July 21, 1998



Mr. Lawrence L. Watts
Kaiser Aluminum & Chemical Corporation
5847 San Felipe, Suite 2600
Houston, Texas 77057

Dear Larry:

As we have discussed, your skills in leading and
implementing constructive change in behaviors, management
processes, and organizational focus and culture, as well as your
intuitive and pragmatic ability to drive change in ways that
reflect understanding of both business strategy and
organizational and human dynamics, have been important to
Company. However, as a result of the progress the Company has
made through your efforts and the progress we expect to make
during the remainder of the year, we have agreed that it should
be possible to formally eliminate your position as of December
31, 1998. Having said that, it will be important to have yours
skills, knowledge and experience available to the leadership of
the Company on an enthusiastic and committed full-time basis
through the end of the year. During that period, as a member of
senior leadership, you will continue to work closely with me and
other senior officers of the Company.

While we jointly believe that it should be possible to
formally eliminate your position, retaining the continued
availability of your skills and experience after your termination
as a full time employee is also important to the Company.
Consequently, the Company wishes to retain your services as a
consultant for a period of twelve months following elimination of
your position and termination of your regular employment with the
Company, and you have agreed to make your services available.
The Company may or may not utilize your services fully throughout
this period, but in recognition of both your willingness to hold
yourself available to the Company through this period and your
agreement not to compete with the Company or its businesses
through June 30, 2000, a retainer as discussed below will be paid
following the termination of your regular employment with the
Company.

In consideration of your willingness to commit to the terms
of this agreement, and in recognition of the resulting
elimination of your position and termination of your employment
with the Company, we agree and acknowledge that:

1. Your position will be phased out over a period that will
continue through December 31, 1998, and unless another
position has been offered which you have agreed to accept at
that time, your employment with the Company and service as
an officer of the Company and its affiliates will terminate
December 31, 1998. At that time you will be granted a full
early retirement consistent with normal practices in such
circumstances.

2. You will be given eighteen months severance to be paid at
the time of termination but no later than December 31, 1998.

3. You will continue to participate in the 1996-1998 and
1997-1999 long term executive incentive programs on a pro
rata basis through the date of your departure, but will not
participate in the 1998 short term executive incentive
program or any long term executive incentive program with a
performance period beginning in or after 1998. In lieu of
your participation in those programs and in consideration of
the commitments you are making in this agreement you will
receive a supplemental non-recurring 1998 annual incentive
payment in an amount to be determined and mutually agreed by
the Company and you. This amount will insofar as possible
to reflect an incentive amount appropriate to the way in
which others in senior management have been treated.

4. The payments and benefits set forth above will be subject to
applicable federal, state and local taxes, and all other
deductions required by law and consistent with the Company's
normal practices in such circumstances.

5. The Company will enter into a consulting arrangement for
your services commencing upon the date of your termination.
Compensation will be paid in the form of a retainer at a
monthly rate equal to your base pay prior to your
termination of employment.

This agreement contains the entire understanding between you
and the Company with respect to your employment with, and
separation from, the Company and supersedes and cancels all prior
or contemporaneous communications, agreements and understandings
between you and the Company, whether written or oral. Any
modifications or amendments to this agreement will be effective
only if they are in writing and signed by the Company and you.

Please acknowledge your acceptance of this agreement and its
terms in the space provided below. Upon execution, this
agreement shall be effective as of May 31, 1998.


Very truly yours,

/s/ George T. Haymaker, Jr.

George T. Haymaker, Jr.
Chairman and Chief Executive
Officer

Agreed and accepted:

/s/ Lawrence L. Watts

Lawrence L. Watts
July 21, 1998