-----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, I/flObkGBmj05oY8xrizijVU0MWkMoSCI/cwRLswPNvEPVVANpmUdq1O8lRDyMJV v9lQE5dpXkCLabVlYCUHfw== 0001169232-03-005033.txt : 20030811 0001169232-03-005033.hdr.sgml : 20030811 20030811172043 ACCESSION NUMBER: 0001169232-03-005033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY ALUMINUM CO CENTRAL INDEX KEY: 0000949157 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 133070826 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27918 FILM NUMBER: 03835279 BUSINESS ADDRESS: STREET 1: 2511 GARDEN ROAD STREET 2: BUILDING A SUITE 200 CITY: MONTEREY STATE: CA ZIP: 93940 BUSINESS PHONE: 3042736000 MAIL ADDRESS: STREET 1: 2511 GARDEN ROAD STREET 2: BUILDING A SUITE 200 CITY: MONTEREY STATE: CA ZIP: 93940 10-Q 1 d56393_10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003. 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 0-27918 Century Aluminum Company (Exact name of Registrant as specified in its Charter) Delaware 13-3070826 (State of Incorporation) (IRS Employer Identification No.) 2511 Garden Road Building A, Suite 200 Monterey, California 93940 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (831) 642-9300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_| The registrant had 21,070,210 shares of common stock outstanding at July 31, 2003. PART I - FINANCIAL INFORMATION Item 1. - Financial Statements. CENTURY ALUMINUM COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
June 30, December 31, 2003 2002 --------- ------------ ASSETS Current Assets: Cash and cash equivalents .................................................... $ 24,375 $ 45,092 Accounts receivable - net .................................................... 50,418 46,240 Due from affiliates .......................................................... 20,393 22,732 Inventories .................................................................. 73,736 77,135 Prepaid and other current assets ............................................. 15,580 4,777 --------- --------- Total current assets .................................................... 184,502 195,976 Property, Plant and Equipment - net ................................................ 504,588 417,621 Intangible Asset - net ............................................................. 108,304 119,744 Due from Affiliates - Less current portion ......................................... 97 974 Other Assets ....................................................................... 32,028 30,852 --------- --------- Total ................................................................... $ 829,519 $ 765,167 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable, trade ...................................................... $ 34,573 $ 37,757 Due to affiliates ............................................................ 16,335 15,811 Industrial revenue bonds ..................................................... 7,815 7,815 Accrued and other current liabilities ........................................ 27,249 24,114 Accrued employee benefits costs - current portion ............................ 10,955 10,890 Deferred Taxes - current portion ............................................. 3,399 4,971 --------- --------- Total current liabilities ............................................... 100,326 101,358 --------- --------- Senior Secured Notes Payable- net .................................................. 322,075 321,852 Notes Payable - Affiliates ......................................................... 40,000 -- Accrued Pension Benefits Costs - Less current portion .............................. 12,585 10,751 Accrued Postretirement Benefits Costs - Less current portion ....................... 74,654 70,656 Other Liabilities .................................................................. 33,976 8,376 Deferred Taxes- Less current portion ............................................... 46,336 41,376 --------- --------- Total noncurrent liabilities ............................................ 529,626 453,011 --------- --------- Minority Interest .................................................................. -- 18,666 Contingencies and Commitments (See Note 6) Shareholders' Equity: Convertible preferred stock (8.0% cumulative, 500,000 shares outstanding) .... 25,000 25,000 Common stock (one cent par value, 50,000,000 shares authorized; 21,070,210 and 21,054,302 shares outstanding at June 30, 2003 and December 31, 2002, respectively) .............................................................. 211 211 Additional paid-in capital ................................................... 172,403 172,133 Accumulated Other Comprehensive Income (Loss) ................................ (4,239) 1,173 Retained Earnings (Deficit) .................................................. 6,192 (6,385) --------- --------- Total shareholders' equity .............................................. 199,567 192,132 --------- --------- Total ................................................................... $ 829,519 $ 765,167 ========= =========
See notes to consolidated financial statements 1 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited)
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2003 2002 2003 2002 --------- --------- --------- --------- NET SALES: Third-party customers ................................................. $ 163,746 $ 148,377 $ 317,201 $ 302,576 Related parties ....................................................... 32,421 31,959 57,975 56,860 --------- --------- --------- --------- 196,167 180,336 375,176 359,436 Cost of Goods Sold ..................................................... 188,391 175,380 359,694 347,172 --------- --------- --------- --------- Gross Profit ........................................................... 7,776 4,956 15,482 12,264 Selling, General and Administrative Expenses ........................... 4,086 3,761 8,221 7,938 --------- --------- --------- --------- Operating Income ....................................................... 3,690 1,195 7,261 4,326 Interest Expense - Third Party ......................................... (10,330) (9,896) (20,554) (20,155) Interest Expense - Related Party ....................................... (1,000) -- (1,000) -- Interest Income ........................................................ 45 58 196 129 Net Gain on Forward Contracts .......................................... 211 -- 41,904 -- Other Expense .......................................................... (770) (132) (500) (102) --------- --------- --------- --------- Income (Loss) before Income Taxes and Minority Interest ................ (8,154) (8,775) 27,307 (15,802) Income Tax (Expense) Benefit ........................................... 3,147 2,862 (9,827) 5,108 --------- --------- --------- --------- Income (Loss) Before Minority Interest and Cumulative Effect of Change in Accounting Principle ..................................... (5,007) (5,913) 17,480 (10,694) Minority Interest ...................................................... -- 1,313 986 2,626 --------- --------- --------- --------- Income (Loss) before Cumulative Effect of Change in Accounting Principle .......................................................... (5,007) (4,600) 18,466 (8,068) Cumulative Effect of Change in Accounting Principle, net of tax benefit of $3,430 .................................................. -- -- (5,878) -- --------- --------- --------- --------- Net Income (Loss) ...................................................... (5,007) (4,600) 12,588 (8,068) Preferred Dividends .................................................... (500) (500) (1,000) (1,000) --------- --------- --------- --------- Net Income (Loss) Applicable to Common Shareholders .................... $ (5,507) $ (5,100) $ 11,588 $ (9,068) ========= ========= ========= ========= EARNINGS (LOSS) PER COMMON SHARE: Basic: Income (Loss) before cumulative effect of change in accounting principle ........................................... $ (0.26) $ (0.25) $ 0.83 $ (0.44) Cumulative effect of change in accounting principle .............. $ -- $ -- $ (0.28) $ -- --------- --------- --------- --------- Net Income (Loss) ................................................ $ (0.26) $ (0.25) $ 0.55 $ (0.44) ========= ========= ========= ========= Diluted: Income (Loss) before cumulative effect of change in accounting principle ........................................... $ (0.26) $ (0.25) $ 0.82 $ (0.44) Cumulative effect of change in accounting principle .............. $ -- $ -- $ (0.26) $ -- --------- --------- --------- --------- Net Income (Loss) ................................................ $ (0.26) $ (0.25) $ 0.56 $ (0.44) ========= ========= ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic .............................................................. 21,070 20,554 21,070 20,554 ========= ========= ========= ========= Diluted ............................................................ 21,070 20,554 22,465 20,554 ========= ========= ========= ========= DIVIDENDS PER COMMON SHARE ............................................. $ -- $ 0.05 $ -- $ 0.10 ========= ========= ========= =========
See notes to consolidated financial statements 2 CENTURY ALUMINUM COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Six Months ended June 30, ---------------------- 2003 2002 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) ........................................................ $ 12,588 $ (8,068) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Unrealized net gain on forward contracts ............................ (12,292) -- Depreciation and amortization ....................................... 25,787 28,157 Deferred income taxes ............................................... 6,396 (5,201) Pension and other postretirement benefits ........................... 5,897 4,743 Inventory market adjustment ......................................... (394) (756) Loss on disposal of assets .......................................... 836 459 Minority interest ................................................... (986) (2,625) Cumulative effect of change in accounting principle ................. 9,308 -- Changes in operating assets and liabilities: Accounts receivable - net ...................................... (4,178) (1,711) Due from affiliates ............................................ (4,604) 2,595 Inventories .................................................... 5,734 425 Prepaids and other current assets .............................. (2,733) (2,724) Accounts payable, trade ........................................ (3,184) (1,464) Due to affiliates .............................................. 1,394 7,397 Accrued and other current liabilities .......................... 632 (105) Other - net .................................................... 9,527 (917) -------- -------- Net cash provided by operating activities ........................... 49,728 20,205 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment ................................ (10,300) (10,852) Acquisition of minority interest ......................................... (59,837) -- -------- -------- Net cash used in investing activities ............................... (70,137) (10,852) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Financing fees ........................................................... (297) -- Dividends ................................................................ (11) (2,563) Issuance of common or preferred stock .................................... -- 5 -------- -------- Net cash used in financing activities ............................... (308) (2,558) -------- -------- NET INCREASE (DECREASE) IN CASH ............................................. (20,717) 6,795 CASH, BEGINNING OF PERIOD ................................................... 45,092 13,388 -------- -------- CASH, END OF PERIOD ......................................................... $ 24,375 $ 20,183 ======== ========
See notes to consolidated financial statements 3 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 1. General The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2002. In management's opinion, the unaudited interim consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for the first six months of 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Certain reclassifications of 2002 information were made to conform to the 2003 presentation. 2. Acquisitions On April 1, 2003, the Company completed the acquisition of the 20% interest in its Hawesville, Kentucky primary aluminum reduction facility which was indirectly owned by Glencore International AG, the Company's largest shareholder (together with its subsidiaries, "Glencore") together with Glencore's pro rata interest in certain related assets (collectively the "Acquired Assets"). The operating results of the 20% interest acquired have been included in the Company's consolidated financial statements from the date of acquisition. Century paid a purchase price of approximately $100.0 million for the Acquired Assets, which it financed with approximately $60.0 million of available cash and a six-year 10% $40.0 million promissory note payable to Glencore (the "Glencore Note"). See Note 5 for a discussion of the Glencore Note. In connection with the acquisition, the Company entered into a ten-year contract with Glencore from 2004 through 2013 under which Glencore will purchase approximately 45.0 million pounds per year of primary aluminum produced at the Ravenswood and Mt. Holly facilities, at prices based on then-current market prices, adjusted by a negotiated U.S. Midwest premium with a cap and floor. Glencore originally purchased the Acquired Assets from Century in April 2001 when Century acquired the Hawesville facility and related assets (the "Hawesville Acquisition") from Southwire Company ("Southwire"). Glencore also assumed direct responsibility for a pro rata portion of certain liabilities and obligations related to the Hawesville facility, including: (i) delivery obligations under the Molten Aluminum Supply Agreement, dated April 1, 2001, between Century and Southwire, (ii) debt service obligations related to $7.8 million in industrial revenue bonds ("IRBs") assumed by Century in connection with the Hawesville Acquisition, (iii) any post-closing payments due Southwire pursuant to the terms of the Company's agreement with Southwire, and (iv) certain other post-closing liabilities and obligations (including environmental) related to the Hawesville facility (collectively, the "Assumed Liabilities"). In connection with the Company's subsequent purchase of the Acquired Assets from Glencore, the Company assumed all of Glencore's obligations related to the Assumed Liabilities. In addition, the Company issued a promissory note to Glencore to secure any payments Glencore could be required to make as guarantor of a letter of credit the Company posted in April 2001 in support of the IRBs. 4 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 3. Inventories Inventories consist of the following: June 30, December 31, 2003 2002 --------- ------------ Raw materials ........................ $ 27,989 $ 32,064 Work-in-process ...................... 13,733 13,310 Finished goods ....................... 9,413 9,853 Operating and other supplies ......... 22,601 21,908 --------- --------- $ 73,736 $ 77,135 ========= ========= At June 30, 2003 and December 31, 2002, approximately 74% and 78% of inventories were valued at the lower of last-in, first-out ("LIFO") cost or market, respectively. The excess of LIFO cost (or market, if lower) over first in, first out ("FIFO") cost was approximately $455 and $1,105 at June 30, 2003 and December 31, 2002, respectively. 4. Intangible Asset The intangible asset consists of the power contract acquired in connection with the Company's acquisition of its aluminum reduction facility located in Hawesville, Kentucky in April 2001. The contract value is being amortized over its term of ten years through 2010, using a method that results in annual amortization equal to the percentage of a given year's expected gross annual benefit to the total as applied to the total recorded value of the power contract. As part of the acquisition of Glencore's interest in the Hawesville facility on April 1, 2003, the 20% portion of the power contract that was indirectly owned by Glencore was revalued in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." As a result, the gross carrying amount of the contract and the accumulated amortization, both related to the 20% portion of the contract indirectly owned by Glencore, were removed and the fair value of the 20% of the power contract acquired on April 1, 2003 was recorded. As of June 30, 2003, the gross carrying amount of the intangible asset was $153,592 with accumulated amortization of $45,288. For the three month periods ended June 30, 2003 and June 30, 2002, amortization expense for the intangible asset totaled $4,927 and $6,565, respectively. For the six month periods ended June 30, 2003 and June 30, 2002, amortization expense for the intangible asset totaled $9,512 and $13,129, respectively. For the year ended December 31, 2003, the estimated aggregate amortization expense for the intangible asset will be approximately $18,680. The estimated aggregate amortization expense for the intangible asset for the following five years is as follows: 5 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) Century Aluminum Intangible Asset Amortization
For the year ending December 31, 2004 2005 2006 2007 2008 ------ ------ ------ ------ ------ Estimated Amortization Expense 12,326 14,161 12,695 13,617 14,669
In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company evaluates the intangible asset for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. 5. Debt The Company has $325.0 million of 11 3/4% senior secured first mortgage notes due 2008 (the "Notes"). The Company had unamortized bond discounts on the Notes of $2,925 and $3,148 at June 30, 2003 and December 31, 2002, respectively. The indenture governing the Notes contains customary covenants including limitations on the Company's ability to pay dividends, incur debt, make investments, sell assets or stock of certain subsidiaries, and purchase or redeem capital stock. The Company suspended its common and preferred stock dividends in the fourth quarter of 2002. This action was taken because the Company was near the limits on allowable dividend payments under the covenants in its bond indenture. Effective April 1, 2001, the Company entered into a $100.0 million senior secured revolving credit facility (the "Revolving Credit Facility") with a syndicate of banks. The Revolving Credit Facility will mature on April 2, 2006. There were no outstanding borrowings under the Revolving Credit Facility as of June 30, 2003. Effective April 1, 2001, in connection with its acquisition of the Hawesville facility, the Company assumed IRBs in the aggregate principal amount of $7,815. From April 1, 2001 through April 1, 2003 Glencore assumed 20% of the liability related to the IRBs consistent with its ownership interest in the Hawesville facility. The IRBs mature on April 1, 2028, and bear interest at a variable rate not to exceed 12% per annum determined weekly based on prevailing rates for similar bonds in the bond market. The IRBs are secured by a Glencore guaranteed letter of credit and the Company will provide for the servicing costs for the letter of credit. Century has indemnified Glencore for all costs arising from the letter of credit. The interest rate on the IRBs at June 30, 2003 was 1.35%, with interest paid quarterly. The IRBs are classified as current liabilities because they are remarketed weekly and could be required to be repaid upon demand if there is a failed remarketing, as provided in the indenture governing the IRBs. On April 1, 2003, the Company completed the acquisition of the 20% interest in its Hawesville facility owned by Glencore which it financed in part with a six-year 10% $40.0 million promissory note payable to Glencore. Amounts outstanding under the Glencore Note, together 6 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) with Century's reimbursement obligations related to the letter of credit provided by Glencore securing the IRBs, are secured by a first priority security interest in the Acquired Assets. Century's maximum potential amount of future payments under the reimbursement obligations for the Glencore letter of credit securing the IRBs would be $8,150. Until the Glencore Note matures on April 1, 2009, the Company will make principal and interest payments semi-annually. Principal payments will range from $0 to $3,000 based on the average closing prices for aluminum quoted on the London Metals Exchange ("LME") for the six month period ending prior to each payment date. The Company's obligations under the Glencore Note are guaranteed by each of its material consolidated subsidiaries, except for Century of Kentucky LLC. 6. Contingencies and Commitments Environmental Contingencies The Company believes its environmental liabilities are not likely to have a material adverse effect on the Company. However, there can be no assurance that future requirements at currently or formerly owned properties will not result in liabilities which may have a material adverse effect on the Company's financial condition, results of operations or liquidity. Century of West Virginia is performing certain remedial measures at its Ravenswood Facility pursuant to a RCRA 3008(h) order issued by the Environmental Protection Agency ("EPA") in 1994 (the "3008(h) Order"). Century of West Virginia also conducted a RCRA facility investigation ("RFI") under the 3008(h) Order evaluating other areas at Ravenswood that may have contamination requiring remediation. The RFI was submitted to the EPA in December 1999. Century of West Virginia, in consultation with the EPA, has completed interim remediation measures at two sites identified in the RFI, and the Company expects that neither the EPA, nor the State of West Virginia will require further remediation under the 3008(h) Order. The Company believes a significant portion of the contamination on the two identified sites is attributable to the operations of Kaiser Aluminum and Chemical ("Kaiser"), the prior owner, and will be the financial responsibility of that owner, as discussed below. Kaiser owned and operated the Ravenswood facility for approximately 30 years prior to its acquisition by Century of West Virginia. Many of the conditions that Century of West Virginia is remedying exist because of activities that occurred during Kaiser's ownership and operation. Under the terms of the agreement to purchase the Ravenswood Facility ("Kaiser Purchase Agreement"), Kaiser retained the responsibility to pay the costs of cleanup of those conditions. In addition, Kaiser retained title to certain land within the Ravenswood premises and is responsible for those areas. On February 12, 2002, Kaiser and certain wholly owned subsidiaries filed voluntary petitions under Chapter 11 of the Federal Bankruptcy Code ("Kaiser Bankruptcy"). While the Company believes the Kaiser Bankruptcy will not relieve Kaiser of its obligations to do remediation work under government orders, the ultimate outcome of the Kaiser Bankruptcy is uncertain. Nevertheless, the Company does not expect the Kaiser Bankruptcy to have a material adverse effect on the Company's financial condition, results of operations or liquidity. Under the terms of the agreement to sell its fabricating businesses to Pechiney (the "Pechiney Agreement"), the Company and Century of West Virginia provided Pechiney with certain 7 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) indemnifications. Those include the assignment of certain of Century of West Virginia's indemnification rights under the Kaiser Purchase Agreement (with respect to the real property transferred to Pechiney) and the Company's indemnification rights under its stock purchase agreement with Alcoa relating to the Company's purchase of Century Cast Plate, Inc. The Pechiney Agreement provides further indemnifications, which are limited, in general, to pre-closing conditions that were not disclosed to Pechiney and to off-site migration of hazardous substances from pre-closing acts or omissions of Century of West Virginia. Environmental indemnifications under the Pechiney Agreement expire September 20, 2005 and are payable only to the extent they exceed $2,000. Payments under this indemnification would be limited to $25,000 for on-site liabilities, but there is no limit on potential future payments for any off-site liabilities. The Company does not believe there are any undisclosed pre-closing conditions or off-site migration of hazardous substances, and it does not believe that it will be required to make any potential future payments under this indemnification. On July 6, 2000, while the Hawesville facility was owned by Southwire, the EPA issued a final Record of Decision ("ROD"), under the federal Comprehensive Environmental Response, Compensation and Liability Act, which detailed response actions to be implemented at several locations at the Hawesville site to address actual or threatened releases of hazardous substances. Those actions include: - removal and off-site disposal at approved landfills of certain soils contaminated by polychlorinated biphenyls ("PCBs"); - management and containment of soils and sediments with low PCB contamination in certain areas on-site; and - the continued extraction and treatment of cyanide contaminated ground water using the existing ground water treatment system. Under the Company's agreement with Southwire to purchase the Hawesville facility, Southwire indemnified the Company against all on-site environmental liabilities known to exist prior to the closing of the acquisition, including all remediation, operation and maintenance obligations under the ROD. The total costs for the remedial actions to be undertaken and paid for by Southwire relative to these liabilities are estimated under the ROD to be $12,600 and the forecast of annual operating and maintenance costs is $1,200. Century will operate and maintain the ground water treatment system required under the ROD on behalf of Southwire, and Southwire will reimburse Century for any expense that exceeds $400 annually. If on-site environmental liabilities relating to pre-closing activities at Hawesville that were not known to exist as of the date of the closing of the acquisition become known before March 31, 2007, the Company will share the costs of remedial action with Southwire on a sliding scale depending on the year the liability is identified. Any on-site environmental liabilities arising from pre-closing activities which do not become known until on or after March 31, 2007, will be the responsibility of the Company. In addition, the Company will be responsible for any post-closing environmental costs which result from a change in environmental laws after the closing or from its own activities, including a change in the use of the facility. In addition, Southwire indemnified the Company against 8 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) all risks associated with off-site hazardous material disposals by the Hawesville plant which pre-date the closing of the acquisition. The Company acquired the Hawesville facility by purchasing all of the outstanding equity securities of Metalsco Ltd., which was a wholly owned subsidiary of Southwire. Metalsco previously owned certain assets which are unrelated to the Hawesville plant's operations, including the stock of Gaston Copper Recycling Corporation ("Gaston"), a secondary metals recycling facility in South Carolina. Gaston has numerous liabilities related to environmental conditions at its recycling facility. Gaston and all other non-Hawesville assets owned at any time by Metalsco were identified in the Company's agreement with Southwire as unwanted property and were distributed to Southwire prior to the closing of the Hawesville acquisition. Southwire indemnified the Company for all liabilities related to the unwanted property. Southwire also retained ownership of certain land adjacent to the Hawesville facility containing Hawesville's former potliner disposal areas, which are the sources of cyanide contamination in the facility's groundwater. Southwire retained full responsibility for this land, which was never owned by Metalsco and is located on the north boundary of the Hawesville site. Southwire has secured its indemnity obligations to the Company for environmental liabilities until April 1, 2008 by posting a letter of credit, currently in the amount of $14,200, issued in the Company's favor, with an additional $15,000 to be posted if Southwire's net worth drops below a pre-determined level during that period. The amount of security Southwire provides may increase (but not above $14,700 or $29,700, as applicable) or decrease (but not below $3,000) if certain specified conditions are met. The Company cannot be certain that Southwire will be able to meet its indemnity obligations. In that event, under certain environmental laws which impose liability regardless of fault, the Company may be liable for any outstanding remedial measures required under the ROD and for certain liabilities related to the unwanted properties. If Southwire fails to meet its indemnity obligations or if the Company's shared or assumed liability is significantly greater than anticipated, the Company's financial condition, results of operations and liquidity could be materially adversely affected. Century is a party to an Administrative Order on Consent with the Environmental Protection Agency (the "Order") pursuant to which other past and present owners of an alumina facility at St. Croix, Virgin Islands have agreed to carry out a Hydrocarbon Recovery Plan to remove and manage hydrocarbons floating on top of groundwater underlying the facility. Pursuant to the Hydrocarbon Recovery Plan, recovered hydrocarbons and groundwater will be delivered to the adjacent petroleum refinery where they will be received and managed. The owner of the petroleum refinery will pay the parties participating in the recovery effort the fair market value of the petroleum hydrocarbon recovered. Lockheed Martin Corporation ("Lockheed"), which sold the facility to one of the Company's affiliates, Virgin Islands Alumina Corporation ("Vialco"), in 1989, has tendered indemnity and defense of this matter to Vialco pursuant to terms of the Lockheed-Vialco Asset Purchase Agreement. Management does not believe Vialco's liability under the Order or its indemnity to Lockheed will have a material adverse effect on the Company's financial condition, results of operations, or liquidity. The Company expects the future potential payments under this indemnification will be an immaterial amount. However, under the indemnification, there is no limit to the potential future payments. 9 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) It is the Company's policy to accrue for costs associated with environmental assessments and remedial efforts when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. The aggregate environmental related accrued liabilities were $1,758 and $1,370 at June 30, 2003 and December 31, 2002, respectively. All accrued amounts have been recorded without giving effect to any possible future recoveries. With respect to ongoing environmental compliance costs, including maintenance and monitoring, such costs are expensed as incurred. Because of the issues and uncertainties described above, and the Company's inability to predict the requirements of the future environmental laws, there can be no assurance that future capital expenditures and costs for environmental compliance will not have a material adverse effect on the Company's future financial condition, results of operations, or liquidity. Based upon all available information, management does not believe that the outcome of these environmental matters, or environmental matters concerning Mt. Holly, will have a material adverse effect on the Company's financial condition, results of operations, or liquidity. Legal Contingencies Prior to the Kaiser bankruptcy, Century was a named defendant, along with Kaiser and many other companies, in civil actions brought by employees of third party contractors who alleged asbestos-related diseases arising out of exposure at facilities where they worked, including Ravenswood. All of those actions relating to the Ravenswood facility have been dismissed or settled with respect to the Company and Kaiser. Only 14 plaintiffs were able to show they had been on the Ravenswood premises during the period the Company owned the plant, and the parties have agreed to settle all of those claims for non-material amounts. The Company is awaiting receipt of final documentation of those settlements and the entry of dismissal orders. The Company does not expect the Kaiser Bankruptcy will have any effect on the settlements it has reached on those asbestos claims. Since the Kaiser Bankruptcy, the Company has been named in an additional 82 civil actions based on similar allegations with unspecified monetary claims against Century. The Company does not know if any of the 82 claimants were in the Ravenswood facility during the Company's ownership, but management believes that the costs of investigation or settlements, if any, will be immaterial. The Company has pending against it or may be subject to various other lawsuits, claims and proceedings related primarily to employment, commercial, environmental and safety and health matters. Although it is not presently possible to determine the outcome of these matters, management believes their ultimate disposition will not have a material adverse effect on the Company's financial condition, results of operations, or liquidity. Power Commitments The Company purchases all of the electricity requirements for the Ravenswood Facility from Ohio Power Company, a unit of American Electric Power Company, pursuant to a fixed price power supply agreement. That agreement expires on July 31, 2003. On May 3, 2002, the Company signed a new contract to purchase electric power for its Ravenswood facility from Ohio Power. The new agreement is effective August 1, 2003, when the Company's current power contract with Ohio Power expires. 10 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) The new contract will provide power for the Ravenswood facility at competitive rates under a GS-4 schedule approved by the Public Utilities Commission of Ohio. The GS-4 schedule is due to expire on December 31, 2005. The Hawesville facility currently purchases all of its power from Kenergy Corporation ("Kenergy"), a local retail electric cooperative, under a power supply contract that expires at the end of 2010. Kenergy acquires the power it provides to the Hawesville facility under fixed price contracts, mostly with a subsidiary of LG&E Energy Corporation ("LG&E"), with delivery guaranteed by LG&E. The Hawesville facility currently purchases all of its power from Kenergy at fixed prices. Approximately 15% of the Hawesville facility's power requirements are unpriced in calendar years 2004 and 2005. The unpriced portion of the contract increases to approximately 26% in 2006. The Mt. Holly facility purchases all of its power from the South Carolina Public Service Authority at rates fixed by published schedules. One of those schedules is a fuel adjustment clause which permits the Authority to pass through charges or credits to the extent its actual costs vary from those costs in the formula set in the Fuel Cost Adjustment Clause. The Mt. Holly power contract expires December 31, 2005. Equipment failures at the Ravenswood, Mt. Holly or Hawesville facilities could limit or shut down the Company's production for a significant period of time. In order to minimize the risk of equipment failure, the Company follows a comprehensive maintenance and loss prevention program and periodically reviews its failure exposure. The Company is subject to losses associated with equipment shutdowns, caused by the loss or interruption of electrical power, as well as other events. Power interruptions may have a material adverse effect on the Company's business. Any loss of power which causes an equipment shutdown may result in the hardening or "freezing" of molten aluminum in the pots where it is produced. If this freezing occurs, significant losses can occur if the pots are damaged and require repair or replacement, a process that could limit or shut down the Company's production operations for a significant period of time. Certain shutdowns not covered by insurance could be a default under the revolving credit facility. No assurance can be given that a material shutdown will not occur in the future or that such a shutdown would not have a material adverse effect on the Company. Although the Company maintains property damage insurance to provide for the repair or replacement of damaged equipment or property, as well as business interruption insurance to mitigate losses resulting from any equipment failure or production shutdown caused by a catastrophic event, the Company may still be required to pay significant amounts under the deductible provisions of those insurance policies. In addition, coverage may not be sufficient to cover all losses which result from a catastrophic event. Furthermore, while Century maintains insurance to cover losses resulting from damage to power suppliers' facilities or transmission lines that interrupts the power supply to the Company's facilities, this insurance contains large deductibles and self-insured amounts, and it does not cover losses resulting from a power loss due solely to lack of sufficient electrical power caused by unusually high usage within the applicable service territory. 11 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) Labor Commitments Century of West Virginia's hourly employees, which comprise 39% of the Company's workforce, are represented by the United Steelworkers of America ("USWA") and are currently working under a labor agreement that expires May 31, 2006. The Hawesville LLC's hourly employees, which comprise 41% of the Company's workforce, are represented by the USWA and are currently working under a five-year labor agreement that expires March 31, 2006. Other Commitments The Company may be required to make post-closing payments to Southwire up to an aggregate maximum of $7,000 if the price of primary aluminum on the LME exceeds specified levels during the seven years following closing of the Hawesville acquisition in April 2001. 7. Forward Delivery Contracts and Financial Instruments As a producer of primary aluminum products, the Company is exposed to fluctuating raw material and primary aluminum prices. The Company routinely enters into fixed and market priced contracts for the sale of primary aluminum and the purchase of raw materials in future periods. In connection with the sale of its aluminum fabricating businesses to Pechiney in September 1999, the Company entered into a Molten Aluminum Purchase Agreement (the "Pechiney Metal Agreement") with Pechiney that expires December 31, 2005. This contract will be automatically extended through July 31, 2007 provided that the Company's power contract is extended through that date. Pursuant to the Pechiney Metal Agreement, Pechiney purchases, on a monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds of molten aluminum at a variable price determined by reference to the U.S. Midwest market price. After July 31, 2003, Pechiney will have the right, upon 12 months notice, to reduce its purchase obligations under the contract by 50%. On April 1, 2000, the Company entered into an agreement, expiring December 31, 2009, with Glencore to sell and deliver monthly, primary aluminum totaling approximately 110.0 million pounds per year at a fixed price for the years 2002 through 2009 (the "Original Sales Contract"). In January 2003, Century and Glencore agreed to terminate and settle the Original Sales Contract for the years 2005 through 2009. At that time, the parties entered into a new contract (the "New Sales Contract") that requires Century to deliver the same quantity of primary aluminum as did the Original Sales Contract for these years. However, the New Sales Contract provides for variable pricing for the years 2005 through 2009, equal to the monthly average price of aluminum as quoted by the LME for the month preceding delivery of the primary aluminum. For deliveries in the years 2003 and 2004, the sale price of primary aluminum delivered will remain at fixed prices. Prior to the January 2003 agreement to terminate and settle the years 2005 though 2009 of the Original Sales Contract, the Company had been classifying and accounting for it as a Normal Sales contract under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." A 12 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) contract that is so designated and that meets other conditions established by SFAS No. 133 is exempt from the requirements of SFAS No. 133, although by its term the contract would otherwise be accounted for as a derivative instrument. Accordingly, prior to January, the Original Sales Contract was recorded on an accrual basis of accounting and changes in the fair value of the Original Sales Contract were not recognized. According to SFAS No. 133, it must be probable that at inception and throughout its term, a contract classified as "normal" will not result in a net settlement and will result in physical delivery. Because in January 2003 the Company and Glencore intended to net settle a significant portion of the Original Sales Contract, it no longer qualified for the "normal" exception of SFAS No. 133, requiring the Company to mark it to current fair value in its entirety. Accordingly, in the first quarter of 2003 the Company recorded a derivative asset and a pre-tax gain of $41.7 million. Of the total recorded gain, $26.1 million relates to the favorable terms of the Original Sales Contract for the years 2005 through 2009, and $15.6 million relates to the favorable terms of the Original Sales Contract for 2003 through 2004. The Company determined the fair value by estimating the excess of the contractual cash flows of the Original Sales Contract (using contractual prices and quantities) above the estimated cash flows of a contract based on identical quantities using LME-quoted prevailing forward market prices for aluminum plus an estimated U.S. Midwest Premium adjusted for delivery considerations. The Company discounted the excess estimated cash flows to present value using a discount rate of 7%. On April 1, 2003, the Company received $35.5 million from Glencore, $26.1 million of which relates to the settlement of the Original Sales Contract for the years 2005 through 2009, and $9.4 million of which represents the fair value of the New Sales Contracts, discussed below. The Company will account for the unsettled portion of the Original Sales Contract (years 2003 and 2004) as a derivative and will recognize period-to-period changes in fair value in current income. The Company will also account for the New Sales Contract as a derivative instrument under SFAS No. 133. The Company has not designated the New Sales Contract as "normal" because it replaces and substitutes for a significant portion of the Original Sales Contract which, after January 2003, no longer qualified for this designation. The $9.4 million initial fair value of the New Sales Contract is a derivative liability and represents the present value of the contract's favorable term to Glencore in that the New Sales Contract excludes in its variable price an estimated U.S. Midwest Premium, adjusted for delivery considerations. Because the New Sales Contract is variably priced, the Company does not expect significant variability in its fair value, other than changes that might result from the absence of the U.S. Midwest Premium. In connection with the acquisition of the Hawesville facility in April 2001, the Company entered into a 10-year contract with Southwire (the "Southwire Metal Agreement") to supply 240 million pounds of high-purity molten aluminum annually to Southwire's wire and cable manufacturing facility located adjacent to the Hawesville facility. Under this contract, Southwire will also purchase 60 million pounds of standard grade molten aluminum each year for the first five years of the contract, with an option to purchase an equal amount in each of the remaining five years. Prior to the acquisition of Glencore's interest in the Hawesville facility on April 1, 2003, the Company and Glencore were each responsible for providing a pro rata portion of the aluminum supplied to 13 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) Southwire under this contract. On April 1, 2003, in connection with the Company's acquisition of Glencore's interest in the Hawesville facility, the Company assumed Glencore's delivery obligations under the Southwire Metal Agreement. The price for the molten aluminum to be delivered to Southwire from the Hawesville facility is variable and will be determined by reference to the U.S. Midwest Market Price. This agreement expires on December 31, 2010, and will automatically renew for additional five-year terms, unless either party provides 12 months notice that it has elected not to renew. In connection with the 2003 acquisition of the 20% interest in the Hawesville facility, the Company entered into a ten-year contract with Glencore (the "Glencore Metal Agreement") from 2004 through 2013 under which Glencore will purchase approximately 45.0 million pounds per year of primary aluminum produced at the Ravenswood and Mt. Holly facilities, at prices based on then-current market prices, adjusted by a negotiated U.S. Midwest premium with a cap and a floor. Apart from the Pechiney Metal Agreement, the Glencore Metal Agreement, Original Sales Contract, New Sales Contract and Southwire Metal Agreement, the Company had forward delivery contracts to sell 193.6 million pounds and 329.0 million pounds of primary aluminum at June 30, 2003 and December 31, 2002, respectively. Of these forward delivery contracts, the Company had fixed price commitments to sell 36.2 and 42.9 million pounds of primary aluminum at June 30, 2003 and December 31, 2002, respectively. Of these forward delivery contracts, 19.3 million pounds and 0.3 million pounds at June 30, 2003 and December 31, 2002, respectively, were with the Glencore Group. The Company is party to long-term supply agreements with Glencore that extend through 2006 and provide that Glencore will supply a fixed quantity of alumina at prices indexed to the price of primary aluminum on the LME. In addition, as part of its acquisition of an additional 23% interest in the Mt. Holly facility, the Company assumed an alumina supply agreement with Glencore for its alumina requirements relative to the additional interest. This agreement terminates in 2008 and the price is indexed to the price of primary aluminum on the LME. As part of its acquisition of the Hawesville facility in 2001, the Company assumed a market based alumina supply agreement (the "Supply Agreement") with Kaiser which expires in 2005. In connection with its ongoing Chapter 11 bankruptcy proceedings, Kaiser filed a motion for an Order Authorizing the Assumption of Certain Critical Customer Supply Contracts (the "Motion"). The Motion was granted by the Bankruptcy Court on August 27, 2002. As a result, Kaiser has assumed the Supply Agreement and cured all existing defaults thereunder. All of Kaiser's continuing obligations under the Supply Agreement are to be performed in the ordinary course of its business and any claims the Company has under the Supply Agreement will be afforded administrative expense claim status pursuant to Section 503 of the Bankruptcy Code. On May 30, 2003, the Company entered into a new alumina supply contract with Kaiser. The new contract will cover all of the alumina requirements for the Hawesville facility operations for the period January 1, 2006 through December 31, 2008. The price of alumina purchased under this contract will be indexed to the price of primary aluminum on the LME. To mitigate the volatility in its market priced forward delivery contracts, the Company enters into fixed price financial sales contracts, which settle in cash in the period corresponding to the intended delivery dates of the forward delivery contracts. Certain of these financial sales contracts are accounted for as cash flow hedges depending on the Company's designation of each contract at its inception. At June 30, 2003 and December 31, 2002, the Company had financial instruments, 14 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) primarily with the Glencore Group, for 129.5 million pounds and 181.0 million pounds, respectively, of which 103.1 million pounds and 181.0 million pounds, respectively, were designated cash flows hedges. These financial instruments are scheduled for settlement at various dates in 2003 through 2004. The Company had no fixed price financial purchase contracts to purchase aluminum at June 30, 2003. Additionally, to mitigate the volatility of the natural gas markets, the Company enters into fixed price financial purchase contracts, accounted for as cash flow hedges, which settle in cash in the period corresponding to the intended usage of natural gas. At June 30, 2003 and December 31, 2002, the Company had financial instruments for 2.3 million and 1.5 million DTH (one decatherm is equivalent to one million British Thermal Units), respectively. These financial instruments are scheduled for settlement at various dates in 2003 through 2005. Based on the fair value of the Company's financial instruments as of June 30, 2003 accumulated other comprehensive income of $5,314 is expected to be reclassified to earnings over the next twelve month period. The forward financial sales and purchase contracts are subject to the risk of non-performance by the counterparties. However, the Company only enters into forward financial contracts with counterparties it determines to be creditworthy. If any counterparty failed to perform according to the terms of the contract, the accounting impact would be limited to the difference between the nominal value of the contract and the market value on the date of settlement. 8. Supplemental Cash Flow Information
Six months Ended June 30, ----------------------- 2003 2002 --------- --------- Cash paid for: Interest .......................................... $ 19,145 $ 18,571 Cash received for: Interest .......................................... 196 129 Income tax refunds ................................ -- 110 Seller financing related to the acquisition of the 20% interest in the Hawesville facility .................. 40,000 --
9. Asset Retirement Obligations In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement establishes standards for accounting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted the Standard during the first quarter of 2003. SFAS 143 requires that the Company record the fair value of a legal liability for an asset retirement obligation ("ARO") in the period in which it is incurred and capitalize the ARO by increasing the carrying amount of the related asset. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. The Company's asset retirement obligations consist primarily of costs associated with the removal and disposal of reduction plant spent pot liner. 15 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) With the adoption of SFAS 143 in the first quarter 2003, Century recorded an ARO asset of $8,718, net of accumulated amortization of $8,989 and a Deferred Tax Asset of $3,430. The net amount of applying the Statement is reported as a cumulative effect of a change in accounting principle. The Company recorded a one-time, non-cash charge of $5,878, for cumulative effect of a change in accounting principle. As of April 1, 2003, $1,795 of the additional ARO liability incurred for the six months ended June 30, 2003 relates to the assumption of the ARO liability associated with the acquisition of the 20% interest in the Hawesville facility. The reconciliation of the changes in the asset retirement obligations is presented below:
For the year ended For the Six months December 31, 2002 ended June 30, 2003 (Pro forma) ------------------- ----------------- Beginning Balance, ARO Liability .......... $ 17,902 $ 17,416 Additional ARO Liability incurred ......... 3,126 2,694 ARO Liabilities settled ................... (1,985) (3,645) Accretion Expense ......................... 778 1,437 -------- -------- Ending Balance, ARO Liability ............. $ 19,821 $ 17,902 ======== ========
10. New Accounting Standards In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company will apply the provisions of the Statement prospectively for any applicable contracts. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective for the Company beginning July 1, 2003. The Company has reviewed its current financial instruments and does not believe that any are within the scope of this Statement. The Company will apply the provisions of the Statement prospectively for any future financial instruments that are within the scope of this Statement. 16 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 11. Comprehensive Income and Accumulated Other Comprehensive Income (Loss)
Six months ended June 30, 2003 2002 -------- -------- Net Income (Loss) ................................................... $ 12,588 $ (8,068) Other Comprehensive Income (Loss): Net unrealized gain on financial instruments, net of tax of ($531) and ($60), respectively ................................. 869 49 Net amount reclassified as income, net of tax of $2,417 and $893, respectively ............................................. (4,286) (1,624) Minimum Pension Liability Adjustment, net of tax of $1,122 ....... (1,995) -- -------- -------- Comprehensive Income (Loss) ......................................... $ 7,176 $ (9,643) ======== ========
Composition of Accumulated Other Comprehensive Income (Loss):
June 30, December 31, 2003 2002 -------- ------------ Net Unrealized gain on financial instruments, net of tax of ($2,944) and ($4,829) .................. $ 5,194 $ 8,611 Minimum Pension Liability adjustment, net of tax of $5,306 and $4,183 .......................................... (9,433) (7,438) ------- ------- Total Accumulated Other Comprehensive Income (Loss) ................. $(4,239) $ 1,173 ======= =======
12. Stock-Based Compensation The Company has elected not to adopt the recognition provisions for employee stock-based compensation as permitted in SFAS No. 123, "Accounting for Stock-Based Compensation". As such, the Company accounts for stock based compensation in accordance with Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees." No compensation cost has been recognized for the stock option portions of the plan because the exercise price of the stock options granted were equal to the market value of the Company's stock on the date of grant. Had compensation cost for the Stock Incentive Plan been determined using the fair value method provided under SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have changed to the pro forma amounts indicated below: 17 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited)
Six months ended June 30, 2003 2002 ---- ---- Net Income (Loss) applicable to common shareholders As Reported $ 11,588 $ (9,068) Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 198 86 Deduct: Total Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (547) (201) --------- --------- Pro forma Net Income (loss) $ 11,239 $ (9,183) ========= ========= Basic earnings (loss) per share As Reported $ 0.55 $ (0.44) Pro Forma $ 0.53 $ (0.45) Diluted earnings (loss) per share As Reported $ 0.56 $ (0.44) Pro Forma $ 0.54 $ (0.45)
13. Earnings Per Share The following table provides a reconciliation of the computation of the basic and diluted earnings (loss) per share for income from continuing operations:
Three months ended June 30, 2003 2002 ---------------------------------- ---------------------------------- Per- Per- Income Shares Share Income Shares Share -------- ------ --------- -------- ------ --------- Loss before cumulative effect of change in accounting principle $ (5,007) $ (4,600) Less: Preferred stock dividends (500) (500) -------- -------- Basic EPS: Loss applicable to common shareholders (5,507) 21,070 $ (0.26) (5,100) 20,554 $ (0.25) Effect of Dilutive Securities: Convertible preferred stock -- -- -- -- ------ ------ ------ ------ Diluted EPS: Loss applicable to common shareholders with assumed conversions $ (5,507) 21,070 $ (0.26) $ (5,100) 20,554 $ (0.25) ======== ====== ========= ======== ====== ========= Six months ended June 30, 2003 2002 ---------------------------------- ---------------------------------- Per- Per- Income Shares Share Income Shares Share -------- ------ --------- -------- ------ --------- Income (loss) before cumulative effect of change in accounting principle $ 18,466 $ (8,068) Less: Preferred stock dividends (1,000) (1,000) -------- -------- Basic EPS: Income (loss) applicable to common shareholders 17,466 21,070 $ 0.83 (9,068) 20,554 $ (0.44) Effect of Dilutive Securities: Convertible preferred stock 1,000 1,395 -- -- ------ ------ ------ ------ Diluted EPS: Income (loss) applicable to common shareholders with assumed conversions $ 18,466 22,465 $ 0.82 $ (9,068) 20,554 $ (0.44) ======== ====== ========= ======== ====== =========
Options to purchase 712,200 and 642,450 shares of common stock were outstanding during the periods ended June 30, 2003 and June 30, 2002, respectively. For 2003, these shares were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares during the period. In 2002, these shares and convertible preferred stock shares were not included in the computation of diluted earnings per share because the assumed conversion would have had an antidilutive effect on earnings per share. 18 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) 14. Preferred and Common Stock Dividends In the fourth quarter of 2002, the Company suspended its common and preferred stock dividends. The action was taken because the Company was near the limits on allowable dividend payments under the covenants in its bond indenture and due to current economic conditions. In accordance with current accounting guidance, no liability for cumulative preferred dividends is recorded until the dividends are declared. As of June 30, 2003, the Company had total cumulative preferred dividend arrearages of $1,500 or $3.00 per preferred stock share. 15. Consolidating Condensed Financial Information The Company's 11 3/4% Senior Secured First Mortgage Notes due 2008 are jointly and severally and fully and unconditionally guaranteed by all of the Company's material consolidated subsidiaries, other than Century Aluminum of Kentucky LLC ("LLC") (the "Guarantor Subsidiaries"). As of June 30, 2003, the Company holds a 100% equity interest in LLC and as such consolidates 100% of the assets, liabilities and operations of LLC into its financial statements. Based on the joint ownership of LLC prior to April 1, 2003, LLC (the "Non-Guarantor Subsidiary") did not guarantee the Notes, and the Company has not caused its equity interests in LLC to be pledged as collateral for the Notes. The Company's interest in the Mt. Holly facility's property, plant and equipment has not been pledged as collateral. Other subsidiaries of the Company which are immaterial will not guarantee the Notes (collectively, the "Non-Guarantor Subsidiaries"). During 2001, the Company adopted a policy for financial reporting purposes of allocating expenses to subsidiaries. For the six months ended June 30, 2003 and 2002, the Company allocated total corporate expenses of $2.6 and $3.8 million to its subsidiaries, respectively. For the three months ended June 30, 2003 and 2002, the Company allocated total corporate expenses of $0.4 and $1.5 million to its subsidiaries, respectively. Additionally, the Company charges interest on certain intercompany balances. Because LLC is not a minor subsidiary, the Company is providing condensed consolidating financial information for the periods following the Company's acquisition of the Hawesville facility. The Notes contain customary covenants limiting the ability of both the Company and the Guarantor Subsidiaries to pay dividends, incur additional debt, make investments, sell assets or stock of certain 19 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) subsidiaries and purchase or redeem capital stock (see Note 5 to the Consolidated Financial Statements for information about the terms of the Notes). The following summarized condensed consolidating balance sheets as of June 30, 2003, and December 31, 2002, condensed consolidating statements of operations for the six and three month periods ended June 30, 2003 and 2002, and the condensed consolidating statements of cash flows for the six months ended June 30, 2003 and 2002 present separate results for Century Aluminum Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiary. This summarized condensed consolidating financial information may not necessarily be indicative of the results of operations or financial position had the Company, the Guarantor Subsidiaries or the Non-Guarantor Subsidiary operated as independent entities. 20 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING BALANCE SHEET As of June 30, 2003
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- --------- ----------------- ------------ Assets: Cash and cash equivalents ............................ $ -- $ 19 $ 24,356 $ -- $ 24,375 Accounts receivables, net ............................ 50,279 139 -- -- 50,418 Due from affiliates .................................. 128,038 13,065 455,821 (576,531) 20,393 Inventory ............................................ 51,361 22,375 -- -- 73,736 Prepaid and other current assets ..................... 8,914 366 6,300 -- 15,580 --------- --------- --------- --------- --------- Total current assets ....................... 238,592 35,964 486,477 (576,531) 184,502 Investment in subsidiaries ........................... 87,888 -- 191,409 (279,297) -- Property, plant and equipment, net ................... 499,551 4,769 268 -- 504,588 Intangible asset ..................................... -- 108,304 -- -- 108,304 Due from affiliates - less current portion ........... 97 -- -- 97 Other non-current assets ............................. 13,659 -- 18,369 -- 32,028 --------- --------- --------- --------- --------- Total assets ............................... $ 839,787 $ 149,037 $ 696,523 $(855,828) $ 829,519 ========= ========= ========= ========= ========= Liabilities and shareholders' equity: Accounts payable, trade .............................. $ 14,812 $ 19,761 $ -- $ -- $ 34,573 Due to affiliates .................................... 26,412 1,626 109,360 (121,063) 16,335 Industrial revenue bonds ............................. 7,815 -- -- -- 7,815 Accrued and other current liabilities ................ 8,250 6,984 12,015 -- 27,249 Accrued employee benefits costs - current portion .... 8,848 822 1,285 -- 10,955 Deferred taxes - current portion ..................... 3,399 -- -- -- 3,399 --------- --------- --------- --------- --------- Total current liabilities .................. 69,536 29,193 122,660 (121,063) 100,326 --------- --------- --------- --------- --------- Senior Secured Notes Payable - net ................... -- -- 322,075 -- 322,075 Notes Payable - Affiliates ........................... -- -- 40,000 -- 40,000 Accrued Pension benefits Costs - less current portion 4,510 -- 8,075 -- 12,585 Accrued Postretirement Benefits Costs - less current portion .............................................. 50,732 23,357 565 -- 74,654 Other liabilities/Intercompany loan .................. 480,775 8,599 -- (455,398) 33,976 Deferred taxes - less current portion ................ 42,825 -- 3,581 (70) 46,336 --------- --------- --------- --------- --------- Total non-current liabilities .............. 578,842 31,956 374,296 (455,468) 529,626 --------- --------- --------- --------- --------- Shareholders' Equity: Convertible preferred stock .......................... -- -- 25,000 -- 25,000 Common stock ......................................... 59 -- 211 (59) 211 Additional paid-in capital ........................... 236,906 133,175 172,403 (370,081) 172,403 Accumulated other comprehensive income (loss) ........ (4,239) -- (4,239) 4,239 (4,239) Retained earnings (deficit) .......................... (41,317) (45,287) 6,192 86,604 6,192 --------- --------- --------- --------- --------- Total shareholders' equity ................. 191,409 87,888 199,567 (279,297) 199,567 --------- --------- --------- --------- --------- Total liabilities and equity ............... $ 839,787 $ 149,037 $ 696,523 $(855,828) $ 829,519 ========= ========= ========= ========= =========
21 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 2002
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- ------- ----------------- ------------ Assets: Cash and cash equivalents .......................... $ 745 $ -- $ 44,347 $ -- $ 45,092 Accounts receivables, net .......................... 45,936 304 -- -- 46,240 Due from affiliates ................................ 87,071 10,102 353,292 (427,733) 22,732 Inventory .......................................... 55,877 21,258 -- -- 77,135 Prepaid and other current assets ................... 2,887 178 4,434 (2,722) 4,777 --------- --------- --------- --------- --------- Total current assets ....................... 192,516 31,842 402,073 (430,455) 195,976 Investment in subsidiaries ......................... 74,663 -- 184,234 (258,897) -- Property, plant and equipment - net ................ 416,590 780 251 -- 417,621 Intangible asset - net ............................. -- 119,744 -- -- 119,744 Due from affiliates - less current portion ......... 974 -- -- -- 974 Other Assets ....................................... 13,041 -- 17,811 -- 30,852 --------- --------- --------- --------- --------- Total assets .............................. $ 697,784 $ 152,366 $ 604,369 $(689,352) $ 765,167 ========= ========= ========= ========= ========= Liabilities and shareholders' equity: Accounts payable, trade ............................ $ 14,588 $ 23,169 $ -- $ -- $ 37,757 Due to affiliates .................................. 32,711 -- 64,243 (81,143) 15,811 Industrial revenue bonds ........................... -- 7,815 -- -- 7,815 Accrued and other current liabilities .............. 6,257 5,055 12,802 -- 24,114 Accrued employee benefits costs - current portion ............................................ 8,966 559 1,365 -- 10,890 Deferred Taxes - current portion ................... 7,763 -- -- (2,792) 4,971 --------- --------- --------- --------- --------- Total current liabilities .................. 70,285 36,598 78,410 (83,935) 101,358 --------- --------- --------- --------- --------- Long term debt - net ............................... -- -- 321,852 -- 321,852 Accrued Pension benefits Costs - less current portion .......................................... 3,771 -- 6,980 -- 10,751 Accrued Postretirement Benefits Costs - less current portion .................................... 48,335 21,840 481 -- 70,656 Other liabilities/Intercompany Loan ................ 354,297 599 -- (346,520) 8,376 Deferred taxes - less current portion .............. 36,862 -- 4,514 -- 41,376 --------- --------- --------- --------- --------- Total non-current liabilities .............. 443,265 22,439 333,827 (346,520) 453,011 --------- --------- --------- --------- --------- Minority interest .................................. -- -- -- 18,666 18,666 Shareholders' Equity: Convertible preferred stock ........................ -- -- 25,000 -- 25,000 Common stock ....................................... 59 -- 211 (59) 211 Additional paid-in capital ......................... 226,998 139,281 172,133 (366,279) 172,133 Accumulated other comprehensive income ............. 1,173 -- 1,173 (1,173) 1,173 Retained earnings (deficit) ........................ (43,996) (45,952) (6,385) 89,948 (6,385) --------- --------- --------- --------- --------- Total shareholders' equity ................. 184,234 93,329 192,132 (277,563) 192,132 --------- --------- --------- --------- --------- Total liabilities and equity ............... $ 697,784 $ 152,366 $ 604,369 $(689,352) $ 765,167 ========= ========= ========= ========= =========
22 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Three months Ended June 30, 2003
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- --------- ----------------- ------------ Net sales: Third-party customers .................... $ 163,746 $ -- $ -- $ -- $ 163,746 Related parties .......................... 32,421 -- -- -- 32,421 --------- --------- --------- --------- --------- 196,167 -- -- -- 196,167 Cost of goods sold ............................ 183,810 87,171 -- (82,590) 188,391 Reimbursement from owners ..................... -- (82,624) -- 82,624 -- --------- --------- --------- --------- --------- Gross profit (loss) ........................... 12,357 (4,547) -- (34) 7,776 Selling, general and administrative expenses ................................... 4,086 -- -- -- 4,086 --------- --------- --------- --------- --------- Operating income (loss) ....................... 8,271 (4,547) -- (34) 3,690 Interest expense - Third Party ................ (10,324) (34) -- 28 (10,330) Interest expense - Affiliates ................. (1,000) -- -- -- (1,000) Interest income ............................... 45 -- -- -- 45 Net Gain on Forward Contracts ................. 211 -- -- -- 211 Other income (expense), net ................... (774) (2) -- 6 (770) --------- --------- --------- --------- --------- Loss before taxes ............................. (3,571) (4,583) -- -- (8,154) Income tax benefit ............................ 1,405 -- -- 1,742 3,147 --------- --------- --------- --------- --------- Net income (loss) before equity earnings (loss) of subsidiaries ............ (2,166) (4,583) -- 1,742 (5,007) Equity earnings (loss) of subsidiaries ........ (2,841) -- (5,007) 7,848 -- --------- --------- --------- --------- --------- Net income (loss) ............................. $ (5,007) $ (4,583) $ (5,007) $ 9,590 $ (5,007) ========= ========= ========= ========= =========
23 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Three Months Ended June 30, 2002
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- ------- ----------------- ------------ Net sales: Third-party customers .................... $ 148,377 $ -- $ -- $ -- $ 148,377 Related parties .......................... 31,959 -- -- -- 31,959 --------- --------- --------- --------- --------- 180,336 -- -- -- 180,336 Cost of goods sold ............................ 168,815 63,054 -- (56,489) 175,380 Reimbursement from owners ..................... -- (56,540) -- 56,540 -- --------- --------- --------- --------- --------- Gross profit (loss) ........................... 11,521 (6,514) -- (51) 4,956 Selling, general and administrative expenses ................................... 3,761 -- -- -- 3,761 --------- --------- --------- --------- --------- Operating income (loss) ....................... 7,760 (6,514) -- (51) 1,195 Interest expense - Third Party ................ (9,896) (33) -- 33 (9,896) Interest income ............................... 58 -- -- -- 58 Other income (expense), net ................... (132) (17) -- 17 (132) --------- --------- --------- --------- --------- Loss before taxes and minority interest ....... (2,210) (6,564) -- (1) (8,775) Income tax benefit ............................ 867 -- -- 1,995 2,862 --------- --------- --------- --------- --------- Net income (loss) before minority interest ................................... (1,343) (6,564) -- 1,994 (5,913) Minority interest ............................. -- -- -- 1,313 1,313 Equity earnings (loss) of subsidiaries ........ (3,257) -- (4,600) 7,857 -- --------- --------- --------- --------- --------- Net income (loss) ............................. $ (4,600) $ (6,564) $ (4,600) $ 11,164 $ (4,600) ========= ========= ========= ========= =========
24 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Six months Ended June 30, 2003
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------ --------- ----------------- ------------ Net sales: Third-party customers ....................... $ 317,201 $ -- $ -- $ -- $ 317,201 Related parties ............................. 57,975 -- -- -- 57,975 --------- --------- --------- --------- --------- 375,176 -- -- -- 375,176 Cost of goods sold ............................. 350,198 166,972 -- (157,476) 359,694 Reimbursement from owners ...................... -- (157,537) -- 157,537 -- --------- --------- --------- --------- --------- Gross profit (loss) ............................ 24,978 (9,435) -- (61) 15,482 Selling, general and administrative expenses .................................... 8,221 -- -- -- 8,221 --------- --------- --------- --------- --------- Operating income (loss) ........................ 16,757 (9,435) -- (61) 7,261 Interest expense - Third Party ................. (20,548) (61) -- 55 (20,554) Interest expense - Affiliates .................. (1,000) -- -- -- (1,000) Interest income ................................ 196 -- -- -- 196 Net Gain on Forward Contracts .................. 41,904 -- -- -- 41,904 Other income (expense), net .................... (490) (16) -- 6 (500) --------- --------- --------- --------- --------- Income (loss) before taxes ..................... 36,819 (9,512) -- -- 27,307 Income tax (expense) benefit ................... (13,067) -- -- 3,240 (9,827) --------- --------- --------- --------- --------- Net income (loss) before minority interest and cumulative effect of change in accounting principle .............. 23,752 (9,512) -- 3,240 17,480 Minority interest .............................. -- -- -- 986 986 --------- --------- --------- --------- --------- Net income (loss) before cumulative effect of change in accounting principle ................................... 23,752 (9,512) -- 4,226 18,466 Cumulative Effect of Change in Accounting Principle, net of $3,430 in tax ...................................... (5,878) -- -- -- (5,878) Equity earnings (loss) of subsidiaries ......... (5,286) -- 12,588 (7,302) -- --------- --------- --------- --------- --------- Net income (loss) .............................. $ 12,588 $ (9,512) $ 12,588 $ (3,076) $ 12,588 ========= ========= ========= ========= =========
25 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2002
Combined Combined Reclassifications Guarantor Non-Guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- --------- ----------------- ------------ Net sales: Third-party customers ...................... $ 302,576 $ -- $ -- $ -- $ 302,576 Related parties ............................ 56,860 -- -- -- 56,860 --------- --------- --------- --------- --------- 359,436 -- -- -- 359,436 Cost of goods sold ............................ 334,043 126,041 -- (112,912) 347,172 Reimbursement from owners ..................... -- (113,006) -- 113,006 -- --------- --------- --------- --------- --------- Gross profit (loss) ........................... 25,393 (13,035) -- (94) 12,264 Selling, general and administrative expenses ................................... 7,938 -- -- -- 7,938 --------- --------- --------- --------- --------- Operating income (loss) ....................... 17,455 (13,035) -- (94) 4,326 Interest expense - Third Party ................ (20,155) (66) -- 66 (20,155) Interest income ............................... 129 -- -- -- 129 Other income (expense), net ................... (102) (28) -- 28 (102) --------- --------- --------- --------- --------- Loss before taxes and minority interest ....... (2,673) (13,129) -- -- (15,802) Income tax benefit ............................ 1,117 -- -- 3,991 5,108 --------- --------- --------- --------- --------- Net income (loss) before minority interest ................................... (1,556) (13,129) -- 3,991 (10,694) Minority interest ............................. -- -- -- 2,626 2,626 Equity earnings (loss) of subsidiaries ........ (6,512) -- (8,068) 14,580 -- --------- --------- --------- --------- --------- Net income (loss) ............................. $ (8,068) $ (13,129) $ (8,068) $ 21,197 $ (8,068) ========= ========= ========= ========= =========
26 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six months Ended June 30, 2003
Combined Combined Reclassifications Guarantor Non-guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- -------- ----------------- ------------ Net cash provided by operating activities ...... $ 47,283 $ 2,445 $ -- $ -- $ 49,728 -------- -------- -------- -------- -------- Investing activities: Purchase of property, plant and equipment, net ............................. (9,748) (421) (131) -- (10,300) Acquisition of minority interest ............ -- -- (59,837) -- (59,837) -------- -------- -------- -------- -------- Net cash used in investing activities ....... (9,748) (421) (59,968) -- (70,137) -------- -------- -------- -------- -------- Financing activities: Financing Fees .............................. -- -- (297) -- (297) Dividends ................................... -- -- (11) -- (11) Intercompany transactions ................... (38,280) (2,005) 40,285 -- -- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities .................................... (38,280) (2,005) 39,977 -- (308) -------- -------- -------- -------- -------- Net increase (decrease) in cash ................ (745) 19 (19,991) -- (20,717) Cash, beginning of period ...................... 745 -- 44,347 -- 45,092 -------- -------- -------- -------- -------- Cash, end of period ............................ $ -- $ 19 $ 24,356 $ -- $ 24,375 ======== ======== ======== ======== ========
27 CENTURY ALUMINUM COMPANY Notes to Consolidated Financial Statements Six Month Periods Ended June 30, 2003 and 2002 (Dollars in Thousands) (Unaudited) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2002
Combined Combined Reclassifications Guarantor Non-guarantor The and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------- --------- ----------------- ------------ Net cash provided by operating activities ....... $ 10,839 $ 9,366 $ -- $ -- $ 20,205 -------- -------- -------- ------ -------- Investing activities: Purchase of property, plant and equipment, net ............................. (8,336) (2,516) -- -- (10,852) -------- -------- -------- ------ -------- Net cash used in investing activities ........ (8,336) (2,516) -- -- (10,852) -------- -------- -------- ------ -------- Financing activities: Dividends .................................... -- -- (2,563) -- (2,563) Intercompany transactions .................... (3,463) (6,850) 10,313 -- -- Issuance of common or preferred stock ........ -- -- 5 -- 5 -------- -------- -------- ------ -------- Net cash provided by (used in) financing activities ..................................... (3,463) (6,850) 7,755 -- (2,558) -------- -------- -------- ------ -------- Net increase (decrease) in cash ................. (960) -- 7,755 -- 6,795 Cash, beginning of period ....................... 1,020 -- 12,368 -- 13,388 -------- -------- -------- ------ -------- Cash, end of period ............................. $ 60 $ -- $ 20,123 $ -- $ 20,183 ======== ======== ======== ====== ========
28 FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995. This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as "expects," "anticipates," "forecasts," "intends," "plans," "believes," "projects," and "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements include, but are not limited to, statements regarding new business and customers, contingencies, environmental matters and liquidity under "Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part I, Item 3 - Quantitative and Qualitative Disclosures About Market Risk." These statements are not guarantees of future performance and involve risks and uncertainties and are based on a number of assumptions that could ultimately prove to be wrong. Actual results and outcomes may vary materially from what is expressed or forecast in such statements. Among the factors that could cause actual results to differ materially are general economic and business conditions, changes in demand for the Company's products and services or the products of the Company's customers, fixed asset utilization, competition, the risk of technological changes and the Company's competitors developing more competitive technologies, the Company's dependence on certain important customers, the availability and terms of needed capital, risks of loss from environmental liabilities, and other risks detailed in this report. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The following information should be read in conjunction with the Company's 2002 Form 10-K along with the consolidated financial statements and related footnotes included within the Form 10-K. 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following discussion reflects Century's historical results of operations. Century's financial highlights include:
Three months ended Six months ended June 30, June 30, ----------------------------- ---------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- (dollars in thousands, except per share amounts) Net sales Third-party customers ............................. $ 163,746 $ 148,377 $ 317,201 $ 302,576 Related party customers .......................... 32,421 31,959 57,975 56,860 --------- --------- --------- --------- Total ............................................... $ 196,167 $ 180,336 $ 375,176 $ 359,436 ========= ========= ========= ========= Net income (loss) ................................... $ (5,007) $ (4,600) $ 12,588 $ (8,068) Net income (loss) applicable to common shareholders ............................. $ (5,507) $ (5,100) $ 11,588 $ (9,068) Earnings (loss) per share - basic ................... $ (0.26) $ (0.25) $ 0.55 $ (0.44) Earnings (loss) per share - diluted ................. $ (0.26) $ (0.25) $ 0.56 $ (0.44)
Net sales. Net sales for the three months ended June 30, 2003 increased approximately $15.8 million to $196.2 million from $180.3 million for the same period in 2002, primarily as a result of a 27.5 million pound increase in shipment volume in the current quarter. The increased shipment volume in the current quarter was a direct result of the April 1, 2003, acquisition of the 20% interest in its Hawesville Kentucky primary aluminum reduction facility (collectively, the "Acquired Assets"). Shipment volume for the three months ended June 30, 2003 totaled 290.0 million pounds vs. 262.5 million pounds for the same period in 2002. The increased shipment volume accounted for an $18.9 million increase in net sales which was partially offset by a $3.1 million reduction in realized price. Price realizations were down in the three month period ended June 30, 2003 as a result of excluding the beneficial effects of the above market, 110.0 million pound annual metal delivery, fixed price contract that remains in place for 2003 and 2004 (see the discussion of the contract termination in Note 7 to the Consolidated Financial Statements). In compliance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, the Company marked the entire contract to market in the first quarter of 2003, resulting in a before tax gain of $15.6 million in that quarter. Net Sales for the second quarter 2003 would have been increased by $3.5 million had the Company accounted for the contract on the same basis as last year. Net sales for the six months ended June 30, 2003 increased $15.7 million. Shipment volume increased 21.6 million pounds to 547.1 million pounds from 525.5 million pounds from the 30 same period in 2002. The increased shipment volume, primarily a result of the acquisition of the "Acquired Assets" on April 1, 2003, accounted for an increase of $14.8 million with the remaining increase of $0.9 million due to higher realized prices in the current six month period partially offset by the mark to market impact discussed in the preceding paragraph. Gross profit. Gross profit for the three months ended June 30, 2003 increased $2.8 million from the same period in 2002. The additional $15.8 million in Net sales in the current quarter were offset by Cost of goods sold increases of $13.0 million, primarily a result of higher shipment volumes as disclosed in the previous paragraph. Net reductions of $1.0 million in depreciation and power contract amortization costs and higher LCM credits of $1.0 million partially offset the increase in cost of goods sold due to the volume increase. For the six months ended June 30, 2003, gross profit increased $3.2 million from the same period in 2002. The increase is primarily due to the additional shipment volume in the current quarter. Selling, general and administrative expenses. Selling, general and administrative expenses for the three month and six month periods ending June 30, 2003 increased $0.3 million from the same periods in 2002. Selling, general and administrative expenses as a percentage of revenue remained consistent at 2.2% for the six months ended June 30, 2003 compared to 2.2% for the six months ended June 30, 2002. Operating income. Operating income for the three month and six month periods ending June 30, 2003 increased $2.5 million and $2.9 million respectively from the same periods in 2002 for the reasons discussed above. Interest Expense - third party. Third party interest expense during the three months and six months ended June 30, 2003 increased $0.4 million from the same periods in 2002. The increase is due primarily to less capitalized interest in the current year period. Interest Expense - related party. Related party interest expense during the three month and six month periods ending June 30, 2003 was $1.0 million as a result of interest charges on the Glencore Note associated with the acquisition of the Acquired Assets on April 1, 2003 (see the discussion of the Glencore Note in Note 5 to the Consolidated Financial Statements). Net Gain on Forward Contracts. Net Gain on Forward Contracts for the three and six month periods ending June 30, 2003 were $0.2 million and $41.9 million respectively with no gain or loss reported for the same periods in 2002. On April 1, 2000, the Company entered into an agreement, expiring December 31, 2009, with Glencore to sell and deliver monthly, primary aluminum totaling approximately 110.0 million pounds per year at a fixed price for the years 2002 through 2009 (the "Original Sales Contract"). In January 2003, Century and Glencore agreed to terminate and settle the Original Sales Contract for the years 2005 through 2009 (see the discussion of the contract termination in Note 7 to the Consolidated Financial Statements). Because the Company and Glencore intended to net settle a significant portion of the Original Sales Contract, it no longer qualified for the "normal" exception of SFAS No. 133, requiring the Company to mark it to current fair value in its entirety. Accordingly, in the first quarter of 2003 the Company recorded a derivative asset and a pre-tax gain of $41.7 million. No gain or loss on forward contracts was recognized in the three or six month periods ended June 30, 2002 because delivery on the contract under its original fixed price terms was 31 considered probable and the contract qualified as a normal sales contract under SFAS 133, as amended. Other Expense. Other Expense for the three months ended June 30, 2003 increased $0.6 million from the same period in 2002. The increase is primarily due to write-offs of certain fixed assets in the current quarter. For the six months ended June 30, 2003, Other Expense increased $0.4 million from the same period in 2002 for the reasons discussed above, offset by a gain on disposal of assets in the first quarter of 2003. Tax Provision/Benefit. Income tax benefit for the three months ended June 30, 2003 increased $0.3 million from the same period in 2002. For the six months ended June 30, 2003 income tax expense increased $14.9 million from the same period in 2002. The change in income taxes was due to the $43.1 million increase in the Income (Loss) Before Income Taxes in the six months ended June 30, 2003 compared to the same period in 2002. The increase in Income (Loss) Before Income Taxes was primarily the result of the Net Gain on Forward Contracts discussed above. Minority Interest. Prior to the acquisition of the Acquired Assets, Minority interest reflected Glencore's interest in the net operating results of Century Aluminum of Kentucky LLC, ("LLC") which included Glencore's 20% share of the power contract amortization expense. Subsequent to the acquisition of the Acquired Assets, the Company no longer has a minority interest. Cumulative Effect of Change in Accounting Principle. The Company adopted Financial Accounting Standard No. 143, "Accounting for Asset Retirement Obligations" during the three months ended March 31, 2003. The cumulative effect of adopting this standard was a one-time, non-cash charge of $5.9 million, net of tax of $3.4 million. Net Income or Loss. Net loss for the three months ended June 30, 2003 increased $0.4 million from the same period in 2002. Net income for the six months ended June 30, 2003 increased $20.7 million from the same period in 2002. The reasons for the change in profitability are discussed above. Liquidity and Capital Resources Revolving Credit Facility On January 14, 2003, Moody's Investor Service ("Moody's") issued an announcement revising its long-term debt ratings for the Company. Moody's lowered the rating on the Company's senior secured revolving credit facility from Ba2 to Ba3. The availability of funds under the revolving credit facility is subject to a $30.0 million reserve and limited by a specified borrowing base consisting of certain eligible accounts receivable and inventory. The Company expects that the borrowing base, less the reserve, will 32 permit the Company to borrow approximately $50.0 to $60.0 million under the revolving credit facility. Working Capital Working capital was $84.2 million at June 30, 2003. The Company believes that its working capital will be consistent with past experience and that cash flow from operations and borrowing availability under the revolving credit facility should be sufficient to meet working capital needs. Historical The Company's statements of cash flows for the six months ended June 30, 2003 and 2002 are summarized below:
Six months ended June 30, 2003 2002 -------- -------- (dollars in thousands) Net cash provided by operating activities .......... $ 49,728 $ 20,205 Net cash used in investing activities .............. (70,137) (10,852) Net cash used in financing activities .............. (308) (2,558) -------- -------- Increase (Decrease) in cash ........................ $(20,717) $ 6,795 ======== ========
Net cash from operating activities in the first six months of 2003 was $29.5 million higher than the same period in 2002. Cash flows from operating activities increased primarily due to the $35.5 million settlement received during the current quarter for the termination of the Original Sales Contract and entering the New Sales Contract with Glencore for the years 2005 through 2009. The Company's net cash used for investing activities during the six month periods ended June 30, 2003 increased $59.3 million from the same period in 2002 with $59.8 million of the increase being a direct result of the acquisition of the Acquired Assets on April 1, 2003. Net cash used in financing activities during the six month period ending June 30, 2003 decreased $2.3 million due to the suspension of common and preferred stock dividend payments. Century suspended its common and preferred stock dividends in the fourth quarter of 2002 because the Company was near the limits on allowable dividend payments under the covenants in its bond indenture. Environmental Expenditures and Other Contingencies The Company has incurred and in the future will continue to incur capital expenditures and operating expenses for matters relating to environmental control, remediation, monitoring and compliance. The aggregate environmental related accrued liabilities were $1.8 million and $1.4 million at June 30, 2003 and December 31, 2002, respectively. The Company believes that 33 compliance with current environmental laws and regulations is not likely to have a material adverse effect on the Company's financial condition, results of operations or liquidity; however, environmental laws and regulations may change, and the Company may become subject to more stringent environmental laws and regulations in the future. There can be no assurance that compliance with more stringent environmental laws and regulations that may be enacted in the future, or future remediation costs, would not have a material adverse effect on the Company's financial condition, results of operations or liquidity. The Company is a defendant in several actions relating to various aspects of its business. While it is impossible to predict the ultimate disposition of any litigation, the Company does not believe that any of these lawsuits, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition, results of operations or liquidity. See Note 6 to the Consolidated Financial Statements contained herein. The Company may be required to make post-closing payments to Southwire up to an aggregate maximum of $7.0 million if the price of primary aluminum on the LME exceeds specified levels during the seven years following closing of the Hawesville acquisition in 2001. Prior to April 1, 2003, Glencore was responsible for its pro rata portion of any post-closing payments made to Southwire. After April 1, 2003, with the completion of the acquisition of the 20% interest in the Hawesville facility owned by Glencore, the Company assumed Glencore's obligations for any future post-closing payments to Southwire that may be required. New Accounting Standards In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company will apply the provisions of the Statement prospectively for any applicable contracts. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective for the Company beginning July 1, 2003. The Company has reviewed its current financial instruments and does not believe that any are within the scope of this Statement. The Company will apply the provisions of the Statement prospectively for any future financial instruments that are within the scope of this Statement. 34 Item 3. Quantitative and Qualitative Disclosures About Market Risk Commodity Prices The Company manages its exposure to fluctuations in the price of primary aluminum by selling aluminum at fixed prices for future delivery and through financial instruments as well as by purchasing alumina under supply contracts with prices tied to the same indices as the Company's aluminum sales contracts. The Company's risk management activities do not include trading or speculative transactions. Although the Company has not materially participated in the purchase of call or put options, in cases where Century sells forward primary aluminum, it may purchase call options to benefit from price increases which are significantly above forward sales prices. In addition, it may purchase put options to protect itself from price decreases. In connection with the sale of its aluminum fabricating businesses to Pechiney in September 1999, the Company entered into the Pechiney Metal Agreement, pursuant to which Pechiney purchases, on a monthly basis, at least 23.0 million pounds and no more than 27.0 million pounds of molten aluminum produced at the Ravenswood Facility at a variable price referenced to the U.S. Midwest market price. On April 1, 2000, the Company entered into an agreement, expiring December 31, 2009, with Glencore to sell and deliver monthly, primary aluminum totaling approximately 110.0 million pounds per year at a fixed price for the years 2002 through 2009. In January 2003, Century and Glencore agreed to terminate and settle the Original Sales Contract for the years 2005 through 2009. At that time, the parties entered into a new contract (the "New Sales Contract") that requires Century to deliver the same quantity of primary aluminum as did the Original Sales Contract for these years. However, the New Sales Contract provides for variable pricing for the years 2005 through 2009, equal to the monthly average price of aluminum as quoted by the LME for the month preceding delivery of the primary aluminum. For deliveries in the years 2003 and 2004, the sale price of primary aluminum delivered will remain at fixed prices. Prior to the January 2003 agreement to terminate and settle the years 2005 though 2009 of the Original Sales Contract, the Company had been classifying and accounting for it as a Normal Sales contract under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." A contract that is so designated and that meets other conditions established by SFAS No. 133 is exempt from the requirements of SFAS No. 133, although by its term the contract would otherwise be accounted for as a derivative instrument. Accordingly, prior to January, the Original Sales Contract was recorded on an accrual basis of accounting and changes in the fair value of the Original Sales Contract were not recognized. According to SFAS No. 133, it must be probable that at inception and throughout its term, a contract classified as "normal" will not result in a net settlement and result in physical delivery. Because in January 2003 the Company and Glencore intended to net settle a significant portion of the Original Sales Contract, it no longer qualified for the "normal" exception of SFAS No. 133, requiring the Company to mark it to current fair value in its entirety. Accordingly, in the first quarter of 2003 the Company recorded a derivative asset and a pre-tax gain of $41.7 35 million. Of the total recorded gain, $26.1 million relates to the favorable terms of the Original Sales Contract for the years 2005 through 2009, and $15.6 million relates to the favorable terms of the Original Sales Contract for 2003 through 2004. In connection with the Hawesville acquisition, the Company entered into the Southwire Metal Agreement with Southwire to supply 240.0 million pounds of high-purity molten aluminum per year to Southwire's wire and cable manufacturing facility located adjacent to the Hawesville facility at a price determined by reference to the U.S. Midwest Market Price. Under this contract, Southwire will also purchase 60.0 million pounds of standard-grade molten aluminum each year for the first five years of the contract, with an option to purchase an equal amount in each of the remaining five years. The Company and Glencore are each responsible for providing a pro rata portion of the aluminum supplied to Southwire under the Southwire Metal Agreement. In connection with the acquisition of the 20% interest in the Hawesville facility owned by Glencore on April 1, 2003, the Company assumed Glencore's delivery obligations under the Southwire Metal agreement. Apart from the Pechiney Metal Agreement, Glencore Metal Agreement, Original Sales Contract, New Sales Contract and Southwire Metal Agreement the Company had forward delivery contracts to sell 193.6 and 329.0 million pounds of primary aluminum at June 30, 2003 and December 31, 2002, respectively. Of these forward delivery contracts, the Company had fixed price commitments to sell 36.2 and 42.9 million pounds of primary aluminum at June 30, 2003 and December 31, 2002, respectively. Forward delivery contracts of 19.3 million pounds and 0.3 million pounds at June 30, 2003 and December 31, 2002, respectively, were with the Glencore Group. The Company is party to long-term supply agreements to purchase alumina with Glencore that extend through 2006. These agreements provide for a fixed quantity of alumina at prices determined by a market-based formula (as such term is described below). In addition, as part of its acquisition of an additional 23% interest in the Mt. Holly Facility, the Company assumed a supply agreement with Glencore for the alumina raw material requirements relative to the additional interest. The unit cost is also determined by a market-based formula. This alumina supply agreement terminates in 2008. As part of its Hawesville acquisition, the Company assumed an alumina supply agreement with Kaiser. That agreement will terminate in 2005 and is a variable priced market based contract. See the discussion of the Kaiser Bankruptcy information at Note 7 to the Consolidated Financial Statements. On May 30, 2003, the Company announced that it had entered into a new alumina supply contract with Kaiser. The new contract will cover all of the alumina requirements for the Hawesville facility operations for the period January 1, 2006 through December 31, 2008. The price of alumina purchased under the foregoing contracts will be indexed to the price of primary aluminum on the LME. At June 30, 2003 and December 31, 2002, the Company had entered into 129.5 million pounds and 181.0 million pounds, respectively, of fixed priced forward primary aluminum financial sales contracts primarily with the Glencore Group to mitigate the risk of commodity price fluctuations inherent in its business. Certain of these financial sales contracts are accounted for as cash flow hedges depending on the Company's designation of each contract at its inception. At June 30, 2003 and December 31, 2002, 103.1 million pounds and 181.0 million pounds, respectively, were designated cash flows hedges. These contracts will be 36 settled in cash at various dates in 2003 and 2004. Additionally, in order to mitigate the volatility of the natural gas markets, the Company enters into fixed price forward financial purchase contracts, which settle in cash in the period corresponding to the intended usage of natural gas. At June 30, 2003 and December 31, 2002, the Company had financial instruments for 2.3 million and 1.5 million DTH of natural gas, respectively (one decatherm, or DTH, is equivalent to one million British Thermal Units). These financial instruments are accounted for as cash flow hedges and are scheduled for settlement at various dates in 2003 through 2005. On a hypothetical basis, a $0.01 per pound increase or decrease in the market price of primary aluminum is estimated to have an unfavorable or favorable impact of $0.6 million after tax on accumulated other comprehensive income and $0.2 million on Net income for the period ended June 30, 2003 as a result of the forward primary aluminum financial sale contracts entered into by the Company at June 30, 2003. On a hypothetical basis, a $0.50 per DTH decrease or increase in the market price of natural gas is estimated to have an unfavorable or favorable impact of $0.7 million after tax on accumulated other comprehensive income for the period ended June 30, 2003 as a result of the forward natural gas financial purchase contracts entered into by the Company at June 30, 2003. The Company's metals and natural gas risk management activities are subject to the management, control and direction of senior management. The metals related activities are regularly reported to the Board of Directors of Century. This quantification of the Company's exposure to the commodity price of aluminum is necessarily limited, as it does not take into consideration the Company's inventory or forward delivery contracts, or the offsetting impact upon the sales price of primary aluminum products. Because all of the Company's alumina contracts are indexed to the LME price for aluminum, beginning in 2002, they act as a natural hedge for approximately 25% of the Company's production. Interest Rates The Company's primary debt obligations are the outstanding Notes, the Glencore Note, borrowings under its revolving credit facility and the industrial revenue bonds the Company assumed in connection with the Hawesville acquisition. Because the Notes and the Glencore Note bear a fixed rate of interest, changes in interest rates do not subject the Company to changes in future interest expense with respect to the outstanding notes. Borrowings under the Company's revolving credit facility, if any, are at variable rates at a margin over LIBOR or the Fleet National Bank base rate, as defined in the revolving credit facility. The industrial revenue bonds bear interest at variable rates determined by reference to the interest rate of similar instruments in the industrial revenue bond market. At June 30, 2003 and December 31, 2002, the Company had $7.8 million of variable rate borrowings. A hypothetical 1% increase in the interest rate would increase the Company's annual interest expense by $0.1 million, assuming no debt reduction. The Company's primary financial instruments are cash and short-term investments, including cash in bank accounts and other highly rated liquid money market investments and government securities. 37 Item 4. Controls and Procedures a. Evaluation of Disclosure Controls and Procedures As of June 30, 2003, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Company's Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. b. Changes in Internal Control over Financial Reporting There have been no significant changes in the Company's internal controls over financial reporting during the three month period ended June 30, 2003. 38 Part II. OTHER INFORMATION Item 3. Defaults Upon Senior Securities (a) Material Defaults of indebtedness - None (b) Dividend Arrearages - As of June 30, 2003, the Company had total preferred dividend arrearages on its 8.0% cumulative convertible preferred stock of $1.5 million or $3.00 per share of preferred stock. Item 4. Submission of Matters to a Vote of Stockholders The Annual Meeting of Stockholders was held June 24, 2003. The following are the results of Stockholder voting on proposals that were presented and adopted: 1. The election of the following directors for a term of three (3) years expiring at the Annual Meeting of Stockholders to be held in 2006: For Withheld --- -------- Roman A. Bninski 20,221,333 215,340 Stuart M. Schreiber 20,219,581 217,092 Willy R. Strothotte 19,765,163 671,510 2. To amend the Restated Certificate of Incorporation of the Company to increase the maximum number of directors authorized to serve on the Board of Directors from nine (9) to eleven (11). For 20,181,061 Against 68,895 Withheld 186,716 Broker Non-Vote 0 3. To ratify the appointment of Deloitte & Touche LLP as the Company's independent auditors for the fiscal year ending December 31, 2003. For 20,100,909 Against 333,501 Withheld 2,263 Broker Non-Vote 0 39 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - Exhibit No. Exhibit Description ----------- ------------------- 3.1 Certificate of Amendment of the Restated Certificate of Incorporation of the Company, dated June 24, 2003. 3.2 Restated Bylaws of the Company (as amended through June 24, 2003.) 4.1 Amendment to Indenture, dated as of May 5, 2003, by and among the Company, the Guarantors party thereto and Wilmington Trust Company 10.1* Alumina Purchase Agreement, dated as of December 18, 1997, by and between Kaiser Aluminum and Chemical Corporation ("Kaiser") and Southwire Company ("Southwire") 10.2 Consent to Assignment and Guarantee, dated as of April 2, 2001, by and among Kaiser, the Company and Century Aluminum of Kentucky LLC ("CAK") 10.3* Alumina Purchase Agreement, dated as of May 26, 2003, by and between Kaiser and CAK. 31.1 Certification of Disclosure in Century Aluminum Company's Quarterly Report by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). 31.2 Certification of Disclosure in Century Aluminum Company's Quarterly Report by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). *Confidential information has been omitted from this exhibit pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission. 40 (b) Reports on Form 8-K - During the quarter ended June 30, 2003, the Company filed the following three reports on Form 8-K with the Securities and Exchange Commission: 1. Form 8-K dated April 1, 2003, reporting the Company's acquisition of the remaining 20 percent interest in the Hawesville, KY aluminum reduction plant owned by Glencore. 2. Form 8-K dated April 29, 2003, attaching the Company's earnings report for the quarter ended March 31, 2003. 3. Form 8-K dated May 30, 2003, reporting that the Company entered into a new alumina supply contract with Kaiser covering the Hawesville facility's requirements for the period from January 1, 2006 through December 31, 2008. 41 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Century Aluminum Company Date: August 11, 2003 By: /s/ Gerald A. Meyers --------------- ----------------------------------------------- Gerald A. Meyers Chief Executive Officer and President Date: August 11, 2003 By: /s/ David W. Beckley --------------- ----------------------------------------------- David W. Beckley Executive Vice-President/Chief Financial Officer 42 EXHIBIT INDEX Exhibit No. Exhibit Description ----------- ------------------- 3.1 Certificate of Amendment of the Restated Certificate of Incorporation of the Company, dated June 24, 2003. 3.2 Restated Bylaws of the Company (as amended through June 24, 2003.) 4.1 Amendment to Indenture, dated as of May 5, 2003, by and among the Company, the Guarantors party thereto and Wilmington Trust Company 10.1* Alumina Purchase Agreement, dated as of December 18, 1997, by and between Kaiser Aluminum and Chemical Corporation ("Kaiser") and Southwire Company ("Southwire") 10.2 Consent to Assignment and Guarantee, dated as of April 2, 2001, by and among Kaiser, the Company and Century Aluminum of Kentucky LLC ("CAK") 10.3* Alumina Purchase Agreement, dated as of May 26, 2003, by and between Kaiser and CAK. 31.1 Certification of Disclosure in Century Aluminum Company's Quarterly Report by the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). 31.2 Certification of Disclosure in Century Aluminum Company's Quarterly Report by the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (13 U.S.C. 1350). *Confidential information has been omitted from this exhibit pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission. EX-3.1 3 d56393_ex3-1.txt CERTIFICATE OF AMENDMENT Exhibit 3.1 CERTIFICATE OF AMENDMENT of the RESTATED CERTIFICATE of INCORPORATION of CENTURY ALUMINUM COMPANY Century Aluminum Company, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The Board of Directors of the Corporation, at its meeting held on March 26, 2003, duly adopted resolutions setting forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, declaring said resolutions to be advisable and directing that said amendment be considered at the next Annual Meeting of the stockholders of the Corporation. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Board of Directors of the Corporation does hereby declare it advisable to increase the number of directors authorized to serve on the Corporation's Board of Directors from nine (9) to eleven (11) and that, in order to effectuate said change, the Restated Certificate of Incorporation of the Corporation (the "Certificate") be amended so that paragraph 1 of Article Fifth thereof be and read in its entirety as follows: "1. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors consisting of not less than three (3) nor more than eleven (11) directors. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed and determined from time to time by resolution adopted by the vote of a majority of the total number of directors." SECOND: That thereafter, pursuant to resolution of the Board of Directors, the Annual Meeting of the stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the requisite number of shares as required by statute were voted in favor of the amendment. THIRD: The foregoing amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has caused this Certificate of Amendment of the Restated Certificate of Incorporation to be signed this 24th day of June, 2003. CENTURY ALUMINUM COMPANY By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Assistant Secretary -2- EX-3.2 4 d56393_ex3-2.txt RESTATED BYLAWS Exhibit 3.2 RESTATED BYLAWS of CENTURY ALUMINUM COMPANY (As Amended through June 24, 2003) ARTICLE I Offices 1. The corporation may have offices at such places within or without the State of Delaware as the board of directors may from time to time determine or as the business of the corporation may require. ARTICLE II Stockholders' Meetings 1. Place of all meetings. All meetings of stockholders shall be held at such place or places in or outside the State of Delaware as the board of directors may from time to time determine or as may be designated in the notice of meeting or waiver of notice thereof, subject to any provisions of the laws of Delaware. 2. Annual meeting of stockholders. The annual meeting of stockholders shall be held each year on such date, and at such time as shall be fixed by the board of directors. Written notice of the time and place of the annual meeting shall be given by mail to each stockholder entitled to vote at least ten days prior to the date thereof, unless waived as provided by Article IX of these Bylaws. 3. Notice of Stockholder Proposals. (a) At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (i) by, or at the direction of, the board of directors or (ii) by any stockholder who complies with the notice procedures set forth in this Section of the Bylaws. For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary, and such proposal must be a proper matter for stockholder action under the Delaware General Corporation Law and a proper matter for consideration at such meeting under the Certificate of Incorporation and these Bylaws. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the corporation not less than forty-five (45) days prior to the date on which the corporation first mailed its proxy materials for the prior year's annual meeting of stockholders. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares which are beneficially owned by the stockholder on the date of such stockholder notice and (iv) any material interest of the stockholder in such proposal. (b) If the presiding officer of the annual meeting determines that a stockholder proposal was not made in accordance with the terms of this Section, he shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. (c) This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the board of directors, but, in connection with such reports, no business shall be acted upon at such annual meeting unless stated, filed and received as herein provided. 4. Special meetings of stockholders. Special meetings of stockholders may be called at any time by order of the board of directors or the executive committee only. Notice of all such meetings of the stockholders, stating the time, place, and the purposes thereof shall be given by mail as soon as possible to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation not less than the minimum nor more than the maximum number of days prior to the scheduled date thereof permitted under the laws of Delaware, unless such notice is waived as provided in Article IX of these Bylaws. Stockholders are not permitted to submit additional matters or proposals for consideration at any special meeting. 5. Voting at stockholders' meetings. Except as otherwise provided by the laws of the State of Delaware or the Restated Certificate of Incorporation or any amendment thereto, at all meetings of the stockholders, each stockholder shall be entitled to one vote for each share of Stock registered in his or her name on the books of the corporation on the record date fixed for the determination of stockholders entitled to vote at the meeting pursuant to Article VI or, if not so determined, as prescribed under the laws of Delaware. 6. Quorum at stockholders' meetings. At any stockholders' meeting, a majority of the combined voting power of the issued and outstanding shares of Stock entitled to vote thereat represented in person or by proxy shall constitute a quorum, except as otherwise provided by the laws of the State of Delaware or by the Restated Certificate of Incorporation. In the absence of a quorum at any meeting, or any adjourned session thereof, the stockholders of the corporation represented in person or by proxy and entitled to vote, by a majority vote, or, if no stockholders are present, any officer entitled to preside or act at the meeting, may adjourn any meeting from time to time, and the meeting may be held as adjourned without further notice. When a quorum is present at any meeting, a majority in interest of the combined voting power of the issued and outstanding shares of Stock entitled to vote represented thereat shall decide any question brought before such meeting unless the question is one upon which, by express provision of law or of the Restated Certificate of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern. 2 7. List of stockholders to be filed, etc. At least ten days before every election of directors, a complete list of the stockholders entitled to vote at the election, arranged in alphabetical order, shall be prepared by the secretary. Such list shall be open at the place where such election is to be held for ten days, subject to examination by any stockholder, and shall be produced and kept at the time and place of election during the whole time thereof and subject to the inspection of any stockholder who may be present. Upon the willful neglect or refusal of the directors to produce such a list at any election, they shall be ineligible to any office at such election. The original or duplicate stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or the books of this corporation or to vote in person or by proxy at such election. ARTICLE III Board of Directors 1. Number and qualification. Directors shall be elected at each annual meeting of stockholders, or at a special meeting held in lieu thereof as above provided, who shall serve until the election and qualification of their respective successors or until their earlier resignation or removal as provided in the Restated Certificate of Incorporation and these Bylaws. The number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the board of directors but in no event shall such number be less than three (3) or more than eleven (11). In case of any increase in the number of directors between elections by the stockholders, the additional directorships shall be considered vacancies and shall be filled in the manner prescribed in Article V of these Bylaws. Directors need not be stockholders. 2. Powers of directors. The business and affairs of the corporation shall be carried on by or under the direction of the board of directors, which shall have all the powers authorized by the laws of Delaware, subject to such limitations as may be provided by the Restated Certificate of Incorporation or these Bylaws. 3. Compensation of directors. The board of directors may from time to time by resolution authorize the payment of fees or compensation to the directors for services as such to the corporation, including, but not limited to, fees and traveling expenses for attendance at all meetings of the board or of the executive or other committees, and determine the amount of such fees and compensation. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 4. Directors' meetings. Meetings of the board of directors may be held either within or outside the State of Delaware. A quorum shall be at least one-half of the number of directors, but not less than two directors. Except as otherwise provided in the laws of the State of Delaware, the Restated Certificate of Incorporation or these Bylaws, the affirmative vote of a majority of the directors present at any meeting in which a quorum is present shall be required for the taking of any action by the board of directors. 3 The board of directors elected at any stockholders' meeting shall at the close of that meeting, without further notice if a quorum of directors be then present, or as soon thereafter as may be convenient, hold a meeting for the election of officers and the transaction of any other business. At such meeting they shall elect a president, one or more vice presidents, a secretary and a treasurer, and such other officers as they may deem proper, none of whom need be members of the board of directors. The board of directors may from time to time provide for the holding of regular meetings with or without notice and may fix the times and places at which such meetings are to be held. Meetings other than regular meetings may be called at any time by the president and must be called by the president or by the secretary or an assistant secretary upon the written request of any director. Notice of each meeting, other than a regular meeting (unless required by the board of directors), shall be given to each director by mailing the same to each director at his residence or business address at least two days before the meeting or by delivering the same to him personally or by telephone or telegraph to him at least one day before the meeting unless, in case of exigency, the president or secretary shall prescribe a shorter notice to be given personally or by telephone, telegraph, telefax, cable or wireless to all or any one or more of the directors at their respective residences or places of business. Notice of all meetings shall state the time and place of such meeting, but need not state the purposes thereof unless otherwise required by statute, the Restated Certificate of Incorporation, the Bylaws, or the board of directors. 5. Executive committee. The board of directors may by resolution passed by a majority of the whole board provide for an executive committee of two or more directors and shall elect the members thereof to serve during the pleasure of the board and may designate one of such members to act as chairman. The board may at any time change the membership of the committee, fill vacancies in it, designate alternate members to replace any absent or disqualified members at any meeting of the committee, or dissolve it. During the intervals between the meetings of the board of directors, the executive committee shall possess and may exercise any or all of the powers of the board of directors in the management of the business and affairs of the corporation to the extent authorized by resolution adopted by a majority of the entire board of directors, subject to such limitations as may be imposed by the laws of Delaware. The executive committee may determine its rules of procedure and the notice to be given of its meetings, and it may appoint such committees and assistants as it shall from time to time deem necessary. A majority of the members of the committee shall constitute a quorum. 6. Other committees. The board of directors by resolution may provide for such other standing or special committees as it deems desirable and may discontinue the same at its pleasure. Each such committee shall have the powers and perform such duties, not inconsistent with law, as may be assigned to it by the board of directors. 4 7. Notice of Nominations. At any annual meeting of stockholders, only persons who are nominated in accordance with the procedures set forth in the Bylaws shall be eligible to serve as directors. Nominations of persons for election to the board of directors may be made at a meeting of stockholders (a) by or at the direction of the board of directors or (b) by any stockholder who is a stockholder of record at the time of giving of notice provided for in this Section, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the Secretary. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than forty-five (45) days prior to the date on which the corporation first mailed its proxy materials for the prior year's annual meeting of stockholders. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of such stockholder to be supporting such nomination and (ii) the class and number of shares which are beneficially owned by such stockholder. At the request of the board of directors, any person nominated to the board of directors for election as a director shall furnish to the Secretary that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible to serve as a director unless nominated in accordance with the procedures set forth in this Bylaw. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed in the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. 8. Chairman of the Board. The Chairman of the Board (hereinafter sometimes called the "Chairman") if appointed by the board of directors, when present shall preside at all meetings of the stockholders, the board of directors and the Executive Committee. The Chairman shall perform such other duties as the board of directors or Executive Committee may prescribe from time to time. 9. Action without meetings. Any action required or permitted to be taken at any meeting of the board of directors or any committee thereof may be taken without a meeting if all members of the board of directors or committee, as the case may be, consent thereto in writing and the writing is filed with the minutes of the proceedings of the board of directors or such committee. 5 ARTICLE IV Officers 1. Titles and election. The officers of this corporation shall be a president, one or more vice presidents, a secretary and a treasurer who shall be elected at the annual meeting of the board of directors and who shall hold office at the pleasure of the board, except as may otherwise be approved by the board or executive committee, or until his earlier resignation, removal or other termination of employment. Any person may hold more than one office if the duties thereof can be consistently performed by the same person, and to the extent permitted by law. The board of directors, in its discretion, may at any time elect or appoint a chairman of the board of directors, who shall be a director, and one or more vice presidents, assistant secretaries and assistant treasurers and such other officers or agents as it may deem advisable, all of whom shall hold office at the pleasure of the board, except as may otherwise be approved by the board or executive committee, or until his earlier resignation, removal or other termination of employment, and shall have such authority and shall perform such duties as may be prescribed or determined from time to time by the board. The board of directors may require any officer, agent or employee to give bond for the faithful performance of his duties in such form and with such sureties as the board may require. 2. Duties. Subject to such extension, limitations, and other provisions as the board of directors or the Bylaws may from time to time prescribe, the following officers shall have the following powers and duties: (a) President. The president shall be the chief executive officer of the corporation, shall exercise the powers and authority and perform all of the duties commonly incident to his office, shall in the absence of the Chairman preside at all meetings of the stockholders and of the board of directors if he is a director, and shall perform such other duties as the board of directors or executive committee shall specify from time to time. The president or a vice president, unless some other person is thereunto specifically authorized by the board of directors or executive committee, shall sign all bonds, debentures, promissory notes, deeds and contracts of the corporation. The same individual may be elected or appointed Chairman of the Board and president. (b) Vice President. The vice president or vice presidents shall perform such duties as may be assigned to them by the board of directors and, in the absence or disability of the president, unless otherwise determined by the board, the vice presidents in order of seniority shall exercise all powers and duties pertaining to the office of president. (c) Secretary. The secretary shall keep the minutes of all meetings of stockholders and of the board of directors, give and serve all notices, attend to such correspondence as may be assigned to him, keep in safe custody the seal of the corporation, and 6 affix such seal to all such instruments properly executed as may require it, and shall have such other duties and powers as the board of directors shall prescribe from time to time. (d) Treasurer. The treasurer, subject to the order of the board of directors, shall have the care and custody of the moneys, funds, valuable papers and documents of the corporation (other than his own bond, if any, which shall be in the custody of the president), and shall have and exercise, under the supervision of the board of directors, all the powers and duties commonly incident to his office. He shall deposit all funds of the corporation in such bank or banks, trust company or trust companies, or with such firm or firms doing a banking business as the board of directors shall designate. He may endorse for deposit or collection all checks, notes, etc. payable to the corporation or to its order. He shall keep accurate books of account of the corporation's transactions, which shall be the property of the corporation, and, together with all its property in his possession, shall be subject at all times to the inspection and control of the board of directors. The treasurer shall be subject in every way to the order of the board of directors, and shall render to the board of directors and/or the president of the corporation, whenever they may require it, an account of all his transactions and of the financial condition of the corporation. 3. Delegation of authority. The board of directors or the Executive Committee may at any time delegate the powers and duties of any officer for the time being to any other officer, director or employee. 4. Salaries. The compensation of the Chairman of the Board, the president, all vice presidents, the secretary and the treasurer shall be fixed by the board of directors or the executive committee, and the fact that any officer is a director shall not preclude him from receiving compensation or from voting upon the resolution providing the same. ARTICLE V Resignations, Removals and Vacancies 1. Resignations. Any director, officer, or agent may resign at any time by giving written notice thereof to the board of directors, the president, or the secretary. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein, the acceptance of any resignation shall not be necessary to make it effective. 2. Removals. (a) Directors. Except as may otherwise be prohibited or restricted under the laws of Delaware, the Restated Certificate of Incorporation or these Bylaws, the stockholders may remove any director from office, but only for cause and only by the affirmative vote of the holders of at least sixty-six and two thirds percent (66-2/3%) of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors. (b) Officers. Subject to the provisions of any validly existing agreement, the board of directors may at any meeting remove from office any officer, with or without cause, and 7 may elect or appoint a successor; provided that if action is to be taken to remove the president, the notice of meeting or waiver of notice thereof shall state that one of the purposes thereof is to consider and take action on his removal. 3. Vacancies. (a) Directors. When the office of any director becomes vacant or unfilled whether by reason of death, resignation, removal, increase in the authorized number of directors or otherwise, such vacancy or vacancies may be filled by a majority of the remaining director or directors, although less than a quorum. Any director so elected by the board shall serve until the election and qualification of his successor or until his earlier resignation or removal as provided in these Bylaws. The directors may also reduce their authorized number by the number of vacancies in the board, provided such reduction does not reduce the board to less than the minimum authorized by the Restated Certificate of Incorporation, these Bylaws or the laws of the State of Delaware. (b) Officers. The board of directors may at any time or from time to time fill any vacancy among the officers of the corporation. ARTICLE VI Capita1 Stock 1. Certificates of stock. Every stockholder shall be entitled to a certificate or certificates for shares of the capital stock of the corporation in such form as may be prescribed by the board of directors, duly numbered and setting forth the number and kind of shares represented thereby. Such certificates shall be signed by the Chairman, the president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary. Any of such signatures and the corporate seal affixed to any stock certificate may be in facsimile. In case any officer who has signed, or whose facsimile signature has been used on a certificate, has ceased to be an officer before the certificate has been delivered, such certificate may nevertheless be adopted and issued and delivered by the corporation, or its transfer agent, as though the officer who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, had not ceased to be such officer of the corporation. 2. Transfer of stock. Shares of the capital stock of the corporation shall be transferable only upon the books of the corporation by the holder in person or by an attorney duly authorized and upon the surrender of the certificate or certificates properly assigned and endorsed. If the corporation has a transfer agent or agents or a transfer clerk and a registrar of transfers acting on its behalf, the signature of any officer or representative thereof may be in facsimile. The board of directors may appoint a transfer agent and one or more co-transfer agents and a registrar of transfer and may make all such rules and regulations as it deems expedient concerning the issue, transfer and registration of shares of stock. The transfer books shall be closed for such a period as the board shall direct previous to and on the day of the annual 8 or any special meeting of the stockholders and may also be closed by the board for such period as may be advisable for dividend purposes, and during such time no stock shall be transferable. 3. Record dates. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix in advance a record date which, in the case of a meeting, shall be not less than the minimum nor more than the maximum number of days prior to the scheduled date of such meeting permitted under the laws of Delaware and which, in the case of any other action, shall be not more than the maximum number of days prior to any such action permitted by the laws of Delaware. (b) If no such record date is fixed by the board, the record date shall be that prescribed by the laws of Delaware. (c) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 4. Lost certificates. In case of loss or mutilation or destruction of a certificate of stock of this corporation, a duplicate certificate may be issued upon such terms as may be determined or authorized by the board of directors or executive committee or by the president if the board or the executive committee does not do so. ARTICLE VII Fiscal Year, Bank Deposits, Checks, etc. 1. Fiscal Year. The fiscal year of the corporation shall commence or end at such time as the board of directors may designate. 2. Bank deposits, checks, etc. The funds of the corporation shall be deposited in the name of the corporation or of any division thereof in such banks or trust companies in the United States or elsewhere as may be designated from time to time by the board of directors or executive committee, or by such officer or officers as the board or executive committee may authorize to make such designations. All checks, drafts or other orders for the withdrawal of funds from any bank account shall be signed by such person or persons as may be designated from time to time by the board of directors or executive committee or as may be designated by an officer or officers authorized by the board of directors or executive committee to make such designations. The signatures on checks, drafts or other orders for the withdrawal of funds may be in facsimile if authorized in the designation. 9 ARTICLE VIII Books and Records 1. Place of keeping books. Unless otherwise expressly required by the laws of Delaware, the books and records of this corporation may be kept outside of the State of Delaware at such place or places as may be designated from time to time by the board of directors. 2. Examination of books. Except as otherwise provided in the Restated Certificate of Incorporation or in these Bylaws, the board of directors shall have power to determine from time to time whether and to what extent and at what times and places and under what conditions and regulations the accounts, records and books of this corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of this corporation except as prescribed by statute or authorized by express resolution of the stockholders or of the board of directors. ARTICLE IX Notices 1. Requirements of notice. Whenever notice is required to be given by statute or by these Bylaws, it shall not mean personal notice unless so specified, but such notice may be given in writing by depositing the same in a post office or letter box, postpaid and addressed to the person to whom such notice is directed at the address of such person on the records of the corporation, and such notice shall be deemed given at the time when the same shall be thus mailed. 2. Waivers. Any stockholder, director or officer may, in writing or by telegram or cable, at any time waive any notice or other formality required by statute or these Bylaws. Such waiver of notice, whether given before or after any meeting, shall be deemed equivalent to notice. Presence of a stockholder either in person or by proxy at any stockholders' meeting and presence of any director at any meeting of the board of directors shall constitute a waiver of such notice as may be required by any statute or these Bylaws. ARTICLE X Seal The corporate seal of the corporation shall consist of two concentric circles between which shall be the name of the corporation and in the center of which shall be inscribed "Corporate Seal, Delaware." 10 ARTICLE XI Powers of Attorney The board of directors may authorize one or more of the officers of the corporation to execute powers of attorney delegating to named representatives or agents power to represent or act on behalf of the corporation, with or without power of substitution. In the absence of any action by the board or the executive committee, the president, any vice president, the secretary or the treasurer of the corporation may execute for and on behalf of the corporation waivers of notice of stockholders' meetings and proxies for such meetings in any company in which the corporation may hold voting securities. ARTICLE XII Indemnification of Directors and Officers (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in paragraph (b) hereof with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors of the corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a 11 proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. (b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this Section is not paid in full by the corporation within sixty days after a written claim has been received by the corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty days, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. (c) Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Restated Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise. (d) Insurance. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation, or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. (e) Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article XII shall not adversely affect any right of a director, officer, employee or agent of the corporation in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE XIII Amendments Subject to the provisions of the Restated Certificate of Incorporation, the Bylaws may be altered, amended or repealed either by the affirmative vote of a majority of the board of directors at any regular or special meeting of the board of directors, or by the affirmative vote of the holders of record of at least sixty-six and two thirds percent (66-2/3%) of the voting power of the outstanding shares of capital stock of the corporation entitled to vote at an annual meeting or at any special meeting at which a quorum shall be present, provided that in each case notice of 12 the proposed change was given in the notice of the meeting of the board or the stockholders, or the form of consent thereof, as the case may be. 13 EX-4.1 5 d56393_ex4-1.txt AMENDMENT TO INDENTURE Exhibit 4.1 AMENDMENT TO INDENTURE AMENDMENT TO INDENTURE, dated as of May 5, 2003, by and among Century Aluminum Company, a Delaware corporation (the "Company"), the Guarantors party hereto, and Wilmington Trust Company, a Delaware banking corporation, as Trustee. W I T N E S S E T H: WHEREAS, the Company, the Guarantors party thereto and the Trustee entered into the Indenture, dated as of April 2, 2001 (the "Indenture"), relating to the Company's 11 3/4% Senior Secured First Mortgage Notes due 2008; WHEREAS, pursuant to Section 9.01(a)(1) of the Indenture, the Company and the Trustee desire to amend the Indenture to cure a defect in the Indenture; and WHEREAS, the Company has satisfied all the conditions set forth in Sections 9.04 and 12.04 of the Indenture necessary for the execution and delivery of this Amendment to Indenture; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and intending to be legally bound, the parties to this Amendment to Indenture hereby agree as follows: SECTION 1. Capitalized terms used herein and not otherwise defined herein are used as defined in the Indenture. SECTION 2. The Indenture is hereby amended to correct the definition of "Consolidated Net Income" in Section 1.01 of the Indenture, so that clause (5) of such definition shall be and read as follows: "(5) any net after-tax extraordinary gains and losses;" SECTION 3. This Amendment to Indenture shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. This Amendment to Indenture may be signed in various counterparts which together will constitute one and the same instrument. SECTION 5. This Amendment to Indenture is an amendment to the Indenture and the Indenture and this Amendment to Indenture will henceforth be read together. SECTION 6. The Trustee makes no representation as to the validity or adequacy of this Amendment to Indenture or the recitals contained herein. SECTION 7. This Amendment is intended to cure a defect in the Indenture and shall be effective in all respects as of the original date of the Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first stated above. CENTURY ALUMINUM COMPANY By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Vice President and Assistant Secretary WILMINGTON TRUST COMPANY, as Trustee By: /s/ Kristin Long Name: Kristin Long Title: Account Manager CENTURY OF WEST VIRGINIA, INC., as Guarantor By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Vice President and Assistant Secretary BERKELEY ALUMINUM, INC. as Guarantor By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Vice President and Assistant Secretary -2- VIRGIN ISLANDS ALUMINA CORPORATION LLC, as Guarantor By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Assistant Secretary CENTURY KENTUCKY, INC. as Guarantor By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Assistant Secretary METALSCO LTD., as Guarantor By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Assistant Secretary SKYLINER, INC., as Guarantor By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Assistant Secretary NSA, LTD., as Guarantor By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Assistant Secretary HANCOCK ALUMINUM, LLC, as Guarantor By: /s/ Peter C. McGuire Name: Peter C. McGuire Title: Vice President and Assistant Secretary -3- EX-10.1 6 d56393_ex10-1.txt ALUMINA PURCHASE AGREEMENT Exhibit 10.1 ALUMINA PURCHASE AGREEMENT This agreement is entered into as of the 18th day of December, 1997, between Kaiser Aluminum & Chemical Corporation, a Delaware corporation (hereinafter called "Seller"), and Southwire Company, a Delaware corporation (hereinafter called "Buyer"). RECITALS: A. Seller desires to sell and deliver to Buyer the requirements of Buyer for sandy calcined metallurgical grade alumina ("Alumina"). B. Buyer desires to purchase and accept from Seller its requirements for Alumina at its wholly owned aluminum smelter in Hawesville, Kentucky ("Buyer's Plant"). NOW THEREFORE, in consideration of the premises and the covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: Article 1 Definitions 1.1. Definitions. As used herein, unless otherwise defined herein or the context otherwise requires, the following terms shall have the meanings specified below. "affiliate" of any person means any person controlling, controlled by or under common control with such person. "Base Tonnage" means: (a) Prior to an Expansion (as defined below) and during any period subsequent to an Expansion when fewer than five production lines are being operated at Buyer's Plant: the total quantity of Alumina delivered hereunder each month; and (b) From and after the earliest month Buyer requires Alumina as feedstock for an Expansion (as defined below) and during subsequent periods when five production lines are being operated at Buyer's Plant: the quantity of Alumina delivered hereunder each month up to and including an annual rate of [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION]. For example, Base Tonnage in a 31-day month with an Expansion would be [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION]. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York shall be permitted or required by law or executive order to be closed. "Contract Year" means a period of time running from January 1 of each year through December 31 of the same year. "Customary Quick Despatch" means a vessel is to be loaded as quickly as is possible in the circumstances prevailing at the time of loading. "Expansion" means the installation of a fifth production line (potline) at Buyer's Plant and the subsequent operation of five production lines to produce aluminunm. "Expansion Tonnage" means the quantity of Alumina delivered hereunder each month in excess of an annual rate of [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION], from and after the earliest month Buyer requires Alumina as feedstock for an Expansion and during subsequent periods when five production lines are being operated at Buyer's Plant. "FOB" means, to the extent that the 1990 version of the Incoterms are not inconsistent with the provisions of this Agreement, FOB as defined by the 1990 version of the Incoterms published by the International Chamber of Commerce, Paris, France, as amended from time to time (collectively, the "Incoterms"). -2- "Force Majeure" means any events or circumstances beyond a party's control, including but not limited to: accidents to or breakdown or mechanical failure of machinery or equipment, however caused; strikes or other labor troubles; shortage of labor, transportation, raw materials, energy sources, or failure of usual means of supply; fire; explosion; flood; war declared or undeclared; insurrection; riots; sabotage; acts of God or of the public enemy; river conditions; and priorities, allocations, or limitations or other acts required or requested by government or any subdivisions, bureaus or agencies thereof. "Gramercy" means Seller's wholly owned Alumina refinery located at Gramercy, Louisiana. "LME Price" means the average of the London Metal Exchange cash prices in United States dollars per mt for 99.7% aluminum ingot for the three months immediately preceding. The month of delivery which shall be determined by adding the monthly average cash price per mt for 99.7% aluminum ingot for each month in such three month period as reported in Metals Week and dividing such sum by three. "mt" means a unit of metric weight of 1,000 kilograms. Article 2 Quantity 2.1. Contract Quantity. Subject to and in accordance with the terms and conditions of this Agreement commencing January 1, 1999, Seller shall sell and deliver to Buyer, and Buyer shall purchase and accept from Seller, all of Buyer's requirements for Alumina for its Plant for each Contract Year during the term of this Agreement. Such requirements are estimated to be [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION] per Contract Year as of the date hereof and [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION] per Contract Year after an Expansion has been completed and Buyer's Plant is operating at full capacity. -3- Buyer shall give written notice to Seller no later than September 30 of each Contract Year of its requirements for Alumina for the immediately following Contract Year, and the parties agree that the requirements for Alumina for the Contract Year then in effect shall continue for the immediately following Contract Year if no such notice is given by Buyer. Buyer's requirements as determined in accordance with the immediately preceding sentence are referred to herein as the "Annual Requirements". In addition to the notification set forth above, Buyer shall notify Seller of its estimated schedule of monthly requirements for Expansion Tonnage at least 18 months prior to the date of anticipated first requirements for Expansion Tonnage and shall provide Seller an updated estimate 12, 9, 6 and 3 months prior to anticipated first requirements for Expansion Tonnage. 2.2. Adjustments to Annual Requirements. During the period commencing on October 1 of each Contract Year (and October 1, 1998 for the first Contract Year) and ending on July 31 of the immediately following Contract Year (such immediately following Contract Year is referred to in this Section 2.2 as the "Year of Adjustment"), Buyer, upon 90 days written notice to Seller (referred to herein individually as an "Adjustment Notice" and collectively as the "Adjustment Notices"), may increase or decrease its Annual Requirements in the Year of Adjustment by an amount determined in accordance with this Section 2.2. Subject to the provisions of the immediately following paragraph the amount of any adjustment, measured in mt, in Buyer's Annual Requirements in a Year of Adjustment shall not exceed an amount determined by the following formula: A = D x (B/365) x C where A equals the maximum amount of any adjustment in mt; -4- B equals the number of days in the Year of Adjustment remaining after the effective date of the adjustment as provided hereinbelow; C equals the Annual Requirements for the Year of Adjustment; and D equals the percentage adjustment which cannot, either at any one time, or cumulatively taking into consideration the net effect of all adjustments, exceed plus or minus 2%. The 365 in the foregoing formula shall be increased to 366 in those Contract Years where February has 29 days. The maximum by which Buyer may adjust its Annual Requirements in a Year of Adjustment shall take into account the cumulative net effect (summing arithmetically both increases and decreases) of all prior percentage adjustments in such Year of Adjustment and Seller shall not be obligated to make an adjustment as called for by an Adjustment Notice where the cumulative net effect of all percentage adjustments (including the adjustment then under consideration) would create a value for "D" in the above formula in excess of 2%. If Buyer reduces its Annual Requirements in any Year of Adjustment and thereafter Buyer determines that it must purchase additional Alumina, all additional Alumina shall be purchased hereunder from Seller, subject to the availability of such Alumina from Gramercy. Any adjustment pursuant to this Section 2.2 shall be effective as of the date specified by Buyer in the Adjustment Notice; provided, however, that such effective date shall be no earlier than 90 days after the date on which Seller has received the relevant Adjustment Notice. All Adjustment Notices shall be forwarded to Seller by facsimile and first class mail. Seller shall be deemed to receive each Adjustment Notice on the date on which Buyer forwards such Adjustment Notice by facsimile to Seller. -5- Buyer and Seller recognize that the foregoing adjustment formula may not be applicable during the startup period of an Expansion. The parties agree to cooperate to ensure that sufficient Alumina will be available to supply requirements for Expansion Tonnage during such startup period. 2.3. Delivery; Risk of Loss. Seller shall deliver and Buyer shall accept the Annual Requirements in approximately evenly distributed shipments throughout each Contract Year FOB Buyer's barge bottom at Gramercy. Notwithstanding the above, it is recognized that Expansion Tonnage during the startup period of an Expansion may not be delivered in evenly distributed shipments. Title, risk of loss and all other incidents of ownership shall pass to Buyer upon delivery at the FOB point. If Seller supplies Alumina hereunder from a source or sources other than Gramercy in accordance with the provisions of Section 4.1 hereof, the terms of delivery for such Alumina shall be equivalent in all material respects to delivery FOB Gramercy. 2.4. Shipping. Buyer shall provide barges which are suitable for loading and in conformity with restrictions and limitations at Gramercy. Unless otherwise agreed by the parties in writing, and subject to the provision of Section 2.3 hereof with respect to Expansion Tonnage, the deliveries of Alumina scheduled for each month shall be a fraction of the Annual Requirements for the Contract Year then in effect, equal to the number of days in the month divided by the total number of days in the Contract Year. For example, if the Annual Requirements in a 365-day year are [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION], the quantity of Alumina scheduled to be delivered in a 31-day month would be approximately [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION]. Exact quantities to be delivered each month shall be mutually agreed between the parties, shall be based on the Annual Requirements for the Contract Year then in effect, and shall be based on the Buyer's intended -6- barge schedule provided to Seller at least fifteen (15) days prior to commencement of each calendar quarter during the Contract Year then in effect. The parties will cooperate in regard to scheduling deliveries hereunder in accordance with local customs and practices, but in any event Buyer shall, unless otherwise agreed in writing, move its barges from the loading area as soon as reasonably possible following completion of loading. Barge loadings shall be on a Customary Quick Despatch basis. 2.5. Weight Loaded. The weights shall be determined at the time of loading. Seller, at its cost, will provide Buyer, via facsimile or other means to assure arrival at least three Business Days prior to arrival of the barge for unloading, with a barge draft survey, issued by a certified independent surveyor, of the barge into which the Alumina is loaded. Buyer shall have the right to have a representative present (at Buyer's expense and risk) at the time of loading which representative is to be acceptable to Seller, such acceptance not to be unreasonably withheld. Buyer shall have eight (8) Business Days after the arrival of each barge at the Plant to challenge the accuracy of the draft barge survey for that barge. Unless Buyer timely challenges such barge draft survey, the final loaded weights determined as aforesaid shall be conclusive and binding on the parties hereto for the purpose of determining the quantity of Alumina delivered hereunder. Buyer and Seller shall use their best efforts to amicably resolve any such challenge but, if such challenge cannot be so resolved, such challenge shall be resolved in accordance with the provisions of Article 8 of this Agreement. While such challenge is pending, Seller shall remain obligated to continue to load and deliver Alumina pursuant to Section 2.4 hereof and Buyer shall timely pay, pursuant to Section 3.2 hereof, the purchase price for all Alumina delivered hereunder, and Buyer shall be obligated to pay the purchase price for the quantity of -7- Alumina that Buyer reasonably believes to have been on the barge that is subject to the challenge pursuant to this Section 2.5 until such challenge is resolved as provided herein. Article 3 Price/Payment 3.1. Purchase Price Determination. The purchase price per mt of Alumina (the "Alumina Price") delivered by Seller to Buyer hereunder during the term of this Agreement shall be determined for the month in which the Alumina is delivered. The Alumina Price for Base Tonnage shall be an amount equal to the LME Price multiplied by [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION]. The Alumina Price for Expansion Tonnage shall be an amount equal to the LME Price multiplied by [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION]. If the LME Price ceases to be published, the parties shall agree upon a substitute index intended to reflect the price of primary aluminum sales to be used in calculating the Alumina Price hereunder. 3.2. Payment. Monetary references in this Agreement are to United States dollars, and all transactions and payments pursuant to this Agreement shall be made in United States dollars. Seller shall invoice Buyer promptly after the end of each month for all Alumina delivered hereunder during said month. Payment for the Alumina shall be made by Buyer by wire transfer to an account designated by Seller within 30 days after the end of each month. Without prejudice to any other right Seller may have, the amount of any overdue payments or any partial payment shall bear interest at a rate per annum equal to the U.S. prime rate in effect from time to time for first class customers as quoted by Citibank N.A., New York, New York, plus 2%, over the period from the date on which payment or partial payment was due to the date of actual receipt of payment. -8- Seller shall promptly forward to Buyer by facsimile and first class mail the bill of lading for each barge but not earlier than the date of Seller's release of the barge from its dock for transport to the Plant. 3.3. Royalties, Taxes, Duties and Licenses. All royalties, taxes and duties imposed or levied on the Alumina to be delivered under this Agreement in the country in which the Alumina is delivered shall be for the account of and paid by the Seller to the point when the Alumina has been delivered to Buyer in accordance with this Agreement. All other taxes and duties imposed or levied on the Alumina after delivery shall be for the account of and paid by Buyer. Article 4 Quality 4.1. Specifications/Source of Supply. The parties intend that the Alumina sold by Seller to Buyer pursuant to this Agreement shall be produced at Gramercy and shall conform to the specifications set forth in Exhibit A. Notwithstanding the above, Seller may elect to supply from a source or sources other than Gramercy, provided that Alumina supplied from such other source(s) shall conform to the typical quality parameters of Gramercy alumina set forth in Exhibit A hereto, unless otherwise mutually agreed. 4.2. Conformity Determination/Resolution of Non-Conforming Material. One representative sample of each shipment of Alumina shall be taken in accordance with the sampling procedures applicable at Gramercy. Buyer shall have the right to have a representative present (at Buyer's expense and risk) at such sampling, which representative is to be acceptable to Seller, such acceptance not to be unreasonably withheld. Such sample shall be deemed to be a representative sample of the Alumina delivered in that shipment by Seller to Buyer. -9- The sample so taken shall be divided into portions using generally accepted laboratory techniques. One portion shall be promptly dispatched to Buyer, one portion shall be used by Seller for analysis and Seller shall ensure that one portion (the referee sample) shall be held by Seller for 90 days after the date of the shipment, and then disposed of unless Seller or Buyer has requested in writing that it be retained for a longer period. The cost of the sampling and dispatch to Buyer shall be for the account of the Seller. Seller shall analyze the sub-sample retained by it for each shipment of Alumina within two days of the preparation of such sample in accordance with Seller's relevant standard practice. Seller shall send to Buyer the results of such analysis (by facsimile transmission) promptly after they are known. Seller shall provide to Buyer an original of the certificate of analysis stating the results of the analysis, and shall forward such certificate to Buyer as early as practicable. If the analysis shows that the sample analyzed does not exceed the maximum limits specified in Exhibit A annexed hereto, it will be presumed that the entire shipment from which the sample was taken conforms with the quality specifications set forth in Exhibit A. Within 30 days after receipt of the sample dispatched to Buyer, Buyer may notify Seller that the Alumina delivered does not conform to the quality specifications and the extent of such non-conformity. If Buyer does not notify Seller within this period, the Alumina so delivered shall be deemed to comply with such specifications. If Buyer does so notify Seller within this period, Seller shall advise Buyer within ten days after such notification is received whether or not Seller agrees with Buyer's analysis. If Seller does not agree, the referee sample will be analyzed as soon as possible by Norsk Hydro Research & Development Laboratory, Stavanger, Norway, or such other laboratory as the parties shall agree upon (the "referee laboratory"). The -10- referee laboratory will analyze the referee sample in accordance with its applicable standard analytical procedures for alumina analysis, and a copy of its analysis shall be made available to both Buyer and Seller. Such analysis shall be final and binding on both Buyer and Seller and the quality of Alumina contained in the relevant shipment shall be deemed to be the same as that of the referee sample. The cost of any referee analysis will be borne by the party whose results differ most from those given by the referee laboratory. If the analysis of the referee laboratory indicates that the referee sample does not conform to the contractual specifications or if Seller accepts that the Alumina does not so conform, Seller and Buyer shall within fifteen days after receipt of such analysis or notification of such acceptance, as the case may be, meet in good faith to determine whether a reasonable and mutually acceptable arrangement can be made to compensate Buyer for the shipment of Alumina not meeting such contractual specifications. In the event Seller and Buyer do not reach a mutually acceptable agreement, Buyer has the right to return the Alumina in question at Seller's expense including the freight cost of the original shipment and demurrage, if any. Article 5 Term; Termination 5.1. Term. This Agreement shall commence on the date hereof and shall terminate on December 31, 2005 unless sooner terminated in accordance with the provisions of Section 5.2 of this Agreement or unless extended in accordance with the provisions of Section 7.4 of this Agreement. The parties agree that they will discuss in good faith the possibility of extending the supply relationship established by this Agreement if either party advises the other prior to December 31, 2004, that it is interested in such an extension. If the parties reach an agreement on the extension of the relationship established by this Agreement, then this Agreement shall be -11- amended to reflect the new terms and conditions agreed to by the parties or a new agreement will be entered into to reflect such terms and conditions. 5.2. Termination. This Agreement may be terminated prior to the expiration of its term: (a) By mutual consent of Buyer and Seller; (b) By Seller, if Seller is not in default hereunder and if Buyer shall have breached or failed to perform any of its covenants or agreements contained herein and such breach or failure shall continue for 10 days after notice thereof by Seller to Buyer; (c) By Buyer, if Buyer is not in default hereunder and if Seller shall have breached or failed to perform any of its covenants or agreements contained herein and such breach or failure shall continue for 10 days after notice thereof by Buyer to Seller; (d) By Seller, if Seller is not in default hereunder and if an event of Force Majeure has persisted for a continuous period of 180 days and has prevented Buyer from fulfilling its obligations hereunder; or (e) By Buyer, if Buyer is not in default hereunder and if an event of Force Majeure has persisted for a continuous period of 180 days and has prevented Seller from fulfilling its obligations hereunder. The right to terminate this Agreement as provided for in this Section 5.2 may be exercised only by written notice given by the terminating party to the non-terminating party and such termination shall be effective on the thirtieth day after the date on which the notice of termination is given to the non-terminating party. Upon any termination of this Agreement (including termination upon the expiration of the term of this Agreement), no party to this Agreement shall have any liability to any other party -12- to this Agreement, except for any such liability as may have accrued through the date of termination. Any termination of this Agreement pursuant to this Section 5.2 is subject to all of the provisions of Article 8 hereof Article 6 Liability 6.1. Liability. Neither party to this Agreement shall be liable to the other party hereto for direct economic loss or damage, including, but not limited to, personal injuries or loss of physical equipment actually sustained as a result of the operation of this Agreement, unless such loss or damage result from the gross negligence, willful act or intentional failure to act of a party hereto. Neither party to this Agreement shall be liable to the other party hereto for any indirect, consequential or incidental damage or loss incurred as a result of the operation of this Agreement unless such damage or loss is the result of willful action or intentional failure to act of a party hereto. Article 7 Force Majeure 7.1. General. Neither party to this Agreement shall be liable for any delay in performing or failure to perform its obligations (except for delay or failure to pay money when due) due to events of Force Majeure. Failure to deliver or to accept delivery in whole or in part because of the occurrence of an event of Force Majeure shall not constitute a default hereunder nor subject either party to liability for any resulting loss or damage. -13- 7.2. Efforts to Cure. Both parties agree to use their respective reasonable efforts to cure any event of Force Majeure to the extent that it is reasonably possible to do so, it being understood that neither shall be required to make any concession or grant any demand or request in order to bring to an end any strike, lockout or other industrial disturbance where such course is deemed inadvisable in its sole discretion. 7.3. Alumina Purchases and Sales. If by reason of Force Majeure Seller is unable to deliver or timely deliver Alumina to Buyer and/or to other customers to which Seller directly or indirectly has an obligation to sell Alumina from Gramercy, then, and in each such event, any Alumina available for sale from Gramercy will be shipped to each such customer, including Buyer, in proportion to the amount of Alumina each is committed to purchase from Seller's facility at Gramercy during the calendar year(s) in which the event of Force Majeure occurred or continued to exist. Additionally, Seller will endeavor to maintain the supply of Alumina hereunder to Buyer if possible from other sources, and any such deliveries shall be applied against the quantity referred to in Section 2.1 hereof. The quantities referred to in Section 2.1 shall be reduced to the extent of deliveries omitted by Seller due to the occurrence of an event of Force Majeure. Buyer, during any period of Force Majeure declared by Seller, may purchase Alumina from third parties to the extent Seller is unable to supply Alumina hereunder. Seller, during any period of Force Majeure declared by Buyer, may sell Alumina to third parties to the extent Buyer is unable to accept delivery of Alumina hereunder. The quantities referred to in Article 2.1 shall be reduced accordingly for any party so opting under this Article. If Seller reduces or ceases deliveries hereunder by reason of Force Majeure, Seller shall give Buyer as much advance notice as is reasonably possible of Seller's ability and intent to -14- resume normal delivery hereunder, provided, however, that if Buyer has covered its needs from another supplier, Buyer shall not be obligated to resume acceptance of deliveries from Seller until expiration of its undertakings pursuant to any such contract for cover and further provided that in such event Buyer shall use reasonable efforts in good faith to adjust and modify its contract for cover in order to enable it to resume acceptance of deliveries hereunder as promptly as possible. If Buyer reduces or ceases its purchase of Alumina hereunder by reason of Force Majeure, Buyer shall give Seller as much advance notice as is reasonably possible of Buyer's ability and intent to resume normal purchases of Alumina hereunder, provided, however, that if Seller has entered into agreements to sell Alumina to third parties during such period of Force Majeure, Seller shall not be obligated to resume deliveries hereunder to Buyer until expiration of its undertakings pursuant to any such agreements and further provided that in such event Seller shall use reasonable efforts in good faith to adjust and modify such agreements in order to enable it to resume deliveries hereunder as promptly as possible. 7.4. Extension of Term. If a party is excused from performance hereunder as a result of an event of Force Majeure occurring prior to December 31, 2004, the party not claiming Force Majeure (the "Non-Claiming Party") may extend the term of this Agreement for a period sufficient to make up the reduction in deliveries by the other party resulting from the Force Majeure. Furthermore, if a party is excused from performance hereunder as a result of an event of Force Majeure occurring during the period of January 1, 2005 through December 31, 2005, the Non-Claiming Party may extend the term of this Agreement for a period sufficient to make up the reduction in deliveries by the other party resulting from the Force Majeure provided that the -15- parties have entered into an agreement pursuant to which Buyer will purchase Alumina from Seller commencing January 1, 2006. The Non-Claiming Party shall elect to extend the term of this Agreement in accordance with this Section 7.4 no later than 30 days after the resumption of deliveries following each event of Force Majeure. In no event shall the aggregate extensions of this Agreement by a Non-Claiming Party exceed 180 days. The Alumina Price for Alumina delivered during any extension of this Agreement shall be determined for the month during the extended term of this Agreement in which the Alumina is delivered and shall be an amount equal to the LME Price multiplied by [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION] for Base Tonnage and [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION] for Expansion Tonnage. 7.5. Notice. Upon the occurrence of an event of Force Majeure, the party affected by the event of Force Majeure cure shall promptly notify the other party hereto of such events and shall specify in reasonable detail the facts constituting such events of Force Majeure. Article 8 Arbitration 8.1. Resolution of Disputes. The parties have entered into this Agreement in good faith and in the belief that it is mutually advantageous to them. It is with that same spirit of cooperation that they agree to attempt to resolve any dispute amicably without the necessity of arbitration. Accordingly, the parties agree that with respect to controversies, claims or disputes arising out of or in connection with or relating to this Agreement (collectively, a "Dispute"), they will first use the procedures (the "Procedure") specified in this Section 8.1 prior to submitting any Dispute to arbitration. The party desiring to commence the Procedure shall give written notice (the "Notice") to the other party describing in general terms the nature of the Dispute and such party's claim for relief and designating one or more individuals with authority to settle the Dispute on such party's -16- behalf. The party receiving such notice shall within 10 days after it is given designate by written notice to the other party one or more individuals with authority to settle the Dispute on such party's behalf. The designees shall meet within 30 days after the Notice was given and thereafter as often as the designees reasonably deem necessary to exchange all relevant information and to discuss the problem and negotiate in good faith in an effort to resolve the Dispute. During the course of such negotiation, all reasonable requests made by one party to the other for information will be honored in order that each of the parties may be fully advised. The specific format and timing of such discussions shall be left to the discretion of the designees, but may include the preparation of agreed upon statements of fact or of positions furnished to the other party. All verbal and written communications between the parties and issued or prepared in connection therewith shall be deemed prepared and communicated in furtherance, and in the context, of dispute settlement, and shall be exempted from discovery and production in any proceedings, and shall not be admissible in evidence (whether as an admission or otherwise) in any proceedings for the resolution of the Dispute. If the designees do not meet within 30 days after the Notice was given, or the Dispute has not been resolved within 70 days after the Notice was given, either party may then initiate arbitration as provided for in Section 8.2 of this Agreement. 8.2. Arbitration. If the Dispute has not been timely resolved as contemplated in Article 8.1 or if a party will not participate in such procedure the Dispute, and any dispute, disagreement, or controversy as to whether such Dispute is arbitrable, shall be finally settled under the Commercial Arbitration Rules of the American Arbitration Association ("AAA") except that a dispute as to either party's undertaking to continue to perform its obligations -17- hereunder pending disposition of any Dispute shall be resolved as provided in Section 8.5 hereof. Either party may commence such an arbitration by giving written notice (a "Notice of Arbitration") to the other party. Such notice shall contain a brief statement setting forth the nature of the Dispute and the relief sought. Within 30 days of the date the Notice of Arbitration is deemed to have been given under Section 9.1, each party to this Agreement shall select one arbitrator by giving notice of selection to the other party. Within 30 days of the date on which the last of the two arbitrators is selected, the two arbitrators so selected shall select a third arbitrator who shall chair the arbitration (the "Chairperson"). If the two arbitrators are unable to select the Chairperson within such 30 day period, then either arbitrator or, if an additional 30 days has elapsed without the arbitrators having either selected the Chairperson or having made a request pursuant to this sentence, then either party may request the AAA to select the Chairperson, and the AAA shall do so within 30 days of such request. The two arbitrators and the Chairperson so selected shall constitute the arbitration panel. If a party does not select an arbitrator within 30 days of the date the Notice of Arbitration is given, then such party shall be precluded from selecting an arbitrator. In that event, the arbitrator timely selected shall select the Chairperson and those two persons shall constitute the arbitration panel. The place of arbitration shall be in New York, New York, or such other city in the State of New York that the parties mutually agree upon, and the laws applicable to the arbitration procedure shall be the internal laws of the State of New York (without regard to applicable principles of conflict of laws). The language of the arbitration shall be English. -18- The parties agree that the award of the arbitrators shall be the sole and exclusive remedy between them regarding the Dispute (including any dispute, disagreement or controversy as to whether such Dispute is arbitrable) presented to the arbitrators and shall be determined and shall promptly be payable in United States dollars free of any tax, deduction or off-set. The parties further agree that (a) any costs, fees (including reasonable attorneys' fees), expenses or taxes incident to enforcing the award shall, to the maximum extent permitted by law, be charged against and paid by the party resisting such enforcement; (b) all costs, fees and expenses of the arbitration proceedings (exclusive of the costs, fees (including attorneys' fees) and expenses incurred by the parties in connection with the resolution of the Dispute and participating in the arbitration proceedings) shall be shared equally by the parties; and (c) each party shall bear the costs, fees (including attorneys' fees) and expenses incurred by it in connection with the resolution of the Dispute and participating in the arbitration proceedings except that the arbitrators may, as part of any award, order reimbursement thereof in whole or in part by any party of the arbitration found by the arbitrators to have deliberately delayed the arbitration or to have otherwise been in bad faith. 8.3. Nature of Award; Interest. The award of the arbitrators shall be final and binding upon the parties and the parties shall accept and execute without delay such arbitration award. The arbitration award shall include interest from the date of any damages incurred for breach or other violation of this Agreement and from the date of the award until paid in full at a rate to be fixed by the arbitrators. 8.4. Judicial Proceedings. Judgment upon the award may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement as the case may be. -19- Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any New York state or federal court sitting in New York, New York, over any suit, action or proceeding to compel arbitration under this Agreement. Each party hereby agrees and consents that, in addition to any methods of service of process provided for by applicable law, service of process in any such suit, action or proceeding may be made by 24-hour guaranteed courier service (such as Federal Express) directed to the persons at the addresses provided for in Section 9.1 hereof and service so made shall be complete one Business Day following the date of receipt shown on the receipt of such courier service. 8.5. Obligations to Perform. Pending the submission to arbitration and thereafter until the arbitrators make their award the parties hereto shall continue to perform their obligations hereunder without prejudice to a final adjustment in accordance with the award made by the arbitrators, and the parties hereto shall have full recourse to the courts to enforce their rights under this Section 8.5, it being expressly agreed that nothing in Article 8, or otherwise, is intended to, or shall, operate to deprive any court of competent jurisdiction of its full power and authority to grant appropriate relief by way of injunction or restraining order or otherwise, in accordance with the principles of statutes or common law or equity prevailing in such jurisdictions to require the parties hereto to continue to perform their obligations under this Agreement in furtherance of the objectives and purposes of this Section 8.5, it being expressly agreed that any controversy regarding such performance of any such obligations hereunder pending resolution of any other dispute arising under this Agreement is not arbitrable. -20- Article 9 Miscellaneous 9.1. Notices. All notices or communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given (a) when received (in the case of personal delivery or delivery by 24-hour guaranteed courier service or delivery within the United States by registered or certified United States mail) at the addresses set forth below or (b) when transmitted by fax (and confirmed by 24-hour guaranteed courier service or registered or certified United States mail) to the fax numbers set forth below: If to Seller: Kaiser Aluminum & Chemical Corporation P. O. Box 3370 1111 Airline Hwy. Gramercy, LA 70052-3370 Attn: Director, Alumina Marketing & Sales FAX: (504) 869-2404 With a Copy to: Kaiser Aluminum & Chemical Corporation 6177 Sunol Boulevard Pleasanton, CA 94566 Attn: Alumina Business Unit Legal Counsel FAX: (510) 847-4706 If to Buyer: Southwire Company One Southwire Drive Carrollton, GA 30119 Attn: John Henderson Fax: (404) 832-5254 With a Copy to: Southwire Company One Southwire Drive Carrollton, GA 30119 Attn: Bill Heamburg Fax: (404) 832-5374 -21- or to such other different person(s) or address(es) as may by notice be designated, provided, however, that unless notice to the contrary is given, it is contemplated that the normal routine, day-to-day administration of and operations of this Agreement shall be conducted in accordance with customary practices prevailing between the parties, and that such documents as quantity estimates, barge schedules, bills of lading, barge draft surveys and responses thereto, and samples or analyses, and the like, be transmitted through, to, from and between those persons customarily handling the same, and in the same manner, as heretofore under prior similar agreements. 9.2. Headings. The headings of Articles and Sections of this Agreement are merely for convenience of reference and have no substantive significance. Headings shall be disregarded in the interpretation of this Agreement. 9.3. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous written or oral understandings, agreements, negotiations and discussions between the parties relating to the subject matter hereof. 9.4. Amendments. No amendment to or modification of this Agreement shall be valid or binding on either party hereto unless reduced to writing and executed by both parties hereto. 9.5. Waiver. No waiver by either party of any breach or default in performance by the other party, and no failure to exercise any right or option given to either party hereunder or to insist upon strict compliance with or performance of the terms of this Agreement, shall constitute a waiver of the provisions of this Agreement with respect to any subsequent breach thereof. 9.6. Severability. Should any provision herein contained prove to be invalid, illegal or unenforceable, the remaining provisions shall remain of full force and effect and the parties shall -22- endeavor in good faith to agree on the details of alternative provisions which are valid, legal and enforceable and which come nearest to the original Articles in legal and economic impact and intent. 9.7. Parties In Interest. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement shall not be assigned by either party hereto without the written consent of the other party hereto which shall not be unreasonably withheld or delayed, provided, however, that either party to this Agreement may assign this Agreement to an affiliate of such party, and affiliates of such party may further assign the Agreement to other affiliates of such party, without the consent (written or verbal) of the other party to this Agreement. Any party or affiliate of such party that assigns this Agreement shall agree in solido to perform and discharge all obligations of the assignee hereunder. Additionally, if a party assigns this Agreement to an affiliate and such affiliate ceases to be an affiliate of the assignor, the person that ceases to be an affiliate of the assignor shall reassign this Agreement to such assignor effective as of the date that such affiliation terminated. Nothing in this Agreement is intended or shall be construed to confer upon or to give any person other than the parties hereto and their successors and assigns any rights or remedies under or by reason of this Agreement. 9.8. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and such counterparts shall constitute but one agreement. 9.9. Quality Control. Seller will use its best efforts to maintain its quality certification under the ISO 9002 standard during the term of this Agreement. Seller agrees to continue its participation in Buyer's Supplier Excellence Quality Program. -23- 9.10. Confidentiality. Each party agrees that it will not disclose to competitors of the other party the terms and conditions of this Agreement without the prior written consent of such other party. The provisions of this Section 9.10 shall terminate upon the date of the termination of this Agreement. 9.11. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York (without regard to applicable principles of conflict of laws). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date and year first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By /s/ Geoffrey W. Smith Its Vice President SOUTHWIRE COMPANY By /s/ John B. Hendersen Its Vice President Exhibit A: Gramercy Specifications -24- EX-10.2 7 d56393_ex10-2.txt CONSENT TO ASSIGNMENT AND GUARANTEE Exhibit 10.2 CONSENT TO ASSIGNMENT AND GUARANTEE THIS CONSENT TO ASSIGNMENT AND GUARANTEE (this "Agreement") is entered into as of April 2, 2001 by and among Kaiser Aluminum & Chemical Corporation, a Delaware corporation ("Kaiser"), Century Aluminum Company, a Delaware corporation ("Century") and Century Aluminum of Kentucky LLC, a Delaware limited liability company ("Century KY"). BACKGROUND A. Kaiser is a party to that certain Alumina Purchase Agreement dated as of December 18, 1997, as amended by Amendment Number 1, dated October 26, 1999 (the "Alumina Agreement"), between Kaiser and Southwire Company ("Southwire"), pursuant to which Kaiser has agreed to provide to Southwire its requirements for alumina at Southwire's aluminum reduction facility located in Hawesville, Kentucky (the "Hawesville Plant"); B. The Hawesville Plant is indirectly owned by Metalsco Ltd. ("Metalsco"), a wholly owned subsidiary of Southwire; C. Southwire has agreed to sell and Century has agreed to purchase, either directly or through an affiliate established for the purpose, all of the authorized, issued, and outstanding capital stock of Metalsco, pursuant to the terms of the stock purchase agreement dated as of August 31, 2000 (the "Stock Purchase Agreement"); D. The Stock Purchase Agreement provides that, as a condition of closing, Southwire shall assign to Century or an affiliate of Century all of Southwire's rights with respect to the Alumina Agreement and Century or an affiliate of Century shall assume certain liabilities thereunder; E. Century and Southwire contemplate closing of the stock sale pursuant to the Stock Purchase Agreement (the "Closing") on or about April 1, 2001; F. Century and Southwire have agreed that the Closing shall be effective as of 12:01 p.m. on the day on which the Closing takes place (the "Effective Time"); and G. Kaiser has agreed to execute this Agreement to evidence its consent and agreement to the assignment of such rights in the Alumina Agreement by Southwire. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, each intending to be legally bound, agree as follows: 1. Effective as of the Effective Time, Kaiser hereby consents to the assignment and transfer by Southwire to Century Aluminum of Kentucky LLC, a Delaware limited liability company and an affiliate of Century, or such other affiliate of Century as Century may from time to time designate in writing (the "Century Assignee") of all of Southwire's interests in the Alumina Agreement and all rights contained therein and obligations arising thereunder from and after the Effective Timer. 2. Subject to the terms hereof, Kaiser accepts the Century Assignee as Southwire's successor in interest in and to the Alumina Agreement effective as of the Effective Time. The Century Assignee shall become entitled to all right, title and interest of Southwire in all respects as if the Century Assignee were the original party to the Alumina Agreement. 3. Except as herein modified, the Alumina Agreement shall remain in full force and effect. -2- 4. Kaiser represents that, to its knowledge, Southwire is not currently in default under any provision of the Alumina Agreement. Similarly, Southwire represents that, to its knowledge, Kaiser is not currently in default under any provision of the Alumina Agreement. 5. Kaiser, Century and the Century Assignee hereby agree and acknowledge: (a) that Southwire shall have no obligations arising from purchases of alumina by the Century Assignee under the Alumina Agreement from and after the Effective Time, (b) that Southwire and its affiliates shall be released of their obligations to purchase alumina under the Alumina Agreement from and after the Effective Time, and (c) that neither Southwire nor any of its affiliates guarantees the performance of Century's or the Century Assignee's or their affiliates' obligations under the Alumina Agreement. 6. With respect to all deliveries of alumina from and after the Effective Time, Kaiser shall provide to the Century Assignee all future invoices, notices, correspondence and other documents issued by Kaiser relating to the Alumina Agreement in the manner specified in the Alumina Agreement to the Century Assignee at the following address: Century Aluminum of Kentucky LLC Hawesville Plant P.O. Box 500 1627 State Route 271 North Hawesville, KY 42348 Attn: Director of Purchasing with a copy to: Century Aluminum Company 2511 Garden Road Building A, Suite 200 Monterey, California 93940 Attention: Gerald J. Kitchen -3- 7. As promptly as practicable after the Effective Time, Kaiser and the Century Assignee agree to amend and restate the Alumina Agreement to include the Century Assignee as party in substitution of Southwire with all other terms and conditions remaining unchanged. 8. From and after the Effective Time, Century (the "Guarantor") unconditionally guarantees to Kaiser and its successors and assigns, the due and punctual payment and performance of all obligations of the Century Assignee for alumina purchased by the Century Assignee arising on or after the Effective Time under the Alumina Agreement, as the same may hereafter be amended or supplemented from time to time (collectively, the "Guaranteed Obligations"), including, in case of default, interest on any amount due, when and as the same shall become due and payable, whether on the scheduled payment dates, at maturity, upon declaration of termination or otherwise, according to the terms thereof. Upon any failure of the Century Assignee punctually to make any such payment, Guarantor agrees to make such payment, or cause such payment to be made, promptly upon demand made to Guarantor; provided, however that delay in giving such demand shall not affect Guarantor's obligations under this Agreement. Guarantor's guarantee obligations hereunder shall remain in full force and effect or shall be reinstated (as the case may be) if at any time any payment guaranteed hereunder, in whole or in part, is rescinded or must otherwise be returned upon the insolvency, bankruptcy or reorganization of the Century Assignee or otherwise, all as though such payment had not been made. Guarantor's guarantee obligations hereunder constitute a guaranty of payment when due and not one of collection. 9. Guarantor agrees that its guarantee obligations hereunder shall be unconditional, irrespective of the absence of any action to enforce any of the Guaranteed -4- Obligations; the rendering of any judgment against Century Assignee or any action to enforce the same or any waiver or consent given by Century Assignee concerning any provisions of any of the Guaranteed Obligations; or any other circumstances that might otherwise constitute a legal or equitable discharge of a guarantor or a defense of a guarantor. Guarantor covenants that its guarantee obligations hereunder will not be discharged except by complete payment of the amounts payable under or in connection with the Guaranteed Obligations. Guarantor's guarantee obligations hereunder shall continue to be effective if the Century Assignee merges or consolidates with or into another entity, loses its separate legal identity, ceases to exist or assigns any or all of its rights, or delegates any or all of its duties under or in connection with the Guaranteed Obligations. Guarantor hereby waives diligence; presentment, protest, notice of protest, acceleration, and dishonor, filing of claims with a court in the event of insolvency or bankruptcy of the Century Assignee all demands whatsoever, except as noted above, and any right to require a proceeding first against Century Assignee. 10. Guarantor certifies and warrants that, as of the Effective Time, Guarantor's guarantee obligations hereunder shall constitute the valid obligations of Guarantor and comply with all applicable laws. 11. The parties hereto acknowledge and agree that upon the Effective Time, Kaiser shall have the continuing right to review Century Assignee's credit, and may upon written notice to Century Assignee and Guarantor modify the payment terms contained in section 3.2 of the Alumina Agreement or seek such other assurances of payment if Kaiser reasonably determines that there has been a material adverse change in the financial condition of Guarantor. Guarantor further covenants and agrees to provide any financial information reasonably requested by Kaiser for Kaiser's use in making the foregoing determination. -5- 12. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York, without giving effect to the conflict of law rules thereof. Any action brought in connection with this Agreement may be brought in, and shall be subject to the jurisdiction of, the federal or state courts located in the City of New York, and the parties hereby irrevocably consent to the jurisdiction of such courts. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By: --------------------------------- Its: CENTURY ALUMINUM COMPANY By: --------------------------------- Its: CENTURY ALUMINUM OF KENTUCKY LLC By: --------------------------------- Its: -6- Southwire Company is executing this Agreement for the sole purpose of making the representation contained in Section 4 of this Agreement. SOUTHWIRE COMPANY By: --------------------------------- Its: -7- EX-10.3 8 d56393_ex10-3.txt ALUMINA PURCHASE AGREEMENT Exhibit 10.3 ALUMINA PURCHASE AGREEMENT This agreement is entered into as of the 26th day of May, 2003, between Kaiser Aluminum & Chemical Corporation, a Delaware corporation (hereinafter called "Seller"), and Century Aluminum of Kentucky LLC, a Delaware limited liability company (hereinafter called "Buyer"). RECITALS: A. Seller desires to sell and deliver to Buyer the requirements of Buyer for sandy calcined metallurgical grade alumina ("Alumina"). B. Buyer desires to purchase and accept from Seller its requirements for Alumina at its wholly owned aluminum smelter in Hawesville, Kentucky ("Buyer's Plant"). NOW THEREFORE, in consideration of the premises and the covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: Article 1 Definitions 1.1 Definitions. As used herein, unless otherwise defined herein or the context otherwise requires, the following terms shall have the meanings specified below. "affiliate" of any person means any person controlling, controlled by or under common control with such person. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York shall be permitted or required by law or executive order to be closed. "Contract Year" means a period of time running from January 1 of each year through December 31 of the same year. "Customary Quick Dispatch" means a vessel is to be loaded as quickly as is possible in the circumstances prevailing at the time of loading. "FOB" means, to the extent that the 2000 version of the Incoterms are not inconsistent with the provisions of this Agreement, FOB as defined by the 2000 version of the Incoterms published by the International Chamber of Commerce, Paris, France, as amended from time to time (collectively, the "Incoterms"). "Force Majeure" means any events or circumstances beyond the reasonable control of a party control, including but not limited to: accidents to or breakdown or mechanical failure of machinery or equipment, however caused; strikes or other labor troubles; shortage of labor, transportation, raw materials, energy sources, or failure of usual means of supply; fire; explosion; flood or hurricane; war, declared or undeclared that directly affects a facility; insurrections; riots; sabotage; acts of God or of the public enemy; river conditions; and priorities, allocations, or limitations or other acts required or requested by government or any subdivisions, bureaus or agencies thereof. "Gramercy" means Seller's wholly owned Alumina refinery located at Gramercy, Louisiana. "LME Price" means the average of the London Metal Exchange cash price in United States dollars per mt for 99.7% aluminum ingot for the month immediately preceding the month of delivery as reported in Platt's Metals Week. "mt" means a unit of metric weight of 1,000 kilograms. Article 2 Quantity 2 2.1 Contract Quantity. Subject to and in accordance with the terms and conditions of this Agreement, commencing January 1, 2006, Seller shall sell and deliver to Buyer, and Buyer shall purchase and accept from Seller, all of Buyer's requirements for Alumina for its Plant for each Contract Year during the term of this Agreement. Such requirements are estimated to be [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION] per Contract Year. Buyer shall give written notice to Seller no later than September 30 of each Contract Year of its requirements for Alumina for the immediately following Contract Year, and the parties agree that the requirements for Alumina for the Contract Year then in effect shall continue for the immediately following Contract Year if no such notice is given by Buyer. Buyer's requirements as determined in accordance with the immediately preceding sentence are referred to herein as the "Annual Requirements". 2.2 Adjustments to Annual Requirements. During the period commencing on October 1 of each Contract Year (and October 1, 2005 for the first Contract Year) and ending on July 31 of the immediately following Contract Year (such immediately following Contract Year is referred to in this Section 2.2 as the "Year of Adjustment"), Buyer, upon 90 days written notice to Seller (referred to herein individually as an "Adjustment Notice" and collectively as the "Adjustment Notices"), may increase or decrease its Annual Requirements in the Year of Adjustment by an amount determined in accordance with this Section 2.2. Subject to the provisions of the immediately following paragraph, the amount of any adjustment, measured in mt, in Buyer's Annual Requirements in a Year of Adjustment shall not exceed an amount determined by the following formula: A = D x (B/365) x C where 3 A equals the maximum amount of any adjustment in mt; B equals the number of days in the Year of Adjustment remaining after the effective date of the adjustment as provided hereinbelow; C equals the Annual Requirements for the Year of Adjustment; and D equals the percentage adjustment, which cannot, either at any one time, or cumulatively taking into consideration the net effect of all adjustments, exceed plus or minus 2%. The 365 in the foregoing formula shall be increased to 366 in those Contract Years where February has 29 days. The maximum by which Buyer may adjust its Annual Requirements in a Year of Adjustment shall take into account the cumulative net effect (summing arithmetically both increases and decreases) of all prior percentage adjustments in such Year of Adjustment, and Seller shall not be obligated to make an adjustment as called for by an Adjustment Notice where the cumulative net effect of all percentage adjustments (including the adjustment then under consideration) would create a value for "D" in the above formula in excess of 2%. If Buyer reduces its Annual Requirements in any Year of Adjustment and thereafter Buyer determines that it must purchase additional Alumina, all additional Alumina shall be purchased hereunder from Seller, subject to the availability of such Alumina from Gramercy. Any adjustment pursuant to this Section 2.2 shall be effective as of the date specified by Buyer in the Adjustment Notice provided, however, that such effective date shall be no earlier than 90 days after the date on which Seller has received the relevant Adjustment Notice. All Adjustment Notices shall be forwarded to Seller by facsimile and first class mail. Seller shall be deemed to receive each Adjustment Notice on the date on which Buyer forwards such Adjustment Notice by facsimile to Seller. 4 2.3 Delivery; Risk of Loss. Seller shall deliver and Buyer shall accept the Annual Requirements in approximately evenly distributed shipments throughout each Contract Year FOB Buyer's barge bottom at Gramercy. Title, risk of loss and all other incidents of ownership shall pass to Buyer upon delivery at the FOB point. If Seller supplies Alumina hereunder from a source or sources other than Gramercy in accordance with the provisions of Section 4.1 hereof, the terms of delivery for such Alumina shall be equivalent in all material respects to delivery FOB Gramercy. 2.4 Shipping. Buyer shall provide barges which are suitable for loading and in conformity with restrictions and limitations at Gramercy. Unless otherwise agreed by the parties in writing, and the deliveries of Alumina scheduled for each month shall be a fraction of the Annual Requirements for the Contract Year then in effect, equal to the number of days in the month divided by the total number of days in the Contract Year. For example, if the Annual Requirements in a 365-day year are [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION], the quantity of Alumina scheduled to be delivered in a 31-day month would be approximately [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION]. Exact quantities to be delivered each month shall be mutually agreed between the parties, shall be based on the Annual Requirements for the Contract Year then in effect, and shall be based on the Buyer's intended barge schedule provided to Seller at least fifteen (15) days prior to commencement of each calendar quarter during the Contract Year then in effect. The parties will cooperate in regard to scheduling deliveries hereunder in accordance with local customs and practices, but in any event, Buyer shall, unless otherwise agreed in writing, move its barges from the loading area as soon as reasonably possible following completion of loading. Barge loadings shall be on a Customary Quick Dispatch basis. 5 2.5 Weight Loaded. The weights shall be determined at the time of loading. Seller, at its cost, will provide Buyer, via facsimile or other means to assure arrival at least three Business Days prior to arrival of the barge for unloading, with a barge draft survey, issued by a certified independent surveyor, of the barge into which the Alumina is loaded. Buyer shall have the right to have a representative present (at Buyer's expense and risk) at the time of loading, which representative is to be acceptable to Seller, such acceptance not to be unreasonably withheld. Buyer shall have eight (8) Business Days after the arrival of each barge at the Plant to challenge the accuracy of the draft barge survey for that barge. Unless Buyer timely challenges such barge draft survey, the final loaded weights determined as aforesaid shall be conclusive and binding on the parties hereto for the purpose of determining the quantity of Alumina delivered hereunder. Buyer and Seller shall use their best efforts to amicably resolve any such challenge but, if such challenge cannot be so resolved, such challenge shall be resolved in accordance with the provisions of Article 8 of this Agreement. While such challenge is pending, Seller shall remain obligated to continue to load and deliver Alumina pursuant to Section 2.4 hereof and Buyer shall timely pay, pursuant to Section 3.2 hereof, the purchase price for all Alumina delivered hereunder, and Buyer shall be obligated to pay the purchase price for the quantity of Alumina that Buyer reasonably believes to have been on the barge that is subject to the challenge pursuant to this Section 2.5 until such challenge is resolved as provided herein. Article 3 Price/Payment 3.1 Purchase Price Determination. The purchase price per mt of Alumina (the "Alumina Price") delivered by Seller to Buyer hereunder during the term of this Agreement shall be determined 6 for the month in which the Alumina is delivered. The Alumina Price shall be an amount equal to the LME Price multiplied by [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION]. If the LME Price ceases to be published, the parties shall agree upon a substitute index intended to reflect the price of primary aluminum sales to be used in calculating the Alumina Price hereunder. 3.2 Payment. Monetary references in this Agreement are to United States dollars, and all transactions and payments pursuant to this Agreement shall be made in United States dollars. Seller shall invoice Buyer promptly after the end of each month for all Alumina delivered hereunder during said month. Payment for the Alumina shall be made by Buyer by wire transfer to an account designated by Seller within 30 days after the end of each month. Without prejudice to any other right Seller may have, the amount of any overdue payments or any partial payment shall bear interest at a rate per annum equal to the U.S. prime rate in effect from time-to-time for first class customers as quoted by Citibank N. A., New York, New York, plus 2%, over the period from the date on which payment or partial payment was due to the date of actual receipt of payment. Seller shall promptly forward to Buyer by facsimile and first class mail the bill of lading for each barge but not earlier than the date of Seller's release of the barge from its dock for transport to the Plant. 3.3 Royalties, Taxes, Duties and Licenses. All royalties, taxes and duties imposed or levied on the Alumina to be delivered under this Agreement in the country in which the Alumina is delivered shall be for the account of and paid by the Seller to the point when the Alumina has been delivered to Buyer in accordance with this Agreement. All other taxes and duties imposed or levied on the Alumina after delivery shall be for the account of and paid by Buyer. 7 3.4 Guarantee. Century Aluminum Company ("Century") unconditionally guarantees to Seller and its successors and assigns, the due and punctual payment and performance of all obligations of Buyer for Alumina purchased by Buyer under this Agreement, as the same may be hereafter amended or supplemented from time to time (collectively, the "Guaranteed Obligations"), including, in case of default, interest on any amount due, when and as the same shall become due and payable, whether on the scheduled payment dates, at maturity, upon declaration of termination or otherwise, according to the terms hereof. Upon any failure of Buyer punctually to make any such payment, or cause such payment to be made, promptly upon demand made to Century; provided, however that delay in giving such demand shall not affect Century's obligations under this Agreement. Century's guarantee obligations hereunder shall remain in full force and effect or shall be reinstated (as the case may be) if at any time any payment guaranteed hereunder, in whole or in part, is rescinded or must otherwise be returned upon the insolvency, bankruptcy or reorganization of Buyer or otherwise, all as though such payment had not been made. Century's obligations hereunder constitute a guaranty of payment when due and not one of collection. Century further agrees that its guarantee obligations hereunder shall be unconditional, irrespective of the absence of any action to enforce any of the Guaranteed Obligations; the rendering of any judgment against Buyer or any action to enforce the same or any waiver or consent given by Buyer concerning any provisions of any of the Guaranteed Obligations; or any other circumstances that might otherwise constitute a legal or equitable discharge of a guarantor or a defense of a guarantor. Century covenants that its guarantee obligations hereunder will not be discharged except by complete payment of the amounts payable under or in connection with the Guaranteed Obligations. Century's guarantee obligations hereunder shall continue to be effective if Buyer 8 merges or consolidates with or into another entity, loses its separate legal identify, ceases to exist or assigns any of its rights, or delegates any or all of its duties under or in connection with the Guaranteed Obligations. Century hereby waives diligence; presentment, protest, notice of protest, acceleration, and dishonor, filing of claims with a court in the event of insolvency or bankruptcy of Buyer and all demands whatsoever, except as noted above, and any right to require a proceeding first against Buyer. Century certifies and warrants that Century's guarantee obligations hereunder constitute the valid and binding obligations of Century and comply with all applicable laws. 3.5 Credit Review. The parties hereto acknowledge and agree that Seller shall have the continuing right to review Buyer's credit, and may upon written notice to Buyer and Century modify the payment terms contained in Section 3.2 of this Agreement or seek such other assurances of payment if Buyer reasonably determines that there has been a material adverse change in the financial condition of Century. Century further covenants and agrees to provide any financial information reasonably requested by Seller for Seller's use in making the foregoing determination. Article 4 Quality 4.1 Specifications/Source of Supply. The parties intend that the Alumina sold by Seller to Buyer pursuant to this Agreement shall be produced at Gramercy and shall conform to the specifications set forth in Exhibit A. Notwithstanding the above, Seller may elect to supply from a source or sources other than Gramercy, provided that Alumina supplied from such other source(s) shall conform to the typical quality parameters of Gramercy alumina set forth in Exhibit A hereto, unless otherwise mutually agreed. 9 4.2 Conformity Determination/Resolution of Non-Conforming Material. One representative sample of each shipment of Alumina shall be taken in accordance with the sampling procedures applicable at Gramercy. Buyer shall have the right to have a representative present (at Buyer's expense and risk) at such sampling, which representative is to be acceptable to Seller, such acceptance not to be unreasonably withheld. Such sample shall be deemed to be a representative sample of the Alumina delivered in that shipment by Seller to Buyer. The sample so taken shall be divided into portions using generally accepted laboratory techniques. One portion shall be promptly dispatched to Buyer, one portion shall be used by Seller for analysis and Seller shall ensure that one portion (the referee sample) shall be held by Seller for 90 days after the date of the shipment, and then disposed of unless Seller or Buyer has requested in writing that it be retained for a longer period. The cost of the sampling and dispatch to Buyer shall be for the account of the Seller. Seller shall analyze the sub-sample retained by it for each shipment of Alumina within two days of the preparation of such sample in accordance with Seller's relevant standard practice. Seller shall send to Buyer the results of such analysis (by facsimile transmission) promptly after they are known. Seller shall provide to Buyer an original of the certificate of analysis stating the results of the analysis, and shall forward such certificate to Buyer as early as practicable. If the analysis shows that the sample analyzed does not exceed the maximum limits specified in Exhibit A annexed hereto, it will be presumed that the entire shipment from which the sample was taken conforms with the quality specifications set forth in Exhibit A. Within 30 days after receipt of the sample dispatched to Buyer, Buyer may notify Seller that the Alumina delivered does not conform to the quality specifications and the extent of such 10 non-conformity. If Buyer does not notify Seller within this period, the Alumina so delivered shall be deemed to comply with such specifications. If Buyer does so notify Seller within this period, Seller shall advise Buyer within ten days after such notification is received whether or not Seller agrees with Buyer's analysis. If Seller does not agree, the referee sample will be analyzed as soon as possible by Norsk Hydro Research & Development Laboratory, Stavanger, Norway, or such other laboratory as the parties shall agree upon (the "referee laboratory"). The referee laboratory will analyze the referee sample in accordance with its applicable standard analytical procedures for alumina analysis, and a copy of its analysis shall be made available to both Buyer and Seller. Such analysis shall be final and binding on both Buyer and Seller and the quality of Alumina contained in the relevant shipment shall be deemed to be the same as that of the referee sample. The cost of any referee analysis will be borne by the party whose results differ most from those given by the referee laboratory. If the analysis of the referee laboratory indicates that the referee sample does not conform to the contractual specifications or if Seller accepts that the Alumina does not so conform, Seller and Buyer shall within fifteen days after receipt of such analysis or notification of such acceptance, as the case may be, meet in good faith to determine whether a reasonable and mutually acceptable arrangement can be made to compensate Buyer for the shipment of Alumina not meeting such contractual specifications. In the event Seller and Buyer do not reach a mutually acceptable agreement, Buyer has the right to return the Alumina in question at Seller's expense including the freight cost of the original shipment and demurrage, if any. 11 Article 5 Term; Termination 5.1 Term. This Agreement shall commence on the date hereof and shall terminate on December 31, 2008, unless sooner terminated in accordance with the provisions of Section 5.2 of this Agreement or unless extended in accordance with the provisions of Section 7.4 of this Agreement. The parties agree that they will discuss in good faith the possibility of extending the supply relationship established by this Agreement if either party advises the other prior to December 31, 2007, that it is interested in such an extension. If the parties reach an agreement on the extension of the relationship established by this Agreement, then this Agreement shall be amended to reflect the new terms and conditions agreed to by the parties or a new agreement will be entered into to reflect such terms and conditions. 5.2 Termination. This Agreement may be terminated prior to the expiration of its term: (a) By mutual consent of Buyer and Seller; (b) By Seller, if Seller is not in default hereunder and if Buyer shall have breached or failed to perform any of its covenants or agreements contained herein and such breach or failure shall continue for 10 days after notice thereof by Seller to Buyer; (c) By Buyer, if Buyer is not in default hereunder and if Seller shall have breached or failed to perform any of its covenants or agreements contained herein and such breach or failure shall continue for 10 days after notice thereof by Buyer to Seller; (d) By Seller, if Seller is not in default hereunder and if an event of Force Majeure has persisted for a continuous period of 180 days and has prevented Buyer from fulfilling its obligations hereunder; or 12 (e) By Buyer, if Buyer is not in default hereunder and if an event of Force Majeure has persisted for a continuous period of 180 days and has prevented Seller from fulfilling its obligations hereunder. The right to terminate this Agreement as provided for in this Section 5.2 may be exercised only by written notice given by the terminating party to the non-terminating party, and such termination shall be effective on the thirtieth day after the date on which the notice of termination is given to the non-terminating party. Upon any termination of this Agreement (including termination upon the expiration of the term of this Agreement), no party to this Agreement shall have any liability to any other party to this Agreement, except for any such liability as may have accrued through the date of termination. Any termination of this Agreement pursuant to this Section 5.2 is subject to all of the provisions of Article 8 hereof. Article 6 Liability 6.1 Liability. Neither party to this Agreement shall be liable to the other party hereto for direct economic loss or damage, including, but not limited to, personal injuries or loss of physical equipment, actually sustained as a result of the operation of this Agreement, unless such loss or damage result from the gross negligence, willful act or intentional failure to act of a party hereto. Neither party to this Agreement shall be liable to the other party hereto for any indirect, consequential or incidental damage or loss incurred as a result of the operation of this Agreement, unless such damage or loss is the result of willful action or intentional failure to act of a party hereto. 13 Article 7 Force Majeure 7.1 General. Neither party to this Agreement shall be liable for any delay in performing or failure to perform its obligations (except for delay or failure to pay money when due) due to events of Force Majeure. Failure to deliver or to accept delivery in whole or in part because of the occurrence of an event of Force Majeure shall not constitute a default hereunder nor subject either party to liability for any resulting loss or damage. 7.2 Efforts to Cure. Both parties agree to use their respective reasonable efforts to cure any event of Force Majeure to the extent that it is reasonably possible to do so, it being understood that neither shall be required to make any concession or grant any demand or request in order to bring to an end any strike, lockout or other industrial disturbance where such course is deemed inadvisable in its sole discretion. 7.3 Alumina Purchases and Sales. If by reason of Force Majeure Seller is unable to deliver or timely deliver Alumina to Buyer and/or to other customers to which Seller directly or indirectly has an obligation to sell Alumina from Gramercy, then, and in each such event, any Alumina available for sale from Gramercy will be shipped to each such customer, including Buyer, in proportion to the amount of Alumina each is committed to purchase from Seller's facility at Gramercy during the calendar year(s) in which the event of Force Majeure occurred or continued to exist. Additionally, Seller will endeavor to maintain the supply of Alumina hereunder to Buyer if possible from other sources, and any such deliveries shall be applied against the quantity referred to in Section 2.1 hereof. The quantities referred to in Section 2.1 shall be reduced to the extent of deliveries omitted by Seller due to the occurrence of an event of Force Majeure. 14 Buyer, during any period of Force Majeure declared by Seller, may purchase Alumina from third parties to the extent Seller is unable to supply Alumina hereunder. Seller, during any period of Force Majeure declared by Buyer, may sell Alumina to third parties to the extent Buyer is unable to accept delivery of Alumina hereunder. The quantities referred to in Article 2.1 shall be reduced accordingly for any party so opting under this Article. If Seller reduces or ceases deliveries hereunder by reason of Force Majeure, Seller shall give Buyer as much advance notice as is reasonably possible of Seller's ability and intent to resume normal delivery hereunder, provided, however, that if Buyer has covered its needs from another supplier, Buyer shall not be obligated to resume acceptance of deliveries from Seller until expiration of its undertakings pursuant to any such contract for cover and further provided that in such event Buyer shall use reasonable efforts in good faith to adjust and modify its contract for cover in order to enable it to resume acceptance of deliveries hereunder as promptly as possible. If Buyer reduces or ceases its purchase of Alumina hereunder by reason of Force Majeure, Buyer shall give Seller as much advance notice as is reasonably possible of Buyer's ability and intent to resume normal purchases of Alumina hereunder, provided, however, that if Seller has entered into agreements to sell Alumina to third parties during such period of Force Majeure, Seller shall not be obligated to resume deliveries hereunder to Buyer until expiration of its undertakings pursuant to any such agreements and further provided that in such event Seller shall use reasonable efforts in good faith to adjust and modify such agreements in order to enable it to resume deliveries hereunder as promptly as possible. 7.4 Extension of Term. If a party is excused from performance hereunder as a result of an event of Force Majeure occurring prior to December 31, 2007, the party not claiming Force Majeure 15 (the "Non-Claiming Party") may extend the term of this Agreement for a period sufficient to make up the reduction in deliveries by the other party resulting from the Force Majeure. Furthermore, if a party is excused from performance hereunder as a result of an event of Force Majeure occurring during the period of January 1, 2008 through December, 31, 2008, the Non-Claiming Party may extend the term of this Agreement for a period sufficient to make up the reduction in deliveries by the other party resulting from the Force Majeure provided that the parties have entered into an agreement pursuant to which Buyer will purchase Alumina from Seller commencing January 1, 2009. The Non-Claiming Party shall elect to extend the term of this Agreement in accordance with this Section 7.4 no later than 30 days after the resumption of deliveries following each event of Force Majeure. In no event shall the aggregate extensions of this Agreement by a Non-Claiming Party exceed 180 days. The Alumina Price for Alumina delivered during any extension of this Agreement shall be determined for the month during the extended term of this Agreement in which the Alumina is delivered and shall be an amount equal to the LME Price multiplied by [CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION]. 7.5 Notice. Upon the occurrence of an event of Force Majeure, the party affected by the event of Force Majeure shall promptly notify the other party hereto of such events and shall specify in reasonable detail the facts constituting such events of Force Majeure. Article 8 Arbitration 8.1 Resolution of Disputes. The parties have entered into this Agreement in good faith and in the belief that it is mutually advantageous to them. It is with that same spirit of cooperation that they agree to attempt to resolve any dispute amicably without the necessity of arbitration. 16 Accordingly, the parties agree that with respect to controversies, claims or disputes arising out of or in connection with or relating to this Agreement (collectively, a "Dispute"), they will first use the procedures (the "Procedure") specified in this Section 8.1 prior to submitting any Dispute to arbitration. The party desiring to commence the Procedure shall give written notice (the "Notice") to the other party describing in general terms the nature of the Dispute and such party's claim for relief and designating one or more individuals with authority to settle the Dispute on such party's behalf. The party receiving such notice shall within 10 days after it is given designate by written notice to the other party one or more individuals with authority to settle the Dispute on such party's behalf. The designees shall meet within 30 days after the Notice was given and thereafter as often as the designees reasonably deem necessary to exchange all relevant information and to discuss the problem and negotiate in good faith in an effort to resolve the Dispute. During the course of such negotiation, all reasonable requests made by one party to the other for information will be honored in order that each of the parties may be fully advised. The specific format and timing of such discussions shall be left to the discretion of the designees, but may include the preparation of agreed upon statements of fact or of positions furnished to the other party. All verbal and written communications between the parties and issued or prepared in connection therewith shall be deemed prepared and communicated in furtherance, and in the context, of dispute settlement, and shall be exempted from discovery and production in any proceedings, and shall not be admissible in evidence (whether as an admission or otherwise) in any proceedings for the resolution of the Dispute. 17 If the designees do not meet within 30 days after the Notice was given, or the Dispute has not been resolved within 70 days after the Notice was given, either party may then initiate arbitration as provided for in Section 8.2 of this Agreement. 8.2 Arbitration. If the Dispute has not been timely resolved as contemplated in Article 8.1 or if a party will not participate in such procedure, the Dispute, and any dispute, disagreement, or controversy as to whether such Dispute is arbitrable, shall be finally settled under the Commercial Arbitration Rules of the American Arbitration Association ("AAA") except that a dispute as to either party's undertaking to continue to perform its obligations hereunder pending disposition of any Dispute shall be resolved as provided in Section 8.5 hereof. Either party may commence such an arbitration by giving written notice (a "Notice of Arbitration") to the other party. Such notice shall contain a brief statement setting forth the nature of the Dispute and the relief sought. Within 30 days of the date the Notice of Arbitration is deemed to have been given under Section 9.1, each party to this Agreement shall select one arbitrator by giving notice of selection to the other party. Within 30 days of the date on which the last of the two arbitrators is selected, the two arbitrators so selected shall select a third arbitrator who shall chair the arbitration (the "Chairperson"). If the two arbitrators are unable to select the Chairperson within such 30 day period, then either arbitrator or, if an additional 30 days has elapsed without the arbitrators having either selected the Chairperson or having made a request pursuant to this sentence, then either party may request the AAA to select the Chairperson, and the AAA shall do so within 30 days of such request. The two arbitrators and the Chairperson so selected shall constitute the arbitration panel. If a party does not select an arbitrator within 30 days of the date the Notice of Arbitration is given, then such party shall be precluded from selecting an arbitrator. In that event, the arbitrator 18 timely selected shall select the Chairperson and those two persons shall constitute the arbitration panel. The place of arbitration shall be in New York, New York, or such other city in the State of New York that the parties mutually agree upon, and the laws applicable to the arbitration procedure shall be the internal laws of the State of New York (without regard to applicable principles of conflict of laws). The language of the arbitration shall be English. The parties agree that the award of the arbitrators shall be the sole and exclusive remedy between them regarding the Dispute (including any dispute, disagreement or controversy as to whether such Dispute is arbitrable) presented to the arbitrators and shall be determined and shall promptly be payable in United States dollars free of any tax, deduction or off set. The parties further agree that (a) any costs, fees, (including reasonable attorney's fees), expenses or taxes incident to enforcing the award shall, to the maximum extent permitted by law, be charged against and paid by the party resisting such enforcement; (b) all costs, fees and expenses of the arbitration proceedings (exclusive of the costs, fees (including attorney's fees) and expenses incurred by the parties in connection with the resolution of the Dispute and participating in the arbitration proceedings) shall be shared equally by the parties; and (c) each party shall bear the costs, fees (including attorney's fees) and expenses incurred by it in connection with the resolution of the Dispute and participating in the arbitration proceedings except that the arbitrators may, as part of any award, order reimbursement thereof in whole or in part by any party of the arbitration found by the arbitrators to have deliberately delayed the arbitration or to have otherwise been in bad faith. 8.3 Nature of Award, Interest. The award of the arbitrators shall be final and binding upon the parties and the parties shall accept and execute without delay such arbitration award. 19 The arbitration award shall include interest from the date of any damages incurred for breach or other violation of this Agreement and from the date of the award until paid in full at a rate to be fixed by the arbitrators. 8.4 Judicial Proceedings. Judgment upon the award may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement as the case may be. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of any New York state or federal court sitting in New York, New York, over any suit, action or proceeding to compel arbitration under this Agreement. Each party hereby agrees and consents that, in addition to any methods of service of process provided for by applicable law, service of process in any such suit, action or proceeding may be made by 24-hour guaranteed courier service (such as Federal Express) directed to the persons at the addresses provided for in Section 9.1 hereof, and service so made shall be complete one Business Day following the date of receipt shown on the receipt of such courier service. 8.5 Obligations to Perform. Pending the submission to arbitration and thereafter until the arbitrators make their award the parties hereto shall continue to perform their obligations hereunder without prejudice to a final adjustment in accordance with the award made by the arbitrators, and the parties hereto shall have full recourse to the courts to enforce their rights under this Section 8.5, it being expressly agreed that nothing in Article 8, or otherwise, is intended to, or shall, operate to deprive any court of competent jurisdiction of its full power and authority to grant appropriate relief by way of injunction or restraining order or otherwise, in accordance with the principles of statutes or common law or equity prevailing in such jurisdiction, to require the parties hereto to continue to 20 perform their obligations under this Agreement in furtherance of the objectives and purposes of this Section 8.5, it being expressly agreed that any controversy regarding such performance of any such obligations hereunder pending resolution of any other dispute arising under this Agreement is not arbitrable. Article 9 Miscellaneous 9.1 Notices. All notices or communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given (a) when received (in the case of personal delivery or delivery by 24-hour guaranteed courier service or delivery within the United States by registered or certified United States mail) at the addresses set forth below or (b) when transmitted by fax (and confirmed by 24-hour guaranteed courier service or registered or certified United States mail) to the fax numbers set forth below: If to Seller: Kaiser Aluminum & Chemical Corporation P. O. Box 3370 1111 Airline Hwy. Gramercy, LA 70052-3370 Attn: Director, Alumina Marketing & Sales FAX: (504) 869-2404 With a Copy to: Kaiser Aluminum & Chemical Corporation 5847 San Felipe, Suite 2500 Houston, Texas 77057 Attn: Alumina Business Unit Legal Counsel FAX: (713) 332-4605 If to Buyer: Century Aluminum of Kentucky LLC Hawesville Plant P.O. Box 500 1627 State Route 271 North Hawesville, KY 42348 Attn: Director of Purchasing 21 With a Copy to: Century Aluminum Company 2511 Garden Road Building A, Suite 200 Monterey, California 93940 Attn: Gerald J. Kitchen or to such other different person(s) or address(es) as may by notice be designated, provided, however, that unless notice to the contrary is given, it is contemplated that the normal, routine, day-to-day administration of and operations of this Agreement shall be conducted in accordance with customary practices prevailing between the parties, and that such documents as quantity estimates, barge schedules, bills of lading, barge draft surveys and responses thereto, and samples or analyses, and the like, be transmitted through, to, from and between those persons customarily handling the same, and in the same manner, as heretofore under prior similar agreements. 9.2 Headings. The headings of Articles and Sections of this Agreement are merely for convenience of reference and have no substantive significance. Headings shall be disregarded in the interpretation of this Agreement. 9.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous written or oral understandings, agreements, negotiations and discussions between the parties relating to the subject matter hereof. 9.4 Amendments. No amendment to or modification of this Agreement shall be valid or binding on either party hereto unless reduced to writing and executed by both parties hereto. 9.5 Waiver. No waiver by either party of any breach or default in performance by the other party, and no failure to exercise any right or option given to either party hereunder or to insist 22 upon strict compliance with or performance of the terms of this Agreement, shall constitute a waiver of the provisions of this Agreement with respect to any subsequent breach thereof. 9.6 Severability. Should any provision herein contained prove to be invalid, illegal or unenforceable, the remaining provisions shall remain of full force and effect and the parties shall endeavor in good faith to agree on the details of alternative provisions which are valid, legal and enforceable and which come nearest to the original Articles in legal and economic impact and intent. 9.7 Parties In Interest. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement shall not be assigned by either party hereto without the written consent of the other party hereto which shall not be unreasonably withheld or delayed, provided, however, that either party to this Agreement may assign this Agreement to an affiliate of such party, and affiliates of such party may further assign the Agreement to other affiliates of such party, without the consent (written or verbal) of the other party to this Agreement. Any party or affiliate of such party that assigns this Agreement shall agree in solido to perform and discharge all obligations of the assignee hereunder. Additionally, if a party assigns this Agreement to an affiliate and such affiliate ceases to be an affiliate of the assignor, the person that ceases to be an affiliate of the assignor shall reassign this Agreement to such assignor effective as of the date that such affiliation terminated. It is understood that for purposes of clarification and without expanding or contracting the rights of the parties set forth above, that while no party shall withhold its consent unreasonably, each party may, in giving or withholding its consent, consider any legitimate material business reason under the circumstances at the time of the proposed assignment (including the terms of the assignment), the capitalization of the assignee and the experience of the assignee in the business taking into account, among other things, the relative 23 experience of the assignee's management, employees, agents and advisors. Nothing in this Agreement is intended or shall be construed to confer upon or to give any person other than the parties hereto and their successors and assigns any rights or remedies under or by reason of this Agreement. 9.8 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and such counterparts shall constitute but one agreement. 9.9 Quality Control. Seller will use its best efforts to maintain its quality certification under the ISO 9002 standard during the term of this Agreement. Seller agrees to continue its participation in Buyer's Supplier Excellence Quality Program. 9.10 Approval. Buyer and Century are entering into this Agreement in reliance on the representation of Seller that for purposes of the Chapter 11 Case of Seller filed on February 12, 2002, (i) this Agreement is within the ordinary course of business of Seller, (ii) all necessary corporate approvals and authorizations have been obtained and are valid, (iii) no specific bankruptcy court authorization or approval is required for Seller to enter into this Agreement or perform its obligations under this Agreement and (iv) this Agreement will be binding and effective as a post petition obligation of Seller. 9.11 Confidentiality. Each party agrees that it will not disclose to competitors of the other party the terms and conditions of this Agreement without the prior written consent of such other party. The provisions of this Section 9.11 shall terminate upon the date of the termination of this Agreement. 9.12 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York (without regard to applicable principles of conflict of 24 laws). Any action brought in connection with this Agreement may be brought in, and shall be subject to the jurisdiction of, the federal or state courts located in the City of New York, and the parties hereby irrevocably consent to the jurisdiction of such courts. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date and year first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By /s/ Jack A. Hockema ------------------------------------ Its President and Chief Executive Officer CENTURY ALUMINUM OF KENTUCKY LLC By /s/ Gerald J. Kitchen ------------------------------------ Its Vice President/Manager CENTURY ALUMINUM COMPANY, as guarantor solely for purposes of Sections 3.4 and 3.5 of this Agreement By /s/ Gerald J. Kitchen ------------------------------------ Its Executive Vice President 25 Exhibit A: Gramercy Specifications 26 EX-31.1 9 d56393_ex31-1.txt CERTIFICATION OF CEO Exhibit 31.1 Certification of Disclosure in Century Aluminum Company's Quarterly Report I, Gerald A. Meyers, Chief Executive Officer and President of Century Aluminum Company (the "registrant"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 /s/ GERALD A. MEYERS ---------------------------------- Title: Chief Executive Officer and President EX-31.2 10 d56393_ex31-2.txt CERTIFICATION OF CFO Exhibit 31.2 Certification of Disclosure in Century Aluminum Company's Quarterly Report I, David W. Beckley, Executive Vice President and Chief Financial Officer of Century Aluminum Company (the "registrant"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the registrant; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 /s/ DAVID W. BECKLEY ----------------------------------- Title: Executive Vice President and Chief Financial Officer EX-32.1 11 d56393_ex32-1.txt CERTIFICATION OF CEO AND CFO Exhibit 32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) In connection with the quarterly report on Form 10-Q of Century Aluminum Company (the "Company") for the quarter ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Gerald A. Meyers, as Chief Executive Officer of the Company, and David W. Beckley, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: 1. This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gerald A. Meyers /s/ David W. Beckley ------------------------------ -------------------------------- By: Gerald A. Meyers By: David W. Beckley Title: Chief Executive Officer Title: Chief Financial Officer Date: August 11, 2003 Date: August 11, 2003 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----