETS................................................ $3,453.0 $3,298.7 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 145.3 $ 162.6 Accrued liabilities....................................... 220.3 224.2 Current maturities of long-term debt...................... 6 46.4 38.4 -------- -------- Total current liabilities......................... 412.0 425.2 -------- -------- Noncurrent Liabilities: Long-term debt............................................ 6 955.6 672.0 Deferred income taxes..................................... 4 193.1 154.0 Postretirement health care................................ 8 164.8 161.8 Other liabilities......................................... 105.8 244.9 -------- -------- Total noncurrent liabilities...................... 1,419.3 1,232.7 -------- -------- Commitments and Contingencies............................... 9 Stockholders' Equity: Preferred stock of $1.00 par value -- authorized 50,000,000 shares...................................... 10 -- -- Common stock of $.01 par value -- authorized 200,000,000 shares; issued and outstanding 53,390,250 shares in 1997 and 54,692,057 shares in 1996..................... 10 .6 .5 Paid-in capital........................................... 935.8 920.2 Retained earnings......................................... 758.0 724.3 Cumulative foreign currency translation adjustment........ (13.6) (4.2) Common stock in treasury, at cost -- 1,812,900 shares in 1997................................................... 10 (59.1) -- -------- -------- Total stockholders' equity........................ 1,621.7 1,640.8 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $3,453.0 $3,298.7 ======== ========
The accompanying notes are an integral part of these financial statements. 35 37 ALUMAX INC. STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- NOTE 1997 1996 1995 ---- --------- --------- --------- (MILLIONS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings............................................ $ 33.7 $ 250.0 $ 237.4 Reconciliation of net earnings to net cash provided by (used in) operating activities: Depreciation and amortization........................... 152.9 138.1 109.1 Provision for doubtful accounts......................... .9 5.2 2.7 Gain on sales of assets................................. 2 (4.3) (242.1) (133.9) Deferred income taxes................................... 4 .9 47.7 50.8 Other noncash items..................................... 15.7 8.5 5.7 Changes in operating assets and liabilities, net of effects of acquisition/dispositions: Accounts receivable.................................. (48.9) (25.4) .3 Inventories.......................................... 3 (13.9) 17.7 (60.0) Other current assets................................. 16.3 (21.8) 57.4 Accounts payable and accrued liabilities............. (21.2) 9.8 (51.2) Net change in other noncurrent assets and liabilities........................................ (212.4) 5.3 36.4 ------- ------- ------- Net cash provided by (used in) operating activities......................................... (80.3) 193.0 254.7 ------- ------- ------- INVESTING ACTIVITIES: Dispositions, net of cash sold.......................... 5.6 502.0 150.8 Acquisitions, net of cash acquired...................... -- (436.5) -- Capital expenditures.................................... (165.4) (243.2) (213.7) ------- ------- ------- Net cash used in investing activities................ (159.8) (177.7) (62.9) ------- ------- ------- FINANCING ACTIVITIES: Repayments of debt...................................... 6 (63.4) (552.3) (69.6) Proceeds from debt...................................... 6 355.0 375.0 -- Dividends paid.......................................... 10 -- (9.3) (9.3) Repurchases of common stock............................. 10 (59.1) -- -- ------- ------- ------- Net cash provided by (used in) financing activities......................................... 232.5 (186.6) (78.9) ------- ------- ------- Net increase (decrease) in cash and equivalents........... (7.6) (171.3) 112.9 Cash and equivalents at beginning of year................. 34.6 205.9 93.0 ------- ------- ------- Cash and equivalents at end of year....................... $ 27.0 $ 34.6 $ 205.9 ======= ======= ======= Supplemental Cash Flow Information: Income taxes paid, net.................................. $ 430.0 $ 98.0 $ 84.0 Interest paid, net of amounts capitalized............... $ 58.9 $ 66.5 $ 72.8
The accompanying notes are an integral part of these financial statements. 36 38 ALUMAX INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
1997 1996 1995 --------------- --------------- --------------- NOTE SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---- ------ ------ ------ ------ ------ ------ (IN MILLIONS) Preferred Stock At January 1..................................... -- -- 2.3 $ 2.3 2.3 $ 2.3 Conversion to common stock....................... 10 -- -- (2.3) (2.3) -- -- ---- ------ ---- ------ ---- ------ At December 31................................... -- -- -- -- 2.3 $ 2.3 ==== ====== ==== ====== ==== ====== Common Stock At January 1..................................... 54.7 $ .5 44.8 $ .4 44.6 $ .4 Conversion of preferred stock.................... 10 -- -- 9.6 .1 -- -- Employee stock issuances......................... 7 .5 .1 .3 -- .2 -- Repurchase common stock.......................... 10 (1.8) -- -- -- -- -- ---- ------ ---- ------ ---- ------ At December 31................................... 53.4 $ .6 54.7 $ .5 44.8 $ .4 ==== ====== ==== ====== ==== ====== Paid-in Capital At January 1..................................... $920.2 $909.5 $903.8 Conversion of preferred stock.................... 10 -- 2.2 -- Employee stock issuances......................... 7 15.6 8.5 5.7 ------ ------ ------ At December 31................................... $935.8 $920.2 $909.5 ====== ====== ====== Retained Earnings At January 1..................................... $724.3 $483.6 $255.5 Net earnings..................................... 33.7 250.0 237.4 Dividends on preferred stock..................... 10 -- (9.3) (9.3) ------ ------ ------ At December 31................................... $758.0 $724.3 $483.6 ====== ====== ====== Cumulative Foreign Currency Translation Adjustment At January 1..................................... $ (4.2) $ 3.5 $ .1 Adjustment for foreign currency translation...... (9.4) (7.7) 3.4 ------ ------ ------ At December 31................................... $(13.6) $ (4.2) $ 3.5 ====== ====== ====== Common Stock in Treasury At January 1..................................... 10 -- -- Common stock repurchases......................... 1.8 $(59.1) ---- ------ At December 31................................... 1.8 $(59.1) ==== ======
The accompanying notes are an integral part of these financial statements. 37 39 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation -- The financial statements include the consolidated accounts of all majority-owned subsidiaries over which Alumax Inc. ("Alumax" or the "Company") maintains control. Investments in companies over which the Company has significant influence, but not a controlling interest, are carried on the equity method of accounting. Investments in companies over which the Company lacks significant influence are carried on the cost method of accounting. All significant intercompany accounts and transactions have been eliminated. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that may affect the reported amounts of certain assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents -- Cash equivalents consist of highly liquid investments, which are readily convertible into cash, with a maturity at the date of acquisition of three months or less. Financial Instruments -- The Company may, from time to time, utilize certain financial instruments in connection with risk management. The fair value of financial instruments is determined by reference to market value quotes, where available, and other valuation techniques, as appropriate. Amounts to be paid or received on interest rate swaps and caps are included in interest expense on an accrual basis, as they effectively limit the interest rate exposure of the Company's debt commitments. Certain of the Company's foreign operating expenditures are denominated in currencies other than the operations' functional currencies, which expose the Company to exchange rate risks. In order to mitigate its exposure to exchange rate risk where conditions exist, the Company may utilize forward or option contracts on foreign currencies. Amounts paid or received on settlement of such contracts are deferred and included in the measurement of the related foreign denominated transactions. The Company's results of operations and financial condition depend to a large degree on primary aluminum prices. In order to reduce this exposure, the Company may enter into future, forward and option contracts. Amounts paid or received on settlement of future, forward and option contracts, including any cost to purchase the contracts, are deferred and recognized as a component of the related transaction and included in costs and expenses, except for amounts paid or received on settlement of aluminum contracts by the primary reduction facilities, which are included in net sales. All of the Company's financial instruments have been designated as hedges and are closely monitored to ensure that correlation between changes in the fair value of financial instruments and changes in the fair value associated with the underlying hedged items exists to such a degree that they substantially offset. In the event a high degree of correlation is not maintained, or anticipated transactions do not occur, deferred gains or losses on the affected financial instruments are recognized in earnings immediately. At December 31, 1997, all of the Company's financial instruments qualified for deferral accounting treatment. Inventories -- Inventories are stated at the lower of cost or market, with cost for a substantial portion of U.S. inventories determined under the last-in, first-out (LIFO) method. The cost of other inventories is principally determined under the first-in, first-out (FIFO) method. Property, Plant and Equipment -- Property, plant and equipment is recorded at cost. Depreciation and amortization of property, plant and equipment is computed principally on the straight-line method over the estimated useful lives of the assets. Certain pre-operating costs attributable to new operations of major facilities are deferred and amortized over a period of approximately three years. In determining impairment of 38 40 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) facilities to be disposed, the Company includes direct holding costs during the disposal period in its measurement of net realizable value. Stock-Based Compensation -- Compensation cost is measured under the intrinsic value based method. Pro forma disclosures of net income and earnings per share are presented, as if the fair value based method had been applied. Revenue Recognition -- The Company recognizes revenue when title passes to the customer. Reclassifications -- Certain reclassifications have been made to prior years' financial statements to conform with the 1997 presentation. NOTE 2. STRATEGIC TRANSACTIONS The Company periodically implements strategic actions, which it believes afford it the opportunity to redeploy resources to enhance profitability and growth. During 1996 and 1995 the following notable strategic transactions occurred:
DISPOSITION ACQUISITION PRE-TAX AFTER-TAX PROCEEDS COST GAIN GAIN ----------- ----------- ------- --------- 1996: Fab Products.................................. $246.6 $ 71.7 $ 36.7 Mexican Mining Investment..................... 160.0 92.8 55.1 Excess Primary Aluminum Capacity.............. 89.3 78.4 48.6 Cressona Aluminum Company..................... $436.5 ------ ------ ------ ------ $495.9 $436.5 $242.9 $140.4 ====== ====== ====== ====== 1995: Excess Primary Aluminum Capacity.............. $147.6 $128.8 $ 81.3 ====== ====== ======
Dispositions On September 25, 1996, the Company sold certain fabricated products businesses ("Fab Products") in Western Europe and in the United States for $246.6 in cash, net of cash sold of $5.4. The Company recorded an after-tax gain of $36.7, net of a $35.0 tax provision, in the third quarter of 1996. In June 1996, the Company sold its investment in Mexican mining interests for $160 in cash. The Company recorded an after-tax gain of $55.1, net of a $37.7 tax provision, in the second quarter of 1996. In January 1996, the Company sold a 23 percent undivided interest in its Mt. Holly primary aluminum reduction facility for $89.3, which the Company applied to the early retirement of a $90.7 promissory note due in May 1996. The Company recorded an after-tax gain of $48.6, net of a $29.8 tax provision, in the first quarter of 1996. This transaction reduced the Company's ownership in the Mt. Holly facility to 50.33 percent. In March 1995, the Company sold a 14 percent undivided interest in each of the Company's Intalco and Eastalco primary aluminum reduction facilities for cash proceeds of $147.6, resulting in an after-tax gain of $81.3, net of a $47.5 tax provision, recorded in the first quarter of 1995. This transaction reduced the Company's ownership in each facility to 61 percent. Acquisition On January 31, 1996, the Company purchased all of the common shares of privately held Cressona Aluminum Company ("Cressona") for a cash cost, including expenses, of $436.5, net of $3.1 of cash acquired. In conjunction with the acquisition, accounts payable, debt and other liabilities of $87.4 were 39 41 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) acquired. Cressona was a leading manufacturer of extruded aluminum products and is now an integral part of Alumax Extrusions, Inc. The transaction has been accounted for as a purchase and the results of operations of Cressona have been included in the consolidated financial statements since January 31, 1996. The acquisition was financed with cash on hand and $375 of borrowings obtained under a $400 bridge loan facility. All of these borrowings have been repaid and the facility has been terminated. Pro Forma Information The following summary presents Alumax's unaudited pro forma consolidated net sales, net earnings, and basic earnings per common share for 1996 and 1995, respectively, as if the acquisition of Cressona and the sale of Fab Products each occurred on January 1, 1996 and 1995. The pro forma adjustments for 1996 include the addition of Cressona's operating results for the month of January 1996. Since the acquisition occurred on January 31, 1996, the Company's actual results include Cressona from February 1, 1996 through December 31, 1996.
FOR THE YEAR ENDED DECEMBER 31, -------------------- 1996 1995 -------- -------- Net sales................................................... $2,830.3 $2,910.1 Net earnings................................................ $ 243.6 $ 238.6 Basic earnings per common share............................. $ 5.12 $ 5.14
The pro forma results were based upon certain assumptions and estimates, which the Company believes are reasonable. The pro forma results do not purport to be indicative of results that actually would have been obtained had these transactions occurred on January 1, 1996 or 1995, nor are they intended to be a projection of future results. NOTE 3. INVENTORIES Inventories, at December 31, were comprised of:
1997 1996 ------ ------ Raw materials............................................... $300.6 $323.7 Work in process ............................................ 110.7 87.3 Finished products........................................... 122.5 108.9 ------ ------ $533.8 $519.9 ====== ======
Approximately 78 percent of inventory at December 31, 1997 and 1996 has been determined under the LIFO cost basis. The excess of replacement cost over the LIFO basis of such inventory was approximately $82.6 and $74.0 at December 31, 1997 and 1996, respectively. The reduction in levels of LIFO valued inventories during 1997, 1996, and 1995 resulted in $1.4, and $3.7, and $1.4 of pre-tax income related to LIFO liquidation, respectively. 40 42 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. INCOME TAXES The income tax provision was comprised of the following:
1997 1996 1995 ------ ------ ------ Current: Federal................................................... $108.6 $ 84.1 $ 67.8 Foreign................................................... 3.0 34.0 10.5 State..................................................... 6.5 13.1 10.3 ------ ------ ------ 118.1 131.2 88.6 ------ ------ ------ Deferred: Federal................................................... 79.9 36.8 43.9 Foreign................................................... 2.0 4.3 5.0 State..................................................... 3.5 .3 1.6 ------ ------ ------ 85.4 41.4 50.5 ------ ------ ------ Total............................................. $203.5 $172.6 $139.1 ====== ====== ======
The domestic and foreign components of earnings before income taxes were as follows:
1997 1996 1995 ------ ------ ------ Domestic.................................................... $231.8 $396.4 $338.1 Foreign..................................................... 5.4 26.2 38.4 ------ ------ ------ Total............................................. $237.2 $422.6 $376.5 ====== ====== ======
Reconciliation of the differences between income taxes computed at federal statutory tax rates and the Company's consolidated income tax provision follows:
1997 1996 1995 ------ ------- ------ Tax at federal statutory rate............................... $ 83.0 $ 147.9 $131.8 Foreign tax credits......................................... -- (110.4) -- Tax consolidation case...................................... 108.6 -- -- Sale of foreign businesses.................................. -- 86.8 -- Foreign taxes in excess of federal statutory rate........... 3.1 29.2 2.1 State income taxes, net of federal income tax benefit....... 6.5 10.2 7.7 Valuation allowance reversal................................ -- -- (13.4) Other, net.................................................. 2.3 8.9 10.9 ------ ------- ------ Total............................................. $203.5 $ 172.6 $139.1 ====== ======= ======
The 1996 foreign provision for income taxes included $28.7 of dividend withholding taxes. 41 43 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The approximate tax effects of cumulative temporary differences at December 31 were as follows:
1997 1996 ------- ------- Accrued expenses............................................ $ 50.3 $ 52.2 Book versus tax basis of inventory.......................... (11.3) (2.2) Tax credit carryforwards.................................... 52.8 -- Allowance for doubtful accounts............................. 2.9 4.5 ------- ------- Current, net................................................ 94.7 54.5 ------- ------- Book versus tax basis of depreciable assets................. (248.3) (208.0) Foreign capital cost allowance carryforward................. 57.8 59.8 Postretirement health care accrual.......................... 57.7 56.6 Other....................................................... (21.9) (22.0) ------- ------- Noncurrent, net............................................. (154.7) (113.6) ------- ------- Total, net........................................ $ (60.0) $ (59.1) ======= =======
At December 31, 1997, the Company had $139.2 in foreign capital cost allowance carryforwards which accrued in periods prior to becoming an independent public corporation in 1993. The Company has not provided for domestic income taxes or foreign withholding taxes on $39.1 of foreign subsidiaries' undistributed earnings as of December 31, 1997, which are reinvested indefinitely. The Internal Revenue Service (the "IRS") asserted that Alumax and certain of its subsidiaries were improperly included in the 1984, 1985, and 1986 consolidated income tax returns of AMAX Inc. (the Company's former parent) and on that basis has assessed a federal income tax deficiency against Alumax of $129. In response to the IRS' notice of deficiency, the Company filed a petition in the United States Tax Court (the "Court") seeking a redetermination in respect of the purported deficiency. The parties waived their rights to a trial and the matter was submitted to the Court for decision based upon the pleadings, stipulations, memoranda and other documents submitted to the Court by the parties. On September 30, 1997, the Court entered a decision in favor of the IRS opining that AMAX Inc. did not have the 80 percent control necessary to consolidate. As a result of the ruling, the Company recorded a charge of $108.6 in the third quarter of 1997. On October 27, 1997, the Company paid an aggregate of $411 to the IRS, representing the expected deficiency and estimated accrued interest. The payment was funded from cash on hand and borrowings of $355 under the Company's revolving credit facility. On December 24, 1997, the Company filed a notice of appeal of the Court's decision to the United States Court of Appeals for the Eleventh Circuit. NOTE 5. PROPERTY, PLANT AND EQUIPMENT Components of property, plant and equipment at December 31, were as follows:
1997 1996 --------- --------- Land and improvements....................................... $ 62.3 $ 60.4 Machinery and equipment..................................... 2,766.4 2,634.6 Buildings................................................... 283.5 267.3 Other....................................................... 147.6 145.0 --------- --------- 3,259.8 3,107.3 Less -- accumulated depreciation and amortization........... (1,320.0) (1,216.3) --------- --------- 1,939.8 1,891.0 Construction in progress.................................... 87.1 136.4 --------- --------- $ 2,026.9 $ 2,027.4 ========= =========
42 44 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6. DEBT Debt at December 31, consisted of:
1997 1996 -------- ------ Lauralco debt, payable 1998 to 2003 -- variable rate........ $ 607.5 $645.0 Revenue and pollution control bonds, payable 1998 to 2015 -- 3.9% to 9.5%...................................... 62.0 62.9 Revolving credit -- variable rate........................... 330.0 -- Other....................................................... 2.5 2.5 -------- ------ 1,002.0 710.4 Less -- current maturities.................................. (46.4) (38.4) -------- ------ Total long-term debt.............................. $ 955.6 $672.0 ======== ======
A project finance credit agreement was arranged in 1990 with a group of banks permitting borrowings of up to $750 to finance construction of a primary aluminum reduction plant in Quebec, Canada ("Lauralco Project Group"). The credit agreement required the Company to establish facilities to effectively limit the interest rate exposure on half of the commitment (Note 15). The Company's rights to the Lauralco Project Group, including its ownership of the reduction plant and its rights to various operating agreements, are pledged as collateral under the credit agreement. The net book value of reduction plant assets pledged was approximately $903.2 at December 31, 1997. The project finance credit agreement contains, among other restrictions, provisions limiting the declaration or payment of dividends to the Company by certain subsidiaries engaged in Lauralco activities. Additionally, the project finance credit agreement contains provisions restricting the payment of dividends on the Alumax Common Stock. At December 31, 1997, $442.2 of retained earnings were available for the payment of dividends on common stock under this restriction. In May 1995, the Company entered into a $400 revolving credit facility (the "Credit Facility") to replace its then existing revolving credit facility, which was terminated. During 1997, the credit agreement was amended, increasing the total amount available under the facility to $800. The Credit Facility has a term of five years, expiring in October 2002, with no provision for reduction in commitments. Interest on outstanding balances will be based on either a base rate or LIBOR option. The Credit Facility restricts the incurrence of indebtedness by subsidiaries, as well as financial and other covenants. Under the Credit Facility, the Company and its consolidated subsidiaries are collectively required to maintain tangible net worth of at least $900 at any time, and the Company and certain of its subsidiaries, excluding the Lauralco Project Group, are collectively required to maintain a ratio of tangible net assets to funded debt of at least 2.0 to 1.0 at any time. Commitment and facility fees for revolving credit arrangements amounted to $.6 in 1997. The annual principal payments of long-term debt for the five-year period ending December 31, 2002 are: 1998-$46.4; 1999-$69.4; 2000-$69.4, 2001-$91.9 and 2002-$445.0. NOTE 7. EMPLOYEE PENSION AND THRIFT PLANS Pension plans cover substantially all employees of the Company and are generally non-contributory. The benefits of salaried employee plans are based on the projected unit credit method. The benefits of hourly employee plans are based on the unit credit method. The Company's funding policy is to meet minimum funding requirements. 43 45 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Net periodic pension cost was comprised of the following:
1997 1996 1995 ------ ------ ------ Service cost -- benefits earned during the period........... $ 19.3 $ 19.3 $ 15.6 Interest cost on projected benefit obligations.............. 24.8 23.7 20.9 Actual return on assets..................................... (66.8) (37.0) (42.9) Net amortization and deferral............................... 37.1 11.9 22.4 ------ ------ ------ Net periodic pension cost................................. $ 14.4 $ 17.9 $ 16.0 ====== ====== ======
The following table sets forth the funded status of the Company's pension plans and amounts recognized in its statements of financial position at December 31, 1997 and 1996 for its pension plans:
ASSETS EXCEED ABO EXCEEDS ABO ASSETS --------------- -------------- 1997 1996 1997 1996 ------ ------ ------ ----- Actuarial present value of benefit obligations: Vested benefit obligation.............................. $206.6 $234.3 $101.4 $14.8 ====== ====== ====== ===== Accumulated benefit obligation (ABO)................... $225.2 $257.1 $113.9 $16.8 ====== ====== ====== ===== Projected benefit obligation........................... $249.9 $314.9 $152.3 $19.2 Plan net assets at fair value.......................... 298.8 336.5 106.7 10.7 ------ ------ ------ ----- Plan net assets in excess of (less than) projected benefit obligation................................... 48.9 21.6 (45.6) (8.5) Unrecognized net (gain) loss........................... (16.6) (6.6) 15.0 5.5 Unrecognized prior service cost........................ 22.1 15.3 3.1 1.3 Unrecognized transition amounts........................ (5.2) (6.5) .3 .6 ------ ------ ------ ----- Prepaid (accrued) pension costs........................ $ 49.2 $ 23.8 $(27.2) $(1.1) ====== ====== ====== =====
Plan assets consisted of approximately 60 percent equities, 37 percent fixed income and 3 percent cash and cash equivalents at December 31, 1997. Key economic assumptions used in the above calculations at December 31, were:
1997 1996 1995 ---- ---- ---- Settlement discount rate.................................... 7.0% 7.5% 7.0% Rate of compensation increases.............................. 5.0% 5.0% 5.0% Expected long-term rate of return........................... 9.0% 9.0% 9.0%
Defined contribution employee thrift plans cover substantially all salaried and certain hourly employees. Employee contributions are matched through Company issuances of Alumax Common Stock. Alumax Common Stock issuances amounted to $6.5, $5.3 and $4.9 in 1997, 1996 and 1995, respectively. Total administrative expenses of these plans paid by the Company amounted to $5.7, $5.6 and $5.3 in 1997, 1996 and 1995, respectively. NOTE 8. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. A majority of the Company's domestic employees may become eligible for such benefits if they reach normal or, in certain cases, early retirement age while working for the Company. 44 46 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The components of periodic cost for these postretirement benefits were as follows:
1997 1996 1995 ----- ----- ----- Service cost -- benefits earned during the period........... $ 3.5 $ 3.8 $ 3.7 Interest cost on accumulated postretirement benefit obligation................................................ 9.9 9.2 10.0 Amortization of prior service cost related to plan amendments................................................ (4.7) (5.2) (5.3) Amortization of (gains) losses.............................. (.1) .6 (.4) ----- ----- ----- Net periodic cost........................................... $ 8.6 $ 8.4 $ 8.0 ===== ===== =====
The actuarial and recorded liabilities for these postretirement benefits, none of which have been funded at December 31, were as follows:
1997 1996 ------ ------ Accumulated postretirement benefit obligation (APBO): Retirees.................................................. $ 65.6 $ 62.2 Fully eligible active plan participants................... 19.3 18.4 Other active participants................................. 62.9 54.2 Unrecognized prior service cost related to plan amendments............................................. 16.1 22.4 Unrecognized net gain..................................... .9 4.6 ------ ------ Liability for postretirement health care and life insurance benefits.................................................. $164.8 $161.8 ====== ======
For measurement purposes, a 9.1 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998. The rate was assumed to decrease gradually to 4.7 percent through the year 2006 and remain at that level thereafter. An increase in the assumed health care cost trend rates by one percent in each year would increase the APBO as of December 31, 1997 by 10 percent and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by 11 percent. The weighted-average discount rate used in determining the APBO as of December 31, 1997 and 1996 was 7.0 and 7.5 percent, respectively. In addition to providing postretirement benefits to eligible retired employees, the Company provides specified postemployment benefits to certain former or inactive employees. Substantially all domestic employees may become eligible to receive these benefits, which are either self-insured or provided through the Company's insurance carriers. NOTE 9. COMMITMENTS AND CONTINGENCIES Minimum commitments under long-term noncancelable operating leases, principally for operating and office facilities, totaled $88.5 at December 31, 1997. Lease commitments for future periods are as follows: 1998-$17.9, 1999-$15.3, 2000-$13.1, 2001-$11.3, 2002-$10.1 and 2003 to 2009-$20.8. Rent expense amounted to $23.0, $23.0 and $25.8 in 1997, 1996 and 1995, respectively. The Company arranged for letters of credit in the amount of $100.5 at December 31, 1997, primarily relating to collateral support for certain financing arrangements and a power contract guarantee. In November 1997, Alumax Mill Products entered into a new five-year operating lease, renewable for up to two additional years, covering the Texarkana rolling mill facility. The new leasing arrangement enabled the Company to forego a previously planned capital investment of $97 to purchase the Texarkana facility. The Company has a noncancelable long-term contract for the purchase of alumina and both noncancelable and cancelable contracts for electric power for its primary aluminum reduction plants. Power contracts for each plant, except for Intalco, and the alumina contract are with single suppliers. The power contracts expire in the years 2001 through 2014, subject to certain extension provisions. The alumina contract, 45 47 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) with renewal options, expires in increments between 2007 and 2018. Contracted amounts of alumina and power approximate the Company's anticipated requirements. During 1996, the Company, through a subsidiary, entered into a joint venture with Yunnan Aluminum Processing Factory in Kunming, China for the annual production of 8,000 to 10,000 tonnes of light gauge aluminum foil for China's packaging market. Alumax will invest a total of $38 of cash in the joint venture to develop a continuous cast foil operation. As of December 31, 1997, the Company had invested approximately $24 of cash in the joint venture. The Company has been named as a defendant or identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws by governmental agencies and private parties at 38 pending waste disposal sites which, in most instances, were owned and operated by third parties. Management periodically evaluates such matters and records or adjusts liability reserves for remediation and other costs and potential damages when expenditures for such costs are considered probable and can be reasonably estimated. The Company's ultimate liability in connection with present and future environmental claims will depend on many factors, including its volumetric share of the waste at a given site, the remedial action required, the total cost of remediation and the financial viability and participation of the other entities which also sent waste to the site. Based upon current law and information known to the Company concerning the size of the sites known to it, anticipated costs of remediation, their years of operation, and the number of potentially responsible parties, Management believes that it has adequate reserves for the Company's probable share of the estimated aggregate liability for the costs of remedial actions and related costs and expenses and that such liability and related costs and expenses should not have a material adverse effect on the financial condition or ongoing results of operations of the Company. In addition, the Company establishes reserves for remedial measures required from time to time at its own facilities. Any expenditures for remediation programs it may be required to undertake, either individually or in the aggregate, are not expected to have a material adverse effect on the financial condition or ongoing results of operations of the Company. The Company's environmental reserves totaled $29.6 at December 31, 1997 and 1996. Management believes that the reasonably probable outcomes of these matters will not materially exceed established reserves. Although the Company believes it has coverage for some environmental claims under certain insurance policies, insurance recoveries are not considered in estimating the Company's share of remediation costs at a site unless an insurance carrier has agreed to pay a portion of such costs. Insurance recoveries were not considered in establishing reserves for any of these sites absent an agreement between the carriers and the Company. Management does not anticipate that commitments, operating expenses or capital expenditures for environmental compliance through and including the next fiscal year will have a material adverse effect on the Company's financial condition or results of operations. Based on historical trends toward tighter environmental standards, it appears likely that the Company will incur additional expenditures to remain in compliance with federal and state environmental laws. NOTE 10. STOCKHOLDERS' EQUITY Preferred Stock On November 4, 1996, the Company announced that it was redeeming all of the outstanding shares of the $4.00 Series A Convertible Preferred Stock ("Preferred Stock"), par value $1.00 per share, on December 18, 1996. Each share of the Preferred Stock was redeemable at a price of $52.40 per share, plus an amount equal to the quarterly dividend accrued on each share through the redemption date for a total cash redemption price of $52.60 per share. As an alternative to redemption, each share of the Preferred Stock was convertible at the option of the holder into 4.11489 shares of the Company's Common Stock until the close of business on 46 48 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 4, 1996. In December 1996, the outstanding shares of Preferred Stock were converted into approximately 9.6 million shares of Alumax Common Stock. Common Stock As of December 31, 1997, authorized and unissued shares of Alumax Common Stock were reserved for the following purposes: 2,650,000 for issuance of stock options and other stock compensation plans, 832,100 for issuance under employee thrift and 695,600 for issuance pursuant to employee deferred compensation agreements. Earnings Per Share In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share." Prior year amounts have been restated in accordance with this Statement. Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similarly but reflects the potential dilution that could occur if options were exercised or convertible securities were converted into common stock. The following table calculates basic earnings per common share and diluted earnings per common share at December 31:
1997 1996 1995 ------ ------ ------ Basic Earnings per common share: Net earnings.............................................. $ 33.7 $250.0 $237.4 Deduct -- Series A Convertible Preferred dividends........ -- (9.3) (9.3) ------ ------ ------ Earnings applicable to common shares...................... $ 33.7 $240.7 $228.1 Average common shares outstanding (in thousands).......... 54,735 45,731 44,637 ------ ------ ------ Basic earnings per common share............................. $ 0.62 $ 5.26 $ 5.11 ====== ====== ====== Diluted earnings per common share: Earnings applicable to common shares...................... $ 33.7 $240.7 $228.1 Add -- Series A Convertible Preferred dividends........... -- 9.3 9.3 ------ ------ ------ Net earnings.............................................. $ 33.7 $250.0 $237.4 Average common shares outstanding (in thousands).......... 54,735 45,731 44,637 Add -- Conversion of preferred stock (in thousands)....... -- 8,801 9,601 Add -- Options and performance accelerated restricted stock awards (in thousands)............................ 986 679 523 ------ ------ ------ Average diluted shares outstanding (in thousands)......... 55,721 55,211 54,761 ------ ------ ------ Diluted earnings per common share........................... $ 0.60 $ 4.53 $ 4.34 ====== ====== ======
Treasury Stock In the fourth quarter of 1997, the Company began acquiring shares of its common stock in connection with a stock repurchase program announced in July 1996. That program authorizes the Company to purchase up to 2.5 million common shares from time to time on the open market or pursuant to negotiated transactions at price levels the Company deems attractive. The Company purchased 1.8 million shares of common stock in 1997 at an aggregate cost of $59.1. The purpose of the stock repurchase program is to help the Company achieve its long-term goal of enhancing stockholder value. In February 1998, the Board of Directors amended the program to provide that purchases reported to, and ratified by, the Board of Directors or by the Executive Committee of the Board shall not be counted in determining compliance with the 2.5 million share limitation. 47 49 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11. STOCK-BASED COMPENSATION Under its 1993 Long-Term Incentive Plan ("Long-Term Plan"), the Company may grant stock options, stock appreciation rights, restricted stock and other stock-based awards to salaried employees for up to an aggregate of 5,210,129 shares of common stock. The 1995 Employee Equity Ownership Plan ("Equity Ownership Plan") provides for discretionary stock option grants to salaried employees in lower grade levels up to an aggregate of 1,000,000 shares of common stock. Under its Non-Employee Directors Stock Compensation Plan ("Directors Stock Plan"), the Company is authorized to grant options up to an aggregate of 750,000 shares of common stock. Upon joining the Board of Directors, each non-employee director of the Company was provided with a one time stock option grant of 10,000 shares of common stock. Annually, stock grants for 1,250 shares of common stock are issued to each non-employee director. Options granted under the Long-Term Plan and the Equity Ownership Plan generally vest two years after issue and have a term of ten years. Options granted under the Directors Stock Plan vest ratably over three years. The exercise price of options granted under each plan generally equals the market price of the Company's stock on the date of grant. However, options may be granted with differing vesting periods, terms and exercise prices. In 1996, total options of 1,327,650 were granted, of which 687,800 were granted with a vesting period of one to three years and a term of six years. In 1993 certain former AMAX Inc. executives became executives of the Company and were awarded 623,350 options, not pursuant to the Long-Term Plan. These options, which have a market based exercise price of $23.61 and vest ratably over five years, were granted in consideration of the cancellation without payment of rights which the executives may have had under severance policies of AMAX Inc. The Company may grant performance accelerated restricted stock to key management employees under the terms of the Long-Term Plan. The annual stock awards vest approximately ten years after grant date with accelerated vesting if the Company meets certain cumulative net income objectives. A summary of the status of the stock compensation plans as of December 31, and changes during the years ended on those dates is presented below:
OUTSTANDING EXERCISABLE -------------------------- -------------------------- WEIGHTED WEIGHTED NUMBER OF AVERAGE NUMBER OF AVERAGE SHARES PRICE SHARES EXERCISE PRICE --------- -------------- --------- -------------- Outstanding at December 31, 1994............ 1,920,675 $25.41 Granted (option value -- $11.30).......... 821,850 $33.13 Exercised................................. (3,333) $19.44 Cancelled................................. (38,342) $25.50 --------- Outstanding at December 31, 1995............ 2,700,850 $27.76 296,008 $23.09 ========= ====== Granted (option value -- $11.24).......... 869,117 $32.16 Granted (option value -- $8.92)........... 458,533 $38.12 Exercised................................. (144,200) $26.80 Cancelled................................. (106,159) $31.87 --------- Outstanding at December 31, 1996............ 3,778,141 $29.95 1,463,484 $25.59 ========= ====== Granted (option value -- $11.30).......... 1,024,850 $32.56 Exercised................................. (226,916) $26.40 Cancelled................................. (100,475) $32.31 --------- Outstanding at December 31, 1997............ 4,475,600 $30.68 2,289,405 $28.35 ========= ========= ====== Range of option exercise prices: $19.44 -- $27.13 (average life -- 6.5 years).................................. 1,475,775 $25.09 1,351,105 $25.22 ========= ====== ========= ====== $30.63 -- $40.13 (average life -- 8.1 years).................................. 2,999,825 $33.43 938,300 $32.85 ========= ====== ========= ======
The following pro forma summary presents the Company's net earnings, basic earnings per share and diluted earnings per share for the years ended December 31, 1997, 1996 and 1995 as if compensation cost had 48 50 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) been measured under the fair value based method. The effects of the fair value of stock options in the following pro forma disclosure are not likely to be representative of the effects for future years because outstanding options vest over a period of up to three years and awards are generally made during the fourth quarter of each year.
1997 1996 1995 ----- ------ ------ Pro Forma Information: Net earnings.............................................. $26.6 $247.1 $237.2 Basic earnings per common share........................... $0.49 $ 5.20 $ 5.11 Diluted earnings per common share......................... $0.48 $ 4.48 $ 4.33
The pro forma adjustments are determined using an option valuation model. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in Management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The following assumptions were used for the years ended December 31:
1997 1996 1995 ---- ---- ---- Risk-free interest rate..................................... 5.8% 5.9% 5.5% Expected life............................................... 5.0 5.0 5.0 Expected volatility......................................... 26.0% 26.0% 26.0% Expected dividend yield..................................... -- -- --
The Company also granted performance accelerated restricted stock awards of 65,350 and 13,900 shares to certain employees in March and December 1997, respectively. The fair value per share on the date of the grants was $37.50 and $32.56, respectively. In 1996 and 1995, the Company granted performance accelerated restricted stock awards of 64,680 and 62,100 shares, respectively. The fair value per share on the date of the grants in 1996 and 1995 was $34.25 and $27.50, respectively. During the years ended December 31, 1997, 1996 and 1995, compensation cost of $2.4, $1.7 and $1.0, respectively, has been recognized in connection with these awards. NOTE 12. STOCKHOLDER RIGHTS AGREEMENT On February 22, 1996, the Executive Committee of the Board of Directors of the Company declared a dividend distribution of one right (a "Right") for each outstanding share of Common Stock held of record at the close of business on February 22, 1996. The Rights attach automatically to each share of Common Stock outstanding as of February 22, 1996, and to each share of Common Stock issued after February 22, 1996. Each Right entitles the holder to purchase from the Company one one-hundredth of a share of the Company's Participating Preferred Stock at an exercise price of $130, subject to certain adjustments. The Rights will not be exercisable or transferable apart from the Common Stock until either the tenth business day after the announcement by a person or group of the commencement of a tender or exchange offer for 15 percent or more of the Voting Stock or the first date of announcement by the Company that a person or group has acquired beneficial ownership of 15 percent or more of the Voting Stock (an "Acquiring Person"). "Voting Stock" means shares of capital stock of the Company entitled to vote generally in the election of directors. If the Company is consolidated or merged with another company or 50 percent or more of its consolidated assets or earning power are sold and, at the time, an Acquiring Person controls the Company's Board of Directors, each holder of a Right will have the right to receive, upon exercise at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which have a market value of twice the then current exercise price of the Right. If any person becomes an Acquiring Person, each holder of a Right other than by the Acquiring Person (whose Rights will be void) will have the right to 49 51 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) receive, upon exercise at the then current exercise price of the Right, that number of shares of Common Stock having a market value of twice the exercise price of the Right. The Rights will expire on February 22, 2006 and may be redeemed for $.01 per Right at any time prior to the time an Acquiring Person becomes such. Until a Right is exercised, the record holder will have no rights as a stockholder of the Company. After the announcement that an Acquiring Person has become such and prior to the acquisition by an Acquiring Person of 50 percent or more of the outstanding Voting Stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such Acquiring Person) at an exchange ratio of one share of Common Stock, or one one-hundredth of a share of the Company's Participating Preferred Stock, per Right, subject to adjustment. The Company's Board of Directors may amend the Rights Agreement, in any respect, until the time an Acquiring Person becomes such. Thereafter, the Company's Board of Directors may amend the Rights Agreement in any respect not materially adverse to Rights holders generally. NOTE 13. INTEREST EXPENSE, NET Interest expense, net was comprised of:
1997 1996 1995 ------ ------ ------ Interest expense....................................... $(62.5) $(74.1) $(81.6) Interest income........................................ 3.1 3.8 10.8 Capitalized interest................................... 1.6 7.5 5.4 ------ ------ ------ $(57.8) $(62.8) $(65.4) ====== ====== ======
NOTE 14. OTHER INCOME, NET Other income, net for the years ended December 31, 1997, 1996 and 1995 was $2.0, $10.6 and $7.3, respectively. Included in 1996 and 1995 respectively, were $18.6 and $11.6 for dividends received from Mexican mining operations. The Company sold its investments in the Mexican mining operations during 1996. NOTE 15. FINANCIAL INSTRUMENTS The Company utilizes certain financial instruments in connection with its risk management. The risk of loss related to counter party nonperformance under financial instrument agreements at December 31, 1997 was not significant. The Company enters into forward fixed price arrangements that are required by certain customers and suppliers. The Company may utilize futures or option contracts to hedge risks associated with forward fixed price arrangements. The Company may also utilize futures or option contracts to manage price risk associated with changes in inventory levels. The net amount of such contracts was approximately 313,425 tonnes at December 31, 1997 and included varying maturity dates through 2003. Gains or losses with respect to these positions are reflected in earnings concurrent with consummation of underlying fixed price transactions. Periodic value fluctuations of the futures contracts approximately offset the value fluctuations of the underlying fixed price transactions. The Company also may, from time to time, establish a floor selling price for varying quantities of future production. This may be accomplished by entering into forward sales of primary aluminum, purchasing put options, or by entering into forward sales of primary aluminum and purchases of call options, which together provide the same price protection as purchasing put options in a manner which correlates with the Company's production and sales of primary aluminum. This strategy may be modified from time to time. At December 31, 1997, the net amount of the Company's commitments with respect to these financial 50 52 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) instruments covered approximately 234,450 tonnes of future production. The book value and market value of these financial instruments were $5.4 and $22.5 respectively, at December 31, 1997. Certain of the Company's foreign operating expenditures are denominated in currencies other than the operations' functional currencies, which expose the Company to exchange rate risks. In order to mitigate its exposure to exchange rate risk where these conditions exist, the Company may utilize forward or option contracts on foreign currencies. At December 31, 1997, the Company had outstanding $214.9 in such contracts which mature at various dates through June 1999. The gains or losses related to these contracts are deferred and included in the measurement of the related foreign denominated transactions. If these contracts had been terminated at December 31, 1997, the Company would have incurred a loss of approximately $4.5. The Company's debt instruments and related interest rate hedges are susceptible to market fluctuations based on changes in the cost of borrowing. At December 31, 1997, the fair value of total debt approximated book value. The Lauralco credit facility, which has a variable interest rate, required the Company to establish facilities to effectively limit the interest rate exposure of the commitment. To meet this requirement, the Company has obtained interest rate swaps with notional amounts totaling $400 through October 26, 2000 and interest rate caps having a notional amount of $150 through October 26, 1998. This program is designed to effectively cap interest rate exposure at a maximum of approximately nine percent through October 26, 2000. The effective rate on this debt amounted to 8.4 percent, 8.5 percent and 9.2 percent for the years ended December 31, 1997, 1996 and 1995, respectively. The Company would have had to pay approximately $32.3 to terminate these interest rate agreements at December 31, 1997. The Company also purchases natural gas for its operations and enters into forward contracts to manage the volatility in prices. At December 31, 1997, none of these contracts was material. The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and equivalents and trade accounts receivable. The fair value of these financial instruments approximated book value at December 31, 1997. The Company places its cash and equivalents with high credit quality institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is not significant. NOTE 16. OPERATIONS AND GEOGRAPHIC DATA The Company is an integrated producer of aluminum products, operating in a single segment: aluminum processing. Alumax is the third largest aluminum company in the United States and the fourth largest in North America, based on sales, and operates over 70 plants and other manufacturing and distribution facilities in 22 states, Canada, Western Europe, Mexico, Australia, the People's Republic of China and Poland. Using alumina purchased from one principal supplier, the Company produces primary aluminum at five reduction plants in the United States and Canada. Primary products are sold externally or further processed by Alumax into a broad range of semi-fabricated and fabricated products. The Company's products are sold to a wide variety of markets, including transportation, distributors, building and construction, consumer durables, and packaging. 51 53 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Domestic and Canadian sales and earnings from operations are combined in the geographic data below, as Canadian assets are primarily aluminum reduction facilities that toll alumina for U.S. operations and sales. Sales of primary products to affiliated customers are accounted for at prices comparable to unaffiliated customer sales.
1997 1996 1995 -------- -------- -------- Operations data: Net sales to unaffiliated customers: Aluminum processing Primary products....................................... $1,390.3 $1,335.5 $1,300.0 Semi-fabricated products............................... 1,833.7 1,643.1 1,320.1 Fabricated products.................................... 540.7 863.2 967.9 Intercompany........................................... (833.8) (682.5) (661.9) -------- -------- -------- $2,930.9 $3,159.3 $2,926.1 ======== ======== ======== Earnings from operations: Aluminum processing....................................... $ 342.3 $ 275.6 $ 339.7 Corporate and other....................................... (49.3) (43.7) (33.9) -------- -------- -------- $ 293.0 $ 231.9 $ 305.8 ======== ======== ======== Identifiable assets: Aluminum processing....................................... $3,128.7 $3,063.7 $2,718.7 Corporate and other....................................... 324.3 235.0 416.3 -------- -------- -------- $3,453.0 $3,298.7 $3,135.0 ======== ======== ======== Geographic data: Net sales: United States and Canada.................................. $3,556.0 $3,532.4 $3,208.6 Europe and other international............................ 208.7 309.4 379.4 Intercompany.............................................. (833.8) (682.5) (661.9) -------- -------- -------- $2,930.9 $3,159.3 $2,926.1 ======== ======== ======== Earnings from operations: United States and Canada.................................. $ 287.4 $ 219.9 $ 273.9 Europe and other international............................ 5.6 12.0 31.9 -------- -------- -------- $ 293.0 $ 231.9 $ 305.8 ======== ======== ======== Identifiable assets: United States and Canada.................................. $3,307.2 $3,171.7 $2,820.6 Europe and other international............................ 145.8 127.0 314.4 -------- -------- -------- $3,453.0 $3,298.7 $3,135.0 ======== ======== ========
A significant portion of the Company's sales are to the building and construction, transportation and distributors markets. Concentrations of credit risk with respect to the trade receivables, relating to sales into these as well as other markets, are limited due to the large number of customers and the widely dispersed geographic areas in which the Company's businesses operate. The Company's one principal supplier of alumina has been its supplier for over 20 years under a long-term contract which, with renewal options, expires in increments between 2007 and 2018. An extended interruption of alumina supply from this supplier could have a material adverse effect on the Company's operations. In addition, each of the Company's primary aluminum reduction plants, except for Intalco, is supplied by a single source of electric power. Although the Company may experience power curtailments from time to time, a sudden and extended interruption of power 52 54 ALUMAX INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) at one or more of its primary aluminum reduction plants could have a material adverse effect on the Company's operations. NOTE 17. QUARTERLY DATA (UNAUDITED)
1997 QUARTERS 1996 QUARTERS --------------------------------- --------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH ------ ------ ------ ------ ------ ------ ------ ------ Net sales....................... $701.8 $730.9 $717.1 $781.1 $802.6 $851.4 $809.1 $696.2 ------ ------ ------ ------ ------ ------ ------ ------ Earnings from operations........ $ 58.2 $ 71.0 $ 66.6 $ 97.2 $ 75.1 $ 64.4 $ 44.4 $ 48.1 ------ ------ ------ ------ ------ ------ ------ ------ Net earnings (loss)(a).......... $ 26.7 $ 35.8 $(76.0) $ 47.2 $ 95.4 $ 83.1 $ 52.4 $ 19.1 ====== ====== ====== ====== ====== ====== ====== ====== Earnings (loss) per share: (b) Basic......................... $ .49 $ .65 $(1.38) $ .87 $ 2.08 $ 1.80 $ 1.11 $ .35 ====== ====== ====== ====== ====== ====== ====== ====== Diluted(c).................... $ .48 $ .64 $(1.38) $ .86 $ 1.73 $ 1.50 $ .95 $ .35 ====== ====== ====== ====== ====== ====== ====== ======
- --------------- (a) Included in the third quarter of 1997 was a $108.6 provision associated with a United States Tax Court decision concerning an alleged income tax deficiency and a $6.1 after-tax charge related to consolidation efforts at the Company's semi-solid forging business. Included in 1996 was a first quarter after-tax gain of $48.6 related to the sale of a 23 percent interest in the Mt. Holly primary aluminum reduction plant, a second quarter after-tax gain of $55.1 related to the sale of mining interests and a third quarter after-tax gain of $36.7 related to the sale of Fab Products. (b) In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share." Prior period amounts have been restated in accordance with this Statement. (c) The computation of diluted loss per common share for the third quarter of 1997 excluded 1,199,000 of potential common shares because their effect was antidilutive. The computation of diluted earnings per common share for the fourth quarter of 1996 included the effect of the conversion of the Preferred Stock as if it had occurred at the beginning of the quarter. 53 55 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item is incorporated herein by reference to the sections entitled "Information Concerning Directors and Nominees", "Security Ownership" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders (the "Proxy Statement"). Information concerning Executive Officers required by this Item is incorporated herein by reference to the section in Part I hereof entitled "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item is incorporated herein by reference to the sections entitled "Directors' Meetings, Compensation and Committees," "Executive Compensation" and "Common Stock Performance Graph" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to this Item is incorporated herein by reference to the section entitled "Security Ownership" in the Proxy Statement. Alumax knows of no arrangements, including any pledges by any person of its securities, the operation of which may at a subsequent date result in a change in control of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in response to this Item is incorporated herein by reference to the sections entitled "Certain Transactions" and "Executive Employment and Separation Agreements" in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. The Company's financial statements, the notes thereto and the report of the independent accountants are set forth on pages 33 through 53 of this Form 10-K. The following report and additional financial data should be read in conjunction with the Company's financial statements: Independent Accountant's Report of Coopers & Lybrand L.L.P. dated January 27, 1998 on the Company's financial statement schedule filed as a part hereof for the fiscal years ended December 31, 1997, 1996 and 1995. Schedule II -- Valuation and Qualifying Accounts for the fiscal years ended December 31, 1997, 1996 and 1995. Schedules other than the one referred to above are omitted because they are not required or the information is included in the financial statements or the notes thereto. 54 56 EXHIBITS. Unless otherwise indicated, exhibits are incorporated by reference to the exhibits filed with the Company's Registration Statement on Form S-1 (Commission File No. 33-69442).
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.02 Agreement and Plan of Distribution, dated as of May 24, 1993, by and between AMAX Inc. and Alumax Inc. 2.03 Tax Disaffiliation Agreement, dated as of May 24, 1993, by and between AMAX Inc. and Alumax Inc. 2.04 Amendment No. 1 to the Agreement and Plan of Distribution, dated as of November 15, 1993, by and between AMAX Inc. and Alumax Inc.* 3.01 Restated Certificate of Incorporation of the Company* 3.02 Restated By-laws of Alumax Inc., as amended on September 5, 1996, filed as Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996 and incorporated herein by reference. 4.01 Form of Common Stock Certificate 4.02 Rights Agreement, dated as of February 22, 1996, between Alumax Inc. and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent, including as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Certificate of Designation and Terms of Participating Preferred Stock of the Company, filed as Exhibit 4 to the Company's Current Report on Form 8-K, dated February 22, 1996 and incorporated herein by reference. 4.03 Credit Agreement, dated as of September 14, 1990, as amended as of November 13, 1990 and as further amended as of February 19, 1991, by and among Aluminerie Lauralco, Inc., as Borrower, Canalco, Inc., as Continuing Guarantor, and Bank of Montreal and National Westminster Bank PLC, as Arrangers, Bank of Montreal, as Agent, and the Banks named therein 4.04 Amended and Restated Credit Agreement, dated as of October 9, 1997, among Alumax Inc., Royal Bank of Canada, as Agent, Arranger and Letter of Credit Issuer, Canadian Imperial Bank of Commerce, as Administrative Agent, and the Banks signatory thereto, filed as Exhibit 4.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997 and incorporated herein by reference Note: No other long-term debt instrument issued by the Company exceeds 10% of the consolidated total assets of the Company and its subsidiaries. In accordance with paragraph 4(iii) of Item 601 of Regulation S-K, the Company will furnish to the Commission upon request copies of long-term debt instruments and related agreements 10.01 Form of Alumax Inc. Excess Benefit Plan***(-) 10.02 1993 Long-Term Incentive Plan (as Amended and Restated and as Further Amended on October 3, 1996)***(-) 10.03 Deferred Compensation Plan (as Amended on October 3, 1996)***(-) 10.04 1993 Annual Incentive Plan (as Amended and Restated and as Further Amended on October 3, 1996)***(-) 10.05 Executive Separation Policy*(-) 10.06 Non-Employee Directors Stock Compensation Plan (as Amended on October 3, 1996)***(-) 10.07 Non-Employee Directors Deferred Compensation Plan (as Amended on October 3, 1996)***(-) 10.08 Participation Agreement, dated as of November 25, 1997, among Alumax Mill Products, Inc., Alumax Inc., BMO Leasing (U.S.), Inc. and Bank of Montreal**
55 57
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.09 Master Lease, Deed of Trust and Security Agreement, dated as of November 25, 1997, among BMO Leasing (U.S.), Inc., Alumax Mill Products, Inc. and Ward Williford, Esq.** 10.10 Restated Sales Agreement, dated as of January 1, 1986, as amended and supplemented as of April 8, 1992 and April 9, 1992, by and between Alcoa of Australia Limited and Alumax Inc. (Certain portions of this agreement have been deleted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to a request for confidential treatment.) 10.11 Power Sales Agreement, dated September 28, 1995, as amended, between Intalco Aluminum Corporation and Bonneville Power Administration (Certain portions of this agreement have been deleted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to a request for confidential treatment.)**** 10.12 Power Sales Agreement, dated as of October 1, 1995, between British Columbia Power Exchange Corporation and Intalco Aluminum Corporation (Certain portions of this agreement have been deleted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to a request for confidential treatment.)**** 10.13 Electric Service Agreement, dated as of November 11, 1994, between Eastalco Aluminum Company and The Potomac Edison Company, filed as Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 and incorporated herein by reference 10.14 Amendment No. 1 to Electric Service Agreement, dated October 10, 1997, between Eastalco Aluminum Company and The Potomac Edison Company** 10.15 Agreement, dated as of July 1, 1997, by and between the South Carolina Public Service Authority and Alumax of South Carolina, Inc., filed as Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 and incorporated herein by reference 10.16 Electricity Contract, dated February 1, 1990, as amended on October 15, 1992, by and between Aluminerie Lauralco, Inc. and Hydro-Quebec (Certain portions of this agreement have been deleted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to a request for confidential treatment.) 10.17 Employment Agreement, as Amended and Restated as of December 5, 1996, between Alumax Inc. and C. Allen Born***(-) 10.18 Employment Agreement, dated as of December 4, 1997, between Alumax Inc. and Thomas G. Johnston**(-) 10.19 Agreement, dated as of November 15, 1993, as amended as of February 3, 1994, among AMAX Inc., Alumax Inc. and Helen M. Feeney*(-) 10.20 Agreement, dated as of March 10, 1994, between Alumax Inc. and Helen M. Feeney, amending the Agreement, dated as of November 15, 1993, as amended as of February 3, 1994*****(-) 10.21 Grantor Trust Agreement, dated as of April 1, 1997, between Alumax Inc. and The Chase Manhattan Bank**(-) 10.22 Purchase Agreement, dated as of June 24, 1996, between Euramax International, Ltd. and Alumax Inc., filed as Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference. 10.23 Agreement, dated as of June 28, 1996, by and between Minas Penoles, S.A. de C.V. and The Fresnillo Company, filed as Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference. 11.01 Calculation of Earnings per Common Share**
56 58
EXHIBIT NUMBER DESCRIPTION ------- ----------- 21.01 Subsidiaries of the Company** 23.01 Consent of Coopers & Lybrand L.L.P.** 24.01 Power of Attorney** 27.01 Financial Data Schedule** (For SEC use only)
- --------------- * Previously filed as an exhibit to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference. ** Filed herewith. *** Previously filed as a exhibit to the Company's 1996 Annual Report on Form 10-K and incorporated herein by reference. **** Previously filed as an exhibit to Amendment No. 1 to the Company's 1995 Annual Report on Form 10-K/A and incorporated herein by reference. ***** Previously filed as an exhibit to Amendment No. 1 to the Company's 1993 Annual Report on Form 10-K/A and incorporated herein by reference. (-) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. REPORTS ON FORM 8-K. During the quarter ended December 31, 1997, the Company filed a Report on Form 8-K, dated October 1, 1997, reporting under Item 5 the United States Tax Court's decision in favor of the Internal Revenue Service in a suit against Alumax regarding an alleged income tax deficiency. 57 59 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 6, 1998. Alumax Inc. By /s/ HELEN M. FEENEY ------------------------------------ HELEN M. FEENEY Vice President and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 6, 1998.
SIGNATURE TITLE --------- ----- * Chairman, Chief Executive Officer and Director - ----------------------------------------------------- (Principal Executive Officer) ALLEN BORN * Director - ----------------------------------------------------- J. DENNIS BONNEY * Director - ----------------------------------------------------- HAROLD BROWN * Director - ----------------------------------------------------- L. DON BROWN * Director - ----------------------------------------------------- PIERRE DES MARAIS II * Director - ----------------------------------------------------- JAMES C. HUNTINGTON, JR. * Director - ----------------------------------------------------- W. LOEBER LANDAU * Director - ----------------------------------------------------- PAUL W. MACAVOY * Director - ----------------------------------------------------- ANNE WEXLER * Vice President and Chief Financial Officer - ----------------------------------------------------- (Principal Financial Officer) MICHAEL T. VOLLKOMMER * Vice President and Controller (Principal - ----------------------------------------------------- Accounting Officer) KEVIN J. KRAKORA *By /s/ HELEN M. FEENEY -------------------------------------------------- HELEN M. FEENEY As Attorney-in-Fact for each of the persons indicated
58 60 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Alumax Inc. Our report dated January 27, 1998, on our audits of the financial statements of Alumax Inc. is included on page 33 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed under Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Atlanta, Georgia January 27, 1998 59 61 ALUMAX INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (MILLIONS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ---------------------------------------- ------------ ----------------------- --------------- ---------- ADDITIONS ----------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER DEDUCTIONS END OF DESCRIPTION OF PERIOD EXPENSES EXPENSES FROM RESERVE(A) PERIOD ----------- ------------ ---------- ---------- --------------- ---------- Year Ended December 31, 1997 Reserves deducted from assets Accounts receivable, trade......... $16.6 $0.9 $ -- $ (4.3) $13.2 Year Ended December 31, 1996 Reserves deducted from assets Accounts receivable, trade......... $17.7 $5.2 $ -- $ (6.3) $16.6 Year Ended December 31, 1995 Reserves deducted from assets Deferred income taxes.............. $13.4 $ -- $ -- $(13.4) $ -- Accounts receivable, trade......... $20.1 $2.7 $ -- $ (5.1) $17.7
- --------------- (a) 1996 amount includes $4.1 related to write-offs, net of recoveries, and $2.2 related to divestitures, net of acquisitions, which occurred in 1996. 60 62 EXHIBIT INDEX Unless otherwise indicated, exhibits are incorporated by reference to exhibits filed with the Company's Registration Statement on Form S-1 (Commission File No. 33-69442).
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.02 Agreement and Plan of Distribution, dated as of May 24, 1993, by and between AMAX Inc. and Alumax Inc. 2.03 Tax Disaffiliation Agreement, dated as of May 24, 1993, by and between AMAX Inc. and Alumax Inc. 2.04 Amendment No. 1 to the Agreement and Plan of Distribution, dated as of November 15, 1993, by and between AMAX Inc. and Alumax Inc.* 3.01 Restated Certificate of Incorporation of the Company* 3.02 Restated By-laws of Alumax Inc., as amended on September 5, 1996, filed as Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996 and incorporated herein by reference 4.01 Form of Common Stock Certificate 4.02 Rights Agreement, dated as of February 22, 1996, between Alumax Inc. and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent, including as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Certificate of Designation and Terms of Participating Preferred Stock of the Company, filed as Exhibit 4 to the Company's Current Report on Form 8-K, dated February 22, 1996, and incorporated herein by reference 4.03 Credit Agreement, dated as of September 14, 1990, as amended as of November 13, 1990 and as further amended as of February 19, 1991, by and among Aluminerie Lauralco, Inc., as Borrower, Canalco, Inc., as Continuing Guarantor, and Bank of Montreal and National Westminster Bank PLC, as Arrangers, Bank of Montreal, as Agent, and the Banks named therein 4.04 Amended and Restated Credit Agreement, dated as of October 9, 1997 among Alumax Inc., Royal Bank of Canada, as Agent, Arranger And Letter of Credit Issuer, Canadian Imperial Bank of Commerce, as Administrative Agent, and the Banks signatory thereto, filed as Exhibit 4.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997 and incorporated herein by reference Note: No other long-term debt instrument issued by the Company Exceeds 10% of the consolidated total assets of the Company and its subsidiaries. In accordance with paragraph 4(iii) of Item 601 of Regulation S-K, the Company will furnish to the Commission upon request copies of long-term debt instruments and related agreements 10.01 Form of Alumax Inc. Excess Benefit Plan***(-) 10.02 1993 Long-Term Incentive Plan (as Amended and Restated and as Further Amended on October 3, 1996)***(-) 10.03 Deferred Compensation Plan (as Amended on October 3, 1996)***(-) 10.04 1993 Annual Incentive Plan (as Amended and Restated and as Further Amended on October 3, 1996)***(-) 10.05 Executive Separation Policy*(-) 10.06 Non-Employee Directors Stock Compensation Plan (as Amended on October 3, 1996)***(-) 10.07 Non-Employee Directors Deferred Compensation Plan (as Amended on October 3, 1996)***(-) 10.08 Participation Agreement, dated as of November 25, 1997, among Alumax Mill Products, Inc., Alumax Inc., BMO Leasing (U.S.), Inc. and Bank of Montreal**
63
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.09 Master Lease, Deed of Trust and Security Agreement, dated as of November 25, 1997, among BMO Leasing (U.S.), Inc., Alumax Mill Products, Inc. and Ward Williford, Esq.** 10.10 Restated Sales Agreement, dated as of January 1, 1986, as Amended and supplemented as of April 8, 1992 and April 9, 1992, by and between Alcoa of Australia Limited and Alumax Inc. (Certain portions of this agreement have been deleted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to a request for confidential treatment.) 10.11 Power Sales Agreement, dated September 28, 1995, as amended, Between Intalco Aluminum Corporation and Bonneville Power Administration (Certain portions of this agreement have been deleted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to a request for confidential treatment.)**** 10.12 Power Sales Agreement, dated as of October 1, 1995, between British Columbia Power Exchange Corporation and Intalco Aluminum Corporation (Certain portions of this agreement have been deleted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to a request for confidential treatment.)**** 10.13 Electric Service Agreement, dated as of November 11, 1994, between Eastalco Aluminum Company and The Potomac Edison Company, filed as Exhibit 10.02 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 and incorporated herein by reference 10.14 Amendment No. 1 to Electric Service Agreement, dated October 10, 1997, between The Potomac Edison Company and Eastalco Aluminum Company** 10.15 Agreement, dated as of July 1, 1997, by and between the South Carolina Public Service Authority and Alumax of South Carolina, Inc., filed as Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997 and incorporated herein by reference. 10.16 Electricity Contract, dated February 1, 1990, as amended on October 15, 1992, by and between Aluminerie Lauralco, Inc. and Hydro-Quebec (Certain portions of this agreement have been deleted and filed separately with the Secretary of the Securities and Exchange Commission pursuant to a request for confidential treatment.) 10.17 Employment Agreement, As Amended and Restated as of December 5, 1996, between Alumax Inc. and C. Allen Born***(-) 10.18 Employment Agreement, dated as of December 4, 1997, between Alumax Inc. and Thomas G. Johnston**(-) 10.19 Agreement, dated as of November 15, 1993, as amended as of February 3, 1994, among AMAX Inc., Alumax Inc. and Helen M. Feeney*(-) 10.20 Agreement, dated as of March 10, 1994, between Alumax Inc. and Helen M. Feeney, amending the Agreement, dated as of November 15, 1993, as amended as of February 3, 1994*****(-) 10.21 Grantor Trust Agreement, dated as of April 1, 1997, between Alumax Inc. and The Chase Manhattan Bank**(-) 10.22 Purchase Agreement, dated as of June 24, 1996, between Euramax International, Ltd. and Alumax Inc., filed as Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference. 10.23 Agreement, dated as of June 28, 1996, by and between Minas Penoles, S.A. de C.V. and The Fresnillo Company, filed as Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference.
64
EXHIBIT NUMBER DESCRIPTION ------- ----------- 11.01 Calculation of Earnings per Common Share** 21.01 Subsidiaries of the Company** 23.01 Consent of Coopers & Lybrand L.L.P.** 24.01 Power of Attorney** 27.01 Financial Data Schedule** (For SEC use only)
- --------------- * Previously filed as an exhibit to the Company's 1993 Annual Report on Form 10-K and incorporated herein by reference. ** Filed herewith. *** Previously filed as an exhibit to the Company's 1996 Annual Report on Form 10-K and incorporated herein by reference. **** Previously filed as an exhibit to Amendment No. 1 to the Company's 1995 Annual Report on Form 10-K/A and incorporated herein by reference. ***** Previously filed as an exhibit to Amendment No. 1 to the Company's 1993 Annual Report on Form 10-K/A and incorporated herein by reference. (-) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K. EX-10.08 2 PARTICIPATION AGREEMENT 1 EXHIBIT 10.08 PARTICIPATION AGREEMENT dated as of November 25, 1997 among ALUMAX MILL PRODUCTS, INC., as Lessee ALUMAX INC., as Guarantor, BMO Leasing (U.S.), Inc., as Agent Lessor and Lessor, BANK OF MONTREAL, as Lender, and BANK OF MONTREAL, as Administrative Agent and Arranger -------------------- Lease Financing of Texarkana, Texas Rolling Mill and Related Equipment for ALUMAX MILL PRODUCTS, INC. 2 TABLE OF CONTENTS
SECTION HEADING PAGE Parties............................................................................................1 Recitals...........................................................................................1 ARTICLE I DEFINITIONS; INTERPRETATION ........................................................1 ARTICLE II INTENTIONALLY OMITTED...............................................................2 ARTICLE III FUNDING OF ADVANCES ................................................................2 Section 3.1 Advances ......................................................................2 Section 3.2. Lessors' Commitments ..........................................................2 Section 3.3. Lenders' Commitments ..........................................................2 Section 3.4. Procedures for Advance ........................................................3 Section 3.5. Interest Rate..................................................................3 Section 3.6. Interest Period Selection/Continuation/Conversion Elections .....................................................................3 ARTICLE IV YIELD; INTEREST; FEES ..............................................................4 Section 4.l. Yield .........................................................................4 Section 4.2. Interest on Loans .............................................................4 Section 4.3. Prepayments....................................................................4 Section 4.4. Fees...........................................................................5 Section 4.5. Place and Manner of Payments ..................................................5 Section 4.6. Pro Rata Treatment ............................................................5 Section 4.7. Sharing of Payments ...........................................................5 ARTICLE V CERTAIN INTENTIONS OF THE PARTIES ..................................................6 Section 5.1. Nature of Transaction .........................................................6 Section 5.2. Amounts Due Under the Master Lease ............................................7 ARTICLE VI CONDITIONS PRECEDENT TO ACQUISITION DATE ...........................................7 Section 6.1. Acquisition Date ..............................................................7 ARTICLE VII DISTRIBUTIONS......................................................................10 Section 7.1. Basic Rent ...................................................................10 Section 7.2. Purchase Payments by the Lessee ..............................................10 Section 7.3. Payment of Loan Balance ......................................................11 Section 7.4. Sales Proceeds of Remarketing of Property.....................................11 Section 7.5. Supplemental Rent ............................................................12
-i- 3 Section 7.6. Distribution of Payments after Lease Event of Default.........................12 Section 7.7. Other Payments................................................................13 Section 7.8. Casualty and Condemnation Amounts.............................................13 Section 7.9. Order of Application..........................................................14 Section 7.10. Payments to Account...........................................................14 ARTICLE VIII REPRESENTATIONS....................................................................14 Section 8.1. Representations of the Participants...........................................14 Section 8.2. Representations of the Lessee and the Guarantor ..............................15 ARTICLE IX PAYMENT OF CERTAIN EXPENSES .......................................................19 Section 9.1. Transaction Expenses..........................................................19 Section 9.2. Stamp Taxes...................................................................19 ARTICLE COVENANTS AND AGREEMENTS .................................................................19 Section 10.1. Covenants of the Guarantor....................................................19 Section 10.2. Affirmative Covenant of the Agent Lessor......................................26 ARTICLE XI RENEWALS...............................................................................27 Section 11.1. Extensions of Maturity Date and Expiration Date; Replacement of Participants...................................................27 Section 11.2. Replacement of Defaulting Participant ........................................28 ARTICLE XII TRANSFERS OF PARTICIPANTS INTERESTS ..................................................28 Section 12.1. Assignments...................................................................28 Section 12.2. Participations ...............................................................29 Section 12.3. Withholding Taxes; Disclosure of Information; Pledge Under Regulation A............................................................29 ARTICLE XIII INDEMNIFICATION ....................................................................30 Section 13.1. General Indemnification.......................................................30 Section 13.2. End of Term Indemnity ........................................................32 Section 13.3. Environmental Indemnity.......................................................33 Section 13.4. Proceedings in Respect of Claims..............................................34 Section 13.5. General Tax Indemnity.........................................................35 Section 13.6. Indemnity Payments in Addition to Lease Obligations ..........................38 Section 13.7. Rate Determinations...........................................................38 Section 13.8. Funding Indemnity ............................................................38 Section 13.9. Change of Law.................................................................39 Section 13.10. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR .........................................................39 Section 13.11. Increased Cost and Reduced Return.............................................39 Section 13.12. Lending Offices...............................................................41
4 Section 13.13. Discretion of Lenders or Lessors as to Manner of Funding .....................41 Section 13.14. Capital Adequacy..............................................................41 ARTICLE XIV THE AGENT LESSOR .......................................................................42 Section 14.1. Appointment and Authorization ...............................................42 Section 14.2. Delegation of Duties .........................................................43 Section 14.3. Agent Lessor and Affiliates ..................................................43 Section 14.4. Action by Agent Lessor .......................................................43 Section 14.5. Consultation with Experts ....................................................43 Section 14.6. Exculpatory Provisions .......................................................43 Section 14.7. Reliance on Communications ...................................................43 Section 14.8. Notice of Default ............................................................44 Section 14.9. Non-Reliance on Agent Lessor and Other Participant ...........................44 Section 14.10. Indemnification ..............................................................45 Section 14.11. Failure to Act................................................................45 Section 14.12. Resignation and Removal.......................................................45 Section 14.13. Distributions ................................................................46 Section 14.14. Rights of Lessee .............................................................46 ARTICLE XV MISCELLANEOUS ...........................................................................46 Section 15.1. Survival of Agreements .......................................................46 Section 15.2. No Broker ....................................................................46 Section 15.3. Notices ......................................................................47 Section 15.4. Counterparts .................................................................47 Section 15.5. Amendments ...................................................................47 Section 15.6. Headings .....................................................................47 Section 15.7. Parties in Interest ..........................................................47 Section 15.8. Governing Law ................................................................48 Section 15.9. Severability .................................................................48 Section 15.10. Liability Limited.............................................................48 Section 15.11. Further Assurances............................................................49 Section 15.12. [Intentionally Omitted] ......................................................49 Section 15.13. [Intentionally Omitted] ......................................................49 Section 15.14. Waiver of Jury Trial..........................................................49 Section 15.15. No Participant Responsible for Other Participants ............................49 Section 15.16. Each Lessor to Have an Undivided Interest ....................................49 Section 15.17. Simultaneous Transaction......................................................49
-iii- 5 Appendix A -- Definitions Schedule I -- Commitments Schedule II -- Notice Information, Wire Instructions and Funding Offices Schedule III -- Subsidiaries Schedule IV -- Indebtedness and Liens Schedule V -- Litigation Exhibit A-1 -- Form of Legal Opinion of Lessee and Guarantor (R. Wolf) Exhibit A-2 -- (Irell & Manella LLP) Exhibit B -- Form of Funding Request Exhibit C -- Form of Interest Period Selection/Continuation/Conversion Notice Exhibit D-1-A -- Form of Secretary's Certificate Exhibit D-1-B -- Form of Secretary's Certificate Exhibit D-1-C -- Form of Secretary's Certificate Exhibit D-2 -- Form of Responsible Officer's Certificate Exhibit E -- [Intentionally omitted] Exhibit F -- Form of Assignment Agreement Exhibit G -- Form of Legal Opinion of Local Counsel to Lessee
-iv- 6 PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT (this "Participation Agreement"), dated as of November 25, 1997, is entered into by and among ALUMAX INC., a Delaware corporation, as the Guarantor (the "Guarantor"); ALUMAX MILL PRODUCTS, INC., a Delaware corporation, as the Lessee (the "Lessee"); BMO LEASING (U.S.), INC., a Delaware corporation, as a Lessor (together with any permitted successors and assigns thereto, each a "Lessor" and collectively the "Lessors"); BMO LEASING (U.S.), INC., as Agent Lessor for the Lessors (in such capacity, the "Agent Lessor"); BANK OF MONTREAL, a Canadian banking organization ("BMO"), and the other various financial institutions as are or may from time to time become lenders (the "Lenders") under the Loan Agreement; and BMO as Administrative Agent (in such capacity, the "Administrative Agent") for the Lenders and as Arranger (in such capacity, the "Arranger"). W I T N E S S E T H: WHEREAS, on the Acquisition Date, the Agent Lessor will purchase the Property and enter into the Ground Lease; WHEREAS, the Agent Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Agent Lessor, the Property including its rights under the Ground Lease; and WHEREAS, the Lessors are willing to provide a portion of the funding of the costs of the acquisition of the Property; and WHEREAS, the Lenders are willing to provide financing for the remaining portion of the costs of acquisition of the Property; and WHEREAS, to secure such financing (a) the Lessors will have the benefit of (i) the Guaranty from the Guarantor and (ii) a first priority Lien on the Property and (b) the Lenders will have the benefit of (i) the Guaranty from the Guarantor, (ii) a Lien on the Agent Lessor's right, title and interest in the Property, and (iii) an assignment of certain of the Agent Lessor's rights against the Lessee under the Lease; Now THEREFORE, in consideration of the mutual agreements contained in this Participation Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS; INTERPRETATION Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix A hereto for all purposes hereof (as such Appendix A may be amended, supplemented, amended and restated or otherwise modified in writing by agreement of the parties from time to time, "Appendix A 7 to this Participation Agreement"); and the rules of interpretation set forth in Appendix A to this Participation Agreement shall apply to this Participation Agreement. ARTICLE II INTENTIONALLY OMITTED ARTICLE III FUNDING OF ADVANCES Section 3.1. Advances. Subject to the conditions and terms hereof, the Agent Lessor shall take the following actions on the Acquisition Date at the written request of the Lessee with respect to the Property: (a) the Agent Lessor shall make the Advance (out of funds provided by the Lessors and the Lenders) at the request and direction of the Lessee, for the purpose of financing the acquisition of the Property, and the proceeds of the Advance shall be paid directly to such parties designated in writing by the Lessee to the Agent Lessor; (b) the Agent Lessor shall acquire the Property (using funds provided by the Lessors and the Lenders) and enter into the Ground Lease; and (c) the Agent Lessor shall lease (or in the case of the Ground Lease sublease) the Property to the Lessee under the Master Lease. Notwithstanding any other provision hereof, the Agent Lessor shall not be obligated to make the Advance with respect to acquisition of the Property if the amount of the Advance would exceed the Fair Market Sales Value of Property as set forth in the Appraisal thereof delivered pursuant to Section 6.1(d). Section 3.2. Lessors' Commitments. Subject to the conditions and terms hereof and the other Operative Documents, each of the Lessors shall make available to the Agent Lessor on the Acquisition Date an amount (relative to such Lessor, a "Lessor Amount") in immediately available funds equal to such Lessor's Commitment Percentage of the amount of the Advance. Notwithstanding any other provision hereof, no Lessor shall be obligated to make available any Lessor Amount if, after giving effect to the proposed Lessor Amount, the outstanding aggregate amount of such Lessor's Amount would exceed its Lessor Commitment. Section 3.3. Lenders' Commitments. Subject to the conditions and terms hereof and the other Operative Documents, each of the Lenders shall make a Loan to the Agent Lessor on the Acquisition Date in an amount (relative to such Lender, a "Loan") in immediately available funds equal to such Lender's Commitment Percentage of the amount of the Advance being funded on the Acquisition Date. Notwithstanding any other provision hereof, no Lender shall be obligated to make any Loan if, after giving effect to the proposed Loan, -2 - 8 the outstanding aggregate amount of such Lender's Loan would exceed its Loan Commitment. Section 3.4. Procedures for Advance. With respect to the Advance, the Lessee shall give the Agent Lessor and the Administrative Agent prior written notice pursuant to a Funding Request substantially in the form of Exhibit B (a "Funding Request"), which Funding Request shall be delivered not later than 9:00 a.m. (Chicago time), one (1) Business Day prior to the proposed Acquisition Date, specifying the proposed Acquisition Date, and the amount of Advance requested. Such Loans and Lessor Amounts made with respect to the Advance on the Acquisition Date, shall initially be Base Rate Loan/Lessor Amounts. Subject to timely delivery of a Funding Request and the other terms and conditions of the Operative Documents, each Participant shall make its Commitment Percentage of the requested Advance available to the Agent Lessor by 1:00 p.m., Chicago time, on the requested Acquisition Date. The Agent Lessor and the Administrative Agent shall calculate the amounts of the Lessor Amounts and the Loans required to fund the requested Advance. Section 3.5. Interest Rate; Yield Rate. Each Loan and Lessor Amount shall accrue interest or Yield, as the case may be, by reference to the Base Rate or the Eurodollar Rate in accordance with Section 3.6. Section 3.6. Interest Period Selection/Continuation/Conversion Elections. By delivering an Interest Period Selection/Continuation/Conversion Notice to the Agent Lessor and Administrative Agent with respect to Lessor Amounts and Loans, respectively, the Lessee may from time to time during the Basic Lease Term irrevocably select, by no later than 10:00 a.m. (Chicago time) on the date three (3) Business Days' prior to the selected Interest Period, that all or any portion of the outstanding Loans and Lessor Amounts be, in the case of Base Rate Loans/Lessor Amounts, converted into Eurodollar Loans/Lessor Amounts or, in the case of Eurodollar Loans/Lessor Amounts, converted into Base Rate Loans/Lessor Amounts or continued as Eurodollar Rate Loans/Lessor Amounts and, with respect to Eurodollar Loans/Lessor Amounts, select the duration for the next succeeding Interest Period; provided, however, that (i) in the absence of a delivery of an Interest Period Selection/Continuation/Conversion Notice with respect to any Eurodollar Loan/Lessor Amount at least three (3) Business Days before the last day of the then current Interest Period with respect thereto, Lessee shall be deemed to have selected that such Eurodollar Loan/Lessor Amount be converted into a Base Rate Loan/Lessor Amount on such last day, (ii) each such conversion or continuation shall be pro rated among the applicable outstanding Loans and Lessor Amounts of all Participants, (iii) no portion of any Loan or Lessor Amount may be continued as, or converted into, a Eurodollar Loan/Lessor Amount when any Lease Default or Lease Event of Default has occurred and is continuing, and (iv) the outstanding Loans and Lessor Amounts may not be apportioned into more than three (3) separate Loans and three (3) separate Lessor Amounts pursuant to this Section 3.6 at any one time. Each Interest Period Selection/Continuation/Conversion Notice so delivered or deemed delivered by the Lessee shall be deemed an effective election by the Lessors of the method for computing interest on the Loans under the Loan Agreement. -3 - 9 ARTICLE IV YIELD; INTEREST; FEES Section 4.1. Yield. (a) The amount of the Lessor Amounts outstanding from time to time shall accrue yield ("Yield") at the Yield Rate, calculated using the actual number of days elapsed and, when the Yield Rate is based on the Eurodollar Rate, a 360-day year basis and, if calculated at the Base Rate a 365- or, if applicable, 366-, day year basis. If all or any portion of the Lessor Amounts, any Yield payable thereon or any other amount payable hereunder shall not be paid when due (whether at stated maturity, acceleration thereof or otherwise), such overdue amount shall bear interest at a rate per annum which is equal to the Overdue Rate. Upon the occurrence, and during the continuance of an Event of Default, the Lessor Amounts and, to the extent permitted by law, Yield on the Lessor Amounts and any other amounts owing hereunder or under the other Operative Documents shall bear interest, payable on demand, at the Overdue Rate. The Administrative Agent shall, as soon as practicable, but in no event later than 12:00 (noon), Chicago time, two Business Days before the effectiveness of each Eurodollar Rate, cause to be determined such Eurodollar Rate, the resulting Yield and Lessor Basic Rent, and notify each Lessor thereof. (b) The Administrative Agent shall distribute, in accordance with Article VII, the Lessor Basic Rent and all other amounts due with respect to the Lessor Amounts paid to the Administrative Agent by the Lessee under the Master Lease from time to time. (c) Yield on outstanding Lessor Amounts shall be due and payable by Lessee in cash on each Scheduled Payment Date. (d) If not repaid sooner, the outstanding aggregate Lessor Amounts shall be repaid in full on the Maturity Date. Section 4.2. Interest on Loans. (a) Each Loan shall accrue interest computed and payable in accordance with the terms of the Loan Agreement. Each Loan shall become due and payable at the dates and times provided under the Loan Agreement. (b) The Administrative Agent shall distribute, in accordance with Article VII, the Lender Basic Rent and all other amounts due with respect to the Loans paid to the Administrative Agent by the Lessee under the Master Lease from time to time. Section 4.3. Prepayments. (a) Voluntary Prepayments. The Lessee shall have the right to prepay an amount equal to the aggregate outstanding Lease Balance in whole, but not in part, pursuant to the exercise of the purchase option permitted under the Master Lease without premium or penalty. (b) Mandatory Prepayments. All amounts payable by the Lessee pursuant to Article XV, XVI, XVIII or XX of the Master Lease shall be applied to the Loans and the Lessor Amounts in the manner set forth in Article VII. -4- 10 (c) Notice. The Lessee will provide notice to the Administrative Agent of any prepayment by 10:00 A.M. (Chicago time) at least three (3) Business Days prior to the date of prepayment. Section 4.4. Fees. The Lessee agrees to pay (as a part of Supplemental Rent) the fees set forth in, and in accordance with, the Arranger's Fee Letter. Section 4.5. Place and Manner of Payments. Except as otherwise specifically provided herein, all payments by the Lessee hereunder, under the Master Lease or under any other Operative Document shall be made to the Administrative Agent in Dollars in immediately available funds, without offset, deduction, counterclaim or withholding of any kind, to the Account in Chicago, Illinois not later than 1:00 p.m. (Chicago time) on the date when due. Payments received after such time shall be deemed to have been received on the next succeeding Business Day. The Lessee shall, at the time it makes any payment under any Operative Document, specify to the Administrative Agent the Loans and Lessor Amounts, fees or other amounts payable by the Lessee hereunder to which such payment is to be applied (and in the event that it fails so to specify, or if such application would be inconsistent with the terms hereof, the Administrative Agent shall distribute such payment to the Lenders and the Lessors in such manner as the Administrative Agent may determine in good faith to be appropriate in respect of obligations owing by Lessee, subject to the terms of Section 4.6). The Administrative Agent will distribute such payments to such Lenders and Lessors in accordance with Article VII, if any such payment is received prior to 1:00 p.m. (Chicago time) on a Business Day in like funds as received at or prior to such time, and otherwise the Administrative Agent will distribute such payment to such Lenders and Lessors on the next succeeding Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next Business Day (subject to accrual of interest and fees for the period of such extension), except that in the case of Eurodollar Loans/Lessor Amounts, if the extension would cause the payment to be made in the next following calendar month, then such payment shall instead be made on the next preceding Business Day. Section 4.6. Pro Rata Treatment. Except to the extent otherwise provided herein, each payment or repayment of principal on any outstanding Loan or Lessor Amount and each payment of interest or Yield shall be allocated pro rata among the relevant Lenders and Lessors, as the case may be, in accordance with the respective principal amounts of their outstanding Loans or Lessor Amounts, as the case may be. Section 4.7. Sharing of Payments. The Participants agree among themselves that, in the event that any Participant shall obtain payment in respect of any Loan or Lessor Amount or any other obligation owing to such Participant under the Operative Documents through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Participant under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, in excess of its pro rata share of such payment as provided for in this Agreement, such Participant shall promptly purchase from the other Participants a participation in such Loans -5- 11 or Lessor Amounts and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Participants share such payment in accordance with their respective ratable shares as provided for in this Agreement. The Participants further agree among themselves that if payment to a Participant obtained by such Participant through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be restored, each Participant which shall have shared the benefit of such payment shall, by repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Participant whose payment shall have been rescinded or otherwise restored. The Lessee agrees that any Participant so purchasing such a participation may, to the fullest extent permitted by law and in accordance with the Operative Documents, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such participation as fully as if such Participant were a holder of such Loan or Lessor Amount or other obligation in the amount of such participation. Except as otherwise expressly provided herein, if any Participant, the Agent Lessor or the Administrative Agent shall fail to remit to the Administrative Agent, the Agent Lessor or any other Participant an amount payable by such party to the Administrative Agent, the Agent Lessor or such other Participant pursuant to the Operative Documents on the date when such amount is due, such payments shall be made together with interest thereon for each day from the date such amount is due until the date such amount is paid to the Administrative Agent, the Agent Lessor or such other Participant at a rate per annum equal to the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other similar law, any Participant receives a secured claim in lieu of a setoff to which this Section 4.7 applies, such Participant shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Participants under this Section 4.7 to share in the benefits of any recovery on such secured claim. ARTICLE V CERTAIN INTENTIONS OF THE PARTIES Section 5.1. Nature of Transaction. (a) The parties hereto intend that (i) for financial accounting purposes with respect to the Lessee and Guarantor, the Agent Lessor will be treated as the owner and the lessor of the Property and the Lessee will be treated as the lessee of the Property and (ii) for all other purposes, including federal and all state and local income tax purposes, state real estate and commercial law and bankruptcy purposes, (A) the Lease will be treated as a financing arrangement, (B) the Lessors and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Lessor Amounts and the aggregate outstanding principal amount of the Loans, which amounts are secured by the Property, and (C) the Lessee will be treated as the owner of the Property and will be entitled to all tax benefits ordinarily available to an owner of property similar to the Property for such tax purposes. Nevertheless, the Lessee acknowledges and agrees -6- 12 that neither the Agent Lessor, the Administrative Agent nor any of the Lessors or Lenders has made any representations or warranties to the Lessee concerning the tax, accounting or legal characteristics of the Operative Documents and that the Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate. Each Tax Indemnee represents and warrants that it will not, prior to the termination of the Master Lease, claim ownership of (or any tax benefits, including depreciation, with respect to) the Property for any income tax purposes (unless required to do so by a Governmental Authority), it being understood that the Lessee is and will remain the owner of the Property for such income tax purposes until the termination of the Master Lease. (b) Specifically, without limiting the generality of clause (a) of this Section 5.1, the parties hereto intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting either Lessee, Guarantor, the Lessors, or any Participant or any collection actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Lessors and the Lenders as unrelated third party lenders to the Lessee. Section 5.2. Amounts Due Under the Master Lease. Anything herein or elsewhere to the contrary notwithstanding, it is the intention of Lessee, the Lessors and the Lenders that: (i) the amount and timing of installments of Basic Rent due and payable from time to time from the Lessee under the Master Lease shall be equal to the aggregate payments due and payable as principal and interest on the Loans and principal and Yield on the Lessor Amounts on each Scheduled Payment Date and each Fixed Rent Payment Date, as applicable; (ii) if the Lessee elects the Purchase Option or becomes obligated to purchase the Property under the Master Lease, the Loans, the Lessor Amounts, and all interest and Yield thereon and all fees and other obligations of the Lessee with respect to the Operative Documents and the Property owing to the Administrative Agent, the Agent Lessor, the Lessors and the Lenders shall be immediately due and payable in full by the Lessee; (iii) if the Lessee properly elects the Remarketing Option, the Lessee shall only be required to pay to the Administrative Agent the proceeds of the sale of the Property (up to, and not in excess of the aggregate of the Lessor Amounts then outstanding), the Loan Balance and any amounts due pursuant to Article XIII hereof and Section 20.2 of the Master Lease (which aggregate amounts may be less than the Lease Balance); and (iv) upon an Event of Default resulting in an acceleration of the Lessee's obligation to purchase the Property under the Master Lease, the amounts then due and payable by the Lessee under the Master Lease shall include all amounts necessary to pay in full the Lease Balance, plus all other amounts then due from the Lessee to the Participants under the Operative Documents. ARTICLE VI CONDITIONS PRECEDENT TO ACQUISITION DATE Section 6.1. Acquisition Date. The closing date with respect to the acquisition of the Property (the "Acquisition Date") shall occur on the date specified in the Funding Request, provided that on or prior to such date all the conditions precedent thereto set forth in this -7- 13 Section 6.1 shall have been satisfied or waived by the applicable parties as set forth herein. All rights and obligations of the parties under the Operative Documents (each subject to any conditions specified therein), the obligation of the Lessors to acquire the Property on the Acquisition Date, the obligation of each Lessor to make available any related Lessor Amount on the Acquisition Date and the obligation of each Lender to make any related Loan on the Acquisition Date, are subject to satisfaction or waiver of the following conditions precedent: (a) Funding Request. Each of the Administrative Agent and the Agent Lessor shall have received a fully executed counterpart of the Funding Request in accordance with Section 3.4. (b) Fees. All fees due and payable pursuant to this Participation Agreement shall have been paid. (c) Representations and Warranties. On the Acquisition Date, the representations and warranties of Lessee and Guarantor in this Agreement and in each of the other Operative Documents shall be true and correct in all material respects as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. (d) Appraisal. On or prior to the Acquisition Date, the Agent Lessor and the Administrative Agent shall have received an Appraisal of the Property, in form and substance reasonably satisfactory to the Administrative Agent and the Agent Lessor, which Appraisal shall show that the Fair Market Sales Value of the Property is not less than the Acquisition Cost for the Property. (e) Operative Documents. The Operative Documents shall have been executed and delivered by the parties thereto. (f) Certificates. The Agent Lessor and the Administrative Agent shall have received a Secretary's Certificate, of each of the Lessee and Guarantor, in substantially the form of Exhibit D-1 attached hereto and a Responsible Officer's Certificate of each of the Lessee and Guarantor, in substantially the form of Exhibit D-2 attached hereto, addressed to the Administrative Agent, the Agent Lessor, each Lender and each Lessor and dated as of the Acquisition Date. (g) Evidence of Property Insurance. The Agent Lessor and the Administrative Agent shall have received evidence that the insurance maintained by the Lessee with respect to the Property satisfies the requirements set forth in Article XIII of the Master Lease, setting forth the respective coverage, limits of liability, carrier, policy number and period of coverage. (h) Environmental Audit. On or prior to the Acquisition Date, the Agent Lessor and the Administrative Agent shall have received an Environmental Audit with -8- 14 respect to the Property in form and substance reasonably satisfactory to the Agent Lessor and the Administrative Agent. (i) Deed. The Agent Lessor shall have received on or prior to the Acquisition Date a Deed with respect to the Property being purchased on the Acquisition Date, conveying fee simple title to the Property (except for the leasehold granted by the Ground Lease) to the Agent Lessor and containing all customary seller's warranties and subject only to Permitted Property Liens. (j) Bill of Sale. On or prior to the Acquisition Date, the Agent Lessor shall have received a bill of sale (a "Bill of Sale"), conveying title to the Agent Lessor in the Property (except for the leasehold granted by the Ground Lease). (k) Purchase Contract. On or prior to the Acquisition Date, the Agent Lessor shall have received a copy of the purchase contract for the Property and Lessee shall assign the right to purchase or designate Agent Lessor as the party to be conveyed title to the Property. (1) Ground Lease. On or prior to the Acquisition Date, Agent Lessor and Lessee shall have entered into the Ground Lease. (m) Lessor Financing Statements. On or prior to the Acquisition Date, the Lessee shall have delivered to the Agent Lessor all Lessor Financing Statements relating to the Property as the Agent Lessor may reasonably request in order to protect the interests of the Agent Lessor and each of the Lessors under the Master Lease to the extent the Master Lease constitutes a security agreement. (n) Recordation of Lessor Mortgage and Lessor Financing Statements; Search Results. Each of the Participants shall have received (x) evidence reasonably satisfactory to it that each of (i) the Master Lease and any other instrument constituting a Lessor Mortgage and (ii) the Lessor Financing Statements, in each case relating to the Property, has been, or are being, recorded in a manner sufficient properly to perfect each of their interests therein and (y) copies of file search reports from the Uniform Commercial Code filing officer (i) in Bowie County, Texas or (ii) in the jurisdiction in which is located the chief executive office of the Lessee, setting forth the results of such Uniform Commercial Code file searches. (o) Property Survey. On or prior to the Acquisition Date, the Lessee shall have delivered to each of the Agent Lessor and the Administrative Agent a survey of the land leased by the Ground Lease certified to the Participants and the title company and otherwise in form reasonably acceptable to the Participants. (p) Title Insurance. On or prior to the Acquisition Date, the Lessee shall have delivered to the Administrative Agent and the Agent Lessor a commitment to deliver an insurance policy covering the Property in favor of the Agent Lessor, the Administrative Agent and the Participants, respectively, such policy in an amount of -9- 15 $1,000,000.00 and to be reasonably satisfactory to the Required Lenders and the Lessors with such customary endorsements and affirmative issued by the title company as a routine matter, if requested by the Agent Lessor or the Administrative Agent. (q) No Default. There shall not have occurred and be continuing any Default or Event of Default under any of the Operative Documents, and no Default or Event of Default under any of the Operative Documents will have occurred after giving effect to the acquisition of the Property and cancellation or termination of the US West Agreements and cancellation or release of all security interests thereunder. (r) Opinions of Counsel. The Agent Lessor and the Administrative Agent shall have received opinions of counsel, addressed to the Administrative Agent, the Agent Lessor, each Lender and each Lessor, substantially in the form of the opinions attached hereto as Exhibits A-1, A-2 and G. (s) Plans and Specifications. On or prior to the Acquisition Date, the Agent Lessor shall have received copies of any existing Material plans and specifications for the Property. (t) Good Standing. On or prior to the Acquisition Date, the Agent shall have received copies of certificates of good standing, existence or its equivalent, certified as of a recent date by the appropriate governmental authorities of the state of incorporation of each of Lessee and Guarantor and, for the Lessee, of the State of Texas. All documents and instruments required to be delivered pursuant to this Section 6.1 shall be delivered at such location as may be determined by the Agent Lessor, the Administrative Agent and the Lessee. ARTICLE VII DISTRIBUTIONS Section 7.1. Basic Rent. Each payment of Basic Rent (and any payment of interest or Yield on overdue installments of Basic Rent, to the extent permitted by Applicable Law) received by the Administrative Agent shall be distributed by the Administrative Agent to the Lessors and the Lenders pro rata in accordance with, and for application to, the Lender Basic Rent and Lessor Basic Rent then due, as well as any interest or Yield on overdue installments of Basic Rent due to the Lessors or the Lenders (to the extent permitted by Applicable Law). Section 7.2. Purchase Payments by the Lessee. Any payment received by the Administrative Agent as a result of: (a) the purchase of the Property in connection with the exercise of the Purchase Option under Section 18.1 of the Master Lease, or compliance with the -10- 16 obligation to purchase (or cause its designee to purchase) the Property in accordance with Section 18.2 or 18.3 of the Master Lease; or (b) compliance with the obligation to purchase the Property in accordance with Section 16.2(f) of the Master Lease; or (c) any amounts received pursuant to Section 20.3(b) of the Master Lease; or (d) the payment of the Lease Balance with respect to the Property in accordance with Section 15.1 of the Master Lease or Section 4.3(b) of the Participation Agreement; shall be distributed by the Administrative Agent to the Lessors and the Lenders pro rata without priority of one over the other, in the proportion that the Participant Balance of each of the Lenders and the Lessor bears to the aggregate of all of the Participant Balances. Section 7.3. Payment of Loan Balance. The payment of the Loan Balance to the Administrative Agent pursuant to Section 20.2(f) of the Master Lease shall be promptly distributed to the Lenders for application to pay in full the Participant Balance of each Lender. Section 7.4. Sales Proceeds of Remarketing of Property. Any payments received by the Administrative Agent as proceeds from the sale of the Property sold pursuant to the exercise of the Remarketing Option pursuant to Article XX of the Master Lease, together with any payment made as a result of an appraisal pursuant to Section 13.2, shall be distributed by the Administrative Agent in the following order of priority: first, an amount equal to (x) the aggregate Lessor Balance minus (y) 3% of the sum of (i) the largest principal amount outstanding of Lessor Amounts at any one time prior to the distribution hereunder and (ii) the largest principal amount outstanding of Loans at any one time prior to the distribution hereunder (such amount under clause (y), the "Equity Amount"), shall be distributed to the Lessors for application to the Participant Balance of each Lessor, pro rata among the Lessors, without priority of one over the other, in the proportion that the Participant Balance of each such Lessor bears to the aggregate Participant Balances of all Lessors; second, to the extent not previously paid as required by Section 7.3 hereof, an amount equal to Loan Balance shall be distributed to the Lenders as set forth in Section 7.3; third, an amount equal to the Equity Amount shall be distributed to the Lessors for application to pay in full the Participant Balance of each Lessor, pro rata among the Lessors, without priority of one over the other, in the proportion that the Participant Balance of each such Lessor bears to the aggregate Participant Balance of all Lessors, -11- 17 fourth, the balance, if any, shall be promptly paid to the Administrative Agent to be distributed as provided in Section 20.2(h) of the Master Lease. Section 7.5. Supplemental Rent. All payments of Supplemental Rent received by the Administrative Agent (excluding any amounts payable pursuant to the preceding provisions of this Article VII) shall be distributed promptly by the Administrative Agent upon receipt thereof to the Persons entitled thereto pursuant to the Operative Documents. Section 7.6. Distribution of Payments after Lease Event of Default. (a) During the continuance of a Lease Event of Default and subject to clause (b) and (c) below, all proceeds from the sale of the Property shall be distributed by the Administrative Agent in the following order of priority: first, so much of such payment or amount as shall be required to pay or reimburse the Administrative Agent and the Agent Lessor for any tax, fees, expense, indemnification or other loss incurred by the Administrative Agent or the Agent Lessor (to the extent incurred in connection with any duties as the Administrative Agent or Agent Lessor, as the case may be), shall be distributed to the Administrative Agent and the Agent Lessor without priority of one over the other for their own accounts in accordance with the amount of such payment or amount payable to such Person; second, so much of such payments or amounts as shall be required to pay the Lenders and the Lessors the amounts payable to them pursuant to any expense reimbursement or indemnification provisions of the Operative Documents shall be distributed to each such Lender and Lessor without priority of one over the other in accordance with the amount of such payment or payments payable to each such Person; third, an amount equal to the aggregate Lessor Balance minus the Equity Amount shall be distributed to the Lessors for application to the Participant Balance of each Lessor, pro rata among the Lessors, without priority of one over the other, in the proportion that the Participant Balance of each such Lessor bears to the aggregate Participant Balances of all Lessors; fourth, to the Lenders for application to pay in full the Loan Balance, pro rata among the Lenders, without priority of one over the other, in the proportion that the Participant Balance of each such Lender bears to the aggregate Participant Balances of all Lenders; fifth, an amount equal to the Equity Amount shall be distributed to the Lessors for application to pay in full the Participant Balance of each Lessor, pro rata among the Lessors without priority of one over the other in the proportion that the Participant Balance of each such Lessor bears to the aggregate Participant Balance of all Lessors; -12- 18 sixth, the balance, if any, of such payment or amounts remaining thereafter shall be promptly distributed to, or as directed by, the Lessee. (b) All payments received and amounts realized by the Administrative Agent in connection with any Casualty or Condemnation during the continuance of a Lease Event of Default shall be distributed by the Administrative Agent as follows: (i) in the event that the Agent Lessor (at the direction of the Lessors) and the Administrative Agent elect to pay all or a portion of such amounts to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with Section 14.1(a) of the Master Lease, then such amounts shall be distributed to such Lessee, and (ii) in the event that the Agent Lessor (at the direction of the Lessors) and the Administrative Agent elect to apply all or a portion of such amounts to the purchase price of the related Property in accordance with Section 14.1(a) and Article XV of the Master Lease, then such amounts shall be distributed in accordance with clause (a). Section 7.7. Other Payments. (a) Except as otherwise provided in Sections 7.1, 7.2, 7.6 and clause (b) below, any payment received by the Administrative Agent for which no provision as to the application thereof is made in the Operative Documents or elsewhere in this Article VII (including any balance remaining after the application in full of amounts to satisfy any expressed provision) shall be distributed pro rata among the Lenders and the Lessors without priority of one over the other, in the proportion that the Participant Balance of each bears to the aggregate of all the Participant Balances. (b) Except as otherwise provided in Sections 7.1, 7.2 and 7.6, all payments received and amounts realized by the Administrative Agent or the Agent Lessor under the Master Lease or otherwise with respect to the Property to the extent received or realized at any time after the indefeasible payment in full of the Participant Balances of all of the Lenders and the Lessors and any other amounts due and owing to the Lenders or the Lessors, shall be distributed forthwith by the Administrative Agent or the Agent Lessor, as the case may be, to or as directed by, the Lessee. (c) Except as otherwise provided in Sections 7.1 and 7.2, any payment received by the Administrative Agent or the Agent Lessor for which provisions as to the application thereof is made in an Operative Document but not elsewhere in this Article VII shall be distributed forthwith by the Agent Lessor or the Administrative Agent to the Person and for the purpose for which such payment was made in accordance with the terms of such Operative Document. Section 7.8. Casualty and Condemnation Amounts. Subject to Section 7.6(b), any amounts payable to the Administrative Agent as a result of a Casualty or Condemnation pursuant to Section 14.1 of the Master Lease and the Assignment of Lease and Rent shall be distributed as follows: -13- 19 (a) all amounts payable to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with Section 14.1(a) of the Master Lease shall be distributed to the Lessee, and (b) all amounts that are to be applied to the purchase price of the related Property in accordance with Section 14.1(a) and Article XV of the Master Lease shall be distributed by the Administrative Agent to the Lenders and the Lessors pro rata without priority of one over the other, in the proportion that the Participant Balance of each bears to the aggregate of all of the Participant Balances. Section 7.9. Order of Application. To the extent any payment made to any Lender or any Lessor pursuant to Sections 7.2, 7.3, 7.4, 7.6 or 7.7 is insufficient to pay in full the Participant Balance of such Lender or Lessor, then each such payment shall first be applied to accrued interest or Yield and then to principal on the Loans or the Lessor Amounts, as applicable. Section 7.10. Payments to Account. All payments made to the Administrative Agent pursuant to the Operative Documents shall be made to the Account. ARTICLE VIII REPRESENTATIONS Section 8.1. Representations of the Participants. Each Participant represents and warrants to each other Participant, the Agent Lessor, the Administrative Agent and the Lessee that: (a) ERISA. Such Participant is not and will not be making its Loans or funding its Lessor Amounts hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code). (b) Status. Such Participant meets at least one of the definitions (other than as a "Lessor" or a "Lender") of the term "Eligible Assignee." (c) Securities. Each Participant is participating in the Transactions for its own account and not with a view toward redistribution; provided that disposition of its rights hereunder shall remain in its control, to the extent otherwise permitted by, and the foregoing shall not affect the ability of any Participant to assign or sell participations in its rights in accordance with, the Operative Documents. -14- 20 Section 8.2. Representations the Lessee and the Guarantor. Lessee, as to itself, and Guarantor, as to itself and where applicable the Restricted Subsidiaries, hereby represent and warrant to each Participant, the Agent Lessor and the Administrative Agent that: (a) Corporate Organization and Authority. The Lessee, Guarantor and each Restricted Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has all requisite power and authority and all licenses and permits necessary in any respect material to the Lessee or to the Guarantor and the Restricted Subsidiaries taken as a whole to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted and is duly licensed or qualified and in good standing as a foreign corporation in each jurisdiction in which the nature of the business transacted by it or the nature of the Company Property owned or leased by it makes such licensing or qualification necessary and in which the failure to be so licensed or qualified would have a Material Adverse Effect. Schedule III hereto contains a complete and correct list of all Subsidiaries of the Guarantor as of the date hereof and correctly sets forth, as to each, whether or not it constitutes a Restricted Subsidiary, the jurisdiction of incorporation, and the percentage of the issued and outstanding shares of such Subsidiary owned by the Guarantor or by Subsidiaries of the Guarantor. All of the issued and outstanding shares of capital stock of each such Restricted Subsidiary are valid and fully paid and nonassessable and all such shares of Restricted Subsidiaries indicated in Schedule III as owned by the Guarantor or a Restricted Subsidiary are owned, beneficially and of record, by the Guarantor or such Restricted Subsidiary, free of any Lien. (b) Outstanding Debt. Schedule IV hereto correctly describes all Indebtedness of the Guarantor and its Restricted Subsidiaries in excess of $5,000,000 and generally identifies all Liens securing such Indebtedness. (c) Financial Statements. The consolidated and consolidating balance sheets of the Guarantor and its Consolidated Subsidiaries as at December 31, 1996, and the related consolidated statements of income, stockholders' equity and changes in financial position (or cashflow) for the fiscal year ending on such date, accompanied, in the case of the consolidated balance sheets and statements, by reports thereon containing opinions by Coopers & Lybrand L.L.P., and the unaudited consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as at September 30, 1997 and the related consolidated statements of income, retained earnings and changes in financial position (or cash flow) for the nine (9) months ending on such date (copies of which have been furnished to the Agent Lessor, the Administrative Agent and each Participant), have been prepared in accordance with GAAP and present fairly the financial position of the Guarantor and its Consolidated Subsidiaries or Restricted Subsidiaries, as the case may be as of such dates and the results of their operations and changes in their financial position for the periods covered thereby. Since September 30, 1997 and through the date hereof, there has been no material adverse change in the condition, financial or otherwise, of the Guarantor and its Consolidated Subsidiaries from that shown on the above-described balance sheet as of -15- 21 such date. It is understood that the adverse ruling in the tax dispute in respect of the consolidation of the tax returns of the Guarantor and its Subsidiaries with those of AMAX Inc. for 1984, 1985 and 1986, which is referred to in Section 8.2(j) below and is described in the Guarantor's Exchange Act Reports (as defined below) does not and a subsequent adverse ruling thereon on appeal shall not, constitute a "material adverse change". (d) Full Disclosure. The financial statements referred to in Section 8.2(c) do not, nor does any written statement furnished by or on behalf of the Guarantor to the Agent Lessor, the Administrative Agent and each Participant in connection with the negotiation of this Participation Agreement and the Transactions, contain any untrue statement of a material fact or omit a material fact necessary to make the material statements contained therein or herein, in light of the circumstances under which they were made, not misleading except for such thereof as were corrected in subsequent written statements furnished the Agent Lessor, the Administrative Agent and each Participant, the Agent Lessor, the Administrative Agent and each Participant acknowledging that as to any projections furnished to the Agent Lessor, the Administrative Agent or any Participant, the Guarantor only represents that the same were prepared on the basis of information and estimates the Guarantor believes to be reasonable. (e) Pending Litigation. Excluding issues and matters relating to taxes, which are specifically referred to in Section 8.2(j) hereof, and excluding any other proceedings or disputes reflected in the Guarantor's filings with the Securities and Exchange Commission ("SEC") on Form 10-K for the year ended December 31, 1996 or on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997 (the "Exchange Act Reports") or reflected on Schedule V hereto, as of the date hereof, there are no proceedings pending or, to the knowledge of the Guarantor, threatened against or affecting the Guarantor or any Restricted Subsidiary in any court or before any governmental authority or arbitration board or tribunal in which, either individually or in the aggregate, there is a reasonable possibility of an adverse decision which could result in a Material Adverse Effect or could result in the Guarantor's obligations under any of the Operative Documents being declared invalid. Neither the Guarantor nor any Restricted Subsidiary is in default with respect to any material order of any court or governmental authority or arbitration board or tribunal. (f) Financing is Legal and Authorized. The execution and delivery of the Operative Documents, the Transactions and compliance by the Guarantor and the Lessee with all of the provisions of the Operative Documents are within the respective corporate powers of the Guarantor and the Lessee and have been duly authorized by proper corporate action on the part of the Guarantor and the Lessee and will not violate any provisions of any applicable law or order of any court or governmental authority or agency of competent jurisdiction and after giving effect to the acquisition of the Property by the Agent Lessor and cancellation or termination of the US West Agreements and cancellation or release of all security interest thereunder will not -16- 22 conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, the Restated Certificate of Incorporation or by-laws of the Guarantor and the Certificate of Incorporation or by-laws of the Lessee or constitute a material conflict with or breach or default under any material indenture or other material agreement or instrument to which the Guarantor or any Restricted Subsidiary is a party or by which any of them may be bound or result in the imposition of any Liens on any Company Property of the Guarantor or of any Restricted Subsidiary not permitted hereby. (g) Intentionally Omitted. (h) No Defaults. No Default or Event of Default has occurred and is continuing, and after giving effect to the acquisition of the Property by the Agent Lessor and cancellation or termination of the US West Agreements and cancellation or release of all security interest thereunder the Guarantor and its Restricted Subsidiaries are not in material breach of any contract or agreement where such breach may have a Material Adverse Effect. (i) Governmental Consent. No approval, authorization, consent or withholding of objection on the part of any regulatory body, state, federal or local, is necessary in connection with the execution and delivery by either the Guarantor or the Lessee of the Operative Documents or compliance by either the Guarantor or the Lessee with any of the provisions thereof. (j) Taxes. All tax returns required to be filed by the Guarantor or any Consolidated Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and other governmental charges upon the Guarantor or any Consolidated Subsidiary or upon any of their respective properties, income or franchises, which are shown to be due and payable in such filed returns have been paid. The only dispute with respect to the consolidation of the tax returns of the Guarantor and its Subsidiaries with those of AMAX Inc. is a dispute concerning the inclusion of the Guarantor and its Subsidiaries in the consolidated returns of AMAX Inc. for 1984, 1985 and 1986, which dispute is described in the Guarantor's Exchange Act Reports. Such tax dispute was decided adversely to the Guarantor by the United States Tax Court in a decision dated September 30, 1997. As of the date hereof, the Guarantor has paid the expected deficiency with accrued interest. There are no other material controversies known to the Guarantor with respect to other federal or state income tax matters of the Guarantor and its Subsidiaries in which there is a reasonable possibility of an adverse decision which would result in a Material Adverse Effect. The provisions for taxes on the books of the Guarantor and each Subsidiary are adequate in all material respects for all open years, and for its current fiscal year. (k) Not an Investment Company. The Guarantor is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (1) Intentionally Omitted. -17- 23 (m) ERISA. Each Plan, and, to the knowledge of the Guarantor, each Multiemployer Plan, is in material compliance in all respects with, and has been administered in all respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law except where failure to be so in compliance or to be so administered should not result in a Material Adverse Effect. (n) Compliance with Environmental and Other Laws. (i) Neither the Guarantor nor any of its Restricted Subsidiaries is (A) in material default as of the date hereof with respect to any order, writ, injunction or decree of any court or (B) in default as of the date hereof in any material respect under any law, ordinance, order, regulation, license or demand (including ERISA, the Occupational Safety and Health Act of 1970 and Environmental Laws) of any federal, state, municipal or other governmental agency, default with respect to or under which would have a Material Adverse Effect. (ii) As of the date hereof, the Guarantor and the Lessee are in compliance with all applicable state and federal environmental, health and safety statutes and regulations, including, without limitation, regulations promulgated under the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.ss.6901 et seq., except where failure to be in compliance would not have a Material Adverse Effect. After giving effect to applicable reserves on the books of the Guarantor and its Restricted Subsidiaries for environmental remediation and related costs and based on current information available to the Guarantor with respect to the cost of remediation, the nature and extent of the Guarantor's involvement in sites which are currently known to require remediation and the anticipated contributions of other potentially responsible parties as well as applicable insurance, the Guarantor believes that the anticipated and estimable liabilities of the Guarantor and its Restricted Subsidiaries resulting from environmental matters and required expenditures for remediation programs it may be required to undertake will not have a Material Adverse Effect. (o) Offer of Securities. Neither Lessee nor Guarantor nor any Person authorized to act on their behalf has, directly or indirectly, offered any interest in the Property or any other interest similar thereto (the sale or offer of which would be integrated with the sale or offer of such interest in the Property), for sale to, or solicited any offer to acquire any of the same from, any Person other than each Participant and the Administrative Agent, the Agent Lessor and other similar financial institutions. (p) Property. The Property and the contemplated use thereof by the Lessee and its agents, assignees, employees, lessees, licensees and tenants will comply in all Material respects with all Requirements of Law (including, without limitation, all zoning and land use laws and Environmental Laws) and Material Insurance Requirements, except for such Requirements of Law as it shall be contesting in good faith by appropriate proceedings. There is no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to the best of its knowledge, threatened with respect to the Property -18- 24 which materially adversely affects the title to, or the use, operation or value of, the Property. No Casualty with respect to the Property has occurred which Casualty has had a Material Adverse Effect on the Property. (q) Permits and Utilities. The Property has available all Material services and other utilities necessary for use and operation of the Property for its primary intended purposes including, without limitation, adequate water, gas and electrical supply, storm and sanitary sewerage facilities, telephone, other required public utilities and means of access between the Property and public highways for pedestrians and motor vehicles. All Material utilities serving the Property, are located in, and vehicular access to the Property is provided by, either public rights-of-way abutting the Property or Appurtenant Rights. Lessee has obtained, and has and will keep in full force and effect, all Material operating permits necessary to allow for the Property to be operated in accordance with its intended use. (r) Intentionally Omitted. (s) Insurance. Lessee has obtained insurance coverage covering the Property which meets the requirements of the Master Lease, and such coverage is in full force and effect. (t) Flood Hazard Areas. No portion of the Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency. ARTICLE IX PAYMENT OF CERTAIN EXPENSES Section 9.1. Transaction Expenses. The Lessee shall pay, or cause to be paid, from time to time all Transaction Expenses in respect of the Transactions within thirty (30) days after the Lessee has received written invoices therefor. Section 9.2. Stamp Taxes. The Lessee shall pay or cause to be paid any and all stamp, transfer and other similar taxes, fees and excise, if any, including any interest and penalties, which are payable in connection with the Transactions. ARTICLE X OTHER COVENANTS AND AGREEMENTS Section 10.1. Covenants of the Guarantor. The Guarantor covenants and agrees with the Arranger, the Agent Lessor, the Administrative Agent, the Lessors and the Lenders that, so long as this Participation Agreement shall remain in effect or any amounts constituting Rent shall be unpaid or any amounts payable under the Operative Documents shall remain payable by the Guarantor, unless the Required Participants shall otherwise consent in writing, the Guarantor will, and will cause each of its Restricted Subsidiaries to: -19- 25 (a) Corporate Existence, Etc. The Guarantor will preserve and keep in force and effect, and will cause each Restricted Subsidiary to preserve and keep in force and effect, its corporate existence and all material franchises, licenses and permits necessary to the proper conduct of its business provided, however, that neither the Guarantor nor any Restricted Subsidiary shall be required to preserve any such franchise, license or permit or, in the case of any Restricted Subsidiary, its corporate existence, if the Guarantor shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Guarantor and its Restricted Subsidiaries taken as a whole. (b) Insurance. The Guarantor will maintain, and will cause each Restricted Subsidiary to maintain, insurance coverage from financially sound and reputable insurers in such forms and amounts, with such deductibles and against such risks, as is, taken as a whole, generally consistent with those maintained by manufacturing companies with similar revenues and asset values, with due regard to the nature of their assets and business, their loss experience, and conditions in the insurance markets. (c) Taxes, Claims for Labor and Materials, Compliance with Laws. (i) The Guarantor will promptly pay and discharge, and will cause each Restricted Subsidiary promptly to pay and discharge, all lawful taxes, assessments and governmental charges or levies imposed upon it or upon or in respect of all or any part of its property or business and all claims for work, labor or materials which, if unpaid, might become a Lien or charge upon any Company Property material to the Guarantor and its Restricted Subsidiaries taken as a whole unless permitted by Section 10.1(k) hereof; provided the Guarantor or such Restricted Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (i) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any Company Property of the Guarantor or such Restricted Subsidiary or any material interference with the use thereof by the Guarantor or such Restricted Subsidiary, and (ii) the Guarantor or such Restricted Subsidiary shall set aside on its books reserves deemed by the Guarantor in its reasonable business judgment to be adequate with respect thereto or such greater amount as may be required by GAAP. (ii) The Guarantor will comply, and will cause each Restricted Subsidiary to comply, with all laws, ordinances or governmental rules and regulations to which it is subject, including without limitation, the Occupational Safety and Health Act of 1970, as amended, ERISA and all laws, ordinances, governmental rules and regulations relating to environmental protection in all applicable jurisdictions, the violation of which would have a Material Adverse Effect. (d) Maintenance of Properties and Business. The Guarantor will maintain, preserve and keep, and will cause each Restricted Subsidiary to maintain, preserve and keep, its material properties which are necessary in any respect material to the Guarantor and its Restricted Subsidiaries taken as a whole for the conduct of its -20- 26 business (whether owned in fee or a leasehold interest) in good repair and working order (ordinary wear and tear excepted) and from time to time will make all necessary repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be maintained; provided, however, that nothing in this Section l0.l(d) shall prevent the Guarantor or any Restricted Subsidiary from discontinuing the operation and maintenance of any of its Company Properties if such discontinuance is, in the judgment of the Guarantor, desirable in the conduct of the business of the Guarantor or such Restricted Subsidiary, as the case may be. (e) Nature of Business. Neither the Guarantor nor any Restricted Subsidiary will engage in any business or activity if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Guarantor and its Restricted Subsidiaries would be substantially changed from the general nature of the business engaged in by the Guarantor and its Subsidiaries on the date of this Participation Agreement. (f) Reports and Rights of Inspection. The Guarantor will keep, and will cause each Subsidiary to keep, proper books of record and account in which full and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the Guarantor or such Subsidiary in accordance with GAAP and will furnish to the Administrative Agent with sufficient copies for each Participant: (i) Quarterly Statements. As soon as available and in any event within 90 days after the end of each quarterly fiscal period (except the last) of each fiscal year, copies of consolidated balance sheets as of the close of such quarterly period, and consolidated statements of income and changes in financial position (or cash flow) for such quarterly period and for the portion of the fiscal year then ended, in each case setting forth in comparative form the figures for the corresponding period of the preceding fiscal year, as set forth in the Guarantor's Form 10-Q report filed with the SEC and certified as presenting fairly the consolidated financial condition of the Guarantor and its Consolidated Subsidiaries as of the end of such period and the results of their operations for such period, subject to changes resulting from year-end adjustments (which the certificate shall indicate are not expected to be material or, if expected to be material, the nature and scope thereof shall be specified) and to footnote disclosures, by the chief financial officer or chief accounting officer of the Guarantor; (ii) Annual Statements. As soon as available and in any event within 120 days after the close of each fiscal year of the Guarantor, copies of consolidated and consolidating balance sheets as of the close of such fiscal year and consolidated statements of income, retained earnings and changes in financial position (or cash flow) for such fiscal year, and accompanied in the case of said consolidated statements, by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall -21- 27 state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Guarantor and its Consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default. (iii) SEC and Other Reports. Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Guarantor to its stockholders generally, and of each regular or periodic report, and any registration statement or prospectus filed by the Guarantor or any Subsidiary with the SEC or any successor agency; (iv) Officers' Certificates. Within the periods provided in paragraphs (i) and (ii) above, a certificate of an Authorized Financial Officer of the Guarantor stating that such Authorized Financial Officer has reviewed the provisions of this Participation Agreement and setting forth: (A) the information and computations (in sufficient detail) required in order to establish whether the Guarantor was in compliance with the requirements of Sections 10.1(g), (h), (i) and (j) hereof at the end of the period covered by the financial statements then being furnished, and (B) to the best of such officer's knowledge, whether there exists on the date of the certificate or existed at any time during the period covered by such financial statement any Default or Event of Default and, if any such condition or event exists on the date of the certificate or existed during such period, specifying the nature and period of existence thereof and the action the Guarantor is taking, has taken or proposes to take with respect thereto; and (v) Notices of Default and Rating Change. Promptly after knowledge thereof shall have come to the attention of the chief financial officer of the Guarantor, notice of any Default or Event of Default hereunder and of any change in the S&P Rating. Without limiting the foregoing, the Guarantor will permit Administrative Agent and each Participant (or such Persons as any Participant may designate), upon reasonable notice, to visit and inspect, under the Guarantor's guidance, books of account, records, reports and other papers of the Guarantor, to make copies and extracts therefrom (except with respect to confidential or proprietary information), and to discuss the Guarantor's affairs, finances and accounts with its officers and employees, all at such reasonable times and as often as may be reasonably requested, provided that the Guarantor may establish reasonable procedures for joint visits and inspections if more than one Bank requests the right to visit and inspect. All information which is furnished to or obtained by any Participant pursuant to this Participation Agreement shall be received and held in confidence unless or until the same has been publicly disclosed (other than by or on behalf of any Participant); -22- 28 provided, however, that no Participant shall in any way be inhibited in the use of such information in order to determine and enforce compliance with the terms and conditions of this Participation Agreement or take any lawful action which it deems necessary to protect its interests herein and in the Notes and the Certificates, and provided, further, that any Participant may furnish any such information in compliance with any court order or to any regulatory body, agency, authority or commission to whose jurisdiction such Participant may be subject, to its independent accountants, to any Person to whom such holder owes any duty of disclosure, to any affiliate of such Participant which needs to know such information in connection with approving or evaluating such Participant's participation in this Participation Agreement or monitoring compliance herewith and to any Person to whom such holder is considering selling a participation herein or in any Note or Certificate or assigning its interest hereunder; provided, however, in making any such use, such Participant shall take all reasonable measures to preserve the confidentiality of any such information including, without limitation, obtaining a written undertaking of any Person to whom such information may be furnished to maintain the confidentiality thereof in accordance with this Participation Agreement and shall furnish copies of such undertaking to the Guarantor. (g) Net Worth. The Guarantor shall at all times maintain Tangible Net Worth of not less than $900,000,000. (h) Leverage Ratio. The Guarantor will not permit the ratio of Restricted Tangible Net Assets to Restricted Funded Debt to be less than 2.0 to 1 at any time. (i) Sale Leasebacks. The Guarantor will not, nor will it permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction covering any fixed or capital Company Property, except for sale and leaseback transactions which either (i) collectively cover Company Property the aggregate fair market value of which, as determined for each item of Company Property as at the time such Company Property became the subject of such a transaction, does not exceed 5% of Tangible Net Worth, as determined on the date of the most recent such transaction or (ii) relate solely to Property acquired after the date hereof and are entered into within 180 days after any such acquisition; provided that in no event shall the aggregate fair market value of all such Company Property referred to in the foregoing clauses (i) and (ii), as determined for each item of Company Property as at the time such Company Property became the subject of such a transaction, exclusive of operating or "true" leases, exceed 20% of Tangible Net Worth, as determined on the date of the most recent such transaction. (j) Indebtedness. The Guarantor will not permit any of its Subsidiaries to create, incur or suffer to exist any Indebtedness other than: (i) Indebtedness outstanding on the date hereof and either listed on Schedule IV hereto or being in an amount of $5,000,000 or less in each instance and not greater than $10,000,000 in the aggregate (exclusive of -23- 29 indebtedness listed on Schedule IV) and any extension, renewal or replacement thereof that does not increase the aggregate principal amount of the Indebtedness (including, for purposes of this paragraph (a), unfunded commitments) so extended, renewed or replaced; (ii) Indebtedness to the Guarantor or to other Subsidiaries of the Guarantor; (iii) Indebtedness of any Unrestricted Subsidiary in respect of which neither the Guarantor nor any other Restricted Subsidiary is directly or contingently liable, by Guarantee or otherwise; (iv) Indebtedness secured by the Liens referred to in paragraphs (vii) and (viii) of Section 10.1(k) hereof, and any extension, renewal or replacement thereof which does not increase the indebtedness thereby secured or extend the Liens to other property; and (v) Indebtedness for working capital, trade financing and cash management activities, provided that the aggregate outstanding principal amount thereof plus the aggregate amount of obligations not constituting Indebtedness secured by Liens permitted by Section 10.1(k)(i) hereof shall not represent more than 15% of Tangible Net Worth at the time of incurrence of each such obligation or item of Indebtedness. (k) Limitation on Liens. The Guarantor will not, and will not permit any Restricted Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien of any kind on its or their Company Property, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any Company Property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Restricted Subsidiary to acquire or agree to acquire, any Company Property or assets upon conditional sales agreements or other title retention devices, except: (i) Liens in existence on the date hereof and listed in Schedule IV hereto; (ii) Liens imposed by any governmental authority or instrumentality to secure the performance of conditions to governmental grants or advances which are not repayable absent a failure to satisfy such conditions or for taxes, assessments or charges which are not in any instance yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Guarantor or the affected Restricted Subsidiaries, as the case may be, in accordance with GAAP; -24- 30 (iii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days after the Guarantor is notified of same or which are being contested in good faith and by appropriate proceedings and Liens securing judgments but only to the extent for an amount and for a period not resulting in a Lease Event of Default under Section 16.1(h) of the Master Lease; (iv) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (v) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (vi) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Company Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Company Property subject thereto or interfere with the ordinary conduct of the business of the Guarantor or any of its Restricted Subsidiaries; (vii) Liens on Company Property of any corporation which becomes a Restricted Subsidiary of the Guarantor after the date of this Participation Agreement, provided that such Liens are in existence at the time such corporation becomes a Restricted Subsidiary of the Guarantor and were not created in anticipation thereof; (viii) Liens upon real and/or tangible personal Company Property acquired after the date hereof (by purchase, construction or otherwise) by the Guarantor or any of its Restricted Subsidiaries, each of which Liens either (A) existed on such Company Property before the time of its acquisition and was not created in anticipation thereof, or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such Company Property; provided that no such Lien shall extend to or cover any Property of the Guarantor or such Restricted Subsidiary other than the Company Property so acquired and improvements thereon; and provided, further, that the principal amount of Indebtedness secured by any such Lien shall at no time exceed 80% of the fair market value (as determined in good faith by a responsible officer of the Guarantor) of such Company Property at the time it was acquired (by purchase, construction or otherwise); -25- 31 (ix) additional Liens upon real and/or personal Company Property created after the date hereof; provided that the aggregate amount of obligations secured thereby shall not represent more than 15% of Tangible Net Worth as of the date each such obligation is incurred; and (x) any extension, renewal or replacement of the foregoing, provided, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Company Property (other than a substitution of like Company Property). (1) Prohibition of Fundamental Changes. The Guarantor will not merge, consolidate or amalgamate with any Person unless the Guarantor is the surviving corporation and immediately after giving effect to that transaction there is no Default hereunder, or liquidate, wind up or dissolve (or suffer any liquidation or dissolution). The Guarantor will not permit any Restricted Subsidiary to merge, consolidate or amalgamate with any other Person unless (A) immediately after giving effect thereto there is no Default hereunder, (B) if the transaction is between a Restricted Subsidiary and an Unrestricted Subsidiary, the conditions to designating the Subsidiary which will not survive into a Subsidiary of the other type (as set forth in the definition of the term "Restricted Subsidiary") could be satisfied immediately prior to the transaction in question and (C) if the survivor of the transaction will not be a Subsidiary, the Guarantor or immediate parent of the Restricted Subsidiary will receive consideration in connection with such transaction which would satisfy the requirements of the immediately following sentence had the Restricted Subsidiary in question been sold. The Guarantor will not, nor will it permit any of its Restricted Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business or Company Property, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests) except for fair market value in exchange for reasonable consideration (as determined by the Board of Directors of the Guarantor in any transaction, or series of related transactions, involving consideration exceeding $100,000,000 in cash or Company Property). Section 10.2. Affirmative Covenant of the Agent Lessor. The Agent Lessor covenants and agrees with the Arranger, the Lessee, the Guarantor, the Administrative Agent and the Lenders that, so long as this Participation Agreement shall remain in effect or the principal or interest on any Loan, or any fees or any other expenses or amounts payable under any Operative Document to the Administrative Agent or the Lenders shall be unpaid, unless the Required Lenders shall otherwise consent in writing, the Agent Lessor will, upon the written request of the Required Lenders after the occurrence and during the continuance of an Event of Default qualify to do business in every jurisdiction where such qualification is necessary for the Agent Lessor to exercise its remedies under the Master Lease or any other Operative Document. -26- 32 ARTICLE XI RENEWALS Section 11.1. Extensions of Maturity Date and Expiration Date; Replacement of Participants. (a) So long as the Lessee has not elected the Remarketing Option, the Lessee may, on any date between 365 days and 180 days prior to the Maturity Date, direct a written request to the Agent Lessor and the Administrative Agent that the Expiration Date then in effect under the Master Lease be extended to the date occurring one (1) year or two (2) years after such Expiration Date and concurrently therewith request that the Administrative Agent and the Agent Lessor direct a written request to the Lessors and the Lenders that the applicable Maturity Date be extended to the same date (each such additional year or two (2) years, a "Renewal Term"). In no event may the Expiration Date or the Maturity Date be extended more than once if for a two-year Renewal Term or twice if for a one-year renewal term pursuant to this Section l1.1(a). Each Participant may grant or deny its consent to a Renewal Term in its sole discretion by notifying the Administrative Agent and the Agent Lessor in writing (with a copy to the Lessee); provided, however, that any Participant that fails to respond to such request for a Renewal Term within sixty (60) days after its receipt thereof shall be deemed to have denied such request for a Renewal Term. (b) In connection with a written request of the Lessee for a Renewal Term, upon the request of the Lessee, the Administrative Agent and the Agent Lessor shall be permitted to replace any non-consenting Participant and any Participant that fails to respond to the Administrative Agent's and the Agent Lessor's written request for a Renewal Term within the time period specified in clause (a) above (each, a "Non-Consenting Participant") with a replacement bank or other financial institution (a "Replacement Participant") satisfactory to the Lessee, the Lessors and the Lenders, with such replacement to be effective as of the Expiration Date and Maturity Date in effect prior to the requested Renewal Term; provided, however, that (i) such replacement does not conflict with any Requirement of Law, (ii) the Replacement Participant shall purchase from the Non-Consenting Participant (A) at par, all Loans, in the case of a Lender, and all Lessor Amounts, in the case of a Lessor, (B) all accrued interest, in the case of a Lender, and all accrued Yield, in the case of a Lessor, and (C) all other amounts owing to such Non-Consenting Participant on or prior to the date of replacement, in each case, (iii) the Lessee shall be liable to such Non-Consenting Participant under Section 13.10 if any Loan or Lessor Amount, as the case may be, owing to such Non-Consenting Participant shall be prepaid (or purchased) other than on the last day of the Interest Period or Interest Periods relating thereto, (iv) such replacement shall be made in accordance with the provisions of Article XII (provided that the Lessee or the relevant Replacement Participant shall be obligated to pay the Transaction Expenses arising in connection therewith), and (v) the Replacement Participant shall have agreed to be subject to all of the terms and conditions of the applicable Operative Documents (including the extension of the Maturity Date contemplated by the relevant request for a Renewal Term and the related extension). The Administrative Agent, the Agent Lessor and Lessee hereby agree to cooperate with each other in an effort to arrange one or more Replacement Participants as contemplated by this Section 11.1(b). -27- 33 (c) Except as otherwise provided in this Article XI, all other terms of the Operative Documents shall remain unchanged and with the same force and effect (including the pricing categories and pricing ratios), and there shall not be any additional up-front fee in connection with such Renewal Term; provided that Fixed Rent shall continue to be paid annually at the same rate as set forth in the Master Lease. Section 11.2. Replacement of Defaulting Participant. The Lessee shall have the right (but not the obligation) to require any Defaulting Participant to assign and delegate in accordance with Section 12.1 all of such Lender's or Lessor's total Loans or Lessor Amounts, as the case may be, and Commitment, if any, to any other financial institution that, in each case, is willing to accept such assignment and delegation and is reasonably satisfactory to the Administrative Agent, Agent Lessor and Lessee. ARTICLE XII TRANSFERS OF PARTICIPANTS' INTERESTS Section 12.1. Assignments. Each Participant may, from time to time, with the consent of the Guarantor and the Administrative Agent (which will not in any instance be unreasonably withheld), assign to other financial institutions part of the indebtedness evidenced by the Loan Commitments or the Lessor Commitments then owned by it pursuant to written agreements executed by the assignor, the assignee and the Guarantor, which agreements shall specify in each instance the portion of the indebtedness evidenced by the Loan Commitments or the Lessor Commitments which are to be assigned to each such assignor and the portion of the Loan Commitment or the Lessor Commitment of the assignor (the "Assignment Agreements"), provided that the Guarantor may in its sole discretion withhold its consent to any assignment by a Participant of less than all of its Loan Commitment or the Lessor Commitment if as a result thereof the assignor will have a Commitment hereunder of less than $10,000,000 (or $5,000,000 if the assignee thereof will have a Commitment hereunder of at least $10,000,000 in all cases as adjusted proportionately to reflect payments of Fixed Rent) or the assignee will have a Commitment hereunder of less than $10,000,000 (or $5,000,000 if the assignor thereof will have a Commitment hereunder of at least $10,000,000 in all cases as adjusted proportionately to reflect payments of Fixed Rent), further provided that nothing herein contained shall restrict, or be deemed to require any consent as a condition to, or require payment of any fee in connection with, any sale, discount or pledge by any Participant of any Note or Certificate or other obligation hereunder to a Federal Reserve Bank. Upon the execution of each Assignment Agreement by the assignor, the assignee and the Guarantor (i) such assignee shall thereupon become a "Participant" (and either a "Lessor" or "Lender" as the case may be, or both) for all purposes of this Participation Agreement with a Commitment in the amount set forth in such Assignment Agreement and with all the rights, powers and obligations afforded a Participant hereunder, (ii) the assignor shall have no further liability for funding the portion of its Commitment assumed by such other Participant and (iii) the address for notices to such Participant shall be as specified in the Assignment Agreement executed by it. Concurrently with the execution and delivery of such Assignment Agreement, and upon return to the Agent Lessor of the outstanding Note or Certificate (as the case may be) of the Assignor, the Agent Lessor shall execute and deliver a Note or -28- 34 Certificate (as the case may be) to the assignee Participant in the amount of its Commitment to the assignee and a new Note or Certificate (as the case may be) to the assignor Participant in the amount of its Commitment after giving effect to the reduction occasioned by such assignment, all such Note or Certificate (as the case may be) to constitute "Notes" or "Certificates" for all purposes of this Participation Agreement, and there shall be paid to the Administrative Agent, as a condition to such assignment, an administrative fee of $3,500 plus any out-of-pocket costs and expenses incurred by it in effecting such assignment, such fee to be paid by the assignor or the assignee as they may mutually agree, but under no circumstances shall any portion of such fee be payable by or charged to the Guarantor. Section 12.2. Participations. Each Participant shall have the right at its own cost to grant participations (to be evidenced by one or more agreements or certificates of participation) in the Advances by such Participant at any time and from time to time to one or more other financial institutions, provided that no such participant shall have any rights under this Participation Agreement or any Note or Certificate (the participant's rights against the Participant granting its participation to be those set forth in the participation agreement between the participant and such Participant). Each such Participant shall be entitled to the benefits of yield protection provisions hereof to the extent such Participant would have been so entitled had no such participation been sold, but such Participant shall not be entitled to any additional benefits as a result of, and shall indemnify the Lessee against, any claim arising out of the sale of such participation. Section 12.3. Withholding Taxes; Disclosure of Information; Pledge Under Regulation A. (a) If any Participant (or the assignee of or subparticipant of a Participant, each a "Transferee") is organized under the laws of any jurisdiction other than the United States or any State thereof, then such Participant or the Transferee of such Participant, as applicable, shall (as a condition precedent to acquiring or participating in such Loan or Lessor Amount and as a continuing obligation to the Lessor and the Lender) (i) furnish to each of the Administrative Agent, the Agent Lessor and the Lessee in duplicate, for each taxable year of such Participant or Transferee during the term of the Lease, a properly completed and executed copy of either Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 and any additional form (or such other form) as is necessary to claim complete exemption from United States withholding taxes (wherein such Transferee claims entitlement to complete exemption from United States withholding taxes on all payments hereunder), and (ii) provide to each of the Administrative Agent, the Agent Lessor and the Lessee a new Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 and any such additional form (or any successor form or forms) upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable United States laws and regulations and amendments duly executed and completed by such Participant or Transferee, and to comply from time to time with all applicable United States laws and regulations with regard to such withholding tax exemption. By its acceptance of a participation or assignment hereunder, each Transferee shall be deemed bound by the provisions set forth in this Article XII. (b) Any Participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Article XII, disclose to such assignee -29- 35 or participant or proposed assignee or participant, any information relating to Lessee, Guarantor or the Transactions, subject to appropriate confidentiality requirements relating to such information. (c) Anything in this Article XII to the contrary notwithstanding, any Participant may without the consent of Lessee or Guarantor, the Administrative Agent or the Agent Lessor, assign and pledge all or any portion of the Notes held by it to any Federal Reserve Bank, the United States Treasury or to any other financial institution as collateral security pursuant to Regulation A of the F.R.S. Board and any operating circular issued by the Federal Reserve System and/or the Federal Reserve Bank or otherwise; provided, any payment by Lessee or Guarantor for the benefit of the assigning or pledging Participant shall be deemed to satisfy such Lessee's or Guarantor's obligations with respect thereto. (d) If any Participant determines, as a result of any change in Applicable Law, regulation or treaty, or in any official application or interpretation thereof, that it is unable to submit any form or certificate that such Participant is obligated to submit pursuant to subsection (a) of this Section 12.3 or that such Participant is required to withdraw or cancel any such form or certificate previously submitted or any such form or certificate otherwise becomes ineffective or inaccurate, such Participant shall promptly notify the Lessee, Agent Lessor and the Administrative Agent of such fact and such Participant shall to that extent not be obligated to provide any such form or certificate and will be entitled to withdraw or cancel any affected form or certificate, as applicable. In the event any Participant so notifies the Lessee, Agent Lessor and the Administrative Agent, such Participant agrees that it will at any time thereafter at the request of the Lessee assign its Notes and/or Lessor Amounts and rights and obligations hereunder to another lender or lessor as the case may be designated by the Lessee and approved by the Administrative Agent and the Agent Lessor (which approvals will not be unreasonably withheld) under and pursuant to Section 12.1 hereof (except that the assignment and retention minimums shall not apply) upon payment to it of the amount of principal and accrued and unpaid interest and fees owing it as of the date such assignment becomes effective. ARTICLE XIII INDEMNIFICATION Section 13.1. General Indemnification. The Lessee agrees to assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee, on an After Tax Basis, from and against any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise, except to the extent otherwise provided in this Section 13.1), unless such Indemnitee shall be indemnified as to any such Claim by any other Person and unless such Claim arises or accrues prior to the applicable Acquisition Date or after the Expiration Date, in any way relating to or arising out of: (a) any of the Operative Documents or any of the Transactions, and any amendment, modification or waiver in respect thereof; -30- 36 (b) the Property or any part thereof or interest therein; (c) the purchase, design, construction, preparation, installation, inspection, delivery, nondelivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, disposition, operation, condition, sale, return or other disposition of all or any part or any interest in the Property or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (1) Claims or penalties arising from any violation of law or in tort (on the basis of strict liability or otherwise), (2) latent or other defects, whether or not discoverable, (3) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to the Property, (4) the making of any modifications to the Property in violation of any Material Insurance Requirements imposed by any insurance policies required to be maintained by the Lessee pursuant to the Master Lease which are in effect at the time such modifications are made with respect to the Property or any part thereof, (5) any Claim for patent, trademark or copyright infringement, and (6) Claims arising from any public improvements with respect to the Property resulting in any change or special assessments being levied against the Property or any plans to widen, modify or realign any street or highway adjacent to the Property, or any Claim for utility "tap-in" fees; (d) the breach by Lessee or Guarantor of any covenant, representation or warranty made by it or deemed made by it in any Operative Document or any certificate required to be delivered by any Operative Document; (e) the existence of any Lien on or with respect to the Property, any Basic Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of the Property or by reason of labor or materials furnished or claimed to have been furnished to the Lessee, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by the Lessee or modifications to the Property constructed by the Lessee, except Lessor Liens and Liens in favor of the Lenders or the Lessors; (f) subject to the accuracy of any Participant's representation set forth in Section 8.1(a), as to such Participant, the Transactions in respect of a prohibited transaction under ERISA or the Code. Provided, however, that the Lessee shall not be required to indemnify any Indemnitee under this Section 13.1 for any of the following: (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim or the breach of any representation, warranty or covenant of such Indemnitee set forth in any Operative -31- 37 Document, (2) any Claim resulting from Lessor Liens which the Agent Lessor, the Administrative Agent or any of the Lessors or Lenders is responsible for discharging under the Operative Documents, (3) any Claim arising from a breach or alleged breach by the Lenders or the Lessors of any agreement entered into in connection with the assignment or participation of any Loan or Lessor Amount and (4) any Claim arising in respect of the Property in the period after the Lessee ceases to lease the Property from the Lessors under the related Master Lease, provided that the circumstances giving rise to such Claim occur after such period. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Master Lease or any other Operative Document, provided, however, that no Indemnitee shall have the right to assign or otherwise transfer its rights hereunder to any purchaser of its interest in the Master Lease or the Property other than as permitted by Article XII hereof. Without limiting the express rights of any Indemnitee under this Section 13.1, this Section 13.1 shall be construed as an indemnity only and not a guaranty of residual value of the Property or as a guaranty of the Notes. Section 13.2. End of Term Indemnity. (a) If the Lessee elects the Remarketing Option and there would, after giving effect to the proposed remarketing transactions, be a Shortfall Amount, then prior to the Expiration Date and as a condition to the Lessee's right to complete the remarketing of the Property pursuant to Article XX of the Master Lease, the Lessee shall cause to be delivered to the Agent Lessor at least one hundred twenty (120) days prior to the Expiration Date, at the Lessee's sole cost and expense, a report from the Appraiser in form and substance reasonably satisfactory to the Agent Lessor, the Administrative Agent and the Participants (the "End of the Term Report" ) which shall state the Appraiser's conclusions as to the reason for any decline in the Fair Market Sales Value of any of the Property from that anticipated for such date in the Appraisal delivered with respect to the Property. (b) If the Lessee elects the Remarketing Option, on or prior to the Expiration Date the Lessee shall pay to the Agent Lessor for the account of each of the Lessors an amount (not to exceed the Shortfall Amount) equal to the portion of the Shortfall Amount that the End of the Term Report demonstrates was the result of a decline in the Fair Market Sales Value of the Property due to any of the following, but in all cases only to the extent in breach or violation of any of the Operative Documents and not otherwise consented to pursuant to Section 15.5 hereof: (i) extraordinary use; failure to maintain, repair, restore, rebuild or replace; failure to comply with all applicable laws; failure to use; workmanship; method of installation or removal or maintenance, repair, rebuilding or replacement (excepting in each case ordinary wear and tear); or (ii) any Modification made to, or any rebuilding of, the Property or any part thereof by the Lessee; or (iii) the existence of any Environmental Violations, the indemnity for which shall not exceed the cost of the remediation thereof; or -32- 38 (iv) any restoration or rebuilding carried out by the Lessee, or (v) any condemnation of any portion of any of the Property pursuant to Article XIV of the Master Lease; or (vi) any use of any of the Property or any part thereof by the Lessee or any sublessee other than aluminum rolling mill facility as contemplated by the Appraisal; or (vii) any grant, release, dedication, transfer, annexation or amendment made pursuant to Section 11.2 of the Master Lease; or (viii) the failure of the Lessors to have good and marketable title to the Property free and clear of all Liens (excluding Permitted Property Liens); or (ix) the existence of any sublease relating to the Property that shall survive the Expiration Date. Section 13.3. Environmental Indemnity. Without limitation of the other provisions of this Article XIII, the Lessee and Guarantor hereby agree to indemnify, hold harmless and defend each Indemnitee from and against any and all Claims, arising in whole or in part, out of: (a) lack of compliance with Environmental Laws; or any act or omission causing an environmental condition that requires remediation or disposition thereof or would allow any Governmental Authority to record a Lien on the Property and the cost of disposition or remediation of any such environmental condition or costs and damage resulting from death or injury associated therewith; or (b) any residual contamination on or under the Property, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any Hazardous Materials (or the Release thereof), and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances; provided, however, that the Lessee and Guarantor shall not be required to indemnify any Indemnitee under this Section 13.3 for any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee and with respect to matters not caused by an act or omission of the Lessee such indemnification shall include only defense costs of Indemnitee. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of the Lease Term with respect to any Claim to the extent it is based on facts or circumstances arising prior to or during the Lease Term, and shall be separate and independent from any remedy under the Lease or any other Operative Document; provided, however, that no Indemnitee shall have the right to assign or -33- 39 otherwise transfer its rights hereunder to any purchaser of its interest in the Lease or the Property other than as permitted by Article XII hereof. Section 13.4. Proceedings in Respect of Clans. If any Claim shall be brought against any Indemnitee, such Indemnitee shall promptly notify the Lessee of the commencement thereof, and the Lessee shall be entitled, at the Lessee's expense, to participate in, or, to the extent that the Lessee desires to, assume and control the defense thereof; provided, however, that the Lessee shall have acknowledged in writing its obligation fully to indemnify such Indemnitee in respect of such Claim, except to the extent the Claim arose due to the willful misconduct or gross negligence of such Indemnitee, and the Lessee shall keep such Indemnitee fully apprised of the status of such action, suit or proceeding and shall provide such Indemnitee with all information with respect to such action, suit or proceeding as such Indemnitee shall reasonably request, and provided, further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) such Indemnitee has obtained and provided Lessee with a copy of a reasonable good faith written opinion of counsel that, (x) such action, suit or proceeding involves a reasonable risk of imposition of criminal liability on the Indemnitee or will involve a reasonable risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Property Lien) on the Property or any part thereof unless, in the case of civil liability, the Lessee shall have posted a bond or other security reasonably satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve an actual or potential conflict of interest, (B) such proceeding predominantly involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnitee have been unable to sever from the indemnified Claim(s), or (C) an Event of Default under the Lease has occurred and is continuing. The Indemnitee will join in the Lessee's efforts to sever such action. The Indemnitee may participate at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing. The Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.1 or 13.3 without prior written consent of the Indemnitee, which consent shall not be unreasonably withheld, unless such settlement unconditionally releases the Indemnitee from all liabilities associated with such Claim and does not involve an admission of liability of such Indemnitee. Each Indemnitee shall at the expense of the Lessee supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any Claim to the extent permitted by Section 13.1 or 13.3. Each Indemnitee shall at the expense of the Lessee cooperate fully with the Lessee in the defense of all Claims for which indemnification has been requested and in which the Lessee has assumed and is controlling the defense. No Indemnitee shall enter into any settlement or other compromise or make any admission against interest, except as required by law, without the prior written consent of the Lessee, unless such Indemnitee waives its rights to be indemnified under this Article XIII. Upon satisfaction of any Claim by the Lessee pursuant to Section 13.1 or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in -34- 40 respect of insurance policies maintained by such indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are necessary or advisable to enable the Lessee vigorously to pursue such claims. Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3 shall be paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable. Section 13.5 General Tax Indemnity. (a) Indemnification. The Lessee shall pay and assume liability for, and does hereby agree to indemnify, protect and defend the Property and all Tax Indemnitees, and hold them harmless against, all Impositions on an After Tax Basis. (b) Contests. If any Claim in respect of an Imposition shall be made against any Tax Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee (including a written notice of such proceeding) as to which the Lessee may have an indemnity obligation pursuant to this Section 13.5, or if any Tax Indemnitee shall determine that any Imposition to which the Lessee may have an indemnity obligation pursuant to this Section 13.5 may be payable, such Tax Indemnitee shall promptly (and in any event, within thirty (30) days) notify the Lessee in writing (provided that failure to so notify the Lessee within thirty (30) days shall not alter such Tax Indemnitee's rights under this Section 13.5 except to the extent such failure precludes or prejudices the ability to contest such Imposition) and shall not take any action with respect to such Claim, proceeding or Imposition without the written consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for thirty (30) days after the receipt of such notice by the Lessee; provided, however, that in the case of any such Claim or proceeding, if such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such thirty (30) day period, such Tax Indemnitee shall, in such notice to the Lessee, so inform the Lessee and such Tax Indemnitee shall not take any action with respect to such Claim, proceeding or Imposition without the consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for ten (10) days after the receipt of such notice by the Lessee unless such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such ten (lO) day period. The Lessee shall be entitled for a period of thirty (30) days from receipt of such notice from such Tax Indemnitee (or such shorter period as such Tax Indemnitee has notified the Lessee is required by law or regulation for such Tax Indemnitee to commence such contest), to request in writing that such Tax Indemnitee contest the Imposition at the Lessee's expense. If (x) such contest can be pursued in the name of the Lessee and independently from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee, (y) such contest must be pursued in the name of such Tax Indemnitee, but can be pursued independently -35- 41 from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee or (z) such Tax Indemnitee so requests, then the Lessee shall have the right to control the contest of such Claim, provided that in the case of a contest described in clause (y), if such Tax Indemnitee obtains and provides the Lessee with the reasonable good faith opinion of such Tax Indemnitee's counsel that such contest by the Lessee could have a material adverse impact on the business or operations of such Tax Indemnitee, including an explanation to the Lessee of such determination, such Tax Indemnitee may elect to control or reassert control of the contest, and provided that by taking control of the contest, the Lessee acknowledges that it is responsible for the Imposition ultimately determined to be due by reason of such Claim, and provided, further, that in determining the application of clauses (x) and (y) above, each Tax Indemnitee shall take any and all reasonable steps to segregate Claims for any Taxes for which the Lessee indemnifies hereunder from Taxes for which the Lessee is not obligated to indemnify hereunder, so that the Lessee can control the contest of the former. In all other Claims requested to be contested by the Lessee, such Tax Indemnitee shall control the contest of such Claim, acting through counsel reasonably acceptable to the Lessee. In no event shall the Lessee be permitted to contest (or such Tax Indemnitee required to contest) any Claim, (A) if such Tax Indemnitee provides the Lessee with a legal opinion of counsel reasonably acceptable to the Lessee that such action, suit or proceeding involves a reasonable risk of imposition of criminal liability or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Property or any part thereof unless the Lessee shall have posted and maintained a bond or other security reasonably satisfactory to the relevant Tax Indemnitee in respect to such risk, (B) if an Event of Default has occurred and is continuing, (C) unless the Lessee shall have agreed to pay and shall pay, to such Tax Indemnitee on demand all reasonable out-of-pocket costs, losses and expenses that such Tax Indemnitee may incur in connection with contesting such Imposition including all reasonable legal, accounting and investigatory fees and disbursements, or (D) if such contest shall involve the payment of the Tax prior to the contest, unless the Lessee shall provide to such Tax Indemnitee an interest-free advance in an amount equal to the Imposition that the Indemnitee is required to pay (with no additional net after-tax costs to such Tax Indemnitee). In addition for Tax Indemnitee controlled contests and Claims contested in the name of such Tax Indemnitee in a public forum, no contest shall be required: (A) unless the amount of the potential indemnity (taking into account all similar or logically related Claims that have been or could be raised in any audit involving any or all such Tax Indemnitees with respect to any period for which the Lessee may be liable to pay an indemnity under this Sec 13.5(b)) exceeds $250,000 and (B) unless, if requested by such Tax Indemnitee, the Lessee shall have provided to such Tax Indemnitee an opinion of counsel selected by the Lessee (which may be in-house counsel) (except, in the case of income taxes indemnified hereunder, in which case such opinion shall be an opinion of independent tax counsel selected by such Tax Indemnitee and reasonably acceptable to the Lessee) that a reasonable basis exists to contest such Claim. In no event shall a Tax Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court. The party conducting the contest shall consult in good faith with the other party and its counsel with respect to the contest of such Claim for Taxes (or Claim for refund) but the -36- 42 decisions regarding what actions to be taken shall be made by the controlling party in its sole judgment, provided, however, that if such Tax Indemnitee is the controlling party and the Lessee recommends the acceptance of a settlement offer made by the relevant Governmental Authority and such Tax Indemnitee rejects such settlement offer then the amount for which the Lessee will be required to indemnify such Tax Indemnitee with respect to the Taxes subject to such offer shall not exceed the amount which it would have owed if such settlement offer had been accepted. In addition, the controlling party shall keep the non-controlling party reasonably informed as to the progress of the contest, and shall provide the non-controlling party with a copy of (or appropriate excerpts from) and reports or Claims issued by the relevant auditing agents or taxing authority to the controlling party thereof, in connection with such Claim or the contest thereof. Each Tax Indemnitee shall, at the Lessee's expense, supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by this Section 13.5(b). Notwithstanding anything in this Section 13.5(b) to the contrary, no Tax Indemnitee shall enter into any settlement or other compromise or fail to appeal an adverse ruling with respect to any Claim which is entitled to be indemnified under this Section 13.5 (and with respect to which contest is required under this Section 13.5(b)) without the prior written consent of the Lessee, unless such Tax Indemnitee waives its right to be indemnified under this Section 13.5 with respect to such Claim. Notwithstanding anything contained herein to the contrary, a Tax Indemnitee will not be required to contest (and the Lessee shall not be permitted to contest) a Claim with respect to the imposition of any Tax if such Tax Indemnitee shall waive its right to indemnification under this Section 13.5 with respect to such Claim (and any Claim with respect to such year or any other taxable year the contest of which is materially adversely affected as a result of such waiver). (c) [Intentionally omitted] (d) Payments. Any Imposition indemnifiable under this Section 13.5 shall be paid directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to Section 13.5 shall be paid within thirty (30) days after receipt of a written demand therefor from such Tax Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable, but not before two (2) Business Days prior to the date that the relevant Taxes are due. Any payments made pursuant to this Section 13.5 shall be made directly to such Tax Indemnitee entitled thereto or the Lessee, as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in Schedule II hereto. Upon the request of any Tax Indemnitee with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Tax Indemnitee the original or a certified copy of a -37- 43 receipt for the Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee. (e) Reports. In the case of any report, return or statement required to be filed with respect to any Taxes that are subject to indemnification under this Section 13.5 and of which the Lessee has knowledge, the Lessee shall promptly notify such Tax Indemnitee of such requirement and, at the Lessee's expense (i) if the Lessee is permitted (unless otherwise required by such Tax Indemnitee) by Applicable Law, timely file such report, return or statement in its own name or (ii) if such report, return or statement is required to be in the name of or filed by such Tax Indemnitee or such Tax Indemnitee otherwise requests that such report, return or statement be filed in its name, prepare and finish such statement for filing by such Tax Indemnitee in such manner as shall be satisfactory to such Tax Indemnitee and send the same to such Tax Indemnitee for filing no later than fifteen (15) days prior to the due date therefor. In any case in which such Tax Indemnitee will file any such report, return or statement, the Lessee shall, upon written request of such Tax Indemnitee, provide such Tax Indemnitee with such information as is reasonably necessary to allow such Tax Indemnitee to file such report, return or statement and the Tax Indemnitee shall provide the Lessee with an information copy or a copy of any such report, return or statement. (f) [Intentionally omitted] Section 13.6. Indemnity Payments in Addition to Lease Obligations. The Lessee acknowledges and agrees that the Lessee's obligations to make indemnity payments under this Article XIII are separate from, in addition to, and do not reduce, Lessee's obligation to pay any amounts owing from time to time under the Lease. Section 13.7. Rate Determinations. The Administrative Agent shall determine each interest rate applicable to the Loans and Lessor Amounts hereunder in accordance herewith, and its determination thereof if reasonably made shall be prima facie correct, subject to a showing of error. Section 13.8. Funding Indemnity. In the event any Lender or Lessor shall incur any loss, cost or expense (including, without limitation, any loss, cost or expense incurred by reason of the liquidation or re-employment of deposits or other funds acquired by such Lender or Lessor to fund or maintain any Eurodollar Loan/Lessor Amount or the relending or reinvesting of such deposits or amounts paid or prepaid to such Lender or Lessor, and any loss of profit) as a result of: (a) any payment or prepayment of a Eurodollar Loan/Lessor Amount on a date other than the last day of its Interest Period for any reason; or (b) any failure by the Lessee to make any payment of a Eurodollar Loan/Lessor Amount when due (whether by acceleration, mandatory prepayment or otherwise), -38- 44 then, upon the demand of such Lender or Lessor, the Lessee shall pay to such Lender or Lessor such amount as will reimburse such Lender or Lessor for such loss, cost or expense. If any Lender or Lessor makes such a claim for compensation, it shall provide to the Lessee a certificate executed by an officer of such Lender or Lessor setting forth the amount of such loss, cost or expense in reasonable detail (including an explanation of the basis for and the computation of such loss, cost or expense) and such certificate shall be deemed prima facie correct. Section 13.9. Change of Law. Notwithstanding any other provisions of this Participation Agreement, if at any time any change in applicable law or regulation or in the interpretation thereof makes it unlawful for any Lender or Lessor to make or continue to maintain Eurodollar Loans/Lessor Amounts or to give effect to its obligations to make Eurodollar Loans/Lessor Amounts as contemplated hereby, such Lender or Lessor shall promptly give notice thereof to the Lessee and the Administrative Agent, and such Lender's or Lessor's obligations to make or maintain Eurodollar Loans/Lessor Amounts under this Participation Agreement shall terminate until it is no longer unlawful for such Lender or Lessor to make or maintain Eurodollar Loans/Lessor Amounts. To the extent required to comply with any such law as changed, the Lessee shall prepay on demand the outstanding principal amount of any affected Eurodollar Loans/Lessor Amounts, together with all interest accrued thereon and all other amounts then due and payable to such Lender or Lessor under this Agreement; provided, however, subject to all of the terms and conditions of this Participation Agreement, the Lessee may then elect to convert the principal amount of the affected Eurodollar Loan/Lessor Amount from such Lender or Lessor to a Base Rate Loan/Lessor Amount from such Lender or Lessor that shall not be converted ratably by the Lenders or Lessors but only from such affected Lender or Lessor. Section 13.10. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR. If on or prior to the first day of any Interest Period for any Eurodollar Loans/Lessor Amounts the Administrative Agent is advised by the Required Lenders or Required Lessors that deposits in United States Dollars (in the applicable amounts) are not being offered to them in the relevant market for such Interest Period, then the Administrative Agent shall forthwith give notice thereof to the Lessee and the Lenders and Lessors, whereupon until the Administrative Agent notifies the Lessee that the circumstances giving rise to such suspension no longer exist, the obligations of the Lenders or Lessors to continue or convert Eurodollar Loans shall be suspended. Section 13.11. Increased Cost and Reduced Return. If on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or Lessor (or its Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (a) shall subject any Lender or Lessor (or its Lending Office) to any tax, duty or other charge with respect to its Eurodollar Loans/Lessor Amounts, or shall change the basis of taxation of payment to any Lender or Lessor (or its Lending -39- 45 Office) of the principal of or interest on its Eurodollar Loans/Lessor Amounts or any other amounts due under this Participation Agreement in respect of its Eurodollar Loans/Lessor Amounts or its obligation to make Eurodollar Loans/Lessor Amounts (except for changes involving the imposition or increase of a tax on the overall net income or gross receipts of such Lender or Lessor or its Lending Office); or (b) shall impose, modify or deem applicable any reserve, special deposit or similar requirements (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System against assets of, deposits with or for the account of, or credit extended by, any Lender or Lessor (or its Lending Office) or shall impose on any Lender or Lessor (or its Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Eurodollar Loans/Lessor Amounts; and the result of any of the foregoing is to increase the cost to such Lender or Lessor (or its Lending Office) of making or maintaining any Eurodollar Loan/Lessor Amount, or to reduce the amount of any sum received or receivable by such Lender or Lessor (or its Lending Office) under this Participation Agreement, by an amount deemed by such Lender or Lessor to be material, then, within 15 days after demand by such Lender or Lessor (with a copy to the Administrative Agent), the Lessee shall pay to such Lender or Lessor such additional amount or amounts as will compensate such Lender or Lessor for such increased cost or reduction. A certificate of any Lender or Lessor claiming compensation under this Section 13.11 and setting forth the additional amount or amounts to be paid to it hereunder shall be prima facie correct subject to a showing of error. In determining such amount, such Lender or Lessor may use any reasonable averaging and attribution methods. A Lender or Lessor shall not be entitled to compensation under this Section 13.11 with respect to any adoption or change for any period which is more than thirty days prior to the date it notifies the Lessee of the adoption or change giving rise to the request for compensation (except to the extent the adoption or change has a retroactive effective date in which case such Lender or Lessor shall also be entitled to compensation for the period given retroactive effect to the extent not covered by the thirty (30) day period prior to such notice) and any Lender or Lessor desiring to claim compensation hereunder shall notify the Lessee of the adoption or change giving rise to the claim in question as promptly as practicable and in any event within thirty days after becoming aware of same. Without limiting the generality of the foregoing, the Lessee shall pay to each Lender and Lessor, so long as such Lender or Lessor shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency liabilities, additional interest on the unpaid principal amount of each Eurodollar Loan/Lessor Amount of such Lender or Lessor, from the effective date of such requirement until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) LIBOR for the Interest Period for such Eurodollar Loan/Lessor Amount from (ii) the rate obtained by dividing such LIBOR by a percentage equal to 100% minus the Eurodollar Reserve Percentage of such Lender or Lessor for such Interest Period, payable on each date on which interest is payable on such Eurodollar Loan/Lessor Amount. Such additional -40- 46 interest shall be determined by such Lender or Lessor and notified to the Lessee through the Administrative Agent, and such determination shall be prima facie correct, subject to showing of error. Section 13.12. Lending Offices. Each Lender and Lessor may, at its option, elect to make its Loans or Lessor Amounts hereunder at the branch, office or affiliate specified on the appropriate signature page hereof (each a "Lending Office") for each type of Loan available hereunder or at such other of its branches, offices or affiliates as it may from time to time elect and designate in a notice to the Lessee and the Administrative Agent (but such funds shall in any event be made available to the Lessee at the office of the Administrative Agent as herein provided for), provided that the Lessee shall not be required to reimburse any Lender or Lessor under any of the provisions of this Article 3 for any cost which such Lender or Lessor would not have incurred but for changing its lending or funding branch unless the Lessee consented to such change after being advised by such Lender or Lessor of any increased costs then existing for which such Lender or Lessor could claim reimbursement from the Lessee if such Lender or Lessor made the change in its lending or funding branch in question. Section 13.13. Discretion of Lenders or Lessors as to Manner of Funding. Notwithstanding any other provision of this Agreement, each Lender and Lessor shall be entitled to fund and maintain its funding of all or any part of its Loans and Lessor Amounts in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations under this Agreement shall be made as if each Lender and Lessor had actually funded and maintained each Eurodollar Loan/Lessor Amount through the purchase of deposits in the relevant market having a maturity corresponding to such Loan's or Lessor's Amount Interest Period and bearing an interest rate equal to LIBOR for such Interest Period. Section 13.14. Capital Adequacy. If any Lender or Lessor shall determine that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by such Lender or Lessor (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's or Lessor's capital as a consequence of its obligations hereunder or credit extended by it hereunder to a level below that which such Lender or Lessor could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or Lessor's policies with respect to capital adequacy) by an amount deemed by such Lender or Lessor to be material, then from time to time as specified by such Lender or Lessor the Lessee shall pay to such Lender or Lessor, such additional amount or amounts as will compensate such Lender or Lessor for such reduction. A certificate of any Lender or Lessor claiming compensation under this Section 13.14 and setting forth the additional amount or amounts to be paid to it hereunder shall be prima facie evidence thereof subject to a showing of error. In determining such amount, such Lender or Lessor may use any reasonable averaging and attribution methods. -41- 47 Section 13.15. Participant Replacement. If any Lender or Lessor requests compensation for increased costs or other amounts pursuant to Sections 13.11 or 13.14, or suspends its obligation to make Eurodollar Loans/Lessor Amounts under Section 13.9 or 13.11 hereof or the Lessee is required to make any reduction or withholding with respect to any payment due any Lender or Lessor hereunder (each Lender or Lessor hereby undertaking to promptly notify the Lessee if it becomes aware of circumstances which would require such a reduction or withholding), or if any Lender or Lessor fails or would not be able to comply with its obligations under this Participation Agreement (in any such case a "Replaceable Lender or Lessor") the Lessee may, with the consent of the Agent Lessor and Administrative Agent, or if the Replaceable Lender or Lessor is the Administrative Agent or Agent Lessor, with the consent of the Agent Lessor or the Administrative Agent and Required Participants, which consent in either case shall not be unreasonably withheld, propose that another bank or lessor (a "Replacement Lender or Lessor"), which bank or lessor may be an existing Participant, be substituted for and replace the Replaceable Lender or Lessor for purposes of this Participation Agreement. If a Replacement Lender or Lessor is so substituted for the Replaceable Lender or Lessor, the Replaceable Lender or Lessor shall enter into an Assignment Agreement with the Replacement Lender or Lessor, the Lessee, the Agent Lessor and the Administrative Agent (or the other Lender or Lessor, if either the Agent Lessor or the Administrative Agent is the Replaceable Lender or Lessor) to assign and transfer to the Replacement Lender or Lessor the Replaceable Lender or Lessor's Commitment and Lessor Amounts or Loans hereunder pursuant to and in accordance with the provisions and requirements of Section 12.1 and, as a condition to its execution thereof, the Replaceable Lender or Lessor shall concurrently receive the full amount of its Loan or Lessor Amounts, as the case may be, interest (or Yield as the case may be) thereon and all accrued fees to which it is entitled under this Participation Agreement. ARTICLE XIV THE AGENT LESSOR Section 14.1. Appointment and Authorization. Each Lessor irrevocably appoints and authorizes BMO Leasing (U.S.), Inc. as Agent Lessor (in such capacity as Agent Lessor hereunder and under the other Operative Documents, the "Agent Lessor") of such Lessor to enter into the Operative Documents (including, without limitation, the Master Lease and each Lease Supplement) on behalf of such Lessor and to act as specified herein and in the other Operative Documents, and each such Lessor hereby authorizes the Agent Lessor as agent for such Lessor, to take such action on its behalf under the provisions of this Participation Agreement and the other Operative Documents and to exercise such powers and perform such duties as are expressly delegated by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto (including, without limitation, the execution and delivery from time to time in accordance with the provisions and terms hereof and the various other documents, conveyances, terminations, assignments and instruments contemplated herein to be delivered by the Agent Lessor on behalf of the Lessors). Each action taken by the Agent Lessor under any Operative Document shall be deemed to be on behalf of each the Lessors, unless otherwise indicated. Notwithstanding any -42- 48 provision to the contrary elsewhere herein or in the other Operative Documents, the Agent Lessor shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lessor, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Participation Agreement or any of the other Operative Documents, or shall otherwise exist against the Agent Lessor. Section 14.2. Delegation of Duties. The Agent Lessor may execute any of its duties hereunder or under the other Operative Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent Lessor shall not be responsible for the negligence or misconduct of any agents or attorneys in fact selected by it with reasonable care. Section 14.3. Agent Lessor and Affiliates. The Agent Lessor shall have the same rights and powers under this Participation Agreement and under the other Operative Documents as any other Lessor, and may exercise or refrain from exercising the same as though it were not the Agent Lessor. Section 14.4. Action by Agent Lessor. The obligations of the Agent Lessor hereunder and under the other Operative Documents are only those expressly set forth herein and therein. Without limiting the generality of the foregoing, the Agent Lessor shall not be required to take any action with respect to any Default or Event of Default, except as expressly provided herein and in the other Operative Documents. Section 14.5. Consultation with Experts. The Agent Lessor may consult with legal counsel (who may be counsel for Lessee, Guarantor, a Participant, the Administrative Agent, the Arranger or any Affiliate of any of them), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. Section 14.6. Exculpatory Provisions. Neither the Agent Lessor nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be responsible for or have any duty to ascertain, inquire into or verify (a) any statement, warranty or representation made in connection with the Operative Documents; (b) the performance or observance of any of the covenants or agreements of Lessee or Guarantor; (c) the satisfaction of any condition precedent specified herein or in any other Operative Document; (d) the validity, effectiveness or genuineness of any of the Operative Documents or any other instrument or writing furnished in connection herewith or therewith; (e) the use of the proceeds of the Advance; (f) the existence of any Default or Event of Default; or (g) the properties, books or records of Lessee or Guarantor. Section 14.7. Reliance on Communications. The Agent Lessor shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or -43- 49 Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Lessee or Guarantor), independent accountants and other experts selected by the Agent Lessor with reasonable care. The Agent Lessor may deem and treat the Participants as the owner of their respective interests hereunder and under the other Operative Documents for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent Lessor in accordance with Section 12.1 of the Participation Agreement. The Agent Lessor, acting in its capacity as Agent Lessor, shall be fully justified in failing or refusing to take any action under this Participation Agreement or under any of the other Operative Documents unless it shall first receive such advice or concurrence of the Lessors as it deems appropriate or it shall first be indemnified to its satisfaction by the Participants against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent Lessor shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under any of the other Operative Documents in accordance with a request of the Lessors and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Participants (including their successors and assigns). Section 14.8. Notice of Default. The Agent Lessor shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent Lessor has received notice from a Participant, Lessee or Guarantor referring to the Operative Document, describing such Default or Event of Default and stating that such notice is a "notice of default" and has received evidence that the matter referenced constitutes an Event of Default. In the event that the Agent Lessor receives such a notice, the Agent Lessor shall give prompt notice thereof to the Participants. The Agent Lessor shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lessors. Section 14.9. Non-Reliance on Agent Lessor and Other Participants. Each Participant expressly acknowledges that neither the Agent Lessor (other than in its role as Participant) nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Agent Lessor or any affiliate thereof hereafter taken, including any review of the affairs of Lessee or Guarantor, shall be deemed to constitute any representation or warranty by the Agent Lessor to any Participant. Each Participant represents to the Agent Lessor that it has, independently and without reliance upon the Agent Lessor or any other Participant, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial, and other conditions, prospects and creditworthiness of Lessee and Guarantor and made its own decision to make its proportionate share of the Advances hereunder and under the other Operative Documents and enter into this Participation Agreement and the other Operative Documents. Each Participant also represents that it will, independently and without reliance upon the Agent Lessor or any other Participant, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Participation Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of Lessee and -44- 50 Guarantor. Except for notices, reports and other documents expressly required to be furnished to the Participants by the Agent Lessor hereunder, the Agent Lessor shall not have any duty or responsibility to provide any Participant with any credit or other information concerning the business, operations, assets, property, financial or other conditions, prospects or creditworthiness of Lessee and Guarantor which may come into the possession of the Agent Lessor or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. Section 14.10. Indemnification. The Lessors agree to indemnify the Agent Lessor in its capacity as such (to the extent not reimbursed by Lessee or Guarantor and without limiting the obligation of Lessee and Guarantor to do so), ratably according to their respective Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Agent Lessor in its capacity as such in any way relating to or arising out of this Participation Agreement or the other Operative Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent Lessor under or in connection with any of the foregoing; provided that no Lessor shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Agent Lessor. If any indemnity furnished to the Agent Lessor for any purpose shall, in the opinion of the Agent Lessor, be insufficient or become impaired, the Agent Lessor may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section shall survive the payment in full of the Obligations and all other amounts payable hereunder and under the other Operative Documents. Section 14.11. Failure to Act. Except for action expressly required of the Agent Lessor hereunder, the Agent Lessor shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Lessors against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Section 14.12. Resignation and Removal. The Agent Lessor may resign at any time upon at least thirty (30) days' prior notice to the Lessee and the Participants, and may be removed as such at any time by vote of the Required Lessors and notice to the retiring Agent Lessor, the Administrative Agent and the Lessee. In the event of any such resignation or removal, the Required Lessors shall as promptly as practicable (but with five (5) Business Days' prior written notice being given to the Lessee) appoint a successor Agent Lessor, provided that such successor Agent Lessor shall be approved by the Administrative Agent, and, unless an Event of Default is continuing, be approved by the Lessee (which approval shall not be unreasonably withheld or delayed) and, if the Lessee has not responded within such five Business Day period, the Lessee shall be deemed to have approved such new Agent Lessor. If no successor Agent Lessor shall have been so appointed and shall have accepted such appointment within thirty (30) days after either the retiring Agent Lessor's giving of -45- 51 notice of resignation or the Required Lessors' vote to remove the retiring Agent Lessor, then the retiring Agent Lessor may, on behalf of the Lessors, appoint a successor Agent Lessor (subject, absent a Lease Event of Default, to the reasonable approval of the Lessee), which shall be a commercial bank organized under the laws of the United States of America or of any State thereof or under the laws of another country that is doing business in the United States and having a combined capital, surplus and undivided profits of at least $100,000,000, or a wholly owned subsidiary of such bank. Upon its acceptance of its appointment, such successor Agent Lessor shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent Lessor, and the retiring Agent Lessor shall be discharged from all further duties and obligations as Agent Lessor under this Participation Agreement and under the other Operative Documents. After any retiring Agent Lessor's resignation or removal hereunder as Agent Lessor, the provisions of this Participation Agreement and of the other Operative Documents shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent Lessor under this Participation Agreement. No resignation or renewal of the Agent Lessor may become effective until a successor Agent Lessor has been appointed as provided above. Section 14.13. Distributions. The Agent Lessor shall, as promptly as practicable, distribute to each Participant its appropriate portion, if any, of payments received (in good, collected funds) by the Agent Lessor from Lessee or Guarantor for the account of the Participants or of any such payments so received for the account of such Participant. Section 14.14. Rights of Lessee. Except where Lessee is expressly referenced in this Article XIV, (w) the Agent Lessor shall act solely as agent of the Lessors and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for Lessee, (x) this Article XIV is for the benefit of the Agent Lessor and the Participants only, (y) Lessee shall have no right to enforce any part of this Article XIV and shall have no rights as third party beneficiary or otherwise therein, and (z) this Article XIV may be amended by the approval of Agent Lessor and the Required Participants, without any need to obtain the approval of Lessee. ARTICLE XV MISCELLANEOUS Section 15.1. Survival of Agreements. All representations, warranties and covenants made herein or in other Operative Document shall survive the execution and delivery of this Participation Agreement and of the Notes, and shall continue in full force and effect with respect to the date as of which they were made as long as any Loans or Lessor Amounts are outstanding hereunder. All indemnities shall survive the termination of this Participation Agreement and the payment of the Loans and Lessor Amounts. Section 15.2. No Broker. Each of the parties hereto represents to the others that it has not retained or employed any broker, finder or financial adviser to act on its behalf in connection with this Participation Agreement or the transactions contemplated herein or in the other Operative Documents nor has it authorized any broker, finder or financial adviser -46- 52 retained or employed by any other Person so to act. Any party which is in breach of this representation shall indemnify and hold the other parties harmless from and against any liability arising out of such breach of this representation. Section 15.3. Notices. All communications provided for herein shall be in writing or by telex or by telecopy, except as otherwise specifically provided for hereinabove, addressed to the appropriate party at their respective addresses set forth opposite their respective signatures hereto, or at such other address as shall be designated by any party hereto in a written notice to each other party pursuant to this Section 15.3. Any notice in writing shall be deemed to have been given or made when served personally or when received if sent by United States mail, and any notice given by telex or telecopy means shall be deemed given when transmitted (answerback confirmed); provided that any notice to the Administrative Agent, the Agent Lessor or any Participant under Article III or Sections 4.3 and 4.5 hereof shall only be effective upon receipt. Section 15.4. Counterparts. This Participation Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Section 15.5. Amendments. No provision of this Participation Agreement may be amended or waived except in writing signed by the Lessee, the Guarantor and the Required Participants and, if the rights or duties of the Administrative Agent or the Agent Lessor are affected thereby, by the Administrative Agent and/or the Agent Lessor (as appropriate); provided that no such amendment or waiver shall, unless signed by a Participant, (i) increase or extend the Commitment of such Participant or subject such Participant to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or Yield on any Lessor Amount from such Participant or any fees due such Participant hereunder or (iii) change the stated time or manner of any payment of principal of or interest on any Loan or Yield on any Lessor Amount from such Participant or any fees due such Participant hereunder, and no such amendment shall, unless signed by all Participants, change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, the Lessor Amounts, or the number of Participants, required for the Participants or any of them to take any action under this Section 15.5 or any other provisions of this Participation Agreement or the other Operative Documents. Section 15.6. Headings. The Table of Contents and headings of the various Articles and Sections of this Participation Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. Section 15.7. Parties in Interest. Except as expressly provided herein, none of the provisions of this Participation Agreement is intended for the benefit of any Person except the parties hereto. The Lessee shall not assign or transfer any of its rights or obligations under the Operative Documents except in accordance with the terms and conditions thereof. -47- 53 Section 15.8. GOVERNING LAW; SUBMISSION TO JURISDlCTION. THIS PARTICIPATION AGREEMENT AND (UNLESS EXPRESSLY STATED OTHERWISE) THE OTHER OPERATIVE DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS PARTICIPATION AGREEMENT, THE OTHER OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO TO LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. Section 15.9. Severability. Any provision of this Participation Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 15.10. Liability Limited. (a) The parties hereto agree that except as specifically set forth herein or in any other Operative Document, no Lessor shall have any personal liability whatsoever to any Participant or their respective successors and assigns for any claim based on or in respect hereof or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby and recourse, if any, shall be solely had against such Lessor's interest in the Property; provided, however, that each Lessor shall be liable in its individual capacity (a) for its own willful misconduct or gross negligence, (b) breach of any of its representations, warranties or covenants under the Operative Documents, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for acting as a Lessor as contemplated by the Operative Documents. It is understood and agreed that, except as provided in the preceding sentence: (i) no Lessor shall have any personal liability under any of the Operative Documents as a result of acting pursuant to and consistent with any of the Operative Documents; (ii) all obligations of each Lessor to any Lender are solely nonrecourse obligations except to the extent that such Lessor has received payment from others (including, without limitation, obligations with respect to the Loans); and (iii) all such personal liability of any Lessor is expressly waived and released as a condition of, and as consideration for, the execution and delivery of the Operative Documents by such Lessor. (b) No Participant shall have any obligation to any other Participant or to Lessee, the Lessors or the Lenders with respect to transactions contemplated by the Operative Documents, except those obligations of such Participant expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith, and no Participant shall be liable for performance by any other party hereto of such other party's obligations under the Operative Documents except as otherwise so set forth. -48- 54 Section 15.11. Further Assurances. The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Lessee, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out and preserve the security interests and liens (and the priority thereof) intended to be created pursuant to this Participation Agreement, the other Operative Documents, and the transactions thereunder. The Lessee, at its own expense and without need of any prior request from any other party, shall take such action as may be necessary, or as so requested, in order to maintain and protect all security interests provided for hereunder or under any other Operative Document. Section 15.12. [Intentionally Omitted]. Section 15.13. [Intentionally Omitted]. Section 15.14. WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY WAIVE (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PARTICIPATION AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT OR THE TRANSACTIONS AND AGREEMENTS CONTEMPLATED HEREBY AND THEREBY. Section 15.15. No Participant Responsible for Other Participants. The obligations of each Participant under this Participation Agreement and the other Operative Documents are several and not joint; and, in the event of a failure by a Participant to perform any of its obligations hereunder or under any other Operative Document, neither the Agent Lessor nor the Administrative Agent nor any other Participant (other than the defaulting Participant) shall have any liability as a consequence thereof. Section 15.16. Each Lessor to Have an Undivided Interest. The Agent Lessor hereby confirms that it is holding the Property on behalf of the Lessors, each of which shall hold an undivided interest in the Property (and all proceeds thereof), in each case such interest to be equal to the Commitment of such Lessor relative to the aggregate amount of the Lessor Commitment of all Lessors. Section 15.17. Simultaneous Transaction. The parties acknowledge and agree that each of Lessee's and Guarantor's representations, warranties, covenants and satisfaction of conditions is made as of the Acquisition Date and predicated upon the acquisition of the Property from the current owner thereof and cancellation or termination of the U.S. West Agreements and cancellation or release of all security interests thereunder. -49- 55 IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. ALUMAX INC., as Guarantor By /s/ Marc Crown -------------------------------- Marc Crown Its Assistant Treasurer Address for Notices: 3424 Peachtree Road, N.E. Suite 2100 Atlanta, Georgia 30326 Attention: Assistant Treasurer Facsimile No: (404) 846-4657 with a copy to: Alumax Inc. 3424 Peachtree Road, N.E. Suite 2100 Atlanta, Georgia 30326 Attention: Senior Vice President and General Counsel Facsimile: (404) 846-4769 S-1 56 ALUMAX MILL PRODUCTS, INC., as Lessee By /s/ Marc Crown ------------------------------------- Marc Crown Its Assistant Treasurer Address for Notices: c/o Alumax Inc. 3424 Peachtree Road, N.E. Suite 2100 Atlanta, Georgia 30326 Attention: Assistant Treasurer Facsimile No: 404-846-4657 with a copy to: Alumax Inc. 3424 Peachtree Road, N.E. Suite 2100 Atlanta, Georgia 30326 Attention: Senior Vice President and General Counsel Facsimile: (404) 846-4769 S-2 57 BMO LEASING (U.S.), INC., as Agent Lessor and as a Lessor By /s/ Ernest C. Cechetto -------------------------------------- Ernest C. Cechetto Its Managing Director Addresses for Notices: 111 West Monroe Street Chicago, Illinois 60603 Attention: Terri Perez-Ford Facsimile: (312) 750-3827 Lending Office: 111 West Monroe Street Chicago, Illinois 60603 S-3 58 BANK OF MONTREAL, as Administrative Agent and as a Lender By /s/ Ernest C. Cechetto -------------------------------- Ernest C. Cechetto Its Managing Director Addresses for Notices: 115 South LaSalle Street Chicago, Illinois 60603 Attention: Terri Perez-Ford Facsimile: (312) 750-3827 Lending Office: 115 South LaSalle Street Chicago, Illinois 60603 S-4 59 SCHEDULE I TO PARTICIPATION AGREEMENT COMMITMENTS
COMMITMENT PARTICIPANT COMMITMENT PERCENTAGE LENDERS Bank of Montreal $81,929,093.51 84.50% LESSORS BMO Leasing (U.S.), Inc. $15,028,413.75 15.50% TOTAL $96,957,507.26 100%
I-1 60 SCHEDULE II TO PARTICIPATION AGREEMENT Notice Information, Wire Instructions and Funding Offices, Lessee, Administrative Agent, Lessors, Lenders and Guarantor:
AGENT LESSOR: LESSEE AND GUARANTOR: BMO LEASING (U.S.), INC. ALUMAX INC. 311 West Monroe Street 3424 Peachtree Road, N.E. Chicago, Illinois 60603 Suite 2100 Atlanta, Georgia 30326 Attention: Terri Perez-Ford Facsimile No.: (312) 750-3827 Attention: ------------------- Wire Transfer Instructions: Facsimile No.: (404) 846-4541 Bank: Harris Trust and Savings Bank ABA Number: 071-000-288 Wire Transfer Instructions: Account Name: BMO Leasing Bank: Chase Manhatten Bank, New York Account Number: 1814165 ABA Number: 021000021 Ref: Alumax Mill Products, Inc. - Account Name: Alumax Inc. Synthetic Lease Account Number: 9101428028 Ref: ------------------------------------ LENDERS AND ADMINISTRATIVE AGENT: BANK OF MONTREAL 115 South LaSalle Street Chicago, Illinois 60603 Attention: Terri Perez-Ford Facsimile No.: (312) 750-3827 Wire Transfer Instructions: Bank: Harris Bank ABA Number: 071-000-288 Account Name: Bank of Montreal Account Number 124-8566 Ref: Alumna Mill Products, Inc. - Synthetic Lease
II-1 61 SCHEDULE III SUBSIDIARIES THE COMPANY'S SUBSIDIARIES ARE AS FOLLOWS: RESTRICTED SUBSIDIARIES:
Percentage of Voting Stock or Other Equity Name of Jurisdiction of Interest Owned Directly Subsidiary Organization By The Company - ---------- --------------- ----------------------- Alumax Inc. Nevada 100% Alumax Aluminum Corporation Delaware 100% Alumax Astechnology, Inc. Delaware 100% Alumax Becancour, Inc. Delaware 100% Alumax Employee Services, Inc. Delaware 100% Alumax Engineered Metal Processes, Inc. Delaware 100% Alumax Extrusions, Inc. Pennsylvania 100% Alumax Extrusions, Inc. New York 100% Alumax Foil Industrial Redevelopment Corp. Missouri 100% Alumax Foils, Inc. Delaware 100% Alumax International Company Nevada 100% Alumax Japan, Inc. Delaware 100% Alumax of Maryland, Inc. Delaware 100% Alumax Materials Management, Inc. Delaware 100% Alumax Mill Products, Inc. Delaware 100% Alumax Primary Aluminum Corporation Delaware 100% Alumax Quebec, Inc. Wyoming 100% Alumax Remelt Corporation Delaware 100% Alumax Retiree Services, Inc. Delaware 100% Alumax 6100 South Broadway Redevelopment Corporation Missouri 100% Alumax of South Carolina, Inc. Delaware 100% Alumax Technical Center, Inc. Delaware 100% Alumax Technical Services, Inc. Delaware 100% Alumax Technology Corporation Delaware 100% Alumax Warehouse Corporation Delaware 100% Alumax of Washington, Inc. Delaware 100% Alumet Corporation Delaware 100% Eastalco Aluminum Company Delaware 100% Hillyard Aluminum Recovery Corporation Delaware 100% Intalco Aluminum Corporation Delaware 100% Kawneer Company, Inc. Delaware 100% Kawneer Europe, Inc. Delaware 100% Kawneer France, Inc. Delaware 100% Kawneer Germany, Inc. Delaware 100% Kawneer Polska Sp. zo.o. Poland 100% Mt. Holly Plantation, Inc. Delaware 100% Murphy Properties, Inc. Delaware 100% Alumax Asia Limited Hong Kong 100% Alumax Asia Pacific Pty. Limited Australia 100% Alumax de Mexico, S.A. de C.V. Mexico 100%
62
Percentage of Voting Stock or Other Equity Name of Jurisdiction of Interest Owned Directly Subsidiary Organization By The Company ---------- --------------- ----------------------- Alumax Extrusions Australia Pty. Limited Australia 100% Alumax Extrusions B.V. The Netherlands 100% Alumax Extrusions Limited United Kingdom 100% Alumax Holdings B.V. The Netherlands 100% Alumax Holdings de Mexico, S.A. de C.V. Mexico 100% Alumax Extrusions Mexico, S.A. de C.V. Mexico 100% Comercializadora Alumax Extrusions Mexico, S.A. de C.V. Mexico 100% Alumax Holdings S.A. France 100% Alumax Polska Sp. zo.o. Poland 100% Alumax Recycling B.V. The Netherlands 100% Alumax S.A. Spain 100% Alumax U.K. Limited United Kingdom 100% Amax Holdings Australia Limited Australia 100% Amax Resources Australia Limited Australia 100% Asesoria Mexicana Empresarial, S.A. de C.V. Mexico 100% Intalco Aluminum Company, Ltd. Alberta, Canada 100% Kawneer Deutschland G.m.b.H. Germany 100% Kawneer Company Canada Limited Ontario, Canada 100% Kawneer Europe B.V. The Netherlands 100% Kawneer France S. A. France 100% Kawneer Installations Limited Ontario, Canada 100% Kawneer Maroc S.A. Morocco 100% Kawneer U.K. Limited United Kingdom 100%
SUBSIDIARIES (OTHER THAN RESTRICTED SUBSIDIARIES):
Percentage of Voting Stock or Other Equity Name of Jurisdiction of Interest Owned Directly Subsidiary Organization By The Company ---------- --------------- ----------------------- Alamo Resources Corporation Delaware 100% Alumax PD Holdings Pte. Ltd. Singapore 50% Aluminerie Lauralco, Inc. Delaware 100% Amax Asia, Inc. Delaware 100% Canalco, Inc. Delaware 100% Honduras-Rosario Mining Company Delaware 100% Lauralco Quebec, Inc. Delaware 100% Lauralco Superieur, Inc. Delaware 100% Lauralco Trois-Rivieres, Inc. Delaware 100% Rosario Mining of Nicaragua, Inc. Delaware 100% Rosario Resources Corporation New York 100% The Durango Corporation Delaware 100% The Fresnillo Company New York 100% Yunnan Xinmeilu Aluminum Foil Co., Ltd. China 56%
63 SCHEDULE IV TO PARTICIPATION AGREEMENT INDEBTEDNESS IN EXCESS OF $5,000,000 OF COMPANY AND RESTRICTED SUBSIDIARIES OUTSTANDING AT NOVEMBER 25, 1997 I. INDEBTEDNESS 1. ALUMAX MILL PRODUCTS, INC. TEXARKANA FACILITY LEVERAGED LEASE FINANCING Lease Agreement dated as of November 25, 1986, between Connecticut National Bank, as Owner Trustee for the benefit of U.S. West Capital Corporation under an Owner Trust Agreement dated as of November 25, 1986, and Alumax Mill Products, Inc. Guaranty of Alumax Inc. dated as of July 30, 1993, Re: Obligations of Alumax Mill Products, Inc. Amended and Restated Reimbursement Agreement dated as of July 5, 1995, between Alumax Inc. and Union Bank of Switzerland, New York Branch. * To be cancelled upon the Texarkana Restructuring (November 25, 1997) 2. ALUMAX INC. AMENDED AND RESTATED CREDIT AGREEMENT U.S. $800,000,000 Revolving Credit Agreement dated as of May 19, 1995, and as amended by the First Amendment to Credit Agreement, dated as of May 30, 1997, and the Second Amendment dated October 9, 1997, among Alumax Inc., The Banks Signatory Thereto, Royal Bank of Canada, as Agent, Arranger, and Letter of Credit Issuer, and Canadian Imperial Bank of Commerce, as Administrative Agent. 11/25 ----- Current Percent: N/A Current Balance: $410,000,000 3. $9,880,000 FREDERICK COUNTY, MARYLAND, ECONOMIC DEVELOPMENT REVENUE REFUNDING BONDS, SERIES 1992 (ALUMAX OF MARYLAND, INC. PROJECT) Loan Agreement dated January 1, 1992, by and between Alumax of Maryland, Inc. and County Commissioners of Frederick County. Current Percent: 7.25% Current Balance: $9,880,000 1 64 4. CITY OF YANKTON, SOUTH DAKOTA, $9,000,000 PRINCIPAL AMOUNT OF INDUSTRIAL DEVELOPMENT REFUNDING REVENUE BONDS, SERIES A (ALUMAX PROJECT) Loan Agreement dated May 21, 1997, by and between City of Yankton, South Dakota and Alumax Extrusions, Inc., Alumax Project Series 1997. Guaranty Agreement dated May 21, 1997, executed by Alumax Inc. in favor of The First National Bank of Chicago, as Trustee. Current Percent: 4.00% Current Balance: $9,000,000 5. PLANNED INDUSTRIAL EXPANSION AUTHORITY OF THE CITY OF ST. LOUIS $7,500,000 INDUSTRIAL DEVELOPMENT REFUNDING REVENUE BONDS, SERIES 1992 (ALUMAX FOILS, INC. PROJECT) Amended and Restated Lease Agreement between Planned Industrial Expansion Authority of the City of St. Louis and Alumax 6100 South Broadway Redevelopment Corporation dated as of June 1, 1992. Current Percent: 3.7955% Current Balance: $6,835,000 6. DEVELOPMENT AUTHORITY OF GWINNETT COUNTY $5,250,000 INDUSTRIAL DEVELOPMENT REVENUE BONDS, SERIES 1984 (KAWNEER COMPANY, INC. PROJECT) Loan Agreement dated as of June 1, 1984, by and between the Development Authority of Gwinnett County, Georgia, and Kawneer Company, Inc. Guaranty Agreement dated as of June 1, 1984, executed by Alumax Inc. in favor of SunTrust Bank, as Trustee. Guaranty Agreement dated as of June 1, 1984, executed by Alumax Inc. in favor of Bankers Trust Company. Current Percent: 9.5% Current Balance: $5,250,000 2 65 7. $27,450,000 BERKELEY COUNTY, SOUTH CAROLINA POLLUTION CONTROL REFUNDING REVENUE BONDS (ALUMAX PROJECT) SERIES 1996 Loan Agreement dated September 1, 1996, by and between Berkeley County, South Carolina and Alumax of South Carolina, Inc., relating to Pollution Control Refunding Revenue Bonds Series 1996. Guaranty Agreement dated September 1, 1996, executed by Alumax Inc. in favor of The Bank of New York, as Trustee. Current Percent: 4.00% Current Balance: $27,450,000 8. LETTERS OF CREDIT
Bank Maturity Date Amount ---- ------------- ------ Royal Bank of Canada 02/27/98 $24,457,000 Commerzbank 03/01/98 $10,000,000 Fuji Bank 04/30/98 $14,569,000 Credit Lyonnais* 12/30/97 $44,767,049 PNC Bank 09/15/98 $ 6,969,777 Royal Bank of Canada 09/18/98 $27,901,233 Union Bank of Switzerland* 12/31/97 $39,000,000 Bank of America 05/20/98 $ 9,147,946
* To be cancelled upon the Texarkana Restructuring (November 25, 1997) 9. GUARANTIES Guaranty dated August 20, 1996, on behalf of Alumax Materials Management, Inc. in favor of J. Aron & Co. in an amount not to exceed $6,000,000. Guaranty dated July 15, 1996, on behalf of Alumax Materials Management, Inc. in favor of AIG Trading Corp. in an amount not to exceed $6,000,000. Guaranty dated October 30, 1996, on behalf of Alumax Materials Management, Inc. in favor of Morgan Guaranty Trust Co. in an amount not to exceed $6,000,000. Guaranty dated June 5, 1996, on behalf of Alumax Materials Management, Inc. in favor of Morgan Stanley & Co. International Limited in an amount not to exceed $6,000,000. 3 66 Guaranty dated April 26, 1993, on behalf of Intalco Aluminum Corporation in favor of Washington Department of Ecology in the amount of $12,391,500. Guaranty dated May 23, 1997, on behalf of Alumax Materials Management, Inc. in favor of Prudential-Bache (International) Limited in an amount not to exceed $6,000,000. Guaranty dated September 20, 1997, on behalf of Alumax Materials Management, Inc. in favor of Lehman Brothers, Inc. in an amount not to exceed $6,000,000. Guaranty dated September 4, 1997, on behalf of Alumax of South Carolina, Inc. in favor of South Carolina Public Service Authority securing payment of power charges at the Mt. Holly facility. Guaranty dated October 1, 1995, on behalf of Intalco Aluminum Corporation in favor of British Columbia Power Exchange Corporation securing payment of power charges at the Intalco facility. Guaranty dated February 1, 1990, on behalf of Aluminerie Lauralco, Inc., in favor of Hydro Quebec, securing payment of power charges at the Deschambault facility. II. MATERIAL LIENS ALUMAX MILL PRODUCTS, INC. TEXARKANA FACILITY LEVERAGE LEASE FINANCING A Deed of Trust (With Security Agreement) dated as of November 25, 1986, which was given as part of the Agreement referenced in Schedule I, Indebtedness, Item 1, by Alumax Mill Products, Inc. in favor of Gilman N. Gauvin, as Trustee for the benefit of The Connecticut National Bank, was executed in connection with the conveyance of a security interest in the land at the Texarkana facility. * To be cancelled upon the Texarkana Restructuring (November 25, 1997) 4 67 SCHEDULE V TO PARTICIPATION AGREEMENT LITIGATION None. 68 EXHIBIT A-1 TO PARTICIPATION AGREEMENT FORM OF LEGAL OPINION OF R.P. WOLF, ESQ. November 25, 1997 To the Participants, Administrative Agent and Agent Lessor party to the Participation Agreement referred to below Ladies and Gentlemen: I am Senior Vice President and General Counsel of Alumax Inc., a Delaware corporation (the "Company"), and in such capacity have overseen and participated in the provision of legal advice and assistance to the Company and Alumax Mill Products, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (the "Lessee"), in connection with the negotiation of and the closing of the transactions contemplated by (i) the Participation Agreement (the "Participation Agreement"), dated as of November 25, 1997, among the Lessee, the Company, Agent Lessor, Lessors, Lenders, the Administrative Agent and the Arranger and (ii) each of the other Operative Documents. Terms used herein and not defined shall have their respective defined meanings as set forth in Appendix A to the Participation Agreement. In rendering the opinions expressed below, I have examined originals, conformed copies, or copies otherwise identified to my satisfaction of such corporate records, agreements, and instruments of the Company and Lessee, such certificates of public officials and of officers, employees, and agents of the Company and Lessee and such other agreements and documents as I have deemed necessary for the purpose of expressing the opinions herein. Though I have examined such matters of law as I deemed necessary for the purpose of expressing the opinions herein, please note that with respect to the opinion expressed in Paragraph 2 below and the incorporation of the term "applicable" therein, my opinion is limited to a review of only those laws and regulations that, based upon my review of the Operative Documents, I have considered to be applicable to the transactions contemplated thereby. Also, for purposes of the opinion expressed in Paragraph 1 below as to the due qualification to transact business as a foreign corporation in certain jurisdictions, I have relied solely upon a review of a certificate of the Secretary of State (or other similar official) of each such jurisdiction. For purposes of my opinion expressed in Paragraph 2 hereof, I have not made any independent review or investigation of any agreements or instruments to which the Lessee or 69 Company is bound, except I have reviewed or caused to be reviewed those agreements and instruments listed on Schedule I hereto (hereinafter referred to as "Material Agreements"), and such opinion is based upon the audited consolidated financial statements of the Company as at and for the year ended December 31, 1996, without giving effect to any obligations incurred under the Operative Documents. Schedule I sets forth all agreements and instruments entered into by the Company or Lessee and deemed by the Company to be "material contracts" of the Company under item 601(b)(10)(i) and (ii) of Regulation S-K ("Regulation S-K") promulgated by the Securities and Exchange Commission (the "Commission") or otherwise entered into by the Company or Lessee and filed by the Company with the Commission as an exhibit under Item 601(b)(4) of Regulation S-K. Furthermore, for purposes of my opinion expressed in Paragraph 3 hereof, I have not examined plaintiff or defendant indexes in any federal, state or other court or any other tribunal. During the course of all such examinations, I have assumed (i) the genuineness of all signatures other than those of the Company and Lessee on the Operative Documents, (ii) the authenticity of all documents submitted to me as originals, (iii) the conformity to the original documents of all documents submitted to me as certified, conformed, facsimile, or photographic copies, and (iv) that certificates and telephonic and telecopy confirmations given by public officials have been properly given and are accurate. I have further assumed, except where this opinion expressly addresses such matters as to the Company and Lessee, (i) the power and authority of all parties to enter into the transactions contemplated by the Operative Documents and (ii) the due authorization and valid execution and delivery by such parties of the agreements and instruments necessary in connection with such transactions. Based upon and subject to the foregoing and subject to the qualifications set forth herein, I am of the opinion that: 1. The Company has the necessary corporate power to execute and deliver the Participation Agreement and Guaranty and to perform its obligations thereunder. The Lessee has the necessary corporate power to execute and deliver the Participation Agreement and other Operative Documents and to perform its obligations thereunder. The Company is duly qualified to transact business in all jurisdictions where the failure to qualify would have a Material Adverse Effect. The Lessee is duly qualified to transact business in the State of Texas and in all other jurisdictions, where the failure to qualify would have a Material Adverse Effect. 2. The execution and delivery by the Company and Lessee of the Operative Documents to which they are a party and the performance by the Company and Lessee of their respective obligations under such Operative Documents (i) do not and will not, to my knowledge, violate (a) any provision of applicable law or regulation or (b) any order or decree known to me by which the Company or Lessee, or any of their respective Company Properties, may be bound, which in either case (a) or (b) would result in a Material Adverse Effect; (ii) do not and will not violate any provision of the charter or by-laws of the Company or Lessee; and (iii) do not A-1-2 70 and will not result in the breach of, or constitute a default or require any consent under, or result in the creation of any Lien upon, any of the properties, revenues, or assets of the Company or Lessee under any Material Agreement other than the US West Agreements. 3. Except as to the matters disclosed in Section 8.2(j) of the Participation Agreement, reflected in the Company's filings with the Commission on Form 10-K for the year ended December 31, 1996 or on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1997 or reflected on Schedule V to the Participation Agreement, there are no legal or arbitral proceedings, and no proceedings by or before any governmental or regulatory authority or agency, pending or threatened against or affecting the Company, any of its Restricted Subsidiaries or Lessee, or any of their respective properties known to me the outcome of which I have reasonable cause to believe could be expected to have a Material Adverse Effect. This opinion is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated. Opinions rendered herein are as of the date hereof, and I make no undertaking and expressly disclaim any duty to supplement such opinions if, after the date hereof, facts or circumstances come to my attention or changes in the law occur which could affect such opinions. In rendering the foregoing opinions, I am expressing no opinion as to matters of law other than the General Corporation Law of the State of Delaware and the federal laws of the United States of America. I am admitted to practice law only in the Commonwealth of Virginia and before certain federal courts. I am not licensed to practice law in the State of Texas, the State of Delaware, or the State of New York. This opinion is rendered solely for the benefit of the Participants, the Administrative Agent, the Agent Lessor, their prospective or actual successors and assigns, and their legal advisors and accountants and only with respect to the transactions described herein. No further distribution or use of this opinion is authorized and this opinion may not be quoted in full or in part or otherwise referred to in any financial statements, nor may it be filed with or furnished to any governmental agency (other than those examining the Participants, the Administrative Agent, Agent Lessor, or their successors and assigns) or other party without the prior written consent of the undersigned. Very truly yours, R. P. Wolf Enclosures: Schedule I A-1-3 71 SCHEDULE I - OPINION LETTER OF R. P. WOLF TO FINANCIAL INSTITUTIONS PARTY TO THE FIRST AMENDMENT MATERIAL AGREEMENTS OF ALUMAX INC. AND ITS RESTRICTED SUBSIDIARIES 1. Bridge Loan Agreement, dated as of January 17, 1996, among Alumax Inc., The Chase Manhattan Bank, N.A., as Syndication Agent, Royal Bank of Canada, as Documentation and Administrative Agent, and the Bank's signatory thereto. 2. Amended and Restated Credit Agreement, dated as of October 9, 1997, by and among Alumax Inc., Royal Bank of Canada, as Agent, Arranger and Letter of Credit Issuer and Canadian Imperial Bank of Commerce, as Administrative Agent. 3. Lease Agreement, dated as of November 25, 1986, by and between Connecticut National Bank as Owner Trustee for the benefit of U.S. West Capital Corporation under an Owner Trust Agreement, dated as of November 25, 1986, and Alumax Mill Products, Inc. (US West Agreements). 4. Facility Purchase Agreement, executed and effective as of September 18, 1996, among Alumax Mill Products, Inc., Fleet National Bank and U.S. West Financial Services, Inc. (US West Agreements). 5. Purchase Agreement, dated as of June 24, 1996, between Euramax International plc and Alumax Inc. 6. Acquisition Agreement, dated as of January 26, 1996, between Alumax of South Carolina, Inc. and Glencore Primary Aluminum Company, LLC. 7. Stock Purchase Agreement by and among the Shareholders of Cressona Aluminum Company, as Sellers, and Alumax Inc., as Purchaser, dated October 6, 1995. 8. Acquisition Agreement among Eastalco Aluminum AluTrlinum Company, Eastalco Venture, Alumax of Maryland, Inc. and Alumet Corporation, Atmos (U.S.A.) Incorporated and Mitalco Inc., dated March 31, 1995. 9. Restated Sales Agreement, dated as of January 1, 1986, as amended and supplemented as of April 8, 1992, and April 9, 1992, by and between Alcoa of Australia Limited and Alumax Inc. 10. Power Sales Agreement, dated as of October 1, 1995, between British Columbia Power Exchange Corporation and Intalco Aluminum Corporation. 11. Power Sales Agreement, dated September 28, 1995, as amended, between Intalco Aluminum Corporation and Bonneville Power Administration. 72 12. Electric Service Agreement, dated as of November 11, 1994, as amended October 10, 1997, by and between Eastalco Aluminum Company and The Potomac Edison Company. 13. South Carolina Public Service Authority Service Agreement for Large Power Electric Service, made and entered in July 1, 1997, by and between the South Carolina Public Service Authority and Alumax of South Carolina, Inc. 14. Rights Agreement, dated as of February 22, 1996, between Alumax Inc. (the "Company") and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent. -2- 73 EXHIBIT A-2 TO PARTICIPATION AGREEMENT FORM OF LEGAL OPTION OF IRELL & MANELLA LLP November 25, 1997 To the Administrative Agent, Agent Lessor and Participants to the Participation Agreement referred to below. Dear Sirs: In connection with the Participation Agreement, dated as of November 25, 1997 (the "Participation Agreement"), among Alumax Mill Products, Inc., a Delaware corporation (the "Lessee"), Alumax Inc., a Delaware corporation (the "Guarantor"), BMO Leasing (U.S.), Inc., as Agent Lessor and Lessor and Bank of Montreal as Administrative Agent, Lender and Arranger, we, as counsel for the Lessee and Guarantor, have examined such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion, including, but not limited to, the following: A. the Participation Agreement; B. the Master Lease; C. the Loan Agreement; D. each Note; E. the Assignment of Lease and Rent; F. the Deed; G. the Lessor Mortgage; H. the Guaranty; and I. the Ground Lease. 74 November 25, 1997 Page 2 Terms used herein and not defined shall have their respective defined meanings as set forth in Appendix A to the Participation Agreement. In all of our examinations of documents, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies and the authenticity of the originals of such latter documents, the lack of undisclosed modifications or amendments to any documents, and the accuracy of the factual statements contained in all documents reviewed by us. With your permission, we have relied as to certain matters on information obtained from public officials, officers of the Guarantor and Lessee and other sources believed by us to be reliable. On the basis of the foregoing, and in reliance thereon, and subject to the limitations, qualifications and exceptions set forth herein, we are of the opinion that: (1) The Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. (2) The Lessee is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. (3) The execution and delivery by Guarantor of those Operative Documents to which Guarantor is a party have been duly and validly authorized by all necessary corporate action by Guarantor. (4) The execution and delivery by Lessee of those Operative Documents to which Lessee is a party have been duly and validly authorized by all necessary corporate action by Lessee. (5) Each Operative Document to which Guarantor is a party has been executed and delivered by Guarantor and constitutes a legal and binding obligation of Guarantor, enforceable against Guarantor in accordance with the respective terms thereof. (6) Each Operative Document to which Lessee is a party has been duly executed and delivered by Lessee (with respect to the Ground Lease, to the extent the Delaware General Corporation Law is applicable to the due execution and delivery thereof) and each such Operative Document (other than the Ground Lease) constitutes a legal and binding obligation of Lessee, enforceable against Lessee in accordance with the respective terms thereof. 75 November 25, 1997 Page 3 (7) There are no regulatory consents, authorizations, approvals or filings required to be obtained or made by the Lessee or Guarantor under the Federal laws of the United States, the laws of the State of New York or the General Corporation Law of the State of Delaware for the execution and delivery of the Operative Documents by the Lessee and Guarantor on the date hereof pursuant thereto, or for the performance by the Lessee and Guarantor of their respective obligations under the Operative Documents. The opinions set forth in Paragraphs 5 and 6 above are subject to and limited by the following: a. The effect of bankruptcy, insolvency, reorganization, moratorium and other laws and court decisions of general application (including, without limitation, laws relating to fraudulent conveyances, preferences and equitable subordination) and other legal or equitable principles relating to, limiting or affecting the enforcement of creditors' rights generally. b. The discretion of any court of competent jurisdiction in awarding equitable remedies including, but not limited to, specific performance or injunctive relief. c. We express no opinion regarding the enforceability of any (i) rights or remedies involving any real or personal property security for the obligations of Guarantor or Lessee, and (ii) rights or remedies against Lessee or Guarantor arising out of, involving or resulting from the characterization of the obligation of Lessee as other than an obligation to repay money borrowed by Lessee from Agent Lessor and the Lessors. We note that the enforcement of the obligations of Lessee and Guarantor may be affected by the existence of real and personal property security for such obligations. d. The effects of judicially created rules of public policy limiting the extent to which indemnity agreements and exculpatory clauses will be enforced. We express no opinion as to the laws of any jurisdiction except the laws of the State of New York and, to the extent specifically referred to herein, the federal laws of the United States and the General Corporation Law of the State of Delaware, in each case as in effect on the date hereof. In this regard, no opinion is expressed as to the enforceability of certain remedies relating to real property, which are governed by the laws of the State of Texas, the situs of the Property. For purposes of our opinion in Paragraphs 5 and 6 above, we have assumed, with your permission, that the relationship between Lessors (including Agent Lessor) and 76 November 25, 1997 Page 4 Lessee under the Operative Documents is that of lender and borrower and not that of lessor and lessee. In rendering this opinion, to the extent that the obligations of Lessee and/or Guarantor under the Operative Documents may be dependent upon such matters, we have assumed that (a) Agent Lessor, the Lessors, the Administrative Agent and the Lenders have duly and validly executed and delivered each of the Operative Documents to be executed by them and such agreements are legal, valid and binding obligations of Agent Lessor, the Lessors, the Administrative Agent and the Lenders, as the case may be, enforceable against them in accordance with their respective terms, (b) consideration for the obligations of Lessee and Guarantor under the Operative Documents has been given by Agent Lessor, the Lessors, the Administrative Agent and the Lenders, (c) Agent Lessor, the Lessors, the Administrative Agent and the Lenders are duly qualified and validly existing under the laws of the jurisdiction of their respective organization and have obtained, and kept in force at all relevant times, all licenses, permits and qualifications necessary for them to transact its business, and obtain and enforce contractual rights, in the State of New York, (d) Agent Lessor, the Lessors, the Administrative Agent and the Lenders have the power and authority to deliver and perform the Operative Documents to which they are respectively a party and have taken all necessary action to authorize the execution, delivery and performance of each of the Operative Documents to which they are respectively a party. This opinion is rendered as of the date hereof, and we make no undertaking and expressly disclaim any duty to supplement this opinion if, after the date hereof, facts and circumstances come to our attention or changes in the law occur which could affect this opinion. This opinion is rendered solely for the benefit of Agent Lessor, the Lessors, the Administrative Agent and the Lenders in connection with the subject transaction, and may not be relied upon for any other purpose. This opinion may not be furnished to, used, circulated, quoted or referred to by, any other person without our prior written consent; provided, however that Agent Lessor, Administrative Agent and any other Lessor or Lender may furnish this opinion to a financial institution in connection with a proposed assignment of Agent Lessor's, Administrative Agent's or such Lessor's or Lender's interest or grant of a participation therein. Very truly yours, IRELL & MANELLA LLP 77 EXHIBIT B (TO PARTICIPATION AGREEMENT) FORM OF FUNDING REQUEST November __, 1997 TO: the Agent Lessor and the Administrative Agent, pursuant to the Participation Agreement (the "Participation Agreement") dated as of November __, 1997 among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger as the same may be amended, supplemented, amended and restated or otherwise modified from time to time (capitalized terms used herein shall have the meanings ascribed thereto in the Participation Agreement). FROM: Alumax Mill Products, Inc. ("Lessee") RE: Acquisition Date 1. This irrevocable Funding Request is hereby delivered by Lessee pursuant to Section 3.4(a) of the Participation Agreement. 2. The Acquisition Date is scheduled for November 25, 1997. 3. The amount of the Advance is $96,957,507.26. 4. The Loans and Lessor Amounts will be Base Rate Loans/Lessor Amounts. 5. Funds shall be sent by wire transfer as follows: a. Each Lessor and Lender shall transfer its Commitment Percentage of $ __________ to the following account of Agent Lessor: Bank: ABA Number: Account Name: Account Number: Ref: Further Credit to: [amount to be provided by the Lessee] b. Lessee hereby instructs Agent Lessor to distribute the funds as follows: [information to be provided by the Lessee] 78 In connection with such requested Advance, the Lessee hereby represents and warrants to you as follows: a. On the Acquisition Date, both immediately before and after giving effect to the requested Advance and the application of the proceeds thereof, the statements made by the Lessee and the Guarantor in Section 8.2 of the Participation Agreement are true and correct in all material respects, except to the extent such statements relate solely to an earlier date, in which case such statements shall have been true and correct in all material respects on and as of such earlier date. b. All of the conditions precedent set forth in Article VI of the Participation Agreement applicable to the Advance have been or will be satisfied or will be waived on the Acquisition Date. IN WITNESS WHEREOF, I have signed my name this ____ day of November, 1997. ALUMAX MILL PRODUCTS, INC. By: ------------------------------- Name: Title: B-2 79 EXHIBIT C (TO PARTICIPATION AGREEMENT) FORM OF INTEREST PERIOD SELECTION/ CONTINUATION/CONVERSION NOTICE RE: ALUMAX MILL PRODUCTS, INC. To: Agent Lessor and Administrative Agent This Interest Period Selection/Continuation/Conversion Notice is delivered to you pursuant to Section 3.6 of the Participation Agreement dated as of November_, 1997 (the "Participation Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger as the same may be amended, supplemented, amended and restated or otherwise modified from time to time. Alumax Mill Products, Inc. (the "Lessee") hereby requests that on ____, 19_, all or any portion of the currently outstanding principal amount of the Loans and Lessor Amounts: (1) which are currently [Base Rate Loans/Lessor Amounts] [Eurodollar Loans/Lessor Amounts with an Interest Period ending on_____ ___, 19_], (2) be [continued as] [converted into], (3) [Base Rate Loans/Lessor Amounts] [Eurodollar Loans/Lessor Amounts having an Interest Period of ____ months]. Any and all capitalized terms used in this Notice for Selection/Continuation/ Conversion shall have the meaning ascribed thereto in the Participation Agreement, unless specifically defined herein. The Lessee hereby certifies, represents and warrants that no Lease Default or Lease Event of Default exists or will (after giving effect to the selection, continuation or conversion requested hereby) exist. 80 The Lessee has caused this notice to be executed and delivered by its Responsible Officer this ____________ day of ______________, 19___. ALUMAX MILL PRODUCTS, INC. By: ------------------------------------ Name: Title: C-2 81 EXHIBIT D-1-A (TO PARTICIPATION AGREEMENT) FORM OF SECRETARY'S CERTIFICATE The undersigned, __________________ [Assistant] Secretary of [Name of Guarantor/Lessee], a Delaware corporation (["Guarantor"]["Lessee"]), pursuant to the Participation Agreement dated as of November 25, 1997 (the "Participation Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger as the same may be amended, supplemented, amended and restated or otherwise modified from time to time, does hereby certify as follows (capitalized terms used herein shall have the meanings ascribed thereto in the Participation Agreement): 1. Attached hereto as Exhibit A is a true, correct and complete copy of [Guarantor's/Lessee's] Restated Certificate of Incorporation, as amended, and in effect on the date hereof, certified by the Secretary of State of the State of Delaware. 2. Attached hereto as Exhibit B is a true, correct and complete copy of [Guarantor's/Lessee's] By-Laws, as amended, and in effect on the date hereof, and such by-laws have been in full force and effect since ______________, 19_ without modification or amendment. IN WITNESS WHEREOF, I have signed my name this day ____________ of ____________, 199___. ------------------------------------------ [Assistant] Secretary as aforesaid I, __________________, [Vice] President of [Name of Guarantor/Lessee], hereby certify that _______________________________ is on the date hereof the duly elected, qualified and acting [Assistant] Secretary of [Name of Guarantor/Lessee], and that the signature set forth above is such person's true and correct signature. Dated:____________, 199_____ --------------------------------------- [Vice] President as aforesaid 82 EXHIBIT D-1-B (TO PARTICIPATION AGREEMENT) FORM OF SECRETARY'S CERTIFICATE The undersigned, _______________ [Assistant] Secretary of [Name of Guarantor/Lessee], a Delaware corporation (["Guarantor"]["Lessee"]), pursuant to the Participation Agreement dated as of November 25, 1997 (the "Participation Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger as the same may be amended, supplemented, amended and restated or otherwise modified from time to time, does hereby certify that (capitalized terms used herein shall have the meanings ascribed thereto in the Participation Agreement) attached hereto as Exhibit C are true, correct and complete copies of all resolutions adopted by the Board of Directors of [Guarantor/Lessee] relating to the Participation Agreement and the other Operative Documents to which [Guarantor/Lessee] is a party, which resolutions have not been amended or rescinded and are in full force and effect on the date hereof. IN WITNESS WHEREOF, I have signed my name this day ___________ of ____________, 199_. --------------------------------------- [Assistant] Secretary as aforesaid I, ___________________, [Vice] President of [Name of Guarantor/Lessee], hereby certify that __________________________________ is on the date hereof the duly elected, qualified and acting [Assistant] Secretary of [Name of Guarantor/Lessee], and that the signature set forth above is such person's true and correct signature. Dated:________________ , 199___ --------------------------------------- [Vice] President as aforesaid 83 EXHIBIT D-1-C (TO PARTICIPATION AGREEMENT) FORM OF SECRETARY'S CERTIFICATE The undersigned, ________________ [Assistant] Secretary of [Name of Guarantor/Lessee], a Delaware corporation (["Guarantor"]["Lessee"]), pursuant to the Participation Agreement dated as of November 25, 1997 (the "Participation Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger as the same may be amended, supplemented, amended and restated or otherwise modified from time to time, does hereby certify that (capitalized terms used herein shall have the meanings ascribed thereto in the Participation Agreement) the following individuals on the date hereof are duly appointed, qualified and authorized pursuant to the resolutions referred to in paragraph 3 above to execute and deliver the Operative Documents and any other documents to be executed on behalf of [Guarantor/Lessee] in connection with the transactions contemplated by the Participation Agreement, and the signature of such individuals appearing on such documents are the respective genuine signatures of each such person: NAME SIGNATURE ------------------ ----------------------- ------------------ ----------------------- IN WITNESS WHEREOF, I have signed my name this day __________ of ____________, 199_____. -------------------------------------------- [Assistant] Secretary as aforesaid I, ______________________, [Vice] President of [Name of Guarantor/Lessee], hereby certify that __________________________ is on the date hereof the duly elected, qualified and acting [Assistant] Secretary of [Name of Guarantor/Lessee], and that the signature set forth above is such person's true and correct signature. Dated:___________, 199___ -------------------------------------------- [Vice] President as aforesaid 84 EXHIBIT D-2 (TO PARTICIPATION AGREEMENT) FORM OF RESPONSIBLE OFFICER'S CERTIFICATE Pursuant to the Participation Agreement dated as of November 25, 1997 (the "Participation Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger as the same may be amended, supplemented, amended and restated or otherwise modified from time to time, I, [name of Responsible Officer], [position of Responsible Officer] of [Guarantor/Lessee] (the ["Guarantor"/"Lessee"]), do hereby certify as follows (capitalized terms used herein shall have the meanings ascribed thereto in the Participation Agreement): 1. To my knowledge, the representations and warranties of the [Guarantor/Lessee] contained in the Participation Agreement and other Operative Documents to which it is a party are true, correct and complete in all material respects on and as of the date hereof with the same effect as if such representations and warranties had been made on and as of the date hereof, except to the extent such statements relate solely to an earlier date, in which case such statements shall have been true and correct in all material respects on and as of such earlier date. 2. To my knowledge, no Lease Default or Lease Event of Default has occurred and is continuing under any Operative Document to which the [Guarantor/Lessee] is a party. 3. To my knowledge, each Operative Document to which the [Guarantor/Lessee] is a party is in full force and effect with respect to it. 4. The [Guarantor/Lessee] has duly performed and complied with all conditions contained in the Participation Agreement or in any other Operative Document required to be performed or complied with by it on or prior to the date hereof, where failure to perform such obligation shall have a Material Adverse Effect. IN WITNESS WHEREOF, I have signed my name this _____ day of ___________, 199___ and certify that I am the [position of Responsible Officer] of the [Guarantor/Lessee]. [GUARANTOR/LESSEE] By: ------------------------------ Name: Title: 85 EXHIBIT E (TO PARTICIPATION AGREEMENT) [INTENTIONALLY OMITTED] 86 EXHIBIT F (TO PARTICIPATION AGREEMENT) FORM OF ASSIGNMENT AGREEMENT To: Alumax Mill Products, Inc., as the Lessee BMO Leasing (U.S.), Inc., as Agent Lessor Bank of Montreal, as Administrative Agent Reference is made to Section 12.1 of the Participation Agreement dated as of November 25, 1997 (the "Participation Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger as the same may be amended, supplemented, amended and restated or otherwise modified from time to time (the "Participation Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings given thereto in the Participation Agreement. [Name of assigning Participant] (the "Assignor") and [Name of Eligible Lender Assignee/Eligible Lessor Assignee] hereby agree as follows: 1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a [____]% interest in and to all the Assignor's rights and obligations under the Operative Documents as of the Effective Date (as defined below) (including, without limitation, such percentage interest in the [Lender] [Lessor] Commitment of the Assignor on the Effective Date and such percentage interest in each [Loan] [Lessor Amounts] owing to the Assignor outstanding on the Effective Date together with such percentage interest in all unpaid [interest] [Yield] and fees (excluding those fees under Section 4.4 of the Participation Agreement) accrued to the Effective Date). 2. The Assignor (a) represents and warrants that as of the date hereof its [Lender] [Lessor] Commitment (without giving effect to assignments thereof which have not yet become effective) is $[___________ ], and the outstanding aggregate principal balance of its [Loans] [Lessor Amounts] (without giving effect to assignments thereof which have not yet become effective) is $ _____________] and (b) makes no representation or warranty and assumes no responsibility (i) with respect to any statements, warranties or representations made in or in connection with any Operative Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Operative Document or any other instrument or document furnished thereunder or pursuant thereto, except that it represents and warrants that it is the legal and beneficial owner of the interests being assigned by it hereunder and that such interests are free and clear of adverse claims, and (ii) with respect to the financial position of the Lessee or the Guarantor or the performance or observance by the Lessee or the Guarantor of any of their respective obligations under any Operative 87 Document or any other instrument or document furnished thereunder or pursuant thereto. 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment Agreement; (b) confirms that it has received a copy of each of the Participation Agreement, the Lease and the Loan Agreement, together with copies of the most recent financial statements delivered pursuant to Section 10.1(f) of the Participation Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (c) agrees that it will, independently and without reliance upon the Administrative Agent, the Agent Lessor, the Assignor or any other Participant and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any Operative Document; (d) appoints and authorizes the Administrative Agent and the Agent Lessor, as applicable, to take such action on its behalf and to exercise such powers under the Operative Documents as are delegated to the Administrative Agent and the Agent Lessor, as applicable, by the terms thereof, together with such powers as are reasonably incidental thereto; and (e) agrees that it will perform in accordance with its terms all the obligations which by the terms of the Operative Documents are required to be performed by it as a Participant. 4. From and after the Effective Date (a) the Assignee shall be party to and be bound by the provisions of the Operative Documents as a [Lender] [Lessor] and, to the extent of its interests assigned by this Assignment Agreement, have the rights and obligations of a ["Lender"] ["Lessor"] and as a "Participant" thereunder and (b) the Assignor shall, to the extent of its interests assigned by this Assignment Agreement, relinquish its rights and be released from its obligations under the Operative Documents. 5. This Assignment Agreement will be delivered to each of the Administrative Agent and the Agent Lessor together with a transfer fee of $3,500 payable by the Assignor or the Assignee to the Administrative Agent for its own account. [6. The Assignor shall surrender to the Administrative Agent its Note or Notes representing the Assignor's interest in and to all the Assignor's rights and obligations under the Operative Documents, and the Administrative Agent will (upon execution and delivery thereof by the Agent Lessor) promptly provide to the Assignor and the Assignee separate promissory notes in the amount of their respective interests substantially in the form of the original Note (each such note with a notation thereon that it is given in substitution for and replacement of the original Note or any replacement notes thereof).]** - ------------------- ** This Section to apply only if the Assignor is a Lender. F-2 88 7. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 8. The effective date of this Assignment Agreement shall be ___________________, 19___ (the "Effective Date"). IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed and delivered by their respective duly authorized officers as of the date first written above. Adjusted Commitment [ ] --------------------------- as Assignor Commitment to make Loans: $ --------------------- Commitment Percentage: % By: ------ ------------------------- Name: Commitment to advance Title: Lessor Amounts: $ --------------------- Commitment Percentage: % ------ Commitment [ ] --------------------------- as Assignee Commitment to make Loans: $ --------------------- Commitment Percentage: % By: ------ ------------------------- Name: Commitment to advance Title: Lessor Amounts: $ --------------------- Commitment Percentage: % ------ Address for Notices: ----------------------------- ----------------------------- ----------------------------- Attention: -------------------- Telecopy ( ) - --- ----- -------- Telecopy ( ) - --- ----- -------- F-3 89 Agreed to and Accepted: ALUMAX MILL PRODUCTS, INC., as Lessee By: ------------------------------ Name: Title: BANK OF MONTREAL, as Administrative Agent By: ------------------------------ Name: Title: BMO LEASING (U.S.), INC., as Agent Lessor By: ------------------------------ Name: Title: F-4 90 EXHIBIT G (TO PARTICIPATION AGREEMENT) FORM OF LEGAL OPTION OF LOCAL COUNSEL TO LESSEE November 25, 1997 To the Parties Listed on Schedule A attached hereto Re: Alumax Mill Products, Inc. - Lease Financing of Rolling Mill and Related Equipment Ladies and Gentlemen: We have acted as special counsel in the State of Texas (the "State") for Alumax Mill Products, Inc., a Delaware corporation ("Lessee"), in connection with the transactions contemplated by that certain Participation Agreement (herein so called) dated as of November 25, 1997, by and among Lessee, the Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger (as each of such terms are defined in the Participation Agreement). Although we are serving as special counsel to Lessee, as to matters governed by laws other than the State, you are, unless otherwise denoted herein, relying upon the opinions of separate counsel. This opinion is rendered to you at the request of Borrower pursuant to Section 6.1 of the Participation Agreement. Capitalized terms used but not otherwise defined herein have the respective meanings specified in Appendix A to the Participation Agreement. I. Documents Reviewed In connection with the opinions contained herein, we have examined and are familiar with originals of or copies identified to our satisfaction of the documents listed on Schedule B attached hereto (the "Subject Documents"). In addition, we have examined and are familiar with such legal matters as we have deemed necessary for purposes of rendering this opinion. II. Opinions Based solely upon our review of the Subject Documents, and subject to the qualifications and assumptions set for herein, it is our opinion that: 91 To the Parties Listed on Schedule A attached hereto November 25, 1997 Page 2 1. The Ground Lease and, to the extent Texas law is applicable to the Master Lease, the Master Lease, each constitutes the legal, valid and binding obligation of the parties thereto and is enforceable against each party in accordance with the terms thereof. 2. The Deed is in form sufficient under the laws of the State of Texas to convey all interests in the property described therein intended to be conveyed thereby, and such instrument, when filed or recorded in the Real Property Records of Bowie County, Texas (the "Recording Office") will have been filed or recorded in the appropriate public offices in the State in which such filing and recording is necessary to convey valid title to the property described therein to the Agent Lessor. 3. If the transaction contemplated by the Master Lease is characterized as a lease transaction, the Master Lease is in form sufficient under the laws of the State of Texas to demise to the Lessee a valid leasehold interest in the Property. The Master Lease or the Memorandum of Lease, when recorded with the Recording Office, will have been filed or recorded in all public offices in the State of Texas in which such filing or recording is necessary to provide constructive notice of the Master Lease to third Persons and to establish of record the interest of the Agent Lessor thereunder. 4. If the transactions as provided in the Master Lease are characterized as a loan transaction: (a) Section 25.2 of the Master Lease is effective to create a power of sale in favor of the Lessee; and (b) The Master Lease is in form sufficient under the laws of the State of Texas to create a valid lien or security interest in favor of the Agent Lessor, and to secure all the obligations of the Lessee under the Subject Documents, in the Property. The Master Lease or the Memorandum of Lease, when recorded with the Recording Office, will have been filed or recorded in all public offices in the State of Texas in which such filing or recording is necessary to perfect the lien of the Agent Lessor thereunder to the extent that the Property constitutes real estate. The Master Lease provides the Agent Lessor with remedies customarily obtained by lenders in the State of Texas in connection with the type of loan and security provided thereby. 5. The Assignment of Lease and Rent is in form sufficient under the laws of the State of Texas to create a valid lien or security interest in favor of the Lenders in the collateral described therein, and when recorded with the Recording Office, will have been filed or recorded in all public offices in the State of Texas in which such filing or recording is necessary to perfect 92 To the Parties Listed on Schedule A attached hereto November 25, 1997 Page 3 the lien of the Lenders thereunder to the extent that such collateral constitutes real estate. The Assignment of Lease and Rent provides the Lenders with remedies customarily obtained by lenders in the State of Texas in connection with the type of loan and security provided for thereby. 6. The law (statutory or otherwise) of the State of Texas does not require a lienholder to make an election of remedies where such lienholder holds security interests and liens on both the real and the personal property of a debtor or to take recourse first or solely against or otherwise exhaust its remedies against its collateral before otherwise proceeding to enforce against such debtor the obligations of such debtor. 7. The UCC Financing Statements which are to be recorded or filed within the State, the forms of which are attached as Schedule C hereto, are in form sufficient under the laws of the State for filing, or recording, and when recorded with the Recording Office and the Texas Secretary of State will have been filed or recorded in all public offices in the State in which such filing or recording is necessary to perfect the interest of the Agent Lessor in the collateral described therein, to the extent the same can be perfected by filing or recording in the State. 8. Assuming that the Agent Lessor is qualified to transact business in the State of Texas, to the best of our knowledge, neither the execution and delivery of the Subject Documents, nor the fulfillment of or the compliance with the provisions thereof by the Agent Lessor results in a violation of, or contravenes any statute, law, rule, code, ordinance or regulation of the State of Texas to which the Agent Lessor is subject. 9. It is our opinion that a Texas court in a properly presented case should apply the laws of the State of Texas to the perfection of the lien and security interest in the Property and the rights and remedies of the Trustee and the Agent Lessor with respect to the Property (collectively, the "Remedies Provisions") as provided in Section 26.8 of the Master Lease. In delivering such opinion, we are relying in part on Tex.Bus.Comm.Code, ss.35.51(b). Although no Texas courts have decided a case under Tex.Bus.Comm.Code, ss.35.51(b), we believe that a Texas court sitting and applying the laws of the State in a properly presented case should characterize the Master Lease as a "qualified" transaction with a reasonable relationship to the State of Texas and will uphold and enforce such choice of law provision. In rendering the opinions set forth herein, we are expressly assuming, without opining, that the Subject Documents are enforceable, and that any references in the provisions of the Master Lease to the other Subject Documents, or to any remedies available to the Trustee or Agent Lessor under any or all of the Subject Documents, are valid and effective. We render no opinion, express or implied, as to the effect, if any, of (i) the effectiveness or enforceability of such remedies or (ii) the validity of any provisions of any of the Subject Documents which purport to be governed by the laws of a 93 To the Parties Listed on Schedule A attached hereto November 25, 1997 Page 4 jurisdiction other than the State. We render no opinion as to the effect of the reference to the laws of the State of New York or New York procedures contained in the Master Lease or any of the other Subject Documents. You have further requested our opinion as to whether a Texas court in a properly presented case should apply the laws of the State of New York to the Subject Documents, except to the extent of the Ground Lease and the Remedies Provisions of the Master Lease. Each of the remaining Subject Documents is, by its terms, governed by the laws of the State of New York, and in rendering the opinions contained herein, we are in no manner expressly or impliedly rendering opinions as to the laws of the State of New York. We are advised that the parties have determined based on a series of financing transactions that the State of New York has a significant relationship to the Subject Documents which are not the subject of Texas law and that the State of New York has a significant relationship to the obligations of the Lessee thereunder. Assuming such determination is correct, we are of the opinion that a Texas court in a properly presented case should apply the laws of the State of New York to the Subject Documents except to the extent of the Remedies Provisions of the Master Lease. This opinion is based in part on Tex.Bus.Comm.Code, ss.35.51(b), although no Texas courts have decided a case under such statute. 10. Except for the filings and recordings described above, no approval, consent, or filing or registration with, any governmental authority or regulatory body in the State of Texas is required to be made or taken in the State of Texas to establish, protect and preserve title to, interests in, liens on and security interests in the Property as contemplated by the Subject Documents, except for UCC continuation statements. 11. Assuming without opining that the transaction contemplated by the Master Lease is characterized as a loan for federal income tax purposes, except for federal, state and local franchise, withholding and income taxes, no taxes, fees or other charges imposed by the State of Texas, Bowie County or any other local governmental entity are payable by the Agent Lessor or the Lenders solely as a result of the execution, delivery, recordation or filing (where applicable) of the Subject Documents and all other instruments delivered in connection with the transactions contemplated thereby (except for nominal filing or recording fees payable at the time of filing or recording). 12. Assuming without opining that the transaction contemplated by the Subject Documents is a loan, and assuming without opining that a court would find that the laws of the State of Texas would apply to such transaction notwithstanding the parties' choice of New York law, we believe that a Texas court sitting and applying the laws of the State in a properly 94 To the Parties Listed on Schedule A attached hereto November 25, 1997 Page 5 presented case would give effect to the usury savings provisions set forth in Section 26.13 of the Master Lease. III. Qualifications The opinions expressed herein are subject to and limited by the following additional qualifications, assumptions and exclusions: (a) The opinion as to the enforceability of the Subject Documents is subject to the qualification that enforcement of the Ground Lease and the Master Lease is limited by the following: (i) the rights of the United States under the Federal Tax Lien Act of 1966, as amended; (ii) principles of equity which may limit the availability of certain equitable remedies; (iii) bankruptcy, insolvency, reorganization, liquidation, conservatorship, receivership, fraudulent or preferential conveyance, moratorium and other laws applicable to creditors' rights or the collection of debtors' obligations generally; and (iv) the power of courts to award damages in lieu of granting equitable remedies. As to the matters specified in (ii) and (iv) above, such matters will not render the Ground Lease nor the Master Lease invalid as a whole nor preclude (x) the acceleration of the obligation of Lessee to repay the indebtedness, upon default by Lessee in the payment of such indebtedness or upon a material default in any other material provision of the Master Lease, and (y) the foreclosure of the lien of the Master Lease in accordance with the laws of the State, of the lien on and security interest in the collateral created by the Master Lease upon maturity or upon acceleration described in subparagraph (b) above. (b) Without opining as to the character of the transaction contemplated by the Master Lease as a loan or lease, the opinion as to the enforceability of the Master Lease and the Ground Lease is further subject to the qualification that the enforceability of certain of the remedial, waiver and other provisions of the Master Lease and the Ground Lease is further limited by applicable laws of the State and the United States in addition to those described in subparagraph (a) above; however, such applicable laws do not, in our opinion, substantially interfere with the practical realization of the essential benefits expressed in the Master Lease or the Ground Lease, except for the economic consequences which might result from any procedural delay which may result therefrom, nor does such unenforceability render the Master Lease or the Ground Lease invalid as a whole or substantially interfere with the principal benefits and/or security provided thereby. 95 To the Parties Listed on Schedule A attached hereto November 25, 1997 Page 6 (c) No opinion is expressed regarding the enforceability of any of the provisions of the Ground Lease or the Master Lease which purport to: (i) confer self-help or equitable remedies such as specific performance or injunctive relief; (ii) establish evidentiary standards for suits or proceedings or restrict, limit or deny access to courts; (iii) waive or release the legal rights, benefits or claims of any party in advance; (iv) allow or authorize the delay or omission of any remedy, indemnity or consent judgment; (v) avoid or ignore the doctrines of mortgagee-in-possession or commercial influence; (vi) establish non-culpability for actions taken by or on behalf of Agent Lessor or any other person; (vii) take possession of rents, profits or issues derived from the Property or purport to establish the assignment of rents, profits and issues from the Property as a direct or absolute assignment (as opposed to a collateral assignment) thereof prior to the time Agent Lessor obtains possession thereof through foreclosure of the liens against or a judicial appointment of receivership for the Property in question, or take some action which is judicially deemed to be the equivalent thereof; (viii) allow Agent Lessor to take possession of any of the real property collateral for the transaction prior to an order of a competent jurisdiction or a valid foreclosure upon such collateral or as to any personal property collateral for the transaction prior to full compliance by Agent Lessor of the applicable terms of the Uniform Commercial Code in effect; (ix) authorize Agent Lessor or any other party to act as attorney-in-fact for the Lessee; (x) appoint a receiver to the extent the appointment of a receiver is governed by applicable statutory requirements and to the extent any such provision of the Master Lease may not be in compliance with such statutory requirements; (xi) establish waiver and define rights relating to subrogation, exculpation, waiver, ratification of future acts, trespass, conversions, gross negligence or fraud; (xii) relate to arbitration or appraisal remedies and rights; and (xiii) permit the Agent Lessor to accelerate the maturity of the indebtedness evidenced and governed by the Master Lease without notice to the Lessee. As to the matters specified in this subparagraph (c), without opining as to the character of this transaction contemplated by the Master Lease as a loan or a lease, in our opinion, the unenforceability of such provisions will not render the Master Lease invalid as a whole, nor preclude (y) the acceleration of the obligation of Lessee to repay such indebtedness, upon default by Lessee, the payment of such indebtedness or upon a material default in any other material provision of the Master Lease, and (z) the foreclosure of the lien of the Master Lease in accordance with the laws of the State, of the lien on and security interest in the collateral created by the Master Lease upon maturity or upon acceleration described in subparagraph (b) above. (d) We express no opinion herein as to: (i) the effect of any land use or environmental law, rule, regulation or ordinance; (ii) the perfection of any security interest 96 To the Parties Listed on Schedule A attached hereto November 25, 1997 Page 7 in collateral to the extent that it purports to secure any indebtedness arising other than under the Master Lease; and (iii) the validity or enforceability of any security interest in or assignment of any account receivable with respect to which the account debtor is the United States or any agency, department or instrumentality of the United States. (e) No examination of title to the Property was undertaken, nor is any opinion expressed (i) with respect thereto or (ii) with respect to the adequacy of the description of the collateral or the creation or perfection or priority of any liens or security interests to be created or modified pursuant to the Master Lease and financing statements. To the extent title to any real or personal property is required to be held by any party in order to perform its obligations under the Master Lease or the Ground Lease, we have assumed, without any investigation, that such party holds title adequate to perform its obligations. (f) The opinions rendered herein are based upon the further assumptions that: (i) the drafts of the Subject Documents reviewed by us have been duly executed by the parties thereto; (ii) each of the parties to the Subject Documents has all the legal capacity, power and authority required for it to enter into the Subject Documents to which it is a party, and to perform its respective obligations thereunder; (iii) all such matters have received any corporate or other authorization required by any applicable charter, bylaw, law or regulation; (iv) all documents submitted to us as originals are authentic and all documents submitted to us as copies are true and correct reproductions of the originals of such documents; (v) each of the agreements made by the parties to the Subject Documents and every Subject Document executed by the parties to the Subject Documents is valid, binding and enforceable against parties to the Subject Documents as appropriate to the extent that such validity, binding effect and enforceability affects the opinions herein expressed; and (iv) all individuals executing the Subject Documents are sui juris. (g) No opinion is given or expressed, nor should any opinion be inferred or implied, as to: (i) the financial ability of the Lessee or any other obliger pursuant to the Subject Documents to meet or satisfy their respective obligations thereunder; (ii) the truthfulness, completeness or accuracy of any applications, reports, plans, documents, financial statements or other matters furnished to parties to the Subject Documents or their agents or representatives by Lessee or any other obligor under the Subject Documents or by any party acting by, for or at the discretion of Lessee or any other obligers or in conjunction with the transaction as evidenced by the Subject Documents; (iii) the truthfulness, completeness or accuracy of any representation, warranty, certification or statement by Lessee and all other parties to the Subject Documents or any document or item referred to or described in the Subject Documents; and (iv) the 97 To the Parties Listed on Schedule A attached hereto November 25, 1997 Page 8 compliance by the Lessee or any other person or entity with applicable federal and state securities laws and/or regulations in connection with the transactions as evidenced by the Subject Documents. (h) The qualification of any opinion or statement herein by the use of words "knowledge", "current actual knowledge" or "to our knowledge" or "known to us" means that during the course of our representation of Lessee in connection with the subject transaction, no facts or circumstances has come to the attention of the attorneys involved in such representation which gives such attorneys actual knowledge of the existence of the documents or facts so qualified. Furthermore, except as otherwise expressly set forth herein, we have not undertaken any investigation to determine the existence of such documents or facts, and no inference as to our knowledge thereof shall be drawn from the fact of our representation of any party or otherwise. (i) We have further assumed, with your permission, that each of the parties to the Subject Documents is duly organized, validly existing and in good standing under the laws of its state of incorporation, and has all requisite corporate power and authority to execute, deliver and perform their obligations under the Subject Documents. IV. Scope and General Statements This opinion is provided for the purpose of complying with the requirements of the Participation Agreement, and without prior consent, may not be relied upon, used, circulated, quoted or otherwise referred to in any manner by any person, firm or governmental authority or entity whatsoever other than reliance thereon by Agent Lessor and the other addressees of this opinion letter, any participants of Agent Lessor and Agent Lessor's successors and assigns, solely for the purposes of consummating the transaction evidenced by the Subject Documents, except to the extent, and only to the extent, required by applicable governmental regulations or requirements. This opinion shall not be construed as or be deemed to be a guaranteeing or insuring instrument. Further, although we have acted as special counsel in the specific manner delineated herein for Lessee in connection with the transactions relating to or in respect of the Participation Agreement, our representation has been limited to specific matters from time to time referred to us for substantive legal attention by Lessee, and factual matters or agreements pertaining to the Participation Agreement, the Subject Documents, and the Property may exist of which we have no knowledge or information. However, we have no current actual knowledge of any facts or circumstances which would make any opinion expressed herein incorrect or subject to question or require further investigation of any laws, facts or circumstances. 98 To the Parties Listed on Schedule A attached hereto November 25, 1997 Page 9 This opinion is rendered as of the date hereof, and we undertake no, and hereby disclaim any, obligation to advise you of any changes in or any new developments which might affect any matters or opinions set forth herein. We are licensed to practice law only in the State of Texas, and we express no opinion with respect to any laws other than the laws of the State of Texas upon the validity, binding effect and enforceability of the Master Lease and the Ground Lease. WINSTEAD SECHREST & MINICK P.C., a Professional Corporation By: /s/ J. Kenneth Kopf ----------------------------------- J. Kenneth Kopf 99 Schedule A Addressees of Opinion Letter BMO Leasing (U.S.), Inc. 311 West Monroe Street Chicago, IL 60603 Bank of Montreal 115 South LaSalle Street Chicago, IL 60603 Chapman and Cutler 111 West Monroe Street Chicago, IL 60603-4080 Schedule A, Addressees of Opinion Letter - Solo Page 100 APPENDIX A TO PARTICIPATION AGREEMENT A. Interpretation. In each Operative Document, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Documents, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; (iv) reference to any agreement, document or instrument (including any Operative Document) means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents, and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor; (v) reference in any Operative Document to any Article, Section, Appendix, Schedule or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto; (vi) "hereunder," "hereof", "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other provision thereof; and (vii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term. B. Computation of Time Periods. Unless otherwise specified in any Operative Document, for purposes of computation of periods of time under the Operative Documents, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." C. Accounting Terms and Determinations. Unless otherwise specified in any Operative Document, all terms of an accounting character used therein shall be interpreted, and all accounting determinations hereunder shall be made in accordance with GAAP applied (to the extent relevant) on a basis consistent (except for changes concurred in by the Lessee's or the Guarantor's independent public accountants or otherwise required by a change in GAAP) with the most recent financial statements of the Lessee and the Guarantor delivered to the Administrative Agent, the Agent Lessor and the Participants. 101 D. Conflict in Operative Documents. If there is any conflict between any Operative Documents, such Operative Documents shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Participation Agreement shall prevail and control. E. Legal Representation of the Parties. The Operative Documents were negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Documents to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof. F. Defined Terms. Unless a clear contrary intention appears, terms defined herein have the respective indicated meanings when used in each Operative Document. "Account" means the account identified by the Administrative Agent into which all payments by the Lessee under the Operative Documents shall be made. The Account shall be specified on Schedule II to the Participation Agreement. "Acquisition Cost" means the amount of the Advance made available to the Lessee for the purpose of acquiring the Property as such amount is set forth in the Funding Request relating to the acquisition of the Property. "Acquisition Date" is defined in Section 6.1 of the Participation Agreement. "Administrative Agent" means BMO in its capacity as Administrative Agent, and any successors or permitted assigns thereto in such capacity. "Advance" means the advance of funds to the Lessee pursuant to Article III of the Participation Agreement. "Affiliate" means any Person (a) which directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, a Person or (b) which is the beneficial owner of 10% or more of any class of the Voting Stock of such Person. "After Tax Basis" means, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all Taxes required to be paid by the recipient (less any Tax savings realized and the present value of any Tax savings projected to be realized by the recipient as a result of the payment of the indemnified amount) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made. "Agent Lessor" means BMO Leasing (U.S.), Inc., a Delaware corporation, together with its successors permitted pursuant to Section 14.12 of the Participation Agreement. "Aggregate Commitment Amount" means, $96,957,507.26. -2- 102 "ALTA/ACSM" is defined in Section 6.1(o) of the Participation Agreement. "Applicable Law" means all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Property or the demolition, construction, use or alteration thereof, in force and effect at the relevant point in time, including any that require repairs, modifications or alterations in or to the Property or in any way limits the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. S 1201 et seq. and any other similar federal, state or local laws or ordinances and the regulations promulgated thereunder) and all Environmental Laws, and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting the Property, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 11.2 of the Master Lease. "Appraisal" means an appraisal by the Appraiser of the Fair Market Sales Value of the Property. "Appraiser" means the appraiser which prepared an Appraisal of the Property or an up-date to an Appraisal of the Property as selected by the Administrative Agent, Lessee and the Agent Lessor. "Appurtenant Rights" means, with respect to the Land, (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, and other rights and benefits belonging or pertaining to the Land or the Improvements thereon, including, without limitation, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to the Land and (ii) all permits, licenses and rights, whether or not of record, appurtenant to the Land. "Arranger" means BMO in its capacity as Arranger and any successors and assigns thereto in such capacity. "Arranger's Fee Letter" means that certain engagement letter and attached indicative term sheet dated as of October 27, 1997, between the Guarantor and the Arranger. "Assignment of Lease and Rent" means the Assignment of Lease and Rent dated as of November 25, 1997, from the Agent Lessor, as assignor, to the Administrative Agent for the benefit of the Lenders, as assignee. "Authorized Financial Officer" of any Person means the Chief Financial Officer, Chief Accounting Officer, Treasurer or Assistant Treasurer or such other Persons as any such officer may from time to time designate in writing to the Administrative Agent and the Agent Lessor. "Bankruptcy Code" is defined in Section 5.1(e) of the Loan Agreement. -3- 103 "Base Rate" means for any day the greater of: (i) the rate of interest announced by the Administrative Agent from time to time as its prime commercial rate for Dollar loans made in the United States (it being understood that such rate may not be the Administrative Agent's best or lowest rate), with any change in the Base Rate resulting from a change in said prime commercial rate to be effective as of the date of the relevant change in said prime commercial rate; and (ii) the sum of (x) the rate for that day set forth opposite the caption "Federal Fund (Effective)" in the daily statistical release designated as "Composite 3:30 P.M. Quotations for U.S. Governmental Securities", or any successor publication, published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, the arithmetic average of the rates quoted to the Administrative Agent as the prevailing rates per annum (rounded upward, if necessary, to the next higher 1/100 of 1%) bid at approximately 11:00 A.M. (New York time) (or as soon thereafter as is practicable) on such day by two or more New York Federal funds dealers of recognized standing selected by the Administrative Agent for the purchase at face value of Federal funds in the secondary market in an amount comparable to the Loan amount owed to the Administrative Agent for which such rate is being determined, plus (y) 1/2 of 1%. "Base Rate Loan/Lessor Amount" means a Loan or Lessor Amount, as the case may be, bearing interest at the Base Rate. "Basic Rent" means the sum of (i) the Lender Basic Rent and (ii) the Lessor Basic Rent, calculated as of the applicable date on which Basic Rent is due. "Bill of Sale" is defined in Section 6.1(j) of the Participation Agreement. "BMO" means Bank of Montreal (Chicago Branch), a Canadian banking organization. "Break Costs" means an amount equal to the amount, if any, required to compensate any Participant for any additional losses (including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or funds acquired by such Participant to fund its obligations under the Operative Documents) it may incur as a result of (x) Lessee's payment of any Rent other than on a Scheduled Payment Date, (y) Lessee's payment of the Lease Balance on any date other than a Scheduled Payment Date, or (z) as a result of any conversion of the London Interbank Offered Rate in accordance with Section 13.9 or 13.10 of the Participation Agreement. A statement as to the amount of such loss, cost or expense, prepared in good faith and in reasonable detail and submitted by such Participant, as the case may be, to the Lessee, shall be correct and binding on the Lessee absent manifest error. "Business Day" means any day other than a Saturday or Sunday on which banks are generally open for business in Chicago, Illinois and New York, New York and, when used with reference to a Eurodollar Loan/Lessor Amount, a day on which banks are also open for business and dealing in Dollar deposits in London, England. -4- 104 "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Company Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board), and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). "Casualty" means any damage or destruction of all or any portion of the Property as a result of a fire, flood, earthquake or other similar occurrence. "Certifying Party" is defined in Section 22.1 of the Master Lease. "Claims" means any and all obligations, dimunition in value, damages, liabilities, losses, actions, Environmental Law orders, Environmental Law notices, suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever. "Code" means the Internal Revenue Code of 1986, as the same may be amended from time to time. "Commitment" means (i) as to any Lender, its Loan Commitment, and (ii) as to any Lessor, its Lessor Commitment. "Commitment Percentage" means, with respect to any Participant, the percentage set forth opposite such Participant's name under the heading "Commitment Percentage" on Schedule I to the Participation Agreement, as such Schedule may be amended, supplemented, amended and restated or otherwise modified from time to time. "Company Property" shall mean, as to any Person, any interest of any kind of such Person in property or assets, whether real, personal or mixed, and whether tangible or intangible. "Condemnation" means, with respect to the Property, any condemnation, requisition, confiscation, seizure or other taking or sale of the use, access, occupancy, easement rights or title to the Property or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain, proceeding or other taking of action by any Person having the power of eminent domain, including an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, the Property or alter the pedestrian or vehicular traffic flow to the Property so as to result in change in access to the Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. A "Condemnation" shall be deemed to have occurred on the earliest of the dates that use, occupancy or title vests in the condemning authority. -5- 105 "Consolidated Subsidiary" shall mean, for any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. "Contract" means (a) any agreement (whether bi-lateral or executory or non-executory and whether a Person entitled to rights thereunder is so entitled directly or as a third-party beneficiary), including an indenture, lease or license or (b) any deed or other instrument of conveyance. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and "Controlling" and "Controlled" shall have meanings correlative thereto. "Deed" means a quitclaim deed with respect to the real property comprising the Property, in conformity with Applicable Law and appropriate for recording with the applicable Governmental Authorities, conveying title to such real property to the Agent Lessor, subject only to Permitted Property Liens. "Default" means any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Defaulting Participant" means, at any time, any Participant that, at such time (a) has failed to make an Advance of a Loan or Lessor Amount, as the case may be, required pursuant to the terms of the Participation Agreement, (b) has failed to pay to the Administrative Agent, the Agent Lessor, any Lender, or any Lessor an amount owed by such Participant pursuant to the terms of the Operative Documents, or (c) has been declared insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official, or (d) in the case of any Lessor, a Loan Agreement Event of Default with respect thereto shall have occurred and be continuing. "Dollars" and "$" mean dollars in lawful currency of the United States of America. "Eligible Assignee" means an Eligible Lessor Assignee or an Eligible Lender Assignee, as the case may be. "Eligible Lender Assignee" means any Lender or any Affiliate or Subsidiary of a Lender; and any other commercial bank or other financial institution with combined capital and surplus in excess of $50,000,000. "Eligible Lessor Assignee" means any Lessor or any Affiliate or Subsidiary of a Lessor; and any other commercial bank or other financial institution with combined capital and surplus in excess of $50,000,000. -6- 106 "End of the Term Report" is defined in Section 13.2(a) of the Participation Agreement. "Environmental Audit" means a Phase One environmental site assessment (the scope and performance of which meets or exceeds the then most current ASTM Standard Practice E1527 for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of the Property. "Environmental Laws" means any and all applicable laws, statutes, rules, regulation or ordinances of any Governmental Authority regulating or imposing liability or standards of conduct concerning protection of human health or the environment in connection with the use, storage, handling, disposal, treatment, generation, discharge, emission or disposal of any hazardous, toxic or dangerous materials, substances, chemicals, wastes or pollutants that from time to time are defined as a hazardous waste, hazardous substances or pollutants under the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. ss.ss.6091, et seq., the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. ss.ss.9601, et seq., as amended, the Clean Air Act, 42 U.S.C. ss.7401, et seq., the Toxic Substance Control Act, 15 U.S.C. ss.206, et seq., and any other similar law, statute, rule, regulation or ordinance adopted from time to time by any Governmental Authority. "Environmental Violation" means, with respect to the Property, any activity, occurrence or condition that constitutes a violation, which violation results in material non-compliance with any applicable Environmental Laws. "Equipment" means equipment, apparatus, fittings and personal property of every kind and nature whatsoever purchased, leased or otherwise acquired by the Agent Lessor using the proceeds of the Loans and/or the Lessor Amounts and now or subsequently attached to, contained in or used or usable in any way in connection with any operation of the Property, including but without limiting the generality of the foregoing, the items of equipment set forth in Schedule II to the Master Lease. Notwithstanding the foregoing, any equipment or personal property constituting Excluded Equipment shall not be "Equipment" for purposes of the Operative Documents. "Equity Amount" shall have the meaning provided in Section 7.4 of the Participation Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Guarantor is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Guarantor is a member. -7- 107 "Eurodollar Loan/Lessor Amount" means a Loan or Lessor Amount as the case may be, bearing interest at the Eurodollar Rate. "Eurodollar Rate" means with respect to an Interest Period for Eurodollar Loans/Lessor Amounts, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate is unavailable or cannot be determined generally or for the Interest Period in question, the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) at which deposits in U.S. dollars in immediately available funds are offered to the Administrative Agent at 11:00 a.m. (London, England time) two (2) Business Days before the beginning of such Interest Period by three (3) or more major banks in the interbank eurodollar market selected by the Administrative Agent for a period equal to such Interest Period and in an amount equal to or comparable to the principal amount of such Eurodollar Loans/Lessor Amount outstanding from the Administrative Agent. "Eurodollar Reserve Percentage" means for any day during an Interest Period for a Eurodollar Loan/Lessor Amount, the rate at which reserves (including, without limitation, any supplemental, marginal and emergency reserves) are imposed on such day by the Board of Governors of the Federal Reserve System (or any successor) on "Eurocurrency liabilities", as defined in such Board's Regulation D, (or in respect of any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Loan/Lessor Amounts is determined on any category of extension of credit or other assets that include loans by non-United States offices of any Bank to United States residents) subject to any amendments of such reserve requirement by such Board or its successor, taking into account any transitional adjustments thereto. For purposes of this definition, the Eurodollar Loan/Lessor Amounts shall be deemed to be Eurocurrency liabilities as defined in Regulation D without benefit or credit for any prorations, exemptions or offsets under Regulation D. "Event of Default" means a Lease Event of Default or a Loan Agreement Event of Default. "Exchange Act Reports" is defined in Section 8.2(e) of the Participation Agreement. "Excepted Payments" means: (a) all indemnity payments (including indemnity payments made pursuant to Article XIII of the Participation Agreement) to which the Administrative Agent, the Arranger, the Agent Lessor, any Lender, any Lessor or any of their respective Affiliates, agents, officers, directors or employees is entitled; (b) any amounts (other than Basic Rent or amounts payable by Lessee pursuant to Section 15.2 of the Master Lease or Articles XVI, XVIII or XX of the Master Lease) payable under any Operative Document to reimburse the Administrative Agent, the Arranger, the Agent Lessor, any Lender, any Lessor or any of their respective Affiliates (including the reasonable expenses of the Administrative -8- 108 Agent, the Arranger, the Agent Lessor, any Lender, any Lessor or such Affiliates incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Document; (c) any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) under liability policies payable to the Agent Lessor or any Lessor; (d) any insurance proceeds under policies maintained by any Participant; (e) Transaction Expenses or other amounts or expenses paid or payable to or for the benefit of the Administrative Agent, the Arranger, the Agent Lessor, any Lender or any Lessor; and (f) any payments in respect to interest to the extent attributable to payments referred to in clauses (a) through (e) above. "Excluded Equipment" means the equipment and personal property listed on Schedule III of the Master Lease. "Expiration Date" means the earlier of the date the Master Lease shall have been terminated in accordance with the provisions of the Master Lease or any of the other Operative Documents and the Maturity Date; provided, however, with respect to Article XX of the Master Lease, the Expiration Date shall be the later of (i) the Maturity Date and (ii) the Extended Expiration Date. "Expiration Date Purchase Obligation" means the Lessee's obligation, pursuant to Section 18.2 of the Master Lease, to purchase the Property on the Expiration Date. "Extended Expiration Date" is defined in Section 20.3(a) of the Master Lease. "Fair Market Sales Value" means the amount, which in any event shall not be less than zero, that would be paid in cash in an arm's-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, for the ownership of the Property. The Fair Market Sales Value of the Property shall be determined based on the assumption that, except for purposes of Article XVI of the Master Lease and Section 13.2 of the Participation Agreement, the Property is in the condition and state of repair required under Section 9.1 of the Master Lease and the Lessee is in compliance with the other requirements of the Operative Documents relating to the condition of the Property. "Federal Funds Rate" means, for any day or period, as applicable, the rate per annum (rounded upwards, if necessary, to the nearest 1/l00th of it) at which Federal funds in the amount equal to the principal amount of the related Loans or Lessor Amounts are offered in the interbank market to BMO as of 10:00 A.M., Chicago time, on such day for such day or for such period, as applicable. -9- 109 "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Fixed Rent" means the amounts designated as "Fixed Rent" for the Loans and the Lessor Amounts as set forth in Schedule IV to the Master Lease (which amounts are intended to amortize the Loans and the Lessor Amounts). "Fixed Rent Payment Date" means each date set forth under the heading "Fixed Rent Payment Dates" in Schedule IV to the Master Lease or, if such date is not a Business Day, the next succeeding Business Day. "Funded Debt" shall mean, on any date and for any Person, without duplication, (i) all Indebtedness of such Person for money borrowed (including Capital Lease Obligations), whether issued, assumed or Guaranteed, which has a final maturity (or which, pursuant to its terms, is renewable or extendible at the option of such Person, without regard to whether such option is subject to specified conditions, for a period ending or to a date) more than 12 months after such date, notwithstanding the fact that payments in respect thereof (whether installment, serial maturity or sinking fund payments or otherwise) are required to be made by such Person, less than 12 months after the date of the computation thereof, (ii) Guarantees by such Person of Funded Debt of other Persons or of dividends and (iii) in the case of any Restricted Subsidiary, all preferred stock of such Restricted Subsidiary. Notwithstanding the foregoing, the term "Funded Debt" shall not include deferred revenue accounts arising from forward sales. "Funding Request" is defined in Section 3.4 the Participation Agreement. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Action" means all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Law, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operation of the Property. "Governmental Authority" means any federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Gross Remarketing Proceeds" is defined in Section 20.2(h) of the Master Lease. "Ground Lease" means that certain Ground Lease dated the Acquisition Date between Agent Lessor and Lessee with respect to the land described on Schedule I of the Master Lease. -10- 110 "Guarantee" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person or an agreement to purchase, sell or lease (as lessee or lessor) Property or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a correlative meaning. "Guaranty" means the Guaranty dated as of November 25, 1997, made by the Guarantor in favor of each of the Agent Lessor, the Lessors, the Administrative Agent and the Lenders, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time. "Hazardous Materials" means any hazardous, toxic or dangerous materials, substances, chemicals, wastes or pollutants that from time to time are defined by or pursuant to or are regulated under any Environmental Laws, including asbestos, polychlorinated biphenyls, petroleum, petroleum derivatives or by-products, other hydrocarbons, urea formaldehyde and any material, substance, pollutant or waste that is defined as a hazardous waste under Environmental Laws or defined as a hazardous substance under Environmental Laws. "Impositions" means any and all liabilities, losses, expenses and costs for fees, taxes, levies, imposts, duties, charges, assessments or withholdings of any nature ("Taxes") (including, without limitation, (i) real and personal property taxes, and taxes in the nature of property taxes; (ii) sales, use, rent, intangibles, excise and other similar taxes (iii) transfer, conveyance, mortgage, stamp and documentary recording taxes and fees; (iv) franchise, income, value added, gross receipts, privilege and doing business taxes, license and registration fees; and (v) assessments on the Property, including assessments for public improvements or benefits (whenever commenced or completed) which at any time may be levied, assessed or imposed by any Federal, state or local authority upon or with respect to (a) any Tax Indemnitee, the Property or any part thereof or interest therein, or the Lessee or any sublessee or user of the Property; (b) the Notes or other Indebtedness with respect to the Property or transfer thereof; (c) the rentals, receipts, earnings or income arising from the Property or any part thereof or interest therein or the sale or disposition thereof; (d) the Operative Documents or any payment made or accrued pursuant thereto; or (e) otherwise in connection with the transactions contemplated by the Operative Documents. Notwithstanding the foregoing (except as provided in the final paragraph of this definition) the term "Imposition" shall not mean or include: (i) Taxes (other than Taxes that are, or are in the nature of, sales, use, rental, transfer or property taxes) that are based upon or measured by the overall net income, gross receipts or capital gains of any Tax Indemnitee (including, without -11- 111 limitation, franchise or doing business Taxes) provided that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; provided, further, that this clause (i) shall not apply to any Taxes imposed on the Agent Lessor as a result of its compliance with the terms of Section 10.2 of the Participation Agreement during the continuance of an Event of Default; (ii) any Tax for so long as it is being contested in accordance with the provisions of Section 13.5(b) of the Participation Agreement, provided that the foregoing shall not limit Lessee's obligation under such Section to advance to such Tax Indemnitee amounts with respect to Taxes that are being contested in accordance therewith or any expenses incurred in connection therewith with such contest; (iii) Taxes payable by a Tax Indemnitee resulting from, or that would not have been imposed but for the existence of, any Lessor Lien created by or through such Tax Indemnitee or an Affiliate thereof and not caused by acts or omissions of Lessee; (iv) any Tax imposed by its express terms in lieu of or in substitution for a Tax not subject to indemnity pursuant to the provisions of Section 13.5 of the Participation Agreement; (v) Taxes imposed on or with respect to or payable by any Tax Indemnities based on measured by or imposed with respect to any fees received by such Tax Indemnities; (vi) any Taxes imposed against or payable by a Tax Indemnitee resulting from or that would not have been imposed but for, the gross negligence (or negligence with respect to the handling of funds) or willful misconduct of such Tax Indemnitee; (vii) Taxes imposed on or payable by a Tax Indemnitee to the extent such Taxes would not have been imposed but for a breach by the Tax Indemnitee or any Affiliate thereof of any representations, warranties or covenants set forth in the Operative Documents (unless such breach is caused by the Lessee's breach of its representations, warranties or covenants set forth in the Operative Documents); or (viii) any Tax imposed with respect to, or that would not have been imposed but for, any voluntary transfer, sale, financing or other voluntary disposition by a Tax Indemnitee (other than a transfer contemplated and permitted by the Operative Documents) of any interest in any Property or any interest in or created pursuant to, the Operative Documents. Notwithstanding the foregoing, no exclusion from the definition of Impositions set forth above shall apply to any Taxes or any increase in Taxes imposed on a Tax Indemnitee net of any decrease in Taxes realized by such Tax Indemnitee, to the extent that such tax increase or decrease would not have occurred if on the Acquisition Date the Agent Lessor -12- 112 had advanced funds for the Property acquisition in the form of a loan secured by the Property in an amount equal to the Acquisition Cost, with debt service for such loan equal to the Basic Rent payable on each Scheduled Payment Date and a principal balance at the maturity of such loan in an amount equal to the then outstanding amount of the Advances at the end of the term of the Master Lease, as determined by such Tax Indemnitee, which determination shall be deemed prima facie correct. "Improvements" means all buildings, structures, fixtures, Equipment and other improvements of every kind existing at any time and from time to time (including those purchased with amounts advanced by the Participants pursuant to the Participation Agreement) on or under the Land to be acquired pursuant to the terms of the Operative Documents and all easements for offsite improvements, including, without limitation, railroad spur and drill tracks and all utility and roadway easements, if any, together with any and all appurtenances to such buildings, structures or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and, subject to the Master Lease, including all Modifications and other additions to or changes in the Improvements at any time. "Indebtedness" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred in the ordinary course of business so long as such trade accounts payable are payable within ninety (90) days of the date the respective goods or services are delivered or rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person. Notwithstanding the foregoing, the term "Indebtedness" shall not include swap or other agreements not constituting Indebtedness for borrowed money, entered into to hedge against fluctuations in the prices of commodities and currencies, deferred revenue accounts arising from forward sales or guarantees of either thereof. "Indemnitee" means each Lender, each Lessor, the Administrative Agent and the Agent Lessor. "Insolvency" means, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent" means pertaining to a condition of Insolvency. "Insurance Requirements" means all terms and conditions of any insurance policy required by the Master Lease to be maintained by the Lessee. -13- 113 "Interest Period" means, with respect to each Eurodollar Loan/Lessor Amount, the period commencing on (and including) the date such Eurodollar Loan/Lessor Amount is continued as, or converted into, a Eurodollar Loan/Lessor Amount pursuant to Section 3.4 or 3.6 of the Participation Agreement, and ending on but excluding the numerically corresponding day one (1), two (2), three (3) or six (6) months thereafter, as selected (or deemed selected) by the Lessee from time to time pursuant to an Interest Period Selection/Continuation/Conversion Notice; provided, however, that the foregoing provisions in clauses (a) and (b) relating to Interest Periods are subject to the following: (i) Interest Periods commencing on the same date for Eurodollar Loans/Lessor Amounts comprising part of the same Advance shall be of the same duration; (ii) if any Interest Period would otherwise end (or if payments are otherwise due with respect to Eurodollar Loans/Lessor Amounts) on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (iii) any Interest Period that would otherwise extend beyond the Expiration Date shall end on the Expiration Date; and (iv) if any Interest Period begins on a day for which there is no numerically corresponding day in a calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month. "Interest Period Selection/Continuation/Conversion Notice" means a notice duly executed by a Responsible Officer of the Lessee substantially in the form of Exhibit C to the Participation Agreement. "Interest Rate" is defined in Section 2.4(a) of the Loan Agreement. "Investment" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. "Land" means the real property leased pursuant to the Ground Lease and described on Schedule I to the Master Lease, and includes all Appurtenant Rights attached thereto. "Lease Balance" means, as of any date of determination, an amount equal to the sum, without duplication, of the Loan Balance and the Lessor Balance and all other amounts owing by the Lessee under the Operative Documents (including without limitation, accrued and unpaid Rent and Supplemental Rent, if any). "Lease Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default. -14- 114 "Lease Event of Default" is defined in Section 16.1 of the Master Lease. "Lease Term" means the period commencing on (and including) the Acquisition Date and ending on (but excluding) the Expiration Date. "Lender Basic Rent" means, as determined as of any Scheduled Payment Date, the sum of (a) the interest due on the Loans, determined in accordance with Section 2.4 of the Loan Agreement and excluding (i) any interest at the applicable Overdue Rate on any installment of Basic Rent not paid when due and (ii) any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Lender Basic Rent plus (b) the Fixed Rent due under the Master Lease with respect to the Loans. "Lenders" is defined in the introductory paragraph of the Participation Agreement. "Lending Office" is defined in Section 13.12 of the Participation Agreement. "Lessee" means Alumax Mill Products, Inc., a Delaware corporation. "Lessor Amount" is defined in Section 3.2 of the Participation Agreement. "Lessor Balance" means, as of any date of determination, an amount equal to the sum of the outstanding Lessor Amounts together with all accrued and unpaid Yield thereon. "Lessor Basic Rent" means, as determined as of any Scheduled Payment Date, the sum of (a) the amount of accrued Yield due on the Lessor Amounts, determined in accordance with Section 4.1 of the Participation Agreement as of any Scheduled Payment Date and excluding (i) any interest at the applicable Overdue Rate on any installment of Lessor Basic Rent not paid when due and (ii) any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Lessor Basic Rent plus (b) the Fixed Rent due under the Master Lease with respect to the Lessor Amounts. "Lessor Commitment" means the Commitment of each Lessor in the amount set forth on Schedule I of the Participation Agreement, as such Schedule may be amended, supplemented, amended and restated, reduced or otherwise modified from time to time. "Lessor Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to protect the Agent Lessor's and the Lenders' interest under the Master Lease to the extent the Master Lease is a security agreement. "Lessor Lien" means any Lien, true lease or sublease or disposition of title arising as a result of (a) any claim against any Participant not resulting from the transactions contemplated by the Operative Documents, (b) any act or omission of any Participant which is not required or permitted by the Operative Documents or is in violation of any of the terms of the Operative Documents, (c) any claim against any Participant, with respect to Taxes or Transaction Expenses against which the Lessee is not required to indemnify any -15- 115 Participant, pursuant to Article IX of the Participation Agreement, or (d) any claim against the Agent Lessor arising out of any transfer by the Agent Lessor of all or any portion of the interest of the Agent Lessor in the Property or the Operative Documents other than the transfer of title to or possession of the Property by the Agent Lessor pursuant to and in accordance with the Master Lease, the Loan Agreement or the Participation Agreement (but excluding any transfer pursuant to Section 12.1 of the Participation Agreement) or pursuant to the exercise of the remedies set forth in Section 16.2 of the Master Lease. "Lessor Margin" means, with respect to the Lessor Amounts on any day, the percentage set forth below opposite the highest of the long-term debt ratings of Guarantor in effect for such date for the Lessor Amount bearing yield at the Eurodollar Rate:
S&P RATINGS LIBO MARGIN A- or greater .550% BBB+ .575% BBB .625% BBB- .725% BB+ or lower .925%
"Lessor Mortgage" means the Master Lease and any and all other security instruments in appropriate recordable form in Bowie County, Texas sufficient to grant to the Agent Lessor a first priority Lien on the Property. "Lessors" is defined in the introductory paragraph of the Participation Agreement. "LIBOR Index Rate" means, for any Interest Period, the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for a period equal to such Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day two Business Days before the commencement of such Interest Period. "Lien" means, with respect to any asset, any mortgage, deed of trust, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of the Operative Documents, the Lessee or the Guarantor shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" is defined in Section 3.3(b) of the Participation Agreement. "Loan Agreement" means the Loan Agreement, dated as of November 25, 1997, among the Agent Lessor, as borrower thereunder, the Lenders, and the Administrative -16- 116 Agent, as the same may be amended, supplemented, amended and restated or otherwise modified from time to time. "Loan Agreement Event of Default" is defined in Section 5.1 of the Loan Agreement. "Loan Balance" means, as of any date of determination, an amount equal to the sum of the outstanding Loans together with all accrued and unpaid interest thereon pursuant to the Loan Agreement. "Loan Commitment" means the Commitment of each Lender in the amount set forth on Schedule I to the Participation Agreement, as such Schedule may be amended, supplemented, amended and restated or otherwise modified from time to time. "Loan Documents" means the Loan Agreement and the Notes. "Loan Margin" means, with respect to the Loans on any day, the percentage set forth below opposite the highest of the long-term debt ratings of Guarantor in effect for such day for the Loan bearing interest at the Eurodollar Rate:
S&P RATINGS LIBO MARGIN A- or greater .250% BBB+ .275% BBB .325% BBB- .425% BB+ or lower .625%
"Marketing Period" means the period commencing on the date 180 days prior to the Expiration Date and ending on the Expiration Date. "Master Lease" means the Master Lease, Deed of Trust and Security Agreement, dated as of November 25, 1997, among the Agent Lessor, the Lessee and the Trustee as the same may be amended, supplemented, amended and restated or otherwise modified from time to time. "Material" and "Materially" mean material to (i) the ability of the Guarantor or the Lessee to perform its obligations under the Operative Documents to which it is a party, or (ii) the value or condition of the Property, except as used in other defined terms in this Appendix A or the Operative Documents or where the context in which used clearly indicates a different meaning. "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition, liabilities or capitalization of the Guarantor and its Subsidiaries taken as a whole, (b) the ability of the Guarantor to perform its Obligations under any of the Operative Documents, (c) the validity or enforceability of any of the -17- 117 Operative Documents, (d) the rights and remedies of the Participants, the Agent and the Administrative Agent under any of the Operative Documents or (e) the timely payment of the principal of or interest or Yield on the Note or Certificates or other amounts payable in connection therewith. No claim, liability or circumstance shall be deemed to have a Material Adverse Effect if the same can be discharged by the payment of money in an amount not exceeding $50,000,000 in excess of applicable reserves and tax benefits reasonably anticipated in connection with such payment plus the amount the Guarantor in good faith reasonably believes can be recovered out of insurance or from creditworthy third parties. The adverse ruling in the tax dispute in respect of the consolidation of the tax returns of the Guarantor and its Subsidiaries with those of AMAX Inc. for 1984, 1985 and 1986, which is referred to Section 8.2(j) hereof and is described in the Guarantor's Exchange Act Reports does not, and a subsequent adverse ruling thereon on appeal shall not, constitute a Material Adverse Effect. "Maturity Date" means with respect to the Loans and the Lessor Amounts, the fifth (5th) anniversary of the Acquisition Date, unless the Maturity Date is extended pursuant to Section 2.7 of the Loan Agreement and Section 11.1 of the Participation Agreement. "Mill Facility" means the facility, of which the Property is a part, leased, operated or owned by Lessee located in Texarkana, Texas and commonly known as the Texarkana Mill. "Modifications" is defined in Section 10.1 of the Master Lease. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means any multiple employer plan, as defined in Section 3(37) of ERISA to which contributions have been made by the Guarantor or any ERISA Affiliate and which is covered by Title IV of ERISA. "Net Proceeds" means all amounts received by the Agent Lessor in connection with any Casualty or Condemnation or any sale of the Property pursuant to the Agent Lessor's exercise of remedies under Section 16.2 of the Master Lease or the Lessee's exercise of the Remarketing Option under Article XX of the Master Lease and all interest earned thereon, less the expense of claiming and collecting such amounts, including all costs and expenses in connection therewith for which the Agent Lessor or any Participant is entitled to be reimbursed pursuant to the Master Lease. "Non-Consenting Participant" is defined in Section ll.l(b) of the Participation Agreement. "Notes" is deemed in Section 2.2 of the Loan Agreement. "Obligations" means all obligations (monetary or otherwise) of Lessee arising under or in connection with any of the Operative Documents. -18- 118 "Operative Documents" means the following: (a) the Participation Agreement; (b) the Master Lease; (c) the Loan Agreement; (d) each Note; (e) the Assignment of Lease and Rent; (f) the Deed; (g) the Lessor Mortgage; (h) the Lessor Financing Statements; (i) the Arranger's Fee Letter; (j) the Guaranty, and (k) the Ground Lease. "Other Plan" means an employee pension benefit plan (other than a Plan or a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code. "Overdue Rate" means, with respect to any Loan or Lessor Amount, the Base Rate or the Adjusted Eurodollar Rate then in effect for such Loan or Lessor Amount, as the case may be, plus two percent (2%). "Participant Balance" means, with respect to any Participant as of any date of determination: (i) with respect to any Lender, an amount equal to the aggregate outstanding Loans of such Lender, together with all accrued and unpaid interest thereon or (ii) with respect to any Lessor, an amount equal to the aggregate outstanding Lessor Amounts of such Lessor, together with all amounts of accrued and unpaid Yield thereon. "Participants" means, collectively, each Lender and each Lessor, and their successors and assigns. "Participation Agreement" means the Participation Agreement dated as of November 25, 1997 among the Lessee, Guarantor, the Agent Lessor, the Lessors, the Lenders, the Administrative Agent and the Arranger. -19- 119 "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Permitted Property Liens" means, with respect to the Property, any of the following: (i) the respective rights and interests of the parties to the Operative Documents as provided in the Operative Documents; (ii) the rights of any sublessee under a sublease permitted by the terms of the Master Lease; (iii) Liens for Taxes that either are not yet subject to interest or penalties or are being contested in accordance with the provisions of Section 12.1 of the Master Lease; (iv) Liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like Liens relating to the construction of the Improvements or in connection with any Modifications or arising in the ordinary course of business for amounts that either are not more than sixty (60) days past due or are being contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings set forth in Section 12.1 of the Master Lease; (v) Liens of any of the types referred to in clause (iv) above that have been bonded for not less than the full amount in dispute (or as to which other security arrangements reasonably satisfactory to the Agent Lessor have been made), which bonding (or arrangements) shall comply with applicable Requirements of Law, and has effectively stayed any execution or enforcement of such Liens; (vi) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings set forth in Section 12.1 of the Master Lease; (vii) easements, rights of way and other encumbrances on title to real property pursuant to Section 11.2 of the Master Lease or shown on the title policy or UCC searches delivered to Administrative Agent pursuant to the Participation Agreement; (viii) Lessor Liens; or (ix) Liens described on the title insurance policy delivered with respect to the Property pursuant to Section 6.1(p) of the Participation Agreement, other than Liens described in clause (iv) or (vi) above that are not removed within sixty (60) days of their discovery by Lessee. -20- 120 "Person" means any natural person, corporation, trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "Plan" shall mean an employee benefit or other plan established and maintained by the Guarantor or any ERISA Affiliate and that is covered by Title IV of ERISA other than a Multiemployer Plan. "Property" means (i) the Agent Lessor's interest in the Ground Lease, (ii) all of the buildings and Improvements at any time located on or under the Land and (iii) the Equipment. "Property Cost" means the sum of the Acquisition Cost. "Purchase Contract" means that certain Facility Purchase Agreement dated as of September 18, 1996 between Lessee and Fleet National Bank, not in its individual capacity but solely as the Owner Trustee for U S West Financial Services, Inc. ("Seller"), together with the designation letter from Lessee acknowledged by Seller to convey the property described therein to Agent Lessor. "Purchase Notice" means an irrevocable written notice by the Lessee delivered to the Agent Lessor pursuant to Section 18.1 of the Master Lease, notifying the Agent Lessor of the Lessee's intention to exercise its option pursuant to such Section, and identifying the proposed purchase date therefor. "Purchase Option" means the Lessee's option to purchase all (but not less than all) of the Property in accordance with the provisions of Section 18.1 of the Master Lease. "Purchase Option Price" is defined in Section 18.1 of the Master Lease. "Ouarterly Payment Date" means the last day of each February, May, August and November or, if any such day is not a Business Day, the next succeeding Business Day. "Release" means any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Material. "Remarketing Option" is defined in Section 20.1 of the Master Lease. "Renewal Term" is defined in clause (a) of Section 11.1 of the Participation Agreement. "Rent" means, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Master Lease. -21- 121 "Reorganization" means with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA. "Replacement Participant" is defined in Section ll.l(b) of the Participation Agreement. "Requesting Party" is defined in Section 22.1 of the Master Lease. "Required Lenders" means, at any time, Lenders having Loans outstanding representing at least 66-2/3% of the aggregate Loans outstanding; provided, however, that if any Lender shall be a Defaulting Participant at such time, then there shall be excluded from the determination of "Required Lenders" such Defaulting Participant's principal balance of the Loans owing to such Defaulting Participant. "Required Lessors" means, at any time, Lessors having Lessor Amounts representing at least 66-2/3% of the aggregate Lessor Amount outstanding; provided however that if any Lessor shall be a Defaulting Participant at such time, then there should be excluded from the definition of "Required Lessors", the amount of the Lessor Amount owing to such Defaulting Participant. "Required Modification" is defined in Section 10.1 of the Master Lease. "Required Participants" means at any time Participants representing 66-2/3% of the aggregate of Loans and Lessor Amounts outstanding; provided, however, that there shall be excluded therefrom any Defaulting Participant's Loans or Lessor Amounts, as the case may be. "Requirement of Law" means, as to any Person (a) the partnership agreement, certificate of incorporation, bylaws or other organizational or governing documents of such Person, and (b) all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Property, the Improvements or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to the Property or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. S 1201 et seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to Lessee affecting the Property, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 11.2 of the Master Lease. -22- 122 "Responsible Officer" means the Chairman of the Board, President, any Vice President, the Secretary, the Treasurer, any Assistant Secretary, or any Assistant Treasurer of such Person. "Responsible Officer's Certificate" means a certificate signed by any Responsible Officer in substantially the form of Exhibit D-2 to the Participation Agreement, which certificate shall certify as true and correct the subject matter being certified to in such certificate. "Restricted Funded Debt" shall mean on any date, all Funded Debt of the Guarantor and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP. "Restricted Subsidiary" shall mean any Subsidiary of the Guarantor which is identified as a Restricted Subsidiary on Schedule III hereto or which, after the date of this Agreement, is designated by the Guarantor (by resolution of its Board of Directors and prior notice to the Administrative Agent) to be a Restricted Subsidiary, provided that any Restricted Subsidiary may be redesignated by the Guarantor (by the same procedure) as an Unrestricted Subsidiary in accordance with the provisions of this definition. Any such designation or redesignation may be made more than once with respect to any Subsidiary of the Guarantor. Notwithstanding the foregoing: (i) no Restricted Subsidiary may be designated an Unrestricted Subsidiary unless (A) such Subsidiary, at the time of such designation, does not own, directly or indirectly, any capital stock of any other Restricted Subsidiary or have any Lien upon any of the assets of any other Restricted Subsidiary and (B) immediately prior to and after such designation no Default shall exist; and (ii) no Unrestricted Subsidiary may be designated a Restricted Subsidiary unless (A) at the time of such designation, such Subsidiary does not have outstanding any obligations with respect to a sale or leaseback transaction which would have been prohibited under Section 10.1(i) hereof had such Subsidiary been a Restricted Subsidiary at the time of such transaction and (B) immediately prior to and after such designation no Default shall exist and the representations and warranties made by the Guarantor in Section 8.2 of the Participation Agreement shall be true on and as of the date of such designation with the same force and effect as if made on and as of such date. "Restricted Tangible Net Assets" shall mean, on any date, all Property of the Guarantor and its Restricted Subsidiaries (including the amount of any investment in any Person, other than an Unrestricted Subsidiary and other than a Person that was an Unrestricted Subsidiary at the time of the investment but is not a Subsidiary on the date of determination, valued at the cost of the equity interest of the Guarantor and its Restricted Subsidiaries in such Person) which in accordance with GAAP are classified as assets and appear on the asset side of the consolidated balance sheet of the Guarantor and its Restricted Subsidiaries, less, without duplication, (i) the liabilities of the Guarantor and its Restricted Subsidiaries which in accordance with GAAP are classified as liabilities and appear on the liability side of such consolidated balance sheet, excluding any Funded Debt, capital stock and surplus, surplus reserves, provisions for deferred income taxes and minority interests in Restricted Subsidiaries, (ii) depreciation and valuation reserves and other reserves and items deductible in accordance with GAAP other than contingency reserves not allocated to a -23- 123 particular purpose, (iii) goodwill, trade names and trademarks, patents, patent application, copyrights, franchises, licenses, permits, unamortized debt discount and expense, research, development or experimental expense not properly carried in inventory, organizations expenses and other similar intangible assets, (iv) minority interests, if any, in Restricted Subsidiaries and (v) treasury shares, if any, carried as an asset on such balance sheet. "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc. "S&P Rating" shall mean at any time the rating assigned by Standard & Poor's Corporation to the outstanding unsecured long-term senior indebtedness of the Guarantor. References to specific ratings are references to such ratings as currently defined by Standard & Poor's Corporation and in the event Standard & Poor's Corporation changes its rating system, each reference to a particular S&P Rating shall be deemed to be a reference to the rating under such new or changed rating system which most closely approximates the credit quality of the particular rating as currently defined. If for any reason an S&P Rating is unavailable for the long-term unsecured indebtedness of the Guarantor, and such a rating is available from one or more other nationally recognized rating agency, then the Administrative Agent, after consultation with the Guarantor and approval of the Required Participants, shall select one of such available rating systems to be used in lieu of the S&P Rating and the Guarantor and the Required Participants shall then negotiate in good faith for an amendment to this agreement substituting such new ratings for the S&P Rating. If no such substitute rating is available or agreed to, then in that event (i) the applicable margin shall be determined by the Administrative Agent, after consultation with the Guarantor, so as to approximate the Administrative Agent's estimate of what the ratings of long-term unsecured senior indebtedness of the Guarantor would have been had S&P Ratings been available, the determination of the Administrative Agent to be final and conclusive provided that it has been made in good faith, and (ii) changes in the applicable Lessor Margin and Loan Margin shall become effective as of and on the date of a change in the rating used to determine the same. "Scheduled Payment Date" means: (a) as to any Eurodollar Loan/Lessor Amount, the last day of each applicable Interest Period (and, if any such Interest Period shall exceed three (3) months, on each date occurring every three (3) months after the first day of such Interest Period) and the Maturity Date; and (b) as to any Base Rate Loan/Lessor Amount, each Quarterly Payment Date and the Maturity Date; provided, however, that if any such day is not a Business Day, then the "Scheduled Payment Date" shall be the immediately succeeding Business Day (except as otherwise required by clause (ii) of the proviso in the definition of "Interest Period" with respect to Eurodollar Loans/Lessor Amounts). "Shortfall Amount" means, as of the Expiration Date, an amount equal to (i) the Lease Balance, minus (ii) the Loan Balance received by the Administrative Agent from the Lessee pursuant to Section 20.2(f) of the Master Lease, minus (iii) the aggregate amount of -24- 124 the highest, binding, written, unconditional, irrevocable offer to purchase the Property obtained by the Lessee pursuant to Section 20.2(a) of the Master Lease; provided, however, that if the sale of the Property to the Person submitting such offer is not consummated on or prior to the Expiration Date, then the term "Shortfall Amount" shall mean an amount equal to (i) the Lease Balance, minus (ii) the Loan Balance received by the Administrative Agent pursuant to Section 20.2(f) of the Master Lease. "Significant Casualty" means a Casualty that the Administrative Agent and the Agent Lessor determines in their reasonable good faith judgment based upon consultation with a qualified professional (a) renders the Property unsuitable for continued use as property of the type of the Property immediately prior to such Casualty, or (b) is so substantial in nature that restoration of the Property to substantially its condition as it existed immediately prior to such Casualty would be impracticable or impossible. "Significant Condemnation" means (a) a Condemnation that involves a taking of the Agent Lessor's entire title to the Land, or (b) a Condemnation that the Administrative Agent and the Agent Lessor determines in their reasonable good faith judgment based upon consultation with a qualified professional (i) renders the Property unsuitable for continued use as property of the type of the Property immediately prior to such Condemnation, or (ii) is so substantial in nature that restoration of the Property to substantially its condition as it existed immediately prior to such Condemnation would be impracticable or impossible. "Subsidiary" shall mean, for any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Wholly Owned Subsidiary" shall mean any such corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are so owned or controlled. "Supplemental Rent" means all amounts, liabilities and obligations (other than Basic Rent) which the Lessee assumes or agrees to pay to the Administrative Agent, any Participant or any other Person under the Master Lease, or under any of the other Operative Documents and any amount payable under the Ground Lease. "Survey" is defined in Section 6.l(o) of the Participation Agreement. "Tangible Net Worth" shall mean, as at any date, the sum for the Guarantor and its Consolidated Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the gross book value of assets (excluding goodwill, patents, trademarks, tradenames, organization expense, treasury stock, -25- 125 unamortized debt discount and expense, deferred charges and other like intangibles) minus (b) the sum of the following: (i) reserves applicable to the assets referred to in the foregoing clause (a), and (ii) all liabilities (including accrued and deferred income taxes and subordinated Indebtedness). "Tax Indemnitee" means each Lender, each Lessor, the Administrative Agent and the Agent Lessor. "Taxes" is defined in the definition of Impositions. "Telerate Page 3750" means the display designated as "Page 3750" on the Telerate Service (or such other page as may replace Page 3750 on that service or such other services as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Termination Date" is defined in Section 15.2 of the Master Lease. "Transaction Expenses" means all reasonable costs and expenses incurred in connection with the preparation, execution and delivery of the Operative Documents and the Transactions including without limitation: (a) the reasonable fees, out-of-pocket expenses and disbursements of Chapman and Cutler, special counsel for the Administrative Agent and Arranger, Agent Lessor and Lessors, and such fees, expenses and disbursements of counsel for the Lessee, in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closing under, and rendering opinions in connection with, such transactions and in rendering other services customary for counsel representing parties to transactions of the types involved in the Transactions; (b) the reasonable fees, out-of-pocket expenses and disbursements of one special counsel for the Administrative Agent, Arranger, Agent Lessor and Lessors in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents requested or approved by Lessee, and (2) any enforcement of any rights or remedies against Lessee in respect of the Operative Documents that arise after an Event of Default; (c) any and all Taxes and fees incurred in recording, registering or filing any Operative Document or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the Transactions. (d) all reasonable out-of-pocket expenses, disbursements and costs of the Administrative Agent, Arranger and the Agent Lessor paid or incurred in connection with the Transactions; -26- 126 (e) all title fees, premiums and escrow costs and other expenses relating to title insurance and the closings contemplated by the Operative Documents; (f) all expenses relating to property surveys and Environmental Audits; and (g) all fees and other expenses relating to Appraisals. "Transactions" shall mean the transactions contemplated by the Operative Documents. "Transferee" is defined in Section 12.3 of the Participation Agreement. "Trustee" means Ward Williford, Esq., as deed of trust trustee under the Master Lease. "Unfunded Current Liability" of any Plan means the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, each determined in accordance with Statement of Financial Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan. "Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in effect in any applicable jurisdiction. "Unrestricted Subsidiary" shall mean any Subsidiary of the Guarantor other than a Restricted Subsidiary. "U S West Agreements" means any documents or agreements to be conveyed, assigned, terminated or canceled pursuant to the terms of the Purchase Contract. "Yield" is defined in Section 4.1(a) of the Participation Agreement. "Yield Rate" means the sum of the Base Rate or the LIBOR Rate, as applicable, plus the Lessor Margin. -27- EX-10.09 3 MASTER LEASE, DEED OF TRUST & SECURITY AGREEMENT 1 EXHIBIT 10.09 ================================================================================ MASTER LEASE, DEED OF TRUST AND SECURITY AGREEMENT THIS DOCUMENT SECURES FUTURE ADVANCES Dated as of November 25, 1997 among BMO LEASING (U.S.), INC., as the Agent Lessor for the Lessors, and ALUMAX MILL PRODUCTS, INC. as the Lessee, and WARD WILLIFORD, ESQ., as the Trustee pursuant to Section 25.2 hereof ================================================================================ This Master Lease, Deed of Trust and Security Agreement is recorded in connection with a lien in favor of the Lenders under the Loan Agreement simultaneously created as of the date hereof. This Master Lease, Deed of Trust and Security Agreement has been executed in several counterparts. To the extent, if any, that this Master Lease, Deed of Trust and Security Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no lien on this Master Lease, Deed of Trust and Security Agreement may be created through the transfer or possession of any counterpart other than the original counterpart containing the receipt therefor executed by BANK OF MONTREAL as the Administrative Agent for the Lenders, on or following the signature page hereof. This counterpart is not the original counterpart ATTENTION OF RECORDING OFFICERS: Certain of the Property is or will become "fixtures" (as that term is defined in the Uniform Commercial Code) on the real estate described in Schedule I attached hereto and this instrument, upon being filed for record in the real estate records, shall operate also as a financing statement upon such of the Property which is or may become fixtures. The Lessee has an interest of record in the Property. This instrument is to be recorded in, among other places, the real estate records of the county in which such property is located. This Document Prepared By and Return To: James R. Theiss Chapman and Cutler 111 West Monroe Street Chicago, Illinois 60603-4080 2 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS ........................................ 1 ARTICLE II MASTER LEASE ....................................... 2 Section 2.1. Acceptance and Lease of Property .................. 2 Section 2.2. Acceptance Procedure .............................. 2 Section 2.3. Lease Term ........................................ 2 Section 2.4. Intentionally omitted ............................. 2 Section 2.5. Each Lessor to Have an Undivided Interest ......... 2 ARTICLE III PAYMENT OF RENT .................................... 2 Section 3.1. Rent .............................................. 2 Section 3.2. Payment of Rent ................................... 3 Section 3.3. Supplemental Rent ................................. 3 Section 3.4. Method of Payment ................................. 3 ARTICLE IV QUIET ENJOYMENT; RIGHT TO INSPECT .................. 4 Section 4.1. Quiet Enjoyment ................................... 4 Section 4.2. Right to Inspect .................................. 4 ARTICLE V NET LEASE .......................................... 4 Section 5.1. Net Lease ......................................... 4 Section 5.2. No Termination or Abatement ....................... 5 ARTICLE VI SUBLEASES .......................................... 6 ARTICLE VII LESSEE ACKNOWLEDGMENTS ............................. 6 Section 7.1. Condition of the Property ......................... 6 Section 7.2. Risk of Loss ...................................... 7 ARTICLE VIII POSSESSION AND USE OF THE PROPERTY ................. 7 Section 8.1. Utility Charges ................................... 7 Section 8.2. Use of the Property ............................... 7 Section 8.3. Compliance with Requirements of Laws and Insurance Requirements ...................................... 7 Section 8.4. Assignment by Lessee .............................. 7 ARTICLE IX MAINTENANCE AND REPAIR; RETURN ..................... 8
-i- 3 ARTICLE X MODIFICATIONS ................................................ 8 ARTICLE XI NO LIENS; EASEMENTS .......................................... 9 Section 11.1. No Liens ................................................... 9 Section 11.2. Grants and Releases of Easements; Agent Lessor and Lessors' Waivers ........................................... 10 ARTICLE XII PERMITTED CONTESTS ........................................... 11 ARTICLE XIII INSURANCE .................................................... 11 Section 13.1. Public Liability and Workers' Compensation Insurance ....... 11 Section 13.2. Hazard and Other Insurance ................................. 12 Section 13.3. Insurance Coverage ......................................... 12 ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS ............. 13 Section 14.1. Casualty and Condemnation .................................. 13 Section 14.2. Environmental Matters ...................................... 15 ARTICLE XV TERMINATION OF LEASE ......................................... 16 Section 15.1. Termination upon Certain Events ............................ 16 Section 15.2. Termination Procedures ..................................... 16 ARTICLE XVI EVENTS OF DEFAULT ............................................ 17 Section 16.1. Lease Events of Default .................................... 17 Section 16.2. Remedies ................................................... 19 Section 16.3. Waiver of Certain Rights ................................... 22 Section 16.4. Deed of Trust Remedies ..................................... 22 ARTICLE XVII AGENT LESSOR'S RIGHT TO CURE ................................. 23 Section 17.1. The Agent Lessor's Right to Cure the Lessee's Lease Defaults ................................................... 23 ARTICLE XVIII PURCHASE PROVISIONS .......................................... 23 Section 18.1. Purchase of the Property ................................... 23 Section 18.2. Expiration Date Purchase Obligation ........................ 24 Section 18.3. Acceleration of Purchase Obligation ........................ 24 ARTICLE XIX EXTENSION OF EXPIRATION DATE ................................. 24
-ii- 4 ARTICLE XX REMARKETING OPTION .......................................... 25 Section 20.1. Option to Remarket ........................................ 25 Section 20.2. Procedures During Remarketing ............................. 26 Section 20.3. Remedies for Failed Remarketing ........................... 28 Section 20.4. No Sale of Property ....................................... 29 ARTICLE XXI PROCEDURES RELATING TO PURCHASE OR REMARKETING OPTIONS ...... 29 Section 21.1. Provisions Relating to the Exercise of Purchase Option or Obligation and Conveyance upon Remarketing; Conveyance upon Certain Other Events ................................. 29 ARTICLE XXII ESTOPPEL CERTIFICATES ....................................... 31 Section 22.1. Estoppel Certificates ..................................... 31 ARTICLE XXIII ACCEPTANCE OF SURRENDER ..................................... 31 ARTICLE XXIV NO MERGER OF TITLE .......................................... 31 ARTICLE XXV INTENT OF THE PARTIES ....................................... 32 Section 25.1. Ownership of the Property ................................. 32 Section 25.2. Liens and Security Interests .............................. 32 Section 25.3. Security Agreement ........................................ 38 Section 25.4. Fixture Filing ............................................ 38 Section 25.5. Successor Trustees ........................................ 38 ARTICLE XXVI MISCELLANEOUS ............................................... 39 Section 26.1. Severability; Perpetuities ................................ 39 Section 26.2. Amendments and Modifications .............................. 39 Section 26.3. No Waiver ................................................. 40 Section 26.4. Notices ................................................... 40 Section 26.5. Successors and Assigns .................................... 40 Section 26.6. Headings and Table of Contents ............................ 40 Section 26.7. Counterparts .............................................. 40 Section 26.8. Governing Law ............................................. 40 Section 26.9. Original Lease ............................................ 40 Section 26.10. Time of Essence ........................................... 41 Section 26.11. Memorandum of Lease ....................................... 41 Section 26.12. The Trustee ............................................... 41 Section 26.13. Usury ..................................................... 41 Signature ..................................................................... 42
-iii- 5 ATTACHMENTS TO MASTER LEASE AND DEED OF TRUST: SCHEDULE I -- Legal Description of Land SCHEDULE II -- Description of Improvements SCHEDULE III -- Description of Equipment SCHEDULE IV -- Fixed Rent Payments EXHIBIT A -- Memorandum of Lease -iv- 6 MASTER LEASE, DEED OF TRUST AND SECURITY AGREEMENT THIS DOCUMENT SECURES FUTURE ADVANCES THIS MASTER LEASE, DEED OF TRUST AND SECURITY AGREEMENT (this "Master Lease"), dated as of November 25, 1997 among ALUMAX MILL PRODUCTS, INC., a Delaware corporation, as Lessee with offices located at 1480 Manheim Pike, Lancaster, Pennsylvania 17604 (the "Lessee"), BMO LEASING (U.S.), INC., a Delaware corporation, as agent for the Lessors and whose principal offices are located at 115 South LaSalle Street, Chicago, Illinois (in such capacity, the "Agent Lessor") and WARD WILLIFORD, ESQ., as Deed of Trust Trustee for the use and benefit of the Agent Lessor, whose principal offices are located at 3131 Turtle Creek Boulevard, Suite 101, Dallas, Texas 75219 (the "Trustee"). W I T N E S S E T H: WHEREAS, pursuant to a Participation Agreement dated as of the date hereof (as amended, modified, restated or supplemented from time to time, the "Participation Agreement"), among the Lessee, the Guarantor, the Agent Lessor, the various financial institutions as are or may from time to time become Lessors hereunder (the "Lessors") or lenders under the Loan Agreement (the "Lenders"), and Bank of Montreal, as Arranger (in such capacity, the "Arranger"), and as Administrative Agent (in such capacity, the "Administrative Agent") for the Lenders, the Lenders and the Lessors have agreed to finance the acquisition of the Property; WHEREAS, on the Acquisition Date, the Agent Lessor (on behalf of the Lessors) will acquire the Property from a third party designated by the Lessee; WHEREAS, the Agent Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Agent Lessor, the Property, subject to the terms of this Master Lease; NOW, THEREFORE, in consideration of the foregoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Unless the context shall otherwise require, capitalized terms used but not defined herein shall have the meanings assigned thereto in Appendix A to the Participation Agreement; and the rules of interpretation set forth in Appendix A to the Participation Agreement shall apply to this Master Lease. 7 ARTICLE II MASTER LEASE Section 2.1. Acceptance and Lease of Property. Subject to the conditions set forth in the Participation Agreement, including without limitation the satisfaction or waiver of the conditions set forth in Article VI thereof, the Agent Lessor hereby agrees to (a) accept, pursuant to the terms of the Participation Agreement, delivery on the Acquisition Date of the Property (except the Ground Lease) by the seller thereof, (b) enter into the Ground Lease, and (c) simultaneously demise and lease to the Lessee hereunder for the Lease Term, the Agent Lessor's interest in the Property, including the Ground Lease and the Lessee hereby agrees, subject to the satisfaction or waiver of the conditions set forth in Article VI of the Participation Agreement, expressly for the direct benefit of the Agent Lessor and the Lessors, to lease from the Agent Lessor for the Lease Term the interest of the Agent Lessor in the Property, including the Ground Lease. Section 2.2. Acceptance Procedure. The Lessee hereby agrees that the execution and delivery by it of this Master Lease shall, without further act, constitute the irrevocable acceptance by the Lessee of all of the Property and rights under the Ground Lease for all purposes of this Master Lease and the other Operative Documents on the terms set forth therein and herein, and that the Property including the Ground Lease shall be deemed to be included in the leasehold estate of this Master Lease and shall be subject to the terms and conditions of this Master Lease. Section 2.3. Lease Term. The term of this Master Lease shall be for the Lease Term. Section 2.4. Intentionally omitted. Section 2.5. Each Lessor to Have an Undivided Interest. Each party to this Master Lease hereby acknowledges that Section 15.16 of the Participation Agreement applies in full force and effect to this Master Lease and each other Operative Document. ARTICLE III PAYMENT OF RENT Section 3.1. Rent. (a) During the Lease Term, the Lessee shall pay Basic Rent to the Agent Lessor on each Scheduled Payment Date, on the date required under Section 20.2(f) in connection with the Lessee's exercise of the Remarketing Option and, on any date on which this Master Lease shall terminate; provided however that Fixed Rent shall be paid on each Fixed Rent Payment Date. (b) Neither the Lessee's inability or failure to take possession of all or any portion of the Property when delivered by the Agent Lessor, nor the inability or failure of the Agent -2- 8 Lessor to deliver all or any portion of the Property to the Lessee on or before the Acquisition Date, whether or not attributable to any act or omission of the Lessee, but excluding any act or omission of the Agent Lessor or any Lessor, shall delay or otherwise affect the Lessee's obligation to pay Rent for the Property in accordance with the terms of this Master Lease. Section 3.2. Payment of Rent. Rent shall be paid absolutely net to the Agent Lessor so that this Master Lease shall yield to the Agent Lessor for the benefit of the Lessors the full amount thereof, without setoff, deduction or reduction. Section 3.3. Supplemental Rent. The Lessee shall pay to the Agent Lessor any and all Supplemental Rent promptly as the same shall become due and payable, and if the Lessee fails to pay any Supplemental Rent and such failure shall continue beyond the cure period provided in Section 16.1(b), the Agent Lessor shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Basic Rent. The Lessee shall pay to the Agent Lessor, as Supplemental Rent, among other things, on demand, to the extent permitted by applicable Requirements of Law, interest at the applicable Overdue Rate on any installment of Basic Rent not paid when due for the period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded by the Agent Lessor for the period from the due date or the date of any such demand, as the case may be, until the same shall be paid. The expiration or other termination of the Lessee's obligations to pay Basic Rent hereunder shall not limit or modify the obligations of the Lessee with respect to Supplemental Rent, except as otherwise specifically provided herein or in any instrument effecting such termination. Unless expressly provided otherwise in this Master Lease, in the event of any failure on the part of the Lessee to pay and discharge any Supplemental Rent as and when due, the Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added against any Participant by a third party as a direct result of such nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. Section 3.4. Method of Payment. Each payment of Rent payable by the Lessee to the Agent Lessor under this Master Lease or any other Operative Document shall be made by the Lessee to the Administrative Agent as assignee of the Agent Lessor under the Assignment of Lease and Rent (or, upon reasonable prior written notice from the Administrative Agent that the Loans and all other amounts owing to the Lenders under the Loan Agreement and the other Operative Documents have been paid in full and all Commitments of the Lenders have been permanently terminated, to the Agent Lessor) prior to 1:00 p.m., (Chicago time) to the Account in immediately available funds consisting of lawful currency of the United States of America on the date when such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made on the next succeeding Business Day. Payments received after 1:00 p.m., (Chicago time) on the date due shall for the purpose of Section 16.1 hereof be deemed received on such day; provided, however, that for the purposes of the second sentence of Section 3.3, such payments shall be deemed received on the next succeeding Business Day and shall accrue interest at the Overdue Rate as provided in such Section 3.3. -3- 9 ARTICLE IV QUIET ENJOYMENT; RIGHT TO INSPECT Section 4.1. Quiet Enjoyment. Subject to the terms of each of the Operative Documents, the Lessee shall peaceably and quietly have, hold and enjoy the Property for the Lease Term, free of any claim or other action by the Agent Lessor or the Lessors or anyone claiming by, through or under the Agent Lessor or the Lessors (other than the Lessee). Such right of quiet enjoyment is independent of, and shall not affect the rights of the Agent Lessor or the Lessors (or anyone claiming by, through or under the Agent Lessor or the Lessors) otherwise to initiate legal action to enforce, the obligations of the Lessee under this Master Lease. Section 4.2. Right to Inspect. During the Lease Term, the Lessee shall upon reasonable notice (except that no notice shall be required if a Lease Event of Default has occurred and is continuing), and from time to time, permit the Agent Lessor, any Lessor, the Administrative Agent, any Lender, and their respective authorized representatives to inspect the Property, subject to the Lessee's normal safety procedures, during normal business hours; provided that such inspections shall be coordinated by the Administrative Agent and shall not unreasonably interfere with the Lessee's business operations at the Property. ARTICLE V NET LEASE Section 5.1. Net Lease. This Master Lease shall constitute a net lease. Any provision of this Master Lease or any other Operative Document to the contrary notwithstanding, this Master Lease shall not terminate, nor shall the Lessee be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall the obligations of the Lessee hereunder be affected (except by the gross negligence or willful misconduct of the Administrative Agent or Agent Lessor or as expressly herein permitted and by performance of the obligations in connection therewith) by reason of: (i) any defect in the condition, merchantability, design, construction, quality or fitness for use of the Property or any part thereof, or the failure of the Property to comply with all Requirements of Law, including any inability to occupy or use the Property by reason of such non-compliance; (ii) any damage to, removal, abandonment, salvage, loss, contamination of or Release from, scrapping or destruction of or any requisition or taking of the Property or any part thereof; (iii) any restriction, prevention or curtailment of or interference with construction on or any use of the Property or any part thereof including eviction; (iv) any defect in title of or rights to the Property or Ground Lease or any Lien on such title or rights or on the Property or Ground Lease; (v) any change, waiver, extension or indulgence in respect of any obligation or liability of or by the Administrative Agent, the Agent Lessor or any Participant; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to the -4- 10 Lessee, the Guarantor, the Administrative Agent, the Agent Lessor, any Participant or any other Person, or any action taken with respect to this Master Lease by any trustee or receiver of the Lessee, the Guarantor, the Administrative Agent, the Agent Lessor, any Participant or any other Person, or by any court in any such proceeding; (vii) any claim that the Lessee has or might have against any Person, including without limitation the Administrative Agent, the Agent Lessor, any Participant, or any vendor, manufacturer, contractor of or for the Property; (viii) any failure on the part of the Agent Lessor or any other Lessor to perform or comply with any of the terms of this Master Lease, of any other Operative Document or of any other agreement; provided that Lessee does not waive any Claim against Agent Lessor or any Lessor or any bankruptcy recoupment right of Lessee; (ix) any invalidity or unenforceability or disaffirmance of this Master Lease against or by the Lessee or any provision hereof or any of the other Operative Documents or any provision of any thereof; (x) the impossibility of performance by the Lessee, the Lessors or all of them; (xi) any action by any court, administrative agency or other Governmental Authority; or (xii) any other cause or circumstances whether similar or dissimilar to the foregoing and whether or not the Lessee shall have notice or knowledge of any of the foregoing. The Lessee's agreement in the preceding sentence shall not affect any claim, action or right the Lessee may have against the Lessors or any other Participants. The parties intend that the obligations of the Lessee hereunder shall be covenants and agreements that are separate and independent from any obligations of the Agent Lessor or the Lessors hereunder or under any other Operative Documents, and the obligations of the Lessee shall continue unaffected unless the obligations shall have been modified or terminated in accordance with an express provision of this Master Lease. Section 5.2. No Termination or Abatement. The Lessee shall, to the extent permitted by Applicable Law, remain obligated under this Master Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Master Lease (except as provided herein), notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting any Participant, or any action with respect to this Master Lease which may be taken by any trustee, receiver or liquidator of any Participant or by any court with respect to any Participant. The Lessee hereby waives, to the extent permitted by Applicable Law, all right (i) to terminate or surrender this Master Lease (except as provided herein) or (ii) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. The Lessee shall remain obligated under this Master Lease in accordance with its terms and the Lessee hereby waives, to the extent permitted by Applicable Law, any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Master Lease. Notwithstanding any such statute or otherwise, the Lessee shall, to the extent permitted by Applicable Law, be bound by all of the terms and conditions contained in this Master Lease. -5- 11 ARTICLE VI SUBLEASES The Lessee may sublease the Property or any portion thereof to any Person; provided, however, that: (a) no sublease or other relinquishment of possession of the Property shall in any way discharge or diminish any of the Lessee's obligations to the Agent Lessor or the Lessors hereunder and the Lessee shall remain directly and primarily liable under this Master Lease as to the portion of the Property so sublet; (b) each sublease of the Property shall expressly be made subject to and subordinated to this Master Lease and to the rights of the Agent Lessor and the Lessors hereunder; (c) each sublease shall expressly provide for the surrender of the Property or portion thereof by the applicable sublessee at the election of the Administrative Agent or the Agent Lessor (as applicable) after the occurrence of a Lease Event of Default; and (d) each sublease shall expressly provide for termination on or prior to the Expiration Date or the Extended Expiration Date (if applicable) unless the Lessee elects to purchase the Property pursuant to Section 18.1. ARTICLE VII LESSEE ACKNOWLEDGMENTS Section 7.1. Condition of the Property. THE LESSEE ACKNOWLEDGES AND AGREES THAT ALTHOUGH THE AGENT LESSOR WILL OWN AND HOLD TITLE TO THE PROPERTY, THE LESSEE IS SOLELY RESPONSIBLE FOR THE PROPERTY AND ANY ALTERATIONS OR MODIFICATIONS THERETO. THE LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING THE PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE ADMINISTRATIVE AGENT, THE AGENT LESSOR, ANY LESSOR OR ANY LENDER AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE (EXCLUDING LESSOR LIENS), (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW AND (D) VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE ACQUISITION DATE. NEITHER THE ADMINISTRATIVE AGENT, NOR THE AGENT LESSOR, NOR ANY LESSOR NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (OTHER THAN FOR LESSOR LIENS ATTRIBUTABLE TO SUCH LESSOR OR SUCH LENDER), VALUE, SUITABILITY, USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF EXCEPT WITH RESPECT TO ITS OR THEIR AUTHORITY TO ENTER INTO AND PERFORM THIS LEASE), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND NEITHER THE ADMINISTRATIVE AGENT, NOR THE AGENT LESSOR, NOR ANY LESSOR NOR ANY LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR LESSOR LIENS ATTRIBUTABLE TO SUCH LESSOR OR SUCH LENDER) OR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW. -6- 12 Section 7.2. Risk of Loss. During the Lease Term the risk of loss of or decrease in the enjoyment and beneficial use of the Property as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by the Lessee, and neither Agent Lessor nor any Lessor shall in any event be answerable or accountable therefor. ARTICLE VIII POSSESSION AND USE OF THE PROPERTY Section 8.1. Utility Charges. The Lessee shall pay or cause to be paid all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents and utilities used in or on the Property during the Lease Term. The Lessee shall be entitled to receive any credit or refund with respect to any utility charge paid by the Lessee and the amount of any credit or refund received by the Agent Lessor or the Lessors on account of any utility charges paid by the Lessee, net of the costs and expenses reasonably incurred by the Agent Lessor or the Lessors in obtaining such credit or refund, shall be promptly paid over to the Lessee. Section 8.2. Use of the Property. The Lessee covenants that the Property will be used as a rolling mill facility. The Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of the Property as contemplated by this Master Lease. Lessee shall not commit or permit any waste of the Property or any part thereof. Section 8.3. Compliance with Requirements of Laws and Insurance Requirements. Subject to the terms of Article XII relating to permitted contests, the Lessee, at its sole cost and expense, shall (a) comply in all material respects with all Requirements of Law (including all Environmental Laws) and Insurance Requirements relating to the Property, including the use, construction, operation, maintenance, repair and restoration thereof and the remarketing thereof pursuant to Article XX, whether or not compliance therewith shall require structural or extraordinary changes in the Property or interfere with the use and enjoyment of the Property, and (b) procure, maintain and comply with all licenses, permits, orders, approvals, consents and other authorizations required for the construction, use, maintenance repair, restoration and operation of the Property (except where the failure to comply pursuant to clause (a) or to procure or maintain such licenses or other authorizations pursuant to clause (b) would not have a Material Adverse Effect). Section 8.4. Assignment by Lessee. The Lessee may not assign this Master Lease or any of its rights or obligations hereunder in whole or in part to any Person, except that the Lessee may sublease the Property or portion thereof as permitted under Article VI and the Lessee may assign this Master Lease to any other Restricted Subsidiary in connection with the assignment or transfer of all or substantially all of the assets owned by Lessee located at the Mill Facility to such Restricted Subsidiary. -7- 13 ARTICLE IX MAINTENANCE AND REPAIR; RETURN The Lessee, at its sole cost and expense, shall maintain the Property in good condition (ordinary wear and tear excepted) and make all necessary repairs thereto, of every kind and nature whatsoever, whether interior or exterior, ordinary or extraordinary, structural or nonstructural or foreseen or unforeseen, in each case as required by all Requirements of Law and Insurance Requirements (except where the failure to comply would not have a Material Adverse Effect) or as otherwise reasonably determined by the Lessee to be necessary for the use and operation of the Property. Neither the Agent Lessor nor any Lessor shall under any circumstances be required to build any improvements on the Property, make any repairs, replacements, alterations or renewals of any nature or description to the Property, make any expenditure whatsoever in connection with this Master Lease (other than for the initial Advance made in accordance with and pursuant to the terms of the Participation Agreement) or maintain the Property in any way. The Lessee waives any right to (i) require the Agent Lessor or any Lessor to maintain, repair, or rebuild all or any part of the Property or (ii) make repairs at the expense of the Agent Lessor or any Lessor pursuant to any Requirement of Law, Insurance Requirement, contract, agreement, or covenant, condition or restriction in effect at any time during the Lease Term. The Lessee shall, upon the expiration or earlier termination of this Master Lease (other than as a result of the Lessee's purchase of the Property from the Lessors as provided herein), vacate and surrender the Property to the Agent Lessor in its then current "AS IS" condition, subject to the Lessee's obligations under Articles VIII, IX, X, XI, XIII, XIV and XX. ARTICLE X MODIFICATIONS During the Lease Term, the Lessee, at its sole cost and expense, may at any time and from time to time make alterations, renovations, improvements and additions to the Property or any part thereof and substitutions and replacements therefor (collectively, "Modifications"); provided, however, that: (a) except for any Modification required to be made pursuant to a Requirement of Law (a "Required Modification"), no Modification shall be made if it would materially adversely affect the value or useful life of the Property or any part thereof from that which existed immediately prior to such Modification (assuming the Property was then in the condition required by this Master Lease); (b) the Modification shall be done in a good and workmanlike manner; -8- 14 (c) the Modification shall comply in all material respects with all Requirements of Law (including all Environmental Laws) and Insurance Requirements applicable to the Modification, including the obtaining of all permits and certificates of occupancy; (d) subject to the terms of Article XII relating to permitted contests, the Lessee shall pay all costs and expenses and shall discharge (or cause to be insured or bonded over) within sixty (60) days after the same shall be filed (or otherwise become effective) any Liens arising with respect to the Modification; and (e) such Modifications shall comply with Article IX. All Modifications shall be subject to this Master Lease and title thereto shall immediately vest in the Agent Lessor; provided however, that Modifications that (x) are not Required Modifications, (y) were not financed by the Participants and (z) are removable without impairing the value or utility of the Property, shall be the property of the Lessee and shall not be subject to this Master Lease. So long as no Lease Event of Default has occurred and is continuing, the Lessee may place upon the Property any trade fixtures, machinery, equipment, inventory or other property belonging to the Lessee or third parties and may remove the same at any time during the Lease Term, subject, however, to the terms of Article IX; provided, however, that the Lessee shall keep and maintain at the Property and shall not remove any Property financed or otherwise paid for by any Participant pursuant to the Participation Agreement except in connection with the repair or replacement of the Property and the removal and replacement of any Property reasonably determined by Lessee to be obsolete. ARTICLE XI NO LIENS; EASEMENTS Section 11.1. No Liens. (a) The Lessee agrees that except as otherwise provided herein and subject to the terms of Article XII relating to permitted contests, the Lessee shall not directly or indirectly create or allow to remain, and shall promptly (and in any event within sixty (60) days after notice thereof is received by the Lessee from any Person) discharge at its sole cost and expense, any Lien (other than any Lessor Lien), defect, attachment, levy, title retention agreement or claim upon the Property or any Lien, attachment, levy or claim with respect to the Rent or with respect to any amounts held by the Administrative Agent, the Agent Lessor or any Participant pursuant to the Loan Agreement or the other Operative Documents, other than (i) Permitted Property Liens, and (ii) Liens on machinery, equipment, general intangibles and other personal property not financed by the proceeds of the Loans or Lessor Amounts and not otherwise prohibited under any other Operative Document. The Company will not grant or permit to exist any Liens on any asset now or hereafter used in the operation of the Mill Facility if the loss or removal of the assets subject to such Liens would impair in any material respect the current value of the Property, taken as a whole, or its present utility and operating efficiency, taken as a whole. -9- 15 (b) Nothing contained in this Master Lease shall be construed as constituting the consent or request of the Agent Lessor, any Lessor, the Administrative Agent or any other Participant, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE ADMINISTRATIVE AGENT NOR THE AGENT LESSOR NOR ANY LESSOR NOR ANY LENDER IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE ADMINISTRATIVE AGENT, THE AGENT LESSOR, ANY LESSOR OR ANY LENDER IN AND TO THE PROPERTY. Section 11.2. Grants and Releases of Easements; Agent Lessor and Lessors' Waivers. Provided that no Lease Event of Default shall have occurred and be continuing and subject to the provisions of Articles VII, IX and X and Section 8.3, the Agent Lessor and each Lessor hereby consent in each instance to the following actions by the Lessee, in the name and stead of the Agent Lessor and the Lessors, but at the Lessee's sole cost and expense: (a) the granting of easements, licenses, rights-of-way and other rights and privileges in the nature of easements reasonably necessary or desirable for the use, repair, or maintenance of the Property as herein provided; (b) the release of existing easements or other rights in the nature of easements which are for the benefit of the Property; (c) if required by applicable Governmental Authority in connection with the construction, the dedication or transfer of unimproved portions of the Property for road, highway or other public purposes; (d) the execution of amendments to any covenants and restrictions affecting the Property; and (e) the execution or release of any similar agreements; provided, however, that in each case (i) such grant, release, dedication, transfer or amendment does not materially impair the value or remaining useful life of the Property, (ii) such grant, release, dedication, transfer or amendment is, in the Lessee's judgment, reasonably necessary in connection with the use, maintenance, alteration or improvement of the Property, (iii) such grant, release, dedication, transfer or amendment will not cause the Property or any portion thereof to fail to comply with the provisions of this Master Lease or any other Operative Document or in any material respect with any Requirements of Law (including, without limitation, all applicable zoning, planning, building and subdivision ordinances, all applicable restrictive covenants and all applicable architectural approval requirements), (iv) all governmental consents or approvals required prior to such grant, release, dedication, transfer, annexation or amendment have been obtained, and all filings required prior to such action have been made, (v) the Lessee shall remain obligated under this Master Lease, and under any instrument executed by the Lessee consenting to the assignment of the Agent Lessor's and the Lessors' interests in this Master Lease as security for indebtedness, in each such case in accordance with their terms, as though such grant, release, dedication, transfer or amendment had not been effected, and (vi) the Lessee shall pay and perform any obligations of the Agent Lessor and the Lessors under such grant, release, dedication, transfer or amendment. Without limiting the effectiveness of the foregoing, provided that no Lease Event of Default shall have occurred and be continuing, the Agent Lessor shall, upon the -10- 16 request of the Lessee, and at the Lessee's sole cost and expense, execute and deliver any instruments necessary or appropriate to confirm any such grant, release, dedication, transfer, annexation or amendment to any Person permitted under this Section 11.2, including landlord waivers with respect to any of the foregoing. ARTICLE XII PERMITTED CONTESTS If, to the extent and for so long as (a) a test, challenge, appeal or proceeding for review of any Applicable Law relating to the Property or for removal of a Lien shall be prosecuted diligently and in good faith in appropriate proceedings by the Lessee, and, with respect to Liens, Lessee shall have posted reasonable collateral therefor if requested by Agent Lessor, or (b) compliance with such Applicable Law shall have been excused or exempted by a valid nonconforming use, variance permit, waiver, extension or forbearance, the Lessee shall not be required to comply with such Applicable Law or remove such Lien, but only if and so long as any such test, challenge, appeal, proceeding, waiver, extension, forbearance or noncompliance shall not, in the reasonable opinion of the Agent Lessor and the Administrative Agent, involve (A) any risk of criminal liability being imposed on any Lessor or any Lender or (B) any risk of (1) foreclosure, forfeiture or loss of the Property, or any material part thereof, or (2) the nonpayment of Rent or (C) any substantial risk of (1) the sale of, or the creation of, any Lien (other than a Permitted Property Lien or contested Lien) on any part of the Property, (2) civil liability being imposed on any Lender, any Lessor, or the Property, or (3) enjoinment of, or interference with, the use, possession or disposition of the Property in any material respect. Neither the Agent Lessor nor any Lessor will be required to join in any proceedings pursuant to this Section 12.1 unless a provision of any Applicable Law requires or, in the good faith opinion of the Lessee, it is advisable for the prosecution of such contest, that such proceedings be brought by or in the name of such party; and in that event such party will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as (i) the Lessee has not elected the Remarketing Option, and (ii) the Lessee pays all related expenses and indemnifies such party with respect to such proceedings. ARTICLE XIII INSURANCE Section 13.1. Public Liability and Workers' Compensation Insurance. (a) During the Lease Term, the Lessee shall procure and carry, at the Lessee's sole cost and expense, commercial general liability insurance for claims for injuries or death sustained by persons or damage to property while on the Property and such other public liability coverages as are ordinarily procured by the Lessee or its Affiliates who own or operate similar properties, in all cases consistent with the requirements established under Section 10.1(b) of the Participation Agreement. The policy shall be endorsed to name the Agent Lessor, the -11- 17 Administrative Agent and the Participants as additional insureds. The policy shall also specifically provide that the policy shall be considered primary insurance which shall apply to any loss or claim before any contribution by any insurance which the Agent Lessor, the Administrative Agent and the Participants may have in force. (b) The Lessee shall, in connection with the operation of the Property, comply with applicable workers' compensation laws. Section 13.2. Hazard and Other Insurance. During the Lease Term, the Lessee shall keep, or cause to be kept, the Property insured against loss or damage by fire, earthquake, windstorm, flood and other risks on terms and in amounts reasonably determined to be necessary in Lessee's prudent business judgment, giving due regard to the requirements established under Section l0.l(b) of the Participation Agreement. During the construction of any Material Modifications, the Lessee shall also maintain or cause to be maintained builders' risk insurance to the extent, and on terms and in amounts reasonably determined by the Lessee to be necessary giving due regard to the requirements established under Section l0.l(b) of the Participation Agreement. All insurance proceeds in respect of any loss or occurrence for which the proceeds related thereto are (i) less than or equal $5,000,000 in the absence of the occurrence and continuance of an Event of Default, shall be adjusted by and paid (subject to the terms of Section 14.1 hereof) to the Lessee for application toward the reconstruction, repair or refurbishment of the Property, and (ii) greater than $5,000,000 shall be adjusted jointly by the Lessee and the Agent Lessor (unless an Event of Default has occurred and is continuing, in which case such proceeds shall be adjusted solely by the Agent Lessor) and held by the Agent Lessor for application in accordance with Article XIV. Section 13.3. Insurance Coverage. (a) The Lessee shall furnish the Agent Lessor and the Administrative Agent with certificates showing the insurance required under Sections 13.1 and 13.2 to be in effect and naming the Agent Lessor, the Administrative Agent and the Participants as additional insureds with respect to liability coverage (excluding worker's compensation insurance), naming the Agent Lessor, the Administrative Agent and the Lenders, the Lessors and the Lessee as their interests may appear with respect to casualty coverage and naming the Agent Lessor on behalf of the Lessors and the Administrative Agent on behalf of the Lenders as their interests may appear, each as loss payee with respect to casualty coverage and showing the mortgagee endorsement required by Section 13.3(c) with respect to such coverage. All such insurance shall be at the cost and expense of the Lessee. Such certificates shall include a provision for no less than thirty (30) days' advance written notice by the insurer to the Agent Lessor and the Administrative Agent in the event of cancellation of such insurance. In addition, the Lessee shall cause the Agent Lessor, the Administrative Agent and the Participants to be named as additional insureds under each liability policy maintained in connection with construction of any Improvements or Modifications. (b) The Lessee agrees that the insurance policy or policies required by Section 13.1 shall include an appropriate clause providing that it will not be invalidated should the Lessee waive, in writing, prior to a loss, any or all rights of recovery against any party for losses -12- 18 covered by such policy, and that the insurance in favor of the Agent Lessor, the Administrative Agent, the Lessors and the Lenders and their respective rights under and interests in such policies shall not be invalidated or reduced by any act or omission (including breach of warranty) or negligence of the Lessee or any other Person having any interest in the Property other than the Lessors and the Lenders. The Lessee hereby waives any and all such rights against the Lessors and the Lenders to the extent of payments made under such policies. (c) All insurance policies required by Section 13.2 shall include a standard mortgagee endorsement in favor of the Agent Lessor, the Administrative Agent and the Participants. (d) Neither the Agent Lessor nor any of the Lessors shall carry separate insurance concurrent in kind or form or contributing in the event of loss with any insurance required under this Article XIII except that Agent Lessor and any Lessor may, at such party's expense, carry separate liability insurance so long as (i) the Lessee's insurance is designated as primary and in no event excess or contributory to any insurance such party may have in force which would apply to a loss covered under the Lessee's policy and (ii) each such insurance policy will not cause the Lessee's insurance required under this Article XIII to be subject to a coinsurance exception of any kind. (e) The Lessee shall pay as they become due all premiums for the insurance required by Section 13.1 and Section 13.2, and shall renew or replace each policy prior to the expiration date thereof. Throughout the Lease Term, at the time each of the Lessee's insurance policies is renewed (but in no event less frequently than once each year), the Lessee shall deliver to the Agent Lessor and the Administrative Agent certificates of insurance evidencing that all insurance required by this Article XIII is being maintained by the Lessee and is in effect. ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS Section 14.1. Casualty and Condemnation. (a) Subject to the provisions of this Article XIV, if all or a portion of the Property is damaged or destroyed in whole or in part by a Casualty or if the use, access, occupancy, easement rights or title to the Property or any part thereof, is the subject of a Condemnation, then (i) in the case of a Casualty that is not a Significant Casualty, any insurance proceeds payable with respect to such Casualty shall be paid directly to the Lessee, or if received by the Agent Lessor or any other Lessor, shall be paid over to the Lessee for the reconstruction, refurbishment and repair of the Property, and if such Casualty is a Significant Casualty, any insurance proceeds payable with respect to such Casualty (except to the extent such insurance proceeds relate to interruption of or damage to the Lessee's business operations or loss of or damage to assets of the Lessee or others -13- 19 which is not Property) shall be paid to the Administrative Agent to be applied in the discretion of the Lessee (unless there has occurred and is continuing an Event of Default, in which case such insurance proceeds shall be applied in the discretion of the Agent Lessor and the Administrative Agent) to the restoration of the Property or toward the payment of the Lease Balance, unless the Lessee has elected to remedy the loss or damage resulting from the Significant Casualty in accordance with Section 15.1 and has satisfied all requirements thereof, in which case, all insurance proceeds shall be paid directly to the Lessee and (ii) in the case of a Condemnation (that is not a Significant Condemnation) of any part of the Property, any award or compensation relating thereto shall be paid to the Lessee and in the case of a Significant Condemnation such award or compensation shall be paid to the Administrative Agent to be applied in the Lessee's discretion (unless there has occurred and is continuing an Event of Default, in which case such award or condemnation proceeds shall be applied in the discretion of the Agent Lessor and the Administrative Agent) to the restoration of the Property or toward the payment of the Lease Balance unless the Lessee has elected to remedy the loss or damage resulting from the Significant Condemnation in accordance with Section 15.1, and has satisfied all requirements thereto, in which case, all awards and compensation shall be paid directly to the Lessee; provided, however, that, in each case, if a Lease Event of Default shall have occurred and be continuing, such award, compensation or insurance proceeds relating to the Property (excluding any award, compensation or insurance proceeds relating to interruption of or damage to the Lessee's business operations or loss of or damage to assets of the Lessee or others which is not Property) shall be paid directly to the Administrative Agent or, if received by the Lessee, shall be held in trust for the Lessors and the Lenders, and shall be paid by the Lessee to the Account to be distributed in accordance with the provisions of Article VII of the Participation Agreement. All amounts held by the Administrative Agent, the Agent Lessor or any Participant when a Lease Event of Default exists hereunder on account of any award, compensation or insurance proceeds either paid directly to the Lessors or the Lenders or turned over to the Lessors or the Lenders shall at the option of the Administrative Agent either be (i) paid to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with clause (d) of this Section 14.1, or (ii) applied to the purchase price of the Property on the Termination Date in accordance with Article XV. (b) The Lessee may appear in any proceeding or action to negotiate, prosecute, adjust, settle or appeal any claim for any award, compensation or insurance payment on account of any such Casualty or Condemnation and shall pay all expenses thereof. At the Lessee's reasonable request, and at the Lessee's sole cost and expense, the Agent Lessor shall participate in any such proceeding, action, negotiation, prosecution or adjustment. The Agent Lessor, the Administrative Agent, the Participants and the Lessee agree that this Master Lease shall control the rights of the parties in and to any such award, compensation or insurance payment. -14- 20 (c) If a Casualty shall occur or any party shall receive notice of an actual, pending or threatened Condemnation involving a Material impairment of the value of the Property or any interest therein, Lessee or such party, as the case may be, shall give notice thereof to the Agent Lessor, the Lessee and the Administrative Agent promptly after the occurrence of such Casualty or receipt of such notice. (d) If pursuant to this Section 14.1 and Section 15.1 hereof this Master Lease shall continue in full force and effect following a Casualty or Condemnation with respect to the Property, the Lessee shall, at its sole cost and expense (and, without limitation, if any award, compensation or insurance payment is not sufficient to restore the Property in accordance with this clause (d), the Lessee shall pay the shortfall except for any amount caused by the gross negligence or willful misconduct of Administrative Agent or Agent Lessor), promptly and diligently repair any damage to the Property caused by such Casualty or Condemnation in conformity with the requirements of Articles IX and X using the as-built Plans and Specifications for the Property (as modified to give effect to any subsequent Modifications, any Condemnation affecting the Property and all applicable Requirements of Law and as modified as reasonably requested by the Lessee and reasonably consented to by the Agent Lessor, so long as such modifications do not materially impair the utility, operation, function or value so as to restore the Property to at least the same condition, operation, function and value as existed immediately prior to such Casualty or Condemnation (assuming the Property was then in the condition required by this Lease) with such Modification as the Lessee may elect in accordance with Section 10.1. In such event, title to the Property shall remain with the Agent Lessor subject to the terms of this Master Lease. Upon completion of such restoration, the Lessee shall furnish to the Agent Lessor and the Administrative Agent an architect's certificate of substantial completion and a Responsible Officer's Certificate confirming that such restoration has been completed pursuant to this Master Lease. (e) In no event shall a Casualty or Condemnation affect the Lessee's obligations to pay Rent pursuant to Section 3.1 or to perform its obligations and pay any amounts due on the Expiration Date or pursuant to Articles XVIII and XXI. Section 14.2. Environmental Matters. Promptly upon the Lessee's obtaining knowledge of the existence of an Environmental Violation which might reasonably Materially impair the value of the Property, the Lessee shall notify the Agent Lessor and the Administrative Agent in writing of such Environmental Violation. If the Environmental Violation would permit the Agent Lessor to terminate this Master Lease under Section 15.1 and the Agent Lessor elects not to terminate this Master Lease pursuant to Section 15.1, at Lessee's sole cost and expense, the Lessee shall, subject to the provisions of Article XII relating to permitted contests and Article XV and except for any matter caused by Administrative Agent's or Agent Lessor's gross negligence or wilfull misconduct, promptly and diligently commence any response, clean up, remedial or other action necessary to remove, clean up or remediate the Environmental Violation in accordance with the terms of Section 8.3. The Lessee shall, upon completion of remedial action by the Lessee, cause to be prepared by an environmental consultant reasonably acceptable to the Lessors a report describing the Environmental Violation and the actions taken by the Lessee (or its agents) in response to such Environmental Violation, and a statement by the consultant that the -15- 21 Environmental Violation has been remedied in compliance in all material respects with applicable Environmental Laws. Each such Environmental Violation shall be remedied prior to the Expiration Date unless the Property has been purchased by the Lessee in accordance with Sections 15.1, 18.1 or 18.2. Nothing in this Article XIV shall reduce or limit the Lessee's obligations under Sections 13.1, 13.2 or 13.3 of the Participation Agreement. ARTICLE XV TERMINATION OF LEASE Section 15.1. Termination upon Certain Events. If any of the following occurs with respect to the Property: (i) a Significant Condemnation occurs; or (ii) a Significant Casualty occurs; or (iii) an Environmental Violation occurs or is discovered which will cost in excess of $5,000,000 to remedy; and the Agent Lessor shall have given written notice (a "Termination Notice") to the Lessee that, as a consequence of such event, this Master Lease is to be terminated, then the Lessee may elect to either (a) remedy the loss or damage resulting from the Significant Condemnation, Significant Casualty or such Environmental Violation and restore the value of the Property and deliver to Agent Lessor cash collateral or a letter of credit reasonably acceptable to Agent Lessor from a bank reasonably acceptable to Agent Lessor in the amount reasonably estimated by Agent Lessor to be necessary to remedy the loss or damage resulting from the Significant Casualty, Significant Condemnation or such Environmental Violation and restore the value of the Property or (b) purchase the interest of the Agent Lessor in the Property on or prior to the later of ten (10) Business Days after delivery of such notice or the next occurring Scheduled Payment Date by paying to the Administrative Agent an amount equal to the Lease Balance. Section 15.2. Termination Procedures. On the date of the payment by the Lessee of the Lease Balance in accordance with Section 15.1 (such date, the "Termination Date"), this Master Lease shall terminate and, concurrent with the Administrative Agent's receipt of such payment, (a) the Agent Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense: (x) a special warranty deed (warranting as to Lessor Liens only) with respect to the Property, and (y) an assignment of the entire interest of the Agent Lessor and Lessors in the Property (which shall include an assignment of all of the right, title and interest of the Agent Lessor in and to any Net Proceeds with respect to the Property not previously -16- 22 received by the Agent Lessor), in each case in recordable form and otherwise in conformity with local custom and free and clear of any Lessor Liens attributable to the Lessors; (b) the Property shall be conveyed to the Lessee (or to the Lessee's designee) "AS IS" and in its then present physical condition; and (c) in the case of a termination pursuant to clause (i) or (ii) of Section 15.1, the Agent Lessor shall convey to the Lessee any Net Proceeds with respect to any Casualty or Condemnation relating to the Property received by the Agent Lessor and not previously paid to the Lessee or at the request of the Lessee, such amounts shall be applied against sums due hereunder. ARTICLE XVI EVENTS OF DEFAULT Section 16.1. Lease Events of Default. The occurrence of any one or more of the following events (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute a "Lease Event of Default": (a) the Lessee shall fail to make payment of any Basic Rent upon the same becoming due and payable and such failure shall continue unremedied for a period of five (5) Business Days after Lessee's receipt of notice thereof from Administrative Agent or Agent Lessor; or the Lessee shall fail to make payment upon the same becoming due and payable of the Lease Balance, Purchase Option Price, Loan Balance or Lessor Balance, including, without limitation, amounts due pursuant to Sections 15.1, 15.2, 18.1, 18.2, 18.3 or 20.2 hereof; or (b) the Lessee shall fail to make payment of any Supplemental Rent (other than as specified in clause (a) above) due and payable within five (5) Business Days after receipt of notice thereof from the Administrative Agent or the Agent Lessor; or (c) the Lessee shall fail to maintain in effect insurance as required by Article XIII of this Master Lease; or (d) the Lessee or the Guarantor shall fail to observe or perform in any material respect any term, covenant or condition applicable to it under Article XX of this Agreement; or (e) the Lessee or the Guarantor shall fail to observe or perform in any material respect any term, covenant or condition applicable to it under any Operative Document to which it is party (other than those described in Section 16.1(a), (b), (c) -17- 23 or (d) hereof) and, in each such case, such failure shall have continued unremedied for thirty (30) days after written notice thereof has been given to the Lessee or the Guarantor by the Administrative Agent or Agent Lessor; or (f) any representation or warranty made or deemed made by the Lessee or the Guarantor in any Operative Document to which it is a party or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with any Operative Document shall prove to have been incorrect, false or misleading in any material respect on or as of the date made or deemed made; or (g) Default shall be made in the payment of the principal of or interest on any Indebtedness of the Guarantor or any Restricted Subsidiary (other than Indebtedness under the Operative Documents) in either case aggregating more than $20,000,000, as and when the same shall become due and payable by the lapse of time, by declaration, by call for redemption, by acceleration or otherwise, and such default shall continue beyond any period of grace or notice, if any, allowed with respect thereto; or (h) Any event specified in any note, agreement, indenture or other document evidencing or relating to Indebtedness of the Guarantor or any Restricted Subsidiary shall occur if the effect of such event is to cause, or (with the giving of any notice) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, $50,000,000 or more of such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity and any applicable period of grace or notice has lapsed with respect to such default; provided that no such event shall constitute an Event of Default hereunder if and so long as the Guarantor or the indebted Restricted Subsidiary (as applicable) shall be contesting in good faith whether such event has occurred and the Guarantor and its Restricted Subsidiaries make no payments or concessions (whether in the form of collateral, increased interest or fees, more rapid amortization, more restrictive terms or otherwise) in consideration of a resolution of such contest; or (i) Final judgment or judgments for the payment of money aggregating in excess of $10,000,000 is or are outstanding against the Guarantor or any Restricted Subsidiary or against any Company Property of either and any one of such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of ninety (90) days from the date of its entry; or (j) Any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended or any successor regulation) of more than 50% of the voting stock of the Guarantor; or during any period of thirteen (13) consecutive calendar months (or, if shorter, the maximum period which would incorporate only one regularly scheduled annual meeting of the Guarantor), a majority of the Board of Directors of the Guarantor -18- 24 shall no longer be composed of individuals (i) who were members of said Board on the first day of such period, (ii) whose election or nomination to said Board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of said Board or (iii) whose election or nomination to said Board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of said Board; or (k) A custodian, receiver, liquidator or trustee of the Guarantor or any Restricted Subsidiary, or of any of the Company Property of either, is appointed or takes possession and such appointment or possession remains uncontested or in effect for more than sixty (60) days; or the Guarantor or any Restricted Subsidiary generally fails to pay its debts as they become due or admits in writing its inability to pay its debts as they mature; or the Guarantor or any Restricted Subsidiary is adjudicated bankrupt or insolvent; or any of the material property of either is sequestered by court order and the order remains in effect for more than sixty (60) days; or a petition is filed against the Guarantor or any Restricted Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or subsequently in effect, and is not stayed or dismissed within sixty (60) days after filing; or (l) The Guarantor or any Restricted Subsidiary makes an assignment for the benefit of creditors or files a petition in voluntary bankruptcy or seeking relief under any provision of any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or subsequently in effect; or consents to the filing of any petition against it under any such law; or consents to the appointment of or taking possession by a custodian, receiver, trustee or liquidator of the Guarantor, any Restricted Subsidiary, or any of the property of either. Section 16.2. Remedies. Upon the occurrence of any Lease Event of Default and at any time thereafter, the Agent Lessor may, so long as such Lease Event of Default is continuing, do one or more of the following (and in such order) as the Agent Lessor in its sole discretion shall determine, without limiting any other right or remedy the Agent Lessor may have on account of such Lease Event of Default (including, without limitation, the obligation of the Lessee to purchase the Property as set forth in Section 18.3): (a) The Agent Lessor may (i) declare the entire outstanding Lease Balance to be due and payable together with accrued unpaid Rent and any other amounts payable under the Operative Documents, and/or (ii) make demand upon the Guarantor; (b) The Agent Lessor may, by notice to the Lessee, rescind or terminate this Master Lease as of the date specified in such notice; provided, however, no reletting, reentry or taking of possession of the Property (or any portion thereof) by the Agent Lessor will be construed as an election on the Agent Lessor's part to terminate this Master Lease unless a written notice of such intention is given to the Lessee; -19- 25 (c) The Agent Lessor may (i) demand that the Lessee, and the Lessee shall upon the written demand of the Agent Lessor, return the Property promptly to the Agent Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of, Articles VII and IX and Section 8.3 hereof as if the Property were being returned at the end of the Lease Term, and neither the Agent Lessor nor any Lessor shall be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith, and (ii) without prejudice to any other remedy which the Lessors may have for possession of the Property, and to the extent and in the manner permitted by Applicable Law, enter upon the Property and take immediate possession (to the exclusion of the Lessee) of the Property or any part thereof and expel or remove the Lessee and any other Person who may be occupying the Property, by summary proceedings or otherwise, all without liability to the Agent Lessor for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise except to the extent any such damage is attributable to the gross negligence or willful misconduct of the Agent Lessor or its agents and, in addition to the other damages of the Lessors, the Lessee shall be responsible for all costs and expenses incurred by the Agent Lessor, the Administrative Agent, the Lessors and/or the Lenders in connection with any reletting, including, without limitation, reasonable brokers' fees and all costs of any alterations or repairs made by any such party; (d) As more fully set forth in Section 16.4 hereof (and consistent with the intent of the parties as detailed in Article XXV hereof), the Agent Lessor may exercise all remedies available to a mortgagee under law or equity, as the Agent Lessor may determine; (e) The Agent Lessor may, at its option, elect not to terminate this Master Lease and continue to collect all Basic Rent, Supplemental Rent, and all other amounts due to the Agent Lessor (together with all reasonable costs of collection) and enforce the Lessee's obligations under this Master Lease as and when the same become due, or are to be performed, and at the option of the Agent Lessor, upon any abandonment of the Property by the Lessee, the Agent Lessor may elect not to terminate this Master Lease and may make the necessary repairs in order to relet the Property, and relet the Property or any part thereof for such term or terms (which may be for a term extending beyond the Lease Term of this Master Lease) and at such rental or rentals and upon such other terms and conditions as the Agent Lessor in its reasonable discretion may deem advisable; and upon each such reletting all rentals actually received by the Agent Lessor from such reletting shall be applied to the Lessee's obligations hereunder and the other Operative Documents in the manner provided in Section 7.6 of the Participation Agreement. If such rentals received from such reletting during any period are less than the Rent with respect to the Property to be paid during that period by the Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the Agent Lessor, to the Administrative Agent on the next Scheduled Payment Date; -20- 26 (f) Unless the Property has been sold in its entirety, the Agent Lessor may, whether or not the Agent Lessor shall have exercised or shall thereafter at any time exercise any of its rights under clause (d) or (e) of this Section 16.2 with respect to the Property or any portion thereof, demand, by written notice to the Lessee specifying a date not earlier than twenty (20) days after the date of such notice, that the Lessee purchase, on the date specified in such notice, the Property in accordance with the provisions of Article XXI and Section 18.3; (g) The Agent Lessor may exercise any other right or remedy that may be available to it under Applicable Law, or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. Separate suits may be brought to collect any such damages for any period(s), and such suits shall not in any manner prejudice the Agent Lessor's right to collect any such damages for any subsequent period(s), or the Agent Lessor may defer any such suit until after the expiration of the Lease Term, in which event such suit shall be deemed not to have accrued until the expiration of the Lease Term; or (b) The Agent Lessor may retain and apply against the Lease Balance all sums which the Agent Lessor would, absent such Lease Event of Default, be required to pay to, or turn over to, the Lessee pursuant to the terms of this Master Lease. The Agent Lessor shall be entitled to enforce payment of the indebtedness and performance of the obligations secured hereby and to exercise all rights and powers under this instrument or under any of the other Operative Documents or other agreement or any laws now or hereafter in force, notwithstanding some or all of the obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this instrument nor its enforcement shall prejudice or in any manner affect the Agent Lessor's right to realize upon or enforce any other security now or hereafter held by the Agent Lessor, it being agreed that the Agent Lessor shall be entitled to enforce this instrument and any other security now or hereafter held by the Agent Lessor in such order and manner as the Agent Lessor may determine in its absolute discretion. No remedy herein conferred upon or reserved to the Agent Lessor is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Documents to the Agent Lessor or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Agent Lessor. In no event shall the Agent Lessor, in the exercise of the remedies provided in this instrument (including, without limitation, in connection with the assignment of rents to Agent Lessor, or the appointment of a receiver and the entry of such receiver onto all or any part of the Property), be deemed a "mortgagee in possession," and the Agent Lessor shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies. -21- 27 If, pursuant to the exercise by the Agent Lessor of its remedies pursuant to this Section 16.2, the Lease Balance and all other amounts due and owing from the Lessee under this Master Lease and the other Operative Documents have been paid in full, then the Agent Lessor shall remit to the Lessee any excess amounts received by the Agent Lessor. To the extent the amount the Lessee may reasonably expect to receive from a sale of the Excluded Equipment and the amount the Lessors may reasonably expect to receive from a sale of the Property would be maximized if the same were sold jointly, the Lessee and Agent Lessor shall cooperate to develop a mutually acceptable program for the sale of all such assets but in no event shall either party be obligated to sell its assets for less than fair value as reasonably determined by it and in no event shall Agent Lessor be precluded from selling the Property at any time or the Lessee be precluded from selling the Excluded Equipment at any time. Section 16.3. Waiver of Certain Rights. (a) To the maximum extent permitted by law, the Lessee hereby waives the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of the Property or any interest therein, (b) if this Master Lease shall be terminated pursuant to Section 16.2, the Lessee waives, to the fullest extent permitted by law, (i) any notice of re-entry or the institution of legal proceedings to obtain re-entry or possession; (ii) any right of redemption, re-entry or repossession; (iii) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt or limiting the Agent Lessor with respect to the election of remedies; and (iv) any other rights which might otherwise limit or modify any of the Agent Lessor's rights or remedies under this Article XVI. Section 16.4. Deed of Trust Remedies. Without limiting any other remedies set forth in this Master Lease, and also, without limiting the generality of Article XXV hereof, the Trustee, for the benefit and at the direction of the Agent Lessor may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder, or (to the extent permitted by law) for the sale of the Property, or against the Lessee on a recourse basis for the Lease Balance, or for the specific performance of any covenant or agreement contained herein or in aid of the execution of any power granted herein, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Property, or for the enforcement of any other appropriate legal or equitable remedy. The Trustee and the Agent Lessor shall have all rights available to a deed of trust trustee or a beneficiary of a deed of trust under the laws of the State of Texas, including, without limitation, all rights granted a trustee or beneficiary under Chapter 51.002 - 51.006 et. seq. of the Texas Property Code (as amended, the "Deed of Trust Law"). In the event that any provisions of this Master Lease shall be inconsistent with the Deed of Trust Law, the provisions of the Deed of Trust Law shall take precedence over such provision of this Master Lease, but shall not invalidate or render unenforceable any other provision of this Master Lease that can be construed in a manner consistent with the Deed of Trust Law. If any provision of this Master Lease shall grant the Trustee or the Agent Lessor any rights or remedies upon default of the Lessee which are more limited than the rights that would otherwise be vested in the Agent Lessor under the Deed of Trust Law in the absence of such provision, the Trustee and the Agent Lessor shall -22- 28 be vested with the rights granted in the Deed of Trust Law to the full extent permitted by law. ARTICLE XVII AGENT LESSOR'S RIGHT TO CURE Section 17.1. The Agent Lessor's Right to Cure the Lessee's Lease Defaults. The Agent Lessor, without waiving or releasing any obligation or Lease Event of Default, may (but shall be under no obligation to) remedy any Lease Event of Default for the account and at the sole cost and expense of the Lessee, including the failure by the Lessee to maintain the insurance required by Article XIII, and may, to the fullest extent permitted by law, and notwithstanding any right of quiet enjoyment in favor of the Lessee, enter upon the Property following the occurrence and during the continuance of a Lease Event of Default for such purpose and take all such action thereon as may be reasonably necessary or appropriate therefor. No such entry shall be deemed an eviction of the Lessee. All reasonable out-of-pocket costs and expenses so incurred (including reasonable fees and expenses of counsel), together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid by the Agent Lessor, shall be paid by the Lessee to the Agent Lessor as Supplemental Rent. ARTICLE XVIII PURCHASE PROVISIONS Section 18.1. Purchase of the Property. Subject to the conditions contained herein, and without limitation of the Lessee's purchase obligation pursuant to Section 18.2 or 18.3, the Lessee shall have the irrevocable option on any Business Day to purchase all (but not less than all) of the Property at a price equal to the Lease Balance on the date of such purchase (the "Purchase Option Price"). The Lessee's exercise of its option pursuant to this Section 18.1 shall be subject to the following conditions: (i) the Lessee shall have delivered a Purchase Notice to the Agent Lessor and the Administrative Agent not less than five (5) days prior to such purchase, specifying the date of such purchase; (ii) no Lease Event of Default shall have occurred and then be continuing; and (iii) the Lessee shall not have delivered (or, if delivered, shall have rescinded) a written notice of the Lessee's exercise of the Remarketing Option pursuant to Section 20.1(a). If the Lessee exercises its option pursuant to this Section 18.1 then, upon the Administrative Agent's receipt of all amounts due in connection therewith, the Agent Lessor -23- 29 shall transfer to the Lessee or its designees all of the Agent Lessor's and the Lessors' right, title and interest in and to the Property in accordance with the procedures set forth in Section 21.1(a), such transfer to be effective as of the date specified in the Purchase Notice. The Lessee may designate, in a notice given to the Agent Lessor and the Administrative Agent not less than five (5) Business Days prior to the closing of such purchase (time being of the essence), the transferee or transferees to whom the conveyance shall be made (if other than to the Lessee), in which case such conveyance shall (subject to the terms and conditions set forth herein) be made to such designee; provided, however, that such designation of a transferee or transferees shall not cause either the Lessee or the Guarantor to be released, fully or partially, from any of their respective obligations under this Master Lease or the Guaranty, including, without limitation, the obligation to pay to the Agent Lessor the Lease Balance on the date specified in the Purchase Notice. Section 18.2. Expiration Date Purchase Obligation. Unless (a) the Lessee shall have properly exercised its option pursuant to Section 18.1 and purchased the Property pursuant thereto, or (b) the Lessee shall have properly exercised the Remarketing Option and shall have fulfilled all of the requirements of Article XX, then, subject to the terms, conditions and provisions set forth in this Article, and in accordance with the terms of Section 21.1(a), the Lessee (or its designee) shall purchase from the Agent Lessor, and the Agent Lessor shall convey to the Lessee (or its designee), on the Expiration Date (giving effect to any extensions thereof in connection with the extension of the Expiration Date and the provisions of Article XIX hereof) all of the interest of the Agent Lessor and the Lessors in the Property for an amount equal to the Lease Balance. The Lessee may designate, in a notice given to the Agent Lessor and the Administrative Agent not less than ten (10) Business Days prior to the closing of such purchase (time being of the essence), the transferee or transferees to whom the conveyance shall be made (if other than to the Lessee), in which case such conveyance shall (subject to the terms and conditions set forth herein) be made to such designee; provided, however, that such designation of a transferee or transferees shall not cause either the Lessee or the Guarantor to be released, fully or partially, from any of its obligations under this Master Lease or the Guaranty, including, without limitation, the obligation to pay the Agent Lessor the Lease Balance on the Expiration Date. Section 18.3. Acceleration of Purchase Obligation. The Lessee shall be obligated to purchase for an amount equal to the Lease Balance all of the interest of the Agent Lessor and the Lessors in the Property (notwithstanding any prior election to exercise its Purchase Option pursuant to Section 18.1) automatically and without notice upon the occurrence of any Lease Event of Default described in clause (l) of Section 16.1. Any purchase under this Section 18.3 shall be in accordance with the procedures set forth in Section 21.1(a). ARTICLE XIX EXTENSION OF EXPIRATION DATE The Lessee may extend the Expiration Date subject to, and in accordance with, the terms and conditions of Section 11.1 of the Participation Agreement. -24- 30 ARTICLE XX REMARKETING OPTION Section 20.1. Option to Remarket. Subject to the fulfillment of each of the conditions set forth in this Section 20.1, the Lessee shall have the option (the "Remarketing Option") to remarket and complete the sale of the Property for the Agent Lessor. The Lessee's effective exercise and consummation of the Remarketing Option shall be subject to the due and timely fulfillment of each of the following provisions as of the dates set forth below. Failure by the Lessee to timely satisfy in any material respect any of the following provisions of this Section 20.1, or any of the provisions of Section 20.2, shall be deemed to be an election by the Lessee, without further act thereby, of its Purchase Option for the Property and any previous election of the Remarketing Option shall automatically terminate. (a) Unless a longer period is called for pursuant to any Requirement of Law, on any date between 365 days and 180 days prior to the Expiration Date, the Lessee shall give to the Agent Lessor and the Administrative Agent written notice of the Lessee's exercise of the Remarketing Option, which exercise shall be irrevocable by the Lessee. (b) Not later than ninety (90) days prior to the Expiration Date, the Lessee shall deliver to the Agent Lessor an Environmental Audit for the Property. Such Environmental Audit shall be prepared by an environmental consultant selected by the Agent Lessor and reasonably acceptable to the Lessee and shall contain conclusions indicating that the consultant found no Environmental Violations at the Property. If any such Environmental Audit indicates any exceptions calling for a Phase Two environmental assessment, the Lessee shall have also delivered prior to the Expiration Date a Phase Two environmental assessment by such environmental consultant and a written statement by such environmental consultant indicating that all such exceptions have been remedied in compliance in all material respects with Applicable Law or shall have delivered to Agent Lessor cash collateral or a letter of credit reasonably acceptable to Agent Lessor from a bank reasonably acceptable to Agent Lessor in the amount reasonably estimated by Agent Lessor to be necessary to remedy such exceptions. (c) On the date of the Lessee's notice to the Agent Lessor of the Lessee's exercise of the Remarketing Option, no Lease Event of Default or Lease Default shall exist, and, thereafter, no Lease Event of Default or Lease Default shall occur. (d) [Intentionally Omitted.] (e) The Lessee shall have completed in all material respects all Modifications, restoration and rebuilding of the Property pursuant to Sections 10.1 and 14.1 (as the case may be) and shall have fulfilled all of the conditions and requirements in connection therewith pursuant to such Sections, in each case prior to the date on which the Agent Lessor receives the Lessee's notice of the Lessee's intention to exercise the Remarketing Option -25- 31 (time being of the essence), regardless of whether the same shall be within the Lessee's control. The Lessee shall have also paid to the extent due the cost of all Modifications commenced prior to the Expiration Date. The Lessee shall not have been excused pursuant to Section 12.l from complying with any Applicable Law that involved the extension of the ultimate imposition of such Applicable Law beyond the Expiration Date unless the Lessee shall have provided for adequate bond to secure any required payments. Any Permitted Property Liens (other than Lessor Liens) on the Property that were contested by the Lessee shall have been removed on or prior to the Expiration Date and the Agent Lessor shall have received evidence satisfactory to it that all Liens (other than Lessor Liens and uncontested Permitted Property Liens of the type described in clauses (i), (vii), (viii) and (x) of the definition thereof) have been removed. The Property shall be in good operating condition, ordinary wear and tear excepted. Section 20.2. Procedures During Remarketing. (a) During the Marketing Period, the Lessee shall, as nonexclusive agent for the Agent Lessor, use its commercial best efforts to sell the interest of the Agent Lessor in the Property and will attempt to obtain the highest purchase price therefor and for not less than the Fair Market Sales Value. The Lessee will be responsible for hiring brokers and making the Property available for inspection by prospective purchasers. The Lessee shall promptly upon reasonable request permit during normal business hours inspection of the Property and any maintenance records relating to the Property by the Agent Lessor, any Participant and any potential purchasers, and the Lessee and the Lessee shall otherwise do all things necessary to sell and deliver possession of the Property to any purchaser. All such marketing of the Property shall be at the Lessee's sole expense. (b) The Lessee shall use commercial best efforts to procure written bids from one or more bona fide prospective purchasers. No such purchaser shall be the Lessee, the Guarantor or any Affiliate thereof. The written offer must specify the Expiration Date as the closing date. The Agent Lessor and each Lessor shall have the right, but shall be under no duty, to solicit bids, to inquire into the efforts of the Lessee to obtain bids or otherwise to take action in connection with any such sale which action does not materially impair Lessee's efforts. (c) The Lessee shall submit all bids to the Agent Lessor promptly upon receipt, and the Agent Lessor and each Lessor will have the right to submit any one or more bids. Any sale by the Lessee shall be for the highest cash bid submitted to the Agent Lessor or any bid that exceeds the Lease Balance and is approved by Lessee. The determination of the highest bid shall be made by the Agent Lessor prior to the end of the Marketing Period, but in any event, the Agent Lessor shall have no obligation to approve any bid for the Property unless the highest bid for the Property equals or exceeds the Lease Balance. All bids shall be on an all-cash basis. (d) In connection with any such sale of the Property, the Lessee shall, on or before the Expiration Date, and at its own cost, transfer possession of the Property to the purchaser thereof by surrendering the same into the possession of such purchaser free and clear of all Liens other than Lessor Liens and such other Permitted Liens as may be agreed to with the -26- 32 Purchaser, in good operating condition (as modified by Modifications permitted by this Lease), ordinary wear and tear excepted (or in such condition as the purchaser is willing to accept), and in compliance in all material respects with all Applicable Law and the provisions of this Master Lease. The Lessee will provide to the purchaser all customary "seller's" indemnities if necessary to effectuate the sale (including, without limitation, a reasonable and customary environmental indemnity to the extent the same are required by the purchaser) and representations and warranties regarding title, absence of Liens (except Lessor Liens and any negotiated "permitted liens") and the condition of the Property by the Lessee. The Lessee shall have obtained, at its cost and expense (or as may otherwise be agreed to with the Purchaser), all required governmental and regulatory consents and approvals and shall have made all filings as required by Applicable Law in order to carry out and complete the transfer of the Property by the Lessee. The Lessee shall, on and within a reasonable time before and after the Expiration Date, cooperate with the Agent Lessor and the purchaser of the Property in order to facilitate the ownership and operation by such purchaser of the Property after the Expiration Date, which cooperation shall include the following, all of which the Lessee shall do on or before the Expiration Date, or as soon thereafter as is reasonably practicable: providing all books, records data and technical information regarding the maintenance and operation of the Property; providing a current copy of the Plans and Specifications, granting or assigning all licenses to the extent necessary for the operation and maintenance of the Property and cooperating in seeking and obtaining all necessary Governmental Action; provided that Lessee shall not be required to transfer or reveal any proprietary information, license or intellectual property right. As to the Lessors, any such sale shall be made on an "as is, with all faults" basis without representation or warranty by the Agent Lessor or any other Lessor other than the absence of Lessor Liens attributable to such Lessor. Any agreement as to such sale shall be made subject to the rights of the Lessors hereunder. (e) The Lessee shall pay directly, and not from the sale proceeds, all prorations, credits, costs and expenses of the sale of the Property customarily paid by a seller, whether incurred by the Lessors or the Lessee, including, without limitation, to the extent customarily paid by a seller the cost of all title insurance, surveys, environmental reports, appraisals, transfer taxes, the reasonable attorneys' fees of the Lessors, the Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all applicable documentary and other transfer taxes. (f) The Lessee shall pay to the Administrative Agent on the earlier of 90 days after the notice delivered pursuant to Section 20.1(a) hereof or the Expiration Date (or in the case of Supplemental Rent, to the Person entitled thereto) an amount equal to the Loan Balance plus all accrued and unpaid Rent (including Supplemental Rent, if any) and all other amounts hereunder which have accrued or will accrue prior to or as of the date of payment, in the type of funds specified in Section 3.4 hereof. (g) The Lessee shall pay to the Administrative Agent on or prior to the Expiration Date the amounts, if any, required to be paid pursuant to Section 13.2 of the Participation Agreement. -27- 33 (h) The sale of the Property shall be consummated on or before the Expiration Date and the gross proceeds (the "Gross Remarketing Proceeds") of the sale of the Property (less any marketing, closing or other costs, prorations or commissions) shall be paid directly to the Administrative Agent; provided, however, that if the sum of (x) the Gross Remarketing Proceeds from such sale plus (y) the Loan Balance received by the Administrative Agent pursuant to Section 20.2(f) exceeds the Lease Balance as of such date, then the excess shall promptly be paid to the Lessee. (i) Except as expressly set forth herein, the Lessee shall have no right, power or authority to bind the Agent Lessor or any Participant in connection with any proposed sale of the Property. (j) During the Marketing Period, the obligation of the Lessee to pay Rent with respect to the Property (including the installment of Rent due on the Expiration Date) shall continue undiminished until payment in full of the Lease Balance and all other amounts due to the Participants under the Operative Documents. Section 20.3. Remedies for Failed Remarketing. If the Lessee effectively elects the Remarketing Option and each of the conditions and requirements in Sections 20.1 and 20.2 shall have been satisfied, but nevertheless the Lessee is unable to obtain bids reasonably satisfactory to the Lessors, and the sale of the Property is not consummated prior to the end of the Marketing Period, the Agent Lessor shall by written notice to the Lessee choose one or both of the following remedies: (a) Continue Remarketing Efforts. At the request of the Agent Lessor, the Lessee shall continue to market the Property on behalf of the Agent Lessor for up to an additional six (6) months and at the sole cost and expense of Lessee, and during such extended marketing period continue to comply with the requirements of Articles IX, X, XI, XIII, XIV and XX (to the extent relevant) at Lessee's sole cost and expense. The Agent Lessor shall by written notice to the Lessee indicate the duration of such extended marketing period (the last day of such period, the "Extended Expiration Date"), and the Agent Lessor shall have the option to accelerate or shorten such Extended Expiration Date at any time by prior written notice to Lessee. If, at the end of the Extended Expiration Date, the Lessee is still unable to obtain bids satisfactory to the Lessors, and the sale of the Property is not consummated prior to the end of the Extended Expiration Date, then the provisions of Section 20.3(b) hereof shall apply. (b) Return. Demand that the Property be returned to the Agent Lessor, whereupon the Lessee shall do each of the following at its own cost and expense: (i) execute and deliver to the Agent Lessor and the Agent Lessor's title insurance company an affidavit as to the absence of any Liens (other than Permitted Liens of the type described in clause (i), (vii), (viii) or (x) of the definition thereof), and shall execute and deliver to the Agent Lessor and the other Lessors a statement of termination of this Master Lease; -28- 34 (ii) transfer possession of the Property to the Agent Lessor or any Person designated by the Agent Lessor, by surrendering the same into the possession of the Agent Lessor or such Person, as the case may be, in the condition required by this Master Lease and in compliance in all Material respects with Applicable Law; and (iii) cooperate fully with the Agent Lessor, the other Lessors and/or any Person designated by the Agent Lessor to receive the Property which cooperation shall include: if Agent Lessor is unable to obtain a commercially reasonable operator of the Property, upon requested by the Agent Lessor, the Lessee hereby agrees to enter into an operating agreement and in connection therewith to serve as the operator of the Property; such agreement to be on market terms established in good faith and reasonably acceptable to the Agent Lessor and Lessee, providing copies of all books, records, data and technical information regarding the maintenance and operation of the Property, providing a current copy of the Plans and Specifications, to the extent permitted by any Requirement of Law, granting or assigning all assignable licenses necessary for the operation and maintenance of the Property and cooperating reasonably in seeking and obtaining all necessary Governmental Action; provided that Lessee shall not be required to transfer or reveal any proprietary information, license or intellectual property right. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Master Lease. Section 20.4. No Sale of Property. If the Lessee effectively elects the Remarketing Option and each of the conditions and requirements in Sections 20.1 and 20.2 shall have been satisfied, but nevertheless the Lessee is unable to obtain a bid acceptable hereunder during the Remarketing Period or any extension thereof pursuant to Section 20.3(a) and the Property is not sold (due either to the Agent Lessor's rejection of any bids or the failure to obtain any bids), there shall not be deemed to be a Lease Event of Default by virtue of such failure to sell the Property and the Lessee shall only be obligated to make the payments referred to in Sections 3.4, 20.2(e), (f) and (g) hereof. ARTICLE XXI PROCEDURES RELATING TO PURCHASE OR REMARKETING OPTIONS Section 21.1. Provisions Relating to the Exercise of Purchase Option or Obligation and Conveyance upon Remarketing; Conveyance upon Certain Other Events. (a) In connection with any termination of this Master Lease pursuant to the terms of Article XV, in connection with the Lessee's purchase of the Property in accordance with Section 18.1 or in connection with the Lessee's Expiration Date Purchase Obligation or obligations under Section 16.2(f) or 18.3, then, upon the date on which this Master Lease is to terminate and upon tender by the Lessee of the amounts set forth in Article XV, Sections 16.2(f), 18.1, 18.2 or 18.3, as applicable: -29- 35 (i) the Agent Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense and in form reasonably acceptable to Lessee: (x) a special warranty deed (warranting as to Lessor Liens only) with respect to the Property with a covenant against grantor's acts, and (y) an assignment of the entire interest of the Agent Lessor in the Property (which shall include an assignment of all of the right, title and interest of the Agent Lessor and the Lessors in and to any Net Proceeds with respect to the Property not previously received by the Agent Lessor and an assignment of leases of the Property), in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the Lessor Mortgage and any Lessor Liens; (ii) the Property shall be conveyed to the Lessee (or its designee) "AS IS" and in its then present physical condition; and (iii) the Agent Lessor shall execute and deliver to Lessee (or its designee) and the Lessee's title insurance company an affidavit as to the Agent Lessor's title and Lessor Liens attributable to it and shall execute and deliver to the Lessee a statement of termination of this Master Lease. (b) If the Lessee exercises the Remarketing Option pursuant to Article XX and a satisfactory purchaser is obtained, then the Lessee shall, on the Expiration Date, and at its own cost, transfer possession of the Property to the independent purchaser thereof, by surrendering the same into the possession of such purchaser free and clear of all Liens other than Lessor Liens and the lien of the Lessor Mortgage (except as otherwise agreed to by Lessee with the purchaser), in good condition (as modified by Modifications permitted by this Master Lease), ordinary wear and tear excepted (except as otherwise agreed to by Lessee with the purchaser), and in compliance in all material respects with Applicable Law. The Lessee shall reasonably cooperate with the Agent Lessor, the other Lessors and the independent purchaser of the Property in order to facilitate the purchase by such purchaser of the Property, which cooperation shall include the following, all of which the Lessee shall do (or cause to be done) on or before the Expiration Date or as soon thereafter as is reasonably practicable: providing copies of all books, records, data and technical information regarding the maintenance and operation of the Property; providing a current copy of the Plans and Specifications; to the extent permitted by any Requirement of Law, granting or assigning all licenses necessary for the operation and maintenance of the Property; and cooperating in seeking and obtaining all necessary Governmental Action; provided that Lessee shall not be required to transfer or reveal any proprietary information, license or intellectual property right. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Master Lease. The Lessors agree to cooperate and execute such documents as are necessary to facilitate the foregoing. -30- 36 ARTICLE XXII ESTOPPEL CERTIFICATES Section 22.1. Estoppel Certificates. At any time and from time to time upon not less than ten (10) Business Days' prior request by the Agent Lessor or of the Lessee (the "Requesting Party"), the other party (whichever party shall have received such request, the "Certifying Party") shall furnish to the Requesting Party a certificate signed by a Responsible Officer certifying that this Master Lease is in full force and effect (or that this Master Lease is in full force and effect as modified and setting forth the modifications); the dates to which the Basic Rent and Supplemental Rent have been paid; to the best knowledge of the signer of such certificate, whether or not the Requesting Party is in default under any of its obligations hereunder and, if so, the nature of such alleged default; and such other matters under this Master Lease as the Requesting Party may reasonably request. Any such certificate furnished pursuant to this Article XXII may be relied upon by the Requesting Party, and any existing or prospective mortgagee, purchaser or lender, and any accountant or auditor, of, from or to the Requesting Party (or any Affiliate thereof). ARTICLE XXIII ACCEPTANCE OF SURRENDER No surrender to the Agent Lessor or any Lessor of this Master Lease or of the Property or of any part of any thereof or of any interest therein shall be valid or effective unless agreed to and accepted in writing by the Agent Lessor and, prior to the payment or performance of all obligations under the Loan Agreement and termination of the Commitments, the Administrative Agent, and no act by the Agent Lessor or any Lessor or any Lender or any representative or agent of any Lessor or any Lender, other than a written acceptance, shall constitute an acceptance of any such surrender. ARTICLE XXIV NO MERGER OF TITLE There shall be no merger of this Master Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, in whole or in part, (a) this Master Lease or the leasehold estate created hereby or any interest in this Master Lease or such leasehold estate, (b) the fee estate in the Property, except as may expressly be stated in a written instrument duly executed and delivered by the appropriate Person or (c) a beneficial interest in any Lessor. -31- 37 ARTICLE XXV INTENT OF THE PARTIES Section 25.1. Ownership of the Property. (a) The parties hereto intend that (i) for financial accounting purposes with respect to the Lessee, the Agent Lessor will be treated as the owner and lessor of an undivided interest in the Property and the Lessee will be treated as the lessee of the Property and (ii) for all other purposes, including federal and all state and local income tax purposes, state real estate and commercial law and bankruptcy purposes, (A) this Master Lease will be treated as a financing arrangement, (B) the Lessors and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Lessor Amounts and the outstanding principal amount of the Loans, which loans are secured by the Property and (C) the Lessee will be treated as the owner of the Property and will be entitled to all tax benefits ordinarily available to an owner of properties like the Property for such tax purposes. Nevertheless, the Lessee acknowledges and agrees that none of the Administrative Agent, the Agent Lessor, the Arranger or any Participant has made any representations or warranties to the Lessee concerning the tax, accounting or legal characteristics of the Operative Documents and that the Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate. The parties hereto will not take any position inconsistent with the intentions expressed herein. (b) It is the intent of the parties hereto that this Master Lease grants a security interest and deed of trust lien, as the case may be, on the Property to and for the benefit of the Agent Lessor for the benefit of the Lessors and the other Participants to secure the Lessee's performance under and payment of all amounts under the Lease and the other Operative Documents. Section 25.2. Liens and Security Interests. (a) Specifically, without limiting the generality of Section 25.1, the Agent Lessor and the Lessee intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting the Lessee, any Lessor, any Lender or any collection actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Lenders and the Lessors as unrelated third party lenders to the Lessee secured by the Property (it being understood that the Lessee has GRANTED, BARGAINED, SOLD, CONVEYED and CONFIRMED, and hereby GRANTS, BARGAINS, SELLS, CONVEYS and CONFIRMS, and grants a security interest in the Property (consisting of a security agreement with respect to that portion of the Property constituting personal property and deed of trust with respect to that portion of the Property constituting a leasehold and real property) IN TRUST all with POWER OF SALE to the Trustee and its successors and assigns in trust for the use and benefit of the Agent Lessor (for the benefit of the Lessors and the Lenders) to secure all Lessor Amounts and Loans advanced by the Participants for the acquisition of the Property in an original principal amount of $96,957,507.26 and maturing on November 24, 2002, together with Yield or interest, as -32- 38 applicable, thereon, and all other amounts payable under the Operative Documents in connection therewith, effective on the date hereof). (b) Specifically, but without limiting the generality of Section 25.1, the Agent Lessor and the Lessee further intend and agree that, for the purpose of securing the Obligation of the Lessee for the repayment of the above-described loans from the Lessors and the Lenders to the Lessee and to further secure the Lessee's Obligations, (i) this Master Lease shall also be deemed to be a security agreement and financing statement within the meaning of Article 9 of the Uniform Commercial Code and a real property deed of trust; (ii) the conveyance provided for hereby and in Article II of this Master Lease shall be deemed to be a grant by the Lessee to the Trustee and its successors and assigns in trust for the use and benefit of the Agent Lessor (for the benefit of the Lessors and the Lenders) of a mortgage lien and security interest in all of the right, title and interest of the Lessee in and to the Property and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property (it being understood that the Lessee hereby mortgages and warrants and grants a security interest in the Property to the Trustee and its successors and assigns in trust for the use and benefit of the Agent Lessor for the benefit of the Lessors and the Lenders to secure all Loans and Lessor Amounts advanced by the Participants for the acquisition of the Property, together with Yield or interest thereon, and all other amounts payable under the Operative Documents in connection therewith); (iii) the possession by the Agent Lessor or any of its agents of notes and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession by the secured party" for purposes of perfecting the security interest pursuant to Section 9-305 of the Uniform Commercial Code; and (iv) notifications to Persons holding such property, and acknowledgments, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of the Lessee shall be deemed to have been given for the purpose of perfecting such security interest under any Requirement of Law. The Agent Lessor and the Lessee shall, to the extent consistent with this Master Lease, take such actions and execute, deliver, file and record such other documents, financing statements and mortgages as may be necessary to ensure that, if the Lease was deemed to create a security interest in the Property in accordance with this Section 25.2, such security interest would be deemed to be a perfected security interest (subject only to Permitted Property Liens) and will be maintained as such throughout the Lease Term. (c) Specifically, but without limiting the foregoing or the generality of Section 25.1, Lessee hereby grants, bargains, sells, warrants, conveys, aliens, remises, releases, assigns, sets over and confirms to the Trustee and its successors and assigns in trust for the use and benefit of the Agent Lessor all of Lessee's right, title, and interest in and to the following (collectively, the "Mortgaged Property"): (i) the Property (as described in Schedule II attached hereto) and Appurtenant Rights relating thereto and all proceeds, both cash and noncash thereof; (ii) all easements, rights-of-way, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights, minerals, flowers, shrubs, crops, trees, timber and other emblements, and all estates, rights, titles, interests, tenements, hereditaments and appurtenances, reversions and remainders whatsoever, in any way belonging, relating or appertaining to the Property or any part thereof, whether now owned or hereafter acquired by Lessee; (iii) all right, title and interest -33- 39 of Lessee in any and all leases, rental agreements and arrangements of any sort now or hereafter affecting the Property or any portion thereof and providing for or resulting in the payment of money to Lessee for the use of the Property or any portion thereof, whether the user enjoys the Property or any portion thereof as tenant for years, licensee, tenant at sufferance or otherwise, and irrespective of whether such leases, rental agreements and arrangements be oral or written, and including any and all extensions, renewals and modifications thereof (the "Subject Leases") and guaranties of the performance or obligations of any tenants or lessees thereunder, together with all income, rents, issues, profits and revenues from the Subject Leases (including all tenant security deposits and all other tenant deposits, whether held by Lessee or in a trust account, and all other deposits and escrow funds relating to any Subject Leases), and all the estate, right, title, interest, property, possession, claim and demand whatsoever at law, as well as in equity, of Lessee of, in and to the same; provided, however, that although this Master Lease contains (and it is hereby agreed that this Master Lease contains) a present, current, unconditional and absolute assignment of all of said income, rents, issues, profits and revenues, Lessee shall collect and apply such rental payments and revenues as provided in the Lease and the other Operative Documents; (iv) all right, title and interest of Lessee in, to and under all franchise agreements, management contracts, consents, authorizations, certificates and other rights of every kind and character of any Governmental Authority affecting the Property, to the extent the same are transferable, service contracts, utility contracts, leases of equipment, documents and agreements relating to the construction of any Improvements (including any and all construction contracts, architectural contracts, engineering contracts, designs, plans, specifications, drawings, surveys, tests, reports, bonds and governmental approvals) and all other contracts, licenses and permits now or hereafter affecting the Property or any part thereof and all guaranties and warranties with respect to any of the foregoing (the "Subject Contracts"); (v) all right, title and interest of Lessee in any insurance policies or binders now or hereafter relating to the Property, including any unearned premiums thereon, as further provided in this Master Lease; (vi) all right, title and interest of Lessee in any and all awards, payments, proceeds and the right to receive the same, either before or after any foreclosure hereunder, as a result of any temporary or permanent injury or damage to, taking of or decrease in the value of the Property by reason of casualty, condemnation or otherwise as further provided in this Master Lease; (vii) all right, title and interest of Lessee in all utility, escrow and all other deposits (and all letters of credit, certificates of deposit, negotiable instruments and other rights and evidence of rights to cash) now or hereafter relating to the Property or the purchase, construction or operation thereof; (viii) all claims and causes of action arising from or otherwise related to any of the foregoing, and all rights and judgments related to any legal actions in connection with such claims or causes of action; and (ix) all Modifications (except as set forth in Article X hereof), extensions, additions, improvements, betterments, renewals and replacements, substitutions, or proceeds of any of the foregoing acquired with proceeds of any of the property described hereinabove; all of which foregoing items are hereby declared and shall be deemed to be a portion of the security for the indebtedness and Obligations herein described, a portion of the above described collateral being located upon the Land; provided that the Excluded Equipment described on Schedule III hereto are not subject to this Master Lease. -34- 40 (d) Power of Sale. Without limiting any other remedies set forth herein, in the event that a court of competent jurisdiction rules that this Master Lease constitutes a mortgage, deed of trust or other secured financing with respect to the Property as is the intent of the parties pursuant to Article XXV hereof, then the Agent Lessor and the Lessee agree that (i) the Lessee hereby grants to the Trustee and its successor and assigns in trust for the use and benefit of the Agent Lessor (for the benefit of the Lessors and the Lenders) a Lien against the Property (including the leasehold estate therein) WITH POWER OF SALE to the extent permitted by law, and that, upon the occurrence and during the continuance of any Lease Event of Default, the Trustee may, and is hereby irrevocably empowered to, with or without entry, and to the extent permitted by applicable law, sell or cause the sale of the Property or any part or parts thereof at one or more public auctions as an entirety or in parcels as the Trustee may elect free from any equity of redemption for cash, on credit, or for other property, for immediate or future delivery, and on such terms as the Trustee shall deem advantageous and proper, such sale or sales to be made in such manner and upon such notice and advertisement as may be required by applicable law, or in the absence of any such requirements, as the Trustee may deem appropriate, and to make conveyance to the purchase or purchasers. WAIVER: THE LESSEE ACKNOWLEDGES AND AGREES THAT IF IT DEFAULTS, A NON-JUDICIAL FORECLOSURE SALE OF THE PROPERTY, IF PERMITTED BY APPLICABLE LAW, MAY BE CONDUCTED WITHOUT A HEARING OF ANY KIND AND WITHOUT NOTICE BEYOND THE PUBLICATION AND POSTING OF THE NOTICE OF SALE AS REQUIRED BY LAW. THE LESSEE HEREBY WAIVES TO THE EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHTS IT MAY HAVE TO ANY SUCH HEARING AND NOTICE. Without limiting the generality of the foregoing, the Agent Lessor (or, to the extent required by law, the Trustee) may, if at the time such action may be lawful and always subject to compliance with any mandatory legal requirements, direct the Trustee to enforce its trust and to sell the Property, as an entirety or in parcels, by one sale or by several sales, held at one time or at different times, all as the Trustee acting may elect, each sale to be held at the location within the county courthouse designated for the holding of non-judicial foreclosure sales by the Commissioners Court of any county in which a part of the Property constituting real property to be sold is situated (or if no area has been so designated, then in an area within said courthouse described in the notice referred to below in this section and to be made on the first Tuesday of some month between the hours of 10:00 A.M. and 4:00 P.M. to the highest bidder for cash at public venue, after the Trustee (or a person or persons selected by the Trustee) and Agent Lessor shall have given notices of the proposed sale in the manner hereinafter set forth, and to make due conveyance to the purchaser or purchasers, with special warranty of title or no warranty of title to such purchaser or purchasers binding upon the Lessee and its heirs, executors, administrators, and successors. Such sale must begin at the time stated in the notice referred to below in this section or not later than three hours after that time. The Lessee, for itself, its heirs and assigns, and for anyone who may claim by, through or under the Lessee, hereby expressly and specifically waives all rights to a marshaling of the assets of the Lessee, including the Property, or to a sale in inverse order of alienation. -35- 41 The Trustee (or a person or persons selected by the Trustee) shall give notice of each such proposed sale by posting written notice of the time, place, and terms of sale at the courthouse door, and by filing a copy of such written notice in the office of the county clerk, of the county in which the sale is to be made at least twenty-one (21) days preceding the date of the sale. In addition to the foregoing notice or notices to be posted and filed by the Trustee (or a person or persons selected by the Trustee), the Agent Lessor shall, at least twenty-one (21) days preceding the date of sale, serve or cause to be served written notice of the proposed sale by certified mail on each debtor obligated to pay such indebtedness according to the records of the Agent Lessor. The service of such notice shall be completed five (5) days after the deposit of the notice, enclosed in a postpaid wrapper, properly addressed to each such debtor at the most recent address (which shall be within the United States of America) as shown by the records of the Agent Lessor, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. In this respect and to the full extent it may legally do so, the Lessee also expressly covenants, stipulates, and agrees that: (i) the address of the Lessee set out in Section 26.4 hereof shall be deemed and considered conclusively to be and remain at all times the most recent address of all debtors obligated to pay such indebtedness as shown by the records of the Agent Lessor, provided that such address may be changed to some other address within the United States of America from time to time only by express written notice of change thereof signed by the Lessee and actually delivered to and received by the Agent Lessor and setting forth a new address which shall be within the United States of America and which shall be deemed and considered conclusively to be and remain at all times thereafter the recent address of the Lessee as shown by the records of the Agent Lessor until changed in the manner herein provided, (ii) the records of the Agent Lessor shall not be deemed to reflect any change in the name or identity of the Lessee (to whom notice of a proposed sale shall be required to be mailed as provided for above) unless and until express written notice of such change signed by the Lessee shall have been actually delivered to and received by the Agent Lessor, and (iii) no notice of such sale or sales other than the notices hereinabove provided shall be required to be given to the Lessee (or anyone who may claim by, through or under the Lessee) or any other persons and any other notice (including, without limitation, any notice of acceleration of, or intent to accelerate, the unpaid balance of the Notes and Certificates) is expressly waived. The provisions of this section with respect to posting, serving, filing, and giving notices of sale are intended to comply with the provisions of section 51.002 of the Property Code of the State of Texas (such section 51.002 being referred to as the "Subject Statute"). In the event the requirement for any notice, or the posting, serving, filing, or giving thereof, under the Subject Statute shall be eliminated or the prescribed manner of posting, serving, filing, or giving same is modified by future amendment to the Subject Statute, the requirement for such particular notice shall be stricken from, or the manner of posting, serving, filing, or giving any notice hereunder modified in, this Master Lease in conformity with such amendment. The manner herein prescribed for posting, serving, filing, or giving any notice, other than that to be posted and filed or caused to be posted or filed by the Trustee, shall not be deemed exclusive but such notice or notices may be posted, served, filed, or given in any other manner which may be permitted by applicable law. Further, in -36- 42 relation to this Master Lease and the exercise of any power of sale by the Trustee hereunder, if the Subject Statute shall be amended or modified to require any other notice or the posting, filing, serving, or giving thereof or any statute hereafter enacted shall require any other notice or the posting, filing, serving, or giving thereof, the Trustee or the person selected by him is hereby authorized and empowered by the Lessee to give such notice or make such posting, filing, serving, or giving thereof; provided, however, the Lessee waives such other notice or the posting, filing, serving, or giving thereof to the full extent the Lessee may lawfully so do. Any provisions of this paragraph, or any amendments to or modifications of the Subject Statute to the contrary notwithstanding, the time periods provided for in the immediately preceding paragraph in respect of which the notices provided for in said paragraph are to be given shall not be shortened or eliminated as a result of any such amendment or modification. In addition to any other remedies granted in this Master Lease to the Agent Lessor or the Trustee (including specifically, but not limited to, the right to proceed against all the Property in accordance with the rights and remedies in respect to those portions of the Property which are real property pursuant to section 9.501(d) of the Uniform Commercial Code), the Agent Lessor may proceed under the Uniform Commercial Code as to all or any part of the personal property (tangible or intangible) and fixtures included with the Property (such portion of the Property being referred to herein as the "Personalty") and shall have and may exercise with respect to the Personalty all the rights, remedies, and powers of a secured party under the Uniform Commercial Code, including, without limitation, the right and power to sell, at one or more public or private sales, or otherwise dispose of, lease, or utilize the Personalty and any part or parts thereof in any manner authorized or permitted under the Uniform Commercial Code after default by a debtor, and to apply the proceeds thereof toward payment of any costs and expenses and attorney's fees and legal expenses thereby incurred by the Agent Lessor, and toward payment of the Indebtedness Hereby Secured in such order or manner as provided herein. Any requirement of said Code for reasonable notification shall be met by mailing written notice to the Lessee at its address set forth in Section 26.4 at least ten (10) days prior to the sale or other event for which such notice is required. (e) The Agent Lessor may proceed to protect and enforce its rights by a suit or suits in equity or at law, or for the specific performance of any covenant or agreement contained herein or in the Operative Documents, or in aid of the execution of any power herein or therein granted, or for the foreclosure of the deed of trust lien created by this Master Lease, or for the enforcement of any other appropriate legal or equitable remedy. Upon the bringing of any suit to foreclose the deed of trust lien created by this Master Lease or to enforce any other remedy available hereunder, the plaintiff shall be entitled as a matter of right, without notice and without giving bond to the Lessee or anyone claiming under, by or through it, and without regard to the solvency or insolvency of the Lessee or the then value of the premises, to have a receiver appointed of all the Property and of the earnings, income, rents, issues, profits and proceeds thereof, with such power as the court making such appointment shall confer, and the Lessee does hereby irrevocably consent to such appointment. -37- 43 (f) In case of any sale of the Property, or of any part thereof, pursuant to any judgment or decree of any court or otherwise in connection with the enforcement of any of the terms of this Master Lease, the principal of the Notes and Certificates, if not previously due, and the interest and Yield accrued thereon, shall at once become and be immediately due and payable; also in the case of any such sale, the Agent Lessor may bid and become the purchaser, and the purchaser or purchasers, for the purpose of making settlement for or payment of the purchase price, shall be entitled to turn in and use the Notes and Certificates and any claims for interest, Yield and Break Costs due and unpaid thereon, in order that there may be credited as paid on the purchase price the sum apportionable and applicable to the Notes and Certificates, including principal, interest, Yield and Break Costs thereof, out of the net proceeds of such sale after allowing for the proportion of the total purchase price required to be paid in actual cash. If at any foreclosure proceeding the Property shall be sold for a sum less than the total amount of indebtedness for which judgment is therein given, the judgment creditor shall be entitled to the entry of a deficiency decree against the Lessee and against the property of the Lessee for the amount of such deficiency. THE LESSEE, FOR ITSELF AND ON BEHALF OF ALL FUTURE OWNERS OF THE PROPERTY, WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RIGHTS AND BENEFITS UNDER THE PROVISIONS OF SECTIONS 51.003, 51.004 AND 51.005 OF THE TEXAS PROPERTY CODE, AS MAY BE AMENDED FROM TIME TO TIME. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IT IS AGREED THAT THE BID PRICE FOR THE PROPERTY WHICH IS ACCEPTED BY THE TRUSTEE, AGENT LESSOR OR ANY SUCCESSOR OR SUBSTITUTE SECURITY TRUSTEE AT ANY FORECLOSURE SALE OF THE PROPERTY SHALL BE CONCLUSIVELY PRESUMED TO BE THE FAIR MARKET VALUE OF THE PROPERTY. Section 25.3. Security Agreement. This Master Lease shall constitute a security agreement as defined in the Uniform Commercial Code and the Guarantor hereby grants to the Agent Lessor a security interest within the meaning of the Uniform Commercial Code in favor of the Agent Lessor on the Property and any proceeds thereof and other rights described in the granting clauses of this Article XXV. Section 25.4. FIXTURE FILING. CERTAIN OF THE PROPERTY IS OR WILL BECOME "FIXTURES" (AS THAT TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE) ON THE REAL ESTATE DESCRIBED IN SCHEDULE I ATTACHED HERETO AND THIS MASTER LEASE, UPON BEING FILED FOR RECORD IN THE REAL ESTATE RECORDS SHALL OPERATE ALSO AS A FINANCING STATEMENT UPON SUCH OF THE GRANTED PROPERTY WHICH IS OR MAY BECOME FIXTURES. THE LESSEE HAS AN INTEREST OF RECORD IN THE GRANTED PROPERTY. Section 25.5. Successor Trustees. In the case of the absence of the Trustee from the State of Texas, or his death, refusal, or failure to act, or in the event the Agent Lessor should elect at any time (with or without cause) to remove the Trustee then acting, a successor or substitute may be named, constituted, and appointed by the Agent Lessor, without further formality than an appointment and designation in writing, which appointment and designation shall be full evidence of the right and authority to make the same and of all facts therein recited; and this conveyance shall vest in the successor or substitute Trustee (herein, the "Successor or Substitute Trustee") the title, powers, and duties -38- 44 conferred on the Trustee named herein and the conveyance by the Substitute or Successor Trustee to the purchaser at any sale made pursuant hereto shall be valid and effective as fully as hereinabove provided in the case of a conveyance by the Trustee. Such right to appoint a Successor or Substitute Trustee shall exist as often as and whenever the Trustee, original, successor, or substitute, cannot or will not act or has been removed. The Lessee specifically covenants and stipulates that: the recitals in the conveyance made to the purchaser either by the Trustee or any Successor or Substitute Trustee, shall be full proof and evidence of the matters therein stated as to such purchaser; no other proof shall be requisite of the request by the Agent Lessor on the Trustee or on any Successor or Substitute Trustee to enforce this Master Lease, or the due, timely, and proper posting, filing, and giving of all notices and making of the sale, or any particulars thereof, or of the inability, refusal, or failure of the Trustee or any Successor or Substitute Trustee to act, or of the removal of the Trustee or any Substitute or Successor Trustee, or of the appointment of a Successor or Substitute Trustee, as herein provided, either as to the legality of his appointment or otherwise, or of the contingencies which brought about the failure or inability of the Trustee or any Successor or Substitute Trustee to act or of its removal, as the case may be; all prerequisites of said sale shall be presumed to have been performed; and any sale made under the powers granted herein shall be a perpetual bar against the Lessee, its heirs and assigns and anyone who claims by, through or under the Lessee. ARTICLE XXVI MISCELLANEOUS Section 26.1. Severability; Perpetuities. If any term or provision of this Master Lease or any application thereof shall be declared invalid or unenforceable, the remainder of this Master Lease and any other application of such term or provision shall not be affected thereby. If any right or option of the Lessee provided in this Master Lease, including any right or option described in Article XIV, XV, XVIII or XX, would, in the absence of the limitation imposed by this sentence, be invalid or unenforceable as being in violation of the rule against perpetuities or any other rule of law relating to the vesting of an interest in or the suspension of the power of alienation of property, then such right or option shall be exercisable only during the period which shall end twenty-one (21) years after the date of death of the last survivor of the descendants of John F. Kennedy, the former President of the United States, Henry Ford, the deceased automobile manufacturer, and John D. Rockefeller, the founder of the Standard Oil Company, known to be alive on the date of the execution, acknowledgment and delivery of this Master Lease. Section 26.2. Amendments and Modifications. Subject to the requirements, restrictions and conditions set forth in Section 15.5 of the Participation Agreement, neither this Master Lease nor any provision hereof may be amended, waived, discharged or terminated except by an instrument in writing in recordable form signed by the parties hereto. -39- 45 Section 26.3. No Waiver. No failure by the Agent Lessor, the Lessee, the Administrative Agent or any Participant to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Master Lease, and this Master Lease shall continue in full force and effect with respect to any other then existing or subsequent default. Section 26.4. Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing and directed to the address set forth on the signature page of the Participation Agreement, and deemed received in accordance with the provisions of Section 15.3 of the Participation Agreement. The Guarantor may designate a new address or facsimile number for receipt of notices hereunder by giving notice of such change to the Administrative Agent in the manner and in accordance with the provisions of Section 15.3 of the Participation Agreement. Section 26.5. Successors and Assigns. All the terms and provisions of this Master Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 26.6. Headings and Table of Contents. The headings and table of contents in this Master Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Section 26.7. Counterparts. This Master Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same instrument. SECTION 26.8. GOVERNING LAW. THIS MASTER LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS; provided that the creation of the deed of trust contemplated by Section 25.2 hereof, the perfection of the Lien and security interest in the Property and the rights and remedies of the Trustee and the Agent Lessor with respect to the Property, as provided herein and by the laws of the State of Texas, shall be governed by and construed in accordance with the internal laws of the State of Texas without regard to principles of conflicts of laws. Section 26.9. Original Lease. The single executed original of this Master Lease marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof and containing the receipt thereof of Bank of Montreal, as Administrative Agent for the Lenders therefor on or following the signature page thereof shall be the Original Executed Counterpart of this Master Lease (the "Original Executed Counterpart"). To the extent that this Master Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in -40- 46 this Master Lease may be created through the transfer or possession of any counterpart other than the Original Executed Counterpart. Section 26.10. Time of Essence. With respect to each of the Lessee's and the Agent Lessor's obligations hereunder, time is of the essence, and each such party hereby acknowledges and confirms the foregoing. Section 26.11. Memorandum of Lease. On the Acquisition Date, the Lessee and the Agent Lessor agree to execute the Memorandum of Lease attached hereto as Exhibit A and to cause the same to be recorded in the office of the Recorder for Bowie County, Texas. Section 26.12. The Trustee. The Trustee is appointed hereunder, and joins in this Master Lease, solely for the purpose of effecting the intentions of the parties set forth in Section 25.2 hereof in the State of Texas. The Trustee shall at all times be under the control of, and act pursuant to the directions of, the Agent Lessor, and the Lessee shall have no power to control or direct the Trustee. The Trustee may be removed or replaced in the discretion of the Agent Lessor. The Lessee shall pay all fees and expenses of the Trustee in connection with this Master Lease and the transactions contemplated hereby, including all fees and expenses incurred in the exercise of any remedies hereunder. Section 26.13. Usury. It is the intent of Lessee and the Participants and all other parties to the Operative Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect. All agreements between the Participants and Lessee (or any other party liable with respect to the indebtedness under the Operative Documents) are hereby limited by the provisions of this paragraph, which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency shall the interest contracted for, charged or received under the Operative Documents exceed the maximum rate of interest lawfully permitted to be charged under Applicable Law (the "Maximum Rate"). If, from any possible construction of any Operative Document, interest would otherwise be payable in excess of the Maximum Rate, any such construction shall be subject to the provisions of this paragraph and such Operative Document shall be automatically reformed and the interest payable shall be automatically reduced to the Maximum Rate, without the necessity of execution of any amendment of new document. If the holder hereof shall ever receive anything of value which is characterized as interest under Applicable Law and which would apart from this provision be in excess of the Maximum Rate, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied as a credit against the then unpaid amounts due under the Operative Documents or refunded promptly to the party paying such amount. The right to accelerate payment of any indebtedness created under the Operative Documents does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and the Participants do not intend to charge or receive any unearned interest in the event of acceleration. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -41- 47 Non-Liability of Trustee. The Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable to Grantor under any circumstances whatsoever, nor shall Trustee be personally liable, in case of entry by him or her or anyone entering by virtue of the powers herein granted upon the Mortgaged Premises, for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Premises, or otherwise. The Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by the Trustee hereunder, believed by the Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for expenses incurred by him or her in the performance of his or her duties hereunder and to reasonable compensation for such of his or her services hereunder as shall be rendered. Grantor will, from time to time, pay the compensation due to Trustee hereunder and reimburse Trustee for, and save him or her harmless from and against, any and all liability and expenses which may be incurred by him or her in the performance of his or her duties hereunder. For purposes of this paragraph the term "Trustee" shall also include any person appointed substitute trustee pursuant to the provisions of this Deed of Trust. IN WITNESS WHEREOF, the parties have caused this Master Lease to be duly executed and delivered as of the date first above written. ALUMAX MILL PRODUCTS, INC., a Delaware corporation, as Lessee By: /s/ Marc Crown ------------------------------------ Marc Crown Its Assistant Treasurer BMO LEASING (U.S.), INC., a Delaware corporation, as Agent Lessor By: /s/ Ernest C. Cechetto ------------------------------------ Ernest C. Cechetto Its Managing Director /s/ Ward Williford ---------------------------------------- Ward Williford, a Deed of Trust Trustee -42- 48 THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART, Receipt of this original counterpart of the foregoing Lease is hereby acknowledged as of the date hereof. BANK OF MONTREAL, as Administrative Agent for the Lenders By: /s/ Ernest C. Cechetto ------------------------------------ Ernest C. Cechetto Its Managing Director -43- 49 STATE OF GEORGIA ) ) SS. COUNTY OF FULTON ) I, the undersigned, a Notary Public in and for said County, in the State aforesaid, do hereby certify that Marc Crown, Assistant Treasurer of ALUMAX MILL PRODUCTS, a Delaware corporation as Lessee aforesaid, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such Assistant Treasurer, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act as the free and voluntary act and deed of said corporation for the uses and purposes therein set forth. Given under my hand and notarial seal, this 25th day of November, 1997. /s/ Cynthia A. Jordan ----------------------------------- Notary Public Cynthia A. Jordan ----------------------------------- (TYPE OR PRINT NAME) (SEAL) Commission Expires: Notary Public, Gwinnett County, Georgia My Commission Expires September 8, 1998 - --------------------------------------- 50 STATE OF GEORGIA ) ) SS. COUNTY OF FULTON ) I, the undersigned, a Notary Public in and for said County, in the State aforesaid, do hereby certify that Ernest C. Cechetto, Managing Director of BANK OF MONTREAL, a Canadian chartered bank, as Administrative Agent aforesaid, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such Managing Director, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act and as the free and voluntary act and deed of said Administrative Agent for the uses and purposes therein set forth. Given under my hand and notarial seal, this 25th day of November, 1997. /s/ Cynthia A. Jordan ----------------------------------- Notary Public Cynthia A. Jordan ----------------------------------- (TYPE OR PRINT NAME) (SEAL) Commission Expires: Notary Public, Gwinnett County, Georgia My Commission Expires September 8, 1998 - --------------------------------------- -2- 51 STATE OF GEORGIA ) ) SS. COUNTY OF FULTON ) I, the undersigned, a Notary Public in and for said County, in the State aforesaid, do hereby certify that Ernest C. Cechetto, Managing Director of BMO LEASING (U.S.) INC., a Delaware corporation, as Agent Lessor aforesaid, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such Managing Director, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act and as the free and voluntary act and deed of said Agent Lessor for the uses and purposes therein set forth. Given under my hand and notarial seal, this 25th day of November, 1997. /s/ Cynthia A. Jordan ----------------------------------- Notary Public Cynthia A. Jordan ----------------------------------- (TYPE OR PRINT NAME) (SEAL) Commission Expires: Notary Public, Gwinnett County, Georgia My Commission Expires September 8, 1998 - --------------------------------------- -2- 52 STATE OF TEXAS ) ) SS. COUNTY OF DALLAS ) This instrument was acknowledged before me on November 24, 1997, by Ward Williford, as Trustee aforesaid, who, being duly sworn, did say that he executed this instrument as his free act and deed on behalf of said corporation. /s/ Gwen G. Behrens -------------------------------------------- Notary Public -------------------------------------------- Print Name of Notary here (SEAL) Commission Expires: -------------------------- GWEN G. BEHRENS Notary Public State of Texas Commission Expires 8-18-98 - --------------------------- -------------------------- 53 SCHEDULE I BEING part of the George Brinlee Headright Survey, A-18, and being a portion of a certain 21.255 acre tract of land described as Tract No. 2 and a portion of a certain 69.036 acre tract of land described as Tract No. 3, all in the Deed from R.P. Cheatham and wife, Clara Mae Cheatham to Texarkana Industrial Foundation, Inc., dated August 25, 1972, recorded in Volume 549, pages 768-772 of the Deed Records of Bowie County, Texas and being more fully described as follows: BEGINNING at an iron pipe for corner at the northwest corner of said 21.255 acre tract, said point being on the south right of way line of Interstate Highway No. 30; THENCE South 00 degrees 39 minutes 34 seconds East with the east right of way line of an old public road, same being a fence line, and being the west line of said 21.255 acre tract, 468.53 feet to an angle point; THENCE South 00 degrees 40 minutes 34 seconds West with the east right of way line of said public road, same being a fence line, and being the west line of said 21.255 acre tract, 215.18 feet to an angle point; THENCE South 02 degrees 31 minutes 22 seconds West with the east right of way line of said public road, same being the west line of said 21.255 acre tract and being along a fence line, 515.51 feet to an angle point; THENCE South 03 degrees 27 minutes 35 seconds West with the east right of way line of said public road, same being the west line of said 21.255 acre tract and being along a fence line, 287.11 feet to an iron pipe for corner on the north right of way line of Brinlee Road, said point being in a curve to the left; THENCE southeasterly with the right of way line, same being the arc of a curve having a radius of 522.96 feet through a central angle of 17 degrees 24 minutes 30 seconds for a distance of 158.89 feet to a point at the end of said curve; THENCE North 88 degrees 18 minutes 18 seconds East with the north right of way line of said Brinlee Road, 668.48 feet to an iron pipe for corner; THENCE North 89 degrees 27 minutes 30 seconds East along the north right of way line of said Brinlee Road, same being a fence line, 826.09 feet to a point for corner; THENCE North 00 degrees 32 minutes 30 seconds, 1336.21 feet to a point for corner on the north right of way line of Interstate Highway No. 30; THENCE North 82 degrees 15 minutes 10 seconds West with the south right of way line of said Interstate Highway No. 30, 796.09 feet to an angle point in the said right of way line; THENCE North 85 degrees 07 minutes 10 seconds West, continuing with said Interstate Highway No. 30 right of way line, 799.16 feet to the POINT OF BEGINNING and containing 52.728 acres of land, more or less. 54 SCHEDULE II DESCRIPTION OF PROPERTY
ITEM # DESCRIPTION RCN EUL FMV - ------ ----------- --- --- --- 1 SCALPER (FOUNDATION) 194,550 40 121,267 2 SCALPER (EQUIPMENT) 3,996,099 25 2,490,855 3 PREHEAT FURNACES (FOUNDATION) 526,265 40 328,032 4 PREHEAT FURNACES (ELECTRICAL) 590,465 25 368,050 5 PREHEAT FURNACES (MAIN UNIT) 3,654,733 18 2,278,074 6 PREHEAT FURNACES (CHARGING EQUIP) 773,988 15 482,443 7 PREHEAT FURNACES (REFRACTORY) 417,436 6 260,197 8 HOT MILL (FOUNDATION) 3,840,677 40 2,393,977 9 HOT MILL (PULPIT) 126,973 35 79,145 10 HOT MILL (MAIN EQUIPMENT) 38,496,775 33 23,995,870 11 HOT MILL (SWITCHGEAR) 34,655 30 21,601 12 HOT MILL (FEEDBACK DEVICE) 51,061 20 31,827 13 ROLL GRINDER (FOUNDATION) 124,162 40 77,393 14 ROLL GRINDER (MAIN UNIT) 1,298,741 25 809,534 15 COLD MILL (FOUNDATION) 2,211,455 40 1,378,447 16 COLD MILL (MAIN UNIT) 22,212,926 33 13,845,796 17 COLD MILL (SWITCHGEAR) 161,935 30 100,938 18 EDGE TRIM LINE (FOUNDATION) 562,961 40 350,906 19 EDGE TRIM LINE (MAIN UNIT) 3,118,013 18 1,943,525 20 TENSION LEVELLER (FOUNDATION) 756,776 40 471,715 21 TENSION LEVELLER 7,410,632 18 4,619,207 22 TENSION LEVELLER (PC CONTROL) 569,506 12 354,986 23 ANNEALING FURNACES (FOUNDATION) 313,149 40 195,193 24 ANNEALING FURNACES (SHELL) 641,623 25 399,937 25 ANNEALING FURNACES (CONTROL ZONE) 991,144 20 617,801 26 ANNEALING FURNACES (MECHANICAL) 2,159,229 18 1,345,894 27 ANNEALING FURNACES (ANALYZER) 60,455 12 37,683 28 ANNEALING FURNACES (REFRACTORY) 745,383 6 464,613 29 COATING LINE (FOUNDATION) 288,648 40 179,920 30 COATING LINE (EQUIPMENT) 5,414,829 12 3,375,180 31 COATING LINE (USED) 9,887,849 12 6,163,310 32 CRANES 2,824,259 25 1,760,422 33 CRANES 185,943 20 115,902 34 MOBILE EQUIPMENT 259,953 22 162,034 35 PACKING LINE EQUIPMENT 182,530 18 113,775 36 DATA PROCESSING 463,468 8 288,890 37 MISC PURCHASES (TANKS) 218,262 20 136,047 38 MISC PURCHASES 56,459 18 35,192 39 MISC PURCHASES (MISC) 1,804,835 12 1,124,992 40 MISC PURCHASES (TEL) 228,627 10 142,508 41 PLANT GROUNDS 235,677 40 134,261
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ITEM # DESCRIPTION RCN EUL FMV - ------ ----------- --- --- --- 42 PLANT GROUNDS 62,094 35 35,374 43 PLANT GROUNDS 57,375 18 32,686 44 PLANT GROUNDS 535,103 12 304,840 45 BUILDINGS AND FACILITIES 4,431,437 40 2,524,522 46 BUILDINGS AND FACILITIES 1,178,335 30 671,279 47 BUILDINGS AND FACILITIES 19,145 25 10,907 48 BUILDINGS AND FACILITIES 45,904 22 26,151 49 ELECTRICAL 1,295,473 30 738,011 50 ELECTRICAL 7,617 20 4,339 51 NAT GAS DIST 106,955 30 60,931 52 CITY WATER SYSTEM 48,938 30 27,879 53 COOLING WATER SYSTEM 263,031 35 149,845 54 COOLING WATER SYSTEM 89,594 25 51,040 55 COOLING WATER SYSTEM 447,958 20 255,195 56 COOLING WATER SYSTEM 86,216 12 49,116 57 COMPRESSED AIR SYSTEM 239,031 30 136,172 58 COMPRESSED AIR SYSTEM 6,939 25 3,953 59 COMPRESSED AIR SYSTEM 143,942 15 82,001 60 FIRE PROTECTION SYSTEM 457,633 30 260,706 61 SANITARY SEWER SYSTEM 71,604 30 40,792 NON SEVERABLE IMPROVEMENTS 62 SCALPER ADDITIONS 803,378 500,763 63 PREHEAT ADDITIONS 2,496,269 1,555,978 64 HOT MILL ADDITIONS 5,334,751 3,325,265 65 ROLL SHOP ADDITIONS 167,801 104,594 66 COLD MILL ADDITIONS 4,029,102 2,511,426 67 EDGE TRIM LINE ADDITIONS 194,506 121,240 68 LEVELLER ADDITIONS 1,442,483 899,131 69 ANNEALING ADDITIONS 4,886,674 3,045,969 70 WASTE WATER IMPROVEMENTS 438,455 273,298 71 PACKOUT ADDITIONS 299,280 186,548 72 PAINT/COATING LINE ADDITIONS 11,853,319 7,388,429
Page 2 56 SCHEDULE III DESCRIPTION OF EXCLUDED EQUIPMENT 71 ROLL SHOP 2,051,537 1,313,001 72 SCALPER 105,070 67,246 73 PREHEAT 3,399,398 2,175,644 74 HOT MILL 3,757,306 2,404,707 75 COLD MILL 3,550,296 2,144,218 76 ANNEALERS 4,505,015 2,883,248 77 FINISHING 363,931 232,919 78 EDGE TRIM LINE 208,370 133,359 79 PRO ECO LEVELLER 1,423,350 910,956 80 PAINT/COAT LINE 169,543 108,509 81 PACKOUT 292,476 187,187 82 HERR-VOSS LEVELLER 2,500,000 1,600,021 83 STAMCO SLITTER 1,250,000 800,011 84 STAMCO HVY G LEVELLER 2,500,000 1,600,021 85 CIN SLITTER 2,000,000 1,280,017 86 HUNTER LEVELLER 3,000,000 1,920,025
57 SCHEDULE IV FIXED RENT PAYMENTS
FIXED RENT OUTSTANDING OUTSTANDING PAYMENT DATE LOANS LESSOR AMOUNTS BALANCE DUE - ----------------- -------------- -------------- -------------- November 24, 1998 $81,109,802.57 $14,878,129.61 $95,987,932.19 November 24, 1999 $80,290,511.64 $14,727,845.48 $95,018,357.11 November 24, 2000 $79,471,220.70 $14,577,561.34 $94,048,782.04 November 24, 2001 $78,651,929.77 $14,427,277.20 $93,079,206.97 November 24, 2002 $77,832,638.83 $14,276,993.06 $92,109,631.90
EX-10.14 4 AMEND #1 TO ELECTRIC SERVICE AGREEMENT 1 EXHIBIT 10.14 AMENDMENT NO. 1 TO ELECTRIC SERVICE AGREEMENT DATED NOVEMBER 1, 1994 This AMENDMENT No. 1 TO ELECTRIC SERVICE AGREEMENT DATED NOVEMBER 11, 1994, made this 10th day of October , 1997, between EASTALCO ALUMINUM COMPANY, a Delaware corporation and a wholly-owned subsidiary of Alumax Inc. ("Eastalco") and THE POTOMAC EDISON COMPANY, d.b.a. Allegheny Power, a Maryland and Virginia corporation and a wholly-owned subsidiary of Allegheny Energy, Inc. ("Potomac"). RECITALS 1. Eastalco and Potomac are parties to an Electric Service Agreement dated November 11, 1994, (the "ESA" or the "Agreement") whereby Potomac, a public utility engaged in the production, transmission, distribution and sale of electric power and energy, sells such electric power and energy to Eastalco at its aluminum reduction facility near Buckeystown Station, Frederick County, Maryland. 2. The initial term of the ESA is for a period of seven years commencing April 1, 1993, with an automatic renewal for a first subsequent term of eighteen months which would expire on September 30, 2001, unless either party gives written notice of cancellation prior to April 1, 1998. Thereafter, the ESA shall be renewed automatically for additional subsequent terms of one year each, unless either party gives written notice of cancellation at least thirty months prior to the expiration of any subsequent term. 3. Eastalco and Potomac have engaged in negotiations and reached agreement to amend and extend the ESA for a fixed term through March 31, 2003, with certain optional renewals. Eastalco and Potomac, therefore, reaffirm the ESA in its entirety, amended as described below. AGREEMENT 1. DEFINITIONS.. In addition to the terms defined above, the terms capitalized below shall have the meaning set forth in the ESA, as amended by this Amendment No. 1. 2. MODIFICATION OF TERMS OF THE ESA. A. Paragraph 2. TERM OF AGREEMENT. The provision shall be 1 2 deleted and replaced with: 2. TERM OF AGREEMENT. This Agreement shall become effective at 12:01 a.m., January 1, 1998, or at 12:01 a.m. on the first day of the first month following receipt of all required final orders by regulatory agencies (i) approving Amendment No. 1 to the Agreement and/or (ii) approving any tariffs or agreements necessitated by Amendment No. 1, whichever is later. In the event that any necessary approvals are not received prior to January 1, 1998, billing will be made in accordance with the operation and billing provisions of this Agreement as amended by Amendment No. 1, with an appropriate adjustment to reflect the actual effective date being made following approval. In the event that any final orders approving Amendment No. 1 contain conditions which materially affect the rights and responsibilities of either party, the affected party at its sole option may declare Amendment No. 1 terminated. If Amendment No. 1 is terminated as described above, or if Amendment No. 1 does not receive all required final orders as described above, the original unamended Agreement shall remain in effect, except that the written notice of cancellation required by Paragraph 2 to be given prior to April 1, 1998, shall be required to be given prior to April 1, 1998, or sixty (60) days after a final order approving Amendment No. 1 containing conditions which materially affect the rights and responsibilities of either party or a final decision denying approval of Amendment No. 1, whichever is later. Unless terminated earlier pursuant to Sub-Paragraph 3.2.1. 3, Sub-Paragraph 14.17, Sub-Paragraph 14.18 or Sub-Paragraph 14.19, this Agreement will expire at 12: 01 a.m., April 1, 2003, provided one or both parties give written notice of cancellation at least twelve (12) months prior to expiration. If neither party gives such notice, following the initial term this Agreement will be renewed annually for subsequent terms of twelve (12) months unless either party gives written notice of cancellation at least six (6) months prior to the expiration of any term. The parties intend for the services, prices and other terms herein to be effective notwithstanding the availability to Eastalco of retail access prior to April 1, 2003. B. Sub-Paragraph 3.1. SALE OF SYSTEM CAPACITY. The provisions of Sub-Paragraphs 3.1., 3.1.1., 3.1.2., and 3.1.3. shall be deleted and replaced with the following: 2 3 3.1. SALE OF SYSTEM CAPACITY. Unless otherwise excused under the terms of this Agreement, during all months of the year, Potomac shall make available to Eastalco at least 110,000 kilowatts of System Capacity during Load Reduction Periods and 350,000 kilowatts during other hours. C. Sub-Paragraph 3.2.1.1. shall be amended by deleting "System Demand" and inserting "Billing Capacity" in its place. D. Sub-Paragraph 3.2.1.2. CAPACITY CHARGE. Sub-Paragraph 3.2.1.2. shall be deleted in its entirety and the following inserted in its place: 3.2.1.2. An Additional Capacity Charge shall be billed as follows: 1998 $135,000 per month 1999 $138,000 per month 2000 $119,000 per month 2001 and after $116,000 per month
E. Sub-Paragraph 3.2.1.3. Capacity Charge. The following is added following Sub-Paragraph 3.2.1.2.: 3.2.1.3. The Capacity Charge and Additional Capacity Charge shall remain in effect until modified pursuant to an agreement or proceeding before the Maryland Public Service Commission pursuant to which base rates are generally adjusted. If in said agreement or proceeding the base rates for Eastalco are not established pursuant to the Stipulation Regarding the Establishment of Rates Under the Power Contract Between Potomac Edison and Eastalco dated June 15, 1993 (the "Stipulation") and the result is less favorable to Eastalco than rates would be if established on such an allocation, then Eastalco shall have the option to terminate this Agreement on six (6) months written notice given within twelve (12) months after the order becomes final, except that no such termination shall be effective before March 31, 2000. Nothing herein shall prevent Eastalco from providing such notice more than six (6) months prior to March 31, 2000, but termination will not become effective until March 31, 2000. Until termination of this Agreement by Eastalco is effective, base rates for Eastalco shall be as ordered in such order. F. Sub-Paragraph 3.2.2. BILLING CAPACITY. Sub-Paragraph 3.2.2. shall be deleted in its entirety and the following inserted in its place: 3 4 3.2.2. BILLING CAPACITY. For all months, Billing Capacity shall be the greatest of: 3.2.2.1. .30 times (the sum of System Energy and Off-System Energy divided by the number of hours in the Billing Period); or, 3.2.2.2. .25 times the Maximum Instantaneous Demand; or, 3.2.2.3. 110,000 kilowatts plus any Undermodulation Increment pursuant to Sub-Paragraph 7.2.2.2.; or, 3.2.2.4. The highest result established by the application of Sub-Paragraphs 3.2.2.1. through 3.2.2.3. above during any of the three preceding months, except that only months billed after Amendment No. 1 becomes effective may be used in this calculation. G. Sub-Paragraph 3.4. UNDERMODULATION CHARGE. Shall be deleted in its entirety. H. Sub-Paragraph 4.1. SALE OF CONTRACT ENERGY The provisions of Sub-Paragraph 4.1 shall be amended by deleting the first sentence and by deleting "310,000" wherever it appears and inserting "350,000" in its place. I. Sub-Paragraph 4.2.2. PRICE OF SYSTEM ENERGY. The provisions of Sub-Paragraph 4.2.2. shall be amended to read: 4.2.2. PRICE OF SYSTEM ENERGY The price payable for System Energy shall be the sum of the amounts set forth in Sub-Paragraphs 4.2.2.1., 4.2.2.2., and 4.2.3. J. Sub-Paragraph 4.2.2.2. The provisions of Sub-Paragraph 4.2.2.2. shall be amended to read: 4.2.2.2. The Incremental Energy multiplied by the Incremental Energy Charge which shall mean the greater of: (i) the hourly incremental Actual Cost of energy to Potomac, before sales to non-affiliated utilities incurred during the hours of Incremental Energy use during the Billing Period, plus 3.20 mills per kilowatt-hour (for billing periods during calendar years 1998 and 1999) or 2.85 mills per kilowatt-hour (for billing periods during calendar years 2000 through the term of this Agreement), adjusted for Maryland gross receipts tax (or such other applicable tax as may be enacted) and applicable siting charges, or (ii) the Base Energy Charge. K. Sub-Paragraph 4.2.2.3. The following is added following 4 5 Sub-Paragraph 4.2.2.2.: 4.2.2.3. In the event that Potomac's fuel rate (or any separately stated cost recovery method which may take its place) ceases to become a separately stated rate and becomes part of base rates in Maryland, the rate included with base rates shall be the effective rate for purposes of Sub-Paragraph 4.2.2.1. L. Sub-Paragraph 4.4. PROFIT SHARING AGREEMENT shall be amended by adding as its first sentence: "The Profit Sharing Surcharge shall be effective through March 31, 2000, but shall cease thereafter." M. Sub-Paragraph 4.4.2. shall be amended by deleting all but the first sentence. N. Paragraph 6. SALE OF IDLE CAPACITY. Shall be amended by deleting "240,000" or "130,000" or "200,000" wherever they appear and inserting "110,000" in their places. O. Sub-Paragraph 7.1. DEFINITION OF LOAD REDUCTION PERIOD. Sub-Paragraph 7.1 shall be deleted in its entirety and the following inserted in its place: 7.1 DEFINITION OF LOAD REDUCTION PERIOD . Potomac may designate as a Load Reduction Period any number of hours during any day of any month that Potomac reasonably believes will be a day on which exists the potential for a shortage of generating capacity dedicated to serving regulated load (including capacity owned or leased by Allegheny subsidiaries Potomac, Monongahela Power Company, and West Penn Power Company and capacity obtained under PURPA or similar obligations); provided that (i) the designated hours shall be only between 7 a.m. and 10 p.m., Monday through Saturday, and (ii) the total number of Load Reduction Period hours shall not exceed sixty (60) in any calendar week or five hundred forty (540) in any calendar year. Potomac shall not use a Load Reduction Period for economic purposes. P. Sub-Paragraph 7.2. NOTICE OF REDUCED LOAD. SubParagraph 7.2 shall be amended by deleting the existing provision in its entirety and inserting the following in its place: 7.2. NOTICE OF REDUCE LOAD. 7.2.1. Potomac will give notice of a Load Reduction Period to Eastalco no later than two hours prior to and no earlier than four hours prior to the beginning of 5 6 the Load Reduction Period. Q. Sub-Paragraph 7.2.2. NOTICE OF RECUR LOAD. The following is added following Sub-Paragraph 7.2.1.: 7.2.2. Together with notice of a Load Reduction Period, Potomac will provide a non-binding estimate of the total number of kilowatts by which Eastalco will be required to reduce its load supplied by Potomac, and a nonbinding estimate of the number of available kilowatts of Off-System Power and the price of such Off-System Power Potomac will make available to Eastalco during the designated Load Reduction Period. Eastalco will have the option of reducing its load as metered or purchasing Off-System Power (as specified in Paragraph 10) or any combination thereof to reduce its load the total number of kilowatts designated by Potomac in the notice. Eastalco will notify Potomac of the number of kilowatts it will reduce its load as metered, if any, (referred to as the "Committed Load Modulation") within two hours of the notice of a Load Reduction Period. The Committed Load Modulation will reduce the amount of Off-System Power secured by Potomac. Eastalco will reduce its load as metered by the number of kilowatts it designates through changes not exceeding 50,000 kilowatts every ten minutes, unless requested by Potomac to reduce its load in larger blocks. 7.2.2.1. If Eastalco fails to notify Potomac of its selected option as specified in Sub-Paragraph 7.2.2., then Eastalco will be deemed to have agreed to zero Committed Load Modulation and Potomac will provide Off-System Power in an amount up to Eastalco's actual load during the Load Reduction Period, less 110,000 kilowatts. 7.2.2.2. If Eastalco notifies Potomac that it will reduce its load as metered but fails to achieve the Committed Load Modulation, then an amount equal to the greatest undermodulation during the entire Load Reduction Period for the affected Billing Period will be added to the Billing Capacity (the "Undermodulation Increment"). If there is more than one Load Reduction Period during the affected Billing Period, additions of any Undermodulation Increments will be cumulative. R. Paragraph 8. POTENTIAL PEAK HOURS. shall be deleted in its entirety. 6 7 S. Sub-Paragraph 9.1.2. EMERGENCY FOR PRESERVATION OF SYSTEM INTEGRITY. shall be amended by deleting "400,000" and inserting "560,000' in its place. T. Sub-Paragraph 9.1.4. RESTORATION TO NORMAL OPERATIONS. shall be amended by deleting "shall not declare any hour in a Recovery Period to be a Potential Peak Hour nor shall it declare another emergency under Sub-Paragraph 9.1.2. or 9.2.; however, Potomac may declare Load Reduction Periods that include hours in a Recovery Period" and replacing it with "may declare another emergency under 9.1.2. or 9.2. and Load Reduction Periods that include hours in a Recovery Period, but Eastalco will only be obligated to reduce load to the extent Potomac actually delivers Off-System Power under Paragraph 10.1" U. Paragraph 10. OPERATIONS DURING LOAD REDUCTION PERIODS AND FIRM LOAD EMERGENCIES. shall be amended by deleting "200,000" and replacing it with "110,000." V. Sub-Paragraph 10.1. OBLIGATION OF POTOMAC. The provisions of Sub-Paragraph 10.1 shall be amended by deleting "100,000 kilowatt-hours per hour of the difference between Eastalco's average load of the previous week and 200,000 kilowatt-hours per hour" and inserting "240,000 kilowatt-hours per hour." W. Sub-Paragraph 10.2. PRICING. shall be deleted in its entirety and the following inserted in its place: 10.2. PRICING Potomac agrees to furnish Eastalco with the lowest cost Off-System Power available and deliverable. The price payable by Eastalco for Off-System Power during Load Reduction Periods shall be the Actual Cost to Potomac plus 2 mills per kilowatt-hour. The price payable by Eastalco for Off-System Power during a Firm Load Emergency shall be Potomac's Actual Cost. The price in either event shall include gross receipts tax (or such other applicable tax as may be enacted), if applicable. Potomac shall furnish Eastalco with a nonbinding estimate of such price at the time it gives notice of a Load Reduction Period under Sub-Paragraph 7.2. or a Firm Load Emergency under Sub-Paragraph 9.2.4. If Eastalco does not respond to such notice, Potomac will provide Off-System Power (to the extent available and deliverable) in an amount up to Eastalco's actual load during the Firm Load Emergency or Load Reduction Period, less 110,000 kilowatts. X. Sub-Paragraph 10.3 . INSUFFICIENT POWER. Shall be amended by deleting "shall not declare any hour in a Recovery Period to be a Potential Peak Hour nor shall it declare another 7 8 emergency under Sub-Paragraph 9.1.2. or 9.2.; however, Potomac may declare Load Reduction Periods that include hours in a Recovery Period" and replacing it with "may declare another emergency under 9.1.2. or 9.2. and Load Reduction Periods that include hours in a Recovery Period, but Eastalco will only be obligated to reduce load to the extent Potomac actually delivers Off-System Power under Paragraph 10.1" Y. Paragraph 14. MISCELLANEOUS. The following SubParagraphs 14.16., 14.17., 14.18. and 14.19. are added: 14.16. RIGHT OF FIRST REFUSAL. 14.16.1. GRANT OF RIGHT OF FIRST REFUSAL. 14.16.1.1. If upon expiration of the term of this Agreement Eastalco elects to access the electric power market to obtain electric power from a source other than Potomac ("Retail Access")or to self-generate, Eastalco shall grant to Potomac, its affiliates, and successors and assigns of Potomac and their affiliates (jointly referred to as "Allegheny Affiliates"), a right of first refusal ("Right") to provide electric power to Eastalco at a price no higher than the avoidable cost (as defined in Sub-Paragraph 14.16.3.2.) of Eastalco's preferred alternative power supply from a written, enforceable offer submitted or offered to or obtained by Eastalco from such third party supplier; provided, however, that the Allegheny Affiliates supply of such electric power pursuant to such Right shall be equivalent to the offer of Eastalco's preferred alternative power supply and in accord with a reasonable and mutually acceptable agreement. 14.16.1.2. If upon expiration of this Agreement Eastalco does not elect Retail Access or self-generation, then Allegheny Affiliates shall not be granted, nor shall they possess such Right, unless or until Eastalco elects Retail Access or self-generates, provided however, that except as may be set forth in Sub-Paragraph 14.16.3., in no event will such Right exist or be available to any Allegheny Affiliate beyond the period described in Sub-Paragraph 14.16.2.1. 14.16.1.3. The Allegheny Affiliates shall not have the Right if this Agreement is terminated by Eastalco pursuant to either Sub-Paragraph 3.2.1.3., 14.17, 14.18 or 14.19., regardless of 8 9 whether Eastalco elects Retail Access or selfgenerates. 14.16.2. APPLICABILITY. 14.16.2.1. The Allegheny Affiliates shall have the right to use the Right as often as Eastalco shall solicit bids and/or receive offers (under terms equivalent to the offer of Eastalco's preferred alternative power supply and in accordance with a reasonable and mutually acceptable agreement), following expiration of this Agreement, for all months and for the same amount of electric power each month following the expiration of the Agreement through March, 2005 or for no months. 14.16.2.2. This right applies only to the electric power requirements of the two existing Eastalco potlines and auxiliary loads for those potlines, as of the date Amendment No. 1 to this Agreement becomes effective. 14.16.3. AVOIDABLE COST. 14.16.3.1. If Eastalco's alternative supply is a potential purchase from a third party generator, utility or marketer, the avoidable cost shall be the cost of power that would be purchased from the third party generator, utility or marketer, taking into account the present value of any benefits or costs offered by the supplier that would occur after March 31, 2005. In the event that Eastalco's preferred alternative power supply that the Allegheny Affiliates must match incorporates benefits extending past March 31, 2005, the Allegheny Affiliates shall have the right to match the entire term with the associated benefits or costs, provided, however, that such right to match the entire term shall not apply if the alternative supply is a generation facility as described in Sub-Paragraph 14.16.3.2., unless Eastalco specifically agrees. 14.16.3.2. If the alternative supply is a new generator in service, or capable of being or projected to be in service, by April 1, 2003 but not under construction as of September 1, 1997, and in which Eastalco or any of its affiliates has an interest by ownership, lease or similar arrangement, then the avoidable cost shall be the 9 10 costs of fuel, and variable operating and maintenance costs that can be avoided as a result of not operating the generator to supply Eastalco. 14.16.4. PROCEDURE. 14.16.4.1. Following each bid solicitation and/or offer received by Eastalco, pursuant to SubParagraph 14.16.2.1. hereof, Eastalco shall provide to the Allegheny Affiliate identified as the affiliate to exercise the Right, a written description of Eastalco's preferred alternative supply of electric power available to Eastalco, which notice shall include, at a minimum, the price for such electric power, the term, delivery points, and such other information that Eastalco may provide or, subject to any confidentiality obligations of Eastalco, the Allegheny Affiliate reasonably requires to develop a matching offer. Eastalco shall provide the written description certified by an officer of Eastalco. Upon receipt of such description, the Allegheny Affiliate shall have thirty (30) days to inform Eastalco that it has decided to exercise such Right at the price and upon the terms provided in the notice from Eastalco. If the Allegheny Affiliate fails to exercise the Right within such period, the Right for that period only shall be deemed to have been forfeited by such Affiliate and Eastalco shall exercise its option with its preferred alternative supplier. If the bid period is shorter than the total period specified in 14.16.2, the Allegheny Affiliate will retain the Right for the remaining bids solicited by and/or offers received by Eastalco during this period. 14.16.4.2. In no event shall any Allegheny Affiliate be entitled to review, inspect, copy or study any document, information, or data that Eastalco may receive from any third party supplier. Potomac and/or the Allegheny Affiliate shall have the right to retain an independent third party reasonably acceptable to Eastalco to audit, at any time, the preferred alternative supply offer to Eastalco in order to verify said offer. The third party shall maintain the confidentiality of the offer and shall provide no information or documents to Potomac and shall only confirm or deny that Eastalco's preferred alternative supply offer is as set forth in the notice to Potomac as provided in subparagraph 14.16.4.1. 10 11 14.17. PURPA SURCHARGE. If Potomac is permitted to recover the costs of any qualifying facility as defined by the Public Utilities Regulatory Policy Act ("PURPA costs"), including but not limited to costs associated with the project currently known as AES Warrior Run, whether as a surcharge or by inclusion of such cost in determination of other charges and whether determined in Maryland Public Service Commission proceeding in which rates generally are adjusted or in a more limited proceeding or in an agreement approved by the Maryland Public Service Commission, Eastalco shall pay the costs as allocated in said proceeding or agreement to Eastalco. If in said agreement or proceeding said costs for Eastalco are not established pursuant to the Stipulation Regarding the Establishment of Rates Under the Power Contract Between Potomac Edison and Eastalco dated June 15, 1993 (the "Stipulation") and the result is less favorable to Eastalco than rates would be if established on such an allocation, then Eastalco shall have the option to terminate this Agreement on six (6) months written notice given within twelve (12) months after the order becomes final, except that no such termination shall be effective before March 31, 2000. Nothing herein shall prevent Eastalco from providing such notice more than six (6) months prior to March 31, 2000, but termination will not become effective until March 31, 2000. Until termination of this Agreement by Eastalco is effective, rates for Eastalco shall be as specified in such order. 14.18. TRANSITION OF STRANDED COSTS. In the event that transition or stranded costs are required to be collected by Potomac from Eastalco during the initial term or any renewal periods of this Agreement pursuant to a statute or an order from any agency having jurisdiction and the result is less favorable to Eastalco than had any such order or requirement not been issued, then Eastalco shall have the option to terminate this Agreement on six (6) months written notice given within twelve (12) months after the order becomes final, except that no such termination shall be effective until the later of March 31, 2000 or the time transition or stranded costs are required to be collected by Potomac from Eastalco. Nothing herein shall prevent Eastalco from providing such notice more than six (6) months prior to March 31, 2000, but termination will not become effective until March 31, 2000. Nothing herein precludes either Potomac or Eastalco from taking any position at any time before 11 12 any agency having jurisdiction on any aspect of the issue of transition or stranded costs. Z. Paragraph 15. DEFINITIONS. The following Sub-Paragraphs shall be deleted: 15.28. "Load Modulation" 15.45. "Potential Peak Hours" The following Sub-Paragraphs shall be added: following Sub-Paragraph 15.4: 15.4a. "Allegheny Affiliates" shall have the meaning set forth in Sub-Paragraph 14.16. following Sub-Paragraph 15.17: 15.17a. "Committed Load Modulation" shall have the meaning set forth in Sub-Paragraph 7.2.2. following Sub-Paragraph 15.24: 15.24a. "Full Retail Access" shall mean the availability to Eastalco of retail access to generation suppliers other than Potomac under the laws of Maryland and/or regulations of the Maryland Public Service Commission. following Sub-Paragraph 15.54: 15.54a. "Stipulation" shall mean the "Stipulation Regarding the Establishment of Rates Under the Power Contract Between Potomac Edison and Eastalco" dated June 15, 1993. Sub-Paragraph 15.4. "Allegheny" shall be amended to read: 15.4. "Allegheny" shall mean Allegheny Energy, Inc., a Maryland corporation and the parent corporation of Potomac. Sub-Paragraph 15.5. "Allegheny System" shall be amended by deleting "Potomac, the Monongahela Power Company and the West Penn Power Company." Sub-Paragraph 15.19. "Effective Cost of Power" shall be amended to read: 12 13 15.19 "Effective Cost of Power" shall mean the quotient of (i) the sum of all charges by Potomac that Eastalco reasonably would have incurred for one year of operation at then current average plant load (but no more than 350,000 kilowatts), divided by (ii) then current average plant load times the number of hours in the year less 34 million kilowatt-hours. The calculation of Effective Cost of Power shall be made in accordance with the formula set forth in Schedule A attached hereto, amended as necessary to reflect this Agreement as amended. Sub-Paragraph 15.42.4. "Operating Flexibility" shall be amended by deleting "or 8." Sub-Paragraph 15.58. "System Demand" shall be amended by deleting "purchased during such hour." Sub-Paragraph 15.60 "Undermodulation Charges shall be retitled "Undermodulation Increment" and shall be amended to read: 15.60. "Undermodulation Increment" shall have the meaning set forth in Sub-Paragraph 7.2.2.2. AA. The Table of Contents of the ESA shall be amended to reflect the deletion, addition and amendments to the titles of the Paragraphs and Sub-Paragraphs set forth above. BB. The Stipulation Regarding the Establishment of Rates under the Power Contract between Potomac Edison and Eastalco, entered into in June, 1993, shall remain effective. 3. CONFIDENTIALITY. This Amendment No. 1 and any data exchanged by Eastalco and Potomac and/or provided by either or both to the Maryland Public Service Commission or to any other person, heretofore and/or hereafter, as part of the negotiation and approval process for this Amendment No. 1, are considered proprietary and confidential by Potomac Edison and Eastalco, and the parties agree to keep them confidential. Accordingly, this Amendment No. 1 and any associated filings, including any necessary or required changes in Potomac's tariff, will be filed with the Maryland Public Service Commission with a request that they be treated in a confidential manner. This provision shall survive any termination or expiration of the ESA. 13 14 4. COUNTER PARTS. This Amendment No. 1 will be signed in counterparts, each of which will be an original. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 on the date first set forth above. WITNESS: THE POTOMAC EDISON COMPANY /s/ /s/ Michael P. Morrell - --------------------------------- ------------------------------- By: Michael P. Morrell Vice President WITNESS: EASTALCO ALUMINUM COMPANY /s/ /s/ Peter E. Aylen - --------------------------------- ------------------------------- By: Peter E. Aylen Vice President Mlb Eaamendl.fin 14 EX-10.18 5 EMPLOYMENT AGREEMENT FOR THOMAS JOHNSTON 1 EXHIBIT 10.18 ALUMAX INC. - -------------------------------------------------------------------------------- Employment Agreement for Thomas G. Johnston - -------------------------------------------------------------------------------- December 4, 1997 2 ALUMAX INC. - -------------------------------------------------------------------------------- Employment Agreement for Thomas G. Johnston - ------------------------------------------------------------------------------- Page ---- 1. Employment.................................................. 1 2. Period of Employment........................................ 1 (a) Duration Under Normal Circumstances.................... 1 (b) Termination Events..................................... 1 3. Duties During the Period of Employment...................... 1 4. Location of Employment...................................... 2 5. Current Cash Compensation................................... 2 6. Performance Accelerated Restricted Stock.................... 2 7. Employee Benefits........................................... 2 (a) Vacation and Sick Leave................................ 2 (b) Regular Reimbursed Business Expenses................... 2 (c) Employee Benefit Plans or Arrangements................. 2 (d) Employer's Executive Compensation Plans................ 3 (e) Financial and Tax Advice............................... 3 8. Termination................................................. 3 (a) Death or Retirement.................................... 3 (b) Disability............................................. 4 (c) Voluntary Termination by Employee without Good Reason.. 5 (d) Voluntary Termination by Employee with Good Reason, or by Employer without Cause........................... 5 (e) Termination in Connection with Change in Control....... 7 (f) Termination by Employer with Cause..................... 9 (g) Expiration of Period of Employment..................... 9 (h) Date of Payment........................................ 9 9. Definitions................................................. 9 10. Excise Tax Gross-up......................................... 13 11. Non-Competition and Non-Disclosure; Employee Cooperation.... 15 3 Page ---- 12. Governing Law; Disputes; Arbitration........................ 16 13. Notices..................................................... 17 14. Withholding................................................. 17 15. Mitigation.................................................. 17 16. Successors; Binding Agreement............................... 17 17. Pension Credit and Additional Pension Credit................ 17 18. Miscellaneous............................................... 18 4 EMPLOYMENT AGREEMENT AGREEMENT, effective as of December 1, 1997, by and between Alumax Inc., a Delaware corporation ("Employer"), and Thomas G. Johnston, an individual ("Employee"). WHEREAS, Employer and Employee wish to enter into an Employment Agreement setting forth the terms and conditions of the Employee's employment by the Employer; and WHEREAS, such Employment Agreement was approved by the Human Resources and Compensation Committee of the Board of Directors of Employer at a meeting held on December 4, 1997. IN CONSIDERATION OF the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. Employment. Employer hereby agrees to employ Employee, and Employee agrees to serve, as President of Employer, during the Period of Employment as defined in Section 2. 2. Period of Employment (a) Duration Under Normal Circumstances. The "Period of Employment" shall be the five-year period commencing December 4, 1997 (the "Commencement Date"), and ending on December 31, 2002. (b) Termination Events. Notwithstanding anything in this Section 2 to the contrary, the Period of Employment shall terminate upon the earliest to occur of the following: (i) the retirement of Employee, with the consent of Employer, prior to reaching age 65; (ii) the Disability (as defined in Section 9) of Employee and the expiration of the 30-day period referred to in the definition of Disability without the actions referred to therein being taken by Employee; (iii) the death of Employee; (iv) the 90th day after service of notice by Employee to Employer, in accordance with the provisions of Section 13, that Employee elects to terminate the Period of Employment (a "voluntary termination by Employee"); and (v) the 90th day after service of notice by Employer to Employee, in accordance with the provisions of Section 13, that Employer elects to terminate the Period of Employment (a "voluntary termination by Employer"), other than a termination by Employer with Cause (in which event the Period of Employment shall promptly terminate upon service of such notice). 3. Duties During the Period of Employment. Employee shall devote his full business time, attention and best efforts to the affairs of Employer and its subsidiaries during the Period of Employment and shall have such duties, responsibilities and authority as shall be assigned to him from time to time by the Chief Executive Officer or the Board of Directors of Employer and as shall be consistent with the position and title of President. Employee may engage in other activities, such as activities involving charitable, educational, religious and similar types of organizations (all of which are deemed to benefit Employer), 5 speaking engagements, and similar type activities, and may serve on the board of directors of other corporations approved by the Board of Directors of Employer, in each case to the extent that such other activities do not materially detract from or limit the performance of his duties under this Agreement, or inhibit or conflict in any material way with the business of Employer and its subsidiaries. 4. Location of Employment. During the Period of Employment, Employer may only require Employee to be based in or within 45 miles of Atlanta, Georgia, except that Employer may require Employee to be based more than 45 miles from Atlanta, Georgia if the relocation is to a principal executive office of Employer; provided, however, that the Employer shall pay to, or reimburse Employee for, on an after-tax basis, all reasonable expenses of relocation incurred and substantiated by Employee in connection with any such relocation and indemnify Employee, on an after-tax basis, against any loss actually realized on the sale of Employee's principal residence within twelve months of such relocation if Employee has reasonably cooperated with Employer in connection with such sale. 5. Current Cash Compensation. Employer shall pay to Employee during the Period of Employment a base annual salary of not less than $500,000 (or such greater amount as may have been approved by the Board of Directors or the Committee in its sole discretion), payable in substantially equal monthly installments during each calendar year, or portion thereof, of the Period of Employment; provided, however, that Employer agrees to review such base annual salary annually and in light of such review may, in the sole discretion of the Board of Directors of Employer or the Committee, increase such salary, taking into account such factors as it deems pertinent. 6. Performance Accelerated Restricted Stock. Immediately on the Commencement Date, Employee shall be granted PARS or Performance Awards for the three (3) year Performance Periods ending December 31, 1997 and December 31, 1998. Employee's PARS Awards, subject to achievement of Performance Objectives for each Performance Period, shall be 7,400 shares of Stock for the Performance Period ending December 31, 1997 and 6,500 shares of Stock for the Performance Period ending December 31, 1998, which Awards shall be treated in all respects as if they had been granted on March 3, 1995 and March 8, 1996, respectively. Such PARS Awards shall be subject to all terms, conditions and provisions of the Alumax Inc. 1993 Long Term Incentive Plan (as the same may be modified, replaced, or added to by Employer from time to time). 7. Employee Benefits (a) Vacation and Sick Leave. Employee shall be entitled to five weeks paid annual vacation, all paid Employer holidays and reasonable sick leave. (b) Regular Reimbursed Business Expenses. Employer shall reimburse Employee for all expenses and disbursements reasonably incurred and substantiated by Employee in the performance of his duties during the Period of Employment. (c) Employee Benefit Plans or Arrangements. In addition to the cash compensation provided for in Section 5 hereof, Employee, subject to meeting eligibility requirements and to the provisions of this Agreement, shall be entitled to participate without discrimination or duplication in all employee (including executive) benefit plans of Employer, as presently in effect or as they may be modified or added to by Employer from time to time, to the extent such plans are available to other similarly situated executives or employees of Employer, including, without limitation, plans providing retirement benefits, medical insurance, life insurance, disability insurance, and accidental death or dismemberment insurance. -2- 6 (d) Employer's Executive Compensation Plans. In addition to the cash compensation provided for in Section 5 hereof and the employee benefits of Employer provided for in paragraph (c) of this Section 7, Employee, subject to meeting eligibility requirements and to the provisions of this Agreement, shall be entitled to participate without discrimination or duplication in all executive compensation plans of Employer, as presently in effect or as they may be modified or added to by Employer from time to time, to the extent such plans are available to similarly situated executives or employees of Employer, including, without limitation, the Alumax Inc. Executive Separation Policy, the Alumax Inc. 1993 Annual Incentive Plan and the Alumax Inc. 1993 Long Term Incentive Plan (as the same may be modified, replaced, or added to by Employer from time to time), and other stock option plans, performance share plans, management incentive plans, deferred compensation plans, severance policies and supplemental retirement plans; provided that such compensation plans and programs, in the aggregate, shall provide Employee with benefits and compensation and incentive reward opportunities substantially no less favorable than those provided by Employer for Employee under such plans and programs as in effect on the date of this Agreement. To the extent terms of any such policies, plans or programs, in effect at the time of termination of Employee's employment by Employer, provide for or would afford Employee greater or more favorable benefits than those provided to Employee under the terms and conditions of this Agreement, such more favorable terms, without duplication, shall be applied. (e) Financial and Tax Advice. During (i) the Period of Employment, (ii) the 12-month period following the termination of the Period of Employment as a result of death or Disability, and (iii) the eighteen (18) month period following the voluntary termination by Employee with Good Reason (as defined in Section 9) or the voluntary termination by Employer without Cause (as defined in Section 9), and (iv) the thirty (30) month period following the voluntary termination by Employee with Good Reason or the voluntary termination by Employer without Cause in connection with a Change in Control (as defined in Section 9), or such shorter period provided in Section 8, Employer shall provide Employee (or, if Employee shall have died, his estate) at Employer's expense, third-party professional financial and tax advisory services, primarily oriented to planning in light of Employee's entitlement to compensation and employee benefits and appropriate in light of the financial circumstances of Employee (or his estate). 8. Termination (a) Death or Retirement. If the Period of Employment terminates pursuant to paragraph (b) of Section 2 as a result of (1) the death of Employee, or (2) the retirement of Employee with the consent of Employer, prior to reaching age 65, Employee (or Employee's estate) will be entitled to receive only: (i) the base salary otherwise payable under Section 5 through the end of the month in which Employee's employment is terminated, together with salary, compensation or benefits which have been earned or become payable as of the date of termination but which have not yet been paid to Employee; (ii) a prorated portion of the award to Employee for the year of termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable targets for the year of termination had been met, with such award prorated based on the number of days during the year of Employee's termination which precede such termination; -3- 7 (iii) the PARS or other Performance Awards to Employee for the Performance Periods in progress as of the date of termination under the Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable Performance Objectives for such Performance Periods had been met, with such PARS or other Performance Awards payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion and any unvested outstanding PARS not earned during completed Performance Periods will be fully vested and payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion; (iv) such other awards or bonuses as the Board of Directors may in its sole discretion determine; (v) during the 12-month period following the termination of Employee's employment as a result of the death or retirement of Employee, maintenance in effect for the continued benefit of Employee's dependents of all insured and self-insured employee medical and dental benefit plans in which Employee was participating immediately prior to termination provided that such continued participation is possible under the general terms and conditions of such plans (and any applicable funding media) and Employee's dependents continue to pay an amount equal to the Employee's regular contribution for such participation; (vi) during the 12-month period following the termination of Employee's employment as a result of the death or retirement of Employee, the financial and tax advice set forth in paragraph (e) of Section 7; and (vii) such other compensation and benefits, if any, as shall be determined to be applicable in accordance with Employer's plans and practices as in effect on the date of termination. (b) Disability. If the Period of Employment terminates pursuant to paragraph (b) of Section 2 as a result of Disability, Employee will be entitled to receive only: (i) the base salary otherwise payable under Section 5 through the end of the month in which Employee's employment is terminated, together with salary, compensation or benefits which have been earned or become payable as of the date of termination but which have not yet been paid to Employee; (ii) each month during the 12-month period following the month in which Employee's employment is terminated, the excess of (1) base annual salary at the rate in effect under Section 5 on the date of termination, over (2) the amount, if any, payable to Employee under Employer's disability plan(s) or other arrangements for disability compensation; (iii) a prorated portion of the award to Employee for the year of termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable targets for the year of termination had been met, with such award prorated based on the number of days during the year of Employee's termination which precede such termination; -4- 8 (iv) the PARS or other Performance Awards to Employee for the Performance Periods in progress as of the date of termination under the Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable Performance Objectives for such Performance Periods had been met, with such PARS or other Performance Awards payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion, and any unvested outstanding PARS not earned during completed Performance Periods will be fully vested and payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion; (v) term life insurance coverage at the expense of Employer for the period from the date of termination of Employee's employment to the expiration of the Period of Employment, including any extensions thereof in a face amount equal to the coverage maintained for Employee under then-existing Employer benefit plans for which Employee shall have the right to designate the beneficiaries, such coverage to be maintained in the face amount which would from time to time be applicable under such plans, provided such coverage may be discontinued if at any time Employee accepts full time employment with another employer; (vi) during the 12-month period following the termination of Employee's employment (or, if shorter, during the period until the commencement of equivalent benefits from a new employer), the financial and tax advice set forth in paragraph (3) of Section 7; and (vii) such other compensation and benefits, if any, as shall be determined to be applicable in accordance with Employer's plans and practices as in effect on the date of termination. (c) Voluntary Termination by Employee without Good Reason. If the Period of Employment terminates pursuant to paragraph (b) of Section 2 as a result of a voluntary termination by Employee without Good Reason, Employee will be entitled to receive only: (i) the base salary otherwise payable under Section 5 through the end of the day on which Employee's employment is terminated, together with salary, compensation or benefits which have been earned or become payable as of the date of termination but which have not yet been paid to Employee; (ii) to the extent possible, the opportunity to convert group and individual life insurance and disability insurance policies of Employer then in effect for Employee to individual policies of Employee upon the same terms as similarly situated employees of Employer may apply for such conversions; and (iii) such other compensation and benefits, if any, as shall be determined to be applicable in accordance with Employer's plans and practices in effect on the date of termination. (d) Voluntary Termination by Employee with Good Reason or by Employer without Cause. If the Period of Employment terminates pursuant to paragraph (b) of Section 2 as a result of a voluntary termination by Employee with Good Reason, or a voluntary termination by Employer without Cause, then Employee will be entitled to receive only: -5- 9 (i) the base salary otherwise payable under Section 5 through the end of the month in which Employee's employment is terminated, together with salary, compensation or benefits which have been earned or become payable as of the date of termination but which have not yet been paid to the Employee; (ii) a prorated portion of the award to Employee for the year of termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable targets for the year of termination had been met, with such award prorated based on the number of days during the year of Employee's termination which precede such termination; (iii) the PARS or other Performance Awards to Employee for the Performance Periods in progress as of the date of termination under the Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable Performance Objectives for such Performance Periods had been met, with such PARS or other Performance Awards payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion, and any unvested outstanding PARS not earned during completed Performance Periods will be fully vested and payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion; (iv) a lump-sum severance payment in an amount equal to the product of (A) the base annual salary at the rate in effect under Section 5 on the date of termination plus the award to Employee for the year of termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable targets for the year of termination had been met, multiplied by (B) one and one-half (1.5), or severance under the Company's generally applicable plans whichever is greater; provided that the payment made pursuant to this paragraph (iv) shall be repaid by Employee in the event Employee violates in any material respect the provisions of Section 7 hereof; (v) maintenance in effect for the continued benefit of Employee and his dependents for a period terminating on the earlier of (A) eighteen (18) months after the date of termination of employment or such longer period under applicable plans, including severance plans, or (B) the commencement of equivalent benefits from a new employer of: (A) all insured and self-insured medical and dental benefit plans in which Employee was participating immediately prior to termination, provided that Employee's continued participation is possible under the general terms and conditions of such plans (and any applicable funding media) and Employee continues to pay an amount equal to Employee's regular contribution for such participation; and (B) the group and individual life insurance and disability insurance policies of Employer then in effect for Employee; provided, however, that if Employer so elects, or if such continued participation is not possible under the general terms and conditions of such plans or under such policies, Employer shall, in lieu of the foregoing, arrange to have issued for the benefit of Employee and Employee's dependents individual policies of insurance providing benefits substantially similar (on an after-tax basis) to those described in this paragraph (v), -6- 10 or, if such insurance is not available at a reasonable cost to Employer, Employer shall otherwise provide Employee and Employee's dependents equivalent benefits (on an after-tax basis); provided further that, in no event shall Employee be required to pay any premiums or other charges in an amount greater than that which Employee would have paid in order to participate in Employer's plans and policies; (vi) for a period terminating on the earlier of (A) eighteen (18) months after the date of termination of employment or (B) the commencement of equivalent benefits from a new employer, the financial and tax advice set forth in paragraph (e) of Section 7; (vii) for a period terminating eighteen (18) months after the date of termination of employment, the benefits equivalent on an after-tax basis to the additional benefits Employee would have received under the employee benefit and executive compensation plans, whether or not qualified for federal income tax purposes (including, without limitation, all qualified and non-qualified retirement plans, pension plans, profit sharing and other defined contribution plans and excess benefit plans, but specifically excluding incentive compensation, stock option and performance share plans) in which Employee was participating immediately prior to termination, as if Employee had received credit under such plans for service and age with Employer during such period following Employee's termination, with such benefits payable by Employee at the same times and in the same manner as such benefits would have been received by Employee under such plans; and (viii) such other compensation and benefits, if any, as shall be determined to be applicable in accordance with Employer's plans and practices in effect on the date of termination. (e) Termination in Connection with Change in Control. If the Period of Employment terminates pursuant to paragraph (b) of Section 2 as a result of a voluntary termination by Employee with Good Reason, or a voluntary termination by Employer without Cause in connection with a Change in Control (as defined in Section 9), Employee will be entitled to receive only: (i) the base salary otherwise payable under Section 5 through the end of the month in which Employee's employment is terminated, together with salary, compensation or benefits which have been earned or become payable as of the date of termination but which have not yet been paid to Employee; (ii) a prorated portion of the award to Employee for the year of termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable targets for the year of termination had been met, with such award prorated based on the number of days during the year of Employee's termination which precede such termination; (iii) the PARS or other Performance Awards to the Employee for the Performance Periods in progress as of the date of termination under the Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable Performance Objectives for such Performance Periods had been met, with such PARS or other Performance Awards payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion and any unvested outstanding PARS not earned during completed Performance Periods will be -7- 11 fully vested and payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion; (iv) a lump-sum severance payment in an amount equal to the product of (a) the base annual salary at the rate in effect under Section 5 on the date of termination plus the award to Employee for the year of termination under the Alumax Inc. 1993 Annual Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable targets for the year of termination had been met multiplied by (b) two and one-half (2.5); provided that the payment made pursuant to this paragraph (iv) shall be repaid by Employee in the event Employee violates in any material respect the provisions of Section 11 hereof; (v) maintenance in effect for the continued benefit of Employee and his dependents for a period terminating on the earlier of (A) thirty (30) months after date of termination of employment or (B) the commencement of equivalent benefits from a new employer of: (A) all insured and self insured medical and dental benefit plans in which Employee was participating immediately prior to termination, provided that Employee's continued participation is possible under the general terms and conditions of such plans (and any applicable funding media) and Employee continues to pay an amount equal to Employee's regular contribution for such participation; and (B) the group and individual life insurance and disability insurance policies of Employer then in effect for Employee; provided, however, that if Employer so elects, or if such continued participation is not possible under the general terms and conditions of such plans or under such policies, Employer shall, in lieu of the foregoing, arrange to have issued for the benefit of Employee and Employee's dependents individual policies of insurance providing benefits substantially similar (on and after-tax basis) to those described in this paragraph (v), or, if such insurance is not available at a reasonable cost to Employer, Employer shall otherwise provide Employee and Employee's dependents equivalent benefits (on an after-tax basis); provided further that, in no event shall Employee be required to pay any premiums or other charges in an amount greater than that which Employee would have paid in order to participate in Employer's plans and policies; (vi) for a period terminating on the earlier of (A) thirty (30) months after date of termination of employment or (B) the commencement of equivalent benefits from a new employer, the financial and tax advice set forth in paragraph (e) of Section 7. (vii) for a period terminating thirty (30) months after the date of termination of employment the benefits equivalent on an after-tax basis to the additional benefits Employee would have received under the employee benefit and executive compensation plans, whether or not qualified for federal income tax purposes (including, without limitation, all qualified and non-qualified retirement plans, pension plans, profit-sharing and other defined contribution plans and excess benefit plans, but specifically excluding incentive compensation, stock option and performance share plans) in which Employee was participating immediately prior to termination, as if Employee has received credit under such plans for service and age with Employer during such period following Employee's -8- 12 termination, with such benefits payable by Employer at the same times and in the same manner as such benefits would have been received by Employee under such plans; and (f) Termination by Employer with Cause. If the Period of Employment terminates pursuant to paragraph (b) of Section 2 as a result of a voluntary termination by Employer with Cause, Employee will be entitled to receive only: (i) the base salary otherwise payable under Section 5 through the day on which Employee's employment is terminated, together with salary, compensation or benefits which have been earned or become payable as of the date of termination but which have not yet been paid to Employee; (ii) such other compensation and benefits, if any, as shall be determined to be applicable under the circumstances in accordance with Employer's plans and practices in effect on the date of termination. (g) Expiration of Period of Employment. If the employment of Employee by Employer terminates upon expiration of the Period of Employment (as defined in Section 2(a) of this Agreement), Employee will be entitled to receive, in addition to payments and benefits otherwise available in connection with retirement of Employee, without discrimination or duplication, only: (i) all PARS and other Performance Awards to Employee for the Performance Periods in progress as of the date of expiration under the Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, assuming all applicable Performance Objectives for such Performance Periods had been met, with such PARS or other Performance Awards payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion and any unvested outstanding PARS not earned during completed Performance Periods will be fully vested and payable in shares of Stock or cash as determined by the Committee administering such Plan in its discretion; (ii) all outstanding options to acquire Stock of Employer previously granted to Employee under the Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified, replaced or added to by Employer from time to time, and any other stock option plans of Employer, on a fully vested basis as if all conditions to vesting had been satisfied. (h) Date of Payment. Except as otherwise provided herein, all cash payments and lump-sum awards required to be made pursuant to the provisions of paragraphs (a) through (g) of this Section 8 shall be made no later than the fifteenth day following the date of Employee's termination. 9. Definitions. For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below: "Beneficial Owner," with respect to any securities, shall mean any person who, directly or indirectly, has or shares the right to vote or dispose of such securities or otherwise has "beneficial ownership" of such securities (within the meaning of Rule 13d-3 and Rule 13d-5 (as such Rules are in effect on the date of this Agreement) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), including pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that (i) a person shall not be deemed the Beneficial Owner of any -9- 13 security as a result of any agreement, arrangement or understanding to vote such security (x) arising solely from a revocable proxy or consent solicited pursuant to, and in accordance with, the applicable provisions of the Exchange Act and the rules and regulations thereunder or (y) made in connection with, or otherwise to participate in, a proxy or consent solicitation made, or to be made, pursuant to, and in accordance with, the applicable provisions of the Exchange Act and the rules and regulations thereunder, in either case described in clause (x) or clause (y) above whether or not such agreement, arrangement or understanding is also then reportable by such person on Schedule 13D under the Exchange Act (or any comparable or successor report), and (ii) a person engaged in business as an underwriter of securities shall not be deemed to be the Beneficial Owner of any securities acquired through such person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. "Cause" shall mean (i) the willful engaging by Employee in conduct which is not authorized by the Board of Directors of Employer or within the normal course of Employee's business decisions and is known by Employee to be materially detrimental to the best interests of Employer or any of its subsidiaries, (ii) the willful engaging by Employee in conduct which Employee knows is, or has substantial reason to believe to be, illegal to the extent of a felony violation, or the equivalent seriousness under laws other than those of the United States, and which has effects on Employer or Employee materially injurious to Employer, (iii) the engaging by Employee in any willful and conscious act of serious dishonesty, in each case which the Board of Directors of Employer reasonably determines affects adversely, or could in the future affect adversely, the value, reliability or performance of Employee to Employer in a material manner, (iv) the willful and continued failure by Employee to perform substantially his duties to Employer under this Agreement (including any sustained and unexcused absence of Employee from the performance of his duties under this Agreement, which absence has not been certified in writing as due to physical or mental illness in accordance with the procedures set forth in this Section 9 under "Disability"), after a written demand for substantial performance has been delivered to Employee by the Board of Directors specifically identifying the manner in which Employee has failed to substantially perform his duties, or (v) the sustained and unexcused absence of Employee from the performance of his duties under this Agreement for a period of 180 days or more within a period of 365 consecutive days, regardless of the reason for such absence, unless Employee demonstrates that such absence is due to Disability. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board of Directors of Employer or based upon the advice of counsel for Employer shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of Employer, and shall not be deemed to constitute Cause under subdivisions (ii) or (iii) of this definition. Notwithstanding the foregoing, there shall not be deemed to be a voluntary termination by Employer with Cause unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors of Employer at a meeting of such Board held after reasonable notice to Employee and at which Employee has an opportunity, together with his counsel, to be heard before such Board, finding that, in the good faith opinion of such Board, Employee was guilty of the conduct set forth above and specifying the particulars thereof in detail. "Change in Control" shall mean the satisfaction of one or more of the following conditions: (i) any person is or becomes the Beneficial Owner, directly or indirectly, of securities of Employer representing 20 percent or more of the combined voting power of Employer's then-outstanding securities (a "20% Beneficial Owner"); provided, however, that (a) the term "20% Beneficial Owner" shall not include any Beneficial Owner who has -10- 14 crossed such 20 percent threshold solely as a result of an acquisition of securities directly from Employer, or solely as a result of an acquisition by Employer of Employer securities, until such time thereafter as such person acquires additional voting securities other than directly from Employer and, after giving effect to such acquisition, such person would constitute a 20% Beneficial Owner; and (b) with respect to any person eligible to file a Schedule 13G pursuant to Rule 13d-1(b)(1) under the Exchange Act with respect to Employer securities (an "Institutional Investor"), there shall be excluded from the number of securities deemed to be beneficially owned by such person a number of securities representing not more than 10 percent of the combined voting power of Employer's then-outstanding securities; (ii) during any period of two consecutive years beginning after the commencement of the Period of Employment, individuals who at the beginning of such period constitute the Board of Directors of Employer together with those individuals who first become Directors during such period (other than by reason of an agreement with Employer in settlement of a proxy contest for the election of directors) and whose election or nomination for election to the Board was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved (the "Continuing Directors"), cease for any reason to constitute a majority of the Board of Directors of Employer; (iii) the stockholders of Employer approve a merger, consolidation, recapitalization or reorganization of Employer, or a reverse stock split of any class of voting securities of Employer, or the consummation of any such transaction if stockholder approval is not obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of Employer or the surviving entity outstanding immediately after such transaction being beneficially owned by persons who together owned at least 75% of the combined voting power of the voting securities of Employer outstanding immediately prior to such transaction, with the relative voting power of each such continuing holder compared to the voting power of each other continuing holder not substantially altered as a result of the transaction; provided that, for purposes of this paragraph (iii), such continuity of ownership (and preservation of relative voting power) shall be deemed to be satisfied if the failure to meet such 75% threshold (or to preserve such relative voting power) is due solely to the acquisition of voting securities by an employee benefit plan of Employer or such surviving entity or of any subsidiary of Employer or such surviving entity; (iv) the stockholders of Employer approve a plan of complete liquidation or dissolution of Employer or an agreement for the sale or disposition of all or substantially all the assets of Employer; or (v) any other event which the Board of Directors of Employer (not taking into account any vote of Employee) determines shall constitute a Change in Control for purposes of this Agreement; provided, however, that a Change in Control shall not be deemed to have occurred if any of the following conditions (each, an "exception") is satisfied: (1) Unless a majority of the Continuing Directors of Employer (not taking into account any vote of Employee) determines that for purposes of any or all of the provisions of this Agreement the exception set forth in this paragraph -11- 15 (1) shall not apply, none of the foregoing conditions would have been satisfied but for one or more of the following persons acquiring or otherwise becoming the Beneficial Owner of securities of Employer: (A) any person who has entered into a binding agreement with Employer, which agreement has been approved by two-thirds (2/3) of the Continuing Directors, limiting the acquisition of additional voting securities by such person, the solicitation of proxies by such person or proposals by such person concerning a business combination with Employer (a "Standstill Agreement"); (B) any employee benefit plan, or trustee or other fiduciary thereof, maintained by Employer or any subsidiary of Employer; (C) any subsidiary of Employer; or (D) Employer. (2) Unless a majority of the Continuing Directors of Employer (not taking into account any vote of Employee) determines that for purposes of any or all of the provisions of this Agreement the exception set forth in this paragraph (2) shall not apply, none of the foregoing conditions would have been satisfied but for the acquisition by Employer of another entity (whether by merger or consolidation, the acquisition of stock or assets, or otherwise) in exchange, in whole or in part, for securities of Employer, provided that, immediately following such acquisition, the Continuing Directors constitute a majority of the Board of Directors of Employer, or a majority of the board of directors of any other surviving entity, and, in either case, no agreement, arrangement or understanding exists at that time which would cause such Continuing Directors to cease thereafter to constitute a majority of the Board of Directors or of such other board of directors. (3) Unless a majority of the Continuing Directors of Employer (not taking into account any vote of Employee) determines that for purposes of any or all of the provisions of this Agreement the exception set forth in this paragraph (3) shall not apply, none of the foregoing conditions would have been satisfied but for Employee, or a person in which Employee has a one-half of one percent (0.5%) or greater equity interest, either singly or acting in concert with one or more other persons, becoming a 20% Beneficial Owner. (4) Employee determines that, for purposes of any or all of the provisions of this Agreement, none of the foregoing conditions shall be deemed to have been satisfied. (5) A majority of the Continuing Directors (not taking into account any vote of Employee) determines that a Change of Control shall not be deemed to have occurred. "Committee" shall mean the Human Resources and Compensation Committee of the Employer's Board of Directors. "Disability" shall mean the absence of Employee from his duties with Employer on a full-time basis for one hundred eighty (180) days within any period of three hundred and sixty-five (365) consecutive days as a result of Employee's incapacity due to physical or mental illness as certified in writing by a physician selected by Employee and reasonably acceptable to Employer (it being understood that such physician shall be deemed to be reasonably acceptable to Employer if, within a period of fifteen (15) days after Employee notifies Employer of the name of such physician, Employer does not object to the use of such physician), unless within thirty (30) days after written notice to Employee by Employer, in accordance with the -12- 16 provisions of Section 16, that Employee's employment is being terminated by reason of such absence, Employee shall have returned to the full performance of Employee's duties and shall have presented to Employer a written certificate of Employee's good health prepared by a physician selected by Employee and reasonably acceptable to Employer. "PARS" shall mean Performance Accelerated Restricted Stock Units awarded to participants pursuant to the Alumax Inc. 1993 Long Term Incentive Plan, as the same may be modified, replaced or added to by Employee from time to time. "Stock" shall mean Employer's Common Stock, $.01 par value, and such securities as may be substituted (or resubstituted) for Stock. Voluntary termination by Employee with "Good Reason" shall mean a voluntary termination by Employee resulting from the Employer (i) reducing Employee's base annual salary as in effect immediately prior to such reduction or reducing in a material respect Employee's opportunity to earn incentive compensation as provided in Section 7(d) of this Agreement, (ii) assigning Employee duties or responsibilities which are materially inconsistent with such position, (iii) removing Employee from or failing to reappoint or reelect Employee to such position, except in connection with a termination as a result of death, Disability, voluntary termination by Employee, retirement by Employee, termination with Cause or expiration of the Period of Employment specified in Section 2(a) of this Agreement or (iv) otherwise materially breaching its obligations under this Agreement, in each case after notice in writing from Employee to Employer and a period of 30 days after such notice during which Employer fails to correct such conduct. 10. Excise Tax Gross-up. In the event that Employee becomes entitled to one or more payments (with a "payment" including, without limitation, the vesting of an option or other non-cash benefit or property, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with Employer or any affiliated company) (the "Total Payments"), which are or become subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), (or any similar tax that may hereafter be imposed) (the "Excise Tax"), Employer shall pay to Employee at the time specified below an additional amount (the "Gross-up Payment") (which shall include, without limitation, reimbursement for any penalties and interest that may accrue in respect of such Excise Tax) such that the net amount retained by Employee, after reduction for any Excise Tax (including any penalties or interest thereon) on the Total Payments and any federal, state and local income or employment tax and Excise Tax on the Gross-up Payment provided for by this Section 13, but before reduction for any federal, state or local income or employment tax on the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b) an amount equal to the product of any deductions disallowed for federal, state or local income tax purposes because of the inclusion of the Gross-up Payment in Employee's adjusted gross income multiplied by the highest applicable marginal rate of federal, state or local income taxation, respectively, for the calendar year in which the Gross-up Payment is to be made. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the written opinion of independent compensation consultants or auditors of nationally recognized standing selected by Employer and reasonably acceptable to Employee ("Independent Auditors"), the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable -13- 17 compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax, (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i) above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by Employer's Independent Auditors appointed pursuant to clause (i) above in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-up Payment, Employee shall be deemed (A) to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made; (B) to pay any applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of Employee's adjusted gross income); and (C) to have otherwise allowable deductions for federal, state and local income tax purposes at least equal to those disallowed because of the inclusion of the Gross-up Payment in Employee's adjusted gross income. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Employee shall repay to Employer at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Employee or otherwise realized as a benefit by Employee) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied in initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), Employer shall make an additional Gross-up Payment in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the thirtieth day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, Employer shall pay to Employee on such day an estimate, as determined by Employer's Independent Auditors appointed pursuant to clause (i) above, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by Employer to Employee, payable on the fifth day after demand by Employer (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. Employer shall have the right to control all proceedings with the Internal Revenue Service that may arise in connection with the determination and assessment of any Excise Tax and, at its sole option, Employer may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any taxing authority in respect of such Excise Tax (including any interest or penalties thereon); provided, however, that Employer's control -14- 18 over any such proceedings shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder and Employee shall be entitled to settle or contest any other issue raised by the Internal Revenue Service or any other taxing authority. Employee shall cooperate with Employer in any proceedings relating to the determination and assessment of any Excise Tax and shall not take any position or action that would materially increase the amount of any Gross-up Payment hereunder. 11. Non-Competition, Non-Disparagement and Non-Disclosure; Employee Cooperation (a) Without the consent in writing of the Board of Directors of Employer, upon termination of Employee's employment for any reason, Employee will not for a period of three years thereafter, acting alone or in conjunction with others, directly or indirectly (i) engage (either as owner, partner, stockholder, employer or employee) in any business in which he has been directly engaged, or has supervised as an executive, during the last two years prior to such termination and which is directly in competition with a business conducted by Employer or any of its subsidiaries; (ii) induce any customers of Employer or any of its subsidiaries with whom Employee has had contacts or relationships, directly or indirectly, during and within the scope of his employment with Employer or any of its subsidiaries, to curtail or cancel their business with such companies or any of them; (iii) solicit or canvass business from any person who was a customer of Employer or any of its subsidiaries at or during the two-year period immediately preceding termination of Employee's employment; or (iv) induce, or attempt to influence, any employee of Employer or any of its subsidiaries to terminate his employment; provided, however, that the limitation contained in clause (i) above shall not apply if Employee's employment is terminated as a result of a voluntary termination by Employee with Good Reason, a voluntary termination by Employer without Cause or retirement upon reaching age 65 or thereafter; and provided further, that the limitation contained in clause (i) above shall not prohibit Employee from engaging in any business directly competitive with Employer or any of its subsidiaries as a director, consultant or private investor upon retirement upon reaching age 62 or thereafter with the consent of a majority of the Board of Directors of Employer, which consent shall not be unreasonably withheld. The provisions of subparagraphs (i), (ii), (iii) and (iv) above are separate and distinct commitments independent of each of the other subparagraphs. It is agreed that the ownership of not more than 1/2 of 1% of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with clause (i) of this paragraph (a). (b) Employee shall not, at any time during the Period of Employment or following Employee's termination of employment for any reason whatsoever, make any statement which might be reasonably regarded as disparaging to the Employer, its Board of Directors, Directors, officers, employees, operations, businesses, business practices, strategic and business plans or which may be reasonably expected to reflect unfavorably on the Employer, except as may be required by law. (c) Employee shall not, at any time during the Period of Employment or following Employee's termination of employment for any reason whatsoever, disclose, use, transfer or sell, except in the course of employment with Employer, any confidential or proprietary information of Employer and its subsidiaries so long as such information has not otherwise been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. (d) Employee agrees to cooperate with Employer, by making himself available to testify on behalf of Employer or any subsidiary or affiliate of Employer, in any action, suit or proceeding, whether civil, criminal, administrative or investigative, and to assist Employer, or any subsidiary or affiliate of Employer in any such action, suit or proceeding, by providing information and meeting and consulting with the Board of Directors of Employer or its representatives or counsel, or -15- 19 representatives or counsel of Employer, or any subsidiary or affiliate of Employer, as requested by such Board of Directors, representatives or counsel. Employer agrees to reimburse the Employee, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or assistance. 12. Governing Law; Disputes; Arbitration (a) This Agreement is governed by and is to be construed, administered and enforced in accordance with the laws of the State of Delaware, without regard to the conflict of laws principles thereof. If under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance or principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Agreement; and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. (b) All reasonable costs and expenses (including fees and disbursements of counsel) incurred by Employee in seeking to enforce rights pursuant to this Agreement shall be paid or reimbursed to Employee promptly by Employer, whether or not Employee is successful in asserting such rights, except that Employee shall repay to Employer any such amounts to the extent that an arbitrator or court issues a final, unappealable order setting forth a determination that Employee's claim was frivolous or advanced by Employee in bad faith; provided, however, that with respect to any Change in Control, the Board of Directors of Employer may determine that the repayment by Employee contemplated by the immediately preceding clause of this paragraph shall not apply to any claims arising out of such Change in Control, which determination shall thereafter be irrevocable with respect to such claims. (c) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Atlanta, Georgia by three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of submission to arbitration. Judgment may be entered on the arbitrators' award in any court having jurisdiction. For purposes of settling any dispute or controversy arising hereunder or for the purpose of entering any judgment upon an award rendered by the arbitrators, Employer and Employee hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Northern District of Georgia, (ii) any of the courts of the State of Georgia, or (iii) any other court having jurisdiction. Employer and Employee further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. Employer and Employee hereby waive, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to such jurisdiction and any defense of inconvenient forum. Employer and Employee hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to Section 12(b), Employer shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 12. Notwithstanding any provision in this Section 12, Employee shall be entitled to seek specific performance of Employee's right to be paid during the pendency of any dispute or controversy arising under or in connection with this Agreement. Initials Employer:_____________ Employee:_____________ (d) Any amounts that have become payable pursuant to the terms of this Agreement or any judgment by a court of law or a decision by arbitrators pursuant to this Section 12 but which are -16- 20 not timely paid shall bear interest at the prime rate in effect at the time such payment first becomes payable, as quoted by The Chase Manhattan Bank, New York, New York. 13. Notices. All notices under this Agreement shall be in writing and shall be deemed effective when received (in Employer's case, by its Secretary) or seventy-two (72) hours after deposit thereof in the U.S. mails, postage prepaid, for delivery as registered or certified mail, addressed, in the case of Employee, to him at his address specified below, and in the case of Employer, to its principal United States corporate headquarters, attention of the Secretary, or to such other address as Employee or Employer may by notice designate in writing at any time or from time to time to the other party. In lieu of notice by deposit in the U.S. mail, a party may give notice by personal delivery, prepaid cable, telegram, telex or telecopy and such notice shall be effective twenty-four (24) hours after it has been properly sent. 14. Withholding. All payments to be made to Employee under this Agreement will be subject to required withholding taxes and other deductions. 15. Mitigation. Employee shall not be required to mitigate the amount of any payment Employer becomes obligated to make to Employee in connection with this Agreement, by seeking other employment or otherwise, and except as expressly provided in this Agreement, amounts or other benefits to be paid or provided to Employee pursuant to this Agreement shall not be reduced by reason of Employee obtaining other employment or receiving similar payments or benefits from another employer. 16. Successors; Binding Agreement (a) Any Successor (as hereinafter defined) to Employer shall be bound by this Agreement. Employer will seek to have any Successor assent to the fulfillment by Employer of its obligations under this Agreement at Employee's request. Failure of Employer to obtain such assent within thirty (30) days after such request shall constitute Good Reason for termination by Employee of Employee's employment and, upon a voluntary termination by Employee pursuant to Section 2, shall entitle Employee to the benefits provided in Section 8(e). For purposes of this Agreement, "Successor" shall mean any person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), Employer's business directly, by merger or consolidation, or indirectly, by purchase of the Employer's voting securities, all or substantially all of its assets or otherwise. (b) For purposes of this Agreement, "Employer" shall include any corporation or other entity which is the surviving or continuing entity in respect of any amalgamation, merger, consolidation, dissolution, asset acquisition or other form of business combination. 17. Pension Credit (a) The Employee shall be entitled to a supplemental pension benefit equal to the excess, if any, of (x) over (y) where (x) and (y) are as defined below: (x) the pension benefit that would have been payable to the Employee under the Alumax Retirement Plan for Salaried Employees, as it may from time to time be amended (or any successor plan which is a defined benefit plan) (the "Plan"), if the periods of employment with AMAX Inc. or Aztec Mining Company Limited and the period April 1, 1994 through October 31, 1996 were included in Employee's Benefit Service (as defined in the Plan). The pension benefit determined under this clause (x) shall be determined -17- 21 without regard to any limits imposed by the Internal Revenue Code (currently Sections 401(a)(17) and 415). (y) the pension benefit paid or payable under any defined benefit plan (whether or not qualified under the Internal Revenue Code) sponsored by AMAX Inc. or Alumax Inc. for which any of the periods of service are included in the calculation of the pension benefit calculated under clause (x) above. The supplemental pension benefit shall commence as of the same date and shall be paid in the same form as Employee's benefit under the Plan. (b) The benefit entitlements of Employee provided in this Section 16 shall survive any termination of the Period of Employment pursuant to Section 2. 18. Miscellaneous. (a) Except to the extent that the terms of this Agreement confer benefits that are more favorable to Employee than are available under any other employee benefit or executive compensation plan of Employer in which Employee is a participant, Employee's rights under any such employee (including executive) benefit plan or executive compensation or severance plan shall be determined in accordance with the terms of such plan (as it may be modified or added to by Employer from time to time). (b) This Agreement constitutes the entire understanding between Employer and Employee relating to employment of Employee by Employer and its subsidiaries and supersedes and cancels all prior agreements and understandings with respect to the subject matter of this Agreement and such other written agreements, including the Executive Separation Policy of the Employer. Employee shall not be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by Employee under such prior agreements and understandings or under any employee (including executive) benefit plan or executive compensation plan of the Employer. (c) This Agreement may be amended but only by a subsequent written agreement of the parties. (d) This Agreement shall be binding upon and shall inure to the benefit of Employee, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of Employer and its successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the year and day first above written. ALUMAX INC. By /s/ HELEN M. FEENEY -------------------- Vice President /s/ THOMAS G. JOHNSTON ----------------------- Thomas G. Johnston -18- 22 Address of Employee for Purposes of Notices: ------------------------------------------- ------------------------------------------- -19- EX-10.21 6 GRANTOR TRUST AGREEMENT 1 EXHIBIT 10.21 GRANTOR TRUST AGREEMENT THIS AGREEMENT, amended and restated as of the first day of April, 1997, is between Alumax, Inc. a corporation organized and existing under the laws of the state of Delaware (the "Company"), and The Chase Manhattan Bank, a New York banking corporation having its principal office in New York (the "Trustee"). RECITALS A. The Company is obligated to pay deferred compensation or other executive compensation to certain employees of the Company or its subsidiaries (the "Participants") and their beneficiaries (the "Beneficiaries") under the Alumax Inc. Deferred Compensation Plan, 1993 Long Term Incentive Plan, 1993 Stock Option Subplan for Key Employees, 1995 Employee Equity Ownership Plan, 1993 Annual Incentive Plan, and employment agreements and other arrangements (collectively, the "Plans"); and B. The Company has granted and may in the future from time to time grant stock units, in the form of Performance Accelerated Restricted Stock or otherwise to the Participants, and enter into other compensatory arrangements, in each case requiring deferred payment of compensation relating thereto to the Participants and their Beneficiaries; and C. Pursuant to an agreement made as of October 10, 1994, by and between the Company and E. William Smethurst, Jr., the Company previously established this Trust as an irrevocable grantor trust which is not intended to be qualified under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), to provide assurance to its key management employees (the "Participants") and their surviving spouses, dependent children, beneficiaries or estates (collectively, the "Beneficiaries") that the Company will be able to meet its obligations with respect to their benefits under the Plans in the future by application of the procedures governing the Trust; and 2 2 D. The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J. chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. E. Amounts transferred to the Trust, as determined by the Company from time to time in its sole discretion, and the earnings thereon shall be used by the Trustee solely in satisfaction of the liabilities of the Company with respect to the Participants in the Plans and their Beneficiaries and such utilization shall be in accordance with the procedures set forth herein, except that all such amounts held at any time shall be subject to the claims of general creditors of the Company in the event of bankruptcy or insolvency, as defined in section 2.1; and F. Any amount transferred by the Company to the Trust and the earnings thereon shall revert to the Company only upon satisfaction of all liabilities of the Company under the Plans, except that all such amounts held at any time under this Agreement shall be subject to the claims of general creditors of the Company in the event of bankruptcy or insolvency, as defined in section 2.1; and G. To provide for more efficient administration of the Trust in order to best enable the Company to meet all of its obligations under the Plans, the Company desired to amend and restate this Agreement. AGREEMENT In consideration of the premises and mutual and independent promises herein, the parties hereto covenant and agree as follows. ARTICLE I Establishment of Trust 1.1. Trust Fund. The Company hereby establishes with the Trustee a Trust consisting of such sums of money, and such other property, acceptable to the Trustee, as shall from time to time be paid or 3 3 delivered to the Trustee by the Company and the earnings and profits thereon. Such property may consist of shares of the Company's Common Stock ("Shares"). All such money and property, all investments made therewith and proceeds thereof, less the payments or other distributions which, at the time of reference, shall have been made by the Trustee, as authorized herein, shall be referred to herein as the "Trust Fund" and shall be held by the Trustee, IN TRUST, in accordance with the provisions of this Agreement. The Trust Fund shall be re-valued by the Trustee as of the last business day of each calendar year at current market values, as determined by the Trustee. The Trustee shall determine the fair market value or fair value of securities or other property held in the Trust Fund based upon one or more of the following: information and financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisals by qualified persons, transactions and bona fide offers in assets of the type in question, valuations provided by Investment Managers, and other information customarily used in the valuation of property. An Investment Manager shall certify, at the request of the Trustee, the value of any securities or other property held in any Investment Account managed by such Investment Manager, and such certification shall be regarded as a direction with regard to such valuation. The Trustee shall be entitled to rely upon such valuation for all purposes under this Trust Agreement. The Trustee shall hold, manage, invest and otherwise administer the Trust Fund pursuant to the terms of this Agreement. Except as otherwise expressly provided herein, this Trust shall be irrevocable and no part of the Trust Fund shall revert, or be paid to, the Company. 1.2. Contributions. The Trustee shall be responsible only for contributions actually received by it hereunder and the earnings on such contributions. The amount of each contribution by the Company to the Trust shall be determined in the sole discretion of the Company, and the Trustee and the Trust Agent, as described in Section 3.1, shall have no duty or responsibility with respect thereto, except as other expressly agreed to by the Trustee. A separate bookkeeping account ("Deferral Account") shall be established and maintained with respect to each Participant to which shall be credited and debited amounts as provided below. At the time of each contribution, the Company shall certify to the Trustee the portion of the contribution to be 4 4 allocated to each Participant's Deferral Account. The Trustee shall hold, invest and reinvest the assets of each Participant's Deferral Account in accordance with Article V below. A Participant's Deferral Account shall not be reduced except upon payment of benefits from the account, a decrease in the value of the Account, or otherwise as provided in this Trust Agreement. ARTICLE II Purpose of Trust 2.1. Effect of Bankruptcy or Insolvency on Trust Distribution. The assets of the Trust shall be subject only to the claims of the Company's general creditors in the event of the Company's bankruptcy or insolvency. The Company shall be considered "bankrupt" or "insolvent" if the Company is (A) unable to pay its debts when due or (B) engaged as a debtor in a proceeding under the Bankruptcy Code, 11 U.S.C. ss. 101 et seq. The Secretary of the Company must give written timely notification to the Trustee of the Company's bankruptcy or insolvency. Upon receipt of such a notice, or upon actual knowledge of the Trustee, or upon receipt of a written allegation from a person or entity claiming to be a creditor of the Company that the Company is bankrupt or insolvent, the Trustee shall discontinue payments to Participants and Beneficiaries. The Trustee shall, as soon as practicable thereafter, determine whether the Company is bankrupt or insolvent. In determining whether the Company is bankrupt or insolvent, the Trustee may rely conclusively upon, and be protected in so relying upon, records of a court of competent jurisdiction or a report issued by a national credit reporting agency showing that the Company is or is not bankrupt or insolvent. If the Trustee determines, based on such information, that the Company is bankrupt or insolvent, the Trustee shall hold the assets of the Trust for the benefit of the Company's general creditors, and deliver any undistributed assets to satisfy the claims of such creditors as a court of competent jurisdiction may direct. If the Trustee is required to make any distribution for the benefit of creditors, the Trust Agent shall cause such distribution to be charged pro rata against all of the assets of Separate Accounts established. The Trustee shall resume payments to Participants or Beneficiaries only after it has determined that the Company is not bankrupt or insolvent, is no longer bankrupt or insolvent (if the Trustee 5 5 determined that the Company was bankrupt or insolvent), or pursuant to an order of a court of competent jurisdiction. Except as expressly provided above, unless the Trustee has actual knowledge of the Company's bankruptcy or insolvency, the Trustee shall have no duty to inquire whether the Company is bankrupt or insolvent. If the Trustee discontinues payment of benefits from the Trust pursuant to this Section 2.1 and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments which would have been made to each Participant or Beneficiary during the period of such discontinuance, less the aggregate amount of payments made to the Participant or Beneficiary by the Company, as certified by the Company to the Trustee and the Trust Agent, in lieu of the payments provided for hereunder during any such period of discontinuance. For purposes of this Section 2.1, actual knowledge of the Trustee shall mean knowledge obtained by written notice or other written communication to the trust department of the Trustee as provided in Section 13.6. 2.2. Vehicle to Meet Obligations. The Company represents and agrees that the Trust established under this Agreement does not fund and is not intended to fund any or all of the Plans or any other employee benefit plan or program of the Company. This Trust is and is intended to be a depository arrangement with the Trustee for the setting aside of cash and other assets of the Company as and when it so determines, in its sole discretion, for the meeting of part or all of its future obligations to some or all of the Participants and their Beneficiaries under the Plans. The Company further represents that each Plan is a deferred compensation plan for a select group of management and highly compensated employees and as such is exempt from the application of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), except for the disclosure requirements applicable to such plans for which the Company bears full responsibility as to compliance. The Company further represents that no Plan is qualified under Section 401 of the Code and therefore is not subject to any of the Code requirements applicable to tax-qualified plans. 6 6 ARTICLE III Trust Agent 3.1. Initial Appointment of Trust Agent. By its acceptance of this Trust, the Trustee hereby agrees to the designation by the Company of the Secretary of the Company as the Trust Agent ("Trust Agent") under this Agreement. The Trustee shall have no responsibility for the performance of the duties of the Trust Agent. 3.2. Removal of the Trust Agent. Prior to a Change in Control, the Company may direct the Trustee to terminate the Trust Agent by written notice to the Trust Agent and to appoint a successor agent as directed by the Company, such appointment to be effective as provided in Section 3.3. Following a Change in Control, the Trust Agent serving at the time of such Change in Control shall continue to serve in such capacity until the Trust terminates or until the agent resigns in accordance with Section 3.3. 3.3. Resignation of the Trust Agent. The Trust Agent may resign at any time by delivery of written notice of resignation to the Trustee and the Company. If the notice of resignation is received by the Company prior to a Change in Control, the Company shall appoint a successor Trust Agent. If such notice of resignation is received by the Company following a Change in Control, the Trustee shall appoint a successor Trust Agent in its discretion, which successor shall be a compensation or actuarial consulting firm having a national reputation. Any such resignation or any termination of the Trust Agent pursuant to Section 3.2 shall take effect as of a future date specified in the notice of same, which date shall not be earlier than the date 60 days after the day on which the notice is delivered, or such earlier date as may be agreed to by the Trust Agent and the Trustee; provided, however, that any resignation following a Change in Control shall not be effective until such time as a successor Trust Agent has been appointed and is ready to assume such responsibility. The successor Trust Agent shall, as a condition to such appointment, agree in writing to be bound by the terms of this Agreement and to perform the duties and assume the responsibilities assigned to the Trust Agent under this Agreement. As soon as practicable after a Trust Agent has resigned or has been terminated it shall deliver to the successor Trust Agent all reports, records, documents, and other written information in its possession 7 7 regarding the Plans, the Trust and the Participants and Beneficiaries in the Plans, and thereupon shall be entitled to all unpaid fees, compensation and reimbursement to which it is entitled under this Agreement and shall be relieved of all responsibilities and duties under this Agreement. 3.4. Records. The Trust Agent shall maintain or cause to be maintained all the Participant records contemplated by this Agreement. The Trust Agent shall also prepare and distribute Participant's statements which shall include income tax information, if that information is supplied to the Trust Agent by the Company, or its delegate, with respect to payments to Participants and their Beneficiaries and shall perform such other duties and responsibilities as the Trustee determines is necessary or advisable to achieve the objectives of this Agreement. Any tax information applicable to a Participant or Beneficiary including any required tax withholding shall be supplied to the Trust Agent by the Company and the Trust Agent shall have no responsibility for the accuracy of such information. 3.5. Participant Information. The Company shall furnish to the Trust Agent all the information necessary to determine the benefits payable to or with respect to each Participant in the Plans, including any benefits payable after a Participant's death and the recipient of same. The Company shall from time to time, and at least annually, and promptly upon the request of the Trust Agent, furnish updated information to the Trust Agent. Based on the foregoing information the Trust Agent shall prepare an annual benefits statement in respect to each Participant and shall furnish a copy of same to the Participant or his Beneficiary and to the Company. In the event the Company refuses or neglects to provide updated Participant information, as contemplated herein, the Trust Agent shall rely upon the most recent information furnished to it by the Company, provided, however, that following a Change in Control, the Trust Agent shall rely solely on (i) information furnished to it by the Company prior to a Change in Control, (ii) information furnished to it by the Company following a Change in Control which does not decrease the rights of a Participant to whom it pertains and (iii) any information received by it from a participant unless the Trust Agent actually knows that such information is false. The Trust Agent has no responsibility to verify information provided to it by the Company or any Participant. 8 8 3.6. Benefit Payments. Upon proper notification from the Company prior to a Change in Control or, following a Change in Control, based on such information as the Trust Agent shall be entitled to rely upon pursuant to Section 3.5, the Trust Agent shall prepare a certification to the Trustee that a Participant's benefits under the Plan have become payable and shall furnish a copy of such certification to the Participant or to the Beneficiary of a deceased Participant. Such certification shall include the amount of such benefits, the terms of payment, the amount of any taxes required to be withheld from such amount, if such information is supplied to the Trust Agent by the Company or its delegate, and the name, address and social security number of the recipient. Upon the receipt of such certified statement, the Trustee shall commence cash distributions from the Trust Fund in accordance therewith to the person or persons so indicated and to the Company with respect to taxes required to be withheld and the Trust Agent shall charge the payments against the Participant's Deferral Account. If at any time any Participant's Deferral Account with respect to any Plan or benefit has been exhausted, no additional amounts shall be payable from the Trust with respect to such Plan or benefit. The Company shall have full responsibility for the payment of all withholding taxes to the appropriate taxing authority and shall also furnish each Participant or Beneficiary with the appropriate tax information form evidencing such payment and the amount thereof. 3.7. Company's Liability Not Limited to Assets. Nothing provided in this Agreement shall relieve the Company of its liabilities to pay the benefits provided under the Plans except to the extent such liabilities are met by application of Trust Fund assets. 3.8. Form of Benefit Payments. All payments shall be in cash except that the Trustee may, at the direction of the Secretary of the Company or other administrator appointed for purposes of this Trust by the Human Resources and Compensation Committee of the Company's Board of Directors (the "Committee"), distribute assets held in the Trust including Shares. For the purpose of making cash payments or to satisfy various withholding or other obligations hereunder, if all or part of the principal of the Trust shall consist of securities (including Shares) or other property which do not have a readily ascertainable market value, the Company may purchase from the 9 9 Trust (or it may substitute new assets for) such assets at its option for the amount it then designates as the market value; provided that the Secretary shall certify to the Trustee that such market value as been determined on the same basis utilized for purposes of valuing the Trust Fund as provided in Section 1.1. of this Agreement. The Trustee may conclusively, without further inquiry, rely upon the value determined by the Company and the Secretary. ARTICLE IV Administration 4.1. Plan Documents and Authorizations. The Company shall provide the Trust Agent with a certified copy of each Plan and all amendments thereto and of the resolutions of the Board of Directors of the Company approving the Plans and all amendments thereto, promptly upon their adoption. The Company shall file with the Trustee and the Trust Agent a certified list of the names and specimen signatures of the officers of the Company, the members of the Committee and any person authorized to act for them. Prior to a Change in Control, the Company shall promptly notify the Trustee and the Trust Agent of the addition or deletion of any person's name to or from such list, respectively. Following a Change in Control, deletion of any person from such list may only be made with the consent of such person. Additions to such list following a Change in Control may be made only to the extent necessary to replace any person deleted hereunder and then only with the consent of a majority of the persons who remain on such list. Until receipt by the Trustee and/or the Trust Agent of proper notice that any person is no longer authorized so to act, the Trustee or the Trust Agent may continue to rely on the authority of the person. All certifications, notices and directions by any such authorized person or persons to the Trustee or Trust Agent shall be in writing signed by such person or persons, provided that the Committee may certify to the Trustee and the Trust Agent one or more of its members to act on behalf of the entire committee and the Trustee and the Trust Agent may rely on the actions of such person or persons until notified in writing that such certification has been revoked. The Trustee and the Trust Agent may rely on any such certification, notice or direction purporting to have been signed by or on behalf of such person or persons that the Trustee or the Trust Agent reasonably believes to have been signed thereby. The Trustee and the Trust Agent shall have no responsibility for acting or not acting in reliance upon any notification believed by the Trustee or the Trust Agent to have been so 10 10 signed by a duly authorized officer or agent of the Company. Prior to a Change in Control, the Company, and following a Change in Control, the Trust Agent shall be responsible for keeping accurate books and records (in the case of the Trust Agent, to the extent possible based on the information described in Section 3.5) with respect to the employees of the Company, their compensation and their rights and interests under the Plans. 4.2. Contributions. The Company shall make its contributions to the Trust in accordance with appropriate corporate action and the Trustee shall have no responsibility with respect thereto, except to add to the Trust Fund any such contributions received. 4.3. No Duty of Inquiry. No person dealing with the Trustee shall be under any obligation to see to the proper application of any money paid or property delivered to the Trustee or to inquire into the Trustee's authority as to any transaction. 4.4. Method of Distribution. The Trustee shall distribute cash or property from the Trust Fund in accordance with Article III hereof. The Trustee may make any distribution required hereunder by mailing its check for the specified amount, or delivering the specified property, to the person to whom such distribution or payment is to be made, at such address as may have been last furnished to the Trustee, or prior to a Change in Control if no such address shall have been so furnished, to such person in care of the Company. 4.5. Actions by Company. If at any time there is no person authorized to act under this Agreement on behalf of the Company, the Board of Directors of the Company shall have the authority to act on behalf of the Company hereunder. 11 11 ARTICLE V Trust Investments 5.1 Establishment of Investment Accounts. (a) The Company may direct the Trustee to establish one or more separate investment accounts within the Trust Fund, each separate account being hereinafter referred to as an "Investment Account." The Trustee shall transfer to each such Investment Account such portion of the assets of the Trust as the Company directs. The Trustee shall be under no duty to question, and shall not incur any liability on account of following any direction of the Company. The Trustee shall be under no duty to review the investment guidelines, objectives and restrictions established, or the specific investment directions given, by the Company for any Investment Account, or to make suggestions to the Company in connection therewith. (b) All interest, dividends and other income received with respect to, and any proceeds received from the sale or other disposition of, securities or other property held in an Investment Account shall be credited to and reinvested in such Investment Account. All expenses of the Trust which are allocable to a particular Investment Account shall be so allocated and charged. The Company may direct the Trustee to eliminate an Investment Account, and the Trustee shall thereupon dispose of the assets of such Investment Account and reinvest the proceeds thereof in accordance with the directions of the Company. 5.2 Investment Manager Appointment. (a) The Company may appoint one or more investment managers ("Investment Managers"), pursuant to a written investment management agreement describing the powers and duties of the Investment Manager, to direct the investment and reinvestment of all or a portion of an 12 12 Investment Account. The Company shall be responsible for ascertaining that while each Investment Manager is acting in that capacity hereunder, the following requirements are satisfied: (1) The Investment Manager is either (i) registered as an investment adviser under the Investment Adviser Act of 1940, as amended, (ii) a bank as defined in that Act, or (iii) an insurance company qualified to perform the services described in (b) below under the laws of more than one state; and (ii) The Investment Manager has the power to manage, acquire or dispose of any assets of the Plans for which it is responsible hereunder. The Company shall furnish the Trustee with written notice of the appointment of each Investment Manager hereunder, and of the termination of any such appointment. Such notice shall specify the assets which shall constitute the Investment Account. The Trustee shall be fully protected in relying upon the effectiveness of such appointment and the Investment Manager's continuing satisfaction of the requirements set forth above until it receives written notice from the Company to the contrary. (b) The Trustee shall conclusively presume that each Investment Manager, under its investment management agreement, is entitled to act, in directing the investment and reinvestment of the Investment Account for which it is responsible, in its sole and independent discretion and without limitation, except for any limitations which from time to time the Company and the Trustee agree in writing shall modify the scope of such authority. (c) The Trustee shall have no liability (i) for the acts or omissions of any Investment Manager, (ii) for following directions, including investment directions of an Investment Manager or the Company, which are given in accordance with this Trust Agreement, or (iii) for any loss of any kind which may result by reason of the manner of division of the Trust Fund or Investment Accounts. 13 13 (d) If the Trustee concludes that it may be subject to a conflict of interest with respect to a transaction relating to securities or other property held in the Trust Fund which might affect, or have the appearance of affecting, the performance of its fiduciary responsibilities under this Agreement, the Trustee may, in its discretion, select a third party to exercise the Trustee's fiduciary responsibilities with respect to the transaction. Provided that the third party is reasonably acceptable to the Company and satisfies the criteria set forth in Section 5.2(a)(i) hereof, the Company shall engage such third party as an Investment Manager for the limited purpose described in the previous sentence. The Trustee shall pay the fees of such an Investment Manager with respect to this limited engagement. 5.3 Company Directed Investment Accounts. The Trustee shall, if so directed in writing by the Company, segregate all or a portion of the Trust Fund held by it into one or more separate investment accounts to be known as Company Directed Accounts, with respect to which the Company shall have the powers and duties granted to an Investment Manager under this Agreement. The Company, by written notice to the Trustee, may at any time relinquish its powers under this Section 5.3 and direct that a Company Directed Account shall no longer be maintained. In addition, during any time when there is no Investment Manager with respect to an Investment Account (such as before an investment management agreement takes effect or after it terminates), the Company shall direct the investment and reinvestment of such Investment Account. Whenever the Company is directing the investment and reinvestment of an Investment Account or a Company Directed Account, the Company shall have the powers and duties which an Investment Manager would have under this Trust Agreement if an Investment Manager were then serving and the Trustee shall be protected in relying on the Company's directions without reviewing investments or making suggestions to the same extent as it would be protected under this Trust Agreement if it had relied on the directions of an Investment Manager. 14 14 5.4 Trustee Directed Investment Accounts. The Trustee shall have no duty or responsibility to direct the investment and reinvestment of the Trust Fund or any Investment Account unless expressly agreed to in writing between the Trustee and the Company. In the event that the Trustee enters into such an agreement, it shall have the powers and duties of an Investment Manager under this Trust Agreement with regard to such Investment Account. ARTICLE VI Powers of the Trustee 6.1 Investment Powers of the Trustee. The Trustee shall have and exercise the following powers and authority (i) over Investment Accounts where it has express investment management discretion as provided in Section 5.4 and (ii) upon direction of the Investment Manager or the Company, as the case may be, for all other Investment Accounts: (a) To purchase, receive or subscribe for any securities or other property and to retain in trust such securities or other property; (b) To acquire and hold employer securities and real property provided that the Trustee shall not dispose of any Shares deposited with the Trust prior to the date on which such Shares are no longer subject to a risk of forfeiture or transferability restrictions pursuant to the Plans or any other compensatory arrangement theretofore established with respect to which the Trust is then holding Shares; provided further that in the event of a Change in Control (as defined in the 1993 Long Term Incentive Plan), the Trustee may elect to surrender to the Company, within the 60-day period immediately following such Change in Control, any Shares then held by the Trust in exchange for a cash payment equal to the Change in Control Stock Value (as defined in the 1993 Long Term Incentive Plan). 15 15 (c) To sell for cash or on credit, to grant options, convert, redeem, exchange for other securities or other property, to enter into standby agreements for future investment, either with or without a standby fee, or otherwise to dispose of any securities or other property at any time held by it; (d) To settle, compromise or submit to arbitration any claims, debts, or damages, due or owing to or from the trust to commence or defend suits or legal proceedings and to represent the trust in all suits or legal proceedings in any court of law or before any other body or tribunal; (e) To trade in financial options and futures, including index options and options on futures and to execute in connection therewith such account agreements and other agreements in such form and upon such terms as the Investment Manager or the Company shall direct; (f) To exercise all voting rights, tender or exchange rights, any conversion privileges, subscription rights and other rights and powers available in connection with any securities or other property at anytime held by it; to oppose or to consent to the reorganization, consolidation, merger or readjustment of the finances of any corporation, company or association, or to the sale, mortgage, pledge or lease of the property of any corporation, company or association or any of the securities which may at any time be held by it and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions and the payment of expenses, assessments or subscriptions, which may be deemed necessary or advisable by the Investment Manager or Company in connection therewith, and to hold and retain any securities or other property which it may so acquire; and to deposit any property with any protective, reorganization or similar committee, and to pay and agree to pay part of the expenses and compensation of any such committee and any assessments levied with respect to property so deposited; 16 16 (g) To exercise in accordance with the direction of the Secretary of the Company all tender offer rights with respect to all securities issued by the Company which are held by it; (h) To invest all or a portion of the Trust Fund in contracts issued by insurance companies, including contracts under which the insurance company holds Plan assets in a separate account or commingled separate account managed by the insurance company; the Trustee shall be entitled to rely upon any written directions of the Company or the Investment Manager under this Section 6.1, and the Trustee shall not be responsible for the terms of any insurance contract that it is directed to purchase and hold or for the selection of the issuer thereof or for performing any functions under such contract (other than the execution of any documents incidental thereto on the instructions of the Company or the Investment Manager); (i) To manage, administer, operate, lease for any number of years, develop, improve, repair, alter, demolish, mortgage, pledge, grant options with respect to, or otherwise deal with any real property or interest therein at any time held by it, and to hold any such real property in its own name or in the name of a nominee, with or without the addition of words indicating that such property is held in a fiduciary capacity, all upon such terms and conditions as may be deemed advisable by the Investment Manager or the Company; (j) To renew, extend or participate in the renewal or extension of any mortgage, upon such terms as may be deemed advisable by the Investment Manager or the Company, and to agree to a reduction in the rate of interest on any mortgage or of any guarantee pertaining thereto in any manner and to any extent that may be deemed advisable by the Investment Manager or the Company for the protection of the Trust Fund or the preservation of the value of the investment; to waive any default, whether in the performance of any covenant or condition of any mortgage or in the performance of any guarantee, or to enforce any such default in such manner and to 17 17 such extent as may be deemed advisable by the Investment Manager or the Company; to exercise and enforce any and all rights of foreclosure, to bid on property on foreclosure, to take a deed in lieu of foreclosure with or without paying consideration therefor, and in connection therewith to release the obligation on the bond secured by such mortgage, and to exercise and enforce in any action, suit or proceeding at law or in equity any rights or remedies in respect to any such mortgage or guarantee; (k) To hold part or all of the Trust Fund uninvested to the extent that the directing party ascertains as reasonable and necessary for limited periods of time; (l) To loan pursuant to separate agreement as may be agreed upon any securities to brokers or dealers and to secure the same in any manner, and during the term of any such loan to permit the loaned securities to be transferred into the name of and voted by the borrower or others; to purchase, enter, sell, hold, and generally deal in any manner in and with contracts for the immediate or future delivery of financial instruments of any issuer or of any other property; to grant, purchase, sell, exercise, permit to expire, permit to be held in escrow, and otherwise to acquire, dispose of, hold and generally deal in any manner with and in all forms of options in any combination; and, in connection with its exercise of the powers granted in this Trust Agreement, to deposit any securities or other property as collateral with any broker-dealer or other person, to permit securities or other property to be held by or in the name of others or in transferable form, to retain any form of securities or other property received as a result of the exercise of any of the foregoing powers whether or not investment in such securities or other property is otherwise authorized under this Trust Agreement and to hold and administer any securities or other property with respect to which the foregoing powers have or may be exercised, including any securities or collateral acquired by it or in any property received as a result of its exercise of 18 18 such powers, as a part of the account subject to the foregoing powers, or in any sub-account, which property may be invested in securities or other property of different types than the securities or other property otherwise held in the account; (m) To employ suitable agents and counsel and to pay their reasonable and proper expenses and compensation; (n) To purchase and sell foreign exchange and contracts for foreign exchange, including transactions entered into with the Trustee, its agents or subcustodians; (o) To form corporations and to create trusts to hold title to any securities or other property, all upon such terms and conditions as may be deemed advisable by the Investment Manager or Company; (p) To deposit and hold funds in any type of interest bearing deposit accounts (including, but not limited to savings accounts, money market accounts, and certificates of deposit or non-interest bearing deposit accounts at the Trustee. Except as otherwise provided in this Trust Agreement, the Investment Manager of an Investment Account or the Company in the case of a Company Directed Account shall have the power and authority to be exercised in its sole discretion at any time and from time to time, to issue orders for the purchase or sale of securities directly to a broker. Written notification of the issuance of each such order shall be given promptly to the Trustee by the Investment Manager or the Company and the confirmation of each such order shall be confirmed to the Trustee by the broker. Unless otherwise directed by the Company or Investment Manager, such notification shall be authority for the Trustee to pay for securities purchased or to deliver securities sold as the case may be. Upon the direction of the Investment Manager or the Company, the Trustee will execute and deliver appropriate trading 19 19 authorizations, but no such authorization shall be deemed to increase the liability or responsibility of the Trustee under this Trust Agreement. The Trustee shall transmit promptly to the Company or the Investment Manager, as the case may be, all notices of conversion, redemption, tender, exchange, subscription, class action, claim insolvency proceedings or other rights or powers relating to any of the securities in the Trust Fund, which notices are received by the Trustee from its agents or custodians, from issuers of the securities in question and from the party (or its agents) extending such rights. The Trustee shall have no obligation to determine the existence of any conversion, redemption, tender, exchange, subscription, class action, claims in insolvency proceedings or other right or power relating to any of the securities in the Trust of which notice was given prior to the purchase of such securities by the Trust, and shall have no obligation to exercise any such right or power unless the Trustee is informed of the existence of the right or power. The Trustee shall not be liable for any untimely exercise or assertion of such rights or powers described in the paragraph immediately above in connection with securities or other property of the Trust at any time held by it unless (i) it or its agents or custodians are in actual possession of such securities or property and (ii) it receives directions to exercise any such rights or powers from the Company or the Investment Manager, as the case may be, and both (i) and (ii) occur at least three business days prior to the date on which such rights or powers are to be exercised. If the Trustee is directed by the Company or an Investment Manager to purchase securities issued by any foreign government or agency thereof, or by any corporation or other entity domiciled outside of the United States, it shall be the responsibility of the Company or Investment Manager, as the case may be, to be aware of any laws or regulations of any foreign countries or any United States territory or possession which shall apply in any manner whatsoever to such securities, and the custody 20 20 of such securities and all procedures to be followed with respect to the holding and exercise of rights shall be subject to procedures issued by the Trustee for global custody. Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. 6.2 Administrative Powers of the Trustee. (a) Notwithstanding the appointment of an Investment Manager, the Trustee shall have the following powers and authority, to be exercised in its sole discretion, with respect to the Trust: (i) To employ suitable agents, custodians and counsel and to pay their reasonable expenses and compensation; (ii) To appoint ancillary trustees to hold any portion of the assets of the trust and to pay their reasonable expenses and compensation; (iii) To register any securities held by it hereunder in its own name or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form and to deposit any securities or other property in a depository or clearing corporation; (iv) To make, execute and deliver, as Trustee, any and all deeds, leases, mortgages, conveyances, waivers, releases or other instruments in writing necessary or desirable for the accomplishment of any of the foregoing powers; (v) Generally to do all ministerial acts, whether or not expressly authorized, which the Trustee may deem necessary or desirable in carrying out its duties under this Trust Agreement. 21 21 (b) The Trustee may consult with legal counsel concerning questions which may arise with reference to this Trust Agreement and its powers and duties hereunder in the event that (i) Trustee has not received a direction in the usual periods of time for such communications or (ii) Trustee has not received representations to its satisfaction that a direction is a proper one under the Trust or applicable law. The written opinion of such counsel shall be full and complete protection of the Trustee in respect to any action taken or suffered by the Trustee hereunder in good faith reliance on the opinion. ARTICLE VII. Responsibility of Trustee; Indemnification; Contribution 7.1 Responsibility of Trustee (a) The Trustee shall incur no liability to any person in discharging its duties hereunder for any action taken or omitted in good faith in conformity with the terms of this Trust Agreement. Each direction, notice, request or approval (whether or not certified to the Trustee in writing) by the Company, shall constitute a certification by the Company to the Trustee that such direction is in conformity with the terms of the Plan and applicable law. Under no circumstances shall the Trustee incur liability to any person for any indirect, consequential or special damages (including, without limitation, lost profits) of any form, whether or not foreseeable and regardless of the form of the action in which such a claim may be brought, with respect to the Trust or its role as Trustee. (b) The Trustee shall have no obligation to undertake, defend or continue to maintain any action or proceeding arising in connection with the Trust, unless and until the Company agrees in writing to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto, to be primarily liable for such payment and to make periodic payments in respect of such fees and expenses during the course of such proceedings. If 22 22 the Company thereafter does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee shall discontinue participation in such action or proceeding, and charge the assets of the Trust to the extent sufficient for any unpaid fees and expenses. The Trustee shall not be under any duty to require payment of any contributions to the Trust Fund, or to see that any payment made to it is computed in accordance with the provisions of the Plans, or otherwise be responsible for the adequacy of the Trust Fund to meet and discharge any liabilities under the Plans. 7.2 Indemnification and Contribution (a) The Company shall indemnify and save harmless the Trustee for and from any loss, claim or expense (including reasonable attorneys' fees) arising (a) out of any matter as to which this Trust Agreement provides that the Trustee is directed, protected, not liable, or not responsible, or (b) by reason of any breach of any statutory or other duty owed to the Plans by the Company, any Investment Manager or any delegate of either of them (and for the purposes of this sentence the Trustee shall not be considered to be such a delegate). (b) The Trustee, its affiliates, and their officers, agents and employees may bring action against the Company to contribute to the satisfaction of any damages, claims, losses, liabilities, demands, penalties, obligations, or costs to the extent that they (i) are subject to indemnification under Subsection (a) and (ii) are caused by the culpable conduct of the Company, or any of its affiliates or agents. (c) The foregoing rights of indemnification and contribution shall not supersede any common law or equitable rights or remedies which may be available. 23 23 ARTICLE VIII Expenses 8.1. Taxes. The Company agrees that all income, deductions and credits of each Account under the Trust belong to it as owner for income tax purposes and will be included on the Company's income tax returns. The Company shall pay any Federal, state and local taxes on the Trust, or any part thereof, and on the income therefrom. 8.2. Compensation. The Trustee shall be entitled to such compensation and fees for its services under this Agreement as shall be set forth in its Published Schedule of Compensation in effect at the time such compensation is payable. The Trust Agent (other than the Secretary of the Company) shall also be entitled to such compensation and fees for its services under this Agreement as is agreeable to the Company, the Trustee, and the Trust Agent. Such expenses and compensation shall be a charge on the Trust and shall constitute a lien against the Trust Fund until paid by the Company. Such compensation, fees and reimbursement for expenses and liability described in Section 7.2 shall be paid to the Trustee or the Trust Agent by the company directly; but if the Company shall fail to do so, the Trustee shall be entitled to withdraw all amounts to which it is entitled pro rata from the assets of all Accounts. To the extent the Trust is not sufficient, the additional amounts due shall constitute a lien against the Trust Fund. ARTICLE IX Trust Records and Accounts 9.1. Trust Records. The Trustee shall maintain records with respect to the Trust Fund that show all its receipts and disbursements hereunder. The records of the Trustee with respect to the Trust Fund shall be open to inspection by the Company, the Trust Agent and Participants, or their representatives, at all reasonable times during normal business hours of the Trustee and may be audited not more frequently than once each fiscal year by an independent certified public accountant engaged by the Company; provided, however, the Trustee shall be entitled to additional compensation from the Company, as mutually agreed upon by the Company and the Trustee, in respect of audits or auditors' 24 24 requests which the Trustee determines to exceed the ordinary course of the usual scope of such examination of its records. 9.2. Settlement of Accounts. Within a reasonable time after the close of each fiscal year of the Company (or, in the Trustee's discretion, at more frequent intervals), or of any termination of the duties of the Trustee hereunder, the Trustee shall prepare and deliver to the Company and the Trust Agent a statement of transactions reflecting its acts and transactions as Trustee during such fiscal year, portion thereof or during such period from the close of the last fiscal year or last statement period to the termination of the Trustee's duties, respectively, including a statement of the then current value of the Trust Fund. Any such statement shall be deemed an account stated and accepted and approved by the Company, and the Trustee shall be relieved and discharged, as if such account had been settled and allowed by a judgment or decree of a court of competent jurisdiction, unless protested by written notice to the Trustee within sixty (60) days of receipt thereof by the Company. The Trustee shall have the right to apply at any time to a court of competent jurisdiction for judicial settlement of any account of the Trustee not previously settled as herein provided or for the determination of any question of construction or for instructions. In any such action or proceeding it shall be necessary to join as parties only the Trustee and the Company (although the Trustee may also join such other parties as it may deem appropriate), and any judgment or decree entered therein shall be conclusive. ARTICLE X Trustee Resignation and Removal 10.1. Resignation of Trustee. The Trustee may resign at any time by delivering written notice thereof to the Company; provided, however, that no such resignation shall take effect until the earlier of (i) sixty (60) days from the date of delivery of such notice to the Company or (ii) the appointment of a successor trustee. Notwithstanding the foregoing, following a Change in Control, the Trustee's resignation shall not be effective until a successor trustee has been appointed and is ready to act hereunder. 25 25 10.2. Removal of Trustee. The Trustee may be removed by the Company at any time prior to a Change in Control, pursuant to a resolution of the Board of Directors of the Company removing the Trustee and appointing a successor trustee, upon delivery to the Trustee of a certified copy of such resolution. Such removal shall become effective sixty (60) days' after receipt by the Trustee of such resolution, unless the Trustee shall agree to an earlier effective date. Following a Change in Control, the Trustee may not be removed. 10.3. Appointment of a Successor Trustee. Upon the resignation or removal of the Trustee prior to a Change in Control, a successor trustee shall be appointed by the Company. Following a Change in Control, any successor trustee shall be appointed by the Committee subject to approval by a majority of the then Participants (excluding Beneficiaries). Such successor trustee shall be a bank or trust company incorporated under the laws of the United States or a State within the United States and having assets in excess of $500,000,000. Such appointment shall take effect upon the delivery to the Trustee of (a) a written appointment of such successor trustee, duly executed by the Company or the Committee, as the case may be, and (b) an acceptance by such successor trustee. Any successor trustee shall have all the rights, powers and duties granted the Trustee hereunder. 10.4. Petition for Successor. If, within sixty (60) days of the delivery of the Trustee's written notice of resignation, a successor trustee shall not have been appointed, the Trustee may apply to any court of competent jurisdiction for the appointment of a successor trustee. 10.5. Transfer of Trust. Upon the resignation or removal of the Trustee and the appointment of a successor trustee, and after the acceptance and approval of its account, the Trustee shall transfer and deliver the Trust Fund to such successor. Under no circumstances shall the Trustee transfer or deliver the Trust Fund to any successor which is not a bank or trust company as hereinabove defined. ARTICLE XI Termination 11.1. Termination of the Trust. The Trust may be terminated at any time by the Company, pursuant to a resolution of the Board of Directors thereof, with the written consent of a majority of the 26 26 then Participants (excluding Beneficiaries), upon delivery to the Trustee of a certified copy of such resolution and a written instrument of termination duly executed and acknowledged in the same form as this Agreement together with a certification, in such form as the Trustee may require, that the consent of Plan Participants has been obtained; provided further that in the event of a Change in Control the Trust may not be terminated without the written consent of a majority of the persons who are then Participants. However, the Trust may not be terminated in the event of the Company's bankruptcy or insolvency, as defined in Section 2.1, and, in such case, distributions will be in accordance with that Article. 11.2. Distribution Upon Termination. Upon the termination of the Trust, the Trustee shall, after the acceptance and approval of its account, distribute to each Participant or his Beneficiary in accordance with the written directions of the Trust Agent the amount credited to any of the Participant's Deferral Accounts. After satisfaction of all liabilities with respect to all Participants in the Plans and their Beneficiaries as certified to by the Trust Agent, the Trustee shall distribute any assets remaining in the Trust Fund to the Company in accordance with its written direction. Upon completing such distributions, the Trustee shall be relieved and discharged. The powers of the Trustee shall continue as long as any part of the Trust Fund remains in its possession. ARTICLE XII Amendment Prior to a Change in Control, this Agreement may be amended, in whole or in part, at any time and from time to time, by the Company, pursuant to a resolution of the Board of Directors thereof by delivery to the Trustee of a certified copy of such resolution and a written instrument duly executed and acknowledged in the same form as this Agreement, except that the duties and responsibilities of the Trustee shall not be increased without the Trustee's written consent. Following a Change in Control, this Agreement may not be amended, except as may be required to comply with applicable law, as determined by the Trustee in consultation with its counsel, or with the written consent of a majority of the persons who are then Participants. 27 27 ARTICLE XIII Miscellaneous 13.1. Governing Law. This Agreement shall be construed and interpreted under, and the Trust hereby created shall be governed by, the laws of the State of New York insofar as such laws do not contravene any applicable Federal laws, rules or regulations. The United States District Court for the Southern District of New York shall have the sole and exclusive jurisdiction over any lawsuit or other judicial proceeding relating to or arising from this Agreement. If that court lacks federal subject matter jurisdiction, the Supreme Court of the State of New York, New York County shall have sole and exclusive jurisdiction. Either of these courts shall have proper venue for any such lawsuit or judicial proceeding, and the parties waive any objection to venue or their convenience as a forum. The parties agree to submit to the jurisdiction of any of the courts specified and to accept service of process to vest personal jurisdiction over them in any of these courts. The parties further hereby knowingly, voluntarily and intentionally waive, to the fullest extent permitted by applicable law, any right to a trial by jury with respect to any such lawsuit or judicial proceeding arising or relating to this Agreement or the transactions contemplated hereby. 13.2. Gender. Neither the gender nor the number (singular or plural) of any word shall be construed to exclude another gender or number when a different gender or number would be appropriate. 13.3. No Rights to Particular Assets. No Participant or Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Trust before such assets are paid to the Participant or Beneficiary, as provided in Article III, and all rights created under the Trust and each Plan shall be unsecured rights of the Participant or Beneficiary against the Company. No rights or interest of any Participant or Beneficiary under any Plan shall be transferable or assignable or shall be subject to alienation, anticipation or encumbrance, and no right or interest of any Participant or Beneficiary in any such Plan shall be subject to any garnishment, attachment or execution. Notwithstanding anything to the contrary, the Trust shall at all times remain subject to claims of general creditors of the Company in the event of the Company's bankruptcy or insolvency as provided herein. 28 28 13.4. Successors. This Agreement shall be binding upon and inure to the benefit of any successor to the Company or its business as the result of merger, consolidation, reorganization, transfer of assets or otherwise and any subsequent successor thereto. In the event of any such merger, consolidation, reorganization, transfer of assets or other similar transaction, the successor to the Company or its business or any subsequent successor thereto shall promptly notify the Trustee in writing of its successorship. In no event shall any such transaction described herein suspend or delay the rights of Participants or Beneficiaries to receive benefits hereunder. 13.5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which shall together constitute only one Agreement. 13.6. Notices. Communication to the Trustee shall be sent to The Chase Manhattan Bank, New York, New York or to such other address as the Trustee may specify in writing. Communications to the Company shall be sent to the attention of the Secretary of the Company at the Company's principal offices or to such other address as the Secretary of the Company may specify in writing. No communication shall be binding upon the Trustee or the Company until received. 13.7. Change in Control. For purposes of this trust "Change in Control" shall mean the occurrence of any of the following events after consummation of the spin-off of Stock by AMAX Inc. which resulted in the registration of Stock under Section 12 of the Exchange Act: (i) any person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20 percent or more of the combined voting power of the Company's then-outstanding securities (a "20% Beneficial Owner"); provided however, that (a) the term "20% Beneficial Owner" shall not include any Beneficial Owner who has crossed such 20 percent threshold solely as a result of an acquisition of securities directly from the Company, or solely as a result of an acquisition by the Company of Company securities, until such time thereafter as such person acquires additional voting securities other than directly from the Company and, after giving effect to such acquisition, such person would constitute a 20% Beneficial Owner, and (b) with respect to any person eligible to file a Schedule 1 3G pursuant to Rule 1 3d-1 (b)(l) under the Exchange Act with respect to Company securities (an 29 29 "Institutional Investor"), there shall be excluded from the number of securities deemed to be beneficially owned by such person a number of securities representing not more than 10 percent of the combined voting power of the Company's then-outstanding securities; (ii) during any period of two consecutive years beginning after the Stock first became registered under Section 12 of the Exchange Act, individuals who at the beginning of such period constitute the Board together with those individuals who first became Directors during such period (other than by reason of an agreement with the Company in settlement of a proxy contest for the election of directors) and whose election or nomination for election to the Board was approved by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved (the "Continuing Directors"), cease for any reason to constitute a majority of the Board; (iii) the stockholders of the Company approve a merger, consolidation, recapitalization or reorganization of the Company, or a reverse stock split of any class of voting securities of the Company, or the consummation of any such transaction if stockholder approval is not obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the Company or the surviving entity outstanding immediately after such transaction being beneficially owned by persons who together owned at least 75% of the combined voting power of the voting securities of the Company outstanding immediately prior to such transaction, with the relative voting power of each such continuing holder compared to the voting power of each other continuing holder not substantially altered as a result of the transaction; provided that, for purposes of this paragraph (iii), such continuity of ownership (and preservation of relative voting power) shall be deemed to be satisfied if the failure to meet such 75% threshold (or to preserve such relative voting power) is due solely to the acquisition of voting securities by an employee benefit plan of the Company or such surviving entity or any subsidiary of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition of all or substantially all the assets of the Company; or 30 30 (v) any other event which a majority of the members of the Committee who are Continuing Directors determines shall constitute a Change in Control for purposes of this Plan; provided, however that a Change in Control shall not be deemed to have occurred if one of the following exceptions applies: (1) Unless a majority of the members of the Committee who are Continuing Directors determines that the exception set forth in this paragraph (1) shall not apply, none of the foregoing conditions would have been satisfied but for one or more of the following persons acquiring or otherwise becoming the Beneficial Owner of securities of the Company: (A) any person who has entered into a binding agreement with the Company, which agreement has been approved by two-thirds (2/3) of the Continuing Directors, limiting the acquisition of additional voting securities by such person, the solicitation of proxies by such person or proposals by such person concerning a business combination with the Company (a "Standstill Agreement"); (B) any employee benefit plan, or trustee or other fiduciary thereof, maintained by the Company or any subsidiary of the Company; (C) any subsidiary of the Company; or (D) the Company. (2) Unless a majority of the members of the Committee who are Continuing Directors determines that the exception set forth in this paragraph (2) shall not apply, none of the foregoing conditions would have been satisfied but for the acquisition by the Company of another entity (whether by merger or consolidation, the acquisition of stock or assets, or otherwise) in exchange, in whole or in part, for securities of the Company, provided that, immediately following such acquisition, the Continuing Directors constitute a majority of the Board, or a majority of the board of directors of any other surviving entity, and, in either case, no agreement, arrangement or understanding exists at that time which would cause such Continuing Directors to cease thereafter to constitute a majority of the Board or of such other board of directors. (3) A majority of the members of the Committee who are Continuing Directors determines that a Change in Control shall be deemed not to have occurred. Notwithstanding the foregoing, unless otherwise determined by a majority of the Committee who are Continuing Directors, no Change in Control shall be deemed to have occurred with 31 31 respect to a particular Participant if the Change in Control results from actions or events in which such Participant is a participant in a capacity other than solely as an officer, employee, or director of the Company. For purposes of the foregoing definition of Change in Control, the term "Beneficial Owner," with respect to any securities, shall mean any person who, directly or indirectly, has or shares the right to vote or dispose of such securities or otherwise has "beneficial ownership" of such securities (within the meaning of Rule 1 3d-3 and Rule 1 3d-5 (as such Rules are in effect on the effective date of the Plan) under the Exchange Act, including pursuant to any agreement, arrangement, or understanding (whether or not in writing); provided, however, that (i) a person shall not be deemed the Beneficial Owner of any security as a result of any agreement, arrangement, or understanding to vote such security (A) arising solely from a revocable proxy or consent solicited pursuant to, and in accordance with, the applicable provisions of the Exchange Act and the rules and regulations thereunder or (B) made in connection with, or otherwise to participate in, a proxy or consent solicitation made, or to be made, pursuant to, and in accordance with, the applicable provisions of the Exchange Act and the rules and regulations thereunder, in either case described in clause (A) or clause (B) above whether or not such agreement, arrangement or understanding is also then reportable by such person on Schedule 13D under the Exchange Act (or any comparable or successor report), and (ii) a person engaged in business as an underwriter of securities shall not be deemed to be the Beneficial Owner of any securities acquired through such person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. Notwithstanding the foregoing, a Change of Control shall only be treated as having occurred if the Company or the Executive Benefits Committee notifies the Trustee in writing that such an event has occurred 32 32 In witness of the foregoing, the parties hereto have caused this amended and restated Trust Agreement to be duly executed and their respective corporate seals to be hereto affixed this day of April, 1997. THE CHASE MANHATTAN BANK By: /s/ ------------------------------------ Vice President ALUMAX, INC. By: /s/ ------------------------------------ Vice President & Corporate Secretary EX-11.01 7 CALCULATION OF EARNINGS PER COMMON SHARE 1 EXHIBIT 11.01 ALUMAX INC. CALCULATION OF EARNINGS PER COMMON SHARE (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- ----------------- Basic Earnings per common share: 1. Net earnings............................ $ 33.7 $ 250.0 $ 237.4 2. Deduct -- Series A Convertible Preferred Dividends............................... (9.3) (9.3) ------- ------- ------- 3. Earnings applicable to common shares.... $ 33.7 $ 240.7 $ 228.1 ======= ======= ======= 4. Average common shares outstanding (in thousands).......................... 54,735 45,731 44,637 ======= ======= ======= 5. Basic earnings per common share (line 3 divided by line 4).............. $ 0.62 $ 5.26 $ 5.11 ======= ======= ======= Diluted earnings per common share: 6. Earnings applicable to common shares.... $ 33.7 $ 240.7 $ 228.1 7. Add -- Series A Convertible Preferred Dividends............................... 9.3 9.3 ------- ------- ------- 8. Net earnings............................ $ 33.7 $ 250.0 $ 237.4 ======= ======= ======= 9. Average diluted shares outstanding (in thousands).............................. 55,721 55,211 54,761 ======= ======= ======= 10. Diluted earnings per common share (line 8 divided by line 9).............. $ 0.60 $ 4.53 $ 4.34 ======= ======= =======
EX-21.01 8 LIST OF SUBSIDIARIES 1 EXHIBIT 21.01 ALUMAX INC. LIST OF SUBSIDIARIES
Jurisdiction of Name of Subsidiary Corporation - ------------------ ------------ Alamo Resources Corporation Delaware Alumax Inc. Nevada Alumax Aluminum Corporation Delaware Alumax Becancour, Inc. Delaware Alumax Employee Services, Inc. Delaware Alumax Engineered Metal Processes, Inc. Delaware Alumax Extrusions, Inc. Pennsylvania Alumax Extrusions, Inc. New York Alumax Foil Industrial Redevelopment Corporation Missouri Alumax Foils, Inc. Delaware Alumax International Company Nevada Alumax Japan, Inc. Delaware Alumax Materials Management, Inc. Delaware Alumax Mill Products, Inc. Delaware Alumax Primary Aluminum Corporation Delaware Alumax Retiree Services, Inc. Delaware Alumax Semi-Fabricated Products, Inc. Delaware Alumax Quebec, Inc. Wyoming Alumax 6100 South Broadway Redevelopment Corporation Missouri Alumax of South Carolina, Inc. Delaware Alumax Technical Center, Inc. Delaware Alumax Technical Services, Inc. Delaware Alumax Technology Corporation Delaware Alumax Warehouse Corporation Delaware Alumax of Washington, Inc. Delaware Alumet Corporation Delaware Canalco, Inc. Delaware Eastalco Aluminum Company Delaware Hillyard Aluminum Recovery Corporation Delaware Intalco Aluminum Corporation Delaware Kawneer Company, Inc. Delaware Kawneer Europe, Inc. Delaware
2
Jurisdiction of Name of Subsidiary Incorporation - ------------------ ------------- Kawneer Germany, Inc. Delaware Mt. Holly Plantation, Inc. Delaware Murphy Properties, Inc. Delaware Alumax Asia Limited Hong Kong Alumax Asia Pacific Pty. Limited Australia Alumax de Mexico, S.A. de C.V. Mexico Alumax Europe N.V. Belgium Alumax Extrusions Australia Pty. Limited Australia Alumax Extrusions B.V. The Netherlands Alumax Extrusions Limited United Kingdom Alumax Extrusions Mexico, S.A. de C.V. Mexico Alumax Holdings B.V. The Netherlands Alumax Holdings de Mexico, S.A. de C.V. Mexico Alumax Holdings S.A. France Alumax PD Holdings Pte Ltd. (50% Shareholder) Singapore Alumax Polska Sp. zo.o. Poland Alumax Recycling B.V. The Netherlands Alumax S.A. Spain Alumax U.K. Limited United Kingdom Aluminerie Lauralco, Inc. Delaware Amax Asia, Inc. Delaware Asesoria Mexicana Empresarial, S.A. de C.V. Mexico Comercializadora Alumax Extrusions Mexico, S.A. de C.V. Mexico Honduras-Rosario Mining Company Delaware Intalco Aluminum Company, Ltd. Alberta, Canada Kawneer Deutschland G.m.b.H. Germany Kawneer Company Canada Limited Ontario, Canada Kawneer Europe B.V. The Netherlands Kawneer France S.A. France Kawneer Installations Limited Ontario, Canada Kawneer Maroc S.A. (75% Shareholder) Morocco Kawneer Polska Sp. zo.o. Poland Kawneer U.K. Limited United Kingdom Lauralco Quebec, Inc. Delaware Lauralco Superieur, Inc. Delaware Lauralco Trois-Rivieres, Inc. Delaware Rosario Mining of Nicaragua, Inc. Delaware Rosario Properties, Inc. Delaware Rosario Resources Corporation New York The Durango Corporation Delaware The Fresnillo Company, Inc. New York Yunnan Xinmeilu Aluminum Foil Col., Ltd. (56% Shareholder) China
EX-23.01 9 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Alumax Inc. on Form S-8 (File Nos. 33-83006, 33-83008, 33-83010, 33-86338, 333-26511 and 333-39079) of our report dated January 27, 1998, on our audits of the consolidated financial statements and financial statement schedule of Alumax Inc. as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Atlanta, Georgia February 6, 1998 EX-24.01 10 POWER OF ATTORNEY 1 EXHIBIT 24.01 POWER OF ATTORNEY WITH RESPECT TO ANNUAL REPORT ON FORM 10-K UNDER THE SECURITIES EXCHANGE ACT OF 1934 KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors, individually and collectively, hereby constitute and appoint Allen Born, Helen M. Feeney, and Michael T. Vollkommer, and each of them, their true and lawful attorneys and agents to execute and deliver on behalf of any one or more of them, in any one or more of their various capacities as officer or director of the registrant, the Alumax Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and any and all required amendments and supplements thereto, filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the undersigned and each of them hereby ratifying and confirming all that said attorneys and agents, and each of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has signed his or her name hereto on the date set opposite his or her name. February 5, 1998 /s/ Allen Born ---------------------------------------------------- Allen Born, as Chairman, Chief Executive Officer and Director (Principal Executive Officer) February 5, 1998 /s/ Michael T. Vollkommer ---------------------------------------------------- Michael T. Vollkommer, as Vice President and Chief Financial Officer (Principal Financial Officer) February 5, 1998 /s/ Kevin J. Krakora --------------------------------------------- Kevin J. Krakora, as Vice President and Controller (Principal Accounting Officer) 2 February 5, 1998 /s/ J. Dennis Bonney --------------------------------------------- J. Dennis Bonney, as Director February 5, 1998 /s/ Harold Brown --------------------------------------------- Harold Brown, as Director February 5, 1998 /s/ L. Don Brown --------------------------------------------- L. Don Brown, as Director February 5, 1998 /s/ Pierre Des Marais II --------------------------------------------- Pierre Des Marais II, as Director February 5, 1998 /s/ James C. Huntington Jr. --------------------------------------------- James C. Huntington Jr., as Director February 5, 1998 /s/ W. Loeber Landau --------------------------------------------- W. Loeber Landau, as Director February 5, 1998 /s/ Paul W. MacAvoy --------------------------------------------- J. Paul W. MacAvoy, as Director February 5, 1998 /s/ Anne Wexler --------------------------------------------- Anne Wexler, as Director EX-27.01 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-K OF ALUMAX INC FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1997 DEC-31-1997 27 0 500 13 534 1,166 3,347 1,320 3,453 412 956 0 0 1 1,621 3,453 2,931 2,931 2,234 2,638 (2) 1 58 237 204 34 0 0 0 34 0.62 0.60
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