-----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, PJve/M3Bg4FCKIbyHkv+wQJ2AdO0oyjZcpZJsJ3PP9TUeSSUehT4eIhqxWX7g1Kd oPHjfp6bPounD3Tig7VY5A== 0000893877-99-000103.txt : 19990215 0000893877-99-000103.hdr.sgml : 19990215 ACCESSION NUMBER: 0000893877-99-000103 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN NORTHWEST ALUMINUM INC CENTRAL INDEX KEY: 0001079177 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 931249606 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72245 FILM NUMBER: 99534181 BUSINESS ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLAS STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST ALUMINUM SPECIALTIES INC CENTRAL INDEX KEY: 0001079176 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 931019176 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72245-01 FILM NUMBER: 99534182 BUSINESS ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLAS STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST ALUMINUM CO CENTRAL INDEX KEY: 0001079178 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 930905834 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72245-02 FILM NUMBER: 99534183 BUSINESS ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLAS STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 WEST SECOND STREET CITY: DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST ALUMINUM TECHNOLOGIES LLC CENTRAL INDEX KEY: 0001079191 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72245-03 FILM NUMBER: 99534184 BUSINESS ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDENDALE HOLDING CO CENTRAL INDEX KEY: 0001079192 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72245-04 FILM NUMBER: 99534185 BUSINESS ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDENDALE ALUMINUM CO CENTRAL INDEX KEY: 0001079194 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-72245-05 FILM NUMBER: 99534186 BUSINESS ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 BUSINESS PHONE: 5412966161 MAIL ADDRESS: STREET 1: 3313 W SECOND ST CITY: THE DALLES STATE: OR ZIP: 97058 S-4 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on February 12, 1999 Registration No. 333-____ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- REGISTRATION STATEMENT Under The Securities Act of 1933 ------------------- Form S-4 GOLDEN NORTHWEST ALUMINUM, INC. (Exact name of registrant as specified in its charter) Oregon 3334 93-1249606 (State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 3313 West Second Street The Dalles, Oregon 97058 (541) 296-6161 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- Form S-4 NORTHWEST ALUMINUM COMPANY (Exact name of registrant as specified in its charter) Oregon 3334 93-0905834 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 3313 West Second Street The Dalles, Oregon 97058 (541) 296-6161 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- Form S-4 NORTHWEST ALUMINUM SPECIALTIES, INC. (Exact name of registrant as specified in its charter) Oregon 3334 93-1019176 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 3313 West Second Street The Dalles, Oregon 97058 (541) 296-6161 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- Form S-4 NORTHWEST ALUMINUM TECHNOLOGIES, LLC (Exact name of registrant as specified in its charter) Washington 3334 93-1196863 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 3313 West Second Street The Dalles, Oregon 97058 (541) 296-6161 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- Form S-4 GOLDENDALE HOLDING COMPANY (Exact name of registrant as specified in its charter) ------------------- Delaware 3334 91-1785763 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 3313 West Second Street The Dalles, Oregon 97058 (541) 296-6161 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- Form S-4 GOLDENDALE ALUMINUM COMPANY (Exact name of registrant as specified in its charter) Delaware 3334 91-1380241 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 3313 West Second Street The Dalles, Oregon 97058 (541) 296-6161 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------- BRETT E. WILCOX President Golden Northwest Aluminum, Inc. Northwest Aluminum Company Northwest Aluminum Specialties, Inc. Northwest Aluminum Technologies, LLC Goldendale Holding Company Goldendale Aluminum Company 3313 West Second Street The Dalles, Oregon 97058 (541) 296-6161 (Name, address, including zip code, and telephone number, including area code, of agent for service) It is respectfully requested that the Commission send copies of all notices, orders and communications to: ROBERT J. MOORMAN Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 (503) 224-3380 ------------------- Approximate date of commencement of proposed sale to the public: As promptly as practicable after this registration statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.o
CALCULATION OF REGISTRATION FEE ============================================================================================================================== Proposed Proposed maximum maximum Title of each class of Amount to be offering price aggregate Amount of securities to be registered registered(1) per unit(1) offering price(1) registration fee - ------------------------------------------------------------------------------------------------------------------------------ 12% First Mortgage Notes due 2006 $150,000,000 100% $150,000,000 $41,700 - ------------------------------------------------------------------------------------------------------------------------------ Guarantees of First Mortgage Notes due 2006 -- -- -- (2) ============================================================================================================================== (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the "Securities Act"). (2) No additional consideration will be paid in respect of these Guarantees.
------------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such a date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999 - -------------------------------------------------------------------------------- The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. - -------------------------------------------------------------------------------- PROSPECTUS GOLDEN NORTHWEST ALUMINUM, INC. Exchange Offer for $150,000,000 12% First Mortgage Notes due 2006 Guaranteed by Northwest Aluminum Company Goldendale Holding Company Northwest Aluminum Specialties, Inc. Goldendale Aluminum Company Northwest Aluminum Technologies, LLC Key Terms of Exchange Offer
o Expires 5:00 p.m., New York City o Tenders of outstanding notes may be time, ______________, 1999, unless withdrawn any time before the extended expiration of the Exchange Offer o Not subject to any conditions other o The exchange of notes will not be a than the Exchange Offer does not taxable exchange for United States violate law or any interpretation of federal income tax purposes the staff of the Securities and Exchange Commission o The terms of the notes to be issued are identical to the outstanding o All outstanding notes that are validly notes, except for certain transfer tendered and not validly withdrawn restrictions and registration rights will be exchanged with respect to the outstanding notes
This investment involves risks. See the Risk Factors section beginning on page 19. Neither the Securities and Exchange Commission nor any state securities commission has approved the notes to be distributed in the Exchange Offer, nor have any of these organizations determined that this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. _________________, 1999 TABLE OF CONTENTS Prospectus Summary..........................................................3 Risk Factors...............................................................19 Selected Combined Financial Data...........................................32 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................34 Business...................................................................47 Management.................................................................62 Executive Compensation.....................................................65 Certain Transactions.......................................................67 The Exchange Offer.........................................................69 Description of Notes.......................................................78 Description of Certain Other Indebtedness and Goldendale Preferred Stock..130 Description of Capital Stock..............................................133 Certain United States Federal Income Tax Consequences.....................134 Plan of Distribution......................................................135 Legal Matters.............................................................135 Experts...................................................................135 Change of Accountants.....................................................136 Additional Information....................................................136 Index to Financial Statements.............................................F-1 2 PROSPECTUS SUMMARY On the cover page, in this summary and in the "Risk Factors" section starting on page 19, the words "Company," "we," "our," "ours" and "us" refer only to Golden Northwest Aluminum, Inc. and not to any of our subsidiaries. The following summary contains basic information about this Exchange Offer. It may not contain all the information that is important to you. For a more complete understanding of the Exchange Offer, we encourage you to read this entire document. The Exchange Offer On December 21, 1998, we completed a private offering of 12% First Mortgage Notes due 2006. The notes were sold for an aggregate purchase price of $150,000,000. The notes are o secured by a first priority security interest in substantially all of our and our subsidiaries' real property, plant, equipment and other assets and a pledge of all of the capital stock of our subsidiaries, and o guaranteed by our subsidiaries Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., Northwest Aluminum Technologies, LLC, Goldendale Holding Company and Goldendale Aluminum Company. We entered into a Registration Rights Agreement with the initial purchasers in the private offering in which we agreed to deliver to you this Prospectus and to complete the Exchange Offer by May 20, 1999. This Exchange Offer entitles you to exchange your notes for notes with identical terms that are registered with the Securities and Exchange Commission. If the Exchange Offer is not completed by May 20, 1999, the interest rate on the notes will be increased to 12.25% per year. You should read the discussion under the heading "The Exchange Offer" beginning on page 69 and "Description of Notes" beginning on page 78 for further information about the registered notes. We believe the notes issued in the Exchange Offer may be resold by you without compliance with the registration and prospectus delivery requirements of the Securities Act of 1933, subject to certain conditions. You should read the discussion under the headings "-- The Exchange Offer" beginning on page 9 and "The Exchange Offer" beginning on page 69 for further information regarding the Exchange Offer and resale of notes. 3 The Company Overview Who We Are We produce primary aluminum and selected specially engineered, value-added aluminum products. Our revenue is generated through fees from tolling alumina into aluminum and sales of value-added aluminum products. At our two facilities east of Portland, Oregon, we operate two primary aluminum smelters with combined production capacity of 250,000 metric tons. We are one of the five largest primary aluminum producers in the United States. We operate our business through our subsidiaries. The following chart shows the organization of Golden Northwest Aluminum, Inc. and its subsidiaries and the percentage of each subsidiary owned by its direct parent. The subsidiaries are parties to a credit agreement with BankBoston, N.A. that provides for a $75 million senior secured revolving credit facility. There is no amount outstanding under that facility. You should read the discussion under the heading "Risk Factors -- Effective Subordination" for more information regarding your right to repayment. [graphic organizational chart omitted] Controlling Shareholder Brett E. Wilcox, Chairman of the Board and President of our company, beneficially owns 100% of our outstanding capital stock. What We Do We produce primary aluminum under tolling agreements with Hydro Aluminum Louisville, Inc. and Glencore, Ltd., two large international industrial and trading companies. In conjunction with our smelter operations, we operate three casthouses that produce a range 4 of value-added aluminum products, including our proprietary line of direct-cast, small diameter, alloy billet products. We sell value-added billet and related products directly for extrusion or for further processing into final products such as automobile air-bag canisters, fire extinguishers, golf club heads, bicycle frames and a variety of automotive and aircraft parts. Competitive Strengths We Believe We Are a Cost Competitive Aluminum Producer We are able to produce primary aluminum and value-added aluminum products at relatively low cost because of our: o low cost hydroelectric power o technical innovations o competitive wage rates o low overhead and o tolling agreements with industry leaders that ensure full smelter utilization. Our company and the previous owners of the smelters, including Martin Marietta Corporation, have periodically upgraded the smelters. These upgrades have resulted in improvements in efficiency as measured by power usage, carbon consumption and cell life. We have begun a $75 million facilities investment program, which we believe will further improve the efficiency of our smelter and casthouse operations. Our Value-Added Products Provide Diversification We are a leading supplier of value-added products such as extrusion billet, sheet ingot, small diameter billet and special alloy billet. We market these products directly to manufacturers for use in: o automobile air-bag canisters o fire extinguishers o golf club heads o bicycle frames and o a variety of automotive and aircraft parts. We are able to charge a premium for these products, which comprise a significant portion of our total production. Shipments of non-tolled, value-added products have increased from 153.7 million pounds, or 46.5% of net shipments, in 1993 to 263.9 million pounds, or 58.6% of net shipments, in 1997. 5 Our Long-Standing Strategic Relationship with Alumina Suppliers Provides Stability We maintain a long-standing relationship with Norsk Hydro a.s., the largest industrial concern in Norway and a leading aluminum producer in Europe. This relationship has provided us with a reliable source of alumina, the main input in the production of primary aluminum. In turn, we are Hydro's main source of primary aluminum products in the U.S. All of the primary and value-added aluminum we produce at our facility in Goldendale, Washington is contracted under a tolling agreement with Hydro. Under the tolling agreement, Hydro provides us with alumina, which we then smelt into primary aluminum and further transform into value-added products. Hydro retains ownership of the alumina and the resulting aluminum products throughout the production process and we receive a fee for the work we perform. In addition, Hydro is providing proprietary technology to assist us with the facilities investment program, which we expect will increase the smelter and casthouse capacity and improve efficiency and environmental performance at our Goldendale facility. Finally, Hydro has loaned $20.0 million to Goldendale Aluminum Company, and may provide up to an additional $10.0 million to help finance the facilities investment program. Hydro's right to repayment is subordinate to your right of repayment on the notes. We have also maintained a relationship with Glencore Ltd., a major international metals and commodity trader. All of the primary aluminum capacity at our facility in The Dalles, Oregon is contracted under a tolling agreement with Glencore which expires in December 1999. This agreement has permitted us to operate our smelter at The Dalles at full capacity while developing our non-tolled, value-added business. However, our current consumption of primary aluminum for non-tolled value-added products exceeds the volume of primary aluminum tolled for Glencore. Consequently, we do not plan to renew the Glencore tolling agreement when it expires, and expect to realize cost savings as a result. Our relationship with Glencore remains strong, however, and we have signed a letter of intent for Glencore to supply the smelter at The Dalles with all of its alumina requirements from October 1, 1999 to December 31, 2004. Our Company's Strong Management Team and Employee Partnership Our senior executive officers average over 20 years of experience in the aluminum industry. We believe we have established a good relationship with the United Steelworkers of America, the union that represents our employees, and created an effective employee involvement program. We pay competitive base wage rates and allow employees to earn additional compensation through participation in our profit sharing plans, which are designed to encourage increased productivity, efficiency and cost control in all aspects of our business. 6 Business Strategy Our goal is to increase profitability by focusing on five key strategies: (1) lowering the cost of production, (2) maximizing earnings from value-added products, (3) making strategic capital investments, (4) maintaining financial flexibility and (5) emphasizing innovation and technological improvements. Lowering the Cost of Production We consistently seek improvements in process efficiencies that enable us to lower production costs. Our largest production costs are electric power, raw materials and labor. In 1996 we entered into power sales and long-term transmission agreements with the U.S. Bonneville Power Administration that substantially reduced our electric power costs and provided access to the competitive bulk electric power markets. We expect this access to result in a further decline in the price we pay for power after our current BPA power sales contracts expire in 2001. In addition, we believe our facilities investment program will reduce our per pound cost of aluminum produced. Maximizing Earnings from Value-Added Products We seek to maximize earnings by increasing the volume and average margins on our value-added products. We expect our facilities investment program to increase value-added casthouse capacity at our Goldendale facility over a period of approximately 18 months from approximately 160 million pounds per year to approximately 264 million pounds per year. A new machining process recently implemented by Northwest Aluminum Specialties permits us to produce higher margin aluminum billet in any diameter from two to five inches. We have also developed a patented process for producing and transforming aluminum billet for semi-solid metal working. We also plan to enhance earnings on value-added products by allowing our tolling agreement with Glencore to expire. We are purchasing more primary aluminum than we toll for Glencore because of the increase in our sales of value-added products. By not renewing the agreement, we believe we can lower our costs by using primary aluminum we produce at our smelter in The Dalles in the production of value-added products. Making Strategic Capital Investments Our company and the prior owners of our smelters and casthouses periodically have invested in major technological improvements. From 1978 through 1981, Martin Marietta Corporation implemented new anode and cathode technology at the two smelters, modernized the electrical and environmental control systems, and added a third cell line at the smelter in Goldendale, Washington. In 1991 and 1997 Northwest Aluminum Specialties added new value-added production capabilities to enable it to enter new value-added markets. 7 We are now undertaking a facilities investment program. The program is being partially financed by Hydro, which has provided $20.0 million and is committed to provide up to an additional $10.0 million for the expansion of the casthouse and the upgrade of the smelter cell lines at our facility in Goldendale. With Hydro's technological assistance, we plan to make cell improvements, which include among other things o installing point-feeders to control alumina additions o installing magnetic compensation to stabilize cell operations o redesigning cathodes to optimize heat balance and o improving computer controls and other related technologies. We believe these technologies, which Hydro has already successfully implemented at a similar smelter in Norway, will increase the Goldendale smelter's capacity. We estimate that full implementation of the facilities investment program will be completed in approximately five years. We can control and vary the rate of the program because each cell can be individually and sequentially upgraded with minimal disruption to ongoing operations. Moreover, we expect to realize incremental benefits as individual cells are upgraded. Maintaining Financial Flexibility We have a $75.0 million revolving credit facility with a group of banks. Only $49.0 million of that amount was available on December 31, 1998 because of borrowing base limitations. We also can borrow up to $10.0 million from Hydro if we meet certain conditions. We believe the funds we received by selling the notes and our other sources of financing provide us with the financial flexibility o to implement the facilities investment program o for additional working capital needs and o for other corporate purposes, including the possible redemption of outstanding preferred stock of Goldendale Holding Company. Emphasizing Innovation and Technological Improvements We emphasize innovation and encourage employees to create and develop new technologies, processes and products. We have been issued patents for a new alloy and a new technology to smelt aluminum using inert metallic anodes and titanium dioxide cathodes. We also are implementing a patented process for casting and transforming aluminum for semi-solid metal working. Finally, we have applied for a patent for a process to recycle spent pot liner into marketable products. 8 Where You Can Reach Us Our mailing address is 3313 West Second Street, The Dalles, Oregon 97058. Our telephone number is (541) 296-6161. The New Credit Facility In addition to offering the notes, our subsidiaries repaid and terminated their prior credit facility with BankBoston, N.A. and entered into a new credit agreement with BankBoston and others. Under the new agreement, our subsidiaries may borrow up to $75 million on a revolving basis. The obligations under the new credit agreement are secured by inventory, accounts receivable and other rights to payment and related intangibles of the subsidiaries. For more information about this revolving credit facility, see"Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources" on page 40 and "Description of Certain Other Indebtedness and Goldendale Preferred Stock" on page 130. The Exchange Offer Registration Rights Agreement.... You are entitled to exchange your notes for registered notes with substantially identical terms. The Exchange Offer is intended to satisfy these rights. After the Exchange Offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your notes. The Exchange Offer............... We are offering to exchange $1,000 principal amount of 12% First Mortgage Notes due 2006 of Golden Northwest Aluminum, Inc. that have been registered under the Securities Act of 1933 for each $1,000 principal amount of its outstanding 12% First Mortgage Notes due 2006 which were issued in December 1998 in a private offering. In order to be exchanged, an outstanding note must be properly tendered and accepted. All outstanding notes that are validly tendered and not validly withdrawn will be exchanged for registered notes. There are $150 million principal amount of notes outstanding. 9 We will issue registered notes promptly after the expiration of the Exchange Offer. Resales.......................... We believe the notes issued in the Exchange Offer may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933 provided that o the notes received in the Exchange Offer are acquired in the ordinary course of your business o you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the notes issued to you in the Exchange Offer, and o you are not an "affiliate" of ours. Each broker-dealer issued notes in the Exchange Offer for its own account in exchange for notes acquired by the broker-dealer as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act of 1933 in connection with any resale of the notes issued in the Exchange Offer. A broker-dealer may use this Prospectus for an offer to resell, resale or other retransfer of the notes issued to it in the Exchange Offer. Expiration Date.................. The Exchange Offer will expire at 5:00 p.m., New York City time, ___________, 1999, unless we decide to extend the expiration date. Conditions to the Exchange Offer................... The Exchange Offer is not subject to any condition other than the Exchange Offer does not violate law or any interpretation of the staff of the Securities and Exchange Commission. 10 Procedures for Tendering Outstanding Notes Held in the Form of Book-Entry Interests.......... The outstanding notes were issued as global securities in bearer form without interest coupons. The outstanding notes were deposited with U.S. Trust Company, National Association, as book-entry depositary, when they were issued. U.S. Trust Company issued a certificateless depositary interest in each note, which represents a 100% interest in the note, to The Depository Trust Company ("DTC"). Beneficial interests in the notes, which are held by direct or indirect participants in DTC through the certificateless depositary interests (the "Book-Entry Interests"), are shown on, and transfers of the notes can be made only through, records maintained in book- entry form by DTC (with respect to its participants) and its participants. If you are a holder of a note held in the form of a Book-Entry Interest and you wish to tender your Book- Entry Interest for exchange pursuant to the Exchange Offer, you must transmit to U.S. Trust Company, as exchange agent, before the Expiration Date: Either o a properly completed and duly executed Letter of Transmittal, which accompanies this Prospectus, or a facsimile of the Letter of Transmittal, including all other documents required by the Letter of Transmittal, to the Exchange Agent at the address set forth on the cover page of the Letter of Transmittal; 11 Or o a computer-generated message transmitted by means of DTC's Automated Tender Offer Program system and received by the Exchange Agent and forming a part of a confirmation of book entry transfer in which you acknowledge and agree to be bound by the terms of the Letter of Transmittal; And, Either o a timely confirmation of book-entry transfer of your outstanding notes into the Exchange Agent's account at DTC, pursuant to the procedure for book-entry transfers described in this Prospectus under the heading "The Exchange Offer-- Book-Entry Transfer" beginning on page 74, must be received by the Exchange Agent on or prior to the Expiration Date; Or o the documents necessary for compliance with the guaranteed delivery procedures described below. Procedures for Tendering Certificated Notes...... If you are a holder of a beneficial interest in the outstanding notes, you are entitled to receive, in exchange for your beneficial interest, certificated notes which are in equal principal amounts to your beneficial interest. As of this date, however, no certificated notes were issued and outstanding. If you acquire certificated notes before the Expiration Date, you must tender your registered notes in accordance with the procedures described in this Prospectus under the heading "The Exchange Offer--Procedures for Tendering Notes" beginning on page 71. 12 Special Procedures for Beneficial Owners........ If you are the owner of a beneficial interest and your name does not appear on a security position listing of DTC as the holder of that interest or if you are a beneficial owner of certificated notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender that interest or certificated notes in the Exchange Offer, you should contact the person in whose name your interest or certificated notes are registered promptly and instruct such person to tender on your behalf. Guaranteed Delivery Procedures.............. If you wish to tender your notes and time will not permit your required documents to reach the Exchange Agent by the Expiration Date, or the procedure for book-entry transfer cannot be completed on time or certificates for registered notes cannot be delivered on time, you may tender your notes pursuant to the procedures described in this Prospectus under the heading "The Exchange Offer--Guaranteed Delivery Procedures" beginning on page 74. Withdrawal Rights................ You may withdraw the tender of your notes at any time before 5:00 p.m. New York City time on ___________, 1999. Certain U.S. Federal Income Tax Consequences........ The exchange of notes will not be a taxable exchange for U.S. federal income tax purposes. You will not recognize any taxable gain or loss or any interest income as a result of the exchange. Exchange Agent................... U.S. Trust Company, National Association is serving as exchange agent in connection with the Exchange Offer. 13 Summary of the Terms of the Exchange Notes The form and terms of the notes to be issued in the Exchange Offer are the same as the form and terms of outstanding notes except that the notes to be issued in the Exchange Offer will be registered under the Securities Act of 1933 and, therefore, will not bear legends restricting their transfer. The notes issued in the Exchange Offer will evidence the same debt as the outstanding notes, and both the outstanding notes and the notes to be issued are governed by the same indenture. Aggregate Amount................. $150,000,000 aggregate principal amount of 12% First Mortgage Notes due 2006 of Golden Northwest Aluminum, Inc. Maturity......................... December 15, 2006. Interest......................... Annual rate - 12% Payment frequency - every six months on June 15 and December 15 First payment - June 15, 1999. Optional Redemption.............. On or after December 15, 2002 we may redeem some or all of the notes at any time at the redemption prices listed in the section "Description of Notes" under the heading "Optional Redemption." Assets Pledged to Secure Notes... To secure these notes, we (1) granted a first priority security interest in substantially all of our subsidiaries' real property, plant and equipment and some other assets, excluding, among other things, the tolling agreements with Hydro and Glencore and our subsidiaries' inventory, accounts receivable and other rights to payment and related intangibles and (2) pledged all of the stock we own in our direct and indirect subsidiaries. 14 We granted the same security to Hydro under our note purchase agreement with Hydro. The interest in assets and stock securing the notes is senior to the interest in assets and stock securing the Hydro notes. See "Description of Notes -- Security" beginning on page 81. Subsidiary Guarantors............ Each of our direct or indirect wholly owned subsidiaries is a guarantor of the notes. If we cannot make payments on the notes when they are due, the guarantor subsidiaries must make them. Ranking.......................... These notes and the subsidiary guarantees are referred to as senior debts because they are not expressly subordinated to any of our other indebtedness. They rank ahead of all our current and future indebtedness and the current and future indebtedness of our subsidiaries if the indebtedness is expressly subordinated to the notes. These notes and the subsidiary guarantees: o rank equally with other senior debt o rank ahead of all of the subordinated debt with Hydro and o rank below indebtedness to the extent of any collateral securing it. Mandatory Sinking Fund or Redemption.................... Generally, we are not required to redeem the notes or make sinking fund payments on them. Change of Control................ If our ownership structure materially changes, we must offer to buy any or all the notes you wish to sell. We must pay you 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest, on the date we buy the notes. 15 Basic Covenants of the Indenture. We will issue the exchange notes under our indenture with U.S. Trust Company, National Association. Among other things, the indenture restricts our ability and the ability of our subsidiaries to: o make some payments and investments o incur additional indebtedness o create liens o agree to payment restrictions affecting subsidiaries o engage in mergers, consolidations and asset sales o conduct our business o engage in transactions with our affiliates and some subsidiaries and o make issuances and sales of capital stock of our wholly owned subsidiaries. For more information, see "Description of Notes -- Material Covenants" beginning on page 85. Risk Factors You should carefully consider the information under the caption "Risk Factors" beginning on page 19 and all other information in this document before tendering your notes in the Exchange Offer. 16 Summary Combined Historical Financial Information The summary combined historical financial information set forth below was derived from the Combined Financial Statements beginning on page F-1. This summary should be read together with these sections and "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 34. Our summary combined historical financial information includes the accounts of Northwest Aluminum Company, Northwest Aluminum Specialties, Inc. and Northwest Aluminum Technologies, LLC, all of which report on a September 30 fiscal year, for all periods presented. They also include the accounts of Goldendale Aluminum Company, which reports on a calendar year, from May 22, 1996, the date it was acquired by our sole shareholder. Information for 1995 includes only the accounts of Northwest and Specialties, which then reported their operations on a 52 or 53 week period ending on the Sunday closest to August 31. The summary combined historical financial data as of September 30, 1998 and for the nine months ended September 30, 1997 and 1998 are derived from our unaudited combined financial statements and include all normal recurring adjustments that our management considers necessary to present fairly this data. The results for the nine months ended September 30, 1998 do not necessarily indicate the results that may be expected for the year ending December 31, 1998.
Fiscal Year Ended Nine Months ----------------- Ended September 30, September 3, December 31, December 31, --------------------- 1995 1996 1997 1997 1998 ------------ ------------ ------------ ---- ---- (Dollars in thousands, except operating data) Combined Statement of Operations Data: Revenues............................... $ 289,693 $373,038 $497,872 $363,282 $360,035 Cost of revenues..................... 256,211 329,739 438,299 314,575 329,897 General and administrative expenses.. 8,293 9,746 15,327 10,574 12,087 Depreciation and amortization........ 7,711 13,584 19,069 13,881 14,553 Operating income..................... 25,189 33,553 44,246 38,133 18,051 Net income........................... 23,696 18,905 18,495 17,654 3,655
September 30, 1998 -------------------------- Actual As Adjusted(1) -------- -------------- Combined Balance Sheet Data: Cash and cash equivalents........................................................ $ 1,122 $ 31,950 Working capital.................................................................. 41,108 87,280 Total assets..................................................................... 332,895 367,840 Total debt....................................................................... 131,775 170,000 Minority interest(2)............................................................. -- 29,663 Total shareholders' equity....................................................... 116,728 85,379 (1) Adjusted to reflect the effect of the issuance of the notes, the refinancing of bank debt and the issuance of debt to Hydro. See "Description of Certain Other Indebtedness and Goldendale Preferred Stock" included elsewhere in this document. 17 (2) As a result of the consolidation in which we became a holding company for our operating subsidiaries, generally accepted accounting principles required the outstanding Goldendale preferred stock to be reclassified and reported as minority interest.
18 RISK FACTORS This Prospectus includes "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 including, in particular, the statements about the Company's plans, strategies and prospects under the headings "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we give no assurance these plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Prospectus are set forth below and elsewhere in this Prospectus. All forward-looking statements attributable to the Company or persons acting on our behalf are expressly qualified in their entirety by the following cautionary statements. Substantial Leverage -- Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under the notes. We have a significant amount of debt. The following tables show certain important credit statistics: September 30, 1998 Total indebtedness .................................. $216,200,000 Shareholders' equity ................................ $116,700,000 Debt to equity ratio................................. 1.85x Year Ended Nine Months December 31, 1997 Ended September 30, 1998 ----------------- ------------------------ Ratio of earnings to fixed charges................... 2.1x 1.1x Our substantial indebtedness could have important consequences to you. For example, it could or will o make it more difficult for us to satisfy our obligations with respect to these notes o increase our vulnerability to general adverse economic and industry conditions o limit our ability to fund future working capital, capital expenditures, research and development and other general corporate requirements 19 o require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing our cash flow available to fund working capital, capital expenditures, research and development efforts and other general corporate purposes o limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate o place us at a competitive disadvantage compared to our competitors that have less debt o with the financial and other restrictive covenants in our indebtedness, among other things, limit our ability to borrow additional funds. Failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on us. See "Description of Certain Other Indebtedness and Goldendale Preferred Stock -- Revolving Credit Facility," "Description of Other Indebtedness and Goldendale Preferred Stock -- Hydro Subordinated Debt" and "Description of Notes - -- Offer to Purchase the Notes." Additional Borrowings Available -- Despite current indebtedness levels, we and our subsidiaries may still be able to borrow more money. This could further exacerbate the risks described above. We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture do not prohibit us or our subsidiaries from doing so. Our credit facility permits total borrowings up to $75 million, and those borrowings would rank equally with the notes and the subsidiary guarantees. Our subordinated note purchase agreement with Hydro also allows us to borrow up to an additional $10 million in some circumstances. This debt would be subordinate to the notes and the subsidiary guarantees. The Indenture also permits us and our subsidiaries to incur other debt. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now face could intensify. See "Selected Combined Financial Data," "Description of Certain Other Indebtedness and Goldendale Preferred Stock -- Revolving Credit Facility," "Description of Other Indebtedness and Goldendale Preferred Stock -- Hydro Subordinated Debt" and "Description of Notes -- Offer to Purchase the Notes." 20 Ability to Service Debt -- To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. Our ability to make payments on or to refinance our indebtedness, including these notes, and to fund planned capital expenditures and research and development efforts, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations and anticipated cost savings and operating improvements, we believe our cash flow from operations, available cash and available borrowings under our credit facility will be adequate to meet our future liquidity needs for at least the next few years. We do not assure you, however, that our business will generate sufficient cash flow from operations, that anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us under our credit facility in an amount sufficient to enable us to pay our indebtedness, including these notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including these notes on or before maturity. We do not assure you we will be able to refinance any of our indebtedness, including our credit facility and these notes, on commercially reasonable terms or at all. Sensitivity to Prices -- Our revenues and earnings are heavily affected by the price of primary aluminum. Low prices for primary aluminum could adversely affect our revenues and earnings. One of our primary sources of revenue, tolling fees on primary aluminum products is tied to the price of aluminum on the London Metals Exchange. Decreases in the LME price have a substantial adverse effect on our revenues and earnings because we are unable to expand our volume of production and the costs of our smelter operations are largely fixed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Operations." Primary aluminum prices historically have been subject to significant cyclical price fluctuations. We believe the timing of changes in the market price of aluminum largely are unpredictable. Price fluctuations are affected by numerous factors beyond our control, including o the overall demand for, and worldwide supply of, primary aluminum o the availability and price of competing commodities o international economic trends o currency exchange rate fluctuations o expectations of inflation o actions of commodity market participants 21 o consumption and demand patterns and o political events in major producing countries. Over the ten year period between January 1, 1988 and December 31, 1997, the three-month LME price of aluminum has ranged between a low of approximately $0.47 per pound to a high of approximately $1.26 per pound. During this period prices averaged $0.73 per pound. From January 1, 1998 through November 30, 1998, the three-month LME price of aluminum averaged $0.63 per pound. At December 31, 1998, the LME price for primary aluminum was $0.56 per pound. As a result of the decline in the price for primary aluminum, our 1998 revenue and net income have been lower than they were in 1997 and we do not assure you they will return to historic levels. In addition, because fluctuations in the price for aluminum are largely unpredictable, we do not assure you future fluctuations or declines will not be severe or prolonged. Holding Company Structure -- We are a holding company. As a result, we are dependent on our operating subsidiaries for the cash flow needed to repay the notes. Our company does not conduct any of its own operations, but rather serves as a holding company for our operating subsidiaries. As a result, we are dependent on distributions of the earnings of our subsidiaries through dividends, advances or payments on account of intercompany obligations to pay our debts, including the notes. Moreover, in the future, some new or existing subsidiaries may not be required to repay the notes or make funds available to us so that we may do so. In addition, a subsidiary's ability to make distributions to us is subject to state laws and contractual or other restrictions. Distributions also depend on results of operations of the subsidiaries and are subject to various business considerations. See "Description of Certain Other Indebtedness and Goldendale Preferred Stock." We have been a holding company only since December 1998. Our subsidiaries, although under common ownership since May 1996, generally have operated as independent businesses with separate boards of directors, executive management, operations, financing, financial reporting and employees. Our subsidiaries may continue to operate relatively autonomously for a period of time as we evaluate and develop appropriate practices and procedures for our consolidated company. As a result, we can provide you with only limited operating information about our company as a combined organization. We may experience difficulties in the implementation of a holding company structure and commencement of operations on a consolidated basis, including o staffing and allocation of management resources o integration of operating and financial functions, systems and reporting and o establishment of consolidated practices and procedures. 22 Effective Subordination -- Our obligation to repay you is subordinate to other lenders' rights to any collateral securing the lenders' loans to us. Proceeds from the sale of the collateral will be used to pay those lenders before they are used to repay you. Although the notes are equal or senior in rank to all of our indebtedness, a lender's right to any collateral securing its loan ranks ahead of our obligation to repay you on the notes. The subsidiaries' guarantees are also effectively subordinated to a lender's right to collateral. Our credit agreement with BankBoston is secured by our subsidiaries' accounts receivable, inventory and some related intangibles. As a result, BankBoston will be entitled to any proceeds of these assets up to the amount of money owed to it before any of those proceeds can be used to repay you. At December 31, 1998, the notes were not effectively subordinate to any secured indebtedness. The indenture permits us and our subsidiaries to place liens on some of our assets. These liens may, for example, secure purchase money indebtedness. The notes and the guarantees will be effectively subordinated to this purchase money indebtedness and other obligations secured by these liens. See "Description of Notes -- Ranking of Notes and Guarantees." Restrictions Imposed by the Terms of Our Indebtedness -- The terms of our indebtedness place several restrictions on our ability to operate our business that could result in our inability to repay the notes. The indenture contains restrictions on how we operate our business. These restrictions limit, among other things, our ability and the ability of our subsidiaries to o incur additional indebtedness o pay dividends o make certain other restricted payments o create or incur liens o issue or sell stock of some of our subsidiaries o apply net proceeds from certain asset sales o merge or consolidate with another person o sell, assign, transfer, lease, convey or otherwise dispose of substantially all of our assets or o enter into transactions with affiliates. Our other loan agreements, including our credit agreement with BankBoston, now contain and will contain in the future similar restrictive covenants and will require us to satisfy certain financial condition tests. Our ability to meet these financial tests could be affected by events beyond our control, and we do not assure you we will meet those tests. If we fail to comply with a restrictive covenant or a financial test, that failure could result in an event of default. On the occurrence of an event of default, the lenders could declare all amounts outstanding to be immediately due and payable. They also could proceed against the collateral granted to them to secure that indebtedness. An event of default under 23 other indebtedness may constitute an event of default under the indenture. If any of our other indebtedness were accelerated, we do not assure you our assets would be sufficient to repay all of our indebtedness, including the notes. Restrictive covenants and financial tests limit our operating and financial flexibility. As a result, our ability to respond to changing business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be considered beneficial to us. See "Description of Notes - -- Material Covenants." Other Secured Creditors -- The collateral securing our indebtedness to BankBoston will not be available to you until that indebtedness has been repaid. The indenture permits us to borrow up to $90.0 million from BankBoston. These borrowings are secured by our and our subsidiaries' accounts receivable, inventory and related intangibles. Accordingly, these items will not be available to you if we become the subject of bankruptcy, liquidation or similar circumstance until the money we owe to BankBoston is paid in full. We could owe BankBoston up to $75.0 million plus interest and expenses. Our accounts receivable represented $48.1 million, and our inventory represented $62.3 million, each on September 30, 1998, and are among our most liquid assets. Limitations on the Collateral and the Guarantees -- The value of the collateral securing the debt under the notes is limited and may be insufficient to repay the notes if we are in bankruptcy. The pledge of the stock of our subsidiaries and the pledge of the real property, plant and equipment of our subsidiaries provide only limited security for the notes. Our subsidiaries' inventory, accounts receivable and related intangibles, including tolling agreements, are pledged to secure our obligations under our credit agreement with BankBoston. Any contracts, agreements, licenses and other instruments related to the real property collateral that by their express terms prohibit their assignment or the granting of a security interest in them are excluded from the collateral securing the notes. The collateral securing the notes was not appraised when the notes were offered. Accounting for depreciation, the combined book value on September 30, 1998 of our property, plant and equipment serving as collateral for the notes was approximately $117.5 million. Depending on market and economic conditions and the availability of buyers, the sale value of the collateral may be substantially different from its book value. Its value could also be affected if agreements and licenses necessary to operate our property, plant and equipment are not in place after bankruptcy. Some of these agreements and licenses are not pledged to secure the notes or guarantees of the subsidiaries and may be not included in the collateral for the notes. Accordingly, if we default on the notes, we do not assure you the indenture trustee would receive enough money from the sale of the collateral to repay you. Once the collateral has been sold, your claims against our remaining assets to repay any 24 amounts still outstanding under the notes would be unsecured and would be subject to state fraudulent conveyance laws. See "-- Fraudulent Conveyance Matters," "-- Holding Company Structure" and "-- Effective Subordination." At least some of the collateral is illiquid and its market value may not be easy to ascertain. The collateral may not be saleable. Even if it is saleable, substantial delays could be encountered in its liquidation. Moreover, some of the collateral may be encumbered by liens, rights and easements granted to other parties, and these parties could exercise rights and remedies with respect to those assets. These actions could adversely affect the value of the collateral and the ability of the trustee to foreclose on it. The indenture may permit us to release collateral without the substituting other collateral in its place. See "Description of Notes -- Security." If a bankruptcy case is commenced by or against us before the indenture trustee has repossessed and disposed of the collateral, the right to repossession and disposal on a default by us could be significantly impaired. In the case of real property collateral, state law restrictions also could significantly impair the trustee's rights. See "-- Material Limitations under State Law" and "-- Material Bankruptcy Limitations." The indenture trustee, on your behalf, has entered into an intercreditor agreement with BankBoston. Among other things, the agreement allows BankBoston to enter any of our facilities to collect accounts receivable and to remove, sell or dispose of inventory after the trustee has obtained possession and control of our facilities that serve as collateral for the notes. BankBoston also may store its collateral on our premises. BankBoston's right to enter the premises and use the collateral could delay the liquidation of the collateral. Material Limitations under State Law -- Oregon and Washington state laws may limit your ability to pursue our company for unpaid amounts under the notes and to accelerate repayment of the notes. Under Oregon and Washington law, a creditor holding a trust deed on real property, like the mortgage on our real property and improvements securing the notes, may enforce the lien through a judicial foreclosure or a non-judicial sale. If the creditor proceeds by nonjudicial sale, the creditor may not enforce any unpaid portion of the indebtedness as a personal liability of the debtor. The creditor would, however, be entitled to proceed against any other collateral pledged as security for the debt. Additionally, a guarantor is not liable for a deficiency judgment in Oregon and may limit its liability for a deficiency judgment in Washington to the difference between the outstanding debt and the value of the property sold by the trustee. Accordingly, if the trustee elects to proceed by non-judicial sale of our real property collateral located in Oregon or Washington, the law of those states could preclude recourse by you or the trustee against us and may limit or eliminate your recourse against our guarantor subsidiaries. 25 With some exceptions, we are generally prohibited under the indenture from creating liens on (1) the collateral or (2) any other property unless the notes are also secured by the liens. The indenture also provides that you or the trustee can accelerate the maturity of the notes if the prohibition against creating liens is breached and the breach is not remedied within 30 days after we are given written notice of it. Under some court cases, to effect such an acceleration, you may need to demonstrate that enforcement is reasonably necessary to protect against impairment of your security or to protect against an increased risk of default. Although the foregoing court decisions may have been at least partially preempted by federal laws, the scope of this preemption is uncertain. Accordingly, an Oregon or Washington court could prevent you or the trustee from declaring a default and accelerating the notes because of a breach of this covenant. Such a decision could have a material adverse effect on your ability to enforce the covenant. See "Description of Notes -- Material Covenants -- Limitations on Liens" and "Description of Notes -- Defaults and Certain Rights on Default." Material Bankruptcy Limitations -- The ability of the trustee to liquidate the collateral could be impaired if a bankruptcy case is commenced by or against us. If a bankruptcy case is commenced by or against us or our subsidiaries before the trustee repossesses and disposes of the collateral, the trustee's right to do so after we have defaulted on the repayment of the notes will likely be significantly impaired. Under federal bankruptcy laws, a secured creditor cannot repossess its security from a debtor in a bankruptcy case or dispose of security repossessed from the debtor without the bankruptcy court's approval. Moreover, as long as the secured creditor is given "adequate protection," federal bankruptcy laws permit the debtor to continue to retain and use collateral even though the debtor is in default under the applicable debt instruments. The meaning of the term "adequate protection" varies according to circumstances, but it is intended to protect the value of the secured creditor's interest in the collateral. If the value of the collateral is diminished by the creditor's inability to repossess it or dispose of it or by its use by the debtor, adequate protection may include cash payments or the granting of additional security, as the court may determine in its discretion. Generally, adequate protection payments are not required to be paid by a debtor to a secured creditor unless the bankruptcy court determines that the value of the secured creditor's interest in the collateral is declining during the pendency of the bankruptcy case. Given the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, we do not predict how long payments under the notes or the guarantees could be delayed following commencement of a bankruptcy case, nor can we predict whether or when the trustee could repossess or dispose of the collateral or whether or to what extent holders of the notes would be compensated for any delay in payment or loss of value of the collateral through the requirement of "adequate protection." In a federal bankruptcy case, the court has the power to confirm a plan for the reorganization of the debtor over the objection of creditors. Among other things, such a plan may change the interest rate and payment terms on obligations of the debtor. Thus, if we 26 were involved in a bankruptcy case, a bankruptcy court could approve a reorganization plan that modifies the interest rate or payment terms on the notes. Fraudulent Conveyance Matters -- Federal and state statutes allow courts, under specific circumstances, to void guarantees and require noteholders to return payments received from guarantors. Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee o received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee, and o was insolvent or rendered insolvent by reason of the incurrence, or o was engaged in a business or transaction for which the guarantor's remaining assets constituted unreasonably small capital, or o intended to incur, or believed that it would incur, debts beyond its ability to pay the debts as they mature. In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor or to a fund for the benefit of the creditors of the guarantor. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending on the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if o the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets, or o the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or it could not pay its debts as they become due. On the basis of historical financial information, recent operating history and other factors, we believe that each guarantor, after giving effect to its guarantee of these notes, will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay the debts as they mature. We do not assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard. 27 Risk to Secured Lenders under Environmental Laws -- Federal and state environmental laws may decrease the value of the collateral securing the notes and may result in you being liable for environmental clean-up costs at our facilities. Our facilities at Goldendale and The Dalles are classified in the same manner as similar aluminum smelters and casthouses in the industry as generating hazardous waste materials, and we have been required to undertake actions to remediate environmental conditions at these facilities. The notes and guarantees are secured by liens on real property that may be subject to known and unforeseen environmental risks, and these risks may reduce or eliminate the value of the real property as collateral for the notes. Moreover, under federal environmental laws, a secured lender may be obligated to remediate or may be liable for the costs of remediating releases or threatened releases of hazardous substances at a mortgaged property. There may be similar risks under various state laws and common law theories. The costs of environmental remediation are often substantial. See "Business -- Environmental and Health Matters." The state of the law is unclear as to whether and under what circumstances the obligation to remediate or the liability for remediation costs can be imposed on a secured lender. Under federal environmental laws, a lender may be liable if the lender or its agents or employees have participated in the management of the operations of the debtor, even though the environmental damage or threat was caused by a third party, a prior owner, a current owner or an operator other than the lender. A lender would be excluded from liability, however, if it is a person "who without participating in the management of the facility, holds indicia of ownership primarily to protect his security interest." This secured creditor exemption protects a holder of a security interest, but generally only to the extent the holder is acting to protect its security interest in the facility or property. If a lender's activities begin to encroach on the actual management of the facility or property, the lender faces potential liability under federal environmental laws. Similarly, when a lender forecloses and takes title to a contaminated facility or property, the lender may incur liability in various circumstances, including when it o holds the facility or property as an investment, including leasing the facility or property to a third party o fails to market the property in a timely fashion or o fails to properly address environmental conditions at the property or facility. Under the laws of some states, failure to perform required remediation may give rise to a lien on the property to ensure the reimbursement of the costs of such remediation. This type of lien is commonly referred to as a superlien. All subsequent liens on such property are subordinated to a superlien. In some states, even previously recorded liens are subordinated to a superlien. In these states, the security interest of a creditor in any collateral that is subject to a superlien could be adversely affected. While Oregon law provides for a superlien, the lien does not have priority over previously recorded liens. As noted above, however, the costs which might be incurred by any purchaser of the property in 28 remediating environmental conditions could reduce or eliminate the value of the property as security for the notes and the guarantees. Before taking some actions, the trustee may request that you indemnify it for its costs, expenses and liabilities. Cleanup costs could become a liability of the trustee, and if you indemnified the trustee you could be required to help repay those costs. In addition, rather than acting through the trustee, you may in some circumstances act directly to pursue a remedy under the indenture. If you exercise that right, you could be deemed to be a lender and be subject to the risks discussed above. Technological Improvements -- Our smelters are based on a technology which is generally not used in the design of newer smelters and our continued competitiveness depends on our ability to operate efficiently. The design of our smelters is based on a technology that is not generally used in the design of newer smelters. The newer smelter design has certain advantages and may permit primary aluminum production at a lower cost. To date, we have been able to compete because of the implementation of efficiency-enhancing technology at our smelters, cost- competitive wages and low power costs. Our ability to compete in the future will depend in part on our continued ability to rely on these factors. We do not assure you this reliance will be possible in the future. In addition, we intend to invest approximately $75.0 million in the facilities investment program. The facilities investment program may not produce technological improvements or other benefits, and the additional casthouse capacity may not be fully utilized. See "Business -- Operations" and "Business -- Facilities Investment Program." The aluminum industry is increasingly affected by advances in technology. Our ability to compete successfully may depend on the extent to which we are able to implement and exploit technological changes. Our failure to develop, anticipate or respond to these changes could have a material adverse effect on our company. Electricity Costs -- Large increases in the cost of electricity could have a material adverse effect on us. Electricity is one of the largest cost inputs and can vary significantly from smelter to smelter. Electricity costs, therefore, can affect significantly the relative competitiveness of primary aluminum smelters. Large increases in the cost of electricity could adversely affect our earnings. Approximately 60% of our electricity requirements for the next two-and-a-half years will be provided by the BPA at pre-determined prices. The remaining 40% of our required electricity, however, is provided by direct purchase of bulk electric power at negotiated rates from various power marketers, including BPA, Avista Energy, PacifiCorp, Portland General Electric, Illinova Energy, Duke Energy and Washington Water Power. We are therefore subject to risks associated with the market price of electricity. Numerous short-term and long-term developments can affect electricity prices, including 29 o worldwide demand for fossil fuels o changing environmental standards o the overall economic activity in the United States and the Pacific Northwest and o weather temperature and precipitation. As a result of the high percentage of hydroelectric power in the electricity supply of the Pacific Northwest, electricity prices in the region tend to be sensitive to drought conditions that reduce the availability of low cost hydroelectric power. See "Business -- Power Contracts." Sources of Alumina -- We have been insulated from changes in the price of alumina because of our tolling agreements with Hydro and Glencore. The loss of either of these agreements would subject us to the risks associated with buying raw materials on the open market. We obtain all of our raw materials from outside suppliers. Our alumina requirements are met pursuant to agreements with our tolling partners, Hydro and Glencore. Our tolling agreement with Hydro has been extended to December 2011. Our tolling agreement with Glencore will expire on December 31, 1999, and we do not intend to renew it. Without either of these tolling agreements, we will be required to purchase alumina on the open market at prevailing prices. We do not assure you we will have the financial capacity to finance such open market purchases. In addition, without a long-term tolling contract, any limitation in the supply or any increased cost of alumina could have a material adverse effect on our operations and financial condition. See "Business -- Suppliers." Dependence on Key Personnel -- Our management has been a key to our past success and the loss of any member of our management, especially Brett Wilcox, could have a material adverse effect on our operations. Our operating subsidiaries are dependent on their senior management and Mr. Wilcox, our President. The failure to retain Mr. Wilcox or a number of our senior management without appropriate replacements being hired could have a material adverse effect on us. See "Management." Dependence on Key Customers -- Our business has been highly dependent on our tolling partners for revenue and any change in the status of these customers could have a material adverse effect on our business. Each of our smelter facilities is dependent on a single customer. Through their respective tolling agreements, Hydro and Glencore accounted for approximately 58% of our revenue in fiscal 1997 and approximately 56% of our revenue in the first nine months of fiscal 1998. If we lose either of these customers, either of them decide for any reason to materially decrease the amount of primary or value-added aluminum products they buy from 30 us or either of them significantly change their manner of doing business, our business could be adversely affected. See "Business -- Operations." Credit Risk -- Because we do not require collateral to secure customer receivables, our company is susceptible to the risk that our customers will not pay significant balances. When we sell products, we generally do not require collateral as security for customer receivables. Our subsidiaries have significant balances owing from customers that operate in cyclical industries and under leveraged conditions that may impair the collectibility of these receivables. For example, in the third quarter of fiscal 1998, we recorded a write-off of a long-term receivable from a value-added aluminum products customer of approximately $1.4 million. In other words, we do not expect to receive that money from that customer. Failure to collect a significant portion of amounts due on these receivables could have a material adverse effect on our results of operations or financial condition. Financing Change of Control Offer -- We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture. On the occurrence of certain specific kinds of change of control events we will be required to offer to repurchase all outstanding notes. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes or that restrictions in our credit facility will not allow such repurchases. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a "Change of Control" under the indenture. See "Description of Notes -- Offer to Purchase the Notes." 31 SELECTED COMBINED FINANCIAL DATA The selected combined financial data presented below includes the accounts of Northwest Aluminum Company, Northwest Aluminum Technologies and Northwest Aluminum Specialties for all periods presented. It also includes the accounts of Goldendale Aluminum Company from May 22, 1996, the date Goldendale was acquired by Brett Wilcox, our sole shareholder. In the opinion of our management, the unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements and include all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for those periods. Operating results for the nine months ended September 30, 1998 do not necessarily indicate the results that may be expected for the year ending December 31, 1998.
Fiscal Year Ended Nine Months ------------------------------------------------------------- Ended Sept. 30, Aug. 29, Aug. 28, Sept. 3, Dec. 31, Dec. 31, ----------------------- 1993 1994 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- --------- ---------- (in thousands, except per share data and ratios) (unaudited) Income Statement Data: Revenues................................... $ 161,568 $ 208,462 $ 289,693 $ 373,038 $ 497,872 $ 363,282 $ 360,035 Cost of revenues........................... 156,664 200,284 256,211 329,739 438,299 314,575 329,897 General and administrative expenses........ 4,488 5,073 8,293 9,746 15,327 10,574 12,087 Interest expense........................... (406) (832) (948) (9,454) (16,723) (11,850) (11,251) Other income (expense), net................ 58 76 (545) 1,442 4,246 3,333 1,540 Income before income taxes................. 68 2,349 23,696 25,541 31,769 29,616 8,340 Income tax expense......................... -- -- -- 6,636 13,274 11,962 4,685 Net income................................. 68 2,349 23,696 18,905 18,495 17,654 3,655 Net income per share of common stock-- pro forma........................ 68 2,349 23,696 16,686 14,847 14,917 918 EBITDA(1).................................. 8,448 11,290 32,900 47,137 63,315 52,014 32,604 Ratio of earnings to fixed charges(2)...... 1.2x 3.8x 26.0x 2.8x 2.1x 2.5x 1.1x Balance Sheet Data: Cash and cash equivalents.................. $ 597 $ 419 $ 1,066 $ 6,345 $ 1,251 $ 2,647 $ 1,122 Working capital............................ 17,912 20,861 43,512 61,908 36,398 43,116 41,108 Total assets............................... 84,664 98,336 113,656 350,815 347,011 338,784 332,895 Total long-term debt....................... 7,737 17,977 3,000 185,441 134,941 139,860 131,775 Goldendale Holding Company Preferred Stock. 29,663 29,663 29,663 Total shareholders' equity................. 61,029 60,629 80,325 103,615 115,680 114,682 116,728 - -------------- (1) EBITDA represents operating income before deductions for depreciation and amortization. EBITDA has been presented because we believe it is commonly used by investors to analyze operating performance and to determine a company's ability to incur or service indebtedness. EBITDA should not be considered in isolation or as a substitute for net income, cash flow from operations or any other measure of income or cash flow that is prepared in accordance with generally accepted accounting principles, or as a measure of a company's profitability or liquidity. In addition, our definition of EBITDA may not be identical to similarly entitled measures used by other companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Combined Financial Statements included elsewhere in this Prospectus. 32 (2) For purposes of this computation, fixed charges consist of interest expense, amortization of deferred financing costs and dividends accrued on the Goldendale preferred stock. Earnings consist of income before income taxes plus fixed charges.
33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to reading this section, you should read the Combined Financial Statements that begin on page F-1 of this document. That section contains all of our detailed financial information, including our results of operations. Basis of Presentation We were incorporated in the state of Oregon in June 1998 for the purposes of becoming the holding company of Goldendale Aluminum Company, Northwest Aluminum Company, Northwest Aluminum Technologies and Northwest Aluminum Specialties. For purposes of this section only, the term "Northwest Entities" refers to Northwest, Specialties and Technologies collectively. The combined historical financial statements include the accounts and results of operations for the Northwest Entities for all periods presented and the accounts and results of operations of Goldendale from May 22, 1996, the date of its acquisition by our sole shareholder. Goldendale's fiscal year-end is December 31. The Northwest Entities reported their operations on a 52 or 53 week period ending on the Sunday closest to August 31. To permit the combination of their financial statements with Goldendale's, the Northwest Entities changed their fiscal years-end to September 30 commencing with the year ended September 30, 1996. Following the acquisition of Goldendale, the combined financial statements present these fiscal years on a combined basis by reference to Goldendale's December 31 fiscal year, and present the nine month interim fiscal periods on a combined basis by reference to Goldendale's nine month periods ended September 30, 1997 and 1998. We do not believe seasonal or other factors materially affect the combination of these differing fiscal periods. For discussion purposes, our years ended December 31, 1997 and 1996 and September 3, 1995 are referred to as 1997, 1996 and 1995. Recent Developments For the first nine months of 1998, the average price per pound of aluminum on the London Metals Exchange was $0.63, which was lower than the average price in any of the three prior years. Our revenue of $360.0 million for the nine months ended September 30, 1998 remained relatively constant compared to revenue of $363.3 million for the nine months ended September 30, 1997, principally because we have sold more value-added products. EBITDA, however, declined from $52.0 million for the nine months ended September 30, 1997 to $32.6 million for the nine months ended September 30, 1998. Recent LME prices have fluctuated around $0.56 per pound, and the timing of an increase in aluminum prices is uncertain. Largely as a result of the continuation of lower aluminum prices, we expect our results of operations, including net income and EBITDA, for the fourth quarter of 1998 and the year ended December 31, 1998 will continue to be adversely affected. 34 For the three months ended September 30, 1998, Northwest Aluminum Company recorded unaudited revenues of approximately $70 million and incurred an unaudited net loss of approximately $3 million, principally as a result of increases in power costs and the continuation of relatively low aluminum prices. Because of the differing accounting periods described above, these results are not included in our combined results of operations for the nine months ended September 30, 1998 but will be included in the combined results of operations for the year ending December 31, 1998. Overview General Our revenue comes from two primary sources: (1) fees received from tolling alumina into primary and value-added aluminum products under tolling contracts with Hydro and Glencore, and (2) the sale of non-tolled value-added aluminum products to other customers. The amount of revenue from tolling activities varies depending on market aluminum prices (LME prices in particular), gross smelter production volumes and general economic conditions. The amount of revenue from non-tolled value-added sales varies depending on market aluminum prices, demand for our value-added products and the pricing premiums we are able to realize for such products. The aluminum industry is highly cyclical, with market prices fluctuating widely based on global supply and demand factors, most of which are beyond our control. As shown below, for the first nine months of 1998, the average LME price per pound of aluminum was lower than the average price in any of the three previous years. The average three month LME prices per pound of aluminum over the last three years and the nine month periods ended September 30, 1997 and 1998 were as follows: Price Per Year Ended December 31, Pound ----------------------- ----- 1995.................................... $ 0.83 1996.................................... $ 0.70 1997.................................... $ 0.74 Nine Months Ended ----------------- September 30, 1997...................... $ 0.74 September 30, 1998...................... $ 0.63 We believe the current market price for aluminum is depressed due primarily to the softening in the economies of several Pacific Rim countries, which has cast concern on the prospects for future demand from this important aluminum consumption region. Recent LME prices have fluctuated around $0.56 per pound, and the timing of an increase in aluminum prices is uncertain. As of December 31, 1998, the three month LME price per 35 pound of aluminum was $0.56. Accordingly, we believe our cash flow and earnings in the near term will be significantly lower than amounts reported for comparable prior periods. Our cash flow and earnings are highly sensitive to aluminum prices because production costs are largely fixed. At low market aluminum prices, we are able to reduce some variable costs, but most of the production costs of primary aluminum are constant in the short term, and therefore declines in market prices will cause declines in earnings. Conversely, increased market aluminum prices will cause increases in earnings. For these reasons we strive to maintain full plant utilization, which reduces the average cost per pound of aluminum. To reduce our reliance on market-priced primary aluminum and to improve overall profitability, we have pursued a strategy of increasing both our "tolled" and "non-tolled" value-added production through specialty casting and processing operations. Through these operations, we are able to realize premiums over market LME prices, the amount of which varies with the degree of value-added content of the product and uniqueness of the product in the marketplace. Our volume of value-added production has increased significantly over the past decade relative to the volume of our primary production. Our continued investment in value-added production operations is designed to further increase our value-added production capabilities. As a consequence of this strategy, the volume of non-tolled value-added production at Northwest and Specialties has grown from 153.7 million pounds in 1993 to 263.9 million pounds in 1997. As a result of this growth, we purchase at market prices more primary aluminum for further processing by Northwest and Specialties into non-tolled value-added products than we produce for Glencore under the tolling contract. Glencore's tolling contract allowed us to operate our smelter at The Dalles at full capacity while we were developing value-added products. The success of our non-tolled products, however, has reduced the importance of this contract, and we will not renew the tolling contract when it expires in December 1999. The effect of this non-renewal will be to eliminate the revenue and gross margin we derive from tolling aluminum for Glencore. This may be more than offset by an increase in gross margin from the sale of non-tolled products, because the underlying cost for primary aluminum will be our own production cost rather than the market price. We do not assure you, however, we will be able to realize any increased gross margin upon expiration of the Glencore tolling agreement. Financial Effect of the Goldendale Acquisition. On May 22, 1996, Brett Wilcox, our sole shareholder, acquired Goldendale through a leveraged buyout. The transaction was recorded under the purchase method of accounting, requiring us to step up the basis of fixed assets acquired by approximately $46.0 million and record goodwill of approximately $101.0 million. The acquisition of Goldendale affects the comparability of our historical combined results of operations beginning in 1996. As required under purchase accounting, the results of Goldendale's operations are included in the historical combined financial statements only for periods following the acquisition date; accordingly, Goldendale's results of operations are not included in our 1995 operating results 36 and are included for only part of 1996. Our reported annual depreciation and amortization expense increased by approximately $9.0 million as a result of the step up in the basis in the fixed assets and goodwill. Additionally, interest expense increased as a result of indebtedness incurred in the acquisition. Finally, unlike the Northwest Entities, Goldendale is subject to corporate income taxes. Northwest and Specialties have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code and Technologies is a limited liability company taxed as a partnership. Accordingly, income tax expense related to Goldendale has been reflected on our historical combined financial statements for all periods following the acquisition. The Consolidation On December 18, 1998, Brett Wilcox contributed to Golden Northwest Aluminum, Inc. his membership interest in Technologies and all of the outstanding shares of common stock of Northwest, Specialties and Goldendale. The consolidation is treated for accounting purposes as a combination of entities under common control in a manner similar to a pooling of interests. The consolidation has not had and we do not expect it to have a significant impact on our financial position, results of operations or cash flows. In accordance with generally accepted accounting principles, however, the amount recorded as Goldendale preferred stock has been reclassified and recorded as a minority interest of our company. Results of Operations The following table sets forth consolidated statement of income data as a percentage of revenues for 1995, 1996 and 1997, and for the nine month periods ended September 30, 1997 and 1998.
Year Ended Nine Months ---------- Ended September 3, December 31, September 30, ------------ ---------------------- ------------------- 1995 1996 1997 1997 1998 ------------ ------------ -------- ------- ----- Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues...................... 88.4% 88.4% 88.0% 86.6% 91.6% ------ ----- ----- ----- ----- Gross margin.......................... 11.6% 11.6% 12.0% 13.4% 8.4% General and administrative expenses... 2.9% 2.6% 3.1% 2.9% 3.4% ------- ----- ----- ----- ----- Operating income...................... 8.7% 9.0% 8.9% 10.5% 5.0% Interest expense...................... (0.3)% (2.5)% (3.4)% (3.3)% (3.1)% Other income (expense), net........... (0.2)% 0.3% 0.9% 1.0% 0.4% ------- ----- ----- ----- ----- Net other expenses.................... (0.5)% (2.2)% (2.5)% (2.3)% (2.7)% ------- ----- ----- ----- ----- Income before income taxes............ 8.2% 6.8% 6.4% 8.2% 2.3% Income tax expense.................... 0.0% 1.8% 2.7% 3.3% 1.3% ------- ----- ----- ----- ----- Net income............................ 8.2% 5.0% 3.7% 4.9% 1.0% ======= ===== ===== ===== =====
37 Nine Months Ended September 30, 1998 Compared with Nine Months Ended September 30, 1997 Primary and value-added aluminum produced under tolling contracts were 395.3 million pounds and 396.8 million pounds for the nine month periods ended September 30, 1998 and 1997, respectively. Revenues realized under these tolling contracts were $203.0 million during the nine months ended September 30, 1998 and $212.6 million during the nine months ended September 30, 1997. Shipments of non-tolled value-added aluminum products were 203.2 million pounds and 191.2 million pounds for the nine months ended September 30, 1998 and 1997, respectively. The increase in non-tolled value-added products resulted primarily from an increase in shipments of value-added billet produced at Northwest. Revenues decreased from $363.3 million in 1997 to $360.0 million in 1998, a decrease of 0.9%. Despite the decrease in market aluminum prices in 1998, revenues were relatively constant due to growing sales of value added products at Northwest and Specialties, which increased to $157.6 million for the nine month period ended September 30, 1998 from $149.8 million for the nine month period ended September 30, 1997. See "-- Overview." Gross margin decreased from $48.7 million in 1997 to $30.1 million in 1998, a decrease of 38.2%. As a percentage of revenues, gross margin declined from 13.4% to 8.4%. Gross margin declined due primarily to the decreased market prices of aluminum. In addition, power costs increased as a result of contractual terms in the power contract with the BPA which increased the amount of power required to be purchased at predetermined prices from BPA. Power costs in 1998 have been at rates we expect to continue through 2001. General and administrative expenses increased from $10.6 million in 1997 to $12.1 million in 1998, an increase of 14.3%. As a percentage of revenues, general and administrative expenses increased from 2.9% to 3.4%. The increase resulted primarily from the $1.4 million write-off of a long-term trade receivable. Interest expense decreased from $11.9 million in 1997 to $11.3 million in 1998, or 5.0%, primarily as a result of the lower level of debt outstanding. Income tax expense decreased from $12.0 million in 1997 to $4.7 million in 1998, or 60.8%, primarily as a result of a decrease in Goldendale's taxable income. 1997 Compared to 1996 The results of operations for 1997 reflect the inclusion of the results of Goldendale's operations for the entire year of 1997 as compared with an approximately seven month period for 1996. Primary and valued added aluminum produced under tolling contracts increased from 315.7 million pounds in 1996 to 530.4 million pounds in 1997, generating $165.3 million in 38 1996 and $290.2 million in 1997. This increase resulted primarily from the inclusion of a full year of operations of Goldendale in 1997 as compared to a partial year in 1996 and the Hydro tolling agreement, effective January 1, 1997, under which Goldendale agreed to utilize 100% of its capacity to produce tolled product for Hydro. Shipments of non-tolled value-added aluminum products decreased from 274.1 million pounds in 1996 to 263.9 million pounds in 1997 as a result of the shift from non-tolled value-added product to tolled product at Goldendale, partially offset by the increased sales at Northwest and Specialties of 44.2 million pounds of non-tolled value-added product. Revenues from these products totaled $207.7 million in both 1997 and 1996. Revenues increased from $373.0 million in 1996 to $497.9 million in 1997, an increase of 33.5%. The increase in revenues resulted primarily from the inclusion of a full year of operations of Goldendale in 1997 and from increased volumes of tolled and non- tolled product at Goldendale and Northwest. Gross margin increased from $43.3 million in 1996 to $59.6 million in 1997, an increase of 37.6%. As a percentage of revenues, gross margin increased slightly between the two years, from 11.6% in 1996 to 12.0% in 1997. General and administrative expenses increased from $9.7 million in 1996 to $15.3 million in 1997, an increase of 57.3%. The increase resulted primarily from the inclusion of Goldendale for the entire year of 1997. As a percentage of revenues, general and administrative expenses increased slightly from 2.6% to 3.1%. Interest expense increased from $9.5 million in 1996 to $16.7 million in 1997, an increase of 76.9%, primarily as a result of a full year of indebtedness incurred as a result of the Goldendale acquisition, partially offset by our continued paydown of the Existing Credit Facility using cash flow from operations and asset sales. Other income increased from $1.4 million in 1996 to $4.2 million in 1997 primarily as a result of a $2.6 million gain recognized by us on the sale of two power generation turbines in 1997. Income tax expense increased from $6.6 million in 1996 to $13.3 million in 1997 primarily as a result of an increase in taxable income reported by Goldendale and the inclusion of Goldendale for the entire year in 1997. 1996 Compared to 1995 Overall, the results of operations for 1996, as compared to 1995, reflect the inclusion of Goldendale's operations for the period in 1996 subsequent to its acquisition on May 22, 1996. 39 Primary and value-added aluminum produced under tolling contracts increased from 186.9 million pounds in 1995 to 315.7 million pounds for 1996 and related revenues increased from $106.3 million in 1995 to $165.3 million in 1996. Shipments of non-tolled value-added aluminum products increased from 221.5 million pounds in 1995 to 274.1 million pounds in 1996 and related revenues increased from $183.4 million in 1995 to $207.7 million in 1996. These increases were primarily the result of the inclusion of approximately seven months of Goldendale production in 1996, partially offset by a decrease of approximately 52.0 million pounds of non-tolled value-added shipments from Northwest and Specialties due to our decision to reduce shipments during a period of depressed market prices and value-added premiums. Revenues increased from $289.7 million in 1995 to $373.0 million in 1996, an increase of 28.8%. Approximately $128.0 million of this increase was due to the inclusion of Goldendale operations for approximately seven months in 1996, offset by a decrease in revenues of $44.7 million at Northwest and Specialties. Due to lower aluminum prices, tolling revenues at Northwest declined. In addition, we decided to reduce value-added sales at Specialties when average LME prices decreased from $0.83 per pound in 1995 to $0.70 per pound in 1996. Gross margin increased from $33.5 million in 1995 to $43.3 million in 1996. Expressed as a percentage of revenue, gross margin remained unchanged for both years at 11.6%. Gross margin as a percentage of revenue was unchanged due to revenues from aluminum sales and the costs relative to aluminum purchases fluctuating in a directly proportional manner with the LME price of aluminum. General and administrative expenses increased from $8.3 million in 1995 to $9.7 million in 1996. Expressed as a percentage of revenues, this expense decreased from 2.9% in 1995 to 2.6% in 1996, as a result of lower bonuses paid to salaried employees. Interest expense increased from $900,000 in 1995 to $9.5 million in 1996 primarily as a result of the debt incurred in connection with the acquisition of Goldendale. Other income (expense) increased from $(500,000) in 1995 to $1.4 million in 1996 primarily as a result of fees earned by Goldendale related to third party usage of its Portland unloading facility. Income tax expense increased from $0 in 1995 to $6.6 million in 1996 due entirely to the inclusion of Goldendale's earnings for approximately seven months during 1996. Liquidity and Capital Resources Historically, our cash and capital requirements have been satisfied through cash generated from operating activities and borrowings under our primary credit facilities. Before December 21, 1998, Goldendale, Northwest and Specialties operated under 40 independent credit facilities which were scheduled to mature in 2001 and consisted of total borrowings at September 30, 1998 of $131.8 million under term loans and revolving credit facilities. See Note 5 to the Combined Financial Statements. We refinanced these credit facilities with proceeds from the sale of the notes and the note held by Hydro. Our new credit facility with BankBoston consists of a $75.0 million senior secured revolving credit facility collateralized by all of the inventory, accounts receivable and other rights to payment of our subsidiaries. Availability under the revolving line of credit is controlled by a borrowing base formula based on eligible receivables and inventory, and was approximately $49.0 million on December 31, 1998. See "Description of Certain Other Indebtedness and Goldendale Preferred Stock." Our liquidity and capital needs relate primarily to payment of principal and interest on outstanding borrowings, the funding of capital expenditures, including our facilities investment program, the funding of distributions to our sole shareholder to pay income taxes, working capital and other general corporate requirements, including the incremental working capital needs anticipated in connection with the potential termination of the Glencore tolling agreement. Additionally, the Goldendale preferred stock became redeemable at our discretion after December 31, 1998. We anticipate that the funds necessary to redeem the Goldendale preferred stock, if we so elect, would be drawn from our revolving credit facility with BankBoston. The initial redemption price for the Goldendale preferred stock will be $30.4 million plus any accrued but unpaid dividends. We are upgrading our management information systems, including hardware and software, to a fully integrated enterprise resource planning system. Northwest and Goldendale are executing a transition to SAP's R/3 enterprise resource planning system. Costs incurred and capitalized to date have amounted to approximately $2.0 million and will total approximately $6.0 million at completion. Furthermore, we are subject to a number of contingencies and uncertainties, including a potential income tax deficiency. Our statement of cash flows for the periods indicated are summarized below:
Year Ended ------------------------------------ September 3, December 31, Nine Months Nine Months ------------ -------------------- Ended Ended 1995 1996 1997 Sept. 30, 1997 Sept. 30, 1998 ------------ -------- ------- -------------- -------------- (Dollars in thousands) Net cash provided by operating activities......................... $ 24,827 $ 29,854 $ 56,092 $ 46,983 $ 16,898 Net cash used in investing activities......................... (5,203) (19,149) (7,091) (1,542) (13,047) Net cash used in financing activities......................... (18,977) (4,775) (54,095) (49,139) (3,980) Increase (decrease) in cash......... 647 5,930 (5,094) (3,698) (129)
For the nine month period ended September 30, 1998, $16.9 million was provided by our operating activities, primarily as a result of net income, as adjusted for non-cash charges of $20.8 million, and a decrease in accounts receivable of $13.7 million, offset by a decrease 41 in accounts payable and accrued expenses, including income taxes payable, of $17.2 million and a net increase in inventories and other assets of $0.6 million. Investing activities used $13.0 million primarily as a result of capital expenditures of $12.8 million. Financing activities used $4.0 million as a result of net repayments under our credit facilities. During the nine month period ended September 30, 1997, $47.0 million was provided by our operating activities, primarily as a result of net income, as adjusted for non-cash charges of $38.2 million, a net increase in accounts payable and accrued expenses, including income taxes payable, of $8.9 million, and a decrease in accounts receivable of $2.5 million, offset by an increase in inventories and other assets of $2.9 million. Investing activities used $1.5 million due to capital expenditures of $10.1 million, advances to our shareholder of $1.2 million and an increase in receivables from a related company of $2.8 million, offset by proceeds from the sale of assets of $12.6 million. Financing activities used $49.1 million, primarily as a result of net repayments of our credit facilities. Net cash provided by operating activities was $24.8 million, $29.9 million and $56.1 million for 1995, 1996 and 1997, respectively. The net cash provided by operating activities during 1997 was primarily attributable to net income, as adjusted for non-cash charges of $43.1 million, and an increase in accounts payable and accrued expenses of $26.6 million, offset by an increase in inventories of $9.5 million. The increase in inventories and accounts payable was due to a temporary modification of the Glencore metal repurchase terms which allowed us to extend the timing of payments due to Glencore. The net cash provided by operating activities during 1996 was primarily attributable to net income, as adjusted for non-cash charges of $36.1 million, and a decrease in inventories of $22.3 million, offset by a decrease in accounts payable and accrued expenses of $20.7 million and an increase in accounts receivable and other assets of $8.3 million. The decrease in inventories and accounts payable was primarily due to Goldendale's restructuring of its tolling agreement with Hydro whereby Hydro committed to usage of the entire Goldendale facility, thereby significantly reducing our requirements to purchase and hold our own inventory. The net cash provided by operating activities during 1995 was primarily attributable to net income, as adjusted for non-cash charges of $32.0 million, and an increase in accounts payable and accrued expenses of $10.6 million, offset by an increase in inventories of $14.7 million and an increase in accounts receivable of $2.8 million. Net cash used in investing activities was $7.1 million in 1997 compared to net cash used in investing activities of $19.1 million in 1996 and $5.2 million in 1995. Cash used in investing activities in 1997 primarily resulted from proceeds of $12.8 million received by us through the sale of certain of our power generation assets, offset by capital expenditures of $14.3 million and combined advances to our shareholder and a related company of $5.6 million. Cash used in investing activities in 1996 and 1995 were primarily attributable to capital expenditures of $19.9 million, and $5.2 million. Net cash used in financing activities was $19.0 million, $4.8 million and $54.1 million for 1995, 1996 and 1997. Net cash used in financing activities in 1997 was primarily attributable to $50.5 million in net repayments on our credit facility and $2.9 million paid in 42 dividends. Net cash used in financing activities in 1996 was primarily attributable to $47.1 million in net borrowings under our credit facility for the acquisition of Goldendale, offset by $67.6 million paid in dividends for the acquisition of Goldendale. Net cash used in financing activities in 1995 was primarily attributable to $15.0 million in net repayments on our credit facilities and by $4.0 million paid in dividends. Annual dividends paid to our shareholder approximated his personal liability for federal and state income taxes related to Northwest's operations. In 1996 additional dividends of $44.5 million were paid to our shareholder that were used in the acquisition of Goldendale. We believe cash flow from operations, available borrowings under our revolving credit facility and under our note purchase agreement with Hydro and cash on hand will provide adequate funds for our foreseeable working capital needs, planned capital expenditures and debt service and other obligations through 2000. Our ability to fund operations, make planned capital expenditures, such as our facilities investment program, make principal and interest payments on the notes, and remain in compliance with all of the financial covenants under our debt agreements will be dependent on our future operating performance. Our future operating performance is dependent on a number of factors, including aluminum prices, many of which are beyond our control. These factors include prevailing economic conditions and financial, competitive, regulatory and other factors affecting our business and operations, and may be dependent on the availability of borrowings under our revolving credit facility or other borrowings. We do not assure you our cash flow from operations, together with other sources of liquidity, will be adequate o to make required payments of principal and interest on the notes and our other debt o to finance anticipated capital expenditures o to fund working capital requirements or o to fund the possible redemption of all outstanding shares of the Goldendale preferred stock. If we do not have sufficient available resources to repay any of our indebtedness when it becomes due and payable, we may need to refinance the indebtedness. We do not assure you refinancing would be available or available on reasonable terms. Seasonality and Inflation Our results of operations can be affected by seasonal factors, such as substantial increases in the cost of electricity in the fall and winter. We do not believe inflation has had a material effect on the combined financial statements for the periods presented. 43 Effect of Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued two new disclosure standards. Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Our adoption of SFAS No. 130 on January 1, 1998 had no impact on our financial position. Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), Disclosures about Segments of an Enterprise and Related Information, which supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, establishes standards for the new way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. We do not expect the adoption of SFAS No. 131, which will occur in our December 31, 1998 financial statements, to affect our financial position. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers' Disclosures about Pensions and other Postretirement Benefits, which standardizes the disclosure requirements for pension and other postretirement benefits. We do not expect the adoption of SFAS No. 132 to affect materially our current disclosures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 is effective for all 44 fiscal quarters of fiscal years beginning after June 15, 1999. Based on our current and planned future activities relative to derivative instruments, we believe that the adoption of SFAS No. 133 on January 1, 2000 will not have a significant effect on our financial statements. Year 2000 Compliance The following is a discussion of our year 2000 compliance status. Goldendale Goldendale has reviewed its business and processing systems and determined that the majority of the systems are already year 2000 compliant. Goldendale has been working with a consultant and an internal committee of 50 employees to address the scope of the year 2000 issue and implement any necessary solutions. Although Goldendale believes the majority of its business and processing systems are already year 2000 compliant, Goldendale is upgrading its enterprise resource planning system. We have chosen ERP system software, and we have begun evaluating how to implement it. Goldendale is making inquiries of customers and suppliers on which the operations of the business are critically dependent to determine their year 2000 readiness. Our analysis of the responses from customers and suppliers received so far indicates substantial compliance with year 2000 issues, so we do not expect any material effect based on a third party's noncompliance. In the last year, Goldendale has expended nearly $100,000 on its year 2000 review and has budgeted $3.5 million over the next two years to upgrade and further integrate its business and process systems to maintain year 2000 compliance. Goldendale's year 2000 compliance analysis to date has identified its inventory system as year 2000 deficient. Goldendale is upgrading the ERP system software and is developing software upgrades to the inventory system in case the system upgrade is delayed beyond January 1, 2000. Until the upgrade is complete, Goldendale will continue to gather information and assess the possibilities of disruption to its operations, liquidity, and financial condition due to the year 2000 problem. Northwest Northwest has retained outside experts to review its year 2000 readiness and make recommendations on how to become year 2000 compliant. To date, Northwest's major business systems have been reviewed and tested for year 2000 compliance. The majority of all critical business systems are year 2000 compliant since the latest implementation of SAP's R/3 ERP system. The business systems included are sales, accounting, purchasing, production, inventory management and plant maintenance. We have completed about half of the testing of Northwest's remaining information technology systems, including process systems, as well as the non-information technology systems for year 2000 compliance. We have identified some of Northwest's non-information technology systems as non-year 2000 45 compliant. We have adopted a plan to modify those systems lacking year 2000 compliance, with completion of the plan expected by mid-1999. Northwest is making inquiries of its customers and suppliers to determine the potential effect of their year 2000 readiness on its operations. To date, Northwest has not identified any vendors or suppliers whose year 2000 issues would have a material effect on it, but we do not assure you all of these parties will be year 2000 compliant. Over the past year, Northwest has spent approximately $2 million on its year 2000 review and implementation of solutions to identified year 2000 problems. Many of those expenditures have been used to upgrade the computer systems, not solely to resolve potential year 2000 problems. Northwest expects to spend another $500,000 to $2 million to complete its system upgrade and to resolve its year 2000 compliance issues. A contingency plan is under development to deal with a worst case year 2000 problem. Interest Rate Risk Management We have entered into an interest rate swap agreement, which covers $20.0 million of notional principal amount at January 25, 1999 and which expires in 2003, to manage our exposure to interest rate risk on a portion of our variable rate borrowings. The fixed interest rate paid by us is 6.4%. Although we are exposed to loss on the interest rate swap in the event of nonperformance by the counterparties, we believe the likelihood of nonperformance is remote. Employee Benefit Plan Matters The qualified retirement plans of Northwest and Goldendale are being tested by an outside consultant to determine whether those plans, and the qualified retirement plans of other entities owned 80% or more by Brett Wilcox or his spouse, meet discrimination and coverage requirements. Outcome of the testing is difficult to predict because the test is complex and includes employees of entities whose businesses are unrelated to our business. We believe if the test is failed Northwest or Goldendale may be able to redesign their plans to pass without material costs or adverse consequences. Alternatively, the qualified retirement benefits for companies other than Northwest or Goldendale may need to be enhanced. If those entities are financially unable to implement such a remedy, the tax qualification under Section 401(a) of the Internal Revenue Code of 1986 of the plans of Northwest and Goldendale could be jeopardized. If a plan fails and the enhancement of benefits of other entities is the necessary remedy, we believe the entities responsible for those remedies will be able to provide adequate enhanced benefits. 46 BUSINESS Our company, through its three primary operating subsidiaries, Goldendale Aluminum Company, Northwest Aluminum Company and Northwest Aluminum Specialties, Inc., is a leading producer of primary aluminum and selected specialty engineered high quality value-added aluminum products. Our revenue comes from two main sources: fees received from tolling alumina into aluminum and sales of value-added aluminum products. At our two facilities on the Columbia River east of Portland, Oregon, we operate two primary aluminum smelters with combined production capacity of 250,000 metric tons, making us one of the five largest primary aluminum producers in the United States. We produce primary aluminum under tolling agreements with Hydro Aluminum Louisville, Inc. and Glencore, Ltd., two large international industrial and trading companies. In conjunction with our smelter operations, we operate three casthouses that produce a range of value-added aluminum products, including our proprietary line of direct-cast, small diameter, alloy billet products. We sell value-added billet and related products directly for extrusion for further processing into final products such as fire extinguishers, automobile air bag canisters, golf club heads, bicycle frames and a variety of automotive and aircraft parts. We believe our cost competitive position, strategic relationships, investment in new smelting and casting technologies and mix of higher-margin, value-added products are key competitive advantages and have been primary determinants of our historical profitability. We believe we rank among the lower cost aluminum producers in the United States. We attribute our historical profitability to a number of factors including access to and innovative procurement of low-cost hydroelectric power, technical innovation at the plant level, good labor relations and low levels of corporate overhead. Operations We conduct our business and derive revenue through two principal business activities: the production of primary aluminum under tolling contracts and the production of value-added specialty aluminum products under tolling contracts and for direct sales. Production of Primary Aluminum Our subsidiaries operate two aluminum smelters in The Dalles, Oregon and Goldendale, Washington. The smelters have the capacity to produce approximately 250,000 metric tons of primary aluminum per year. A metric ton is equal to 2,204.6 pounds. These smelters consist of 826 vertical pin Soderberg technology reduction cells organized into five pot lines. The smelters use advanced conservation technology, computer control procedures and environmental control equipment to enhance their efficiency. Capital investment in the facilities by us and the smelters' previous owners over the life of the facilities, competitive wage rates, access to low cost hydroelectric power, low overhead and tolling agreements that 47 insured full smelter utilization have also contributed to the smelters' efficiency. The efficiency of the smelters allows us to maintain a competitive cost position relative to other industry participants, many of which are significantly larger than we are. Our operating efficiencies and competitive cost position allowed us to maintain positive net earnings through industry cycles in the last dozen years, including the 1992-1993 industry down cycle. Smelting Methods. Smelting, which involves the reduction of alumina to aluminum ingot, is an electrolytic process. Raw alumina is dissolved in an electrolytic bath in large cells, or pots, which are insulated with brick and lined with carbon. The cell lining acts as the negative cathode, and a carbon block, which is partially immersed in the electrolytic bath serves as a positive anode. The carbon anode is composed of petroleum coke and coal tar pitch and is consumed in the smelting process, as oxygen released from alumina in the reduction process binds with the carbon to form carbon dioxide. Because of the high cost of removing metallic impurities from aluminum, careful attention must be given to avoiding impurity introduction by way of the raw materials used in the anode manufacturing process. Petroleum coke and coal tar pitch are used as the carbon and binder sources because of their relatively high purity. Gases and particulate matter are collected in the hood around the lower rim of the anode casing and are passed through the smelter's air and water purification systems. Molten aluminum is drawn from the bottom of the cell, and, typically, poured into molds as unalloyed metal, or sow, or routed into holding furnaces where various alloying ingredients may be added before casting into plate, slab, logs or ingot. The world's aluminum smelters are evenly split between two basic anode technologies, Soderberg and pre-bake. The two processes differ only in the fabrication and connection of the carbon anode. Most recently constructed smelters use pre-bake technology, which has certain inherent advantages relative to Soderberg technology and may permit primary aluminum production at a lower cost, albeit at a higher initial investment. Soderberg anodes are baked by utilizing waste heat from the smelting cell and, as such, are referred to as self-baking. A steel casing or mold six to eight meters by two meters containing the coke aggregate and coal tar pitch mixture is mounted over the smelting cell and its contents bake as they progress toward the electrolytic bath. The carbon mass is allowed to slip through the casing at the rate of its oxidation in the electrolytic bath. In the vertical spike version of the Soderberg cell, electrical contact is made by steel tipped aluminum spikes entering from the top. They are pulled by a special tool and reset as their tips approach the electrolytic bath surface due to consumption of the anode. In the horizontal spike version of the Soderberg cell the steel-aluminum spikes enter through the side of the casing instead of through the top. They must be removed and reset as the anode is consumed. Pre-bake anodes are formed by blending sized petroleum coke aggregate and coal tar pitch, molding it into blocks complete with preformed electrical connection sockets by hydraulic pressing or vibration forming, and firing in oil- or gas-fired ceramic-lined ring furnace pits. A typical block is 70 cm wide, 125 cm long and 50 cm high. Electrical 48 contact and physical support is obtained through aluminum or copper rods welded or bolted to steel stubs. The stubs are set in the anode sockets and molten cast iron is poured around them to produce a strong joint with low electrical resistance. Goldendale Smelter. The smelter in Goldendale, Washington was built in 1971, making it the most recently constructed aluminum smelter in the Pacific Northwest, and was expanded in 1981. The total annual production capacity of the Goldendale smelter is 168,000 metric tons of primary aluminum output. The Goldendale smelter employs vertical pin Soderberg technology and consists of 526 reduction cells organized into three pot lines. The Goldendale smelter has undergone a number of technology upgrades during its lifetime. These upgrades have resulted in a significant improvement in production efficiencies over the years as measured by energy consumption, carbon consumption and cell life. The Goldendale smelter was constructed from engineering plans based on Hydro's Karmoy, Norway facility, and as such is similar in terms of layout, smelter design and operating processes. The Goldendale smelter was also designed to operate in tandem with our smelter located in The Dalles, Oregon. Northwest Smelter. Located across the Columbia river and approximately 35 miles west of the Goldendale smelter, our smelter in The Dalles produces primary aluminum. Built in 1958, The Dalles smelter consists of 300 vertical pin Soderberg reduction cells organized into two pot lines. The smelter's production capacity is about 82,000 metric tons of primary aluminum per year. We also operate a carbon plant at The Dalles facility. The plant produces approximately 40,000 metric tons of carbon briquettes, which are consumed during the alumina reduction process. We have surplus capacity in the plant and recently have begun selling briquettes to a non-affiliated aluminum producer. Tolling Agreements. Each of Northwest Aluminum Company and Goldendale Aluminum Company is party to a tolling agreement relating to the production of primary aluminum and, in the case of Goldendale, value-added products. The Hydro Tolling Agreement. Goldendale and Hydro Aluminum Louisville, Inc. entered into a ten-year contract effective January 1, 1997. The Hydro tolling agreement has been extended another five years, until December 2011. Under the terms of the Hydro tolling agreement, Goldendale must use its smelter exclusively to produce at least 157,000 metric tons of aluminum annually from the alumina supplied to it by Hydro, and Hydro is required to supply sufficient alumina to enable Goldendale to produce that amount of aluminum. Hydro supplies the alumina at no cost to Goldendale, and at all times the alumina and aluminum inventory is owned by Hydro. Goldendale bears the entire cost of unloading and storing the alumina and transporting it to the smelter from Goldendale's unloading facility. Hydro pays a tolling fee to Goldendale for 49 converting the alumina to aluminum based on a percentage of the price of aluminum on the London Metals Exchange. Pursuant to its tolling agreement with Hydro, Goldendale receives an additional tolling fee for casting the aluminum into value-added "casthouse products" such as extrusion billet, foundry "T" or sheet ingot. In addition, Goldendale shares premiums that Hydro is able to realize on sales of value-added products in the market. Hydro is required to place orders for at least 70,000 metric tons of value-added products each year. The tolling agreement also specifies quality and efficiency requirements. If the products or production schedules do not meet the required specifications, the parties have agreed to work together to identify and correct the problem; however, Hydro may terminate the agreement if Goldendale's production were to continue to fall below the product or schedule specifications. The Hydro agreement also requires Goldendale to use any additional smelter capacity resulting from the installation of new point feeder technology under the facilities investment program exclusively to produce aluminum products for Hydro, subject to some maximum volumes. Hydro is required to supply sufficient alumina to enable Goldendale to produce the additional volume. However, Hydro's commitment to place orders for value-added products remains at 70,000 metric tons and has not been increased to reflect the additional casthouse capacity expected to result from the facilities investment program. The Glencore Tolling Agreement. Northwest entered into a tolling contract with Glencore, Ltd. in September 1986, which was extended through December 1999. Under the Glencore tolling agreement, Glencore provides alumina to Northwest for conversion into primary aluminum. Glencore must supply enough alumina to support the full production capacity of the Northwest smelter, and Northwest must use its best efforts to produce 82,000 metric tons of aluminum ingot and other finished products for Glencore in exchange for a tolling fee based on a certain percentage of the London Metals Exchange price for aluminum. Northwest bears the cost of unloading and storing the Glencore alumina and transporting it to the Northwest smelter. Northwest has the right to buy back part of the metal supplied to Glencore, which Northwest uses in its value-added operations. Due to the growth of its value-added operations, Northwest has increased its purchases of primary aluminum from Glencore and now purchases more primary aluminum from Glencore than the production capacity of the Northwest smelter. Glencore's tolling contract allowed us to operate The Dalles smelter at full capacity while we had no developed market for our smelter production. The success of our non-tolled products, however, has reduced the importance of this contract, and we will not renew the tolling contract when it expires in December 1999. We have, however, entered into a letter of intent with Glencore to have Glencore supply the smelter at The Dalles with all of its alumina requirements from October 1, 1999 to December 31, 2004. Once the Glencore tolling agreement expires, we will no longer count as primary aluminum production the output that is directly consumed by our value-added casting operations. 50 Unloading Facilities. We receive raw alumina at our Portland, Oregon unloading facility. The facility is served by a ship channel maintained by the U.S. Army Corps of Engineers. Three steel silos are located on the property with the capacity to store 42,000 metric tons of alumina. Alumina is delivered to the facility by ship and is then transferred into silos for short-term storage and delivered to our smelters by rail. The unloading facility has sufficient capacity to handle our unloading and storage requirements. Production of Value-added Specialty Aluminum Products We operate a value-added production operation which blends primary aluminum produced at both our smelters (which is purchased from Hydro and Glencore) and by other aluminum producers and various alloys into a variety of value-added products, including proprietary small diameter billet ("SDB") and related products. Our SDB products are cast directly from molten aluminum in a process that eliminates the expense associated with the extrusion process typically required to manufacture SDB products. Our SDB products are frequently manufactured to customer specifications, and, as such, can be priced to provide us with enhanced margins relative to "commodity" aluminum products. Since Northwest Aluminum Specialties began its value-added operations in the early 1990s, the business has grown to represent a significant percentage of our total revenues. Our SDB products are typically forged or extruded by our customers into end use forms which include fire extinguishers, automobile air bag canisters, golf club heads, bicycle frames and a variety of automotive and aircraft parts. In late 1996, Specialties added a new billet machining operation which allows us to manufacture SDB in any diameter between 2 inches and 5 inches, within extremely tight engineering tolerances. Bar sawing capabilities were also added that allow us to deliver cut billet "pucks" that meet customer specifications. These new capabilities have led to additional business and opportunities that we believe will allow us to continue to increase the size of our value-added aluminum business and enhance the average premium received. At this time, our value-added standard extrusion billet and hot molten metal products that are not produced under tolling arrangements are sold at the Midwest market price (which includes a premium of $.03 to $.05 per pound over the London Metals Exchange price) plus a premium of between $.06 and $.13 per pound. Our specialty extrusion billet, hot closed die forging, cold impact forging and semi-solid forging are sold at the Midwest market price plus a premium of between $.13 and $.81 per pound. Facilities Investment Program Both we and previous owners of our facilities periodically have made major investments in new plant and equipment. From 1978 to 1981, Martin Marietta Corporation made a major investment in both smelters by implementing new anode and cathode technology, modernizing electrical and environmental control systems and adding the third 51 cell line at the Goldendale smelter. In 1991 and 1997 Northwest Aluminum Specialties added new casting capability. We are undertaking the facilities investment program to expand capacity and enhance operating efficiency. With the financial and technical support of Hydro, we plan to expand the casthouse at Goldendale and upgrade the cell lines at Goldendale and, possibly, at The Dalles. We intend to implement the facilities investment program over the next five years, in two stages. In the first stage, we plan to modernize the Goldendale casthouse and complete a demonstration of its new cell line technology. The Goldendale casthouse expansion is designed to increase the facility's capacity to produce value-added billet from 13 million pounds per month to an initial capacity of 22 million pounds per month, with the option to expand capacity to over 30 million pounds per month. The additional value-added production will be sold by Hydro under the tolling agreement, with the same sharing of market premiums in excess of costs. As discussed below, our share of any incremental earnings from the facilities investment program will be used to repay the debt owed to Hydro. Hydro has informed us that its own U.S. extrusion plants should be able to use this additional capacity. The expansion is underway, and we expect it to take 18 months to complete and to cost approximately $13.0 million. The first stage will also include a 12 to 18-month demonstration of the planned cell line improvements in a 30-cell section at Goldendale. Conversion of this section and the demonstration are budgeted to cost less than $7.0 million. Cell improvements include pointfeeders to control alumina additions, magnetic compensation to stabilize cell operations, cathode redesign to optimize heat balance, new computer controls and other related technologies. The technology for the cell line improvements has been licensed from Hydro, which already has implemented these changes at a similar smelter in Norway. Based upon Hydro's experience, we expect the improvements to increase smelter production, reduce average unit costs of production, increase production efficiencies and significantly reduce air emissions. We plan to begin the second stage of converting the remaining cells at both smelters when we complete the demonstration of our cell line upgrades and obtain all necessary permits. The conversion can be performed cell by cell, with minimal disruption of operations, and can be accelerated or slowed for market or other reasons. We estimate that conversion of the remaining cells at both smelters will cost approximately $55 million. Hydro has agreed, subject to certain conditions, to provide an additional $10.0 million of subordinated financing if we decide to convert the remaining cells at Goldendale. We expect the remaining $45 million, and any additional costs of the facilities investment program, will be funded through cash from operations and borrowings under our revolving credit facility. 52 Research and Development and Intellectual Property We have traditionally placed emphasis on innovation and research and development. We have laboratory facilities dedicated to environmental compliance, quality testing and research and development. We engage in several research and development activities designed to improve earnings by increasing value-added margins or reducing costs. Expenditures for activities designated as research and development were $544,000 in 1997, $898,000 in 1996, and $129,000 in 1995. We estimate that research and development expenditures were approximately $1.5 million in 1998. We also have received grants from state and federal governments for certain research and development activities. Our research and development encompasses five broad initiatives: o First, we undertake research and development to develop new alloys and casting and homogenizing practices that improve the characteristics of metal sold to customers. We endeavor to protect our proprietary interest in our products and processes by filing patent applications where appropriate and otherwise by seeking to protect them as trade secrets. This research has resulted in several proprietary products and an issued patent for a new alloy. o Second, we have focused research in the area of semi-solid metalworking ("SSM"). SSM is intended to give automotive and other parts the physical properties of forgings with the production cost of die castings. We have obtained a patent for the casting and transformation of aluminum to produce SSM parts. o Third, we have undertaken an initiative to develop a process to recycle Spent Pot Lining ("SPL"). We believe this process may allow SPL to be recycled into several marketable products rather than being treated and land filled at a significant cost. We have been notified that a patent will be granted for this process. o Fourth, our subsidiary, Northwest Aluminum Technologies, has acquired and expects to develop a new technology to smelt aluminum in a low temperature bath using inert metallic anodes and titanium dioxide cathodes. In our pursuit of this technology, we have acquired four patents and intend to file additional patent applications. We also have received two grants from the U.S. government to fund additional research to develop new smelting technologies. o Fifth, we engage in several other research and development projects to continuously improve our smelting and casting operations. Northwest Aluminum Specialties markets proprietary small diameter billet it produces under the registered trademark "Direct Forge." 53 Sales and Marketing Through their tolling agreements, Hydro and Glencore are our largest customers, accounting for 40% and 18% of our revenues in fiscal 1997 and 37% and 19% of our revenues for the nine months ended September 30, 1998. We directly sell value-added aluminum products to approximately 100 extruders, forgers, casters, traders and other customers throughout the United States and abroad. Northwest Aluminum Company's Vice President of Sales and Marketing oversees a small sales and customer service group that makes and supports these direct sales. Suppliers The major raw materials we use are alumina, petroleum coke and coal tar pitch, aluminum ingot, scrap aluminum and alloying elements and electricity. We obtain our raw materials either through annual contracts or on the spot market. Alumina consumed in the production of aluminum is supplied by Glencore and Hydro under the tolling agreements. We have entered into a letter of intent with Glencore to have Glencore supply the smelter at The Dalles with all of its alumina requirements from October 1, 1999 to December 31, 2004. We do not assure you as to the timing or the terms of an agreement resulting from the letter of intent. The other raw materials involved in the reduction of alumina are petroleum coke, coal tar pitch and carbon lining. Petroleum coke is used to make anodes and carbon lining and is sourced locally from a large producer of quality coke, which is one of several suppliers. Coal tar pitch is available from several suppliers. Carbon lining, which acts as the cathode in the smelting cells, is purchased from various suppliers. We annually purchase aluminum to supplement our smelter production. In addition to buying back the approximately 82,000 metric tons of our own production from Glencore, we purchase approximately 45,000 metric tons from other producers, including Hydro, at market prices in the form of primary ingot, primary molten metal and scrap metal. Primary suppliers include Hydro, Vanalco and Alcoa. The other major inputs in the making of aluminum products are alloying elements, such as magnesium and silicon, which are provided by various suppliers. Power Contracts Because electricity is both necessary for the manufacturing of aluminum and the single largest cost of making primary aluminum, the availability and pricing of electricity and access to transmission is crucial to our operations. Approximately 80% of all power produced or consumed in the Pacific Northwest is delivered over the transmission system of the BPA. Both The Dalles smelter and Goldendale smelter are connected directly to the main high voltage transmission grid of BPA. Each plant has a 20-year transmission 54 agreement with BPA, expiring in April 2015, for transmission capacity which we believe is sufficient to meet both plants' existing and projected energy needs. These transmission agreements obligate BPA to offer Goldendale Aluminum Company and Northwest Aluminum Company a new transmission agreement upon the expiration of the current agreements. Moreover, the transmission agreements also obligate BPA to act as agent for Goldendale and Northwest to obtain transmission services over other transmission systems if requested. With the exception of limited rights to restrict transmission service in the event of certain threats to system stability, the transmission agreements obligate BPA to provide Goldendale and Northwest with the same open access transmission available to utilities and power companies under the rules of the Federal Energy Regulatory Commission. Goldendale and Northwest are buying energy from BPA pursuant to a five-year Power Sale Agreement through which approximately 60% of each plant's energy needs are contractually secured at predetermined prices through September 30, 2001. The published annual average rate for power from BPA is 2.2 cents per kilowatt-hour. The Power Sale Agreement allows us to schedule our purchases in different months when power is priced at different rates in such a way that power purchased from BPA has an actual rate that is lower than the published average rate. The remaining 40% of Northwest's and Goldendale's energy requirements is obtained by purchasing blocks of energy under periodic contracts from various suppliers, including BPA, PacifiCorp, Enron, Illinova Energy, Duke Energy, Avista Energy, the Washington Water Power Company and others. Recently, power costs have increased as the amount of power required to be purchased at predetermined prices under the Power Sale Agreement has been greater than in earlier periods when we purchased more power on the spot market. Due to our transmission agreements and the smelters' geographical location on an unconstrained segment of the main transmission network in the region, we believe we will be able to obtain competitively-priced power in the foreseeable future. We do face the normal risks associated with the market price of energy, however. Numerous short-term and long-term developments can affect power prices, including worldwide demand for fossil fuels, changing environmental standards, the overall economic activity in the United States and the Pacific Northwest, weather temperature and precipitation. Due to the high percentage of hydroelectric generation in the power supply of the Pacific Northwest, energy prices in the region tend to be sensitive to drought conditions that reduce the availability of low cost hydroelectric power supply. The hydroelectric system in the Pacific Northwest, however, has significant flexibility and excess capacity to meet spikes in demand or short-term thermal plant outages that have caused large price swings in other regions of the country. For the longer term, we expect that the geographical proximity to the low-cost Western Canadian natural gas supply and the operating flexibility and stability of the Federal Columbia River Hydro System should keep the market price of electricity attractive in the Pacific Northwest relative to the average market price of power in the United States. In addition, we are exploring opportunities to develop generating capability either on our own or in conjunction with BPA, publicly owned local utilities or other resource developers. 55 Hedging Activities Our revenues and earnings are sensitive to changes in the price of primary aluminum and in the premiums for, and mix of, our value-added products. For example, the tolling fees and premiums received by us are tied to the London Metals Exchange price of aluminum. Primary aluminum prices historically have been subject to significant cyclical price fluctuations. The timing of changes in the market price of aluminum largely are unpredictable. Aluminum prices historically have shown long periods of average, or below average, prices followed by sudden, relatively short periods of above average prices. These prices have historically fluctuated widely and are affected by numerous factors beyond our control, including the overall demand for, and worldwide supply of, primary aluminum, the availability and price of competing commodities, international economic trends, currency exchange rate fluctuations, expectations of inflation, actions of commodity market participants, consumption and demand patterns and political events in major producing countries. Over the ten-year period between January 1, 1988 and December 31, 1997, the three month price of aluminum on the London Metals Exchange has ranged between a low of approximately $0.47 per pound to a high of approximately $1.26 per pound. During this period prices averaged $0.73 per pound. We attempt to mitigate fluctuations in the price of commodity aluminum through our strategy of minimizing the costs of production and maximizing the margins of our value-added products. When we sell value-added products for future delivery at a fixed price, we generally purchase metal or otherwise fix the price of the commodity aluminum required in that period to support the sale. From time to time, we may leave some quantities for some durations uncovered, or acquire put or call options. This policy generally leaves us with a fixed margin on our value-added sales and open prices for our future primary production that will vary with London Metals Exchange aluminum prices. Backlog We generally receive the bulk of the orders for value-added specialty aluminum products in the three months preceding the calendar year in which the products are to be shipped to customers. At December 31, 1998, our fixed price backlog was $62.6 million, compared to $67.2 million at December 31, 1997. For a variety of reasons, including the timing of shipments and product mix, backlog may not be a reliable measure of future sales for any succeeding period. Competition Competition within the aluminum industry is intense. We compete with both domestic and foreign producers of primary aluminum and with primarily domestic producers of extrusion billet and other value-added products and with primarily domestic producers of 56 other products such as copper, steel, glass and plastic. Many of our competitors have greater financial resources than we do, which may adversely affect our ability to compete effectively. Primary aluminum is a commodity with standard qualities. Competition generally is based upon the ability to produce primary aluminum at a cost below the market price, which generally is established through trading on the London Metals Exchange. We also compete with various aluminum producers, casting companies, extruders and other fabricators in the production of extrusion billet, sheet ingot, small diameter ingot and other value-added products. In the extrusion billet market, we compete primarily with Alcan and Alumax, which was recently acquired by Alcoa. Northwest Aluminum Specialties' major competition in the small diameter billet segment comes from extrusion companies rather than primary producers. These companies include Crissonna, a division of Alumax, and Pimalco, a subsidiary of Alcoa, both of which are large, efficient extruders. Competition in the sale of these value-added products generally is based upon price, quality, availability, service and other factors. We concentrate on the sale of value-added products in which we believe we have production expertise, cost, quality, geographic or other competitive advantages. Environmental and Health Matters We are subject to federal, state and local environmental laws. From time to time, these environmental laws are amended and new ones are adopted. These laws regulate, among other things, air emissions and water discharges; the use, generation, storage, treatment, transportation and disposal of solid and hazardous materials and wastes; and the release of hazardous or toxic substances or other contaminants into the environment. In addition, we are subject to various federal, state and local workplace health and safety laws and regulations. The environmental and health laws are administered by the U.S. Environmental Protection Agency, and various other federal, state and local agencies. To operate our business in compliance with environmental and health laws, we must obtain and maintain in effect permits for each of our facilities for a variety of operations. These permits include without limitation permits for discharges of wastewater, emission of air pollutants and management of hazardous wastes. As a result, we sometimes are required to make expenditures for pollution control equipment or for other purposes related to our permits and compliance with the environmental and health laws. We have been fined or penalized for breaches or alleged breaches of the environmental and health laws and subjected to claims and litigation brought by federal, state or local agencies and by private parties seeking remedial or other enforcement action under the environmental and health laws or damages related to injuries or alleged injuries to health or to the environment. The Dalles smelter, the Goldendale smelter and the Portland, Oregon unloading facility were subject to an environmental compliance assessment by an independent environmental consultant in 1996 that was updated in the summer of 1998. These assessments were intended to evaluate our compliance with the environmental laws regulating discharges of wastewater, emission of air pollutants and the management of hazardous wastes. These assessments identified no 57 condition of non-compliance that we believe would have a material adverse effect on our financial condition or results of operations, nor are we aware of any such material condition. Our manufacturing facilities have been in operation for several decades, and these facilities have used substances and generated and disposed of wastes that are or may be considered hazardous. For example, these facilities have in the past stored or disposed of wastewater treatment sludge in on-site ponds, lagoons or other surface impoundments and have handled spent pot liner and disposed of spent pot liner and other wastes in on-site surface impoundments. Martin Marietta Corporation (a prior owner of The Dalles smelter) conducted an investigation of soil and groundwater at the smelter and implemented clean-up measures at the smelter site, including the removal of hazardous substances from groundwater and certain areas of the site and the encapsulation of other areas where hazardous substances were disposed or released. Martin Marietta performed this work under the supervision of the U.S. Environmental Protection Agency. In 1996 Martin Marietta completed the investigations and clean-up measures required by the EPA at The Dalles smelter site. Although the purpose of the Martin Marietta investigation was to identify all areas at the smelter where hazardous substances had been disposed or released, we do not assure you all affected areas were identified or that the clean-up measures will perform as expected in the future. Hazardous substances have also been released at the Goldendale facility, and the site was listed in the EPA's Comprehensive Environmental Response, Compensation, and Liability Information System database in 1980. We expect expenditures will be necessary at the Goldendale smelter to investigate and clean up releases of hazardous substances disposed or released at the Goldendale smelter, although we are unable to estimate the amount of these expenditures. We have requested the State of Washington Department of Ecology to approve a plan to close an on-site surface impoundment at the Goldendale facility by 2005-2006. As of December 31, 1997, the estimated cost of the surface impoundment closure and post- closure actions was over $3.0 million. We have established a trust fund of approximately $535,000, as of December 31, 1997, to help pay these costs, and we have procured insurance coverage to provide funds to the State of Washington for closure if we default. We do not assure you whether or not the actual closure costs will exceed our estimate. Under a contract with the former owners of the Goldendale smelter, the former owners have indemnified Goldendale Aluminum Company for certain anticipated expenditures. We do not assure you the former owners of the Goldendale smelter will contribute their contractually allocated share of the costs necessary to investigate and clean-up hazardous substances disposed or released at the Goldendale smelter site or to obtain regulatory closure of surface impoundments at the site. As a result of recent changes in the environmental laws, we have incurred substantial increases in costs associated with the disposal of spent pot liner from our smelters. We dispose of spent pot liner pursuant to a contract with a chemical waste treatment company, which expires in December 31, 2000, and which provides for increased treatment costs as the 58 contract continues. The EPA has called for proposals from aluminum producers for alternative methods of disposing of spent pot liner. We are developing a process designed to recycle spent pot liner into marketable products which we plan to submit to the EPA for approval. We also expect several other producers to make proposals to the EPA. We cannot predict, however, whether our process, or any other proposed process, will be approved by the EPA; whether any such process, if approved, will be cost efficient; or what additional costs of disposal of spent pot liner, if any, we may incur in the absence of EPA approval of an available, cost efficient disposal process. We do not assure you (1) whether an environmental condition that we do not know about exists as to one or more of our properties that could have an adverse effect on our results of operations or financial condition or (2) whether future environmental or health laws will have an adverse effect on our results of operation or financial condition. Employees As of December 31, 1998, we employed 1,217 workers, 568 of which are members of Local 8147 and 419 of which are members of Local 9170 of the United Steelworkers of America. Goldendale Aluminum Company is signatory to a collective bargaining agreement with the USW for the period May 24, 1996 through May 31, 2001. Northwest Aluminum Company is a signatory to a collective bargaining agreement with the USW for the period July 1, 1996 through June 30, 2001. Both labor agreements provide for a 4% wage increase each year of the contract. During the contract period there is a no strike/no lockout agreement. We provide profit sharing programs in addition to the base compensation for all employees, and a fully-paid medical, dental and vision health care plan. We have a 401(k) plan but no defined benefit plan. We believe we have a good relationship with the union and an employee involvement process that encourages creativity, productivity and positive employer-employee relations. 59 Properties We own all of our facilities. The following table shows (1) each facility, (2) its square footage, (3) its annual production capacity and (4) its use. FACILITIES
Square Annual Facility Footage Capacity Operations -------- ------- -------- ---------- Goldendale Smelter 1,209,730 168,000 mt Alumina reduction Casthouse Included in above 168,000 mt Produce sow, billet, sheet Unloading Facility 7.9 acres 42,000 mt (Portland) shipments Paste Plant 37,711 85,000 mt Carbon briquette production Laboratory 18,995 Quality control, R & D Real Property 6,473 acres Northwest Smelter 636,000 82,000 mt Alumina reduction Casthouse 122,000 99,800 mt Produce sow,billet,ingot Paste Plant 108,000 85,000 mt Carbon briquette production Real Property 390 acres Specialties Casthouse 160,000 Up to 54,500 mt Value-added billet depending on product mix Sawing/Turning 100,000 Saw: Semi-fabrication 130,000 mt Turning: 1,000,000 logs
We believe these facilities are adequate to meet our current needs. We are expanding or upgrading some of our facilities pursuant to the facilities investment program. Most of our facilities are subject to mortgages and other encumbrances to secure the notes and our indebtedness to Hydro. See "-- Facilities Investment Program." Legal Proceedings From time to time, we are involved in various legal proceedings arising from our normal business activities. We believe these legal proceedings, individually or in the aggregate, will not have a material adverse effect on our financial condition or results of operations. We are involved in a dispute with the IRS relating to proposed adjustments to 60 both Northwest Aluminum Company and Goldendale Aluminum Company's taxable income for prior years. These adjustments could affect income taxes in future years. 61 MANAGEMENT The following table sets forth information about our directors, executive officers and certain other key employees as of the date of this document.
Name Age Positions with the Company - ---- -- -------------------------- Brett E. Wilcox............... 45 Chairman, President and Director Allen Barkley................. 43 Vice President and General Manager-- Northwest William R. Reid............... 50 Chief Financial Officer-- Golden Northwest Aluminum, Inc. and Northwest Daniel J. Gnall............... 40 Vice President-- Sales and Marketing-- Northwest Muhsin (Mac) Seyhanli......... 54 Vice President and General Manager-- Golden Northwest Aluminum, Inc. and Goldendale Gerald Miller................. 57 Vice President, General Counsel and Secretary-- Golden Northwest Aluminum, Inc. and Goldendale Jessie Casswell............... 49 Chief Financial Officer-- Goldendale A. Ray Roberts................ 57 President-- Technologies Robert Ames................... 58 Director Stephen E. Babson............. 47 Director David Bolender................ 66 Director Michael G. Psaros............. 31 Director
Brett Wilcox has served as our President since our inception in June 1998. Mr. Wilcox is also the President of Northwest Aluminum Company, which he founded in 1986, and since 1996 has served as the President of Goldendale Aluminum Company. Before founding Northwest in 1986, Mr. Wilcox was the Executive Director of Direct Service Industries, a trade association of ten large aluminum and other energy-intensive companies that purchase electricity from the Bonneville Power Administration. Before 1986 Mr. Wilcox was an attorney with Preston and Gates in Seattle, Washington, concentrating in energy and general business matters. Mr. Wilcox is chairman of the Oregon Economic Development Commission, Vice Chair of the Oregon Progress Board and active in various civic and business organizations. Allen Barkley joined Northwest in June 1995 as Production Engineering Manager and became Vice President and General Manager in October 1996. Before joining Northwest, Mr. Barkley spent 18 years at a primary aluminum smelter facility in Columbia Falls, Montana where he served in a variety of capacities, including production, engineering, maintenance and public affairs. William Reid joined Northwest in 1986, became its Controller in 1993 and was appointed Chief Financial Officer of Northwest in 1996 and of Golden Northwest Aluminum in August 1998. Before joining Northwest, Mr. Reid was a senior auditor with Touche Ross & Co. 62 Daniel J. Gnall joined Northwest in August 1991 as a metal trader, and in 1992 became Manager -- Sales and Marketing responsible for metal purchasing and sales. Before joining Northwest, Mr. Gnall was an account executive with Martin Marietta Corporation and worked for Cassmet International, Inc., a metals trading company where he served as its General Manager in charge of physical operations and non-ferrous metal purchasing and sales. Muhsin (Mac) Seyhanli became Vice President and General Manager of Golden Northwest Aluminum in August 1998. He was one of the founders of Columbia Aluminum Company, the predecessor of Goldendale, and since 1994 has been the general manager for all operations at Goldendale, becoming its Vice President and General Manager in 1996. Before his current position, Mr. Seyhanli was a cell line manager for both Columbia and Commonwealth Aluminum. Mr. Seyhanli has over 29 years of experience in the aluminum industry. Gerald Miller became Vice President, General Counsel and Secretary of Golden Northwest Aluminum in August 1998. He joined Columbia Aluminum Company in 1989 as General Counsel and Corporate Secretary. In 1996, Mr. Miller was named to the additional post of Vice President -- Energy and Government Affairs of Goldendale. Before joining Goldendale, Mr. Miller was a trial lawyer in private practice in the state of Washington. Mr. Miller is a member of the Board of Directors of the State of Washington Economic Development Finance Authority. Jessie Casswell has been the Chief Financial Officer of Goldendale since 1998 the Controller since 1984. From 1972 to 1984, Ms. Casswell served as the Controller of Northwest. Ms. Casswell is also a member of the Executive Committee of the Goldendale profit sharing plan and is the Chairperson of the Trustees of the profit sharing plan. A. Ray Roberts joined Northwest in 1992 as Operations Manager and was responsible for smelter operations. In 1997, Mr. Roberts was named President of Northwest Aluminum Technologies. In his over 28 years of experience in the aluminum industry and before joining Northwest, Mr. Roberts has worked for several smelting facilities in various engineering and managerial capacities, including production, marketing manager, technology development and liaison to government. Robert Ames became a director of Golden Northwest Aluminum in 1998. Since 1996, he has served as a director of Goldendale. Until his retirement in 1995, Mr. Ames worked in the banking industry, serving most recently as the Vice Chairman and President of First Interstate Bank of Oregon. Mr. Ames is a real estate investor and a member of the boards of directors of a number of Pacific Northwest companies, including Barrett Business Services, Inc. Stephen E. Babson became a director of Golden Northwest Aluminum in 1998. Since 1996, he has served as a director of Goldendale. Mr. Babson has been a partner in the 63 Portland office of Stoel Rives LLP, which is acting as our counsel in connection with this exchange offer, since 1984. Mr. Babson is also a director of Roseburg Forest Products Co. and serves on the advisory boards of several Pacific Northwest based technology companies. He is the general partner of Babson Capital Partners, LP, a private investment fund, the secretary and director of the Oregon Symphony Association and the Chair of the Riverdale School Foundation. Mr. Babson formerly served as secretary and a director of the Software Association of Oregon. David Bolender became a director of Golden Northwest Aluminum in 1998. Since 1996, he has served as a director of Goldendale. Since 1992, Mr. Bolender has served as Chairman of the Board of Electro Scientific Industries, Inc., a manufacturer of machine tools for the electronics industry. In May 1998, Mr. Bolender became Chief Executive Officer and Chairman of the Board of Protocol Systems, a manufacturer of medical vital sign monitoring instrumentation. From 1982 to 1991, Mr. Bolender was President of Pacific Power and Light Company and PacifiCorp Electric Operations Group. Before joining PacifiCorp in 1982, Mr. Bolender spent 12 years with Westinghouse Electric Corporation, where he managed the construction and operation of power plants around the world. He is a member of the boards of directors of Benson Industries and Micro Monitors. Michael G. Psaros became a director of Golden Northwest Aluminum in 1998. Since 1996, he has served as a director of Goldendale. Since 1991, Mr. Psaros has been a Principal of Keilin & Co. LLC, a New York investment bank. Mr. Psaros is also a Principal of KPS (Keilin, Psaros, Shapiro) Special Situations Fund, L.P., a private equity fund. Before joining Keilin, Mr. Psaros worked in the investment banking department of Bear, Stearns & Co. Inc. Mr. Psaros was originally appointed to Goldendale's Board by the President of the United Steelworkers of America. 64 EXECUTIVE COMPENSATION Compensation Committee Interlocks and Insider Participation In the last fiscal year, our Board of Directors did not have a compensation committee. Compensation decisions with respect to executive officers were made by Brett Wilcox. Executive Compensation Compensation Summary. The following table sets forth compensation information for the President and our other four most highly compensated executives, each of whose total annual compensation exceeded $100,000 in 1998.
Summary Compensation Table Annual Compensation ------------------------------------------ Other Annual Salary Bonus Compensation ------ ----- ------------ Brett Wilcox, President and Chairman of the Board 1998................................ $601,806 $903,001 $0 Muhsin (Mac) Seyhanli, Vice President and General Manager 1998................................ 150,000 253,380 0 Allen Barkley, Vice President and General Manager -- Northwest Aluminum Company 1998................................ 106,950 100,000 0 Daniel J. Gnall, Vice President - Sales and Marketing -- Northwest Aluminum Company 1998................................ 106,950 100,000 0 William R. Reid, Chief Financial Officer 1998................................ 106,950 100,000 0 Limitation of Liability and Indemnification
Our articles of incorporation eliminate, to the fullest extent permitted by Oregon law, liability of our directors for monetary damages for conduct as a director. Although liability for monetary damages has been eliminated, equitable remedies such as injunctive relief or rescission remain available. In addition, a director is not relieved of his responsibilities under any other law, including the federal securities laws. 65 Our articles of incorporation require us to indemnify directors to the fullest extent not prohibited by law. We believe that the limitation of liability provisions in our articles of incorporation may enhance our ability to attract and retain qualified individuals to serve as directors. Directors' Compensation Directors who are not our employees receive a fee of $5,000 per board meeting attended. 66 CERTAIN TRANSACTIONS We sell semi-solid metalworking and other value-added products to Hot Metal Technologies, Inc. and Hot Metal Moldings, Inc. under annual purchase orders. Hot Metal Technologies and Hot Metal Moldings, suppliers of automotive parts, are each wholly owned by Brett Wilcox, our sole shareholder. Our sales to these companies under these purchase orders totalled approximately $3.6 million for the year ended December 31, 1997 and $5.3 million for the nine months ended September 30, 1998. We also made advances to Hot Metal Technologies and Hot Metal Moldings during the year ended December 31, 1997, and during the nine months ended September 30, 1998, by way of payroll and benefits expenses paid by Northwest Aluminum Company with respect to Northwest employees on loan to these companies. On December 31, 1997, $4.0 million of the aggregate amount then owed by Hot Metal Technologies and Hot Metal Moldings to us with respect to accounts receivable and advances was converted to a note receivable. The note bears interest at 9.25% per annum and is payable in quarterly installments beginning April 1, 1998 through January 2002. As of December 31, 1998, an aggregate of approximately $4.3 million was owed by these companies to us, consisting of approximately $3.4 million on the note receivable and accounts receivable of approximately $0.9 million. The highest amount of aggregate indebtedness of Hot Metal Technologies and Hot Metal Moldings to us since January 1, 1997 was $6.5 million. In 1998 the federal government made a grant of $750,000 to Hot Metal Technologies as contractor, and Northwest Aluminum Specialties as subcontractor, for semi-solid metalworking research. In 1997 Northwest Aluminum Company paid $4.9 million to Mr. Wilcox to pay taxes owed by him as a result of Northwest's status as a Subchapter S corporation. The amount paid was in excess of actual tax liabilities and, of this amount, $2.9 million was recorded as a dividend. The remaining $2.0 million is recorded as a receivable on our combined balance sheet and is outstanding. No interest is payable upon the receivable. Mr. Wilcox has entered into an indemnification agreement with Northwest, Northwest Aluminum Specialties and us pursuant to which we have agreed not to file any amended income tax return or change any election or accounting method without the consent of Mr. Wilcox if the filing or change would increase any tax liability of Mr. Wilcox. In addition, the companies have agreed to indemnify Mr. Wilcox for any adjustment for taxes owed for earlier periods (including taxes on any such indemnification payments) and for certain other fees and costs relating to periods before December 18, 1998. Pursuant to a voting agreement effective May 17, 1996, Mr. Wilcox must cause Goldendale Holding Company to vote the shares of Goldendale Aluminum Company common stock held by it to ensure that 67 (1) the Goldendale Aluminum Company board of directors consists of not more than five directors, (2) not less than one director is a nominee designated by the President of the United Steel Workers of America and (3) not less than two directors are nominees of Mr. Wilcox who have no significant continuing business relationship with Mr. Wilcox or any entity controlled by him. The voting agreement will remain in force so long as the USW represents the collective bargaining unit of the Goldendale facility, except that clauses (1) and (3) of the preceding sentence will continue only until the termination of the initial term of the Collective Bargaining Agreement dated April 7, 1996 between Goldendale Aluminum Company and the USW. 68 THE EXCHANGE OFFER Terms of the Exchange Offer; Period for Tendering Your Notes We sold your notes on December 21, 1998 to BancBoston Robertson Stephens Inc. and Libra Investments, Inc. under a purchase agreement dated December 14, 1998. Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, we will accept for exchange any and all your notes that are properly tendered on or before the Expiration Date and not withdrawn as permitted below. The term "Expiration Date" means 5:00 p.m., New York City time, on ____________, 1999; provided, however, that if we, in our sole discretion, have extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $150,000,000 aggregate principal amount of the notes was outstanding. We are sending this Prospectus, together with the Letter of Transmittal, on or about the date set forth on the cover page to you at the addresses set forth in the security register with respect to notes maintained by the trustee. Our obligation to accept notes for exchange pursuant to the Exchange Offer is subject to certain conditions. We reserve the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any notes, by mailing written notice of any extension to you as described below. During any extension, all notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by us. Any notes not accepted for exchange for any reason will be returned without expense to the tendering holder of the notes as promptly as practicable after the expiration or termination of the Exchange Offer. Notes tendered in the Exchange Offer must be $1,000 in principal amount or any integral multiple thereof. We will mail written notice of any extension, amendment, non-acceptance or termination to the holders of the notes as promptly as practicable. Any notice will be mailed to the holders of record of the notes no later than 9:00 a.m. New York City time, on the next business day after the previously scheduled Expiration Date or other event giving rise to the notice requirement. Registration Rights; Additional Interest Pursuant to a registration rights agreement, we have agreed with BancBoston Robertson Stephens Inc. and Libra Investments, Inc., for your benefit and at our cost, (1) not later than 60 days after December 21, 1998, to file a registration statement with the Securities and Exchange Commission with respect to a registered offer to exchange the notes for new notes having terms substantially identical in all material respects to the notes, except that the new 69 notes will not contain terms with respect to transfer restrictions and (2) to use our best efforts to cause this registration statement to be declared effective under the Securities Act not later than 120 days after December 21, 1998. Upon the effectiveness of the registration statement, we will promptly offer the new notes in exchange for surrender of the notes. We will keep this offer open for not less than 20 business days after the date notice of the offer is mailed to you and use our best efforts to cause the offer to be completed no later than 150 days after the December 21, 1998. For each note surrendered to us pursuant to the offer, the holder of the note will receive a new note having a principal amount equal to that of the surrendered note. Interest on each new note will accrue from the last interest payment date on which interest was paid on the note surrendered in exchange for the new note or, if no interest has been paid on the note, from the date of its original issue. In general, if you wish to exchange the notes for new notes in the offer, you will be required to represent that any new notes you receive will be acquired in the ordinary course of your business, that you are not our "affiliate," as defined in Rule 405 of the Securities Act, and that at the time of the commencement of the offer, you have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the new notes, or if you are participating in a distribution of the new notes, that you will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If applicable law or interpretations of the staff of the SEC do not permit us to effect such an offer, if the offer is not consummated within 150 days after December 21, 1998, or if any holder of notes notifies us within 20 business days after completion of the offer that the holder was prohibited by applicable law or SEC policy from participating in the offer, or that the holder may not resell the new notes acquired by it in the offer without delivering a prospectus and that the prospectus contained in the registration statement is not appropriate or available for such resales or that the holder is a broker-dealer and holds notes acquired directly from us or one of our affiliates, we will, at our cost, (1) as promptly as practicable, but no later than 60 days after the satisfaction of any of the foregoing conditions, file a shelf registration statement covering resales of the notes or the new notes, as the case may be, (2) use our best efforts to cause the shelf registration statement to be declared effective under the Securities Act as promptly as practicable, but no later than 120 days after the satisfaction of any of the foregoing conditions, and (3) keep the shelf registration statement effective for two years after its effective date (or a shorter period that will terminate when all notes or new notes, as the case may be, covered by the shelf registration statement have been sold pursuant to the shelf registration statement). In certain circumstances, we have the right to suspend the effectiveness of the shelf registration statement for limited periods. If a shelf registration statement is filed, we will provide to each holder for whom such shelf registration statement was filed copies of the prospectus which is part of the shelf registration statement, notify each such holder when the shelf registration statement has become effective and take certain other actions required to permit unrestricted resales of the notes or the new notes, as the case may be. A holder selling these notes or new notes pursuant to the shelf registration statement generally would be required to be named as a selling security holder in 70 the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement that are applicable to the holder (including certain indemnification obligations). If (1) within 60 days after December 21, 1998, the registration statement has not been filed with the SEC; (2) within 120 days after December 21, 1998, the registration statement has not been declared effective; (3) within 150 days after December 21, 1998, the offer has not been completed; (4) a shelf registration statement is required to be filed and is not filed within the time specified for filing in the registration rights agreement or is not declared effective within the time specified for effectiveness in the registration rights agreement; or (5) after either the registration statement or the shelf registration statement has been declared effective, the registration statement thereafter ceases to be effective or fails to be usable (subject to certain exceptions) for its intended purpose in connection with resales of notes or new notes in accordance with and during the periods specified in the registration rights agreement, additional interest will accrue on the notes and the new notes from and including the date on which any registration default occurs but excluding the date on which all registration defaults have been cured. Additional interest will accrue at a rate of 0.25% per annum during the 90-day period immediately following the occurrence of any registration default and will increase by 0.25% per annum at the commencement of each subsequent 90-day period, but additional interest will not accrue at a rate in excess of 1.0% per annum. Following the cure of all registration defaults, the accrual of additional interest will cease. This summary of material provisions of the registration rights agreement is not complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreement, a copy of which is available upon request to us. Procedure for Tendering Notes Your tender of notes to us as set forth below and our acceptance of the notes will constitute a binding agreement between you and us upon the terms and subject to the conditions set forth in this document and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender notes for exchange pursuant to the 71 Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, together with all other documents required by the Letter of Transmittal, to U.S. Trust Company, National Association at the address set forth below under "-- Exchange Agent" on or before the Expiration Date. In addition, (1) certificates for the notes must be received by U.S. Trust along with the Letter of Transmittal, or (2) a timely confirmation of a book-entry transfer of the notes, if this procedure is available, into U.S. Trust's account at The Depository Trust Company pursuant to the procedure for book-entry transfer described below, must be received by U.S. Trust before the Expiration Date or (3) you must comply with the guaranteed delivery procedures described below. The method of delivery of the notes, Letters of Transmittal and all other required documents is at your election and risk. If the delivery is by mail, we recommend registered mail, properly insured, with return receipt requested, be used in all cases. You should allow sufficient time to assure timely delivery. No Letters of Transmittal or notes should be sent to us. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the notes surrendered for exchange are tendered (1) by a registered holder of the notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (2) for the account of an eligible institution. An "eligible institution" is an eligible guarantor institution (bank, stockbroker, national securities exchange, registered securities association, savings and loan association or credit union with membership in a signature medallion program) under Rule 17Ad-15 of the Securities Exchange Act of 1934. If signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantees must be by an eligible institution. If notes are registered in the name of a person other than the person signing the Letter of Transmittal, the notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder, with the signature guaranteed by an eligible institution. All questions about the validity, form, eligibility (including time of receipt) and acceptance of notes tendered for exchange will be determined by us in our sole discretion, which determination shall be final and binding. We reserve the absolute right to reject any and all tenders of any particular notes not properly tendered or not to accept any particular notes if acceptance might, in our judgment or the judgment of our counsel, be unlawful. We also reserve the absolute right in our sole discretion to waive any defects or irregularities or conditions of the Exchange Offer as to any particular notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by us shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of notes for exchange must be cured within a reasonable period of time that we shall determine. Neither we, U.S. Trust nor any other person shall be under any duty to give 72 notification of any defect or irregularity with respect to any tender of notes for exchange, nor will any of us incur any liability for failure to give any notification. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of notes, the notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the notes. If the Letter of Transmittal or any notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, these persons should so indicate when signing, and unless waived by us, proper evidence satisfactory to us of their authority to so act must be submitted with the Letter of Transmittal. By tendering notes, if you are not a broker-dealer, you must acknowledge you are not engaged in, and do not intend to engage in, a distribution of new notes. If you are our "affiliate," as defined under Rule 405 of the Securities Act, or are engaged in or intend to engage in or have any arrangement with any person to participate in the distribution of the new notes to be acquired pursuant to the Exchange Offer, you (1) could not rely on the applicable interpretations of the staff of the SEC and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives new notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Acceptance of Notes for Exchange; Delivery of New Notes We will accept, promptly after the Expiration Date, all notes properly tendered and will issue the new notes promptly after acceptance of the notes. For each note accepted for exchange, the holder of the note will receive a new note having a principal amount equal to that of the surrendered note. The new notes will bear interest from the most recent date to which interest has been paid on the notes or, if no interest has been paid on the notes, from December 15, 1998. Accordingly, if the relevant record date for interest payment occurs after the completion of the Exchange Offer, registered holders of new notes on the record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from December 15, 1998. If, however, the relevant record date for interest payment occurs before the completion of the Exchange Offer, registered holders of notes on the record date will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from December 15, 1998. Notes accepted for exchange will cease to accrue interest from and after the date of completion of the Exchange Offer, except as set forth in the immediately preceding sentence. If your notes are accepted for exchange, you will not receive any payment in respect of 73 interest on the notes otherwise payable on any interest payment date the record date for which occurs on or after completion of the Exchange Offer. In all cases, issuance of new notes for notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by U.S. Trust of (1) certificates for the notes or a timely book-entry confirmation of the notes into U.S. Trust's account at The Depository Trust Company, (2) a properly completed and duly executed Letter of Transmittal and (3) all other required documents. If any tendered notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if certificates representing notes are submitted for a greater principal amount than the holder desires to exchange, certificates representing the unaccepted or non-exchanged notes will be returned without expense to the tendering holder of the notes (or, in the case of notes tendered by book-entry transfer into U.S. Trust's account at The Depository Trust Company pursuant to the book-entry transfer procedures described below, the non-exchanged notes will be credited to an account maintained with The Depository Trust Company) as promptly as practicable after the expiration or termination of the Exchange Offer. Book-Entry Transfer U.S. Trust will make a request to establish an account with respect to the notes at The Depository Trust Company for purposes of the Exchange Offer within two business days after the date of this document, and any financial institution that is a participant in The Depository Trust Company's systems may make book-entry delivery of notes by causing The Depository Trust Company to transfer the notes into U.S. Trust's account at The Depository Trust Company in accordance with The Depository Trust Company's procedures for transfer. Although delivery of notes may be effected through book-entry transfer at The Depository Trust Company, the Letter of Transmittal or a facsimile of it, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by U.S. Trust at the address set forth below under " - -- Exchange Agent" on or prior to the Expiration Date or you must comply with the guaranteed delivery procedures described below. Guaranteed Delivery Procedures If you desire to tender your notes and your notes are not immediately available, or time will not permit your notes or other required documents to reach U.S. Trust before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (1) the tender is made through an eligible institution, (2) before the Expiration Date, U.S. Trust receives from the eligible institution a properly completed and duly executed Letter of Transmittal (or a facsimile of it) and Notice of Guaranteed Delivery, substantially in the form provided by us (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth your name and address and the amount of notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange trading days after the date of execution of the Notice of 74 Guaranteed Delivery, the certificates for all physically tendered notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the eligible institution with U.S. Trust and (3) the certificates for all physically tendered notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by U.S. Trust within five New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery. Withdrawal Rights Tenders of notes may be withdrawn at any time before 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written or facsimile notice of withdrawal must be received by U.S. Trust at the address set forth below under "-- Exchange Agent." Any notice of withdrawal must specify the name of the person having tendered the notes to be withdrawn, identify the notes to be withdrawn (including the principal amounts of such notes), and (where certificates for notes have been transmitted) specify the name in which such notes are registered, if different from that of the withdrawing holder. If certificates for notes have been delivered or otherwise identified to U.S. Trust, then, prior to the release of the certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution unless the holder is an eligible institution. If notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at The Depository Trust Company to be credited with the withdrawn notes and otherwise comply with the procedures of the facility. All questions about the validity, form and eligibility (including time of receipt) of the notices will be determined by us and our determination will be final and binding on all parties. Certificates for any notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any notes that have been tendered for exchange but which are not exchanged for any reason will be returned to the holder of the notes without cost to the holder (or, in the case of notes tendered by book-entry transfer into U.S. Trust's account at The Depository Trust Company pursuant to the book-entry transfer procedures described above, the notes will be credited to an account maintained with The Depository Trust Company for the notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn notes may be retendered by following one of the procedures described under "-- Procedure for Tendering Notes" above at any time on or before the Expiration Date. Exchange Agent U.S. Trust Company, National Association has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at the address set forth below. Questions and requests for assistance, requests for 75 additional copies of this document or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent, addressed as follows: By Mail or by Hand: U.S. Trust Company, N.A., Exchange Agent One Embarcadero Center, Suite 2050 San Francisco, CA 94111 By Facsimile: 415-956-2545 Confirm Facsimile by Telephone: 415-743-9004 Delivery of the Letter of Transmittal to an address other than as set forth above or transmission of instructions via facsimile other than as set forth above does not constitute a valid delivery of the Letter of Transmittal. Fees and Expenses We will not make any payment to brokers, dealers or others soliciting acceptances of the Exchange Offer. Transfer Taxes You will not be obligated to pay any transfer tax in connection with the exchange, except if you instruct us to register new notes in the name of, or request that notes not tendered or not accepted in the Exchange Offer be returned to, a person other than you, you will be responsible for the payment of any applicable transfer tax. Appraisal Rights You will not have dissenters' rights or appraisal rights in connection with the Exchange Offer. Consequences of Failure to Exchange Notes If you do not exchange their notes for new notes pursuant to the Exchange Offer, you will continue to be subject to the restrictions on transfer of the notes. In general, the notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 76 Securities Act and applicable state securities laws. We do not anticipate that we will register the existing notes under the Securities Act. Based on interpretations by the staff of the SEC issued to third parties, new notes issued pursuant to the Exchange Offer in exchange for notes may be offered for resale, resold or otherwise transferred by holders of the new notes (other than any holder that is our "affiliate"within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the new notes are acquired in the ordinary course of the holders' business and the holders have no arrangement with any person to participate in the distribution of the new notes. If you are not a broker-dealer, you must acknowledge you are not engaged in, and do not intend to engage in, a distribution of new notes. If you are our affiliate, are engaged in or intend to engage in or have any arrangement or understanding with respect to the distribution of the new notes to be acquired pursuant to the Exchange Offer, you (1) could not rely on the applicable interpretations of the staff of the SEC and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives new notes for its own account in exchange for notes must acknowledge that the notes were acquired by the broker-dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of the new notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, it may be necessary to qualify for sale or to register the new notes prior to offering or selling the new notes. We do not intend to take any action to register or qualify the new notes for resale in any of these jurisdictions. 77 DESCRIPTION OF NOTES Table of Contents Page Introduction................................................................79 Brief Description of the Notes and the Guarantees...........................79 Principal, Maturity and Interest............................................80 Methods of Receiving Payments on the Notes..................................80 Paying Agent and Registrar for the Notes....................................81 Transfer and Exchange.......................................................81 Security....................................................................81 The Subsidiary Guarantees...................................................82 Ranking of Notes and Guarantees.............................................83 Material Bankruptcy Limitations.............................................83 Optional Redemption.........................................................84 Offer to Purchase the Notes.................................................84 Selection and Notice........................................................85 Material Covenants..........................................................85 Limitations on Indebtedness............................................. 85 Limitations on Restricted Payments, Restricted Investmenets and Unrestricted Subsidiary Investments................................ 88 Restrictions on Transactions with Affiliates and Unrestricted Subsidiaries....................................................... 93 Limitations on Liens.................................................... 94 Subsidiary Guarantees................................................... 96 Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries............................................. 96 Limitations on Asset Sales.............................................. 97 Limitations on Unrestricted Subsidiaries................................ 99 Conduct of Business..................................................... 99 Limitations on Issuances and Sales of Capital Stock of Subsidiaries..... 99 Payment for Consent.....................................................100 Maintenance of Corporate Existence......................................100 Maintenance of Insurance................................................100 SEC Reports.............................................................100 Merger or Consolidation.................................................101 No Amendment to Subordination Provisions................................102 Release of Collateral......................................................103 Defaults and Certain Rights on Default.....................................103 Modification of Indenture or Security Agreements...........................105 Legal Defeasance and Covenant Defeasance...................................106 Concerning the Trustee.....................................................108 Governing Law..............................................................109 Certain Definitions........................................................109 78 Introduction You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In this description, the word "Company" refers only to Golden Northwest Aluminum, Inc. and not to any of its subsidiaries. The Company will issue the new notes (the "Notes") under an Indenture (the "Indenture") among itself, the Guarantors and U.S. Trust Company, National Association, as trustee (the "Trustee"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Security Agreements referred to under the subcaption "Security" also define the terms of the pledges that will secure the Notes. The following description is a summary of the material provisions of the Indenture and the Security Agreements. It does not restate those agreements in their entirety. We urge you to read the Indenture and the Security Agreements because they, and not this description, define your rights as holders of these Notes. We have filed copies of the Indenture and the Security Agreements as exhibits to the registration statement which includes this Prospectus. Brief Description of the Notes and the Guarantees The Notes These Notes o are general obligations of the Company o are secured by a first priority security interest in substantially all of the Company's directly and indirectly owned subsidiaries' real property, plant and equipment and some other assets and by a senior pledge of the capital stock of the Company's directly and indirectly owned subsidiaries o are senior in right of payment to any future subordinated Indebtedness of the Company and o are unconditionally guaranteed by the Guarantors. The Guarantees These Notes are guaranteed by the following subsidiaries of the Company: 79 Goldendale Holding Company Goldendale Aluminum Company Northwest Aluminum Company Northwest Aluminum Specialties, Inc. Northwest Aluminum Technologies, LLC. These guarantees o are general obligations of each Guarantor and o are senior in right of payment to any future subordinated Indebtedness of each Guarantor. As of the date of the Indenture, all of our subsidiaries were "Restricted Subsidiaries." Under the circumstances described below under the subheading "Subsidiary Guarantees," however, we will be permitted to designate some of our subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries will not guarantee the Notes. Principal, Maturity and Interest The Company will issue Notes with a maximum aggregate principal amount of $150 million. The Company will issue Notes in denominations of $1,000 and integral multiples of $1,000. The Notes will mature on December 15, 2006. Interest on the Notes will accrue at the rate of 12% per annum and will be payable semi-annually in arrears on June 15 and December 15, commencing on June 15, 1999. The Company will make each interest payment to the Holders of record of these Notes on the immediately preceding May 30 and November 30. Interest on these Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Methods of Receiving Payments on the Notes If a holder has given wire transfer instructions to the Company, the Company will make all principal, premium and interest payments on those Notes in accordance with those instructions. All other payments on these Notes will be made at the office or agency of the Paying Agent and Registrar within the City and State of New York unless the Company elects to make interest payments by check mailed to a holder at the address set forth in the register of holders. 80 Paying Agent and Registrar for the Notes The Trustee will initially act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without prior notice to the holders of the Notes, and the Company or any of its Subsidiaries may act as Paying Agent or Registrar. Transfer and Exchange A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered holder of a Note will be treated as the owner of it for all purposes. Security Our obligations under the Notes and Guarantees are secured under the Security Agreements by (1) a first priority security interest in substantially all of the real property, plant and equipment of our existing Subsidiaries, other than the Excluded Property, and some of our other assets (collectively, the "PP&E"; the PP&E excludes, however, the Tolling Agreements, inventory, accounts receivable and other rights to payment and related intangibles and proceeds) and (2) a pledge (the "Pledge") of all of the issued and outstanding Capital Stock of our direct or indirect Subsidiaries and all income, benefits and rights derived from that Capital Stock and all related proceeds (collectively, the "Pledged Shares" and together with the PP&E, the "Collateral"). These security interests and Pledge have been granted to the Trustee, as collateral agent on your behalf (in such capacity the "Collateral Agent"). The interests and Pledge secure the payment and performance when due of our obligations under the Indenture and the Notes and the obligations of our Subsidiaries under the Guarantees as provided in the Security Agreements. Our Subsidiary Guarantors have granted a security interest in the Tolling Agreements and their inventory, accounts receivable and other rights to payment and related intangibles and proceeds to BankBoston to secure their obligations under our credit facility. The Indebtedness under the Hydro Agreement also has been secured by the Collateral, but the security interest and pledge securing such Indebtedness ranks junior to the security 81 interest and Pledge securing the Notes and Guarantees. Hydro's rights to exercise remedies in respect of the Collateral are limited. Upon the occurrence and during the continuance of an Event of Default, the Trustee may foreclose on the Collateral and exercise other rights and remedies in respect of the Pledged Shares. If the Guarantee of any Subsidiary Guarantor is released as described under "-- The Subsidiary Guarantees," any security interest of the Trustee in the Collateral, including the Pledge of the Pledged Shares issued by the Subsidiary, also will be released without any further action by us, the Trustee, the Subsidiary, any other Subsidiary or any holder of the Notes. The Trustee will deliver appropriate releases of the Security Agreements and certificates evidencing the Pledged Shares, together with any related stock powers, to us. Any Liens on the Collateral securing the Indebtedness under the Hydro Agreement, and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, however, must be released before the security interest on the Notes and Guarantees is released. At our request, the Trustee will execute and deliver an instrument evidencing the release. The Subsidiary Guarantees The Guarantors have jointly and severally guaranteed the Company's obligations under these Notes. The obligations of each Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors -- Fraudulent Conveyance Matters." The Subsidiary Guarantee of a Guarantor will be released (1) in connection with any sale of all of the capital stock of a Guarantor to a Person that is not the Company or a Subsidiary, Unrestricted Subsidiary or Affiliate of the Company, if the Company complies with the terms of the Indenture or (2) if the Company designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary and any obligations of the Subsidiary in respect of Indebtedness under the Credit Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof) and any guarantee by such Subsidiary of the Indebtedness under the Hydro Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof), have been or are simultaneously released. See "-- Material Covenants -- Limitations on Asset Sales." Under certain circumstances, the Company will be able to designate Restricted Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be "Subsidiaries" for purposes of the Indenture and will not be subject to most of the restrictive 82 covenants in the Indenture. The Company has no Unrestricted Subsidiaries. When a Subsidiary is designated as an Unrestricted Subsidiary in compliance with the terms of the Indenture, the obligations of the Subsidiary under its Guarantee will be deemed released without any further action on the part of the Trustee, the Company, the Subsidiary, any other Subsidiary of the Company or any holder of the Notes. For such a release to occur, however, any obligations of the Subsidiary in respect of Indebtedness under the Credit Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof) and any guarantee by such Subsidiary of the Indebtedness under the Hydro Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof) must be released. In addition, upon the designation of a Subsidiary as an Unrestricted Subsidiary, the Collateral Agent will release any Collateral of the Unrestricted Subsidiary in the manner contemplated by the Security Agreements. Again, this release is only possible if the Collateral is also released from the Hydro Agreement and all Collateral for the Credit Agreement is also released. The Trustee will deliver written evidence any release of a Subsidiary from its Guarantee at the request of the Company. Upon the release of any Subsidiary, the other Subsidiaries of the Company not so released will remain liable for the Company's obligations under the Notes and the Subsidiaries' Guarantee as and to the extent provided in the Indenture. Ranking of Notes and Guarantees The payment of principal, premium and interest, if any, on the Notes and Guarantees will rank senior in right and priority of payment to all Indebtedness of the Company or any of its Subsidiaries that by its terms is expressly subordinated to the Notes. Subordinated debt includes the Indebtedness under the Hydro Agreement and the guarantees by the Subsidiaries of the Company of this Indebtedness. The Notes and the Guarantees will rank equally in right and priority of payment with all other Indebtedness of the Company or any of its Subsidiaries. This debt includes the Indebtedness of the Subsidiaries of the Company under the Credit Agreement. Notwithstanding the foregoing, holders of secured obligations of the Company and its Subsidiaries, including the financial institutions party to the Credit Agreement but excluding the holder of the Indebtedness under the Hydro Agreement, will have claims that are prior to the claims of the holders of the Notes with respect to the assets securing these obligations. Material Bankruptcy Limitations The Company is a holding company. It conducts substantially all of its business through its Guarantor Subsidiaries. Holders of the Notes will be creditors of each Subsidiary Guarantor by virtue of its Guarantee and the Lien granted to the holders of the Notes on the Subsidiary's assets. Nonetheless, in the event of the bankruptcy of a Subsidiary Guarantor, the Subsidiary's obligations under its Guarantee and any Liens on the Subsidiaries' assets may be subject to avoidance under state and federal fraudulent transfer and conveyance laws. 83 Among other things, these obligations may be avoided if a court concludes that the obligations were incurred for less than fair consideration or reasonably equivalent value at a time when the Subsidiary (1) was insolvent, (2) was rendered insolvent, or (3) was left with inadequate capital to conduct its business or debts that were beyond its ability to pay as they matured. A court could conclude that a Subsidiary Guarantor did not receive fair consideration or reasonably equivalent value to the extent that the aggregate amount of its liability under its Guarantee exceeds the economic benefits it receives from the offering of the Notes. The obligations of each Subsidiary Guarantor under its Guarantee and any Liens on the Subsidiaries' assets will be limited in a manner intended to avoid fraudulent transfer or conveyance concerns under applicable law. We do not assure you, however, a court would give the holders of the Notes the benefit of these provisions. If the obligations of a Subsidiary Guarantor under its Guarantee or any Lien granted to the holders of the Notes are avoided, holders of Notes would have to look to the assets of the Company and any remaining Subsidiaries of the Company for payment. We do not assure you such assets would be sufficient to pay the Notes. Optional Redemption The Company may not redeem the Notes before December 15, 2002. On or after December 15, 2002, the Company may redeem all or a part of the Notes, on not less than 15 nor more than 60 days notice, at the redemption prices (expressed as a percentage of principal amount) set forth below plus accrued and unpaid interest, if any, to the applicable redemption date, if redeemed during the 12-month period beginning December 15, of the years indicated below: Redemption Year Price ---- --------- 2002............................. 108.000% 2003............................. 105.333% 2004............................. 102.667% 2005 and thereafter.............. 100.000% Offer to Purchase the Notes Under the Indenture, if any Change of Control of the Company occurs on or before maturity, the Company will be required to make an offer to purchase from each holder all or any part (equal to $1,000 or an integral multiple of $1,000) of the holder's notes. To be eligible to receive this payment, a holder of the Notes must deliver and not withdraw a Change of Control Purchase Notice to the Company as provided in the Indenture. The 84 purchase date will occur 30 Business Days after the Change of Control (the "Change of Control Purchase Date"). The purchase price will be paid in cash and will equal 101% of the principal amount thereof plus accrued and unpaid interest to the Change of Control Purchase Date (the "Change of Control Purchase Price"). Some of the circumstances that would require the Company to make an offer to repurchase the Notes on a Change of Control would also constitute an event of default under the Credit Agreement and the Hydro Agreement. In the event of such a default, the obligations of the Company under those agreements could be declared due and payable. In addition, the repurchase of the Notes upon a Change of Control could result in defaults under the Credit Agreement. See "Risk Factors -- Financing Change of Control Offer." Under some circumstances, the Indenture will require the Company to make an offer to purchase specified portions of the Notes if the Company has available Net Cash Proceeds as a result of Asset Sales. See "-- Material Covenants -- Limitations on Asset Sales." The Company's ability to pay cash to the holders of Notes upon a Change of Control or Asset Sale may be limited by the Company's then existing financial resources. The Indenture will require the Company to comply with all applicable federal securities laws (including Rule 14e-1 under the Exchange Act) in connection with any repurchase of Notes upon a Change of Control or Asset Sales. Selection and Notice If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption on a pro rata basis, by lot or by any method the Trustee deems fair and appropriate. No Notes of $1,000 or less will be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. Material Covenants Limitations on Indebtedness The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or become liable with respect to, or extend 85 the maturity of or become liable for the payment of, contingently or otherwise (collectively, "Incur"), any Indebtedness, except that, without duplication, the Company may Incur Indebtedness (and the Subsidiaries of the Company may guarantee the Indebtedness) if, after giving effect thereto and the receipt and application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1, in the case of Indebtedness Incurred before December 15, 2001, and 2.25 to 1, in the case of Indebtedness Incurred on or after December 15, 2001. The first paragraph of this covenant does not prohibit the following: (1) Indebtedness Incurred by the Company and its Subsidiaries in respect of the Notes; (2) Indebtedness Incurred by any of the Subsidiaries of the Company under the Credit Agreement in an aggregate principal amount (with letters of credit and bankers' acceptances being deemed to have a principal amount equal to the maximum reimbursement obligations with respect thereto) at any one time outstanding not to exceed the greater of (a) $90,000,000 or (b) the then amount of the Borrowing Base; (3) Indebtedness Incurred by the Company under the Hydro Agreement in an aggregate original principal amount not to exceed $30,000,000, and guarantees by the Subsidiaries of the Company of this Indebtedness; (4) Indebtedness Incurred by any of the Subsidiaries of the Company payable solely to the Company or any Wholly Owned Subsidiary; (5) Indebtedness Incurred by a Person prior to the date upon which it becomes a Subsidiary of the Company (excluding Indebtedness Incurred by the Person in connection with, or in contemplation of, it becoming a Subsidiary of the Company), provided that the holders of this Indebtedness do not have at any time, in respect thereof, direct or indirect recourse to any property or assets of the Company and its Subsidiaries other than the property and assets of the acquired Person and its Subsidiaries; (6) Indebtedness ("Refinancing Indebtedness") Incurred by the Company or any of its Subsidiaries that serves to Refinance, in whole or in part, any Indebtedness permitted by this paragraph (other than by clause (4) or (8)) or by the immediately preceding full paragraph (the "Refinanced Indebtedness"), or any one or more successive Refinancings of any of the Indebtedness; provided, however, that: (a) the Refinancing Indebtedness is in an aggregate amount not to exceed the aggregate amount of the Refinanced Indebtedness (including accrued 86 interest thereon and, in the case of Refinanced Indebtedness Incurred under the Credit Agreement, undrawn amounts under revolving credit arrangements thereunder otherwise permitted to be Incurred pursuant to clause (2)(b) of this paragraph), the amount of any premium required to be paid in connection with the Refinancing under the terms of the Refinanced Indebtedness or the amount of any reasonable and customary premium determined by the Company to be necessary to accomplish the Refinancing by means of a redemption, tender offer, privately negotiated transaction, defeasance or other similar transaction, and an amount equal to the reasonable fees and expenses in connection with the Incurrence of the Refinancing Indebtedness; (b) neither the Company nor any of its Subsidiaries is an obligor of the Refinancing Indebtedness, except to the extent that such Person (I) was an obligor of the Refinanced Indebtedness or (II) is otherwise permitted, at the time the Refinancing Indebtedness is Incurred, to be an obligor of the Refinancing Indebtedness; and (c) in the case of any Refinanced Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Guarantee, the Refinancing Indebtedness (I) has a final maturity and weighted average maturity at least as long as the Refinanced Indebtedness and (II) is subordinated (pursuant to its terms) in right and priority of payment to the Notes or the Guarantee, as the case may be, at least to the same extent as such Refinanced Indebtedness; (7) Indebtedness Incurred by the Company or Northwest Aluminum Company or Northwest Aluminum Specialties to fund capital improvements projects at Northwest or Specialties in an aggregate original principal amount not to exceed $15,000,000, and guarantees by the Subsidiaries of the Company of this Indebtedness, provided that the Indebtedness and the guarantees are subordinated in right and priority of payment to the Notes and the Guarantees on terms no less favorable to the Holders of the Notes than those applicable to the Indebtedness under the Hydro Agreement and the guarantees of the Hydro Agreement as in effect on the date of the Indenture, and further provided that this Indebtedness has a final maturity date no earlier than one year following the stated maturity of the Notes and provides for payments of principal and interest on terms no less favorable to the holders of the Notes than those contained in the Hydro Agreement; (8) Indebtedness Incurred by the Company or any of its Subsidiaries pursuant to Aluminum Hedging Obligations entered into in the ordinary course of business and not for speculative purposes in reasonable relation to the Company's or the Subsidiary's business; and 87 (9) other Indebtedness Incurred by the Company in an aggregate principal amount which does not exceed $5,000,000 at any time outstanding, and guarantees by Subsidiaries of the Company of this Indebtedness. The Board of Directors of the Company may designate an Unrestricted Subsidiary to be a Subsidiary of the Company, provided that the conditions specified in the definition of "Unrestricted Subsidiary" are met. A redesignation will be treated as an Incurrence by the Company or its Subsidiaries of the Indebtedness of the redesignated Subsidiary, to the extent that the Indebtedness does not already constitute Indebtedness of the Company or any of its Subsidiaries for purposes of this covenant as of the date of the redesignation. Any Indebtedness of any other Person existing at the time the Person becomes a Subsidiary of the Company or secured by a Lien encumbering any assets acquired by the Company or any Subsidiary of the Company will be deemed, for purposes of this covenant (other than clause (5) of the second paragraph of this covenant), to be Incurred at the time the Person becomes a Subsidiary or at the time the assets are acquired, as the case may be. The Company will not, and will not permit any of its Subsidiaries to, Incur any Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to any other Indebtedness of the Company or its Subsidiaries unless the Indebtedness is also subordinated (pursuant to its terms) in right and priority of payment to the Notes and the Guarantees on substantially identical terms. No Indebtedness of the Company or any Subsidiary of the Company will be deemed to be subordinated in right and priority of payment to any other Indebtedness of the Company or the Subsidiary solely by virtue of being unsecured or unguaranteed. Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments The Company will not, directly or indirectly, (1) declare or pay any dividend or make any distribution in respect of, or permit any of its Subsidiaries to declare or pay any dividend or make any distribution in respect of, its Capital Stock (other than dividends payable in Capital Stock of the Company other than Disqualified Stock), provided that any Subsidiary of the Company may pay dividends or make distributions to the Company or any other Wholly Owned Subsidiary, (2) make or permit any of its Subsidiaries to make any payment on account of the purchase, redemption or other acquisition or retirement of any Capital Stock of the Company or any of its Subsidiaries, provided that any Subsidiary of the Company may purchase Capital Stock of the Subsidiary from the Company or any Wholly Owned Subsidiary (which purchase will not be a Restricted Payment or a Restricted Investment), 88 (3) make or permit any of its Subsidiaries to make any principal payment (whether regularly scheduled or otherwise) on, or any prepayment, purchase, redemption or other acquisition or retirement for value of, any Indebtedness of the Company or any of its Subsidiaries that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Guarantee, provided that any Subsidiary of the Company may pay, prepay, purchase, redeem or otherwise acquire or retire any of the Indebtedness of the Subsidiary payable to the Company or any other Wholly Owned Subsidiary (each of the foregoing in clauses (1), (2) and (3), a "Restricted Payment"), (4) make or permit any of its Subsidiaries to make any Restricted Investment, or (5) make or permit any of its Subsidiaries to make any Unrestricted Subsidiary Investment, unless at the time of, and immediately after giving effect to, each Restricted Payment, Restricted Investment or Unrestricted Subsidiary Investment: (a) no Event of Default (or event that, after notice or lapse of time, or both, would become an Event of Default) shall have occurred and be continuing; and (b) the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1, in the case of any Restricted Payment, Restricted Investment or Unrestricted Subsidiary Investment made prior to December 15, 2001, and 2.25 to 1, in the case of any Restricted Payment, Restricted Investment or Unrestricted Subsidiary Investment made on or after December 15, 2001; and (c) the sum of: (I) the aggregate amount expended for all Restricted Payments after the date of the Indenture, (II) the aggregate amount expended for all Restricted Investments after the date of the Indenture (less (A) to the extent any Restricted Investment made after the date of the Indenture is sold for or otherwise liquidated or repaid in cash, the lesser of the cash return of capital with respect to the Restricted Investment (less the cost of disposal, if any) and the initial amount of the Restricted Investment, and (B) the amount of any guarantee or similar contingent obligation that constitutes a Restricted Investment made after the date of the Indenture, to the extent it has been released), and 89 (III) the aggregate amount of Unrestricted Subsidiary Investments Outstanding (in each case, the amount expended for such Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments, if paid in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property), would not exceed the sum of: (A) 50% of the Consolidated Net Income of the Company (or, if the aggregate Consolidated Net Income of the Company for any period is a deficit, minus 100% of the deficit) accrued on a cumulative basis for the period (taken as one accounting period) from January 1, 1999 to the end of the Company's most recently ended fiscal quarter for which financial statements are available at the time the Restricted Payment, Restricted Investment or Unrestricted Subsidiary Investment is being made, (B) the aggregate net proceeds, including the Fair Market Value of property other than cash, received by the Company as capital contributions to the Company (other than from a Subsidiary or an Unrestricted Subsidiary of the Company) after the date of the Indenture, or from the issue or sale (other than to a Subsidiary or an Unrestricted Subsidiary of the Company), after the date of the Indenture, of Capital Stock of the Company other than Disqualified Stock (excluding any net proceeds of a Qualified Equity Offering to the extent used to redeem any part of the Notes), or from the issue or sale (other than to a Subsidiary or an Unrestricted Subsidiary of the Company), after the date of the Indenture, of any debt or other security of the Company convertible into or exercisable for such Capital Stock that has been so converted or exercised, and (C) 50% of any dividends or other distributions consisting of cash received by the Company or a Wholly Owned Subsidiary after the date of the Indenture from any Unrestricted Subsidiary to the extent that these dividends or other distributions are not required to reduce the amount of the Unrestricted Subsidiary Investments Outstanding to zero. The preceding provisions will not be violated by: 90 (1) the payment of any dividend or distribution or the redemption of any securities within 60 days after the date of declaration of the dividend or distribution or the giving of the formal notice by the Company of the redemption, if at said date of declaration of the dividend or distribution or the giving of the formal notice of the redemption, the dividend, distribution or redemption would have complied with the preceding full paragraph; (2) the retirement of any shares of the Company's Capital Stock by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary or an Unrestricted Subsidiary of the Company) of other shares of its Capital Stock other than Disqualified Stock or out of the proceeds of a substantially concurrent capital contribution to the Company (other than by a Subsidiary or an Unrestricted Subsidiary of the Company); provided, however, that, to the extent the proceeds are so used, the sale of Capital Stock or capital contribution will be excluded in determining the aggregate net proceeds received by the Company referred to under clause (B) of the preceding full paragraph; (3) the payments provided for by clauses (2) and (3) of the second paragraph under "-- Restrictions on Transactions with Affiliates and Unrestricted Subsidiaries"; (4) principal payments (whether regularly scheduled or otherwise) on, or any prepayment, purchase, redemption or other acquisition or retirement for value of, Indebtedness of the Company or any of its Subsidiaries that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Guarantee with the proceeds from the substantially concurrent Incurrence of any Refinancing Indebtedness in respect thereof permitted by clause (6) of the second paragraph described under "-- Limitations on Indebtedness" (other than Refinancing Indebtedness payable to the Company or any of its Subsidiaries or Unrestricted Subsidiaries); provided, however, that, to the extent the proceeds are so used, the proceeds, upon any conversion of the Refinancing Indebtedness into Capital Stock, will not be included in determining the aggregate net proceeds received by the Company referred to under clause (B) of the preceding full paragraph; (5) principal payments (whether regularly scheduled or otherwise) on, or any prepayment, purchase, redemption or other acquisition or retirement for value of, any Indebtedness of the Company or any of its Subsidiaries that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Guarantee by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary or an Unrestricted Subsidiary of the Company) of Capital Stock of the Company other than Disqualified Stock or out of the proceeds of a substantially concurrent capital 91 contribution to the Company (other than by a Subsidiary or an Unrestricted Subsidiary of the Company); provided, however, that, to the extent the proceeds are so used, the sale of Capital Stock or capital contribution will be excluded in determining the aggregate net proceeds received by the Company referred to under clause (B) of the preceding full paragraph; (6) (a) from time to time during or following the end of any fiscal quarter during which the Company is an "S Corporation" within the meaning of Section 1361 of the Internal Revenue Code of 1986, a "qualified subchapter S subsidiary" within the meaning of Section 1361(b)(3)(B) of the Code, or a Person who has duly elected to be taxed as a pass- through entity or otherwise ignored for federal income tax purposes, cash distributions by the Company to its shareholders in an amount equal to the maximum amount sufficient to cover payment of the expected federal and state income taxes attributable to the direct or indirect ownership of the Company's common stock, based on the highest federal and state income tax rates that could be applicable to any holder of such common stock, as determined through the end of the fiscal quarter in question plus any penalties or interest thereon, and (b) if, subsequent to any year in which the Company or any Subsidiary of the Company was an "S Corporation", a "qualified subchapter S subsidiary" within the meaning of Section 1361(b)(3)(B) of the Code, or a Person who has duly elected to be taxed as a pass-through entity or otherwise ignored for federal income tax purposes any taxing authority or court of competent jurisdiction shall finally determine (including by way of settlement or stipulation) that additional federal or state income taxes or any penalties or interest are payable by the holders of the Company's or the Subsidiary's common stock in respect of income of the Company or the Subsidiary during that year, cash distributions to the holders in an additional amount sufficient to pay the additional federal or state income taxes plus any penalties or interest; provided, however, that, in the case of either clause (a) or (b), in no event shall amounts so distributed after the date of the Indenture in respect of any year exceed the actual amount of federal and state income taxes (including any penalties or interest thereon), or additional income taxes (including any penalties or interest thereon), as the case may be, for the year on the income attributable to the ownership of the Company's or the Subsidiary's common stock; provided, further, that for purposes of clause (c)(III)(A) in the preceding paragraph, Consolidated Net Income of the Company shall be reduced by an amount equal to any cash distributions made in respect of any penalties or interest in connection with any federal and state income taxes in accordance with these clauses (6)(a) or (b); 92 (7) the repurchase by Goldendale Aluminum Company of shares of its preferred stock outstanding on the date of the Indenture; provided, however, that the aggregate amount paid to repurchase such preferred stock does not exceed $30,500,000, plus any accrued and unpaid dividends thereon; and provided, further, that, immediately after giving effect to the repurchase (a) no Event of Default (or event that, with notice or lapse of time, or both, would constitute an Event of Default) will exist and (b) the Company could Incur $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under "-- Limitations on Indebtedness"; and (8) the making by the Company or any Subsidiary of the Company of Restricted Payments in addition to those permitted by any other clause of this paragraph or by the first full paragraph of this covenant in an aggregate amount not exceeding $1,000,000. No payments and other transfers made under clauses (2) through (7) (except as provided in clause (6)) of the preceding paragraph will reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under the first full paragraph of this covenant. Payments made under clause (1) or (8) and as specified in clause (6) of the preceding paragraph will reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under the first full paragraph of this covenant. The Board of Directors of the Company may designate a Subsidiary of the Company to be an Unrestricted Subsidiary, provided that certain conditions specified in the definition of "Unrestricted Subsidiary" are met. For purposes of making this determination, all outstanding Unrestricted Subsidiary Investments by the Company and its Subsidiaries in the Unrestricted Subsidiary so designated will be deemed to be Unrestricted Subsidiary Investments Outstanding at the time of the designation and will reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under the first full paragraph of this covenant. These Unrestricted Subsidiary Investments will be deemed to have been made at the time of the designation and to be in an amount equal to the greater of (1) the net book value of the Unrestricted Subsidiary Investments at the time of the designation and (2) the Fair Market Value of the Unrestricted Subsidiary Investments at the time of the designation. The designation will only be permitted if the Unrestricted Subsidiary Investments would be permitted at that time and if the Subsidiary otherwise meets the conditions specified in the definition of an Unrestricted Subsidiary. Restrictions on Transactions with Affiliates and Unrestricted Subsidiaries The Company will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions with any Affiliate or Unrestricted Subsidiary of the Company, unless 93 (1) the terms of the transaction are no less favorable to the Company or the Subsidiary, as the case may be, than those that could reasonably be expected to be obtained in a comparable transaction with an unrelated Person, (2) if the amount of the transaction or the aggregate amount of a series of related transactions is greater than $1,000,000, the transaction or series of related transactions shall have been approved as meeting such standard, in good faith, by a majority of the disinterested members of the Board of Directors of the Company, as evidenced by a Board Resolution, and (3) if the amount of the transaction or the aggregate amount of a series of related transactions is greater than $5,000,000, the Company or the Subsidiary, as the case may be, shall have received an opinion that the transaction or series of related transactions is fair to the Company or the Subsidiary, as the case may be, from a financial point of view, from an independent investment banking, appraisal or accounting firm of national standing selected by the Company (which, in the good faith judgment of the Board of Directors of the Company, is qualified to perform this task). The provisions contained in the preceding paragraph will not apply to (1) the making of any Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments otherwise permitted by the covenant described under "-- Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments," (2) compensation (in the form of reasonable director's fees and reimbursement or advancement of reasonable out-of-pocket expenses) paid to any director of the Company or its Subsidiaries for services rendered in that Person's capacity as a director and indemnification and directors' and officers' liability insurance provided in connection therewith, and (3) compensation, indemnification and other benefits paid or provided to officers and employees of the Company or its Subsidiaries for services rendered consistent with the Company's practices on the date of the Indenture or comparable to those generally paid or provided by entities engaged in the same or similar businesses (including reimbursement or advancement of reasonable out-of-pocket business expenses and the provision of directors' and officers' liability insurance). Limitations on Liens The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its assets (including without limitation the 94 Pledged Shares) to secure, directly or indirectly, any Indebtedness or obligations other than the Notes, unless the Notes are equally and ratably secured on a senior basis for so long as the secured Indebtedness or obligations are so secured. The foregoing provision will not prohibit: (1) Liens on the assets of the Subsidiaries of the Company (other than the Collateral) securing Indebtedness under the Credit Agreement permitted by clause (2) of the second paragraph of the covenant described under "-- Limitations on Indebtedness"; (2) Liens on the Collateral securing Indebtedness under the Hydro Agreement permitted by clause (3) of the second paragraph of the covenant described under "-- Limitations on Indebtedness," provided that these Liens are subordinated to the Liens on the Collateral on terms substantially identical to those in effect on the date of the Indenture; (3) Liens in favor of the Company or any Wholly Owned Subsidiary; (4) Liens on assets of a Person existing at the time the Person is merged into or consolidated with the Company or any Subsidiary of the Company, provided that these Liens were not created in connection with or in contemplation of the merger or consolidation and do not extend to any other assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company; (5) Liens on assets existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that these Liens were not created in connection with or in contemplation of the acquisition and do not extend to any other assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company; (6) Liens securing Refinancing Indebtedness permitted by clause (6) of the second paragraph of the covenant described under "-- Limitations on Indebtedness" and Incurred to Refinance, or successively Refinance, any Indebtedness secured by Liens permitted by this paragraph (other than by clause (3) or (8) of this paragraph), provided that the Liens securing the Refinancing Indebtedness do not encumber any assets (which may be by category or type) of the Company or any Subsidiary of the Company other than those securing the Indebtedness so Refinanced; (7) Permitted Liens; and 95 (8) Liens on assets of the Company or the Subsidiaries (other than the Pledged Shares), in addition to those permitted by clauses (1) through (7), securing Indebtedness or obligations in an aggregate amount at any time outstanding not exceeding $5,000,000. The Notes will be considered equally and ratably secured on a senior basis with any other Lien if the Lien securing the Notes is of at least equal priority and covers the same assets as the other Lien, provided that, if the Indebtedness or obligations secured by the other Lien are expressly subordinated in right and priority of payment by their terms to the Notes or any Guarantee, the Lien securing the Notes shall be senior to the other Lien. Subsidiary Guarantees The Indenture will provide that, if any Person becomes a Subsidiary of the Company after the date of the Indenture (including as a result of any merger, consolidation or other acquisition or any designation by the Board of Directors of the Company), the Company will (1) execute and deliver to the Trustee, and cause each Person (and, in the event the Company owns any of the Capital Stock of the Person indirectly through one or more other Subsidiaries of the Company, each of the other Subsidiaries) to execute and deliver to the Trustee, a supplemental indenture complying with the requirements of the Indenture satisfactory in form to the Trustee pursuant to which (a) the Person will be named as an additional Subsidiary of the Company subject as such to the terms of the Indenture, including without limitation the provisions described under "-- The Subsidiary Guarantees," and (b) all of the issued and outstanding Capital Stock of the Person owned by the Company or any Subsidiary of the Company (together with all income, benefits and rights derived therefrom and all proceeds thereof) will become subject to the Pledge under the Indenture, and (2) deliver or cause the Subsidiaries to deliver to the Trustee all certificates evidencing the Capital Stock, properly endorsed in blank or accompanied by duly executed stock powers satisfactory in form to the Trustee providing for transfer in blank. Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries The Company will not, and will not permit its Subsidiaries to, create or otherwise suffer to exist any consensual encumbrances or restrictions on the ability of any Subsidiary of the Company to pay dividends or make any other distributions on its Capital Stock or pay 96 any Indebtedness owed to the Company or any other Subsidiary of the Company or to make loans or advances or transfer any of its assets to the Company or any other Subsidiary of the Company; provided, however, that these restrictions shall not prohibit Permitted Dividend Encumbrances. Limitations on Asset Sales The Company will not, and will not permit any of its Subsidiaries to, consummate any Asset Sale unless the Company or the Subsidiary receives consideration in connection with the Asset Sale at least equal to the Fair Market Value of the assets sold, transferred or otherwise disposed of and at least 75% of the consideration therefor received by the Company or the Subsidiary (exclusive of indemnities) is in the form of cash or Cash Equivalents, provided that this sentence shall not apply to the sale or disposition of assets as a result of a foreclosure (or a secured party taking ownership of such assets in lieu of foreclosure) or as a result of an involuntary proceeding in which the Company cannot, directly or through its Subsidiaries, direct the type of proceeds received. The amount of any liabilities of the Company or any Subsidiary of the Company (other than contingent liabilities and liabilities that are by their terms subordinated in right and priority of payment to the Notes or any Guarantee) that are actually assumed by the transferee in the Asset Sale pursuant to a customary novation agreement that releases the Company and its Subsidiaries from further liability will be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries. The Company will apply any Net Cash Proceeds received after the date of the Indenture to (1) the prepayment of any Indebtedness of the Company (other than the Notes or the Indebtedness under the Credit Agreement (or any Refinancing Indebtedness Incurred in any Refinancing or successive Refinancing thereof)) entitled to receive payment pursuant to the terms thereof (excluding Indebtedness that by its terms is subordinated in right and priority of payment to the Notes or any Guarantee) (the "Specified Pari Passu Indebtedness"), unless the holders thereof elect not to receive the prepayment (provided that, in the event any of the Indebtedness was Incurred under a revolving credit arrangement, the prepayment shall be accompanied by a permanent reduction of the commitment in respect thereof), and (2) an offer to purchase (an "Asset Sale Offer") the then outstanding Notes on any Business Day occurring no later than 305 days after the receipt by the Company (or any of its Subsidiaries, if applicable) of the Net Cash Proceeds (the "Asset Sale Purchase Date," which date shall be deferred to the extent necessary to permit the Asset Sale Offer to remain open for the period required by applicable law), at a price (the "Asset Sale Purchase Price") equal to 100% of the principal amount thereof together with accrued and unpaid 97 interest, if any, to the Asset Sale Purchase Date pursuant to the provisions set forth below. An Asset Sale Offer with respect to the Notes will be in an aggregate principal amount (the "Asset Sale Offer Amount") equal to the Net Cash Proceeds (rounded down to the nearest $1,000) from the Asset Sales to which the Asset Sale Offer relates multiplied by a fraction, the numerator of which is the principal amount of the Notes outstanding (determined as of the close of business on the day immediately preceding the date notice of the Asset Sale Offer is mailed) and the denominator of which is the principal amount of the Notes outstanding plus the aggregate principal amount of Specified Pari Passu Indebtedness outstanding (determined as of the close of business on the day immediately preceding the date notice of the Asset Sale Offer is mailed). If (1) no Specified Pari Passu Indebtedness is outstanding or (2) the holders of this Indebtedness entitled to receive payment elect not to receive the payments provided for in the previous sentence, or (3) the application of such Net Cash Proceeds results in the complete prepayment of this Indebtedness, then in each case any remaining portion of such Net Cash Proceeds will be required to be applied to an Asset Sale Offer to purchase the Notes. Notice of an Asset Sale Offer will be mailed by the Company to all holders at their last registered address within 275 days of the receipt by the Company or any of its Subsidiaries of any Net Cash Proceeds. The Asset Sale Offer shall remain open from the time of mailing until the last Business Day before the Asset Sale Purchase Date, but in no event for a period less than the greater of (1) 24 days or (2) that required by applicable law. The notice shall state, among other things, (1) that holders will be entitled to withdraw their election if the Trustee receives, not later than one Business Day before the Asset Sale Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Notes the holder delivered for purchase, the certificate number of each Note the holder delivered for purchase and a statement that the holder is withdrawing his, her or its election to have the Notes purchased and 98 (2) that if Notes in a principal amount in excess of the Asset Sale Offer Amount are surrendered pursuant to the Asset Sale Offer, the Company shall purchase Notes on a pro rata basis (with adjustments deemed appropriate by the Company so that only Notes in denominations of $1,000 or integral multiples thereof will be acquired). Notwithstanding the foregoing, the Company will not be required to make an Asset Sale Offer until the aggregate amount of Net Cash Proceeds so to be applied pursuant to this covenant exceeds $10,000,000, and then the total amount of such Net Cash Proceeds shall be required to be so applied in accordance with this covenant. In no event will any Net Cash Proceeds that are applied to an Asset Sale Offer be required to be applied to more than one Asset Sale Offer. Notwithstanding the foregoing, the Company will have no obligation to make an Asset Sale Offer if, and to the extent, the Company or any of its Subsidiaries commits within 270 days of the receipt of any Net Cash Proceeds to reinvest (whether by acquisition of an existing business or expansion, including without limitation capital expenditures) the Net Cash Proceeds in one or more of the lines of business (including capital expenditures) in which the Company or its Subsidiaries were engaged on the date of the Indenture or any business reasonably related or ancillary thereto, provided that the Net Cash Proceeds are substantially so used or irrevocably committed to be so used no later than 365 days following receipt of the Net Cash Proceeds. Limitations on Unrestricted Subsidiaries The Company will not permit any of its Unrestricted Subsidiaries to guarantee or otherwise directly or indirectly provide credit support for any Indebtedness of the Company or any of its Subsidiaries. Conduct of Business The Company will not, and will not permit any of its Subsidiaries to, engage in any businesses other than lines of business in which the Company or any of its Subsidiaries is engaged on the date of the Indenture and any business reasonably related or ancillary thereto (as determined in good faith by the Company's Board of Directors). Limitations on Issuances and Sales of Capital Stock of Subsidiaries The Company will not, and will not permit any of its Subsidiaries to, sell, transfer or otherwise dispose of any Capital Stock of any Subsidiary to any Person if as a result of the sale, transfer or disposition the Subsidiary will cease to be a Subsidiary, and will provide further that any permitted sale, transfer or disposition will comply with the terms of the Indenture (including without limitation the covenant described under "-- Limitations on Asset Sales"). 99 Payments for Consent The Company will not, and will not permit any of its Subsidiaries or Unrestricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of a Note for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the Notes or any Guarantee, unless the consideration is offered to be paid or is paid to all holders of the Notes that so consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to the consent, waiver or amendment. Maintenance of Corporate Existence Except pursuant to a merger or a consolidation in accordance with the provisions described under "-- Merger or Consolidation," the Company will at all times (except as otherwise provided or permitted in the Indenture) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Subsidiary of the Company; provided, however, that any Wholly Owned Subsidiary may liquidate or dissolve under the laws of its jurisdiction of formation. Maintenance of Insurance From and at all times after the date of issuance of Notes until the Notes have been paid in full, the Company and the Subsidiary Guarantors will, and will cause their Restricted Subsidiaries to, have and maintain in effect insurance with responsible carriers against risks and in amounts as is customarily carried by similar businesses with deductibles, retentions, self insured amounts and coinsurance provisions that are customarily carried by similar businesses of similar size, including, without limitation, property and casualty. SEC Reports The Company will file with the Trustee, within 15 days after it is required to file them with the Securities and Exchange Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. If the Company is not subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act, the Company shall nonetheless file with the Trustee copies of annual reports and information, documents and other reports that it would file if it were subject to the requirements of Section 13 or 15(d) of the Securities Exchange Act. In addition, the Company and its Subsidiaries will agree that, for so long as any Restricted Securities remain outstanding, they will furnish to the holders of the Notes and to securities analysts and prospective investors, upon request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933. 100 Merger or Consolidation The Company will not consolidate or merge with or into any other entity or sell or convey (or permit any of its Subsidiaries to sell or convey) all or substantially all of the Company's property (determined on a consolidated basis for the Company and its Subsidiaries) to any other entity, whether in a single transaction or a series of related transactions (the entity formed by or surviving any such consolidation or merger, or to which such sale or conveyance shall have been made, whether the Company or such other entity, being herein called the "surviving corporation"), unless (1) immediately after giving effect to such consolidation, merger, sale or conveyance, no Event of Default (or event that, after notice or lapse of time, or both, would constitute an Event of Default) will exist, (2) the surviving corporation will be a corporation organized under the laws of the United States or any State thereof, (3) immediately after giving effect to such consolidation, merger, sale or conveyance, the surviving corporation could Incur $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under "-- Limitations on Indebtedness," (4) the surviving corporation (if other than the Company) will expressly assume the obligations of the Company under the Notes and the Indenture by supplemental indenture complying with the requirements of the Indenture satisfactory in form to the Trustee, (5) the surviving corporation (if other than the Company) will expressly assume the obligations of the Company under the Security Agreements and the Registration Rights Agreement and (6) immediately after giving effect to the consolidation, merger, sale or conveyance, the surviving corporation will have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to the transaction. Except as set forth in the immediately succeeding paragraph, no Subsidiary of the Company (other than a Subsidiary the Guarantee of which is to be released in accordance with the terms of the Indenture in connection with any transaction complying with the covenant described under "-- Limitations on Asset Sales") will consolidate or merge with or into any other entity, unless 101 (1) immediately after giving effect to the consolidation or merger, no Event of Default (or event that, after notice or lapse of time, or both, would constitute an Event of Default) will exist, (2) the surviving corporation will be a Subsidiary of the Company organized under the laws of the United States or any State thereof, (3) immediately after giving effect to the consolidation or merger, the Company could Incur $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under "-- Limitations on Indebtedness," (4) the surviving corporation (if other than the Subsidiary) will expressly assume the obligations of the Subsidiary under the Security Agreements and the Indenture (including the obligations of the Subsidiary under its Guarantee) by supplemental indenture complying with the requirements of the Indenture satisfactory in form to the Trustee, and (5) immediately after giving effect to the consolidation or merger, the surviving corporation will have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Subsidiary immediately prior to such transaction. Notwithstanding the immediately preceding paragraph, (1) a Wholly Owned Subsidiary of the Company may consolidate or merge with or into the Company, provided that the Company is the surviving corporation, and (2) a Wholly Owned Subsidiary of the Company may consolidate or merge with or into any other Wholly Owned Subsidiary. No Amendment to Subordination Provisions Without the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, the Company will not amend, modify or alter the Hydro Agreement in any way that will (1) increase the rate of or change the time for payment of interest on any Hydro Subordinated Debt, (2) increase the principal of, advance the final maturity date of or shorten the Weighted Average Life to Maturity of any Hydro Subordinated Debt and 102 (3) alter the redemption provisions or the price or terms at which the Company is required to offer to purchase the Hydro Subordinated Debt. The Company also will not agree or consent to or take any other act to affect the subordination of the Hydro Subordinated Debt relative to the Notes. Release of Collateral Under certain circumstances, the Company may obtain the release of certain Collateral upon fulfilling various requirements as provided in the Security Agreements. Defaults and Certain Rights on Default Each of the following is an Event of Default: (1) a default in the payment of principal, Change of Control Purchase Price, Asset Sale Purchase Price or premium (if any) with respect to the Notes, as and when the same shall become due and payable either at maturity, upon redemption or purchase by the Company, by declaration or otherwise, (2) a default in payment of any installment of interest on any of the Notes as and when the same shall become due and payable, which default continues for 30 days, (3) a failure on the part of the Company to observe or perform in any material respect the provisions described under "--Material Covenants-- Limitations on Indebtedness," "--Material Covenants -- Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments," "--Material Covenants-- Limitations on Liens," "--Material Covenants -- Limitations on Asset Sales," "--Covenants-- Merger or Consolidation," "-- Material Covenants-- No Amendment to Subordination Provisions" or "Offer to Purchase the Notes," (4) a failure on the part of the Company to observe or perform in any material respect any other of the covenants or agreements on the part of the Company in the Notes or in the Indenture for a period of 60 days after the date on which written notice of the failure, which notice must specify the failure, demand it be remedied and state that the notice is a "Notice of Default," shall have been given to the Company by the Trustee by registered or certified mail (which notice the Trustee may give at its discretion and will give upon receipt of requests to do so by the holders of at least 25% of the aggregate principal amount of the Notes at the time outstanding) or to the Company and the Trustee by registered or certified mail by the holders of at least 25% of the aggregate principal amount of the Notes at the time outstanding, 103 (5) a default under any mortgage, indenture or instrument under which there may be issued, secured or evidenced any Indebtedness of the Company or any of its Subsidiaries, whether the Indebtedness now exists or shall hereafter be created, which default (a) in the case of a failure to make payment on any Indebtedness, shall not have been waived, cured or otherwise ceased to exist prior to the expiration of the applicable grace period provided with respect to the Indebtedness, or (b) in the case of any default other than a payment default referred to in clause (a), shall have resulted in the Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, provided that the aggregate principal amount of all Indebtedness in respect of which any such default exists exceeds $10,000,000; (6) a breach by the Company or any Guarantor of any material representation or warranty set forth in the Security Agreements, or, subject to notice and grace periods set forth in the applicable Security Agreements, a default by the Company or any Guarantor in the performance of any covenant set forth in the Security Agreements, or a repudiation by the Company or any Guarantor of its obligations under the Security Agreements or the unenforceability of the Security Agreements against the Company or any Guarantor for any reason; (7) a final judgment which, together with other outstanding final judgments against the Company and its Subsidiaries, exceeds an aggregate of $10,000,000 (to the extent the judgments are not covered by valid and collectible insurance from solvent unaffiliated insurers or uncontested indemnification from solvent unaffiliated indemnitors) shall be entered against the Company and/or its Subsidiaries and, within 60 days after entry thereof, judgments exceeding that amount shall not have been discharged, settled or bonded or execution thereof stayed pending appeal or, within 60 days after the expiration of any stay, the judgments exceeding such amount shall not have been discharged, settled or bonded or execution thereof further stayed; (8) certain events of bankruptcy, insolvency, receivership or reorganization with respect to the Company or any of its Subsidiaries and (9) other than pursuant to the provisions regarding release described under "-- The Subsidiary Guarantees," a Guarantee having been held unenforceable or invalid with respect to any Subsidiary of the Company by a final non-appealable order or judgment issued by a court of competent jurisdiction or having ceased for any reason to be in full force and effect with respect to any 104 Subsidiary of the Company, or any Subsidiary of the Company or any Person acting by or on behalf of any Subsidiary of the Company having denied or disaffirmed its obligations under a Guarantee. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs before December 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to December 15, 2002, then the premium specified in the Indenture will also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default shall have occurred and be continuing, either the Trustee or the holders of at least 25% of the aggregate principal amount of the Notes then outstanding may declare the entire principal of and interest on the Notes to be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency, receivership or reorganization, principal of and interest on the Notes will become due and payable without necessity of action on the part of the Trustee or the holders of the Notes. The holders of a majority of the aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default under the Indenture and its consequences (including any acceleration, other than an automatic acceleration resulting from certain events of bankruptcy, insolvency, receivership or reorganization), except a default in the payment of principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on any of the Notes (other than solely as a result of an acceleration) or a default under any covenant or provision of the Indenture which under the provisions described in "-- Modification of the Indenture or Security Agreements" cannot be modified or amended without the consent of the holder of each outstanding Note. In the case of any waiver, the Company, the Trustee and the holders of the Notes will be restored to their former positions and rights hereunder; but no waiver shall extend to any subsequent or other default or impair any right consequent thereon. Modification of Indenture or Security Agreements With the consent of the holders of not less than a majority in aggregate principal amount of the outstanding Notes, the Trustee and the Company may execute a supplemental indenture to add provisions to, or change in any manner or eliminate any provisions of, the Indenture or modify in any manner the rights of the holders of the Notes; provided, however, that, without the consent of each holder of an outstanding Note affected, no such supplemental indenture will 105 (1) extend the stated maturity of any Note, reduce the rate at which interest accrues on any Note, extend the time or alter the manner of payment of interest on any Note, reduce the principal amount of any Note, alter the timing of or reduce any premium payable upon the redemption of any Note, change the currency in which any payments are made on or with respect to any Note, change the ranking or seniority of any Note, or reduce the amount payable on any Note in the event of acceleration or the amount of any Note payable in bankruptcy, or (2) reduce the percentage of aggregate principal amount of Notes the consent of the holders of which is required for any supplemental indenture. The Company and the Trustee may, without the consent of any holder of the Notes, amend or supplement the Indenture for certain limited purposes, including to cure any ambiguity or to correct any defect or inconsistency in the Indenture or to comply with any requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. Without the consent of the holders of not less than 66 2/3% in aggregate principal amount of the outstanding Notes, the Collateral Agent and the Company cannot (1) amend the Security Agreements or (2) release any of the Collateral from a Lien or the Security Agreements (except in accordance with the provisions thereof). Legal Defeasance and Covenant Defeasance The Company may, at its option, elect to have its obligations and the obligations of its Subsidiaries, including under any Guarantees, discharged with respect to the outstanding Notes ("Legal Defeasance"). This Legal Defeasance means that the Company will be deemed to have paid and discharged the entire indebtedness represented, and the Indenture will cease to be of further effect as to all outstanding Notes and Guarantees, except as to (1) rights of holders of the Notes to receive payments in respect of the principal of, premium, if any, and interest on the Notes when the payments are due from the trust funds; (2) the Company's obligations with respect to such Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trust, duties, and immunities of the Trustee, and the Company's obligations in connection therewith; and 106 (4) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and its Subsidiaries released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with these obligations will not constitute an Event of Default with respect to the Notes. If a Covenant Defeasance occurs, certain events (not including non-payment, guarantees, bankruptcy, receivership, reorganization and insolvency events) described under "-- Defaults and Certain Rights on Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, U.S. legal tender, Government Securities or a combination thereof, in amounts that will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the redemption date of the principal or installment of principal of, premium, if any, or interest on the Notes, and the holders of Notes must have a valid, perfected, exclusive security interest in the trust; (2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by the Internal Revenue Service, a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon the opinion of counsel shall confirm that, the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of the Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of the Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the Covenant Defeasance had not occurred; 107 (4) no Event of Default (or event that, after notice or lapse of time, or both, would become an Event of Default) shall have occurred and be continuing on the date of the deposit or, in so far as bankruptcy, insolvency, receivership or reorganization are concerned, at any time between the date of the deposit and the 91st day after the date of the deposit and the Company shall have delivered to the Trustee an opinion of counsel, subject to the qualifications and exceptions as the Trustee deems appropriate, to the effect that, assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit and that no holder of the Notes is an insider of the Company, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors rights generally; (5) the Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Notes over any other creditors of the Company or any of its Subsidiaries or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or any of its Subsidiaries or others; and (7) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that the Company has complied with the conditions precedent provided for in, in the case of the Officers' Certificate, (1) through (6) and, in the case of the opinion of counsel, clauses (1) (with respect to the validity and perfection of the security interest) and (5) of this paragraph. If the funds deposited with the Trustee to effect Covenant Defeasance are insufficient to pay the principal of, premium, if any, and interest on the Notes when due, or if the transfer of the funds to the Trustee is avoided as a preferential transfer, a fraudulent transfer, or otherwise, then the obligations of the Company and the Subsidiary Guarantors under the Indenture will be revived and no defeasance will be deemed to have occurred. Concerning the Trustee U.S. Trust Company, National Association, is the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. The holders of a majority in principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any 108 remedy available to the Trustee, subject to certain exceptions. The Indenture provides that if an Event of Default occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of his or her own affairs. Subject to these provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless a holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense and then only to the extent required by the terms of the Indenture. Governing Law The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. Certain Definitions Set forth below are certain defined terms used in the Indenture. Please refer to the Indenture for a full disclosure of all these terms, as well as any other capitalized terms used herein for which no definition is provided. "Affiliate" means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with a specified Person. For the purpose of this definition, "control" when used with respect to any specified Person means the possession of the power to direct the management and policies of that Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aluminum Hedging Obligations" means, with respect to any Person, monetary obligations of that Person pursuant to any options or futures contract, forward contract or other agreement or arrangement designed to protect that Person or any of its Subsidiaries against fluctuations in prices of aluminum or raw materials related to the production of aluminum. "Asset Sale" means (1) any sale, transfer or other disposition (including without limitation dispositions pursuant to a merger, consolidation or sale and leaseback transaction) of any assets (other than cash or Cash Equivalents) on or after the date of the Indenture by the Company or any of its Subsidiaries to any Person other than the Company or a Wholly Owned Subsidiary, and (2) the issuance by any Subsidiary of the Company on or after the date of the Indenture of its Capital Stock to any Person other than the Company or a 109 Wholly Owned Subsidiary; provided, however, that, solely for the purposes of the definition of Consolidated Cash Flow Available for Fixed Charges, the term Asset Sale shall exclude dispositions pursuant to a sale and leaseback transaction if the lease under the sale and leaseback transaction is required to be classified and accounted for as a Capitalized Lease Obligation; and provided, further, that the following sales, transfers or other dispositions of assets will not be an "Asset Sale" hereunder: (a) sales of inventory in the ordinary course of business of the Company and its Subsidiaries; (b) o trade-ins of any used equipment on replacement equipment or o sales, transfers or other dispositions of property no longer necessary for or useful in the proper conduct of the business of the Company and its Subsidiaries, the gross proceeds of which sales, transfers or other dispositions (exclusive of indemnities) do not exceed $1,000,000 during any 12-month period (the amount of the proceeds, to the extent consisting of property other than cash, to be the Fair Market Value of such property); (3) transfers or other dispositions resulting from the creation, Incurrence or assumption of (but not any foreclosure with respect to) any Lien not prohibited by the covenant described under "-- Material Covenants -- Limitations on Liens"; (4) sales in the ordinary course of business of accounts receivable as to which collection is doubtful in accordance with past practice; (5) sales, transfers or other dispositions in connection with any consolidation or merger of the Company or any of its Subsidiaries or sale or conveyance of all or substantially all of the property of the Company (determined on a consolidated basis for the Company and its Subsidiaries) in compliance with the provisions described under "-- Material Covenants -- Merger or Consolidation"; (6) sales, transfers or other dispositions which are Restricted Investments, Restricted Payments or Unrestricted Subsidiary Investments permitted by the provisions described under "-- Material Covenants -- Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments"; (7) sales, transfers or other dispositions of the 105 megawatt General Electric steam turbine generator and related generator power transformers and other 110 related assets held for sale by Goldendale Aluminum Company on the date of the Indenture; and (8) the surrender or waiver of contract rights, or settlement, release or surrender of contract, tort or other claims of any kind. "Attributable Debt" means, with respect to a sale and leaseback transaction, as of the date of completion of the transaction, the greater of (1) the Fair Market Value of the property subject to the sale and leaseback transaction and (2) the present value (discounted at the interest rate borne by the Notes, compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in the sale and leaseback transaction (including any period for which the lease has been extended). "Borrowing Base" means, at any time, the sum of (1) up to 85% of the then book value (net of reserves) of the accounts of the Company and its Subsidiaries on a consolidated basis arising from the sale of inventory in the ordinary course of business, plus (2) up to 75% of the then book value of the finished aluminum inventory of the Company and its Subsidiaries on a consolidated basis, plus (3) up to 50% of the other inventory of the Company and its Subsidiaries on a consolidated basis, all as determined in accordance with GAAP. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of capital stock, partnership or member interests or other undivided ownership interests in the Person, and warrants, options or similar rights (other than, except for purposes of the provisions described under "-- Material Covenants -- Subsidiary Guarantees" and "-- Security," debt securities convertible into Capital Stock) to acquire the capital stock, partnership or member interests or other undivided ownership interests in the Person. "Capitalized Lease Obligations" means, with respect to any Person, the obligations of the Person to pay rent or other amounts under any lease of (or other agreement conveying the right to use) real or personal property, which obligations are required to be classified and accounted for as a capital lease obligation on a balance sheet of the Person under GAAP; and, for purposes of the Indenture, the amount of these obligations at any date shall be the amount of the liability thereof at that date, determined in accordance with GAAP. 111 "Cash Equivalents" means, with respect to any Person, (1) Government Securities having maturities of not more than one year from the date of acquisition, (2) certificates of deposit of any commercial bank incorporated under the laws of the United States, or any state, territory or commonwealth thereof, of recognized standing having capital and unimpaired surplus in excess of $100,000,000 and whose short-term commercial paper rating at the time of acquisition is at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc. (any such bank, an "Approved Bank"), which certificates of deposit have maturities of not more than one year from the date of acquisition, (3) repurchase obligations with a term of not more than 31 days for underlying securities of the types described in clauses (1), (2) and (4) of this definition entered into with any Approved Bank, (4) commercial paper or finance company paper issued by any Person incorporated under the laws of the United States, or any state thereof, and rated at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc., and in each case maturing not more than one year from the date of acquisition, and (5) investments in money market funds that are registered under the Investment Company Act of 1940 that have net assets of at least $100,000,000 and at least 85% of whose assets consist of investments or other obligations of the type described in clauses (1) through (4) above. "Change of Control" means the occurrence of any of the following (whether or not otherwise in compliance with the provisions of the Indenture): (1) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Exchange Act) other than the Company and/or one or more Wholly Owned Subsidiaries, (2) the adoption of a plan relating to the complete liquidation or dissolution of the Company, (3) the consummation of any transaction (including, without limitation, any merger or consolidation) as a result of which Brett E. Wilcox is no longer the sole beneficial owner (as to both voting and dispositive power) of at least a 112 majority of the Voting Stock of the Company, provided that an event will not constitute a "change of control" if Brett E. Wilcox (a) is the sole beneficial owner (as to both voting and dispositive power) of at least 35% of the Voting Stock of the Company, and (b) is the Chief Executive Officer of the Company and (c) has the sole right (not subject to revocation, termination or expiration prior to the scheduled maturity of the Notes) to elect a majority of the Board of Directors of the Company; provided, further, that the immediately preceding proviso will not be available if any other "person" (as defined above) is the beneficial owner (as to either voting or dispositive power) of 35% or more of the Voting Stock of the Company or (4) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. For purposes of this provision, "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (a) was a member of the Board of Directors on the date of the Indenture or (b) was nominated for election or elected or appointed to the Board of Directors by the Board of Directors of the Company at a time when a majority of the Board (excluding any member whose service terminated as result of death) consisted of Continuing Directors. "Consolidated Amortization Expense" means, with respect to any Person for any period, the amortization expense (including without limitation that associated with goodwill, deferred financing charges and other intangible items) of that Person and its Subsidiaries for the period, determined on a consolidated basis in accordance with GAAP. "Consolidated Cash Flow Available for Fixed Charges" means, with respect to any Person for any period, the sum (without duplication) of the amounts for the period of (1) Consolidated Net Income (which shall include, solely for this purpose, the Net Income of any Unrestricted Subsidiary to the extent paid or distributed in cash to the Company or one of its Subsidiaries), (2) Consolidated Fixed Charges (but only to the extent Consolidated Net Income has been reduced thereby), 113 (3) Consolidated Income Tax Expense (other than income taxes (including credits) with respect to items of Net Income not included in the definition of Consolidated Net Income), (4) Consolidated Depreciation Expense, (5) Consolidated Amortization Expense, and (6) any other non-cash items reducing Consolidated Net Income (excluding any non-cash expense to the extent it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period or amortization of a prepaid cash expense that was paid in a prior period), minus any non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for the Person and its Subsidiaries in accordance with GAAP; provided, however, that (1) if, during that period (or subsequent to the period and on or before the relevant Transaction Date, as defined below), the Person or any of its Subsidiaries shall have engaged in any Asset Sale, Consolidated Cash Flow Available for Fixed Charges of the Person and its Subsidiaries for the period will be reduced by an amount equal to the Consolidated Cash Flow Available for Fixed Charges (if positive) directly attributable to the assets that are the subject of the Asset Sale for the period, or increased by an amount equal to the Consolidated Cash Flow Available for Fixed Charges (if negative) directly attributable to the assets that are the subject of the Asset Sale for the period and (2) if, during that period (or subsequent to the period and on or before the relevant Transaction Date), the Person or any of its Subsidiaries shall have acquired any material assets out of the ordinary course of business, Consolidated Cash Flow Available for Fixed Charges will be calculated on a pro forma basis as if the asset acquisition and related financing had occurred at the beginning of the period. "Consolidated Depreciation Expense" means, with respect to any Person for any period, the depreciation and depletion expense (including without limitation the amortization expense associated with Capitalized Lease Obligations) of that Person and its Subsidiaries for the period, determined on a consolidated basis in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person as of the date of the transactions giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date"), the ratio of 114 (1) the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of that Person for the four fiscal quarters immediately preceding the Transaction Date for which financial information in respect thereof is available (the "Four Quarter Period") to (2) the aggregate Consolidated Fixed Charges of the Person for the Four Quarter Period. For purposes of this calculation, (1) any Indebtedness (other than Indebtedness Incurred under a revolving credit facility in effect on a pro forma basis on the Transaction Date) Incurred, repaid, redeemed, repurchased, defeased or otherwise discharged during the Four Quarter Period or subsequent to the Four Quarter Period and on or before the Transaction Date, including without limitation Indebtedness giving rise to the need to make these calculations, will be deemed to have been Incurred or discharged, as the case may be, on the first day of the Four Quarter Period (so that there will be deemed to have been outstanding during the entire Four Quarter Period an amount of Indebtedness equal to the amount thereof outstanding on a pro forma basis on the Transaction Date and so that no Indebtedness that is not outstanding on a pro forma basis on the Transaction Date will be deemed to have been outstanding during any part of the Four Quarter Period), (2) any Indebtedness under a revolving credit facility in effect on a pro forma basis on the Transaction Date will be deemed to have been outstanding during the entire Four Quarter Period in an amount equal to the average daily balance of the Indebtedness during the period commencing on the first day of the Four Quarter Period and ending on the Transaction Date, and (3) Consolidated Fixed Charges attributable to interest accrued at a variable rate will be computed as if the rate in effect on the Transaction Date had been the applicable rate for the entire Four Quarter Period, unless the Person or any of its Subsidiaries is a party to any Interest Hedging Obligations (which will remain in effect for the 12-month period immediately following the Transaction Date) that have the effect of fixing such rate, in which case the fixed rate shall be used. "Consolidated Fixed Charges" means (without duplication), with respect to any Person for any period, the sum of: (1) the interest expense of that Person and its Subsidiaries for the period, determined on a consolidated basis in accordance with GAAP; 115 (2) all fees, commissions, discounts and other charges of that Person and its Subsidiaries for the period, determined on a consolidated basis in accordance with GAAP, with respect to letters of credit and bankers' acceptances and the costs (net of benefits) associated with Interest Hedging Obligations of the Person and its Subsidiaries for the period; (3) the aggregate amount of dividends or other similar distributions accrued by that Person and its Subsidiaries during the period with respect to preferred stock of the Person or its Subsidiaries determined on a consolidated basis in accordance with GAAP; and (4) amortization or write-off of debt discount for the period in connection with any Indebtedness of that Person and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Consolidated Income Tax Expense" means (without duplication), with respect to any Person for any period, the income tax expense (net of applicable credits) of that Person and its Subsidiaries for the period, determined on a consolidated basis in accordance with GAAP, and, in the case of the Company, any distributions made in respect of income for the period pursuant to clause (6) of the second paragraph of the covenant described under "-- Material Covenants -- Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments." "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of that Person and its Subsidiaries for the period taken as a single accounting period, all as determined on a consolidated basis in accordance with GAAP, excluding (in each case to the extent otherwise included): (1) the Net Income (but not loss) of any Person that is not a Subsidiary of the Person or that is accounted for on the equity method of accounting, except to the extent of the amount of dividends or other distributions (other than dividends or distributions of Capital Stock) actually paid in cash to the Person or any of its Subsidiaries by the other Person during such period; (2) except to the extent included by clause (1), the Net Income of any Person accrued before the date it becomes a Subsidiary of the Person or is merged into or consolidated with the Person or any of its Subsidiaries or that Person's assets are acquired by the Person or any of its Subsidiaries; (3) the Net Income of any Subsidiary of the Person during the period (a) to the extent that the declaration or payment of dividends or similar distributions by the Subsidiary of the Net Income is not at the time permitted or, directly or indirectly, by operation of the terms of its 116 charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation (including any governmental approval that has not been obtained) applicable to that Subsidiary or its shareholders or (b) in the case of a foreign Subsidiary or a Subsidiary with significant foreign source income, to the extent the Net Income has not been distributed to the Person and the distribution would result in a material tax liability not otherwise deducted from the calculation of Consolidated Net Income whether or not the deduction is required by GAAP; (4) the Net Income of any Unrestricted Subsidiary, whether or not paid or distributed to the Company or one of its Subsidiaries; and (5) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" means, with respect to any Person as of any date, the total shareholders' equity of that Person as of the date less, to the extent otherwise included, amounts attributable to Disqualified Stock, in each case determined on a consolidated basis in accordance with GAAP. "Credit Agreement" means the Credit Agreement, dated December 21, 1998, by and among Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., Goldendale Holding Company (as guarantor), Goldendale Aluminum Company, Northwest Aluminum Technologies, LLC, the financial institutions that are, or from time to time become, parties thereto, and BankBoston N.A., as administrative agent, providing for revolving credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Disqualified Stock" means (1) except as set forth in clause (2) below, with respect to any Person, Capital Stock of that Person that by its terms, or by the terms of any security into which it is convertible or for which it is exercisable or exchangeable, is, or upon the happening of an event or a passage of time would be, required to be redeemed or repurchased (including at the option of the holder thereof) by the Person or any of its Subsidiaries, in whole or in part, on or before the scheduled maturity date that is 91 days after the maturity of the Notes, and (2) with respect to any Subsidiary of a Person (including any Subsidiary of the Company), any Capital Stock other than common stock with no special rights and no preference, privileges, or redemption or repayment provisions. 117 "Excluded Property" means the real property at Goldendale, Washington and The Dalles, Oregon, including the improvements thereon, that is not integral to the Company's operations and not subject to the Liens of the Security Agreements. "Fair Market Value" means, with respect to any property other than cash, the fair market value of the property as determined in good faith by the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution; provided, however, that, if the Company or a Subsidiary of the Company makes a payment in the form of or otherwise transfers property other than cash to, or receives property other than cash from, an Affiliate of the Company or an Unrestricted Subsidiary in an amount in excess of $5,000,000, the Company or a Subsidiary of the Company, in addition, shall have received an opinion from an independent investment banking, appraisal or accounting firm of national standing selected by the Company (which, in the good faith judgment of the Board of Directors, is qualified to perform this task) to the effect that the Board of Directors' determination of fair market value is fair. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in other statements by any other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the date of the Indenture. "Government Securities" means securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof). "Guarantee" means any guarantee of the Notes by any Subsidiary of the Company. "Hydro Agreement" means the Subordinated Note Purchase Agreement, dated December 21, 1998, between the Company and Norsk Hydro USA, Inc., including all related notes, collateral documents and guarantees. "Improvements" means, with respect to any assets, any accessories, accessions, additions, attachments, substitutions, replacements, improvements, parts and other property now or hereafter affixed to the assets or used in connection therewith. "Indebtedness" means, with respect to any Person at any date, any of the following (without duplication): (1) all obligations (unconditional or contingent) of that Person for borrowed money (whether or not recourse is to the whole of the assets of the Person or only to a portion thereof) and all obligations (unconditional or contingent) of the Person evidenced by debentures, notes or other similar instruments 118 (including without limitation reimbursement obligations with respect to letters of credit and bankers' acceptances) or representing reimbursement or similar obligations with respect to Aluminum Hedging Obligations; (2) all obligations of the Person to pay the deferred purchase price of property or services, except (a) accounts payable and other accrued expenses arising in the ordinary course of business, and (b) obligations to pay employee compensation or other employee benefits (except as provided in clause (7) below); (3) Capitalized Lease Obligations of the Person; (4) all Indebtedness of others secured by a Lien on any asset of the Person, whether or not the Indebtedness is assumed or guaranteed by the Person; (5) all Disqualified Stock of such Person; (6) all Indebtedness of others guaranteed by such Person; (7) all pension and other similar obligations of such Person arising from employee benefits, to the extent unfunded ("Unfunded Pension Obligations"); and (8) all obligations under sale and leaseback transactions; and the amounts thereof will be, in the case of clauses (1) through (3) and (6), the outstanding balance of any of the unconditional obligations (or the accreted value thereof in the case of Indebtedness issued with original issue discount) together with any interest thereon that is more than 30 days past due and the maximum liability of any of the contingent obligations at that date, and, in the case of clause (4), the lesser of the Fair Market Value at that date of any asset subject to any Lien securing the Indebtedness of others and the amount of the Indebtedness secured, and, in the case of clause (5), the greater of the maximum liquidation value of the Disqualified Stock and the maximum redemption price of the Disqualified Stock, and, in the case of clause (7), the amount of the Unfunded Pension Obligations determined by the Company in good faith as evidenced by a certificate of the Chief Financial Officer of the Company delivered to the Trustee, and, in the case of clause (8), the Attributable Debt with respect to the sale and leaseback transactions; provided, however, that Indebtedness shall not include obligations of the Person resulting from the endorsement of negotiable instruments for collection in the ordinary course of business. 119 "Interest" means, with respect to the Notes, interest payable on the Notes at the rate set forth therein, plus any additional interest payable by the Company and the Subsidiaries in respect of the Notes pursuant to the Registration Rights Agreement. "Interest Hedging Obligations" means, with respect to any Person, the monetary obligations of that Person pursuant to any interest rate swap agreement, interest rate collar agreement, interest rate cap agreement, options or futures contract, forward contract or other agreement or arrangement designed to protect the Person or any of its Subsidiaries against fluctuations in interest rates. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Cash Proceeds" means cash payments received (but if received in a currency other than U.S. dollars, these payments will not be deemed received until the earliest time at which the currency is, or could freely be, converted into U.S. dollars) by or on behalf of the Company and/or any of its Subsidiaries (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise or the cash realization of any non-cash proceeds of any Asset Sale, but, in each case, only as and when, and to the extent, received) from an Asset Sale, in each case net of: (1) all legal, title and recording tax expenses, commissions, consulting fees, investment banking, broker's and accounting fees and expenses and fees and expenses incurred in obtaining regulatory approvals in connection with the Asset Sale; (2) the amounts of any repayments of Indebtedness secured, directly or indirectly, by Liens on the assets which are the subject of the Asset Sale (other than Indebtedness under the Credit Agreement or Refinancing Indebtedness incurred to Refinance, or successively Refinance, Indebtedness under the Credit Agreement) and other fees, expenses and other expenditures reasonably incurred as a consequence of the repayment of Indebtedness (whether or not the fees, expenses or expenditures are then due and payable or made, as the case may be); (3) all foreign, federal, state and local taxes payable (including taxes reasonably estimated to be payable) in connection with or as a result of the Asset Sale; 120 (4) with respect to Asset Sales by any Subsidiary of the Company, the portion of the cash payments attributable to Persons holding a minority interest in the Subsidiary; and (5) any amounts paid in respect of term loans outstanding under the Credit Agreement or any Refinancing Indebtedness Incurred to Refinance or successively Refinance the term loans. provided, in each case, that the fees and expenses and other amounts are not payable to an Affiliate or an Unrestricted Subsidiary of the Company. Notwithstanding the foregoing, Net Cash Proceeds will not include proceeds received in a foreign jurisdiction from an Asset Sale of an asset located outside the United States to the extent (y) the proceeds cannot under applicable law be transferred to the United States or (z) the transfer would result (in the good faith determination of the Board of Directors of the Company set forth in a Board Resolution) in a foreign tax liability that would be materially greater than if the Asset Sale occurred in the United States; provided that if, as, and to the extent that any of the proceeds may lawfully be (in the case of clause (y)) or are (in the case of clause (z)) transferred to the United States, the proceeds will be deemed to be cash payments that are subject to the terms of this definition of Net Cash Proceeds. Subject to the provisions of the next preceding sentence, Net Cash Proceeds will also include cash distributions actually received by or on behalf of the Company or any of its Subsidiaries from any Unrestricted Subsidiary representing the proceeds of a transaction by the Unrestricted Subsidiary that would constitute an Asset Sale if the Unrestricted Subsidiary were a Subsidiary of the Company. "Net Income" means, with respect to any Person for any period, the net income (loss) of that Person for the period determined in accordance with GAAP, less, in the case of the Company, the amount of any distributions made in respect of income for the period pursuant to clause (6) of the second paragraph of the covenant described under "-- Material Covenants -- Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments." "Permitted Dividend Encumbrance" means, with respect to any Person, any consensual encumbrance or restriction on the ability of that Person to pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company or any of its Subsidiaries or to make loans or advances or transfer any of its assets to the Company or any of its Subsidiaries existing under or by reason of any of: (1) the Indenture; 121 (2) the Credit Agreement; (3) applicable law; (4) customary provisions in agreements that restrict the assignment of the agreements or rights thereunder or the subletting of any assets leased under the agreements; (5) customary restrictions on the transfer of assets imposed by any agreement for the sale of a Person or its assets prior to the completion thereof, provided that the restrictions apply only to the assets of the Person or the assets to be sold, as the case may be; (6) agreements governing Refinancing Indebtedness that is otherwise permitted in connection with any Refinanced Indebtedness, provided that no encumbrances or restrictions will be materially less favorable to the holders of the Notes than those contained in the agreements governing the Refinanced Indebtedness; (7) customary restrictions on the sale or other disposition of property subject to a Lien securing Indebtedness, provided that the Lien and the Indebtedness are otherwise permitted by the Indenture, and (8) the Hydro Agreement (to the extent it incorporates provisions of the Indenture). "Permitted Lien" means (1) Liens imposed by governmental authorities for taxes, assessments or other charges not yet subject to penalty or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiary, as the case may be, in accordance with GAAP; (2) statutory liens of carriers, warehousemen, mechanics, material men, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business provided that (a) the underlying obligations are not overdue for a period of more than 60 days, or (b) the Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiary, as the case may be, in accordance with GAAP; 122 (3) Liens securing the performance of bids, trade contracts (other than for borrowed money), operating leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a similar nature incurred in the ordinary course of business that do not, singly or in the aggregate, materially detract from the value of the assets of the Company and its Subsidiaries or interfere with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (4) easements, rights-of-way, zoning, similar restrictions and other similar encumbrances or title defects which, singly or in the aggregate, do not in any case materially detract from the value of the property subject thereto (as the property is used by the Company or any of its Subsidiaries) or interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (5) Liens arising by operation of law in connection with judgments, only to the extent, for an amount and for a period not resulting in an Event of Default with respect thereto; (6) pledges or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security legislation; (7) leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Company or any of its Subsidiaries or materially detracting from the value of the respective assets of the Company or any of its Subsidiaries; (8) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company or any of its Subsidiaries in the ordinary course of business; (9) purchase money Liens on assets that (a) are purchased by the Company or its Subsidiaries after the date of the Indenture and (b) are used or useful in the Company's or its Subsidiaries' businesses, provided that these Liens (x) secure an amount not exceeding 100% of the purchase price of the assets acquired, 123 (y) secure Indebtedness that is permitted to be incurred by the covenant described under "-- Material Covenants -- Limitations on Indebtedness," and (z) do not extend, contingently or otherwise, to any property or assets other than those being purchased on the date in question; (10) Liens arising solely by virtue of any statutory or common law provision relating to bankers' liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with the creditor depository institution, provided that (a) the deposit account is not a dedicated cash collateral account and is not subject to restriction against access by the Company or any of its Subsidiaries in excess of those set forth in regulations promulgated by the Federal Reserve Board and (b) the deposit is not intended by the Company or any of its Subsidiaries to provide collateral to the depository institution and (11) Liens securing any Indebtedness Incurred pursuant to clause (7) of the covenant described under "-- Material Covenants -- Limitations on Indebtedness;" provided that the Liens are subordinated in right and priority of payment to the Notes and the Guarantees on terms no less favorable to the holders of the Notes than those applicable to the Security Interests and pledge under the Hydro Agreement. "Refinance" means to renew, extend, refund, replace, restructure, refinance, amend or modify any Indebtedness. The term "Refinancing" shall have a correlative meaning. "Registration Rights Agreement" means the registration rights agreement among the Company, its Subsidiaries and the Initial Purchasers, entered into on the date of the Indenture. "Restricted Investment" means, with respect to any Person, (1) the acquisition by that Person of, or the investment by the Person in, any Capital Stock, Indebtedness or other securities of, or the making by the Person of any capital contribution to, any other Person (other than the Company or any Unrestricted Subsidiary), (2) any loan or advance by the Person to any other Person (other than the Company, any Wholly Owned Subsidiary or any Unrestricted Subsidiary) other 124 than accounts receivable of the Person relating to the purchase and sale of inventory, goods or services arising in the ordinary course of business, (3) any guarantee by the Person of any obligations, contingent or otherwise, of any other Person (other than the Company, any Wholly Owned Subsidiary or any Unrestricted Subsidiary), (4) any provision of credit support (including any undertaking, agreement or instrument that would constitute Indebtedness) by the Persons to or on behalf of any other Person (other than the Company, any Wholly Owned Subsidiary or any Unrestricted Subsidiary), and (5) any obligation or liability of the Person to subscribe for additional Capital Stock or other securities of any other Person (other than the Company or any Unrestricted Subsidiary) or to maintain or preserve the financial condition of any other Person (other than the Company or any Unrestricted Subsidiary) or to cause any such other Person to achieve any specified levels of operating results; provided, however, that the following shall not be Restricted Investments: (a) investments in Cash Equivalents; (b) investments in or acquisitions of Capital Stock of any Person (other than a Person in which Affiliates of the Company have an interest other than through the Company, its Subsidiaries or its Unrestricted Subsidiaries) that is or becomes, at the time of the acquisition thereof, a Wholly Owned Subsidiary; (c) Restricted Investments of the Person existing as of the date of the Indenture and any extension, modification or renewal of the Restricted Investment (but not increases thereof, other than as a result of the accrual or accretion of interest or original issue discount pursuant to the terms of the Restricted Investment); (d) investments in or acquisitions of Capital Stock or other securities of Persons (other than Affiliates of the Company) received in the bankruptcy or reorganization of or by the Person or taken in settlement of or other resolution of claims or disputes against or with the Person, and, in each case, extensions, modifications and renewals thereof; and (e) investments in Persons (other than Affiliates of the Company) received by the Person as consideration in Asset Sales (including, for the purposes of this definition, those sales, transfers and other dispositions described in clause (2)(b) and in clause (5) of such definition) to the extent not prohibited by the 125 provisions described under "-- Material Covenants -- Limitations on Asset Sales," and extensions, modifications and renewals thereof. "Security Agreements" means the Deeds of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing, the Security Agreement, the Pledge Agreement, the Collateral Assignment of Patents and Trademarks, the Collateral Assignments of Licenses, Permits, Approvals and Contracts, Uniform Commercial Code financing statements, and the other agreements, documents and filings that may be necessary or desirable to evidence or perfect the security interests and Pledge of the Collateral Agent in the Collateral. "Subsidiary" means, with respect to any Person, any corporation or other entity of which more than 50% of the outstanding Voting Stock is at the time directly or indirectly owned (either alone or through its Subsidiaries or together with its Subsidiaries) by that Person. For purposes of this definition, any directors' qualifying shares will be disregarded in determining the ownership of a Subsidiary. Notwithstanding anything to the contrary contained herein, no Unrestricted Subsidiary will be deemed to be a Subsidiary of the Company or of any Subsidiary or Subsidiaries of the Company. "Tolling Agreements" means the Tolling Agreement, dated May 22, 1996, by and between Goldendale Aluminum Company and Hydro Aluminum Louisville, Inc. and the Tolling Agreement, dated September 15, 1986, by and between Northwest Aluminum Company and Glencore, Ltd. "Unrestricted Subsidiary" means each of the Subsidiaries of the Company (other than Northwest Aluminum Company and Goldendale Aluminum Company, the lines of business currently operated by which will in no event be transferred to or held by an Unrestricted Subsidiary), or any entity that is to become a Subsidiary of the Company, designated as an "Unrestricted Subsidiary" by the Board of Directors of the Company; but only if (1) immediately after giving effect to the designation, no Event of Default (or event that, after notice or lapse of time, or both, would become an Event of Default) shall exist, (2) immediately after giving effect to the designation, the Company could Incur $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under "-- Material Covenants -- Limitations on Indebtedness," (3) the Subsidiary does not own, at the time of the designation or at any time thereafter, any Capital Stock of the Company or any other Subsidiary of the Company, and (4) the Subsidiary is not, at the time of the designation, party to any transaction or series of related transactions with the Company or any other Subsidiary of the Company, unless the transaction or series of related transactions, if entered 126 into immediately after such designation, would be permitted by the provisions of the covenant described above under "-- Material Covenants -- Restrictions on Transactions with Affiliates and Unrestricted Subsidiaries." The Board of Directors of the Company may designate an Unrestricted Subsidiary to be a Subsidiary, but only if (1) immediately after giving effect to the redesignation, no Event of Default (or event that, after notice or lapse of time, or both, would become an Event of Default) will exist, and (2) immediately after giving effect to the such redesignation, the Company could Incur $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under "-- Material Covenants -- Limitations on Indebtedness." Any designation or redesignation by the Board of Directors of the Company will be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to the designation or redesignation and an Officers' Certificate certifying that the designation or redesignation complied with the foregoing conditions. "Unrestricted Subsidiary Investment" means, with respect to the Company or any Subsidiary of the Company (each Person being referred to in this definition as the "Investor"), (1) the acquisition by the Investor of, or the investment by the Investor in, any Capital Stock, Indebtedness or other securities of, or the making by the Investor of any capital contribution to, an Unrestricted Subsidiary, (2) any loan or advance by the Investor to an Unrestricted Subsidiary other than accounts receivable of the Investor relating to the purchase and sale of inventory, goods or services arising in the ordinary course of business, (3) any guarantee by the Investor of any obligations, contingent or otherwise, of an Unrestricted Subsidiary, (4) any provision of credit support (including any undertaking, agreement or instrument that would constitute Indebtedness) by the Investor to or on behalf of an Unrestricted Subsidiary, (5) any Incurrence of Indebtedness by an Unrestricted Subsidiary, a default with respect to which (including any rights that the holders thereof may have to take enforcement action against the Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any Indebtedness of the Investor (other than the Notes) to declare a default on such Indebtedness of the Investor 127 or cause the payment thereof to be accelerated or payable prior to its stated maturity, and (6) any obligation or liability of the Investor to subscribe for additional Capital Stock or other securities of an Unrestricted Subsidiary or to maintain or preserve an Unrestricted Subsidiary's financial condition or to cause an Unrestricted Subsidiary to achieve any specified levels of operating results. "Unrestricted Subsidiary Investments Outstanding" means, at any time of determination, the amount, if any, by which (1) the sum of all Unrestricted Subsidiary Investments made by the Company or any Subsidiary of the Company after the date of the Indenture exceeds (2) the amount of all dividends and distributions received, directly or indirectly, by the Company or a Subsidiary of the Company from Unrestricted Subsidiaries in cash during the period that these Persons were Unrestricted Subsidiaries, and all repayments in cash from these Unrestricted Subsidiaries, directly or indirectly, to the Company or one of its Subsidiaries of loans or advances from the Company or any of its Subsidiaries to the Unrestricted Subsidiaries during the period that the Persons were Unrestricted Subsidiaries, any other reduction (including as a result of the sale by the Company or any of its Subsidiaries of Capital Stock of an Unrestricted Subsidiary) received, directly or indirectly, by the Company or a Subsidiary of the Company in cash of Unrestricted Subsidiary Investments in the Unrestricted Subsidiaries during the period that the Persons were Unrestricted Subsidiaries, and any reductions of Unrestricted Subsidiary Investments in such Unrestricted Subsidiaries of the kind referred to in clauses (3) through (6) of the definition of Unrestricted Subsidiary Investment; provided that the amount of Unrestricted Subsidiary Investments Outstanding shall at no time be a negative amount. "Voting Stock" means, with respect to any Person, the Capital Stock of that Person having general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of the Person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (1) the sum of the products obtained by multiplying 128 (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between that date and the making of the payment, by (2) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" means a Subsidiary of the Company all of the outstanding Capital Stock of which is at the time directly or indirectly owned (either alone or through Wholly Owned Subsidiaries or together with Wholly Owned Subsidiaries) by the Company. For purposes of this definition, any directors' qualifying shares and, at all times before January 1, 2002, the Series A Preferred Stock of Goldendale outstanding on the date of the Indenture shall be disregarded in determining the ownership of a Wholly Owned Subsidiary. 129 DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS AND GOLDENDALE PREFERRED STOCK The following is a summary of certain terms and provisions of the Goldendale Aluminum Company preferred stock and certain debt instruments to which we and our subsidiaries are parties. This summary is not complete and is qualified in its entirety by reference to the underlying operative documents, copies of which are available on request. Revolving Credit Facility Goldendale Aluminum Company, Northwest Aluminum Company, Northwest Aluminum Specialties and Northwest Aluminum Technologies, as borrowers, and Goldendale Holding Company, as guarantor, have entered into an agreement with BankBoston, N.A. and U.S. Bank, N.A. establishing a revolving credit facility. The following is a summary of the key terms and provisions of the facility. The credit facility consists of a $75.0 million senior secured revolving credit facility, collateralized by all of the inventory, accounts receivable and other rights to payment and related intangibles and the proceeds thereof of Goldendale Aluminum Company, Northwest, Specialties and Technologies and maturing five years from the date of origination. The maximum amount of borrowings that may be outstanding under the credit facility at any time will be limited to an amount calculated as specified percentages of eligible accounts receivable and inventory, provided that the maximum amount of borrowings may not at any time exceed $75.0 million. On a pro forma basis, we estimate that availability under the credit facility as of September 30, 1998 would have been approximately $54 million. The credit agreement contains restrictive covenants, including a minimum net worth requirement, a minimum excess availability requirement and limitations on capital expenditures, dividends, additional indebtedness, mergers and other business combinations, asset sales, encumbrances, investments and transactions with affiliates. The credit agreement also contains customary events of default and other provisions, including an event of default due to a change of control of us or our subsidiaries. Upon the occurrence of an event of default, BankBoston may declare all amounts owing under the credit facility to be immediately due and payable (except that, upon the occurrence of an event of default triggered by certain events of bankruptcy, insolvency or reorganization, borrowings under the credit facility will automatically become due and payable), whereupon BankBoston may initiate proceedings to realize on the collateral for the credit facility. Borrowings under the credit facility bear interest at a floating rate based on the Alternative Base Rate specified in the credit agreement plus from 0.50% to 1.00% or LIBOR plus from 2.00% to 2.50%, depending on our consolidated ratio of EBITDA to interest expense. Interest payments will be payable monthly or at the end of LIBOR interest periods in arrears. The credit facility provides for the payment of a commitment fee of 0.50% per annum based on the unused portion of the credit facility and certain other fees. Fees payable 130 in connection with the issuance of letters of credit are equal to the then applicable LIBOR margin plus a fronting fee of 0.25% all calculated per annum on the face amount of each letter of credit. During the continuance of an event of default, interest will be payable at rates 2.00% above the interest rate applicable to Base Rate loans described in the credit agreement. Hydro Subordinated Debt We have entered into an agreement with Norsk Hydro USA, Inc. to borrow up to $30.0 million in the form of subordinated debt secured by a second lien and pledge on the collateral securing your notes and guarantees by our subsidiaries. Except for the collateral security, the guarantees by our subsidiaries of the Hydro debt are also subordinate to the indebtedness under our credit facility with BankBoston. The proceeds of this indebtedness will be available to us in two parts -- $20.0 million, which has already been provided, and the balance on our notice, issued on or before December 31, 2001, of the completion of plans to implement complete point feeder conversion of the Goldendale smelter, the receipt of all necessary permits and satisfaction of certain other customary conditions. Our indebtedness with Hydro matures December 31, 2005 (subject to automatic extensions of up to a maximum of two years to the extent we cannot repay principal at maturity as a result of the limitations imposed by the restricted payments covenant in the indenture). Borrowings under this indebtedness bear interest at LIBOR plus 2.00%, payable semi-annually in arrears. Commencing February 15, 2003, we will make semi-annual principal payments (subject to the limitations imposed by the restricted payments covenant in the indenture) based on increased earnings associated with the facilities investment program at the Goldendale smelter. The subordinated note purchase agreement with Hydro contains customary affirmative covenants and a covenant to implement the facilities investment program and incorporates by reference certain of the negative covenants contained in the indenture. Pursuant to an agreement between the trustee of your notes and Norsk Hydro USA, Inc., the Hydro indebtedness and the related guarantees by our subsidiaries are subordinated in right of payment to the notes and their guarantees in the following manner: (1) in the event of a bankruptcy or similar proceeding involving us or any of our subsidiaries, you will be entitled to receive payment in full before Norsk Hydro USA, Inc. will be entitled to receive any payment in respect of the indebtedness owed to it or the related guarantees, and (2) no payment in respect of the indebtedness to Hydro or the related guarantees will be permitted unless (a) the payment (in the case of principal) is permitted under the restricted payments covenant contained in the indenture, 131 (b) at the time of the payment and after giving effect thereto, there shall not be an event of default under the indenture, a notice of an event or condition which would constitute an event of default or an event or condition the occurrence or existence of which would, solely with the passage of time, constitute an event of default under the indenture and (c) no portion of the indebtedness to Hydro shall have been accelerated at or before the time of the payment. In addition, the agreement provides that the trustee's security interest and pledge in the collateral for the notes will be senior in priority to the security interest and pledge securing the indebtedness to Hydro, and will limit in certain respects the ability of Hydro to exercise its rights and remedies in respect of the indebtedness and the guarantees and collateral securing it. See "Description of Notes -- Material Covenants -- Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments." Goldendale Preferred Stock Goldendale Holding Company has outstanding 131,836.1 shares of nonconvertible Series A preferred stock held by the Goldendale Aluminum Company profit sharing plan. Goldendale Holding Company is the sole owner of all 329,500 outstanding shares of common stock of Goldendale Aluminum Company. The Goldendale preferred stock pays cumulative dividends and has one vote per share on all matters submitted to a vote of shareholders of Goldendale Aluminum Company and votes together with the common stock as a single class on these matters. We have the right to redeem the Goldendale preferred stock in cash at any time for a variable price set forth in the terms of the Goldendale preferred stock. If we do not redeem the Goldendale preferred stock before January 1, 2002, each holder of the Goldendale preferred stock can receive additional shares of Goldendale preferred stock equal in value to any accrued and unpaid cash dividends. Although we plan to redeem the Goldendale preferred stock, we do not assure you we will do so. Because the shares of Goldendale preferred stock vote as a class with the common stock, such an in-kind payment to the holders of the Goldendale preferred stock could result in a change of voting control of Goldendale Aluminum Company. See Note 11 to the Combined Financial Statements. The liquidation preference on the Goldendale preferred stock is $225 per share. 132 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 350,000 shares of common stock. Common Stock As of the date of this document, 1,000 shares of common stock were outstanding, held of record by Mr. Wilcox. Holders of common stock are entitled to receive dividends as may from time to time be declared by our board of directors out of funds legally available for that purpose. Holders of common stock are entitled to one vote per share on all matters on which they are entitled to vote and do not have any cumulative voting rights. Holders of common stock have no preemptive, conversion, redemption or sinking fund rights. If we liquidate, dissolve or wind up, holders of common stock are entitled to share equally and ratably in any of our assets remaining after the payment of all of our liabilities, including the notes. The outstanding shares of common stock are fully paid and nonassessable. 133 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following is a general summary of certain U.S. federal income tax consequences associated with the exchange of the notes for the new notes under the Exchange Offer. The discussion below does not consider all aspects of U.S. federal income taxation that may be relevant to particular holders in the context of their specific investment circumstances or certain types of holders subject to special treatment under these laws (e.g., financial institutions, tax-exempt organizations, foreign corporations and individuals who are not citizens or residents of the U.S.). This summary is based upon the United States federal tax laws and regulations as now in effect and as currently interpreted and does not take into account possible changes in these tax laws or these interpretations, any of which may be applied retroactively. It does not include any description of the tax laws of any state, local or foreign government that may be applicable to the notes or a holder of the notes. The exchange of the notes for the new notes under the Exchange Offer will not be treated as an "exchange" for federal income tax purposes because the new notes do not differ materially in either kind or extent from the notes and because the exchange will occur by operation of the terms of the notes. Rather, the new notes received by a holder will be treated as a continuation of the notes in the hands of the holder. As a result, there generally will be no federal income tax consequences to holders who exchange notes for the new notes under the Exchange Offer. In addition, any "market discount" on the notes should carry over to the new notes. Holders should consult their tax advisors regarding the application of the market discount rules to the new notes received in exchange for the notes under the Exchange Offer. This summary does not discuss all aspects of United States federal income taxation that may be relevant to a particular holder of the notes in light of his, her or its particular circumstances and income tax situation. Each holder of the notes should consult his, her or its tax advisor as to the specific tax consequences to the holder of the exchange of notes for new notes and the ownership and disposition of the notes, including the application and effect of state, local, foreign and other tax laws or changes to those laws. 134 PLAN OF DISTRIBUTION Each broker-dealer that receives new notes for its own account in connection with the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for notes where the notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period ending on the earlier of (1) 180 days after the date of this Prospectus and (2) the date on which a broker-dealer is no longer required to deliver a prospectus in connection with market-making or other trading activities, we will make available and provide promptly upon reasonable request this Prospectus (as amended or supplemented), in a form meeting the requirements of the Securities Act, to any broker-dealer for use in connection with any such resale. We will receive no proceeds in connection with the Exchange Offer. New notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to the prevailing market prices or negotiated prices. A resale may be made directly to purchasers or through brokers or dealers who may receive compensation in the form of commissions or concessions from the broker-dealer and/or the purchasers of new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of the new notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on the resale of new notes and any commissions or concessions received by these persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver, and by delivering, a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed to indemnify these broker-dealers against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the issuance of the new notes will be passed upon for us by Stoel Rives LLP, Portland, Oregon. EXPERTS The combined financial statements of Golden Northwest Aluminum, Inc. and Affiliates as of December 31, 1997 and 1996 and for each of the two years in the period ended December 31, 1997 included in this Prospectus have been audited by BDO Seidman, LLP, independent certified public accountants, as stated in their report appearing herein. 135 The combined statements of income, shareholders' equity and cash flows of Golden Northwest Aluminum, Inc. and Affiliates for the year ended September 3, 1995 included in this Prospectus have been audited by Perkins & Company, P.C., independent certified public accountants, as stated in their report appearing herein. The statements of income and cash flows of Goldendale Smelter Division of Columbia Aluminum Company for the year ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996 included in this Prospectus have been audited by BDO Seidman, LLP, independent certified public accountants, as stated in their report appearing herein. CHANGE OF ACCOUNTANTS On June 15, 1998, we engaged BDO Seidman, LLP as our independent public accountants. BDO's engagement was approved by our Board of Directors. Pursuant to this engagement, BDO audited our combined financial statements for the years ended December 31, 1997 and 1996, which combined financial statements are included in this document. Prior to this engagement, we had not consulted with BDO on issues relating to our accounting principles or the type of audit opinion to be issued with respect to our financial statements. Perkins & Company, P.C. were our prior auditors and audited our combined financial statements for the year ended September 3, 1995. The report of Perkins on those financial statements did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audit by Perkins for the year ended September 3, 1995, there was no disagreement between us and Perkins on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which, if not resolved to the satisfaction of Perkins, would have caused them to make reference to the matter in their report. Arthur Andersen LLP had previously audited Goldendale Aluminum Company's financial statements as of December 31, 1996 and 1997. In connection with the audit by Arthur Andersen for these periods, there was no disagreement between us and Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which, if not resolved to the satisfaction of Arthur Andersen would have caused them to make reference to the matter in their report. ADDITIONAL INFORMATION As required by the Securities Act, we have filed a Registration Statement on Form S-4 with the SEC to register the new notes to be exchanged for existing notes in the Exchange Offer. This document omits some information contained in the Registration Statement and the exhibits and schedules attached to the Registration Statement. For further information about us and the Exchange Offer, you should review the Registration Statement 136 and its exhibits and schedules. Statements in this document that summarize the contents of any contract or other document are not necessarily complete and you should review every contract or document that is filed as an exhibit to the Registration Statement. The Registration Statement and its exhibits and schedules may be inspected without charge at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC located at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials may be obtained from the Public Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates and from the SEC's Internet Web site at http://www.sec.gov. 137 INDEX TO FINANCIAL STATEMENTS Page ---- Golden Northwest Aluminum, Inc. and Affiliates Reports of Independent Certified Public Accountants..................... F-2-F-3 Combined Balance Sheets as of December 31, 1996 and 1997 and September 30, 1998 (unaudited)........................................ F-4 Combined Statements of Income for the years ended September 3, 1995, December 31, 1996 and 1997 and Nine Months Ended September 30, 1997 and 1998 (unaudited)...................................................... F-5 Combined Statements of Shareholders' Equity for the years ended September 3, 1995, December 31, 1996 and 1997 and Nine Months Ended September 30, 1998 (unaudited).......................... F-6 Combined Statements of Cash Flows for the years ended September 3, 1995, December 31, 1996 and 1997 and Nine Months Ended September 30, 1997 and 1998 (unaudited)...................................................... F-7 Summary of Significant Accounting Policies.................................. F-8 Notes to Combined Financial Statements..................................... F-13 Goldendale Smelter Division of Columbia Aluminum Company Report of Independent Certified Public Accountants......................... F-23 Statements of Income for the year ended December 31, 1995 and for the period from January 1, 1996 through May 21, 1996............. F-24 Statements of Cash Flows for the year ended December 31, 1995 and for the period from January 1, 1996 through May 21, 1996............. F-25 Summary of Significant Accounting Policies................................. F-26 Notes to Financial Statements.............................................. F-29 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Golden Northwest Aluminum, Inc. and Affiliates The Dalles, Oregon We have audited the accompanying combined balance sheets of Golden Northwest Aluminum, Inc. and Affiliates as of December 31, 1996 and 1997 and the related combined statements of income, shareholders' equity, and cash flows for the years then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Golden Northwest Aluminum, Inc. and Affiliates as of December 31, 1996 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. BDO Seidman, LLP Spokane, Washington July 10, 1998, except for Note 3 which is as of February 8, 1999 F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Golden Northwest Aluminum, Inc. and Affiliates The Dalles, Oregon We have audited the accompanying combined statements of income, shareholders' equity and cash flows of Golden Northwest Aluminum, Inc. and Affiliates for the year ended September 3, 1995. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the results of operations, changes in shareholders' equity and cash flows of Golden Northwest Aluminum Company, Inc. and Affiliates for the year ended September 3, 1995. Perkins & Company, P.C. Portland, Oregon October 11, 1995, except for Note 3 which is as of February 8, 1999 F-3
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES COMBINED BALANCE SHEETS ASSETS (Note 5) December 31, September 30, -------------------- ------------- 1996 1997 1998 -------- -------- ------------- (unaudited) (In thousands) Current assets: Cash and cash equivalents.............................................. $ 6,345 $ 1,251 $ 1,122 Trade accounts receivable, less allowance for doubtful accounts of $1,296, $1,000 and $1,000............................... 60,490 61,862 48,119 Current portion of receivable due from related company (Note 13)....... -- -- 673 Inventories (Note 2)................................................... 51,389 60,892 62,314 Prepaid expenses....................................................... 677 527 739 Deferred income taxes (Note 10)........................................ 1,245 1,339 1,256 -------- --------- -------- Total current assets........................................... 120,146 125,871 114,223 -------- --------- -------- Property, plant and equipment, net (Notes 1 and 3)....................... 113,105 113,812 116,167 Power project assets held for sale....................................... 12,000 1,630 1,630 Goodwill, net of accumulated amortization of $3,039, $7,785 and $11,345 (Note 1)............................................ 94,933 92,886 89,326 Advances to stockholder.................................................. -- 2,000 2,000 Receivable due from related company, less current portion (Note 13)...... 403 4,034 3,601 Other assets, net (Note 4)............................................... 10,228 6,7788 5,948 -------- -------- -------- $350,815 $347,011 $332,895 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 5)............................. $ 13,375 $13,500 $ 13,750 Trade accounts payable................................................. 27,582 50,496 37,527 Accrued expenses (Note 8).............................................. 12,821 19,161 16,261 Income taxes payable (Note 10)......................................... 4,460 6,316 5,577 -------- -------- -------- Total current liabilities...................................... 58,238 89,473 73,115 Long-term debt, less current portion (Note 5).......................... 172,066 121,441 118,025 Deferred income taxes (Note 10)........................................ 7,835 9,323 11,714 Deferred compensation (Note 7)......................................... 3,728 2,915 2,334 Other long-term liabilities (Note 9)................................... 3,114 2,312 2,375 Dividends payable (Note 11)............................................ 2,219 5,867 8,604 -------- -------- -------- Total liabilities.............................................. 247,200 231,331 216,167 -------- -------- -------- Commitments and contingencies (Notes 6, 7, 9 and 10) Shareholders' equity (Notes 1 and 11): Preferred stock........................................................ 29,663 29,663 29,663 Common stock........................................................... 40 40 40 Additional paid-in capital............................................. 65,314 65,464 65,594 Retained earnings ..................................................... 8,598 20,513 21,431 -------- -------- -------- Total shareholders' equity..................................... 103,615 115,680 116,728 -------- -------- -------- $350,815 $347,011 $332,895 ======== ======== ======== See accompanying summary of significant accounting policies and notes to the combined financial statements.
F-4
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES COMBINED STATEMENTS OF INCOME Year Ended Nine Months Ended ---------- ---------------------- September 3, December 31, September 30, ------------ --------------------- ---------------------- 1995 1996 1997 1997 1998 ------------ -------- ------- -------- -------- (unaudited) (in thousands, except per share data) Revenues (Notes 1, 6 and 13)............... $ 289,693 $373,038 $497,872 $363,282 $360,035 Cost of revenues........................... 256,211 329,739 438,299 314,575 329,897 --------- -------- -------- -------- -------- Gross margin............................... 33,482 43,299 59,573 48,707 30,138 General and administrative expenses........ 8,293 9,746 15,327 10,574 12,087 --------- -------- -------- -------- -------- Operating income........................... 25,189 33,553 44,246 38,133 18,051 --------- -------- -------- -------- -------- Other income (expense): Interest expense (Note 5)................ (948) (9,454) (16,723) (11,850) (11,251) Other income (expense), net.............. (545) 1,442 4,246 3,333 1,540 --------- -------- -------- -------- -------- Net other expense.......................... (1,493) (8,012) (12,477) (8,517) (9,711) --------- -------- -------- -------- -------- Income before income taxes................. 23,696 25,541 31,769 29,616 8,340 Income tax expense (Note 10)............... -- 6,636 13,274 11,962 4,685 --------- -------- -------- -------- -------- Net income................................. $ 23,696 $ 18,905 $ 18,495 $ 17,654 $ 3,655 ========= ======== ======== ======== ======== Pro Forma Amounts (unaudited): Net income............................... $ 23,696 $ 18,905 $ 18,495 $ 17,654 $ 3,655 Dividends accrued on preferred stock................................. -- (2,219) (3,648) (2,737) (2,737) --------- -------- -------- -------- -------- Net income available to common shareholde $ 23,696 $ 16,686 $ 14,847 $ 14,917 $ 918 ========= ======== ======== ======== ======== Net income per share of common stock.. $ 23,696 $ 16,686 $ 14,847 $ 14,917 $ 918 ========= ======== ======== ======== ======== Weighted average shares of common stock outstanding................... 1,000 1,000 1,000 1,000 1,000 ========= ======== ======== ======== ======== (The Combined Statements of Income include the results of operations of Goldendale Holding Company since May 22, 1996. See Note 1.) See accompanying summary of significant accounting policies and notes to the combined financial statements.
F-5
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY Preferred Common Additional Total Stock Stock Paid-In Retained Shareholders' Amount Amount Capital Earnings Equity --------- ------ --------- -------- ------------ (in thousands) Balance at August 29, 1994.................. $ -- $ 38 $20,736 $ 39,855 $ 60,629 Dividends paid on common stock.............. -- -- -- (4,000) (4,000) Net income.................................. -- -- -- 23,696 23,696 ------- ---- ------- -------- -------- Balance at September 3, 1995................ -- 38 20,736 59,551 80,325 Transition period activity: Net income................................ -- -- -- 1,948 1,948 Dividends paid on common stock............ -- -- -- (2,000) (2,000) ------- ---- ------- -------- -------- Balance at January 1, 1996.................. -- 38 20,736 59,499 80,273 Shares issued for business acquisition (Note 1)...................... 29,663 2 44,478 -- 74,143 Cash contributed to capital (unaudited)..... -- -- 100 -- 100 Dividends accrued on preferred stock........ -- -- -- (2,219) (2,219) Dividends paid on common stock.............. -- -- -- (67,587) (67,587) Net income.................................. -- -- -- 18,905 18,905 ------- ---- ------- -------- -------- Balance at December 31, 1996................ 29,663 40 65,314 8,598 103,615 Cash contributed to capital................. -- -- 150 -- 150 Dividends accrued on preferred stock........ -- -- -- (3,648) (3,648) Dividends paid on common stock.............. -- -- -- (2,932) (2,932) Net income.................................. -- -- -- 18,495 18,495 ------- ---- ------- -------- -------- Balance at December 31, 1997................ 29,663 40 65,464 20,513 115,680 Cash contributed to capital (unaudited)..... -- -- 130 -- 130 Net income for the period (unaudited)....... -- -- -- 3,655 3,655 Dividends accrued on preferred stock (unaudited) -- -- -- (2,737) (2,737) ------- ---- ------- -------- -------- Balance at September 30, 1998 (unaudited)... $29,663 $ 40 $65,594 $ 21,431 $116,728 ======= ==== ======= ======== ======== See accompanying summary of significant accounting policies and notes to the combined financial statements.
F-6
GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents Year Ended --------------------------------------- Nine Months Ended September 3, December 31, September 30, ------------ ------------------------ ----------------------- 1995 1996 1997 1997 1998 ------------ ---------- ---------- --------- ---------- (in thousands) (unaudited) Cash flows from operating activities: Net income........................................... $ 23,696 $ 18,905 $ 18,495 $ 17,654 $ 3,655 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...................... 7,711 13,584 19,069 13,881 14,553 Loss (gain) on disposal of assets.................. 635 -- (2,600) (2,218) 78 Deferred income taxes.............................. -- 3,573 8,136 8,882 2,474 Change in assets and liabilities, net of effect of acquisition: Trade accounts receivable..................... (2,801) (2,960) (1,372) 2,498 13,743 Inventories................................... (14,668) 22,299 (9,503) (5,687) (1,422) Prepaid expenses.............................. (103) (43) 150 227 (212) Other assets.................................. (242) (5,298) 2,850 2,793 837 Trade accounts payable........................ 4,810 (3,586) 22,914 17,183 (13,595) Accrued expenses.............................. 5,789 (17,074) 3,641 (1,214) (2,900) Income taxes payable.......................... -- 450 (4,886) (7,099) (739) Other liabilities............................. -- 4 (802) 83 426 --------- ---------- ---------- ---------- ---------- Net cash provided by operating activities.............. 24,827 29,854 56,092 46,983 16,898 --------- ---------- ---------- ---------- ---------- Cash flows from investing activities: Proceeds from sale of assets......................... 13 -- 12,821 12,588 -- Acquisition of property, plant and equipment......... (5,216) (19,852) (14,281) (10,106) (12,807) Advances to stockholder.............................. -- -- (2,000) (1,212) -- Receivable due from related company.................. -- (403) (3,631) (2,812) (240) Cash acquired in business acquisition................ -- 1,106 -- -- -- --------- ---------- ---------- ---------- ---------- Net cash used in investing activities.................. (5,203) (19,149) (7,091) (1,542) (13,047) --------- ---------- ----------- ----------- ---------- Cash flows from financing activities: Borrowings under revolving credit facilities......... 184,561 259,122 319,219 189,197 237,000 Repayments under revolving credit facilities......... (199,538) (212,029) (326,793) (198,478) (230,762) Contribution of capital.............................. -- 100 150 82 130 Principal repayments of term loan facilities......... -- (7,750) (42,926) (36,300) (9,404) Proceeds from term loan facilities................... -- 25,000 -- -- -- Principal payments on deferred compensation notes.... -- (1,631) (813) (920) (944) Dividends paid....................................... (4,000) (67,587) (2,932) (2,720) -- --------- ---------- ---------- ---------- ---------- Net cash used in financing activities.................. (18,977) (4,775) (54,095) (49,139) (3,980) --------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents... 647 5,930 (5,094) (3,698) (129) Cash and cash equivalents, beginning of period......... 419 415 6,345 6,345 1,251 --------- ---------- ---------- ---------- ---------- Cash and cash equivalents, end of period............... $ 1,066 $ 6,345 $ 1,251 $ 2,647 $ 1,122 ========= ========== ========== ========== ========== Supplemental Disclosures of Cash Flow Information (Note 12) See accompanying summary of significant accounting policies and notes to the combined financial statements.
F-7 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) Operations, Principles of Combination and Basis of Presentation Golden Northwest Aluminum, Inc. ("Golden" or the "Company") was incorporated in the state of Oregon on June 3, 1998 for the purposes of becoming the holding company of Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., Northwest Aluminum Technologies, LLC (collectively "Northwest") and Goldendale Holding Company and its wholly owned subsidiary, Goldendale Aluminum Company (collectively "Goldendale"). The sole shareholder of the Company also owns all of the outstanding shares of common stock of Northwest and Goldendale. The combined financial statements include the accounts of Northwest for all periods presented and the accounts of Goldendale from May 22, 1996, the date of acquisition by the sole shareholder (See Note 1). All significant intercompany accounts and transactions have been eliminated. The operations of the Company consist primarily of the smelting conversion of alumina to aluminum under tolling arrangements with alumina suppliers, processing of aluminum into primary products, and the sale of those products. The operations are located in the Pacific Northwest on the Columbia River. Goldendale's fiscal year end is December 31. Northwest reported its operations on a 52 or 53 week period ending on the Sunday occurring closest to August 31. The year ended September 3, 1995 was a 53 week period. In order to permit the combination with Goldendale, Northwest changed its fiscal year end to September 30 commencing with the year ended September 30, 1996. During the transitional month of September 1995, Northwest recorded revenues of $21,643 and net income of $1,948. The net income for this period has been reflected in the accompanying statement of shareholders' equity, net of transitional period dividends to the stockholder of $2,000, as an adjustment to retained earnings. Combined and separate results of Northwest and Goldendale are as follows. Operating results for 1996 and 1997 include the results of the combining entities based on their respective fiscal year ends (Goldendale -- December 31 and Northwest -- September 30); operating results for the interim periods include the results of Goldendale's operations for the nine month periods ending September 30 and Northwest's operations for the nine month periods ending June 30.
Year Ended Nine Months Ended ------------------------------------ ---------------------- 1995 1996 1997 1997 1998 -------- -------- -------- -------- -------- Revenues: Northwest.................. $289,693 $244,839 $296,271 $213,574 $224,399 Goldendale................. -- 128,199 201,601 149,708 135,636 -------- -------- -------- -------- -------- $289,693 $373,038 $497,872 $363,282 $360,035 ======== ======== ======== ======== ======== Net income (loss): Northwest.................. $ 23,696 $ 9,730 $ 205 $ 1,118 $ (766) Goldendale................. -- 9,175 18,290 16,536 4,421 -------- -------- -------- -------- -------- $ 23,696 $ 18,905 $ 18,495 $ 17,654 $ 3,655 ======== ======== ======== ======== ========
Revenue Recognition Revenues for the conversion of alumina and processing of aluminum under tolling arrangements are recognized upon completion of the tolling process. Revenues from the sale of aluminum products are recognized upon shipment. F-8 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method, except for certain supply inventories which are based upon the weighted average cost method. Property, Plant and Equipment Property, plant and equipment including cell relining costs are stated at cost, less accumulated depreciation. For financial reporting purposes, the costs of plant and equipment are depreciated over the estimated useful lives of the assets, which range from three to forty years, using the straight-line method. Assets Held For Sale Power project assets represent idle assets which are being held for sale. These assets are recorded at their estimated net realizable value. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is being amortized on a straight-line basis over twenty years. Asset Impairment The Company evaluates its long-lived assets for financial impairment, and continues to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. Interest Costs The Company follows the policy of capitalizing interest as a component of the cost of property, plant and equipment constructed for its own use. Interest costs of $147 were capitalized during the year ended December 31, 1996. Income Taxes Both the Company and Northwest have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, Northwest does not pay federal or state corporate income taxes on their taxable income. Instead, Northwest's shareholder is liable for individual federal and state income taxes on Northwest's taxable income. It is the Company's intention to pay dividends to the shareholder in an amount no less than the sum of these federal and state income taxes. F-9 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) Goldendale accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 uses the liability method so that deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws and tax rates. Deferred income tax expense or benefit is based on the changes in the financial statement bases versus the tax bases in Goldendale's assets or liabilities from period to period. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentrations of Credit Risk Financial instruments which potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with various high quality financial institutions; these deposits may exceed federally insured limits at various times throughout the year. Northwest sells its products to various customers involved in the manufacturing of aluminum products located throughout the United States. Credit risk arising from these receivables is controlled through credit approval, credit limit and monitoring procedures. Receivables due from the Company's two primary tolling customers comprise 29%, 40%, and 42% of the Company's total trade accounts receivable at December 31, 1996 and 1997 and September 30, 1998, respectively. Financial Instruments and Derivative Financial Instruments The fair values of financial instruments have been determined through information obtained from quoted market sources and management estimates. It is management's belief that financial instruments held by the Company approximate fair market value. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes. Both Goldendale and Northwest have entered into interest rate swap agreements for purposes of minimizing exposure to interest rate risk. The differential between the floating interest rate and the fixed interest rate which is to be paid or received is recognized in interest expense as the floating interest rate changes over the life of the agreement. Research and Development Costs Expenditures associated with research and development for existing product process improvements are expensed as incurred. These costs amounted to $129, $898 and $544 during the years ended September 3, 1995 and December 31, 1996 and 1997, respectively. F-10 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) Cash and Cash Equivalents For purposes of balance sheet classification and the statements of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Environmental Matters The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company records a liability for an environmental matter when it is probable and can be reasonably estimated. The Company's estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. Debt Issue Costs Costs and fees incurred to obtain financing are capitalized and amortized over the term of the related debt. Effect of Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued two new disclosure standards. Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by or distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The adoption of SFAS No. 130 by the Company on January 1, 1998 had no impact on the Company's financial position. Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), Disclosures about Segments of an Enterprise and Related Information, which supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, establishes standards for the new way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company does not expect the adoption of SFAS No. 131, which will occur in its December 31, 1998 financial statements, to have an impact on the Company's financial position. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 ("SFAS No. 132"), Employers' Disclosures about Pensions and Other Postretirement Benefits, F-11 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) which standardizes the disclosure requirements for pension and other postretirement benefits. The adoption of SFAS No. 132 is not expected to materially impact the Company's current disclosures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized as income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Based on its current and planned future activities relative to derivative instruments, the Company believes that the adoption of SFAS No. 133 on January 1, 2000 will not have a significant effect on its financial statements. Unaudited Interim Combined Financial Statements and Separate Subsidiary Financial Statements In the opinion of the Company's management, the combined balance sheet as of September 30, 1998, the combined statements of income and cash flows for the nine months ended September 30, 1998 and 1997 and the combined statement of shareholders' equity for the nine months ended September 30, 1998 contain all adjustments (consisting of only normal recurring accruals and adjustments) necessary to present fairly the information set forth therein. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of future results. In connection with a proposed debt refinancing, each of the Company's subsidiaries will jointly and severally guarantee the debt of the Company. As the guarantees will be full and unconditional and the Company will have no operations or assets other than its investments in the subsidiaries, full separate financial statements of the guarantor are not provided. Earnings per share Earnings per share is computed based on the Company's combined net earnings and the pro forma weighted average number of shares of common stock of the Company, assuming that the shares issued by the Company upon incorporation had been outstanding for all periods presented. F-12 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) 1. Business Acquisition On May 22, 1996, the sole shareholder of the Company purchased 137,314.82 shares of outstanding common stock of Columbia Aluminum Corporation ("CAC") for approximately $30,895. On that same date the shareholder purchased all of the issued and outstanding common stock of KCE Enterprises, Inc. ("KCE"), which owned 60,374 shares of common stock of CAC, for approximately $13,585. Immediately before the purchase of CAC and KCE stock described above, pursuant to a plan of corporate reorganization and separation, CAC redeemed 564,626 shares of common stock of CAC owned by an unrelated party in exchange for stock of a wholly-owned subsidiary of CAC, Columbia Ventures Corporation ("CVC"). CAC operated the Goldendale smelter; CVC and its subsidiaries were engaged in a diversified array of businesses, primarily related to the aluminum industry. Pursuant to the plan of reorganization and separation, CAC contributed to CVC certain non-smelter related assets, intercompany receivables and $54,141 in cash; CAC also purchased certain power generation assets from CVC for $21,321. The funds contributed to CVC and used to acquire the power generation assets were obtained by CAC through the term loans described in Note 5. Fees incurred related to the financing and acquisition were approximately $3,000 and $5,500, respectively. Following the separation of CVC from CAC and the purchases of common stock on that same date, the shareholders of CAC were KCE (owned by the Company's stockholder), the Company's shareholder, and the Columbia Aluminum Corporation Employee Stock Ownership Trust (the "ESOT"), which, after selling 120,000 shares of CAC common stock to the Company's shareholder, owned 131,836.10 shares of CAC common stock. Goldendale Holding Company then issued 197,688.82 shares of its common stock to the Company's shareholder and 131,836.10 shares of Series A Preferred Stock, valued at $29,663 ($225/share), to the ESOT in exchange for the shares of common stock of CAC held by them. CAC was renamed Goldendale Aluminum Company ("GAC"). The acquisition of GAC was recorded under the purchase method of accounting; accordingly, the results of operations of GAC are included in the combined statements of income from the date of acquisition. The excess of the purchase price over the fair value of the net tangible assets acquired was approximately $98,000 and is being amortized over twenty years. During 1997, an adjustment of approximately $2,700 was made to the intangible asset relating to contingent tax liabilities existing at the date of acquisition. The following unaudited pro forma combined results of operations have been prepared as if the acquisition of GAC had occurred at the beginning of each year, after giving effect to certain adjustments, including amortization of the intangible asset, increased depreciation on the step-up in the basis of fixed assets, increased interest expense on acquisition debt, and related income tax effects. They do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred at the beginning of 1995 or 1996.
1995 1996 --------- --------- Revenues....................................... $ 504,423 $ 456,568 Net income..................................... $ 25,386 $ 20,621 Net income per share of Common Stock........... $ 21,738 $ 16,973
F-13 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) 2. Inventories Inventories consist of the following:
December 31, --------------------- September 30, 1996 1997 1998 ------- ------- ------------- (unaudited) Purchased metals and tolling in process....... $29,740 $37,932 $33,130 Supplies and alloys........................... 12,907 14,137 19,043 Carbon plant materials........................ 5,230 5,296 6,536 Alumina....................................... 3,512 3,527 3,605 ------- ------- ------- $51,389 $60,892 $62,314 ======= ======= =======
3. Property, Plant and Equipment Property, plant and equipment consist of the following:
December 31, ---------------------- September 30, 1996 1997 1998 -------- -------- ------------- (unaudited) Land and improvements....................... $ 5,487 $ 5,562 $ 7,321 Machinery and equipment..................... 93,226 105,134 109,318 Buildings and improvements.................. 38,280 39,283 38,265 Capital projects in process................. 6,806 4,582 7,155 -------- -------- -------- 143,799 154,561 162,059 Less accumulated depreciation............... 30,694 40,749 45,892 -------- -------- -------- Property, plant and equipment, net.......... $113,105 $113,812 $116,167 ======== ======== ========
During 1998, in connection with the preparation of its financial statements to be used in the registration of debt securities, the Company changed its method of accounting for cell reline costs from expensing such costs as incurred to deferring and amortizing these costs over future periods. The Company believes that the new method is preferable since it improves the matching of revenues and costs as technological improvements have extended the estimated period of economic benefit realized from cell relining. The change has been applied by retroactively restating the accompanying combined financial statements. The effect of this change was to decrease net income for the year ended September 3, 1995 by $1,308 and increase net income for the years ended December 31, 1996 and 1997 and the nine month periods ended September 30, 1997 and 1998 by $1,223, $2,067, $1,739 and $1,939, respectively. F-14 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) 4. Other Assets Other assets consist of the following:
December 31, --------------------- September 30, 1996 1997 1998 ------- ------ ------------- (unaudited) Long-term trade receivable........................ $ 1,380 $2,465 $1,292 Debt issue costs (net of accumulated amortization of $412, $1,226 and $1,863)........ 3,640 2,826 2,257 Restricted cash................................... 1,170 1,239 1,268 Refundable federal tax deposit.................... 3,361 -- -- Deferred financing costs.......................... -- -- 626 Other............................................. 677 248 505 ------- ------ ------ $10,228 $6,778 $5,948 ======= ====== ======
Northwest was subject to requirements for a federal tax deposit to retain its fiscal year for income tax purposes. Northwest adopted a calendar year for income tax purposes effective December 31, 1996 and, as a result, the tax deposits were refunded during the year ended December 31, 1997. Restricted cash consists of cash held in trust and committed for environmental cleanup and workers compensation self-insurance as required by the State of Washington. These monies will be disbursed at a future date as required by the state. 5. Long-Term Debt Long-term debt consists of the following:
December 31, ---------------------- September 30, 1996 1997 1998 -------- -------- ------------- (unaudited) Revolving credit facilities........... $ 73,191 $ 65,617 $ 71,855 Term loans............................ 112,250 69,324 59,920 -------- -------- -------- Long-term debt........................ 185,441 134,941 131,775 Less current portion.................. 13,375 13,500 13,750 -------- -------- -------- Long-term debt less current portion... $172,066 $121,441 $118,025 ======== ======== ========
The Revolving Credit Facilities and Term Loans are made pursuant to credit agreements between each of Northwest and Goldendale and a bank. Borrowings under the credit agreements are secured by substantially all assets of the respective company. The Revolving Credit Facilities, which mature in 2001, provide for borrowings up to $65 million for Northwest and up to $30 million for Goldendale. Revolving loan advances bear interest at either the bank's Base Rate plus an applicable margin as defined in the credit agreement or the Eurodollar Rate plus an applicable margin as defined in the credit agreement; at December 31, 1997, interest rates on the Revolving Credit Facility ranged from 8.5% to 9.25% on the Base Rate portions and from 7.4% to 8.5% on the Eurodollar rate portions. Northwest and Goldendale are subject to a quarterly commitment fee, ranging from 0.375% to 0.50% F-15 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) per annum, on the unused portion of the Revolving Credit Facilities. Term Loans, with maturity dates ranging from 2001 to 2002, bear interest at either the bank's Base Rate plus an applicable margin as defined in the credit agreement or the Eurodollar Rate plus an applicable margin as defined in the credit agreement. At December 31, 1997, the interest rates on the Term Loans were 9.25% on the Base Rate portion and from 7.4% to 8.7% on the Eurodollar portion. The lending agreements contain covenants related to minimum net worth, interest coverage ratio, fixed charge coverage ratio and debt to income ratio. In addition, the credit agreements limit capital spending, investments and dividends. At December 31, 1997, Northwest and Goldendale were in compliance with their debt covenants. At September 30, 1998, Northwest and Goldendale were not in compliance with their debt covenants. A waiver for noncompliance was obtained by the Company. During 1996, both Goldendale and Northwest entered into interest rate swap agreements, as required by the credit agreements, which expire in 2001. The fixed interest rate paid on the interest rate swaps is 6.83%, covering, at December 31, 1997, $40 million notional principal amount of floating rate (Eurodollar) indebtedness of Goldendale and 6.25% covering $18.8 million notional principal amount of floating rate (Eurodollar) indebtedness of Northwest. Although the Company is exposed to credit loss on the interest rate swap in the event of nonperformance by the counterparties, the Company estimates the likelihood of such nonperformance to be remote. At December 31, 1997 and 1996, the fair value of the interest rate swaps was approximately $800 and $1,025, respectively, which reflects the estimated amount that the Company would pay to terminate the contracts. Scheduled principal maturities of long-term debt at December 31, 1997 are as follows:
Year Ending December 31, Amount ------------ --------- 1998.......................... $ 13,500 1999.......................... 15,000 2000.......................... 11,197 2001.......................... 80,742 2002.......................... 14,502 --------- $ 134,941 =========
6. Aluminum Tolling Conversion Agreements Both Goldendale and Northwest have agreements with alumina suppliers for the conversion of alumina to aluminum for a tolling charge under which the entire production capacity of the smelting facilities is dedicated to the tolling of its supplier's alumina. The supplier is obligated to supply, without charge, alumina sufficient to meet the requirements for full operation. The tolling fees set forth in the contracts are a percentage of the price of aluminum quoted on the London Metals Exchange. Goldendale's agreement continues through December 31, 2006, and Northwest's continues through December 31, 1999. These two tolling customers accounted for 37% and 0% of the Company's combined revenue in 1995, 26% and 31% of the Company's combined revenue in 1996, and 18% and 40% of the Company's combined revenues in 1997. F-16 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) 7. Employee Benefit Plans Profit Sharing Bonus Plans Northwest has entered into agreements, which continue through 2001, with the United Steelworkers of America, AFL-CIO, to pay annually as additional compensation 20% of the combined net income of Northwest, as adjusted in accordance with the agreements. The Company's total additional compensation bonuses under these agreements amounted to approximately $4,168, $2,100 and $1,300 during the years ended September 3, 1995 and December 31, 1996 and 1997, respectively. Goldendale has a profit sharing plan for its hourly and salaried employees. All Goldendale employees are eligible participants in this plan upon completion of a probationary period. The plan provides for payments equal to a percentage of Goldendale's profits, as defined. These amounts are to be distributed to eligible participants on or before March 31 following the Company's year-end. For the years ended December 31, 1996 and 1997, the Company recorded approximately $1,200 and $1,900, respectively, of expense related to this plan. Goldendale also has an additional profit sharing plan ("PSP") which is available to all Goldendale employees as of their first day of employment. Employer contributions to the PSP are discretionary as approved by the Board of Directors. No employee contributions will be made to the PSP. Participants, who have one hour of service after July 31, 1996, are vested in the assets of the PSP at 100%. Upon termination of employment, plan participants will be paid in cash, based on their account balance as of the last regular or special valuation on or before distribution, subject to the plan provisions of the PSP. No contributions were made to the PSP in 1996 and 1997. Retirement Benefit Plans Northwest has a defined contribution 401(k) profit sharing plan (the "401(k) Plan") covering substantially all Northwest employees under which employees may elect to defer pay subject to statutory limits. The Company is committed to contribute the greater of $.25 per eligible hour worked or 5% of the combined adjusted net income of Northwest. The Company may also make discretionary contributions to the 401(k) Plan. Total required and discretionary contributions by the Company to the 401(k) Plan amounted to approximately $1,376, $520 and $560 during the years ended September 3, 1995 and December 31, 1996 and 1997, respectively. Goldendale also has a 401(k) profit sharing plan under which employees may elect to defer pay, subject to statutory limits; the Company also makes matching contributions for nonbargaining employees on the basis of percentages specified in the plan. Goldendale maintains a separate profit sharing retirement plan (the "DC Plan") which provides retirement benefits for substantially all of its employees. The DC Plan allows for discretionary contributions by the Company as determined on an annual basis. For the years ended December 31, 1996 and 1997, the Company recorded approximately $240 and $730 of expense for plan contributions. Deferred Compensation In connection with the acquisition described in Note 1, the Company entered into deferred compensation agreements with certain employees in exchange for the employees waiving their rights under stock-based compensation and other employment agreements which existed at the acquisition date. The liability is payable in monthly installments of approximately $115, including interest at 8.75%, through 2001. F-17 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) 8. Accrued Expenses Accrued expenses consist of the following:
December 31, --------------------- September 30, 1996 1997 1998 ------- ------- ------------ (unaudited) Bonus................................ $ 7,774 $ 8,067 $ 5,537 Salaries and related expenses........ 3,626 4,471 2,620 Interest payable..................... 280 3,950 4,893 Other................................ 1,141 2,673 3,211 ------- ------- ------- $12,821 $19,161 $16,261 ======= ======= =======
9. Commitments and Contingencies The Company, in the regular course of business, is involved in investigations and claims by various regulatory agencies. The Company is also engaged in various legal proceedings incidental to its normal business activities. The Company's management does not believe that the ultimate resolution of these investigations, claims and legal proceedings will have a material effect on its financial position, results of operations or cash flows. As of December 31, 1996 and 1997, the Company had a liability of approximately $1,572 and $1,656, respectively, for estimated environmental remediation activities. The Company's estimate of this liability is based on a remediation study conducted by independent engineering consultants. The total cost of remediation is estimated at $2.5 million; however, under a court decree the Company is only responsible for approximately 50% of the total. The remaining cost is the responsibility of prior owners. The Company has entered into various agreements for the purchase of power and aluminum. Future estimated minimum payments under these noncancelable agreements are as follows: Year Ending December 31, Amount ------------------------ --------- 1998.......................................... $ 207,062 1999.......................................... 131,536 2000.......................................... 73,597 2001.......................................... 68,699 --------- $ 480,894 ========= F-18 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) 10. Income Taxes Income tax expense consists of the following:
Nine Months Ended September 30, December 31, -------------------- ----------------------------- (unaudited) 1995 1996 1997 1997 1998 ---- ------ ------- -------- ------- Current............................. $ -- $3,063 $10,204 $ 9,821 $2,211 Deferred............................ -- 3,573 3,070 2,141 2,474 ---- ------ ------- ------- ------ Income tax expense.................. $ -- $6,636 $13,274 $11,962 $4,685 ==== ====== ======= ======= ======
The difference between the federal statutory tax rate and the effective tax rate resulted from the following:
Nine Months Ended September 30, December 31, --------------- ------------------------- (unaudited) 1995 1996 1997 1997 1998 ---- ---- ---- ---- ---- Federal statutory tax rate................. 35.0% 35.0% 35.0% 35.0% 35.0% Loss (Earnings) from entities not subject to income taxes.................. (35.0) (18.0) (3.1) (3.5) 3.2 Amortization of goodwill................... -- 4.2 5.3 4.2 14.9 Other items, net........................... -- 4.8 4.6 4.7 3.1 ---- ---- ---- ---- ---- Effective tax rate......................... --% 26.0% 41.8% 40.4% 56.2% ==== ==== ==== ==== ====
Significant components of the Company's deferred tax assets and liabilities are as follows:
December 31, 1996 1997 ------------ --------- --------- Current: Accrued expenses....................... $ 1,032 $ 1,143 Inventory.............................. 195 145 Other.................................. 18 51 --------- --------- $ 1,245 $ 1,339 ========= ========= Noncurrent: Property, plant and equipment.......... $ (20,744) $ (13,968) Power project assets................... 5,969 3,262 Deferred compensation.................. 1,324 1,164 Net operating losses................... 5,067 -- Other.................................. 549 219 --------- --------- $ (7,835) $ (9,323) ========= =========
The Internal Revenue Service ("IRS") has audited the Company's income tax returns and has proposed to change the Company's method of accounting for certain expenditures that were deducted when incurred. The IRS has proposed to capitalize and depreciate these expenditures over an estimated useful life. The Company is currently F-19 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) appealing the proposed change in accounting method initiated by the IRS and believes it has various meritorious defenses. However, at December 31, 1997, the Company has recorded a liability associated with the proposed change in accounting method, which is effective for all tax years subsequent to 1989, of approximately $11.5 million, which includes interest of $4.0 million. The sole shareholder of the Company also has a potential personal liability of approximately $4.4 million related to this IRS proposal. It is the Company's intention to reimburse the shareholder for any amount ultimately paid as a result of the IRS proposal. The Company does not believe that the ultimate resolution of this tax dispute will have a material effect on the Company's financial position or results of operations. 11. Shareholders' Equity The equity accounts of the combining entities are comprised of the following:
December 31, --------------------- September 30, 1996 1997 1998 -------- ------- ------------- (unaudited) Preferred Stock: Goldendale, Series A, cumulative, nonconvertible $.01 par value; 150,000 shares authorized, 131,836.10 issued and outstanding, stated at fair value ($225 per share) when issued...................................... $29,663 $29,663 $29,663 ======= ======= ======= Common Stock: Goldendale, $.01 par value, 350,000 shares authorized, 197,688.82 issued and outstanding................ $ 2 $ 2 $ 2 Northwest, no par value, 2,000 shares authorized, issued and outstanding........................... 38 38 38 ------- ------- ------- $ 40 $ 40 $ 40 ======= ======= ======= Additional Paid-in Capital: Goldendale.......................................... $44,478 $44,478 $44,478 Northwest........................................... 20,836 20,986 21,116 ------- ------- ------- $65,314 $65,464 $65,594 ======= ======= =======
Terms of the Goldendale preferred stock provide for dividends accruing quarterly and payable in cash as declared by the Board of Directors according to the following schedule:
Year Ending December 31, Amount ------------------------ ------------ Through 2001............................... $27.68/share 2002....................................... 29.93/share 2003....................................... 32.18/share Thereafter................................. 34.43/share
Commencing on January 1, 2002, the preferred shareholders have the option of receiving additional shares of preferred stock in satisfaction of any cumulative dividend in arrears which may exist at that time. F-20 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) The Company may redeem any or all outstanding shares of Series A Preferred Stock at the following redemption prices at any time after December 31, 1998: Year Ending December 31, Amount Through 1999................................. $ 230.63 2000......................................... 228.38 2001......................................... 227.25 Thereafter................................... 225.00 The shares of preferred stock and shares of common stock vote together as a single class on all matters submitted to a vote of shareholders of Goldendale. The holders of shares of preferred stock are entitled to one vote per share and have full voting rights and power equal to those of the holders of common stock. 12. Supplemental Disclosures of Cash Flow Information Supplemental disclosures of cash flow information is as follows:
Year Ended Nine Months Ended ------------------------------------- --------------------- September 3, December 31, September 30, 1995 1996 1997 1997 1998 -------- -------- -------- ------- ------- (unaudited) Cash paid during the period for: Interest................................. $ 1,000 $ 8,869 $14,346 $10,211 $11,281 Income taxes............................. -- 2,600 10,545 10,490 2,900 Noncash investing and financing activities: Acquisition contingency accrual: Goodwill.............................. -- -- 2,699 2,699 -- Deferred income taxes................. -- -- 6,742 6,742 -- Dividends accrued on preferred stock................................. -- 2,219 3,648 2,737 2,737 Deferred financing costs accrued......... -- -- -- -- 626 Business acquisition: Fair value of assets acquired............ -- 144,017 -- -- -- Purchase price in excess of net assets acquired -- 97,971 -- -- -- Liabilities assumed...................... -- 168,951 -- -- -- Stock issued............................. -- 74,143 -- -- --
13. Related Party Transactions Sales to a company related by common ownership amounted to $157, $3,613, and $5,278 for the years ended December 31, 1996 and 1997 and the nine months ended September 30, 1998, respectively. Receivable due from the related company includes the balance due from those sales, together with cash advances, of which $4,000 was converted to a note receivable on December 31, 1997. The note bears interest at 9.25% and is payable in quarterly installments beginning April 1, 1998 through January 2002. F-21 GOLDEN NORTHWEST ALUMINUM, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of September 30, 1998 and for the nine month periods ending September 30, 1998 and 1997 is unaudited.) (Dollars in thousands.) 14. Reorganization (unaudited) Prior to the completion of a refinancing of the Company's long term debt, which is expected to occur in December 1998, the sole stockholder of the Company intends to transfer all of the issued and outstanding shares of common stock of Goldendale and Northwest to the Company as a capital contribution. The transaction will be accounted for as a combination of entities under common control similar to a pooling of interests. The transaction would have no effect on the Company's reported results of operations or its total assets and liabilities as of September 30, 1998. The following unaudited pro forma supplemental information presents the effect of the proposed share exchange on shareholders' equity of the Company as if the exchange occurred on September 30, 1998. Such pro forma amounts are not necessarily indicative of what the actual amounts might have been if the exchange had occurred on September 30, 1998.
September 30, 1998 ------------ Minority interest.......................... $ 29,663 ======== Shareholders' equity: Common stock............................... $ -- Additional paid-in capital................. 65,634 Retained earnings.......................... 21,431 -------- Total shareholders' equity................. $ 87,065 ========
F-22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Goldendale Holding Company and Goldendale Smelter Division of Columbia Aluminum Company Goldendale, Washington We have audited the accompanying statements of income and cash flows of Goldendale Smelter Division of Columbia Aluminum Company for the year ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the statements of income and cash flows referred to above present fairly, in all material respects, the results of operations and cash flows of Goldendale Smelter Division of Columbia Aluminum Company for the year ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996, in conformity with generally accepted accounting principles. BDO Seidman, LLP Spokane, Washington July 31, 1998 F-23
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY STATEMENTS OF INCOME Period from Year Ended January 1, 1996 December 31, through 1995 May 21, 1996 --------------- -------------- (in thousands) Revenues (Notes 1 and 4)................... $214,730 $ 83,530 Cost of revenues........................... 190,832 73,270 -------- -------- Gross margin............................. 23,898 10,260 General and administrative expenses........ 2,296 718 -------- -------- Operating income........................... 21,602 9,542 -------- -------- Other income (expense): Interest expense......................... (1,070) (398) Other income, net........................ 1,250 339 -------- -------- Net other income (expense)................. 180 (59) -------- -------- Income before income taxes................. 21,782 9,483 Income tax expense......................... (8,277) (3,335) -------- -------- Net income................................. $ 13,505 $ 6,148 ======== ======== See accompanying summary of significant accounting policies and notes to financial statements.
F-24
GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents Period from January 1, 1996 Year Ended through December 31, 1995 May 21, 1996 ----------------- --------------- (in thousands) Cash flows from operating activities: Net income.................................................... $ 13,505 $ 6,148 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 1,978 854 Loss on disposal of assets................................. 1 12 Change in assets and liabilities: Trade accounts receivable................................ (3,175) (247) Inventories.............................................. (7,514) 248 Prepaid expenses and other assets........................ 488 133 Trade accounts payable................................... 3,715 (3,850) Accrued expenses......................................... (17) (1,935) --------- --------- Net cash provided by operating activities....................... 8,981 1,363 --------- --------- Cash flows from investing activities: Acquisition of property, plant and equipment.................. (3,994) (1,402) Proceeds from sale of assets.................................. 3 -- Net advances from (to) related companies...................... (3,513) 60 --------- --------- Net cash used in investing activities........................... (7,504) (1,342) --------- --------- Cash flows from financing activities: Cash paid for treasury stock.................................. (1,424) (56) --------- --------- Net cash used in financing activities........................... (1,424) (56) --------- --------- Net increase (decrease) in cash and cash equivalents............ 53 (35) Cash and cash equivalents, beginning of period.................. 519 572 --------- --------- Cash and cash equivalents, end of period........................ $ 572 $ 537 ========= ========= Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest...................................................... $ 1,070 $ 398 Income taxes.................................................. $ 5,700 $ 5,700 See accompanying summary of significant accounting policies and notes to financial statements.
F-25 GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Dollars in thousands) Basis of Presentation Columbia Aluminum Corporation ("CAC") owned and operated an aluminum smelter in Goldendale, Washington ("Goldendale" or the "Smelter") and, through its wholly-owned subsidiary, Columbia Ventures Corporation ("CVC"), was engaged in a diversified array of other businesses, primarily related to the aluminum industry. Pursuant to a plan of corporate reorganization and separation (the "Plan"), CAC redeemed 564,626 shares of its common stock held by CAC's controlling stockholder in exchange for all of the issued and outstanding shares of common stock of CVC. Pursuant to terms of the Plan, CAC contributed to CVC certain non-smelter related assets, intercompany receivables and $54,141 in cash; CAC also purchased certain power generation assets from CVC for $21,321. Immediately following the separation of CVC, the sole stockholder of Goldendale Holding Company ("GHC") acquired 197,688.82 shares of common stock of CAC for approximately $44,480. Following the separation of CVC from CAC and the purchase of common stock, the shareholders of CAC were the stockholder of GHC and the Columbia Aluminum Corporation Employee Stock Ownership Trust (the "ESOT"), which held 131,836.10 shares of CAC common stock. GHC then issued 197,688.82 shares of its common stock to the sole stockholder and 131,836.10 shares of Series A Preferred Stock, valued at $29,663, to the ESOT in exchange for the shares of common stock of CAC held by them. CAC was then renamed Goldendale Aluminum Company. During the periods presented in these financial statements, the Smelter was an integral part of CAC's overall operations and separate financial statements were not prepared for the Smelter. The accompanying financial statements have been prepared from the historical accounting records of CAC and present the results of operations and cash flows of the Smelter. The statements of income include allocations of certain CVC corporate administrative expenses in the amount of approximately $270 for the year ended December 31, 1995 and $120 for the period from January 1, 1996 through May 21, 1996. Management and administrative salaries were allocated based upon estimated time devoted to the Smelter; all other corporate overhead was based upon specific identification or the relationship of the Smelter operations to total operations of CAC. Interest expense was charged to the Smelter based on prime rate and changes in its working capital position. Income taxes are provided as if the Smelter filed a separate tax return. These allocated costs and expenses, which management believes are reasonable, may not necessarily be indicative of the results that would have been attained if the Smelter had been operated as a separate legal entity. Operations The operations of Goldendale consist primarily of the smelting conversion of alumina to aluminum under tolling arrangements with alumina suppliers, processing of aluminum into primary products, and the sale of those products. The operations are located in the Pacific Northwest on the Columbia River. Revenue Recognition Revenues for the conversion of alumina and processing of aluminum under tolling arrangements are recognized upon the completion of the tolling process. Revenues from the sale of aluminum products are recognized upon shipment. F-26 GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Dollars in thousands) Cost of Sales Inventory costs are determined by the first-in, first-out method, except for certain supply inventories which are based upon the weighted average cost method. Property, Plant and Equipment For financial reporting purposes, the costs of plant and equipment are depreciated over the estimated useful lives of the assets, which range from three to forty years, using the straight-line method. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statements of cash flows, Goldendale considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Environmental Matters The Smelter expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Smelter records a liability for environmental matters at the time when it is probable and can be reasonably estimated. The Smelter's estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. The estimated liability of the Smelter is not discounted or reduced for possible recoveries from insurance carriers. Futures and Options Contracts Goldendale utilized certain financial instruments, primarily futures and options contracts, to hedge the effect of price changes of aluminum which the Smelter produced and sold. Gains and losses, and the related costs paid or premium received for contracts which hedged the sales prices of aluminum and purchase prices of raw materials were deferred and included in earnings concurrently with the hedged revenues. Premiums paid for the purchase of put options classified as hedges were amortized over the life of the options. Future sales contracts require the future delivery of aluminum at a specified price. Certain futures sales contracts were made on a rollover basis which allowed Goldendale to defer the delivery of aluminum to a later date at a renegotiated market price. Gains and losses on contracts rolled over were deferred until the positions were closed and included in earnings concurrently with the hedged revenues. Cash flows from futures and options contracts are reported in the statements of cash flows in the same category as the cash flows from the hedged items. F-27 GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Dollars in thousands) Contracts open at May 21, 1996 were closed out by GHC as they came due. Effect of Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130") and Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS 131"). SFAS No. 130 requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources. SFAS No. 131 establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Adoption of these statements will not materially effect Goldendale's results of operations or cash flows; any effect will be limited to the form of its disclosures. Both statements are effective for years beginning after December 15, 1997, although they may be applied earlier. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and other Postretirement Benefits", ("SFAS No. 132"), which standardizes the disclosure requirements for pension and other postretirement benefits. The adoption of SFAS No. 132 is not expected to materially impact Goldendale's current disclosures. F-28 GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) 1. Tolling Contract During 1987, Goldendale entered into a tolling contract for a ten year period. Under the contract, the customer owns all of the primary raw materials and all of the finished goods. Goldendale receives tolling fees for converting the primary raw materials into finished aluminum products specified by the customer. The contract specifies standard usage rates of the primary raw materials based upon actual production. Variations of actual usage from such standard usage may result in additional amounts due to or due from the customer. Sales under the tolling agreement totaled approximately $135 million and $46 million for the year ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996, respectively. On May 22, 1996, Goldendale renegotiated the contract. Pursuant to terms of the new contract, which expires in December 2006, the entire production capacity of the Smelter is dedicated to the tolling of the customer's alumina. 2. Employee Benefit Plans Goldendale has a profit sharing plan for its hourly and salaried employees. All Goldendale employees are eligible participants in this plan upon completion of a probationary period. The plan provides for payments equal to a percentage of Goldendale's profits, as defined. These amounts are to be distributed to eligible participants on or before March 31 following the Company's year-end. For the years ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996, the Company recorded approximately $1,480 and $570, respectively, of expense related to this plan. Goldendale also has a 401(k) profit sharing plan under which employees may elect to defer pay, subject to statutory limits; Goldendale also makes matching contributions for nonbargaining employees on the basis of percentages specified in the plan. Goldendale maintains a separate profit sharing retirement plan (the "DC Plan") which provides retirement benefits for substantially all of its employees. The DC Plan allows for discretionary contributions by Goldendale as determined on an annual basis. For the year ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996, Goldendale recorded approximately $490 and $290 of expense for plan contributions. Goldendale had various stock based compensation agreements (the "Agreements") with certain key employees. The Agreements include stock appreciation rights, "phantom" shares of the Company's common stock and stock options. The value of the compensation paid under the Agreements is a function of the amount by which the fair market value of Goldendale's common stock increases during the performance period. During the year ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996, Goldendale incurred expense related to the Agreements of $2,512 and $2,298. On May 22, 1996, the employees covered by the Agreements waived their rights thereto in exchange for a five-year payout of amounts then owing under the Agreements. The Columbia Aluminum Corporation Employee Stock Ownership Plan (ESOP) was originally available to substantially all Goldendale employees upon completion of 1,000 hours of service. Employer contributions to the ESOP were discretionary as approved by the Board of Directors. No employee contributions were made to the ESOP. Participants vest in the assets of the ESOP at 25% per year. Upon termination, plan participants that receive stock are granted an option to sell the stock to the ESOP in accordance with the ESOP agreement. All stock owned by the ESOP was allocated to plan participant accounts. On May 22, 1996, all CAC common stock owned by plan participants was exchanged for cash and GHC Series A Preferred Stock. F-29 GOLDENDALE SMELTER DIVISION OF COLUMBIA ALUMINUM COMPANY NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) 3. Commitments and Contingencies Goldendale, in the regular course of business, is involved in investigations and claims by various regulatory agencies. Goldendale is also engaged in various legal proceedings incidental to its normal business activities. Management does not believe that the ultimate resolution of these investigations, claims and legal proceedings will have a material effect on Goldendale's financial position, results of operations or cash flows. At December 31, 1995, Goldendale had entered into contracts for the annual purchase of 70,000 to 150,000 metric tons of certain raw materials for delivery through December 1998. The purchase price is to be adjusted monthly throughout the term of the contracts based upon the average market price of aluminum. During 1995, Goldendale entered into an agreement pursuant to which it committed to purchase a minimum amount of power on an annual basis through September 2001. The estimated minimum future commitment under this agreement is as follows:
Year Ending December 31, Amount ------------------------ --------- 1997............................ $ 20,000 1998............................ 33,000 1999............................ 33,000 2000............................ 40,000 2001............................ 40,000
During the year ended December 31, 1995, Goldendale accrued a liability of approximately $1,036 for environmental remediation activities. Goldendale's estimate of this liability was based on a remediation study conducted by independent engineering consultants. The total cost of remediation is estimated at $2.5 million, however, under a court decree Goldendale is responsible for only a portion of the total. The remaining cost is the responsibility of prior owners of the Smelter. During 1995, the Internal Revenue Service (IRS) completed audits of CAC's 1990 and 1991 federal income tax returns. Based upon its audits, the IRS indicated proposed adjustments to these returns resulting in additional taxes due of approximately $2.8 million for tax year 1990 and approximately $1.6 million for tax year 1991. The adjustments proposed relate primarily to differences between the Company and the IRS as to the tax year when certain deductions may be taken. The Company is currently appealing the results of the audits. Management of the Company does not believe that the ultimate resolution of these audits will have a material effect upon its financial position or results of operations. 4. Related Party Transactions During the year ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996, the Smelter paid commissions of $2,467 and $1,034 to a related party. F-30 ================================================================================ No dealer, sales representative or any other person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus and, if given or made, the information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any securities other than the notes to which it relates or an offer to, or a solicitation of, any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the Company or that information contained herein is correct as of any time subsequent to the date hereof. -------------------- TABLE OF CONTENTS Page Summary................................................... 3 Risk Factors.............................................. 19 Selected Combined Financial Data.......................... 32 Management's Discussion And Analysis Of Financial Condition And Results Of Operations........ 34 Business.................................................. 47 Management................................................ 62 Executive Compensation.................................... 65 Certain Transactions...................................... 67 The Exchange Offer........................................ 69 Description Of Notes...................................... 78 Description Of Certain Other Indebtedness And Goldendale Preferred................... 130 Description Of Capital Stock.............................. 133 Certain United States Federal Income Tax Consequences........................................ 134 Plan Of Distribution...................................... 135 Legal Matters............................................. 135 Experts................................................... 135 Change Of Accountants..................................... 136 Additional Information.................................... 136 Index To Financial Statements............................. F-1 ================================================================================ $150,000,000 Golden Northwest Aluminum, Inc. 12% First Mortgage Notes due 2006 -------------------- PROSPECTUS -------------------- , 1999 ================================================================================ F-31 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Officers and Directors Article IV of the Company's Articles of Incorporation (the "Articles") requires indemnification of current or former directors ("directors") of the Company to the fullest extent not prohibited by the Oregon Business Corporation Act (the "Act"). The effects of the Articles and the Act (the "Indemnification Provisions") are summarized as follows: (a) The Indemnification Provisions grant a right of indemnification in respect of any action, suit or proceeding (other than an action by or in the right of the Company) against expenses (including attorney fees), judgments, fines and amounts paid in settlement actually and reasonably incurred, if the person concerned acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company, was not adjudged liable on the basis of receipt of an improper personal benefit and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. The termination of an action, suit or proceeding by judgment, order, settlement, conviction or plea of nolo contendere does not, of itself, create a presumption that the person did not meet the required standards of conduct. (b) The Indemnification Provisions grant a right of indemnification in respect of any action or suit by or in the right of the Company against the expenses (including attorney fees) actually and reasonably incurred if the person concerned acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company, except that no right of indemnification will be granted if the person is adjudged to be liable to the Company. (c) Every person who has been wholly successful on the merits of a controversy described in (a) or (b) above is entitled to indemnification as a matter of right. (d) Because the limits of permissible indemnification under Oregon law are not clearly defined, the Indemnification Provisions may provide indemnification broader than that described in (a) and (b). Article IV of the Articles provides that the Company shall indemnify any person who is or was an officer, employee, agent, or fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the Corporation, to the same extent that directors are entitled to indemnification. II-1 The rights of indemnification described above are not exclusive of any other rights of indemnification to which the persons indemnified may be entitled under any bylaw, agreement, vote of shareholders or directors or otherwise. Item 21. Exhibits and Financial Statement Schedules 3.1 Articles of Incorporation of Registrant. 3.2 Bylaws of Registrant. 4.1 Indenture, dated as of December 21, 1998, between Registrant, as Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum Company, Northwest Aluminum Technologies, LLC, Goldendale Holding Company, and Goldendale Aluminum Company, as Guarantors, and U.S. Trust Company, N.A., as Trustee. 4.2 Credit Agreement, dated December 21, 1998, among the Financial Institutions named therein, BancBoston, N.A., as Administrative Agent, U.S. Bank National Association, as Documentation Agent, Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., Goldendale Aluminum Company, and Northwest Aluminum Technologies, as amended by the Agreement and Amendment No. 1, dated as of January 21, 1999. 4.3 Registration Rights Agreement, dated as of December 21, 1998, by and among the Registrant, the Subsidiary Guarantors party to this Agreement; and BancBoston Robertson Stephens Inc., and Libra Investments, Inc. 4.4 Certificate of Incorporation of Goldendale Holding Company. 5.1 Opinion of Stoel Rives LLP. 10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22, 1996, between Hydro Aluminum Louisville, Inc., and Goldendale Aluminum Company. (Confidential treatment of portions of this document has been requested.) 10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum, dated December 21, 1998. 10.3 Aluminum Toll Conversion Agreement between Clarendon Ltd. and Northwest Aluminum Company, dated September 15, 1986. (Confidential treatment of portions of this document has been requested.) II-2 10.4 Amendment No. 1 to Aluminum Toll Conversion Agreement, dated as of May 4, 1988. (Confidential treatment of portions of this document has been requested.) 10.5 Extension and Amendment Agreement, dated as of October 1, 1991. (Confidential treatment of portions of this document has been requested.) 10.6 Option to Extend 1986 Amended Toll Agreement, dated as of March 1, 1992. 10.7 Letter, from Glencore Ltd., exercising Option to Extend, dated September 21, 1994. 10.8 Tax Indemnification Agreement, dated as of December 21, 1998, between Registrant, Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., and Brett E. Wilcox. 10.9 General Transmission Agreement, dated April 7, 1995, executed by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest Aluminum Company. 10.10 Power Sale Agreement, dated September 28, 1995, between the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest Aluminum Company. 12.1 Statements re Computation of Ratios. 23.1 Consent of BDO Seidman, LLP. 23.2 Consent of Perkins and Company, P.C. 23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1). 24.1 Powers of Attorney (included on Page II-6 of the Registration Statement). 25.1 Statement of Eligibility of Trustee.* 27.1 Financial Data Schedule. 99.1 Form of Letter of Transmittal.* - -------------- * To be filed by amendment. II-3 Item 22. Undertakings (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court II-4 of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (e) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of The Dalles, State of Oregon, on February 12, 1999. GOLDEN NORTHWEST ALUMINUM, INC. By: BRETT E. WILCOX -------------------------------------- Brett E. Wilcox Chairman of the Board and President Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on February 12, 1999 in the capacities indicated. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Brett E. Wilcox his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any amendments (whether pre-effective or post-effective) to this Registration Statement and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or their substitute or substitutes, may do or cause to be done by virtue hereof. Signature Title BRETT E. WILCOX Chairman of the Board and - -------------------------------- President Brett E. Wilcox WILLIAM R. REID Chief Financial Officer - -------------------------------- (Principal Financial and William R. Reid Accounting Officer) Director - -------------------------------- Robert Ames II-6 STEPHEN E. BABSON Director - -------------------------------- Stephen E. Babson DAVID BOLENDER Director - -------------------------------- David Bolender Director - -------------------------------- Michael B. Psaros II-7 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 3.1 Articles of Incorporation of Registrant. 3.2 Bylaws of Registrant. 4.1 Indenture, dated as of December 21, 1998, between Registrant, as Issuer, Northwest Aluminum Specialties, Inc., Northwest Aluminum Company, Northwest Aluminum Technologies, LLC, Goldendale Holding Company, and Goldendale Aluminum Company, as Guarantors, and U.S. Trust Company, N.A., as Trustee. 4.2 Credit Agreement, dated December 21, 1998, among the Financial Institutions named therein, BancBoston, N.A., as Administrative Agent, U.S. Bank National Association, as Documentation Agent, Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., Goldendale Aluminum Company, and Northwest Aluminum Technologies, as amended by the Agreement and Amendment No. 1, dated as of January 21, 1999. 4.3 Registration Rights Agreement, dated as of December 21, 1998, by and among the Registrant, the Subsidiary Guarantors party to this Agreement; and BancBoston Robertson Stephens Inc., and Libra Investments, Inc. 4.4 Certificate of Incorporation of Goldendale Holding Company. 5.1 Opinion of Stoel Rives LLP 10.1 Agreement to Toll Convert Alumina into Aluminum, dated May 22, 1996, between Hydro Aluminum Louisville, Inc., and Goldendale Aluminum Company 10.2 First Amendment to Agreement to Toll Convert Alumina into Aluminum, dated December 21, 1998. 10.3 Aluminum Toll Conversion Agreement between Clarendon Ltd. and Northwest Aluminum Company, dated September 15, 1986 10.4 Amendment No. 1 to Aluminum Toll Conversion Agreement, dated as of May 4, 1988 10.5 Extension and Amendment Agreement, dated as of October 1, 1991 10.6 Option to Extend 1986 Amended Toll Agreement, dated as of March 1, 1992 10.7 Letter, from Glencore Ltd., exercising Option to Extend, dated September 21, 1994. 10.8 Tax Indemnification Agreement, dated as of December 21, 1998, between Registrant, Northwest Aluminum Company, Northwest Aluminum Specialties, Inc., and Brett E. Wilcox. 10.9 General Transmission Agreement, dated April 7, 1995, executed by the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest Aluminum Company. 10.10 Power Sale Agreement, dated September 28, 1995, between the United States of America Department of Energy acting by and through the Bonneville Power Administration and Northwest Aluminum Company. 12.1 Statements re Computation of Ratios 23.1 Consent of BDO Seidman, LLP 23.2 Consent of Perkins and Company, P.C. 23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1) 24.1 Powers of Attorney (included on Page II-6 of the Registration Statement) 25.1 Statement of Eligibility of Trustee* 99.1 Form of Letter of Transmittal* - -------------- * To be filed by amendment. EX-3.1 2 ARTICLES OF INCORPORATION ARTICLES OF INCORPORATION GOLDEN NORTHWEST ALUMINUM, INC. ARTICLE I The name of the Corporation is Golden Northwest Aluminum, Inc. ARTICLE II The Corporation is authorized to issue 350,000 shares of Common Stock. ARTICLE III No director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for conduct as a director, provided that this Article shall not eliminate the liability of a director for any act or omission for which such elimination of liability is not permitted under the Oregon Business Corporation Act. No amendment to the Oregon Business Corporation Act that further limits the acts or omissions for which elimination of liability is permitted shall affect the liability of a director for any act or omission which occurs prior to the effective date of the amendment. ARTICLE IV The Corporation shall indemnify to the fullest extent not prohibited by law any person who is made, or threatened to be made, a party to an action, suit or proceeding, whether civil, criminal, administrative, investigative or other (including any action, suit or proceeding by or in the right of the Corporation), by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the Corporation, or serves or served at the request of the Corporation as a director, officer, employee or agent, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust or other enterprise. This Article shall not be deemed exclusive of any other provisions for indemnification or advancement of expenses of directors, officers, employees, agents and fiduciaries included in any statute, bylaw, agreement, general or specific action of the board of directors, vote of shareholders or other document or arrangement. ARTICLE V The street address and the mailing address of the initial registered office of the Corporation is 3133 W. 2nd Street, The Dalles, Oregon 97058, and the name of its initial registered agent at that address is William R. Reid. ARTICLE VI The name of the incorporator is Richard C. Josephson, and the address of the incorporator is 900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204-1268. ARTICLE VII The mailing address for the Corporation for notices is 3133 W. 2nd Street, The Dalles, Oregon 97058; Attention: William R. Reid. Executed: June 2, 1998. /s/ RICHARD C. JOSEPHSON ------------------------------------ Richard C. Josephson Incorporator 2 EX-3.2 3 BYLAWS BYLAWS OF GOLDEN NORTHWEST ALUMINUM, INC. ARTICLE I SHAREHOLDERS MEETINGS AND VOTING 1.1 Annual Meeting. The annual meeting of the shareholders shall be held during May of each year, unless a different date or time is fixed by the Board of Directors and stated in the notice of the meeting. Failure to hold an annual meeting on the stated date shall not affect the validity of any corporate action. 1.2 Special Meetings. Special meetings of the shareholders, for any purposes, unless otherwise prescribed by statute, may be called by the President or the Board of Directors and shall be called by the President upon the written demand of the holders of not less than one-tenth of all the votes entitled to be cast on any issue proposed to be considered at the meeting. The demand shall describe the purposes for which the meeting is to be held and shall be signed, dated and delivered to the Secretary. 1.3 Place of Meetings. Meetings of the shareholders shall be held at any place in or out of Oregon designated by the Board of Directors. If a meeting place is not designated by the Board of Directors, the meeting shall be held at the Corporation's principal office. 1.4 Notice of Meetings. Written or printed notice stating the date, time and place of the shareholders meeting and, in the case of a special meeting or a meeting for which special notice is required by law, the purposes for which the meeting is called, shall be delivered by the Corporation to each shareholder entitled to vote at the meeting and, if required by law, to any other shareholders entitled to receive notice, not earlier than 60 days nor less than 10 days before the meeting date. If mailed, the notice shall be deemed delivered when it is mailed to the shareholder with postage prepaid at the shareholder's address shown in the Corporation's record of shareholders. 1.5 Waiver of Notice. A shareholder may at any time waive any notice required by law, these Bylaws or the Articles of Incorporation. The waiver shall be in writing, be signed by the shareholder entitled to the notice and be delivered to the Corporation for inclusion in the minutes for filing with the corporate records. A shareholder's attendance at a meeting waives objection to (i) lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (ii) consideration of a particular matter at the meeting that is not within the purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 1.6 Fixing of Record Date. The Board of Directors may fix a future date as the record date to determine the shareholders entitled to notice of a shareholders meeting, demand a special meeting, vote, take any other action or receive payment of any share or cash dividend or other distribution. This date shall not be earlier than 70 days or, in the case of a meeting, later than 10 days before the meeting or action requiring a determination of shareholders. The record date for any meeting, vote or other action of the shareholders shall be the same for all voting groups. If not otherwise fixed by the Board of Directors, the record date to determine shareholders entitled to notice of and to vote at an annual or special shareholders meeting is the close of business on the day before the notice is first mailed or otherwise transmitted to shareholders. If not otherwise fixed by the Board of Directors, the record date to determine shareholders entitled to receive payment of any share or cash dividend or other distribution is the close of business on the day the Board of Directors authorizes the share or cash dividend or other distribution. 1.7 Shareholders List for Meeting. After a record date for a meeting is fixed, the Corporation shall prepare an alphabetical list of all shareholders entitled to notice of the shareholders meeting. The list shall be arranged by voting group and, within each voting group, by class or series of shares, and it shall show the address of and number of shares held by each shareholder. The shareholders list shall be available for inspection by any shareholder, upon proper demand as may be required by law, beginning two business days after notice of the meeting is given and continuing through the meeting, at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareholders list available at the meeting, and any shareholder or the shareholder's agent or attorney shall be entitled to inspect the list at any time during the meeting or any adjournment. Refusal or failure to prepare or make available the shareholders list does not affect the validity of action taken at the meeting. 1.8 Quorum; Adjournment. ------------------- (1) Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. (2) A majority of votes represented at the meeting, although less than a quorum, may adjourn the meeting from time to time to a different time and place without further notice to any shareholder of any adjournment, except that notice is required if a new record date is or must be set for the adjourned meeting. At an adjourned meeting at 2 which a quorum is present, any business may be transacted that might have been transacted at the meeting originally held. (3) Once a share is represented for any purpose at a meeting, it shall be present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. A new record date must be set if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 1.9 Voting Requirements; Action Without Meeting. ------------------------------------------- (1) If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law or the Articles of Incorporation. Unless otherwise provided in the Articles of Incorporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. (2) Action required or permitted by law to be taken at a shareholders meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action and delivered to the Secretary for inclusion in the minutes for filing with the corporate records. Shareholder action taken by written consent is effective when the last shareholder signs the consent, unless the consent specifies an earlier or later effective date. 1.10 Proxies. A shareholder may vote shares in person or by proxy. A shareholder may appoint a proxy by signing an appointment form either personally or by the shareholder's attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer of the Corporation authorized to tabulate votes. An appointment is valid for 11 months unless a different period is provided in the appointment form. An appointment is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest that has not been extinguished. 1.11 Meeting by Telephone Conference. Shareholders may participate in an annual or special meeting by, or conduct the meeting through, use of any means of communications by which all shareholders participating may simultaneously hear each other during the meeting, except that no meeting for which a written notice is sent to shareholders may be conducted by this means unless the notice states that participation in this 3 manner is permitted and describes how any shareholder desiring to participate in this manner may notify the Corporation. Participation in a meeting by this means shall constitute presence in person at the meeting. ARTICLE II BOARD OF DIRECTORS 2.1 Duties of Board of Directors. All corporate powers of the Corporation shall be exercised by or under the authority of its Board of Directors; the business and affairs of the Corporation shall be managed under the direction of its Board of Directors. 2.2 Number, Term and Qualification. The number of directors of the Corporation shall be at least one and not more than five as determined by resolution of the Board of Directors. The initial number of directors shall be one until changed by the Board of Directors. The term of a director shall expire at the next annual meeting of shareholders after his or her election. No reduction in the number of directors shall shorten the term of any incumbent director. Despite the expiration of a director's term, the director shall continue to serve until the director's successor is elected and qualified or the number of directors is decreased. Directors need not be residents of Oregon or shareholders of the Corporation. 2.3 Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide by resolution the time and place for the holding of additional regular meetings in or out of Oregon without notice other than the resolution. 2.4 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President or any two directors or, at any time there is only one director, the sole director. The person or persons authorized to call special meetings of the Board of Directors may fix any place in or out of Oregon as the place for holding any special meeting of the Board of Directors called by them. 2.5 Notice. Notice of the date, time and place of any special meeting of the Board of Directors shall be given at least 24 hours prior to the meeting by notice communicated in person, by telephone, telegraph, teletype, other form of wire or wireless communication, mail or private carrier. If written, notice shall be effective at the earliest of (a) when received, (b) three days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed, or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addressee. Notice by all other means shall be deemed effective when received by or on behalf of the director. Notice of any regular or special meeting need not describe the purposes of the meeting unless required by law or the Articles of Incorporation. 4 2.6 Waiver of Notice. A director may at any time waive any notice required by law, these Bylaws or the Articles of Incorporation. Except as set forth below, the waiver must be in writing, be signed by the director entitled to the notice, specify the meeting for which notice is waived and be filed with the minutes or corporate records. A director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting, or promptly upon the director's arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 2.7 Quorum. A majority of the number of directors set forth in Section 2.2 of these Bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. If less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. 2.8 Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a different number is provided by law, the Articles of Incorporation or these Bylaws. 2.9 Meeting by Telephone Conference; Action Without Meeting. ------------------------------------------------------- (1) Directors may participate in a regular or special meeting by, or conduct the meeting through, use of any means of communications by which all directors participating may simultaneously hear each other during the meeting. Participation in a meeting by this means shall constitute presence in person at the meeting. (2) Any action that is required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if one or more written consents describing the action taken are signed by all of the directors entitled to vote on the matter and included in the minutes or filed with the corporate records reflecting the action taken. The action shall be effective when the last director signs the consent, unless the consent specifies an earlier or later effective date. 2.10 Vacancies. Any vacancy on the Board of Directors, including a vacancy resulting from an increase in the number of directors, may be filled by the shareholders, the Board of Directors, the remaining directors if less than a quorum (by the vote of a majority thereof) or by a sole remaining director. Any vacancy not filled by the directors shall be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. A vacancy that will occur at a specified later date, by reason of a resignation or otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. 2.11 Compensation. By resolution of the Board of Directors, the directors may be paid reasonable compensation for services as directors and their expenses of attending meetings of the Board of Directors. 5 2.12 Presumption of Assent. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors shall be deemed to have assented to the action taken at the meeting unless (a) the director's dissent or abstention from the action is entered in the minutes of the meeting, (b) the director delivers a written notice of dissent or abstention to the action to the presiding officer of the meeting before any adjournment or to the Corporation immediately after the adjournment of the meeting or (c) the director objects at the beginning of the meeting or promptly upon the director's arrival to the holding of the meeting or transacting business at the meeting. The right to dissent or abstain is not available to a director who voted in favor of the action. 2.13 Removal. The shareholders may remove one or more directors with or without cause at a meeting called expressly for that purpose, unless the Articles of Incorporation provide for removal for cause only. 2.14 Resignation. Any director may resign by delivering written notice to the Board of Directors, its chairperson or the Corporation. Unless the notice specifies a later effective date, a resignation notice shall be effective upon the earlier of (a) receipt, (b) five days after its deposit in the United States mails, if mailed postpaid and correctly addressed, or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by addressee. Once delivered, a resignation notice is irrevocable unless revocation is permitted by the Board of Directors. ARTICLE III COMMITTEES OF THE BOARD 3.1 Committees. The Board of Directors may create one or more committees and appoint members of the Board of Directors to serve on them. Each committee shall have two or more members. The creation of a committee and appointment of members to it must be approved by a majority of all directors in office when the action is taken. Subject to any limitation imposed by the Board of Directors or by law, each committee may exercise all the authority of the Board of Directors in the management of the Corporation. A committee may not take any action that a committee is prohibited from taking by the Oregon Business Corporation Act. 3.2 Changes of Size and Function. Subject to the provisions of law, the Board of Directors shall have the power at any time to change the number of committee members, fill committee vacancies, change any committee members and change the functions and terminate the existence of a committee. 3.3 Conduct of Meetings. Each committee shall conduct its meetings in accordance with the applicable provisions of these Bylaws relating to meetings and action without meetings of the Board of Directors. Each committee shall adopt any further rules 6 regarding its conduct, keep minutes and other records and appoint subcommittees and assistants as it deems appropriate. 3.4 Compensation. By resolution of the Board of Directors, committee members may be paid reasonable compensation for services on committees and their expenses of attending committee meetings. ARTICLE IV OFFICERS 4.1 Appointment. The Board of Directors at its first meeting following its election each year shall appoint a President and a Secretary. At this meeting, or at any other time, the Board of Directors may appoint one of its members as Chairman of the Board. The Board of Directors or the President may appoint any other officers, assistant officers and agents. Any two or more offices may be held by the same person. 4.2 Compensation. The Corporation may pay its officers reasonable compensation for their services as fixed from time to time by the Board of Directors or by the President with respect to officers appointed by the President. 4.3 Term. The term of office of all officers commences upon their appointment and continues until their successors are appointed or until their resignation or removal. 4.4 Removal. Any officer or agent appointed by the Board of Directors or the President may be removed by the Board of Directors at any time with or without cause. Any officer or agent appointed by the President may be removed by the President at any time with or without cause. 4.5 Chairman of the Board. The Chairman of the Board, if that office is filled, shall preside at all meetings of the Board of Directors and shall perform any duties and responsibilities prescribed from time to time by the Board of Directors. 4.6 President. Unless otherwise determined by the Board of Directors, the President shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall be responsible for the general operation of the Corporation. The President shall have any other duties and responsibilities prescribed by the Board of Directors. Unless otherwise determined by the Board of Directors, the President shall have authority to vote any shares of stock owned by the Corporation and to delegate this authority to any other officer. 4.7 Vice Presidents. Each Vice President shall perform duties and responsibilities prescribed by the Board of Directors or the President. The Board of Directors or the President may confer a special title upon a Vice President. 7 4.8 Secretary. --------- (1) The Secretary shall record and keep the minutes of all meetings of the directors and shareholders in one or more books provided for that purpose and perform any duties prescribed by the Board of Directors or the President. (2) Any assistant secretary shall have the duties prescribed from time to time by the Board of Directors, the President or the Secretary. In the absence or disability of the Secretary, the Secretary's duties shall be performed by an assistant secretary. ARTICLE V INDEMNIFICATION The Corporation may indemnify to the fullest extent not prohibited by law any person who is made, or threatened to be made, a party to an action, suit or proceeding, whether civil, criminal, administrative, investigative or other (including any action, suit or proceeding by or in the right of the Corporation), by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the Corporation, or serves or served at the request of the Corporation as a director, officer, employee or agent, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust or other enterprise. This Article shall not be deemed exclusive of any other provisions for indemnification or advancement of expenses of directors, officers, employees agents and fiduciaries included in any statute, bylaw, agreement, general or specific action of the board of directors, vote of shareholders or other document or arrangement. ARTICLE VI ISSUANCE OF SHARES 6.1 Adequacy of Consideration. Before the Corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for the shares to be issued is adequate. The authorization by the Board of Directors of the issuance of shares for stated consideration shall evidence a determination by the Board that such consideration is adequate. 6.2 Certificates for Shares. ----------------------- (1) Certificates representing shares of the Corporation shall be in any form determined by the Board of Directors consistent with the requirements of the Oregon 8 Business Corporation Act and these Bylaws. The certificates shall be signed, either manually or in facsimile, by two officers of the Corporation, at least one of whom shall be the President or a Vice President, and may be sealed with the seal of the Corporation, if any, or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified. The signatures of officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or any assistant transfer agent or registered by a registrar, other than the Corporation itself or an employee of the Corporation. (2) Every certificate for shares of stock that are subject to any restriction on transfer or registration of transfer pursuant to the Articles of Incorporation, the Bylaws, securities laws, a shareholders agreement or any agreement to which the Corporation is a party shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of the restriction and that the Corporation retains a copy of the full text. Every certificate issued when the Corporation is authorized to issue more than one class or series within a class of shares shall set forth on its face or back either (a) a summary of the designations, relative rights, preferences and limitations of the shares of each class and the variations in rights, preferences and limitations for each series authorized to be issued and the authority of the Board of Directors to determine variations for future series or (b) a statement of the existence of those designations, relative rights, preferences and limitations and a statement that the Corporation will furnish a copy thereof to the holder of the certificate upon written request and without charge. (3) All certificates surrendered to the Corporation for transfer shall be canceled. The Corporation shall not issue a new certificate for previously issued shares until the former certificate or certificates for those shares are surrendered and canceled; except that in case of a lost, destroyed or mutilated certificate, a new certificate may be issued on terms prescribed by the Board of Directors. 6.3 Transfer Agent and Registrar. The Board of Directors may from time to time appoint one or more transfer agents and one or more registrars for the shares of the Corporation, with powers and duties determined by the Board of Directors. 6.4 Officer Ceasing to Act. If the person who signed a share certificate, either manually or in facsimile, no longer holds office when the certificate is issued, the certificate is nevertheless valid. 9 ARTICLE VII CONTRACTS, LOANS, CHECKS AND OTHER INSTRUMENTS 7.1 Contracts. Except as otherwise provided by law, the Board of Directors may authorize any officers or agents to execute and deliver any contract or other instrument in the name of and on behalf of the Corporation, and this authority may be general or confined to specific instances. 7.2 Loans. The Corporation shall not borrow money and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. This authority may be general or confined to specific instances. 7.3 Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money and notes or other evidences of indebtedness issued in the name of the Corporation shall be signed in the manner and by the officers or agents of the Corporation designated by the Board of Directors. 7.4 Deposits. All funds of the Corporation not otherwise employed shall be deposited to the credit of the Corporation in those banks, trust companies or other depositaries as the Board of Directors or officers of the Corporation designated by the Board of Directors select, or be invested as authorized by the Board of Directors. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 Severability. A determination that any provision of these Bylaws is for any reason inapplicable, invalid, illegal or otherwise ineffective shall not affect or invalidate any other provision of these Bylaws. 8.2 Amendments. These Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors or the shareholders of the Corporation. Adopted: June 26, 1998. 10 EX-4.1 4 INDENTURE =============================================================================== GOLDEN NORTHWEST ALUMINUM, INC., as Issuer, NORTHWEST ALUMINUM SPECIALTIES, INC. NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM TECHNOLOGIES, LLC GOLDENDALE HOLDING COMPANY and GOLDENDALE ALUMINUM COMPANY as Guarantors, AND U.S. TRUST COMPANY, NATIONAL ASSOCIATION as Trustee -------------------------------------------- INDENTURE Dated as of December 21, 1998 $150,000,000 ------------------------------------------------------------ 12% First Mortgage Notes due 2006 =============================================================================== =============================================================================== RECONCILIATION AND TIE SHEET* between PROVISIONS OF THE TRUST INDENTURE ACT OF 1939 and INDENTURE DATED AS OF DECEMBER 21, 1998 among GOLDEN NORTHWEST ALUMINUM, INC. NORTHWEST ALUMINUM SPECIALTIES, INC. NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM TECHNOLOGIES, LLC GOLDENDALE HOLDING COMPANY and GOLDENDALE ALUMINUM COMPANY and U.S. TRUST COMPANY, NATIONAL ASSOCIATION, TRUSTEE =============================================================================== Sections of Act Sections of Indenture -------- -- --- -------- -- --------- 310(a)(1) . . . . . . . . . . . . . 7.09 310(a)(2) . . . . . . . . . . . . . 7.09 310(a)(3) . . . . . . . . . . . . . Inapplicable 310(a)(4) . . . . . . . . . . . . . Inapplicable 310(a)(5) . . . . . . . . . . . . . 7.09 310(b). . . . . . . . . . . . . . . 7.08, 7.10 310(c). . . . . . . . . . . . . . . Inapplicable 311(a). . . . . . . . . . . . . . . 7.13(a), 7.13(c) 311(b). . . . . . . . . . . . . . . 7.13(b), 7.13(c) 311(c). . . . . . . . . . . . . . . Inapplicable 312(a). . . . . . . . . . . . . . . 5.01, 5.02(a) 312(b). . . . . . . . . . . . . . . 5.02(b) 312(c). . . . . . . . . . . . . . . 5.02(c) 313(a). . . . . . . . . . . . . . . 5.04(a) 313(b)(1) . . . . . . . . . . . . . 14.07 313(b)(2) . . . . . . . . . . . . . 5.04(b) 313(c). . . . . . . . . . . . . . . 5.04(c) 313(d). . . . . . . . . . . . . . . 5.04(d) 314(a)(1) . . . . . . . . . . . . . 5.03(a) 314(a)(2) . . . . . . . . . . . . . 5.03(b) 314(a)(3) . . . . . . . . . . . . . 5.03(c) 314(a)(4) . . . . . . . . . . . . . 5.03(d) 314(b). . . . . . . . . . . . . . . 5.04(f) 314(c)(1) . . . . . . . . . . . . . 14.05 314(c)(2) . . . . . . . . . . . . . 14.05 314(c)(3) . . . . . . . . . . . . . 14.07 314(d). . . . . . . . . . . . . . . Inapplicable 314(e). . . . . . . . . . . . . . . 14.05 314(f). . . . . . . . . . . . . . . Omitted 315(a). . . . . . . . . . . . . . . 7.01 315(b). . . . . . . . . . . . . . . 6.07 315(c). . . . . . . . . . . . . . . 7.01 315(d). . . . . . . . . . . . . . . 7.01 315(e). . . . . . . . . . . . . . . 6.08 316(a)(1) . . . . . . . . . . . . . 6.06, 8.04 316(a)(2) . . . . . . . . . . . . . Omitted 316(b). . . . . . . . . . . . . . . 6.04 316(c). . . . . . . . . . . . . . . 8.05 317(a). . . . . . . . . . . . . . . 6.02 317(b). . . . . . . . . . . . . . . 4.04(a) 318(a). . . . . . . . . . . . . . . 14.07 318(c). . . . . . . . . . . . . . . 14.07 *This Reconciliation and Tie Sheet is not a part of the Indenture. -i- TABLE OF CONTENTS Page ---- ARTICLE ONE DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 1.01. Certain terms defined. . . . . . . . . . . . . . . . . . . . 10 Section 1.02. References are to Indenture. . . . . . . . . . . . . . . . . 27 Section 1.03. Other definitions . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES . . . . . . . . . . . . . . . . . . . . 29 Section 2.01. Designation, amount, authentication and delivery of Notes. . 29 Section 2.02. Form of Notes and Trustee's Certificate. . . . . . . . . . . 30 Section 2.03. Date of Notes and Denominations. . . . . . . . . . . . . . . 31 Section 2.04. Execution of Notes . . . . . . . . . . . . . . . . . . . . . 32 Section 2.05. Exchange and transfer of Notes . . . . . . . . . . . . . . . 32 Section 2.06. Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . 36 Section 2.07. Mutilated, destroyed, lost or stolen Notes . . . . . . . . . 36 Section 2.08. Cancellation of surrendered Notes. . . . . . . . . . . . . . 37 Section 2.09. Restrictive Legends. . . . . . . . . . . . . . . . . . . . . 37 Section 2.10. Book-Entry Provisions for Global Note and Regulation S Temporary Global Note . . . . . . . . . . . 38 ARTICLE THREE REDEMPTION AND PURCHASES OF NOTES . . . . . . . . . . . . . 40 Section 3.01. Optional Redemption. . . . . . . . . . . . . . . . . . . . . 40 Section 3.02. Notice of redemption; selection of Notes . . . . . . . . . . 40 Section 3.03. When Notes called for redemption become due and payable. . . 41 Section 3.04. Cancellation of redeemed Notes . . . . . . . . . . . . . . . 41 Section 3.05. Purchase of Notes at option of the holder upon Change of Control . . . . . . . . . . . . . . . . . . . 42 Section 3.06. Effect of Change of Control Purchase Notice. . . . . . . . . 44 Section 3.07. Deposit of Change of Control Purchase Price. . . . . . . . . 45 Section 3.08. Covenant to comply with securities laws upon purchase of Notes . . . . . . . . . . . . . . . . . . . 45 Section 3.09. Repayment to the Company . . . . . . . . . . . . . . . . . . 45 ARTICLE FOUR PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . . 45 Section 4.01. Payments on the Notes. . . . . . . . . . . . . . . . . . . . 45 Section 4.02. Maintenance of office or agency for registration of transfer, exchange and payment of Notes . . . . . . . . . 46 Section 4.03. Appointment to fill a vacancy in the office of Trustee . . . 46 Section 4.04. Provision as to paying agent . . . . . . . . . . . . . . . . 46 Section 4.05. Maintenance of corporate existence . . . . . . . . . . . . . 47 Section 4.06. Officers' Certificate as to default and statement as to compliance . . . . . . . . . . . . . . . 47 Section 4.07. Usury laws . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 4.08. Restrictions on transactions with Affiliates and Unrestricted Subsidiaries. . . . . . . . . . . . . . . . 48 Section 4.09. Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments. . . . . 49 Section 4.10. Limitation on Indebtedness . . . . . . . . . . . . . . . . . 52 Section 4.11. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . 54 Section 4.12. Subsidiary Guarantees. . . . . . . . . . . . . . . . . . . . 56 -i- Section 4.13. Limitation on dividends and other payment restrictions affecting Subsidiaries. . . . . . . . . . . . . 56 Section 4.14. Limitation on Asset Sales. . . . . . . . . . . . . . . . . . 56 Section 4.15. Limitations on Unrestricted Subsidiaries . . . . . . . . . . 58 Section 4.16. Conduct of business. . . . . . . . . . . . . . . . . . . . . 59 Section 4.17. Limitations on issuances and sales of Capital Stock of Subsidiaries. . . . . . . . . . . . . . . . 59 Section 4.18. Payments for consent . . . . . . . . . . . . . . . . . . . . 59 Section 4.19. No Amendment to Subordination Provisions . . . . . . . . . . 59 Section 4.20. Maintenance of Corporate Existence . . . . . . . . . . . . . 59 Section 4.21. Maintenance of Insurance . . . . . . . . . . . . . . . . . . 59 ARTICLE FIVE NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . 60 Section 5.01. Company to furnish Trustee information as to names and addresses of noteholders . . . . . . . . . . 60 Section 5.02. Preservation and disclosure of lists . . . . . . . . . . . . 60 Section 5.03. Reports by the Company . . . . . . . . . . . . . . . . . . . 61 Section 5.04. Reports by the Trustee . . . . . . . . . . . . . . . . . . . 62 ARTICLE SIX REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON EVENT OF DEFAULT . 63 Section 6.01. Events of Default defined. . . . . . . . . . . . . . . . . . 63 Section 6.02. Payment of Notes on default; suit therefor . . . . . . . . . 66 Section 6.03. Application of moneys collected by Trustee . . . . . . . . . 67 Section 6.04. Limitation on suits by holders of Notes. . . . . . . . . . . 67 Section 6.05. Proceedings by Trustee; remedies cumulative and continuing; delay or omission not waiver of default. . . 68 Section 6.06. Rights of holders of majority in principal amount of Notes to direct Trustee and to waive defaults. . . 69 Section 6.07. Trustee to give notice of defaults known to it, but may withhold in certain circumstances. . . . . . 69 Section 6.08. Requirement of an undertaking to pay costs in certain suits under the Indenture or against the Trustee. 70 Section 6.09. Waiver of stay or extension laws . . . . . . . . . . . . . . 70 ARTICLE SEVEN CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . 70 Section 7.01. Duties and responsibilities of Trustee . . . . . . . . . . . 70 Section 7.02. Reliance on documents, opinions, etc . . . . . . . . . . . . 71 Section 7.03. No responsibility for recitals, etc. . . . . . . . . . . . . 72 Section 7.04. Trustee, paying agent or Note registrar may own Notes. . . . 72 Section 7.05. Moneys received by Trustee to be held in trust without interest . . . . . . . . . . . . . . . . . . . . . . 72 Section 7.06. Compensation and expenses of Trustee . . . . . . . . . . . . 73 Section 7.07. Right of Trustee to rely on Officers' Certificate where no other evidence specifically prescribed. . . . . . . 73 Section 7.08. Conflicting interest of Trustee. . . . . . . . . . . . . . . 73 Section 7.09. Requirements for eligibility of Trustee. . . . . . . . . . . 78 Section 7.10. Resignation or removal of Trustee. . . . . . . . . . . . . . 78 Section 7.11. Acceptance by successor to Trustee; notice of succession of a Trustee. . . . . . . . . . . . . . 79 Section 7.12. Successor to Trustee by merger, consolidation or succession to business; notice by Trustee of change in its location. . . . . . . . . . . . . . . . . . 80 Section 7.13. Limitations on rights of Trustee as a creditor . . . . . . . 80 ARTICLE EIGHT CONCERNING THE NOTEHOLDERS . . . . . . . . . . . . . . . . 83 Section 8.01. Evidence of action by noteholders. . . . . . . . . . . . . . 83 -ii- Section 8.02. Proof of execution of instruments and of holding of Notes. . 83 Section 8.03. Who may be deemed owners of Notes. . . . . . . . . . . . . . 84 Section 8.04. Notes owned by Company or controlled by controlling Persons disregarded for certain purposes . . . . 84 Section 8.05. Record date for action by noteholders. . . . . . . . . . . . 84 Section 8.06. Instruments executed by noteholders bind future holders. . . 85 ARTICLE NINE NOTEHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . 85 Section 9.01. Purposes for which meetings may be called. . . . . . . . . . 85 Section 9.02. Manner of calling meetings; record date. . . . . . . . . . . 85 Section 9.03. Call of meeting by Company or noteholders. . . . . . . . . . 86 Section 9.04. Who may attend and vote at meetings. . . . . . . . . . . . . 86 Section 9.05. Regulations. . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 9.06. Manner of voting at meetings and record to be kept . . . . . 87 Section 9.07. Exercise of rights of Trustee and noteholders not to be hindered or delayed. . . . . . . . . . 87 ARTICLE TEN SUPPLEMENTAL INDENTURES AND AMENDMENT OF SECURITY AGREEMENTS 87 Section 10.01. Purposes for which supplemental indentures may be entered into without consent of noteholders. . . . . . . 87 Section 10.02. Modification of Indenture with consent of holders of a majority in principal amount of Notes . . . 88 Section 10.03. Effect of supplemental indentures . . . . . . . . . . . . . 89 Section 10.04. Notes may bear notation of changes by supplemental indentures. . . . . . . . . . . . . . . . . 89 Section 10.05. Officers' Certificate and Opinion of Counsel. . . . . . . . 90 Section 10.06. Amendment of Security Agreements. . . . . . . . . . . . . . 90 ARTICLE ELEVEN CONSOLIDATION, MERGER AND SALE . . . . . . . . . . . . . . 90 Section 11.01. Company may consolidate, etc., on certain terms . . . . . . 90 Section 11.02. Surviving corporation to be substituted . . . . . . . . . . 91 ARTICLE TWELVE SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS . . . . . . . . . . . . . . . . . . . . . 91 Section 12.01. Option to effect Legal Defeasance or Covenant Defeasance. . 91 Section 12.02. Legal Defeasance and discharge. . . . . . . . . . . . . . . 91 Section 12.03. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 92 Section 12.04. Conditions to Legal Defeasance or Covenant Defeasance . . . 92 Section 12.05. Application by Trustee of funds deposited for payment of Notes. . . . . . . . . . . . . . . 93 Section 12.06. Repayment of moneys held by paying agent. . . . . . . . . . 93 Section 12.07. Repayment of moneys held by Trustee . . . . . . . . . . . . 94 Section 12.08. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 94 ARTICLE THIRTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . 94 Section 13.01. Incorporators, stockholders, officers and directors of Company and Subsidiaries exempt from individual liability. . . . . . . . . . . . . . 94 ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . 95 Section 14.01. Successors and assigns of Company and Subsidiaries bound by Indenture . . . . . . . . . . . . . . 95 Section 14.02. Acts of board, committee or officer of successor corporation valid . . . . . . . . . . . . . . 95 Section 14.03. Required notices or demands may be served by mail; waiver . 95 -iii- Section 14.04. Indenture, Notes, Guarantees and Security Agreements to be construed in accordance with the laws of the State of New York. . . . . . . . . . . 96 Section 14.05. Evidence of compliance with conditions precedent. . . . . . 96 Section 14.06. Payments due on Saturdays, Sundays and holidays . . . . . . 97 Section 14.07. Provisions required by Trust Indenture Act of 1939 to control. . . . . . . . . . . . . . . . . . . 97 Section 14.08. Provisions of the Indenture and Notes for the sole benefit of the parties and the noteholders . . 97 Section 14.09. Severability. . . . . . . . . . . . . . . . . . . . . . . . 98 Section 14.10. Indenture may be executed in counterparts; acceptance by Trustee . . . . . . . . . . . . . . . . . . . 98 Section 14.11. Article and Section headings. . . . . . . . . . . . . . . . 98 Section 14.12. No Adverse Interpretation of Other Instruments. . . . . . . 98 Section 14.13. Consent to Jurisdiction. . . . . . . . . . . . . . . . . . 98 ARTICLE FIFTEEN GUARANTEE OF NOTES . . . . . . . . . . . . . . . . . . . 99 Section 15.01. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 15.02. Limitation of Subsidiary's Liability. . . . . . . . . . . . 100 Section 15.03. Subsidiaries may consolidate, etc., on certain terms. . . . 100 Section 15.04. Application of certain terms and provisions to the Subsidiaries. . . . . . . . . . . . . . . 101 Section 15.05. Release of Guarantee and Security . . . . . . . . . . . . . 101 Section 15.06. Execution and Delivery of Guarantee . . . . . . . . . . . . 102 ARTICLE SIXTEEN COLLATERAL AND SECURITY . . . . . . . . . . . . . . . . . 102 Section 16.01. Security Agreements . . . . . . . . . . . . . . . . . . . . 102 Section 16.02. Release of Collateral . . . . . . . . . . . . . . . . . . . 103 Section 16.03. Authorization of Actions to Be Taken by the Trustee Under the Security Agreements. . . . . . . . 103 Section 16.04. Authorization of Receipt of Funds by the Trustee Under the Pledge Agreement . . . . . . . . . 103 Section 16.05. Termination of Security Interest. . . . . . . . . . . . . . 103 Section 16.06. Amendment of the Security Agreements. . . . . . . . . . . . 104 -iv- THIS INDENTURE, dated as of the 21st day of December, 1998, among GOLDEN NORTHWEST ALUMINUM, INC., a corporation duly organized and existing under the laws of the State of Oregon (hereinafter referred to as the "Company"), as Issuer, NORTHWEST ALUMINUM SPECIALTIES, INC., NORTHWEST ALUMINUM COMPANY, NORTHWEST ALUMINUM TECHNOLOGIES, LLC, GOLDENDALE HOLDING COMPANY, AND GOLDENDALE ALUMINUM COMPANY, as Guarantors, and U.S. TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association (hereinafter referred to as the "Trustee"), as Trustee. WITNESSETH WHEREAS, the Company has duly authorized an issue of its 12% Series A First Mortgage Notes due 2006 (hereinafter referred to as the "Initial Notes"), for an aggregate principal amount of up to one hundred fifty million dollars ($150,000,000), to be issued as registered Initial Notes without coupons, to be authenticated by the certificate of the Trustee, to be payable on December 15, 2006, and to be redeemable and purchasable as hereinafter provided, and the Company has duly authorized an issue of its 12% Series B First Mortgage Notes due 2006 to be issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement (hereinafter referred to as the "Exchange Notes" and together with the Initial Notes, the "Notes"); and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; AND WHEREAS, the obligations of the Company under the Notes and the Guarantees will be secured pursuant to the Security Agreements by (i) a first priority security interest in substantially all of the Company's and its existing Subsidiaries' real property, plant and equipment (other than the Excluded Property), and certain other assets of the Company and its existing Subsidiaries (collectively, the "PP&E"), excluding, however, among other things, the Tolling Agreements, inventory, accounts receivable and other rights to payment and related intangibles and proceeds thereof and (ii) a pledge (the "Pledge") of all of the issued and outstanding Capital Stock of each direct or indirect Subsidiary of the Company and all income, benefits and rights derived therefrom and all proceeds thereof (collectively, the "Pledged Shares" and together with the PP&E, the "Collateral"). Such security interests and Pledge will be granted to the Trustee, as collateral agent for and on behalf the holders of the Notes (in such capacity the "Collateral Agent"), and will secure the payment and performance when due of all of the obligations of the Company and the Subsidiary Guarantors under this Indenture and the Notes as provided in the Security Agreements; AND WHEREAS, the Notes and the Trustee's certificate of authentication to be borne by the Notes are to be substantially in the following forms, respectively: [FORM OF NOTE] No. [Principal Amount] Issue Date: CUSIP GOLDEN NORTHWEST ALUMINUM, INC. 12% [SERIES A] [SERIES B] FIRST MORTGAGE NOTE DUE 2006 GOLDEN NORTHWEST ALUMINUM, INC., a corporation duly organized and existing under the laws of the State of Oregon (herein referred to as the "Company"), for value received, hereby promises to pay to ________________________, or registered assigns, the principal sum of ___________________________ DOLLARS on December 15, 2006, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof, as hereinafter provided, interest on said principal sum at the rate per annum specified in the title of this Note, in like coin or currency, semi-annually in arrears on June 15 and December 15 in each year, commencing on June 15, 1999. Interest shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from December 21, 1998; provided, however, that, in the case of authentication between the record date for any interest payment date and such interest payment date, this Note shall be dated the date of its authentication but shall bear interest from such interest payment date, subject to certain exceptions provided in the Indenture hereinafter referred to. The interest so payable on any June 15 or December 15 will, subject to certain exceptions provided in the Indenture, be paid to the Person in whose name this Note is registered at the close of business on the May 30 immediately preceding such June 15 or the November 30 immediately preceding such December 15. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, this Note are payable at the office or agency of the Company maintained for such purpose within the City and State of New York, except that, at the option of the Company, payment of interest hereon may be made by check mailed by first-class mail to the address of the Person entitled thereto at such address as shall appear on the registry books of the Company; provided, however, that, if this Note is a Global Note or a Certificated Note and the holder of this Note has given wire transfer instructions (which instructions must be received by the Company at least 5 Business Days prior to the relevant date of payment) to the Company, all payments with respect to this Note will be required to be made by wire transfer of immediately available funds to the account specified by the holder of this Note; provided, further, that, in the case of all payments other than interest, the holder of this Note must first surrender this Note as a condition to the holder's right to receive payment. As provided in the Indenture, this Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of such State. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture. This Note is one of a duly authorized issue of Notes of the Company known as its 12% [Series A] [Series B] First Mortgage Notes due 2006 (herein referred to as the "Notes"), limited to an -2- aggregate principal amount of one hundred fifty million dollars ($150,000,000), all issued or to be issued under and pursuant to an indenture, dated as of December 21, 1998 (herein referred to as the "Indenture"), among the Company, the Subsidiaries (as defined in the Indenture) of the Company and U.S. Trust Company, National Association, as trustee (herein referred to as the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company, the Subsidiaries of the Company and the holders of the Notes. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. In case an Event of Default shall have occurred and be continuing, the principal amount of this Note plus any accrued and unpaid interest to the date of acceleration may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture provides that the holders of a majority of the aggregate principal amount of the Notes at the time outstanding or outstanding on the record date, if any, fixed therefor in accordance with the provisions of the Indenture may on behalf of the holders of all of the Notes waive any past default under the Indenture and its consequences (including any acceleration, other than an automatic acceleration resulting from certain bankruptcy, insolvency, receivership or reorganization), except a default in the payment of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any of the Notes (other than solely as a result of an acceleration) or a default under any covenant or provision in the Indenture which under Article Ten of the Indenture cannot be modified or amended without the consent of the holder of each outstanding Note. In the case of any such waiver, the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Payment of the Notes is fully and unconditionally guaranteed, jointly and severally, by Northwest Aluminum Specialties, Inc., Northwest Aluminum Company, Northwest Aluminum Technologies, LLC, Goldendale Holding Company and Goldendale Aluminum Company and will be guaranteed on a senior basis by all future Subsidiaries of the Company. Under certain circumstances set forth in the Indenture, each of the Subsidiaries of the Company may be released from its respective obligations under and in respect of the Indenture and the Notes. To secure payment of the Notes, each of the Company and its Subsidiaries has granted to the Trustee, as collateral agent for and on behalf of the holders of the Notes and pursuant to the Security Agreements, (i) a first priority security interest in substantially all of the Company's and its existing Subsidiaries' real property, plant and equipment (other than the Excluded Property), and certain other assets of the Company and its existing Subsidiaries, excluding, however, among other things, the Tolling Agreements, inventory, accounts receivable and other rights to payment and related intangibles and proceeds thereof and (ii) a pledge of all of the issued and outstanding Capital Stock of each direct or indirect Subsidiary of the Company and all income, benefits and rights derived therefrom and all proceeds thereof. Under certain circumstances set forth in the Indenture, the Capital Stock issued by any Subsidiary of the Company may be released from such security interest. In addition, upon the designation of a Subsidiary as an Unrestricted Subsidiary by the Board of Directors in accordance with the provisions of the Indenture, the Collateral Agent shall release any Collateral of such Unrestricted Subsidiary in the manner contemplated by the Security Agreements; provided, however, that any such Collateral shall only be released from the Security Agreements to the extent such Collateral is also released from the Hydro Agreement and the Credit Agreement. -3- The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority of the aggregate principal amount of the Notes then outstanding or outstanding on the record date, if any, fixed therefor in accordance with the provisions of the Indenture, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided, however, that, as provided in Section 10.02 of the Indenture, without the consent of each holder of an outstanding Note affected, no such supplemental indenture shall, inter alia, (i) extend the stated maturity of any Note, reduce the rate at which interest accrues on any Note, extend the time or alter the manner of payment of interest on any Note, reduce the principal amount of any Note, alter the timing of or reduce any premium payable upon the redemption of any Note, change the currency in which any payments are made on or with respect to any Note, change the ranking or seniority of any Note or reduce the amount payable on any Note in the event of acceleration or the amount of any Note payable in bankruptcy, or (ii) reduce the aforesaid percentage of aggregate principal amount of Notes the consent of the holders of which is required for any such supplemental indenture. In addition, without the consent of the holders of not less than 66 2/3% in aggregate principal amount of the outstanding Notes, the Collateral Agent and the Company cannot (i) amend the Security Agreements or (ii) release any of the Collateral from a Lien or the Security Agreements (except in accordance with the provisions thereof). Any such consent or waiver by the registered holder of this Note (unless effectively revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders of this Note and of any Note issued in exchange or substitution herefor, irrespective of whether or not any notation of such consent or waiver is made upon this Note or such other Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, this Note at the place, at the respective times, at the rate and in the currency herein prescribed. The Notes are issuable as fully registered Notes without coupons in denominations of $1,000 and any integral multiple of $1,000. At the office or agency to be maintained by the Company referred to above, and in the manner and subject to the limitations provided in the Indenture, Notes may be exchanged for a like aggregate principal amount of Notes in other authorized denominations, without payment of any charge other than a sum sufficient to reimburse the Company for any tax or other governmental charge incident thereto. The Company may not redeem the Notes before December 15, 2002. On or after December 15, 2002, the Notes will be redeemable on at least 15 and not more than 60 days' notice, at the option of the Company, in whole at any time or in part from time to time, at the following redemption prices (expressed as a percentage of principal amount), together with accrued and unpaid interest to the date fixed for redemption, if redeemed during the 12-month period beginning December 15 of the years indicated below: -4- REDEMPTION YEAR PRICE 2002 . . . . . . . . . . . . . . 108.000% 2003 . . . . . . . . . . . . . . 105.333% 2004 . . . . . . . . . . . . . . 102.667% 2005 and thereafter. . . . . . . 100.000% In the case of a partial redemption as provided above, the Trustee shall select the Notes or portions thereof for redemption in such manner as it, in its sole discretion, deems appropriate and fair. The Notes may be redeemed in part in multiples of $1,000 only. The Notes will not have the benefit of any sinking fund. Subject to the terms and conditions of the Indenture, if any Change of Control occurs on or prior to maturity, the Company shall offer to purchase from each holder all or any part (equal to $1,000 or an integral multiple thereof) of the holder's Notes for which a Change of Control Purchase Notice shall have been delivered as provided in the Indenture and not withdrawn, on the date that is 30 Business Days after the occurrence of such Change of Control (the "Change of Control Purchase Date"), for a Change of Control Purchase Price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the Change of Control Purchase Date, which Change of Control Purchase Price shall be paid in cash. Holders have the right to withdraw any Change of Control Purchase Notice by delivering to the Trustee a written notice of withdrawal in accordance with the provisions of the Indenture. If cash sufficient to pay the Change of Control Purchase Price of all Notes or portions thereof to be purchased on the Change of Control Purchase Date is deposited with the Trustee as of the Change of Control Purchase Date, interest shall cease to accrue (whether or not this Note is delivered to the Trustee or any other office or agency maintained for such purpose) on such Notes (or portions thereof) on and after the Change of Control Purchase Date, and the holders thereof shall have no other rights as such (other than the right to receive the Change of Control Purchase Price, upon surrender of such Notes). Subject to the terms and conditions of the Indenture, the Company shall apply the Net Cash Proceeds of Asset Sales, under certain circumstances described in the Indenture, to (x) the prepayment of Specified Pari Passu Indebtedness, unless the holders thereof elect not to receive such prepayment (provided that, in the event any such Indebtedness was Incurred under a revolving credit arrangement, such prepayment shall be accompanied by a permanent reduction of the commitment in respect thereof), and (y) an offer to purchase (an "Asset Sale Offer") the then outstanding Notes, on any Business Day occurring no later than 305 days after the receipt by the Company (or any of its Subsidiaries, if applicable) of such Net Cash Proceeds (subject to deferral under certain circumstances), at a price equal to 100% of the principal amount thereof together with accrued and unpaid interest, if any, to the Asset Sale Purchase Date pursuant to the provisions set forth below and in the Indenture. Such Asset Sale Offer with respect to the Notes shall be in an aggregate principal amount (the "Asset Sale Offer Amount") equal to the Net Cash Proceeds (rounded down to the nearest $1,000) from the Asset Sales to which the Asset Sale Offer relates multiplied by a fraction, the numerator of which is the principal amount of the Notes outstanding (determined as of the close of business on the day immediately preceding the date notice of such Asset -5- Sale Offer is mailed) and the denominator of which is the principal amount of the Notes outstanding plus the aggregate principal amount of Specified Pari Passu Indebtedness outstanding (determined as of the close of business on the day immediately preceding the date notice of such Asset Sale Offer is mailed). If (x) no Specified Pari Passu Indebtedness is outstanding or (y) the holders of such Indebtedness entitled to receive payment elect not to receive the payments provided for in the previous sentence, or (z) the application of such Net Cash Proceeds results in the complete prepayment of such Indebtedness, then in each case any remaining portion of such Net Cash Proceeds will be required to be applied to an Asset Sale Offer to purchase the Notes. Upon surrender of this Note, the transfer of this Note is registrable by the registered holder hereof in person or by his attorney duly authorized in writing on the registry books of the Company at the office or agency to be maintained by the Company referred to above, subject to the terms of the Indenture but without payment of any charge other than a sum sufficient to reimburse the Company for any tax or other governmental charge incident thereto. Upon any such registration of transfer, a new Note or Notes of authorized denomination or denominations, for the same aggregate principal amount, will be issued to the transferee in exchange herefor. Prior to due presentation for registration of transfer, the Company, the Trustee, any paying agent and any Note registrar may deem and treat the Person in whose name this Note shall be registered upon the registry books of the Company as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of or on account of the principal hereof, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest due hereon, and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Note registrar shall be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability on this Note to the extent of the sum or sums so paid. No recourse shall be had for the payment of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder (other than the Company or any of its Subsidiaries), officer or director, as such, past, present or future, of the Company or any of its Subsidiaries or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. IN WITNESS WHEREOF, GOLDEN NORTHWEST ALUMINUM, INC. has caused this instrument to be duly executed. Dated:____________________ GOLDEN NORTHWEST ALUMINUM, INC. By: Name: Title: Attest: __________________________ Secretary [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Notes described in the within-mentioned Indenture. Dated: __________________ U.S. TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: ________________________________ Authorized Signatory -7- ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Signature: _________________________________ (Sign exactly as your name appears above on this Note) Signature Guarantee: (bank, trust company or member firm of the New York Stock Exchange) OPTION OF HOLDER TO ELECT PURCHASE Upon an offer by the Company to purchase all or any part of this Note pursuant to Section 4.14 of the Indenture, please check the box below if you wish to elect to have all or any part of this Note so purchased. If you wish to have only part of this Note purchased by the Company pursuant to Section 4.14 of the Indenture, state the principal amount you elect to have purchased: $---------------- Date: Signature: __________________________________ (Sign exactly as your name appears above on this Note) Signature Guarantee: _______________________________________________ (bank, trust company or member firm of the New York Stock Exchange) [In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933 covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the second anniversary of the Issue Date (or such shorter period permitted under Rule 144(k) under the Securities Act of 1933 (or a successor clause)), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer: [Check One] (1) [ ] to the Company; or (2) [ ] pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (3) [ ] to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933); or (4) [ ] outside the United States to a "Non-U.S. person" in compliance with Rule 904 of Regulation S under the Securities Act of 1933; or (5) [ ] pursuant to an effective registration statement under the Securities Act of 1933; or (6) [ ] pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register this Note in the name of any Person other than the registered holder hereof, provided that if box (3), (4) or (6) is checked, the Company or the Trustee may require, prior to registering any such transfer of this Note, in its sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3) or (4)), and other information as the Trustee, Note registrar or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. -9- The Trustee or Note registrar shall not be obligated to register this Note in the name of any Person other than the holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.05 of the Indenture shall have been satisfied. Dated: Signature: _____________________________ (Sign exactly as your name appears above on this Note) Signature Guarantee: ____________________________________________ (bank, trust company or member firm of the New York Stock Exchange) TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: NOTICE: To be executed by an executive officer.* * Only to be included on Notes constituting Restricted Securities. AND WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid indenture and agreement according to its terms, have been done and performed, and the execution and delivery of this Indenture and the issuance hereunder of the Notes have in all respects been duly authorized, and the Company and its Subsidiaries, in the exercise of the legal right and power vested in them, execute and deliver this Indenture and the Company proposes to make, execute, issue and deliver the Notes. THEREFORE, in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company, its Subsidiaries and the Trustee each covenants and agrees, for the equal and proportionate benefit of the respective holders from time to time of the Notes, as follows: ARTICLE ONE DEFINITIONS Section 1.01. Certain terms defined. --------------------- The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires), for all purposes of this Indenture and of any indenture -10- supplemental hereto, shall have the respective meanings specified in this Section 1.01. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939 (as defined herein) or which are by reference therein defined in the Securities Act of 1933 (as defined herein) (except as herein otherwise expressly provided or unless the context otherwise requires) shall have the meanings assigned to such terms in said Trust Indenture Act of 1939 and in said Securities Act of 1933 as they were in force at the date of the execution and delivery of this Indenture. Affiliate: The term "Affiliate" shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with a specified Person. For the purpose of this definition, "control" when used with respect to any specified Person means the possession of the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Agent Member: The term "Agent Member" shall have the meaning set forth in Section 2.10 hereof. Aluminum Hedging Obligations: The term "Aluminum Hedging Obligations" shall mean, with respect to any Person, monetary obligations of such person pursuant to any options or futures contract, forward contract or other agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in prices of aluminum or raw materials related to the production of aluminum. Asset Sale: The term "Asset Sale" shall mean (i) any sale, transfer or other disposition (including without limitation dispositions pursuant to a merger, consolidation or sale and leaseback transaction) of any assets (other than cash or Cash Equivalents) on or after the date of this Indenture by the Company or any of its Subsidiaries to any Person other than the Company or a Wholly-Owned Subsidiary, and (ii) the issuance by any Subsidiary of the Company on or after the date of this Indenture of its Capital Stock to any Person other than the Company or a Wholly-Owned Subsidiary; provided, however, that, solely for the purposes of the definition of Consolidated Cash Flow Available for Fixed Charges, the term Asset Sale shall exclude dispositions pursuant to a sale and leaseback transaction if the lease under such sale and leaseback transaction is required to be classified and accounted for as a Capitalized Lease Obligation; and provided, further, that the following sales, transfers or other dispositions of assets shall not be an "Asset Sale" hereunder: (A) sales of inventory in the ordinary course of business of the Company and its Subsidiaries; (B) (1) trade-ins of any used equipment on replacement equipment or (2) sales, transfers or other dispositions of property no longer necessary for or useful in the proper conduct of the business of the Company and its Subsidiaries, the gross proceeds of which sales, transfers or other dispositions (exclusive of indemnities) do not exceed $1,000,000 during any 12-month period (the amount of such proceeds, to the extent consisting of property other than cash, to be the Fair Market Value of such property); (C) transfers and other dispositions resulting from the creation, Incurrence or assumption of (but not any foreclosure with respect to) any Lien not prohibited by Section 4.11; (D) sales in the ordinary course of business of accounts receivable as to which -11- collection is doubtful in accordance with past practice; (E) sales, transfers or other dispositions in connection with any consolidation or merger of the Company or any of its Subsidiaries or sale of all or substantially all of the property of the Company (determined on a consolidated basis for the Company and its Subsidiaries) in compliance with the provisions of Article Eleven or Section 15.03 hereof, as the case may be; (F) sales, transfers or other dispositions which are Restricted Investments, Restricted Payments or Unrestricted Subsidiary Investments permitted by Section 4.09; (G) sales, transfers or other dispositions of the 105 megawatt General Electric steam turbine generator and related generator power transformers and other related assets held for sale by GAC on the date of this Indenture; and (H) the surrender or waiver of contract rights, or settlement, release or surrender of contract, tort or other claims of any kind. Attributable Debt: The term "Attributable Debt" shall mean, with respect to a sale and leaseback transaction, as of the date of consummation of such transaction, the greater of (a) the Fair Market Value of the property subject to such sale and leaseback transaction and (b) the present value (discounted at the interest rate borne by the Notes, compounded semi-annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended). Borrowing Base: The term "Borrowing Base" shall mean, at any time, the sum of (a) up to 85% of the then book value (net of reserves) of the accounts of the Company and its Subsidiaries on a consolidated basis arising from the sale of inventory in the ordinary course of business, plus (b) up to 75% of the then book value of the finished aluminum inventory of the Company and its Subsidiaries on a consolidated basis, plus (c) up to 50% of the other inventory of the Company and its Subsidiaries on a consolidated basis, all as determined in accordance with GAAP. Board of Directors: The term "Board of Directors," when used with reference to the Company, shall mean the Board of Directors of the Company, or the executive committee of the Board of Directors of the Company, or any other duly authorized committee of the Board of Directors of the Company. Board Resolution: The term "Board Resolution" shall mean, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. Business Day: The term "Business Day" shall mean a day other than a Saturday, a Sunday or a day in the cities of New York, New York, or Portland, Oregon, or San Francisco, California, on which banking institutions are authorized or obligated by law, regulation or executive order to be closed. Capital Stock: The term "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of capital stock, partnership or membership interests or other undivided ownership interests in such Person, and warrants, options and similar rights (other than, except for purposes of Section 4.12 hereof, debt securities convertible into capital stock) to acquire such capital stock, partnership or membership interests or other undivided -12- ownership interests in such Person. Capitalized Lease Obligations: The term "Capitalized Lease Obligations" shall mean, with respect to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other agreement conveying the right to use) real or personal property, which obligations are required to be classified and accounted for as a capital lease obligation on a balance sheet of such Person under GAAP; and, for purposes of this Indenture, the amount of such obligations at any date shall be the amount of the liability thereof at such date, determined in accordance with GAAP. Cash Equivalents: The term "Cash Equivalents" shall mean, with respect to any Person: (A) Government Securities having maturities of not more than one year from the date of acquisition, (B) certificates of deposit of any commercial bank incorporated under the laws of the United States, or any state, territory or commonwealth thereof, of recognized standing having capital and unimpaired surplus in excess of $100,000,000 and whose short-term commercial paper rating at the time of acquisition is at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc. (any such bank, an "Approved Bank"), which certificates of deposit have maturities of not more than one year from the date of acquisition, (C) repurchase obligations with a term of not more than 31 days for underlying securities of the types described in clauses (A) , (B) and (D) of this definition entered into with any Approved Bank, (D) commercial paper or finance company paper issued by any Person incorporated under the laws of the United States, or any state thereof, and rated at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc., and in each case maturing not more than one year from the date of acquisition, and (E) investments in money market funds that are registered under the Investment Company Act of 1940, which have net assets of at least $100,000,000 and at least 85% of whose assets consist of investments or other obligations of the type described in clauses (A) through (D) above. Certificated Notes: The term "Certificated Notes" shall have the meaning set forth in Section 2.02 hereof. Collateral: The term "Collateral" shall have the meaning provided in the second paragraph of the recitals hereof. Collateral Agent: The term "Collateral Agent" shall have the meaning provided in the second paragraph of the recitals hereof. Commission: The term "Commission" shall mean the United States Securities and Exchange Commission. Common Stock: The term "Common Stock" shall mean the Company's common stock, no par value, as it exists on the date of this Indenture. -13- Company: The term "Company" shall mean Golden Northwest Aluminum, Inc., an Oregon corporation, and, subject to the provisions of Article Eleven, shall also include its successors and assigns. Consolidated Amortization Expense: The term "Consolidated Amortization Expense" shall mean, with respect to any Person for any period, the amortization expense (including without limitation that associated with goodwill, deferred financing charges and other intangible items) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. Consolidated Cash Flow Available for Fixed Charges: The term "Consolidated Cash Flow Available for Fixed Charges" shall mean, with respect to any Person for any period, the sum (without duplication) of the amounts for such period of (i) Consolidated Net Income (which shall include, solely for this purpose, the Net Income of any Unrestricted Subsidiary to the extent paid or distributed in cash to the Company or one of its Subsidiaries), (ii) Consolidated Fixed Charges (but only to the extent Consolidated Net Income has been reduced thereby), (iii) Consolidated Income Tax Expense (other than income taxes (including credits) with respect to items of Net Income not included in the definition of Consolidated Net Income), (iv) Consolidated Depreciation Expense, (v) Consolidated Amortization Expense, and (vi) any other non-cash items reducing Consolidated Net Income, (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period or amortization of a prepaid cash expense that was paid in a prior period), minus any non-cash items increasing Consolidated Net Income all as determined on a consolidated basis for such Person and its Subsidiaries in accordance with GAAP; provided, however, that (x) if, during such period (or subsequent to such period and on or prior to the relevant Transaction Date, as defined below), such Person or any of its Subsidiaries shall have engaged in any Asset Sale, Consolidated Cash Flow Available for Fixed Charges of such Person and its Subsidiaries for such period shall be reduced by an amount equal to the Consolidated Cash Flow Available for Fixed Charges (if positive) directly attributable to the assets that are the subject of such Asset Sale for such period, or increased by an amount equal to the Consolidated Cash Flow Available for Fixed Charges (if negative) directly attributable to the assets that are the subject of such Asset Sale for such period and (y) if, during such period (or subsequent to such period and on or prior to the relevant Transaction Date), such Person or any of its Subsidiaries shall have acquired any material assets out of the ordinary course of business, Consolidated Cash Flow Available for Fixed Charges shall be calculated on a pro forma basis as if such asset acquisition and related financing had occurred at the beginning of such period. Consolidated Depreciation Expense: The term "Consolidated Depreciation Expense" shall mean, with respect to any Person for any period, the depreciation and depletion expense (including without limitation the amortization expense associated with Capitalized Lease Obligations) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. Consolidated Fixed Charge Coverage Ratio: The term "Consolidated Fixed Charge Coverage Ratio" shall mean, with respect to any Person as of the date of the transactions giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of such Person for the four fiscal quarters immediately prior to the Transaction Date for which financial information in respect thereof is available (the "Four Quarter Period") to (ii) the aggregate Consolidated Fixed Charges of such Person for such Four Quarter Period. For purposes of such calculation, (x) any Indebtedness (other than Indebtedness Incurred under a revolving credit facility in effect on a pro forma basis on the Transaction Date) Incurred, repaid, redeemed, repurchased, defeased or otherwise discharged during such Four Quarter Period or subsequent to such Four Quarter Period and on or prior to the Transaction Date, -14- including without limitation any such Indebtedness giving rise to the need to make such calculations, shall be deemed to have been Incurred or discharged, as the case may be, on the first day of such Four Quarter Period (so that there shall be deemed to have been outstanding during the entire Four Quarter Period an amount of such Indebtedness equal to the amount thereof outstanding on a pro forma basis on the Transaction Date and so that no such Indebtedness that is not outstanding on a pro forma basis on the Transaction Date shall be deemed to have been outstanding during any part of such Four Quarter Period), (y) any Indebtedness under a revolving credit facility in effect on a pro forma basis on the Transaction Date shall be deemed to have been outstanding during the entire Four Quarter Period in an amount equal to the average daily balance of such Indebtedness during the period commencing on the first day of such Four Quarter Period and ending on the Transaction Date, and (z) Consolidated Fixed Charges attributable to interest accrued at a variable rate shall be computed as if the rate in effect on the Transaction Date had been the applicable rate for the entire Four Quarter Period, unless such Person or any of its Subsidiaries is a party to any Interest Hedging Obligations (which will remain in effect for the 12-month period immediately following the Transaction Date) that have the effect of fixing such rate, in which case such fixed rate shall be used. Consolidated Fixed Charges: The term "Consolidated Fixed Charges" shall mean (without duplication), with respect to any Person for any period, the sum of: (i) the interest expense of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; (ii) all fees, commissions, discounts and other charges of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, with respect to letters of credit and bankers' acceptances and the costs (net of benefits) associated with Interest Hedging Obligations of such Person and its Subsidiaries for such period; (iii) the aggregate amount of dividends or other similar distributions accrued by such Person and its Subsidiaries during such period with respect to preferred stock of such Person or its Subsidiaries determined on a consolidated basis in accordance with GAAP; and (iv) amortization or write-off of debt discount for such period in connection with any Indebtedness of such Person and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. Consolidated Income Tax Expense: The term "Consolidated Income Tax Expense" shall mean (without duplication), with respect to any Person for any period, the aggregate of the income tax expense (net of applicable credits) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, and, in the case of the Company, any distributions made in respect of income for such period pursuant to clause (vi) of Section 4.09(b) hereof. Consolidated Net Income: The term "Consolidated Net Income" shall mean, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period taken as a single accounting period, all as determined on a consolidated basis in accordance with GAAP, excluding (in each case to the extent otherwise included): (i) the Net Income (but not loss) of any Person that is not a Subsidiary of such Person or that is accounted for on the equity method of accounting, except to the extent of the amount of dividends or other distributions (other than dividends or distributions of Capital Stock) -15- actually paid to such Person or any of its Subsidiaries by such other Person during such period; (ii) except to the extent included by clause (i), the Net Income of any Person accrued prior to the date it becomes a Subsidiary of such Person or is merged into or consolidated with such Person or any of its Subsidiaries or that Person's assets are acquired by such Person or any of its Subsidiaries; (iii) the Net Income of any Subsidiary of such Person during such period (A) to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such Net Income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation (including any governmental approval that has not been obtained) applicable to that Subsidiary or its shareholders or (B) in the case of a foreign Subsidiary or a Subsidiary with significant foreign source income, to the extent such Net Income has not been distributed to such Person and such distribution would result in a material tax liability not otherwise deducted from the calculation of Consolidated Net Income whether or not such deduction is required by GAAP; (iv) the Net Income of any Unrestricted Subsidiary, whether or not paid or distributed to the Company or one of its Subsidiaries; and (v) the cumulative effect of a change in accounting principles. Consolidated Net Worth: The term "Consolidated Net Worth" shall mean, with respect to any Person as of any date, the total stockholders' equity of such Person as of such date, less, to the extent otherwise included, amounts attributable to Disqualified Stock, in each case determined on a consolidated basis in accordance with GAAP. Credit Agreement: The term "Credit Agreement" shall mean that certain Credit Agreement, dated substantially contemporaneously with this Indenture, by and among Northwest, Specialties, Goldendale (as guarantor), GAC, Technologies, the financial institutions that are, or from time to time become, parties thereto, and BankBoston N.A., as administrative agent, providing for revolving credit borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. Depository: The term "Depository" shall mean The Depository Trust Company, New York, New York. Disqualified Stock: The term "Disqualified Stock" shall mean (i) except as set forth in clause (ii) below, with respect to any Person, Capital Stock of such Person that by its terms, or by the terms of any security into which it is convertible or for which it is exercisable or exchangeable, is, or upon the happening of an event or a passage of time would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, on or prior to the scheduled maturity date that is 91 days after the maturity of the Notes, and (ii) with respect to any Subsidiary of a Person (including any Subsidiary of the Company), any Capital Stock other than common stock with no special rights and no preference, privileges, or redemption or repayment provisions. Event of Default: The term "Event of Default" shall mean any event specified in Section 6.01, continued for the period of time, if any, and after the giving of notice, if any, therein designated. -16- Exchange Act: The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. Exchange Notes: The term "Exchange Notes" shall have the meaning provided in the first paragraph of the recitals hereof. Excluded Property: The term "Excluded Property" shall mean the real property at Goldendale, Washington and The Dalles, Oregon, including the improvements thereon, that is not integral to the Company's operations and not subject to the Liens of the Security Agreements. Fair Market Value: The term "Fair Market Value" shall mean, with respect to any property other than cash, the fair market value of such property as determined in good faith by the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution; provided, however, that, in the event the Company or a Subsidiary of the Company makes a payment in the form of or otherwise transfers property other than cash to, or receives property other than cash from, an Affiliate of the Company or an Unrestricted Subsidiary in an amount in excess of $5,000,000, the Company or a Subsidiary of the Company, in addition, shall have received an opinion from an independent investment banking, appraisal or accounting firm of national standing selected by the Company (which, in the good faith judgment of the Board of Directors, is qualified to perform such task) to the effect that the Board of Directors' determination of fair market value is fair. GAAP: The term "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certificate Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect on the date of this Indenture. Global Note: The term "Global Note" shall have the meaning provided in Section 2.02. GAC: The term "GAC" shall mean Goldendale Aluminum Company, a Delaware corporation, and, subject to the provisions of Section 15.03, shall also include its successors. GHC: The term "GHC" shall mean Goldendale Holding Company, a Delaware corporation, and, subject to the provisions of Section 15.03, shall also include it successors. Government Securities: The term "Government Securities" shall mean securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support hereof). Guarantee: The term "Guarantee" shall mean any guarantee of the Notes by any Subsidiary of the Company. Hydro Agreement: The term "Hydro Agreement" shall mean that certain Subordinated Note Purchase Agreement, dated substantially contemporaneously with this Indenture, between the Company and Norsk Hydro USA, Inc., including all related notes, collateral documents and guarantees. Hydro Subordinated Debt: The term "Hydro Subordinated Debt" shall mean the subordinated Indebtedness committed under the Hydro Agreement. -17- Improvements: The term "Improvements" shall mean, with respect to any assets, any accessories, accessions, additions, attachments, substitutions, replacements, improvements, parts and other property now or hereafter affixed to such assets or used in connection therewith. Indebtedness: The term "Indebtedness" shall mean, with respect to any Person at any date, any of the following (without duplication): (i) all obligations (unconditional or contingent) of such Person for borrowed money (whether or not recourse is to the whole of the assets of such Person or only to a portion thereof) and all obligations (unconditional or contingent) of such Person evidenced by debentures, notes or other similar instruments (including without limitation reimbursement obligations with respect to letters of credit and bankers' acceptances) or representing reimbursement or similar obligations with respect to Aluminum Hedging Obligations; (ii) all obligations of such Person to pay the deferred purchase price of property or services, except (x) accounts payable and other accrued expenses arising in the ordinary course of business and (y) obligations to pay employee compensation or other employee benefits (except as provided in clause (vii) below); (iii) Capitalized Lease Obligations of such Person; (iv) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed or guaranteed by such Person; (v) all Disqualified Stock of such Person; (vi) all Indebtedness of others guaranteed by such Person; (vii) all pension and other similar obligations of such Person arising from employee benefits, to the extent unfunded ("Unfunded Pension Obligations"); and (viii) all obligations under sale and leaseback transactions; and the amounts thereof shall be, in the case of clauses (i) through (iii) and (vi), the outstanding balance of any such unconditional obligations (or the accreted value thereof in the case of Indebtedness issued with original issue discount) together with any interest thereon that is more than 30 days past due and the maximum liability of any such contingent obligations at such date, and, in the case of clause (iv), the lesser of the Fair Market Value at such date of any asset subject to any Lien securing the Indebtedness of others and the amount of the Indebtedness secured, and, in the case of clause (v), the greater of the maximum liquidation value of such Disqualified Stock and the maximum redemption price of such Disqualified Stock, and, in the case of clause (vii), the amount of such Unfunded Pension Obligations determined by the Company in good faith as evidenced by a certificate of the Chief Financial Officer of the Company delivered to the Trustee, and, in the case of clause (viii), the Attributable Debt with respect to such sale and leaseback transactions; provided, however, that Indebtedness shall not include obligations of such Person resulting from the endorsement of negotiable instruments for collection in the ordinary course of business. Indenture: The term "Indenture" shall mean this instrument as originally executed, or, if amended or supplemented as herein provided, as so amended or supplemented. -18- Initial Notes: The term "Initial Notes" shall have the meaning provided in the first paragraph of the recitals hereof. Institutional Accredited Investor: The term "Institutional Accredited Investor" shall mean an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933. Interest: The term "interest" shall mean, with respect to the Notes, interest payable on the Notes at the rate set forth therein, plus any additional interest payable by the Company and its Subsidiaries in respect of the Notes pursuant to the Registration Rights Agreement. Interest Hedging Obligation: The term "Interest Hedging Obligation" with respect to any Person shall mean the monetary obligations of such Person pursuant to any interest rate swap agreement, interest rate collar agreement, interest rate cap agreement, options or futures contract, forward contract or other agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates. Issue Date: The term "Issue Date" shall mean the date of first issuance of the Notes under this Indenture, December 21, 1998. Lien: The term "Lien" shall mean with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). NAC: The term "NAC" shall mean Northwest Aluminum Company, an Oregon corporation, and, subject to the provisions of Section 15.03, shall also include its successors. NAS: The term "NAS" shall mean Northwest Aluminum Specialties, Inc., an Oregon corporation, and, subject to the provisions of Section 15.03, shall also include its successors. NAT: The term "NAT" shall mean Northwest Aluminum Technologies, LLC, a Washington limited liability company, and, subject to the provisions of Section 15.03, shall also include its successors. Net Cash Proceeds: The term "Net Cash Proceeds" shall mean cash payments received (but if received in a currency other than United States dollars, such payments shall not be deemed received until the earliest time at which such currency is, or could freely be, converted into United States dollars) by or on behalf of the Company and/or any of its Subsidiaries (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise or the cash realization of any non-cash proceeds of any Asset Sale, but, in each case, only as and when, and to the extent, received) from an Asset Sale, in each case and without duplication net of: (i) all legal, title and recording tax expenses, commissions, consulting fees, investment banking, broker's and accounting fees and expenses and fees and expenses incurred in obtaining regulatory approvals in connection with such Asset Sale; (ii) the amounts of any repayments of Indebtedness secured, directly or indirectly, by -19- Liens on the assets which are the subject of such Asset Sale (other than Indebtedness under the Credit Agreement or Refinancing Indebtedness Incurred to Refinance, or successively Refinance, Indebtedness under the Credit Agreement) and other fees, expenses and other expenditures, in each case, reasonably incurred as a consequence of such repayment of Indebtedness (whether or not such fees, expenses or expenditures are then due and payable or made, as the case may be); (iii) all foreign, federal, state and local taxes payable (including taxes reasonably estimated to be payable) in connection with or as a result of such Asset Sale; (iv) with respect to Asset Sales by any Subsidiary of the Company, the portion of such cash payments attributable to Persons holding a minority interest in such Subsidiary; and (v) any amounts paid in respect of term loans outstanding under the Credit Agreement or any Refinancing Indebtedness Incurred to Refinance, or successively Refinance, such term loans; provided, in each such case, that such fees and expenses and other amounts are not payable to an Affiliate or an Unrestricted Subsidiary of the Company. Notwithstanding the foregoing, Net Cash Proceeds shall not include proceeds received in a foreign jurisdiction from an Asset Sale of an asset located outside the United States to the extent (A) such proceeds cannot under applicable law be transferred to the United States or (B) such transfer would result (in the good faith determination of the Board of Directors of the Company set forth in a Board Resolution) in a foreign tax liability that would be materially greater than if such Asset Sale occurred in the United States; provided that if, as, and to the extent that any of such proceeds may lawfully be (in the case of clause (A)) or are (in the case of clause (B)) transferred to the United States, such proceeds shall be deemed to be cash payments that are subject to the terms of this definition of Net Cash Proceeds. Subject to the provisions of the next preceding sentence, Net Cash Proceeds shall also include cash distributions actually received by or on behalf of the Company or any of its Subsidiaries from any Unrestricted Subsidiary representing the proceeds of a transaction by such Unrestricted Subsidiary that would constitute an Asset Sale if such Unrestricted Subsidiary were a Subsidiary of the Company. Net Income: The term "Net Income" shall mean, with respect to any Person for any period, the net income (loss) of such Person for such period determined in accordance with GAAP, less, in the case of the Company, the amount of any distributions made in respect of income for such period pursuant to clause (vi) of Section 4.09(b) hereof. Non-U.S. Person: The term "Non-U.S. Person" shall mean a Person who is not a U.S. Person. Note or Notes: The terms "Note" or "Notes" shall mean the Initial Notes and the Exchange Notes. Noteholder; registered holder: The terms "noteholder," "holder of Notes," "registered holder" or other similar term shall mean any Person who shall at the time be the registered holder of any Note or Notes on the registry books of the Company kept for that purpose in accordance with the provisions of this Indenture. Officers' Certificate: The term "Officers' Certificate" shall mean a certificate of the Company signed on behalf of the Company by the Chairman of the Board, the President or any Vice President and by the Chief Financial Officer, the Controller, the Treasurer, an Assistant Treasurer, the -20- Secretary or an Assistant Secretary of the Company. Each such certificate shall include the statements provided for in Section 14.05 if and to the extent required by the provisions thereof. Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel in the United States, who may be an employee of, or of counsel to, the Company and who (if other than Stoel Rives LLP) shall be reasonably satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 14.05 if and to the extent required by the provisions thereof. Outstanding: The term "outstanding," when used with reference to Notes, shall, subject to the provisions of Section 8.04, mean, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except (a) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Notes, or portions thereof, for which the payment of principal, interest, any redemption price, any Change of Control Purchase Price or any Asset Sale Purchase Price in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent), provided that such Notes shall have reached their stated maturity or, if such Notes are to be or may be redeemed or purchased prior to the maturity thereof, notice of such redemption or purchase shall have been given as in Article Three provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Notes in lieu of or in substitution for which other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.07, unless proof satisfactory to the Trustee is presented that any such Notes are held by bona fide holders in due course. Permitted Dividend Encumbrance: The term "Permitted Dividend Encumbrance" shall mean, with respect to any Person, any consensual encumbrance or restriction on the ability of such Person to pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company or any Subsidiaries of the Company or to make loans or advances or transfer any of its assets to the Company or any Subsidiaries of the Company existing under or by reason of any of: (i) this Indenture; (ii) the Credit Agreement; (iii) applicable law; (iv) customary provisions in agreements that restrict the assignment of such agreements or rights thereunder or the subletting of any assets leased under such agreements; (v) customary restrictions on the transfer of assets imposed by any agreement for the sale of a Person or its assets prior to the consummation thereof, provided that such restrictions apply only to the assets of such Person or the assets to be sold, as the case may be; (vi) agreements governing Refinancing Indebtedness that is otherwise permitted in connection with any Refinanced Indebtedness, provided that any such encumbrances or restrictions -21- shall not be materially less favorable to the holders of the Notes than those contained in the agreements governing such Refinanced Indebtedness; (vii) customary restrictions on the sale or other disposition of property subject to a Lien securing Indebtedness, provided that such Lien and such Indebtedness are otherwise permitted by this Indenture; and (viii) the Hydro Agreement (to the extent it incorporates provisions of this Indenture). Permitted Lien: The term "Permitted Liens" shall mean (a) Liens imposed by governmental authorities for taxes, assessments or other charges not yet subject to penalty or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiary, as the case may be, in accordance with GAAP; (b) statutory liens of carriers, warehousemen, mechanics, material men, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business provided that (i) the underlying obligations are not overdue for a period of more than 60 days, or (ii) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiary, as the case may be, in accordance with GAAP; (c) Liens securing the performance of bids, trade contracts (other than for borrowed money), operating leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business that do not, singly or in the aggregate, materially detract from the value of the assets of the Company and its Subsidiaries or interfere with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole; (d) easements, rights-of-way, zoning, similar restrictions and other similar encumbrances or title defects which, singly or in the aggregate, do not in any case materially detract from the value of the property subject thereto (as such property is used by the Company or any of its Subsidiaries) or interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (e) Liens arising by operation of law in connection with judgments, only to the extent, for an amount and for a period not resulting in an Event of Default with respect thereto; (f) pledges or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security legislation; (g) leases or subleases granted to other Persons in the ordinary course of business not materially interfering with the conduct of the business of the Company or any of its Subsidiaries or materially detracting from the value of the respective assets of the Company or any of its Subsidiaries; (h) Liens arising from precautionary Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company or any of its Subsidiaries in the ordinary course of business; (i) purchase money Liens on assets that (1) are purchased by the Company or its Subsidiaries after the date of the Indenture and (2) are used or useful in the Company's or its Subsidiaries' businesses, provided that such Liens (x) secure an amount not exceeding 100% of the purchase price of the assets acquired (y) secure Indebtedness that is permitted to be incurred by the provisions of Section 4.10 hereof, and (z) do not extend, contingently or otherwise, to any property or assets other than those being purchased on the date in question; (j) Liens arising solely by virtue of any statutory or common law provision relating to bankers' liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with the creditor depository institution, provided that (1) such deposit account is not a dedicated cash collateral account and is not subject to restriction against access by the Company or any of its Subsidiaries in excess of those set forth in regulations promulgated by the Federal Reserve Board and (2) such deposit is not intended by the Company or any of its Subsidiaries to provide collateral to the depository institution; (k) Liens securing any Indebtedness Incurred pursuant to clause (vii) of Section 4.10(b) hereof; provided that such Liens are subordinated in right and priority of payment to the Notes and the Guarantees on terms no less favorable to the holders of the Notes than those applicable to the Security Interests and pledge under the Hydro -22- Agreement; and (l) Liens arising solely by virtue of any statutory or common law provision relating to bankers' liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with the creditor depository institution, provided that (1) such deposit account is not a dedicated cash collateral account and is not subject to restriction against access by the Company or any of its Subsidiaries in excess of those set forth in regulations promulgated by the Federal Reserve Board and (2) such deposit is not intended by the Company or any of its Subsidiaries to provide collateral to the depository institution. Person: The term "Person" shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. Pledge: The term "Pledge" shall have the meaning provided in the second paragraph of the recitals hereof. Pledged Shares: The term "Pledged Shares" shall have the meaning provided in the second paragraph of the recitals hereof. PP&E: The term "PP&E" shall have the meaning provided in the second paragraph of the recitals hereof. Private Placement Legend: The term "Private Placement Legend" shall have the meaning set forth in Section 2.09 hereof. Qualified Institutional Buyer or QIB: The terms "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act of 1933. Refinance: The term "Refinance" shall mean to renew, extend, refund, replace, restructure, refinance, amend or modify any Indebtedness. The term "Refinancing" shall have a correlative meaning. Registration Rights Agreement: The term "Registration Rights Agreement" shall mean that certain registration rights agreement among the Company, its Subsidiaries and the Initial Purchasers, to be entered into on the date hereof. Regulation S: The term "Regulation S" shall mean Regulation S under the Securities Act of 1933. Regulation S Temporary Global Note: The term "Regulation S Temporary Global Note" shall mean a single temporary global Note in the form of the Global Note with the additional provisions set forth in Exhibit A-1 hereto that is deposited with the Trustee and registered in the name of the Depository or its nominee, representing a series of Notes sold in offshore transactions in reliance on Regulation S. Responsible Officer: The term "responsible officer," when used with respect to the Trustee, shall mean any officer in its principal corporate trust office who is responsible for the administration of this trust. Restricted Investment: The term "Restricted Investment" shall mean, with respect to any Person, (i) the acquisition by such Person of, or the investment by such Person in, any Capital Stock, -23- Indebtedness or other securities of, or the making by such Person of any capital contribution to, any other Person (other than the Company or any Unrestricted Subsidiary), (ii) any loan or advance by such Person to any other Person (other than the Company, any Wholly-Owned Subsidiary or any Unrestricted Subsidiary) other than accounts receivable of such Person relating to the purchase and sale of inventory, goods or services arising in the ordinary course of business, (iii) any guarantee by such Person of any obligations, contingent or otherwise, of any other Person (other than the Company, any Wholly-Owned Subsidiary or any Unrestricted Subsidiary), (iv) any provision of credit support (including any undertaking, agreement or instrument that would constitute Indebtedness) by such Persons to or on behalf of any other Person (other than the Company, any Wholly-Owned Subsidiary or any Unrestricted Subsidiary), and (v) any obligation or liability of such Person to subscribe for additional Capital Stock or other securities of any other Person (other than the Company or any Unrestricted Subsidiary) or to maintain or preserve the financial condition of any other Person (other than the Company or any Unrestricted Subsidiary) or to cause any such other Person to achieve any specified levels of operating results; provided, however, that the following shall not be Restricted Investments: (A) investments in Cash Equivalents; (B) investments in or acquisitions of Capital Stock of any Person (other than a Person in which Affiliates of the Company have an interest other than through the Company, its Subsidiaries or its Unrestricted Subsidiaries) that is or becomes, at the time of the acquisition thereof, a Wholly-Owned Subsidiary; (C) Restricted Investments of such Person existing as of the date of the Indenture and any extension, modification or renewal of such Restricted Investment (but not increases thereof, other than as a result of the accrual or accretion of interest or original issue discount pursuant to the terms of such Restricted Investment); (D) investments in or acquisitions of Capital Stock or other securities of Persons (other than Affiliates of the Company) received in the bankruptcy or reorganization of or by such Person or taken in settlement of or other resolution of claims or disputes against or with such Person, and, in each case, extensions, modifications and renewals thereof; and (E) investments in Persons (other than Affiliates of the Company) received by such Person as consideration in Asset Sales (including, for the purposes of this definition, those sales, transfers and other dispositions described in clause (B)(2) and in clause (E) of such definition), to the extent not prohibited by the provisions described in Section 4.14, and extensions, modifications and renewals thereof. Restricted Security: The term "Restricted Security" shall have the meaning assigned to such term in Rule 144(a)(3) under the Securities Act of 1933; provided, however, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. Rule 144A: The term "Rule 144A" shall mean Rule 144A under the Securities Act of 1933. S Corporation: The term "S Corporation" shall mean an S corporation as defined in Section 1361 of the Code, a "qualified subchapter S subsidiary" within the meaning of Section 1361(b)(3)(B) of the Code, or a Person which has elected to be taxed as a pass-through entity or otherwise -24- ignored for federal income tax purposes. Securities Act of 1933: The term "Securities Act of 1933" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder. Security Agreements: The term "Security Agreements" shall mean the documents, agreements and filings which are listed on Schedule A hereto. Subordination Agreement: The term "Subordination Agreement" shall mean the Debt and Lien Subordination Agreement, dated December 21, 1998, by and between Norsk Hydro USA, Inc., a Delaware corporation, and the Trustee. Subsidiary: The term "Subsidiary" shall mean, with respect to any Person, any corporation or other entity of which more than 50% of the outstanding Voting Stock is at the time directly or indirectly owned (either alone or through its Subsidiaries or together with its Subsidiaries) by such Person. For purposes of this definition, any directors' qualifying shares shall be disregarded in determining the ownership of a Subsidiary. Notwithstanding anything to the contrary contained herein, no Unrestricted Subsidiary shall be deemed to be a Subsidiary of the Company or of any Subsidiary or Subsidiaries of the Company. Tolling Agreements: The term "Tolling Agreements" shall mean that certain Tolling Agreement, dated May 22, 1996, by and between GAC and Hydro Aluminum Louisville, Inc. and that certain Tolling Agreement, dated September 15, 1986, by and between Northwest and Glencore, Ltd. Trust Indenture Act of 1939: The term "Trust Indenture Act of 1939" shall mean the Trust Indenture Act of 1939 as it was in force at the date of this Indenture, except as provided by Article Ten. Trustee; principal office: The term "Trustee" shall mean U.S. Trust Company, National Association, a national banking association, until a successor replaces it in accordance with the provisions of Article Seven. The term "principal office of the Trustee" shall mean the office of the Trustee at which at any particular time its corporate trust business may be principally administered, which office at the date hereof is located at One Embarcadero Center, Suite 2050, San Francisco, California 94111. Unrestricted Subsidiary: The term "Unrestricted Subsidiary" shall mean each of the Subsidiaries of the Company (other than NAC and GAC and, the lines of business currently operated by them, which shall in no event be transferred to or held by an Unrestricted Subsidiary), or any entity which is to become a Subsidiary of the Company, designated as an "Unrestricted Subsidiary" by the Board of Directors of the Company; but only if (i) immediately after giving effect to such designation, no Event of Default (or event that, after notice or lapse of time, or both, would -25- become an Event of Default) shall exist, (ii) immediately after giving effect to such designation, the Company could Incur $1.00 of Indebtedness pursuant to Section 4.10(a) hereof, (iii) such Subsidiary does not own, at the time of such designation or at any time thereafter, any Capital Stock of the Company or any other Subsidiary of the Company, and (iv) such Subsidiary is not, at the time of such designation, party to any transaction or series of related transactions with the Company or any other Subsidiary of the Company, unless such transaction or series of related transactions, if entered into immediately after such designation, would be permitted by the provisions of Section 4.08 hereof. The Board of Directors of the Company may designate an Unrestricted Subsidiary to be a Subsidiary, but only if (i) immediately after giving effect to such redesignation, no Event of Default (or event that, after notice or lapse of time, or both, would become an Event of Default) shall exist, and (ii) immediately after giving effect to such redesignation, the Company could Incur $1.00 of Indebtedness pursuant to Section 4.10(a) hereof. Any such designation or redesignation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation or redesignation and an Officers' Certificate certifying that such designation or redesignation complied with the foregoing conditions. Upon the designation of a Subsidiary as an Unrestricted Subsidiary by the Board of Directors in accordance with the provisions of this Indenture, the Collateral Agent shall release any Collateral of such Unrestricted Subsidiary in the manner contemplated by the Security Agreements; provided, however, that any such Collateral shall only be released from the Security Agreements to the extent such Collateral is also released from the Hydro Agreement and the Credit Agreement. Unrestricted Subsidiary Investment: The term "Unrestricted Subsidiary Investment" shall mean, with respect to the Company or any Subsidiary of the Company (such Person being referred to in this definition as the "Investor") (without duplication), (i) the acquisition by such Investor of, or the investment by such Investor in, any Capital Stock, Indebtedness or other securities of, or the making by such Investor of any capital contribution to, an Unrestricted Subsidiary, (ii) any loan or advance by the Investor to an Unrestricted Subsidiary other than accounts receivable of the Investor relating to the purchase and sale of inventory, goods or services arising in the ordinary course of business, (iii) any guarantee by the Investor of any obligations, contingent or otherwise, of an Unrestricted Subsidiary, (iv) any provision of credit support (including any undertaking, agreement or instrument that would constitute Indebtedness) by the Investor to or on behalf of an Unrestricted Subsidiary, (v) any Incurrence of Indebtedness by an Unrestricted Subsidiary, a default with respect to which (including any rights that the holders thereof may have to take enforcement action against such Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any Indebtedness of the Investor (other than the Notes) to declare a default on such Indebtedness of the Investor or cause the payment thereof to be accelerated or payable prior to its stated maturity, and (vi) any obligation or liability of the Investor to subscribe for additional Capital Stock or other securities of an Unrestricted Subsidiary or to maintain or preserve an Unrestricted Subsidiary's financial condition or to cause an Unrestricted Subsidiary to achieve any specified levels of operating results. Unrestricted Subsidiary Investments Outstanding: The term "Unrestricted Subsidiary Investments Outstanding" shall mean, at any time of determination, the amount, if any, by which (i) the sum of all Unrestricted Subsidiary Investments theretofore made by the Company or any Subsidiary of the Company after the date of this Indenture exceeds (ii) the amount of all dividends and distributions received, directly or indirectly, by the Company or a Subsidiary of the Company from Unrestricted Subsidiaries in cash during the period that such Persons were Unrestricted Subsidiaries, and all repayments in cash from such Unrestricted Subsidiaries, directly or indirectly, to the Company or one of its Subsidiaries of loans or advances from the Company or any of its Subsidiaries to such Unrestricted Subsidiaries during the period that such Persons were Unrestricted Subsidiaries, any other reduction (including as a result of the sale by the Company or any of its Subsidiaries of Capital Stock of an Unrestricted Subsidiary) received, directly or indirectly, by the Company or a Subsidiary of the Company in cash of Unrestricted Subsidiary Investments in such Unrestricted Subsidiaries during the period that such Persons were Unrestricted Subsidiaries, and any reductions of Unrestricted Subsidiary Investments in such Unrestricted Subsidiaries of the kind referred to in clauses (iii) through (vi) of the definition of Unrestricted Subsidiary Investment; provided that the amount of Unrestricted Subsidiary Investments Outstanding shall at no time be a negative amount. U.S. Person: The term "U.S. Person" shall mean a "U.S. person," as defined in Regulation S. -26- Weighted Average Life to Maturity: The term "Weighted Average Life to Maturity" shall mean, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. Wholly-Owned Subsidiary: The term "Wholly-Owned Subsidiary" shall mean a Subsidiary of the Company all of the outstanding Capital Stock of which is at the time directly or indirectly owned (either alone or through Wholly-Owned Subsidiaries or together with Wholly-Owned Subsidiaries) by the Company. For purposes of this definition, any directors' qualifying shares and, at all times before January 1, 2002, the Series A Preferred Stock of GHC outstanding on the date of this Indenture shall be disregarded in determining the ownership of a Wholly-Owned Subsidiary. Section 1.02. References are to Indenture. --------------------------- Unless the context otherwise requires, all references herein to "Articles," "Sections" and other subdivisions refer to the corresponding Articles, Sections and other subdivisions of this Indenture, and the words "herein," "hereof," hereby," "hereunder" and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision hereof. Section 1.03. Other definitions. ----------------- The following terms are defined in the referenced section of this Indenture and have the meaning set forth therein for all purposes in this Indenture (except as otherwise expressly provided or unless the context otherwise requires): -27- Term Defined in Section "applicants" 5.02(b) "Assets Sale Offer" 4.14(b) "Asset Sale Offer Amount" 4.14(b) "Asset Sale Purchase Date" 4.14(b) "Asset Sale Purchase Notice" 4.14(c) "Change of Control" 3.05(a) "Change of Control Purchase Date" 3.05(a) "Change of Control Purchase Notice" 3.05(c) "Change of Control Purchase Price" 3.05(a) "Continuing Directors" 3.05(a) "Covenant Defeasance" 12.03 "Incur" 4.10(a) "Legal Defeasance" 12.02 "Notice of Default" 6.01(d) "record date" 2.03 "Refinanced Indebtedness" 4.10(b)(vi) "Refinancing Indebtedness" 4.10(b)(vi) "Restricted Payment" 4.09(a) "Specified Pari Passu Indebtedness" 4.14(b) "surviving corporation" 11.01(a) "Voting Stock" 3.05(a) The following terms are defined in the referenced section of this Indenture and have the meaning set forth therein for purposes provided therein, and such definitions are limited to those sections of this Indenture specifically referenced: -28- Term Defined in Section Definition Limited to Section "amount" 7.08(d) 7.08 "cash transaction" 7.13(c) 7.13 "Company" 7.08(d) 7.08 "Company" 7.13(c) 7.13 "defaults" 6.07 6.07 "default" 7.13(c) 7.13 "director" 7.08(d) 7.08 "dividends" 7.13(a) 7.13(a) "executive officer" 7.08(d) 7.08 "in default" 7.08(c) 7.08(c)(6), (7), (8) and (9) "other indenture securities" 7.13(c) 7.13 "outstanding" 7.08(d) 7.08 "person" 7.08(d) 7.08 "record date" 2.03 2.03 "security" 7.08(c) 7.08 (other than 7.08(c)(6), (7), (8) and (9)) "securities" 7.08(c) 7.08 (other than 7.08(c)(6), (7), (8) and (9)) "self liquidating paper" 7.13(c) 7.13 "trust" 7.08(d) 7.08(d)(3) "underwriter" 7.08(d) 7.08 "voting security" 7.08(d) 7.08 ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.01. Designation, amount, authentication and delivery of --------------------------------------------------- Notes. - ----- The Notes shall be designated as the Company's 12% First Mortgage Notes due 2006. Notes for an aggregate principal amount of one hundred fifty million dollars ($150,000,000), upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the written order of the Company, signed by its Chairman of the Board, President, Chief Financial Officer or a Vice President, without any further corporate action by the Company. The Trustee shall authenticate Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes, in each case upon a written order of the Company, signed by its Chairman of the Board, President, Chief Financial Officer or a Vice President, without any further corporate action by the Company. The written order of the Company shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to be Initial Notes or Exchange Notes and whether the Notes are to be issued as Certificated Notes, a Global Note or a Regulation S Temporary Global Note, and such other information as the Trustee may reasonably request. The aggregate principal amount of Notes authorized by this Indenture is limited to one hundred fifty million dollars ($150,000,000) and, except as provided in this Section 2.01 and in Section 2.07, the Company shall not execute and the Trustee shall not authenticate or deliver Notes in excess of -29- such aggregate principal amount. Nothing contained in this Section 2.01 or elsewhere in this Indenture, or in the Notes, is intended to or shall limit execution by the Company or authentication or delivery by the Trustee of Notes under the circumstances contemplated by Sections 2.05, 2.06, 2.07, 3.03, 3.05, 4.14 and 10.04. Section 2.02. Form of Notes and Trustee's Certificate. --------------------------------------- The definitive Notes and the Trustee's certificate of authentication to be borne by the Notes shall be substantially in the form set forth in the Recitals of this Indenture, which are part of this Indenture, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the officers executing the same may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Notes may be listed, or to conform to usage. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of a single, permanent global Note in fully registered form, without interest coupons, substantially in the form set forth in the recitals to this Indenture (the "Global Note"), deposited with the Trustee, as custodian for the Depository, and registered in the name of Cede & Co., or such other nominee as the Depository may designate, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legends set forth in Section 2.09 hereof. The aggregate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note in fully registered form, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, as custodian for the Depository, and registered in the name of the Depository or the nominee of the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The 40-day distribution compliance period (as defined in Regulation S) shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depository as to the non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein pursuant to another exemption from registration under the Securities Act of 1933, all as contemplated by Section 2.05(e) hereof), and (ii) an Officers' Certificate from the Company certifying as to the matters covered in clause (i) above. Following the termination of the 40-day distribution compliance period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for Certificated Notes or beneficial interests in the Global Note pursuant to the applicable procedures of the Depository. Until this Regulation S Temporary Global Note is exchanged for interests in the Global Notes or for Certificated Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. The aggregate principal amount of the Regulation S Temporary Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Notes offered and sold in reliance on any other exemption from registration under the Securities Act of 1933 other than as described in the preceding paragraph shall be issued, and Notes offered and sold in reliance on Rule 144A may be issued, in the form of certificated Notes in fully registered form, without interest coupons, in substantially the form set forth in the recitals to this Indenture -30- (the "Certificated Notes"). Certificated Notes shall initially be registered in the name of the Depository or a nominee of the Depository and be delivered to the Trustee as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Beneficial owners of Certificated Notes, however, may request registration of such Certificated Notes in their names or the names of their nominees. The Trustee assumes no liability for incorrect CUSIP numbers, and incorrect CUSIP numbers shall have no effect on the validity of any notice given under this Indenture. Section 2.03. Date of Notes and Denominations. ------------------------------- The Notes shall bear interest at the rate per annum of 12% from December 21, 1998, payable semi-annually in arrears on June 15 and December 15, commencing on June 15, 1999, shall mature on December 15, 2006 and shall be issuable as registered Notes without coupons in denominations of $1,000 and any integral multiple thereof. The Person in whose name any Note is registered at the close of business on any record date (as hereinbelow defined) with respect to any interest payment date shall be entitled to receive the interest payable thereon on such interest payment date notwithstanding the cancellation of such Note upon any registration of transfer or exchange thereof subsequent to such record date and prior to such interest payment date, unless such Note shall have been redeemed on a date fixed for redemption subsequent to such record date and prior to such interest payment date, or unless an Event of Default shall have occurred and be continuing as the result of a default in the payment of interest due on such interest payment date on any Note, in which case such defaulted interest shall be paid to the Person in whose name such Note (or any Note or Notes issued upon registration of transfer or exchange thereof) is registered on the record date for the payment of such defaulted interest. The principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on the Notes shall be payable to the registered holder thereof at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, except that payment of interest may be made at the option of the Company by check mailed by first-class mail to the address of the Person entitled thereto as such address shall appear on the registry books of the Company; provided, however, that, if a Note is a Global Note or a Certificated Note and the holder of such Note has given wire transfer instructions (which instructions must be received by the Company at least 5 Business Days prior to the relevant date of payment) to the Company, all payments with respect to such Note will be required to be made by wire transfer of immediately available funds to the account specified by the holder of such Note; provided, further, that, in the case of payments other than interest, the holder of a Note must first surrender such Note as a condition to the holder's right to receive payment. The term "record date" as used in this Section 2.03 with respect to any interest payment date shall mean the close of business on the May 30 immediately preceding such June 15 or the November 30 immediately preceding such December 15, and such term, as used in this Section 2.03, with respect to the payment of any defaulted interest shall mean the tenth day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not a Business Day, but in no case shall such record date be less than ten days after notice thereof shall have been mailed by or on behalf of the Company to all registered holders of Notes at their addresses appearing upon the registry books of the Company. Each Note shall be dated the date of its authentication. Interest shall accrue on each Note from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the Issue Date; provided, however, that if there is no existing default in the payment of interest and if a Note is authenticated between a record date for any interest payment date and such interest payment date, interest on such Note shall accrue from such interest payment date. -31- Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Until the Regulation S Temporary Global Note is exchanged for interests in the Global Notes or for Certificated Notes, the Holder thereof shall not be entitled to receive payments of interest thereon; until so exchanged in full, the Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. Section 2.04. Execution of Notes. ------------------ The Notes shall be signed on behalf of the Company, manually or in facsimile, by its Chairman of the Board, President, Chief Financial Officer or a Vice President and attested, manually or in facsimile, by its Secretary or an Assistant Secretary. Only such Notes as shall bear thereon a certificate of authentication substantially in the form hereinbefore recited, signed manually by the Trustee, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such signature by the Trustee upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company whose signature appears on any of the Notes, manually or in facsimile, shall cease to be such officer before such Notes so signed shall have been authenticated and delivered by the Trustee, such Notes nevertheless may be authenticated and delivered as though the Person whose signature appears on such Notes had not ceased to be such officer of the Company; and any Note may be signed and attested on behalf of the Company, manually or in facsimile, by Persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such Person was not such officer. Section 2.05. Exchange and transfer of Notes. ------------------------------ (a) Subject to the other provisions of this Section 2.05: (1) Notes may be exchanged for a like aggregate principal amount of Notes in other authorized denominations. Notes to be exchanged shall be surrendered at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, and the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor the Note or Notes which the noteholder making the exchange shall be entitled to receive. (2) The Company shall keep, at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, a register or registers in which, subject to such reasonable regulations as it may prescribe, the Company shall register Notes and shall register the transfer of Notes as in this Article Two provided. Upon surrender by any noteholder for registration of transfer of any Note at such office or agency, the Company shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Note or Notes for a like aggregate principal amount. (3) All Notes presented or surrendered for exchange, registration of transfer, redemption, purchase or payment shall, if so required by the Company or the Trustee or any Note registrar (if other than the Trustee), be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company and the Trustee or the Note registrar (if other than the Trustee), duly executed -32- by the registered holder or by his attorney duly authorized in writing and, in every case, each Note presented or surrendered for registration of transfer shall be accompanied by the assignment form attached to the Notes, duly executed by the registered holder or by his attorney duly authorized in writing. (4) No service charge shall be made for any exchange or registration of transfer of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in relation thereto. (5) The Company shall not be required to issue, register the transfer of or exchange any Notes for a period of fifteen days next preceding any date for the selection of Notes to be redeemed. The Company shall not be required to register the transfer of or exchange any Note called or being called for redemption except, in the case of any Note to be redeemed in part, the portion thereof not to be so redeemed. The Company shall not be required to register the transfer of or exchange any Note in respect of which a Change of Control Purchase Notice or an Asset Sale Purchase Notice has been given (unless such notice has been withdrawn in accordance with Section 3.06 or 4.14) except, in the case of any Note to be purchased in part, the portion thereof not to be so purchased. (b) Transfers to Institutional Accredited Investors which are not QIBs, Non-U.S. Persons and Certain QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Note to any Institutional Accredited Investor which is not a QIB, to any Non-U.S. Person or to any QIB electing to take delivery of Certificated Notes: (1) the Note registrar shall register on its books and records the transfer of any Note constituting a Restricted Security if such transfer is (i) pursuant to a registration statement which has been declared effective under the Securities Act of 1933, (ii) for as long as the Notes are eligible for resale pursuant to Rule 144A, by a Person who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Note registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Note registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A, (iii) pursuant to offers and sales to Non-U.S. Persons that occur outside the United States within the meaning of Regulation S under the Securities Act of 1933, (iv) to an Institutional Accredited Investor that is acquiring the security for its own account, or for the account of such an Institutional Accredited Investor, for investment purposes and not with a view to or for offer or sale in connection with, any distribution in violation of the Securities Act of 1933, or (v) pursuant to another available exemption from the registration requirements of the Securities Act of 1933, subject to the Company's and the Trustee's right prior to any such offer, sale or transfer (A) pursuant to clauses (iii), (iv) or (v) to require the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them and (B) in each of the foregoing cases, to require that an assignment form in the form appended to the form of Note is completed and delivered by the transferor to the Trustee; (2) the Note registrar shall register on its books and records the transfer of any Note other than as described in the preceding paragraph, upon the completion and delivery of an assignment form in the form appended to the form of Note by the transferor to the Trustee; -33- (3) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Note registrar of written instructions given in accordance with the Depository's and the Note registrar's procedures, the Note registrar shall reflect on its books and records the date and (if the transfer involves a transfer of a beneficial interest in the Global Note) a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred; (4) if the Notes to be transferred consist of Certificated Notes, the transferor shall present or surrender such Certificated Notes to the Note registrar for registration of transfer; and (5) subject to this Section 2.05, the Company shall execute and the Trustee shall authenticate and deliver one or more Certificated Notes of like tenor and amount to the Notes proposed to be transferred hereunder. (c) Transfers to Certain QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Certificated Note to a QIB electing to take an interest in the Global Note: (1) the Note registrar shall register on its books and records the transfer of any Certificated Note constituting a Restricted Security if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Note registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Note registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; (2) the Note registrar shall register on its books and records the transfer of any Note other than as described in the preceding paragraph, upon the completion and delivery of an assignment form in the form appended to the form of Note by the transferor to the Trustee; and (3) upon receipt by the Note registrar of written instructions given in accordance with the Depository's and the Note registrar's procedures, the Note registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note in an amount equal to the principal amount of the Certificated Notes to be transferred, and the Trustee shall cancel the Certificated Notes so transferred. (d) Transfers and Exchange of Global Securities. The transfer and exchange of the Global Note, the Regulation S Temporary Global Note or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture (including applicable restrictions on transfer set forth therein, if any) and the procedures of the Depository therefor which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act of 1933. (e) Transfers from the Regulation S Temporary Global Note. If, at any time, an owner of a beneficial interest in the Regulation S Temporary Global Note wishes to transfer its beneficial -34- interest in such Regulation S Temporary Global Note to a Person who is permitted to take delivery thereof in the form of an interest in the Global Note or to a Person who is taking delivery of such beneficial interest in the form of Certificated Notes or, upon expiration of the 40-day distribution compliance period and upon certification of beneficial ownership of the Notes represented by the Regulation S Temporary Global Note by Non-U.S. Persons or U.S. Persons who purchased such Notes in transactions that did not require registration under the Securities Act of 1933, to exchange such beneficial interest for Certificated Notes, such owner shall, subject to the applicable procedures of the Depository, exchange or cause the exchange of such interest for an equivalent beneficial interest in the Global Note or for Certificated Notes as provided in this Section 2.05(e). Upon receipt by the Note registrar of (1) instructions from the Depository, directing the Note registrar to credit or cause to be credited a beneficial interest in the Global Note or to issue and authenticate Certificated Notes in an amount equal to the beneficial interest in the Regulation S Temporary Global Note to be transferred or exchanged, such instructions to contain information regarding the participant account with the Depository to be credited with such increase or the name and address of the transferee thereof, as applicable, and (2) a certificate in the form of Exhibit A-2 attached hereto given by the owner of such beneficial interest in the Regulation S Temporary Global Note stating (A) if the transfer is pursuant to Rule 144A, that the Person transferring such interest in the Regulation S Temporary Global Note reasonably believes that the Person acquiring such interest in the Global Note is a QIB and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A and any applicable blue sky or securities laws of any state of the United States or (B) if the transfer is pursuant to any other exemption from the registration requirements of the Securities Act of 1933, that the transfer of such interest has been made in compliance with the transfer restrictions applicable to the Regulation S Temporary Global Note and pursuant to and in accordance with the requirements of the exemption claimed, such statement, in the case of clause (B), to be supported by an Opinion of Counsel from the transferee or the transferor in form reasonably acceptable to the Company and to the Trustee, then the Note registrar shall instruct the Depository to reduce or cause to be reduced the aggregate principal amount of such Regulation S Temporary Global Note and (x) shall instruct the Depository to increase or cause to be increased the aggregate principal amount of the Global Note and instruct the Depository to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Note or (y) shall issue and authenticate Certificated Notes in an amount equal to the principal amount of the beneficial interest in the Regulation S Temporary Global Note to be exchanged or transferred, and the Note registrar shall instruct the Depository to debit or cause to be debited from the account of the Person making such transfer the beneficial interest in the Regulation S Temporary Global Note that is being exchanged or transferred. Until the Regulation S Temporary Global Note is exchanged for interests in the Global Notes or for Certificated Notes, the Holder thereof shall not be entitled to receive payments of interest thereon; until so exchanged in full, the Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. (f) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Note registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Note registrar shall deliver only Notes that bear the Private Placement Legend unless (i) such Notes have been sold pursuant to a registration statement which has been declared effective under the Securities Act of 1933 or (ii) there is delivered to the Note registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act of 1933. -35- (g) General. By its acceptance of any Note bearing the Private Placement Legend, each holder of such Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Note registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.09 of this Indenture or this Section 2.05. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time during the Note registrar's normal business hours upon the giving of reasonable prior written notice to the Note registrar. Section 2.06. Temporary Notes. --------------- Pending the preparation of definitive Notes, the Company may execute and the Trustee shall authenticate and deliver temporary Notes (printed, lithographed or typewritten) of any authorized denomination and substantially in the form of the definitive Notes, but with or without a recital of specific redemption prices and with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Temporary Notes may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Note shall be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Notes. Without unnecessary delay the Company will execute and deliver to the Trustee definitive Notes and thereupon any or all temporary Notes may be surrendered in exchange therefor, at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, and the Trustee shall authenticate and deliver in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture, and shall be subject to the same provisions hereof, as definitive Notes authenticated and delivered hereunder. Section 2.07. Mutilated, destroyed, lost or stolen Notes. ------------------------------------------ In case any temporary or definitive Note shall become mutilated or be destroyed, lost or stolen, the Company shall execute, and upon its request the Trustee shall authenticate and deliver, a new Note bearing a number, letter or other distinguishing symbol not contemporaneously outstanding in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the Note so destroyed, lost or stolen, or, instead of issuing a substituted Note, if any such Note shall have matured or shall be about to mature or shall have been selected for redemption or if the Company shall have received a Change of Control Purchase Notice or an Asset Sale Purchase Notice in respect of any such Note (unless such notice has been withdrawn in accordance with Section 3.06 or 4.14, respectively), the Company may pay the same without surrender thereof except in the case of a mutilated Note. In every case the applicant for a substituted Note or for such payment shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. The Trustee may authenticate any such substituted Note and deliver the same, or the Trustee or any paying agent of the Company may make any such payment, upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Every substituted Note issued pursuant to the provisions of this Section 2.07 shall constitute an additional contractual obligation of the Company whether or not the destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued -36- hereunder. All Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. Section 2.08. Cancellation of surrendered Notes. --------------------------------- All Notes surrendered for the purpose of payment, redemption or purchase by the Company at the option of the holder, or exchange, substitution or registration of transfer, shall, if surrendered to the Company or any paying agent or Note registrar, be delivered to the Trustee and the same, together with Notes surrendered to the Trustee for cancellation, shall be cancelled by it, and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy cancelled Notes and shall deliver certificates of destruction thereof to the Company. If the Company shall purchase or otherwise acquire any of the Notes, however, such purchase or acquisition shall not operate as a payment, redemption or satisfaction of the indebtedness represented by such Notes unless and until the Company, at its option, shall deliver or surrender the same to the Trustee for cancellation. Section 2.09. Restrictive Legends. ------------------- Each Global Note and Certificated Note that constitutes a Restricted Security shall bear the following legend (the "Private Placement Legend") on the face thereof until the second anniversary of the Issue Date (or such shorter period permitted by Rule 144(k) under the Securities Act of 1933 (or any successor provision)), unless otherwise agreed by the Company and the holder thereof: THIS NOTE WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE OR ANY INTEREST OR PARTICIPATION HEREIN MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM OR NOT SUBJECT TO REGISTRATION. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER (IF AVAILABLE) OR (4) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND, IN THE CASE OF ANY RESALE, PLEDGE OR TRANSFER PURSUANT TO (1), (2), (3) OR (4), BASED UPON AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY IF THE COMPANY SO REQUESTS), (5) TO THE COMPANY OR, (6) PURSUANT TO AN EFFECTIVE -37- REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE OF THE TRANSFER RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY. The Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITORY"), TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF PORTIONS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.05 OF THE INDENTURE. Section 2.10. Book-Entry Provisions for Global Note and Regulation S ------------------------------------------------------ Temporary Global Note. - --------------------- (a) Each of the Global Note and the Regulation S Temporary Global Note initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Section 2.09 and Exhibit A-1, as applicable, of this Indenture. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to the Global Note or the Regulation S Temporary Global Note, as applicable, held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Note or the Regulation S Temporary Global Note, as applicable, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note and the Regulation S Temporary Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the -38- Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) Transfers of the Global Note or the Regulation S Temporary Global Note shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Note or Regulation S Temporary Global Note may be transferred or exchanged for Certificated Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.05 of this Indenture. In addition, Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests (1) in the Global Note, if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for the Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Note registrar has received a written request from the Depository to issue Certificated Notes and (2) in the Regulation S Temporary Global Note, upon (i) the expiration of the 40-day distribution compliance period and (ii) certification of beneficial ownership of the Notes represented by the Regulation S Temporary Global Note by Non-U.S. Persons or U.S. Persons who purchased such Notes in transactions that did not require registration under 7the Securities Act of 1933. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note or Regulation S Temporary Global Note to beneficial owners pursuant to paragraph (b) above, the Note registrar shall (if one or more Certificated Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note or Regulation S Temporary Global Note, as applicable, in an amount equal to the principal amount of the beneficial interest in the Global Note or Regulation S Temporary Global Note, as applicable, to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount. (d) In connection with the transfer of the entire Global Note or Regulation S Temporary Global Note to beneficial owners pursuant to paragraph (b) above, the Global Note or Regulation S Temporary Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Note or Regulation S Temporary Global Note, an equal aggregate principal amount of Certificated Notes of authorized denominations. (e) Any Certificated Note constituting a Restricted Security delivered in exchange for an interest in the Global Note or Regulation S Temporary Global Note, as applicable, pursuant to paragraph (b), (c) or (d) above shall, except as otherwise provided by paragraph (f) of Section 2.05 of this Indenture, bear the Private Placement Legend. (f) The holder of the Global Note or the Regulation S Temporary Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which such holder is entitled to take under this Indenture or the Notes. -39- ARTICLE THREE REDEMPTION AND PURCHASES OF NOTES Section 3.01. Optional Redemption. ------------------- The Company may not redeem the Notes before December 15, 2002. On or after December 15, 2002, the Notes will be redeemable on at least 15 and not more than 60 days' notice, at the option of the Company, in whole at any time or in part from time to time, at the following redemption prices (expressed as a percentage of principal amount), together with accrued and unpaid interest to the date fixed for redemption, if redeemed during the 12-month period beginning December 15, of the years indicated below: REDEMPTION YEAR PRICE 2002.............................108.000% 2003.............................105.333% 2004.............................102.667% 2005 and thereafter..............100.000% In the case of a partial redemption, the Trustee shall select the Notes or portions thereof for redemption in such manner as it deems appropriate and fair. The Notes may be redeemed in part in multiples of $1,000 only. The Notes will not have the benefit of any sinking fund. Section 3.02. Notice of redemption; selection of Notes. ---------------------------------------- In case the Company shall desire to exercise such right to redeem all or, as the case may be, any part of the Notes in accordance with the right reserved so to do, the Company, or, at the Company's request, the Trustee in the name and at the expense of the Company, shall fix a date for redemption and give notice of such redemption to holders of the Notes to be redeemed as provided in Section 3.01 and this Section 3.02. Notice of redemption shall be given to the holders of Notes to be redeemed as a whole or in part by mailing by first-class mail a notice of such redemption as provided in Section 3.01 to their last addresses as they shall appear upon the registry books of the Company, but any failure to give such notice by mailing to the holder of any Note designated for redemption as a whole or in part, or any defect therein, shall not affect the validity of the proceedings for the redemption of any other Notes. Any notice which is mailed in the manner herein and in Section 3.01 provided shall be conclusively presumed to have been duly given, whether or not the holder receives the notice. Each such notice of redemption shall specify the total principal amount to be redeemed, the date fixed for redemption and the redemption price at which Notes are to be redeemed, and shall state that payment of the redemption price of the Notes to be redeemed will be made at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, upon presentation and surrender of such Notes, that interest accrued to the date fixed for redemption will be paid as specified in said notice, and that on and after said date interest thereon will cease to accrue and that the only remaining right of the noteholder is to receive payment of the redemption price plus such accrued interest upon surrender. If less than all the Notes are to be redeemed, the notice of redemption to each holder also shall state the aggregate principal amount of Notes to be redeemed and shall identify the Notes of such -40- holder to be redeemed. In case any Note is redeemed in part only, the notice which relates to such Note shall state the portion of the principal amount thereof to be redeemed (which shall be $1,000 or an integral multiple thereof), and shall state that on and after the date fixed for redemption, upon surrender of such Note, the holder will receive, without charge, a new Note or Notes of authorized denominations in the principal amount thereof remaining unredeemed. Each notice shall give the name and address of each paying agent. On or prior to the date fixed for redemption specified in the notice of redemption given as provided in this Section 3.02, the Company will deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 4.04(c)) an amount of money sufficient to redeem on the date fixed for redemption all the Notes or portions of Notes so called for redemption (other than Notes or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation) at the applicable redemption price, together with accrued interest to the date fixed for redemption. If less than all the Notes then outstanding are to be redeemed, the Company shall give the Trustee, at least 20 days (or such shorter period acceptable to the Trustee) in advance of the last date upon which notice of redemption may be given, notice of such date and of the aggregate principal amount of Notes to be redeemed, and thereupon the Trustee shall select in such manner as it shall deem appropriate and fair, in its sole discretion, the Notes or portions thereof to be redeemed and shall thereafter promptly notify the Company of the Notes or portions thereof to be redeemed within a sufficient period of time in order that the notice provisions in Sections 3.01 and 3.02 may be satisfied. Section 3.03. When Notes called for redemption become due and payable. ------------------------------------------------------- If the giving of notice of redemption shall have been completed as provided in Sections 3.01 and 3.02, the Notes or portions of Notes specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after such date fixed for redemption (unless the Company shall default in the payment of such Notes at the applicable redemption price, together with interest accrued to the date fixed for redemption) interest on the Notes or portions of Notes so called for redemption shall cease to accrue whether or not such Notes are presented for payment and such Notes or portions thereof shall be deemed not to be outstanding hereunder and shall not be entitled to any right or benefit hereunder except to receive payment of the applicable redemption price plus accrued interest to the redemption date. On presentation and surrender of such Notes for redemption at said place of payment in said notice specified on or after the date fixed for redemption, the said Notes shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued to the date fixed for redemption. If the date fixed for redemption is an interest payment date, such payment shall not include accrued interest, which interest shall be paid in the usual manner otherwise provided for herein. Upon presentation of any Note which is redeemed in part only, the Company shall execute and register, and the Trustee shall authenticate and deliver to the holder thereof at the expense of the Company, a new Note or Notes in principal amount equal to the unredeemed portion of the Note so presented. Section 3.04. Cancellation of redeemed Notes. ------------------------------ All Notes surrendered to the Trustee, upon redemption pursuant to the provisions of this Article Three, shall be forthwith cancelled by it. -41- Section 3.05. Purchase of Notes at option of the holder upon Change of -------------------------------------------------------- Control. - ------- (a) If on or prior to maturity, there shall have occurred a Change of Control, the Company shall offer to purchase each Note at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest to the Change of Control Purchase Date (the "Change of Control Purchase Price"), on the date that is 30 Business Days after the occurrence of the Change of Control (the "Change of Control Purchase Date"), subject to the satisfaction by or on behalf of the holder of the requirements set forth in Section 3.05(c). Following a Change of Control, the Company shall not be obligated to purchase any Notes pursuant to this Section 3.05(a) or give any notice under Section 3.05(b) with respect to any subsequent Change of Control. The Company's obligation to purchase Notes as provided hereunder shall for all purposes hereof be satisfied by, and shall cease upon, the deposit of funds with the Trustee as provided for in Section 3.07. A "Change of Control" means the occurrence of any of the following (whether or not otherwise in compliance with the provisions of this Indenture): (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than the Company and/or one or more Wholly-Owned Subsidiaries, (ii) the adoption of a plan relating to the complete liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) as a result of which Brett E. Wilcox is no longer the sole beneficial owner (as to both voting and dispositive power) of at least a majority of the Voting Stock of the Company, provided that such event shall not constitute a "Change of Control" if Brett E. Wilcox (x) is the sole beneficial owner (as to both voting and dispositive power) of at least 35% of the Voting Stock of the Company, and (y) is the Chief Executive Officer of the Company and (z) has the sole right (not subject to revocation, termination or expiration prior to the scheduled maturity of the Notes) to elect a majority of the Board of Directors of the Company; provided, further, that the immediately preceding proviso shall not be available if any other "person" (as defined above) is the beneficial owner (as to either voting or dispositive power) of 35% or more of the Voting Stock of the Company or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. For purposes of this provision, "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected or appointed to such Board of Directors by the Board of Directors of the Company at a time when a majority of the Board (excluding any member whose service terminated as result of death) consisted of Continuing Directors. "Voting Stock" means, with respect to any Person, the Capital Stock of such Person having general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). (b) Within ten Business Days after the occurrence of a Change of Control, the Company shall mail a written notice of Change of Control by first-class mail to the Trustee and to each holder (and to beneficial owners as required by applicable law, including without limitation Rule 13e-4 of the Exchange Act, if applicable) and shall cause a copy of such notice to be published in a daily newspaper of national circulation. The notice shall include a form of Change of Control Purchase Notice (as described below) to be completed by the holder and shall state: (1) the events causing a Change of Control and the date of such Change of Control; -42- (2) the date by which the Change of Control Purchase Notice pursuant to this Section 3.05 must be given; (3) the Change of Control Purchase Date; (4) the Change of Control Purchase Price; (5) the name and address of the Trustee and the office or agency referred to in Section 4.02; (6) that the Notes must be surrendered to the Trustee or the office or agency referred to in Section 4.02 to collect payment; (7) that the Change of Control Purchase Price for any Note as to which a Change of Control Purchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Change of Control Purchase Date and the time of surrender of such Note as described in clause (6); (8) the procedures the holder must follow to exercise rights under this Section 3.05 and a brief description of those rights; and (9) the procedures for withdrawing a Change of Control Purchase Notice. (c) To accept the offer to purchase Notes described in Section 3.05(a), a holder must deliver a written notice of purchase (a "Change of Control Purchase Notice") to the Trustee or to the office or agency referred to in Section 4.02 at any time prior to the close of business on the Business Day immediately preceding the Change of Control Purchase Date, stating: (1) the name of the holder; (2) the certificate number or numbers of the Note or Notes in respect of which the Change of Control Purchase Notice is being submitted, the original principal amount of such Note or Notes, and the portion of the principal amount of such Note or Notes which the holder will deliver to be purchased, which portion must be $1,000 or an integral multiple thereof; and (3) that the offer to purchase is being accepted. The delivery of the Note, by hand or by registered mail prior to, on or after the Change of Control Purchase Date (together with all necessary endorsements), to the Trustee or to the office or agency referred to in Section 4.02 shall be a condition to the receipt by the holder of the Change of Control Purchase Price therefor; provided, however, that such Change of Control Purchase Price shall be so paid pursuant to this Section 3.05 only if the Note so delivered to the Trustee or such office or agency shall conform in all respects to the description thereof set forth in the related Change of Control Purchase Notice; and provided, further, that the Company shall have no obligation to purchase any Notes with respect to which the Change of Control Purchase Notice has not been received by the Company prior to the close of business on the Business Day immediately preceding the Change of Control Purchase Date. In the event that the offer to purchase described in Section 3.05(a) shall be accepted in accordance with the terms hereof, the Company shall purchase from the holder thereof, pursuant to this Section 3.05, a portion of a Note if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Note also apply to the -43- purchase of such portion of such Note. Upon presentation of any Note that is purchased in part only, the Company shall execute and register, and the Trustee shall authenticate and deliver to the holder thereof at the expense of the Company, a new Note or Notes in principal amount equal to the unpurchased portion of the Note so presented. Any purchase by the Company contemplated pursuant to the provisions of this Section 3.05 shall be consummated by the delivery by the Trustee or other paying agent of the consideration to be received by the holder promptly following the later of the Change of Control Purchase Date and the time of delivery of the Note. Notwithstanding anything herein to the contrary, any holder delivering to the Trustee or to the office or agency referred to in Section 4.02 the Change of Control Purchase Notice contemplated by this Section 3.05(c) shall have the right to withdraw such Change of Control Purchase Notice by delivery of a written notice of withdrawal to the Trustee or to such office or agency in accordance with Section 3.06 at any time prior to the close of business on the Business Day next preceding the Change of Control Purchase Date. Section 3.06. Effect of Change of Control Purchase Notice. ------------------------------------------- Upon receipt by the Company of the Change of Control Purchase Notice specified in Section 3.05(c), the holder of the Note in respect of which such Change of Control Purchase Notice was given shall (unless such Change of Control Purchase Notice is withdrawn as specified in the following paragraph) thereafter be entitled to receive solely the Change of Control Purchase Price with respect to such Note. Such Change of Control Purchase Price shall be due and payable as of the Change of Control Purchase Date and shall be paid to such holder promptly following the later of (x) the Change of Control Purchase Date (provided the conditions in Section 3.05(c), as applicable, have been satisfied) and (y) the date of delivery of such Note to the Trustee or to the office or agency referred to in Section 4.02 by the holder thereof in the manner required by Section 3.05(c). A Change of Control Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Trustee or to the office or agency referred to in Section 4.02 at any time on or prior to the close of business on the Business Day next preceding the Change of Control Purchase Date, specifying: (1) the certificate number or numbers of the Note or Notes in respect of which such notice of withdrawal is being submitted; (2) the portion of the principal amount of such Note or Notes with respect to which such notice of withdrawal is being submitted; and (3) the portion, if any, of the principal amount of such Note or Notes that remains subject to the original Change of Control Purchase Notice, and which has been or will be delivered for purchase by the Company. There shall be no purchase of any Notes pursuant to Section 3.05 if there has occurred (prior to, on or after, as the case may be, the giving, by the holders of such Notes, of the required Change of Control Purchase Notice) and is continuing an Event of Default (other than a default in the payment of the Change of Control Purchase Price with respect to such Notes). -44- Section 3.07. Deposit of Change of Control Purchase Price. ------------------------------------------- On or prior to the Change of Control Purchase Date, the Company shall deposit with the Trustee or other paying agent (or, if the Company is acting as paying agent, shall segregate and hold in trust as provided in Section 4.04(c)) an amount of cash in immediately available funds sufficient to pay the aggregate Change of Control Purchase Price of all the Notes or portions thereof which are to be purchased on the Change of Control Purchase Date. Upon such deposit, the Company shall be deemed to have satisfied its obligations to purchase Notes pursuant to Section 3.05. If cash sufficient to pay the Change of Control Purchase Price of all Notes or portions thereof to be purchased on the Change of Control Purchase Date is deposited with the Trustee or other paying agent as of the Change of Control Purchase Date, interest shall cease to accrue (whether or not any such Note is delivered to the Trustee or any other office or agency maintained for such purpose) on such Notes (or portions thereof) on and after the Change of Control Purchase Date, and the holders thereof shall have no other rights as such (other than the right to receive the Change of Control Purchase Price, upon surrender of such Notes). Section 3.08. Covenant to comply with securities laws upon purchase of -------------------------------------------------------- Notes. - ----- In connection with any offer to purchase or any purchase of securities under Section 3.05 hereof, the Company shall (i) comply with Rule 14e-1 promulgated under the Exchange Act (or any successor provision thereof), if applicable, and (ii) otherwise comply with all federal and state securities laws regulating the purchase of the Notes so as to permit the rights and obligations under Sections 3.05 and 3.06 to be exercised in the time and in the manner specified in Sections 3.05 and 3.06. Section 3.09. Repayment to the Company. ------------------------ The Trustee shall return to the Company any cash, together with interest or dividends, if any, thereon (subject to the provisions of Section 7.05), held by it for the payment of the Change of Control Purchase Price of the Notes that remain unclaimed as provided in Section 12.07 hereof; provided, however, that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 3.07 exceeds the aggregate Change of Control Purchase Price of the Notes or portions thereof to be purchased on the Change of Control Purchase Date, then promptly after the Change of Control Purchase Date, the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon (subject to the provisions of Section 7.05) no later than two Business Days following the expiration of the period commencing on the Change of Control Purchase Date and ending on the 91st day after such date, provided that the Trustee shall in no event be required to release or deliver such excess cash if an Event of Default under Section 6.01(h) or 6.01(i) (or an event that, after notice or lapse of time, or both, would become an Event of Default) shall have occurred during such period and be continuing. ARTICLE FOUR PARTICULAR COVENANTS OF THE COMPANY The Company covenants as follows: Section 4.01. Payments on the Notes. --------------------- The Company will duly and punctually pay or cause to be paid the principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, each of the Notes at the time and place such amounts may become due and payable and in the manner provided -45- in the Notes and this Indenture. In addition, if the Company has appointed a paying agent other than the Trustee, the Company shall send written notification to the Trustee describing the payment made and certifying that it was duly and punctually made. Until the Regulation S Temporary Global Note is exchanged for interests in the Global Notes or for Certificated Notes, the Holder thereof shall not be entitled to receive payments of interest thereon; until so exchanged in full, the Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. Section 4.02. Maintenance of office or agency for registration of --------------------------------------------------- transfer, exchange and payment of Notes. - --------------------------------------- So long as any of the Notes shall remain outstanding, the Company will maintain an office or agency in the Borough of Manhattan, City of New York, State of New York, where the Notes may be surrendered for exchange or registration of transfer as in this Indenture provided, and where notices and demands to or upon the Company in respect to the Notes or of this Indenture may be served, and where the Notes may be presented or surrendered for payment, redemption or purchase. The Company may also from time to time designate one or more other offices or agencies for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, City of New York, State of New York for such purposes. The Company will give to the Trustee notice of the location of any such office or agency and of any change of location thereof. In case the Company shall fail to maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, such surrenders, presentations and demands may be made and notices may be served at the principal office of the Trustee in San Francisco, California, and the Company hereby appoints the Trustee its agent to receive at the aforesaid office all such surrenders, presentations, notices and demands. Section 4.03. Appointment to fill a vacancy in the office of Trustee. ------------------------------------------------------ The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.10, a Trustee, so that there shall at all times be a Trustee hereunder. Section 4.04. Provision as to paying agent. ---------------------------- (a) If the Company shall appoint a paying agent other than the Trustee, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 4.04, (1) that it will hold all sums held by it as such agent for the payment of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes, and will notify the Trustee of the receipt of sums to be so held, (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, the Notes when the same shall be due and payable, and -46- (3) that it will at any time during the continuance of any Event of Default specified in subsection (a) or (b) of Section 6.01, upon the written request of the Trustee, deliver to the Trustee all sums so held in trust by it. (b) If the Company shall not act as its own paying agent, it will, prior to each due date of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any Notes, deposit with such paying agent a sum sufficient to pay the principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest so becoming due, such sum to be held in trust for the benefit of the holders of Notes entitled to such principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act. (c) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, the Notes, set aside, segregate and hold in trust for the benefit of the Persons entitled thereto, a sum sufficient to pay such principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest so becoming due and will notify the Trustee of any failure to take such action. (d) Anything in this Section 4.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of effecting Legal Defeasance or Covenant Defeasance, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by it, or by any paying agent hereunder, as required by this Section 4.04, such sums to be held by the Trustee upon the trusts herein contained. (e) Anything in this Section 4.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 4.04 is subject to the provisions of Sections 12.06 and 12.07. Section 4.05. Maintenance of corporate existence. ---------------------------------- Except pursuant to a merger or consolidation in accordance with Article Eleven or Section 15.03, so long as any of the Notes shall remain outstanding, the Company will at all times (except as otherwise provided or permitted in this Section 4.05 or elsewhere in this Indenture) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Subsidiary of the Company; provided, however, that any Wholly-Owned Subsidiary may liquidate or dissolve under the laws of its jurisdiction of formation. Section 4.06. Officers' Certificate as to default and statement as to ------------------------------------------------------- compliance. - ---------- The Company will, so long as any of the Notes are outstanding: (a) deliver to the Trustee, promptly upon becoming aware of any Event of Default or any event that after the passage of time or notice, or both, would become an Event of Default, an Officers' Certificate specifying such event or Event of Default; and (b) deliver to the Trustee within 90 days after the end of each fiscal year of the Company, beginning with the fiscal year ending December 31, 1998, a statement as to compliance signed on behalf of the Company by the Chairman of the Board or the President or any Vice President and by the Chief Financial Officer, Treasurer or Controller of the Company stating as to each signer thereof that: -47- (1) a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision, and (2) to the best of his knowledge, based on such review, there is no Event of Default or event that with notice or the passage of time, or both, would become an Event of Default that has occurred and is continuing, or, if there is such an event or Event of Default, specifying each such event or Event of Default known to him and the nature and status thereof. Section 4.07. Usury laws. ---------- The Company, to the extent it may lawfully do so, will not voluntarily claim, and will actively resist any attempts to claim, the benefit of any usury laws against any holders of the Notes. Section 4.08. Restrictions on transactions with Affiliates and ------------------------------------------------ Unrestricted Subsidiaries. - ------------------------- (a) The Company shall not, and shall not permit any of its Subsidiaries to, enter into any transaction or series of related transactions with any Affiliate or Unrestricted Subsidiary of the Company, unless: (i) the terms thereof are no less favorable to the Company or such Subsidiary, as the case may be, than those that could reasonably be expected to be obtained in a comparable transaction with an unrelated Person, (ii) if the amount of such transaction or the aggregate amount of such series of related transactions is greater than $1,000,000, such transaction or series of related transactions shall have been approved as meeting such standard, in good faith, by a majority of the disinterested members of the Board of Directors of the Company evidenced by a Board Resolution, and (iii) if the amount of such transaction or the aggregate amount of such series of related transactions is greater than $5,000,000, the Company or such Subsidiary, as the case may be, shall have received an opinion that such transaction or series of related transactions is fair to the Company or such Subsidiary, as the case may be, from a financial point of view, from an independent investment banking, appraisal or accounting firm of national standing selected by the Company (which, in the good faith judgment of the Board of Directors of the Company, is qualified to perform such task). (b) The provisions contained in Section 4.08(a) shall not apply to: (i) the making of any Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments otherwise permitted by Section 4.09, (ii) compensation (in the form of reasonable director's fees and reimbursement or advancement of reasonable out-of-pocket expenses) paid to any director of the Company or its Subsidiaries for services rendered in such Person's capacity as a director and indemnification and directors' and officers' liability insurance provided in connection therewith, and (iii) compensation, indemnification and other benefits paid or provided to officers and employees of the Company or its Subsidiaries for services rendered consistent with the Company's practices on the date of this Indenture or comparable to those generally paid or -48- provided by entities engaged in the same or similar businesses (including reimbursement or advancement of reasonable out-of-pocket expenses and the provision of directors' and officers' liability insurance). Section 4.09. Limitations on Restricted Payments, Restricted ---------------------------------------------- Investments and Unrestricted Subsidiary Investments. - --------------------------------------------------- (a) The Company shall not, directly or indirectly, (i) declare or pay any dividend or make any distribution in respect of, or permit any of its Subsidiaries to declare or pay any dividend or make any distribution in respect of, its Capital Stock (other than dividends payable in Capital Stock of the Company other than Disqualified Stock), provided that any Subsidiary of the Company may pay dividends or make distributions to the Company or any other Wholly-Owned Subsidiary, (ii) make or permit any of its Subsidiaries to make any payment on account of the purchase, redemption or other acquisition or retirement of any Capital Stock of the Company or any of its Subsidiaries, provided that any Subsidiary of the Company may purchase Capital Stock of such Subsidiary from the Company or any other Wholly-Owned Subsidiary (which purchase shall not be a Restricted Payment or a Restricted Investment), (iii) make or permit any of its Subsidiaries to make any principal payment (whether regularly scheduled or otherwise) on, or any prepayment, purchase, redemption or other acquisition or retirement for value of, any Indebtedness of the Company or any of its Subsidiaries that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Guarantee, provided that any Subsidiary of the Company may pay, prepay, purchase, redeem or otherwise acquire or retire any such Indebtedness of such Subsidiary payable to the Company or any other Wholly-Owned Subsidiary (each of the foregoing in clauses (i), (ii) and (iii), a "Restricted Payment"), (iv) make or permit any of its Subsidiaries to make any Restricted Investment, or (v) make or permit any of its Subsidiaries to make any Unrestricted Subsidiary Investment, unless at the time of, and immediately after giving effect to, each such Restricted Payment, Restricted Investment or Unrestricted Subsidiary Investment: (A) no Event of Default (or event that, after notice or lapse of time, or both, would become an Event of Default) shall have occurred and be continuing; and (B) the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1, in the case of any Restricted Payment, Restricted Investment or Unrestricted Subsidiary Investment made prior to December 15, 2001, and 2.25 to 1, in the case of any Restricted Payment, Restricted Investment or Unrestricted Subsidiary Investment made on or after December 15, 2001; and (C) the sum of: (x) the aggregate amount expended for all Restricted Payments after the date of this Indenture, (y) the aggregate amount expended for all Restricted Investments after the date of this Indenture (less (1) to the extent any Restricted Investment made after the date of this Indenture is sold for or otherwise liquidated or repaid in cash, the lesser of the cash return of capital with respect to such Restricted Investment (less the cost of disposal, if any) and the initial amount of such Restricted Investment, and (2) the amount of any guarantee or similar contingent obligation that constitutes a Restricted Investment made after the date of this Indenture, to the extent it has been released), and -49- (z) the aggregate amount of Unrestricted Subsidiary Investments Outstanding (in each case, the amount expended for such Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments, if paid in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property), would not exceed the sum of: (I) 50% of the Consolidated Net Income of the Company (or, if the aggregate Consolidated Net Income of the Company for any such period shall be a deficit, minus 100% of such deficit) accrued on a cumulative basis for the period (taken as one accounting period) from January 1, 1999 to the end of the Company's most recently ended fiscal quarter for which financial statements are available at the time such Restricted Payment, Restricted Investment or Unrestricted Subsidiary Investment is being made, and (II) the aggregate net proceeds, including the Fair Market Value of property other than cash, received by the Company as capital contributions to the Company (other than from a Subsidiary or an Unrestricted Subsidiary of the Company) after the date of this Indenture, or from the issue or sale (other than to a Subsidiary or an Unrestricted Subsidiary of the Company), after the date of the Indenture, of Capital Stock of the Company other than Disqualified Stock (excluding any net proceeds of a Qualified Equity Offering to the extent used to redeem any part of the Notes), or from the issue or sale (other than to a Subsidiary or an Unrestricted Subsidiary of the Company), after the date of the Indenture, of any debt or other security of the Company convertible or exercisable into such Capital Stock that has been so converted or exercised, and (III) 50% of any dividends or other distributions consisting of cash received by the Company or a Wholly-Owned Subsidiary after the date of this Indenture from any Unrestricted Subsidiary to the extent that such dividends or other distributions are not required to reduce the amount of the Unrestricted Subsidiary Investments Outstanding to zero. (b) The foregoing provisions of this Section 4.09 shall not be violated by reason of: (i) the payment of any dividend or distribution or the redemption of any securities within 60 days after the date of declaration of such dividend or distribution or the giving of the formal notice by the Company of such redemption, if at said date of declaration of such dividend or distribution or the giving of the formal notice of such redemption, such dividend, distribution or redemption would have complied with Section 4.09(a); (ii) the retirement of any shares of the Company's Capital Stock by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary or an Unrestricted Subsidiary of the Company) of other shares of its Capital Stock other than Disqualified Stock or out of the proceeds of a substantially concurrent capital contribution to the Company (other than by a Subsidiary or an Unrestricted Subsidiary of the Company); provided, however, that, to the extent the proceeds are so used, such sale of Capital Stock or capital -50- contribution shall be excluded in determining the aggregate net proceeds received by the Company referred to under clause (II) of Section 4.09(a); (iii) the payments provided for by clauses (ii) and (iii) of Section 4.08(b); (iv) principal payments (whether regularly scheduled or otherwise) on, or any prepayment, purchase, redemption or other acquisition or retirement for value of, Indebtedness of the Company or any of its Subsidiaries that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Guarantee with the proceeds from the substantially concurrent Incurrence of any Refinancing Indebtedness in respect thereof permitted by clause (vi) of Section 4.10(b) (other than Refinancing Indebtedness payable to the Company or any of its Subsidiaries or Unrestricted Subsidiaries); provided, however, that, to the extent the proceeds are so used, such proceeds, upon any conversion of such Refinancing Indebtedness into Capital Stock, shall not be included in determining the aggregate net proceeds received by the Company referred to under clause (II) of Section 4.09(a); (v) principal payments (whether regularly scheduled or otherwise) on, or any prepayment, purchase, redemption or other acquisition or retirement for value of, any Indebtedness of the Company or any of its Subsidiaries that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Guarantee by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary or an Unrestricted Subsidiary of the Company) of Capital Stock of the Company other than Disqualified Stock or out of the proceeds of a substantially concurrent capital contribution to the Company (other than by a Subsidiary or an Unrestricted Subsidiary of the Company); provided, however, that, to the extent the proceeds are so used, such sale of Capital Stock or capital contribution shall be excluded in determining the aggregate net proceeds received by the Company referred to under clause (II) of Section 4.09(a); (vi) (y) from time to time during or following the end of any fiscal quarter during which the Company is an S Corporation, cash distributions by the Company to its shareholders in an amount equal to the maximum amount sufficient to cover payment of the expected federal and state income taxes attributable to the direct or indirect ownership of the Company's common stock, based on the highest federal and state income tax rates that could be applicable to any holder of such common stock, as determined through the end of the fiscal quarter in question plus any penalties or interest thereon, and (z) if, subsequent to any year in which the Company or any Subsidiary of the Company was an S Corporation any taxing authority or court of competent jurisdiction shall finally determine (including by way of settlement or stipulation) that additional federal or state income taxes or any penalties or interest thereon are payable by the holders of the Company's or such Subsidiary's common stock in respect of income of the Company or such Subsidiary during such year, cash distributions to such holders in an additional amount sufficient to pay such additional federal or state income taxes plus any penalties or interest thereon; provided, however, that, in the case of either clause (a) or (b), in no event shall amounts so distributed after the date of the Indenture in respect of any year exceed the actual amount of federal and state income taxes (including any penalties or interest thereon), or additional income taxes (including any penalties or interest thereon), as the case may be, for such year on the income attributable to the ownership of the Company's or such Subsidiary's common stock; provided, further, that for purposes of clause (a)(C)(z)(I) above, Consolidated Net Income of the Company shall be reduced by an amount equal to any cash distributions made in respect of any penalties or interest in connection with any federal and state income taxes in accordance -51- with clause (vi)(a) or (b) hereof; (vii) the repurchase by GHC of shares of its preferred stock outstanding on the date of this Indenture; provided, however, that the aggregate amount paid to repurchase such preferred stock does not exceed $30,500,000, plus any accrued and unpaid dividends thereon; and provided, further, that, immediately after giving effect to such repurchase (x) no Event of Default (or event that, with notice or lapse of time, or both, would constitute an Event of Default) shall exist and (y) the Company could Incur $1.00 of Indebtedness pursuant to Section 4.10(a) hereof; and (viii) the making by the Company or any Subsidiary of the Company of Restricted Payments in addition to those permitted by any other clause of this Section 4.09(b) or by Section 4.09(a) in an aggregate amount not exceeding $1,000,000. No payments and other transfers made under clauses (ii) through (vii) (except as provided in clause (vi)) of this Section 4.09(b) shall reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under Section 4.09(a). Payments made under clause (i) or (viii) and as specified in clause (vi) of this Section 4.09(b) shall reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under Section 4.09(a). The Board of Directors of the Company may designate a Subsidiary of the Company to be an Unrestricted Subsidiary, provided that certain conditions specified in the definition of "Unrestricted Subsidiary" are met. For purposes of making such determination, all outstanding Unrestricted Subsidiary Investments by the Company and its Subsidiaries in the Unrestricted Subsidiary so designated will be deemed to be Unrestricted Subsidiary Investments Outstanding at the time of such designation and will reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under Section 4.09(a). All such Unrestricted Subsidiary Investments will be deemed to have been made at the time of such designation and to be in an amount equal to the greater of (A) the net book value of such Unrestricted Subsidiary Investments at the time of such designation and (B) the Fair Market Value of such Unrestricted Subsidiary Investments at the time of such designation. Such designation will only be permitted if such Unrestricted Subsidiary Investments would be permitted at such time and if such Subsidiary otherwise meets the conditions specified in the definition of an Unrestricted Subsidiary. Section 4.10. Limitation on Indebtedness. -------------------------- (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or become liable with respect to, or extend the maturity of or become liable for the payment of, contingently or otherwise (collectively, "Incur"), any Indebtedness, except that, without duplication, the Company may Incur Indebtedness (and the Subsidiaries of the Company may guarantee such Indebtedness) if, after giving effect thereto and the receipt and application of the proceeds therefrom, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1, in the case of Indebtedness Incurred prior to December 15, 2001, and 2.25 to 1, in the case of Indebtedness Incurred on or after December 15, 2001. (b) Notwithstanding Section 4.10(a), the following shall be permitted: (i) Indebtedness Incurred by the Company and its Subsidiaries in respect of the Notes; (ii) Indebtedness Incurred by any of the Subsidiaries of the Company under -52- the Credit Agreement in an aggregate original principal amount (with letters of credit and bankers' acceptances being deemed to have a principal amount equal to the maximum reimbursement obligations with respect thereto) at any one time outstanding not to exceed the greater of (1) $90,000,000 or (2) the then amount of the Borrowing Base; (iii) Indebtedness Incurred by the Company under the Hydro Agreement in an aggregate original principal amount not to exceed $30,000,000, and guarantees by the Subsidiaries of the Company of such Indebtedness; (iv) Indebtedness Incurred by any of the Subsidiaries of the Company payable to the Company or any Wholly-Owned Subsidiary; (v) Indebtedness Incurred by a Person prior to the date upon which it becomes a Subsidiary of the Company (excluding Indebtedness Incurred by such Person in connection with, or in contemplation of, it becoming a Subsidiary of the Company), provided that the holders of such Indebtedness do not have at any time, in respect thereof, direct or indirect recourse to any property or assets of the Company and its Subsidiaries other than the property and assets of such acquired Person and its Subsidiaries; (vi) Indebtedness ("Refinancing Indebtedness") Incurred by the Company or any of its Subsidiaries that serves to Refinance, in whole or in part, any Indebtedness permitted by this Section 4.10(b) (other than by clause (iv) or (viii) hereof) or by Section 4.10(a) (the "Refinanced Indebtedness"), or any one or more successive Refinancings of any thereof; provided, however, that: (A) such Refinancing Indebtedness is in an aggregate amount not to exceed the aggregate amount of such Refinanced Indebtedness (including accrued interest thereon and, in the case of Refinanced Indebtedness Incurred under the Credit Agreement, undrawn amounts under revolving credit arrangements thereunder otherwise permitted to be Incurred pursuant to clause (ii)(B) of this Section 4.10(b)), the amount of any premium required to be paid in connection with such Refinancing pursuant to the terms of such Refinanced Indebtedness or the amount of any reasonable and customary premium determined by the Company to be necessary to accomplish such Refinancing by means of a redemption, tender offer, privately negotiated transaction, defeasance or other similar transaction, and an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Refinancing Indebtedness; (B) neither the Company nor any of its Subsidiaries is an obligor of such Refinancing Indebtedness, except to the extent that such Person (1) was an obligor of such Refinanced Indebtedness or (2) is otherwise permitted, at the time such Refinancing Indebtedness is Incurred, to be an obligor of such Refinancing Indebtedness; and (C) in the case of any Refinanced Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Guarantee, such Refinancing Indebtedness (1) has a final maturity and weighted average maturity at least as long as such Refinanced Indebtedness and (2) is subordinated (pursuant to its terms) in right and priority of payment to the Notes or such Guarantee, as the case may be, at least to the same extent as such Refinanced Indebtedness; -53- (vii) Indebtedness Incurred by the Company or NAC or NAS to fund capital improvements projects at NAC or NAS in an aggregate original principal amount not to exceed $15,000,000, and guarantees by the Subsidiaries of the Company of such Indebtedness, provided that such Indebtedness and such guarantees are subordinated in right and priority of payment to the Notes and the Guarantees on terms no less favorable to the Holders of the Notes than those applicable to the Indebtedness under the Hydro Agreement and the guarantees thereof as in effect on the date of this Indenture, and further provided that such Indebtedness has a final maturity date no earlier than one year following the stated maturity of the Notes and provides for payments of principal and interest on terms no less favorable to the holders of the Notes than those contained in the Hydro Agreement; (viii) Indebtedness Incurred by the Company or any of its Subsidiaries pursuant to Aluminum Hedging Obligations entered into in the ordinary course of business and not for speculative purposes in reasonable relation to the Company's or such Subsidiary's business; and (ix) other Indebtedness Incurred by the Company in an aggregate principal amount which does not exceed $5,000,000 at any time outstanding, and guarantees by Subsidiaries of the Company of such Indebtedness. The Board of Directors of the Company may designate an Unrestricted Subsidiary to be a Subsidiary of the Company, provided that certain conditions specified in the definition of "Unrestricted Subsidiary" are met. Any such redesignation shall be deemed to be an Incurrence by the Company or its Subsidiaries of the Indebtedness (if any) of such redesignated Subsidiary, to the extent that such Indebtedness does not already constitute Indebtedness of the Company or one of its Subsidiaries for purposes of this covenant as of the date of such redesignation. Any Indebtedness of any other Person existing at the time such Person becomes a Subsidiary of the Company or secured by a Lien encumbering any assets acquired by the Company or any Subsidiary of the Company shall be deemed, for purposes of this Section 4.10 (other than clause (v) of Section 4.10(b)), to be Incurred at the time such Person becomes a Subsidiary or at the time such assets are acquired, as the case may be. (c) The Company shall not, and shall not permit any of its Subsidiaries to, Incur any Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to any other Indebtedness of the Company or its Subsidiaries unless such Indebtedness is also subordinated (pursuant to its terms) in right and priority of payment to the Notes and the Guarantees on substantially identical terms; provided, however, that no Indebtedness of the Company or any Subsidiary of the Company shall be deemed to be subordinated in right and priority of payment to any other Indebtedness of the Company or such Subsidiary solely by virtue of being unsecured or unguaranteed. (d) For the purpose of determining compliance with this Section 4.10, in the event that any Indebtedness is permitted to be Incurred pursuant to more than one clause of Section 4.10(b), the Incurrence of such Indebtedness shall not limit the amount of Indebtedness otherwise permitted to be Incurred, and shall not be required to be included under more than one such clause. Section 4.11. Limitation on Liens. ------------------- (a) The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its assets (including without limitation the Pledged Shares) to secure, directly or indirectly, any Indebtedness or obligations other than the Notes, unless the Notes are equally and ratably secured on a senior basis for so long as such secured Indebtedness or -54- obligations are so secured. (b) Notwithstanding anything to the contrary, this Section 4.11 shall not prohibit: (i) Liens on the assets of the Subsidiaries of the Company (other than the Collateral) securing Indebtedness under the Credit Agreement permitted by clause (ii) of Section 4.10(b); (ii) Liens on the Collateral securing Indebtedness under the Hydro Agreement permitted by clause (iii) of Section 4.10(b), provided that such Liens are subordinated to the Liens on the Collateral on terms substantially identical to those in effect on the date of this Indenture; (iii) Liens in favor of the Company or any Wholly-Owned Subsidiary; (iv) Liens on assets of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company, provided that such Liens were not created in connection with, or in contemplation of, such merger or consolidation and do not extend to any other assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company; (v) Liens on assets existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were not created in connection with, or in contemplation of, such acquisition and do not extend to any other assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company; (vi) Liens securing Refinancing Indebtedness permitted by clause (vi) of Section 4.10(b) and Incurred to Refinance, or successively Refinance, any Indebtedness secured by Liens permitted by this Section 4.11(b) (other than by clause (iii) or (viii) hereof), provided that the Liens securing such Refinancing Indebtedness do not encumber any assets (which may be by category or type) of the Company or any Subsidiary of the Company other than those securing the Indebtedness so Refinanced; (vii) Permitted Liens; and (viii) Liens on assets of the Company or its Subsidiaries (other than the Pledged Shares), in addition to those permitted by clauses (i) through (vii), securing Indebtedness or obligations in an aggregate amount at any time outstanding not exceeding $5,000,000. (c) For purposes of this Section 4.11, the Notes will be considered equally and ratably secured on a senior basis with any other Lien if the Lien securing the Notes is of at least equal priority and covers the same assets as such other Lien, provided that, if the Indebtedness or obligations secured by such other Lien are expressly subordinated in right and priority of payment by their terms to the Notes or any Guarantee, the Lien securing the Notes will be senior to such other Lien. (d) For the purpose of determining compliance with this Section 4.11, in the event that any Lien is permitted pursuant to more than one clause of Section 4.11(b), such Lien shall not limit any other Lien otherwise permitted, and shall not be required to be included under more than one such clause. -55- Section 4.12. Subsidiary Guarantees. --------------------- If any Person becomes a Subsidiary of the Company after the date of this Indenture (including as a result of any merger, consolidation or other acquisition or any designation by the Board of Directors of the Company), the Company shall (i) execute and deliver to the Trustee, and cause each such Person (and, in the event the Company owns any of the Capital Stock of such Person indirectly through one or more other Subsidiaries of the Company, each such other Subsidiary) to execute and deliver to the Trustee, a supplemental indenture complying with the requirements of this Indenture satisfactory in form to the Trustee pursuant to which (A) such Person will be named as an additional Subsidiary of the Company subject as such to the terms of this Indenture, including without limitation Article Fifteen hereof, and (B) all of the issued and outstanding Capital Stock of such Person owned by the Company or any Subsidiary of the Company (together with all income, benefits and rights derived therefrom and all proceeds thereof) will become subject to the Pledge under this Indenture, and (ii) deliver or cause such other Subsidiaries to deliver to the Trustee all certificates evidencing such Capital Stock, properly endorsed in blank or accompanied by duly executed stock powers satisfactory in form to the Trustee providing for transfer in blank. Section 4.13. Limitation on dividends and other payment restrictions ------------------------------------------------------ affecting Subsidiaries. - ---------------------- The Company shall not, and shall not permit its Subsidiaries to, create or otherwise suffer to exist any consensual encumbrances or restrictions on the ability of any Subsidiary of the Company to pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company or any other Subsidiary of the Company or to make loans or advances or transfer any of its assets to the Company or any other Subsidiary of the Company; provided, however, that this Section 4.13 shall not prohibit Permitted Dividend Encumbrances. Section 4.14. Limitation on Asset Sales. ------------------------- (a) The Company shall not, and shall not permit any of its Subsidiaries to, consummate any Asset Sale unless the Company or such Subsidiary receives consideration in connection with such Asset Sale at least equal to the Fair Market Value of the assets sold, transferred or otherwise disposed of and at least 75% of the consideration therefor received by the Company or such Subsidiary (exclusive of indemnities) is in the form of cash or Cash Equivalents, provided that this sentence shall not apply to the sale or disposition of assets as a result of a foreclosure (or a secured party taking ownership of such assets in lieu of foreclosure) or as a result of an involuntary proceeding in which the Company cannot, directly or through its Subsidiaries, direct the type of proceeds received. The amount of any liabilities of the Company or any Subsidiary of the Company (other than contingent liabilities and liabilities that are by their terms subordinated in right and priority of payment to the Notes or any Guarantee) that are actually assumed by the transferee in such Asset Sale pursuant to a customary novation agreement that releases the Company and its Subsidiaries from further liability shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries. (b) The Company shall apply any Net Cash Proceeds received after the date of this Indenture to (i) the prepayment of any Indebtedness of the Company (other than the Notes or the Indebtedness under the Credit Agreement (or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof)) entitled to receive payment pursuant to the terms thereof (excluding Indebtedness that by its terms is subordinated in right and priority of payment to the Notes or any -56- Guarantee) (the "Specified Pari Passu Indebtedness"), unless the holders thereof elect not to receive such prepayment (provided that, in the event any such Indebtedness was Incurred under a revolving credit arrangement, such prepayment shall be accompanied by a permanent reduction of the commitment in respect thereof), and (ii) an offer to purchase (an "Asset Sale Offer") the then outstanding Notes, on any Business Day occurring no later than 305 days after the receipt by the Company (or any of its Subsidiaries, if applicable) of such Net Cash Proceeds (the "Asset Sale Purchase Date," which date shall be deferred to the extent necessary to permit the Asset Sale Offer to remain open for the period required by applicable law), at a price (the "Asset Sale Purchase Price") equal to 100% of the principal amount thereof together with accrued and unpaid interest, if any, to the Asset Sale Purchase Date pursuant to the provisions set forth below. Such Asset Sale Offer with respect to the Notes shall be in an aggregate principal amount (the "Asset Sale Offer Amount") equal to the Net Cash Proceeds (rounded down to the nearest $1,000) from the Asset Sales to which the Asset Sale Offer relates multiplied by a fraction, the numerator of which is the principal amount of the Notes outstanding (determined as of the close of business on the day immediately preceding the date notice of such Asset Sale Offer is mailed) and the denominator of which is the principal amount of the Notes outstanding plus the aggregate principal amount of Specified Pari Passu Indebtedness outstanding (determined as of the close of business on the day immediately preceding the date notice of such Asset Sale Offer is mailed). If (x) no Specified Pari Passu Indebtedness is outstanding or (y) the holders of such Indebtedness entitled to receive payment elect not to receive the payments provided for in the previous sentence, or (z) the application of such Net Cash Proceeds results in the complete prepayment of such Indebtedness, then in each case any remaining portion of such Net Cash Proceeds will be required to be applied to an Asset Sale Offer to purchase the Notes. (c) Notice of an Asset Sale Offer shall be mailed by the Company to all holders at their last registered address within 275 days of the receipt by the Company or any of its Subsidiaries of such Net Cash Proceeds. The Asset Sale Offer shall remain open from the time of mailing until the last Business Day before the Asset Sale Purchase Date, but in no event for a period less than the greater of (a) 24 days or (b) that required by applicable law. The notice shall state: (1) that the Asset Sale Offer is being made pursuant to this Section 4.14; (2) the Asset Sale Offer Amount, the Asset Sale Purchase Price and the Asset SalePurchase Date; (3) the name and address of the Trustee and that Notes must be surrendered to the Trustee to collect the Asset Sale Purchase Price; (4) that any Note not tendered or accepted for payment will continue to accrue interest; (5) that any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest on and after the Asset Sale Purchase Date; (6) that each holder electing to have a Note purchased pursuant to an Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the Note (the "Asset Sale Purchase Notice") completed, to the Trustee at the address specified in the notice at least five Business Days before the Asset Sale Purchase Date; (7) that holders will be entitled to withdraw their election if the Trustee receives, not later than one Business Day prior to the Asset Sale Purchase Date, a telegram, telex, facsimile -57- transmission or letter setting forth the name of the holder, the principal amount of the Notes the holder delivered for purchase, the certificate number of each Note the holder delivered for purchase and a statement that such holder is withdrawing his, her or its election to have such Notes purchased; (8) that if Notes in a principal amount in excess of the Asset Sale Offer Amount are surrendered pursuant to the Asset Sale Offer, the Company shall purchase Notes on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000 or integral multiples thereof shall be acquired); and (9)(x) that Notes may be purchased in whole or in part (in denominations of $1,000 or integral multiples thereof) and (y) that holders whose Notes are purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On or before the Asset Sale Purchase Date, the Company shall (i) accept for payment Notes (having denominations of $1,000 or integral multiples thereof) surrendered pursuant to the Asset Sale Offer (on a pro rata basis if required pursuant to paragraph (c)(8) above), (ii) deposit by 10:30 a.m., New York City time, on the Asset Sale Purchase Date with the Trustee money in immediately available funds sufficient to pay the Asset Sale Purchase Price of all Notes or portions thereof so accepted and (iii) deliver Notes so accepted to the Trustee together with an Officers' Certificate stating the Notes or portions thereof accepted for payment by the Company. The Trustee shall promptly mail or deliver to holders of Notes so accepted payment in an amount equal to the Asset Sale Purchase Price, and the Company shall execute and the Trustee shall promptly authenticate and mail or deliver to such holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered. Any Notes not so accepted shall be promptly mailed or delivered to the holder thereof. The Company will publicly announce the results of the Asset Sale Offer on, or as soon as practicable after, the Asset Sale Purchase Date. Notwithstanding the foregoing, the Company shall not be required to make an Asset Sale Offer until the aggregate amount of Net Cash Proceeds so to be applied pursuant to this Section 4.14 exceeds $10,000,000, and then the total amount of such Net Cash Proceeds shall be required to be so applied in accordance with this Section 4.14. In no event shall any Net Cash Proceeds that are applied to an Asset Sale Offer be required to be applied to more than one Asset Sale Offer. (d) Notwithstanding the provisions of clauses (a) and (b) of this Section 4.14, the Company shall have no obligation to make an Asset Sale Offer pursuant to this Section 4.14 if, and to the extent, the Company or any of its Subsidiaries commits within 270 days of the receipt of such Net Cash Proceeds to reinvest (whether by acquisition of an existing business or expansion, including without limitation capital expenditures) such Net Cash Proceeds in one or more of the lines of business (including capital expenditures) in which the Company or its Subsidiaries were engaged on the date of this Indenture or any business reasonably related or ancillary thereto, provided that such Net Cash Proceeds are substantially so utilized or irrevocably committed to be so utilized no later than 365 days following receipt of such Net Cash Proceeds. Section 4.15. Limitations on Unrestricted Subsidiaries. ---------------------------------------- The Company shall not permit any of its Unrestricted Subsidiaries to guarantee or otherwise directly or indirectly provide credit support for any Indebtedness of the Company or any of its Subsidiaries. -58- Section 4.16. Conduct of business. ------------------- The Company shall not, and shall not permit any of its Subsidiaries to, engage in any businesses other than lines of business in which the Company or any of its Subsidiaries is engaged on the date of this Indenture and any business reasonably related or ancillary thereto (as determined in good faith by the Company's Board of Directors). Section 4.17. Limitations on issuances and sales of Capital Stock of ------------------------------------------------------ Subsidiaries. - ------------ The Company shall not, and shall not permit any of its Subsidiaries to, sell, transfer or otherwise dispose of any Capital Stock of any Subsidiary to any Person if as a result of such sale, transfer or disposition such Subsidiary shall cease to be a Subsidiary, and will provide further that any such permitted sale, transfer or disposition shall comply with the terms of this Indenture (including without limitation Section 4.14 hereof). Section 4.18. Payments for consent. -------------------- The Company shall not, and shall not permit any of its Subsidiaries or Unrestricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of a Note for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the Notes or any Guarantee, unless such consideration is offered to be paid or is paid to all holders of the Notes that so consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or amendment. Section 4.19. No Amendment to Subordination Provisions. ---------------------------------------- The Company shall not amend, modify or alter the Hydro Agreement in any way that will (i) increase the rate of or change the time for payment of interest on any Hydro Subordinated Debt, (ii) increase the principal of, advance the final maturity date of or shorten the Weighted Average Life to Maturity of any Hydro Subordinated Debt and (iii) alter the redemption provisions or the price or terms at which the Company is required to offer to purchase such Hydro Subordinated Debt without the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding. The Company shall not agree or consent to or take any other act to affect the subordination of the Hydro Subordinated Debt relative to the Notes. The Company and its Subsidiaries shall duly and punctually perform and comply with their respective obligations under the Hyrdo Agreement. Section 4.20. Maintenance of Corporate Existence. ---------------------------------- The Company shall, except pursuant to a merger or a consolidation in accordance with the provisions described Article Eleven, at all times (except as otherwise provided or permitted in this Indenture) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Subsidiary of the Company; provided, however, that any Wholly-Owned Subsidiary may liquidate or dissolve under the laws of its jurisdiction of formation. Section 4.21. Maintenance of Insurance. ------------------------ The Company and its Subsidiaries shall, from and at all times after the date of issuance of Notes until the Notes have been paid in full, cause their Restricted Subsidiaries to, have and maintain -59- in effect insurance with responsible carriers against such risks and in such amounts as is customarily carried by similar businesses with such deductibles, retentions, self insured amounts and coinsurance provisions as are customarily carried by similar businesses of similar size, including, without limitation, property and casualty. ARTICLE FIVE NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 5.01. Company to furnish Trustee information as to names and ------------------------------------------------------ addresses of noteholders. - ------------------------ The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after each record date for the payment of interest, a list, in such form as the Trustee may reasonably require, of the names and addresses of the noteholders as of such record date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that so long as the Trustee is the Note registrar, no such list shall be required to be furnished. Section 5.02. Preservation and disclosure of lists. ------------------------------------ (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Notes (1) contained in the most recent list furnished to it as provided in Section 5.01 and (2) received by it in the capacity of paying agent (if so acting) or Note registrar. The Trustee may destroy any list furnished to it as provided in Section 5.01 upon receipt of a new list so furnished. (b) In case three or more holders of Notes (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Note for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Notes with respect to their rights under this Indenture or under the Notes, and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election either (1) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 5.02, or (2) inform such applicants as to the approximate number of holders of Notes whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 5.02, and as to the approximate cost of mailing to such noteholders the form of proxy or other communication, if any, specified in such application. -60- If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each noteholder whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of Section 5.02(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Notes or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. After opportunity for hearing upon the objections specified in the written statement so filed, the Commission may, and if demanded by the Trustee or by such applicants shall, enter an order either sustaining one or more of such objections or refusing to sustain any of them. If the Commission shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Trustee shall mail copies of such material to all noteholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (c) Each and every holder of a Note, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any paying agent nor the Note registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Notes in accordance with the provisions of Section 5.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b), nor shall any such disclosure be deemed a violation of existing law, or any law hereafter enacted which does not specifically refer to Section 312 of the Trust Indenture Act of 1939. Section 5.03. Reports by the Company. ---------------------- (a) Whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company covenants and agrees to file with the Trustee within 15 days after the Company is, or would have been (if it were subject to such reporting obligations), required to file the same with the Commission (but, in the case of annual reports on Form 10-K, no later than 105 days after the Company's fiscal year end and, in the case of quarterly reports on Form 10-Q, no later than 60 days after the Company's fiscal quarter end), copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company is, or would be (if it were subject to such reporting obligations), required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act. (b) The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations, including, in the case of annual reports, certificates or opinions of independent public accountants, conforming to the requirements of Section 14.05, as to compliance with conditions or covenants, compliance with which is subject to verification by accountants. -61- (c) The Company covenants and agrees to transmit to the holders of Notes within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in subsection (c) of Section 5.04 with respect to reports pursuant to subsection (a) of Section 5.04, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 5.03 as may be required by rules and regulations prescribed from time to time by the Commission. (d) The Company covenants and agrees to furnish to the Trustee, not less often than annually (but always within 105 days after the Company's fiscal year end), a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this paragraph (d), such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. (e) For so long as any Restricted Securities remain outstanding, the Company and its Subsidiaries covenant and agree to furnish to the holders of the Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933. (f) The Company covenants and agrees to furnish to the Trustee, at least annually after the execution and delivery of this Indenture (but always within 105 days after the Company's fiscal year end), an Opinion of Counsel either stating that in the opinion of the counsel rendering the same such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture as is necessary to maintain the lien of this Indenture, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain such lien. Section 5.04. Reports by the Trustee. ---------------------- (a) On or before May 15, 1999, and on or before May 15 in every year thereafter, so long as any Notes are outstanding hereunder, the Trustee, if required to do so by the provisions of the Trust Indenture Act of 1939, shall transmit to the noteholders, as hereinafter in this Section 5.04 provided, a brief report dated as of March 15 of the year in which such report is made with respect to any of the following events which may have occurred within the previous 12 months (but if no such event has occurred within such period no report need be transmitted): (1) any change to its eligibility under Section 7.09 and its qualifications under Section 7.08; (2) the creation of or any material change to a relationship specified in paragraphs (1) through (10) of Section 7.08(c); (3) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Notes, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to state such advances if such advances so remaining unpaid aggregate not more than 0.5% of the principal amount of the Notes outstanding on the date of such report; (4) the amount, interest rate, and maturity date of all other Indebtedness owing by the Company (or by any other obligor on the Notes) to the Trustee in its individual capacity, on the date of -62- such report, with a brief description of any property held as collateral security therefor, except an Indebtedness based upon a creditor relationship arising in any manner described in paragraph (2), (3), (4) or (6) of subsection (b) of Section 7.13; (5) any change to the property and funds, if any, physically in the possession of the Trustee (as such) on the date of such report; and (6) any action taken by the Trustee in the performance of its duties under this Indenture which it has not previously reported and which in its opinion materially affects the Notes, except action in respect of a default, notice of which has been or is to be withheld by it in accordance with the provisions of Section 6.07. (b) The Trustee shall transmit to the noteholders, as hereinafter provided, a brief report with respect to the description and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to the provisions of Section 5.04(a) (or if no such report has yet been so transmitted, since the date of execution of this Indenture), for the reimbursement of which it claims or may claim a lien or charge prior to that of the Notes on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of Notes outstanding at such time, such report to be transmitted within 90 days after such time. (c) Reports pursuant to this Section 5.04 shall be transmitted by mail (i) to all holders of Notes, as the names and addresses of such holders appear upon the registry books of the Company, (ii) to all noteholders who have, within the two years preceding such transmission, filed their names and addresses with the Trustee for that purpose, and (iii) except in the case of reports pursuant to Section 5.04(b), to all holders of Notes whose names and addresses have been furnished to or obtained by the Trustee pursuant to Section 5.01. (d) A copy of each such report shall, at the time of such transmission to noteholders, be filed by the Trustee with each stock exchange (if any) upon which the Notes are listed or admitted for trading and also with the Commission. The Company will notify the Trustee when and as the Notes become listed on any stock exchange. ARTICLE SIX REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON EVENT OF DEFAULT Section 6.01. Events of Default defined. ------------------------- In case one or more of the following Events of Default shall have occurred and be continuing: (a) default in the payment of any installment of interest on any of the Notes as and when the same shall become due and payable, and continuance of such default for a period of 30 days; or (b) default in the payment of the principal of, or Change of Control Purchase Price, -63- Asset Sale Purchase Price, or premium, if any, on, any of the Notes as and when the same shall become due and payable either at maturity, upon redemption or purchase by the Company, by declaration or otherwise; or (c) failure on the part of the Company to observe or perform in any material respect its obligations under Sections 4.09, 4.10, 4.11, 4.14, 4.19 and Article Eleven hereof; or (d) failure on the part of the Company to observe or perform in any material respect any other of the covenants or agreements on the part of the Company in the Notes or in this Indenture for a period of 60 days after the date on which written notice of such failure, which notice must specify the failure, demand it be remedied and state that the notice is a "Notice of Default," shall have been given to the Company by the Trustee (which notice the Trustee may give at its discretion and shall give upon receipt of requests to do so by the holders of at least 25% of the aggregate principal amount of the Notes at the time outstanding) or to the Company and the Trustee by the holders of at least 25% of the aggregate principal amount of the Notes at the time outstanding; or (e) a default under any mortgage, indenture, or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any of its Subsidiaries, whether such Indebtedness now exists or shall hereafter be created, which default (i) in the case of a failure to make payment on any such Indebtedness, shall not have been waived, cured or otherwise ceased to exist prior to the expiration of the applicable grace period provided with respect to such Indebtedness, or (ii) in the case of any default other than a payment default referred to in clause (i), shall have resulted in such Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable; provided, however, that the aggregate principal amount of all such Indebtedness in respect of which any such default exists exceeds $10,000,000; or (f) breach by the Company or any Guarantor of any material representation or warranty set forth in the Security Agreements, or, subject to notice and grace periods set forth in the applicable Security Agreements, default by the Company or any Guarantor in the performance of any covenant set forth in the Security Agreements, or repudiation by the Company or any Guarantor of its obligations under the Security Agreements or the unenforceability of the Security Agreements against the Company or any Guarantor for any reason; (g) a final judgment which, together with other outstanding final judgments against the Company and its Subsidiaries, exceeds an aggregate of $10,000,000 (to the extent such judgments are not covered by valid and collectible insurance from solvent unaffiliated insurers or uncontested indemnification from solvent unaffiliated indemnitors) shall be entered against the Company and/or its Subsidiaries and within 60 days after entry thereof, judgments exceeding such amount shall not have been discharged, settled or bonded or execution thereof stayed pending appeal or, within 60 days after the expiration of any such stay, such judgments exceeding such amount shall not have been discharged, settled or bonded or execution thereof further stayed; or (h) a court having jurisdiction in the premises shall have entered a decree or order for relief against the Company or any of its Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee (other than a trustee under a deed of trust), sequestrator (or similar official) of the Company or any of its Subsidiaries or for all or any substantial part of the property of the Company or any of its Subsidiaries, or ordering the winding-up or liquidation of the affairs of the Company or any -64- of its Subsidiaries, and such decree or order shall have remained unstayed and in effect for a period of 90 consecutive days; or (i) the Company or any of its Subsidiaries shall have commenced a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have consented to the entry of an order for relief in an involuntary case under any such law, or shall have consented to the appointment of or taking possession by a receiver, liquidator, assignee, trustee (other than a trustee under a deed of trust), custodian, sequestrator (or similar official) of the Company or such Subsidiary or for all or any substantial part of its property, or shall have made an assignment for the benefit of creditors, or shall have taken any corporate action in furtherance of any of the foregoing; or (j) other than pursuant to Section 15.05, a Guarantee shall be held to be unenforceable or invalid with respect to any Subsidiary of the Company by a final non-appealable order or judgment issued by a court of competent jurisdiction or shall cease for any reason to be in full force and effect with respect to any Subsidiary of the Company, or any Subsidiary of the Company or any Person acting by or on behalf of any Subsidiary of the Company shall deny or disaffirm its obligations under its Guarantee; then, in the case of an Event of Default specified in clause (a), (b), (c), (d), (e), (f) or (i), and in each and every such case, unless the principal of all the Notes shall have already become due and payable, either the Trustee or the holders of not less than 25% of the aggregate principal amount of the Notes then outstanding, by notice in writing to the Company (and to the Trustee if given by noteholders), may, and the Trustee shall if requested to do so by the holders of not less than 25% of the aggregate principal amount of the Notes then outstanding hereunder, declare the principal amount and accrued interest to the date of declaration of all the Notes to be due and payable immediately. Upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Notes contained to the contrary notwithstanding. If an Event of Default specified in clause (g) or (h) above occurs, such amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any noteholder. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to December 15, 2002 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to December 15, 2002, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on December 15 of the years set forth below, a set forth below (expressed as a percentage of the principal amount of the Notes on the date of payment that would otherwise be due but for the provisions of this sentence): Year Percentage 1998. . . . . . . . . . . . . . . . . . . . . . . . . . 112.000% 1999. . . . . . . . . . . . . . . . . . . . . . . . . . 111.000% 2000. . . . . . . . . . . . . . . . . . . . . . . . . . 110.000% 2001. . . . . . . . . . . . . . . . . . . . . . . . . . 109.000% -65- Section 6.02. Payment of Notes on default; suit therefor. ------------------------------------------ The Company covenants that (1) in case default shall be made in the payment of any installment of interest on any of the Notes, as and when the same shall become due and payable, and such default shall have continued for a period of 30 days, or (2) in case default shall be made in the payment of the principal of, or premium, if any, Change of Control Purchase Price or Asset Sale Purchase Price on, any of the Notes when the same shall have become due and payable, whether upon maturity of the Notes or upon redemption or purchase by the Company or upon declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for such amounts, as the case may be, with interest upon the overdue principal, premium, if any, Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, and installments of interest (to the extent permitted by law) at the rate of interest borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expense or liabilities incurred by the Trustee hereunder other than through its negligence or willful misconduct. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor upon the Notes, and collect in the manner provided by law out of the property of the Company or any other obligor upon the Notes wherever situated the moneys adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor upon the Notes under any applicable bankruptcy, insolvency or similar law or in case a receiver or trustee (other than a trustee under a deed of trust) shall have been appointed for the property of the Company or such other obligor, or in case of any other similar judicial proceedings relative to the Company or any other obligor upon the Notes, or to creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal, Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, of or on the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 6.02, shall be entitled and empowered by intervention in such proceedings or otherwise to file and prove a claim or claims for the whole amount of principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest owing and unpaid in respect of the Notes, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the noteholders allowed in any judicial proceeding relative to the Company or any other obligor upon the Notes, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its reasonable charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the noteholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the noteholders, to pay to the Trustee any amount due it for compensation and expenses, including reasonable counsel fees incurred by it up to the date of such distributio. To the extent that such payment of reasonable compensation, expenses, liabilities and counsel fees out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, moneys, securities and other property -66- which the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes, or the production thereof on any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the reasonable expenses, disbursements and compensation of the Trustee, its agents and attorneys, shall be for the ratable benefit of the holders of the Notes. Section 6.03. Application of moneys collected by Trustee. ------------------------------------------ Any moneys collected by the Trustee pursuant to this Article Six or pursuant to the Subordination Agreement shall be applied to the payment of all amounts due the Trustee pursuant to Section 7.06, and thereafter in the order following, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Notes, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: In case no principal of, or Change of Control Purchase Price or Asset Sale Purchase Price on, the outstanding Notes shall have become due and be unpaid, to the payment of interest on the Notes, in the order of the maturity of the installments of such interest, with interest upon the overdue installments of interest (so far as permitted by law and to the extent that such interest has been collected by the Trustee) at the rate of interest borne by the Notes, such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; SECOND: In case any principal of, or Change of Control Purchase Price or Asset Sale Purchase Price on, the outstanding Notes shall have become due, by declaration or otherwise, to the payment of the whole amount then owing and unpaid upon the Notes for principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest, as the case may be, with interest on the overdue principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and installments of interest (so far as permitted by law and to the extent that such interest has been collected by the Trustee), as the case may be, at the rate of interest borne by the Notes; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Notes, then to the payment of such principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest, without preference or priority of any one such applicable amount over another, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and accrued and unpaid interest; and THIRD: To the payment of the remainder, if any, to the Company, its successors or assigns, or to whosoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct. Section 6.04. Limitation on suits by holders of Notes. --------------------------------------- No holder of any Note shall have any right by virtue or by availing of any provision of this Indenture or the Subordination Agreement to institute any suit, action or proceeding or to seek any remedy in equity or at law upon or under or with respect to this Indenture, the Notes or the Subordination Agreement or for the appointment of a receiver or trustee, or for any other remedy, unless such holder -67- previously shall have given to the Trustee written notice of default and of the continuance thereof, as hereinabove provided, and unless also the holders of not less than 25% of the aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding or to seek such remedy in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 6.06; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders of Notes shall have any right in any manner whatever by virtue or by availing of any provision of this Indenture or the Subordination Agreement to affect, disturb or prejudice the rights of the holders of any other of such Notes, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture or the Subordination Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes. For the protection and enforcement of the provisions of this Section 6.04, each and every noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provisions in this Indenture, however, the right of any holder of any Note to receive payment of the principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest, as the case may be, of or on such Note, on or after the respective due dates expressed in such Note, or to institute suit for the enforcement of any such payment on or after such respective dates or to demand purchase of its Notes pursuant to Article Three or Section 4.14, shall not be impaired or affected without the consent of such holder. Section 6.05. Proceedings by Trustee; remedies cumulative and ----------------------------------------------- continuing; delay or omission not waiver of default. - --------------------------------------------------- In case of a default hereunder or under the Subordination Agreement, the Trustee may in its discretion proceed to protect and enforce any of the rights or remedies vested in it by this Indenture or by the Subordination Agreement by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights or remedies, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in the Subordination Agreement or in aid of the exercise of any power granted in this Indenture or in the Subordination Agreement, or to enforce any other legal or equitable right or remedy vested in the Trustee by this Indenture, by the Subordination Agreement or by law. All powers and remedies given by this Article Six or by the Subordination Agreement to the Trustee or to the noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or in the Subordination Agreement, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 6.04, every power and remedy given by this Article Six or by the Subordination Agreement or by law to the Trustee or to the noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the noteholders. -68- Section 6.06. Rights of holders of majority in principal amount of ---------------------------------------------------- Notes to direct Trustee and to waive defaults. - --------------------------------------------- The holders of a majority of the aggregate principal amount of the Notes at the time outstanding (determined as provided in Section 8.04), or, if a record date is set in accordance with Section 8.05, as of such record date, shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee (including any remedy available under this Article Six or the Subordination Agreement), or exercising any trust or power conferred on the Trustee; provided, however, that subject to the provisions of Section 7.01, the Trustee shall have the right to decline to follow any such direction if the Trustee shall determine that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a responsible officer or officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unjustly prejudicial to the noteholders not joining therein, and provided further that nothing in this Indenture shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction by noteholders. Prior to the declaration of the maturity of the Notes as provided in Section 6.01, the holders of a majority of the aggregate principal amount of the Notes at the time outstanding (determined as provided in Sections 8.04 and 8.05) may on behalf of the holders of all of the Notes waive any past default hereunder and its consequences (including any acceleration, other than an automatic acceleration resulting from an Event of Default under clause (g) or (h) of Section 6.01), except a default in the payment of principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any of the Notes (other than solely as a result of an acceleration) or a default under any covenant or provision of this Indenture which under Article Ten cannot be modified or amended without the consent of the holder of each outstanding Note. In the case of any such waiver the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 6.07. Trustee to give notice of defaults known to it, but may ------------------------------------------------------- withhold in certain circumstances. - --------------------------------- The Trustee shall, within 90 days after the occurrence of a default hereunder or under the Subordination Agreement, give to the noteholders, in the manner and to the extent provided in Section 5.04(c) with respect to reports pursuant to Section 5.04(a), notice of such defaults known to the Trustee unless such defaults shall have been cured or waived before the giving of such notice (the term "defaults" for the purposes of this Section 6.07 being hereby defined to be the events specified in clauses (a), (b), (c), (d), (e), (f), (g), (h) and (i) of Section 6.01, not including any periods of grace provided for in clauses (a), (d), (e), (f) and (g), respectively, and irrespective of the giving of notice specified in clause (d)); provided that, except in the case of default in the payment of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any of the Notes, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or responsible officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the noteholders. Other than payment defaults, the Trustee shall not be deemed to have any knowledge of an event of default unless a responsible officer has received written notice of the same. -69- Section 6.08. Requirement of an undertaking to pay costs in certain ----------------------------------------------------- suits under the Indenture or against the Trustee. - ------------------------------------------------ All parties to this Indenture agree, and each holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture or the Subordination Agreement, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 6.08 shall not apply to any suit instituted by the Trustee, to any suit instituted by any noteholder, or group of noteholders, holding in the aggregate more than 10% of the aggregate principal amount of the Notes then outstanding, or to any suit instituted by any noteholder for the enforcement of the payment of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any Note on or after the due date expressed in such Note. Section 6.09. Waiver of stay or extension laws. -------------------------------- The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefits or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SEVEN. CONCERNING THE TRUSTEE Section 7.01. Duties and responsibilities of Trustee. -------------------------------------- The Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a reasonable person would exercise or use under the circumstances in the conduct of his or her own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct; provided, however, that: (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred: (1) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and -70- (2) in the absence of willful misconduct on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a responsible officer or officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Notes at the time outstanding (determined as provided in Section 8.04 or 8.05) relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Section 7.02. Reliance on documents, opinions, etc. ------------------------------------- Subject to the provisions of Section 7.01: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an instrument signed in the name of the Company by the Chairman of the Board, the President, the Chief Financial Officer or any Vice President and the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors of the Company may be evidenced to the Trustee by a copy thereof certified by the Secretary or any Assistant Secretary of the Company; (c) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the noteholders, pursuant to the provisions of this Indenture, unless such noteholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; but nothing herein contained shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived), to exercise such of the rights and powers vested in it -71- by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; (e) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, note or other paper or document, unless requested in writing so to do by the holders of not less than a majority in aggregate principal amount of the Notes then outstanding (determined as provided in Section 8.04 or Section 8.05); provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require from the noteholders reasonable indemnity against such expenses or liability as a condition to so proceeding. The reasonable expenses of every such examination shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. Section 7.03. No responsibility for recitals, etc. ------------------------------------ The recitals contained herein and in the Notes (other than the certificate of authentication on the Notes) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of any of the Notes or of the proceeds of such Notes, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture, or for the use or application of any moneys received by any paying agent other than the Trustee. Section 7.04. Trustee, paying agent or Note registrar may own Notes. ----------------------------------------------------- The Trustee, any paying agent or Note registrar, in its individual or any other capacity, may become the owner or pledgee of Notes with the same rights it would have if it were not Trustee, paying agent or Note registrar. Section 7.05. Moneys received by Trustee to be held in trust without ------------------------------------------------------ interest. - -------- Subject to the provisions of Section 12.07, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law or by any national securities exchanges on which the Notes are listed or admitted for trading. The Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree with the Company to pay thereon. -72- Section 7.06. Compensation and expenses of Trustee. ------------------------------------ The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in connection with the acceptance or administration of its trust under this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or willful misconduct. The Company also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or willful misconduct on the part of the Trustee or its agents and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability under this Indenture in connection with the exercise of its powers or duties hereunder. The obligations of the Company under this Section 7.06 to compensate the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional Indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or resignation or removal of the Trustee. Such additional Indebtedness shall be secured by a Lien upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Notes. Section 7.07. Right of Trustee to rely on Officers' Certificate where ------------------------------------------------------- no other evidence specifically prescribed. - ----------------------------------------- Subject to the provisions of Section 7.01, whenever in the administration of the provisions of this Indenture, the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or willful misconduct on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such Officers' Certificate, in the absence of negligence or willful misconduct on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture in reliance thereon. Section 7.08. Conflicting interest of Trustee. ------------------------------- (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section 7.08, then, within 90 days after ascertaining that it has such conflicting interest, and if the default (as defined in Section 7.08(c)) to which such conflicting interest relates has not been cured or duly waived or otherwise eliminated before the end of such 90-day period, the Trustee shall either eliminate such conflicting interest or, except as otherwise provided in this Section 7.08, resign in the manner and with the effect specified in Section 7.10, and the Company shall take prompt steps to have a successor appointed in the manner provided in Section 7.10. (b) In the event that the Trustee shall fail to comply with the provisions of Section 7.08(a), the Trustee shall, within ten days after the expiration of such 90-day period, transmit notice of such failure to the noteholders in the manner and to the extent provided in Section 5.04(c) with respect to reports pursuant to Section 5.04(a). -73- (c) For the purposes of this Section 7.08, the Trustee shall be deemed to have a conflicting interest if the Notes are in default (defined as the occurrence of any event specified in Section 6.01, but exclusive of any period of grace or requirement of notice) and (1) the Trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company are outstanding, unless such other indenture is a collateral trust indenture under which the only collateral consists of Notes issued under this Indenture, provided that there shall be excluded from the operation of this paragraph any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding if (i) this Indenture and such other indenture or indentures are wholly unsecured and such other indenture or indentures are hereafter qualified under the Trust Indenture Act of 1939, unless the Commission shall have found and declared by order pursuant to Subsection (b) of Section 305 or Subsection (c) of Section 307 of the Trust Indenture Act of 1939 that differences exist between the provisions of this Indenture and the provisions of such other indenture or indentures which are so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture and such other indenture or indentures, or (ii) the Company shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that the trusteeship under this Indenture and such other indenture is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under one of such indentures; (2) the Trustee or any of its directors or executive officers is an underwriter for the Company; (3) the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with an underwriter for the Company; (4) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee, or representative of the Company, or of an underwriter (other than the Trustee itself) for the Company who is currently engaged in the business of underwriting, except that (A) one individual may be a director and/or an executive officer of the Trustee and a director and/or an executive officer of the Company, but may not be at the same time an executive officer of both the Trustee and the Company; (B) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director and/or an executive officer of the Trustee and a director of the Company; and (C) the Trustee may be designated by the Company or by any underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent, or depositary, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this subsection (c), to act as trustee whether under an indenture or otherwise; (5) ten percent or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, partner, or executive officer thereof, or 20 percent or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or ten percent or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director, partner, or executive officer thereof, or is beneficially owned, collectively, by any two or more such persons; (6) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, (A) five percent or more of the voting securities, or ten percent or more -74- of any other class of security, of the Company, not including the Notes issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (B) ten percent or more of any class of security of an underwriter for the Company; (7) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as defined hereinafter), five percent or more of the voting securities of any person who, to the knowledge of the Trustee, owns ten percent or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company; (8) the Trustee is the beneficial owner of, or holds as collateral security for an obligation that is in default, ten percent or more of any class of security of any person who, to the knowledge of the Trustee, owns 50 percent or more of the voting securities of the Company; (9) the Trustee owns on the date of default upon the Notes (defined as the occurrence of any event specified in Section 6.01, but exclusive of any period of grace or requirement of notice) or any anniversary of such default while such default upon the Notes remains outstanding, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25 percent or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7), or (8) of this subsection (c). As to any such securities of which the Trustee acquired ownership through becoming executor, administrator, or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply for a period of two years from the date of such acquisition to the extent that such securities included in such estate do not exceed 25 percent of such voting securities or 25 percent of any such class of security. Promptly after the dates of any such default upon the Notes and annually in each succeeding year that the Notes remain in default, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such dates. If the Company fails to make payment in full of principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any of the Notes when and as the same becomes due and payable and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and after such date, notwithstanding the foregoing provisions of this paragraph (9), all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of paragraphs (6), (7) and (8) of this subsection (c); or (10) except under the circumstances described in paragraphs (1), (3), (4), (5) or (6) of Section 311(b) of the Trust Indenture Act of 1939, the Trustee shall become a creditor of the Company. The specifications of percentages in paragraphs (5) to (9), inclusive, of this subsection (c) shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purpose of paragraph (3) or (7) of this subsection (c). For the purposes of paragraphs (6), (7), (8) and (9) of this subsection (c) only, (A) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies or banking firms, or any -75- certificate of interest or participation in any such note or evidence of indebtedness; (B) an obligation shall be deemed to be "in default" when a default in payment of principal shall have continued for 30 days or more and shall not have been cured; and (C) the Trustee shall not be deemed to be the owner or holder of (i) any security that it holds as collateral security (as trustee or otherwise) for an obligation which is not in default as defined in clause (B) above, or (ii), any security that it holds as collateral security under this Indenture, irrespective of any default hereunder, or (iii) any security that it holds as agent for collection, or as custodian, escrow agent, or depositary, or in any similar representative capacity. Except as above provided, the word "security" or "securities" as used in this Indenture, shall mean any note, stock, treasury stock, bond, note, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. Except in the case of a default in the payment of the principal of or interest on the Notes, the Trustee shall not be required to resign as provided by this Section 7.08 if the Trustee shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that (i) the default under this Indenture may be cured or waived during a reasonable period and under the procedures described in such application, and (ii) a stay of the Trustee's duty to resign will not be inconsistent with the interests of holders of the Notes. The filing of such an application shall automatically stay the performance of the duty to resign until the Commission orders otherwise. Any resignation of the Trustee shall become effective only upon the appointment of a successor trustee and such successor's acceptance of such an appointment. (d) For the purposes of this Section 7.08: (1) The term "underwriter" when used with reference to the Company shall mean every person, who, within one year prior to the time as of which the determination is made, has purchased from the Company with a view to, or has offered or sold for the Company in connection with, the distribution of any security of the Company outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission. (2) The term "director" shall mean any director of a corporation or any individual performing similar functions with respect to any organization, whether incorporated or unincorporated. (3) The term "person" shall mean an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, or a government or political subdivision thereof. As used in this paragraph, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security. -76- (4) The term "voting security" shall mean any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person. (5) The term "Company" shall mean any obligor upon the Notes. (6) The term "executive officer" shall mean the president, every vice-president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors. The percentages of voting securities and other securities specified in this Section 7.08 shall be calculated in accordance with the following provisions: (A) A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section 7.08 (each of whom is referred to as a "person" in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person. (B) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding. (C) The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares, and the number of units if relating to any other kind of security. (D) The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition: (i) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class; (ii) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise; (iii) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and (iv) securities held in escrow if placed in escrow by the issuer thereof; provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof. -77- (E) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes; and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture. Section 7.09. Requirements for eligibility of Trustee. --------------------------------------- The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States or any State or territory thereof or of the District of Columbia or a corporation or other person permitted to act as the Trustee by the Commission (pursuant to the requirements of Section 310(a)(1) of the Trust Indenture Act of 1939), authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $10,000,000, and subject to supervision or examination by Federal, State, Territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 7.09, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee shall not be an obligor upon the Notes or a Person directly or indirectly controlling, controlled by, or under common control with any such obligor. In addition, the Trustee shall at all times be approved to serve as transfer agent and registrar by any securities exchange on which the Notes are listed or admitted for trading. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.09, the Trustee shall resign immediately in the manner and with the effect specified in Section 7.10. Section 7.10. Resignation or removal of Trustee. --------------------------------- (a) The Trustee, or any trustee hereafter appointed, may at any time resign by giving written notice of such resignation to the Company and to the noteholders, such notice to the noteholders to be given by mailing (by first-class mail) the notice to their addresses as they shall appear on the registry books of the Company within 30 days after such notice is given to the Company. Upon receiving such notice of resignation and evidence satisfactory to it of such mailing, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Company, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any noteholder who has been a bona fide holder of a Note or Notes for at least six months may, subject to the provisions of Section 6.08, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with the provisions of Section 7.08(a) after written request therefor by the Company or by any noteholder who has been a bona fide holder of a Note or Notes for at least six months, or -78- (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 7.09 and shall fail to resign after written request therefor by the Company or by any such noteholder, or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Company, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 6.08, any noteholder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) Any resignation or removal of the Trustee and appointment of any successor trustee pursuant to any of the provisions of this Section 7.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.11. Section 7.11. Acceptance by successor to Trustee; notice of succession -------------------------------------------------------- of a Trustee. - ------------ Any successor trustee appointed as provided in Section 7.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 7.06, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee of such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 7.06. No successor trustee shall accept appointment as provided in this Section 7.11 unless, at the time of such acceptance, such successor trustee shall be qualified under the provisions of Section 7.08 and eligible under the provisions of Section 7.09. Upon acceptance of appointment by a successor trustee as provided in this Section 7.11, the Company shall mail to the noteholders by first-class mail notice thereof. If the Company fails to mail such notice within 30 days after acceptance of appointment by the successor trustee, the successor trustee shall, in its discretion, cause such notice to be mailed at the expense of the Company. -79- Section 7.12. Successor to Trustee by merger, consolidation or ------------------------------------------------ succession to business; notice by Trustee of change in its location. - ------------------------------------------------------------------- Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger or conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding, provided such corporation shall be qualified under the provisions of Section 7.08 and eligible under the provisions of Section 7.09. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Notes in the name of any predecessor Trustee shall apply only to its successor, or successors, by merger, conversion or consolidation. The Trustee will give the Company prompt notice of any change in the location of the Trustee's principal office. Section 7.13. Limitations on rights of Trustee as a creditor. ---------------------------------------------- (a) Subject to the provisions of Section 7.13(b), if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within three months prior to a default, as defined in Section 7.13(c), or subsequent to such a default, then, unless and until such default shall be cured or waived, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the holders of the Notes, and the holders of other indenture securities (as defined in Section 7.13(c)) (1) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such three months' period, and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and (2) all property received by the Trustee in respect of any claims as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three months' period, or an amount equal to the proceeds of any such property if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of the Trustee -80- (A) to retain for its own account (i) payments made on account of any such claim by any person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third person, and (iii) distributions made in cash, securities, or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to any applicable bankruptcy, insolvency or similar law; (B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such three months' period; (C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such three months' period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in Section 7.13(c), would occur within three months; or (D) to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in such paragraph (B) or (C), as the case may be, to the extent of the fair value of such property. For the purposes of paragraphs (B), (C) and (D) above, property substituted after the beginning of such three months' period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any preexisting claim of the Trustee as such creditor, such claim shall have the same status as such preexisting claim. If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee, the noteholders, and the holders of other indenture securities in such manner that the Trustee, the noteholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to applicable law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee, the noteholders, and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to applicable law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim in bankruptcy or receivership or in proceedings for reorganization pursuant to applicable law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceeding for reorganization is pending shall have jurisdiction (i) to apportion between the Trustee, the noteholders, and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and the proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the -81- Trustee, the noteholders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any trustee who has resigned or been removed after the beginning of such three months' period shall be subject to the provisions of this subsection (a) as though such resignation or removal had not occurred. If any trustee has resigned or been removed prior to the beginning of such three months' period, it shall be subject to the provisions of this subsection (a) if and only if the following conditions exist: (i) the receipt of property or reduction of claim which would have given rise to the obligation to account, if such trustee had continued as trustee, occurred after the beginning of such three months' period; and (ii) such receipt of property or reduction of claim occurred within three months after such resignation or removal. (b) There shall be excluded from the operation of Section 8.13(a) a creditor relationship arising from (1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee; (2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advance and of the circumstances surrounding the making thereof is given to the noteholders at the time and in the manner provided in Section 5.04(c) with respect to reports pursuant to Section 5.04(a); (3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity; (4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in Section 7.13(c); (5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, that is directly or indirectly a creditor of the Company; or (6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in Section 7.13(c). (c) As used in this Section 7.13: -82- (1) the term "default" shall mean any failure to make payment in full of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any of the Notes or upon the other indenture securities when and as any such amounts become due and payable. (2) the term "other indenture securities" shall mean securities upon which the Company is an obligor (as defined in the Trust Indenture Act of 1939) outstanding under any other indenture (A) under which the Trustee is also trustee, (B) which contains special account provisions substantially similar to the provisions of Section 7.13(a), and (C) under which a default exists at the time of the apportionment of the funds and property held in the special account thereunder. (3) the term "cash transaction" shall mean any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand. (4) the term "self-liquidating paper" shall mean any draft, bill of exchange, acceptance or obligation that is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacture, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. (5) the term "Company" shall mean any obligor upon the Notes. ARTICLE EIGHT CONCERNING THE NOTEHOLDERS Section 8.01. Evidence of action by noteholders. --------------------------------- Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent, or waiver or the taking of any other action), the fact that the holders of such specified percentage, determined as of the time such action was taken or, if a record date was set with respect thereto pursuant to Section 8.05, as of the close of business on such record date, have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by noteholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Notes voting in favor thereof at any meeting of noteholders duly called and held in accordance with the provisions of Article Nine, or (c) by a combination of such instrument or instruments and any such record of such a meeting of noteholders. Section 8.02. Proof of execution of instruments and of holding of --------------------------------------------------- Notes. - ----- Subject to the provisions of Sections 7.01, 7.02 and 9.05, proof of the execution of any instrument by a noteholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Notes shall be proved by the register of such Notes, or by a certificate of the registrar thereof. The Trustee may accept such other proof or require such additional -83- proof of any matter referred to in this Section 8.02 as it shall deem reasonable. The record of any noteholders' meeting shall be proved in the manner provided in Section 9.06. Section 8.03. Who may be deemed owners of Notes. --------------------------------- Prior to due presentation for registration of transfer, the Company, the Trustee, any paying agent and any Note registrar may deem and treat the Person in whose name any Note shall be registered upon the books of the Company as the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purposes of receiving payment of or on account of the principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, such Note and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to, or upon the order of, any such holder shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Note. Section 8.04. Notes owned by Company or controlled by controlling --------------------------------------------------- Persons disregarded for certain purposes. - ---------------------------------------- In determining whether the holders of the requisite aggregate principal amount of Notes have concurred in any demand, direction, request, notice, consent, waiver or other action under this Indenture, Notes that are owned by the Company or any other obligor on the Notes or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Notes shall be disregarded and deemed not to be outstanding for the purpose of any such determination, provided that for the purposes of determining whether the Trustee shall be protected in relying on any such demand, direction, request, notice, consent or waiver, only Notes that the Trustee knows are so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as outstanding for the purposes of this Section 8.04, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Notes and that the pledgee is not a Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 8.05. Record date for action by noteholders. ------------------------------------- Whenever in this Indenture it is provided that holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any direction, notice, consent or waiver or the taking of any other action), other than any action taken at a meeting of noteholders called pursuant to Article Nine, the Company, pursuant to a resolution of its Board of Directors, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, may request the Trustee to fix a record date for determining noteholders entitled to notice of and to take any such action. In case the Company or the holders of Notes in the amount above specified shall desire to request noteholders to take any such action and shall request the Trustee to fix a record date with respect thereto by written notice setting forth in reasonable detail the noteholder action to be requested, the Trustee shall promptly (but in any event within five days of receipt of such request) fix a record date that shall be a Business Day not less than 15 nor more than 20 days after the date on which the Trustee receives such request. If the Trustee shall fail to fix a record date as hereinabove provided, then the Company or the holders of Notes in the amount above specified may fix the same by mailing notice thereof (the record date so fixed to be a Business Day not less than 15 nor -84- more than 20 days after the date on which such written notice shall be given) to the Trustee. If a record date is fixed according to this Section 8.05, only Persons shown as noteholders on the registry books of the Company at the close of business on the record date so fixed shall be entitled to take the requested action and the taking of any such action by the holders at the close of business on the record date of the required percentage of the aggregate principal amount of the Notes shall be binding on all noteholders, provided that the taking of the requested action by the holders at the closeof business on the record date of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action shall have been evidenced to the Trustee, as provided in Section 8.01, not later than 180 days after such record date. Section 8.06. Instruments executed by noteholders bind future holders. ------------------------------------------------------- At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 8.01, of the taking of any action by the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action, any holder of a Note which is shown by the evidence to be included in the Notes the holders of which have consented to such action may, by filing written notice with the Trustee at its principal office and upon proof of holding as provided in Section 8.02, revoke such action so far as concerns such Note. Except as aforesaid any such action taken by the holder of any Note and any direction, demand, request, waiver, consent, vote or other action of the holder of any Note which by any provisions of this Indenture is required or permitted to be given shall be conclusive and binding upon such holder and upon all future holders and owners of such Note, and of any Note issued in lieu thereof, irrespective of whether or not any notation in regard thereto is made upon such Note. Any action taken by the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action shall be conclusively binding upon the holders of all the Notes. ARTICLE NINE NOTEHOLDERS' MEETINGS Section 9.01. Purposes for which meetings may be called. ----------------------------------------- A meeting of noteholders may be called at any time and from time to time pursuant to the provisions of this Article Nine for any of the following purposes: (1) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by noteholders pursuant to any of the provisions of Article Six; (2) to remove the Trustee and appoint a successor trustee pursuant to the provisions of Article Seven; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 10.02; or (4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Notes under any other provisions of this Indenture or under applicable law. Section 9.02. Manner of calling meetings; record date. --------------------------------------- The Trustee may at any time call a meeting of noteholders to take any action specified in Section 9.01 to be held at such time and at such place in the Borough of Manhattan, City of New York, State of New York, as the Trustee shall determine. Notice of every meeting of the noteholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting shall be mailed not less than 20 nor more than 60 days prior to the date fixed for the meeting to -85- such noteholders at their addresses as such addresses appear on the registry books of the Company. For the purpose of determining noteholders entitled to notice of any meeting of noteholders, the Trustee shall fix in advance a date as the record date for such determination, such date to be a Business Day not more than ten days prior to the date of the mailing of such notice as hereinabove provided. Only Persons in whose name any Note shall be registered upon the registry books of the Company at the close of business on a record date fixed by the Trustee as aforesaid, or by the Company or the noteholders as provided in Section 9.03, shall be entitled to notice of the meeting of noteholders with respect to which such record date was so fixed. Section 9.03. Call of meeting by Company or noteholders. ----------------------------------------- In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding, shall have requested the Trustee to call a meeting of noteholders to take any action authorized in Section 9.01 by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of such meeting within 20 days after receipt of such request, then the Company or the holders of Notes in the amount above specified, as the case may be, may fix the record date with respect to, and determine the time and the place in said Borough of Manhattan, City of New York, State of New York, for, such meeting and may call such meeting to take any action authorized in Section 9.01, by mailing notice thereof as provided in Section 9.02. The record date fixed as provided in the preceding sentence shall be set forth in a written notice to the Trustee and shall be a Business Day not less than 15 nor more than 20 days after the date on which such notice is sent to the Trustee. Section 9.04. Who may attend and vote at meetings. ----------------------------------- Only Persons entitled to receive notice of a meeting of noteholders and their respective proxies duly appointed by an instrument in writing shall be entitled to vote at such meeting. The only Persons who shall be entitled to be present or to speak at any meeting of noteholders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. When a determination of noteholders entitled to vote at any meeting of noteholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. Section 9.05. Regulations. ----------- Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. Except as otherwise permitted or required by any such regulations, the holding of Notes shall be proved in the manner specified in Section 8.02. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by noteholders as provided in Section 9.03, in which case the Company or the noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by a vote of the holders of a majority in principal amount of the Notes represented at the meeting and entitled to vote. Subject to the provisions of Section 8.04, at any meeting each noteholder or proxy entitled to vote thereat shall be entitled to one vote for each $1,000 principal amount of Notes held or represented by him; provided, however, that no vote shall be cast or -86- counted at any meeting in respect of any Note challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the Person to vote on behalf of other noteholders. Any meeting of noteholders duly called pursuant to the provisions of Section 9.02 or 9.03 may be adjourned from time to time, and the meeting may be held as so adjourned without further notice. At any meeting of noteholders, the presence of Persons who held, or ho are acting as proxy for Persons who held, an aggregate principal amount of Notes on the record date for such meeting sufficient to take action on the business for the transaction of which such meeting was called shall constitute a quorum, but, if less than a quorum is present, the Persons holding or representing a majority in aggregate principal amount of the Notes represented at the meeting may adjourn such meeting with the same effect, for all intents and purposes, as though a quorum had been present. Section 9.06. Manner of voting at meetings and record to be kept. -------------------------------------------------- The vote upon any resolution submitted to any meeting of noteholders shall be by written ballots on each of which shall be subscribed the signature of the noteholder or proxy casting such ballot, the principal amount and, if practicable, the identifying number or numbers of the Notes held or represented in respect of which such ballot is cast. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 9.02. The record shall show the aggregate principal amount and, if practicable, the identifying numbers of the Notes voting in favor of or against any resolution. Each counterpart of such record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the counterparts shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee. Any counterpart record so signed and verified shall be conclusive evidence of the matters therein stated and shall be the record referred to in clause (b) of Section 8.01. Section 9.07. Exercise of rights of Trustee and noteholders not to be ------------------------------------------------------- hindered or delayed. - ------------------- Nothing in this Article Nine shall be deemed or construed to authorize or permit, by reason of any call of a meeting of noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the noteholders under any of the provisions of this Indenture or of the Notes. ARTICLE TEN SUPPLEMENTAL INDENTURES AND AMENDMENT OF SECURITY AGREEMENTS Section 10.01. Purposes for which supplemental indentures may be ------------------------------------------------- entered into without consent of noteholders. - ------------------------------------------- The Company and its Subsidiaries, when authorized by Board Resolutions of such Persons, and the Trustee may from time to time and at any time enter into an indenture or indentures -87- supplemental hereto (which shall comply with the provisions of the Trust Indenture Act of 1939 as then in effect) for one or more of the following purposes: (a) to comply with Article Eleven and Sections 4.12 and 15.03; (b) to add to the covenants of the Company such further covenants, restrictions or conditions as its Board of Directors shall consider to be for the protection of the holders of Notes, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (c) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act of 1939, or to make such other provisions in regard to matters or questions arising under this Indenture or any supplemental indenture as shall not adversely affect the rights of the holders of the Notes; (d) to provide for the issuance under this Indenture of Notes, whether or not then outstanding, in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose; and (e) to comply with the requirements of the National Association of Securities Dealers, Inc. Automated Quotation System, the New York Stock Exchange or any other national securities exchange on which the Notes may be issued, quoted or admitted for trading, provided such changes do not adversely affect the rights of any holder of Notes. The Trustee is hereby authorized to join with the Company and its Subsidiaries in the execution and delivery of any such supplemental indenture, to make any further appropriate agreement and stipulations which may be therein contained and to accept the conveyance, transfer, mortgage, pledge or assignment of any property thereunder, provided that if any such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. Any supplemental indenture authorized by the provisions of this Section 10.01 may be executed by the Company, its Subsidiaries and the Trustee without the consent of the holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 10.02. Section 10.02. Modification of Indenture with consent of holders of a ------------------------------------------------------ majority in principal amount of Notes. - ------------------------------------- With the consent (evidenced as provided in Section 8.01) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding (determined as provided in Sections 8.04 and 8.05), or, if a record date is set with respect to such consent in accordance with Section 8.05, as of the close of business on such record date, the Company and its Subsidiaries, when authorized -88- by Board Resolutions of such Persons, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall comply with the provisions of the Trust Indenture Act of 1939 as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Notes; provided, however, that without the consent of each holder of an outstanding Note affected, no such supplemental indenture shall (i) extend the stated maturity of any Note, reduce the rate at which interest accrues on any Note, extend the time or alter the manner of payment of interest on any Note, reduce the principal amount of any Note, alter the timing of or reduce any premium payable upon the redemption of any Note, change the currency in which any payments are made on or with respect to any Note, change the ranking or seniority of any Note, or reduce the amount payable on any Note in the event of acceleration or the amount of any Note payable in bankruptcy, or (ii) reduce the aforesaid percentage of aggregate principal amount of Notes the consent of the holders of which is required for any such supplemental indenture. Upon the request of the Company, accompanied by a copy of the Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of noteholders as aforesaid, the Trustee shall join with the Company and its Subsidiaries in the execution and delivery of such supplemental indenture, provided that if such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the noteholders under this Section 10.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution and delivery by the Company, its Subsidiaries and the Trustee of any supplemental indenture pursuant to the provisions of this Section 10.02, the Company shall mail a notice to the noteholders, setting forth in general terms the substance of such supplemental indenture. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Section 10.03. Effect of supplemental indentures. --------------------------------- Upon the execution and delivery of any supplemental indenture pursuant to the provisions of this Article Ten, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company, its Subsidiaries and the holders of Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 10.04. Notes may bear notation of changes by supplemental -------------------------------------------------- indentures. - ---------- Notes authenticated and delivered after the execution and delivery of any supplemental indenture pursuant to the provisions of this Article Ten, or after any action taken at a noteholders' meeting pursuant to Article Nine, may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture or as to any action taken at any such meeting. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Notes then outstanding upon surrender of such Notes. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such supplemental indenture or noteholders' meeting. -89- Section 10.05. Officers' Certificate and Opinion of Counsel. -------------------------------------------- The Trustee shall receive upon its request, and, subject to the provisions of Sections 7.01 and 7.02, may rely as conclusive evidence upon, an Officers' Certificate and an Opinion of Counsel that any such supplemental indenture complies with the provisions of this Article Ten. In addition, the Trustee shall receive upon its request an Opinion of Counsel that any such supplemental indenture has been duly executed and delivered by all Persons party thereto other than the Trustee. Section 10.06. Amendment of Security Agreements. -------------------------------- Without the consent of the Holders of not less than 66 2/3% in aggregate principal amount of the Notes outstanding, the Collateral Agent and the Company shall not amend the Security Agreements or release any of the Collateral from a Lien or the Security Agreements (except in accordance with the provisions thereof). ARTICLE ELEVEN CONSOLIDATION, MERGER AND SALE Section 11.01. Company may consolidate, etc., on certain terms. ----------------------------------------------- (a) The Company shall not consolidate or merge with or into any other entity or sell or convey (or permit any of its Subsidiaries to sell or convey) all or substantially all of the Company's property (determined on a consolidated basis for the Company and its Subsidiaries) to any other entity, whether in a single transaction or a series of related transactions (the entity formed by or surviving any such consolidation or merger, or to which such sale or conveyance shall have been made, whether the Company or such other entity, being herein called the "surviving corporation"), unless (i) immediately after giving effect to such consolidation, merger, sale or conveyance, no Event of Default (or event that, after notice or lapse of time, or both, would constitute an Event of Default) shall exist, (ii) the surviving corporation shall be a corporation organized under the laws of The United States of America or any State thereof, (iii) immediately after giving effect to such consolidation, merger, sale or conveyance, the surviving corporation could incur $1.00 of Indebtedness pursuant to Section 4.10(a), (iv) the surviving corporation (if other than the Company) shall expressly assume the due and punctual payment of the principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, all of the Notes, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be performed or observed by the Company, by supplemental indenture complying with the requirements of Article Ten satisfactory in form to the Trustee, (v) the surviving corporation (if other than the Company) shall expressly assume the obligations of the Company under the Security Agreements and Registration Rights Agreement and (vi) immediately after giving effect to such consolidation, merger, sale or conveyance, the surviving corporation shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction. (b) If at any time there be any consolidation or merger or sale or conveyance of property to which this Section 11.01 is applicable, then, in any such event, the surviving corporation will promptly deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale or conveyance, and any supplemental indenture, if applicable, executed in connection therewith, comply with the provisions of this Section 11.01. -90- Section 11.02. Surviving corporation to be substituted. --------------------------------------- In case of any such consolidation, merger, sale or conveyance and upon the assumption by the surviving corporation (if other than the Company), in the manner hereinabove provided, of the due and punctual payment of the principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, all of the Notes and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, such surviving corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the Company shall be relieved of all its obligations and duties under this Indenture and the Notes. Such surviving corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such surviving corporation (instead of the Company) and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Notes that previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes that such surviving corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes so issued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Notes had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate. ARTICLE TWELVE SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS Section 12.01. Option to effect Legal Defeasance or Covenant Defeasance. --------------------------------------------- The Company, at its option at any time, may elect to have either Section 12.02 or Section 12.03 applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Twelve. Section 12.02. Legal Defeasance and discharge. ------------------------------ Upon the Company's exercise under Section 12.01 of the option applicable to this Section 12.02, the Company and its Subsidiaries shall be deemed to have been discharged from their respective obligations with respect to all outstanding Notes (including under the Guarantees) on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, and this Indenture shall cease to be of further effect as to all outstanding Notes, except as to (i) the rights of noteholders to receive payments in respect of the principal of, and premium, if any, and interest on, the Notes when such payments are due from the trust funds referred to in Section 12.04, (ii) the Company's obligations with respect to the Notes under Sections 2.04, 2.05, 2.06, 2.07, 2.10, 4.02, 4.03, 4.04(a), 4.07 and 5.01, (iii) the rights, powers, trusts, duties and immunities of the Trustee under this Indenture and the Company's obligations in connection therewith (including without limitation those under Section 7.06), and (iv) this Article Twelve. Subject to compliance with this Article Twelve, -91- the Company may exercise its option under this Section 12.02 notwithstanding the prior exercise of its option under Section 12.03 with respect to the Notes. Section 12.03. Covenant Defeasance. ------------------- Upon the Company's exercise under Section 12.01 of the option applicable to this Section 12.03, the Company shall be released from its obligations under the covenants contained in Sections 3.05 through 3.09, inclusive, Sections 4.08 through 4.11, inclusive, Sections 4.13 through 4.17, inclusive, Article Eleven and Section 15.03 with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of noteholders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company need not comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document, but, except as specified above, the remainder of this Indenture and the Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 12.01 of the option applicable to this Section 12.03, Sections 6.01(c), 6.01(d) (as it relates to failure to observe or perform any of the covenants specified above), 6.01(e) and 6.01(f) shall not constitute Events of Default. Section 12.04. Conditions to Legal Defeasance or Covenant Defeasance. ----------------------------------------------------- The following shall be the conditions to the application of either Section 12.02 or Section 12.03 to the outstanding Notes: (i) the Company must irrevocably deposit with the Trustee, in trust for the benefit of the holders of the Notes, U.S. legal tender or Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and premium, if any, and interest on, such Notes on the stated maturity date or applicable redemption date, as the case may be, thereof, and the holders of the Notes must have a valid, perfected, exclusive security interest in such trust; (ii) in the case of an election under Section 12.02, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of an election under Section 12.03, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to such Trustee confirming that the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax in the -92- same amount, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Event of Default (or event that, after notice or lapse of time, or both, would become an Event of Default) shall have occurred and be continuing on the date of such deposit or, in so far as Section 6.01(g) or 6.01(h) is concerned, at any time between the date of such deposit and the 91st day after the date of such deposit, and the Company shall have delivered to the Trustee an Opinion of Counsel, subject to such qualifications and exceptions as the Trustee deems appropriate, to the effect that, assuming no intervening bankruptcy of the Company between the date of such deposit and the 91st day following the date of such deposit and that no holder of the Notes is an insider of the Company, after the 91st day following the date of such deposit the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors rights generally; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit made by the Company pursuant to its election under Section 12.02 or 12.03 and was not made by the Company with the intent of preferring the holders of such Notes over other creditors of the Company or any of its Subsidiaries or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or any of its Subsidiaries or others; and (vii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that the conditions precedent provided for in, in the case of the Officers' Certificate, clauses (i) through (vi) of this Section 12.04 and, in the case of the Opinion of Counsel, clauses (i) (with respect to the validity and perfection of the security interest) and (v) of this Section 12.04 have been complied with as contemplated by this Section 12.04. If the funds deposited with the Trustee to effect Legal Defeasance or Covenant Defeasance are insufficient to pay the principal of, and premium, if any, and interest on, the Notes when due or if the transfer of the funds to the Trustee is avoided as a preferential transfer, fraudulent transfer or otherwise, then the obligations of the Company and the Subsidiaries under this Indenture will be revived and no such defeasance will be deemed to have occurred. Section 12.05. Application by Trustee of funds deposited for payment of Notes. ----------------------------------------------------- All amounts deposited with the Trustee pursuant to Section 12.04 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company acting as its own paying agent), to the holders of the particular Notes, for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest. Section 12.06. Repayment of moneys held by paying agent. ---------------------------------------- In connection with any Legal Defeasance or Covenant Defeasance, all moneys then held by any paying agent under the provisions of this Indenture shall, upon demand of the Company, be paid -93- to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. Section 12.07. Repayment of moneys held by Trustee. ----------------------------------- The Trustee shall promptly pay to the Company upon written request any excess money or securities held by it at any time, provided that the Trustee shall in no event be required to deliver any excess cash or securities if an Event of Default under Section 6.01(h) or 6.01(i) (or an event that after notice or lapse of time, or both, would become an Event of Default) shall have occurred during such period and be continuing. Any moneys deposited with the Trustee or any paying agent for the payment of the principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any Notes and not applied but remaining unclaimed by the holders of Notes for two years after the date upon which such payment shall have become due, shall be promptly repaid (together with any interest earned thereon) to the Company by the Trustee or by such paying agent; and thereupon the Trustee and such paying agent shall be released from all further liability with respect to such moneys, and the holder of any of the Notes entitled to receive such payment shall thereafter look only to the Company for the payment thereof; provided, however, that the Trustee or such paying agent, before being required to make any such repayment, may, at the expense of the Company, mail to the holders of Notes at their last known address or cause to be published once in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, City of New York, State of New York, a notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days after the date of such mailing or publication, any unclaimed balance of such money then remaining will be paid to the Company. Section 12.08. Reinstatement. ------------- If the Trustee is unable to apply any money or securities deposited by the Company with the Trustee in accordance with Section 12.04 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company and its Subsidiaries under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.04 until such time as the Trustee is permitted to apply all such money or securities deposited by the Company with the Trustee in accordance with Section 12.04; provided, however, that if the Company has made any payment of principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Notes to receive such payment from the money or securities deposited by the Company and held by the Trustee. ARTICLE THIRTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS Section 13.01. Incorporators, stockholders, officers and directors of Company and Subsidiaries exempt from individual liability. ------------------------------------------------------ No recourse under or upon any obligation, covenant or agreement of this Indenture or any indenture supplemental hereto or of any Note, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder (other than the Company or any of its -94- Subsidiaries), officer or director, as such, past, present or future, of the Company or any of its Subsidiaries or of any successor corporation, either directly or through the Company or any of its Subsidiaries or any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders (other than the Company or any of its Subsidiaries), officers or directors, as such, of the Company or any of its Subsidiaries or of any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Notes or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Notes or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Notes. ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS Section 14.01. Successors and assigns of Company and Subsidiaries bound by Indenture. -------------------------------------------------- All the covenants, stipulations, promises and agreements in this Indenture contained by or in behalf of the Company or any of its Subsidiaries shall bind such Person's successors and assigns, whether so expressed or not. Section 14.02. Acts of board, committee or officer of successor corporation valid. ------------------------------------------------ Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company or any of its Subsidiaries shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company or such Subsidiary. Section 14.03. Required notices or demands may be served by mail; waiver. -------------------------------------------------- Any notice or demand which by any provisions of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes to or on the Company may be given or served by being deposited postage prepaid by first class mail (registered or certified, return receipt requested) in a post office letter box addressed (until another address is filed by the Company with the Trustee for such purpose), as follows: Golden Northwest Aluminum, Inc. 3313 West Second Street The Dalles, Oregon 97058 Attention: Brett E. Wilcox and William R. Reid with a copy to: Stoel Rives LLP -95- 900 SW Fifth Avenue, Suite 2300 Portland, Oregon 97204-1268 Attention: Richard C. Josephson Any notice, direction, request or demand by any noteholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made at the principal office of the Trustee, to the attention of the Corporate Trust Department. Any notice or communication to a noteholder shall be mailed by first-class mail to his address shown on the Company's registry. Failure to mail a notice or communication to a noteholder or any defect in it shall not affect its sufficiency with respect to other noteholders. If a notice or communication is mailed in the manner so provided within the time prescribed, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event or action relating thereto, and such waiver shall be equivalent of such notice. Waivers of notice by noteholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of regular mail service or as a result of a strike, work stoppage or similar activity, or any act of God or any other cause, it shall be impractical to mail any notice as required by this Indenture, then any manner of giving such notice as shall be made with the approval of the Trustee shall constitute sufficient giving of notice hereunder. Section 14.04. Indenture, Notes, Guarantees and Security Agreements to be construed in accordance with the laws of the State of New York. ------------------------------------------------------- THIS INDENTURE, EACH NOTE, EACH GUARANTEE AND THE SECURITY AGREEMENTS (OTHER THAN THE DEEDS OF TRUST) SHALL BE DEEMED TO BE CONTRACTS MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT REGARD TO THE PRINCIPLES OF THE CONFLICT OF LAWS PROVISIONS THEREOF. Section 14.05. Evidence of compliance with conditions precedent. ------------------------------------------------ Upon any demand, request or application by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such demand, request or application as to which the furnishing of such document is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. Each certificate (other than those provided for in Section 5.03(d)) or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; -96- (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any certificate, statement or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his or her certificate, statement or opinion may be based as aforesaid are erroneous. Any certificate, statement or opinion of counsel may be based, insofar as it relates to factual matters, information with respect to which is in the possession of the Company, upon the certificate, statement or opinion of or representations by an officer or officers of the Company or public officials, unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his or her certificate, statements or opinion may be based as aforesaid are erroneous. Any certificate, statement or opinion of an officer of the Company or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous. Any certificate or opinion of any independent firm of public accountants filed with the Trustee shall contain a statement that such firm is independent. Section 14.06. Payments due on Saturdays, Sundays and holidays. ----------------------------------------------- In any case where the date of payment of principal of, or premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest on, the Notes or the date fixed for redemption or purchase of any Note shall not be a Business Day, then payment of principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the date of payment or the date fixed for redemption or purchase, and no interest shall accrue on or after such original date of payment or such original date fixed for redemption or purchase. Section 14.07. Provisions required by Trust Indenture Act of 1939 to control. ----------------------------------------------------- If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of the following sentence, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939 that impose duties on any Person (including provisions automatically deemed included in this Indenture unless this Indenture provides that such provisions are excluded) are a part of and govern this Indenture, whether or not physically contained herein. Section 14.08. Provisions of the Indenture and Notes for the sole benefit of the parties and the noteholders. -------------------------------------------------- Nothing in this Indenture or in the Notes, expressed or implied, shall give or be construed to give any Person, other than the parties hereto and the holders of the Notes, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition -97- or provision herein contained; all its covenants, conditions and provisions being for the sole benefit of the parties hereto and of the holders of the Notes. Section 14.09. Severability. ------------ In case any one or more of the provisions contained in this Indenture or in the Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of such Notes, but this Indenture and such Notes shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. Section 14.10. Indenture may be executed in counterparts; acceptance by Trustee. ----------------------------------------------------- This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. U.S. Trust Company, National Association, hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. Section 14.11. Article and Section headings. ---------------------------- The Article and Section references herein and in the Table of Contents are for convenience only and shall not affect the construction hereof. Section 14.12. No Adverse Interpretation of Other Instruments. ---------------------------------------------- This Indenture shall not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary, Unrestricted Subsidiary or Affiliate of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 14.13 Consent to Jurisdiction. ----------------------- Any legal suit, action or proceeding arising out of or based upon this Indenture, the Notes, the Guarantees or the Security Agreements (other than the Deeds of Trust) or the transactions contemplated hereby or thereby ("Related Proceedings") may be instituted in the federal courts of the United States of America located in the City and County of New York or the courts of the State of New York in each case located in the City and County of New York (collectively, the "Specified Courts"), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party's address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum. -98- ARTICLE FIFTEEN GUARANTEE OF NOTES Section 15.01. Guarantee. --------- Subject to the provisions of this Article Fifteen, each Subsidiary of the Company, jointly and severally, hereby unconditionally guarantees to each holder of a Note authenticated and delivered by the Trustee (i) the due and punctual payment of the principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, such Note, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal, if any, of, and premium, Change of Control Purchase Price, Asset Sale Purchase Price and interest, if any, on, such Note, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the holder of such Note or the Trustee all in accordance with the terms of such Note and of this Indenture, and (ii) in the case of any extension of time of payment or renewal of such Note or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. Each Subsidiary of the Company hereby agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Indenture, any failure to enforce the provisions of any such Note or this Indenture, any waiver, modification or indulgence granted to the Company with respect thereto by the holder of such Note or the Trustee, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or guarantor. Each Subsidiary of the Company hereby waives diligence, presentment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, the benefit of discussion, protest or notice with respect to any such Note or the indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Asset and interest thereon (and interest on the overdue principal, if any, thereof, and premium, Change of Control Purchase Price, Asset Sale Purchase Price and interest, if any, thereon, to the extent lawful), or as provided in Sections 12.02 and 15.05. Notwithstanding the foregoing, if the Trustee or any noteholder is required by any court or otherwise to return to the Company, any of its Subsidiaries or any trustee, liquidator or other similar official acting in relation to the Company or any of its Subsidiaries any amount paid by any of them to the Trustee or said noteholder in respect of any Note, this Guarantee, to the extent theretofore discharged as to such Note (other than as provided in Section 15.05), shall be reinstated in full force and effect. Each Subsidiary of the Company further agrees that, as between such Subsidiary, on the one hand, and the holders of Notes and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such obligations as provided in Article Six, such obligations (whether or not due and payable) shall, subject to the other provisions of this Article Fifteen, forthwith become due and payable by such Subsidiary for the purpose of this Guarantee. Each Subsidiary of the Company shall be subrogated to all rights of the holder of any Notes against the Company or any other Subsidiary in respect of any amounts paid to the holder of Notes by such Subsidiary pursuant to the provisions of this Guarantee; provided, however, that such Subsidiary shall not be entitled to enforce, or to receive any payments arising out of or based upon, such right of -99- subrogation until the principal of, and premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, all Notes shall have been paid in full. Section 15.02. Limitation of Subsidiary's Liability. ------------------------------------ Each Subsidiary of the Company and, by its acceptance hereof, each holder of a Note hereby confirms that it is the intention of all such parties that the guarantee by such Subsidiary pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of the United States Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the holders of the Notes and each such Subsidiary hereby irrevocably agree that the obligations of such Subsidiary under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary of the Company in respect of the obligations of such other Subsidiary under its Guarantee or pursuant to any rights of contribution of such Subsidiary, result in the obligations of such Subsidiary under its Guarantee not constituting such fraudulent transfer or conveyance. Section 15.03. Subsidiaries may consolidate, etc., on certain terms. ---------------------------------------------------- (a) Except as set forth in Section 15.03(b), no Subsidiary of the Company (other than a Subsidiary the Guarantee of which is to be released in accordance with the terms of Section 15.05 in connection with any transaction complying with Section 4.14) shall consolidate or merge with or into any other entity, unless: (i) immediately after giving effect to such consolidation or merger, no Event of Default (or event that, after notice or lapse of time, or both, would constitute an Event of Default) shall exist, (ii) the surviving corporation shall be a Subsidiary of the Company organized under the laws of the United States of America or any State thereof, (iii) immediately after giving effect to such consolidation or merger, the Company could Incur $1.00 of Indebtedness pursuant to Section 4.10(a), (iv) the surviving corporation (if other than such Subsidiary) shall expressly assume the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Subsidiary (including without limitation the obligations of such Subsidiary under its Guarantee) by supplemental indenture complying with the requirements of Article Ten satisfactory in form to the Trustee, executed and delivered to the Trustee, and (v) immediately after giving effect to such consolidation or merger, the surviving corporation shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of such Subsidiary immediately prior to such transaction. If at any time there shall be any consolidation or merger to which this Section 15.03(a) is applicable, then, in any such event, the surviving corporation shall promptly deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such merger or consolidation, and any supplemental indenture, if applicable, executed in connection therewith, comply with this Section 15.03(a). In case of any such consolidation or merger and upon the assumption by the surviving corporation (if other than such Subsidiary), in the manner hereinabove provided, of the due and punctual performance of all the covenants and conditions of this Indenture to be performed by such Subsidiary (including without limitation the obligations of such Subsidiary under its Guarantee), such surviving corporation shall succeed to and be substituted for such Subsidiary, with the same effect as if it had been named herein as such Subsidiary. (b) Notwithstanding Section 15.03(b), (i) a Wholly-Owned Subsidiary may consolidate or merge with or into the Company, provided that the Company shall be the surviving corporation, and -100- (ii) a Wholly-Owned Subsidiary may consolidate or merge with or into any other Wholly-Owned Subsidiary. Section 15.04. Application of certain terms and provisions to the Subsidiaries. -------------------------------------------------- (a) For purposes of any provision of this Indenture that provides for the delivery by any Subsidiary of the Company of an Officers' Certificate and/or an Opinion of Counsel, the definitions of such terms in Section 1.01 shall apply to such Subsidiary as if references therein to the Company were references to such Subsidiary. (b) The Subsidiaries of the Company shall comply with all reporting requirements of Section 5.03 as if references therein to the Company were references to such Subsidiaries. (c) Any request, direction, order or demand which by any provision of this Indenture is to be made by any Subsidiary of the Company shall be sufficient if evidenced as described in Section 7.02 as if references therein to the Company were references to such Subsidiary. (d) Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes to or on any Subsidiary of the Company may be given or served as described in Section 4.02 or 14.03 as if references therein to the Company were references to such Subsidiary. (e) Upon any demand, request or application by any Subsidiary of the Company to the Trustee to take any action under this Indenture, such Subsidiary shall furnish to the Trustee such certificates and opinions as are required in Section 14.05 as if all references therein to the Company were references to such Subsidiary. Section 15.05. Release of Guarantee and Security. --------------------------------- (a) Upon the sale or disposition (by merger or otherwise) of all of the Capital Stock of a direct or indirect Subsidiary of the Company to a Person that is not the Company or a Subsidiary, Unrestricted Subsidiary or Affiliate of the Company, which sale or disposition is otherwise in compliance with the terms of this Indenture (including without limitation Section 4.14), the obligations of such Subsidiary under its Guarantee, all Collateral owned by such Subsidiary and the pledge of the Capital Stock of such Subsidiary pursuant to the Indenture shall be deemed released without any further action required on the part of the Trustee, such Subsidiary, the Company or any holder of the Notes; provided, however, that any obligations of such Subsidiary in respect of Indebtedness under the Credit Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof) and any guarantee by such Subsidiary of the Indebtedness under the Hydro Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof) have been or are simultaneously released. (b) Upon the designation by the Board of Directors of the Company of a Subsidiary of the Company as an Unrestricted Subsidiary in compliance with the terms of this Indenture, the obligations of such Subsidiary under its Guarantee, all Collateral owned by such Subsidiary and the pledge of the Capital Stock of such Subsidiary pursuant to the Indenture shall be deemed released without any further action required on the part of the Trustee, such Subsidiary, the Company or any holder of the Notes; provided, however, that any obligations of such Subsidiary in respect of Indebtedness under the Credit Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof) and any guarantee by such Subsidiary of the Indebtedness under the Hydro -101- Agreement (and/or any Refinancing Indebtedness Incurred in any Refinancing, or successive Refinancing, thereof) have been or are simultaneously released. (c) Upon the sale or disposition of any Collateral in accordance with this Indenture (or if such sale or disposition has been approved in writing by the Trustee) and the proceeds (if any) of such sale or disposition are applied in accordance with the provisions of this Indenture (to the extent, if any, applicable), the security interests of the Trustee in such Collateral shall be deemed released without any further action required on the part of the Trustee, such Subsidiary, the Company or the holder of any of the Notes. (d) Upon any release of Collateral or the pledge of Pledged Shares in accordance with section (a), (b) or (c) of this Section 15.05, the Trustee shall execute and deliver such release documentation as the Company, Subsidiary or Unrestricted Subsidiary shall reasonably require to effect such release and deliver to the Company, such Subsidiary, or such Unrestricted Subsidiary any such Collateral or Pledged Shares (including related stock powers) in the possession of the Trustee. (e) Upon the release of any Subsidiary of the Company from its Guarantee pursuant to any provision of this Indenture, each other Subsidiary of the Company not so released shall remain liable for the full amount of the Notes as and to the extent provided in this Indenture. At the request of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing the release of a Subsidiary from its Guarantee. Section 15.06. Execution and Delivery of Guarantee. To evidence its Guarantee set forth in Section 15.01, each Subsidiary hereby agrees that a Guarantee substantially in the form of Exhibit B shall be attached by an Officer of such Subsidiary on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Subsidiary by its President or one of its Vice Presidents. Each Subsidiary hereby agrees that its Guarantee set forth in this Article Fifteen shall remain in full force and effect notwithstanding any failure to attach to each Note a Guarantee in the form of Exhibit B. If an Officer whose signature is on this Indenture or on the Guarantee no longer holds that office at the time the Trustee authenticates the Note to which a Guarantee is attached, the Guarantee shall be valid nevertheless. ARTICLE SIXTEEN COLLATERAL AND SECURITY Section 16.01. Security Agreements. ------------------- The due and punctual payment of the principal of and interest, if any, on the Notes when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest (to the extent permitted by law), if any, on the Notes and performance of all other obligations of the Company and the Subsidiary Guarantors to the Holders of Notes or the Trustee under this Indenture and Notes, according to the terms hereunder or thereunder, shall be secured as provided in the Security Agreements and the Guarantees which the Company and the Subsidiary Guarantors have entered into simultaneously with the execution of this Indenture. Each Holder of Notes, by its acceptance thereof -102- consents and agrees to the terms of the Security Agreements as the same may be in effect and may be amended from time to time in accordance with the terms hereof and thereof and authorizes and directs the Collateral Agent to enter into the Security Agreements and to perform its obligations and exercise its rights thereunder in accordance therewith. Section 16.02. Release of Collateral. --------------------- (a) Subject to subsection (b) of this Section 16.02, the Collateral may be released from the Lien and security interest created by the Security Agreements as provided in the Security Agreements or as provided hereby. (b) At any time when an Event of Default shall have occurred and be continuing and the maturity of the Notes shall have been accelerated (whether by declaration or otherwise) and the Trustee shall have delivered a notice of acceleration to the Collateral Agent, no release of Collateral pursuant to the provisions of the Security Agreements shall be effective as against the Holders of Notes. Section 16.03. Authorization of Actions to Be Taken by the Trustee Under the Security Agreements. --------------------------------------------------- Subject to the provisions of Article 7 hereof, the Trustee may, in its sole discretion and without the consent of the Holders of Notes, direct, on behalf of the Holders of Notes, the Collateral Agent to take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Security Agreements and (b) collect and receive any and all amounts payable in respect of the obligations of the Company hereunder. The Trustee shall have power to institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of the Security Agreements or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders of Notes in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders of Notes or of the Trustee). Section 16.04. Authorization of Receipt of Funds by the Trustee Under the Pledge Agreement. ------------------------------------------------------ The Trustee is authorized to receive any funds for the benefit of the Holders of Notes distributed under the Security Agreements and to make further distributions of such funds to the Holders of Notes according to the provisions of this Indenture. Section 16.05. Termination of Security Interest. -------------------------------- Upon the payment in full of all obligations of the Company under this Indenture and the Notes, or upon Legal Defeasance, the Trustee shall, at the request of the Company, deliver a certificate to the Collateral Agent stating that such obligations have been paid in full, and instruct the Collateral Agent to release the Liens pursuant to this Indenture and the Security Agreements. -103- Section 16.06. Amendment of the Security Agreements. ------------------------------------ The Collateral Agent shall not amend the terms of the Security Agreements except in accordance with the terms of Section 10.06 hereof. IN WITNESS WHEREOF, each of GOLDEN NORTHWEST ALUMINUM, INC., NORTHWEST ALUMINUM SPECIALTIES, INC., NORTHWEST ALUMINUM COMPANY, NORTHWEST ALUMINUM TECHNOLOGIES, LLC, GOLDENDALE HOLDING COMPANY and GOLDENDALE ALUMINUM COMPANY has caused this Indenture to be signed and acknowledged by its Chairman of the Board, its President, its Chief Financial Officer or one of its Vice Presidents, and the same to be attested by its Chief Financial Officer or one of its Vice Presidents; and U.S. TRUST COMPANY, NATIONAL ASSOCIATION, has caused this Indenture to be signed and acknowledged by one of its Vice Presidents or Assistant Vice Presidents, all as of the day and year first written above. COMPANY: GOLDEN NORTHWEST ALUMINUM, INC. By:-------------------------------------- Name:--------------------------------- Title:-------------------------------- Attest: SUBSIDIARIES: NORTHWEST ALUMINUM SPECIALTIES, INC. By:-------------------------------------- Name:--------------------------------- Title:-------------------------------- Attest: NORTHWEST ALUMINUM COMPANY By:-------------------------------------- Name:--------------------------------- Title:-------------------------------- Attest: NORTHWEST ALUMINUM TECHNOLOGIES, LLC By:-------------------------------------- Name:--------------------------------- Title:-------------------------------- Attest: GOLDENDALE HOLDING COMPANY By:-------------------------------------- Name:--------------------------------- Title:-------------------------------- Attest: GOLDENDALE ALUMINUM COMPANY By:-------------------------------------- Name:--------------------------------- Title:-------------------------------- Attest: TRUSTEE: U.S. TRUST COMPANY, NATIONAL ASSOCIATION By--------------------------------------- Name:---------------------------------- Title: Authorized Signatory EX-4.2 5 CREDIT AGREEMENT EXECUTION COPY -------------- CREDIT AGREEMENT AMONG THE FINANCIAL INSTITUTIONS NAMED HEREIN BANKBOSTON, N.A., AS ADMINISTRATIVE AGENT U.S. BANK NATIONAL ASSOCIATION, AS DOCUMENTATION AGENT NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM SPECIALTIES, INC. GOLDENDALE ALUMINUM COMPANY AND NORTHWEST ALUMINUM TECHNOLOGIES, LLC Dated: December 21, 1998 TABLE OF CONTENTS SECTION I. DEFINITIONS................................................1 1.1 Definitions................................................1 1.2 Rules of Interpretation...................................19 SECTION II. DESCRIPTION OF CREDIT.....................................20 2.1 Loans.....................................................20 2.2 The Notes.................................................21 2.3 Notice and Manner of Borrowing or Conversion of Loans....................................22 2.4 Funding of Loans..........................................22 2.5 Interest Rates and Payments of Interest. .................24 2.6 Fees......................................................26 2.7 Payments and Prepayments of the Loans.....................27 2.8 Method and Allocation of Payments.........................27 2.9 Eurodollar Indemnity......................................29 2.10 Computation of Interest and Fees..........................29 2.11 Changed Circumstances; Illegality.........................29 2.12 Increased Costs. ........................................31 2.13 Capital Requirements. ...................................31 2.14 Borrowers' Representatives................................32 SECTION IIA LETTERS OF CREDIT.........................................33 2A.1 Issuance..................................................33 2A.3 Letter of Credit Payments.................................34 2A.4 Obligations Absolute......................................35 2A.5 Reliance by the Issuing Bank and the Administrative Agent..................................35 SECTION III. CONDITIONS OF LOANS AND LETTERS OF CREDIT.................36 3.1 Conditions Precedent to Initial Loans.....................36 3.2 Conditions Precedent to all Loans and Letters of Credit.....................................38 SECTION IV. REPRESENTATIONS AND WARRANTIES............................39 4.1 Organization; Qualification; Business.....................40 4.2 Corporate Authority.......................................40 4.3 Valid Obligations.........................................40 4.4 Consents or Approvals.....................................41 4.5 Title to Properties; Absence of Encumbrances..............41 4.6 Financial Statements......................................41 4.7 Changes...................................................42 4.8 Solvency..................................................42 4.9 Defaults..................................................42 4.10 Taxes.....................................................42 4.11 Litigation................................................43 4.12 Subsidiaries..............................................43 4.13 Investment Company Act....................................43 4.14 Compliance................................................43 4.15 ERISA.....................................................44 i 4.16 Environmental Matters.....................................44 4.17 Restrictions on the Borrowers.............................46 4.18 Labor Relations...........................................46 4.19 Margin Rules..............................................46 4.20 Disclosure................................................46 SECTION V. AFFIRMATIVE COVENANTS.....................................47 5.1 Financial Statements......................................47 5.2 Conduct of Business.......................................49 5.3 Maintenance and Insurance.................................50 5.4 Taxes.....................................................50 5.5 Inspection................................................50 5.6 Maintenance of Books and Records..........................51 5.7 Use of Proceeds...........................................51 5.8 Further Assurances........................................51 5.9 Notification Requirements.................................52 5.10 ERISA Reports.............................................52 5.11 Loss or Depreciation of Collateral........................53 5.12 Environmental Compliance..................................53 5.13 Year 2000 Compliance......................................54 5.14 Tolling Agreements; Commingling...........................54 SECTION VI. FINANCIAL COVENANTS.......................................55 6.1 Net Worth.................................................55 6.2 Minimum Excess Availability...............................55 6.3 Capital Expenditures......................................55 SECTION VII. NEGATIVE COVENANTS........................................55 7.1 Indebtedness..............................................55 7.2 Contingent Liabilities....................................56 7.3 Encumbrances..............................................56 7.4 Merger; Consolidation; Sale or Lease of Assets............58 7.5 Speculative Commodity Transactions........................58 7.6 Restricted Payments.......................................58 7.7 Investments; Purchases of Assets..........................59 7.8 ERISA Compliance..........................................60 7.9 Transactions with Affiliates..............................60 7.10 Fiscal Year...............................................61 SECTION VIII. DEFAULTS..................................................61 8.1 Events of Default.........................................61 8.2 Remedies..................................................64 SECTION IX. ASSIGNMENT AND PARTICIPATION..............................65 9.1 Assignment................................................65 9.2 Participations............................................66 ii SECTION X. THE AGENTS................................................67 10.1 Appointment of Agents; Powers and Immunities..............67 10.2 Actions by Agents.........................................68 10.3 Indemnification...........................................69 10.4 Reimbursement.............................................70 10.5 Non-Reliance on Agents and Other Lenders..................70 10.6 Resignation or Removal of an Agent........................71 10.7 Intercreditor Agreements..................................71 SECTION XI. MISCELLANEOUS.............................................72 11.1 Notices...................................................72 11.2 Expenses..................................................73 11.3 Indemnification...........................................74 11.4 Survival of Covenants, Etc................................74 11.5 Set-Off...................................................75 11.6 No Waivers................................................75 11.7 Amendments, Waivers, etc..................................75 11.8 Binding Effect of Agreement...............................76 11.9 Captions; Counterparts....................................76 11.10 Entire Agreement, Etc.....................................77 11.11 Waiver of Jury Trial......................................77 11.12 Governing Law.............................................77 11.13 Severability..............................................77 SCHEDULES SCHEDULE 1 - Commitments of the Lenders EXHIBITS EXHIBIT A - Form of Revolving Credit Note EXHIBIT B - Form of Notice of Borrowing or Conversion EXHIBIT C - Disclosure EXHIBIT D - Form of Report of Chief Financial Officer EXHIBIT E - Form of Borrowing Base Report EXHIBIT F - Assignment and Joinder Agreement iii CREDIT AGREEMENT THIS CREDIT AGREEMENT is made as of December 21, 1998, by and among NORTHWEST ALUMINUM COMPANY ("NAC"), NORTHWEST ALUMINUM SPECIALTIES, INC. ("NAS"), NORTHWEST ALUMINUM TECHNOLOGIES, LLC ("NAT") and GOLDENDALE ALUMINUM COMPANY ("GAC") (each, individually a "Borrower" and, collectively, the "Borrowers"); BANKBOSTON, N.A. ("BKB"); the other financial institutions listed on Schedule 1 attached hereto (together with BKB, the "Lenders"); BANKBOSTON, N.A., as agent for the Lenders (in such capacity, the "Administrative Agent"); and U.S. BANK NATIONAL ASSOCIATION ("US Bank"), as Documentation Agent. WHEREAS, NAC, NAS and NAT are wholly owned Subsidiaries of, and Goldendale Holding Company, a Delaware corporation ("Holding"), is a Subsidiary of Golden Northwest Aluminum, Inc., an Oregon corporation ("GNA"), and GAC is a wholly owned Subsidiary of Holding. WHEREAS, the business relationships among the Borrowers as Subsidiaries of GNA will provide numerous benefits to them; WHEREAS, in order to recognize and support the interrelationships of the Borrowers and to free the management of the Borrowers to best allocate resources within the corporate group of GNA and its Subsidiaries, the Borrowers have requested the Lenders to extend credit in the form of loans and letters of credit, and the Lenders are willing to make loans to the Borrowers and the Issuing Bank is willing to issue Letters of Credit, in each case on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: I. DEFINITIONS ----------- 1.1 Definitions. ----------- All capitalized terms used in this Agreement or in the Notes or in any certificate, report or other document made or delivered pursuant to this Agreement (unless otherwise defined therein) shall have the meanings assigned to them below: Accounts Receivable or Accounts. All of the Borrowers' accounts, accounts receivable, notes, bills, drafts, acceptances, instruments, documents, chattel paper and all other debts, obligations and liabilities in whatever form owing to the Borrowers from any Person for goods sold by them or for services rendered by them, or however otherwise established or created, all guarantees and security therefor, all right, title and interest of the Borrowers in the goods or services which gave rise thereto, including rights to reclamation and stoppage in transit and all rights of an unpaid seller of goods or services; whether any of the foregoing be now existing or hereafter arising, now or hereafter received by or owing or belonging to the Borrowers. Administrative Agent. BKB. Affected Loans. See Section 2.11(a). Affiliate. With reference to any Person, (i) any director, officer or employee of that Person, (ii) any other Person controlling, controlled by or under direct or indirect common control of that Person, (iii) any other Person directly or indirectly holding 5% or more of any class of the capital stock or other equity interests (including options, warrants, convertible securities and similar rights) of that Person and (iv) any other Person 5% or more of any class of whose capital stock or other equity interests (including options, warrants, convertible securities and similar rights) is held directly or indirectly by that Person; provided, however, that for purposes of the definitions of "Plan" and "Multiemployer Plan" in this Section 1.1 and for purposes of Sections 4.15, 5.10, 7.9 and 8.1(i) hereof, "Affiliate" shall mean, within the meaning of Section 414(b), (c), (m) or (o) of the Code, only (i) any member of a controlled group of corporations which includes any of the Borrowers or any Subsidiary of a Borrower, (ii) any trade or business, whether or not incorporated, under common control with any of the Borrowers or any Subsidiary of a Borrower, (iii) any member of an affiliated service group which includes any of the Borrowers or any Subsidiary of a Borrower, and (iv) any member of a group treated as a single employer by regulation with a Borrower or a Subsidiary of a Borrower. Agents. The Administrative Agent and the Documentation Agent. Agreement. This Credit Agreement, including the Exhibits and Schedules hereto, as the same may be supplemented or amended from time to time. Alternate Base Rate. The greater of (i) the rate of interest announced from time to time by the Administrative Agent at its head office as its "Base Rate", and (ii) the Federal Funds Effective Rate plus 1/2 of 1% per annum (rounded upwards, if necessary, to the next 1/8 Of 1%). -2- Applicable Margin. As of any date, with respect to Eurodollar Loans, Base Rate Loans or Letter of Credit Fees, the applicable percentage set forth below opposite the applicable Interest Coverage Ratio:
Applicable Margin ---------------------------------------------------- Interest Eurodollar Base Rate Letter of Coverage Ratio Loans Loans Credit Fees - --------------------- ---------- --------- ----------- greater than or equal 2.00% 0.50% 2.00% to 2.00:1.00 less than 2.00:1.00 2.25% 0.75% 2.25% and greater than or equal to 1.50:1.00 less than 1.50:1.00 2.50% 1.00% 2.50%
Attorneys' Fees. See Section 11.2. Base Rate Loan. Any Loan bearing interest determined with reference to the Alternate Base Rate. Borrowers. As defined in the Preamble and any other wholly-owned Subsidiary of GNA, Holding or a Borrower that has executed a joinder agreement in form reasonably satisfactory to the Administrative Agent and has become a party to the Loan Documents as a "Borrower" thereunder. Borrowers' Accountants. BDO Seidman, LLP or other independent certified public accountants selected by the Borrowers and reasonably acceptable to the Administrative Agent. Borrowing Base. An amount equal to (a) the sum of (i) 85% of the unpaid face amount of all Eligible Accounts, plus (ii) 75% of all Eligible Aluminum Inventory and 50% of all other Eligible Inventory, minus (b) Borrowing Base Reserves, if any, at the date of determination of the Borrowing Base. Borrowing Base Report. A report signed by any Responsible Officer and in substantially the form of Exhibit E hereto. Borrowing Base Reserves. At the time of any determination of the Borrowing Base, such reserves as the Administrative Agent may from time to time determine, in the exercise of its reasonable credit judgment, to establish. Business Day. (i) For all purposes other than as covered by clause (ii) below, any day other than a Saturday, Sunday or legal holiday on which banks in Boston, Massachusetts are open for the conduct of a substantial part of their commercial banking -3- business; and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day that is a Business Day described in clause (i) and that is also a day for trading by and between banks in U.S. Dollar deposits in the interbank Eurodollar market. Capital Expenditures. Without duplication, any expenditure for fixed or capital assets, leasehold improvements, capital leases, installment purchases of machinery and equipment, acquisitions of real estate and other similar expenditures including (i) in the case of a purchase, the entire purchase price (whether or not paid during the fiscal period in question) to the extent required to be recorded under GAAP as of the time of determination, (ii) in the case of a capital lease, the entire amount capitalized under GAAP as of the time of determination, and (iii) expenditures in any construction in progress account of the Borrowers; provided, however that cell relining costs, including the costs of rebuilding anodes and cathodes, incurred in the ordinary course of business and consistent with past practices, shall not be included in "Capital Expenditures", whether or not capitalized for book or tax purposes. Closing Date. The first date on which the conditions set forth in Sections 3.1 and 3.2 have been satisfied and any Loans are to be made hereunder. Code. The Internal Revenue Code of 1986 and the rules and regulations thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect. Collateral. All of the property, rights and interests of the Borrowers and their Subsidiaries that are or are intended to be subject to the security interests and liens created by the Security Documents. Commitment. In relation to any particular Lender, the maximum dollar amount which such Lender has agreed to loan to the Borrowers or make available to the Borrowers pursuant to Letter of Credit Participations upon the terms and subject to the conditions of this Agreement, initially as set forth on Schedule 1 attached hereto and as such Lender's Commitment may be modified pursuant hereto and in effect from time to time. Schedule 1 shall be amended from time to time to reflect any changes in the Commitments of the Lenders. Commitment Fee. See Section 2.6(a). Commitment Percentage. In relation to any particular Lender, the percentage which such Lender's Commitment represents of the aggregate Commitments of all the Lenders, initially as set forth on Schedule 1 attached hereto, as such Lender's Commitment Percentage may be modified pursuant hereto and in effect from -4- time to time. Schedule 1 shall be amended from time to time to reflect any changes in the Commitment Percentages of the Lenders. Consolidated Net Income. For any fiscal period, the consolidated gross revenues of GNA and its Subsidiaries for such period, less all expenses and other proper charges, all determined in accordance with GAAP, but in any event there shall be excluded or deducted from such gross revenues: (i) any gain or loss arising from any write-up of assets, except to the extent inclusion thereof shall be approved in writing by the Majority Lenders; (ii) earnings of any Subsidiary accrued prior to the date it became a Subsidiary; (iii) any extraordinary or nonrecurring gains; (iv) any deferred or other credit representing any excess of the equity of any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (v) the net earnings of any business entity (other than a Subsidiary) in which GNA or any Subsidiary has an ownership interest, except to the extent such net earnings shall have actually been received by GNA or such Subsidiary in the form of cash distributions; (vi) the proceeds of any life insurance policy; (vii) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall be made from income arising during such period; and (viii) for any period when a Borrower is an S Corporation, an amount equal to the Sub S Distribution Amount with respect to such Borrower. Consolidated Net Worth. At any date as of which the amount thereof shall be determined, the consolidated total assets of GNA and its Subsidiaries, with Inventory and cost of goods determined on an average "first in, first out" basis consistent with the Borrowers' past practices, plus the value of the minority interests in Holding, and minus (a) Consolidated Total Liabilities and (b) the sum of any amounts attributable to (i) all reserves not already deducted from assets or included in Consolidated Total Liabilities, (ii) any write-up in the book value of assets resulting from any revaluation thereof subsequent to the date of the Initial Financial Statements, (iii) intercompany accounts with Subsidiaries and Affiliates (including receivables due from Subsidiaries and Affiliates), (iv) the value, if any, attributable to any capital stock of GNA or any Subsidiary held in treasury, (v) the value, if any, attributable to any notes or subscriptions receivable due from stockholders in respect of capital stock; and, (vi) an amount equal to the excess, if any, of the Sub S Distribution Amount for the twelve months preceding the date of computation of Consolidated Net Worth over the total amount distributed to stockholders in respect to such twelve month period pursuant to Section 7.6(b) and deducted in computing such Consolidated Net Worth. Consolidated Total Liabilities. At any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP, be classified as liabilities on the -5- consolidated balance sheet of GNA and its Subsidiaries, including in any event all Indebtedness but excluding the value of any minority interests in Subsidiaries. Continuing Directors. Any member of the Board of Directors of GNA who (i) was a member of such Board of Directors on December 21, 1998, or (ii) was nominated for election or elected or appointed to such Board of Directors by the Board of Directors of GNA at a time when a majority of such Board (excluding any member whose service terminated as a result of death) consisted of Continuing Directors. Contra Customer. Any customer or other Person with whom any Borrowers has a contract or agreement of any kind (including an account payable) and in respect of whom there is an Account included in Eligible Accounts. Default. An Event of Default or event or condition that, but for the requirement that time elapse or notice be given, or both, would constitute an Event of Default. Documentation Agent. US Bank. Drawdown Date. The Business Day on which any Loan is made or is to be made. EBITDA. For any fiscal period, an amount equal to Consolidated Net Income for such period, plus the following, to the extent deducted or excluded in computing such Consolidated Net Income: (i) Interest Expense, (ii) taxes, (iii) depreciation, (iv) amortization, and (v) the Sub S Distribution Amount plus the amount of any distribution in respect of interest and penalties as permitted by Section 7.6(b) which are not otherwise deducted in computing Consolidated Net Income. Eligible Accounts. An Account Receivable which: (a) is not unpaid more than 90 days after invoice date under the original terms of sale and not more than 60 days past due, unless the original terms of sale are 90 days, in which event such Account Receivable shall not be unpaid more than 120 days after invoice date and not more than 60 days past due; (b) arose in the ordinary course of a Borrower's business as a result of services which have been performed for the account debtor or the sale of goods which have been shipped to the account debtor; (c) is the legal, valid and binding obligation of the account debtor thereunder, is assignable, is owned by a Borrower free and clear of all Encumbrances (except in favor of the Administrative Agent) and is subject to a valid, perfected first -6- security interest of the Administrative Agent (and, if the account debtor is the United States of America or any agency or instrumentality thereof, the Borrower's right to payment has been assigned to the Administrative Agent in compliance with the Assignment of Claims Act of 1940, as amended) and is not evidenced by a promissory note or other instrument; (d) has not been reduced and is not subject to reduction, as against the Borrowers, their agents or the Administrative Agent, by any offset, counterclaim, adjustment, credit, allowance or other defense, and as to which there is no (and no basis for any) return, rejection, loss or damage of or to the goods giving rise thereto, or any request for credit or adjustments; (e) is not difficult to collect or uncollectible for any reason, including, without limitation, return, rejection, repossession, loss or damage of or to the merchandise giving rise thereto, a merchandise or other dispute, any bankruptcy, insolvency, adverse credit rating or other financial difficulty of the account debtor, or any impediment to the assertion of a claim or commencement of an action against the account debtor (including as a consequence of a failure of the Borrowers to be qualified or licensed in any jurisdiction where such qualification or licensing is required), all as reasonably determined by the Administrative Agent in its sole discretion; (f) is not owing from any Affiliate of the Borrowers; (g) is owing from an account debtor (i) located in the United States, or (ii) located outside of the United States if, (x) the payment of each Account owing from an account debtor located outside of the United States is secured by a letter of credit satisfactory in amount and terms to the Administrative Agent and issued by a bank satisfactory to the Administrative Agent or is otherwise secured or payment thereof is otherwise assured in a manner reasonably satisfactory to the Administrative Agent, and (y) the aggregate amount of such Accounts included in Eligible Accounts shall not at any time exceed $5,000,000; (h) is owing from an account debtor at least 80% of whose accounts payable owing to the Borrowers are Eligible Accounts; (i) if owing from any Contra Customer, will be deemed eligible (x) if and to the extent the Contra Customer has executed and delivered to the Administrative Agent a waiver of its right of set-off in form reasonably satisfactory to the Administrative Agent, or (y) if no such waiver has been executed and delivered, only to the extent such Account exceeds the total amount of the Borrowers' accounts payable to such Contra Customer; and -7- (j) has not been designated by the Administrative Agent, in the exercise of its reasonable credit judgment, by notice to the Borrowers as unacceptable for any reason. Eligible Aluminum Inventory. Eligible Inventory of the Borrowers consisting of finished aluminum which is of good merchantable quality and is in industry standard, readily-saleable form and as to which there exists an organized terminal market. Eligible Commodity Contracts. Commodity futures contracts, commodity swap agreements, options on commodity swap agreements and any other agreements or arrangements, in each case designed to provide protection against fluctuations in commodity prices and not designed or used to engage in speculative transactions with respect to commodities. Eligible Interest Rate Contracts. Interest Rate Contracts approved by the Administrative Agent (such approval not to be unreasonably withheld or delayed). Eligible Inventory. Inventory of the Borrowers: (a) which is finished goods or raw materials in first class condition, merchantable and saleable through normal trade channels; (b) which is not work-in-process, bath in cells, capitalized labor, cast house spare parts or Stores Inventory, is not damaged or defective, and is not obsolete, waste or defective goods; (c) calculated at the lesser of fair market value or cost determined on an average "first-in, first-out" basis, consistent with the Borrowers' past practices, after taking into account charges and Encumbrances (other than those in favor of the Administrative Agent) of all kinds against such Inventory and changes from time to time and at any time in the market value thereof, all as reasonably determined by the Administrative Agent in its discretion; provided that the fair market value of Eligible Aluminum Inventory shall be determined based on the Mid-West, U.S. Transaction Week average price, as published by Platt's Metals Week; (d) as to which the Borrowers have good title, free and clear of all Encumbrances (except in favor of the Administrative Agent), and the Administrative Agent has a valid, perfected first lien; (e) which is not consigned to any Person, except to the extent that the Borrowers have made, to the reasonable satisfaction of the Administrative Agent, all filings under -8- applicable law to preserve the interest of the Borrowers and the Administrative Agent in such consigned Inventory; provided that in no event shall Eligible Inventory include more than $5,000,000 of consigned Inventory at any time; (f) which is not subject to any Tolling Agreement; (g) which is located where the Borrowers are permitted to keep their Inventory in accordance with the Security Documents; and (h) which has not been designated by the Administrative Agent, in the exercise of its reasonable credit judgment, by notice to the Borrowers as unacceptable for any reason. Encumbrances. See Section 7.3. ERISA. The Employee Retirement Income Security Act of 1974 and the rules and regulations thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect. Environmental Laws. Any and all applicable federal, state and local environmental, health or safety statutes, laws, regulations, rules and ordinances (whether now existing or hereafter enacted or promulgated), and all applicable judicial, administrative and regulatory decrees, judgments and orders, including common law rulings and determinations, relating to injury to, or the protection of, real or personal property or human health or the environment, including, without limitation, all requirements pertaining to reporting, licensing, permitting, investigation, remediation and removal of emissions, discharges, releases or threatened releases of Hazardous Materials into the environment or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of such Hazardous Materials. Eurodollar Loan. Any Loan bearing interest at a rate determined with reference to the Eurodollar Rate. Eurodollar Rate. With respect to any Eurodollar Loan for any Interest Period, the rate of interest determined by the Administrative Agent to be the prevailing rate per annum at which deposits in U.S. Dollars are offered to the Administrative Agent by first-class banks in the interbank Eurodollar market in which it regularly participates on or about 10:00 a.m. (Boston time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Eurodollar Loan to which such Interest Period is to apply for a period of time approximately equal to such Interest Period. -9- Eurodollar Reserve Percentage. For any Interest Period, the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves), expressed as a decimal, established by the Board of Governors of the Federal Reserve System and any other banking authority, domestic or foreign, to which any Lender is subject with respect to "Eurocurrency Liabilities" (as defined in regulations issued from time to time by such Board of Governors). The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any such reserve percentage. Event of Default. Any event described in Section 8.1. Facilities Investment Program. Projects for the expansion of GAC's casthouse and the upgrade of GAC's and NAC's cell lines, including, among other things, point-feeders to control alumina additions, magnetic compensation to stabilize cell operations, cathode redesign to optimize heat balance, computer controls and other related technological improvements. Federal Funds Effective Rate. For any day, a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. Fees. Commitment Fees, Letter of Credit Fees and Fronting Fees. Fronting Fee. See Section 2.6. GAAP. Generally accepted accounting principles, consistently applied (except any change in application in connection with the capitalization of cell relining costs), and as in effect as of the date of application thereof. Glencore Tolling Agreement. The Aluminum Toll Conversion Agreement between Glencore Ltd. (formerly Clarendon Ltd.) and NAC dated September 15, 1986, as amended and extended as of May 4, 1988, October 1, 1991, March 1, 1992 and September 21, 1994. Guarantees. As applied to the Borrowers, all guarantees, endorsements or other contingent or surety obligations with respect to obligations of others, whether or not reflected on the consolidated balance sheet of GNA and its Subsidiaries, including -10- any obligation to furnish funds, directly or indirectly (whether by virtue of partnership arrangements, by agreement to keep-well or otherwise), through the purchase of goods, supplies or services, or by way of stock purchase, capital contribution, advance or loan, or to enter into a contract for any of the foregoing, for the purpose of payment of obligations of any other Person or entity. Hazardous Material. Any substance (i) the presence of which requires or may hereafter require notification, removal or remediation under any Environmental Law; (ii) which is or becomes defined as a "hazardous waste", "hazardous material" or "hazardous substance" under any present or future Environmental Law or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and any applicable local statutes and the regulations promulgated thereunder; (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and which is or becomes regulated pursuant to any Environmental Law by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or any political subdivision thereof; or (iv) without limitation, which contains gasoline, diesel fuel or other petroleum products, asbestos or polychlorinated biphenyls ("PCB's"). Holding Guaranty. The Guaranty of even date herewith made by Holding in favor of the Agents, the Lenders and the Issuing Bank, guarantying all Obligations. Holding Preferred Stock. The shares of Preferred Capital Stock of Holding now or hereafter owned by the ESOP. Hydro. Norsk Hydro USA, Inc., a Delaware corporation. Hydro Debt. All Indebtedness and other obligations of GNA and the Borrowers under the Hydro Debt Documents. Hydro Debt Documents. The Subordinated Note Purchase Agreement of even date herewith between GNA and Hydro, the subordinated notes issued by GNA to Hydro pursuant thereto, the Pledge Agreement of even date herewith between GNA and Hydro, the Subsidiary Pledge Agreement of even date herewith between Holding and Hydro, the Subsidiary Guaranty of even date herewith made by the Borrowers and Holding in favor of Hydro and the Security Agreement of even date herewith among the Borrowers, Holding and Hydro, all as in effect on the date hereof, without giving effect to any amendment, modification or supplement thereto. Hydro Security Documents. The "Collateral Documents" (as such term is defined in the Hydro Debt Documents), as in effect -11- on the date hereof, without giving effect to any amendment, modification or supplement thereto. Hydro Tolling Agreement. The Agreement to Toll Convert Alumina into Aluminum (Tolling Contract), dated as of May 22, 1996, between GAC and Hydro Aluminum Louisville, Inc., as amended to date. Indebtedness. As applied to GNA and its Subsidiaries, without duplication, (i) all obligations for borrowed money or other extensions of credit, whether secured or unsecured, absolute or contingent, including, without limitation, unmatured reimbursement obligations with respect to letters of credit or guarantees issued for the account of or on behalf of GNA and its Subsidiaries and all obligations representing the deferred purchase price of property, other than accounts payable and accrued liabilities arising in the ordinary course of business, (ii) all obligations evidenced by bonds, notes, debentures or other similar instruments, (iii) all obligations secured by any mortgage, pledge, security interest or other lien on property owned or acquired by GNA or any of its Subsidiaries, whether or not the obligations secured thereby shall have been assumed, (iv) that portion of all obligations arising under leases that is required to be capitalized on the consolidated balance sheet of GNA and its Subsidiaries, (v) all Guarantees, (vi) all obligations that are immediately due and payable out of the proceeds of or production from property now or hereafter owned or acquired by GNA or any of its Subsidiaries, and (vii) obligations in respect of Interest Rate Contracts and Eligible Commodity Contracts. Initial Financial Statements. See Section 4.6. Initial Lenders. BKB and the other financial institutions who have signed this Agreement and have become Lenders on the date hereof. Intercreditor Agreements. The Intercreditor Agreement of even date herewith between the Administrative Agent and U.S. Trust Company, National Association, as Trustee, and the Intercreditor and Subordination Agreement of even date herewith between the Administrative Agent and Norsk Hydro USA, Inc., in each case as amended from time to time. Interest Coverage Ratio. As of the end of any month, the ratio of EBITDA to Interest Expense for the twelve consecutive months then ended. Interest Expense. For any fiscal period, the consolidated interest expense (including imputed interest on capitalized lease -12- obligations) and amortized debt discount on Indebtedness of GNA and its Subsidiaries for such period. Interest Period. With respect to each Eurodollar Loan, the period commencing on the date of the making or continuation of or conversion to such Eurodollar Loan and ending one (1), two (2), three (3) or six (6) months thereafter, or, if consented to by all the Lenders, twelve (12) months thereafter, as the Borrowers may elect in the applicable Notice of Borrowing or Conversion; provided that: (i) any Interest Period (other than an Interest Period determined pursuant to clause (iii) below) that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Business Day of a calendar month; (iii) any Interest Period that would otherwise end after the Maturity Date of a Loan shall end on such Maturity Date; and (iv) notwithstanding clause (iii) above, no Interest Period shall have a duration of less than one month, and if any Interest Period applicable to a Loan would be for a shorter period, such Interest Period shall not be available hereunder. Interest Rate Contracts. Interest rate swap agreements, interest rate collar agreements, options on any of the foregoing and any other agreements or arrangements designed to provide protection against fluctuations in interest rates, in each case purchased by a Borrower from a Lender with respect to Loans. Inventory. All of Borrowers' inventory of whatever name, nature, kind or description, all goods held for sale or lease or to be furnished under contracts of service, finished goods, work in process, raw materials, materials used or consumed by the Borrowers, parts, supplies, all wrapping, packaging, advertising, labeling, and shipping materials, devices, names and marks, all contracts, rights and documents relating to any of the foregoing, whether any of the foregoing be now existing or hereafter arising, wherever located, now owned or hereafter acquired by Borrowers. -13- Investment. As applied to the Borrowers, the purchase or acquisition of any share of capital stock, partnership interest, evidence of indebtedness or other equity security of any other Person (including any Subsidiary), any loan, advance or extension of credit (excluding Accounts Receivable arising in the ordinary course of business) to, or contribution to the capital of, any other Person (including any Subsidiary), any real estate held for sale or investment, any securities or commodities futures contracts held, any other investment in any other Person (including any other Borrowers or any Subsidiary), and the making of any commitment or acquisition of any option to make an Investment. Issuing Bank. BKB. Lenders. BKB, the other financial institutions listed on Schedule 1 attached hereto and each other Person that may after the date hereof become a party to this Agreement as a "Lender" hereunder. Letters of Credit. See Section 2A.l(a). Letter of Credit Applications. Applications for Letters of Credit in such form as may be required by the Issuing Bank from time to time which are executed and delivered by the Borrowers to the Issuing Bank pursuant to Section 2A, as the same may be amended or supplemented from time to time. Letter of Credit Fee. See Section 2.6(b). Letter of Credit Participation. See Section 2A.1(b). Letter of Credit Sublimit. $3,000,000. Loan Documents. This Agreement, the Notes, the Letter of Credit Applications, the Security Documents, the Holding Guaranty, the Intercreditor Agreements and a Contribution Agreement of even date herewith among the Borrowers, together with any agreements, instruments or documents executed and delivered pursuant to or in connection with any of the foregoing. Loans. The Loans made or to be made by the Lenders to the Borrowers pursuant to Section II of this Agreement. Majority Lenders. As of any date, the holders of fifty-one percent (51%) of the outstanding principal amount of the Notes on such date; and if no such principal is outstanding, the holders of fifty-one percent (51%) of the total Commitments. Maturity Date. December 20, 2003. -14- Maximum Drawing Amount. The maximum aggregate amount from time to time that beneficiaries may draw under outstanding Letters of Credit. Multiemployer Pension Plan. A Multiemployer Plan that is subject to Subtitle E of Title IV of ERISA. Multiemployer Plan. An employee benefit plan that is a Multiemployer Plan within the meaning of Section 3(37) of ERISA to which a Borrower or any Affiliate of a Borrower contributes or has been obligated to contribute. Note Record. Any internal record, including a computer record, maintained by any Lender with respect to any Loan. Notes. Any or all of the Revolving Credit Notes. Notice of Borrowing or Conversion. The notice, substantially in the form of Exhibit B hereto, to be given by the Borrowers to the Administrative Agent to request a Loan or to convert an outstanding Loan of one Type into a Loan of another Type, in accordance with Section 2.3. Obligations. Any and all obligations of the Borrowers to the Agents, the Issuing Bank and the Lenders of every kind and description pursuant to or in connection with the Loan Documents, Eligible Interest Rate Contracts and Eligible Commodity Contracts purchased by a Borrower from a Lender, direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, regardless of how they arise or by what agreement or instrument, if any, and including obligations to perform acts and refrain from taking action as well as obligations to pay money. Offering Memorandum. The definitive Offering Memorandum dated December 14, 1998, for the Senior Notes. PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. Pension Plan. Any Plan which is an "employee pension benefit plan" (as defined in ERISA). Permitted Encumbrances. See Section 7.3. Permitted Guarantees. The Guarantees of up to $150,000,000 in principal amount of the Senior Debt and of up to $30,000,000 in principal amount of the Hydro Debt of even date herewith made by the Borrowers and Holding, as in effect and delivered to the Administrative Agent on the date hereof, without any amendments or modifications thereto. -15- Person. Any individual, corporation, partnership, trust, unincorporated association, limited liability company, business or other legal entity, and any government or governmental agency or political subdivision thereof. Plan. Any "employee pension benefit plan" or "employee welfare benefit plan" (each as defined in ERISA) maintained by the Borrowers or any Affiliate of a Borrowers. Prohibited Transaction. Any "prohibited transaction" as defined in ERISA and Section 4975 of the Code. Qualified Investments. As applied to the Borrowers and their Subsidiaries, investments in (i) notes, bonds or other obligations of the United States of America or any agency thereof that as to principal and interest constitute direct obligations of or are guaranteed by the United States of America; (ii) certificates of deposit of any commercial bank incorporated under the laws of the United States, or any state, territory or commonwealth thereof, of recognized standing having capital and unimpaired surplus in excess of $100,000,000 and whose short-term commercial paper rating at the time of acquisition is at least A- 2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc. (any such bank, an "Approved Bank"), which certificates of deposit have maturities of not more than one year from the date of acquisition; (iii) repurchase obligations with a term of not more than 31 days for underlying securities of the types described in clauses (i), (ii) and (iv) of this definition entered into with any Approved Bank; (iv) commercial paper or finance company paper issued by any Person incorporated under the laws of the United States, or any state thereof, and rated at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc., and in each case maturing not more than one year from the date of acquisition; (v) investments in money market funds that are registered under the Investment Company Act of 1940, which have net assets of at least $100,000,000 and at least 85% of whose assets consist of investments or other obligations of the type described in clauses (i) through (iv) above; (vi) advances to employees for business related expenses to be incurred in the ordinary course of business and consistent with past practices in an amount not to exceed $50,000 in the aggregate outstanding at any one time, provided that advances to any single employee shall not exceed $10,000 in the aggregate, and (vii) stock and other securities received in settlement of defaulted Accounts Receivable in the ordinary course of business. Reimbursement Obligation. The Obligation of the Borrowers to reimburse the Issuing Bank and the Lenders on account of any drawing under any Letter of Credit as provided in Section 2A.2. -16- Responsible Officer. The chief financial officer of NAC and any other officer of NAC designated by such chief financial officer to sign Borrowing Base Reports and Notices of Borrowing or Conversion. Restricted Payment. Any dividend, distribution, loan, advance, guaranty, extension of credit or other payment, whether in cash or property to or for the benefit of any Person who holds an equity interest in GNA, Holding, any of the Borrowers or any of their Subsidiaries, whether or not such interest is evidenced by a security. Revolving Credit Loan. See Section 2.1(a) hereof. Revolving Credit Notes. See Section 2.2. S Corporation. A corporation which is an "S corporation" within the meaning of Section 1361 of the Code, a "qualified subchapter S subsidiary" within the meaning of Section 1361(b)(3)(B) of the Code or a Person who has elected to be taxed as a pass-through entity or otherwise ignored for federal income tax purposes. Security Agreement. The Security Agreement between the Borrowers and the Administrative Agent, dated the Closing Date, as amended and in effect from time to time. Security Documents. The Security Agreement, collateral assignments of the Glencore Tolling Agreement and the Hydro Tolling Agreement and an Indemnity Agreement Regarding Hazardous Materials, each between the Borrowers and the Administrative Agent and dated as of the Closing Date, in each case as amended and in effect from time to time, and any additional documents evidencing or perfecting the Administrative Agent's lien on the Collateral. Senior Debt. All Indebtedness and other obligations under the Senior Debt Indenture and the Senior Notes. Senior Debt Indenture. The Indenture dated as of December 21, 1998 among GNA, as issuer, the Borrowers and Holding, as guarantors, and U.S. Trust Company, National Association, as Trustee, pursuant to which GNA issued the Senior Notes, as in effect on the date hereof, without giving effect to any amendments, modifications or supplements thereto. Senior Debt Security Documents. The "Security Agreements" (as such term is defined in the Senior Debt Indenture), as in effect on the date hereof, without giving effect to any amendments, modifications or supplements thereto. -17- Senior Notes. GNA's First Mortgage Notes due 2006 in the aggregate principal amount of $150,000,000, as issued, outstanding and in effect on the date hereof, without giving effect to any amendment, modification or supplement thereto. Settlement Date. See Section 2.4(b). Stores Inventory. Stores and supplies used in the general maintenance of machinery or equipment (including, without limitation, spare parts, electric motors and pipes) and fuel oil, now owned or hereafter acquired by any of the Borrowers, which are used or consumed or held for use in the business of any of the Borrowers. Sub S Distribution Amount. For any period when a Borrower or any of its Subsidiaries is an S Corporation, an amount equal to the maximum amount sufficient to cover payment of the expected Federal and state income taxes attributable to the ownership of such Borrower's common equity (or, in the case of a Subsidiary, attributable to such Borrower's ownership of such Subsidiary's common equity), based on the highest Federal and state income tax rates that could be applicable to any holder of such common equity, as determined through the end of the period in question, provided, however, that in no event shall the Sub S Distribution Amount for any year exceed the actual amount of Federal and state income taxes attributable to the ownership of such Borrower's common equity. Subsidiary. Any corporation, association, limited liability company, joint stock company, business trust or other similar organization of which 50% or more of the ordinary voting power for the election of a majority of the members of the board of directors or other governing body of such entity is held or controlled by GNA or any of the Borrowers or a Subsidiary of GNA or any of the Borrowers; or any other such organization the management of which is directly or indirectly controlled by GNA or any of the Borrowers or a Subsidiary of GNA or any of the Borrowers through the exercise of voting power or otherwise; or any joint venture, whether incorporated or not, or partnership in which GNA or any of the Borrowers or any Subsidiary of GNA or any of the Borrowers has a 50% or greater ownership interest. Tolling Agreement. Any arrangement or agreement whereby any of the Borrowers accepts goods from any other Person (including an Affiliate) for processing, manufacturing or other similar arrangements. Total Commitment. The sum of the Commitments of the Lenders as in effect from time to time, which as of the Closing Date shall be $75,000,000 and which may be any lesser amount, including zero, resulting from a termination or reduction of such amount in accordance with Sections 2.1 and 8.2 hereof. -18- Total Outstandings. At any time, the sum of (i) the aggregate outstanding principal balance of the Loans at the time and (ii) the Maximum Drawing Amount at the time. Type. A Eurodollar Loan or a Base Rate Loan. Voting Stock. With respect to any Person, the capital stock of such Person having general voting power under ordinary circumstances to elect a least a majority of the Board of Directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). Year 2000 Compliant. With respect to any Person, all software, embedded microchips and other processing capabilities and equipment utilized by and material to the business operations or financial condition of such Person that are able to interpret and manipulate data involving all calendar dates correctly and without causing any abnormal ending scenario, including, without limitation, in the case of dates or time periods occurring or ending after December 31, 1999, the ability to function at least as effectively as in the case of time periods occurring or ending prior to January 1, 2000. 1.2 Rules of Interpretation. ----------------------- (a) All terms of an accounting character used herein but not defined herein shall have the meanings assigned thereto by GAAP. All calculations for the purposes of Section VI hereof shall be made in accordance with GAAP. (b) A reference to any document or agreement shall include such document or agreement as amended, restated, modified or supplemented and in effect from time to time in accordance with its terms and the terms of this Agreement. (c) The singular includes the plural and the plural includes the singular. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) The words "include", "includes" and "including" are not limiting. (f) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Agreement as a whole and not to any particular section or subdivision of this Agreement. -19- (g) All terms not specifically defined herein or by GAAP that are defined in the Uniform Commercial Code as in effect in The Commonwealth of Massachusetts, have the meanings assigned to them in such Uniform Commercial Code. (h) The term "to the best knowledge of" a Borrower, or any other term of similar import, means to the actual knowledge of any executive officer of a Borrower or any employee of a Borrower with management responsibility for the subject matter as to which a Borrower's knowledge is relevant. II. DESCRIPTION OF CREDIT --------------------- 2.1 Loans. ----- (a) Revolving Credit Loans. Upon the terms and subject to the conditions of this Agreement, and in reliance upon the representations, warranties and covenants of the Borrowers herein, each of the Lenders agrees, severally and not jointly, to make revolving credit loans (the "Revolving Credit Loans") to the Borrowers at NAC's request from time to time from and after the Closing Date and prior to the Maturity Date, provided that the Total Outstandings (after giving effect to all requested Revolving Credit Loans and Letters of Credit) shall not at any time exceed the lesser of (i) the Borrowing Base and (ii) the Total Commitment, and provided, further that the sum of the aggregate principal amount of outstanding Revolving Credit Loans made by each Lender and all outstanding Letter of Credit Participations of such Lender shall not at any time (after giving effect to all requested Revolving Credit Loans and Letters of Credit) exceed such Lender's Commitment. The Borrowers may borrow, repay, prepay and reborrow Revolving Credit Loans, up to the limits imposed by this Section 2.1, from time to time between the Closing Date and the Maturity Date upon request given by NAC to the Administrative Agent pursuant to Section 2.3. Each request for a Revolving Credit Loan or Letter of Credit hereunder shall constitute a representation and warranty by the Borrowers that the conditions set forth in Sections 3.1 and 3.2 have been satisfied as of the date of such request. -20- (b) Limitations. No Eurodollar Loan shall be requested or made for less than a minimum of $1,000,000 in principal amount and in integral multiples of $100,000 in excess of such minimum amount and no Base Rate Loan shall be requested or made for less than a minimum of $50,000 in principal amount. No more than five Eurodollar Loans may be outstanding at any time. (c) Conversion of Loans. Upon the terms and subject to the conditions of this Agreement, the Borrowers may convert all or any part (in integral multiples of $500,000) of any outstanding Loan of one Type into a Loan of another Type on any Business Day (which, in the case of a conversion of an outstanding Eurodollar Loan shall be the last day of the Interest Period applicable to such Eurodollar Loan). The Borrowers shall give the Administrative Agent prior notice of each such conversion (which notice shall be effective upon receipt) in accordance with Section 2.3. (d) Termination or Reduction of Commitments. All Commitments shall terminate on the Maturity Date. Subject to the provisions of Section 2.7(c) regarding mandatory payments, the Borrowers shall have the right at any time and from time to time upon seven (7) days' prior written notice to the Administrative Agent to reduce by $1,000,000, and in integral multiples of $500,000 if in excess thereof, the Total Commitment or to terminate entirely the Lenders' Commitments to make Loans hereunder, whereupon the Commitments of the Lenders shall be reduced pro rata in accordance with their respective Commitment Percentages by the aggregate amount specified in such notice or shall, as the case may be, be terminated entirely. If, as a result of any such reduction of the Total Commitment, the Maximum Drawing Amount at the time would exceed the Total Commitment or the amount of Letters of Credit permitted to be outstanding under Sections 2.1(a) and 2A.1(a) hereof, the Borrowers shall, as a condition precedent to any such reduction, deposit with and pledge to the Administrative Agent for the benefit of the Lenders and the Issuing Bank cash in an amount equal to 105% of such excess. If any Letters of Credit would remain outstanding after the effective date of any such termination of the Total Commitment, in addition to satisfaction of all other applicable terms and conditions of this -21- Agreement, the Borrowers shall deposit with and pledge to the Administrative Agent for the benefit of the Lenders and the Issuing Bank cash in an amount equal to 105% of the Maximum Drawing Amount at the effective date of such termination. No reduction or termination of any Commitment may be reinstated. 2.2 The Notes. The Revolving Credit Loans shall be evidenced by separate promissory notes for each Lender in a principal amount equal to such Lender's Commitment, each such note to be substantially in the form of Exhibit A hereto, dated as of the Closing Date and completed with appropriate insertions (each such note being referred to herein as a "Revolving Credit Note" and collectively as the "Revolving Credit Notes"). The Borrowers irrevocably authorize each of the Lenders to make or cause to be made, at or about the time of the Drawdown Date of any Revolving Credit Loan or at the time of receipt of any payment of principal on the Notes, an appropriate notation on its Note Record reflecting (as the case may be) the making of such Loan or the receipt of such payment. The outstanding amount of the Loans set forth on the Note Records shall be prima facie evidence of the principal amount thereof owing and unpaid to such Lenders, but the failure to record, or any error in so recording, any such amount on any Lender's Note Record shall not limit or otherwise affect the obligations of the Borrowers hereunder or under any Note to make payments of principal of or interest on any Note when due. 2.3 Notice and Manner of Borrowing or Conversion of Loans. ----------------------------------------------------- (a) Whenever the Borrowers desire to obtain or continue a Loan hereunder or convert an outstanding Loan into a Loan of another Type, NAC shall give the Administrative Agent a written Notice of Borrowing or Conversion (or a telephonic notice promptly confirmed by a written Notice of Borrowing or Conversion), which Notice shall be irrevocable and which must be received no later than 3:00 p.m. Boston time on the date (i) one Business Day before the day on which the requested Loan is to be made as or converted to a Base Rate Loan, and (ii) three Business Days before the day on which the requested Loan is to be made or continued as or converted to a Eurodollar Loan. Such Notice of Borrowing or Conversion shall specify (i) the effective date and amount of each Loan or portion thereof requested to be made, continued or converted, subject to the limitations -22- set forth in Section 2.1, (ii) the interest rate option requested to be applicable thereto, and (iii) the duration of the applicable Interest Period, if any (subject to the provisions of the definition of the term "Interest Period"). If such Notice fails to specify the interest rate option to be applicable to the requested Loan, then the Borrowers shall be deemed to have requested a Base Rate Loan. If the written confirmation of any telephonic notification differs in any material respect from the action taken by the Administrative Agent, the records of the Administrative Agent shall control absent manifest error. (b) Subject to the provisions of the definition of the term "Interest Period" herein, the duration of each Interest Period for a Eurodollar Loan shall be as specified in the applicable Notice of Borrowing or Conversion. If no Interest Period is specified in a Notice of Borrowing or Conversion with respect to a requested Eurodollar Loan, then the Borrowers shall be deemed to have selected an Interest Period of one month's duration. If the Administrative Agent receives a Notice of Borrowing or Conversion after the time specified in subsection (a) above, such Notice shall not be effective. If the Administrative Agent does not receive an effective Notice of Borrowing or Conversion with respect to an outstanding Eurodollar Loan, or if, when such Notice must be given prior to the end of the Interest Period applicable to such outstanding Loan, the Borrowers shall have failed to satisfy any of the conditions hereof, the Borrowers shall be deemed to have elected to convert such outstanding Loan in whole into a Base Rate Loan on the last day of the then current Interest Period with respect thereto. 2.4 Funding of Loans. ---------------- (a) Loans shall be made by the Lenders pro rata in accordance with their respective Commitment Percentages, provided, however, that the failure of any Lender to make any Loan shall not relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). -23- (b) Each of the Lenders authorizes the Administrative Agent to advance all Revolving Credit Loans which are requested by the Borrowers during any calendar week, subject to the terms and conditions of this Agreement. On such day or days as the Administrative Agent shall designate, but at least once per week (each such day being referred to herein as a "Settlement Date"), whether or not the Commitments have been terminated, a Default has occurred, the Obligations have been accelerated or the Administrative Agent is proceeding to liquidate the Collateral, the Administrative Agent shall, as promptly as practicable during normal business hours, effect a wire transfer of immediately available funds to each Lender of the amount, if any, payable to such Lender, or each Lender shall transfer to the Administrative Agent sufficient immediately available federal funds to reimburse the Administrative Agent for each such Lender's pro rata share of all Revolving Credit Loans made by the Administrative Agent since the previous Settlement Date, in each case after taking into account payments and collections received by the Administrative Agent and applied to the Revolving Credit Loans, so that after giving effect to such transfers by the Administrative Agent to the Lenders or by the Lenders to the Administrative Agent, as the case may be, the Administrative Agent's Note Record shall correctly reflect each Lender's pro rata share of outstanding Revolving Credit Loans. All Revolving Credit Loans made by the Administrative Agent on behalf of the Lenders (including Revolving Credit Loans representing unpaid Reimbursement Obligations) shall be, for purposes of interest income and charges, considered to be Revolving Credit Loans from such Lenders to the Borrowers and reflected in the Note Records of the Administrative Agent and the Lenders (as among the Administrative Agent and the Lenders) at such time as the Administrative Agent receives from such Lenders funds as provided in this Section 2.4, and prior to such time such Revolving Credit Loans shall be considered, for purposes of interest income and other charges, to be Revolving Credit Loans from the Administrative Agent and so reflected in the Note Record of the Administrative Agent. (c) The Administrative Agent may notify the Lenders of any requested Loan and of the Drawdown Date thereof and the amount of each Lender's pro rata -24- share of such Loan, and not later than 1:00 p.m. (Boston time) on the proposed Drawdown Date of such Loan, each Lender will make available to the Administrative Agent, at its head office, in immediately available funds, the amount of such Lender's Commitment Percentage of the amount of such requested Loan. Upon receipt by the Administrative Agent of such amount, and upon receipt of the documents required by Section 3 and the satisfaction of the other conditions set forth therein (to the extent applicable), the Administrative Agent will make available to the Borrowers the aggregate amount of such Loan. The Administrative Agent may, unless notified to the contrary by any Lender prior to a Drawdown Date, assume that each Lender has made available to the Administrative Agent on such Drawdown Date the amount of such Lender's Commitment Percentage of the Loans to be made on such Drawdown Date, and the Administrative Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrowers a corresponding amount. If any Lender makes available to the Administrative Agent such amount on a date after such Drawdown Date, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the average, computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Administrative Agent for federal funds acquired by the Administrative Agent during each day included in such period, times (ii) the amount of such Lender's Commitment Percentage of any such Loans times (iii) a fraction, the numerator of which is the number of days that elapse from and including such Drawdown Date to the date on which the amount of such Lender's Commitment Percentage of such Loans shall become immediately available to the Administrative Agent, and the denominator of which is 365. A statement of the Administrative Agent submitted to such Lender with respect to any amounts owing under this paragraph shall be prima facie evidence of the amount due and owing to the Administrative Agent by such Lender. If the amount of such Lender's Commitment Percentage of such Loans is not made available to the Administrative Agent by such Lender with three (3) Business Days following such Drawdown Date, the Administrative Agent shall be entitled to recover such amount from the Borrowers on demand, with interest thereon at the rate per annum applicable to the Loans made on such Drawdown Date. -25- (d) The failure or refusal of any Lender to make available to the Administrative Agent at the aforesaid time and place on any Settlement Date or Drawdown Date the amount of its Commitment Percentage of any Loans shall not relieve any other Lender from its several obligation hereunder to make available to the Administrative Agent the amount of such other Lender's Commitment Percentage of any Loans. 2.5 Interest Rates and Payments of Interest. --------------------------------------- (a) Base Rate Loans. Each Loan which is a Base Rate Loan shall bear interest on the outstanding principal amount thereof at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin, which rate shall change contemporaneously with any change in the Alternate Base Rate or the Applicable Margin, as provided below. Such interest shall be payable monthly in arrears on the first Business Day of each month, commencing February 1, 1999. (b) Eurodollar Loans. Each Loan which is a Eurodollar Loan shall bear interest on the outstanding principal amount thereof, for each Interest Period applicable thereto, at a rate per annum equal to the Eurodollar Rate plus the Applicable Margin, which rate shall change with any change in the Applicable Margin, as provided below. Such interest shall be payable for such Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. (c) Default Interest. If an Event of Default shall occur, then at the option of the Administrative Agent or the direction of the Majority Lenders the unpaid balance of Loans shall bear interest at an interest rate equal to 2% per annum above the interest rate applicable to Base Rate Loans in effect on the day such Event of Default occurs, until such Event of Default is cured or waived. (d) Applicable Margin. The Applicable Margin and the Interest Coverage Ratio shall be determined as of the end of each fiscal month based upon the monthly financial statements to be delivered pursuant to Section 5.1(b) hereof, and any change in the Applicable Margin shall be effective upon the earlier of (i) the delivery of such financial -26- statements, and (ii) the date such financial statements were due to be delivered pursuant to Section 5.1(b). Notwithstanding the foregoing, during the period from the Closing Date through and including December 31, 1999, the Applicable Margin shall be fixed at (i) 2.25% for Eurodollar Loans and Letter of Credit Fees, and (ii) 0.75% for Base Rate Loans. (e) Additional Interest. So long as any Lender shall be required under regulations of the Board of Governors of the Federal Reserve System (or any other banking authority, domestic or foreign, to which such Lender is subject) to maintain reserves with respect to liabilities or assets consisting of or including "Eurocurrency Liabilities" (as defined in regulations issued from time to time by such Board of Governors), the Borrowers shall pay to the Administrative Agent for the account of each such Lender additional interest on the unpaid principal amount of each Eurodollar Loan made by such Lender from the date of such Loan until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder (rounded upwards, if necessary, to the next higher 1/100 of 1%) obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Eurodollar Loan from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve Percentage of such Lender for such Interest Period. Such additional interest shall be determined by such Lender and notified to the Borrowers through the Administrative Agent, and shall be payable on each date on which interest is payable on such Eurodollar Loan. 2.6 Fees. ---- (a) The Borrowers shall pay to the Administrative Agent for the benefit of the Lenders a commitment fee (the "Commitment Fee"), computed on a daily basis and payable quarterly in arrears on the first Business Day of each calendar quarter, equal to one-half of one percent (0.50%) per annum of the excess of (i) the Total Commitment at the time over (ii) the Total Outstandings at the time. (b) The Borrowers shall pay to the Administrative Agent for the benefit of the Lenders a fee (the "Letter of Credit Fee") at a rate per annum equal to (i) the Maximum Drawing Amount of each Letter -27- of Credit multiplied by (ii) the Applicable Margin. In addition, the Borrowers shall pay to the Issuing Bank, solely for its own account, a fee (the "Fronting Fee") at a rate per annum equal to one-quarter of one percent (0.25%) of the Maximum Drawing Amount of each Letter of Credit. At the option of the Administrative Agent or the direction of the Majority Lenders the Letter of Credit Fees and Fronting Fees payable during the continuance of any Event of Default shall be equal to two percent (2%) per annum above the Letter of Credit Fee and Fronting Fee applicable to each Letter of Credit in effect on the day such Event of Default occurs, until such Event of Default is cured or waived. Letter of Credit Fees and Fronting Fees shall be payable quarterly in arrears on the first Business Day of each calendar quarter. (c) Without limiting any of the Lenders' other rights hereunder or by law, if any Loan or any portion thereof or any interest thereon or any other amount payable hereunder or under any other Loan Document is not paid within ten Business Days after its due date, the Borrowers shall pay to the Administrative Agent for the benefit of the Lenders on demand a late payment charge equal to 2-1/2% of the amount of the payment due. (d) The Borrowers shall pay to the Administrative Agent, solely for the account of the Administrative Agent, such other fees as the Borrowers and the Administrative Agent shall agree. (e) The Borrowers authorize the Administrative Agent, the Issuing Bank and the Lenders to charge (no such charge shall be deemed to be a set-off) to their Note Records or to any deposit account which the Borrowers may maintain with any of them the interest, fees, charges, taxes and expenses provided for in this Agreement, the Security Documents or any other document executed or delivered in connection herewith. 2.7 Payments and Prepayments of the Loans. ------------------------------------- (a) On the Maturity Date, the Borrowers shall pay in full the unpaid principal balance of the Revolving Credit Loans, together with all unpaid interest thereon and all Fees and other amounts due with respect thereto. -28- (b) Loans that are Eurodollar Loans may be prepaid, without premium or penalty, on the last day of any Interest Period applicable thereto, upon three Business Days' notice. Loans that are Base Rate Loans may be prepaid at any time, without premium or penalty, upon one Business Day's notice. Any such notice of prepayment shall be irrevocable. Prepayments of Revolving Credit Loans may be reborrowed to the extent provided in Section 2.1. (c) If at any time the Total Outstandings exceed the lesser of (x) the Borrowing Base and (y) the Total Commitment, the Borrowers shall immediately pay the amount of any such excess to the Administrative Agent for application to the Revolving Credit Loans. 2.8 Method and Allocation of Payments. --------------------------------- (a) All payments by the Borrowers hereunder and under any of the other Loan Documents shall be made without set-off or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrowers are compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrowers with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrowers will pay to each Lender such additional amount in U.S. Dollars as shall be necessary to enable such Lender to receive the same net amount which such Lender would have received on such due date had no such obligation been imposed upon the Borrowers. The Borrowers will deliver promptly to each Lender certificates or other valid vouchers or other evidence of payment reasonably satisfactory to the Administrative Agent for all taxes or other charges deducted from or paid with respect to payments made by the Borrowers hereunder or under such other Loan Document. The Lenders may, and the Borrowers hereby authorize the Lenders to, debit the amount of any payment not made by such time to the demand deposit accounts of the Borrowers with the Lenders or to their Note Records. -29- (b) All payments of principal of and interest in respect of Loans shall be made to the Administrative Agent, for the benefit of the Lenders, pro rata in accordance with their Commitment Percentages, and payment of any other amounts due hereunder shall be made to the Administrative Agent for the benefit of the Lenders, pro rata as their respective interests appear, at the Administrative Agent's head office or at such other location that the Administrative Agent may from time to time designate, in each case in immediately available funds. (c) If the Commitments shall have been terminated or the Obligations shall have been declared immediately due and payable pursuant to Section 8.2, all funds received from or on behalf of the Borrowers (including as proceeds of Collateral) by any Lender or the Issuing Bank in respect of Obligations (except funds received by any Lender as a result of a purchase of a participant interest pursuant to Section 2.8(d) below) shall be remitted to the Administrative Agent, and all such funds, together with all other funds received by the Administrative Agent from or on behalf of the Borrowers (including proceeds of Collateral) in respect of Obligations, shall be applied by the Administrative Agent in the following manner and order: (i) first, to reimburse the Administrative Agent, the Issuing Bank and the Lenders, in that order, for any amounts payable pursuant to Sections 11.2 and 11.3 hereof; (ii) second, to the payment of the Fees; (iii) third, to the payment of interest due on the Loans and the Reimbursement Obligations; (iv) fourth, to the payment of the outstanding principal balance of the Loans and the Reimbursement Obligations; (v) fifth, to the payment of any other Obligations (other than principal of or interest on the Loans, the Notes and the Reimbursement Obligations) payable by the Borrowers; and (vi) any remaining funds shall be paid to whoever shall be entitled thereto or as a court of competent jurisdiction shall direct. (d) Each of the Lenders and the Administrative Agent hereby agrees that if it should receive any amount (whether by voluntary payment, by realization upon security, by the exercise of the right of set-off or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Loan Documents, or otherwise) in respect of principal of, or interest on, the Loans or any Fees which -30- are to be shared pro rata among the Lenders, which, as compared to the amounts theretofore received by the other Lenders with respect to such principal, interest or Fees, is in excess of such Lender's Commitment Percentage of such principal, interest or Fees, such Lender shall share such excess, less the costs and expenses (including, reasonable Attorneys' Fees and disbursements) incurred by such Lender in connection with such realization, exercise, claim or action, pro rata with all other Lenders in proportion to their respective Commitment Percentages, and such sharing shall be deemed a purchase (without recourse) by such sharing party of participant interests in the Loans or such Fees, as the case may be, owed to the recipients of such shared payments to the extent of such shared payments; provided, however, that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 2.9 Eurodollar Indemnity. If the Borrowers for any reason (including, without limitation, pursuant to Sections 2.7(c), 2.11 and 8.2 hereof) make any payment of principal with respect to any Eurodollar Loan on any day other than the last day of an Interest Period applicable to such Eurodollar Loan, or fail to borrow or continue or convert to a Eurodollar Loan after giving a Notice of Borrowing or Conversion thereof pursuant to Section 2.3, or fail to prepay a Eurodollar Loan after having given notice thereof, the Borrowers shall pay to the Administrative Agent for the benefit of the Lenders any amount required to compensate the Lenders for any additional losses, costs or expenses which they may reasonably incur as a result of such payment or failure, including, without limitation, any loss (including loss of anticipated profits), costs or expense incurred by reason of the liquidation or re- employment of deposits or other funds required by the Lenders to fund or maintain such Eurodollar Loan. The Borrowers shall pay such amount upon presentation by the Administrative Agent of a statement setting forth the amount and the Administrative Agent's (or the affected Lenders') calculation thereof pursuant hereto, which statement shall be deemed true and correct absent manifest error. 2.10 Computation of Interest and Fees. Interest and all Fees payable hereunder shall be computed daily on the basis of a year of 365 days for Base Rate Loans and 360 -31- days for all other Loans and Fees paid for the actual number of days for which due. If the due date for any payment of principal is extended by operation of law, interest shall be payable for such extended time. If any payment required by this Agreement becomes due on a day that is not a Business Day such payment may be made on the next succeeding Business Day (subject to the definition of the term "Interest Period"), and such extension shall be included in computing interest in connection with such payment. 2.11 Changed Circumstances; Illegality. --------------------------------- (a) Notwithstanding any other provision of this Agreement, in the event that: (i) on any date on which the Eurodollar Rate would otherwise be set the Administrative Agent shall have determined in good faith (which determination shall be final and conclusive) that adequate and fair means do not exist for ascertaining the Eurodollar Rate, or (ii) at any time the Administrative Agent or any Lender shall have determined in good faith (which determination shall be final and conclusive and, if made by any Lender, shall have been communicated to the Administrative Agent in writing) that: (A) the making or continuation of or conversion of any Loan to a Eurodollar Loan has been made impracticable or unlawful by (1) the occurrence of a contingency that materially and adversely affects the interbank Eurodollar market or (2) compliance by the Administrative Agent or such Lender in good faith with any applicable law or governmental regulation, guideline or order or interpretation or change thereof by any governmental authority charged with the interpretation or administration thereof or with any request or directive of any such governmental authority (whether or not having the force of law); or (B) the Eurodollar Rate shall no longer represent the effective cost to the Administrative Agent or such Lender for U.S. dollar deposits in the interbank market for deposits in which it regularly participates; then, and in any such event, the Administrative Agent shall forthwith so notify the Borrowers thereof. Until the Administrative Agent notifies the Borrowers that the circumstances giving rise to such notice no longer apply, the -32- obligation of the Lenders to allow selection by the Borrowers of the Type of Loan affected by the contingencies described in this Section (herein called "Affected Loans") shall be suspended. If, at the time the Administrative Agent so notifies the Borrowers, the Borrowers have previously given the Administrative Agent a Notice of Borrowing or Conversion with respect to one or more Affected Loans but such Loans have not yet gone into effect, such notification shall be deemed to be a request for Base Rate Loans. (b) In the event of a determination of illegality pursuant to subsection (a)(ii)(A) above, the Borrowers shall, with respect to the outstanding Affected Loans, prepay the same, together with interest thereon and any amounts required to be paid pursuant to Section 2.9, on such date as shall be specified in such notice (which shall not be earlier than the date such notice is given) and may, subject to the conditions of this Agreement, borrow a Loan of another Type in accordance with Section 2.1 hereof by giving a Notice of Borrowing or Conversion pursuant to Section 2.3 hereof. 2.12 Increased Costs. In case any change in law, regulation, treaty or official directive or the interpretation or application thereof by any court or by any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law): (i) subjects any Lender to any tax with respect to payments of principal or interest or any other amounts payable hereunder by the Borrowers or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of such Lender imposed by the United States of America or any political subdivision thereof), or (ii) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, any Lender (other than such requirements as are already included in the determination of the Eurodollar Rate), or (iii) imposes upon any Lender any other condition with respect to its obligations or -33- performance under this Agreement or in respect of any Letter of Credit, and the result of any of the foregoing is to increase the cost to the Lender, reduce the income receivable by such Lender or impose any expense upon such Lender with respect to any Loans or its obligations under this Agreement or in respect of any Letter of Credit, such Lender shall notify the Borrowers and the Administrative Agent thereof. The Borrowers agree to pay to such Lender the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender's calculation thereof and the assumptions upon which such calculation was based, which statement shall be deemed true and correct absent manifest error. 2.13 Capital Requirements. If after the date hereof any Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any governmental authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request or directive of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on such Lender's or such holding company's capital as a consequence of such Lender's Commitment to make Loans hereunder or its obligations in respect of any Letter of Credit to a level below that which such Lender or such holding company could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount deemed by such Lender to be material, then such Lender shall notify the Borrowers and the Administrative Agent thereof. The Borrowers agree to pay to such Lender the amount of such reduction of return on capital as and when such reduction is determined, payable within 90 days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender's calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error) unless within such 90 day period the Borrowers shall have prepaid in full all Obligations to such Lender, in which event no amount shall be payable to such Lender under this Section. In determining such amount, such -34- Lender may use any reasonable averaging and attribution methods. 2.14 Borrowers' Representatives. Each Borrower (other than NAC) hereby appoints NAC as its agent with respect to the receiving and giving of any notices, requests, instructions, reports, schedules, revisions, financial statements or any other written or oral communications hereunder. NAC shall keep complete, correct and accurate records of all Loans and the application of proceeds thereof, all Letters of Credit and all payments in respect of Loans and other amounts due hereunder. NAC shall determine the allocation of proceeds of Loans among the Borrowers. The Lenders are hereby entitled to rely on any communication given or transmitted by NAC as if such communication were given or transmitted by each and every Borrowers; provided, however, that any communication given or transmitted by any Borrowers other than NAC shall be binding with respect to such Borrowers. Any communication given or transmitted by the Administrative Agent, any Lender or the Issuing Bank to NAC shall be deemed given and transmitted to each and every Borrower. Notwithstanding the foregoing, all Obligations of the Borrowers hereunder shall be joint and several. SECTION IIA LETTERS OF CREDIT ----------------- 2A.1 Issuance. -------- (a) Upon the terms and subject to the conditions hereof, the Issuing Bank, in reliance upon the representations and warranties of the Borrowers contained herein, agrees to issue letters of credit (the "Letters of Credit") for the account of the Borrowers in such form as may be requested from time to time by the Borrowers and agreed to by the Issuing Bank, provided that the Maximum Drawing Amount (after giving effect to all requested Letters of Credit) shall not at any time exceed the Letter of Credit Sublimit, provided, further, that the Total Outstandings (after giving effect to all requested Revolving Credit Loans and Letters of Credit) shall not at any time exceed the lesser of (x) the Borrowing Base and (y) the Total Commitment, and provided, further, that no Letter of Credit shall have an expiration date later than the Maturity Date. At least three (3) Business Days prior to the proposed issuance date of any Letter of Credit, the Borrowers shall deliver to the Issuing Bank a Letter of Credit Application setting forth the Maximum Drawing Amount of all -35- Letters of Credit (including the requested Letter of Credit), the requested language of the requested Letter of Credit and such other information as the Issuing Bank shall require. Each request for the issuance of a Letter of Credit hereunder shall constitute a representation and warranty by the Borrowers that the conditions set forth in Sections 3.1 and 3.2 have been satisfied as of the date of such request. The Administrative Agent or the Issuing Bank shall notify the Lenders of the issuance of each Letter of Credit and shall furnish to any Lender such information with respect thereto as such Lender shall reasonably request. (b) Effective upon the issuance of each Letter of Credit in accordance with the terms hereof, and without any further action on the part of the Issuing Bank or the Lenders in respect thereof, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participating interest in such Letter of Credit to the extent of such Lender's Commitment Percentage thereof (the "Letter of Credit Participation"), and each Lender severally agrees that it shall be absolutely liable, without regard to the occurrence of any Default or Event of Default, to the extent of such Lender's Commitment Percentage thereof, to reimburse the Issuing Bank on demand for the amount of each draft paid by the Issuing Bank under each Letter of Credit to the extent that such amount is not reimbursed by the Borrowers. 2A.2 Reimbursement Obligation of the Borrowers. In order to induce the Issuing Bank to issue, extend and renew each Letter of Credit, the Borrowers hereby agree to reimburse or pay to the Issuing Bank, for the account of the Issuing Bank or (as the case may be) the Lenders, with respect to each Letter of Credit issued, extended or renewed by the Issuing Bank hereunder as follows: (a) on each date that any draft presented under any Letter of Credit is honored by the Issuing Bank or the Issuing Bank otherwise makes payment with respect thereto, (i) the amount paid by the Issuing Bank under or with respect to such Letter of Credit, and (ii) the amount of any taxes, fees, charges or other costs and expenses whatsoever incurred by the Issuing Bank or any Lender in connection with any payment made by the Issuing Bank under, or with respect to, such Letter of Credit; and (b) upon the Maturity Date or the acceleration of the Reimbursement Obligations pursuant to Section 8, an amount equal to 105% of the then Maximum Drawing Amount of all Letters of Credit, which amount (together with all interest and other earnings thereon) shall be held by the Issuing Bank as cash collateral for all Reimbursement Obligations. -36- Each such payment shall be made to the Issuing Bank at its head office in immediately available funds. Interest on any and all amounts remaining unpaid by the Borrowers under this Section 2A.2 at any time from the date such amounts become due and payable (whether as stated in this Section 2A.2, by acceleration or otherwise) until payment in full (whether before or after judgment) shall be payable to the Issuing Bank, for the account of the Issuing Bank or (as the case may be) the Lenders, on demand at a rate per annum equal to 2% above the Interest Rate applicable to Base Rate Loans at the time in the absence of an Event of Default. 2A.3 Letter of Credit Payments. If any draft shall be presented or other demand for payment shall be made under any Letter of Credit, the Issuing Bank shall notify the Borrowers of the date and amount of the draft presented or demand for payment and of the date and time when it expects to pay such draft or honor such demand for payment. The responsibility of the Issuing Bank to the Borrowers shall be only to determine that the documents (including each draft) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. On the date that such draft is paid or other payment is made by the Issuing Bank, the Issuing Bank shall promptly notify the Lenders of the amount of any unpaid Reimbursement Obligation. All such unpaid Reimbursement Obligations with respect to Letters of Credit shall be deemed to be Revolving Credit Loans. No later than 1:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Lender shall make available to the Administrative Agent, at the Administrative Agent's head office, in immediately available funds, such Lender's Commitment Percentage of such unpaid Reimbursement Obligation, together with an amount equal to the product of (i) the average, computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Administrative Agent for federal funds acquired by the Administrative Agent during each day included in such period, times (ii) the amount equal to such Lender's Commitment Percentage of such unpaid Reimbursement Obligation, times (iii) a fraction, the numerator of which is the number of days that have elapsed from and including the date the Issuing Bank paid the draft presented for honor or otherwise made payment until the date on which such Lender's Commitment Percentage of such unpaid Reimbursement Obligation shall become immediately available to the Administrative Agent, and the denominator of which is 365. 2A.4 Obligations Absolute. -------------------- (a) The Borrowers' Reimbursement Obligations shall be absolute and unconditional under any and all circumstances and irrespective of the occurrence of any Default or Event of Default or any condition precedent whatsoever or any set off, -37- counterclaim or defense to payment which the Borrowers may have or have had against the Issuing Bank, the Administrative Agent, the Lenders or any beneficiary of a Letter of Credit. The Borrowers further agree that the Issuing Bank, the Administrative Agent and the Lenders shall not be responsible for, and the Borrowers' Reimbursement Obligations shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrowers, the beneficiary of any Letter of Credit or any financing institution or other party to which any Letter of Credit may be transferred or any claims or defenses whatsoever of the Borrowers, against the beneficiary of any Letter of Credit or any such transferee. (b) The Issuing Bank, the Administrative Agent and the Lenders shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. The Borrowers agree that any action taken or omitted by the Issuing Bank, the Administrative Agent or the Lenders under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith, shall be binding upon the Borrowers and shall not result in any liability on the part of the Issuing Bank, the Administrative Agent or the Lenders to the Borrowers. 2A.5 Reliance by the Issuing Bank and the Administrative Agent. To the extent not inconsistent with Section 2A.4, the Issuing Bank and the Administrative Agent shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit, draft writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected with reasonable care by the Issuing Bank or the Administrative Agent. III. CONDITIONS OF LOANS AND LETTERS OF CREDIT ----------------------------------------- 3.1 Conditions Precedent to Initial Loans. The obligation of the Lenders to make the initial Loans and of the Issuing Bank to issue the initial Letter of Credit is subject to the satisfaction of the following conditions precedent on or prior to the Closing Date: -38- (a) The Administrative Agent shall have received the following agreements, documents, certificates and opinions in form and substance reasonably satisfactory to the Administrative Agent and the Initial Lenders and duly executed and delivered by the parties thereto: (i) this Agreement; (ii) the Notes, substantially in the form of Exhibit A hereto; (iii) the Security Documents; (iv) a Contribution Agreement among the Borrowers; (v) the Holding Guaranty; (vi) the Intercreditor Agreements; (vii) complete copies of the Senior Debt Indenture, the Senior Notes, the Senior Debt Security Documents, the Hydro Debt Documents and the Permitted Guarantees; (viii) UCC-1 Financing Statements; (ix) Certificates of insurance or insurance binders evidencing compliance with Section 5.3 hereof and the applicable provisions of the Security Documents; (x) Borrowing Base Report as of the Closing Date; (xi) certificates from the chief financial officers of GAC and NAC with respect to solvency and other matters; (xii) a certificate of the Secretary or an Assistant Secretary of each of the Borrowers with respect to resolutions of the Board of Directors or Managers, as applicable, authorizing the execution and delivery of the Loan Documents and identifying the officer(s) or Managers, as applicable, authorized to execute, deliver and take all other actions required under this Agreement, and providing specimen signatures of such officers or Managers, as applicable; -39- (xiii) the Articles or Certificate of Incorporation or Articles of Organization, as applicable, of each of the Borrowers and all amendments and supplements thereto, as filed in the office of the Secretary of State of its jurisdiction of incorporation, certified by said Secretary of State as being a true and correct copy thereof; (xiv) the Bylaws or Operating Agreement, as applicable, of each of the Borrowers and all amendments and supplements thereto, certified by the Secretary or an Assistant Secretary of each of the Borrowers as being a true and correct copy thereof; (xv) a certificate of the Secretary of State of each Borrower's jurisdiction of incorporation or organization as to the legal existence and status of each of the Borrowers in such states; (xvi) an opinion addressed to the Lenders from Stoel Rives LLP, counsel to the Borrowers; and (xvii) such other documents, instruments, opinions and certificates and completion of such other matters, as the Administrative Agent or any Initial Lender may reasonably deem necessary or appropriate. (b) No litigation, arbitration, proceeding or investigation shall be pending or threatened which questions the validity or legality of the transactions contemplated by any Loan Document or seeks a restraining order, injunction or damages in connection therewith, or which, in the reasonable judgment of the Administrative Agent or the Initial Lenders, might adversely affect the transactions contemplated hereby or might have a materially adverse effect on the assets, business, financial condition or prospects of the Borrowers, taken as a whole. (c) All necessary filings and recordings against the Collateral shall have been completed and the Administrative Agent's liens on the Collateral -40- shall have been perfected, as contemplated by the Security Documents. (d) The Borrowers shall have delivered the Initial Financial Statements to the Initial Lenders. (e) GNA shall have issued, and received cash proceeds of at least $145,875,000 from, the Senior Debt on the terms and conditions described in the Offering Memorandum. (f) GNA shall have issued, and received cash proceeds of at least $20,000,000 from, the Hydro Debt on the terms and conditions set forth in the Hydro Debt Documents. (g) All Indebtedness of GAC under the Credit Agreement dated May 17, 1996, as amended among GAC, the financial institutions named therein and BKB as agent, shall have been repaid in full. (h) All Indebtedness of NAC and NAS under the Credit Agreement dated May 15, 1996, as amended, among NAC, NAS, the financial institutions named therein and BKB as agent, shall have been repaid in full. (i) The Borrowers shall have paid to the Administrative Agent all fees to be paid hereunder (including pursuant to Section 2.6(d) hereof) on or prior to the Closing Date. 3.2 Conditions Precedent to all Loans and Letters of Credit. The obligation of the Lenders to make any Loan, including the initial Loans, or continue or convert Loans to Loans of another Type, and of the Issuing Bank to issue any Letter of Credit, is further subject to the following conditions: (a) timely receipt by the Administrative Agent of the Notice of Borrowing or Conversion and a Borrowing Base Report with respect to any Loan, or by the Issuing Bank of the Letter of Credit Application with respect to any Letter of Credit; (b) the outstanding Loans and Letters of Credit do not and, after giving effect to any requested Loan or Letter of Credit, will not exceed the limitations set forth in Sections 2.1 and 2A.1 hereof; (c) the representations and warranties contained in Section IV shall be true and accurate in all material respects on and as of the date of such -41- Notice of Borrowing or Conversion or Letter of Credit Application and on the effective date of the making, continuation or conversion of each Loan or issuance of each Letter of Credit as though made at and as of each such date (except to the extent that such representations and warranties expressly relate to an earlier date); (d) no Default or Event of Default shall have occurred and be continuing at the time of and immediately after (i) the making of such requested Loan or the issuance of such requested Letter of Credit, or (ii) the continuation of an outstanding Eurodollar Loan or the conversion of a Base Rate Loan to a Eurodollar Loan, unless the Administrative Agent shall have otherwise agreed; (e) the resolutions referred to in Section 3.1 shall remain in full force and effect; and (f) no change shall have occurred in any law or regulation or interpretation thereof that, in the opinion of counsel for any Lender, would make it illegal or against the policy of any governmental agency or authority for such Lender to make Loans hereunder or, in the opinion of counsel for the Issuing Bank, for the Issuing Bank to issue Letters of Credit hereunder (as the case may be). The making, continuation or conversion of each Loan and the issuance of each Letter of Credit shall be deemed to be a representation and warranty by the Borrowers on the date of the making, continuation or conversion of such Loan or the issuance of such Letter of Credit as to the accuracy of the facts referred to in subsection (c) of this Section 3.2 and of the satisfaction of all of the conditions set forth in this Section 3.2. IV. REPRESENTATIONS AND WARRANTIES ------------------------------ In order to induce the Administrative Agent, the Issuing Bank and the Lenders to enter into this Agreement and to make Loans and to issue Letters of Credit hereunder, the Borrowers represent and warrant to the Administrative Agent, the Issuing Bank and the Lenders that except as set forth on Exhibit C attached hereto: -42- 4.1 Organization; Qualification; Business. ------------------------------------- (a) Each of the Borrowers (i) is a corporation or limited liability company duly organized and validly existing under the laws of its jurisdiction of incorporation or organization, (ii) has all requisite corporate or other power to own its property and conduct its business as now conducted and as presently contemplated and (iii) is duly qualified and in good standing as a foreign corporation or limited liability company and is duly authorized to do business in each jurisdiction (all of which are listed on Exhibit C attached hereto) where the nature of its properties or business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, financial condition, assets or properties of any of the Borrowers or of the Borrowers taken as a whole. (b) Since the date of the Initial Financial Statements, the Borrowers have continued to engage in substantially the same business as that in which they were then engaged and are not engaged in any business not reasonably related or ancillary thereto (as determined in good faith by GNA's Board of Directors). 4.2 Corporate Authority. The execution, delivery and performance of the Loan Documents and the transactions contemplated thereby are within the corporate or other power and authority of the Borrowers, have been authorized by all necessary or other corporate action, and do not and will not (a) contravene any provision of the Articles or Certificate of Incorporation, by-laws or operating agreement, as applicable, of any of the Borrowers or any law, rule or regulation applicable to any of the Borrowers, (b) contravene any provision of, or constitute an event of default or event that, but for the requirement that time elapse or notice be given, or both, would constitute an event of default under, any other agreement, instrument, order or undertaking binding on any of the Borrowers, or (c) result in or require the imposition of any Encumbrance on any of the properties, assets or rights of any of the Borrowers, except (i) in favor of the Administrative Agent, the Issuing Bank and the Lenders, and (ii) in favor of the trustee for the holders of the Senior Debt and in favor of the holder of the Hydro Debt (or the holders of any Indebtedness which refinances any of the Senior Debt or the Hydro Debt) in accordance with the Intercreditor Agreements. -43- 4.3 Valid Obligations. The Loan Documents and all of their respective terms and provisions are the legal, valid and binding obligations of the Borrowers, enforceable in accordance with their respective terms except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and except as the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. The Security Documents have effectively created in favor of the Administrative Agent, the Issuing Bank and the Lenders legal, valid and binding security interests in the Collateral enforceable in accordance with their terms, and such security interests are fully perfected first priority security interests, subject only to Permitted Encumbrances. 4.4 Consents or Approvals. The execution, delivery and performance of the Loan Documents and the transactions contemplated thereby do not require any approval or consent of, or filing or registration with, any governmental or other agency or authority, or any other Person, except under or as contemplated by the Security Documents, all of which have been obtained. 4.5 Title to Properties; Absence of Encumbrances. Each of the Borrowers and their Subsidiaries has good and marketable title to all of the properties, assets and rights of every name and nature now purported to be owned by it, including, without limitation, such properties, assets and rights as are reflected in the Initial Financial Statements (except such properties, assets or rights as have been disposed of in the ordinary course of business or as permitted by the terms hereof since the date thereof), free from all Encumbrances except Permitted Encumbrances. 4.6 Financial Statements. The Borrowers have furnished to the Lenders the following financial statements (collectively, the "Initial Financial Statements"): (i) Holding's unaudited consolidated balance sheet as of September 30, 1998 and its unaudited consolidated statements of income, retained earnings and cash flow for the nine months then ended, certified by the chief financial officer of Holding; (ii) the unaudited combined balance sheet of NAC and NAS as of September 30, 1998 and their combined statements of income, retained earnings and cash flow for the fiscal year then ended, certified by the chief financial officer of NAC; and (iii) the unaudited combined balance sheets of GNA as of September 30, 1998 and its unaudited combined -44- statements of income, shareholders' equity and cash flows for the nine months then ended, certified by the chief financial officer of GNA. All such financial statements were prepared in accordance with GAAP applied on a consistent basis throughout the periods specified and present fairly the financial position of the Borrowers and their Subsidiaries as of such dates and the results of the operations of the Borrowers and their Subsidiaries for such periods, subject, in the case of unaudited financial statements, to normal recurring year-end adjustments that shall not in the aggregate be material in amount. The Borrowers have also furnished to the Lenders their pro forma consolidated balance sheet as of September 30, 1998 and projections of their future consolidated results of operations, all of which were reasonable when made and continue to be reasonable at the date hereof. At the date hereof, the Borrowers have no Indebtedness or other material liabilities, debts or obligations, whether accrued, absolute, contingent or otherwise, and whether due or to become due, including, but not limited to, liabilities or obligations on account of taxes or other governmental charges, that are not set forth on the Initial Financial Statements or on Exhibit C hereto. 4.7 Changes. Since the date of the Initial Financial Statements, there have been no changes in the assets, liabilities, financial condition, operations, business or prospects of the Borrowers or any of their Subsidiaries other than changes in the ordinary course of business and other changes, in each case the effect of which has not, in the aggregate, been materially adverse to the Borrowers and their Subsidiaries taken as a whole. 4.8 Solvency. The Borrowers have and, after giving effect to the Loans and the Permitted Guarantees, will have, assets (both tangible and intangible) having a fair saleable value in excess of the amount required to pay the probable liability on its then-existing debts (whether matured or unmatured, liquidated or unliquidated, fixed or contingent); the Borrowers have and will have access to adequate capital for the conduct of their business and the discharge of their debts incurred in connection therewith as such debts mature; the Borrowers were not insolvent immediately prior to the making of the Loans and the issuance of the Permitted Guarantees, and immediately after giving effect thereto, the Borrowers will not be insolvent. -45- 4.9 Defaults. As of the date of this Agreement, no Default exists. 4.10 Taxes. The Borrowers and each Subsidiary have filed all federal, state and other material tax returns required to be filed, and all taxes, assessments and other governmental charges due from the Borrowers and each Subsidiary have been fully paid, except for such taxes, assessments or charges that are being contested in good faith by appropriate proceedings and with respect to which (a) adequate reserves have been established and are being maintained in accordance with GAAP and (b) no lien which is not a Permitted Encumbrance has been filed to secure such taxes, assessments or charges. All such contests at the date hereof are described on Exhibit C hereto. The Borrowers and their Subsidiaries have not executed any waiver that would have the effect of extending the applicable statute of limitations in respect of tax liabilities. The federal and state income tax returns of the Borrowers and each Subsidiary have not been audited or otherwise examined by any federal or state taxing authority. The Borrowers and each Subsidiary have established on their books reserves adequate for the payment of all federal, state and other tax liabilities. 4.11 Litigation. There is no litigation, arbitration, proceeding or investigation pending, or, to the knowledge of the Borrowers' or any Subsidiary's officers, threatened against the Borrowers or any Subsidiary that, if adversely determined, may reasonably be expected to result in a material judgment not fully covered by insurance, may reasonably be expected to result in a forfeiture of all or any substantial part of the property of the Borrowers or their Subsidiaries, or may reasonably be expected to have a material adverse effect on the assets, business or prospects of the Borrowers and their Subsidiaries taken as a whole. 4.12 Subsidiaries. Exhibit C sets forth the name, address, jurisdiction of incorporation and holders of equity interests of the Borrowers and each Subsidiary and the shares of capital stock of the Borrowers and each Subsidiary owned by each stockholder. All such equity interests have been validly issued and are fully paid and nonassessable, and no rights to subscribe to any additional shares have been granted, and no options, warrants or similar rights are outstanding. -46- 4.13 Investment Company Act. Neither the Borrowers nor any of their Subsidiaries are subject to regulation under the Investment Company Act of 1940, as amended. 4.14 Compliance. The Borrowers have all necessary permits, approvals, authorizations, consents, licenses, franchises, registrations and other rights and privileges (including patents, trademarks, trade names and copyrights) to allow them to own and operate their business without any violation of law or the rights of others except to the extent that any such violation would not have a material adverse effect on the business, financial condition or operation of the Borrowers and their Subsidiaries taken as a whole; and the Borrowers and each Subsidiary are duly authorized, qualified and licensed under and in compliance with all applicable laws, regulations, authorizations and orders of public authorities (including, without limitation, Environmental Laws as provided in Section 4.16), except to the extent that any such failure to be so authorized, qualified, licensed or in compliance would not have a material adverse effect on the business, financial condition or operation of the Borrowers and their Subsidiaries taken as a whole. The Borrowers and each Subsidiary have performed all obligations required to be performed by them under, and are not in default under or in violation of, their Articles or Certificate of Incorporation, By-Laws or operating agreement or any agreement, lease, mortgage, note, bond, indenture, license or other instrument or undertaking to which any of them is a party or by which any of them or any of their properties are bound, except for violations none of which, either individually or in the aggregate, would have any material adverse effect on the business, condition (financial or otherwise) or assets of the Borrowers and their Subsidiaries taken as a whole. 4.15 ERISA. The Borrowers and each of their Affiliates are in compliance in all material respects with ERISA and the provisions of the Code applicable to the Plans; neither the Borrowers nor any of their Affiliates have engaged in a Prohibited Transaction which would subject the Borrowers, any of their Affiliates or any Plan to a material tax or penalty imposed on a Prohibited Transaction; no Plan has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived; neither the Borrowers nor any of their Affiliates maintain or contribute to, or have maintained or contributed to in the past five years, any Plan that is subject to Title IV of ERISA or Section 4.12 of the Code; and neither the Borrowers nor any of their -47- Affiliates have terminated any Plan in a manner which could result in the imposition of a lien on the property of the Borrowers or any of their Affiliates. None of the Borrowers or their Affiliates have contributed, or been obligated to contribute, to any Multiemployer Pension Plan on or after September 26, 1980. 4.16 Environmental Matters. --------------------- (a) The Borrowers and each of their Subsidiaries have obtained all permits, licenses and other authorizations which are required under all Environmental Laws, except to the extent failure to have any such permit, license or authorization would not have a material adverse effect on the business, financial condition or operations of the Borrowers and their Subsidiaries, taken as a whole. The Borrowers and each of their Subsidiaries are in compliance with the terms and conditions of all such permits, licenses and authorizations, and are also in compliance with all applicable orders, decrees, judgments and injunctions, issued, entered, promulgated or approved under any Environmental Law, except to the extent failure to comply would not have a material adverse effect on the business, financial condition or operations of the Borrowers and their Subsidiaries, taken as a whole. (b) No written notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the best of the Borrowers' knowledge, threatened by any governmental or other entity (i) with respect to any alleged failure by the Borrowers or any of their Subsidiaries to comply with any Environmental Laws or to have any permit, license or authorization required by any Environmental Law in connection with the conduct of its business, or (ii) regarding the presence of any Hazardous Material at, on or under any property now or previously owned, leased or used by the Borrowers or any of their Subsidiaries or, to the best of the Borrowers' knowledge, any other location to which Hazardous Materials from such property had been transported or at which they have been disposed of. -48- (c) To the best of the Borrowers' knowledge no material oral or written notification of a release of a Hazardous Material has been filed by or on behalf of the Borrowers or any of their Subsidiaries and no property now or previously owned, leased or used by the Borrowers or any of their Subsidiaries is listed or proposed for listing on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or on any similar state list of sites requiring investigation or clean-up. (d) There are no liens or Encumbrances arising under or pursuant to any Environmental Law on any of the real property or properties owned, leased or used by the Borrowers or any of their Subsidiaries and no governmental actions have been taken or, to the best of the Borrowers' knowledge, are in process which could subject any of such properties to such liens or Encumbrances. (e) Neither the Borrowers nor any of their Subsidiaries nor, to the best knowledge of the Borrowers, any previous owner, tenant, occupant or user of any property owned, leased or used by the Borrowers or any of their Subsidiaries have (i) engaged in or permitted any operations or activities upon or any use or occupancy of such property, or any portion thereof, for the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of any Hazardous Materials on, under, in or about such property, except to the extent commonly used in day-to-day operations of such property and in such case only in compliance in all material respects with all Environmental Laws, or (ii) transported any Hazardous Materials to, from or across such property except to the extent commonly used in day-to-day operations of such property and, in such case, in compliance in all material respects with all Environmental Laws; nor to the best knowledge of the Borrowers have any Hazardous Materials migrated from other properties upon, about or beneath such property, nor, to the best knowledge of the Borrowers, are any Hazardous Materials presently constructed, deposited, stored or otherwise located on, under, in or about such property except to the extent commonly used in day-to-day operations of such property and, in such case, in compliance in all material respects with all Environmental Laws. -49- 4.17 Restrictions on the Borrowers. The Borrowers are not party to or bound by any contract, agreement or instrument, nor subject to any charter or other corporate restriction which will, under current or foreseeable conditions, materially and adversely affect the business, property, assets, operations or conditions, financial or otherwise, of the Borrowers or any of their Subsidiaries. 4.18 Labor Relations. There is (i) no unfair labor practice complaint pending against the Borrowers or any of their Subsidiaries or, to the best knowledge of the Borrowers, threatened, before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Borrowers or any of their Subsidiaries or, to the best knowledge of the Borrowers, threatened, except for such complaints, grievances and arbitration proceedings which, if adversely decided, would not have a material and adverse effect on the condition (financial or otherwise), properties, business or results of operations of the Borrowers and their Subsidiaries, taken as a whole, (ii) no strike, labor dispute, slowdown or stoppage pending against the Borrowers or any of their Subsidiaries or, to the best knowledge of the Borrowers, threatened against the Borrowers or any of their Subsidiaries, except for any such labor action as would not have a material and adverse effect on the condition (financial or otherwise), properties, business or results of operations of the Borrowers and their Subsidiaries, taken as a whole and (iii) to the best knowledge of the Borrowers, no union representation question existing with respect to the employees of the Borrowers or any of their Subsidiaries and, to the best knowledge of the Borrowers, no union organizing activities are taking place, except for any such question or activities as would not have a material and adverse effect on the condition (financial or otherwise), properties, business or results of operations the Borrowers and their Subsidiaries, taken as a whole. 4.19 Margin Rules. The Borrowers do not own or have any present intention of purchasing or carrying, and no portion of any Loan shall be used for purchasing or carrying, any "margin security" or "margin stock" as such terms are used in Regulations G, U or X of the Board of Governor's of the Federal Reserve System. -50- 4.20 Disclosure. No representation or warranty made by the Borrowers in any Loan Document and no document or information furnished to the Lenders by or on behalf of or at the request of the Borrowers in connection with any of the transactions contemplated by the Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which they are made. 4.21 Year 2000 Compliance. -------------------- (a) The Borrowers and their Subsidiaries have (i) undertaken a detailed inventory, review and assessment of all areas within their business and operations that could be adversely affected by the failure of the Borrowers or their Subsidiaries to be Year 2000 Compliant on a timely basis, (ii) developed a detailed plan and timetable for becoming Year 2000 Compliant on a timely basis, and (iii) are implementing that plan in accordance with that timetable in all material respects. (b) The Borrowers and their Subsidiaries have developed a plan and timetable for making written inquiry of their key suppliers and vendors as to whether such persons will be Year 2000 Compliant in all material respects and are implementing that plan in accordance with that timetable in all material respects. For purposes hereof, "key suppliers and vendors" refers to those suppliers and vendors of the Borrowers and their Subsidiaries whose business failure or significant disruption would, with reasonable probability, result in a material adverse change in the business, properties or financial condition of the Borrowers and their Subsidiaries taken as a whole. V. AFFIRMATIVE COVENANTS --------------------- The Borrowers covenant that so long as any Loan, Letter of Credit or other Obligation remains outstanding or the Lenders or the Issuing Bank have any obligation to lend or to issue any Letter of Credit hereunder: -51- 5.1 Financial Statements. The Borrowers shall furnish to the Lenders: -------------------- (a) as soon as available to the Borrowers, but in any event within 90 days after the end of each fiscal year (except, in the case of the statements required by clause (iii) below for the fiscal year ended September 30, 1998, on or before January 31, 1999), (i) the consolidated balance sheet of GNA as of the end of, and related consolidated statements of income, retained earnings and cash flows of GNA for, such year, prepared in accordance with GAAP and audited by the Borrowers' Accountants, together with consolidating balance sheets and statements of income, retained earnings and cash flows of GNA and its Subsidiaries for such year, certified by the chief financial officer of GNA; (ii) Holding's consolidated balance sheet as of the end of, and related consolidated statements of income, retained earnings and cash flow for, such year, prepared in accordance with GAAP and audited by the Borrowers' Accountants; (iii) a combined balance sheet of NAC and NAS as of the end of, and the related combined statements of income, retained earnings and cash flows of NAC and NAS for, such year, prepared in accordance with GAAP and audited by the Borrowers' Accountants; and (iv) concurrently with such financial statements, a copy of the Borrowers' Accountants management report and a written statement by the Borrowers' Accountants that, in the making of the audit necessary for their report and opinion upon such financial statements they have obtained no knowledge of any Default or, if in the opinion of such accountants any such Default exists, they shall disclose in such written statement the nature and status thereof; (b) as soon as available to the Borrowers, but in any event within 30 days after the end of each month, a consolidated balance sheet of GNA as of the end of, and related consolidated statements of income, retained earnings and cash flow of GNA for, the month then ended and the portion of the year then ended, prepared in accordance with GAAP and certified by the chief financial officer of GNA, subject to normal, recurring year-end adjustments that shall not in the aggregate be material in amount; (c) as soon as available, but in any event within 5 Business Days after the end of each week, a -52- Borrowing Base Report, together with such other information regarding Inventory and Accounts Receivable as the Administrative Agent may require; (d) at least 60 days prior to the first day of each fiscal year, GNA's projections and budget for such fiscal year, prepared on a monthly basis and including consolidated and consolidating balance sheets and statements of income, retained earnings and cash flows; (e) concurrently with the delivery of each annual and quarterly financial statement pursuant to subsections (a) and (b) of this Section 5.1, a report in substantially the form of Exhibit D hereto signed on behalf of the Borrowers by NAC's chief financial officer; (f) promptly after the receipt thereof by the Borrowers, copies of any reports (including any so-called management letters) submitted to GNA or the Borrowers by independent public accountants in connection with any annual audit or interim review of the accounts of the Borrowers made by such accountants; (g) promptly after the same are delivered to its stockholders or the Securities and Exchange Commission, copies of all proxy statements, financial statements and reports as GNA or the Borrowers shall send to their stockholders or the holders of the Senior Debt or the Hydro Debt or as GNA or the Borrowers may file with the Securities and Exchange Commission or any governmental authority at any time having jurisdiction over GNA, the Borrowers or their Subsidiaries; (h) within 25 days after the end of each month through April 30, 1999 and within 15 days after the end of each month thereafter, information adequate to identify Inventory and Accounts Receivable in form and substance reasonably satisfactory to the Administrative Agent, and if requested by the Administrative Agent, accompanied by pledges or designations of Inventory and agings or assignments of Accounts Receivable in form and substance reasonably satisfactory to the Administrative Agent, which assignments shall give the Administrative Agent full power to collect, compromise or otherwise deal with the assigned -53- Accounts Receivable as the sole owner thereof, subject to the terms of the Security Documents; (i) within 30 days after the end of each month, and at any other time as the Administrative Agent shall reasonably request, information in form reasonably satisfactory to the Administrative Agent concerning all transactions during the month (or during such other period as the Administrative Agent shall specify) in commodity, currency and other futures contracts or options and in forward purchases and sales of raw materials, finished goods and Inventory; and (j) from time to time, such other financial data and information about GNA, the Borrowers or their Subsidiaries as the Administrative Agent or the Lenders may reasonably request. 5.2 Conduct of Business. The Borrowers shall: ------------------- (a) duly observe and comply in all material respects with all applicable laws, regulations, decrees, orders, judgments and valid requirements of any governmental authorities relative to their corporate existence, rights and franchises, to the conduct of their business and to their property and assets (including without limitation all Environmental Laws and ERISA), and shall maintain and keep in full force and effect and comply with all licenses and permits necessary in any material respect to the proper conduct of their business; (b) maintain their corporate existence and remain or engage substantially in the same business as that in which they are now engaged and in no business which is not reasonably related or ancillary thereto (as determined in good faith by GNA's Board of Directors). 5.3 Maintenance and Insurance. ------------------------- (a) The Borrowers shall maintain their properties (including all Collateral) in good repair, working order and condition as required for the normal conduct of their business. (b) The Borrowers shall at all times maintain liability and casualty insurance on their properties (including all Collateral) with financially sound and reputable insurers in such amounts and with such coverages, endorsements, -54- deductibles and expiration dates as the officers of the Borrowers in the exercise of their reasonable business judgment deem to be adequate, as are customary in the industry for companies of established reputation engaged in the same or similar business and owning or operating similar properties and as shall be reasonably satisfactory to the Administrative Agent. The Administrative Agent shall be named as loss payee, additional insured and/or mortgagee under such insurance as the Administrative Agent shall require from time to time, and the Borrowers shall provide to the Administrative Agent lender's loss payable endorsements in form and substance reasonably satisfactory to the Administrative Agent. In addition, the Administrative Agent shall be given thirty (30) days advance notice of any cancellation of insurance. In the event of failure to provide and maintain insurance as herein provided, the Administrative Agent may, at its option, provide such insurance and charge the amount thereof to the Borrowers as a Revolving Credit Loan. The Borrowers shall furnish to the Administrative Agent certificates or other evidence satisfactory to the Administrative Agent of compliance with the foregoing insurance provisions. The Administrative Agent shall not, by the fact of approving, disapproving or accepting any such insurance, incur any liability for the form or legal sufficiency of insurance contracts, solvency of insurance companies or payment of law suits, and the Borrowers hereby expressly assume full responsibility therefor and liability, if any, thereunder. 5.4 Taxes. The Borrowers shall pay or cause to be paid all taxes, assessments or governmental charges on or against them or any of their Subsidiaries or their properties on or prior to the time when they become delinquent, except for any tax, assessment or charge that is being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established and are being maintained in accordance with GAAP if no Encumbrance (other than a Permitted Encumbrance) shall have been filed to secure such tax, assessment or charge. 5.5 Inspection. The Borrowers shall permit the Administrative Agent, any Lender and their designees, at any reasonable time and at reasonable intervals of time, and upon reasonable notice (or if a Default shall have occurred and is continuing, at any time and -55- without prior notice), to (i) visit and inspect the properties of GNA and the Borrowers, (ii) examine and make copies of and take abstracts from the books and records of GNA and the Borrowers, and (iii) discuss the affairs, finances and accounts of GNA and the Borrowers with their appropriate officers, employees and accountants, all at the expense of the Borrowers. Without limiting the generality of the foregoing, the Borrowers will permit periodic reviews (as determined by the Administrative Agent) of the books and records of the Borrowers and their Subsidiaries to be carried out by the Administrative Agent's commercial finance examiners. The Borrowers shall also permit the Administrative Agent to arrange for verification of Accounts Receivable, under reasonable procedures established by the Administrative Agent after consultation with NAC, directly with any account debtors or by other methods. 5.6 Maintenance of Books and Records. The Borrowers and each of their Subsidiaries shall keep adequate books and records of account in which true and complete entries will be made reflecting all of their business and financial transactions in accordance with GAAP and applicable law. The Borrowers shall at all times keep correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory and of Eligible Inventory, the Borrowers' cost therefor in accordance with the Borrowers' current procedures as heretofore described by the Borrowers to the Lenders, and withdrawals therefrom and additions thereto, all of which records shall be updated at least monthly (or more frequently if reasonably requested by the Administrative Agent or, after Default, by any Lender) and shall be available during the Borrowers' usual business hours at the request of any of the Administrative Agent's officers, employees or agents. 5.7 Use of Proceeds. --------------- (a) The Borrowers will use the proceeds of Loans solely to refinance existing Indebtedness of the Borrowers, for the working capital needs of the Borrowers, including payment of the costs and expenses of the transactions contemplated hereby, for permitted Capital Expenditures and for ongoing general corporate purposes. (b) No portion of any Loan shall be used for the "purpose of purchasing or carrying" any "margin stock" or "margin security" as such terms are used in Regulations G, U and X of the Board of -56- Governors of the Federal Reserve System, or otherwise in violation of such regulations. 5.8 Further Assurances. At any time and from time to time the Borrowers shall execute and deliver such further documents and take such further action as may reasonably be requested by the Administrative Agent to effect the purposes of the Loan Documents. 5.9 Notification Requirements. The Borrowers shall furnish to the Administrative Agent and the Lenders: (a) immediately upon becoming aware of the existence of any condition or event that constitutes a Default, written notice thereof specifying the nature and duration thereof and the action being or proposed to be taken with respect thereto; (b) promptly upon becoming aware of any litigation or of any investigative proceedings by a governmental agency or authority commenced or threatened against the Borrowers or any of their Subsidiaries of which they have notice, in which the amount of damages claimed (excluding punitive damages) exceeds $5,000,000 or the outcome of which would or could reasonably be expected to have a materially adverse effect on the assets, business or prospects of any Borrower alone or the Borrowers and their Subsidiaries on a consolidated basis, written notice thereof and the action being or proposed to be taken with respect thereto; and (c) promptly after any occurrence or after becoming aware of any condition affecting the Borrowers which constitutes or could reasonably expected to constitute a material adverse change in or which has or could reasonably be expected to have a material adverse effect on the business, properties or condition (financial or otherwise) of any Borrower alone or of the Borrowers, taken as a whole, written notice thereof. 5.10 ERISA Reports. With respect to any Plan, the Borrowers shall, or shall cause their Affiliates to, furnish to the Administrative Agent and the Lenders promptly (i) written notice of the occurrence of a "reportable event" (as defined in Section 4043 of ERISA), excluding any such event notice of which has been waived by regulation, (ii) a copy of any request for a waiver of the funding standards or an extension of the amortization periods required under Section 412 of the Code and Section 302 of ERISA, (iii) a copy of any -57- notice of intent to terminate any Pension Plan, (iv) notice that the Borrowers or any Affiliate will or may incur any liability to or on account of a Plan under Sections 4062, 4063, 4064, 4201 or 4204 of ERISA, (v) a copy of the annual report of each Pension Plan (Form 5500 or comparable form) required to be filed with the IRS and/or the Department of Labor; (vi) notice of any complete or partial withdrawal from any Multiemployer Pension Plan, (vii) a copy of any notice with respect to a Multiemployer Pension Plan that such plan is terminated or is "insolvent" (as defined in Section 4245 of ERISA), or in "reorganization" (as defined in Section 4241 of ERISA, and a (viii) a copy of any assessment of withdrawal liability (or preliminary estimate thereof following a complete or partial withdrawal by a Borrower or Affiliate) with respect to a Multiemployer Pension Plan. Any notice to be provided to the Administrative Agent and the Lenders under this Section shall include a certificate of the chief financial officer of the Borrower in question setting forth details as to such occurrence and the action, if any, which such Borrower or the Affiliate are required or propose to take, together with any notices required or proposed to be filed with or by the Borrowers, any Affiliate, the PBGC, the IRS, the trustee or the plan administrator with respect thereto. Promptly after the adoption of any Pension Plan, the Borrowers shall notify the Administrative Agent and the Lenders of such adoption. 5.11 Loss or Depreciation of Collateral. The Borrowers shall notify the Administrative Agent and the Lenders promptly of the occurrence at any time of the following events if, individually or in the aggregate, the amount involved in connection with such events exceeds $3,000,000: (i) loss or depreciation in value of Inventory resulting from events other than changes in the market price for such Inventory and the amount of the loss or depreciation; (ii) rejection or return of any goods giving rise to an Eligible Account to the extent such rejection or return is not in the ordinary course of business; (iii) repossession, loss of or damage to any goods giving rise to any Eligible Account; (iv) any request by an account debtor for credit, adjustment, set off or counterclaim of or with respect to an Eligible Account; (v) any adjustment by the Borrowers of the amount owing on an Eligible Account; (vi) any merchandise or other dispute related to Inventory; (vii) any material delay in the Borrowers' performance of any of their obligations to any customer if the Borrowers have an Eligible Account with such customer; (viii) any other material event -58- affecting Inventory or Eligible Accounts or the value or amount thereof, including without limitation any event which would result in an Eligible Account or Eligible Inventory no longer qualifying as an Eligible Account or Eligible Inventory. In the event of any loss or depreciation in the per unit value of Inventory resulting from events other than changes in the market price for such Inventory and the amount of such loss or depreciation exceeds 5% of the per unit value reflected on the most recent Borrowing Base Report delivered to the Administrative Agent, the Borrowers shall immediately notify the Administrative Agent and the Lenders of such loss or depreciation and the amount of Inventory affected thereby. 5.12 Environmental Compliance. ------------------------ (a) The Borrowers and their Subsidiaries will comply in all material respects with all applicable Environmental Laws in all jurisdictions in which any of them operates now or in the future, and the Borrowers and their Subsidiaries will comply in all material respects with all such Environmental Laws that may in the future be applicable to the Borrowers' or any Subsidiary's business, properties and assets. (b) If the Borrowers or any Subsidiary shall (i) receive notice that any material violation of any Environmental Law may have been committed or is about to be committed by the Borrowers or any Subsidiary, (ii) receive notice that any administrative or judicial complaint or order has been filed or is about to be filed against the Borrowers or any Subsidiary alleging a material violation of any Environmental Law or requiring the Borrowers or any Subsidiary to take any action in connection with the release of Hazardous Materials into the environment, (iii) receive any notice from a federal, state or local government agency or private party alleging that the Borrowers or any Subsidiary may be liable or responsible for any material amount of costs associated with a response to or cleanup of a release of Hazardous Materials into the environment or any damages caused thereby, or (iv) become aware of any investigative proceedings by a governmental agency or authority commenced or threatened against the Borrowers or any of their Subsidiaries regarding any potential violation of Environmental Laws or any spill, release, discharge or disposal of any Hazardous Material, -59- the Borrowers shall, within 10 days thereof, notify the Administrative Agent and the Lenders thereof (together with a copy of any such notice) and of any action being or proposed to be taken with respect thereto. 5.13 Year 2000 Compliance. The Borrowers and their Subsidiaries shall be Year 2000 Compliant on or before June 30, 1999 and at all times thereafter, and shall so certify to the Administrative Agent in writing on or before June 30, 1999. 5.14 Tolling Agreements; Commingling. ------------------------------- (a) The Borrowers shall not permit the Glencore Tolling Agreement to be amended or terminated prior to its expiration date or the Hydro Toll Conversion Agreement to expire or to be amended or terminated prior to its expiration date, in each case without the prior written consent of the Majority Lenders (which consent shall not be unreasonably withheld or delayed). (b) No Borrower shall enter into any other Tolling Agreement unless such Borrower shall have given the Administrative Agent and the Lenders ten (10) Business Days prior notice of its intention to do so. The Borrowers shall furnish such information with respect to any Tolling Agreement as the Administrative Agent or any Lender shall reasonably request. (c) The Borrowers shall take all steps necessary to preserve, protect and identify all Inventory and shall not permit any Inventory to be commingled with any goods to be processed under any Tolling Agreement unless the Administrative Agent is reasonably satisfied with the Borrowers' program and systems for preserving, protecting and identifying the Inventory. VI. FINANCIAL COVENANTS ------------------- The Borrowers covenant that so long as any Loan, Letter of Credit or other Obligation remains outstanding or the Lenders or the Issuing Bank have any obligation to make any Loan or issue any Letter of Credit hereunder: 6.1 Net Worth. The Borrowers shall at all times during each fiscal year maintain a Consolidated Net Worth of not less than the greater of (i) $50,000,000 and (ii) an amount equal to (x) the amount of Consolidated Net Worth required to be maintained for the preceding fiscal year plus (y) fifty percent (50%) of Consolidated Net Income for the preceding fiscal year (for purposes of this clause (y), only positive -60- Consolidated Net Income shall be included and any net losses shall be disregarded). 6.2 Minimum Excess Availability. The Borrowers shall not at any time permit Total Outstandings to exceed the lesser of (i) the Borrowing Base minus $15,000,000 and (ii) the Total Commitment. 6.3 Capital Expenditures. The Borrowers shall not make (a) Capital Expenditures in connection with the Facilities Investment Program in excess of $75,000,000 in the aggregate, and (b) Capital Expenditures unrelated to the Facilities Investment Program during any fiscal year of the Borrowers in excess of the sum of (i) $20,000,000, plus (ii) 100% of the unused portion from the immediately preceding fiscal year of the amount permitted by clause (b)(i) of this sentence. VII. NEGATIVE COVENANTS The Borrowers covenant that so long as any Loan, Letter of Credit or other Obligation remains outstanding or the Lenders or the Issuing Bank have any obligation to make any Loan or to issue any Letter of Credit hereunder: 7.1 Indebtedness. The Borrowers shall not create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness other than the following: (a) Obligations; (b) Indebtedness existing as of the date of this Agreement and disclosed on Exhibit C hereto and renewals and refinancings thereof, but not any increase in the principal amounts thereof; (c) Indebtedness for Capital Expenditures incurred in the ordinary course of business and renewals and refinancings thereof, provided that such Indebtedness (i) is subordinated to Obligations on terms no less favorable to the Agents, the Lenders and the Issuing Bank than those applicable to the Hydro Debt and otherwise reasonably satisfactory to the Administrative Agent and (ii) does not exceed $15,000,000 in the aggregate at any time outstanding; (d) Guarantees permitted under Section 7.2 hereof; -61- (e) Indebtedness in respect of Eligible Interest Rate Contracts and Eligible Commodity Contracts; (f) Indebtedness in respect of the Borrowers' corporate VISA accommodations described on Exhibit C attached hereto; (g) Indebtedness of a Borrower to any other Borrower or to GNA, provided that any such Indebtedness to GNA is subordinated to Obligations on terms reasonably satisfactory to the Agent; and (h) other Indebtedness of the Borrowers incurred in the ordinary course of business, provided that such other Indebtedness does not exceed $2,000,000 in the aggregate at any time outstanding. 7.2 Contingent Liabilities. The Borrowers shall not create, incur, assume, guarantee or be or remain liable with respect to any Guarantees other than (i) the Permitted Guarantees, (ii) other Guarantees existing on the date of this Agreement and disclosed on Exhibit C hereto, (iii) Guarantees resulting from the endorsement of negotiable instruments for deposit or collection in the ordinary course of business, and (iv) guarantees of the Indebtedness described in Section 7.1(c) and (e), provided that such Guarantees are no less favorable to the Borrowers than the Permitted Guarantee of the Hydro Debt and are otherwise reasonably satisfactory to the Administrative Agent. 7.3 Encumbrances. The Borrowers shall not create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance of any kind, including the lien or retained security title of a conditional vendor upon or with respect to any of their property or assets ("Encumbrances"), or assign or otherwise convey any right to receive income, including the sale or discount of Accounts Receivable with or without recourse, except the following ("Permitted Encumbrances"): (a) Encumbrances in favor of the Administrative Agent, the Issuing Bank or any of the Lenders to secure Obligations; (b) Encumbrances existing as of the date of this Agreement and disclosed in Exhibit C hereto; (c) Encumbrances securing Indebtedness for Capital Expenditures to the extent such Indebtedness is -62- permitted by Section 7.1(c), provided that no such Encumbrance attaches to any Collateral; (d) liens for taxes, fees, assessments and other governmental charges to the extent that payment of the same may be postponed or is not required in accordance with the provisions of Section 5.4; (e) landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges or deposits under workmen's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics', warehouseman's, laborers' and materialmen's and similar liens, if the obligations secured by such liens are not then delinquent; liens securing the performance of bids, tenders, contracts (other than for the payment of money); and liens securing statutory obligations or surety, indemnity, performance, or other similar bonds incidental to the conduct of the Borrowers' or a Subsidiary's business in the ordinary course and that do not in the aggregate materially detract from the value of their property or materially impair the use thereof in the operation of their business; (f) judgment liens securing judgments that (i) are not fully covered by insurance, and (ii) shall not have been in existence for a period longer than 30 days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than 30 days after the expiration of such stay; (g) rights of lessors under capital leases to the extent such capital leases are permitted hereunder; (h) easements, rights of way, restrictions and other similar charges or Encumbrances relating to real property and not interfering in a material way with the ordinary conduct of the Borrowers' business; (i) Encumbrances securing the Permitted Guarantees as set forth in the Senior Debt Security Documents and the Hydro Debt Documents, provided that no such Encumbrance attaches to any Collateral; and -63- (j) liens constituting a renewal, extension or replacement of any Permitted Encumbrance. 7.4 Merger; Consolidation; Sale or Lease of Assets. No Borrower shall: ---------------------------------------------- (a) liquidate, merge or consolidate into or with any other Person or entity, except that GAC and Holding may merge or consolidate with each other, provided that if Holding is the survivor of such merger or consolidation, Holding shall have become a party to this Agreement as an additional Borrower hereunder and shall assume all of GAC's Obligations; or (b) sell, lease or otherwise dispose of, in a single transaction or series of related transactions, any material portion of the assets or property of any Borrower, other than sales of Inventory, the disposition of scrap, waste and obsolete or unusable items and sales or trade-ins of used or obsolete equipment, consistent with past practice. 7.5 Speculative Commodity Transactions. No Borrower shall, at any time, engage in speculative transactions with respect to commodities. 7.6 Restricted Payments. ------------------- (a) The Borrowers shall not pay, make, declare or authorize any Restricted Payment other than: (i) compensation paid and advances made to employees, officers and directors in the ordinary course of business and consistent with prudent business practices; (ii) dividends payable solely in capital stock; (iii) cash payments or dividends to the extent required to finance regularly scheduled payments (but not any mandatory or optional prepayments) of principal of and interest on the Senior Debt and the Hydro Debt in the amounts and at the times set forth in the Senior Debt Indenture and the Hydro Debt Documents, provided that both immediately before and immediately after giving effect to any such payment no Default shall have occurred and be continuing; (iv) cash dividends to finance the redemption of or, after a merger of Holding and GAC, payments to redeem the Holding Preferred Stock, provided that (x) the aggregate amount of all such dividends or redemption payments shall -64- not exceed the redemption price for the Holding Preferred Stock specified in Holding's certificate of incorporation (as in effect on the date hereof, without giving effect to any amendments, modifications or supplements thereto) plus any accrued and unpaid dividends on such Holding Preferred Stock, (y) both immediately before and immediately after giving effect to any such dividend or redemption payments and any such redemption of the Holding Preferred Stock no Default shall have occurred and be continuing, and (z) at least ten (10) days before the making of any such redemption payment or the declaration of any such dividend, the Borrowers shall have delivered to the Administrative Agent a certificate of the chief financial officer of NAC demonstrating on a pro forma basis compliance with the provisions of Sections 6.1 and 6.2 after the payment of such dividend. (b) Notwithstanding anything to the contrary contained in Section 7.6(a), (i) from time to time during or following the end of any fiscal quarter during which a Borrower was an S Corporation, such Borrower may distribute to its stockholders in cash an amount not in excess of the Sub S Distribution Amount for the portion of the fiscal year through the end of such fiscal quarter, minus the aggregate amount of any such distributions theretofore made in respect such fiscal year, and (ii) if subsequent to any year during which a Borrower was an S Corporation any taxing authority or court of competent jurisdiction shall finally determine that additional taxes are payable by such Borrower's stockholders in respect of the income of such Borrower during such year, such Borrower may distribute to such stockholders in cash an additional amount sufficient to pay such unpaid taxes and any interest and penalties thereon; provided, however, that in no event shall the amount so distributed in respect of any year exceed the actual amount of Federal and state income taxes (and any interest and penalties thereon) for such year attributable to the ownership of such Borrower's common stock. The amount of any distribution under this Section 7.6(b) shall be verified by the chief financial officer of GAC in the certificate required under Section 5.1(e) and in the written statement required of the Borrowers' Accountants under Section 5.1(a). 7.7 Investments; Purchases of Assets. The Borrowers shall not make or maintain any Investments or purchase or -65- otherwise acquire any material amount of assets other than: (a) Investments existing on the date hereof as set forth on Exhibit C; (b) Qualified Investments; (c) Capital Expenditures; (d) purchases of Inventory in the ordinary course of business; (e) normal trade credit extended in the ordinary course of business and consistent with prudent business practice; (f) Eligible Commodity Contracts and Eligible Interest Rate Contracts; and (g) Investments permitted by Section 4.09(a) of the Senior Debt Indenture, provided that both immediately before and immediately after giving effect to the making of any such Investment, no Default shall have occurred and be continuing. 7.8 ERISA Compliance. Neither the Borrowers nor any of their Affiliates nor any Plan shall (i) engage in any Prohibited Transaction which would have a material adverse effect on the business, financial condition or operations of the Borrowers and their Subsidiaries taken as a whole, (ii) incur any "accumulated funding deficiency" (as defined in Section 412(a) of the Code and Section 302 of ERISA) whether or not waived which would have a material adverse effect on the business, financial condition or operations of the Borrowers and their Subsidiaries taken as a whole, (iii) fail to satisfy any additional funding requirements set forth in Section 412 of the Code and Section 302 of ERISA or to make any other contribution required under the terms of any Pension Plan or any collective bargaining agreement with respect to a Multiemployer Plan which would have a material adverse effect on the business, financial condition or operations of the Borrowers and their Subsidiaries taken as a whole, (iv) terminate any Pension Plan in a manner which could result in the imposition of a lien on any property of the Borrowers or any of their Subsidiaries; or (v) withdraw (in a complete or partial withdrawal within the meaning of Section 4203 or Section 4205 of ERISA, respectively) from a Multiemployer Pension Plan if such withdrawal would have a material adverse effect on the business, -66- financial condition or operations of the Borrowers and their Subsidiaries taken as a whole. Each Plan shall comply in all material respects with ERISA, except to the extent failure to comply in any instance would not have a material adverse effect on the business, financial condition or operations of the Borrowers and their Subsidiaries taken as a whole. 7.9 Transactions with Affiliates. The Borrowers will not, directly or indirectly, enter into any purchase, sale, lease or other transaction with any Affiliate except (i) transactions in the ordinary course of business on terms that are no less favorable to the Borrowers than those which might be obtained at the time in a comparable arm's-length transaction with any Person who is not an Affiliate and (ii) employment contracts with senior management of the Borrowers entered into in the ordinary course of business and consistent with prudent business practices. Notwithstanding the foregoing, the Borrowers will not, directly or indirectly, pay any management, consulting, overhead, indemnity, guarantee or other similar fee or charge to any Affiliate. 7.10 Fiscal Year. The Borrowers shall not change their fiscal years without the prior written consent of the Administrative Agent. VIII. DEFAULTS -------- 8.1 Events of Default. There shall be an Event of Default hereunder if any of the following events occurs: (a) the Borrowers shall fail to pay any principal of any Loan, any Reimbursement Obligation or any interest, Fees or other amounts owing under any Loan Document or in respect of any Obligation when the same shall become due and payable, whether at maturity, at any accelerated date of maturity or at any other date fixed for payment; (b) the Borrowers shall fail to perform or comply with any term, covenant or agreement applicable to them contained in Sections 5.1 (except subsection (g) thereof), 5.2(b), 5.3(b), 5.5, 5.7, 5.9(a), 5.11, 5.14(a), 6 and 7 of this Agreement and Section 3.7 of the Security Agreement; or (c) the Borrowers shall fail to perform any term, covenant or agreement (other than as specified in subsections 8.1(a) or (b) hereof) applicable to -67- them contained in Sections 5.1(g), 5.2(a), 5.6, 5.8, 5.9(b), 5.9(c), 5.12(a), 5.12(b), 5.14(b) and 5.14(c) of this Agreement and Sections 3.1, 3.8, 3.9 and 4 of the Security Agreement and such Default shall continue for 10 days; or (d) the Borrowers shall fail to perform any term, covenant or agreement (other than as specified in subsections 8.1(a), (b), or (c) hereof) applicable to them contained in this Agreement or any other Loan Document and such Default shall continue for 30 days; or (e) any representation or warranty of the Borrowers made in this Agreement or any other Loan Document or in any certificate, notice or other writing delivered hereunder or thereunder shall prove to have been false in any material respect upon the date when made or deemed to have been made and such breach shall be material to the Borrowers taken as a whole; or (f) the Borrowers shall (i) fail to pay when due (after any applicable period of grace) any amount payable under the Glencore Tolling Agreement, the Hydro Tolling Agreement, the Senior Debt, the Hydro Debt or any other Indebtedness (including undrawn, committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) exceeding $2,000,000 in principal amount or under any agreement for the use of real or personal property requiring aggregate payments in excess of $2,000,000 in any twelve month period, or (ii) fail to observe or perform (after any applicable notice or period of grace) any term or covenant of the Glencore Tolling Agreement or the Hydro Tolling Agreement or any term, covenant or agreement evidencing or securing the Senior Debt, the Hydro Debt, the Permitted Guarantees or such other Indebtedness or relating to such agreement for the use of real or personal property and the effect of such failure to observe or perform permits the termination of the Glencore Tolling Agreement or the Hydro Tolling Agreement, permits the acceleration of the Senior Debt or the Hydro Debt or, if uncured or unwaived for more than thirty days, permits the acceleration of such other Indebtedness or the termination of the Borrowers' right to use such real or personal property; or -68- (g) any of the Borrowers or GNA shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar official of itself or of all or a substantial part of its property, (ii) be generally not paying its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect), (v) take any action or commence any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or any other law providing for the relief of debtors, (vi) fail to contest in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the United States Bankruptcy Code or other law, (vii) take any action under the laws of its jurisdiction of incorporation or organization similar to any of the foregoing, or (viii) take any corporate action for the purpose of effecting any of the foregoing; or (h) a proceeding or case shall be commenced against any of the Borrowers or GNA, without the application or consent of such Borrower or GNA, as the case may be, in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets, or (iii) similar relief in respect of it, under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts or any other law providing for the relief of debtors, and such proceeding or case shall continue undismissed, or unstayed and in effect, for a period of 45 days; or an order for relief shall be entered in an involuntary case under the United States Bankruptcy Code, against such Borrower or GNA, as the case may be; or action under the laws of the jurisdiction of incorporation or organization of any Borrower or GNA similar to any of the foregoing shall be taken with respect to any Borrower or GNA, as the case may be, and shall continue unstayed and in effect for a period of 45 days; or -69- (i) a judgment or order for the payment of money shall be entered against the Borrowers by any court, or a warrant of attachment or execution or similar process shall be issued or levied against property of the Borrowers that in the aggregate exceeds $2,000,000 in value, the payment of which is not fully covered by insurance in excess of any deductibles not exceeding $2,000,000 in the aggregate, and such judgment, order, warrant or process shall continue undischarged or unstayed for 30 days; or (j) the Borrowers or any Affiliate shall fail to pay when due any amount in excess of $2,000,000 that they shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA, unless such liability is being contested in good faith by appropriate proceedings, the Borrowers or the Affiliate, as the case may be, have established and are maintaining adequate reserves in accordance with GAAP and no lien shall have been filed to secure such liability; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or (k) any of the Loan Documents shall be canceled, terminated, revoked or rescinded otherwise than in accordance with the express terms thereof or with the express prior written agreement, consent or approval of the Lenders, or any action at law or in equity or other legal proceeding to cancel, revoke or rescind any Loan Document shall be commenced by or on behalf of the Borrowers, or any court or other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or shall issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; or (l) Brett E. Wilcox is no longer the sole beneficial owner (as to both voting and dispositive power) of at least 35% of the outstanding Voting Stock of GNA, or Brett E. Wilcox no longer has the sole right (not subject to revocation, termination or expiration) to elect a majority of the Board of Directors of GNA, or any other Person is the -70- beneficial owner (as to either voting or dispositive power) of 35% or more of the Voting Stock of GNA, or a majority of the members of the Board of Directors of GNA are not Continuing Directors; or (m) GNA shall fail to own of record and beneficially, free and clear of any and all Encumbrances (except Encumbrances securing the Senior Debt and the Hydro Debt), a majority of the issued and outstanding Voting Stock of NAC, NAS, NAT, Holding (except for the Holding Preferred Stock) and, following a merger between Holding and GAC, the survivor of such merger, and to have the unfettered ability at all times to approve any matter to be voted upon by the stockholders of the Borrowers and Holding, subject only to a voting agreement pertaining only to the election of Directors of GAC and enabling Holding at all times to designate a majority of the Board of Directors of GAC; or (n) Brett E. Wilcox shall fail at any time to be the duly elected and acting chief executive officer of the Borrowers or there shall be imposed any material restriction on his right to exercise the powers and authority of such office and to manage the business of the Borrowers. 8.2 Remedies. Upon the occurrence of an Event of Default described in subsections 8.1(g) and (h), immediately and automatically, and upon the occurrence of any other Event of Default, at any time thereafter while such Event of Default is continuing, at the option of the Administrative Agent or the Majority Lenders and upon the Administrative Agent's declaration: (a) the obligation of the Lenders to make any further Loans and of the Issuing Bank to issue any Letters of Credit hereunder and all Commitments shall terminate; (b) the unpaid principal amount of the Loans together with accrued interest, all Reimbursement Obligations and all other Obligations shall become immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived; and (c) the Administrative Agent, the Issuing Bank and the Lenders may exercise any and all rights they have under this Agreement, the other Loan Documents or -71- at law or in equity, and proceed to protect and enforce their respective rights by any action at law or in equity or by any other appropriate proceeding. No remedy conferred upon the Administrative Agent, the Issuing Bank and the Lenders in the Loan Documents is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be an addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or by any other provision of law. Without limiting the generality of the foregoing or of any of the terms and provisions of any of the Security Documents, if and when the Administrative Agent exercises remedies under the Security Documents with respect to Collateral, the Administrative Agent may, in its sole discretion, determine which items and types of Collateral to dispose of and in what order and may dispose of Collateral in any order the Administrative Agent shall select in its sole discretion, and the Borrowers consent to the foregoing and waive all rights of marshalling with respect to all Collateral. IX. ASSIGNMENT AND PARTICIPATION ---------------------------- 9.1 Assignment. ---------- (a) Each Lender shall have the right to assign at any time any portion of its Commitment hereunder and its interests in the risk relating to any Loans and Letter of Credit Participations in an amount equal to or greater than $5,000,000 to other Lenders or to banks or financial institutions reasonably acceptable to the Administrative Agent (each an "Assignee"), provided that any Lender which proposes to assign less than its total Commitment must retain a Commitment of at least $5,000,000, and provided, further, that if no Default or Event of Default shall have occurred and be continuing, each Assignee which is not a Lender or an Affiliate of a Lender (in each case with a domestic lending office for the purpose of making Loans) or a Federal Reserve Bank shall be subject to prior approval by the Borrowers (such approval not to be unreasonably withheld or delayed). Each Assignee shall execute and deliver to the Administrative Agent and the Borrowers a counterpart joinder substantially in the form of Exhibit F hereto and shall pay to the Administrative Agent, solely for the account of the Administrative Agent, an assignment fee of $3,500. Upon the execution and delivery of such -72- counterpart joinder, (a) such Assignee shall, on the date and to the extent provided in such counterpart joinder, become a "Lender" party to this Agreement and the other Loan Documents for all purposes of this Agreement and the other Loan Documents and shall have all rights and obligations of a "Lender" with a Commitment as set forth in such counterpart joinder, and the transferor Lender shall, on the date and to the extent provided in such counterpart joinder, be released from its obligations hereunder and under the other Loan Documents to a corresponding extent (and, in the case of an assignment covering all of the remaining portion of an assigning Lender's rights and obligations under this Agreement, such transferor shall cease to be a party hereto but shall continue to be entitled to the benefits of Section 11.3 and to any Fees accrued for its account hereunder and not yet paid); (b) the assigning Lender, if it holds any Notes, shall promptly surrender such Notes to the Administrative Agent for cancellation and delivery to the Borrowers, provided that if the assigning Lender has retained any Commitment, the Borrowers shall, on the request of the Administrative Agent, execute and deliver to the Administrative Agent for delivery to such assigning Lender new Notes in the amount of the assigning Lender's retained Commitment; (c) the Borrowers shall issue to such Assignee Notes in the amount of such Assignee's Commitments dated the Closing Date or such other date as may be specified by such Assignee and otherwise completed in substantially the form of Exhibit A hereto; (d) this Agreement shall be deemed appropriately amended to reflect (i) the status of such Assignee as a party hereto and (ii) the status and rights of the Lenders hereunder; and (e) the Borrowers shall take such action as the Administrative Agent may reasonably request to perfect any security interests or mortgages in favor of the Lenders, including any Assignee which becomes a party to this Agreement. (b) If the Assignee, or any Participant pursuant to Section 9.2 hereof, is organized under the laws of a jurisdiction other than the United States or any state thereof, such Assignee shall execute and deliver to the Borrowers, simultaneously with or prior to such Assignee's execution and delivery of the counterpart joinder described above in Section 9.1(a), and such Participant shall execute and deliver to the Lender granting the participation, -73- a United States Internal Revenue Service Form 4224 or Form 1001 (or any successor form), appropriately completed, wherein such Assignee or Participant claims entitlement to complete exemption from United States Federal Withholding Tax on all interest payments hereunder and all Fees and other charges payable pursuant to any of the Loan Documents. The Borrowers shall not be required to pay any increased amount to any Assignee or other Lender on account of taxes to the extent such taxes would not have been payable if the Assignee or Participant had furnished one of the Forms referenced in this Section 9.1(b) unless the failure to furnish such a Form results from (i) a condition or event affecting the Borrowers or an act or failure to act of the Borrowers or (ii) the adoption of or change in any law, rule, regulation or guideline affecting such Assignee or Participant occurring (x) after the date on which any such Assignee executes and delivers the counterpart joinder, or (y) after the date such Assignee shall otherwise comply with the provisions of Section 9.1(a), or (z) after the date a Participant is granted a participation. 9.2 Participations. Each Lender shall have the right to grant participations to one or more banks or other financial institutions in all or any part of any Loans and Letter of Credit Participations owing to such Lender and the Notes held by such Lender. Each Lender shall retain the sole right to approve, without the consent of any participant, any amendment, modification or waiver of any provision of the Loan Documents, provided that the documents evidencing any such participation may provide that, except with the consent of such participant, such Lender will not consent to (a) the reduction in or forgiveness of the stated principal of or rate of interest on or Commitment Fee with respect to the portion of any Loan subject to such participation, (b) the extension or postponement of any stated date fixed for payment of principal or interest or Commitment Fee with respect to the portion of any Loan subject to such participation, (c) the waiver or reduction of any right to indemnification of such Lender hereunder, or (d) except as otherwise permitted hereunder, the release of any Collateral. Notwithstanding the foregoing, no participation shall operate to increase the Total Commitment hereunder or otherwise alter the substantive terms of this Agreement. In the event of any such sale by a Lender of participating interests to a participant, such Lender's obligations under this Agreement shall remain -74- unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of such Notes for all purposes under this Agreement and the Borrowers and Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. X. THE AGENTS ---------- 10.1 Appointment of Agents; Powers and Immunities. -------------------------------------------- (a) Each Lender and the Issuing Bank hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder and under the other Loan Documents and to execute the Loan Documents (other than this Agreement) and all other instruments relating thereto. Each Lender and the Issuing Bank irrevocably authorizes the Administrative Agent to take such action on behalf of each of the Lenders and the Issuing Bank and to exercise all such powers as are expressly delegated to the Administrative Agent hereunder and in the other Loan Documents and all related documents, together with such other powers as are reasonably incidental thereto. The obligations of the Administrative Agent hereunder are only those expressly set forth herein. The Administrative Agent shall not have any duties or responsibilities or any fiduciary relationship with any Lender or the Issuing Bank except those expressly set forth in this Agreement. (b) Each Lender and the Issuing Bank hereby irrevocably appoints the Documentation Agent as documentation agent hereunder and under the other Loan Documents and authorizes the Documentation Agent to take such action on behalf of each of the Lenders and the Issuing Bank and to exercise all such powers on their behalf as are expressly delegated to the Documentation Agent by the Administrative Agent, together with such other powers as are reasonably incidental thereto. The Documentation Agent shall not have any duties or responsibilities or any fiduciary relationship with any Lender or the Issuing Bank except those expressly set forth in this Agreement. -75- (c) Neither the Agents nor any of their directors, officers, employees or agents shall be responsible for any action taken or omitted to be taken by any of them hereunder or in connection herewith, except for their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, neither the Agents nor any of their Affiliates shall be responsible to the Lenders or the Issuing Bank for or have any duty to ascertain, inquire into or verify: (i) any recitals, statements, representations or warranties made by the Borrowers or any of their Subsidiaries or any other Person whether contained herein or otherwise; (ii) the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the other Loan Documents or any other document referred to or provided for herein or therein; (iii) any failure by the Borrowers or any other Person to perform its obligations under any of the Loan Documents; (iv) the satisfaction of any conditions specified in Section 3 hereof, other than receipt of the documents, certificates and opinions specified in Section 3.1(a) hereof; (v) the existence, value, collectibility or adequacy of the Collateral or any part thereof or the validity, effectiveness, perfection or relative priority of the liens and security interests of the Lenders and the Issuing Bank therein; or (vi) the filing, recording, refiling, continuing or re- recording of any financing statement or other document or instrument evidencing or relating to the security interests or liens of the Lenders and the Issuing Bank in the Collateral. (d) The Agents may employ agents, attorneys and other experts, shall not be responsible to any Lender or the Issuing Bank for the negligence or misconduct of any such agents, attorneys or experts selected by it with reasonable care and shall not be liable to any Lender or the Issuing Bank for any action taken, omitted to be taken or suffered in good faith by it in accordance with the advice of such agents, attorneys and other experts. Each of BKB and US Bank, in its separate capacity as a Lender, shall have the same rights and powers under the Loan Documents as any other Lender and may exercise or refrain from exercising the same as though it were not an Agent, and each of BKB and US Bank and its Affiliates may accept deposits from, lend money to and generally engage in any -76- kind of business with the Borrowers as if it were not an Agent. 10.2 Actions by Agents. ----------------- (a) Each of the Agents shall be fully justified in failing or refusing to take any action under this Agreement as it reasonably deems appropriate unless it shall first have received such advice or concurrence of the Lenders and shall be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agents shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any of the Loan Documents in accordance with a request of the Lenders or the Majority Lenders, as the case may be, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Lenders and all future holders of the Notes. Without limiting the generality of the foregoing, as among the Agents and the Lenders (but not for the benefit of the Borrowers), if and when the Administrative Agent exercises remedies under the Security Documents with respect to Collateral, the Administrative Agent will follow the directions, if any, of the Majority Lenders in determining which items and types of Collateral to dispose of and in what order. (b) Whether or not an Event of Default shall have occurred, the Administrative Agent may from time to time exercise such rights of the Administrative Agent and the Lenders under the Loan Documents as it determines may be necessary or desirable to protect the Collateral and the interests of the Administrative Agent, the Issuing Bank and the Lenders therein and under the Loan Documents. In addition, the Administrative Agent may, without the consent of the Lenders, release Collateral valued by the Administrative Agent, in its reasonable discretion, of not more than $1,000,000 in any year. (c) Neither Agent nor any of its directors, officers, employees or agents shall incur any liability by acting in reliance on any notice, consent, certificate, statement or other writing (which may be a bank wire, telex, facsimile or similar writing) believed by any of them to be genuine or to be signed by the proper party or parties. -77- 10.3 Indemnification. Without limiting the obligations of the Borrowers hereunder or under any other Loan Document, the Lenders agree to indemnify the Agents and the Issuing Bank, ratably in accordance with their respective Commitment Percentages, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against the Agents or the Issuing Bank in any way relating to or arising out of this Agreement or any other Loan Document or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof or thereof or of any such other documents; provided, that no Lender shall be liable for any of the foregoing to the extent they result from the gross negligence or willful misconduct of an Agent or the Issuing Bank, as the case may be. 10.4 Reimbursement. Without limiting the provisions of Section 10.3, the Lenders, the Issuing Bank and the Agents hereby agree that the Administrative Agent shall not be obliged to make available to any Person any sum which the Administrative Agent is expecting to receive for the account of that Person until the Administrative Agent has determined that it has received that sum. The Administrative Agent may, however, disburse funds prior to determining that the sums which the Administrative Agent expects to receive have been finally and unconditionally paid to the Administrative Agent if the Administrative Agent wishes to do so. If and to the extent that the Administrative Agent does disburse funds and it later becomes apparent that the Administrative Agent did not then receive a payment in an amount equal to the sum paid out, then any Person to whom the Administrative Agent made the funds available shall, on demand from the Administrative Agent refund to the Administrative Agent the sum paid to that Person. If the Administrative Agent in good faith reasonably concludes that the distribution of any amount received by it in such capacity hereunder or under the other Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Administrative Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Administrative Agent its proportionate share of the -78- amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 10.5 Non-Reliance on Agents and Other Lenders. Each Lender represents that it has, independently and without reliance on the Agents or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of the financial condition and affairs of the Borrowers and decision to enter into this Agreement and the other Loan Documents and agrees that it will, independently and without reliance upon the Agents or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own appraisals and decision in taking or not taking action under this Agreement or any other Loan Document. The Agents shall not be required to keep informed as to the performance or observance by the Borrowers of this Agreement, the other Loan Documents or any other document referred to or provided for herein or therein or by any other Person of any other agreement or to make inquiry of, or to inspect the properties or books of, any Person. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agents hereunder, the Agents shall not have any duty or responsibility to provide any Lender with any credit or other information concerning any Person which may come into the possession of any Agent or any of its affiliates. Each Lender shall have access to all documents relating to each Agent's performance of its duties hereunder at such Lender's request. Unless any Lender shall, promptly after obtaining knowledge thereof, object to any action taken by any Agent hereunder (other than actions to which the provisions of Section 11.7(b) are applicable and other than actions which constitute gross negligence or willful misconduct by any Agent), such Lender shall conclusively be presumed to have approved the same. 10.6 Resignation or Removal of an Agent. An Agent may resign at any time by giving 30 days prior written notice thereof to the other Agent, the Lenders and the Borrowers. Upon any such resignation, the Lenders shall have the right to appoint a successor Agent which shall be reasonably acceptable to the Borrowers and shall be a financial institution having a combined capital and surplus in excess of $150,000,000. If no successor Agent shall have been so appointed by the Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of -79- resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be reasonably acceptable to the Borrowers and shall be a financial institution having a combined capital and surplus in excess of $150,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Agreement shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 10.7 Intercreditor Agreements. Each Lender and the Issuing Bank hereby irrevocably appoints and authorizes the Administrative Agent on their behalf (i) to execute the Intercreditor Agreements and all other instruments relating thereto, and (ii) to act under and in accordance with the terms of the Intercreditor Agreements. XI. MISCELLANEOUS ------------- 11.1 Notices. Unless otherwise specified herein, all notices hereunder to any party hereto shall be in writing and shall be deemed to have been given when delivered by hand, or when sent by electronic facsimile transmission or by telex, answer back received, or on the first Business Day after delivery to any overnight delivery service, freight pre-paid, or upon receipt if sent by certified or registered mail, return receipt requested, postage pre-paid, and addressed to such party at its address indicated below: If to the Borrowers, at 3313 West Second Street The Dalles, Oregon 97058 Attention: Brett E. Wilcox and William R. Reid Facsimile: (541) 298-0800 with copies to: Ms. Jessie Casswell Goldendale Aluminum Company -80- 85 John Day Dam Road Goldendale, WA 98620 Facsimile: (509) 773-7245 Stoel Rives LLP 900 SW Fifth Avenue, Suite 2300 Portland, Oregon 97204 Attention: Richard C. Josephson, Esq. Facsimile: (503) 220-2480 If to the Administrative Agent or BKB, at 100 Federal Street Boston, Massachusetts 02110 Attention: James J. Ward, Director Facsimile: (617) 434-2309 with a copy to: Sullivan & Worcester LLP One Post Office Square Boston, MA 02109 Attention: William A. Levine, Esq. Facsimile: (617) 338-2880 If to any other Lender, to its address set forth on Schedule 1 attached hereto; or at any other address specified by such party in writing. 11.2 Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Borrowers jointly and severally promise to reimburse (a) the Agents, the Issuing Bank and the Initial Lenders for all reasonable out-of-pocket costs, fees and disbursements (including all Attorneys' Fees, appraisal and collateral examination fees, due diligence investigation expenses and syndication expenses) incurred or expended in connection with the preparation, negotiation, execution, delivery, filing or recording, or the administration or interpretation of this Agreement and the other Loan Documents, or the consummation of the transactions contemplated hereby, or any amendment, modification, approval, consent or waiver hereof or thereof, and (b) the Agents, the Issuing Bank and all of the Lenders for all reasonable out-of-pocket costs, fees and disbursements (including all Attorneys' Fees, appraisal and collateral examination fees, and collection expenses) incurred or expended in connection with the enforcement of any Obligations, the exercise of any remedies under any Loan Documents or with -81- respect to the Collateral or the satisfaction of any Indebtedness of the Borrowers hereunder or thereunder, or in connection with any litigation, proceeding or dispute in any way related to the credit hereunder. The Administrative Agent may include references to GNA and the Borrowers (and may utilize any logo or other distinctive symbol associated with GNA or the Borrowers) in connection with any advertising, promotion or marketing undertaken by the Administrative Agent. The Borrowers will pay any taxes (including any interest and penalties in respect thereof), other than the Lenders' federal and state income taxes, payable on or with respect to the transactions contemplated by the Loan Documents (the Borrowers hereby agreeing to indemnify the Agents, the Issuing Bank and the Lenders with respect thereto). For purposes of this Agreement and the other Loan Documents, "Attorneys' Fees" shall mean the reasonable fees and disbursements of attorneys (including all paralegals and other staff employed by such attorneys and the reasonably allocated costs of internal counsel), whether incurred at arbitration, trial, on appeal, in a bankruptcy proceeding or in any other way relating to Obligations, the Loan Documents and the transactions contemplated thereby, including, without limitation, as provided in Sections 11.2 and 11.3 hereof; provided, however, that Attorneys' Fees shall not include any attorneys' fees incurred by the Agents, the Issuing Bank or any Lender in any court proceeding (other than a proceeding under or related to 11 U.S.C. ss.101 et. seq.) if (i) such fees were incurred in an action by such Agent, Issuing Bank, or Lender, on the one hand, or the Borrowers, on the other hand, against the other such party, and (ii) Borrowers are the prevailing party in such action. 11.3 Indemnification. The Borrowers agree to indemnify and hold harmless the Agents, the Issuing Bank and the Lenders, as well as their respective shareholders, directors, offices, agents, attorneys, subsidiaries and affiliates, from and against all damages, losses, settlement payments, obligations, liabilities, claims, suits, penalties, assessments, citations, directives, demands, judgments, actions or causes of action, whether statutorily created or under the common law, all reasonable costs and expenses (including, without limitation, Attorneys' Fees and reasonable fees and disbursements of engineers and consultants) and all other liabilities whatsoever (including, without limitation, liabilities under Environmental Laws) which shall at any time or times be incurred, suffered, sustained or required to be paid by any such indemnified Person (except any of the foregoing which -82- result from the gross negligence or willful misconduct of the indemnified Person) by reason of a claim made against such indemnified Person on account of or in relation to or any way in connection with any of the arrangements or transactions contemplated by, associated with or ancillary to this Agreement, the other Loan Documents or any other documents executed or delivered in connection herewith or therewith, all as the same may be amended from time to time, or with respect to any Letters of Credit, whether or not all or part of the transactions contemplated by, associated with or ancillary to this Agreement, any of the other Loan Documents or any such other documents are ultimately consummated. In any investigation, proceeding or litigation, or the preparation therefor, the Lenders shall select their own counsel and, in addition to the foregoing indemnity, the Borrowers agree to pay promptly the reasonable fees and expenses of such counsel. In the event of the commencement of any such proceeding or litigation, the Borrowers shall be entitled to participate in such proceeding or litigation with counsel of its choice at its own expense, provided that such counsel shall be reasonably satisfactory to the Administrative Agent. The Borrowers authorize the Agents, the Issuing Bank and the Lenders to charge any deposit account or Note Record which it may maintain with any of them for any of the foregoing. The covenants of this Section 11.3 shall survive payment or satisfaction of payment of all amounts owing with respect to the Notes, any other Loan Document or any other Obligation. 11.4 Survival of Covenants, Etc. Unless otherwise stated herein, all covenants, agreements, representations and warranties made herein, in the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrowers pursuant hereto shall be deemed to have been relied upon by the Agents, the Issuing Bank and the Lenders, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Lenders of the Loans as herein contemplated, and shall continue in full force and effect so long as any Obligation remains outstanding and unpaid or any Lender has any obligation to make any Loans hereunder or the Issuing Bank has any obligation to issue any Letter of Credit. All statements contained in any certificate or other writing delivered by or on behalf of the Borrowers pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrowers hereunder. -83- 11.5 Set-Off. Regardless of the adequacy of any Collateral or other means of obtaining repayment of the Obligations, but subject to the provisions of Section 2.8(d) hereof, any deposits, balances or other sums credited by or due from the head office of any Lender or any of its branch offices to the Borrowers may, at any time and from time to time after the occurrence of a Default hereunder, upon notice to the Administrative Agent but without notice to the Borrowers or compliance with any other condition precedent now or hereafter imposed by statute, rule of law, or otherwise (all of which are hereby expressly waived) be set off, appropriated, and applied by such Lender against any and all Obligations of the Borrowers in such manner as the head office of such Lender or any of its branch offices in its sole discretion may determine, and the Borrowers hereby grant each such Lender a continuing security interest in such deposits, balances or other sums for the payment and performance of all such Obligations. 11.6 No Waivers. No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right, power or privilege hereunder, under the Notes or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No waiver shall extend to or affect any Obligation not expressly waived or impair any right consequent thereon. No course of dealing or omission on the part of the Administrative Agent, the Issuing Bank or the Lenders in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrowers shall entitle the Borrowers to other or further notice or demand in similar or other circumstances. The rights and remedies herein and in the Notes and the other Loan Documents are cumulative and not exclusive of any rights or remedies otherwise provided by agreement or law. 11.7 Amendments, Waivers, etc. ------------------------- (a) Neither this Agreement nor the Notes nor any other Loan Document nor any provision hereof or thereof may be amended, waived, discharged or terminated except by a written instrument signed by the Administrative Agent on behalf of the Lenders or by the Lenders and, with respect to Letters of Credit, the Issuing Bank, and, in the case of amendments, by the Borrowers. -84- (b) Except where this Agreement or any of the other Loan Documents authorizes or permits the Administrative Agent to act alone and except as otherwise expressly provided in this Section 11.7(b), any action to be taken (including the giving of notice) by the Lenders may be taken, and any consent or approval required or permitted by this Agreement or any other Loan Document to be given by the Lenders may be given, and any term of this Agreement, any other Loan Document or any other instrument, document or agreement related to this Agreement or the other Loan Documents or mentioned therein may be amended, and the performance or observance by any of the Borrowers or any other Person of any of the terms thereof and any Default or Event of Default (as defined in any of the above-referenced documents or instruments) may be waived (either generally or in a particular instance and either retroactively or prospectively), in each case only with the written consent of the Majority Lenders; provided, -------- however, that no such consent or amendment which ------- affects the rights, duties or liabilities of the Administrative Agent or the Issuing Bank shall be effective without the written consent of the Administrative Agent or the Issuing Bank, respectively. Notwithstanding the foregoing, no amendment, waiver or consent shall do any of the following unless in writing and signed by ALL of --- the Lenders: (i) increase the Total Commitment (or subject the Lenders to any additional obligations), (ii) reduce the principal of or interest on any of the Notes (including, without limitation, interest on overdue amounts) or any Fees payable hereunder, (iii) postpone any date fixed for any payment in respect of principal of or interest (including, without limitation, interest on overdue amounts) on the Notes, or any Fees payable hereunder, (iv) change the definition of "Majority Lenders" or the number of Lenders which shall be required for the Lenders or any of them to take any action under the Loan Documents; (v) change the definition of "Borrowing Base" or "Letter of Credit Sublimit" set forth in Section 1.1, amend Sections 2.1(a), 2.1(b) or 2A.1(a) or waive the limitations set forth in Sections 2.1(a), 2.1(b) or 2A.1(a); (vi) amend this Section 11.7(b); (vii) change the Commitment or the Commitment Percentage of any Lender, except as permitted under Section IX hereof; (viii) except as permitted by Section 10.2(b) hereunder, release -85- any Collateral; or (ix) amend Sections 2.5 or 2.6 hereof. 11.8 Binding Effect of Agreement. All Obligations shall be the joint and several obligations of all Borrowers. This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Agents, the Issuing Bank, the Lenders and their respective successors and assigns; provided that the Borrowers may not assign or transfer their rights or obligations hereunder. 11.9 Captions; Counterparts. The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. This Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. 11.10 Entire Agreement, Etc. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. 11.11 Waiver of Jury Trial. THE BORROWERS, THE AGENTS, THE ISSUING BANK AND THE LENDERS HEREBY WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, THE BORROWERS, THE AGENTS, THE ISSUING BANK AND THE LENDERS HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWERS (a) CERTIFY THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENTS, THE ISSUING BANK OR THE LENDERS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENTS, THE ISSUING BANK OR THE LENDERS WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (b) ACKNOWLEDGE THAT THE AGENTS, THE ISSUING BANK AND THE LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND -86- THE OTHER LOAN DOCUMENTS TO WHICH EACH IS A PARTY BECAUSE OF, AMONG OTHER THINGS, THE BORROWERS' WAIVERS AND CERTIFICATIONS CONTAINED HEREIN. 11.12 Governing Law. THIS AGREEMENT IS A CONTRACT UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS CONSENT TO THE JURISDICTION OF ANY OF THE FEDERAL OR STATE COURTS LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS IN CONNECTION WITH ANY SUIT TO ENFORCE THE RIGHTS OF THE LENDERS UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. THE BORROWERS IRREVOCABLY WAIVE ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION BROUGHT IN THE COURTS REFERRED TO IN THE PRECEDING SENTENCE AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH ACTION THAT SUCH ACTION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 11.13 Severability. The provisions of this Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER OCTOBER 8, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. -87- IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement under seal as of the date first above written. NORTHWEST ALUMINUM NORTHWEST ALUMINUM COMPANY TECHNOLOGIES, LLC By: Golden Northwest Aluminum, Inc., its Member By: By: ------------------------------- ------------------------------ Name: Name: Title: Title: GOLDENDALE ALUMINUM NORTHWEST ALUMINUM COMPANY SPECIALTIES, INC. By: By: ------------------------------- ------------------------------ Name: Name: Title: Title: BANKBOSTON, N.A., Individually and as Administrative Agent By: ------------------------------- James J. Ward, Director U.S. BANK NATIONAL ASSOCIATION, Individually and as Documentation Agent By: ------------------------------- Title: -88- SCHEDULE 1 ---------- COMMITMENTS OF THE LENDERS --------------------------
Commitment Lender Percentage Commitment - ------ ---------- ----------- BankBoston, N.A. 50% $37,500,000 100 Federal St. Boston, MA 02110 U.S. Bank National 50% $37,500,000 Association 111 S.W. Fifth Avenue Suite 400 Portland, OR 97208 ---------- ----------- 100% $75,000,000 ========== ===========
-89- EXHIBIT A --------- FORM OF REVOLVING CREDIT NOTE --------------------- $ December 21, 1998 ------------- FOR VALUE RECEIVED, the undersigned (the "Borrowers") absolutely and unconditionally promise to pay to the order of [LENDER] ("Payee") at the head office of BankBoston, N.A., as Administrative Agent (the "Administrative Agent") at 100 Federal Street, Boston, Massachusetts 02110: (a) on the Maturity Date, the principal amount of ___________________ ______________________ ($_____________) or, if less, the aggregate unpaid principal amount of Revolving Credit Loans advanced by the Payee to the Borrowers pursuant to the Credit Agreement of even date herewith, as amended or supplemented from time to time (the "Credit Agreement"), by and among the Borrowers, the Administrative Agent and the Lenders (as defined therein); and (b) interest on the principal balance hereof from time to time outstanding from the date hereof through and including the date on which such principal amount is paid in full, at the times and at the rates provided in the Credit Agreement. This Note evidences borrowings under, is subject to the terms and conditions of and has been issued by the Borrowers in accordance with the terms of the Credit Agreement and is one of the Revolving Credit Notes referred to therein. The Payee and any holder hereof is entitled to the benefits and subject to the conditions of the Credit Agreement and may enforce the agreements of the Borrowers contained therein, and any holder hereof may exercise the respective remedies provided for thereby or otherwise available in respect thereof, all in accordance with the respective terms thereof. This Note is secured by the Security Documents described in the Credit Agreement. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The Borrowers have the right in certain circumstances and the obligation under certain other circumstances to repay or prepay the whole or part of the principal of this Note on the terms and conditions specified in the Credit Agreement. -90- If any Event of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement. The Borrowers and every endorser and guarantor of this Note or the obligation represented hereby waive presentment, demand, notice, protest and all other demands and notice in connection with the delivery, acceptance, performance, default or enforcement of this Note, assent to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or Person primarily or secondarily liable. This Note shall be deemed to take effect as a sealed instrument under the laws of the Commonwealth of Massachusetts and for all purposes shall be construed in accordance with such laws (without regard to conflicts of laws rules). IN WITNESS WHEREOF, the Borrowers have caused this Note to be signed under seal by their duly authorized officers as of the day and year first above written. NORTHWEST ALUMINUM NORTHWEST ALUMINUM COMPANY TECHNOLOGIES, LLC NORTHWEST ALUMINUM SPECIALTIES, INC. GOLDENDALE ALUMINUM COMPANY By: Golden Northwest Aluminum, Inc., its Member By: By: ------------------------------- ------------------------------- Name: Name: Title: Title: -91- EXHIBIT B --------- BankBoston, N.A., Administrative Agent 100 Federal Street Boston, MA 02110 Re: Credit Agreement Dated as of December 21, 1998 (the "Agreement") ---------------------------------------------------------------- Ladies and Gentlemen: Pursuant to Section 2.3 of the Agreement the undersigned hereby confirms the Borrowers' request made on ____________, 19__ for a [Base Rate] [Eurodollar] Loan in the amount of $__________________ to be advanced on ___________, 199__. [The Interest Period applicable to said Loan will be [one] [two] [three] [six] months.]* [Said Loan represents a conversion of the [Base Rate] [Eurodollar] Loan in the same amount made on _____________________.]** The representations and warranties contained or referred to in Section IV of the Agreement are true and accurate on and as of the effective date of the Loan as though made at and as of such date (except to the extent that such representations and warranties expressly relate to an earlier date); and no Default or Event of Default has occurred and is continuing or will result from the Loan. NORTHWEST ALUMINUM COMPANY By: ------------------------------- Title: - ----------------- Date * To be inserted in any request for a Eurodollar Loan. ** To be inserted in any request for a conversion. -92- EXHIBIT C --------- [DISCLOSURE] -93- EXHIBIT D --------- REPORT OF CHIEF FINANCIAL OFFICER NORTHWEST ALUMINUM COMPANY, NORTHWEST ALUMINUM SPECIALTIES, INC., NORTHWEST ALUMINUM TECHNOLOGIES, LLC and GOLDENDALE ALUMINUM COMPANY (the "Borrowers") HEREBY CERTIFY that: This Report is furnished pursuant to Section 5.1(e) of the Credit Agreement dated as of December 21, 1998 (the "Agreement"). Unless otherwise defined herein, the terms used in this Report have the meanings given to them in the Agreement. As required by Section 5.1(a) and (b) of the Agreement, [combined] [consolidated] financial statements of the Borrowers for the [year/month] ended ______________________ (the "Financial Statements") prepared in accordance with GAAP consistently applied accompany this Report. The Financial Statements present fairly the [combined][consolidated] financial position of the Borrowers as at the date thereof and the [combined][consolidated] results of operations of the Borrowers for the period covered thereby (subject only to normal recurring year-end adjustments). The figures set forth in Schedule 1 hereto for determining compliance by the Borrowers with the financial covenants contained in the Agreement are true and complete as of the date hereof. The activities of the Borrowers during the period covered by the Financial Statements have been reviewed by the Chief Financial Officer or by employees or agents under his immediate supervision. Based on such review, to the best knowledge and belief of the Chief Financial Officer, and as of the date of this Report, no Default has occurred.* Set forth below is a description of any event or occurrence which rendered the representations and warranties set forth in -94- Section 4.16 inaccurate in any material respect during the period covered by the Financial Statements: WITNESS my hand this _____ day of _______________. NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM SPECIALTIES, INC. NORTHWEST ALUMINUM SPECIALTIES, LLC GOLDENDALE ALUMINUM COMPANY By: ------------------------------- Title: - ------------------------ * If a Default has occurred, this paragraph is to be modified with an appropriate statement as to the nature thereof, the period of existence thereof and what action the Borrowers have taken, are taking, or propose to take with respect thereto. -95- SCHEDULE 1 to EXHIBIT D ---------- FINANCIAL COVENANTS ------------------- -96- EXHIBIT E --------- NORTHWEST ALUMINUM COMPANY; NORTHWEST ALUMINUM SPECIALTIES, INC. NORTHWEST ALUMINUM SPECIALTIES, LLC GOLDENDALE ALUMINUM COMPANY BORROWING BASE REPORT Period Covered: ------------------------- -97- EXHIBIT F --------- ASSIGNMENT AND JOINDER AGREEMENT Dated -------------------------- Reference is made to the Credit Agreement dated as of December 21, 1998 as amended (the "Credit Agreement") among NORTHWEST ALUMINUM COMPANY, NORTHWEST ALUMINUM SPECIALTIES, INC., NORTHWEST ALUMINUM TECHNOLOGIES, LLC and GOLDENDALE ALUMINUM COMPANY (the "Borrowers"), the Lenders (as defined in the Credit Agreement) and BANKBOSTON, N.A. as Administrative Agent. Terms defined in the Credit Agreement are used herein with the same meanings. ___________________________________________________ (the "Assignor") and __________________________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, without recourse, and the Assignee hereby purchases and assumes from the Assignor, a ____% interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date (as defined below). As a result of such assignment, the Commitment Percentage of the Assignor shall be _____%, the Commitment of the Assignor shall be $__________, the Commitment Percentage of the Assignee shall be _____% and the Commitment of the Assignee shall be $_____________. Concurrently herewith, the Assignee is remitting to the Assignor, in federal funds, the amount of its participation in each such outstanding Loan. 2. The Assignor (i) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto, other than that the Assignor is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim, and (ii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the performance or observation by the Borrowers of any of their obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. -98- 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of such financial statements and other documents and information as it has deemed necessary to make its own credit analysis and decision to enter into this Agreement; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Agreement; (iii) appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it. 4. The Effective Date of this Agreement shall be ______________________ (the "Effective Date"). 5. From and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent rights and obligations have been transferred to it by this Agreement, shall have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent its rights and obligations have been transferred to the Assignee by this Agreement, relinquish its rights and be released from its obligations under the Credit Agreement. If the Assignor is holding any Notes, the Assignor shall, promptly after the Effective Date, surrender such Notes to the Administrative Agent and the Administrative Agent shall cause the Borrowers to issue new Notes in accordance with Section 9.1 of the Credit Agreement. 6. From and after the Effective Date, the Administrative Agent shall hold in trust all payments it receives in respect of the interest assigned hereby and shall promptly remit such payments to the Assignee. 7. This Assignment and Joinder Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts (without regard to conflicts of laws rules). -99- [Other provisions negotiated between the Assignor and the Assignee may be added to this Assignment, provided that such provisions are not inconsistent with the Credit Agreement] [NAME OF ASSIGNOR] By: ------------------------------- Title [NAME OF ASSIGNEE] By: ------------------------------- Title: -100- AGREEMENT AND AMENDMENT NO. 1 THIS AGREEMENT AND AMENDMENT NO. 1 (this "Consent") is made as of January 21, 1999, by and among NORTHWEST ALUMINUM COMPANY, NORTHWEST ALUMINUM SPECIALTIES, INC., GOLDENDALE ALUMINUM COMPANY ("GAC"), NORTHWEST ALUMINUM TECHNOLOGIES, LLC, BANKBOSTON, N.A., individually, as Administrative Agent and U.S. BANK NATIONAL ASSOCIATION, individually and as Documentation Agent. WHEREAS, the parties hereto are parties to a certain Credit Agreement, dated as of December 21, 1998 (the "Credit Agreement"; terms defined in the Credit Agreement are used herein with the same meanings); WHEREAS, the Borrowers plan from time to time to enter into certain interest rate swap agreements and other agreements or arrangements designed to provide them with protection against fluctuations in interest rates, and such arrangements may not be related to Loans; and WHEREAS, the Borrowers have requested that the Credit Agreement be amended to allow for such interest rate swap agreements and arrangements; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendment to Section 1.1. The definition of the term "Interest Rate Contracts" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: "Interest Rate Contracts. Interest rate swap agreements, interest rate collar agreements, options on any of the foregoing and any other agreements or arrangements designed to provide protection against fluctuations in interest rates, in each case purchased by a Borrower from a Lender." 2. Representations. The Borrowers represent and warrant to the Agent, the Lenders and the Issuing Bank as follows: (a) No Default has occurred and is continuing on the date hereof; (b) The representations and warranties contained in Section IV of the Credit Agreement are true and correct in all material respects on and as of the date hereof (except to the extent that such representations and warranties expressly relate to an earlier date); and (c) The resolutions referred to in Section 3.1 of the Credit Agreement remain in full force and effect. 3. General. The Loan Documents are ratified and confirmed and shall continue in full force and effect as amended hereby. This Agreement and Amendment No. 1 may be executed in any number of counterparts with the same effect as if the signatures hereto and thereto were upon the same instrument. -2- WITNESS the execution of this Agreement and Amendment No. 1 as a sealed instrument as of the date first set forth above. NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM SPECIALTIES, INC. By: By: ------------------------------- -------------------------------- Title: Title: NORTHWEST ALUMINUM TECHNOLOGIES, LLC GOLDENDALE ALUMINUM COMPANY By: Golden Northwest Aluminum, Inc., its Member By: By: ------------------------------- -------------------------------- Title: Title: BANKBOSTON, N.A., U.S. BANK NATIONAL individually and as ASSOCIATION, individually and Administrative Agent as Documentation Agent By: By: ------------------------------- -------------------------------- Title: Title: -3- EX-4.3 6 REGISTRATION RIGHTS AGREEMENT Execution Copy - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of December 21, 1998 by and among GOLDEN NORTHWEST ALUMINUM, INC. the SUBSIDIARY GUARANTORS party to this Agreement and BANCBOSTON ROBERTSON STEPHENS INC. and LIBRA INVESTMENTS, INC. - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of December 21, 1998 by and among Golden Northwest Aluminum, Inc., an Oregon corporation (the "Company"), the Subsidiary Guarantors (as defined in this Agreement) and BancBoston Robertson Stephens Inc. and Libra Investments, Inc. (the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated December 14, 1998 (the "Purchase Agreement"), by and among the Company, the Initial Purchasers and the Subsidiary Guarantors which provides for the sale by the Company to the Initial Purchasers of an aggregate of $150 million in principal amount of the Company's 12% First Mortgage Notes due 2006 (the "First Mortgage Notes"). In order to induce the Initial Purchasers to purchase the First Mortgage Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers as set forth in Section 9 of the Purchase Agreement. In consideration of the foregoing, the parties to this Agreement agree as follows: Section 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended. Affiliate: An Affiliate of the Company is any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Closing Date: The date of the closing of the sale of the First Mortgage Notes pursuant to the Purchase Agreement. Commission: The Securities and Exchange Commission. Consummate: A Registered Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (i) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Exchange Notes and the guarantees of the Subsidiary Guarantors to be issued in the Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) of this Agreement, and (iii) the delivery by the Company to the Registrar under the Indenture of Exchange Notes in the same aggregate principal amount as the aggregate principal amount of First Mortgage Notes that were tendered by Holders of First Mortgage Notes pursuant to the Exchange Offer. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Notes: The Company's 12% First Mortgage Notes due 2006 to be issued pursuant to the Indenture in the Exchange Offer. Exchange Offer: The registration by the Company under the Act of the Exchange Notes and the guarantees of the Subsidiary Guarantors pursuant to a Registration Statement pursuant to which the Company offers the Holders of all outstanding Transfer Restricted Securities the opportunity to exchange all such outstanding Transfer Restricted Securities held by such Holders for Exchange Notes in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in such exchange offer by such Holders. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Exempt Resales: The transactions in which the Initial Purchasers proposes to sell the First Mortgage Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act, to a limited number of Institutional Accredited Investors as defined in Rule 501(a)(1), (2), (3) or (7) under the Act and to non-U.S. persons pursuant to Regulation S under the Act. Holders: As defined in Section 2(b) of this Agreement. Indemnified Holder: As defined in Section 8(a) of this Agreement. Initial Purchasers: As defined in the preamble to this Agreement. Indenture: The Indenture, dated as of December 21, 1998, among the Company, US Trust Company, National Association, as trustee (the "Trustee"), and the Subsidiary Guarantors, pursuant to which the Notes are to be issued, as such Indenture is amended or supplemented from time to time in accordance with its terms. Interest Payment Date: As defined in the Indenture and the Notes. NASD: National Association of Securities Dealers, Inc. Notes: The First Mortgage Notes and the Exchange Notes. Person: An individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision of a government or agency. Prospectus: The prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Record Holder: With respect to any additional interest payable pursuant to Section 5 relating to Notes, each Person who is a Holder of Notes on the record date with respect to the Interest Payment Date on which such additional interest is payable. Registration Default: As defined in Section 5 of this Agreement. Registration Statement: Any registration statement of the Company relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, which is filed pursuant to the provisions of this Agreement, in each case, including the Prospectus included in any such Registration 2 Statement, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Shelf Registration Statement: As defined in Section 4 of this Agreement. Subsidiary Guarantors: Those entities listed on Exhibit A to this Agreement and by this reference incorporated in this Agreement. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. Transfer Restricted Securities: Each First Mortgage Note, until the earliest to occur of (a) the date on which such First Mortgage Note is exchanged in the Exchange Offer for an Exchange Note which is entitled to be resold to the public by the Holder of such Exchange Note without complying with the prospectus delivery requirements of the Act, (b) the date on which such First Mortgage Note has been effectively registered under the Act and has been disposed of in accordance with a Shelf Registration Statement and (c) the date on which such First Mortgage Note is distributed to the public pursuant to Rule 144 under the Act and each Exchange Note until the date on which such Exchange Note is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of the Prospectus contained in the Exchange Offer Registration Statement). Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. Section 2. SECURITIES SUBJECT TO THIS AGREEMENT (a) Transfer Restricted Securities. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. Section 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permissible under applicable law or Commission policy, the Company and the Subsidiary Guarantors shall (i) cause to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 60 days after the Closing Date, a Registration Statement under the Act relating to the Exchange Notes and the Exchange Offer, (ii) use their best efforts to cause such Registration Statement to become effective at the earliest possible time, but in no event later than 120 days after the Closing Date, (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective, (B) if applicable, file a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings in connection with the registration and qualification of the Exchange Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting registration of the 3 Exchange Notes to be offered in exchange for the Transfer Restricted Securities and to permit resales of Notes held by Broker-Dealers as contemplated by Section 3(c) below. (b) The Company and the Subsidiary Guarantors shall cause the Exchange Offer Registration Statement to be effective continuously and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 business days after the date notice of the Registered Exchange Offer is mailed to the Holders. The Company and the Subsidiary Guarantors shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Notes shall be included in the Exchange Offer Registration Statement. The Company and the Subsidiary Guarantors shall use their best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 150 days after the Closing Date. (c) The Company and the Subsidiary Guarantors shall indicate in a "Plan of Distribution" section contained in the Prospectus forming a part of the Exchange Offer Registration Statement that any Broker-Dealer who holds First Mortgage Notes that were acquired for its own account as a result of market-making activities or other trading activities (other than First Mortgage Notes acquired directly from the Company or any Affiliate of the Company) may exchange such First Mortgage Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with any resales of the Exchange Notes received by such Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may be satisfied by the delivery by such Broker-Dealer of the Prospectus forming a part of the Exchange Offer Registration Statement. Such "Plan of Distribution" section shall also contain all other information with respect to such resales by Broker-Dealers that the Commission may require in order to permit such resales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer except to the extent required by the Commission as a result of a change in policy after the date of this Agreement. The Company and the Subsidiary Guarantors shall use their best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) below to the extent necessary to ensure that it is available for resales of Notes acquired by Broker-Dealers for their own accounts as a result of market-making activities or other trading activities, and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period ending on the earlier of (i) 180 days from the date on which the Exchange Offer Registration Statement is declared effective and (ii) the date on which each such Broker-Dealer is no longer required to deliver a prospectus in connection with such resales. The Company and the Subsidiary Guarantors shall provide sufficient copies of the latest version of such Prospectus to Broker-Dealers promptly upon request at any time during such 180 day period (or such shorter period as provided in the immediately preceding sentence) in order to facilitate such resales. Section 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Company and the Subsidiary Guarantors are not required to file an Exchange Offer Registration Statement or to consummate the Exchange Offer because 4 the Exchange Offer is not permitted by applicable law or Commission policy, (ii) the Exchange Offer is not Consummated within 150 days after the Closing Date, or (iii) any Holder of Transfer Restricted Securities notifies the Company within 20 business days after the Consummation of the Exchange Offer (A) that such Holder was prohibited by applicable law or Commission policy from participating in the Exchange Offer, (B) that such Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, or (C) that such Holder is a Broker-Dealer and holds First Mortgage Notes acquired directly from the Company or one of its Affiliates, then the Company and the Subsidiary Guarantors shall, at their cost (x) as promptly as practicable, but no later than 60 days after the earliest to occur of: (A) the date on which the Company notifies the Initial Purchasers that the condition specified in clause (i) above is satisfied, (B) the failure of the Company and the Subsidiary Guarantors to consummate the Exchange Offer within the time period specified above, or (C) the receipt by the Company of any notice specified above, cause to be filed a shelf registration statement pursuant to Rule 415 under the Act, which may be an amendment to the Exchange Offer Registration Statement (in either event, the "Shelf Registration Statement"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 4(b) of the Agreement; and (y) as promptly as practicable, but no later than 120 days after the earliest to occur of the events specified in (A), (B) and (C) in the immediately preceding paragraph (x), use their best efforts to cause such Shelf Registration Statement to be declared effective by the Commission. The Company and the Subsidiary Guarantors shall use their best efforts to keep such Shelf Registration Statement continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(b) and (c) of this Agreement to the extent necessary to ensure that it is available for resales of Transfer Restricted Securities by the Holders entitled to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of two years (as extended pursuant to Section 6) after the effectiveness of the Shelf Registration Statement, or such shorter period as will terminate when all Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto; provided, however, that during any consecutive 365 day period, the Company may suspend the effectiveness of a Shelf Registration Statement, in the event that, and for up to two periods of up to 45 consecutive days, but no more than an aggregate of 60 days during any 365 day period if, (a)(i) an event occurs and is continuing as a result of which the Shelf Registration Statement would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading and (ii) if the Company determines in good faith that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (b) the disclosure otherwise relates to a pending material business transaction which has not yet been publicly disclosed. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement, pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request for such information, such information as the Company may reasonably request for use in connection with any 5 Shelf Registration Statement or Prospectus or preliminary Prospectus included in such Shelf Registration Statement. No Holder of Transfer Restricted Securities shall be entitled to additional interest pursuant to Section 5 of this Agreement unless and until such Holder shall have used its best efforts to provide all such reasonably requested information. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. Section 5. ADDITIONAL INTEREST If (a) within 60 days after the Closing Date, the Exchange Offer Registration Statement has not been filed with the Commission; (b) within 120 days after the Closing Date, the Exchange Offer Registration Statement has not been declared effective; (c) within 150 days after the Closing Date, the Registered Exchange Offer has not been Consummated; (d) a Shelf Registration Statement is required to be filed and is not filed within the time specified for such filing in this Agreement or is not declared effective within the time specified for such effectiveness in this Agreement; or (e) after either the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective, such Registration Statement thereafter ceases to be effective or fails to be usable for its intended purpose during the period specified in this Agreement that such Registration Statement is to be kept continuously effective, without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself immediately declared effective (each such event referred to in clauses (a) through (d), a "Registration Default"), the interest rate borne by the Transfer Restricted Securities shall be increased by one quarter of one percent per annum for the first 90 day period after the first such Registration Default. The interest rate borne by such Transfer Restricted Securities (as so increased) shall be increased by an additional one quarter of one percent per annum for each subsequent 90-day period that such additional interest continues to accrue under any circumstance; provided, however, that the aggregate increase in such interest rate pursuant to this Section 5 shall not exceed one percent per annum. The additional interest due shall be payable on each interest payment date to the record Holder of Transfer Restricted Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Securities, the accrual of additional interest with respect to such Transfer Restricted Securities will cease and the interest rate will revert to its original rate. All obligations of the Company and the Subsidiary Guarantors set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. Section 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company and the Subsidiary Guarantors shall comply with all of the provisions of Section 6(c) below, shall use their best efforts to effect such exchange and to permit the sale of Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (including compliance with the conditions to the no-action position taken by the Commission staff in the letters referenced in this Section 6(a)). As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that 6 (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring the Exchange Notes in its ordinary course of business. As a condition to its participation in the Exchange Offer, each Holder using the Exchange Offer to participate in a distribution of the Exchange Notes shall acknowledge and agree (which acknowledgment and agreement may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) that, if the resales are of Exchange Notes obtained by such Holder in exchange for First Mortgage Notes acquired directly from the Company or an Affiliate of the Company, then (1) it could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) and Morgan Stanley and Co., Inc. (available June 5, 1991), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters, and (2) it must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company and the Subsidiary Guarantors shall comply with all of the provisions of Section 6(c) below and shall use their best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution of the Transfer Restricted Securities, and pursuant thereto the Company will as expeditiously as possible prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution of the Transfer Restricted Securities. (c) General Provisions. In connection with any Registration Statement and any Prospectus required by this Agreement, the Company and the Subsidiary Guarantors shall: (i) use their best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements (including, if required by the Act or any regulation under the Act, financial statements of the Subsidiary Guarantors) for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained in such Registration Statement (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company and the Subsidiary Guarantors shall file promptly an appropriate amendment or supplement to such Registration Statement or Prospectus, or any document incorporated by reference in such documents, or file any other required document, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use their best efforts to cause such amendment to be declared effective and such Registration Statement and the related Prospectus become usable for their intended purpose(s) as soon as practicable thereafter; (ii) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Section 3 or 4 of this Agreement, as applicable, cause the Prospectus to be supplemented by any required Prospectus supplement, and 7 as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with the applicable provisions of Rules 424, 430A and 462 under the Act, as applicable, in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers of such securities set forth in such Registration Statement or supplement to the Prospectus; (iii) advise the underwriter(s), if any, and selling Holders promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Registration Statement or any post-effective amendment to such Registration Statement, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement to such documents, or any document incorporated by reference in such documents untrue, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements in such documents not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company and the Subsidiary Guarantors shall use their best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) furnish to each of the selling Holders and each of the underwriter(s), if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included in such Registration Statement or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders and underwriter(s), if any, for a period of at least five business days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which a selling Holder of Transfer Restricted Securities covered by such Registration Statement or the underwriter(s), if any, shall reasonably object within five business days after the receipt thereof. A selling Holder or underwriter, if any, shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission or otherwise fails to comply with the applicable requirements of the Act; (v) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to the selling Holders and to the underwriter(s), if any, make the Company's and Subsidiary Guarantors' representatives available for discussion of such document and other customary due 8 diligence matters, and include such information in such document prior to the filing of such document as such selling Holders or underwriter(s), if any, may reasonably request; (vi) make available at reasonable times during normal business hours for inspection by the selling Holders, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant retained by such selling Holders or any of the underwriter(s), all financial and other records, pertinent corporate documents and properties of the Company and the Subsidiary Guarantors and cause the Company's and the Subsidiary Guarantors' officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such Registration Statement subsequent to the filing of such Registration Statement and prior to its effectiveness; (vii) if requested by any selling Holders or the underwriter(s), if any, promptly incorporate in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities, information with respect to the principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (viii) cause the Transfer Restricted Securities covered by the Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Notes covered by such Registration Statement or the underwriter(s), if any; (ix) furnish to each selling Holder and each of the underwriter(s), if any, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment to such Registration Statement, including all documents incorporated by reference in such Registration Statement and all exhibits (including exhibits incorporated in such Registration Statement by reference); (x) deliver to each selling Holder and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company and the Subsidiary Guarantors hereby consent to the use of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus (including each preliminary Prospectus) or any amendment or supplement thereto: (xi) enter into such agreements (including an underwriting agreement), and make such representations and warranties, and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any Registration Statement contemplated by this Agreement, all to such extent as may be 9 reasonably requested by the Initial Purchasers or by any Holder of Transfer Restricted Securities or underwriter in connection with any sale or resale pursuant to any Registration Statement contemplated by this Agreement; and whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, the Company and the Subsidiary Guarantors shall; (A) furnish to the Initial Purchasers, each selling Holder and each underwriter, if any, in such substance and scope as they may request and as are customarily made by issuers to underwriters in primary underwritten offerings, upon the date of the Consummation of the Exchange Offer and, if applicable, the effectiveness of the Shelf Registration Statement: (1) a certificate, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, signed by (y) the President or any Vice President and (z) a principal financial or accounting officer of each of the Company and the Subsidiary Guarantors, confirming, as of the date of such certificate, the matters set forth in Sections 9(a), (b) and (c) of the Purchase Agreement and such other matters as such parties may reasonably request; (2) an opinion, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company and the Subsidiary Guarantors, covering the matters set forth in Section 9(e) of the Purchase Agreement and such other matter as such parties may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company and the Subsidiary Guarantors, representatives of the independent public accountants for the Company and the Subsidiary Guarantors, the Initial Purchasers' representatives and the Initial Purchasers' counsel in connection with the preparation of such Registration Statement and the related Prospectus and have considered the matters required to be stated in such documents and the statements contained in such documents, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon facts provided to such counsel by officers and other representatives of the Company and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment to such Registration Statement became effective, and, in the case of the Exchange Offer Registration Statement, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact required to be stated in such documents or necessary to make the statements in such documents not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements in such documents, in light of the 10 circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) upon the request of any Holder (and at the expense of the requesting Holder unless the requesting Holder is an Initial Purchaser) or, in the case of any Underwritten Registration or Underwritten Offering, any underwriter, a customary comfort letter or agreed upon procedures letter, as applicable under the Statement on Auditing Standards No. 72 issued by the American Institute of Certified Public Accountants, Inc., dated as of the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters by underwriters in connection with primary underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9(g) of the Purchase Agreement; (B) set forth in full or incorporate by reference in the underwriting agreement, if any, the indemnification provisions and procedures of Section 8 below with respect to all parties to be indemnified pursuant to such Section; and (C) deliver such other documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company pursuant to this clause (xi), if any. If at any time the representations and warranties of the Company and the Subsidiary Guarantors contemplated in clause (A)(1) above cease to be true and correct, the Company or the Subsidiary Guarantors shall so advise the Initial Purchasers and the underwriter(s), if any, and each selling Holder promptly and, if requested by such Persons, shall confirm such advice in writing; (xii) prior to any public offering of Transfer Restricted Securities, cooperate with, and cause the Subsidiary Guarantors to cooperate with, the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification, or exemption from registration or qualification, of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders or underwriter(s) may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that neither the Company nor the Subsidiary Guarantors shall be required to register or qualify as a foreign corporation where they are not now so qualified or to take any action that would subject them to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where they are not now so subject; (xiii) shall issue, upon the request of any Holder of First Mortgage Notes covered by the Shelf Registration Statement, Exchange Notes, having an aggregate principal 11 amount equal to the aggregate principal amount of First Mortgage Notes surrendered to the Company by such Holder in exchange for such Exchange Notes or being sold by such Holder; such Exchange Notes to be registered in the name of such Holder or in the name of the purchaser(s) of such First Mortgage Notes, as the case may be; in return, the First Mortgage Notes held by such Holder shall be surrendered to the Company for cancellation; (xiv) cooperate with the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, may request at least two business days prior to any sale of Transfer Restricted Securities made by such selling Holders or underwriter(s); (xv) use their best efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers of such Transfer Restricted Securities or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above: (xvi) if any fact or event contemplated by clause (c)(iii)(D) above shall exist or have occurred, and subject to the proviso at the end of Section 4(a) above, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document, incorporated in such documents by reference or file any other required document so that, as subsequently delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (xvii) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of the Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with The Depository Trust Company; (xviii) cooperate and assist in any filings required to be made with the NASD and in the performance of any reasonable due diligence investigation by any underwriter (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD), and use their best efforts to cause such Registration Statement to become effective and approved by such governmental agencies or authorities as may be necessary to enable the Holders selling Transfer Restricted Securities to consummate the disposition of such Transfer Restricted Securities; (xix) otherwise use their best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to the Company's security holders with regard to the Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) for the 12-month period (A) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm or best efforts Underwritten Offering or (B) if not sold to underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement; 12 (xx) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the Holders of Notes to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use their best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (xxi) provide promptly to each Holder upon request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) above, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) above, or until it is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 above, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(c)(iii)(D) above to and including the date when each selling Holder covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) above or shall have received notification from the Company that the use of the Prospectus may be resumed. Section 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's or the Subsidiary Guarantors' performance of or compliance with this Agreement will be borne by the Company or the Subsidiary Guarantors, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made by any Initial Purchaser or Holder with the NASD (and, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel that may be required by the rules and regulations of the NASD)); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, the Subsidiary Guarantors and, subject to Section 7(b) below, the Holders of Transfer Restricted Securities; and (v) all fees and disbursements of independent certified public accountants of the Company and the Subsidiary Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its and the Subsidiary Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. 13 (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities being tendered in the Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins or such other counsel as may be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. Section 8. INDEMNIFICATION (a) The Company and the Subsidiary Guarantors, jointly and severally, agree to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any Holder (any of the persons referred to in this clause (ii) being referred to in this Agreement as a "controlling person") and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any person referred to in clause (i), (ii) or (iii) may be referred to in this Agreement as an "Indemnified Holder"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Holder) directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (or any amendment or supplement to any such document), or any omission or alleged omission to state in any such document a material fact required to be stated in any such document or necessary to make the statements in any such document not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any of the Holders furnished in writing to the Company by any of the Holders expressly for use in any such document. In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any of the Indemnified Holders with respect to which indemnity may be sought against the Company or the Subsidiary Guarantors, such Indemnified Holder (or the Indemnified Holder controlled by such controlling person) shall promptly notify the Company and the Subsidiary Guarantors in writing (provided, however, that the failure to give such notice shall not relieve the Company or the Subsidiary Guarantors of its obligations pursuant to this Agreement). Such Indemnified Holder shall have the right to employ its own counsel in any such action and the fees and expenses of such counsel shall be paid, as incurred, by the Company and the Subsidiary Guarantors (regardless of whether it is ultimately determined that an Indemnified Holder is not entitled to indemnification under this Agreement). The Company and the Subsidiary Guarantors shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all Indemnified Holders, which firm shall be designated by the Holders of a majority in principal amount of the First Mortgage Notes. The Company and the Subsidiary Guarantors shall be liable for any settlement of any such action or proceeding effected with the Company's prior written consent, which consent shall not be withheld unreasonably, and the Company and the Subsidiary 14 Guarantors agree to indemnify and hold harmless any Indemnified Holder from and against any loss, claim, damage, liability or expense by reason of any settlement of any action effected with the written consent of the Company. The Company and the Subsidiary Guarantors shall not, without the prior written consent of each Indemnified Holder, settle or compromise or consent to the entry of judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought under this Agreement (whether or not any Indemnified Holder is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Holder from all liability arising out of such action, claim, litigation or proceeding. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company and the Subsidiary Guarantors, and their respective directors, officers, and any person controlling (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, and the respective officers, directors, partners, employees, representatives and agents of each such person, to the same extent as the foregoing indemnity from the Company and the Subsidiary Guarantors to each of the Indemnified Holders, but only with respect to claims and actions based on information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement. In case any action or proceeding shall be brought against the Company, the Subsidiary Guarantors or their respective directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder of Transfer Restricted Securities, such Holder shall have the rights and duties given the Company and the Company or its directors or officers or such controlling person shall have the rights and duties given to each Holder by the preceding paragraph. In no event shall the liability of any selling Holder hereunder be greater than the amount by which the amount of the proceeds received by such Holder upon the sale of the Transfer Restricted Securities giving rise to such indemnification obligation exceeds the amount of any damages that such Holder, its directors, officers or controlling persons has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) If the indemnification provided for in this Section 8 is unavailable to an indemnified party under Section 8(a) or Section 8(b) above (other than by reason of exceptions provided in those Sections) in respect of any losses, claims, damages, liabilities or expenses referred to in such Sections, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative benefits received by the Company and the Subsidiary Guarantors on the one hand and the Holders on the other hand from their sale of Transfer Restricted Securities or if such allocation is not permitted by applicable law, the relative fault of the Company and the Subsidiary Guarantors on the one hand and of the Indemnified Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Company and the Subsidiary Guarantors on the one hand and of the Indemnified Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Subsidiary Guarantors or by the Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. 15 The Company, the Subsidiary Guarantors and each Holder of Transfer Restricted Securities agree that it would not be just and equitable if contribution pursuant to this Section 8(c) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, none of the Holders (and its related Indemnified Holders) shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or controlling persons has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act, shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each of the Holders under this Agreement and not joint. Section 9. RULE 144A AND RULE 144 The Company and the Subsidiary Guarantors hereby agree with each Holder, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale of such Transfer Restricted Securities and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. The Company and the Subsidiary Guarantors also agree that, if any of them is subject to Section 13 or 15(d) of the Exchange Act, they will make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. Section 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS No Holder may participate in any Underwritten Registration under this Agreement unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled under this Agreement to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. Section 11. SELECTION OF UNDERWRITERS The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided, however, that such investment bankers and managers must be reasonably satisfactory to the Company. 16 Section 12. MISCELLANEOUS (a) Remedies. The Company and the Subsidiary Guarantors agree that monetary damages (including the additional interest contemplated by this Agreement) would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company and the Subsidiary Guarantors will not, on or after the date of this Agreement, enter into any agreement with respect to their securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions of this Agreement. Except as otherwise described in the Offering Memorandum, neither the Company nor the Subsidiary Guarantors have previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders under this Agreement do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date of this Agreement. (c) Adjustments Affecting the Notes. The Company the Subsidiary Guarantors will not take any action, or permit any change to occur, with respect to the Notes that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer. (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions of this Agreement may not be given unless the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or consent to departure from the provisions of this Agreement that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities being tendered. (e) Notices. All notices and other communications provided for or permitted under this Agreement shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company: Golden Northwest Aluminum, Inc. 3313 West Second Street The Dalles, Oregon 97058 Telecopier No: (541) 296-6161 Attention: Brett Wilcox 17 With a copy to: Stoel Rives LLP Standard Insurance Center 900 SW Fifth Avenue, Suite 2300 Portland, Oregon 97204 Telecopier No.: (503) 220-2480 Attention: Stephen E. Babson All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties to this Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of this Agreement. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICT OF LAW RULES. (j) Severability. In the event that any one or more of the provisions contained in this Agreement, or the application of such provisions in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained in this Agreement shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement together with the other Operative Documents (as defined in the Purchase Agreement) is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties to this Agreement in respect of the subject matter contained in this Agreement. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to in this Agreement with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Very truly yours, GOLDEN NORTHWEST ALUMINUM, INC. By: ------------------------------------- Name: Title: GOLDENDALE HOLDING COMPANY GOLDENDALE ALUMINUM COMPANY NORTHWEST ALUMINUM COMPANY NORTHWEST ALUMINUM SPECIALTIES, INC. NORTHWEST ALUMINUM TECHNOLOGIES, LLC By: ------------------------------------- Name: Title: BANCBOSTON ROBERTSON STEPHENS INC. LIBRA INVESTMENTS, INC By: BANCBOSTON ROBERTSON STEPHENS INC. By: ----------------------------------- Name: Title: 19 EXHIBIT A Subsidiary Guarantors Goldendale Holding Company Goldendale Aluminum Company Northwest Aluminum Company Northwest Aluminum Specialties, Inc. Northwest Aluminum Technologies, LLC A-1 EX-4.4 7 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF GOLDENDALE HOLDING COMPANY The undersigned individual of the age of eighteen years or more, acting as incorporator under the Delaware General Corporation Law, adopts the following certificate of incorporation: I. The name of the corporation is Goldendale Holding Company (the "Company"). II. The Company is intended to be employee owned. Ownership of the capital stock of the Company is limited to the following: (i) Employees of the Company or a wholly owned subsidiary of the Company. (ii) Trusts described in Section 401(a) of the Internal Revenue Code relating to a plan qualified under Section 401(a) whose sponsor is the Company or a wholly owned subsidiary of the Company. (iii) A corporation if 100 percent of the capital stock of the corporation is owned by a single shareholder described in (i) or (ii) above. III. The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. IV. A. Designation and Number of Authorized Shares. ------------------------------------------- The total number of shares of stock which the Company has authority to issue is Five Hundred Thousand shares, consisting of: (i) One Hundred Fifty Thousand shares of Series A Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"); and (ii) Three Hundred Fifty Thousand shares of Common Stock, par value $0.01 per share (the "Common Stock"). The Series A Preferred Stock and the Common Stock shall be the only equity securities issued by the Company; no other class or series of equity securities with rights or privileges ranking senior to shares of the Common Stock may be issued by the Company at any time. The authorized number of shares of Series A Preferred Stock may be decreased (but not increased) by the Board of Directors without a vote of stockholders; provided, however, that such number may not be decreased below the number of then currently outstanding shares of Series A Preferred Stock. B. Dividends and Distributions. --------------------------- (i) Dividend Rate for Series A Preferred Stock. Through December 31, 2001, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock and of any other capital stock of the Company, shall be entitled to receive cumulative dividends payable at the annual rate of $27.68 per share. In each calendar beginning on or after January 1, 2002, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock and of any other capital stock of the Company, shall be entitled to receive cumulative dividends payable at the annual rate per share set forth below: Year Ending Dividend Per Share ----------- ------------------ December 31, 2002 $29.93 December 31, 2003 $32.18 December 31, 2004 $34.43 and thereafter (ii) Accrual of Cumulative Dividends. Dividends shall accrue quarterly in four equal amounts on March 31, June 30, September 30 and December 31 of each year (or, if any such day is not a business day, the next preceding business day; each such date being referred to herein as a "Quarterly Dividend Date"), commencing on the first Quarterly Dividend Date which is at least 15 days after the date of the original issuance of the Series A Preferred Stock. 2 Dividends accruing on any Quarterly Dividend Date shall be prorated for any quarter in which the Series A Preferred Stock was outstanding for less than the full quarter. (iii) Payment. Dividends shall be paid when, as and if declared by the Board of Directors out of funds of the Company legally available therefor. All dividends payable under subsections (i) and (ii) above shall be paid in cash. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of dividends accrued at the time of such payment shall be allocated pro rata on a share-by-share basis among all outstanding shares. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall be no more than 60 days nor less than 10 days prior to the date fixed for the payment thereof. (iv) Payment in Kind. Commencing January 1, 2002, at the option of any holder of Series A Preferred Stock, such holder may request that the Company issue additional shares of fully paid and non-assessable Series A Preferred Stock equal in value to any accrued and unpaid cash dividends (the "Dividend Shares"). For purposes of determining the number of Dividend Shares to issue, the value of each share of Series A Preferred Stock shall be the fair market value determined on a minority ownership basis for purposes of transactions by the Company's qualified employee stock ownership plan or a qualified plan that is a successor thereto. (v) Dividends on the Common Stock. No dividends may be declared or paid on the Common Stock until all accrued dividends in respect of the Series A Preferred Stock have been paid. C. Merger, Consolidation. --------------------- (i) Preferential Amount. In the event of any consolidation or merger of the Company with or into any other corporation or other entity or person, or a sale, conveyance or disposition of all or substantially all of the assets of the Company, or any other corporate reorganization in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization or any transaction or series of related transactions by the Company in which in excess of 50 percent of the Company's voting power is transferred, then holders of the Series A Preferred Stock shall first receive for each share of such stock, in cash or securities received from the acquiring corporation or a combination thereof, at the closing of any such transaction, an amount equal to $225.00 for such share plus any accrued but unpaid dividends thereon as of the date of closing of such transaction, unless applicable provisions of the Employment Retirement Income Security Act of 1974, as amended, require a greater amount. In the event the amount payable in respect of the proposed transaction is not sufficient to permit payment of the full amount described in the preceding sentence, then the entire amount payable in respect of the proposed transaction shall be distributed ratably among the holders of the Series A Preferred Stock, according to their respective payments that would have been payable in respect of the shares held by them upon such transaction if all payments 3 payable on or with respect to such shares were paid in full in accordance with the preceding sentence. (ii) Treatment of Common Stock. After the distribution required by subsection (i) above has been paid, any remaining consideration to be paid in such transaction shall be distributed to the holders of Common Stock pro rata. (iii) Valuation of Securities. Any securities to be delivered to the holders of the Series A Preferred Stock pursuant to subsection (i) above shall be valued as follows: (A) With respect to securities not subject to investment letter or other similar restrictions on free marketability, (1) If listed or admitted for trading on a national securities exchange, the value shall be deemed to be the average of the last sale price, or closing bid price if no sale occurred, of such securities on such exchange over the 30-day period ending three days prior to the closing; (2) If quoted on the National Market of the NASDAQ System, or any similar system of automated dissemination of quotations of securities prices then in common use, the average of the last reported sale price if such price is so quoted or, if not so quoted, the average of the mean between the high bid and low asked quotations, over the 30 day period ending three days prior to the closing; (3) If quoted on a national securities or central market system, other than as described in (1) or (2) above, for which actual transactions are reported, the average of the last sale price, or the closing bid price if no sale occurred, of such security over the 30 day period ending three days prior to closing; (4) If quoted on a national securities or central market system, other than as described in (1) or (2) above, for which bid and asked quotations are reported but actual transactions are not, the average of the mean between the high bid and low asked quotations over the 30 day period ending three days prior to the closing; (5) With respect to a security without an ascertainable market price, the fair market value thereof, as mutually determined by the Company and the holders of a majority of the then outstanding shares of Series A Preferred Stock). (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount 4 from the market value determined as above in paragraph (A)(1), (2), (3), (4) or (5) to reflect the approximate fair market value thereof, as determined by the Board of Directors. D. Liquidation Preference. ---------------------- (i) Preferential Amount. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of each share of Series A Preferred Stock shall be entitled to be paid out of the assets and funds of the Company available for distribution to its stockholders, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock, an amount equal to $225.00 plus any accrued but unpaid dividends thereon determined in accordance with Section B. If upon the occurrence of such event the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Company legally available for distribution to its stockholders shall be distributed ratably among the holders of the Series A Preferred Stock, according to their respective preferences that would have been payable in respect of the shares held by them upon such distribution if all preferences payable on or with respect to such shares were paid in full. (ii) Treatment of Common Stock. After the payment or distribution described in subsection (i) above has been made, the remaining assets and funds of the Company available for distribution to its stockholders shall be distributed among the holders of the Common Stock pro rata. (iii) Consolidation or Merger. A consolidation or merger of the Company with or into any other corporation or corporations, or a sale, conveyance or disposition of all or substantially all of the assets of the Company or the completion by the Company of a transaction or series of related transactions in which more than 50 percent of the voting power of the Company is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Section D, but shall instead be treated pursuant to Section C hereof. E. Redemption. ---------- (i) Company's Right to Redeem. The Company may at any time after December 31, 1998, at its option, redeem any or all outstanding shares of Series A Preferred Stock, by paying therefor the sum of the following (the "Redemption Price") in accordance with the terms of this Section E: (A) if the Redemption Date (as defined below) is (1) prior to January 1, 2000, $230.63 per share, (2) after December 31, 1999 and prior to January 1, 2001, $228.38 per share, (3) after December 31, 2000 and prior to January 1, 2002, $227.25 per share, and (4) after December 31, 2001, $225.00 per share; plus 5 (B) all accrued but unpaid dividends thereon to the Redemption Date. The Company shall pay the Redemption Price in cash. (ii) Notice of Redemption. The Company will mail written notice of each redemption of any shares of Series A Preferred Stock to each record holder of shares of Series A Preferred Stock not more than 60 nor less than 30 days prior to the date on which such redemption is to be made. The date on which the written notice is mailed shall be the "Redemption Date." Upon mailing any notice of redemption, the Company will become obligated to redeem the total number of shares of Series A Preferred Stock specified in such notice for the Redemption Price in cash at the time of redemption specified therein. In case fewer than the total number of shares of Series A Preferred Stock represented by any certificate are redeemed, a new certificate representing the number of unredeemed shares of Series A Preferred Stock will be issued to the holder thereof without cost to such holder within three business days after surrender of the certificate representing the redeemed shares of Series A Preferred Stock. (iii) Determination of the Number of Each Holder's Shares to be Redeemed. The number of shares of Series A Preferred Stock to be redeemed from each holder thereof in redemptions hereunder will be the number of shares of Series A Preferred Stock determined by multiplying the total number of shares of Series A Preferred Stock to be redeemed times a fraction, the numerator of which will be the total number of shares of Series A Preferred Stock then held by such holder and the denominator of which will be the total number of shares of Series A Preferred Stock then outstanding. (iv) Dividends After Redemption Date. No share of Series A Preferred Stock is entitled to any dividends accruing after the Redemption Date of such share. On such date all rights of the holder of such share will cease, and such share will not be deemed to be outstanding. (v) Redeemed or Otherwise Acquired Shares. Any shares which are redeemed or otherwise acquired by the Company will be canceled and will not be reissued, sold or transferred. 6 F. Voting Rights; Protective Provisions. ------------------------------------ (i) Series A Preferred Stock. In addition to any voting rights provided elsewhere herein and any voting rights provided by law, the holders of shares of Series A Preferred Stock shall have the following voting rights: (A) The shares of Series A Preferred Stock and the shares of Common Stock shall vote together as a single class on all matters submitted to a vote of stockholders of the Company, including without limitation the election of directors. In any such vote, the holders of shares of Series A Preferred Stock shall be entitled to one vote per share and, with respect to such vote(s), shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock. (B) So long as any shares of Series A Preferred Stock are outstanding and unless the consent or approval of a greater number of shares shall then be required by law, without first obtaining the consent or approval of the holders of at least a majority of the number of then-outstanding shares of Series A Preferred Stock, voting as a single class, given in person or by proxy at a meeting at which the holders of such shares shall be entitled to vote separately as a class, or by written consent (which consent need not take the form of a formal written consent of stockholders pursuant to Section 228 of the Delaware General Corporation Law), the Company shall not: (1) authorize, create or obligate itself to issue any class or series, or any shares of any class or series, of equity security (including any security convertible into or exercisable for any equity security), having powers, designations, preferences or relative, participating, optional or other special rights prior to or on parity with the Series A Preferred Stock; or (2) amend, alter or repeal the Certificate of Incorporation to alter or change the preferences, rights or powers of the Series A Preferred Stock so as to affect the Series A Preferred Stock adversely or to increase the authorized number of shares of Series A Preferred Stock. (ii) Common Stock. The holders of Common Stock will be entitled to one vote per share on all matters to be voted on by the Company's stockholders. V. The address of the initial registered office of the Company is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 and the name of the initial registered agent of the Corporation at such address is The Corporation Trust Company. 7 VI. The name and address of the incorporator is Kris Ormseth, 999 Main Street, Suite 1015, Boise, Idaho 83702. VII. The Board of Directors of the Company, acting by majority vote, may alter, amend or repeal the Bylaws of the Company. VIII. A. The Company shall indemnify to the fullest extent then permitted by the law any person who is made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (including an action, suit or proceeding by or in the right of the Company) by reason of the fact that the person is or was a director or officer of the Company, or serves or served at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection therewith. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company as authorized in this Article. The indemnification provided hereby shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any statute, bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in any official capacity and as to action in another capacity while holding an office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. Any person other than a director or officer who is or was an employee or agent of the Company, or fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plans of the Company, or is or was serving at the request of the Company as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise may be indemnified to such extent as the board of directors in its discretion at any time or from time to time may authorize. 8 B. No director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director; provided that the liability of a director shall not be eliminated (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. IX. The name and mailing address of the person who is to serve as the director of the Company until the first annual meeting of stockholders and until his successor is elected and qualified is: Brett Wilcox 2727 NW Westover Portland, OR 97210 I, THE UNDERSIGNED, being the sole incorporator herebefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring, affirming, acknowledging and certifying, under penalties of perjury, that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 17th day of May, 1996. KRIS ORMSETH -------------------------- Kris Ormseth, Incorporator 9 EX-5.1 8 OPINION OF STOEL RIVES LLP STOEL RIVES LLP --------------- ATTORNEYS Standard Insurance Center 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204-1268 Telephone (503) 224-3380 Fax (503) 220-2480 TDD (503) 221-1045 February 12, 1999 Board of Directors Golden Northwest Aluminum, Inc. 3313 West Second Street The Dalles, OR 97058 We have acted as counsel for Golden Northwest Aluminum, Inc. (the "Company") in connection with the preparation and filing of a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended, covering an aggregate principal amount of $150,000,000 of 12% First Morgage Notes due 2006 of the Company (the "First Mortgage Notes") being offered for exchange by the Company. We have reviewed the corporate action of the Company in connection with this matter and have examined the documents, corporate records and other instruments we deemed necessary for the purpose of this opinion. Based on the foregoing, it is our opinion that: (i) The Company is a corporation existing under the laws of the State of Oregon; and (ii) The First Mortgage Notes have been duly authorized. We consent to the use of our name in the Registration Statement and in the Prospectus filed as a part thereof and to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, STOEL RIVES LLP EX-10.1 9 AGREEMENT TO TOLL CONVERT ALUMINA INTO ALUMINUM AGREEMENT TO TOLL CONVERT ALUMINA INTO ALUMINUM (TOLLING CONTRACT) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT ASTERISKS (*) DENOTE SUCH OMISSIONS The parties to this agreement to toll convert alumina into aluminum are: 1. HYDRO ALUMINUM LOUISVILLE, INC., a Delaware corporation ("Hydro") and 2. GOLDENDALE ALUMINUM COMPANY, a Delaware corporation, formerly known as Columbia Aluminum Corporation (the "Company"). This is an Agreement by Hydro to supply alumina for toll conversion by the Company into standard aluminum ingot and related products as specified by Hydro at the Company's aluminum smelter near Goldendale, Washington, U.S.A. The Company agrees to convert the alumina so provided. Hydro agrees to pay for the conversion. This Agreement is subject to and conditioned upon the execution by Hydro Aluminium a.s., a Norwegian corporation ("HAN"), and the Company of the Third Amendment to the Agreement to Toll Convert Alumina into Aluminum, dated as of July 12, 1987, as amended, between HAN and the Company. The parties agree as follows: 1. Term. The term of this Tolling Contract is ten years from 1 January 1997 through 31 December 2006. 2. Alumina Delivery. Throughout the contract term, Hydro will deliver alumina to the Company's unloading facility in Portland, Oregon for consignment to the Company under appropriate bills of lading or other documents of title. Delivery will be in accord with the shipping requirements specified in Exhibit A. The costs of unloading and storage, at the facility in Portland, and transfer to Goldendale will be borne by the Company and are included in the tolling fee. At all times, Hydro will maintain for the Company's use at Goldendale or its related storage facility, at a minimum, sufficient alumina inventory to support 30 days' scheduled production. The Company shall not use or process any alumina provided by Hydro hereunder for any purpose other than the conversion thereof into aluminum for Hydro in accordance with the terms of this Tolling Contract. 3. Metal Production. Throughout the contract term, the company will operate its potlines and the casting facility at the smelter exclusively to convert Hydro's alumina into standard aluminum products as specified by Hydro. Subject to the Company's product meeting the quality requirements of paragraph 11, Hydro will pay to the Company, a tolling fee for all aluminum metal manufactured using the entire production capability of the production facilities, which the Company shall dedicate solely to the tolling of Hydro's alumina in the quantity of at least 157,000 metric tons of aluminum metal annually. Subject to this annual requirement, the quantity of aluminum metal produced by the Company in any rolling three-month period from tolling Hydro's alumina hereunder may be not less than 37,288 metric tons and not more than 41,213 metric tons. If Hydro fails to deliver alumina sufficient for the Company to produce 157,000 metric tons of aluminum annually at a rate of 1.94 tons of alumina per ton of aluminum, and if such failure results in a production loss for the Company, Hydro will pay a tolling fee measured by the resulting lost production. 4. Tolling Fee. The tolling fee to be paid by Hydro to the Company will be a fraction of the London Metal Exchange ("LME") price for contracts for High Grade aluminum (99.7 or P1020), as follows:
LME INDEX TOLLING FEE % OF $/TON LME CONTRACT P1020 --------- ------------------ Below 1,450 *** 1,450-1,700 *** Above 1,700 ***
Effective from 1 January 1997 through 31 December 1997, the tolling fee shall be not less than $*** per metric ton. The LME price used for measurement purposes will be the LME cash settlement price as published in Metals Week, averaged for the three-month period immediately preceding the month of production. The tolling fee is applicable to all production of aluminum metal hereunder, as adjusted for the production of casthouse products as set forth in Section 5 or for the production of off-grade aluminum as set forth in Section 11. If during any three-month period, the weekly LME cash price on average is more than $20 per metric ton above the average LME three-month contract price (which condition is called "excess backwardation"), then the LME price for measuring purposes computed for such period (and for any continuing period until such excess backwardation ends) shall be the lower of the LME cash or three-month contract price. Thereafter, the measuring price shall again be the LME cash price. The tolling fee covers all costs of handling, storing and loading the aluminum metal produced hereunder until loaded on board railcar or truck at Goldendale. Hydro will have the right to store a maximum of 90 days inventory at Goldendale without additional charge and the Company shall issue to Hydro a warehouse receipt evidencing the finished goods stored. Hydro shall be entitled, at any time, to direct the Company to release some or all of such stored aluminum for sale. As may be directed by Hydro, and in accordance with appropriate bills of lading or other documents of title, the Company will load Hydro's 2 converted aluminum, for shipment to such location as Hydro directs. On average, at least 90% of the annual production will be delivered by the Company as P1020, subject to the production of casthouse products as set forth in Section 5 or the production of off-grade aluminum as set forth in Section 11. 5. Casthouse Production; Profit Sharing. It is understood that Hydro will require that substantial quantities of the aluminum be delivered in such forms (such as extrusion billet, foundry tee or sheet ingot) or with such alloy contents as shall cause the Company to incur operating production costs above those required to produce standard P1020 ingots (collectively "casthouse products"). All products of casthouse production delivered to Hydro shall be made from aluminum metal tolled for Hydro under this Tolling Contract or from additional aluminum metal provided by Hydro pursuant to the last paragraph of this Section 5. The Company will charge and Hydro will pay an additional casting charge for each casthouse product as follows: (a) For standard 6063 billet, the additional casting charge shall be *** cents per pound; (b) For standard unalloyed 1070 sheet ingot, the additional casting charge shall be *** cents per pound; (c) For other alloys or other forms, such additional charges shall be established by mutual agreement between Hydro and the Company as are appropriate to reflect the additional costs of producing such forms and alloys, in a manner consistent with the establishment of the additional charges set forth in paragraphs (a) and (b). The parties agree to meet f rom time to time, at the request of either party, to determine if changes in the casting charges are appropriate, taking into account the long-term, material changes, if any, in the Company's costs arising as a result of causes beyond the Company's reasonable control. In addition, for each alloy or form, Hydro agrees to pay the Company an amount (the "Profit Share") equal to ***% of the excess of the premium received by Hydro for such alloy or form under the terms of its contracts with its customers over the additional charges for such alloy or form payable by Hydro to the Company under the terms of this Tolling Contract. Such Profit Share shall be calculated on the basis of the relevant economic factors existing at the time Hydro enters into contracts with its customers. The calculation of Profit Share in each particular case shall be done in a manner consistent with the examples set forth in Exhibit B. In the event that Hydro and the Company mutually agree to a profit sharing arrangement with respect to a specific customer contract of Hydro different from that 3 specified herein, then Hydro and the Company shall enter into a written memorandum evidencing such other arrangement. Hydro agrees to place orders for at least 70,000 metric tons of casthouse products each year. Hydro will place orders for casthouse products in commercially reasonable lots that shall not exceed the reasonable capacity of the casthouse as determined by the mutual agreement of the parties from time to time. Hydro shall have the unilateral right to modify its production schedules within 45 days of production if the Company is physically able to accommodate the modifications taking into account its then existing commitments and labor force upon payment by Hydro of any extra costs incurred by the Company as a result of the modifications. The parties agree to pursue increasing casthouse production through the use of additional aluminum metal for the production of value-added products in the casthouse, on such terms and conditions as may be mutually agreed upon by the parties. Supplies of additional aluminum metal provided by Hydro for use in casthouse production shall be subject to such additional casthouse charges as may be mutually agreed upon by the parties, but not to the tolling fee for alumina hereunder. 6. Production Schedules. By the 15th of each calendar month, the parties will agree upon a schedule establishing estimated production requirements in reasonable detail for the next 120 days. Hydro may unilaterally modify any such schedule at any time and from time to time with respect to production to occur more than 45 days from the date of modification. Modification affecting production within the next 45 days may be made upon mutual agreement or unilaterally by Hydro upon payment of any extra costs incurred by the Company as a result of the modification. All production and delivery schedules will incorporate commercially reasonable conditions, including minimum quantity requirements and schedule adjustments for tooling changes and orderly staffing changes. It is understood that the parties will work together (a) to optimize productivity, production output, and quality, and (b) to permit Hydro and the Company to capitalize on market opportunities. Exhibit C states Scheduling Criteria and Delivery Schedules. 7. Alumina Source and Specification. The parties recognize that the smelting process and related environmental control is sensitive to the nature of alumina. By November 30 of each year the parties will seek to mutually agree upon an approximate schedule of alumina deliveries for the following year. Hydro will have the right to supply alumina so long as the alumina supplied by Hydro meets the specifications of Exhibit D. A set of core sources and a procedure for qualification of new sources will be mutually agreed upon. Hydro will use its best efforts to give the Company at least two months prior notice of any impeding change in the sources of its alumina, to the extent consistent with the alumina delivery schedule agreed upon for that year. 4 8. Alumina Usage. The Company will manufacture aluminum as specified by Hydro, which meets United States industry standards, f rom alumina at the rate of 1.94 tons of alumina per ton of aluminum computed on an annual basis, provided that the alumina meets the specifications of paragraph 7. Except as the parties may otherwise expressly agree, the rate referred to in the preceding sentence shall not be affected for any reason, including any event of force majeure. In the event of a failure by the Company to meet this production requirement from alumina supplied by Hydro, the Company shall be obliged to procure additional alumina or aluminum metal sufficient to meet such production requirement, without additional cost to Hydro. Hydro will credit the Company with the market value of any alumina saved by the Company's achieving greater than the required production efficiency, computed on an annual basis, provided that the aluminum produced as a result of such increased efficiency shall be credited to Hydro's account. The parties shall mutually agree upon the procedures for implementing such credits. It is understood that the alumina usage rate is to be based on the production of molten aluminum in accordance with industry standards as mutually agreed upon by Hydro and the Company, and shall be subject to verification in accordance with the provisions of Section 10. Alumina sampling and weight control will be in accordance with Exhibit E. The Company will bear the risk of loss or damage for alumina and aluminum from the time alumina is accepted at the unloading dock until aluminum is certified as loaded for shipment at Hydro's instructions. 9. Consumable Inventory. Hydro and the Company will discuss mutually agreeable arrangements for Hydro to offer magnesium, grain refiner and other raw materials to the Company at competitive prices. 10. Invoices and Payment. The Company will invoice Hydro weekly before 5:00 p.m. Eastern time, on Mondays (or if Monday is a holiday, then on the next business day) by facsimile transmission with each invoice reflecting the tolling fee for finished production for a seven-day period, plus charges for finished casthouse production in accordance with Section 5 hereof (taking into account any additional aluminum metal provided by Hydro) and such other charges as may be appropriate. Finished production means product in shipping condition, whether or not immediately shipped for Hydro. Cast metal which is not sawed at the time of such invoicing shall be invoiced at its P1020 value, with the applicable additional charge subsequently invoiced when such metal is sawed. Invoices will be paid by Hydro and received by the Company's bank within 25 days of facsimile transmission generally on a Thursday (or if Thursday is a state or national holiday, then on the immediately preceding business day). At the time of the payment of each invoice, Hydro shall also pay an amount equal to Hydro's good faith estimate of the Profit Share corresponding to such invoice in accordance with Section 5. Payments will be made in U.S. dollars by wire transfer to the Company's bank in immediately available Federal funds. The Company shall use its best efforts to provide Hydro with a report, in reasonable detail as specified by Hydro, by 5:00 p.m. Eastern time on the first business day of each 5 month, of the inventory, production and shipment tonnages for the immediately preceding month. Within 30 days following the end of each calendar quarter, Hydro shall determine the aggregate Profit Share corresponding to all invoices submitted by the Company during such quarter. If such aggregate Profit Share is greater than the aggregate estimated payments of Profit Share made by Hydro on such invoices, Hydro shall promptly remit the difference to the Company. If such aggregate Profit Share is less than the aggregate estimated payments of Profit Share made by Hydro on such invoices, then the Company shall credit such difference to Hydro's account on future payments to be made by Hydro to the Company hereunder. The parties agree to meet from time to time, at the request of either party, to review the Profit Share calculations, with each party to provide such work papers and other documentation as are reasonably necessary to conduct such a review. For a period of not more than one year after the end of each quarter, Hydro shall permit its books and records to be inspected upon reasonable notice and during normal business hours by an independent accounting firm of national standing of the Company's choice and at the Company's expense. The scope of such inspection shall be limited to determining the Profit Share due to Hydro under Section 5 for such quarter, and such accounting firm shall execute, prior to such inspection, an agreement with Hydro not to disclose the results of such inspection to any person or entity other than the Company and not to disclose to any person or entity, including the Company, the terms or provisions of any contract between Hydro and a customer of Hydro if that customer is also a competitor of the Company with respect to a particular product. Hydro shall have the right, at reasonable times and on reasonable notice, to conduct an audit, using its own personnel and/or an accounting firm of national standing of Hydro's choice and at Hydro's expense, of the Company's books of account, production records and physical inventory in order to verify the alumina usage rate, the invoices and reports submitted by the Company, and such other matters as Hydro may reasonably need to verify in connection with the Company's performance of its obligations hereunder. 11. Product Quality. The Company will manufacture all aluminum metal and casthouse products to the specifications established in writing by Hydro, provided that if the Company does not believe that it can meet such specifications, it shall so notify Hydro within 10 days after its receipt of such specifications. The Company will provide both metallurgical and physical inspection of all products prior to release for shipment. In case of defective production, Hydro and the Company will have the rights provided in paragraph 12. Hydro will have no obligation to take a product or pay a tolling fee for any product which fails to meet specification. Hydro may take out-of-specification product pursuant to Section 3, in which event the tolling fee for such out-of-specification product shall be reduced, on a per pound basis, as follows: 6
Below 99.7 grade aluminum to and including Alcoa P1535 *** cent Below Alcoa P1535 to and including Alcoa 2060 *** cents Below Alcoa 2060 to and including Alcoa 2590 *** cents Below Alcoa 2590 to and including MTO *** cents Below MTO to and including MT1 *** cents Below MT1 to and including MT2 *** cents Below MT2 *** cents
Otherwise the Company shall purchase the related alumina from Hydro at Hydro's documented cost and disposition of such product is at the Company's risk. 12. Production Default Provisions. it is understood that each party will have made substantial commitments in expectation that deliveries of alumina and production will take place in accordance with the terms of this Tolling Contract. The following provisions are intended to assure that both parties have every opportunity to achieve the intended benefits of this Tolling Contract, but to provide an orderly process for contract termination if necessary. Hydro will have the right at all times to inspect product and the production process and to offer technical assistance and advice. Hydro shall notify the Company as promptly as possible and in any event within 10 days of discovery of any substandard product or other failure of performance by the Company. If for any period exceeding 90 days more than 4% of the Company's production fails to meet the specifications and/or production schedules required hereunder, then Hydro shall undertake in good faith to provide technical assistance and advice and to propose changes in the Company's production techniques in order to enable performance by the Company of its obligations hereunder. A reasonable time shall be allowed for the good faith efforts of Hydro to provide such advice and of the Company to implement changes proposed by Hydro. Hydro shall give written notice to the Company at such time as it believes that a reasonable time has elapsed for such good faith efforts by Hydro and the Company. If more than 4% of the Company's production fails to meet the specifications and/or production schedules required hereunder for an additional 90 days following such notice by Hydro, then Hydro may terminate this Tolling Contract on 120 days notice. Such remedy shall be in addition to, and not in lieu of, all other remedies as Hydro may have at law or in equity for any breach or default by the Company under this Tolling Contract, including the recovery by Hydro of its cost of settling Hydro's position on LME 7 forward contracts based on this Agreement, and Hydro shall not be required to make an election with respect to its remedies for any such breach or default by the Company. During the termination period, production will be maintained at the maximum level necessary or possible to work off inventories of raw materials while permitting an orderly transfer or closure of operations at the end of the period. If by reason of force majeure, performance by a party of its obligations hereunder is substantially impaired for a period which is reasonably expected to continue for more than 180 days, then the other party may by 30 days prior written notice, terminate this Agreement. 13. Facility Maintenance and Insurance. At all times, the Company will maintain the smelter and all ancillary loading and unloading facilities in first class operating condition. The Company will maintain all-risk casualty insurance in amounts sufficient to repair or replace any facilities damaged in an insured loss, and comprehensive general liability insurance covering liability for personal injury, death or property damage, with policy limits of not less than $____________ per occurrence and $____________ total liability. All such policies shall name Hydro as an insured, to the extent of its insurable interests, shall provide that the insurer may not cancel or refuse to renew such policies without providing Hydro 30 days' prior written notice thereof and shall be in form and substance reasonably satisfactory to Hydro. Hydro will certify to the Company's insurance underwriter on request and from time to time the amount and provisions of its product liability insurance coverage applicable to products manufactured by the Company. On request by the Company, and to the extent permitted by Hydro's insurers, Hydro agrees to name the Company as an additional insured on such insurance, the additional premium, if any, to be paid by the Company. 14. Technology. Hydro agrees to make its expertise and technical assistance available to the Company in order to optimize and upgrade its Soederberg potlines, upon such terms as the parties may mutually agree. Hydro also agrees to discuss its possible participation in the improvement and expansion of the Company's casthouse. At the request of the Company within two years after the date hereof, Hydro will cause an engineering audit of the Company's Soederberg potlines to be performed at no charge to the Company. 15. Ownership of Aluminum and Alumina; Insurance. (a) Title to all inventories of alumina and title to all aluminum metal delivered from the casthouse within the scope of this Tolling Contract will at all times remain vested in Hydro and not in the Company, and the Company shall use and process such alumina in strict accordance with the provisions of Section 1 hereof. All work-in-process, including molten aluminum not yet delivered from the casthouse, will belong to the Company and not to Hydro. The Company shall have title to all residue and slag, including dross, resulting from conversion of the alumina and all conversion process by-products of the 8 alumina, and the Company shall process, recycle or dispose of the same in accordance with all applicable laws. (b) Subject to paragraph 15, the Company covenants that all alumina delivered by Hydro pursuant to this agreement that has not been converted into aluminum and all converted aluminum (except molten aluminum in pots) that has been produced f or Hydro's account shall be at all times free and clear of any lien, charge or encumbrance of any nature whatsoever excluding only those in favor of persons other than the Company created by Hydro and that, upon request by Hydro following the occurrence of a default by the Company as defined below, it will surrender all such alumina or converted aluminum and alumina subject to paragraph 12, to Hydro. (c) Solely in order to protect Hydro's property interest in all alumina and all converted aluminum to which this Agreement relates against any claim made in respect thereof by a creditor of the Company or others claiming through the Company, the Company grants Hydro a security interest in all of the Company's right, title and interest in alumina delivered by Hydro (whether at the Company's unloading facilities or at the smelter) and in finished aluminum goods now and hereafter produced for Hydro's account in the Company's possession, whether located at the Company's address set forth herein or elsewhere, and all proceeds thereof (the "Collateral"), to secure performance of all obligations of the Company to Hydro arising out of the preceding subparagraph, which security interest shall be prior to all other security interests in the Collateral. The following shall constitute defaults by the Company under this security agreement: (i) If the Company shall (A) be generally not paying its debts as they become due, or (B) file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future bankruptcy, insolvency or similar statute, law or regulation, or (C) file any answer admitting or not contesting the material allegations of a petition filed against the Company in any such proceeding, or (D) seek or consent or acquiesce in the appointment of any trustee, custodian, receiver or liquidator of the Company or of all or any substantial part of its properties or, (E) take corporate action for the purpose of any of the foregoing, or (F) if without the consent or acquiescence of the Company, an order shall be entered constituting an order for relief or approving a petition for relief or reorganization, or any other petition seeking any reorganization, arrangement, competition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar statute, law or regulation, or (G) if, without the consent or acquiescence of the Company, an order shall be entered appointing a trustee, custodian, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company; (ii) The Company's demonstrated and continuing inability pursuant to paragraph 12 to deliver finished aluminum goods to Hydro in the quantities and quality required under this Agreement, when called for by the terms hereof; 9 (iii) Breach by the Company of a material obligation under this Agreement; or (iv) Any assertion of any right in the Collateral by any other creditor. In the event of a default under this provision, Hydro shall immediately have the rights of a secured party after default under a security agreement, and the Company agrees to pay reasonable attorneys' fees and legal expenses incurred by Hydro in enforcing such rights. The exercise by Hydro of its rights set forth in this subparagraph 14(c) shall be solely for the purpose of protecting its property interest in alumina and converted aluminum and shall not effect a termination of this Agreement nor alter the rights and obligations of the parties under paragraph 12 or any other provision hereof. (d) The Company agrees that it shall execute and deliver to Hydro such financing or continuation statements as Hydro may request evidencing the Company's status as consignee with respect to alumina delivered by Hydro and with respect to finished aluminum held for the account of Hydro and with respect to finished aluminum held for the account of Hydro, and evidencing Hydro's status as a secured party with respect to the Collateral. Hydro may, at its expense, record any such financing or continuation statements. The Company shall deliver to Hydro any negotiable document of title received for alumina or converted aluminum, title to which, in accordance with this paragraph 14 is in Hydro, forthwith upon the Company's receipt thereof. (e) Each party will maintain casualty insurance in amount and form desired to protect its interests in such inventory. Each party waives its right of subrogation against the other for matters which are or could be insured against pursuant to this subparagraph. 16. Non-Payment. If for any reason other than the Company's failure of performance (and then only after notice to the Company and only to the extent of such non-performance) Hydro fails to deliver alumina to the Company or fails to pay the Company in accordance with paragraph 10, the Company shall be entitled to sell finished product to third parties in such quantities as may be necessary to compensate the Company for all tolling fees and other amounts earned and for the additional costs related to such non-delivery or non-payment. Such sales may be made only after 21 days actual notice or notice by certified mail to Hydro and shall be made in accordance with the Uniform Commercial Code. Hydro hereby grants to the Company a limited security interest in the aluminum inventories on hand from time to time for this purpose, which the Company may assign to its lenders. 17. Force Majeure. Without limiting the Company's obligations set forth in the last sentence of paragraph 8, each party will be excused from performance hereunder as a result of an event of force majeure. Force majeure is defined as any event not reasonably within the control of a party, including but not limited to damage, destruction, or failure of the works or facilities required for performance of a party's obligation hereunder (other than 10 as a result of the Company's breach of its obligations under Section 13), natural disasters, injunctions, and work stoppages whether lawful or not resulting from any labor dispute, but excluding changes in rates for electric power. Each party will promptly notify the other party of such an occurrence, and performance hereunder shall be suspended so long as any such event prevents such performance. Each party will maintain appropriate business interruption insurance to protect its interests. Nevertheless, each party will take all reasonable steps to maintain deliveries of alumina and production of aluminum and to overcome the effects of force majeure. In the event that a party invokes an event of force majeure hereunder on one or more occasions, the term of this Tolling Contract may be extended, at the option of the other party exercisable from time to time on or before the otherwise applicable expiration of the term hereof, for a period of time not in excess of the aggregate amount of time for which the party claimed to be excused from performance hereunder due to one or more events of force majeure. 18. Economic Hardship. In the event that a party believes that its performance as agreed hereunder has been made impracticable by, or all or part of its capacity to perform has been affected by, the occurrence of a contingency the nonoccurrence of which was a basic assumption on which this Tolling Contract was made, such party may give written notice to the other, and the parties agree to meet to discuss a solution that will not unduly prejudice the rights of either party hereunder. 19. Environmental Matters. (a) As used in this Tolling Contract, the following terms shall have the following meanings: (i) "Property" means the Goldendale Smelter near Goldendale, Washington, and related facilities, including an alumina unloading facility in Portland, Oregon. (ii) "Hazardous Materials" mean all chemicals, materials, substances or wastes (A) which are designated or defined, or included in any definition under any Environmental Law as a hazardous, dangerous or toxic substance, material or waste, or (B) the handling of, use of, disposal of or exposure to which is prohibited, limited or regulated by any Environmental Law. (iii) "Environmental Laws" means any and all applicable federal, state and local laws (whether under common law, statute, rule, regulation or otherwise), permits, orders and other requirements of Governmental Agencies relating to the protection of human health or the environment. 11 (iv) "Governmental Agency" means all federal, state and local administrative bodies with jurisdiction to promulgate or enforce Environmental Laws. (v) "Environmental Claims" means any and all claims (A) by any Governmental Agency for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Laws, and (B) by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. (vi) "Release" means disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and the like, into, from or upon any land or water or air, or otherwise entering into the environment. (b) Except as set forth on Exhibit F, the Company represents and warrants that, to the best of its knowledge: (i) It has obtained all permits, licenses and other authorizations required under all present Environmental Laws, except to the extent that failure to have any such permit, license or authorization would not have a material adverse effect on the business, financial condition or operations of the Company. (ii) It is in compliance with the terms and conditions of all such permits, license and authorizations, and is also in compliance with all applicable orders, decrees, judgments and injunctions, issued, entered, promulgated or approved under any present Environmental Laws, except to the extent that the failure to comply with such permits, licenses, authorizations, orders, decrees, judgments and injunctions would not have a material adverse effect on the business, financial condition or operations of the Company. (iii) It has not received any notice of any material Environmental Claims with respect to the conduct of the business. No Environmental Claims have been commenced or threatened alleging any material failure by the Company to comply with any present Environmental Laws with respect to the business. (iv) No lien or encumbrance has been created on any of the Property under any of the present Environmental Laws. (v) No Environmental Claims are pending or threatened regarding the presence of any Hazardous Materials at, on or under the Property. (c) The Company covenants and agrees as follows: (i) The Company will (A) comply with all Environmental Laws applicable to the ownership or use of the Property and with all Environmental Laws 12 applicable to its activities or use of or with respect to the Property, (B) cause all tenants and other persons occupying the Property to comply with all Environmental Laws, (C) promptly pay or cause to be paid all reasonable costs and expenses incurred in providing for such compliance with Environmental Laws, and (D) keep or cause the Property to be kept free and clear of any liens imposed thereon pursuant to any Environmental Laws. (ii) The Company shall maintain and no less than annually review, and if necessary revise, the Company's corporate environmental policy and environmental compliance program. Upon Hydro's reasonable request, and subject to a confidentiality agreement, the Company shall provide Hydro with copies of: the Company's corporate environmental policy; the Company's environmental compliance program; compliance audit results; documentation of actions to correct any material noncompliance; a list of all off-site locations to which Hazardous Materials were shipped from the Property for purposes of treatment, storage or disposal ("Off-Site Locations"), and status report regarding all Environmental Claims, if any, resulting from activities either at the Property or at Off-Site Locations. Such information shall be gathered at the Company's sole cost and expense. If the Company fails to deliver to Hydro such information within 60 days after being requested to do so by Hydro pursuant to this Section, Hydro may obtain the same at the Company's cost, and the Company hereby grants to Hydro and its agents access to the Property and specifically grants to Hydro an irrevocable non-exclusive license, subject to the rights of tenants, to obtain such information and undertake the preparation of such report, and the reasonable cost of such report will be payable by the Company on demand. (iii) The Company will promptly advise Hydro in writing upon learning of any of the following: (i) any pending or threatened Environmental Claim against the Company or any part of the Property; (ii) any condition or occurrence on the Property or an Off-Site Location that, to the best of the Company's knowledge may result in material noncompliance by the Company with any applicable Environmental Law or could reasonably be anticipated to form the basis of an Environmental Claim against the Company or the Property. Each such notice shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and, if applicable or as to the Property, the Company's response thereto. In addition, the Company will provide Hydro with copies of all material communications to or from the Company and any Governmental Agency relating to Environmental Laws or any other person or entity relating to Environmental Claims, as may reasonably be requested by Hydro. (iv) Notwithstanding the foregoing provisions of subsections (c)(ii) and (c)(iii), the Company shall not be required to include in such written report or notice (A) any portions of documents, materials or information that would disclose confidential communications made for the purpose of facilitating the rendition of professional legal services to the Company and that would constitute an attorney-client privileged communication ("Attorney-Client Privileged Communications"), (B) any portions of documents, materials or information that were prepared in anticipation of litigation or for trial by the Company's attorneys and that would constitute attorney work product ("Attorney 13 Work Product Materials"), or (C) any environmental audit report, as defined in Section 468.963(6)(b) of the Oregon Revised Statutes, or any portion thereof, to the extent it is privileged under Section 468.963 of the Oregon Revised Statutes or any comparable federal or state statute or rule ("Environmental Audit Report"); provided, however, that the Company shall disclose all of the information described in subsections (c)(ii) and (c)(iii) hereof ("Environmental Information") in the written report or notice to Hydro, even if part or all of such underlying Environmental Information is also included in an Attorney-Client Privileged Communication, Attorney Work Product Materials, or an Environmental Audit Report, although the Company need not disclose the Attorney-Client Privileged Communication, the Attorney Work Product Materials, or the Environmental Audit Report themselves. The provision of underlying Environmental Information pursuant to this Tolling Contract is not intended, and shall not be construed, to constitute a waiver, express or implied, of the attorney-client privilege, the attorney work product doctrine or the Environmental Audit Report privilege. (v) Hydro shall have the right but not the obligation to participate in, as a party if it so elects, any legal proceeding or action initiated in connection with any material Environmental Claim. Without Hydro's prior knowledge thereof, the Company shall not enter into any material settlement, consent or compromise with respect to any Environmental Claim that might materially interfere with the performance of this Tolling Contract; provided, however, that Hydro's prior knowledge shall not be necessary for the Company to take any removal or remedial action if ordered by a court of competent jurisdiction or any Governmental Agency or if the presence of Hazardous Materials at the Property poses an immediate significant threat to the health, safety or welfare of any individual or otherwise requires an immediate removal or remedial response or if the Company reasonably believes that immediate action will mitigate or reduce further liability. (vi) Without expense to Hydro, the Company will conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from the Property which must be so removed or cleaned up in accordance with the requirements of any applicable Environmental Laws, to the reasonable satisfaction of each Governmental Agency having jurisdiction in the matter, and in accordance with all such requirements and with orders and directives of each Governmental Agency having jurisdiction in the matter. (d) The Company agrees to defend (with attorneys reasonably satisfactory to Hydro), protect, indemnify and hold harmless Hydro and its respective officers, directors, employees, attorneys and agents from and against any and all liabilities, obligations, losses, damages, penalties, assessments, actions, judgments, suits, claims and expenses (including but not limited to reasonable attorneys' and consultants, fees and disbursements and the costs of investigations, repairs, cleanup, removal, detoxification, closure and other remedial actions) of any kind or nature whatsoever that may at any time be incurred by, imposed on or asserted against any of them directly or indirectly based on, or arising or resulting from or out of (i) the actual or alleged presence of Hazardous Materials on the Property or any Off- 14 Site Locations, in any quantity or manner in violation of Environmental Laws, and the removal, handling, transportation, disposal or storage of such Hazardous Materials, whether or not such presence, removal, handling, transportation, disposal or storage was caused by the Company and whether or not the Company has any knowledge thereof, except to the extent that such violations of Environmental Laws and/or liability for the presence, removal, handling, transportation, disposal or storage of Hazardous Materials was caused by Hydro or any agent acting on behalf of Hydro, (ii) any Environmental Claim with respect to the Property, (iii) any failure or refusal by the Company comply with paragraph (c) of this Section, (iv) the failure of any of the representations and warranties contained in paragraph (b) hereof to be true and complete in all materials respects, and (v) the exercise and enforcement of Hydro's rights under this Agreement (collectively, the "Indemnified Matters"), regardless of when such Indemnified Matters arise. (e) The Company and Hydro intend that Hydro shall have the non-exclusive benefit of the environmental indemnities to which the Company may be entitled, including such indemnities as may be available to the Company under its contracts with predecessor owners of all or part of the Property. To the extent that its indemnity is unenforceable because it violates any law or public policy, the Company agrees on a joint and several basis to it is permitted to contribute and satisfaction of all contribute the maximum portion that under applicable law to the payment Indemnified Matters. (f) The Company agrees to reimburse Hydro for all reasonable sums paid and costs, losses and expense reasonably incurred by Hydro as a direct result of any Indemnified Matter, within 60 business days following written demand therefor, with interest thereon if not paid within such 60-business day period. 20. Arbitration of Disputes. (a) Except for the right of either party to apply to a court of competent jurisdiction for a temporary restraining order or preliminary injunction to preserve the status quo or prevent irreparable harm pending the selection and confirmation of a panel of arbitrators, any dispute arising under this Tolling Contract shall be resolved through a mediation-arbitration approach. The parties agree to first try to resolve the dispute informally with the help of a mutually agreed-upon mediator. If it proves impossible to arrive at a mutually satisfactory solution through mediation, the parties agree, upon the written demand of either party, to submit their dispute to binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. (b) The arbitration may be conducted by one impartial arbitrator by mutual agreement or by three arbitrators if the parties are unable to agree on a single arbitrator within 30 days of first demand for arbitration. All arbitrators are to be selected from a panel of candidates having a background or training in the production, distribution or marketing of aluminum. The arbitrator or arbitrators shall determine the place or places of arbitration 15 having due regard for the convenience of the parties and witnesses and the location of records. (c) Upon request of a party, the arbitrators shall have the authority to permit discovery to the extent they deem appropriate. A court reporter shall record the arbitration hearing and the reporter's transcript shall be the official transcript of the proceeding. The arbitrators shall have no power to add or detract from the agreements of the parties and may not make any ruling or award that does not conform to the terms and conditions of this Agreement. The arbitrators shall have the authority to grant injunctive relief in a form substantially similar to that which would otherwise be granted by a court of law. The arbitrators shall have no authority to award punitive damages or any other damages not measured by the prevailing party's actual damages. The arbitrators shall specify the basis for any damage award and the types of damages awarded. The decision of the arbitrators shall be final and binding on the parties and may be entered and enforced in any court of competent jurisdiction by either party. (d) The prevailing party in the arbitration proceedings shall be awarded reasonable attorney fees, expert witness costs and expenses, and all other costs and expenses incurred directly or indirectly in connection with the proceedings, unless the arbitrators shall for good cause determine otherwise. 21. Right of First Offer. (a) During the year prior to the final year of the term of this Tolling Contract, the Company and Hydro agree to negotiate in good faith with respect to a renewal of this Tolling Contract or a new tolling contract in replacement of this Tolling Contract. (b) The Company agrees that, during the term of this Agreement and for a period of 180 days thereafter, if the Company wishes to seek a proposal to operate the production capacity of the Company's Goldendale facilities for a third party after the term of this Tolling Contract, the Company shall first notify Hydro of the terms and conditions it wishes to obtain in such proposal. Hydro shall have 45 days following its receipt of the Company's notice to submit a proposal to the Company. In the event that Hydro does not submit such a proposal to the Company within such 45-day period, then the Company shall be free to seek such proposals from third parties. In the event that the Company receives a proposal that is materially less favorable to the Company than the proposal originally requested by the Company from Hydro, then the Company shall not accept such proposal without first giving Hydro written notice of such proposal; for a period of 30 days following such notice Hydro shall have the right to evaluate any proposal and decide whether to match said proposal. If Hydro does not match the proposal within this time, then the Company shall be free to immediately proceed with the proposal and begin producing aluminum under the terms of said proposal. If, after meeting the requirements of this paragraph (b), the Company accepts a proposal to operate the production capacity of the Company's Goldendale 16 facilities for a third party after the term of this Tolling Contract, the Company shall have no further obligations to Hydro under this paragraph (b). (c) During the term of this Tolling Contract, Hydro shall have the right, but not the obligation, to use any increase in production capacity at the facilities for tolling Hydro's alumina under this Tolling Contract. The Company shall allow Hydro 30 days to evaluate whether to use such increase in production capacity. If Hydro does not elect to use such increased capacity under the same terms as this Tolling Contract, then the Company agrees to negotiate with Hydro in good faith on the terms for using such increased capacity to toll Hydro's alumina. (d) If the Company elects to operate production capacity for its own account following the expiration of the term of this Tolling Contract, the Company will grant Hydro the right to make a first offer to supply alumina at market prices for such operations. Hydro shall have 30 calendar days to exercise such right of first offer. 22. Compliance with Laws. The Company agrees to operate the smelter and all ancillary loading and unloading facilities in compliance with all United States, state and local laws, including without limitation all laws relating to environmental protection, pollution or contamination. 23. Taxes. In the event of any change after the date hereof in any taxes imposed on or related to the production or storage of raw materials and finished products under this Tolling Contract, the parties agree to meet to discuss a solution that will not unduly prejudice the rights of either party hereunder or with respect to a possible contest of such taxes. 24. Assignment. No party may assign its interest in this agreement without the consent of each other party, except that Hydro may assign this agreement to wholly-owned subsidiaries, to Norsk Hydro a.s., and to subsidiaries of Norsk Hydro a.s. No assignment hereunder (other than a collateral assignment), even if consented to by the non-assigning parties, shall be effective until the assigning party has presented to the nonassigning parties an executed instrument by which the proposed assignee commits to assume all of the assigning party's obligations under this Agreement. 25. Choice of Law, Currency. This Agreement shall be governed by the laws of the United States of American and the State of Washington, applicable to agreements formed in and to be performed entirely within that state. Without limiting the foregoing, it is acknowledged and agreed by the parties that this Agreement shall not be construed under or governed by the United Nations Convention on Contracts for the International Sale of Goods, or by any other international convention or treaty, without regard to whether such convention or treaty has been adopted or ratified by either or both the United States of American and Norway. All monetary transactions hereunder shall be in United States currency. 17 26. Captions and Counterparts. Paragraph captions are for convenience and are not part of the substance of this document. This Agreement may be executed in counterparts. 27. Notice. Any notice required by this document shall be given to the addresses shown an Exhibit G. Upon giving the other party hereto 10 days prior written notice, any party may amend Exhibit G at any time to reflect an address change. Any notice to be given pursuant to this Agreement may be effected by transmitting it by telephone, telex, telecopy of other means of electronic communication, followed by a prompt written confirmation to the relevant party at the address set forth in Exhibit G. Alternatively, notice may be effected by transmitting a letter by first class mail, postage prepaid, addressed to the relevant party at the address set forth in Exhibit G. All notices that are given by telephone or other means of electronic communication pursuant to this provision shall be deemed effective upon receipt, contingent upon prompt written confirmation in accordance with this provision. All notices that are given only by mail shall be deemed effective upon the fifth day after mailing. 28. Waivers. The failure of either party to insist on strict performance of all of the terms and conditions of this Agreement on one or more occasions shall not constitute a waiver of any of such terms and conditions on any subsequent occasion, or a waiver of any other terms or conditions of this Agreement. 29. Other Agreements. This Agreement establishes the fundamental understanding and legal obligation of the parties. In the ordinary course of business, the parties have made and intend to make agreements with respect to production scheduling, forward sales, special orders, product upcharges and similar matters, which agreements (a) may be oral or in a formal or informal writing, (b) shall be enforceable according to their terms, and (c) shall be subject to arbitration under this Agreement in case of dispute. Dated this 22nd day of May, 1996. HYDRO ALUMINUM LOUISVILLE, INC. GOLDENDALE ALUMINUM COMPANY By LARS NARVESTAD By BRETT WILCOX ------------------------------- ----------------------------------- Lars Narvestad Brett Wilcox General Manager Chairman 18 EXHIBIT A SHIPPING REQUIREMENTS 1. All vessels shall be single-deck, self-trimming bulk carriers, geared or gearless, suitable for vacuum discharge, and clean of deleterious substances which are likely to contaminate alumina. 2. If alumina is stored in any compartments inaccessible to equipment customarily used for unloading, additional costs shall be borne by Hydro. 3. The crew of the vessel shall perform the opening and closing of hatches, permit the use of the vessels, winches and other gear, as fitted, provide experienced winch operators, if permitted by local regulations, promptly shift the vessel as required to and from the discharging pier, permit and support 24-hour unloading, provide electricity, night lighting and other power, as onboard, and cover open hatches as required to protect against inclement weather, all at no charge to the Company. 4. Each hold shall be completely unloaded in sequence without the need for returning to remove additional material from a hold already worked and without the need for double shifting of the vessel, any barge, or unloading equipment, always at the master's discretion and subject to the vessel's strength. In the event that more than one shifting or warping for each hold shall be required due to the vessel's inability to unload the holds in sequence as aforesaid, such additional time shall not be counted as laytime. 5. The vessel shall allow barges to come alongside for offloading, provided that the vessel shall not be responsible for loss of/or any damage to such barges, except when due to negligence by the vessel's crew or owners. All mooring lines, proper fendering and other requirements for barges to safely moor alongside the vessel shall be for the receiver's time, risk and account. 6. Vessels are to be shovel cleaned by the Company upon completion of discharge, but the Company will not be required to broom sweep or to wash hold, which work is the responsibility of the vessel's crews. 7. The vessel shall be scheduled to remain at the berth for sufficient time to permit the unloading of the cargo at the rate of 6,000 tons per weather-working day of 24 consecutive hours, Sundays and holidays included and excluding vessel make-ready time. 8. The master of each vessel will radio both the Company and the Company's agent at Portland of his expected time and date of arrival, as follows: a. 10 days 19 b. 72 hours c. 48 hours d. 24 hours, prior to the arrival of the vessel. 9. Notice of readiness may be tendered to the agent or receiver at any hour, day or night, Saturdays, Sundays and holidays included, whether in berth or not, after the vessel is in free pratique and in all respects ready to discharge, and has arrived alongside the discharge berth. If the vessel cannot steam to the discharge port because of dock occupancy and vessel anchors in a safe location at the master's discretion, then notice of readiness may also be tendered from such anchorage. Laytime commences 12 hours after the notice of readiness has been tendered, whether the vessel is in berth or not, unless discharging sooner commenced, in which case only actual time use to count. Steaming time from anchorage to the discharge berth shall not count as laytime, even if the vessel is already on demurrage. Any delay in opening an closing hatch covers shall not count as used laytime. 10. All port disbursements for the account of the vessel and customary agency fees are to be paid by the vessel or by Hydro. 11. Until further notice, the Company's agents are: Fritz Maritime Agency 3601 NW Yeon, Suite 206 Portland, Oregon 97210 (503) 222-2847 12. All notices required by this exhibit to the Company shall be sufficient if sent by letter, telegram, telex, facsimile, or radio to the agent and to the Company at the following addresses; Goldendale Reduction Plant Portland Unloading Facility 85 John Day Dam Road 2600 North River Goldendale, WA 98620 Portland, OR 97210 Tel: (509) 773-5811 Tel: (503) 285-4621 Fax: (503) 286-4987 20 EXHIBIT B EXAMPLES OF PROFIT SHARE CALCULATIONS Benchmark: Product: P1020; Price: Midwest Transaction Price; Payment terms: Net 30 days from bill of lading. 1. U.S. and Canadian Customers: Example 1.1 Product: 6063 billet Price: Midwest Transaction Price for the month prior to the month of shipment +*** cents/lb. Payment terms: Net 60 days from arrival at customer's plant
Profit Share cents/lb. - ------------ --------- Premium for billet *** Less extra finance cost (45 days) (***) (LIBOR +2% at time (Average transit time 15 days) of sale) Less casting charge (***) Net premium for Profit Share: *** Hydro share *** Company share ***
Example 1.2 Product: 1070 Sheet Ingot Price: LME Cash Settlement two days prior to the third Wednesday (M=O) + $***/mt. (The $***/mt contains both the P1020 premium and sheet ingot premium; e.g., a P1020 premium of $*** plus a sheet ingot premium of $***). Period: first half of 1997 Payment terms: Cash against documents
Profit Share USD/mt - ------------ ------ Premium over LME *** (ca. *** cents/lb) Plus saved finance cost (30 days) *** (ca. *** cents/lb) (LIBOR + 2% at time of sale)
21 EXHIBIT B, con't Less prevailing MW premium for period in question at the time the sale is made (e.g., 11 November 1996 for first half of 1997) (***) (ca. *** cents/lb.) Less casting charge (***) (ca. *** cents/lb.) Net premium for Profit Share *** (ca. *** cents/lb.) Hydro share *** (ca. *** cents/lb.) Company share *** (ca. *** cents/lb.) 2. Export Customers (Other than U.S. and Canada): Example 2.1 Product: 1070 Sheet Ingot Price: LME Cash Settlement two days prior to the third Wednesday (M=O) + $***/mt. (The $***/mt contains both the P1020 premium and sheet ingot premium; e.g., a P1020 premium of $*** plus a sheet ingot premium of $***, Period: first half of 1997 Payment terms: Cash against documents
Profit Share USD/mt - ------------ ------ Premium over LME *** (ca. *** cents/lb) Less prevailing CIF Main Port premium for period in question in country of sale at the time the sale is made (e.g., 11 November 1996 for first half of 1997) (***) (ca. *** cents/lb.) (P1020 premium reflects the fact that payment term is CAD) Less casting charge (***) (ca. *** cents/lb.) Net premium for Profit Share *** (ca. *** cents/lb.) Hydro share *** (ca. *** cents/lb.) Company share *** (ca. *** cents/lb.)
22 EXHIBIT C SCHEDULING CRITERIA Scheduling of Product Flow between the Company and Hydro shall be accomplished as outlined: 1. Hydro shall be provided with a 120-day rolling forecast of hot and cast metal by the Company. The forecast will be updated monthly. Upon receiving the forecast, Hydro will establish a Product Mix Forecast. 2. Hydro will provide the Company with a 120-day product requirement forecast, updated by the 15th of each month. 3. The updated monthly forecast shall only be predicated on requirements excluding the first 45 days of the initial rolling forecast. No modifications may be made to the 45 days of production directly following the date of the updated forecast, except as provided in the contract. 4. The Company reserves the right of refusal if requests for change do not abide by the capacity criteria as defined. 5. The Company will provide Hydro with a detailed casting and delivery schedule following receipt of the monthly forecast. 6. Shipping weights will be determined as per the Company's certified scales. 7. Standard Company identification, packaging will be used, unless mutually agreed. 23 EXHIBIT C, con't DELIVERY SCHEDULE Product shipping shall be accomplished as outlined: 1. The Company shall deliver cast metal to Hydro free on truck/rail. Arrangements for transportation are to be provided by the Company, at the direction of Hydro, using Hydro-scheduled/ approved carriers. The Company will provide a traffic person on plant site to schedule/coordinate the shipments. 2. The Company will assume responsibility for cleaning of trucks and railcars. 3. Nominal loading rates shall be 1.4 million pounds/day (+/-2%). Shipping will be scheduled on a 5-day work week. It is agreed that Hydro will use its best efforts to maximize rail delivery. 4. As higher than nominal loading rates may be required from time to time, it is agreed that the Company and Hydro will endeavor to accommodate these requirements at the lowest cost possible. 24 EXHIBIT D ALUMINA SPECIFICATIONS
CHEMICAL CONTRACT EXPECTED SPECIFICATIONS SPECIFICATIONS TYPICAL - -------------- -------------- --------- S1O2 0.025% max 0.015% Fe2O3 0.025% max 0.015% TiO2 0.005% max 0.001% Na2O 0.600% max 0.45% ZnO 0.016% max Less than 0.010% P2O5 0.003% max Less than 0.003% Al203 (on a dry basis) 98.3% minimum 98.7% Loss on Ignition (300 - 1200 C) 1.2% max 0.7% Conventional Moisture (0 - 300 C) 0.7% Grain Size (Minus 325 Tyler mesh) 12% max 8 Grain Size (Minus 100 Tyler mesh) 7% max 5-5.5 Specific Surface Area 40-90 70 metres2/gram metres2/gram Bulk Density 0.98 Grams/ Cubic Cm. Loose Packed Attrition Index 30% maximum N/A
25 EXHIBIT E SAMPLING, ANALYSIS AND WEIGHING Sampling One sample of each shipment of alumina shall be taken in accordance with the sampling procedures applicable to the load port, which shall be in accordance with international practice. The Company shall have the right to have a representative present at such sampling at its own expense. Such sampling shall be deemed to be a representative sample of the alumina delivered in that shipment. The sample shall be divided into four portions. One portion shall be promptly dispatched to Hydro, one portion shall be promptly dispatched to the Company, one portion shall be used by the alumina producer for analysis, and Hydro shall ensure that one portion (the referee sample) shall be held by the alumina producer for 180 days after the date of the shipment, and then disposed of unless Hydro or the Company has requested in writing that it shall be retained for a longer period. The cost of sampling and dispatch to the Company shall be for the account of Hydro. Analysis of Quality Hydro shall arrange for the alumina producer to analyze the sample retained at the load port for each shipment of alumina within five working days in accordance with the producer's relevant standard practice. Hydro shall send to the Company the results of such analysis (by cable, telex or fax transmission) within 10 days after departure from the port of loading. Hydro shall provide to the Company an original of the certificate of analysis stating the results of the analysis as early as practicable. If the analysis carried out by the producer shows that the sample analyzed conformed with the quality specifications, it will be presumed that the entire shipment from which the sample was taken conforms with such specifications. Within 30 days after receipt of the sample, the Company may notify Hydro that the alumina does not conform to the quality specifications. If the Company does not notify Hydro within this period, the alumina delivered shall be deemed to comply with such specifications. If the Company does notify Hydro within the period, Hydro shall advise the Company within 10 days after such notification is received whether or not Hydro agrees with the Company's analysis. If Hydro does not agree, the referee sample will be analyzed as soon as possible by Alcoa (the "Referee Laboratory"). The Referee Laboratory will analyze the referee sample in accordance with applicable standard analytical procedures for alumina 26 analysis, and a copy of its analysis shall be made available to both the Company and Hydro. Such analysis shall be final and binding, and the quality of the 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. Weight Delivery shall be based on the bill of lading weight of the alumina as determined by draft survey, carried out by a marine surveyor appointed by Hydro on the basis of the ship's displacement at the time of loading. 27 EXHIBIT F ENVIRONMENTAL EXCEPTIONS [To be supplied.] 28 EXHIBIT G NOTICE PROVISION Any notices required to be provided to either party to this Agreement shall be given to the following persons at the addresses set forth below: The Company: Brett Wilcox, Chairman Goldendale Aluminum Company 85 John Day Dam Road Goldendale, WA 98620 Todd A. Bauman, Esquire Stoel Rives LLP 700 NE Multnomah, Suite 950 Portland, Oregon 97232 Hydro: Harald Odegaard Hydro Aluminium a.s. Drammensveien 264 N-1321 Stabekk Vaekero, Oslo, Norway Lars Narvestad, General Manager Hydro Aluminum Louisville, Inc. 9400 Williamsburg Plaza Suite 120 Louisville, Kentucky 40222 29 EX-10.2 10 FIRST AMENDMENT TO AGREEMENT FIRST AMENDMENT TO AGREEMENT TO TOLL CONVERT ALUMINA INTO ALUMINUM (TOLLING CONTRACT) The parties to this Agreement are: HYDRO ALUMINUM LOUISVILLE, INC., a Delaware corporation ("Hydro"), and GOLDENDALE ALUMINUM COMPANY, a Delaware corporation, formerly known as Columbia Aluminum Corporation (the "Company"). Hydro and the Company are parties to and are performing a contract dated May 22, 1996, entitled "Agreement to Toll Convert Alumina Into Aluminum (Tolling Contract)" the "Tolling Contract"). The parties now desire to amend the Tolling Contract with respect to the matters set forth in this Agreement. THEREFORE, in consideration of their mutual promises, the parties agree as follows: 1. Incorporation by Reference The Tolling Contract is incorporated herein by reference. This Agreement shall be interpreted and construed in accordance with the provisions and defined terms of the Tolling Contract. 2. Term Section 1 of the Tolling Contract is hereby deleted in its entirety and the following provision is inserted in lieu thereof: "1. Term. The term of this Tolling Contract is fifteen years, from January 1, 1997 through December 31, 2011." 3. Metal Production Section 3 of the Tolling Contract is hereby deleted in its entirety and the following provision is inserted in lieu thereof: "3. Metal Production. Throughout the contract term, the Company will operate its potlines and the casting facility at the smelter exclusively to convert Hydro's alumina into standard aluminum products as specified by Hydro. Subject to the Company's product meeting the quality requirements of paragraph 11, Hydro will pay to the Company a tolling fee for all aluminum metal manufactured using the entire production capability of the production facilities, which the Company shall dedicate solely to the tolling of Hydro's alumina in the quantity of at least 157,000 metric tons of aluminum metal annually. If the smelter is converted to a point-feed technology, any increase in production capability of the production facilities resulting from such conversion shall be dedicated solely to the tolling of Hydro's alumina and, subject to the Company's product meeting the quality requirements of paragraph 11, Hydro will pay to the Company a tolling fee for all aluminum metal manufactured using such increased production capability. Subject to this annual requirement, the quantity of aluminum metal produced by the Company in any rolling three-month period from tolling Hydro's alumina hereunder may be not less than: "(i) 37,288 metric tons, plus "(ii) 95% of any increased production capability resulting from conversion of the smelter to point-feed technology. If Hydro fails to deliver alumina sufficient for the Company to produce 157,000 metric tons of aluminum annually, plus any increased production capability resulting from conversion of the smelter to point-feed technology, at a rate of 1.94 tons of alumina per ton of aluminum, and if such failure results in a production loss for the Company, Hydro will pay a tolling fee measured by the resulting lost production." 4. Casthouse Production The first sentence of the fifth paragraph of Section 5 of the Tolling Contract is hereby deleted in its entirety and the following provision is inserted in lieu thereof: "Hydro agrees to place orders for at least 70,000 metric tons of casthouse products each year, plus 100% of any increased casthouse production resulting from the expansion of the casthouse financed by Hydro." 2 5. Other Agreements The Tolling Contract and this Agreement establish the fundamental understanding and legal obligations of the parties. In the ordinary course of business, the parties have made and intend to make agreements with respect to products and scheduling, forward sales, special orders, product upcharges and similar matters, which agreements (a) may be oral or in a formal or informal writing, (b) shall be enforceable according to their terms, and (c) shall be subject to arbitration under the Tolling Contract, in case of dispute. 6. Governing Law This Agreement and all other agreements of the parties directly related to the Tolling Contract shall be subject to Section 25 of the Tolling Contract. 7. Captions and Counterparts Paragraph captions are for convenience and are not part of the substance of this document. This Agreement may be executed in counterparts, each of which shall be an original and all of which taken together shall be one and the same instrument. 8. Effective Date This Amendment shall be effective upon the "First Closing" of the transactions contemplated by the Subordinated Note Purchase Agreement between Golden Northwest Aluminum, Inc., the parent of GAC, and Norsk Hydro USA, Inc., an affiliate of Hydro, and shall have no force or effect prior to such time. [The remainder of this page is intentionally blank.] 3 Dated: December 21, 1998. HYDRO ALUMINUM LOUISVILLE, INC. By: JAMES M. WALTERS ------------------------------- Name: James M. Walters Title: President GOLDENDALE ALUMINUM COMPANY By: BRETT E. WILCOX ------------------------------- Name: Brett E. Wilcox Title: President 4 EX-10.3 11 ALUMINUM TOLL CONVERSION AGREEMENT CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT ASTERISKS (*) DENOTE SUCH OMISSIONS ALUMINUM TOLL CONVERSION AGREEMENT between CLARENDON LTD. and NORTHWEST ALUMINUM COMPANY Dated: September 15, 1986 TABLE OF CONTENTS Page ---- Recitals......................................................................1 Terms of Agreement............................................................1 Article 1 -- Definitions......................................................1 Section 1.1 Defined Terms..................................................1 Section 1.2 General Provisions.............................................3 Article 2 -- Scope of NAC's Services; NAC's Responsibilities; Title to Residue, Slag and Conversion Process By-products........3 Section 2.1 Services to be Rendered by NAC.................................3 Section 2.2 NAC is Independent Contractor/Bailee...........................4 Article 3 -- Alumina Deliveries...............................................5 Section 3.1 Provision of Alumina Inventory for Basic Tonnage and Renewal Tonnage............................................5 Section 3.2 Potline No. 1..................................................6 Section 3.3 Alumina Specifications.........................................7 Section 3.4 Conversion Ratio...............................................7 Section 3.5 Weights........................................................7 Section 3.6 Transportation and Discharge Costs; Risk of Loss In Transit....8 Section 3.7 Split Cargo....................................................8 Section 3.8 Notices of Delivery............................................8 Article 4 - Aluminum; Releases and Shipment; Storage..........................8 Section 4.1 Aluminum Deliveries............................................8 Section 4.2 Aluminum Specifications........................................9 Section 4.3 Stored Aluminum...............................................10 Section 4.4 Releases......................................................10 Section 4.5 Loading Costs; Shipment Arrangements and Costs................10 Section 4.6 Transfer of Risk of Loss......................................10 Article 5 - Title to Bailed Property and NAC's Bailment Responsibilities.....11 Section 5.1 All Title and Rights of Ownership Retained by Clarendon.......11 Section 5.2 Prohibition Against NAC's Liens...............................11 Section 5.3 Segregated Storage; Notices and Markings; Inventory Records...11 Section 5.4 NAC's Liability for Loss, etc.................................12 Section 5.5 Inventory Records.............................................12 Section 5.6 Taxes.........................................................12 i Article 6 - Tolling Charges; Payment Terms...................................12 Section 6.1 Calculation of Tolling Charges................................12 Section 6.2 Invoicing.....................................................14 Section 6.3 Payment Terms.................................................14 Article 7 - Warranties; Indemnity; Remedies..................................15 Section 7.1 Specifications Warranty.......................................15 Section 7.2 Non-Conforming Alumina........................................15 Section 7.3 Remedy for Non-Conforming Aluminum............................15 Section 7.4 Remedy for Yield Short-fall...................................17 Section 7.5 Indemnity Regarding NAC's Operation of Smelter................17 Section 7.6 Incidental Damages, etc.......................................17 Article 8 - Force Majeure....................................................17 Section 8.1 Force Majeure.................................................17 Section 8.2 Effect of Force Majeure.......................................18 Section 8.3 Notices Regarding Force Majeure...............................18 Article 9 - Termination; Effect of Termination...............................18 Section 9.1 Termination...................................................18 Section 9.2 Effect of Termination.........................................19 Article 10 - Termination for Default.........................................20 Section 10.1 Grounds for Termination.......................................20 Section 10.2 Consequences of Termination for Default.......................21 Article 11 - Acknowledgment of Lions to be Granted by Clarendon; Further Assurances..............................................21 Section 11.1 Acknowledgment of Liens to be Granted by Clarendon............21 Section 11.2 UCC Financing Statements; Further Assurances..................21 Article 12 - Assignment......................................................22 Section 12.1 Assignments Generally.........................................22 Section 12.2 Undertakings Regarding Bankruptcy.............................22 Article 13 - Arbitration.....................................................22 Section 13.1 General Provisions............................................22 Section 13.2 Initial Identification of Questions for Arbitration; Selection of Arbitration Panel................................23 Section 13.3 Arbitration Procedure; Decisions..............................24 Section 13.4 Costs of Arbitration..........................................25 Section 13.5 Additional Questions; Limitation on Multiple Arbitrations.....25 Article 14 - Miscellaneous Provisions........................................26 ii Section 14.1 Entire Agreement; Amendment...................................26 Section 14.2 Waiver; Cumulative Rights.....................................26 Section 14.3 Governing Law; Headings.......................................26 Section 14.4 Consent to Jurisdiction; Service of Process...................26 Section 14.5 Notices.......................................................27 Section 14.6 Illegality; Severability......................................28 Section 14.7 No Brokers....................................................29 Section 14.8 Counterparts..................................................29 Execution....................................................................29 Schedule 1 - Chemical Specifications for Alumina.............................30 Schedule 2 - Physical Specifications for Alumina.............................31 Schedule 3 - Tolling Charges under Section 6.1.1.............................32 iii ALUMINUM TOLL CONVERSION AGREEMENT THIS TOLL CONVERSION AGREEMENT is entered into as of September 15, 1986 by Northwest Aluminum Company, an Oregon corporation ("MAC"), and Clarendon Ltd., a Zug, Switzerland corporation acting through its Connecticut branch ("Clarendon"). Recitals A. Clarendon is in the business of trading metal grade alumina and aluminum ingot and product, and NAC intends to lease and operate a smelter at The Dalles, Oregon which will have the capacity to convert alumina into aluminum ingot and product. B. Clarendon is willing to provide NAC's alumina requirements as specified in this Agreement, and NAC is willing to convert such alumina into aluminum for the tolling charges specified in this Agreement, with NAC keeping possession of the alumina and aluminum as bailee for hire, all as more fully provided in this Agreement. Terms of Agreement The parties hereto, intending legally to be bound by this Agreement, hereby agree as follows: Article 1 Definitions Section 1.1 Defined Terms. Terms defined in the preamble of this Agreement shall have the meanings specified therein, and each of the following terms shall have the meanings specified below: "Alumina" shall mean metal grade alumina (A1203 meeting the specifications referred to in Section 3.3, delivered by Clarendon to NAC - for Conversion under this Agreement. "Alumina Delivery" shall mean the delivery of Alumina by Clarendon to NAC on board the vessel, with duties paid, at the delivery port determined in accordance with Section 3.6. "Aluminum" shall mean unalloyed aluminum Converted from Alumina and meeting the specifications set forth in Section 4.2.1 or otherwise accepted by Clarendon pursuant to Section 7.3.1(i) or 7.3.3(i), or aluminum ingot meeting such specifications which NAC purchases for delivery to Clarendon under Section 7.3.1(ii), 7.3.3(ii) or 7.4, or alloyed aluminum delivered in the form of extrusion billets or sheet ingot at Clarendon's instructions pursuant to Section 4.2.3. "Aluminum Delivery" shall mean the delivery by NAC of Aluminum either (i) on board the carrier at the Smelter in accordance with releases given by Clarendon pursuant to Section 4.4, or (ii) to storage as provided in Section 4.3. "Applicable Laws" shall mean any applicable Federal, state, county and municipal or other local laws, codes, rules and regulations; any applicable judgments, decrees, writs and injunctions of any court, arbitration panel, arbitrator or Regulatory Authority; and any applicable orders, licenses, permits, directives or other actions of any Regulatory Authority. "Arbitration Panel" - as defined in Section 13.1. "Bailed Property" shall mean Alumina from the point of delivery to NAC (including without limitation Alumina in transit to the Smelter or in process), Aluminum up to the point of delivery by NAC on board a carrier at the Smelter (including without limitation Aluminum in process or in transit to storage, Stored Aluminum, and any Aluminum resulting from purchases by NAC pursuant to Sections 7.3.1(ii), 7.3.3(ii) and 7.4), or any combination of the foregoing, but specifically does not include any residue, slag or Conversion process by-products. "Basic Tonnage" as defined in Section 3.1.1. "Claiming Party" as defined in Section 13.2. "Conversion" shall mean the electrolytic smelting of Alumina into Aluminum, and the verb "Convert" shall have the corresponding meaning. "Destination Plant" shall mean the unloading dock or rail siding at a plant at any U.S. destination, or at any U.S. port of export, in each case as specified by Clarendon in shipping instructions given pursuant to Section 4.4. "Force Majeure" - as defined in Section 8.1. "Lien" shall mean any mortgage, pledge, lien, charge, encumbrance, lease or security interest. "Loan Agreement" shall mean the Loan Agreement dated the date of this Agreement between Clarendon as lender and NAC as borrower. "Metric Ton" and "MT" shall mean a unit of weight equal to one thousand (1,000) kilograms or two thousand two hundred four and six-tenths (2,204.6) Pounds. "Potline No. 2" shall mean the potline at the Smelter to be put into operation by NAC using, among other funds, the proceeds of the Loan Agreement; and "Potline No. 1" shall mean the other potline at the Smelter. 2 "Pound" and "Lb." shall mean a unit of weight equal to sixteen (16) ounces avoirdupois. "Regulatory Authority" shall mean any federal, state, municipal, local or other government or any department, commission, board, agency or taxing authority thereof. "Renewal Tonnage" - as defined in Section 3.1.2. "Respondent" - as defined in Section 13.2. "Smelter" shall mean the aluminum reduction smelter plant located at The Dalles, Oregon which is currently owned by Martin Marietta Corporation. "Stored Aluminum" - as defined in Section 4.3. "Tolling Charges" shall mean the charges payable by Clarendon to NAC pursuant to Section 6.1. "UCC" shall mean the Uniform Commercial Code as adopted as of the date of this Agreement in the State of Oregon, and "UCC financing statements" and "UCC continuation statements" shall have the meanings specified in the UCC. Section 1.2 General Provisions. In this Agreement: 1.2.1 References to a Section or Article not otherwise identified in this Agreement shall be construed as references to that specified Section or Article of this Agreement. 1.2.2 References to a document (including this Agreement), or to any particular provision of a document, shall be construed as references to that document or provision as amended or supplemented from time to time upon the written agreement of the parties thereto and otherwise as provided in such document, with any further consent which may be required. Article 2 Scope of NAC's Services; NAC's Responsibilities; Title to Residue, Slag and Conversion Process By-products Section 2.1 Services to be Rendered by NAC. NAC shall perform the following services under this Agreement: 2.1.1 NAC shall accept Alumina Delivery from Clarendon at the time such delivery is tendered by Clarendon, and NAC shall thereupon at its own expense unload the Alumina from the vessel, transport the Alumina to the Smelter premises and store the Alumina 3 at the Smelter in compliance with Section 5.3 until NAC Converts the Alumina as provided in this Agreement. 2.1.2 NAC shall use its best efforts and take all reasonable steps necessary to ensure that the output of Potline No. 2 (and, if applicable under Section 3.2, Potline No. 1) shall be approximately forty thousand (40,000) NT per twelve-month period, subject to (a) start-up adjustments acceptable to Clarendon, and (b) Clarendon's satisfying its Alumina Delivery obligations under Section 3.1.4. 2.1.3 NAC shall make Aluminum Delivery promptly after Conversion and, in the case of Stored Aluminum, NAC shall thereafter load the specified quantity of Stored Aluminum on board the carrier promptly upon Clarendon's request under Section 4.4. Section 2.2 NAC is Independent Contractor/Bailee. NAC's duties and performance under this Agreement shall be those of an independent contractor for Conversion of Alumina and a bailee for hire of the Bailed Property, and nothing in this Agreement shall be deemed to make Clarendon a partner, joint venturer or otherwise liable for the performance of NAC's obligations under this Agreement or with respect to the Smelter's operations or otherwise. Without limiting the generality of the foregoing: 2.2.1 NAC shall provide, at its own cost and risk, all requisite electrical power, materials (other than Alumina to the extent required to be delivered by Clarendon under this Agreement) and labor for Conversion. 2.2.2 NAC shall be solely responsible for its employees' compensation, benefits and well-being, in accordance with all Applicable Laws and any contractual arrange ments which NAC may have or hereafter enter into, and Clarendon shall have no responsibility for any claims by NAC's employees for workers' compensation, or for any acts or negligence of NAC or any of NAC's employees or agents. 2.2.3 NAC shall be exclusively responsible for, and agrees to comply with, all Applicable Laws relating to its ownership, lease or other interest in, or its operation of, the Smelter and its equipment and facilities, and all activities incident to the Conversion to be performed under this Agreement. Without limiting the foregoing, NAC shall have title to all residue and slag resulting from Conversion of the Alumina and all Conversion process by-products of the Alumina, and NAC shall dispose of the same in accordance with all Applicable Laws. 4 Article 3 Alumina Deliveries Section 3.1 Provision of Alumina Inventory for Basic Tonnage and Renewal Tonnage. 3.1.1 Beginning on the "Facility Commencement Date" under the Loan Agreement Clarendon shall make Alumina Deliveries to NAC in the amounts and at the times required to permit the full operation of Potline No. 2 (and, if applicable under Section 3.2, to supply all the requirements for the full operation of Potline No. 1) through September 30, 1989. The aggregate quantity of Aluminum required to be produced from such Alumina Deliveries shall be collectively called the "Basic Tonnage", which term shall include any Aluminum expected to be delivered prior to September 30, 1989 at the time of the relevant Alumina Delivery but which was delivered thereafter for whatever reason. 3.1.2 Clarendon shall have the option to require NAC to Convert Alumina into Aluminum for one or more additional periods, as provided more fully in clauses M and (ii) of this Section 3.1.2, in which event Clarendon shall make Alumina Deliveries to NAC in the amounts and at the times required to permit the full operation of Potline No. 2 (and, if applicable under Section 3.2, to supply all the requirements for Potline No. 1) for the periods in question. The aggregate quantity of Aluminum required to be produced from such Alumina Deliveries shall be collectively called the "Renewal Tonnage", which term shall include any Aluminum which at the time of the relevant Alumina Delivery was expected to be delivered prior to the end of the last period for which Clarendon has exercised its option but which was delivered thereafter for whatever reason. (i) Clarendon shall have the option to require NAC to Convert Alumina into Aluminum, as provided above in this Section 3.1.2, from October 1, 1989 through September 30, 1991 by giving written notice to NAC to that effect on or prior to April 1, 1989. (ii) If Clarendon exercises the option described in clause M and if the term of the Smelter Lease Agreement (as defined in the Loan Agreement) is extended beyond September 30, 1991 by reason of a delay in the closing for NAC's acquisition of the Smelter, Clarendon shall have the option to require NAC to Convert Alumina into Aluminum, as provided above in this Section 3.1.2, from October 1, 1991 through the date on which NAC acquires the Smelter by giving written notice to NAC to that effect on or prior to July 1, 1991, provided that Clarendon may terminate its obligation to make Alumina Deliveries after September 30, 1991 upon at least three (3) months' prior notice to NAC. 3.1.3 Scheduling of Alumina Deliveries shall be determined as follows: (i) Clarendon and NAC shall confer promptly upon execution of this Agreement for the purpose of reaching mutual agreement as to the schedule for Alumina 5 Deliveries and the amount of Alumina inventory required at the Smelter during the period ending December 31, 1987. (ii) Clarendon and NAC shall agree by no later than September 30 of each calendar year (starting September 30, 1987) on the schedule for Alumina Deliveries and the amount of Alumina inventory required at the Smelter during the following calendar year, without regard to Clarendon's possible exercise of its rights under Section 3.1.2 or 3.2. (iii) Promptly upon Clarendon's exercise of its rights under Section 3.1.2 with respect to Renewal Tonnage or under Section 3.2 with respect to Alumina Deliveries for operation of Potline No. 1, Clarendon and NAC shall confer for the purpose of reaching mutual agreement on amending the existing and any prospective agreed-upon schedule for Alumina Deliveries to reflect the changes required by Clarendon's exercise of such rights. When determining the scheduling of Alumina Deliveries as required under clauses (i) - (iii) above, the parties shall give due consideration of the capacity of the Alumina storage facilities at the Smelter and the amount of Alumina required to be kept on hand at all times to permit the full operation Potline No. 2 (and, if applicable under Section 3.2, Potline No. 1) on an uninterrupted basis. The parties shall use their best efforts to schedule Alumina Deliveries in substantially equal quantities and as equally spaced as commercially reasonable. 3.1.4 Clarendon shall make Alumina Deliveries in compliance with the agreed-upon schedule then applicable under Section 3.1.3, subject to modifications jointly agreed upon by NAC and Clarendon. If NAC incurs extra cost by reason of Clarendon's failure to meet its Alumina Delivery obligation under any agreed-upon schedule, subject to modification as provided above, Clarendon shall pay to NAC an amount sufficient to compensate NAC for its excess costs so incurred, provided that NAC shall keep complete records with respect to such excess costs and shall provide Clarendon access to or copies of such records promptly upon Clarendon's request. 3.1.5 For purposes of this Section 3.1, "full operation" of a Potline shall mean the operation permitting the production of Aluminum in the amounts specified in Section 2.1.2. Section 3.2 Potline No. 1. 3.2.1 Clarendon shall have the option, exercisable by notice to NAC, to require NAC to operate Potline No. 1 on the condition that Clarendon provides additional financing to NAC for the excess of (x) the amount determined by the parties as being reasonably anticipated to cover NAC's startup costs and increased working capital needs resulting from operating Potline No. 1, over (y) any NAC funds on hand available for such purpose and the cash flow determined by the parties as being reasonably anticipated to be generated by the operation of Potline No. 1. If Clarendon exercises such option, NAC shall enter into a financing arrangement with Clarendon for the net amount of required additional financing under substantially the same terms as the Loan Agreement, and thereafter Clarendon shall supply the 6 Alumina requirements for operating Potline No. 1 and NAC shall Convert such Alumina Deliveries and make Aluminum Deliveries as provided in Section 3.1. 3.2.2 NAC may commence operating Potline No. 1 without the financial assistance of Clarendon as specified in Section 3.2.1 and contract for the sale, tolling or other arrangements regarding the product of Potline No. 1, provided that NAC is fully performing its obligations under this Agreement with respect to Potline No. 2, and its obligations under the Loan Agreement, at the time. If NAC wishes to commence operating Potline No. 1 as provided above, NAC shall give Clarendon notice to that effect not less than ninety (90) days prior to the anticipated start-up date, which shall also be specified in its notice. Clarendon shall have the option, exercisable by notice to NAC no later than sixty (60) days prior to the anticipated start-up date specified in NAC's notice, (a) to increase the Basic Tonnage by a quantity of Aluminum equal to the output of Potline No. 1 during the period from such start-up until September 30, 1989, and/or (b) if NAC is at that time (or thereafter) required to Convert any Renewal Tonnage under this Agreement, to increase the Renewal Tonnage by a quantity of Aluminum equal to the output of Potline No. 1 during the period in which NAC is required to Convert Renewal Tonnage. Upon Clarendon's exercise of either of the above options, the quantity of Alumina to be delivered by Clarendon shall be increased by the amount required to permit Conversion of the increase in the Basic Tonnage and/or the Renewal Tonnage. 3.2.3 If Potline No. 1 is restarted and Clarendon is obligated to provide Alumina for its operation, the provisions of Section 4.2.1(ii) shall be applicable with respect to Aluminum produced by Potline No. 1 during the first five (5) months after Potline No. 1's start-up. Section 3.3 Alumina Specifications. The Alumina to be delivered under this Agreement shall be metallurgical grade sandy alumina produced by Alcoa of Australia, Worsley, Gove or QAL, conforming to the chemical and physical specifications set forth in Schedules 1 and 2, respectively, unless otherwise agreed in writing by NAC and Clarendon. The determination of chemical and physical specifications at load-port shall be final, and NAC shall have the right, at its own expense and upon at least thirty (30) days' prior notice to Clarendon, to have its own representative present at such determination. Section 3.4 Conversion Ratio. NAC shall be obligated to deliver one (1) Pound of Aluminum for each one and ninety-four hundredths (1.94) Pounds of Alumina delivered by Clarendon for Conversion pursuant to this Agreement. Similarly, the inventory of Alumina in NAC's custody shall be deemed to be reduced, at the time of Aluminum Delivery, by one and ninety-four hundredths (1.94) Pounds for each Pound of Aluminum delivered. Section 3.5 Weights. Subject to Section 3.7 in the event of split cargoes, the weight of Alumina delivered under this Agreement shall be determined by means of a draft survey taken upon loading, and such draft survey shall be conclusive as to the loaded weight of Alumina. NAC shall have the right, at its own expense and upon at least thirty (30) days' prior notice to Clarendon, to have its own representative present at such determination. 7 Section 3.6 Transportation and Discharge Costs; Risk of Loss In Transit. 3.6.1 All risk of loss to and costs of transporting Alumina to the port for Alumina Delivery shall be borne by Clarendon (subject to Section 3.6-2), and NAC shall be responsible for the risk and costs of discharging the Alumina from the vessel and transporting the Alumina to the Smelter and for all other charges incurred after Alumina Delivery; provided that, with respect only to Alumina for which Tolling Charges are to be calculated under Section 6.1.1 (including pursuant to Clarendon's election under Section 6.1.3), Clarendon shall pay to NAC *** Dollars ($***) per Metric Ton of Alumina as its contribution towards such costs to be paid by NAC. 3.6.2 NAC shall designate, by at least sixty (60) days' prior notice to Clarendon, the delivery port for each scheduled Alumina Delivery from among the following ports: Portland, Oregon or Vancouver, Tacoma or Longview, Washington; provided that NAC shall have the right to designate any other reasonable U.S. West Coast port in its above notice to Clarendon and in such event all excess transportation charges incurred by Clarendon as a result of the Alumina Delivery at such other port shall be borne by NAC. 3.6.3 NAC agrees to discharge Alumina from the delivering vessel at a rate not less than six thousand (6,000) Metric Tons per Weather Working Day, Sundays and Holidays Included ("WWDSHINC"). NAC shall indemnify and hold Clarendon harmless from all losses, liability or expenses arising from any failure to discharge Alumina at such rate. Section 3.7 Split Cargo. Clarendon shall give written advice to NAC if a particular Alumina Delivery represents less than the total amount of alumina loaded on the delivering vessel, and in such event the weight of the Alumina Delivery for purposes of Section 3.5 shall be determined by multiplying (x) the original bill of lading weight for the entire alumina cargo at the port of loading, by (y) the percentage of such alumina cargo received by NAC as determined on the basis of out-turn draft surveys at the time of unloading. Section 3.8 Notices of Delivery. Within one (1) working day after each Alumina Delivery NAC shall give notice to Clarendon of NAC's receipt of the Alumina, Delivery and shall thereupon, if requested by Clarendon, issue to the order of Clarendon a warehouse receipt in form and substance satisfactory to Clarendon for such Alumina. Article 4 Aluminum; Releases and Shipment; Storage Section 4.1 Aluminum Deliveries. NAC shall provide the Basic Tonnage and (if applicable) the Renewal Tonnage to Clarendon by Aluminum Deliveries in accordance with the releases given by Clarendon pursuant to Section 4.4. 8 Section 4.2 Aluminum Specifications. 4.2.1 Subject to Sections 7.3.1(i) and 7.3.3(i), Aluminum delivered by NAC under this Agreement as T-ingots or sows, or aluminum product used by NAC to produce extrusion billets or sheet ingot as may be required by Clarendon under Section 4.2.3, shall satisfy the following specifications: (i) unalloyed (Alcoa P1020) aluminum containing not less than 99.7% aluminum, and not more than 0.10% silicon and 0.20% iron, or (ii) to the extent that during the first five (5) months after the restarting of Potline No. 2 NAC is unable to produce Aluminum meeting the aluminum requirements of clause (i), NAC may deliver as "Aluminum" unalloyed (Alcoa P1535) aluminum containing not less than 99.5% aluminum, provided that NAC shall use its best efforts to minimize the amount of Aluminum containing 99.5% aluminum during such initial five-month period. 4.2.3 Aluminum shall be at Clarendon's option in the form of sows or T-ingots, or (at an additional charge as provided below) in the form of extrusion billets or sheet ingot. Clarendon may require NAC to deliver T-ingots or sows weighing less than the nominal standard of one thousand five hundred (1,500) Pounds each. Clarendon will advise NAC of its shape requirements prior to commencement of the month of Aluminum Delivery scheduled for such Aluminum. If Clarendon elects to require that all or a portion of Aluminum to be delivered in a particular month be in the form of extrusion billets or sheet ingot, then: (i) In addition to the Tolling Charge incurred under Section 6.1, Clarendon shall reimburse NAC for the additional direct production costs actually incurred by NAC in casting the extrusion billets or sheet ingot in accordance with Clarendon's instructions. Such reimbursable costs shall be adjusted to reflect due allowance for melt loss and additional alloying components, and shall be reduced by the amount of the direct production costs which would have been incurred by NAC had the relevant Aluminum been delivered in the form of sows or T-ingots. Such reimbursable costs shall also include any adjustments agreed to by the parties to reflect NAC's additional capital costs incurred in order to produce such extrusion billets or sheet ingot (as provided more fully below in this Section 4.2.3) (ii) In its invoice to Clarendon under Section 6.2 NAC shall include an itemization of the additional production-related costs for casting extrusion billets or sheet ingot and the cost savings referred to in clause (i). NAC shall keep complete records with respect to such additional costs and cost savings, and shall provide Clarendon access to or copies of such records promptly upon Clarendon's request. Nothing in this Section 4.2.3 shall entitle Clarendon to require NAC: to provide Aluminum as extrusion billets or sheet ingot in a form which cannot be produced using NAC's then existing facilities at the Smelter, and the parties shall confer on the proper adjustment to the charges 9 payable by Clarendon under clause (i) above if NAC incurs capital costs at Clarendon's request to permit NAC to provide Aluminum in the requested form of extrusion billets or sheet ingot. Section 4.3 Stored Aluminum. If Clarendon does not take immediate delivery of any quantity of Aluminum, NAC will deliver such Aluminum into storage as provided in Section 5.3, and upon such delivery into storage such Aluminum shall constitute "Stored Aluminum" for purposes of this Agreement. Subject to release by Clarendon pursuant to Section 4.4, NAC shall at its sole risk and expense store Stored Aluminum, in the appropriate storage area pursuant to Section 5.3, until the date of completion of Aluminum Delivery of the Basic Tonnage and (if applicable) the Renewal Tonnage and during such additional period, not to exceed twelve (12) months after the termination of this Agreement, as Clarendon shall request. Section 4.4 Releases. Prior to the beginning of each calendar month Clarendon shall give NAC a release for shipments of Aluminum Deliveries to be made in such calendar month containing the following information: (i) MT of each lot (minimum of 40,000 Pounds if shipped by truck and 100,000 Pounds if shipped by rail); (ii) Delivery date; and (iii) Shipping instructions. If no releases are given, the Aluminum shall be treated as Stored Aluminum, and Clarendon shall deliver releases containing similar information regarding shipments of Stored Aluminum at least ten (10) days prior to shipment. Section 4.5 Loading Costs; Shipment Arrangements and Costs. NAC shall bear all costs relating to loading the Aluminum on board the carrier at the Smelter. NAC will arrange for shipment of Aluminum by the most economical available means of transportation from the Smelter to the Destination Plant, all in accordance with the releases given by Clarendon pursuant to Section 4.4. If Clarendon so requests, NAC shall prepay shipping costs for the account of Clarendon and send Clarendon invoices for such amount together with copies of the documents evidencing the invoiced amount, and Clarendon shall reimburse NAC promptly after its receipt of NAC's invoice and accompanying documentation. Section 4.6 Transfer of Risk of Loss. Risk of loss to any Aluminum shall pass to Clarendon upon delivery of such Aluminum to the carrier at the Smelter in accordance with Clarendon's release given pursuant to Section 4.4. 10 Article 5 Title to Bailed Property and NAC's Bailment Responsibilities Section 5.1 All Title and Rights of Ownership Retained by Clarendon. 5.1.1 NAC acknowledges and agrees that by the execution of this Agreement it does not have nor will it obtain, and by its performance under this Agreement it does not and will not have or obtain, any title to the Bailed Property or any property right or interest, legal or equitable, therein, except for its right to possession for purpose of transportation, storage and Conversion as provided in this Agreement. 5.1.2 All Alumina delivered by Clarendon under this Agreement shall be considered to have been delivered for Conversion only. No Alumina or Aluminum shall be bought or sold hereunder, except as the parties may mutually agree in writing. No Alumina shall be redelivered as Alumina except in the event this Agreement is terminated pursuant to Article 10. Section 5.2 Prohibition Against NAC's Liens. NAC shall not at any time directly or indirectly assert for its benefit, or create, incur, assume or suffer to exist for the benefit of any creditor, any Lien on or with respect to any Bailed Property, title thereto or any interest therein. NAC shall promptly, at its own expense, take such action as may be necessary duly to discharge any such Lien. Section 5.3 Segregated Storage; Notices and Markings; Inventory Records. NAC, at its own expense, will: 5.3.1 Segregate and store all Alumina prior to using the same for Conversion, and segregate and store all Stored Aluminum, in fenced or otherwise contained facilities at the Smelter which are separate from those used for warehousing materials or products owned by NAC or others, and shall cause to be conspicuously affixed and displayed on each such facility notices containing the following language in letters not less than two inches in height: "This property is owned by Clarendon Ltd. and held by Northwest Aluminum Company pursuant to an Aluminum Toll Conversion Agreement between Clarendon Ltd. and Northwest Aluminum Company dated September 15, 1986 and subject to the provisions thereof, and is also subject to a security interest granted by Clarendon Ltd. under a [Loan Agreement) between Clarendon Ltd. and [Secured Party]. Any sale, hypothecation or other encum brance of this property is in violation of said Aluminum Toll Conversion Agreement and [(Loan Agreement]." 11 NAC shall not permit the removal or concealment of any of the above-required notices. 5.3.2 Mark all Aluminum (in any of its forms) with a distinctive mark acceptable to Clarendon which shall be sufficient to identify such Aluminum as being owned by Clarendon and subject to this Agreement. Section 5.4 NAC's Liability for Loss, etc. NAC shall replace, at its own expense, any Bailed Property which suffers any damage, loss, theft or destruction, partial or complete, from whatever cause while in the possession of NAC. Such replacement Bailed Property shall meet the specifications required under this Agreement, and shall constitute accessions to the Bailed Property and title thereto shall vest and remain in Clarendon. NAC shall maintain normal general comprehensive insurance (in form and substance satisfactory to Clarendon) to protect against such occurrences, and Clarendon shall be an additional insured and loss payee with coverage equal to at least one hundred twenty percent (120%) of the average anticipated value of the Bailed Property over the then current twelve-month period ending on an anniversary of July 1, 1986. Each such insurance policy shall provide that Clarendon shall be given at least thirty (30) day's prior written notice of termination for whatever reason. Section 5.5 Inventory Records. NAC shall maintain an accurate, detailed and current inventory of all Bailed Property clearly identifying the Bailed Property as the property of Clarendon, separately from all inventory and other records for materials, products or other property owned by NAC or others, and shall submit to Clarendon at all reasonable times upon Clarendon's request and in any event within the first five (5) days of each calendar month an accurate and detailed inventory of all Bailed Property as at the last day of the immediately preceding calendar month or shorter inventory period. Clarendon shall have the right, exercisable directly or through its regular certified accountants or other representatives, to verify each such inventory of Bailed Property at any time during the Smelter's ordinary business office hours at Clarendon's discretion upon five (5) hours' notice. Section 5.6 Taxes. Clarendon shall bear all property taxes and import duties on the Bailed Property, now imposed or hereafter becoming effective within the term of this Agreement, and all federal, state or local taxes on corporate income or sales taxes incurred by Clarendon in connection with the sale of Aluminum to its customers, now imposed or hereafter becoming effective within the term of this Agreement. Clarendon shall not be liable for any other governmental taxes, charges or imposts, including, without limiting the generality of the foregoing, any federal, state or local taxes on corporate income incurred by NAC with respect to the Tolling Charges. Article 6 Tolling Charges; Payment Terms Section 6.1 Calculation of Tolling Charges. The Tolling Charges payable hereunder shall be calculated as follows: 12 6.1.1 For Aluminum Deliveries made during the period ending on December 31, 1987, Clarendon shall pay a Tolling Charge per Pound of Aluminum delivered calculated in accordance with Schedule 3. 6.1.2 For Aluminum Deliveries with respect to the remainder of the Basic Tonnage and any Renewal Tonnage, Clarendon shall pay a Tolling Charge in Dollars per Pound of Aluminum equal to the greater of: (i) *** (***%) of the "Aluminum Metal defined in Section 6.1.4) applicable for the third calendar month immediately preceding the calendar month in which the Aluminum Delivery occurs, as more fully provided in Section 6.1.4, or (ii) the "Actual Production Costs" (as defined in Section 6.1.5) for the third calendar month immediately preceding the calendar month in which the Aluminum Delivery occurs, up to a maximum of $*** per Pound. 6.1.3 Notwithstanding the foregoing: (i) if for any reason (including without limitation Force Majeure) the aggregate quantity of Aluminum Deliveries during the period ending on December 31, 1987 is less than fifty-five thousand (55,000) Metric Tons, Clarendon shall have the option of paying, with respect to any of the first Aluminum Deliveries after December 31, 1987 up to the amount of any such deficiency, a Tolling Charge per Pound of Aluminum based on the method of calculation set forth in either Section 6.1.1 or Section 6.1.2.; and (ii) except as provided in W above, if any Aluminum Delivery scheduled to be made in a calendar quarter is made in a later calendar quarter by reason of the occurrence of a Force Majeure, the Tolling Charge applicable to such Aluminum Delivery, when made, shall be the Tolling Charge which would have applied if the Force Majeure had not occurred. 6.1.4 For purposes of this Section 6.1, "Aluminum Metal Price" means the arithmetic average of the lesser, on each day, of (a) the settlement price of aluminum on the London Metal Exchange ("LME") or (b) the three month seller's price of aluminum on the LME, in each case as published in "Metal Bulletin" as the seller's price under the caption "Daily Metal" for the third calendar month immediately preceding the calendar month of Aluminum Delivery, subject to the following conditions: (i) LME settlement prices shall be converted to U.S. Dollars using the mid point of the spot Sterling Pound/Dollar exchange rate published in Metal Bulletin for the relevant day under the caption "MB/Chase Manhattan Forex Quotations (1400 hours)", and LME three month seller's prices shall be converted to U.S. Dollars using the mid point of the three month forward Sterling Pound/Dollar exchange rate published in the Metal Bulletin for the relevant day under the same caption. (ii) The parties agree that the LME reference prices described in clause (i) are the basis upon which a value of aluminum ingot in major free world markets can be established. If a significant change occurs in the LME reference prices' historic relationship 13 to free world values, and such change is for a duration of nine months or longer, the parties agree, upon the request of either of them, to meet to discuss in good faith an alternative basis for establishing such value. (iii) If the LME at any time publishes only one of the two reference prices specified in clause (i), the published reference price shall be used to calculate the "Aluminum Metal Price". If the LME ceases to trade aluminum or ceases to publish both of such reference prices, the "Aluminum Metal Price" shall mean the generally accepted substitute for LME reference prices. If there is no such generally accepted substitute, the parties in good faith shall select a substitute. Failing such agreement, "Aluminum Metal Price" shall mean the arithmetic average of the prices of aluminum on the COMEX as published in Metals Week under the caption "COMEX 1ST POS." during the period set forth at the beginning of this Section 6.1.4. 6.1.5 For purposes of this Section 6.1, "Actual Production Costs" shall mean the actual cash cost to NAC, in U.S. Dollars per Pound, of Converting Aluminum during the third calendar month immediately preceding the calendar month of Aluminum Delivery, including the cost of all materials, electricity and labor and all Smelter lease rent expenses, normal relining expenses, general and administrative costs and net interest expenses, but excluding depreciation and amortization of organization costs, as computed in accordance with generally accepted accounting principles. Section 6.2 Invoicing. The Tolling Charge for Aluminum produced and available for shipping shall be invoiced after the time of Aluminum Delivery, and not more frequently than once per calendar week. Each invoice for Tolling Charges shall include an itemization of any additional charges payable by Clarendon under Section 3.6.1 or 4.2.3, shall reflect any credits to Clarendon under Section 3.6.2 as specified by Clarendon's notice thereof to NAC or any adjustment agreed to by the parties under Section 7.3.1(i), and shall be accompanied by a certificate of Aluminum, quality and quantity for the Aluminum Deliveries concerned in form and substance acceptable to Clarendon. Section 6.3 Payment Terms. Each of NAC's invoices shall be payable in Dollars in immediately available funds ten (10) days after Clarendon's receipt of such invoice, provided that if the payment date is a Saturday, Sunday or day on which banks in Oregon or New York are authorized or required to close, payment shall be due on the next day which does not constitute any of the foregoing. Each payment shall be provisional and subject to Clarendon's right to audit and challenge NAC's determination of quality and quantity or calculation of amounts payable. 14 Article 7 Warranties; Indemnity; Remedies Section 7.1 Specifications Warranty. NAC warrants that all Aluminum tendered for Aluminum Delivery under this Agreement shall conform to the specifications set forth in Section 4.2.1 unless otherwise agreed under Section 7.3, and shall be free from defects in material and workmanship. Clarendon warrants that the Alumina it delivers to NAC for Conversion hereunder shall conform to the specifications set forth herein. Section 7.2 Non-Conforming Alumina. If the chemical or physical specifications determined under Section 3.3 reveal that any Alumina does not conform to the specifications set forth in this Agreement, or if any Alumina has been or is believed to have been contaminated after loading, the party discovering such non-conformity or known or suspected contamination shall give prompt notice thereof to the other party, and NAC and Clarendon shall immediately consult and shall make such adjustments as they may agree to be appropriate. Section 7.3 Remedy for Non-Conforming Aluminum. 7.3.1 If any chemical analysis report delivered by NAC under Section 4.2.2 indicates that the material in question does not satisfy the specifications for Aluminum under Section 4.2.1, or such material otherwise fails to meet the requirements set forth in this Agreement, NAC shall give notice to Clarendon to that effect and shall not make the related Aluminum Delivery but shall store the nonconforming material separate from Stored Aluminum. NAC and Clarendon shall promptly confer on whether the payment of an adjustment amount reflecting the decreased market value of the non-conforming material is adequate compensation to Clarendon in light of the circumstances (including without limitation the needs of Clarendon's customer for conforming material). (i) If an adjustment is agreed to by the parties within fifteen (15) days after Clarendon's receipt of NAC's notice, the non-conforming material shall be deemed "Aluminum" and "Bailed Property" for purposes of this Agreement, and the amount of such adjustment shall be reflected in NAC's invoice for such Aluminum Delivery. If Clarendon has paid the Tolling Charges for the Aluminum Delivery without adjustment, Clarendon shall invoice NAC f or the amount of the adjustment and NAC shall pay the invoiced amount within ten (10) days after receipt of Clarendon's invoice. (ii) If an adjustment is not agreed to within fifteen (15) days after Clarendon's receipt of NAC's notice: (a) NAC shall, at its own expense, purchase conforming aluminum and deliver the same to Clarendon at the Smelter (or, at Clarendon's request, to a Destination Plant) within a maximum period of forty-five (45) days after the date of NAC's notice; provided that NAC shall use its best efforts with due regard to the circumstances to effect 15 such replacement within as short a period as possible. Any aluminum purchased by NAC for delivery to Clarendon under the preceding sentence shall be deemed to be "Aluminum" and "Bailed Property" immediately upon NAC's purchase, and title thereto shall pass to Clarendon immediately upon NAC's purchase. Clarendon's liability to reimburse NAC for the cost of shipping the replacement material to a Distribution Plant shall be the lesser of W the actual shipping costs incurred by NAC for such delivery, or (y) the costs which could have been incurred for a shipment from the Smelter in the usual course, assuming the original material had conformed to the required specifications. (b) Upon the expiration of the fifteen (15) day period, NAC shall be relieved of all risk and liability to Clarendon with respect to such non-conforming aluminum (which shall cease to be "Aluminum" and "Bailed Property" for purposes of this Agreement), and title thereto shall immediately pass to NAC. 7.3.2 Clarendon or its representatives or customers may inspect Aluminum after arrival at the Destination Plant. Clarendon will be deemed to have accepted the Aluminum if Clarendon fails to give NAC written notice of rejection within sixty (60) days after such arrival, which notice shall describe the defects causing rejection. NAC shall have the right, at its own expense, to inspect the rejected material within fifteen (15) days after the date of Claren don's notice of rejection. 7.3.3 If Aluminum is rejected as provided in Section 7.3.2, NAC and Clarendon shall promptly confer on whether the payment of an adjustment amount reflecting the decreased market value of the rejected material is adequate compensation to Clarendon in light of the circumstances (including without limitation the needs of Clarendon's customer for conforming material). (i) If an adjustment is agreed to by the parties within fifteen (15) days after Clarendon's notice of rejection, the non-conforming shall continue to be deemed "Aluminum" for purposes of this Agreement, and Clarendon shall invoice NAC for the amount of the adjustment. NAC shall pay the invoiced amount within ten (10) days after receipt of such invoice. (ii) If an adjustment is not agreed to within fifteen (15) days after Clarendon's notice of rejection: (a) NAC shall, at its own expense, purchase conforming aluminum and deliver the same to Clarendon at the Destination Plant within a maximum period of forty-five (45) days after the date of Clarendon's notice of rejection; provided that NAC shall use its best efforts with due regard to the circumstances to effect such replacement within as short a period as possible. Any aluminum purchased by NAC for delivery to Clarendon under the preceding sentence shall be deemed to be "Aluminum" and "Bailed Property" immediately upon NAC's purchase, and title thereto shall pass to Clarendon upon NAC's purchase. 16 (b) The rejected aluminum shall immediately cease to be deemed "Aluminum" for purposes of this Agreement, and Clarendon shall arrange and facilitate the shipment of the rejected aluminum to NAC - Clarendon's duty of care with respect to the rejected aluminum while in its custody shall be that of ordinary diligence. Clarendon shall be relieved of all risk and liability with respect to such rejected aluminum, and title thereto shall pass to NAC, immediately upon Clarendon's delivery thereof to the carrier for return to NAC. NAC shall reimburse Clarendon, within ten (10) days after Clarendon's request from time to time, for all costs which Clarendon may reasonably incur in connection with the unloading, load ing, storage, handling and/or shipping of the rejected aluminum. Section 7.4 Remedy for Yield Short-fall. If the yield of Aluminum from the Alumina does not equal or exceed one Pound of Aluminum for every one and ninety-four hundredths (1.94) Pounds of Alumina delivered under Alumina Deliveries, NAC shall promptly, at its own expense, purchase and deliver to Clarendon at the Smelter, in the same manner as applicable for Aluminum Deliveries, conforming aluminum sufficient to make up such yield short-fall. Any aluminum purchased by NAC for delivery to Clarendon under the preceding sentence shall be deemed to be "Aluminum" and "Bailed Property" immediately upon NAC's purchase, and title thereto shall pass to Clarendon upon NAC's purchase. Section 7.5 Indemnity Regarding NAC's Operation of Smelter. NAC hereby agrees to indemnify Clarendon, its successors and assigns and its and their shareholders, directors, officers, employees, agents and customers (collectively, the "Indemnitees") against, and agrees to protect, save and keep harmless each Indemnitee from, any and all liabilities, obligations, losses, damages, claims (including without limitation claims based on warranty, breach of contract, negligence or strict liability in tort), penalties, actions, suits, costs, expenses and disbursements (including without limitation legal fees and expenses) of whatsoever kind and nature, imposed on, incurred by or asserted against any Indemnitee in any way relating to or arising out of any of the matters described in Sections 2.2.2 or 2.2.3. Section 7.6 Incidental Damages, etc. Except with respect to the indemnity obligations of NAC under Section 7.5, no party shall be responsible for any incidental, special or consequential damages suffered by another party arising from a breach of this Agreement. Article 8 Force Majeure Section 8.1 Force Majeure. The following shall constitute "Force Majeure" for purposes of this Agreement: 8.1.1 Any act of God or the public enemy, fire, explosion, perils of the sea, flood, drought, war, riot, sabotage or embargo, and any interruption of or delay in transportation, any inadequacy or shortage or failure of supply of raw materials or equipment, and any breakdowns resulting from any of the foregoing; 17 8.1.2 Any labor trouble from whatever cause arising and whether or not the demands of the employees involved are reasonable and within the affected party's power to concede; 8.1.3 Compliance with any order, action, direction or request of any Regulatory Authority or with any other Applicable Laws; or 8.1.4 Without limiting the foregoing circumstances, any circumstance of like or different character beyond the reasonable control of the affected party. Section 8.2 Effect of Force Majeure. If any party is prevented from, or delayed in, performing any obligation on its part under this Agreement by reason of Force Majeure, the party so affected shall, upon prompt written notice to the other party in advance of actual shipments, be excused from making or taking deliveries to the extent and for the duration of the period that the same is prevented by reason of Force Majeure. In that event, at the option of Clarendon by notice to NAC, the total quantity of Alumina to be delivered by Clarendon to NAC may be reduced by the quantity of Alumina so affected, or the delivery of the Alumina so affected may be deferred and the dates used for determining Basic Tonnage and Renewal Tonnage may be extended for the duration of such period; provided that in all events Clarendon shall have the right to take possession of any Alumina which cannot timely be Converted by reason of Force Majeure. Section 8.3 Notices Regarding Force Majeure. If a party's performance is affected, or may be affected, by Force Majeure, such party shall give notice thereof to the other party within seven (7) days after the occurrence of such Force Majeure, which notice shall include, insofar as known, a statement of the probable extent to which the affected party will be unable to perform or will be delayed in performing its obligations hereunder. Each party shall exercise due diligence to eliminate or remedy any such Force Majeure and to prevent the same from un necessarily delaying and interrupting its performance hereunder, and shall give the other party prompt written notice when such Force Majeure shall have been eliminated or remedied. Article 9 Termination; Effect of Termination Section 9.1 Termination. This Agreement shall terminate on the earliest of: 9.1.1 If Clarendon fails to give notice to NAC under Section 3.1.2(i), the date upon which NAC shall complete Aluminum Delivery of the Basic Tonnage; 9.1.2 If Clarendon gives notice to NAC under Section 3.1.2(i), the date upon which NAC shall complete Aluminum Delivery of the Renewal Tonnage with respect to the periods specified in Section 3.1.2(i) and (if applicable) 3.1.2(ii); or 18 9.1.3 The date on which Clarendon or NAC terminates this Agreement by reason of an Event of Default pursuant to Article 10. 9.1.4 The date on which the Smelter Lease Agreement (as defined in the Loan Agreement) terminates pursuant to notice by Martin Marietta Corporation under Section 29-02(e) thereof. Section 9.2 Effect of Termination. 9.2.1 Clarendon's obligation to make Alumina Deliveries shall terminate as follows: (i) If termination occurs under Section 9.1.1, the date upon which Clarendon shall complete Alumina Delivery of the quantity of Alumina required to permit Conversion and Aluminum Delivery of the Basic Tonnage; (ii) If termination occurs under Section 9.1.2, the date upon which Clarendon shall complete Alumina Delivery of the quantity of Alumina required to permit Conversion and Aluminum Delivery of the Renewal Tonnage; or (iii) If termination occurs under Section 9.1.3 or 9.1.4, the date on which this Agreement is terminated. 9.2.2 Termination of this Agreement for whatever reason shall not affect: (i) NAC's duty to complete the Conversion of any Alumina then in process, and to store and deliver to Clarendon, as specified by Clarendon, any Alumina not yet used for Conversion and any Aluminum in NAC's possession; (ii) Clarendon's duty to pay NAC any Tolling Charges with respect to Aluminum Deliveries theretofore made by NAC or for Aluminum Deliveries thereafter made by NAC for Alumina in process of being Converted at the time of termination; (iii) NAC's warranty and indemnification obligations under Article 7; or (iv) Any other duties of either party which by their nature are to be performed after termination of this Agreement. 19 Article 10 Termination for Default Section 10.1 Grounds for Termination. NAC or Clarendon may terminate this Agreement by notice to the other after the occurrence of any of the following events: 10.1.1 The other party fails to perform or breaches any provision of this Agreement (other than any failure or breach excused under Article 8), and such failure or breach continues unremedied for a period of thirty (30) days after notice from the party not in default to the other party. 10.1.2 The other party is in default under any agreement requiring the payment of money (including without limitation the Loan Agreement), and as a result of such default is required to pay any amount in excess of $100,000 prior to the stated maturity of such amount. 10.1.3 The other party: (i) consents to the appointment of a receiver, trustee or liquidator of itself or of a substantial part of its property, or admits in writing its inability to pay its debts generally as they come due, or makes a general assignment for the benefit of creditors; or (ii) files a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization in a proceeding under any bankruptcy or insolvency law (as now or hereafter in effect) or any other now existing or future law providing for the reorganization or winding-up of corporations, or providing for an agreement., composition, extension or adjustment with its creditors; or (iii) is a defendant in an action or proceeding under any law referred to in clause (ii) and such action or proceeding is not withdrawn or dismissed within sixty (60) days after it is commenced. 10.1.4 Final judgment for the payment of money in excess of $100,000 is rendered against the other party and within thirty (30) days thereafter the same shall not be dis charged or stayed pending appeal. 10.1.5 Any material provision of this Agreement shall at any time for any reason cease to be legal, valid and binding on or enforceable against the other party, or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by the other party or any Regulatory Authority, or the other party shall deny that it has any further liability or obligation under this Agreement. 20 10.1.6 The performance by the other party of substantially all of its obligations under this Agreement is prevented by reason of Force Majeure which shall have continued for a period of more than six (6) months. 10.1.7 Any of the Bailed Property is attached or seized pursuant to a court order in connection with a legal proceeding instituted against the other party. Section 10.2 Consequences of Termination for Default. If this Agreement is terminated by reason of a default as provided in Section 10.1, upon Clarendon's demand and by the date specified in such demand, and upon payment of any Tolling Charges then due and payable (unless the amount of such Tolling Charges is offset against claims of Clarendon resulting from the termination of this Agreement by Clarendon), NAC shall deliver all Bailed Property to Clarendon at the Smelter free and clear of all Liens (other than Liens created by Clarendon) and in the condition required by this Agreement. The risk and all costs of assembling and delivering the Bailed Property, ready for shipment, shall be borne by NAC unless this Agreement is terminated by NAC for reasons other than those stated in Section 10.1.6, in which event all such risk and costs shall be borne by Clarendon. Article 11 Acknowledgment of Lions to be Granted by Clarendon; Further Assurances Section 11.1 Acknowledgment of Liens to be Granted by Clarendon. NAC acknowledges that Clarendon may grant one or more security interests in all or any part of its right, title and interest in and to the Bailed Property, and NAC hereby consents to every such grant of a security interest and further acknowledges that NAC's rights in the Bailed Property shall be in all respects subordinate to the rights of the secured parties in respect of such security interests. Section 11.2 UCC Financing Statements; Further Assurances. Promptly upon execution of this Agreement, NAC shall execute and deliver to Clarendon UCC financing statements in proper form for filing at the offices of the Secretary of State of Oregon and the County Clerk, County of Wasco, Oregon. NAC shall promptly and duly execute and deliver to Clarendon any additional documents (including, without limitation, UCC financing statements and any supplements or amendments thereto, and UCC continuation statements, satisfactory to Clarendon) and assurances and take such further action as Clarendon may from time to time reasonably request in order more effectively to carry out the intent and purpose of this Agreement or the security interests in favor of Clarendon's secured parties described in Section 11.1, and to establish and protect the rights and remedies intended to be created in favor of Clarendon under this Agreement with respect to the Bailed Property and those of Clarendon's secured parties under such security interests. 21 Article 12 Assignment Section 12.1 Assignments Generally. 12.1.1 NAC shall not, without the prior written consent of Clarendon, assign any of its rights, title or interest in or to this Agreement or delegate any of its duties or obligations under this Agreement. 12.1.2 Clarendon may assign or otherwise transfer all or any part of its rights under this Agreement to parties to which it may grant a security interest as provided under Section 11.1, and may assign this Agreement to any affiliate of Clarendon. Section 12.2 Undertakings Regarding Bankruptcy. 12.2.1 If by operation of law (including the Federal Bankruptcy Code) the rights or obligations of NAC or Clarendon (for purposes of this Section 12.2, the "affected party") under this Agreement are to be assigned or otherwise transferred, prior to the effectiveness of such assignment or other transfer, NAC or Clarendon, whichever is not the affected party (for purposes of this Section 12.2, the "non-affected party") shall be furnished with adequate assurance, in form and substance satisfactory to the nonaffected party, of the ability of any proposed assignee or transferee to perform the affected party's duties or obligations under this Agreement. 12.2.2 Each of Clarendon and NAC acknowledges that it was induced to enter into this Agreement in part by the other's financial ability, credit standing and customer relationships and the other's reputation and that of its management in the field of operation of the type contemplated under this Agreement. Any proposed assignment or transfer of this Agreement required by law (whether pursuant to any provision of the Federal Bankruptcy Code or otherwise) shall be made only in conformance with such expectations and anticipations of the parties contained in this Agreement and shall likewise constitute part of the consideration for consent of a party to any such assignment or transfer. Article 13 Arbitration Section 13.1 General Provisions. All disputes arising under or by virtue of this Agreement or concerning any difference of opinion between the parties hereto concerning their rights and obligations under this Agreement shall be referred to and determined exclusively by arbitration as provided in this Article 13; provided, however, that arbitration shall not be invoked with respect to or be determinative as to: 22 13.1.1 any claim or demand by Clarendon for indemnification under Section 7.5, 13.1.2 any claim or demand by Clarendon in the event NAC fails to deliver any Aluminum otherwise available for delivery to Clarendon, or (if applicable) the Bailed Property, as required under this Agreement, 13.1.3 any claim or demand by Clarendon in connection with NAC's breach of any of its undertakings under Article 5, 13.1.4 any claim or demand arising in any litigation or proceeding commenced by any third party against Clarendon or NAC in which the other party to this Agreement is an indispensable party or third party defendant, and 13.1.5 any claim or demand arising in any litigation or proceeding commenced by one party to this Agreement against the other in which a third party is an indispensible party. Any issue required under this Agreement to be arbitrated shall be submitted to arbitration in the City of New York in accordance with the Commercial Arbitration Rules of the American Arbi tration Association then in effect. Such arbitration shall be conducted by proceedings held in New York City by an arbitration panel whose members are chosen in the manner provided in Section 13.2 (the "Arbitration Panel"), and the proceedings of the Arbitration Panel shall be conducted in the manner provided in Section 13.3. Section 13.2 Initial Identification of Questions for Arbitration; Selection of Arbitration Panel. Arbitration may be invoked by either party (the "Complaining Party") by written notice to the American Arbitration Association and the other party (the "Respondent"), which notice shall state the name of the arbitrator appointed by the Complaining Party and shall also state specifically the question or questions as to which the Complaining Party is demanding arbitration, the amount claimed, if any, and the relief sought. Notwithstanding anything to the contrary which may now or hereafter be contained in the rules of the American Arbitration Association, the selection of the members of the Arbitration Panel, and the initial identification of the question or questions to be resolved by the Arbitration Panel, shall take place in the following manner: 13.2.1 By notice to the Complaining Party given within twenty (20) days after receipt of the Complaining Party's demand, the Respondent shall appoint a second arbitrator and, if it desires, specify in its notice any additional questions it wishes to have resolved by the Arbitration Panel, provided that (i) The Respondent shall have the right to request one (1) extension of such twenty (20) day period (not to exceed an additional twenty (20) days) for its notice, provided such request is given by the Complaining Party within the twenty (20) day period specified in the first sentence of this Section 13.2-1. 23 (ii) If the Respondent fails to give timely notice of appointment of a second arbitrator, the Respondent shall be deemed to have appointed as its own arbitrator the arbitrator previously appointed by the Complaining Party and arbitration shall proceed before the sole arbitrator who alone shall constitute the Arbitration Panel. (iii) If the Respondent fails to give timely notice of additional questions to be resolved by the Arbitration Panel, the Arbitration Panel shall consider the questions specified in the Complaining Party's notice pending submission of any additional questions for resolution by the Arbitration Panel under Section 13.5. 13.2.2 If two arbitrators are appointed in the manner specified in Section 13.2.1, they shall thereupon select a third arbitrator by notice to each of the Complaining Party and the Respondent in the manner specified in Section 14.5; provided that if the two arbitrators appointed by the parties are unable to agree as to the third arbitrator within twenty (20) days from the date on which the Complaining Party received notice from the Respondent of the appointment of the second arbitrator, the third arbitrator shall be appointed by the New York Regional Director of the American Arbitration Association upon application by the Complaining Party. The three arbitrators so named shall constitute the Arbitration Panel for the settlement of the questions specified in the Complaining Party's demand for arbitration and (if applicable) the additional questions specified in the Respondent's notice and such other questions permitted under Section 13.5. 13.2.3 If the Arbitration Panel consists of three arbitrators, the third arbitrator selected in the manner set forth in Section 13.2.2 shall act as chairman of the Arbitration Panel, and all procedural issues shall be determined by majority vote. 13.2.4 Each arbitrator shall be impartial, and no event shall an individual be appointed or act as an arbitrator who is in any way interested financially in this Agreement or in the business affairs of either party to this Agreement. Section 13.3 Arbitration Procedure; Decisions. The proceedings of the Arbitration Panel shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, subject to the following conditions: 13.3.1 Either party may submit any evidence on any question properly presented to the Arbitration Panel, and may be represented by counsel at all times during the proceedings if desired. The Arbitration Panel shall be entitled to consider all documents, papers, testimony or other evidence which the parties shall offer for submission, even though not otherwise admissible as evidence in a court of law in the State of New York or any other jurisdiction. 13.3.2 The Arbitration Panel shall be authorized to permit discovery, pursuant to the provisions of the Federal Rules of Civil Procedure, if a majority of the arbitrators deem such discovery to be appropriate in the circumstances. 24 13.3.3 The Arbitration Panel shall be bound by the terms of Section 14.3 in interpreting the terms and conditions of this Agreement and the rights and obligations of the parties hereunder, and shall be bound by any prior determinations made by other Arbitration Panels appointed under this Article 13. In no event shall the Arbitration Panel have the authority, by reason of this Agreement or otherwise, to render a decision which is contrary to the express intent of the parties as expressed in this Agreement. 13.3.4 The Arbitration Panel's decisions as to matters in dispute, and its awards of damages and expenses under Section 13.4, shall be made by the sole arbitrator or by the majority of the three arbitrators constituting the Arbitration Panel, as the case may be, on the basis of a written opinion delivered to both parties which shall set forth the Arbitration Panel's findings of fact and conclusions of law, and include any dissenting opinion by an arbitrator. Either party shall have the right, within ten (10) days after receipt of the Arbitration Panel's decision, to file a motion to reconsider, and the Arbitration Panel shall thereupon reconsider the issues raised in that motion and either confirm or change the written opinion previously delivered in a writing delivered to each of the parties. The cost of such a motion for reconsideration and any new written opinion by the Arbitration Panel shall be borne by the moving party. 13.3.5 Each decision and award as to any questions submitted to the Arbitration Panel shall be final, binding and conclusive upon the parties and their respective successors and assigns. Each party agrees to abide by each of such decisions and awards and further agrees that judgment may be entered upon any decision and award made hereunder in any court of competent jurisdiction. 13.3.6 The Arbitration Panel shall be empowered to issue final decisions and awards as to particular questions to be resolved in the proceeding, notwithstanding the pendency of other questions requiring resolution, and to grant such relief under legal and equitable principles, including interim or preliminary relief, as it deems appropriate. Section 13.4 Costs of Arbitration. In the written document settling forth its decision and award, the Arbitration Panel shall determine which party shall bear the fees and expenses of the arbitration (including without limitation the fees of the arbitrators, and administrative expenses) and attorneys' fees incurred by both parties, or the proportion or amounts of such fees and expenses which each party shall bear. Notwithstanding the foregoing, each party shall bear the expense of presenting its own witnesses and evidence to the Arbitration Panel. Section 13.5 Additional Questions; Limitation on Multiple Arbitrations. It is the parties' intent that all questions in dispute during the pendency of an arbitration proceeding under this Article 13 be resolved by the Arbitration Panel selected for such proceeding. In furtherance of such intent, the parties hereto agree as follows: 13.5.1 After the initial identification by the parties of the questions to be resolved under Section 13.2, the Arbitration Panel shall permit each party to propose additional questions for resolution in the pending proceeding. 25 13.5.2 During the pendency of any arbitration proceeding no separate arbitration proceeding shall be initiated by either party, unless the other party agrees in writing or the Arbitration Panel in the pending proceeding has issued a written determination, by vote in accordance with the terms of Section 13-3.3, that the questions proposed for resolution by arbitration can be more expeditiously and economically resolved in a separate proceeding. 13.5.3 Any Arbitration Panel organized to consider an arbitrable question during the pendency of another arbitration proceeding shall be required as its first order of business to determine whether the terms of this Section 13.5 have been satisfied, and it shall have the discretion to suspend the proceeding for which it was appointed until final resolution of the questions submitted in the pending proceeding if such Arbitration Panel determines, by vote in accordance with the terms of Section 13.3.3, that the results of the pending proceeding will be germane to the questions presented at the new proceeding under principles of collateral estoppel. Article 14 Miscellaneous Provisions Section 14.1 Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes any prior expressions of intent or understandings with respect to such subject matter. This Agreement may only be amended, modified, supplemented or released by an instrument in writing signed by a duly authorized officer of each of the parties. Section 14.2 Waiver; Cumulative Rights. The failure or delay of either party to require performance by the other of any provision of this Agreement shall not affect such party's right to require performance of that provision unless and until performance has been waived in writing. Each and every right granted under this Agreement or any other document or instrument delivered hereunder or in connection herewith, or allowed at law or in equity, shall be cumulative and may be exercised in part or in whole from time to time. Section 14.3 Governing Law; Headings. This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be wholly performed within that State. Headings used in this Agreement are for convenience of reference only, and shall not limit or otherwise affect the scope or interpretation of any provision. Section 14.4 Consent to Jurisdiction; Service of Process. 14.4.1 Each party irrevocably agrees that any legal action or proceeding against it or any of its property (i) for the enforcement of any arbitration decision under Article 13, and (ii) with respect to those matters arising out of or with respect to this Agreement for which arbitration is not required under Section 13.1, may be brought in any jurisdiction where assets of that party may be found, or in any federal or state court located in the city of New York, or 26 in two or more of such places, as the other party may elect. By execution and delivery of this Agreement each party accepts with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts and waives any defense it may have as to improper venue or that any of the above courts is an inconvenient forum. 14.4.2 NAC irrevocably designates and appoints CT Corporation System at 1633 Broadway, New York, New York 10019 as its agent to receive for and on its behalf service of process in the State of New York in any legal action or proceedings with respect to this Agreement, and such service shall be completed upon delivery thereof to said agent, it is understood that a copy of any such process served on such an agent shall be promptly forwarded by the person commencing such proceeding to NAC at its address set forth in Section 14.5, but the failure of NAC to receive the copy shall not affect in any way the service of such process as aforesaid. NAC shall at all times maintain an agent to receive service of process in the State of New York on behalf of itself and its properties with respect to this Agreement, and if, for any reason, the agent named above or any successor shall no longer serve as agent on its behalf, NAC shall promptly appoint a successor and give notice to Clarendon of the appointment. NAC further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified air mail, postage prepaid, to NAC at its address set forth in Section 14.5, such service to become effective upon receipt by NAC. Nothing herein shall affect the right of Clarendon to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against NAC in any other jurisdiction. 14.4.3 Each party hereby waives any right it may have under the laws of any jurisdiction to commence any legal action or proceeding with respect to this Agreement by publi cation. Section 14.5 Notices. 14.5.1 Any and all notices, demands, consents or other communications (collectively, "notices") required or permitted to be given under this Agreement shall be in writing and shall be delivered by hand to the recipient party at that party's address set forth below, or sent by postage prepaid certified mail (return receipt requested) or by telex (with confirmed answerback as set forth below), or by telegraph or telephonic facsimile transmission, to the recipient party's address and telex or facsimile number (if applicable) set forth below, and shall be effective on the date the hand delivery, telex, telegraph or telephonic facsimile transmission is received at the address of the recipient party or, in the case of a notice by mail, five (5) days after deposit in the mail. Any notice given by telex, telegraph or telephonic facsimile transmission shall be confirmed by postage prepaid certified mail (return receipt requested). Notices shall be sent: 27 If to NAC: Northwest Aluminum Company 3313 West Second Street The Dalles, Oregon 97058 Attention: President (to be supplied by notice:) Telex: Answerback: Facsimile No.: If to Clarendon: Clarendon Ltd. 100 First Stamford Place Stamford, Connecticut 06902 Attention: Aluminum Department Telex: 177319 Answerback: CLAR UT Facsimile No.: (203) 359-4058 14.5.2 Any change in a party's address or telex or facsimile transmission number for the purposes of notice under this Section shall be communicated to the other party in the manner set forth in this Section for providing notice, but shall be effective only upon actual receipt. Section 14.6 Illegality; Severability. 14.6.1 The various provisions of this Agreement shall be considered legally severable, and if any provision of this Agreement or the application of any such provision to any party or circumstances shall be held invalid by a court of competent jurisdiction, the remainder of this Agreement, including without limitation the remainder of the provision held invalid, or the application of such provision to any party or circumstances other than those as to which it is held invalid, shall not be affected thereby. 14.6.2 If any provision of this Agreement is prohibited or unenforceable in any jurisdiction, any such prohibition or non-enforceability shall not by that fact alone render such provision invalid or unenforceable in any other jurisdiction. 28 14.6.3 To the extent permitted by Applicable Laws, each of NAC and Clarendon hereby waives any provision of Applicable Laws which renders any provision of this Agreement prohibited or unenforceable in any respect. Section 14.7 No Brokers. Each of Clarendon and NAC warrants that it has not engaged any broker or finder with respect to the transactions under this Agreement, and each agrees to indemnify the other of them against, and agrees to protect the other of them from, any and all liabilities, obligations, losses, damages, claims, penalties and disbursements (including without limitation legal fees and expenses) of whatsoever kind and nature arising out of any breach by the indemnifying party of the foregoing warranty or incurred by the other of them with respect to or resulting from any claims of any broker or finder engaged by the indemnifying party. Section 14.8 Counterparts. This Agreement may be signed in any number of counterparts, and any single counterpart or a set of counterparts signed, in either case, by all the parties hereto shall constitute a full and original agreement for all purposes. Execution The parties have caused this Agreement to be duly executed as of the date first above written, whereupon it enters into full force and effect in accordance with its terms. NORTHWEST ALUMINUM COMPANY By BRETT WILCOX Name: Brett Wilcox Title: President CLARENDON LTD. Connecticut Branch By S. D. TRINCA Name: S. D. Trinca Title: ______________________________________ 29 Schedule 1 to Aluminum Toll Conversion Agreement -------------------- Chemical Specifications ----------------------- Si02 .030% maximum Fe2O3 .030% maximum Na2O3 .700% maximum TiO2 .005% maximum CaO .070% maximum P2O5 .003% maximum V2O5 .003% maximum MnO2 .002% maximum A12O3 98-35% (on dried basis) 30 Schedule 2 to Aluminum Toll Conversion Agreement -------------------- Physical Specifications ----------------------- No more than 12% by weight shall pass through a 325 mesh Tyler standard screen and no more than 10% by weight shall be retained on a 100 mesh Tyler screen using the 'dry screen method. The loss on ignition after drying at 300 degrees Centigrade shall not exceed 1% upon heating at 1200 degrees Centigrade as determined by Alcoa's standard method of analysis. 31 Schedule 3 to Aluminum Toll Conversion Agreement -------------------- Tolling Charges under Section 6.1.1 ----------------------------------- (for Aluminum Deliveries made during the period from October 1, 1986 through December 31, 1987) = per Pound of Aluminum delivered = (* - amount applicable for column (B) price; subject to proration for lesser Monthly Billing Aluminum Prices in the indicated range, as provided below) Monthly Billing Aluminum Tolling Charge Price (as defined below) US Cents/Lb. US Cents/Lb. - ------------------------ --------------- (A) (B) 53.2(cent)or less ***(cent) over 53.2(cent)but not exceeding 54.0(cent) ***(cent)* " 54.0(cent) " 55.0(cent) ***(cent)* " 55.0(cent) " 56.0(cent) ***(cent)* " 56.0(cent) " 57.0(cent) ***(cent)* " 57.0(cent) " 58.0(cent) ***(cent)* " 58.0(cent) " 59.0(cent) ***(cent)* " 59.0(cent) " 60.0(cent) ***(cent)* " 60.0(cent) " 61.0(cent) ***(cent)* " 61.0(cent) " 62.0(cent) ***(cent) " 62.0(cent) " 63.0(cent) ***(cent) " 63.0(cent) " 64.0(cent) ***(cent) " 64.0(cent) " 65.0(cent) ***(cent) " 65.0(cent) " 66.0(cent) ***(cent) " 66.0(cent) " 67.0(cent) ***(cent) " 67.0(cent) " 68.0(cent) ***(cent) 32 " 68.0(cent) " 69.0(cent) ***(cent) " 69.0(cent) " 70.0(cent) ***(cent) 33 Monthly Billing Aluminum Tolling Charge Price (as defined below) US Cents/Lb. US Cents/Lb. - ------------------------ (A) (B) over 70.0(cent)but not exceeding 71.0(cent) ***(cent) " 71.0(cent) " 72.0(cent) ***(cent) " 72.0(cent) " 73.0(cent) ***(cent) " 73.0(cent) " 74.0(cent) ***(cent) " 74.0(cent) " 75.0(cent) ***(cent) " 75.0(cent) " 76.0(cent) ***(cent) " 76.0(cent) " 77.0(cent) ***(cent) " 77.0(cent) " 78.0(cent) ***(cent) " 78.0(cent) " 79.0(cent) ***(cent) " 79.0(cent) " 79.333(cent) ***(cent) over 79.333(cent) ***(cent) Subject to the following conditions: (1) For purposes of this rate schedule, the "Monthly Billing Aluminum Price" shall mean the average price of aluminum in U.S. markets during the third calendar month prior to the month of Aluminum Delivery. For purposes of this calculation, the average price of aluminum in U.S. markets shall be the average U.S. Transaction Price reported for the month by Metals Week, in cents per Pound, rounded to the nearest one-tenth of a cent. (2) If the Monthly Billing Aluminum Price applicable for Aluminum Deliveries during any calendar month is greater than 53.2(cent) and less than 79.333(cent) and is not equal to a column (B) price, the Tolling Charge to be applicable for Aluminum Deliveries during that calendar month shall be prorated, if necessary, to the nearest one-thousandth of one cent. Such proration shall be based on the actual Monthly Billing Aluminum Price (as determined under clause (1) above) and the Tolling Charges indicated opposite the column (B) prices which constitute the price range under this rate schedule which includes the actual Monthly Billing Aluminum Price. For example: If the Monthly Billing Aluminum Price is 57.3(cent), the Tolling Charge will be *** 34 EX-10.4 12 AMENDMENT NO. 1 TO TOLL CONVERSION AGREEMENT CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT ASTERISKS (*) DENOTE SUCH OMISSIONS AMENDMENT NO. 1 TO TOLL CONVERSION AGREEMENT THIS AMENDMENT AGREEMENT is entered into as of May 4, 1988 by Northwest Aluminum Company, an Oregon corporation ("NAC"), and Clarendon Ltd., a Swiss corporation ("Clarendon"). RECITAL: NAS and Clarendon have entered into an Aluminum Toll Conversion Agreement dated as of September 15, 1986 (the "Tolling Agreement") and wish, by this Amendment Agreement, to amend certain provisions of the Tolling Agreement and to provide for the extension of the term of the Tolling Agreement. TERMS OF AGREEMENT: The parties hereto, intending legally to be bound by this Amendment Agreement, hereby agree as follows: Section 1. Definitions. Terms defined in the Tolling Agreement shall have the same meanings in this Amendment Agreement, and the following defined terms shall be inserted in Article I of the Tolling Agreement and shall have the following meanings for purposes of this Amendment Agreement and the Tolling Agreement as amended hereby: "Off-Grade Aluminum" means Aluminum having an aluminum content less than that of 99.7 Grade Aluminum. "99.5 Grade Aluminum" means unalloyed aluminum (Alcoa P1535) having an aluminum content of 99.5% "99.7 Grade Aluminum" means unalloyed aluminum (Alcoa P1020) having an aluminum content of 99.7%. Section 2. Exercise of Option to Extend. Clarendon hereby exercises its option under Section 3.1.2(i) of the Tolling Agreement to extend the term of the Tolling Agreement by two years, through September 30, 1991, and the parties agree that Clarendon's right to terminate Alumina Deliveries after September 30, 1991 shall be as stated in Section 3.1.2(ii) of the Tolling Agreement except that the reference to "at least three (3) months' prior notice" is hereby amended to read "at least six (6) month's prior notice." Section 3. Tolling Charges. 3.1 Section 6.1.2(i) of the Tolling Agreement is amended to read in full as follows: "(i) *** percent (***%) of the "Aluminum Metal Price" (as defined in Section 6.1.4) for contracts for 99.5 Grade Aluminum, or if contracts for 99.5 Grade Aluminum cease trading on the LME (as defined in Section 6.1.4) *** percent (***%) of the "Aluminum Metal Price" for contracts for 99.7 Grade Aluminum, in either case as applicable for the third calendar month immediately preceding the calendar month in which the Aluminum Delivery occurs, as more fully provided in Section 6.1.4, or" 3.2 Section 6.1.3 of the Tolling Agreement is amended by replacing "fifty- five thousand (55,000) Metric Tons" in clause (i) by "sixty-five thousand (65,000) Metric Tons." Section 4. Potline No. 1; Off-Grade Aluminum 4.1 The parties acknowledge that Clarendon will provide Alumina for the operation of Potline No. 1 upon its partial start-up, and agree that, for purposes of Sections 3.1.1 and 3.1.2 of the Tolling Agreement, the amounts of Alumina Deliveries to be made by Clarendon shall include the amounts of Alumina required for operation of Potline No. 1 upon 2 its partial start-up and the amounts of Basic Tonnage and Renewal Tonnage shall include the amounts of Aluminum required to be produced from such Alumina Deliveries. 4.2 In connection with the foregoing, Section 3.2.3 of the Tolling Agreement is hereby amended to read in full as follows: "3.2.3 Starting on January 1, 1988 NAC shall be obligated to produce and deliver to Clarendon 99.7 Grade Aluminum (including without limitation Aluminum Deliveries relating to Alumina delivered to NAC for the operation of Potline No. 1), subject to the following provisions: "(i) Tolling Charges for any Off-Grade Aluminum delivered to Clarendon in any calendar month shall be reduced, on a per Pound basis, as follows:
First 500,000 Pounds of Off-Grade Aluminum Delivered in Calendar Month ------------------------------------------ Below 99.7 Grade Aluminum to and including Alcoa P1535 *** cents Below Alcoa P1535 to and including Alcoa 2060 *** cents Below Alcoa 2060 to and including Alcoa 2590 *** cents Below Alcoa 2590 to and including MT0 *** cents Below MT0 to and including MT1 *** cents Below MT1 to and including MT2 *** cents Below MT2 *** cents
3
Off-Grade Aluminum Delivered in a Calendar Month Exceeding 500,000 Pounds ------------------------------------------ Below 99.7 Grade Aluminum to and including Alcoa P1535 *** cents Below Alcoa P1535 to and including Alcoa 2040 *** cents Below Alcoa 2040 to and including Alcoa 2060 *** cents Below Alcoa 2060 to and including MT0 *** cents Below MT0 *** cents
"(ii) Clarendon has agreed to waive the first $*** in reductions of Tolling Charges under clause (i) for deliveries of Off-Grade Aluminum made after January 1, 1998." Section 5. Sale of Molten Metal. A new Section 4.7 is hereby added to the Tolling Agreement, as follows: "Section 4.7 Sale of Molten Metal. Effective from and including May 1, 1988, Clarendon shall sell to NAC, and NAC shall purchase from Clarendon, Aluminum in the form of molten metal subject to the following provisions: "4.7.1 The amount of molten metal to be purchased by NAC during the calendar months of May through September 1998, inclusive, shall be 1,000,000 Pounds per calendar month. "4.7.2 From October 1, 1988 through the balance of the term of this Agreement NAC shall purchase between 1,500,000 Pounds and 2,500,000 Pounds of molten metal per calendar month, with the exact amount of molten metal to be purchased by NAC in any calendar month during each calendar quarter to be determined by NAC's notice to Clarendon given at least two months prior to the beginning of that calendar quarter. Any such notice by NAC shall be irrevocable once given, and if NAC fails to give timely notice as to any calendar quarter it shall be required to purchase 1,500,000 Pounds of molten metal during each month of that quarter. 4 "4.7.3 Molten metal allocable to NAC for purchase under this Section 4.7 during any calendar month shall be determined by mutual agreement of the parties on the understanding that, in principle, such allocation shall be made on a pro rata basis taking into account the Smelter's anticipated production during that month and the parties' respective casting requirements. "4.7.4 Aluminum products produced from the molten metal sold to NAC shall be distinctively marked and stored separately from Aluminum belonging to Clarendon, as provided more fully in Section 5.3.1. "4.7.5 The per Pound purchase price for molten metal delivered to NAC under this Section 4.7 during any calendar month shall be equal to (a) the per Pound 'U.S. Transaction Price' quoted by Metals Week for the calendar month preceding the month of delivery, less (b) a discount of *** cents per Pound. NAC shall pay Clarendon for each delivery of molten metal to NAC under this Section 4.7 within thirty (30) days after the date of NAC's invoice to Clarendon for tolling charges relating to such molten metal. Delivery of molten metal to be purchased by NAC under this Section 4.7 shall be deemed to have occurred upon completion of the conversion process for such molten metal." Section 6. Billet Option. Section 4.2.3 of the Tolling Agreement is hereby renumbered "Section 4.2.2" (to correct a typographical error in the Tolling Agreement), and a new Section 4.2.3 is added as follows: "4.2.3 Notwithstanding anything to the contrary in this Section 4.2, the amount of billet which Clarendon shall have the right (but not an obligation) to receive using NAC's existing facilities shall be 40,000 MT per year, evenly spread, and the upcharges payable by Clarendon with respect to such billet shall be: "(i) *** cents per Pound for billet to be sold by Clarendon to Vanexco under Clarendon's existing sales agreement with Vanexco, and 5 "(ii) for 6063 and 6061 billet to be sold by Clarendon to other customers, *** cents per Pound in calendar years 1988 and 1989, and thereafter *** cents per Pound. It is estimated that additional billet utilizing new Smelter equipment will be approximately 20,000 MT per annum, and upcharges for any such additional billet capacity requested by Clarendon shall be subject to mutual agreement." Section 7. Entire Agreement; Governing Law. This Amendment Agreement represents the entire agreement of the parties as to its subject matter, supersedes all prior understandings or communications between the parties relating to such subject matter, and shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be wholly performed within that State. Section 8. Counterparts. This Amendment Agreement may be signed in any number of counterparts, and any single counterpart or a set of counterparts signed, in either case, by all the parties hereto shall constitute a full and original agreement for all purposes. EXECUTION: The parties have caused this Amendment Agreement to be duly executed as of the date first above written, whereupon it enters into full force and effect in accordance with its terms. NORTHWEST ALUMINUM COMPANY By: BRETT WILCOX ------------------------------------------ Name: Brett Wilcox Title: President 6 CLARENDON LTD. By: S.D. TRINCA ------------------------------------------ Name: S. D. Trinca Title: ________________________________ 7 EX-10.5 13 EXTENSION AND AMENDMENT AGREEMENT CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT ASTERISKS (*) DENOTE SUCH OMISSIONS EXTENSION AND AMENDMENT AGREEMENT THIS EXTENSION AND AMENDMENT AGREEMENT is made as of October 1, 1991 by Northwest aluminum Company, an Oregon corporation ("NAC"), and Clarendon Ltd., a Zug, Switzerland corporation acting though its Connecticut branch ("Clarendon"). Recitals A. NAC and Clarendon have entered into an Aluminum Toll Conversion Agreement dated as of September 15, 1986 (the "1986 Toll Agreement") pursuant to which Clarendon is currently providing NAC's alumina requirements for both Potline Nos. 1 and 2 as provided therein, and NAC is converting such alumina into aluminum as provided therein. B. The parties now wish to extend the terms of the 1986 Toll Agreement for an additional four years, and to amend certain of the terms of the 1986 Toll Agreement in connection with such extension. Terms of Agreement Section 1. Defined Terms. Terms defined in the 1986 Toll Agreement shall have the same meanings for purposes of this Agreement. Section 2. Extension Period. 2.1 The term of the 1986 Toll Agreement shall be extended for an additional four year period, which shall commence on October 1, 1991 and end on September 30, 1995 (the "Extension Period"), and, except as specifically amended by this Agreement, all of the terms and conditions of the 1986 Toll Agreement shall continue to be binding on each of the parties during the Extension Period. 2.2 It is agreed that, in accordance with the foregoing: (i) Clarendon shall provide the Smelter's entire Alumina requirements (that is, for both Potline Nos. 1 and 2) during the Extension Period; (ii) NAC shall Convert the same and make the necessary Aluminum Deliveries to Clarendon in the manner required under the 1986 Toll Agreement; (iii) For purposes of Section 3.1.3 of the 1986 Toll Agreement, the parties shall agree by September 30, 1991 on the schedule for Alumina Deliveries and the amount of Alumina inventory required at the Smelter both during the final calendar quarter of 1991 and during calendar year 1992; (iv) Clarendon shall continue through December 31, 1991 to take offgrade Aluminum as per the parties' agreement dated March 2, 1988, with all discounts for such offgrade. Aluminum to be as set forth in item 3 of that agreement, and any taking of offgrade Aluminum after December 31, 1991 shall be at Clarendon's option and subject to the parties' mutual agreement and their renegotiation of such discounts; and (v) Notwithstanding any provisions of the 1986 Toll Agreement (as amended hereby) to the contrary, NAC shall have the option to deliver Aluminum from other production facilities in place of Aluminum from the Smelter, provided that Clarendon may require that certain specific shipments be composed of Aluminum from the Smelter. Section 3. Amendments to 1986 Toll Agreement. Effective upon the commencement of the Extension Period, the following provisions of the 1986 Toll Agreement shall be amended in the following manner: 2 3.1 The term "Renewal Tonnage" shall mean, during the Extension Period, all Aluminum required to be produced from the Alumina Deliveries referred to in Section 2 of this Agreement. 3.2 Section 2.1.2 of the 1986 Toll Agreement shall be amended by adding the following sentence at the end thereof: "In addition, during all periods after October 1, 1991 NAC shall use its best efforts and take all reasonable steps to ensure that the output of the Smelter shall be approximately eighty-two thousand (82,000) MT of Aluminum per twelve-month period, subject to Clarendon's satisfying its Alumina Delivery obligations under Section 3.1.4, and NAC further agrees not to reduce production at the Smelter below such minimum amount (other than due to Clarendon's failure to satisfy such obligations, or by reason of force majeure and subject to NAC's compliance with Article 8) without Clarendon's prior written consent." 3.3 Section 3.3 of the 1986 Toll Agreement shall be amended by adding NALCO (Indian Alumina) as an additional permitted source of Alumina. 3.4 Section 4.2.3 of the 1986 Toll Agreement (it being recognized that there is no Section 4.2.2) shall be amended by adding an additional clause (iii) as follows: "(iii) Notwithstanding the foregoing, it is agreed that, effective from and including October 1, 1991, (a) the additional charge payable for Aluminum homogenized extrusion billet under this Section 4.2.3 shall be a flat $*** (*** cents) per Pound, and (b) Clarendon may request that Aluminum be delivered in the form of A356.2 (Foundry), modified or unmodified, for which the additional charge payable under this Section 4.2.3 shall be a flat $*** (*** cents) per Pound." 3.5 Section 6.1.2 of the 1986 Toll Agreement shall be amended by deleting the phrase "the greater of" as well as clauses (i) and (ii) immediately following that phrase, and inserting in the place of that deleted text the following: 3 "(i) for the last calendar quarter of 1991, *** percent (***%) of the average of the "Aluminum Metal Price" (as defined in Section 6.1.4) applicable for the months of August and September 1991, as more fully provided in Section 6.1.4, and (ii) thereafter, *** percent (***%) of the "Aluminum Metal Price" (as defined in Section 6.1.4) applicable for the three calendar months in the calendar quarter immediately preceding the calendar quarter in which the Aluminum Delivery occurs, as more fully provided in Section 6.1.4.". 3.6 Section 6.1.4 of the 1986 Toll Agreement shall be amended as follows: 3.6.1 by deleting the text of the initial paragraph preceding clause (i) (up to but not including the words "subject to") and inserting in the place of the deleted text the following: "For purposes of this Section 6.1, "Aluminum Metal Price" means (a) for Aluminum Deliveries occurring in the fourth calendar quarter of 1991, the arithmetic average of the settlement prices for aluminum on the London Metal Exchange ("LME"), for each LME trading day during the months of August and September 1991, as published in "Metal Bulletin" as the seller's Midday official price for that day under the caption "Daily Metal", and (b) thereafter, the arithmetic average of the settlement prices for aluminum on the LME, for each LME trading day during the three calendar months in the calendar quarter immediately preceding the calendar quarter in which the Aluminum Delivery occurs, as published in "Metal Bulletin" as the seller's Midday official price for that day under the caption "Daily Metal","; 3.6.2 by deleting the text of clause (i) commencing with the words "and LME three month seller's prices" through the end of clause (i); and 3.6.3 by deleting the first two sentences of clause (iii) and inserting in the place of the deleted text the following: "If the LME ceases to trade aluminum or ceases to publish the reference price specified in clause (i), the "Aluminum Metal 4 Price* shall mean the generally accepted substitute for LME reference prices.". 3.7 Section 6.3 of the 1986 Toll Agreement shall be amended by deleting the text thereof and inserting in the place of the deleted text the following: "Each of NAC's invoices shall be payable in Dollars in immediately available funds ten (10) days after Clarendon's receipt of such invoice through March 31, 1992, and each invoice received by Clarendon after March 31, 1992 shall be payable in Dollars in immediately available funds thirty (30) days after Clarendon's receipt of such invoice; provided that if any payment date is a Saturday, Sunday or day of which banks in Oregon or New York are authorized or required to close, payment shall be due on the next day which does not constitute any of the foregoing. Each payment shall be provisional and subject to Clarendon's right to audit and challenge NAC's determination of quality and quantity or calculation of amounts payable." Section 4. Miscellaneous. 4.1 Ratification of 1986 Toll Agreement as Amended. The 1986 Toll Agreement, as specifically amended by this Agreement, is hereby ratified in all respects, and, effective upon the commencement of the Extension Period, the term "this Agreement" as used in the 1986 Toll Agreement shall be deemed to refer to the 1986 Toll Agreement as amended hereby. 4.2 No Implied Amendments, Undertakings or Waivers. No additional amendment of the 1986 Toll Agreement, nor any undertaking to further amend or extend the 1986 Toll Agreement, nor any waiver of any right or remedy arising under the 1986 Toll Agreement prior to the Extension Period, shall be implied from the fact that the parties have agreed to the terms of this Agreement. 5 4.3 Incorporation of Provisions of Article 14 of the 1986 Toll Agreement. The terms of Sections 14.1 [entire agreement; amendment], 14.3 [governing law, etc.], 14.6 [illegality; severability], 14.7 [no brokers, etc.] and 14.8 [counterparts) of the 1986 Toll Agreement are incorporated into this Agreement as if fully stated herein. 4.4 Interpretation. The parties acknowledge that this Agreement has been the subject of full opportunity for negotiation and amendment, and that the party which has assumed initial responsibility for drafting this Agreement shall not suffer adverse construction of any terms or language thereof because of such role. Execution IN WITNESS WHEREOF# each of the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, in each case effective as of the date first written above. NORTHWEST ALUMINUM COMPANY By BRETT WILCOX ----------------------------------------- Name: Brett Wilcox Title: President CLARENDON LTD. By S. D. TRINCA Name: ___________________________________ Title: Authorized Signatory 6 EX-10.6 14 OPTION TO EXTEND 1986 AMENDED TOLL AGREEMENT OPTION TO EXTEND 1986 AMENDED TOLL AGREEMENT THIS OPTION TO EXTEND 1986 AMENDED TOLL AGREEMENT, dated as of March 1, 1992, is by and between NORTHWEST ALUMINUM COMPANY, an Oregon corporation ("NAC"), and CLARENDON LTD., a Zug, Switzerland corporation acting through its Connecticut branch ("Clarendon"). RECITALS: A. NAC and Clarendon have entered in an Aluminum Toll Conversion Agreement dated as of September 15, 1986 and a certain Extension and Amendment Agreement made as of October 1, 1991 (collectively, the "1986 Amended Toll Agreement") pursuant to which Clarendon is currently providing NAC's alumina requirements for both Potline Nos. 1 and 2 as provided therein, and NAC is converting such alumina into aluminum as provided therein. B. The parties now wish to provide an option to Clarendon to extend the term of the 1986 Amended Toll Agreement for an additional four years and three months. AGREEMENT: Accordingly, in consideration of the mutual covenants herein, the parties agree: 1. Defined Terms. Terms defined in the 1986 Amended Toll Agreement shall have the same meanings for purposes of this Agreement. 2. Option to Extend Term. 2.1 Clarendon shall have an option to extend the term of the 1986 Amended Toll Agreement for an additional period which shall commence on October 1, 1995 and end on December 31, 1999 (the "Optional Extension Period"). 2.2 In order to exercise the option provided in Section 2.1 above, Clarendon shall give NAC written notice to such effect, not later than September 30, 1994, in the manner provided in the 1986 Amended Toll Agreement. 2.3 Upon Clarendon giving the notice provided in Section 2.2 above, the Extension Period defined and identified in the 1986 Amended Toll Agreement shall be extended to include the Optional Extension Period (that is, the Extension Period shall commence on October 1, 1991 and end on December 31, 1999) and, except as specifically amended by this Agreement, all of the terms and conditions of the 1986 Amended Toll Agreement, including without limitation the provisions of Section 2.2 and Section 3 of the Extension and Amendment Agreement, identified above, shall continue to be binding on each of the parties during the Extension Period as so amended. 3. Miscellaneous. 3.1 Ratification of the 1986 Amended Toll Agreement, as Amended. The 1986 Amended Toll Agreement, as specifically amended by this Agreement, is hereby ratified in all respects, and effective the date of this Agreement, the term "this Agreement" as used in the 1986 Amended Toll Agreement shall be deemed to refer to the 1986 Amended Toll Agreement as hereby amended. 3.2 No Implied Amendments, Undertakings or Waivers. No additional amendment of the 1986 Amended Toll Agreement, nor any undertaking to further amend or extend the 1986 Amended Toll Agreement nor any waiver of any right or remedy arising under the 1986 Amended Toll Agreement prior to the date hereof shall be implied by the fact that the parties have agreed to the terms of this Agreement. 3.3 Incorporation of Provisions of Article 14 of the 1986 Toll Agreement. The terms of Sections 14.1 (entire agreement; amendment), 14.3 (governing law, etc.), 14.6 (illegality; severability), 14.7 (no brokers, etc.) and 14.8 (counterparts) of the 1986 Toll Agreement are incorporated into this Agreement as if fully stated herein. 3.4 Interpretation. The parties acknowledge that this Agreement has been the subject of full opportunity for negotiation and amendment and that the party which has assumed initial responsibility for drafting this Agreement shall not suffer adverse construction of any terms or language thereof because of such role. IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, in each case effective as of the date first written above. NORTHWEST ALUMINUM COMPANY By: BRETT WILCOX ------------------------------------------- Name: Brett Wilcox Title: President CLARENDON LTD. By: SIMON TRINCA ------------------------------------------- Name: Simon Trinca Title: Authorized Signatory 2 EX-10.7 15 LETTER EXERCISING OPTION TO EXTEND GLENCORE Ltd. September 21, 1994 Northwest Aluminum Company 3313 West Second Street The Dalles, Oregon 97058 Attention: President RE: Option To Extend 1986 Amended Toll Agreement dated March 1, 1992 Dear Brett: Pursuant to Section 2 of the above, we hereby exercise our option to extend the 1986 Amended Toll Agreement through December 31, 1999. Yours truly, /s/ SIMON D. TRINCA - ------------------------- Simon D. Trinca P.S. We look forward in due course to a further extension of what has been a very happy business relationship into the next millennium. EX-10.8 16 TAX INDEMNIFICATION AGREEMENT TAX INDEMNIFICATION AGREEMENT This Tax Indemnification Agreement ("Agreement") is made as of December 21, 1998, between Golden Northwest Aluminum, Inc. ("GNA"), Northwest Aluminum Company ("Northwest"), Northwest Aluminum Specialties, Inc. ("Specialties") and Brett E. Wilcox ("Shareholder"). WHEREAS, Northwest and Shareholder believe that Northwest has been an "S corporation" (within the meaning of Section 1361 of the Internal Revenue Code of 1986, as amended ("IRC")) for federal and Oregon income tax purposes since September 1987; WHEREAS, Specialties and Shareholder believe that Specialties has been an "S corporation" (within the meaning of Section 1361 of the Internal Revenue Code of 1986, as amended ("IRC")) for federal and Oregon income tax purposes since 1991; WHEREAS, GNA has elected to be an "S corporation" (within the meaning of Section 1361 of the Internal Revenue Code of 1986, as amended ("IRC")) effective on the date of its organization June 26, 1998; WHEREAS, Shareholder is the sole shareholder of Northwest and Specialties; WHEREAS, Northwest and Specialties have taken certain positions on income tax information returns for prior years with which auditors for the Internal Revenue Service have disagreed, and Northwest and Specialties are contesting the proposed adjustments; WHEREAS, Shareholder intends to contribute all the stock of Northwest and Specialties to GNA as an equity contribution to GNA; WHEREAS, GNA intends to elect for Northwest and Specialties to be qualified subchapter S subsidiaries under Section 1361(b)(3) of the Internal Revenue Code, effective on the date of the contribution of their stock to GNA; NOW, THEREFORE, the parties agree as follows: A. Consistent Reporting by Northwest and Specialties. GNA shall not, on behalf of Northwest or Specialties, without the consent of Shareholder, file any amended income tax return or change any election or accounting method if such filing or change would increase any federal, state, local (including but not limited to city or county) or foreign income tax liability (including interest and penalties, if any) (collectively, "Tax Liability") of Shareholder. B. Indemnification for Tax Liability. --------------------------------- 1. Indemnification for Tax Liability. GNA, Northwest and Specialties jointly and severally agree to indemnify and hold Shareholder harmless from, against and in respect of any Tax Liability incurred by Shareholder resulting from a final judicial or administrative adjustment (by reason of an amended return, claim for refund, audit or otherwise) to Northwest or Specialties' taxable income which is the result of an increase or change in character of the income of Northwest or Specialties during the period it was treated as an S corporation before the contribution of its stock to GNA. 2. Fees and Costs. GNA, Northwest and Specialties hereby agree to pay or reimburse the Shareholder for such professional fees or other costs as are reasonably necessary to properly defend the Shareholder in the event of an audit or review of Shareholder's federal or state income tax return during any year in which the Shareholder was required to report pass-through tax items from Northwest or Specialties before the contribution of their stock to GNA. 3. Indemnification for Additional Tax. In all events, and to the extent not otherwise reimbursed, GNA, Northwest and Specialties hereby agree that if any payment pursuant to this Section B is deemed to be taxable income to a Shareholder, the amount of such payment to the Shareholder shall be increased by an amount necessary to equal the Shareholder's additional Tax Liability related to such amount (including, without limitation any taxes on such additional amounts) so that the net amount received and retained by the Shareholder after payment by the Shareholder of all taxes associated with the payment is equal to the payment otherwise required to be made. C. Payment. Any payment required to be made pursuant to this Agreement shall be paid within seven days after receipt of written notice from the Shareholder that a payment is due hereunder. D. Miscellaneous. This Agreement shall be governed by Oregon law, without regard to choice of law rules applied by Oregon courts. This Agreement shall be binding on and shall inure to the benefit of successors and assigns of the parties. Section headings shall not affect the interpretation of this 2 Agreement. This Agreement embodies the entire agreement of the parties with respect to the subject matter contained herein. The parties hereto agree to take all further actions necessary to effect the agreements contained herein. 3 GOLDEN NORTHWEST ALUMINUM, INC. By GERALD F. MILLER --------------------------------- Gerald F. Miller Vice President and General Counsel NORTHWEST ALUMINUM COMPANY By GERALD F. MILLER --------------------------------- Gerald F. Miller Vice President and General Counsel NORTHWEST ALUMINUM SPECIALTIES, INC. By GERALD F. MILLER --------------------------------- Gerald F. Miller Vice President and General Counsel BRETT E. WILCOX ----------------------------------- Brett E. Wilcox 4 EX-10.9 17 GENERAL TRANSMISSION AGREEMENT Contract No. DE-MS79-95BP94766 GENERAL TRANSMISSION AGREEMENT executed by the UNITED STATES OF AMERICA DEPARTMENT OF ENERGY acting by and through the BONNEVILLE POWER ADMINISTRATION and NORTHWEST ALUMINUM COMPANY Index to Sections - -------------------------------------------------------------------------------- Section Page 1. Term of Agreement........................................... 3 2. Definition and Explanation of Terms ........................ 3 3. Exhibits; Interpretations .................................. 7 4. Designation of Transmission Demand.......................... 8 5. Transmission of Electric Power ............................. 8 6. Payment by The Customer .................................... 11 7. Power Scheduling ........................................... 12 8. Reactive Power ............................................. 13 9. Revision of Exhibits ....................................... 13 10 Addition or Deletion of Points of Integration and Points of Delivery and Changes in Transmission Demands ..... 14 11. Option to Convert Service .................................. 17 12. Requests and Disputes ...................................... 18 13. Power Sales Contract ....................................... 18 14. Priority ................................................... 19 15 Assignment ................................................. 19 16. Stability Reserves ......................................... 19 17. Power Services ............................................. 28 18. No Third Party Beneficiaries ............................... 29 Exhibit A (Transmission Rate Schedules and General Transmission Rate Schedule Provisions)........ 7 Exhibit B (General Wheeling Provisions)................. 7 Exhibit C (Transmission Parameters) .................... 7 Exhibit D (Transmission Loss Factors) .................. 7 Exhibit E (Request and Response Procedures)............. 7 Exhibit F (Stability Reserves Schemes).................. 7 This GENERAL TRANSMISSION AGREEMENT (Agreement), executed April 7, 1995, by the UNITED STATES OF AMERICA (Government), Department of Energy, acting by and through the BONNEVILLE POWER ADMINISTRATION (Bonneville), and NORTHWEST ALUMINUM COMPANY, a corporation of the State of Maryland, each of which may be referred to herein individually as "Party" or collectively as "Parties". WITNESSETH: WHEREAS, Bonneville Power Administration ("Bonneville") and Northwest Aluminum Company, on October 23, 1995, entered into Contract No. DE-MS79-85BP91987, (which as the same may be amended or replaced is hereinafter referred to as Power Sales Contract); and WHEREAS, Bonneville is, or intends to become, a party to the Westwide Regional Transmission Association ("RTA") and the Northwest RTA which implements portions of the National Energy Policy Act of 1992 (EPA 92). WHEREAS, Bonneville is willing to offer transmission services to the Direct Service Industrial Customers which are comparable to the services that its Utility Customers receive under EPA 92 and the Northwest RTA. WHEREAS, Bonneville is authorized pursuant to law to dispose of electric power and energy generated at various Federal hydroelectric projects in the Pacific Northwest or acquired from other resources, to construct and operate transmission facilities, to provide transmission and other services, and to enter into agreements to carry out such authority; NOW, THEREFORE, the Parties hereto mutually agree as follows: 2 1. TERM OF AGREEMENT (a) This Agreement shall be effective at 2400 hours on the date of execution (Effective Date) and shall continue in effect until 2400 hours on the fifth anniversary of the Effective Date; provided, however, that power transactions to which the Waiver and Release between the parties applies, signed by Bonneville on March 15, 1995, may continue to be transmitted under this Agreement until June 30, 2001. (b) Under expiration of this Agreement, and subject to the outcome of National Environmental Policy Act review, Bonneville will offer to extend transmission services provided hereunder, of the same quality as, and on rates, terms and conditions consistent with, those offered to entities with the right to request wheeling service under section 211 of the Federal Power Act. 2. DEFINITION AND EXPLANATION OF TERMS (a) "Agency" means the Federal Energy Regulatory Commission or its successor. (b) "Available Transmission Capacity" and all other terms defined in Exhibit E are incorporated into this section as if set out herein. (c) "Customer Facilities" means the Customer's production facility served by Bonneville under its Power Sales Contract as of the Effective Date of this Agreement. (d) "Contract Demand" means the number of megawatts specified as the Customer's Contract Demand, as of the Effective Date of this Agreement, in subsection 5(a) of its Power Sales Contract plus the megawatts for transmission losses associated with such Contract Demand; provided, that for purposes of this Agreement, upon Customer's request and pursuant to subsection 5(d) of the Power Sales Contract, 3 the Customer's Contract Demand shall be changed to reflect the maximum allowable Contract Demand to which Customer would have been entitled under subsection 5(d), Technological Allowances of the Power Sales Contract if the Customer's Power Sales Contract (and all other companies' power sales contracts) were in effect as of the date of Customer's request; provided further, that for purposes of this Agreement, Customer's Contract Demand shall not be reduced by any termination under section 2 of the Power Sales Contract. (e) "Eastern Intertie" means the transmission facilities consisting of the Townsend- Garrison double-circuit 500 kV transmission fine segment including related terminals at Garrison. (f) "Electric Power" or "power" means electric peaking capacity, expressed in kilowatts, or electric energy, expressed in kilowatt hours, or both. (g) "FCRTS" or "Federal Columbia River Transmission System" means the transmission facilities of the Federal Columbia River Power System, which include all transmission facilities owned by the Government and operated by Bonneville, and other facilities over which Bonneville has obtained transmission rights, excluding the Southern Intertie, the Northern Intertie and the Eastern Intertie, provided, that the FCRTS shall include any intertie if the costs associated with such intertie are rolled-into the IR-93 transmission rate or its successor. (h) "Northern Intertie" means the transmission facilities consisting of two 500 kV lines between Custer Substation and the United States-Canadian boarder, one 500 kV line between Custer and Monroe Substations, and two 230 kV lines from Boundary Substation to the United States-Canadian border, and the associated substation facilities. 4 (i) "Points of Delivery" or "POD" means the points, named in the Transmission Parameters Exhibit, where Electric Power may be made available to the Customer hereunder. (j) "Points of Integration" or "POI" means: (1) the point or points requested by the Customer and listed in the Transmission Parameters Exhibit, where Electric Power from the Customer's Resources shall be integrated into the FCRTS hereunder; or (2) the points mutually agreed upon by the Parties hereto where Electric Power from other Resources may be made available to Bonneville for nonfirm transmission to the Customer's Points of Delivery. If requested, the Resources to be integrated at each Point of Integration shall be identified. (k) "Resource" means: (1) any of the Customer's generating or contractual resources listed in the Transmission Parameters Exhibit requiring firm transmission services on the FCRTS; and (2) any resource for which nonfirm transmission service is requested and which is made available to Bonneville at mutually agreed upon Points of Integration on the FCRTS; and (3) any other resource not listed in the Transmission Parameters Exhibit, but which is used to supply back-up for a listed resource. 5 (l) "Southern Intertie" means the following facilities: two 500 kV transmission lines extending from John Day Substation to the Malin Substation and to the California- Oregon border; portions of John Day, Grizzly, and Malin Substations and the Sand Springs, Fort Rock, and Sycan Compensation Stations; a portion of the Buckley Summer Lake 500 kV transmission line and associated substations; portions of the Buckley-Marion and Marion-Alvey 500 kV transmission lines and associated facilities; a portion of Bonneville's capacity rights in the Summer Lake-Malin 500 kV transmission line; Bonneville's rights in the Meridian-Malin 500 kV transmission line and Bonneville's share of ownership of the Alvey-Meridian 500 kV transmission line; Captain Jack Substation; the 500 kV transmission line from Captain Jack Substation to the California-Oregon border; the DC transmission line between the Celilo Converter Station in The Dalles, Oregon, and the Nevada-Oregon Border; and any modifications, additions, improvements, or other alterations thereto. (m) "Total Power Wheeled" for each hour means the sum of the Electric Power scheduled hereunder on such hour to Bonneville, including but not restricted to Electric Power scheduled pursuant to the provisions of section 7 hereof, at all points on the FCRTS where Bonneville accepts such Electric Power from the Customer or Customer's Supplier(s) for transmission hereunder to the Customer's Points of Delivery. (n) "Transmission Demand" at a Point of Integration means the maximum firm transmission capacity which Bonneville shall be obligated to have available at each Point of Integration for the purpose of integrating Electric Power from a Resource specified in the Transmission Parameters Exhibit for the Customer hereunder. The level of the Transmission Demand shall be based on the hourly peak capability of the Customer's Resource to be integrated hereunder at such Point of Integration. The sum of the Customer's Transmission Demands (Total Transmission Demand) is specified in the Transmission Parameters Exhibit. 6 (o) "Use-of-Facilities Charge" means the charges, if any, specified in the Transmission Parameters Exhibit, applicable to Points of Integration and Points of Delivery for the purpose of recovering the cost of identifiable facilities provided by Bonneville for the Customer's use. Such charges and their application shall be consistent with the Use-of-Facilities Transmission Rate Schedule, contained in the Transmission Rate Schedules and General Transmission Rate Schedule Provisions Exhibit, and shall also be consistent with Bonneville's Customer Service Policy. (p) "Utility Customers" means public agency or investor-owned utility customers of Bonneville. (q) "Workday" for the purpose of power scheduling means a day which the Parties hereto jointly observe as a regular workday. 3. EXHIBITS; INTERPRETATIONS The rights and obligations of the Parties with respect to provisions hereunder shall be subject to and governed only by this Agreement, including Exhibits A through F (Exhibits) attached hereto and by this reference made a part of this Agreement. The provisions of section 38 of the General Wheeling Provisions [GWP Form-4R] require a minimum notice prior to a Rate Adjustment Date. If the rates are disapproved or conditions are placed on them by the Agency authorized to approve Bonneville's transmission rates, Bonneville shall not be required to give the minimum notice prior to resubmitting the rates to the Agency or implementing the Agency approved rates. The headings used in this Agreement are for convenient reference only, and shall not affect the interpretation of this Agreement. The Customer shall be the "Transferee" and Bonneville shall be the "Transferor" referred to in the General Wheeling Provisions Exhibit. 7 4. DESIGNATION OF TRANSMISSION DEMAND Unless otherwise agreed and for delivery of power and energy to Customer's production facilities for consumption up to Customer Contract Demand, Bonneville shall provide a maximum Total Transmission Demand to Customer equal to Customer's Contract Demand minus the minimum annual contract demand associated with expected purchases of federal power, as determined by the Customer; provided, however, that Customer's requests for service meet the requirements of this Agreement. (For purposes of this section 4, "expected purchases of federal power" shall include only purchases of one-year or more.) Bonneville shall make available to Customer the Transmission Demand requested by Customer at the requested POI if Bonneville has (or can acquire through construction of new facilities or otherwise) Available Transmission Capacity to provide the requested service. 5. TRANSMISSION OF ELECTRIC POWER (a) During each hour of the term hereof, the Customer shall make available or arrange to have made available to Bonneville at the Point(s) of Integration, the Total Power Wheeled; and Bonneville shall for each such hour make an amount of Electric Power equal to the Total Power Wheeled available to the Customer at the Point(s) of Delivery, subject to the conditions in paragraphs (a)(1) through (a)(3) below. (1) Bonneville may, but shall not be obligated to, integrate amounts of Electric Power on any hour which exceed the Total Transmission Demand. (2) Bonneville may, but shall not be obligated to, integrate at a Point of Integration on any hour, amounts of Electric Power which exceed the Transmission Demand at such Point of Integration. 8 (3) Bonneville may, but shall not be obligated to, integrate Electric Power from Resources other than Resources listed in the Customer's Transmission Parameters Exhibit, provided that the Points of Integration for such Electric Power have been mutually agreed upon; provided however, any such integration of power, to the extent that the Total Transmission Demand is not exceeded, shall be provided, in accordance with the Integration of Resources Transmission Rate Schedule. The Energy Transmission Rate Schedule shall not be applicable to integration of power from Resources to the extent such integration does not exceed the Total Transmission Demand. (b) If, for any hour, the Customer determines that it has Electric Power available for nonfirm transmission over the FCRTS, the Customer may request nonfirm transmission service from Bonneville. If Bonneville has Available Transmission Capacity to provide the requested service, then Bonneville will provide transmission service for such excess Electric Power as a separately identified part of its schedule pursuant to section 7. Charges for such transmission, if in excess of Total Transmission Demand, shall be applied in accordance with the Energy Transmission rate schedule, or its successor, attached hereto as part of Exhibit A. At its discretion, Bonneville may provide such nonfirm transmission service notwithstanding section 4. (1) The option to schedule Electric Power as nonfirm transmission service shall not be used to avoid having a Total Transmission Demand which reasonably reflects Transmission Demand for each Resource and the combined peak demand for wheeling which the Customer regularly places on Bonneville. Bonneville shall have the right to refuse to provide service on a nonfirm basis if it determines that the Transmission Demand at a Point of Integration should be increased or the Total Transmission Demand should be increased. 9 (2) Any transaction using the FCRTS which is exempt from wheeling charges or loss assessment at the time of actual transmission, such as qualifying transactions under the Coordination Agreement (Contract No. 14-03- 48221), and which is subsequently converted to a sale to an entity other than Bonneville, shall be retroactively billed as nonfirm transmission service and shall be assessed losses unless such conversion is allowed or provided for under another agreement to which Bonneville is a party. Such qualifying transactions shall not be subject to paragraph (b)(3) below. (3) Except as provided in subsection 5(b) for nonfirm transmission, amounts of Electric Power wheeled hereunder which exceed the Transmission Demand shall be billed under the ratchet provision of section 6, and/or an appropriate Bonneville rate for transmission without prior agreement. (c) To compensate Bonneville for losses incurred in providing services hereunder, the Customer shall make available to Bonneville at the Customer's Points of Delivery, unless otherwise mutually agreed between the Parties, on the current hour, the amounts of Electric Power determined pursuant to the Transmission Loss Factors Exhibit for service performed pursuant to subsections (a) and (b) above; provided, however, that if mutually agreed, losses due to wheeling over designated facilities shall be purchased from Bonneville and deemed to be delivered to Bonneville by the Customer instead of being made available with scheduled energy. (d) Bonneville shall, if requested by the Customer and if it is within Bonneville's capability to do so without adversely affecting its other obligations, make replacement Electric Power available to the Customer hereunder, without additional cost to the Customer except as provided in this subsection, if Electric Power to be made available to Bonneville pursuant to subsection (a) above cannot 10 be made available solely because of suspension or interruption of, or interference with, the operation of the FCRTS. The Customer shall, at Bonneville's option: (1) reimburse Bonneville for any cost or loss of revenue incurred in making such replacement Electric Power available; (2) replace all or a portion of such replacement Electric Power with the Customer's Electric Power at a time agreed upon by the Parties prior to delivery; or (3) reimburse and replace pursuant to paragraphs (1) and (2) above in amounts determined by Bonneville which in total are equivalent in value to the replacement Electric Power delivered to the Utility pursuant to this subsection. The method to replace or reimburse shall be specified by Bonneville at the time of the Customer's request for replacement Electric Power. (e) The Customer shall not use rights obtained under this Agreement to provide transmission services for another entity. 6. PAYMENT BY THE CUSTOMER As compensation for services provided hereunder, the Customer shall pay Bonneville each month during the term hereof, amounts determined as provided in this section and in accordance with the Transmission Parameters Exhibit and the Transmission Rate Schedules and General Transmission Rate Schedule Provisions Exhibit. Any ratchet demand that may occur as determined by Bonneville pursuant to the Transmission Rate Schedules and General Transmission Rate Schedule Provisions, does not constitute an 11 increase in any Transmission Demand approved by Bonneville and any continued service at such level will depend on the availability of facilities as determined by Bonneville. Any changes in Transmission Demands must be requested in accordance with section 10. (a) For integration of Electric Power pursuant to subsection 5(a), the Customer shall pay Bonneville in accordance with the appropriate rate schedules for integration of resources, use-of-facilities, and other transmission services. (b) For nonfirm transmission of Electric Power pursuant to subsection 5(b), the Customer shall pay Bonneville the rate specified in the current rate schedule for nonfirm transmission applicable to the facilities being used. (c) If granted a Transmission Demand at a POI, Customer may, pursuant to the other provisions of this Agreement, reserve such Transmission Demand prior to actual use by paying Bonneville a deposit. Such deposit will be determined by Bonneville in a manner comparable to that applied to its Utility Customers. 7. POWER SCHEDULING The Customer shall submit or arrange to have submitted to Bonneville by 1000 hours (Pacific Time) of each Workday: (a) for Resources requiring transmission herein to which the Customer has generation control: (1) a retroactive report of the Electric Power supplied to Bonneville for each hour of the previous day or days; and (2) at Bonneville's request, estimated amounts of Electric Power as specified in paragraph (1) above for each hour of the following day or days; 12 (b) for Resources requiring transmission herein to which the Customer does not have generation control: (1) at Bonneville's request, a schedule in advance of Electric Power to be supplied to Bonneville for each hour of the following day or days; and (2) if the resource is within Bonneville's control area, a retroactive report of the Electric Power supplied by each Resource as made available to Bonneville for each hour of the previous day or days; (c) a retroactive report of the hourly amounts of Electric Power which the Customer made available to Bonneville for nonfirm transmission pursuant to subsection 5(b); provided, however, that if requested by Bonneville, the Customer shall submit estimated amounts of Electric Power to be made available for nonfirm transmission and indicate the Point of Integration where such Electric Power will be made available. 8. REACTIVE POWER It is the intent of the Parties hereto that the voltage level at the Points of Integration and the Points of Delivery be controlled in accordance with prudent utility operating practice. The Parties hereto shall jointly plan and operate their systems so as not to place an undue burden on the other party to supply or absorb reactive power accompanying or resulting from deliveries hereunder. 9. REVISION OF EXHIBITS (a) The rate schedules included in the Transmission Rate Schedules and General Transmission Rate Schedule Provisions Exhibit shall be replaced by successor rate 13 schedules in accordance with the provisions of section 7(i) of the Pacific Northwest Power Act and Agency rules. The unit rate or rates in such successor rate schedules shall be a non-mileage based rate which shall only reflect the distances between POI's and POD's if a short distance discount factor has been agreed upon by the Parties. (b) Bonneville shall annually review the Transmission Loss Factors Exhibit and shall revise such exhibit as appropriate to incorporate values which represent then current FCRTS operating conditions or to incorporate any value, used in such exhibit to calculate the losses, which has changed due to a change in methodology. Any changes to the loss methodology or formula, other than numerical values, shall only be made after consultation with the Customer. Bonneville shall prepare a new Transmission Loss Factors Exhibit incorporating any revision and the revised exhibit shall become effective as of the date specified therein. (c) If Bonneville determines that the Use-of-Facilities Charges specified in the Transmission Parameters Exhibit or any other charges, subsequent charges, or factors used in calculating any charges specified in this Agreement must be changed pursuant to sections 19 or 38 of the General Wheeling Provisions Exhibit, it shall prepare a new Transmission Parameters Exhibit or other affected exhibit incorporating such revised charges and parameters. Such new exhibits shall be substituted for the exhibits then in effect and shall become effective as of the date specified therein. 10. ADDITION OR DELETION OF POINTS OF INTEGRATION AND POINTS OF DELIVERY AND CHANGES IN TRANSMISSION DEMANDS (a) Subject to section 4, Points of Integration and Points of Delivery may be added and Transmission Demands may be increased, subject to Bonneville's determination of Available Transmission Capacity, upon 3-months' prior written notice to Bonneville, but 14 no more frequently than once in any 12-month period for any individual point or Transmission Demand. Such changes shall be effective for the remaining term of this Agreement unless otherwise indicated in the appropriate exhibits hereto, or changed pursuant to the provisions hereof. (b) Points of Integration and Points of Delivery may be deleted and Transmission Demands may be reduced subject to the provisions of paragraphs (b)(1) through (b)(6) below. (1) Transmission Demands for individual Points of Integration may be reduced no more frequently than once in any 12-month period for any Point of Integration, subject to the provisions of paragraph (b)(4) below and the notice requirements of paragraph (b)(5) below and only: (A) to the extent that, pursuant to the provisions of agreements between the Customer and the owner of a Resource designated in the Transmission Parameters Exhibit as being integrated at such Point of Integration, the Resource owner withdraws all or a portion of the Customer's share of the Resource output; (B) to the extent that the Customer assigns all or a portion of its share of the Resource output; (C) to the extent of a permanent partial or total reduction in the Customer's entitlement to a share of the capability of the Resource; (D) to the extent of the destruction, abandonment, or sale of a Resource integrated at such Point of Integration; or 15 (E) to the extent of the discontinuation of operation of a Resource under a final order of a public official having authority to issue such order. (2) A Point of Integration may be deleted, upon 3-months' prior written notice to Bonneville, subject to paragraph (b)(4) below, but only after its Transmission Demand has been reduced to zero pursuant to paragraph (b)(1) above. (3) A Point of Delivery may be deleted, subject to mutual agreement of the Parties hereto and to paragraph (b)(4) below, upon 3-months' prior written notice to Bonneville. (4) A reduction of a Transmission Demand or the deletion of a Point of Integration or a Point of Delivery shall not decrease the Customer's obligation to pay, for the duration of this Agreement, the Use-of-Facility Charges specified in the Transmission Parameters Exhibit, except to the extent that another customer of Bonneville obligates itself to make such payments to Bonneville for the remainder of the duration of this Agreement; provided, however, that upon mutual agreement, the Parties may negotiate a termination charge in lieu of continued periodic payment of Use-of-Facility Charges for the duration of this Agreement. (5) The Customer shall provide Bonneville 3 years' written notice of any decrease in Transmission Demand, except as follows: (A) the Customer shall provide 3 months' written notice of a decrease in Transmission Demand if there is an equal increase in Transmission Demand by another customer at the same Point of Integration 16 resulting from the sale or assignment of the Resource and involving no loss of revenue to Bonneville; or (B) the Customer shall provide written notice as soon as possible if such decrease is due to involuntary loss of a Resource, or discontinuation of operation of a Resource under a final order of a public official having authority to issue such order. (C) When changes are made pursuant to this section, Bonneville shall incorporate such changes in a new Transmission Parameters Exhibit as soon as practicable. (6) Notwithstanding any other provision but subject to paragraph 10(b)(4), if Customer increases its purchases of federal power Customer shall be entitled to reduce its Transmission Demand at any POI(s) in an amount equal to such increase effective on the date that such increase in federal service occurs; provided, that Customer shall not be entitled, without Bonneville's consent, to a Total Transmission Demand in excess of the amount allowed by section 4. (c) Notwithstanding any other provision, Customer may request a seasonal POI and an associated seasonal Transmission Demand at the POI. Bonneville will respond to such request under the procedures and standards of Exhibit E. 11. OPTION TO CONVERT SERVICE Customer may convert services under this Agreement to other transmission services that Bonneville offers pursuant to the same policies which apply to Bonneville's Utility Customers; provided that, subject to subsection 12(b), the provisions of Exhibit E shall continue to apply to any alternative transmission services. 17 12. REQUESTS AND DISPUTES (a) The Customer may request additional transmission services to be provided under other agreements as provided in Exhibit E and, subject to the conditions and limitations therein, Bonneville's shall provide such services. (b) Unless otherwise expressly provided, requests and disputes regarding requests for service (including requests for additional or deleted PODs or POIs and for increased or decreased Transmission Demand) and disputes under this Agreement shall be governed by Exhibit E; provided, that if Bonneville's membership in both -------- the Western Regional Transmission Association and the Northwest Regional Transmission Association terminates, Exhibit E shall only be used for disputes regarding IR services under this Agreement and shall terminate for all other purposes; provided, that requests for other services pending as of the date of Bonneville's termination of membership shall continue to be governed by Exhibit E; provided, that if Bonneville joins a successor organization to either the -------- Westwide or Northwest RTA, or any new organization to implement Bonneville's obligations under sections 211 and 212 of the 1992 Natural Energy Policy Act, then Exhibit E (as modified if necessary to provide comparable services to those provided under such successor or new organization) shall continue to apply to all requests for services by Customer under this Agreement. 13. POWER SALES CONTRACT This Agreement does not modify the current Power Sales Contract between Bonneville and the Customer. 18 14. PRIORITY Customer shall have the same priority to Available Transmission Capacity for service under this Agreement as transmission service to other non-federal regional loads. To the extent Bonneville does not have adequate Available Transmission Capacity to meet a Customer's request, Customer shall have the same priority to Incremental Facilities for service under this Agreement as transmission service to other non-federal regional loads. 15. ASSIGNMENT With Bonneville's consent, which shall not be unreasonably withheld, Customer may assign this Agreement or services under this Agreement (e.g., PODs, POIs, and the associated Transmission Demands) to third Parties; provided, that the Transmission Service provided under this Agreement to such third party shall still serve, directly or indirectly, Customer's Facilities. 16. STABILITY RESERVES The Customer shall provide Stability Reserves up to the Transmission Demand for transmission services provided pursuant to this Agreement as provided herein: (a) Definitions: (1) "Event" is a system condition that results in the need for Stability Reserves. The beginning of an event shall be identified by a transfer trip or other signal from Bonneville to the Customer restricting delivery of energy under this Agreement. The end of the Event shall be identified by the Bonneville dispatcher's notification to Customer that transmission of all energy to which Customer is entitled under this Agreement has been restored or notice to the Customer that service to the Customer's load will continue to 19 be fully or partially restricted for reasons other than Bonneville Stability Reserves rights under this Agreement. Notwithstanding the foregoing, the Event will end (subject to reinstatement as provided herein) when an undervoltage or underfrequency load shedding signal is received by the Customer and, if such undervoltage or underfrequency load shedding signal is received by Customer prior to Event Minute 3, then the entire Event shall be deemed an event of force majeure. The Event shall be reinstated and continue as follows: (i) if the Event Duration was 5 Event Minutes or less, then the Event shall be reinstated if Bonneville restricts deliveries to Customer pursuant to its Stability Reserve rights within 2 hours or less of the last Event Minute; (ii) if the Event Duration was more than 5 Event Minutes but not more than 15 Event Minutes, then the Event shall be reinstated if Bonneville restricts deliveries to Customer pursuant to its Stability Reserve rights within 4 hours or less of the last Event Minute; (iii) if the Event Duration was more than 15 Event Minutes but not more than 22 Event Minutes, then the Event shall be reinstated if Bonneville restricts deliveries to Customer pursuant to its Stability Reserve rights within 6 hours or less of the last Event Minute; (iv) if the Event Duration was more than 22 Event Minutes, then the Event shall be reinstated if Bonneville restricts deliveries to Customer pursuant to its Stability Reserve rights within 8 hours or less of the last Event Minute. 20 (2) "Event Duration" shall be the total cumulative Event Minutes of the Event. (3) "Event Minute" shall be the minutes of restriction (or any portion thereof) during an Event. If Bonneville restricts less than its full entitlement in any Event Minute, then for purposes of defining the Event, the Event Minutes and Event Duration, Bonneville shall be deemed to have restricted the entire amount of energy wheeled under this Agreement. (4) "Material Plant Damage" shall be the inability to resume electrolysis in one or more pots without rebuilding or substantially repairing such pot(s). (5) "Stability Reserves" are those reserves, provided by the Customer under this Agreement, that are necessary to ensure the stability of the Federal Columbia River Transmission System against losses of transmission facilities pursuant to the schemes in Exhibit F or any additional scheme(s) adopted pursuant to section 16(h) herein. Stability Reserves provided under this Agreement shall not include, without limitation: (1) stability reserves provided by the Customer in the Power Sales Contract; or (2) operating reserves or forced outage reserves that Bonneville has acquired under the Power Sales Contract or under other agreements. (b) Amount of Stability Reserves. When necessary to provide Stability Reserves, Bonneville may restrict deliveries of energy wheeled under this Agreement to the Customer's aluminum smelter load (which shall not include wheel turning loads) pursuant to the schemes listed in Exhibit F and to Customer's other loads under any additional or extended scheme(s) adopted pursuant to subsection 16(h), for Stability Reserves in the following manner: (1) up to 100 percent of Customer's energy subject to restriction under this Agreement for a period of up to 30 Event Minutes per Event; 21 (2) provided, that Bonneville shall have the sole right to determine whether to restrict all or part of Customer's energy subject to restriction hereunder, when an Event occurs. For accounting purposes, Customer's wheeling turning load shall be deemed to be served by all of Customer's energy suppliers (whether the sale is made directly to Customer at its production facility or whether the sale is made at a remote point and the energy is wheeled to Customer's production facility), in proportion to the total annual amounts of energy purchased from each such supplier; provided, that if the wheel turning load is served exclusively by a supplier other than Bonneville who contracted specifically to provide such wheel turning service, such wheel turning load shall be excluded from the allocation. Notwithstanding any other provision of this Agreement, Bonneville shall use its best efforts to end an Event as soon as possible and Customer agrees to cooperate in development of mechanisms that will enhance Bonneville's ability to notify Customer of the end of an Event. Notwithstanding any other provision of this Agreement, including the breach and damages provisions, Bonneville shall have no contractual right under this Agreement which would cause Customer to incur Material Plant Damages: provided, Bonneville shall not be liable for equitable relief or damages for such Material Plant Damage occurring within 45 Event Minutes or less of an Event pursuant to a Stability Reserve scheme listed in Exhibit F or adopted pursuant to subsection 16(h). (c) Compensation for Stability Reserves. 22 (1) For the right to restrict and for any restrictions provided pursuant to subsection (b) for the schemes listed in Exhibit F, Bonneville shall pay the Customer a "Reservation Fee" and a "Use Fee": The Reservation Fee shall be $0.20 per kilowatt-year for Customer's entire Transmission Demand. The Use Fee shall be 50 mills/kWh of restricted energy during Event Minutes 1 through 15 (or any portion thereof) of an Event; and, 100 mills/kWh of restricted energy during the Event Minutes 16 through 30 (or any portion thereof) of an Event. (2) If the Customer's load is not connected to a scheme specified in Exhibit F or additional or extended scheme adopted pursuant to subsection 16(h), Bonneville shall have no obligation to pay for Stability Reserves. (3) The charges specified in this subsection shall not have any precedential effect for the purpose of determining reasonable stability reserve compensation under other agreements or for determining reasonable Stability Reserve compensation for additional or extended scheme(s) adopted pursuant to subsection 16(h) herein. Neither Party shall introduce as evidence of reasonable compensation this Agreement or anything herein related to the compensation for stability reserves in Bonneville's rate cases or similar forums or in a proceeding under subsection 16(h) herein. (4) Bonneville's payment obligation hereunder shall not include payment for restrictions under events of force majeure or under rights provided by other agreements. Such restrictions include those restrictions associated with force majeure which cause undervoltage and underfrequency load 23 shedding, future similar schemes of last resort, and outages of transmission facilities required for service hereunder. (d) Liquidated Damage. The Parties acknowledge that restrictions beyond that allowed by this Agreement may result in damage to and lost production by Customer's aluminum reduction facilities prior to Material Plant Damage which is difficult to quantify. If the Event Duration exceeds 30 Event Minutes, then Bonneville shall be liable to Customer as follows: (i) 200 mills/kWh of restricted energy during Event Minutes 31 through 45 (or portion thereof) of an Event; (ii) 400 mills/kWh of restricted energy during Event Minutes (or portion thereof), after Event Minute 45 of an Event; (iii) provided, that in lieu of (ii) and at Customer's option, if the Event Duration -------- exceeds 45 Event Minutes, and Customer incurs, in its determination, Material Plant Damage as a direct result of the restriction, then as to the portion of its production facilities that suffers Material Plan Damage, Bonneville and Customer agree that these damages can be reasonably quantified and, therefore, for that portion of its production facilities, Customer may recover actual damages (excluding only lost production and lost profits) pursuant to subsection 16(e) herein; but such actual damages shall not exceed $30 per kW of plant production facilities suffering Material Plant Damage. The liquidated damages charges in (i) and (ii), above, shall continue to apply to that portion of Customer's load which does not suffer Material Plant Damage. For purposes of this calculation, the Material Plant Damage shall be deemed to occur at the beginning of Event Minute 46. 24 (e) Arbitration. Notwithstanding any other provision of this Agreement, Bonneville agrees to arbitrate any issue arising under this section 16 to the full extent allowed under then-existing law, utilizing the procedures and standards in Exhibit E applicable to non-rate issues. The Arbitrator shall apply federal common law to determine the amount of such damages and, if Bonneville alleges any intervening events, to rule on such allegation and, if necessary, to determine Bonneville's relative share of such damages. (f) Storage. During a period of restriction under subsection 16(b), during any further restriction of deliveries in breach of this Agreement, and during the period of Customer's inability to take delivery due to such breach, all of Customer's energy scheduled and delivered to Bonneville under this Agreement shall be deemed stored, at no charge, and shall not be spilled. Subject to transmission availability, Bonneville shall deliver such energy on demand to Customer's facilities or to another entity for resale at no charge other than the transmission charge provided herein. The Customer shall take from storage all such energy prior to purchasing any additional energy required to recover from the Event. If the Customer does not take the energy from storage within 48 hours of the end of the Event, Bonneville s obligation to return such energy shall terminate. (g) Confidentiality. The Parties agree that all material related to plant technology, plant operations or to proving damages which is submitted by the Customer to Bonneville, the arbitrator or any other party in any proceeding under section 16 of this Agreement is confidential. The Parties shall jointly request a protective order from the arbitrator: (i) preserving the confidentiality of such material; (ii) limiting its use to such proceeding; and (iii) requiring its return to Customer at the conclusion of the proceeding. Bonneville agrees not to voluntarily disclose any such information outside of the agency and agrees to restrict access to and use of such information to employees necessary to and for purposes associated only with the conduct of such proceeding. 25 (h) Additional Stability Reserve Schemes. To the extent Bonneville determines: (a) the need for additional Stability Reserve scheme(s) not listed in Exhibit F that would restrict, at a frequency and duration similar to the scheme listed in Exhibit F, the energy subject to restriction under this Agreement, (b) the need to apply Stability Reserve schemes listed in Exhibit F and additional Stability Reserve scheme(s) to energy wheeled under this Agreement to non-aluminum DSIs, or (c) the need for modifications to the elements of schemes listed in Exhibit F that would significantly change the expected frequency or duration of restrictions, then: (1) Bonneville shall consult with Customer on the need for, operational characteristics as they affect Customer of, and compensation for such scheme(s), and; (2) Bonneville shall consider alternative methods and costs, including purchases from non-DSIs, for obtaining such additional reserves. Customer agrees to cooperate in the development of such scheme(s) and shall not unreasonably withhold its consent to implementation of such scheme(s). (i) Make-Up Transmission. When an Event ends, Bonneville shall permit, subject to Available Transmission Capacity, without additional demand or unauthorized, increase charges, short-term, non-recurring demand overruns of the Customer s Transmission Demand. (j) Annual Adjustments after October 1, 1995. Subsequent to October 1, 1995, on the effective date of any IP Premium or successor rate adjustment thereafter, the fees and charges (SRCx) identified in 16(c) and 16(d) shall be adjusted as follows: 26 SRCx = SRC base * IP-New ------ IP-93 where SRCx = Each of the stability reserve fees identified in 16(c) and charges identified in 16(d), as adjusted hereunder, to be effective on the effective date of any IP or successor rate adjustment on or after October 1, 1995. SRC Base = The stability reserve fees as specified in 16(c) and the changes as specified in 16(d). IP-New = Each newly adjusted average IP Premium rate or successor rate effective after October 1, 1995, in mills per kWh. Such IP Premium or successor rate shall be calculated at a load factor of 90 percent, and assuming a uniform demand in all months. If there is more than one IP Premium or successor rate, the average shall be determined by a weighting based on forecasted sales in the relevant rate case. IP-93 = The average IP Premium rate in effect on October 1, 1993, in mills per kWh. Such average IP Premium rate shall be calculated at a load factor of 90 percent, and assuming a uniform demand in all months. If there is more than one IP or successor rate, the average shall be determined by a weighting 27 based on foreacasted sales in the relevant rate case. 17. POWER SERVICES As a condition for providing service under this Agreement: (a) If Customer's Resource is located in Bonneville's load control area, then Customer shall enter into an agreement with Bonneville for the purchase of the power services necessary for operation of the Resource consistent with the standards of the North American Electric Reliability Council, the Western Systems Coordinating Council, and the Northwest Power Pool or, at Customer's option, demonstrate to Bonneville that it has purchased or otherwise provided such power services. (b) If the portion of Customer's load to which energy is wheeled under this Agreement is located in Bonneville's load control area, then Customer shall enter into an agreement with Bonneville for the purchase of the power services necessary for reliable service to such load consistent with the standards of the North American Electric Reliability Council, the Western Systems Coordinating Council, and the Northwest Power Pool or, at Customer's option, demonstrate to Bonneville that it has purchased or otherwise provided such power services. (c) Such power services may include, but shall not be limited to, control area services, scheduling services, energy shaping services, energy regulation services, station service, start-up power, Resource back-up services, and replacement power. 28 18. NO THIRD PARTY BENEFICIARIES This Agreement creates rights and obligations only between the Parties hereto. The Parties hereto expressly do not intend to create any obligation or promise of performance to any other third person or entity nor have the Parties conferred any right or remedy upon any third person or entity other than the Parties hereto, their respective successors and assigns to enforce this Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in several counterparts. UNITED STATES OF AMERICA Department of Energy Bonneville Power Administration By: SYDNEY D. BERWAGER -------------------------------------- Name: Sydney D. Berwager (Print/Type) Title: Senior Account Executive Date: 4/7/95 NORTHWEST ALUMINUM COMPANY By: --------------------------- Name: --------------------------- (Print/Type) Title: --------------------------- Date: --------------------------- 29 Exhibit A Contract No. DE-MS79-95BP94766 Northwest Aluminum Company TRANSMISSION RATE SCHEDULES AND GENERAL TRANSMISSION RATE SCHEDULE PROVISIONS --------------------------------------------- 30 EXHIBIT A 1993 TRANSMISSION RATE SCHEDULES AND GENERAL TRANSMISSION RATE SCHEDULE PROVISIONS Schedule FPT-93.1 Formula Power Transmission SECTION I. AVAILABILITY This schedule supersedes schedule FPT-91.1 for all firm transmission agreements which provide that rates may be adjusted not more frequently than once a year. It is available for firm transmission of electric power and energy using the Main Grid and/or Secondary System of the Federal Columbia River Transmission System (FCRTS). This schedule is for full-year and partial-year service and for either continuous or intermittent service when firm availability of service is required. For facilities at voltages lower than the Secondary System, a different rate schedule may be specified. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions (GTRSPs). SECTION II. RATE A. Full-Year Service The monthly charge per kilowatt of billing demand shall be one-twelfth of the sum of the Main Grid Charge and the Secondary System Charge, as applicable and as specified in the Agreement. 1. Main Grid Charge The Main Grid Charge per kilowatt of billing demand shall be the sum of one or more of the following component factors as specified in the Agreement: a. Main Grid Distance Factor: The amount computed by multiplying the Main Grid Distance by $0.0371 per mile b. Main Grid Interconnection Terminal Factor: $0.27 c. Main Grid Terminal Factor: $0.44 d. Main Grid Miscellaneous Facilities Factor: $1.88 2. Secondary System Charge The Secondary System Charge per kilowatt of billing demand shall be the sum of one or more of the following component factors as specified in the Agreement: a. Secondary System Distance Factor: The amount determined by multiplying the Secondary System Distance by $0.2784 per mile b. Secondary System Transformation Factor: $4.10 c. Secondary System Intermediate Terminal Factor: $1.29 d. Secondary System Interconnection Terminal Factor: $0.68 B. Partial-Year Service The monthly charge per kilowatt of billing demand shall be as specified in Section II.A. for all months of the year except for agreements with terms 5 years or less and which specify service for fewer than 12 months per year. The monthly charge shall be: 1. During months for which service is specified, the monthly charge defined in Section II.A., and 2. During other months, the monthly charge defined in Section II.A. multiplied by 0.2. 1 Schedule FPT-93.1 (Continued) SECTION III. BILLING FACTORS Unless otherwise stated in the Agreement, the billing demand shall be the largest of A. The Transmission Demand; B. The highest hourly Scheduled Demand for the month; or C. The Ratchet Demand. 2 Schedule FPT-91.3 Formula Power Transmission SECTION I. AVAILABILITY This schedule continues schedule FPT-91.3 for all firm transmission agreements which provide that rates may be adjusted not more frequently than once every 3 years. It is available for firm transmission of electric power and energy using the Main Grid and/or Secondary System of the Federal Columbia River Transmission System. This schedule is for full-year and partial-year service and for either continuous or intermittent service when firm availability of service is required. For facilities at voltages lower than the Secondary System, a different rate schedule may be specified. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions. SECTION II. RATE A. Full-Year Service The monthly charge per kilowatt of billing demand shall be one-twelfth of the sum of the Main Grid Charge and the Secondary System Charge, as applicable and as specified in the Agreement. 1. Main Grid Charge The Main Grid Charge per kilowatt of billing demand shall be the sum of one or more of the following component factors as specified in the Agreement: a. Main Grid Distance Factor: The amount computed by multiplying the Main Grid Distance by $0.0281 per mile b. Main Grid Interconnection Terminal Factor: $0.27 c. Main Grid Terminal Factor: $0.30 d. Main Grid Miscellaneous Facilities Factor: $1.31 2. Secondary System Charge The Secondary System Charge per kilowatt of billing demand shall be the sum of one or more of the following component factors as specified in the Agreement: a. Secondary System Distance Factor: The amount determined by multiplying the Secondary System Distance by $0.1961 per mile b. Secondary System Transformation Factor: $2.53 c. Secondary System Intermediate Terminal Factor: $0.84 d. Secondary System Interconnection Terminal Factor: $0.44 B. Partial-Year Service The monthly charge per kilowatt of billing demand shall be as specified in Section II.A. for all months of the year except for agreements with terms 5 years or less and which specify service for fewer than 12 months per year. The charge shall be: 1. During months for which service is specified, the monthly charge defined in Section II.A., and 2. During other months, the monthly charge defined in Section II.A. multiplied by 0.2. 3 Schedule FPT-91.3 (Continued) SECTION III. BILLING FACTORS Unless otherwise stated in the Agreement, the billing demand shall be the largest of: A. The Transmission Demand; B. The highest hourly Scheduled Demand for the month; or C. The Ratchet Demand. 4 Schedule IR-93 Integration of Resources SECTION I. AVAILABILITY This schedule supersedes IR-91 and is available for firm transmission service for electric power and energy using the Main Grid and/or Secondary System of the Federal Columbia River Transmission System. The definitions of Main Grid and Secondary Systems are the same as for the FPT-93.1 and FPT-91.3 rate schedules and are contained in the General Transmission Rate Schedule Provisions (GTRSPs). For facilities at voltages lower than the Secondary System, a different rate schedule may be specified. Service under this schedule is subject to BPA's GTRSPs. SECTION II. RATE The monthly charge shall be the sum of A and B where: A. Demand Charge 1. $0.424 per kilowatt of billing demand; or 2. For Points of Integration (POI) specified in the Agreement as being short distance POIs, for which Main Grid and Secondary System facilities are used for a distance of less than 75 circuit miles, the following formula applies: [0.2 + (0.8/75 x transmission distance)] ($0.424 per kilowatt of billing demand) Where: the billing demand for a short distance POI is the demand level specified in the Agreement for such POI, and the transmission distance is the circuit miles between the POI for a generating resource of the customer and a designated Point of Delivery serving load of the customer. Short distance POIs are determined by BPA after considering factors in addition to transmission distance. B. Energy Charge 1.06 mills per kilowatthour of billing energy. SECTION III. BILLING FACTORS To the extent that the Agreement provides for the customer to be billed for transmission in excess of the Transmission Demand or Total Transmission Demand, as defined in the Agreement, at the nonfirm transmission rate (currently ET-93), such transmission service shall not contribute to either the Billing Demand or the Billing Energy for the IR rate provided that the customer requests such treatment and BPA approves in accordance with the prescribed provisions in the Agreement. A. Billing Demand The billing demand shall be the largest of: 1. The Transmission Demand, except under General Transmission Agreements where a Total Transmission Demand is defined; 2. The highest hourly Scheduled Demand for the month; or 3. The Ratchet Demand. B. Billing Energy The billing energy shall be the monthly sum of scheduled kilowatthours. 5 Schedule IS-93 Southern Intertie Transmission SECTION I. AVAILABILITY This schedule supersedes IS-91 and is available for all transmission on the Southern Intertie. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions. SECTION II. RATE A. Nonfirm Transmission Rate The charge for nonfirm transmission of non-BPA power shall be 3.11 mills per kilowatthour of billing energy. This charge applies for both north-to-south and south-to-north transactions. B. Firm Transmission Rate The charge for firm transmission service shall be $0.706 per kilowatt per month of billing demand and 1.69 mills per kilowatthour of billing energy. Firm transmission will only be made available to customers under this rate schedule who have executed a contract with BPA specifying use of the Firm Transmission rate for either north-to-south or south-to-north transactions. SECTION III. BILLING FACTORS A. For services under Section II.A, the billing energy shall be the monthly sum of the scheduled kilowatthours, plus the monthly sum of kilowatthours allocated but not scheduled. The amount of allocated but not scheduled energy that is subject to billing may be reduced pro rata by BPA due to forced Intertie outages and other uncontrollable forces that may reduce Intertie capacity. The amount of allocated but not scheduled energy that is subject to billing also may be reduced upon mutual agreement between BPA and the customer. B. For services under Section 11.13, the billing demand shall be the Transmission Demand as defined in the Agreement. The billing energy shall be the monthly sum of scheduled kilowatthours, unless otherwise specified in the Agreement. 6 Schedule IN-93 Northern Intertie Transmission SECTION I. AVAILABILITY This schedule supersedes IN-91 and is available for all transmission on the Northern Intertie pursuant to an Agreement. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions. SECTION II. RATE The charge for transmission of non-BPA power on the Northern Intertie shall be 0.86 mills per kilowatthour. SECTION III. BILLING FACTORS Billing Energy The billing energy shall be the monthly sum of the scheduled kilowatthours. 7 Schedule IE-93 Eastern Intertie Transmission SECTION I. AVAILABILITY This schedule supersedes IE-91 and is available for all nonfirm transmission on the Eastern Intertie. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions. SECTION II. RATE The charge for nonfirm transmission on the Eastern Intertie shall be 2.04 mills per kilowatthour. SECTION III. BILLING FACTORS Billing Energy The billing energy shall be the monthly sum of the scheduled kilowatthours. 8 Schedule ET-93 Energy Transmission SECTION 1. AVAILABILITY This schedule supersedes ET-91, unless otherwise specified in the Agreement, with respect to delivery using Federal Columbia River Transmission System facilities other than the Southern Intertie, Eastern Intertie, or the Northern Intertie, and is available for firm (of not more than 1 year duration) or nonfirm transmission between points within the Pacific Northwest. BPA may interrupt nonfirm service which is provided under this rate schedule. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions. SECTION II. RATE The charge for transmission of non-BPA power shall be 2.02 mills per kilowatthour. SECTION III. BILLING FACTORS Billing Energy The billing energy shall be the monthly sum of scheduled kilowatthours. 9 Schedule MT-91 Market Transmission SECTION I. AVAILABILITY This schedule supersedes MT-89 and is available for Transmission Service for transactions using Federal Columbia River Transmission System facilities pursuant to the Western Systems Power Pool (WSPP) Agreement. General Transmission Rate Schedule Provisions. SECTION II. RATE The charge shall be determined in advance by BPA. The charge shall be based on the duration of the proposed transaction and shall not exceed the following rates. A. Hourly Rate The maximum charge shall be 6.5 mills per kilowatthour where the total hourly revenues from a given transaction during a calendar day shall not exceed the product of the Daily rate and the maximum demand scheduled during such day. B. Daily Rate The maximum charge shall be $.105 per kilowattday where the total demand charge revenues in any consecutive 7-day period shall not exceed the product of the Weekly rate and the highest demand experienced on any day in the 7-day period. C. Weekly Rate The maximum charge shall be $.52 per kilowattweek. D. Monthly Rate The maximum charge shall be $2.27 per kilowattmonth. SECTION III. BILLING FACTORS The billing factors shall be specified in advance by BPA, as to representing the Transmission Service use or reservation. 10 Schedule UFT-83 Use-of-Facilities Transmission SECTION I. AVAILABILITY This schedule supersedes UFT-1 and UFT-2 unless otherwise provided in the Agreement, and is available for firm transmission over specified Federal Columbia River Transmission System facilities. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions. SECTION II. RATE The monthly charge per kilowatt of Transmission Demand specified in the Agreement shall be one-twelfth of the annual cost of capacity of the specified facilities divided by the sum of Transmission Demands (in kilowatts) using such facilities. Such annual cost shall be determined in accordance with Section III. SECTION III. DETERMINATION OF TRANSMISSION RATE A. From time to time, but not more often than once in each Contract Year, BPA shall determine the following data for the facilities which have been constructed or otherwise acquired by BPA and which are used to transmit electric power: 1. The annual cost of the specified FCRTS facilities, as determined from the capital cost of such facilities and annual cost ratios developed from the Federal Columbia River Power System financial statement, including interest and amortization, operation and maintenance, administrative and general, and general plant costs. 2. The yearly noncoincident peak demands of all users of such facilities or other reasonable measurement of the facilities' peak use. B. The monthly charge per kilowatt of billing demand shall be one-twelfth of the sum of the annual cost of the FCRTS facilities used divided by the sum of Transmission Demands. The annual cost per kilowatt of Transmission Demand for a facility constructed or otherwise acquired by BPA shall be determined in accordance with the following formula: A - D Where: A = The annual cost of such facility as determined in accordance with A.1. above. D = The sum of the yearly noncoincident demands on the facility as determined in accordance with A.2. above. The annual cost per kilowatt of facilities listed in the Agreement which are owned by another entity, and used by BPA for making deliveries to the transferee, shall be determined from the costs specified in tile Agreement between BPA and such other entity. SECTION IV. DETERMINATION OF BILLING DEMAND Unless otherwise stated in the Agreement, the factor to be used in determining the kilowatts of billing demand shall be the largest of: A. The Transmission Demand in kilowatts specified in the Agreement; B. The highest hourly Measured or Scheduled Demand for the month, the Measured Demand being adjusted for power factor, or C. The Ratchet Demand. 11 Schedule TGT-1 Townsend-Garrison Transmission SECTION I. AVAILABILITY This schedule shall apply to all agreements which provide for the firm transmission of electric power and energy over transmission facilities of BPA's section of the Montana [Eastern] Intertie. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions. SECTION II. RATE The monthly charge shall be one-twelfth of the sum of the annual charges listed below, as applicable and as specified in the agreements for firm transmission. The Townsend-Garrison 500-kV lines and associated terminal, line compensation. and communication facilities are a separately identified portion of the Federal Transmission System. Annual revenues plus credit for government use should equal annual costs of the facilities, but in any given year there may be either a surplus or a deficit. Such surpluses or deficits for any year shall be accounted for in the computation of annual costs for succeeding years. Revenue requirements for firm transmission use will be decreased by any revenues received from nonfirm use and credits for all government use. The general methodology for determining the firm rate is to divide the revenue requirement by the total firm capacity requirements. Therefore, the higher the total capacity requirements, the lower will be the unit rate. If the government provides firm transmission service in its section of the Montana [Eastern] Intertie in exchange for firm transmission service in a customer's section of the Montana Intertie, the payment by the government for such transmission services provided by such customer will be made in the form of a credit in the calculation of the Intertie Charge for such customer. During an estimated 1- to 3-year period following the commercial operation of the third generating unit at the Colstrip Thermal Generating Plant at Colstrip, Montana, the capability of the Federal Transmission System west of Garrison Substation may be different from the long-term situation. It may not be possible to complete the extension of the 500-kV portion of the Federal Transmission System to Garrison by such commercial operation date. In such event, the 500/230 kV transformer will be an essential extension of the Townsend-Garrison Intertie facilities, and the annual costs of such transformer will be included in the calculation of the Intertie Charge. However, starting 1 month after extension to Garrison of the 500-kV portion of the Federal Transmission System, the annual costs of such transformer will no longer be included in the calculation of the Intertie Charge. A. Nonfirm Transmission Charge: This charge will be filed as a separate rate schedule and revenues received thereunder will reduce the amount of revenue to be collected under the Intertie Charge below. B. Intertie Charge for Firm Transmission Service: Intertie Charge = [((TAC/12)-NFR) x (CR-EC) -------] TCR SECTION III. DEFINITIONS A. TAC = Total Annual Costs of facilities associated with the Townsend-Garrison 500-kV Transmission line including terminals, and prior to extension of the 500-kV portion of the Federal Transmission System to Garrison, the 500/230 kV transformer at Garrison. Such annual costs 12 Schedule TGT-93 (Continued) are the total of: (1) interest and amortization of associated Federal investment and the appropriate allocation of general plant costs; (2) operation and maintenance costs; (3) allowance for BPA's general administrative costs which are appropriately allocable to such facilities, and (4) payments made pursuant to section 7(m) of Public Law 96-501 with respect to these facilities. Total Annual Costs shall be adjusted to reflect reductions to unpaid total costs as a result of any amounts received, under agreements for firm transmission service over the Montana Intertie, by the government on account of any reduction in Transmission Demand, termination or partial termination of any such agreement or otherwise to compensate BPA for the unamortized investment, annual cost, removal, salvage, or other cost related to such facilities. B. NFR = Nonfirm Revenues, which are equal to: (1) the product of the Nonfirm Transmission Charge described in II(A) above, and the total nonfirm energy transmitted over the Townsend- Garrison line segment under such charge for such month; plus (2) the product of the Nonfirm Transmission Charge and the total nonfirm energy transmitted in either direction by the Government over the Townsend- Garrison line segment for such month. C. CR = Capacity Requirement of a customer on the Townsend-Garrison 500-kV transmission facilities as specified in its firm transmission agreement. D. TCR = Total Capacity Requirement on the Townsend-Garrison 500-kV transmission facilities as calculated by adding (1) the sum of all Capacity Requirements (CR) specified in transmission agreements described in section I; and (2) the Government's firm capacity requirement. The Government's firm capacity requirement shall be no less than the total of the amounts, if any, specified in firm transmission agreements for use of the Montana Intertie. E. EC = Exchange Credit for each customer which is the product of: (1) the ratio of investment in the Townsend-Broadview 500-kV transmission line to the investment in the Townsend-Garrison 500-kV transmission line; and (2) the capacity which the Government obtains in the Townsend- Broadview 500-kV transmission line through exchange with such customer. If no exchange is in effect with a customer, the value of EC for such customer shall be zero. 13 Schedule AC-93 Southern Intertie Annual Cost SECTION I. AVAILABILITY This schedule is applicable to all parties (New Owners) that execute PNW AC Intertie Capacity Ownership Agreements (Agreements) and will be effective on the date described in the Agreement. Service under this schedule is subject to BPA's General Transmission Rate Schedule Provisions. SECTION II. RATE The rate charges reflect the terms of the Memorandum of Understanding (MOU), signed in the Fall of 1991, between BPA and potential New Owners. The MOU provides for the payment by New Owners of their prorated share of: (1) BPA's annual operations, maintenance, and general plant expense (including applicable overheads) properly chargeable to the AC Intertie facilities; and (2) BPA's share of capitalized replacements on the AC Intertie. The monthly charge shall be the sum of the charges specified in sections II.A and II.B. A. Operations, Maintenance, and General Plant The monthly charge shall equal $325 per megawatt of billing demand. B. Replacements The monthly charge shall equal $0 per megawatt of billing demand. SECTION III. ADJUSTMENT TO REPLACEMENTS RATE A. Determination of Billing Adjustment New Owners will receive a billing adjustment if BPA incurs AC Intertie replacement cost during the rate period. The Replacements Rate Adjustment equals: AC lntertie work orders ($000) * % ---------------------------------- 725 MW * # months where: "# months" equals: (1) the number of months that this rate schedule is in effect during the fiscal year for the Initial Replacements Rate Adjustment; or (2) the number of months in the rate period for the Final Replacements Rate Adjustment; and "%" equals the New Owners' percentage share of BPA's total AC Intertie Rated Transfer Capability as specified in the Agreements. B. Initial Replacements Rate Adjustment New Owners will receive a billing adjustment for each fiscal year that BPA incurs AC Intertie replacement cost. At the end of each fiscal year, the cost associated with AC Intertie capital replacement work orders that have closed during the fiscal year will be determined. The unit rate that would result using these closed work orders is the basis of the Initial Replacements Rate Adjustment. 1. Notice Provisions Following each fiscal year, BPA shall notify all New Owners by December 15 of the proposed Replacements Rate Adjustment. BPA will provide the calculation of the adjustment and a short description of the work performed and the associated cost used as the basis for billing adjustment. In addition to written notification, BPA may, but is not obligated to, hold a public meeting to clarify its determinations. 14 Schedule AC-93 (Continued) Written comments on the Initial Replacements Rate Adjustment will he accepted through the end of January. Consideration of comments submitted by the New Owners may result in the billing adjustment differing from the initially proposed adjustment. BPA shall notify all New Owners of the Initial Replacements Rate Adjustment by the last day of February. 2. Adjustment of Monthly Bills An adjustment will be made on the New Owner's monthly bill prepared during March. The Initial Replacements Rate adjustment will be multiplied by the sum of the monthly billing factors from the relevant fiscal year (i.e., the New Owner's share in megawatts of BPA's PNW AC Intertie Rated Transfer Capability multiplied by the number of months that this rate schedule is effective during the fiscal year). The Initial Replacements Rate Adjustment will appear as a charge to the New Owner on the monthly bill prepared during March. C. Final Replacements Rate Adjustment The actual costs associated with the AC Intertie capital replacement work orders that occur during the rate period may change after BPA performs its final analysis of the work orders. BPA shall compare the unit rate for the rate period using the results of the final work order analysis to the weighted average of the unit rates from the Initial Replacements Rate Adjustments. 1. Notice Provisions BPA shall notify all New Owners in May 1998 of the results of the calculations, an explanation of work order change(s), and any resulting billing adjustment. Written comments from New Owners will be accepted through the end of June. BPA shall notify all New Owners of the Final Replacements Rate Adjustment by July 31. Consideration of comments submitted by the New Owners may result in the Final Replacements Rate Adjustment differing from the initially proposed adjustment. 2. Adjustment of Monthly Bills If the absolute value of the Final Replacements Rate Adjustment is greater than or equal to $1 per megawatt per month, an adjustment will be made on the New Owner's monthly bill prepared during August. For each New Owner, the Final Replacements Rate Adjustment will be multiplied by the sum of the monthly billing factors from the relevant fiscal years (i.e., the New Owner's share in megawatts of BPA's PNW AC Intertie Rated Transfer Capability multiplied by the number of months that this rate schedule is effective during the fiscal years). The Final Replacements Rate Adjustment will appear as a charge or credit to the New Owner on the monthly bill prepared during August. Interest, as determined by BPA's Office of Financial Management, will be included in any adjustment. SECTION IV. BILLING FACTOR The billing demand shall be the New Owner's capacity ownership share in megawatts of BPA's PNW AC Intertie Rated Transfer Capability as specified in the Agreement. 15 General Transmission Rate Schedule Provisions SECTION I. ADOPTION OF REVISED TRANSMISSION RATE SCHEDULES AND GENERAL TRANSMISSION RATE SCHEDULE PROVISIONS (GTRSPs) A. Approval of Rates These rate schedules and GTRSPs shall become effective upon interim approval or upon final confirmation and approval by FERC. BPA will request FERC approval effective October 1, 1993. B. General Provisions These 1993 Transmission Rate Schedules and associated GTRSPs are virtually identical to and supersede BPA's 1991 Transmission Rate Schedules and GTRSPs (which became effective October 1, 1991) but do not supersede prior rate schedules required by agreement to remain in force. Transmission service provided shall be subject to the following Acts, as amended: the Bonneville Project Act, the Regional Preference Act (P.L. 88-552), the Federal Columbia River Transmission System Act, and the Pacific Northwest Electric Power Planning and Conservation Act, and the Energy Policy Act of 1992, Pub. L. 102-486, 106 Stat. 2776 (1992). The meaning of terms used in the transmission rate schedules shall be as defined in agreements or provisions which are attached to the Agreement or as in any of the above Acts. C. Interpretation If a provision in the executed Agreement is in conflict with a provision contained herein, the former shall prevail. SECTION II. BILLING FACTOR DEFINITIONS AND BILLING ADJUSTMENTS A. Billing Factors 1. Scheduled Demand The largest of hourly amounts wheeled which are scheduled by the customer during the time period specified in the rate schedules. 2. Metered Demand Metered Demand in kilowatts shall be the largest of the 60-minute clock-hour integrated demands measured by meters installed at each POD during each time period specified in the applicable rate schedule. Such measurements shall be made as specified in the Agreement. BPA, in determining the Metered Demand, will exclude any abnormal readings due to or resulting from: (a) emergencies or breakdowns on, or maintenance of, the FCRTS; or (b) emergencies on the customer's facilities, provided that such facilities have been adequately maintained and prudently operated as determined by BPA. If more than one class of power is delivered to any POD, the portion of the metered quantities assigned to any class of power shall be as agreed to by the parties. The amount so assigned shall constitute the Metered Demand for such class of power. 16 3. Transmission Demand The demand as defined in the Agreement. 4. Total Transmission Demand The sum of the transmission demands as defined in the Agreement. 5. Ratchet Demand The maximum demand established during the previous 11 billing months. Exception: If a Transmission Demand or Total Transmission Demand has been decreased pursuant to the terms of the Agreement during the previous 11 billing months, such decrease will be reflected in determining the Ratchet Demand. B. Billing Adjustments Average Power Factor The adjustment for average power factor, when specified in a transmission rate schedule or in the Agreement, shall be made in accordance with the average power factor section of the General Wheeling Provisions. To maintain acceptable operating conditions on the Federal system, BPA may restrict deliveries of power at any time that the average leading power factor or average lagging power factor for all classes of power delivered to such point or to such system is below 85 percent. SECTION III. OTHER DEFINITIONS Definitions of the terms below shall be applied to these provisions and the Transmission Rate Schedules, unless otherwise defined in the Agreement. A. Agreement An agreement between BPA and a customer to which these rate schedules and provisions may be applied. B. Eastern Intertie The segment of the FCRTS for which the transmission facilities consist of the Townsend- Garrison double-circuit 500-kV transmission line segment including related terminals at Garrison. C. Electric Power Electric peaking capacity (kW) and/or electric energy (kWh). D. Federal Columbia River Transmission System The transmission facilities of the Federal Columbia River Power System, which include all transmission facilities owned by the government and operated by BPA, and other facilities over which BPA has obtained transmission rights. E. Firm Transmission Service Transmission service which BPA provides for any non-BPA power except for transmission service which is scheduled as nonfirm. If the firm service is provided pursuant to the Agreement, the terms of the Agreement may further define the service. F. Integrated Network The segment of the FCRTS for which the transmission facilities provide the bulk of transmission of electric power within the Pacific Northwest, excluding facilities not segmented to the network as shown in the Wholesale Power Rate Development Study used in BPA's rate development. 17 G. Main Grid As used in the FPT and IR rate schedules, that portion of the Integrated Network with facilities rated 230 kV and higher. H. Main Grid Distance As used in the FPT rate schedules, the distance in airline miles on the Main Grid between the POI and the POD, multiplied by 1.15. I. Main Grid Interconnection Terminal As used in the FPT rate schedules, Main Grid terminal facilities that interconnect the FCRTS with non-BPA facilities. J. Main Grid Miscellaneous Facilities As used in the FPT rate schedules, switching, transformation, and other facilities of the Main Grid not included in other components. K. Main Grid Terminal As used in the FPT rate schedules, the Main Grid terminal facilities located at the sending and/or receiving end of a line exclusive of the Interconnection terminals. L. Nonfirm Transmission Service Interruptible transmission service which BPA may provide for non-BPA power. M. Northern Intertie The segment of the FCRTS for which the transmission facilities consist of two 500 kV lines between Custer Substation and the United States-Canadian border, one 500 kV line between Custer and Monroe Substations, and two 230 kV lines from Boundary Substation to the United States-Canadian border, and the associated substation facilities. N. Point of Integration (POI) Connection points between the FCRTS and non- BPA facilities where non-Federal power is made available to BPA for wheeling. O. Point of Delivery (POD) Connection points between the FCRTS and non- BPA facilities where non-Federal power is delivered to a customer by BPA. P. Secondary System As used in the FPT and IR rate schedules, that portion of the Integrated Network facilities with operating voltage of 115 kV or 69 kV. Q. Secondary System Distance As used in the FPT rate schedules, the number of circuit miles of Secondary System transmission lines between the secondary POI and the Main Grid or the secondary POD, or the Main Grid and the secondary POD. R. Secondary System Interconnection Terminal As used in the FPT rate schedules, the terminal facilities on the Secondary System that interconnect the FCRTS with non-BPA facilities. S. Secondary System Intermediate Terminal As used in the FPT rate schedules, the first and final terminal facilities in the Secondary System transmission path exclusive of the Secondary System Interconnection terminals. T. Secondary Transformation As used in the FPT rate schedules, transformation from Main Grid to Secondary System facilities. 18 U. Southern Intertie The segment of the FCRTS for which the major transmission facilities consist of two 500 kV AC lines from John Day Substation to the Oregon-California border; a portion of the 500 kV AC line from Buckley Substation to Summer Lake Substation; when completed, the Third AC facilities, which include Captain Jack Substation and the Alvey-Meridian 500 kV AC line; one 1,000 kV DC line between the Celilo Substation and the Oregon-Nevada border, and associated substation facilities. V. Transmission Service As used in the MT rate schedule, Transmission Service is as defined in the Western Systems Power Pool Agreement. SECTION IV. BILLING INFORMATION A. Payment of Bills Bills for transmission service shall be rendered monthly by BPA. Failure to receive a bill shall not release the customer from liability for payment. Bills for amounts due of $50,000 or more must be paid by direct wire transfer: customers who expect that their average monthly bill will not exceed $50,000 and who expect special difficulties in meeting this requirement may request, and BPA may approve, an exemption from this requirement. Bills for amounts due BPA under $50,000 may be paid by direct wire transfer or mailed to the Bonneville Power Administration, P.O. Box 6040, Portland, Oregon 97228-6040, or to another location as directed by BPA. The procedures to be followed in making direct wire transfers will be provided by the Office of Financial Management and updated as necessary. 1. Computation of Bills The transmission billing determinant is the electric power quantified by the method specified in the Agreement or Transmission Rate Schedule. Scheduled power or metered power will be used. The transmission customer shall provide necessary information to BPA for any computation required to determine the proper charges for use of the FCRTS, and shall cooperate with BPA in the exchange of additional information which may be reasonably useful for respective operations. Demand and energy billings for transmission service under each applicable rate schedule shall be rounded to whole dollar amounts, by eliminating any amount which is less than 50 cents and increasing any amounts from 50 cents through 99 cents to the next higher dollar. 2. Estimated Bills At its option, BPA may elect to tender an estimated bill to be followed at a subsequent billing date by a final bill. The estimated bill shall have the validity of and be subject to the same payment provisions as a final bill. 3. Billing Month For charges based on scheduled quantities, the billing month is the calendar month. For charges based on metered quantities, the billing month is defined as the interval between scheduled meter-reading dates. The billing month will not exceed 31 days in any case. While it may be necessary to read meters on a day other than the scheduled meter-reading date, for determination of billing demand, the billing month will cease at 2400 hours on the last scheduled meter- reading date. Schedules will be predetermined. The customer must give 30 days notice to request a change to the schedule. 19 4. Due Date Bills shall be due by close of business on the 20th day after the date of the bill (due date). Should the 20th day be a Saturday, Sunday, or holiday (as celebrated by the customer), the due date shall be the next following business day. 5. Late Payment Bills not paid in full on or before close of business on the due date shall be subject to a penalty charge of $25. In addition, an interest charge of one-twentieth percent (0.05 percent) shall be applied each day to the sum of the unpaid amount and the penalty charge. This interest charge shall be assessed on a daily basis until such time as the unpaid amount and penalty charge are paid in full. Remittances received by mail will be accepted without assessment of the charges referred to in the preceding paragraph provided the postmark indicates the payment was mailed on or before the due date. Whenever a power bill or a portion thereof remains unpaid subsequent to the due date and after giving 30 days' advance notice in writing, BPA may cancel the contract for service to the customer. However, such cancellation shall not affect the customer's liability for any charges accrued prior thereto under such agreement. 6. Disputed Billings In the event of a disputed billing, full payment shall be tendered to BPA and the disputed amount noted. Disputed amounts are subject to the late payment provisions specified above. BPA shall separately account for the disputed amount. If it is determined that the customer is entitled to the disputed amount, BPA shall refund the disputed amount with interest, as determined by BPA's Office of Financial Management. BPA retains the right to verify, in a manner satisfactory to the Administrator, all data submitted to BPA for use in the calculation of BPA's rates and corresponding rate adjustments. BPA also retains the right to deny eligibility for any BPA rate or corresponding rate adjustment until all submitted data have been accepted by BPA as complete, accurate, and appropriate for the rate or adjustment under consideration. 7. Revised Bills As necessary, BPA may render a revised bill. a. If the amount of the revised bill is less than or equal to the amount of the original bill, the revised bill shall replace all previous bills issued by BPA that pertain to the specified customer for the specified billing period and the revised bill shall have the same date as the replaced bill. b. If a revision causes an additional amount to be due BPA or the specified customer beyond the amount of the original bill, a revised bill will be issued for the difference and the date of the revised bill shall be its date of issue. 20 Exhibit B Contract No. DE-MS79-95BP94766 Northwest Aluminum Company GENERAL WHEELING PROVISIONS --------------------------- EXHIBIT B GWP Form-4R (04-15-83) GENERAL WHEELING PROVISIONS --------------------------- - -------------------------------------------------------------------------------- Index to Sections ----------------- Section Page - ------- ---- GENERAL APPLICATION 1. Interpretation.................................................... 2 2. Definitions ...................................................... 2 3. Prior Demands .................................................... 4 4. Measurements...................................................... 4 5. Measurements and Installation of Meters........................... 5 6. Tests of Metering Installations................................... 5 7. Adjustment for Inaccurate Metering................................ 5 8. Character of Service.............................................. 6 9. Point(s) of Delivery and Delivery Voltage......................... 6 10. Combining Deliveries Coincidentally............................... 6 11. Suspension of Deliveries.......................................... 6 12. Continuity of Service............................................. 6 13. Uncontrollable Forces ............................................ 7 14. Reducing Charges for Interruptions................................ 7 15. Net Billing....................................................... 7 16. Average Power Factor.............................................. 7 17. Permits........................................................... 8 18. Ownership of Facilities........................................... 8 19. Adjustment for Change of Conditions............................... 8 20. Dispute Resolution and Arbitration................................ 9 21. Contract Work Hours and Safety Standards.......................... 10 22. Convict Labor..................................................... 11 23. Equal Employment Opportunity...................................... 11 24. Additional Provisions ............................................ 12 25. Reports........................................................... 12 26. Assignment of Contract............................................ 12 27. Waiver of Default ................................................ 13 28. Notices and Computation of Time .................................. 13 29. Interest of Member of Congress ................................... 13 APPLICABLE ONLY IF TRANSFEREE IS A PARTY TO THIS CONTRACT 30. Balancing Phase Demands........................................... 13 31. Adjustment for Unbalanced Phase Demands........................... 13 32. Changes in Requirements or Characteristics........................ 13 33. Inspection of Facilities.......................................... 13 34. Electric Disturbances............................................. 14 35. Harmonic Control.................................................. 15 APPLICABLE ONLY IF TRANSFEREE IS NOT A PARTY TO THIS CONTRACT 36. Protection of the Transferor...................................... 15 RELATING ONLY TO RURAL ELECTRIFICATION BORROWERS 37. Approval of Contract.............................................. 15 APPLICABLE ONLY IF BONNEVILLE IS THE TRANSFEROR 38. Equitable Adjustment of Rates..................................... 15 - -------------------------------------------------------------------------------- GENERAL APPLICATION ------------------- 1. Interpretation. (a) The provisions in this exhibit shall be deemed to be a part of the contract body to which they are an exhibit. If a provision in such contract body is in conflict with a provision contained herein, the former shall prevail. (b) If a provision in the General Transmission Rate Schedule Provisions is in conflict with a provision in this exhibit or the contract body, this exhibit or the contract body shall prevail. (c) Nothing contained in this contract shall, in any manner, be construed to abridge, limit, or deprive any party thereto of any means of enforcing any remedy, either at law or in equity, for the breach of any of the provisions thereof which it would otherwise have. 2. Definitions. As used in this contract: (a) "Contractor," "Utility" or "Borrower" means the party to this contract other than Bonneville. (b) "Federal System" or "Federal System Facilities" means the facilities of the Federal Columbia River Power System, which for the purposes of this contract shall be deemed to include the generating facilities of the Government in the Pacific Northwest for which Bonneville is designated as marketing agent; the facilities of the Government under the jurisdiction of Bonneville; and any other facilities: (1) from which Bonneville receives all or a portion of the generating capability (other than station service) for use in meeting Bonneville's loads, such facilities being included only to the extent Bonneville has the right to receive such capability; provided, however, that "Bonneville's loads" shall not include that portion of the loads of any Bonneville customer which are served by a nonfederal generating resource purchased or owned directly by such customer which may be scheduled by Bonneville; (2) which Bonneville may use under contract, or license; or (3) to the extent of the rights acquired by Bonneville pursuant to the Treaty, between the Government and Canada, relating to the cooperative development of water resources of the Columbia River Basin, signed in Washington, D.C., on January 17, 1961. (c) "Integrated Demand" means the number of kilowatts which is equal to the number of kilowatt-hours delivered at any point during a clock hour. (d) "Measured Demand" means the maximum Integrated Demand for a billing month determined from measurements made as specified in the contract or as determined in section 4 hereof when metering or other data are not available 2 for such purpose. Bonneville, in determining the Measured Demand, will exclude any abnormal Integrated Demands due to, or resulting from (a) emergencies or breakdowns on, or maintenance of, either parties' facilities, and (b) emergencies on facilities of the Transferee, provided that such facilities have been adequately maintained and prudently operated as determined by Bonneville. If the contract provides for delivery of more than one class of power to a Transferee at any Point of Delivery, the portion of each Integrated Demand assigned to any class of power shall be determined as specified in the contract. The portion of the Integrated Demand so assigned shall constitute the Measured Demand for such class of power. (e) "Month" means the period commencing at the time when the meters mentioned in this contract are read by Bonneville and ending approximately 30 days thereafter when a subsequent reading of such meters is made by Bonneville. (f) "Point(s) of Delivery" means the point(s) of delivery listed either in the Points of Delivery Exhibit to this contract or in the body of this contract. (g) "System" or "Facilities" means the transmission facilities: (1) which are owned or controlled by either party, or (2) which either party may use under lease, easement, or license. (h) "Transferee" means an entity which receives power or energy from the system of the Transferor. (i) "Transferor" means an entity which receives at one point on its system a supplying entity's power or energy and makes such power or energy available at another point on its system for the account of the delivering entity or a third party. (j) "Uncontrollable Forces" means: (1) strikes or work stoppage affecting the operation of the Contractor's works, system, or other physical facilities or of the Federal System Facilities or the physical facilities of any Transferee upon which such operation is completely dependent; the term "strikes or work stoppage" shall be deemed to include threats of imminent strikes or work stoppage which reasonably require a party or Transferee to restrict or terminate its operations to prevent substantial loss or damage to its works, system, or other physical facilities; or (2) such of the following events as the Contractor or Bonneville or any Transferee by exercise of reasonable diligence and foresight, could not reasonably have been expected to avoid: (A) events, reasonably beyond the control of either party or any Transferee, causing failure, damage, or destruction of any works, system or facilities of such party or Transferee; the word "failure" 3 shall be deemed to include interruption of, or interference with, the actual operation of such works, system, or facilities; (B) floods or other conditions caused by nature which limit or prevent the operation of, or which constitute an imminent threat of damage to, any such works, system, or facilities; and (C) orders and temporary or permanent injunctions which prevent operation, in whole or in part, of the works, system, or facilities of either party or any Transferee, and which are issued in any bona fide proceeding by: i. any duly constituted court of general jurisdiction; or ii. any administrative agency or officer, other than Bonneville or its officers, provided by law (a) if said party or Transferee has no right to a review of the validity of such order by a court of competent jurisdiction; or (b) if such order is operative and effective unless suspended, set aside, or annulled by a court of competent jusidiction and such order is not suspended, set aside, or annulled in a judicial proceeding prosecuted by said party or Transferee in good faith; provided, however, that if such order is suspended, set aside, or annulled in such a judicial proceeding, it shall be deemed to be an "uncontrollable force" for the period during which it is in effect; provided, further, that said party or Transferee, shall not be required to prosecute such a proceeding, in order to have the benefits of this section, if the parties agree that there is no valid basis for contesting the order. The tem "operation" as used in this subsection shall be deemed to include construction, if construction is required to implement the contract and is specified therein. 3. Prior Demands. (a) In determining any credit demand mentioned in, or money compensation to be paid under this contract for any month, Integrated Demands at which electric energy was delivered by the Transferor at Points of Delivery mentioned herein for the account of the other party to this contract prior to the date upon which the contract takes effect shall be considered in the same manner as if this contract had been in effect. (b) If either party has delivered electric power and energy to the other party at any Point of Delivery specified in this contract or in any previous contract, and such Point of Delivery is superseded by another Point of Delivery specified in this contract, the Measured Demands, if any, at the superseded Point of Delivery shall be considered for the purpose of determining the charges paid to the Transferor for the electric power and energy delivered under this contract at such superseded point. 4. Measurements. Except as it is otherwise provided in section 7, each measurement of each meter mentioned in this contract shall be the measurement 4 automatically recorded by such meter or, at the request of either party, the measurement as mutually determined by the best available information. If it is provided in this contract that measurements made by any of the meters specified therein are to be adjusted for losses, such adjustments shall be made by using factors, or by compensating the meters, as agreed upon by the parties hereto. If changes in conditions occur which substantially affect any such loss factor or compensation, it will be changed in a manner which will conform to such change in conditions. 5. Measurements and Installation of Meters. Bonneville may at any time install a meter or metering equipment to make the measurements for any Point of Delivery required for any computation or determination mentioned in this contract, and if so installed, such measurements shall be used thereafter in such computation or determination. 6. Tests of Metering Installations. Each party to this contract shall, at its expense, test its metering installations associated with this contract at least once every two years, and, if requested to do so by the other party, shall make additional tests or inspections of such installations, the expense of which shall be paid by such other party unless such additional tests or inspections show the measurements of such installations to be inaccurate as specified in section 7. Each party shall give reasonable notice of the time when any such test or inspection is to be made to the other party who may have representatives present at such test or inspection. Any component of such installations found to be defective or inaccurate shall be adjusted, repaired or replaced to provide accurate metering. 7. Adjustment for Inaccurate Metering (a) If any meter mentioned in this contract fails to register, or if the measurement made by such meter during a test made as provided in section 6 varies by more than one percent from the measurement made by the standard meter used in such test, or if an error in meter reading occurs, adjustment shall be made correcting all measurements for the actual period during which such innacurate measurements were made, if such period can be determined. If such period cannot be determined, the adjustment shall be made for the period immediately preceding the test of such meter which is equal to the lesser of (a) one-half the time from the date of the last preceding test of such meter, or (b) six months. Such corrected measurements shall be used to recompute the amounts of any electric power and energy to be made available, or any credits to be made in any exchange energy account, and of any money compensation to be paid to the Transferor as provided in this contract. (b) If the credit theretofore made to the Transferor in the exchange energy account varies from the credit to be made as recomputed, the amount of the variance will be credited in such exchange energy account to the party entitled thereto. (c) If the money compensation theretofore paid to the Transferor varies from the money compensation to be paid as recomputed, the amount of the variance will be paid to the party entitled thereto after both parties have agreed to such recomputation and within 30 days after receipt of invoice by the designated payment office of the payer; provided, however, that the other 5 party may deduct such amount due it from any money compensation which thereafter becomes due the Transferor under this contract. 8. Character of Service. Unless otherwise specifically provided for in the contract, electric power and energy made available pursuant to this contract shall be in the form of three-phase current, alternating at a nominal frequency of 60 hertz. 9. Point(s) of Delivery and Delivery Voltage. Electric power and energy shall be delivered to each Transferee at such point or points and at such voltage or voltages as are agreed upon by the parties hereto. 10. Combining Deliveries Coincidentally. If it is provided in this contract that charges for electric power and energy made available at two or more Points of Delivery will be made by combining deliveries at such points coincidentally: (a) the total Measured Demand to be considered in determining the billing demand for each billing month shall be the largest sum obtained by adding for each demand interval of such month the corresponding Integrated Demands of the Transferee at all such points after adjusting said Integrated Demands as appropriate to such points; (b) the number of kilowathours to be used in determining the energy charge, if any, and the average power factor at which electric energy is delivered at such points under this contract, during such month, shall be the sum of the amounts of electric energy delivered at such points under this contract during such month; and (c) the number of reactive kilovolt-ampere-hours to be used in determining such average monthly power factor shall be the sum of the reactive kilovolt-ampere-hours delivered at such points under this contract such month. 11. Suspension of Deliveries. The other party to this contract may at any time notify the Transferor in writing to suspend the deliveries of electric power and energy provided for in this contract. Upon receipt of any such notice, the Transferor will forthwith discontinue, and will not resume, such deliveries until notified to do so by the other party, and upon receipt of such notice from the other party to do so, will forthwith resume such deliveries. 12. Continuity of Service. Either party may temporarily interrupt or reduce deliveries of electric power and energy if such party determines that such interruption or reduction is necessary or desirable in case of system emergencies, Uncontrollable Forces, or in order to install equipment in, make repairs to, make replacements within, make investigations and inspections of, or perform other maintenance work on its system. Except in case of emergency and in order that each party's operations will not be unreasonably interfered with, such party shall give notice to the other party of any such interruption or reduction, the reason therefor, and the probable duration thereof to the extent such party has knowledge thereof. Each party shall effect the use of temporary facilities or equipment to minimize the effect of any such interruption or outage to the extent reasonable or appropriate. 6 13. Uncontrollable Forces. Each party shall notify the other as soon as possible of any Uncontrollable Forces which may in any way affect the delivery of power hereunder. In the event the operations of either party are interrupted or curtailed due to such Uncontrollable Forces, such party shall exercise due diligence to reinstate such operations with reasonable dispatch. 14. Reducing Charges for Interruptions. If deliveries of electric power and energy to the Transferee are suspended, interrupted, interfered with or curtailed due to Uncontrollable Forces on either the Transferee's System or Transferor's System, or if the Transferor interrupts or reduces deliveries to the Transferee for any of the reasons stated in section 12 hereof, the credit in the exchange energy account which would otherwise be made, or the money compensation which would otherwise be paid to the Transferor, shall be appropriately reduced. No interruption, or equivalent interruption, of less than 30 minutes duration will be considered for computation of such reduction in charges. 15. Net Billing. Upon mutual agreement of the parties, payment due one party may be offset against payments due the other party under all contracts between the parties hereto for the sale and exchange of electric power and energy, use of transmission facilities, operation and maintenance of electric facilities, lease of electric facilities, mutual supply of emergency and standby electric power and energy, and under such other contracts between such parties as the parties may agree, unless otherwise provided in existing contracts between the parties. Under contracts included in this procedure, all payments due one party in any month shall be offset against payments due the other party in such month, and the resulting net balance shall be paid to the party in whose favor such balance exists unless the latter elects to have such balance carried forward to be added to the payments due it in a succeeding month. 16. Average Power Factor. (a) The formula for determining average power factor is as follows: Average Power Factor = Kilowatthours --------------------------------------------------------- /(Kilowatthours)2 + (Reactive Kilovolt-ampere-hours)2 The data used in the above formula shall be obtained from meters which are ratcheted to prevent reverse registration. (b) When delivery of electric power and energy by the Transferor at any point is commingled with any other class or classes of power and it is impracticable to separately meter the kilowatthours and reactive kilovolt-ampere-hours for each class, the average power factor of the total delivery of such electric power and energy for the month will be used, where applicable, as the power factor for each of the separate classes. (c) Except as it is otherwise specifically provided in this contract, no adjustment will be made for power factor at any point of delivery described in this contract while the varhours delivered at such point are not measured. 7 (d) The Transferor may, but shall not be obligated to, deliver electric energy hereunder at a power factor of less than 0.85 leading or lagging. 17. Permits. (a) If any equipment or facilities associated with any Point of Delivery and belonging to a party to this contract are or are to be located on the property of the other party, a permit to install, test, maintain, inspect, replace, repair, and operate during the term of this contract and to remove such equipment and facilities at the expiration of said term, together with the right of entry to said property at all reasonable times in such term, is hereby granted by the other party. (b) Each party shall have the right at all reasonable times to enter the property of the other party for the purpose of reading any and all meters mentioned in this contract which are installed on such property. (c) If either party is required or permitted to install, test, maintain, inspect, replace, repair, remove, or operate equipment on the property of the other, the owner of such property shall furnish the other party with accurate drawings and wiring diagrams of associated equipment and facilities, or, if such drawings or diagrams are not available, shall furnish accurate information regarding such equipment or facilities. The owner of such property shall notify the other party of any subsequent modification which may affect the duties of the other party in regard to such equipment, and furnish the other party with accurate revised drawings, if possible. 18. Ownership of Facilities. (a) Except as otherwise expressly provided, ownership of any and all equipment, and of all salvable facilities installed or previously installed by a party to this contract on the property of the other party shall be and remain in the installing party. (b) Each party shall identify all movable equipment and all other salvable facilities which are installed by such party on the property of the other by permanently affixing thereto suitable markers plainly stating the name of the owner of the equipment and facilities so identified. Within a reasonable time subsequent to initial installation, and subsequent to any modification of such installation, representatives of the parties shall jointly prepare an itemized list of said movable equipment and facilities. 19. Adjustment for Change of Conditions. If changes in conditions hereafter occur which substantially affect any factor required by this contract to be used in determining (a) any credit in any exchange energy account to be made, money compensation to be paid, or amount of electric power and energy or losses to be made available to one party by the other party, or (b) any maximum replacement demand, or average power factor mentioned in this contract, such factor will be changed in an equitable manner which will conform to such changes of conditions. If an increase in the capacity of the facilities being used by the Transferor in making deliveries hereunder is required at any time after execution of this contract to enable the Transferor to make the deliveries herein required together with those required for its own operations, the construction or installation of additional or other 8 equipment or facilities for that purpose shall be deemed to be a change of conditions within the meaning of the preceding sentence. If, pursuant to the terms of the agreement establishing such exchange energy account, another rate is substituted for the rate to be used in settling the balance in such account, the number of kilowatthours to be credited to the Transferor in such account for each month as provided in this agreement, shall be changed for each month thereafter to the amount computed by multiplying such number of kilowatthours by 2.5 mills and dividing the resulting product by the currently effective substituted rate in mills per kilowatthour. 20. Dispute Resolution and Arbitration. (a) Pending resolution of a disputed matter the parties will continue performance of their respective obligations pursuant to this contract. If the parties cannot reach timely mutual agreement on any matter in the administration of this contract Bonneville shall, unless otherwise specifically provided for in subsection (b) below and, to the extent necessary for its continued performance, make a determination of such matter without prejudice to the rights of the other party. Such determination shall not constitute a waiver of any other remedy belonging to the Contractor. (b) The questions of fact stated below shall be subject to arbitration. Other questions of fact under this contract may be submitted to arbitration upon written mutual agreement of the parties. The party calling for arbitration shall serve notice in writing upon the other party, setting forth in detail the question or questions to be arbitrated and the arbitrator appointed by such party. The other party shall, within 10 days after the receipt of such notice, appoint a second arbitrator, and the two so appointed shall choose and appoint a third. In case such other party fails to appoint an arbitrator within said 10 days, or in case the two so appointed fail for 10 days to agree upon and appoint a third, the party calling for the arbitration, upon 5 days' written notice delivered to the other party, shall apply to the person who at the time shall be the presiding judge of the United States Court of Appeals for the Ninth Circuit for appointment of the second and third arbitrator, as the case may be. The determination of the question or questions submitted for arbitration shall be made by a majority of the arbitrators and shall be binding on the parties. Each party shall pay for the services and expenses of the arbitrator appointed by or for it, for its own attorney fees, and for compensation for its witnesses or consultants. All other costs incurred in connection with the arbitration shall be shared equally by the parties thereto. The questions of fact to be determined as provided in this section shall be limited to: (1) the determination of the measurements to be made by the parties hereto pursuant to section 4; (2) the correction of the measurements to be made pursuant to section 7; 9 (3) the duration of the interruption or equivalent interruption in section 14; (4) whether changes in conditions mentioned in section 19 have occurred; (5) whether the changes mentioned in section 30 were made "promptly"; (6) whether an increase or decrease in load or change in load factor mentioned in section 32 is unusual; (7) any issue which both parties agree is an issue of fact mentioned in sections 30, 31, and 34; (8) the occurrence of an abnormal nonrecurring demand and the amount and time thereof; (9) whether a party has complied with section 34(b); and (10) the acceptable level of harmonics for purposes of section 35. 21. Contract Work Hours and Safety Standards. This contract, if and to the extent required by applicable law and if not otherwise exempted, is subject to the following provisions: (a) Overtime Requirements. No Contractor or subcontractor contracting for any part of the contract work which may require or involve the employment of laborers or mechanics, shall require or permit any laborer or mechanic in any workweek in which such worker is employed on such work to work in excess of 8 hours in any calendar day or in excess of 40 hours in such workweek unless such laborer or mechanic receives compensation at a rate not less than one and one-half times such worker's basic rate of pay for all hours worked in excess of eight hours in any calendar day or in excess of 40 hours in such workweek, as the case may be. (b) Violation; Liability for Unpaid Wages; Liquidated Damages. In the event of any violation of the provisions of subsection (a), the Contractor and any subcontractor responsible therefor shall be liable to any affected employee for such employee's unpaid wages. In addition, such contractor and subcontractor shall be liable to the Government for liquidated damages. Such liquidated damages shall be computed with respect to each individual laborer or mechanic employed in violation of the provisions of subsection (a) in the sum of $10 for each calendar day on which such employee was required or permitted to be employed in such work in excess of eight hours or in excess of such employee's standard workweek of 40 hours without payment of the overtime wages required by subsection (a) above. (c) Withholding for Unpaid Wages and Liquidated Damages. Bonneville may withhold or cause to be withheld, from any moneys payable on account of work performed by the Contractor or subcontractor, such sums as may administratively be determined to be necessary to satisfy any liabilities of such Contractor or subcontractor for unpaid wages and liquidated damages as provided in subsection (b) above. 10 (d) Subcontracts. The Contractor shall insert in any subcontracts the clauses set forth in subsections (a) through (c) of this provision and also a clause requiring the subcontractors to include these clauses in any lower tier subcontracts which they may enter into, together with a clause requiring this insertion in any further subcontracts that may in turn be made. (e) Records. The Contractor shall maintain payroll records containing the information specified in 29 CFR 516.2(a). Such records shall be preserved for 3 years from the completion of the contract. 22. Convict Labor. In connection with the performance of work under this contract, the Contractor agrees, if and to the extent required by applicable law or if not otherwise exempted, not to employ any person undergoing sentence of imprisonment except as provided by Public Law 89- 176, September 10, 1965 (18 U.S.C. 4082(c)(2)) and Executive Order 11755, December 29, 1973. 23. Equal Employment Opportunity. During the performance of this contract, if and to the extent required by applicable law or if not otherwise exempted, the Contractor agrees as follows: (a) The Contractor will not discriminate against any employee or applicant for employment because of race, color, religion, sex, or national origin. The Contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex, or national origin. Such action shall include, but not be limited to, the following: employment, upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The Contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided by Bonneville setting forth the provisions of the Equal Opportunity clause. (b) The Contractor will, in all solicitations or advertisements for employees placed by or on behalf of the Contractor, state that all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, or national origin. (c) The Contractor will send to each labor union or representative of workers with which said Contractor has a collective bargaining agreement or other contract or understanding, a notice, to be provided by Bonneville, advising the labor union or worker's representative of the Contractor's commitments under this Equal Opportunity clause and shall post copies of the notice in conspicuous places available to employees and applicants for employment. (d) The Contractor will comply with all provisions of Executive Order No. 11246 of September 24, 1965, and of the rules, regulations, and relevant orders of the Secretary of Labor. (e) The Contractor will furnish all information and reports required by Executive Order No. 11246 of September 24, 1965, and by the rules, regulations, and relevant orders of the Secretary of Labor, or pursuant 11 thereto, and will permit access to said Contractor's books, records, and accounts by Bonneville and the Secretary of Labor for purposes of investigations to ascertain compliance with such rules, regulations, and orders. (f) In the event of the Contractor's noncompliance with the Equal Opportunity clause of this contract or with any of such rules, regulations, or orders, this contract may be cancelled, terminated, or suspended in whole or in part and the Contractor may be declared ineligible for further Government contracts in accordance with procedures authorized in Executive Order No. 11246 of September 24, 1965, and such other sanctions may be imposed and remedies invoked as provided in Executive Order No. 11246 of September 24, 1965, or by rule, regulation, or order of the Secretary of Labor, or as otherwise provided by law. (g) The Contractor will include the provisions of paragraphs (a) through (f) in every subcontract or purchase order unless exempted by rules, regulations, or orders of the Secretary of Labor issued pursuant to Section 204 of Executive Order No. 11246 of September 24, 1965, so that such provisions will be binding upon each subcontractor or vendor. The Contractor will take such action with respect to any subcontract or purchase order as Bonneville may direct as a means of enforcing such provisions, including sanctions for noncompliance. In the event the Contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by Bonneville, the Contractor may request the Government to enter into such litigation to protect the interests of the Government. 24. Additional Provisions. The Contractor agrees to comply with the clauses for Government contracts contained in the following statutes, Executive Orders, and regulations to the extent applicable: (a) the Rehabilitation Act of 1973, Public Law 93-112, as amended, and 41 CFR 60-741 (affirmative action for handicapped workers); (b) the Vietnam Era Veterans Readjustment Assistance Act of 1974, Public Law 92-540, as amended, and 41 CFR 60-250 (affirmative action for disabled veterans and veterans of the Vietnam era); (c) Executive Order 11625 and 41 CFR 1-1.1310-2 (utilization of minority business enterprises); (d) the Small Business Act, as amended. 25. Reports. The other party to this contract will furnish Bonneville such information as is necessary for making any computation required for the purposes of this contract, and the parties will cooperate in exchanging such additional information as may be reasonably useful for their respective operations. 26. Assignment of Contract. This contract shall inure to the benefit of, and shall be binding upon the respective successors and assigns of the parties to this contract. Such contract or any interest therein shall not be transferred or assigned by either party to any party other than the Government or an agency thereof without the written consent of the other except as 12 specifically provided in this section. The consent of Bonneville is hereby given to any security assignment or other like financing instrument which may be required under terms of any mortgage, trust, security agreement or holder of such instrument of indebtedness made by and between the Contractor and any mortgagee, trustee, secured party, subsidiary of the Contractor or holder of such instrument of indebtedness, as security for bonds of other indebtedness of such Contractor, present or future; such mortagagee, trustee, secured party, subsidiary, or holder may realize upon such security in foreclosure or other suitable proceedings, and succeed to all right, title, and interests of such Contractor. 27. Waiver of Default. Any waiver at any time by any party to this contract of its rights with respect to any default of any other party thereto, or with respect to any other matter arising in connection with such contract, shall not be considered a waiver with respect to any subsequent default or matter. 28. Notices and Computation of Time. Any notice required by this contract to be given to any party shall be effective when it is received by such party, and in computing any period of time from such notice, such period shall commence at 2400 hours on the date of receipt of such notice. 29. Interest of Member of Congress. No Member of, or Delegate to Congress, or Resident Commissioner shall be admitted to any share or part of this contract or to any benefit that may arise therefrom, but this provision shall not be construed to extend to this contract if made with a corporation for its general benefit. APPLICABLE ONLY IF TRANSFEREE IS A PARTY TO THIS CONTRACT --------------------------------------------------------- 30. Balancing Phase Demands. If required by the Transferor at any time during the term of this contract, the Transferee shall promptly make such changes as are necessary on its system to balance the phase currents at any Point of Delivery so that the current of any one phase shall not exceed the current on any other phase at such point by more than 10 percent. 31. Adjustment for Unbalanced Phase Demands. If the Transferee fails to promptly make the changes mentioned in section 30, the Transferor may, after giving written notice one month in advance, determine that the Measured Demand of the Transferee at the Point of Delivery in question during each month thereafter, until such changes are made, is equal to the product obtained by multiplying by three the largest of the Integrated Demands on any phase adjusted as appropriate to such point during such month. 32. Changes in Requirements or Characteristics. The Transferee will, whenever possible, give reasonable notice to the Transferor of any unusual increase or decrease of its demands for electric power and energy on the Transferor's system, or of any unusual change in the load factor or power factor at which the Transferee will take delivery of electric power and energy under this contract. 33. Inspection of Facilities. Each party may for any reasonable purpose under this contract inspect the other party's electric installation at any reasonable time. Such inspection, or failure to inspect, shall not render 13 such party, its officers, agents, or employees, liable or responsible for any injury, loss, damage, or accident resulting from defects in such electric installation, or for violation of this contract. The inspecting party shall observe written instructions and rules posted in facilities and such other necessary instructions or standards for inspection as the parties agree to. Only those electric installations used in complying with the terms of this contract shall be subject to inspection. 34. Electric Disturbances. (a) For the purposes of this section, an electric disturbance is any sudden, unexpected, changed, or abnormal electric condition occurring in or on an electric system which causes damage. (b) Each party shall design, construct, operate, maintain and use its electric system in conformance with accepted utility practices: (1) to minimize electric disturbances such as, but not limited to, the abnormal flow of power which may damage or interfere with the electric system of the other party or any electric system connected with such other party's electric system; and (2) to minimize the effect on its electric system and on its customers of electric disturbances originating on its own or another electric system. (c) If both parties to this contract are parties to the Western Interconnected Electric System Agreement, their relationship with respect to system damages shall be governed by that Agreement. (d) During such time as a party to this contract is not a party to the Agreement Limiting Liability Among Western Interconnected Systems, its relations with the other party with respect to system damages shall be governed by the following sentence, notwithstanding the fact that the other party may be a party to said Agreement Limiting Liability Among Western Interconnected Systems. A party to this contract shall not be liable to the other party for damage to the other party's system or facilities caused by an electric disturbance on the first party's system, whether or not such electric disturbance is the result of negligence by the first party, if the other party has failed to fulfill its obligations under subsection (b)(2) above. (e) If one of the parties to this contract is not a party to the Agreement Limiting Liability Among Western Interconnected Systems, each party to this contract shall hold harmless and indemnify the other party, its officers and employees, from any claims for loss, injury, or damage suffered by those to whom the first party delivers power not for resale, which loss, injury or damage is caused by an electric disturbance on the other party's system, whether or not such electric disturbance results from the negligence of such other party, if such first party has failed to fulfill its obligations under subsection (b)(2) above, and such failure contributed to the loss, injury or damage. 14 (f) Nothing in this section shall be construed to create any duty to, any standard of care with reference to, or any liability to any person not a party to this contract. 35. Harmonic Control. Each party shall design, construct, operate, maintain and use its electric facilities in accordance with good engineering practices to reduce to acceptable levels the harmonic currents and voltages which pass into the other party's facilities. Harmonic reductions shall be accomplished with equipment which is specifically designed and permanently operated and maintained as an integral part of the facilities of the party which owns the system on which harmonics are generated. APPLICABLE ONLY IF TRANSFEREE IS NOT A PARTY TO THIS CONTRACT ------------------------------------------------------------- 36. Protection of the Transferor. Protection is or will be afforded to Bonneville or its Transferor under such of the following provisions and conditions as are specified in each contract executed or to be executed by Bonneville and each third party Transferee named in this contract: the power factor clause of the applicable Bonneville Wholesale Rate Schedule and the subject matter set forth in the General Contract Provisions under the following titles, namely: Adjustment for Unbalanced Phase Demands; Uncontrollable Forces; Continuity of Service; Changes in Demands or Characteristics; Electric Disturbances; Harmonic Control; Balancing Phase Demands; Permits; Ownership of Facilities; and Inspection of Facilities. RELATING TO RURAL ELECTRIFICATION ADMINISTRATION BORROWERS ---------------------------------------------------------- 37. Approval of Contract. If the Contractor borrows from the Rural Electrification Administration or any other entity under an indenture which requires the lender's approval of contracts, this contract and any amendment thereto shall not be binding on the parties thereto if they are not approved by the Rural Electrification Administration or such other entity. The Contractor shall notify Bonneville of any such entity. If approval is given, such contract or amendment shall be effective at the time stated therein. APPLICABLE ONLY IF BONNEVILLE IS THE TRANSFEROR ----------------------------------------------- 38. Equitable Adjustment of Rates. (a) Bonneville shall establish, periodically review and revise rates for the wheeling of electric power and/or energy pursuant to the terms of this contract. Such rates shall be established in accordance with applicable law. (b) As used in this section, the words "Rate Adjustment Date" shall mean any date specified by Bonneville in a notice of intent to file revised rates as published in the Federal Register; provided, however, that such date shall not occur sooner than (1) nine months from the date that such notice of intent is published; or (2) twelve months from any previous Rate Adjustment Date. By giving written notice to the Contractor 45 days prior to such Rate Adjustment Date, Bonneville may delay such Rate Adjustment Date for up to 90 days if Bonneville determines either that the revenue level of the proposed rates 15 differs by more than five percent from the revenue requirements indicated by most recent repayment studies entered in the hearings record or that external events beyond Bonneville's control will prevent Bonneville from meeting such Rate Adjustment Date. Bonneville may cancel a notice of intent to file revised rates at any time (1) by written notice to the Contractor; or (2) by publishing in the Federal Register a new notice of intent to file revised rates which specifically cancels a previous notice. (c) The Contractor shall pay Bonneville for the service made available under this contract during the period commencing on each Rate Adjustment Date and ending at the beginning of the next Rate Adjustment Date at the rate specified in any rate schedule available at the beginning of such period for service of the class, quality, and type provided for in this contract, and in accordance with the terms thereof, and of the General Transmission Rate Schedule Provisions, if any, as changed with, incorporated in or referred to in such rate schedule. New rates shall not be effective on any Rate Adjustment Date unless they have been approved on a final or interim basis by a governmental agency designated by law to approve Bonneville's rates. Rates shall be applied in accordance with the terms thereof, the General Transmission Rate Schedule Provisions as changed with, incorporated in or referred to in such rate schedule and the terms of this contract. (WP-PKJ-0222f) 16 Exhibit C Contract No. DE-MS79-95BP94766 Northwest Aluminum Company TRANSMISSION PARAMETERS ----------------------- A. Points of Integration, Transmission Demands, and Resources. ----------------------------------------------------------
Resource(s) to be Point of Integration Transmission Demand Integrated -------------------- ------------------- ----------------- (voltage) (kW) 1. Name of Substation (----- kV) ----- ----- 2. Name of Substation (----- kV) ----- ----- Total Transmission Demand -----
If Customer requests transmission service for a new Resource, which is a replacement for a Resource listed in Exhibit C, at the same Point of Integration and with the same or less associated Transmission Demand, and Bonneville determines that such replacement Resource can be integrated at such Point of Integration, Bonneville shall allow substitution of such replacement Resource in this Exhibit C. The Resource term shall include any purchase option periods. B. Points of Delivery and Use-of-Facilities Charges. ------------------------------------------------ Points of Delivery Use-of-Facilities Charges ------------------ ------------------------- [Customer Facilities Locations] 1 Points of Delivery for Station Service Only Unless Otherwise Noted --------------------------------------------------------------------- C. Description of Points of Integration and Points of Delivery. These are definitions only. Designations of these points as either Points of Integration or Points of Delivery are in Part A or Part B of this Exhibit. 1. ENTER NAME: Location: Voltage: ----- kV Metering: 2. ENTER NAME: Location: Voltage: ----- kV Metering: 3. ENTER NAME: Location: Voltage: ----- kV - --------------- (1) Upon Bonneville's request, the Customer shall provide evidence of the obligation to provide station service and the amounts and conditions of such obligation. 2 Metering: 3 Exhibit D Contract No. DE-MS79-95BP94766 Northwest Aluminum Company TRANSMISSION LOSS FACTORS ------------------------- A. Losses Resulting From Transmission Pursuant to the Integration of Resources (IR) Rate Schedule. --------------------------------------------------------------------------- Loss Factor ----------- 1.6% B. Losses Resulting From Nonfirm Transmission Pursuant to the Energy Transmission (ET)Rate Schedule. ----------------------------------------------------------------- Loss Factor ----------- 1.6% 1 Exhibit E Contract No. DE-MS79-95BP94766 Northwest Aluminum Company REQUEST AND RESPONSE PROCEDURES ------------------------------- Bonneville agrees to enter into this Exhibit E to provide a contractual process and standards for the Customer--comparable to that available under sections 211 and 212 of the Federal Power Act and the Regional Transmission Associations--because Customer is not currently eligible for membership in the RTAs and is not eligible to make a section 211 request. 1. DEFINITIONS. When capitalized herein, whether in singular or plural, the following terms shall have the following meaning: 1.1 Arbitrator. An individual selected to resolve disputes under this Agreement (including this Exhibit E to the Agreement). 1.2 Available Transmission Capacity. That amount of transmission capacity on Bonneville's Transmission System available to Bonneville, at the time such requested service would commence, to provide the transmission service requested by Customer that is not reasonably required to accommodate transmission service for Bonneville's: (i) Native Load; (ii) existing contractual commitments for firm wholesale purchases, firm exchanges, firm deliveries, and firm sales, including the Pacific Northwest Coordination Agreement or its successor; (iii) Firm Transmission Service; (iv) Prudent Reserves to support (i), (ii), and (iii) above; and (v) other pending potential uses of Bonneville's transmission to the extent reasonable and consistent with then-applicable FERC standards. 1 1.3 Award. A decision of an Arbitrator pursuant to this Agreement. 1.4 Bonneville's Transmission System. Bonneville's Transmission System shall include the FCRTS, and facilities over which Bonneville has any contractual transmission rights. 1.5 Existing Facilities. Those transmission facilities owned by Bonneville, or transmission capacity under contract to Bonneville, which as of the proposed effective date of the requested service under the Good Faith Request, have been used, or will have been used, to transmit federal or non-federal electric energy. 1.6 Firm Transmission Service. Transmission services that Bonneville by treaty, statute, contract, or federal policy or regulation, has the firm obligation to plan, construct or operate its system to provide. Firm Transmission Service includes firm service over the FCRTS needed to assure adequate and reliable service to nonfederal loads in the Pacific Northwest, as that region is defined in subsection 3(14) of the Pacific Northwest Electric Power Planning and Conservation Act (16 U.S.C. subsection 839a(14)), where not included in Native Load. 1.7 FERC. The Federal Energy Regulatory Commission or a successor agency. 1.8 FPA. The Federal Power Act as it may be amended from time to time. 1.9 Incremental Facilities. Transmission facilities, other than Existing Facilities, that are reasonably required to satisfy a request for transmission service from Customer. 1.10 Interconnection. Incremental Facilities connecting the systems of two or more utilities. 2 1.11 Native Load. Existing and reasonably-forecasted customer load, including Customer's load, for which Bonneville by treaty, statute, contract, or federal policy or regulation, has the obligation to plan, construct, or operate its system reliably. 1.12 Northwest Power Pool. A reliability organization for the Northwest Interconnected Area. 1.13 Northwest Interconnected Area. The area consisting of the States of Oregon, Washington, and Idaho, the portion of the State of Montana west of the Continental Divide, and such portions of the States of Nevada, Utah, and Wyoming as are within the Columbia River drainage basin; and any contiguous areas, not in excess of seventy-five air miles from the just described area, which are a part of the service area of a rural electric cooperative customer served by the Bonneville on the effective date of this Agreement which has a distribution system from which it serves both within and without such area; and the provinces of British Columbia and Alberta. 1.14 Prudent Reserve. An amount of transmission capacity (on an hourly, on-peak/off- peak, seasonal, or other time basis as is necessary) reserved for Bonneville's reasonable reliability requirements as determined by Bonneville's reliability criteria, standards, guidelines and operating procedures, which shall be consistent with Prudent Utility Practice and regional reliability council criteria, and which shall be impartially applied without undue discrimination. 1.15 Prudent Utility Practice. Those practices, methods, and acts, including levels of reserves and provisions for contingencies, as may be modified from time to time, that are generally accepted in the Northwest Interconnected Area to plan, design, and operate electric systems in a manner that is dependable, reliable, safe, efficient, economical, and in accordance with all applicable laws and governmental rules, 3 regulations and orders, or which in the exercise of reasonable judgment considering the facts known when engaged in, could have been expected to accomplish the desired result at a reasonable cost consistent with applicable law, reliability, efficiency and economy. 1.16 Transmission Services. The Transmission Services over the FCRTS made available to Customer under this Agreement shall be transmission of power, energy or other energy products for delivery to Customer's Facilities for consumption. The Customer may request additional transmission services including the following: (a) Customer may request POI(s), and associated Transmission Demand(s), at the non-network terminus of the Southern, Northern, or Eastern Interties. (b) Customer may request a POD(s), other than at the location of Customer Facilities, for the purpose of reselling power which cannot be consumed in Customer's Facilities. (c) Customer may request a Total Transmission Demand in excess of that allowed by subsection 4 of this Agreement. (d) Customer may request transmission services other than IR. Requests for service under this Exhibit E and Bonneville's responses thereto shall be subject to the procedures and standards of Exhibit E provided only that requests for Transmission Demand in excess of that allowed by section 4 of this Agreement shall be subject to Bonneville's precedent and policy of providing transmission capacity to its direct service customers in excess of their Contract Demand. 4 2. REQUESTS FOR TRANSMISSION SERVICE. 2.1 Service to be Provided. Upon request by Customer and subject to the terms of this Agreement, Bonneville shall provide Transmission Services to Customer from its Available Transmission Capacity on its Existing Facilities, or from Incremental Facilities where necessary, to Customer on the same basis that Bonneville provides such services to similarly-situated entities eligible for FERC-ordered service under FPA sections 211 and 212. 2.2 Request for Service. Customer shall provide to Bonneville information regarding its request for transmission service, consistent (to the extent applicable) with either the FERC's then-current policy regarding such request (as currently embodied in its "Policy Statement Regarding Good Faith Requests for Transmission Services") or as otherwise mutually agreed. A request for transmission services which is consistent with this subsection shall be deemed a "Good Faith Request" for transmission services for purposes of this Agreement. 2.3 Response to Request for Transmission Service. 2.3.1 Bonneville shall respond to a request for transmission services from Customer in a manner consistent with responses to Good Faith Requests under section 212 of the FPA and FERC's then-current policies (as presently embodied in its "Policy Statement Regarding Good Faith Requests for Transmission Services"). 2.3.2 Bonneville may elect to provide the requested transmission service without further study, or may elect to conduct a study, including any environmental studies, if such are reasonably required by statute to determine: 5 (i) whether Bonneville has sufficient Available Transmission Capacity to provide the requested service initially and for the full term of the request; and (ii) what Incremental Facilities, if any, are required to accommodate the requested service. If Bonneville and Customer agree, such study may be conducted by a third party; provided, however, Bonneville shall retain the authority to accept or reject the study's conclusions. Bonneville's reasonable study costs shall be billed to and paid by Customer based upon Bonneville's estimate of such costs. Any reconciliation for over or underpayment shall be done upon completion of the study work. Such study shall be completed within a reasonable time period consistent with FERC's then-current policies. Failing agreement between Bonneville and Customer on a reasonable period of time for and scope of such studies, the dispute resolution procedures may be invoked by either Party. Bonneville shall be responsible for conducting the study with participation and input from Customer. The results of the study, to the extent Customer has not requested confidential treatment, shall be made available to the Customer and to any other DSI or Member of the Northwest RTA, provided that such other DSI or Member reimburses Customer for a reasonable share of its costs. 2.3.3 Subject to the requirements of the National Environmental Policy Act or other applicable environmental laws, if Bonneville is able to provide the requested transmission service without further study or if the study demonstrates that the requested service can be provided using Existing Facilities, then Bonneville shall promptly tender amendments to this contract to Customer and take all other actions reasonably necessary to 6 effectuate service. 2.4 Requests Requiring Upgrades, Additional Facilities or Interconnections. 2.4.1 If Bonneville concludes, based on a study performed pursuant to subsection 2.3.2, that Bonneville does not have sufficient Available Transmission Capacity to provide the requested service initially or for the term of the request, then Bonneville's study shall include at a minimum: (i) a detailed description of the Incremental Facilities which are necessary to provide the requested service; (ii) the estimated cost of and cash flow requirements for installing the Incremental Facilities; (iii) the estimated time necessary to build the Incremental Facilities, including the estimated time required for environmental studies, licensing and regulatory approvals, (iv) the estimated incremental capacity added to the transmission system by the Incremental Facilities; and (v) whether Customer will be expected or required to contribute capital in connection with installing the Incremental Facilities. If requested, Bonneville will also provide a list of any other requests or Bonneville forecasted uses that contributed to the insufficiency of Available Transmission Capacity. 2.4.2 If Bonneville's study demonstrates a need for a transmission Interconnection with another entity, then Bonneville shall make a good faith effort to arrange a joint study with the other entity to evaluate the impact of such an Interconnection. 2.4.3 If Bonneville's study demonstrates a need for and the feasibility of building Incremental Facilities and if Customer elects to proceed with its request for transmission services, then Bonneville shall be obligated to build the Incremental Facility and provide the requested service; provided that Bonneville's obligation to build and provide service is subject to applicable 7 law. Bonneville shall provide notice of the project to all other DSIs and to the manager of the Northwest RTA. 3. PRICING. Pricing of Transmission Services by Bonneville to integrate Customer's Resource to its load under this Agreement shall be pursuant to IR-93 and its successor. If Bonneville offers other Transmission Services, pricing for such services shall be at the rates applicable to other users of the same services. 4. PURCHASE AND RESALE SERVICES. Bonneville and Customer acknowledge that in some instances, an arrangement in which Bonneville purchases power for resale to Customer may be preferable to Bonneville wheeling non-federal power to Customer. Therefore, Bonneville shall make best efforts to purchase power, energy or other energy services, as specified by Customer as to supplier, amount, term, shape, and other criteria, and resell such power, energy or other energy services to Customer for Customer's own use at a price equal to Bonneville's purchase costs for the power plus Bonneville transmission charges that would have been applicable if Customer had directly purchased such power, energy or other energy services. Bonneville may also impose a reasonable brokerage fee for this service. 5. TRANSMISSION ON NON-FEDERAL SYSTEMS. Bonneville shall make best efforts to request and purchase transmission services identified by Customer, on Customer's behalf, from Northwest RTG members, Westwide RTG members, or from any transmitting utility under sections 211 and 212 of the Federal Power Act. Customer shall reimburse Bonneville for all of the costs incurred in complying with this provision. 8 6. DISPUTE RESOLUTION. 6.1 Scope of Dispute Resolution. The scope of dispute resolution under this Agreement shall include all disputes arising under this Agreement, including but not limited to, disputes concerning amounts and location of Available Transmission Capacity; need for and costs of Incremental Facilities and interconnection facilities; costs, prices, and terms and conditions of requested transmission services and interconnection facilities; and estimates of the nature, extent, total cost, schedule, and proposed allocations of costs associated with studies, including environmental analyses, proposed in response to a request for service; and including, unless expressly waived, disputes arising under transmission agreements requested, offered or signed pursuant to this Agreement. 6.2 Preconditions to Arbitration. 6.2.1 Each Party shall use best efforts to settle all disputes arising under this Governing Agreement. In the event any such dispute is not settled, any disputing Party may request in writing that the Manager of the Northwest RTA (or alternatively, the head of the Northwest Power Pool) appoint an impartial facilitator to aid the disputing Parties in reaching a mutually acceptable resolution to the dispute; such appointment shall be made within ten days of receipt of the request. The facilitator and representatives of the disputing Parties with authority to settle the dispute shall meet within 21 days after the facilitator has been appointed to attempt to negotiate a resolution of the dispute. Settlement offers shall not be admissible in any subsequent dispute resolution process or in any other forum. With the consent of all disputing Parties, resolution may include referring the matter to a technical body (such as the Northwest Power Pool Transmission Planning Committee) for resolution or an advisory opinion. 9 6.2.2 If the disputing Parties have not succeeded in negotiating a resolution of the dispute within 30 days after first meeting with the facilitator or if the facilitator is not appointed within ten days pursuant to subsection 6.2.1, such Parties shall be deemed to be at an impasse and any such disputing Party may commence the dispute resolution process by submitting a written notice to the other Party. 6.3 Arbitration Process. 6.3.1 Within 14 days of a disputing Party's request that the arbitration process be commenced, each disputing Party shall submit a statement in writing to the other disputing Party, which statement shall set forth in reasonable detail the nature of the dispute, the issues to be arbitrated, and the proposed Award sought through such arbitration proceedings. To the extent the disputing Parties do not agree on the terms of a requested contract for Interconnection or Transmission Services, each submittal shall include proposed contract language for those issues in dispute. 6.3.2 Within ten days following the submission of their statements, the disputing Parties shall select an Arbitrator who shall be familiar with and knowledgeable about the policies and criteria used in the Northwest Interconnected Area transmission systems and regulatory requirements. If the disputing Parties cannot agree upon an Arbitrator, the disputing Parties shall take turns striking names from a list of ten qualified individuals supplied by the Northwest RTA Manager (or alternatively the head of the Northwest Power Pool) from the list maintained by the Northwest RTA Board with a disputing Party chosen by lot first striking a name. The last-remaining name not stricken shall be designated as the Arbitrator. If that individual is unable or unwilling to serve, the individual last stricken from 10 the list shall be designated and the process repeated until an individual is selected who is able and willing to serve. Absent the express written consent of all disputing Parties as to any particular individual, no person shall be eligible for selection as an Arbitrator who is or was, past or present, an officer, member of the governing body, employee of or consultant to any of the disputing Parties, or of an entity related to or affiliated with any of the disputing Parties, or whose interests are otherwise affected by the matter to be arbitrated. Any individual designated as an Arbitrator shall make known to the disputing Parties any such disqualifying relationship and a new Arbitrator shall be designated in accordance with the provisions of this subsection. 6.3.3 The Arbitrator shall cause to be published in the Northwest RTA newsletter and electronic bulletin board a notice of the dispute with sufficient detail to inform potential intervenors of the disputed issues. 6.3.4 The Arbitrator shall determine discovery procedures, intervention rights, how evidence shall be taken, what written submittals may be made, and other such procedural matters, taking into account the complexity of the issues involved, the extent to which factual matters are disputed and the extent to which the credibility of witnesses is relevant to a resolution of the dispute. Each party to the dispute shall produce all evidence determined by the Arbitrator to be relevant to the issues presented. To the extent such evidence involves proprietary or confidential information, the Arbitrator shall issue an appropriate protective order which shall be complied with by all Parties to the dispute. The Arbitrator may elect to resolve the arbitration matter solely on the basis of written evidence and arguments. 6.3.5 The Arbitrator shall grant intervention only to Parties that have a commercial power or transmission interest in the dispute. Intervening 11 Parties shall have the same procedural rights as Disputing Parties to the dispute. "Parties" refers to both Disputing Parties and Intervening Parties. Absent the agreement to the contrary of all disputing Parties, no entity shall be permitted to intervene unless, as a condition of its intervention, it agrees to be bound by these dispute resolution provisions, including the provisions related to deference on appeal set forth in subsection 6.6.4. 6.3.6 The Arbitrator shall consider all issues underlying a dispute including, if relevant, whether Bonneville's reliability criteria, standards, guidelines and operating procedures are reasonably consistent with Prudent Utility Practice, after giving consideration to consistently applied regional or national reliability standards, guidelines or criteria; provided, that Bonneville's reliability criteria, standards, and guidelines, and operating procedures for maintaining system reliability which were in effect and in writing as of July 1, 1993, or that are consistent with the provisions of reliability criteria, standards, guidelines, and operating procedures of the North American Electric Reliability Council and the WSCC which govern the planning, design, and operation of Members' transmission systems, but not the applicability, consistent application or interpretation of such criteria, standards, operating procedures and guidelines in regard to a particular request, shall be afforded a rebuttable presumption of reasonableness and consistency with Prudent Utility Practice by the Arbitrator. Bonneville's reliability criteria, standards, guidelines and operating procedures shall be consistently applied by Bonneville to its own use of its system and to Customer's request to use such system pursuant to a request for interconnection or Transmission Services. 6.3.7 The Arbitrator shall take evidence submitted by the Parties in accordance with procedures established by the Arbitrator and may request additional information, including the opinion of recognized technical bodies. Parties 12 shall be afforded a reasonable opportunity to rebut any such additional information. 6.4 Substantive Standards and Decision. The Arbitrator shall apply to any dispute arising from a request for service the standards that FERC would apply to a request for FERC ordered service under FPA sections 211 and 212. As soon as practicable, but in no event later than 115 days of his or her selection as Arbitrator, the Arbitrator shall select, by written notice to the Parties, the proposed Award of a disputing party which best meets the terms and intent of this Agreement and conforms with the FPA and FERC's then-applicable standards and policies for FERC-ordered service; provided, however, if the Arbitrator concludes that no proposed Award is consistent with this Governing Agreement, the FPA, and FERC's then-applicable standards and policies, or addresses all issues in dispute, the Arbitrator shall specify how each proposed Award is deficient and request that the Parties submit within twenty (20) days new proposed Awards that cure the deficiencies stated by the Arbitrator. A written decision, including specific findings of fact, explaining the basis for the Award shall be provided by the Arbitrator. Awards will be based only on the evidence on the record before the Arbitrator. The decision shall be published in the NWRTA newsletter or on the electronic bulletin board. No Award that is not appealed shall be deemed to be precedential in any other arbitration related to a different dispute. 6.5 Compliance and Costs. 6.5.1 Immediately upon the decision by the Arbitrator, the disputing Parties shall take whatever action is required to comply with the selected Award to the extent the selected Award does not require regulatory action and no party seeks appeal. To the extent the Award requires local or federal approval or regulatory action, Bonneville shall promptly submit and support that 13 portion of the Award with the appropriate authority. Any and all costs associated with the arbitration (not including the Parties' costs associated with attorney costs and expert witness fees) shall be borne by the Party or Parties whose proposed Award was not selected, unless the Parties agree to an alternate method of allocating costs. 6.6 Bonneville Rate Proceedings. In case of a dispute arising under this Agreement concerning a Bonneville rate for requested Interconnection or Transmission Services ("Bonneville Rate Issue Dispute"): 6.6.1 Except as otherwise provided in this subsection, this subsection 6.6 shall apply to a Bonneville Rate Issue Dispute in lieu of subsection 6.3, 6.4, 6.5 of this Agreement; provided, that if Bonneville has by Federal Register notice initiated a hearing under subsection 7(i) of the Pacific Northwest Electric Power Planning and Conservation Act (Northwest Power Act) to establish, or to review and revise, a rate or rates of general applicability for FERC- ordered transmission services, and the Bonneville Rate Issue Dispute involves the appropriateness or application of such rate or rates to the Customer's request for Bonneville Transmission Services, then for purposes only of Customer's request for Bonneville Transmission Services a separate subsection 7(i) proceeding shall be held in accordance with the procedures of this subsection 6.6 to resolve that particular Bonneville Rate Issue Dispute unless the Arbitrator determines that (1) the separate 7(i) proceeding would frustrate the ongoing 7(i) proceeding and (2) resolution of the Bonneville Rate Issue Dispute in the ongoing 7(i) proceeding would not materially frustrate the Customer's need for an expeditious decision. 6.6.2 Where the rate would have been subject to review and determination by FERC under subsection 212(i)(1) of the FPA if the rate dispute and any related good faith dispute over Transmission Services had been timely 14 brought before FERC by an entity eligible to request FERC-ordered service under subsection 211 of the FPA, then pricing of Interconnection or Transmission Service by Bonneville in response to Customer request shall conform to subsection 212(i)(1)(ii) of the FPA and then-applicable standards and policies of FERC. 6.6.3 A hearing on a Bonneville Rate Issue Dispute shall be held which comports in all respects with subsection 7(i) of the Northwest Power Act and other applicable requirements of Federal law, including any applicable requirements of the National Environmental Policy Act, with the addition that: (i) following compliance with the preconditions to arbitration set forth in subsection 6.2 of this Governing Agreement, and within 14 days of a disputing Party's ensuing request that the hearing process be commenced, each disputing Party shall submit a statement in writing to the other disputing Party, which statement shall set forth in reasonable detail the nature of the Bonneville Rate Issue Dispute, the issues to be raised in the hearing, and the proposed rate(s) sought through such hearing; (ii) Bonneville shall within 14 days of its receipt of the disputing Party's written statement prepare and submit for publication a Federal Register notice that in addition to meeting the requirements of Northwest Power Act subsection 7(i)(1), also sets forth the statements or notifies the public of their availability; (iii) the Hearing Officer/Arbitrator (hereafter Hearing Officer) shall be selected as specified in subsection 6.3.2 of this Governing Agreement, which selection shall be officially recognized by 15 Bonneville; (iv) with the exception of any legally required process for taking participant comments, the hearing shall be held in Portland, Oregon, and in the Bonneville Rates Hearing Room if available, unless an alternative location is agreed to by all Parties to the hearing; (v) the Hearing Officer shall comport with subsections 6.3.4, 6.3.6 and 6.3.7 of this Governing Agreement, unless inconsistent with the procedural provisions of subsection 7(i) of the Northwest Power Act or the National Environmental Policy Act; (vi) the Hearing Officer shall, unless violative of subsection 7(i) of the Northwest Power Act or the National Environmental Policy Act, conduct the hearing in a manner calculated to ensure that no more than 115 days elapses from the date of the publicly noticed pre-hearing conference to the date of the Administrator's final decision pursuant to subsection 7(i)(5) of the Northwest Power Act; (vii) the Hearing Officer shall, unless the Hearing Officer becomes unavailable, make a recommended decision to the Administrator that (a) best meets the terms and intent of this Governing Agreement, subsection 212(i) of the FPA and FERC's then-applicable standards and policies for FERC-ordered service, and (b) sets forth the Hearing Officer's findings and conclusions, and the reasons or basis thereof, on all material issues of fact, law, or discretion presented on the record; (viii) in the case of rates described in subsection 6.6.2 above, the Administrator shall afford deference to the Hearing Officer's factual 16 findings and determination of issues not of first impression (i.e., matters previously decided by FERC or a court of competent jurisdiction in cases involving comparable facts and circumstances); and (ix) the Administrator's final decision under subsection 7(i)(5) of the Northwest Power Act shall also set forth the reasons for reaching any findings and conclusions which may differ from those of the Hearing Officer, based on the hearing record and the law. 6.6.4 FERC Appeal. Bonneville shall file its final rates decision with FERC in accord with existing provisions of law and regulation. A disputing party to an arbitration may apply to FERC to appeal or protest that aspect of any Award relating to Bonneville's rate. Any appeal to FERC shall be based solely upon the record assembled by the Arbitrator, provided, however, that any order by an Arbitrator excluding material from the arbitration record or which is alleged to violate due process may be explicitly appealed to FERC. Bonneville and the Customer, in the case of Bonneville rates described in subsection 6.6.2 above, intend that FERC should afford deference to the Hearings Officer factual findings and determinations of issues not of first impression (i.e., matters previously decided by FERC or a court of competent jurisdiction in cases involving comparable facts and circumstances). 6.7 Appeal to Claims Court. A disputing party to an arbitration may apply to the U.S. Claims Court to hear an appeal of that aspect of any Award relating to terms and conditions of requested service or a breach of this Agreement. Upon finding that any terms and conditions are inconsistent with this Agreement or that Bonneville has breached this Agreement, the Claims Court shall remand to the Arbitrator for any further determinations and decisions. 17 7. EFFECTIVE DATE AND TERM. 7.1 This Exhibit shall become effective when (1) the Agreement is signed by Bonneville and the Customer, and (2) after Bonneville becomes a member of either the Westwide RTA or Northwest RTA. 7.2 This Exhibit shall have a term concurrent with the Agreement except as provided in subsection 12(b). 18 Exhibit F Contract No. DE-MS79-95BP94766 Northwest Aluminum Company STABILITY RESERVE SCHEMES ------------------------- 1. Import Contingency Load Tripping Schemes: Remedial Action Scheme for the loss of the AC Intertie and Remedial Action Scheme for the loss of the DC Intertie. 2. Bellingham Area Load Tripping Scheme. 3. Conkelley Area Load Tripping Scheme. 1 Department of Energy Bonneville Power Administration P.O. Box 491 Vancouver, WA 98666 July 20, 1995 Amendatory Agreement #1 Contract No. DE-MS79-94BP94442 Mr. Brett Wilcox, President Northwest Aluminum Corporation 2727 NW Westover Road Portland, OR 97210 Dear Mr. Wilcox: The Bonneville Power Administration (BPA) is offering to extend your current Industrial Replacement Energy (IRE) Agreement until the earlier of: (a) July 1, 1996; or (b) The Effective Date of a new IRE Agreement, with the following replacement for the first paragraph in Section 6: The Industry shall notify BPA in writing by close of business August 1, 1995, of its commitment to become an Independent IRE Purchaser (IP) as of July 1, 1995, through November 30, 1995. The Industry shall notify BPA in writing by November 15, 1995, of its commitment to become an IP for the period December 1, 1995, through the term of this Agreement. If BPA is not notified of the IP's commitment by the foregoing dates, it shall be deemed to be a Regular IRE Purchaser (RP) for such periods. If the terms of this amendment are acceptable to you, please indicate your agreement by signing three originals of this amendment letter and returning two originals to BPA. The remaining original is for your files. Sincerely, EDWARD L. BLEIFUSS Edward L. Bleifuss Manager, Short-Term Contracts ACCEPTED: Northwest Aluminum Corporation BRETT WILCOX By: ---------------------------- Brett Wilcox Title: President Date: 7/29/95 Department of Energy Bonneville Power Administration P.O. Box 3621 Portland, Oregon 97208-3621 SALES AND CUSTOMER SERVICE August 31, 1995 Mr. Brett Wilcox Northwest Aluminum Company 3313 West 2nd Street The Dalles, OR 97058 Dear Brett: Based upon prior discussions and to address our mutual needs, the Bonneville Power Administration (BPA) is offering at this time to extend your current General Transmission Agreement (Agreement) with BPA for an additional 15 years in the form of a contract to amend the Agreement. Enclosed for your consideration is a contract proposal executed by BPA which is irrevocable through September 30, 1995. Upon your execution, the contract shall become effective as of that date and binding upon both parties. If this contract proposal is satisfactory, please sign both copies and return one copy to: Deidre Meaney Contract Information - MPSI Bonneville Power Administration P.O. Box 3621 Portland, OR 97208-3621 Please call me at (503) 230-5879 if you have any additional questions. Sincerely, SYDNEY D. BERWAGER - ----------------------------------- Sydney D. Berwager Senior Account Executive Enclosures Amendatory Agreement No. 1 to Contract No. DE-MS79-95BP94766 AMENDATORY AGREEMENT executed by the UNITED STATES OF AMERICA DEPARTMENT OF ENERGY acting by and through the BONNEVILLE POWER ADMINISTRATION and NORTHWEST ALUMINUM COMPANY This AMENDATORY AGREEMENT, executed ----------, 1995, by the UNITED STATES OF AMERICA (Government), Department of Energy, acting by and through the BONNEVILLE POWER ADMINISTRATION (Bonneville), and NORTHWEST ALUMINUM COMPANY (Northwest Aluminum), a corporation of the State of Oregon, each of which may be referred to herein individually as "Party" or collectively as "Parties". WITNESSETH: WHEREAS, Bonneville and Northwest Aluminum, entered into Contract No. DE-MS79- 95BP94766, (which as the same may be amended or replaced is hereinafter referred to as the General Transmission Agreement); WHEREAS, according to its terms the General Transmission Agreement continues in effect until the fifth anniversary of the Effective Date of the General Transmission Agreement; 1 WHEREAS, the Parties to the General Transmission Agreement are willing to extend the General Transmission Agreement until the twentieth anniversary of the Effective Date of the General Transmission Agreement; and WHEREAS, Bonneville is authorized pursuant to law to dispose of electric power and energy generated at various Federal hydroelectric projects in the Pacific Northwest or acquired from other resources, to construct and operate transmission facilities, to provide transmission and other services, and to enter into agreements to carry out such authority; NOW THEREFORE, the Parties hereto mutually agree as follows: 1. This Agreement shall become effective upon its execution by both Parties. 2. Upon the fifth anniversary of the Effective Date of the General Transmission Agreement, the term "fifth anniversary" in Section 1(a) of such General Transmission Agreement shall be replaced with the term "twentieth anniversary" such that the General Transmission Agreement shall continue in effect until 2400 hours on the twentieth anniversary of the Effective Date, and that the terms of the General Transmission Agreement shall govern transmission services provided thereunder for the additional 15 year period. 2 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement. UNITED STATES OF AMERICA Department of Energy Bonneville Power Administration By: SYNDEY D. BERWAGER --------------------------------- Name: Sydney D. Berwager (Print/Type) Title: Account Executive Date: August 31, 1995 NORTHWEST ALUMINUM COMPANY By: BRETT WILCOX ----------------------------- Name: Brett Wilcox (Print/Type) Title: President Date: 9/7/95 3 EX-10.10 18 POWER SALES AGREEMENT Contract No. 95MS-94862 September 20, 1995 POWER SALES AGREEMENT between the UNITED STATES OF AMERICA DEPARTMENT OF ENERGY acting by and through the BONNEVILLE POWER ADMINISTRATION and NORTHWEST ALUMINUM COMPANY Index to Sections - ------------------------------------------------------------------------------- Section Page 1. Effective Date and Term . . . . . . . . . . . . . . . . . . . . . . . . 3 2. Deliveries of Firm Power Between the Effective Date and Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Commencement of Deliveries of Firm Power. . . . . . . . . . . . . . . . 4 4. Termination of Prior Contract and Other Contracts . . . . . . . . . . . 4 5. Termination of This Agreement . . . . . . . . . . . . . . . . . . . . . 5 6. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 7. Exhibits; Interpretation. . . . . . . . . . . . . . . . . . . . . . . . 16 8. Contract Revisions and Waivers. . . . . . . . . . . . . . . . . . . . . 17 9. Purchase and Sale of Annual Take-or-Pay Firm Energy . . . . . . . . . . 18 10. Monthly, Weekly, Daily, and Hourly Amounts of Firm Power. . . . . . . . 19 11. Rate Test Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . 22 12. Rates and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 13. Billing and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 23 14. Relief from Take-or-Pay Obligation. . . . . . . . . . . . . . . . . . . 27 15. Unauthorized Increase Charges . . . . . . . . . . . . . . . . . . . . . 28 16. Changes in Firm Power Amounts . . . . . . . . . . . . . . . . . . . . . 29 17. Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 18. Curtailment or Remarketing. . . . . . . . . . . . . . . . . . . . . . . 35 19. Load Regulation, Unbundled Products, and Other Transmission Products . . . . . . . . . . . . . . . . . . . . . . . . 42 20. Provisions Relating to Delivery of Firm Power . . . . . . . . . . . . . 44 21. Assignment of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 44 22. Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . 45 23. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Index to Sections - ------------------------------------------------------------------------------- Section Page 24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 25. Hold Harmless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 26. Damages for Failure by BPA to Deliver . . . . . . . . . . . . . . . . . 51 27. Obligations During Performance of This Agreement. . . . . . . . . . . . 51 28. Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 29. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 30. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 31. Signature Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Exhibit A (General Contract Provisions). . . . . . . . . . . . . . . . 16 Exhibit B (Fees for Remarketing) . . . . . . . . . . . . . . . . . . . 16 Exhibit C (Rate Schedule). . . . . . . . . . . . . . . . . . . . . . . 16 Exhibit D (Monthly Amounts of Firm Power). . . . . . . . . . . . . . . 16 Exhibit E (Points of Delivery) . . . . . . . . . . . . . . . . . . . . 16 Exhibit F (Unrecoverable Costs and Transfer Costs) . . . . . . . . . . 16 Exhibit G (Stability Reserve Scheme(s)). . . . . . . . . . . . . . . . 16 Exhibit H (Arbitration Procedures) . . . . . . . . . . . . . . . . . . 16 Exhibit I (Use-of-Facilities Charge) . . . . . . . . . . . . . . . . . 16 This POWER SALES AGREEMENT, executed September 28, 1995, by the UNITED STATES OF AMERICA (Government), Department of Energy, acting by and through the BONNEVILLE POWER ADMINISTRATION (BPA or Bonneville), and NORTHWEST ALUMINUM COMPANY (Company), a corporation incorporated under the laws of the State of Oregon. BPA and the Company are hereinafter sometimes referred to individually as "Party" and collectively as "Parties." W I T N E S S E T H : WHEREAS pursuant to section 5(d) of the Pacific Northwest Electric Power Planning and Conservation Act (Northwest Power Act), BPA is authorized to sell power to the Company; and WHEREAS on October 23, 1985, BPA and the Company entered into Contract No. DE-MS79-86BP-91987, hereinafter referred to as "Prior Contract"; and WHEREAS this Agreement provides for the termination of the Prior Contract; and Contract No. 95MS-94862 2 WHEREAS BPA desires to sell, and the Company desires to purchase, Firm Power pursuant to the terms and conditions of this Agreement; and WHEREAS the Company and BPA have entered into an Integration of Resources transmission agreement, Contract No. 95MS-94766 (IR Transmission Agreement), which provides for transmission of non-Federal power; and WHEREAS BPA is authorized pursuant to law to market electric power and energy generated at various Federal hydroelectric projects in the Pacific Northwest or acquired from other resources, to construct and operate transmission facilities, to provide transmission and other services, and to enter into agreements to carry out such authority; NOW, THEREFORE, the Parties hereto agree as follows: 1. EFFECTIVE DATE AND TERM (a) Effective Date This Agreement shall become effective on the date that it is executed by BPA. (b) Term This Agreement shall continue in effect until 2400 hours on September 30, 2001, unless terminated earlier as provided herein. All obligations incurred hereunder shall be preserved until satisfied. 2. DELIVERIES OF FIRM POWER BETWEEN THE EFFECTIVE DATE AND COMMENCEMENT DATE During the period between the Effective Date and the Commencement Date, the Prior Contract shall govern the sale of Firm Power by BPA to the Company; provided, however, that, as of the Effective Date, the Company shall have no obligation under section 2(b)(1) of the Prior Contract to reimburse BPA for any costs, unrecoverable or otherwise; and provided further, that section 2(b)(2) limitations Contract No. 95MS-94862 3 on the Company's right to purchase electric power shall be of no further application and shall terminate. 3. COMMENCEMENT OF DELIVERIES OF FIRM POWER Deliveries of Firm Power shall commence on the later of October 1, 1996, or the date that FERC provides interim approval of a Rate Schedule that satisfies the Rate Test; provided, however, that the Company may waive in writing its right to terminate this Agreement under section 5(a)(2)(A) and thereupon deliveries of Firm Power shall commence in accordance with the provisions of this Agreement.. 4. TERMINATION OF PRIOR CONTRACT AND OTHER CONTRACTS (a) Effective on the Commencement Date, the Prior Contract shall terminate, if it has not previously been terminated, and all obligations of the Parties under the Prior Contract shall terminate, except for the Company's liability to pay for power delivered under the Prior Contract prior to the Commencement Date. If the Commencement Date has not occurred by October 1, 1996, then, in addition to any other right to terminate, the Company may terminate the Prior Contract upon 7 days' written notice to BPA. Such notice may be given any time after October 1, 1996, and prior to the Commencement Date. (b) The Company shall not terminate the Prior Contract in part to reduce the contract demand under the Prior Contract to an amount which is less than the annual amount of HLH and LLH Energy in megawatthours for Contract Year 1996-1997 (as specified in section 9(b) of this Agreement), divided by 8,760 hours, effective during the period April 1, 1996, through September 30, 1996. (c) In addition to termination of the Prior Contract pursuant to section 4(a), the following contract(s) shall terminate effective on the Commencement Date: Contract No. 95MS-94862 4 o Contract No. DE-MS79-78BP90030 (1978 IRE Agreement) o Contract No. DE-MS79-87BP90230 (Protected Storage Agreement) o Contract No. DE-MS79-94BP94442 (Interim IRE Agreement) All liabilities accrued by either Party under any agreement listed in this section 4(c) are preserved until satisfied. 5. TERMINATION OF THIS AGREEMENT (a) Excused Termination The Company shall have the right to terminate this Agreement, subject to the following terms: (1) Conditions Over Which BPA Has Control That Allow for Excused Termination The Company may terminate this Agreement upon 7 days' notice to BPA if any one of the following events occur: (A) if BPA issues a final Record of Decision in the 1996 Rate Case that proposes a Rate Schedule which is applicable to this Agreement and which fails to satisfy the Rate Test; (B) if by September 1, 1996, BPA has failed to file a Rate Schedule with FERC that is applicable to this Agreement and satisfies the Rate Test; (C) if, within 180 days of the remand of the Rate Schedule by FERC or a court to BPA, BPA does not propose revised rates, including a Rate Schedule that satisfies the Rate Test; or if Contract No. 95MS-94862 5 FERC fails to approve such Rate Schedule; or such Rate Schedule is subsequently disapproved by a court; (D) if at any time, BPA acts or fails to act so as to entitle the Company to terminate pursuant to section 22 of this Agreement; or (E) if after breach by BPA, as determined under section 22 or by a Federal Court, BPA has not cured the breach within 30 days following such determination. (2) Conditions Over Which BPA Does Not Have Control That Allow for Excused Termination The Company may terminate this Agreement upon 7 days' notice to BPA if either of the following events occur: (A) if by September 30, 1996, FERC has failed to approve, on an interim or final basis, a Rate Schedule that is applicable to this Agreement and satisfies the Rate Test; or (B) if any term, covenant, or condition of this Agreement or the Rate Schedule or the performance of such term, covenant, or condition, is held to be invalid or unenforceable, or enjoined by an order of a court, and such order is not stayed, pending any appeals; provided, however, that if only one or both of: (i) section 18(b)(2)(B) of this Agreement, and (ii) a contract entered into pursuant to section 18(b)(2)(B) of this Agreement, is held to be invalid or unenforceable, then such order shall not permit the Company to terminate this Agreement under this section 5(a)(2). Contract No. 95MS-94862 6 (b) Obligations Upon Expiration or Termination (1) Obligations Upon Expiration or Termination for Any Reason Upon expiration of this Agreement at 2400 hours on September 30, 2001, or upon termination of this Agreement pursuant to section 5(a), or for any other reason, the following terms and conditions shall apply: (A) BPA shall make the BPA substation and/or transmission facilities whose primary purpose is to serve the Company's load available for use of the Company for deliveries of power from BPA, or from third parties under BPA's then-current transmission tariffs. The Company will reimburse BPA pursuant to the terms and conditions of Exhibit F for the unrecoverable cost, if any, in BPA substation or transmission facilities whose primary purpose is to serve the Company's load during the life of this Agreement, to the extent that BPA cannot mitigate such cost. Continued transmission service at the same level of service as purchases hereunder through and at such facilities under BPA's then-current transmission tariffs is mitigation for unrecoverable cost under this Agreement. If BPA does not have another use at the site for such facilities to serve other BPA customers, and the Company makes an offer to purchase such facilities for the unamortized investment in the facilities as determined pursuant to Exhibit F plus the appraised value of the property on which the facilities are located, and BPA rejects the offer, then the Company shall not be required to reimburse BPA for any unrecoverable costs pursuant to Exhibit F. Contract No. 95MS-94862 7 (B) If the Company is served by transfer over third-party facilities, the Company shall pay any amount BPA is obligated to pay the third party under the transfer arrangement, pursuant to the terms and conditions of Exhibit F. (C) If BPA proposes new investments in substation or transmission facilities whose primary purpose is to serve the Company's load, and the Company consents to such investment, Exhibit F will be amended to include such investments. The Company's consent to such investments shall not be unreasonably withheld. (2) Obligations After Expiration or Termination Pursuant to Section 5(a)(1) After expiration of this Agreement, or if the Company terminates this Agreement pursuant to section 5(a)(1), then BPA shall not charge, except to the extent specified in section 5(b)(1), the Company or a third party doing business with the Company any amount, charge, or fee of any nature whatever based on the purchases made by the Company under this or any prior power purchase agreements between the Company and BPA or based on the termination or reduction of the amount of power purchased by the Company under this Agreement or any such prior agreements. Nothing in this Agreement is intended to imply that the Company would have any obligation to pay such charges under any circumstances or to pay BPA any amounts except as expressly provided in this Agreement. This provision is a material term and essential to the Company having entered into this Agreement. Contract No. 95MS-94862 8 6. DEFINITIONS (a) "Agreement" means this Power Sales Agreement, Contract No. 95MS-94862. (b) "Commencement Date" means the date that deliveries commence under this Agreement. (c) "Contract Demand" means the maximum integrated hourly rate of delivery that the Company may request under this Agreement and is equal to 177.40 megawatts. The Contract Demand shall not be increased except through: (1) a process conducted pursuant to section 5(d)(3) of the Northwest Power Act that provides for BPA to acquire increased reserves from its direct service industrial companies; or (2) a technological allowance which BPA shall grant upon the Company's demonstration to BPA that such allowance meets the criteria for a technological allowance under the Prior Contract. (d) "Contract Year" means the period that begins on October 1 and ends on the following September 30. (e) "Control Area" or "Load Control Area" means the electrical (not necessarily geographical) area within which a controlling utility operating under all North American Electric Reliability Council standards has the responsibility to adjust its generation on an instantaneous basis to match internal load and power flow across interchange boundaries to other Control Areas. A utility operating a Control Area is called a "controlling utility." Contract No. 95MS-94862 9 (f) "Demand" means the maximum integrated hourly rate of delivery during each month of each Contract Year for Firm Power deliveries under this Agreement, as specified in Exhibit D. (g) "Effective Date" means the date that this Agreement is signed by BPA. (h) "Event" means the period during which BPA restricts service to the Company under this Agreement to obtain Operating Reserves or Stability Reserves. The Event shall commence with the reduction in deliveries to the Company under this Agreement due to a BPA request for Operating Reserves or a transfer trip or signal that initiates Stability Reserves restriction. Unless reinstated as provided herein, the Event shall end when BPA's dispatcher notifies the Company that the load restricted for such reserves can be restored to service. Notwithstanding the foregoing, the Event will end (subject to reinstatement as provided herein) when system conditions occur that would result in tripping the Company for undervoltage or underfrequency load shedding. Any BPA restriction or series of BPA restrictions that make up an SR Event shall be treated as part of a single Event. After an Event has ended, the Event shall be reinstated and continue as follows: (1) if the Event Magnitude was less than (Federal Load) x (15 minutes), then the Event shall be reinstated if BPA requests or obtains Reserves from the Company again within 10 hours; (2) if the Event Magnitude was equal to or greater than (Federal Load) x (15 minutes), then the Event shall be reinstated if BPA requests or obtains Reserves from the Company again within 21 hours; Contract No. 95MS-94862 10 (3) if the Event Magnitude was equal to or greater than (Federal Load) x (30 minutes), then the Event shall be reinstated if BPA requests or obtains Reserves again within 42 hours; (4) if the Event Magnitude was equal to or greater than (Federal Load) x (60 minutes), then the Event shall be reinstated if BPA requests Reserves again within 84 hours; and (5) if the Event Magnitude was equal to or greater than (Federal Load) x (90 minutes), then the Event shall be reinstated if BPA requests or obtains Reserves again within 126 hours. (i) "Event Duration" means the total cumulative Event Minutes of the Event. (j) "Event Magnitude" means a value calculated for each Event as the sum of: (Requested Operating Reserves x Event Minutes associated with the use of Operating Reserves) + (Amount of Load Tripped for Stability Reserves x duration of the SR Event in minutes) for each restriction during the Event. The Event Magnitude shall not include loads restricted pursuant to operating reserves and stability reserve rights that BPA has under other contracts. (k) "Event Magnitude Limit" means the Federal Load multiplied by 90 minutes. (l) "Event Minute(s)" means the minute(s) of restriction (or any portion thereof) during an Event. (m) "Excess Firm Energy" means Firm Energy that would have been delivered to the Company for service to its expected Plant Load but is excess due to a reduction in the Company's actual Plant Load. (n) "Federal Load" means an hourly amount of energy equal to the lesser of (1) 50 percent of the Process Load operating immediately prior to the Event, Contract No. 95MS-94862 11 or (2) 50 percent of the Firm Energy either scheduled to the Company, remarketed to other Qualified Purchasers, used by BPA, or any combination thereof. (o) "FERC" means the Federal Energy Regulatory Commission, or its successor. (p) "Firm Energy" means the Federal energy that the Company has agreed to purchase from BPA under this Agreement. (q) "Firm Power" means the monthly amounts of Demand and Firm Energy (HLH and LLH) purchased by the Company under this Agreement. (r) "Heavy Load Hours" or "HLH" means those hours that begin at 6 a.m. and end at 10 p.m., Monday through Saturday. (s) "Light Load Hours" or "LLH" means all hours that are not HLH. (t) "Material Plant Damage" means the inability of the Company to resume industrial production at all or any portion of its plant because of damage to plant production facilities resulting from a restriction; for example, the inability to resume electrolysis in one or more pots without rebuilding or substantially repairing such pot(s). (u) "Non-Federal Service" means, for the purposes of section 18(a) of this Agreement, the monthly amounts of demand, HLH energy and LLH energy that the Company chooses to acquire from non-Federal entities to serve a portion of its Plant Load during the term of this Agreement. The Company agrees that such amounts must be supplied to the Plant Load. The Company may purchase additional amounts of non-Federal energy that will not be used in calculating the amount of curtailed energy (v) "Occurrence" means a system condition that results in the need for Reserves. Contract No. 95MS-94862 12 (w) "Operating Reserves" means nonspinning reserves, provided by the Company under this Agreement, that are necessary to enable BPA either to reestablish its load/resource balance after loss of generation or transmission facilities, or to meet any of its other existing nonspinning operating reserve obligations. Operating Reserves provided under this Agreement shall not include, without limitation: (1) Stability Reserves provided by the Company in this Agreement; (2) operating reserves provided by the Company in any other contract; and (3) any other reserves that BPA has acquired under other arrangements. (x) "Plant Load" means the total electrical energy load at Company facilities eligible for BPA service during any given time period whether the Company has chosen to serve its load with BPA power or non-Federal power. (y) "Process Load" means, for an aluminum facility or a chlor-alkali facility, the electrolytic load. (z) "Qualified Purchaser" shall mean a utility or entity which: (1) is capable of performing the financial obligations undertaken for a sale or for an option to buy; (2) meets BPA's standards of service, including having an available transmission path; and (3) if required by State or Federal law, the purchaser has received all necessary approvals from appropriate regulatory bodies to conduct the transaction with BPA. (aa) "Rate Schedule" means the Industrial Firm Power Rate Schedule (IP-96.5), the Point-to-Point Transmission Rate Schedule, exclusive of the Delivery Charge therein (PTP-96.5), Ancillary Products and Services Rate Schedule (APS-96), a rate schedule that includes the fixed curtailment fee for the option specified in section 18(a), and the General Rate Schedule Provisions established by BPA, and applicable to sales under this Agreement. When Contract No. 95MS-94862 13 Contract No. 95MS-94862 such Rate Schedule has received interim or final approval by FERC, then it shall be attached hereto as Exhibit C. (bb) "Rate Test" means: (1) the calculation of whether the total average price in mills per kilowatthour, using the Rate Schedule, to determine if such total average price is less than or equal to the price specified in section 11(a) of this Agreement; (2) the determination of whether the fixed curtailment fee, for purposes of section 18(a) of this Agreement, is less than or equal to the amount specified in section 11(b); and (3) the determination of whether the use-of-facilities charge, as may be revised pursuant to section 8(b)(2) and Exhibit I, is less than or equal to the amount determined pursuant to section 11(c). The Rate Test is further described in section 11 of this Agreement. (cc) "Requested Operating Reserves" means the amount of Operating Reserves, pursuant to section 17, that the BPA dispatcher requests the Company to trip for purposes of providing Operating Reserves. (dd) "Reserves" means the Stability Reserves and Operating Reserves provided by the Company under this Agreement. (ee) "SR Event" means the period during which BPA implements a Stability Reserve restriction. An SR Event shall be an Event for all purposes. The beginning of the SR Event shall be identified by a transfer trip or other signal from BPA to the Company restricting delivery of energy under this Agreement. Unless reinstated as provided herein, the end of the SR Event shall be identified by the BPA dispatcher's notification to Company that delivery of all energy to which Company is entitled under this Agreement can be restored. Notwithstanding the foregoing, the Event will end (subject to reinstatement as provided herein) when system conditions occur that result in tripping the Company for undervoltage or underfrequency load shedding. If such undervoltage or underfrequency load shedding signal is received by Contract No. 95MS-94862 14 the Company prior to Event Minute 3 of the SR Event, then the restriction shall be deemed an event of Force Majeure until service is restored. After an SR Event has ended, the SR Event shall be reinstated and continue as follows: (1) if the SR Event duration was 5 Event Minutes or less, then the SR Event shall be reinstated if BPA restricts deliveries to Company pursuant to its Stability Reserve rights within 2 hours or less of the last SR Event Minute; (2) if the SR Event duration was more than 5 Event Minutes but not more than 15 Event Minutes, then the SR Event shall be reinstated if BPA restricts deliveries to Company pursuant to its Stability Reserve rights within 4 hours or less of the last SR Event Minute; (3) if the SR Event duration was more than 15 SR Event Minutes but not more than 22 Event Minutes, then the SR Event shall be reinstated if BPA restricts deliveries to Company pursuant to its Stability Reserve rights within 6 hours or less of the last SR Event Minute; and (4) if the SR Event duration was more than 22 Event Minutes, then the SR Event shall be reinstated if BPA restricts deliveries to Company pursuant to its Stability Reserve rights within 8 hours or less of the last SR Event Minute. (ff) "Stability Reserves" means those reserves, provided by the Company under this Agreement, that are necessary to ensure the stability of the Federal Columbia River Transmission System against losses of transmission facilities pursuant to the scheme(s) in Exhibit G or any additional scheme(s) adopted pursuant to section 17 herein. Stability Reserves provided under this Agreement shall not include, without limitation: (1) stability reserves Contract No. 95MS-94862 15 provided by the Customer in the General Transmission Agreement or in other agreements; (2) operating reserves or forced outage reserves that BPA has acquired under this Agreement or under other agreements; and (3) any other reserves that BPA has acquired under other arrangements. (gg) "Take-or-Pay Obligation" means the obligation, as modified by section 14, of the Company to pay for the Firm Power purchased by the Company under this Agreement. On an annual basis, the amounts of HLH and LLH Firm Energy that the Company agrees to purchase from BPA is specified in section 9(b) of this Agreement. The monthly amounts of HLH and LLH Firm Energy shall be as specified in Exhibit D. The monthly Demand amounts, for the purposes of this Take-or-Pay Obligation, shall be the monthly Demand amounts specified in Exhibit D. If the calculation of the Take-or-Pay Obligation for a Contract Year for which Demands are not yet required to be specified under section 10(a) becomes relevant, then the Demands for such Contract Year shall be calculated by dividing the annual HLH Firm Energy, if any, for each such Contract Year, as specified in section 9(b), by the number of HLH in a Contract Year. Weekly, daily, and hourly amounts of HLH and LLH Firm Energy are the amounts submitted by the Company pursuant to section 10 of this Agreement. 7. EXHIBITS; INTERPRETATION Exhibit A (General Contract Provisions), Exhibit B (Fees for Remarketing), Exhibit C (Rate Schedule), Exhibit D (Monthly Amounts of Firm Power), Exhibit E (Points of Delivery), Exhibit F (Unrecoverable Costs and Transfer Costs), Exhibit G (Stability Reserve Scheme(s)), Exhibit H (Arbitration Procedures), and Exhibit I (Use-of-Facilities Charge) are attached hereto and made a part of this Agreement. If there is a conflict between the body of this Agreement and any exhibit, then the body of this Agreement shall prevail. If there is a conflict between Exhibit C and any other exhibit, then all other exhibits shall prevail over Exhibit C. Contract No. 95MS-94862 16 8. CONTRACT REVISIONS AND WAIVERS (a) Amendments and Exhibit Revisions Except as otherwise expressly provided to the contrary in this Agreement, the provisions of the body of this Agreement may be amended only by the mutual written agreement of the Parties hereto subsequent to the date of execution of this Agreement. (b) Exhibit Revisions (1) Revision of Exhibits A through H Except as otherwise expressly provided to the contrary in this Agreement, the provisions of Exhibits A through H may be revised only by the mutual written agreement of the Parties hereto subsequent to the date of execution of this Agreement. (2) Revision of Exhibit I Exhibit I may be revised by BPA in the same manner and under the same terms and conditions for revision of the use-of-facilities charge under the IR Transmission Agreement, as amended or replaced, except as limited by the terms and conditions of Exhibit I. (c) Waivers (1) Failure by a Party to exercise any right, remedy, or option hereunder or delay in exercising such right, remedy, or option shall not operate as a waiver by such Party of its right to exercise any such right, remedy, or option prior to the time such right, remedy, or option expires by an express term of this Agreement; nor shall such failure or delay by such Party operate as a waiver of any right, remedy or option that may arise from a subsequent event under the relevant provisions of this Agreement. Contract No. 95MS-94862 17 (2) The Parties may agree to waive any provision of this Agreement to address temporary problems or unforeseen circumstances. Any such waiver shall be in writing and shall clearly specify the period of time for which the waiver is in effect. The consent of the other Party to such a waiver shall not be unreasonably withheld. No Party shall claim that the granting of a waiver sets a binding precedent for future waivers, even if similar waivers are granted throughout the term of this Agreement. 9. PURCHASE AND SALE OF ANNUAL TAKE-OR-PAY FIRM ENERGY (a) Mutual Obligation BPA shall sell and deliver to the Company and the Company shall purchase from BPA, for service to its Plant Load, annual amounts of HLH and LLH Firm Energy on a take-or-pay basis, as specified in section 9(b). (b) Annual Amounts of Firm Energy The Company shall purchase, during each Contract Year, the following annual amounts of HLH and LLH Firm Energy: --------------------------------------------------------------------- Firm HLH Energy Firm LLH Energy Contract Year (megawatthours) (megawatthours) --------------------------------------------------------------------- 1996-1997 569,440 425,670 1997-1998 450,720 337,680 1998-1999 476,560 356,840 1999-2000 502,400 376,000 2000-2001 499,200 376,800 --------------------------------------------------------------------- (c) Other Purchases This Agreement does not limit the Company's right to purchase power from BPA, consistent with Federal statutes, under other agreements, or to purchase power from third parties. Contract No. 95MS-94862 18 (d) Minimum Demand for Transmission A Company may elect to specify a minimum level of Demand for transmission for any month for the remaining term of this Agreement at the time the Company makes its submission of monthly amounts of Firm Power. Any request to specify a minimum level of Demand made after February 1, 1996, shall be subject to available transmission capacity as described in section 10(a). The Company may assign any excess minimum Demand for transmission consistent with terms for Assignment of Transmission Service under BPA's Point-to-Point Transmission Service Tariff. The amount of minimum Demand for transmission as elected or assigned shall be specified in Exhibit D. 10. MONTHLY, WEEKLY, DAILY, AND HOURLY AMOUNTS OF FIRM POWER (a) Monthly Amounts of Firm Power Not later than the February 1, immediately prior to October 1 of each Contract Year, the Company shall specify monthly amounts of Demand and HLH and LLH Firm Energy for such Contract Year. The total of the monthly amounts of HLH and LLH Firm Energy shall equal the annual amounts specified in section 9(b) for such Contract Year. The Company may set its Demand in each month in the 1996-1997 Contract Year at any level up to its Contract Demand. Any increase in amounts of Demand for a specific month in a later Contract Year above the greater of: (1) the amount of Demand for such month in the previous Contract Year; or (2) the minimum level of Demand for transmission specified in Exhibit D; is subject to BPA's determination of available transmission capacity. If additional generating resources integrated at points with transmission capacity available to the Company's points of delivery are available for BPA's use or purchase, then BPA shall determine that transmission capacity is available under this Agreement. BPA shall also treat as available any transmission capacity made available by the Company to BPA through a reduction in demand under any other transmission agreement with BPA. If BPA determines that Contract No. 95MS-94862 19 firm transmission capacity is not available for the Company's request, BPA will notify the Company within 60 days of the approved level of Demand. Each year, Exhibit D shall be revised to reflect the amounts specified by the Company, consistent with this section 10(a). (b) Weekly, Daily, and Hourly Amounts of Firm Power The Company shall either: (i) provide advance submittals of weekly, daily, and hourly amounts of Firm Energy and any Excess Firm Energy pursuant to section 10(b)(1), which will remain as submitted unless changed pursuant to section 10(b)(2); or (ii) provide such submittals pursuant to the terms of section 10(b)(2) only. (1) Advance Submittals of Weekly, Daily, and Hourly Amounts of Firm Energy The Company may submit weekly, daily, and hourly amounts in advance of, but not later than allowed under section 10(b)(2). Such advance submittals shall specify HLH and LLH amounts of Firm Energy to be delivered hereunder until the Company changes its submittal. The Company may change any advance submittal pursuant to section 10(b)(2). All advance submittals shall include a beginning and ending hour. (2) Submittals of Weekly, Daily, and Hourly Amounts of Firm Power (A) Weekly Amounts of Firm Power At least 2 months prior to the delivery month, the Company shall provide BPA with its notice of weekly amounts of HLH and LLH Firm Energy for each month. The total of the Company's weekly amounts of HLH and LLH Firm Energy during a month shall be equal to the monthly amounts specified in Exhibit D for such month. For transition weeks Contract No. 95MS-94862 20 (weeks that include days from the prior month or days from a subsequent month), the Company shall identify the amounts of HLH and LLH Firm Energy associated with each monthly period. The Company may request a waiver to provide for changes in weekly amounts of HLH and LLH Firm Energy on less than 2 months' prior notice, if the request is due to temporary or unanticipated operational problems. (B) Daily Amounts of Firm Power No later than the Wednesday prior to the Sunday-through-Saturday weekly delivery period, the Company shall provide BPA with notice of its daily amounts of required HLH and LLH Firm Energy. The sum for HLH and LLH of the daily amounts for the week shall be equal to the weekly amounts. For transition weeks, the Company shall identify the daily amounts associated with each monthly period. (C) Hourly Amounts of Firm Energy The Company shall specify, orally or in writing, hourly amounts of Firm Energy in whole megawatthours not later than 2 p.m. on the workday prior to the day or days of delivery. Such specified amounts shall be scheduled amounts for all purposes under this Agreement. The sum of the Company's hourly amounts for HLH and LLH Firm Energy for the day shall be equal to its daily amount for HLH and LLH Firm Energy. The specified amount of LLH Firm Energy for any LLH shall not be less than 50 percent of the Company's average hourly amount of LLH Firm Energy for the day. Contract No. 95MS-94862 21 11. RATE TEST COMPLIANCE For purposes of the Company's right to terminate under section 5(a), the Rate Test will be satisfied only if all of the following conditions specified in sections 11(a), 11(b), and 11(c) are met. (a) Rate Test for Delivered Firm Power The total average price (excluding the use-of-facilities charge) for Firm Power delivered to the Company during each Contract Year, including all charges for Firm Energy; Demand; reactive power; transmission on a point-to-point basis (excluding the delivery charge); load regulation; and any other applicable charge, is 22.1 mills per kilowatthour or less. The total average price shall be calculated from the Rate Schedule by summing all applicable charges as provided above for the purchase of equal hourly amounts of delivered Firm Power for each hour of each Contract Year of this Agreement, and dividing the resulting sum by the total number of kilowatthours of such sale in the Contract Year. In calculating the total average price, the calculation shall assume a Plant Load equal to the delivered amounts used in the calculation, a constant power factor of 0.98 lagging, and shall not assume any purchase of load shaping products, any preschedule changes, any remarketing of Excess Firm Energy, or any Unauthorized Increases. For purposes of calculating the total average price, BPA shall use the lowest firm transmission rate in the Rate Schedule for deliveries to the Company's facilities. (b) Rate Test for Fixed Curtailment Fee The fixed curtailment fee in the Rate Schedule is less than or equal to 5 mills per kilowatthour. Contract No. 95MS-94862 22 (c) Rate Test for Use-of-Facilities Charge The use-of-facilities charge specified in Exhibit I is less than or equal to the use-of-facilities charge that is used for deliveries of non-Federal power under the IR Transmission Agreement, and is calculated pursuant to Exhibit I. 12. RATES AND CHARGES (a) The rates and charges for all services provided by BPA under this Agreement (exclusive only of charges for additional power or optional services specifically requested by the Company) shall be as specified in Exhibit B, and the Rate Schedule in Exhibit C, and Exhibit I, and shall include no other fee or charge, other than those specified in Exhibits, B C, and I. Such Rate Schedule shall not be revised except as required in a remand order of FERC or a court upon direct review of the Rate Schedule. Exhibit I may be revised pursuant to the provisions of section 8(b)(2). (b) If the Company specifies a minimum level of Demand for transmission pursuant to section 9(d), the charge for the amount by which such monthly minimum Demand for transmission exceeds the Demand in any month shall be the Embedded Cost Network Charge under Rate Schedule PTP-96.5. 13. BILLING AND PAYMENT Bills for power shall be rendered monthly by BPA. Failure to receive a bill shall not release the Company from liability for payment. If requested by the Company, BPA will electronically transmit the Company's power bill to the Company on the issue date of the bill, provided the Parties have compatible electronic equipment. BPA may elect to electronically transmit only that portion of the bill showing the amount owed. If the entire bill is not provided by electronic means, BPA will also send the Company a complete copy of its power bill by mail. Contract No. 95MS-94862 23 (a) Due Date Bills shall be due by close of business on the 20th day after the date of the bill (Due Date). This requirement also holds for revised bills (see section 13(h)). If the 20th day is a Saturday, Sunday, or Federal holiday, the Due Date shall be the next business day. (b) Payments of $50,000 or More (1) If the Company's monthly bill from BPA is $50,000 or more, the Company must pay by wire transfer using procedures established by BPA's Financial Services Group, unless the Company has obtained the right to pay by mail as provided in section 13(b)(2). Wire transfer amounts are due and payable on the Due Date. (2) The Company may pay its bill by mail even if the amount exceeds $50,000, provided the following conditions have been met: (A) the Company gives BPA 30 days' notice of its intent to pay by mail; (B) The Company ensures that BPA receives full payment by the above-stated Due Date; and (C) the Company has not incurred late payment charges while paying its bills by mail. If the Company incurs a late payment charge while paying its bills under this payment provision, BPA may rescind the Company's right to pay bills of $50,000 or more by mail. The Company would then be required to pay by wire transfer as provided in section 13(b)(1). Contract No. 95MS-94862 24 (c) Payments of Less than $50,000 If the Company's monthly bill from BPA is less than $50,000, the Company may pay the bill by mail. Payment for such bills will be accepted as timely if the payment is postmarked by the Due Date. Payments shall be mailed to: Bonneville Power Administration P.O. Box 6040 Portland, OR 97228-6040 (d) Computation of Bills Bills for products and services purchased under this Agreement shall be rounded to whole dollar amounts, by eliminating any amount which is less than 50 cents and increasing any amount from 50 cents through 99 cents to the next higher dollar. (e) Estimated Bills At its option, BPA may elect to render an estimated bill for a month to be followed at a subsequent billing date by a final bill for that month. Such estimated bill shall have the validity of, and be subject to, the same payment provisions as a final bill. (f) Late Payment Bills not paid in full on or before close of business on the Due Date shall be subject to an interest charge of one-twentieth percent (0.05 percent), applied each day to the unpaid balance. This interest charge shall be assessed on a daily basis until such time as the unpaid amount is paid in full. Remittances received by mail which are not required to be paid by wire transfer will be accepted without assessment of the charges referred to in the preceding paragraph of this section 13(f), provided the postmark indicates the payment was mailed on or before the Due Date. Contract No. 95MS-94862 25 (g) Disputed Bills In the event of a billing dispute, the Company agrees to note the disputed amount and pay its power bill in full by the Due Date. The amount billed is subject to late payment charges until paid in full. If it is determined that the Company is entitled to a refund of any portion of the disputed amount, then BPA will make such refund with interest computed from the date of receipt of the disputed payment. Interest will be computed using an interest rate of one-twentieth percent (0.05 percent) applied each day to the disputed payment amount. BPA shall not be liable for interest prior to the time the Company notifies BPA of the dispute. Disputed bills are subject to the terms and conditions of section 22 of this Agreement. (h) Revised Bills As necessary, BPA may render revised bills. The date of a revised bill shall be its issue date. (1) If the amount of the revised bill is more than the amount of the previous bill, the previous bill remains due on its Due Date, and the additional amount is due on the Due Date of the revised bill. (2) If the amount of the revised bill is less than the amount of the previous bill, the obligation to pay the previous bill is satisfied by payment of the revised bill on the Due Date of the previous bill. (3) If the revised bill changes the Party to whom money is due, the previous bill is canceled and the amount owed the other Party is due on the Due Date of the revised bill. (4) If payment of the previous bill results in an overpayment, a refund is due on the later of: (A) the Due Date of the revised bill, or (B) 20 days after the receipt of the payment for the original bill. Contract No. 95MS-94862 26 14. RELIEF FROM TAKE-OR-PAY OBLIGATION (a) Hourly Amounts BPA shall relieve the Company of its Take-or-Pay Obligation for any hourly decrease in Firm Power usage below the scheduled amount of Firm Power for any hour, to the extent that such decrease is less than or equal to the greater of 1 megawatt or 5 percent of the Firm Power scheduled for such hour; provided, however, that BPA shall relieve the Company of its Take-or-Pay Obligation for up to 15 percent of the Firm Power scheduled for such hour, if the Company demonstrates to BPA that an operational occurrence took place that caused a reduction in Plant Load. (b) Daily Amounts BPA shall relieve the Company of its Take-or-Pay Obligation for any daily decrease in Firm Power usage below the Company's daily amount of HLH and/or LLH Firm Energy, to the extent that such decrease is less than or equal to the greater of 1 average megawatt or 5 percent of the daily HLH and/or LLH Firm Energy for the day. (c) Monthly Amounts BPA shall relieve the Company of its Take-or-Pay Obligation for any monthly decrease in Firm Power usage below the Company's monthly amount of HLH and/or LLH Firm Energy, to the extent that such decrease is less than or equal to the greater of 1 average megawatt or 1 percent of the Firm Power specified in Exhibit D for such month. (d) Maintenance Outage In addition to any other relief provided herein, BPA shall relieve the Company of its Take-or-Pay Obligation for any Firm Energy that cannot be delivered due to an interruption pursuant to section 4(f) of Exhibit A. Contract No. 95MS-94862 27 (e) Restricted Energy The Company shall not be required to pay BPA the Rate Schedule energy charge for the amount of energy restricted by BPA, or the amount of energy the Company cannot use prior to the restoration of plant operations following any such restriction. 15. UNAUTHORIZED INCREASE CHARGES (a) Measured Amounts in Excess of Scheduled Amounts Measured Demand and Measured Energy, as those terms are defined in Exhibit C, General Rate Schedule Provisions, which is not assigned to classes of power delivered under other agreements, shall be deemed to be a Firm Power delivery under this Agreement. In lieu of the Demand and Firm Energy charges under the Rate Schedule, BPA will assess the Unauthorized Increase charge specified in the Rate Schedule for any hourly amount of Measured Demand or Measured Energy in excess of the lesser of the amount scheduled for such hour or the Demand for any HLH, to the extent that such hourly excess exceeds the larger of: (1) 1 megawatt; or (2) 1 percent of the scheduled amount of Firm Power on any such hour. (b) Scheduled Amounts in Excess of Daily Amounts BPA shall assess an Unauthorized Increase charge for any scheduled daily amounts of HLH or LLH Firm Energy that exceeds the Company's daily amount of Firm Energy for HLH or LLH established pursuant to section 10(b)(2)(B). Contract No. 95MS-94862 28 (c) Firm Power Deliveries to Plant Load Dedicated to Non-Federal Service BPA shall assess an Unauthorized Increase charge for any delivery of Firm Power to Plant Load served by Non-Federal Service when the Company has elected to curtail its purchases pursuant to section 18(a), unless such deliveries are allowed under an applicable rate schedule or under a separate agreement between the Parties. 16. CHANGES IN FIRM POWER AMOUNTS (a) The Company may request, and BPA may, but shall not be obligated to provide monthly or annual amounts of Firm Power that differ from the amounts specified in Exhibit D. (b) BPA shall not grant such request if the change shall cause BPA's Firm Power obligation to exceed the Company's Contract Demand. (c) If BPA grants the request, the changes shall be reflected in a revision to Exhibit D to be executed by the Parties. (d) The amounts of Firm Power in the revised Exhibit D shall be purchased and sold at the applicable rates specified in Exhibit C of this Agreement. 17. RESERVES (a) Operating Reserves In the event of an Occurrence requiring the use of Operating Reserves, unless otherwise provided by separate agreement, the Company shall, within 5 minutes of receiving an appropriate request from BPA, provide Operating Reserves by reducing its Federal Load for up to 120 Event Minutes as follows: Contract No. 95MS-94862 29 (1) Amount of Requested Operating Reserves The amount of Requested Operating Reserves will be specified by BPA in its request; provided that the amount of Requested Operating Reserves shall not exceed the Federal Load at the time of BPA's notice. (2) Use of Other Operating Reserves BPA shall use all other operating reserves available to BPA, including reserves available from parties other than direct service industry customers, prior to using Operating Reserves under this Agreement. (3) Company Failure to Respond to BPA's Request for Operating Reserves If the Company fails to respond to BPA's request for Operating Reserves by voluntarily reducing its load to the level requested within 5 minutes after BPA's request for Operating Reserves, BPA may unilaterally restrict (Unilaterally Restrict(ed)) an amount up to the Company's entire Process Load so that BPA can obtain the Requested Operating Reserves in a timely manner; provided in the event BPA Unilaterally Restricts the Company's load by opening a circuit breaker, BPA shall open the circuit breaker that results in the smallest load reduction necessary to achieve BPA's Requested Operating Reserves. In the event that BPA Unilaterally Restricts the Company's load, BPA will work with the Company to restore service to the nonreserve portion of its load as soon as practicable, but in any event within 90 minutes. BPA will not provide compensation for any service in excess of the Requested Operating Reserves Unilaterally Restricted due solely to the Company's failure to respond in a timely manner to BPA's request for Operating Reserves. In the event BPA Unilaterally Restricts the Company's load, for purposes of calculating Event Magnitude and liquidated damages, BPA shall be deemed to restore non-BPA power service prior to restoring BPA power service. Contract No. 95MS-94862 30 BPA shall not unreasonably refuse to cooperate with the Company, at the Company's expense, if the Company requests to install circuit breakers, at the Company's expense, to allow for greater flexibility in the amount of Company's load that would be susceptible to a Unilateral Restriction. (b) Stability Reserves The Company shall provide Stability Reserves up to the hourly amount of Firm Power delivered to the Company under this Agreement and for a period of up to 30 Event Minutes per Event as provided herein: (1) Amount of Stability Reserves When necessary to provide Stability Reserves, BPA may restrict deliveries of Firm Power under this Agreement to Company's aluminum smelter Process Load for a period of up to 30 Event Minutes per Event pursuant to the scheme(s) listed in Exhibit G and to Company's other loads under any additional scheme(s) adopted pursuant to this section 17(b)(3); provided, that BPA shall have the sole right to determine whether to restrict all or part of Company's energy subject to restriction hereunder when an SR Event occurs. (2) Additional Installations In the event that the Company makes less than 100 percent of its Process Load available to BPA for Stability Reserves under this Agreement or under other agreements, the Company shall pay all costs for such additional installations as may be needed at the Company's facilities or BPA's facilities used solely to serve the Company to allow for the restriction of only a portion of the Company's load. Contract No. 95MS-94862 31 (3) Additional Stability Reserve Schemes To the extent BPA determines: (A) the need for additional Stability Reserve scheme(s) not listed in Exhibit G that would restrict, at a frequency and duration similar to the scheme(s) listed in Exhibit G, the energy subject to restriction under this Agreement, (B) the need to apply Stability Reserve schemes listed in Exhibit G and additional Stability Reserve scheme(s) to energy delivered under this Agreement to nonaluminum direct service industries, or (C) the need for modifications to the elements of schemes listed in Exhibit G that would significantly change the expected frequency or duration of restrictions, then: (D) the Company agrees to cooperate in the development of such scheme(s) and shall not unreasonably withhold its consent to implementation of such scheme(s), at BPA's expense. BPA shall consult with the Company on the need for such schemes, the operational characteristics as they affect the Company, and the additional compensation for such scheme(s) (except for the application of the Stability Reserve schemes listed in Exhibit G to energy delivered under this Agreement to nonaluminum direct service industries) that BPA shall pay, and; BPA shall consider alternative methods and costs, including purchases from entities other than direct service industry customers, for obtaining such additional reserves. Contract No. 95MS-94862 32 (c) General Provisions (1) Restoration of Service Notwithstanding any other provision of this Agreement, BPA shall end the Event as soon as possible. The Company agrees to cooperate in the development of mechanisms that will enhance BPA's ability to notify the Company of the end of an Event. (2) No Right to Cause Material Plant Damage Notwithstanding any other provision of this Agreement, including the breach and damages provisions, BPA shall have no contractual right under this Agreement which would cause the Company to incur Material Plant Damage as a result of providing Reserves; provided, BPA shall not be liable for damages for such Material Plant Damage that occurred prior to reaching the Event Magnitude Limit or prior to Event Minute 46 for an SR Event. (3) Compensation for Reserves The Company shall be compensated for providing reserves through the credit in the applicable power rate in the Rate Schedule for all Events with an Event Magnitude less than or equal to the Event Magnitude Limit, and for all SR Events of an Event Duration of 30 minutes or less. (4) Liquidated Damages The Parties acknowledge that restrictions beyond that allowed by this Agreement may result in damage to and lost production by the Company's production facilities prior to Material Plant Damage and that such damage is difficult to quantify. Therefore the Company may recover from BPA liquidated damages as follows: Contract No. 95MS-94862 33 (A) If an SR Event Duration exceeds 30 Event Minutes, then BPA shall be liable to Company as follows: (i) 200 mills per kilowatthour of restricted energy during SR Event Minutes 31 through 45 (or portion thereof) of an SR Event; and (ii) 400 mills per kilowatthour of restricted energy during SR Event Minutes (or portion thereof), after SR Event Minute 45 of an SR Event; or (B) If the Event Magnitude of any Event exceeds the Event Magnitude Limit, then BPA shall be liable to the Company for 200 mills per kilowatthour for each kilowatthour that the Event Magnitude exceeds the Event Magnitude Limit. Each megawatt of restricted load that is subject to both sections 17(c)(4)(A) and 17(c)(4)(B) shall be paid for at the highest level specified under either section 17(c)(4)(A) or section 17(c)(4)(B), but shall not be paid for under both sections 17(c)(4)(A) and 17(c)(4)(B). (5) Material Plant Damage In lieu of section 17(c)(4)(A)(ii) or 17(c)(4)(B), at the Company's option, if the SR Event Duration exceeds 45 SR Event Minutes, or an Event exceeds the Event Magnitude limit and the Company incurs, in its determination, Material Plant Damage as a direct result of the restriction, then as to the portion of its production facilities that suffers Material Plant Damage, BPA and the Company agree that these damages can be reasonably quantified and, therefore, for that portion of its production facilities, the Company may recover actual damages (excluding only lost production and lost profits). Such actual Contract No. 95MS-94862 34 damages shall not exceed $30 per kilowatt of plant production facilities suffering Material Plant Damage. The liquidated damages charges in sections 17(c)(4)(A)(ii) and 17(c)(4)(B) shall continue to apply to that portion of Company's load which the Company does not determine has suffered Material Plant Damage. BPA shall not be liable for any portion of Material Plant Damage associated with restrictions to service to the Company's load resulting from stability or operating reserves which the Company provides to others or provides for its own use. In the event that Material Plant Damage is a result of a Company's load being restricted under this Agreement and under other agreement(s) between BPA and the Company or between the Company and a third party (or parties), then BPA shall be liable under this Agreement only for a portion of the Material Plant Damage. BPA's share of the Material Plant Damage under this Agreement shall be based on the ratio of: the Event Magnitude divided by the sum of Event Magnitude and the number of megawatt-minutes of such other restriction during, or immediately before or after the Event. (6) Makeup Power At the Company's request, BPA shall sell and deliver to the Company energy in excess of the amount shown in Exhibit D (Makeup Power), at the applicable energy charge only established for Firm Energy in the Industrial Firm Power Rate in the Rate Schedule, to the extent that such energy is needed by the Company to restore its operations following a restriction. Such Makeup Power shall not subject the Company to any Unauthorized Increase or other charge. 18. CURTAILMENT OR REMARKETING The Company shall have a one-time option, at the time the Company makes its first submission of monthly amounts of Firm Power pursuant to section 10(a) of this Contract No. 95MS-94862 35 Agreement, to either: curtail its purchases pursuant to section 18(a); or remarket Excess Firm Energy pursuant to section 18(b). Following the Company's election, BPA and the Company shall operate under the terms and conditions of either section 18(a) or section 18(b), as applicable. (a) Curtailment of Excess Firm Energy for a Fixed Fee The Company may curtail its Plant Load below the sum of its Take-or-Pay Obligation plus any amount of Non-Federal Service the Company identifies at the time it elects this curtailment option. BPA shall relieve the Company of its Take-or-Pay Obligation for Demand and Firm Energy for any such curtailed amounts and the Company shall pay BPA the fixed curtailment fee in mills per kilowatthour for each kilowatthour of such curtailed amounts, as specified in the Rate Schedule. Selection of this curtailment option shall relieve the Company of its obligation to pay the use-of-facilities charge specified in Exhibit I for amounts of curtailed energy. (1) The Company shall provide BPA as much notice as possible, but not less than 48 hours, of any curtailment of Firm Power usage. (2) If the Company chooses to use Non-Federal Service for part of its Plant Load, the Company shall specify the monthly amounts of demand, HLH energy, and LLH energy of Non-Federal Service, if any, for the term of this Agreement. BPA shall not be obligated to serve these specified monthly amounts, and any service to these amounts shall be subject to an Unauthorized Increase charge, as provided for in section 15(c). (3) Curtailed energy shall be equal to the Company's Take-or-Pay Obligation for Firm Energy reduced by the relief from take-or-pay provisions of section 14, minus the Measured Energy for Firm Power delivered under this Agreement. Contract No. 95MS-94862 36 (4) Election of this curtailment option operates to assign the Company's right to transmit an amount of energy equal to the curtailed energy to BPA. (b) Remarketing Excess Firm Energy Without a Fixed Fee (1) Notice and Request to Remarket The Company shall request that BPA remarket Excess Firm Energy by notifying BPA of: (A) the amount and minimum duration of Excess Firm Energy to be remarketed; and (B) the manner pursuant to section 18(b)(2) in which the Company wants BPA to remarket the Excess Firm Energy. (2) Remarketing Options The Company may select one or more of the following options for remarketing Excess Firm Energy: (A) The Company may identify one or more Qualified Purchasers that have agreed to purchase some or all of the Excess Firm Energy under specified terms and conditions at agreed-upon prices or price formulas and for agreed-upon amounts and durations. The Company shall provide BPA at least the notice specified in section 18(b)(3) prior to the date that deliveries are to begin under each proposed sale. (B) The Company may arrange in advance for a Qualified Purchaser(s) to purchase any Firm Power that becomes Excess Firm Energy during any period for which the Company and a Qualified Purchaser may agree. The Company shall provide Contract No. 95MS-94862 37 BPA at least the notice specified in section 18(b)(3) prior to the date on which the prearrangement becomes effective. In addition, the Company shall notify BPA as required in section 10(b) when deliveries are to begin under the arrangement. (C) The Company may request that BPA find purchasers for the Excess Firm Energy. If the Company chooses, it may request that BPA seek sales of specified amounts for daily, weekly, monthly, or other specified durations, and the Company may specify minimum prices or price ranges for the sales. BPA and the Company shall agree on the price of the sale at the time of the transaction unless the daily limitations in section 18(b)(4)(E) apply. BPA shall promptly notify the Company of the sales made on the Company's behalf. (D) The Company and BPA may agree to a price for use in crediting the Company's wholesale power bill under section 18(b)(4). BPA shall have discretion to dispose of or use such Excess Firm Energy without regard to the procedures associated with other options for disposal, and the Company shall have no further rights with respect to such Excess Firm Energy that is subject to such agreement. (3) Applicability of Preference Provisions Excess Firm Energy remarketed by BPA shall be subject to applicable statutory provisions regarding preference. BPA shall notify the Company within the time period specified below if BPA or another Qualified Purchaser with public preference has elected to perform the agreement. Contract No. 95MS-94862 38 ---------------------------------------------------------------- Minimum Maximum Period Notice Period for BPA to Respond Duration of Sale to Notify BPA to Company ---------------------------------------------------------------- Up to 1 month 48 hours 24 hours Up to 6 months 7 days 2 days Over 6 months 14 days 7 days Prearrangements under 21 days 14 days section 18(b)(2)(B) ---------------------------------------------------------------- (4) Crediting the Company's Wholesale Power Bill (A) During months when Excess Firm Energy is being remarketed by BPA, such power shall continue to be included in the amount of Firm Power billed by BPA as if delivered to the Company. (B) BPA may sell the Excess Firm Energy to the Qualified Purchaser(s) as arranged by the Company under options section 18(b)(2)(A) and section 18(b)(2)(B) or dispose of such power on whatever alternative terms that BPA may separately arrange. In either event, BPA shall credit the Company for the Excess Firm Energy revenues based on the price(s) agreed to between the Company and the Qualified Purchaser(s) net of the amounts specified in section 18(b)(4)(C). (C) BPA shall determine the revenues for Excess Firm Energy delivered during a month by subtracting from the amount paid by the Qualified Purchaser (or the amount agreed to be paid or credited if BPA elects not to remarket to the Qualified Purchaser, disposes of or uses the Excess Firm Energy under section 18(b)(2)(D), or remarkets the Excess Firm Energy under section 18(b)(2)(C)): (i) any applicable transmission charges or losses specified in section 18(b)(4)(F); and (ii) the remarketing fee, as specified in Exhibit B. The fee or the pro rata share of the fee that the Company would have paid to Contract No. 95MS-94862 39 another entity under a transaction under section 18(b)(2)(B) shall be deducted from revenues when BPA elects to retain the Excess Firm Energy for itself. No charges shall apply under section 18(b)(4)(C)(i) and section 18(b)(4)(C)(ii) when BPA uses such Excess Firm Energy for its own use or disposes of such Excess Firm Energy under section 18(b)(2)(D). (D) BPA shall credit the Company's wholesale power bill for revenues from sales of Excess Firm Energy in the month in which BPA uses such Excess Firm Energy for its own use or disposes of such Excess Firm Energy under section 18(b)(2)(D), BPA is paid for such Excess Firm Energy under section 18(b)(2)(C), or BPA is paid for such Excess Firm Energy by the Qualified Purchaser. If the amount of the credit during any month exceeds the power bill amount, then BPA shall pay the Company the amount of the difference. (E) BPA shall credit the Company for sales made under section 18(b)(2)(C) on Company's behalf subject to the limitations in this paragraph. For sales of 1 month duration or less, if BPA notified the Company at the start of a transaction that it was subject to daily remarketing limitations and BPA is simultaneously remarketing power for the Company and selling nonfirm energy on a daily basis, then the Company shall receive credit for the energy that BPA remarkets on the Company's behalf on such days at BPA's average sale price for nonfirm energy (including remarketed energy) for such day; provided, however, BPA shall have no obligation to credit the Company at such average daily price to the extent that the total amount of Excess Firm Energy remarketed under similar contract provisions for the Company and other entities Contract No. 95MS-94862 40 providing for daily remarketing limitations exceeds the following limits: ------------------------------------------------------------ If BPA's actual daily average sales (excluding Limit to total amount remarketed amounts) are: of remarketed energy: ------------------------------------------------------------ equal to or greater but less than (aMW) than (aMW) (aMW) ------------------------------------------------------------ 0 600 25% of BPA actual sales 600 1,000 200 1,000 1,500 250 1,500 3,000 300 3,000 4,000 400 4,000 5,000 500 5,000 - - 600 ------------------------------------------------------------ In the event the above limits are exceeded, the Company shall be credited for its pro rata share of remarketed energy at the average daily price. All sales of remarketed energy for each day under the daily remarketing limitations shall be considered made under a single active schedule to determine remarketing fees. Sales of remarketed energy under the daily remarketing limitations shall be considered made over the southern intertie during the months of April through July, and in the Pacific Northwest during other months. The Company may request that BPA remarket the remainder of its Excess Firm Energy at the best available price for additional energy, or the Company may arrange to store the Excess Firm Energy for sale at another time. BPA shall not discriminate against the Company in the storage or disposal of such remaining Excess Firm Energy. (F) There are no additional transmission charges for Excess Firm Energy except when: (i) BPA incurs incremental transfer costs, including losses, Contract No. 95MS-94862 41 (ii) the Qualified Purchaser receiving delivery would have paid a charge for low-voltage delivery higher than the charge, if any, paid by the Company. The Company shall pay such incremental costs. Any deliveries of Excess Firm Energy over BPA's interties shall be charged BPA's standard intertie tariffs. Losses will be valued at the price of the remarketed power. 19. LOAD REGULATION, UNBUNDLED PRODUCTS, AND OTHER TRANSMISSION PRODUCTS (a) Purchase of Load Regulation If the Company is within BPA's Control Area, or if BPA provides load regulation services to the Company through a third party, the Company shall purchase load regulation from BPA. The charge for load regulation shall be as specified in Exhibit C. (b) Moving Out of BPA's Control Area The Company may elect to discontinue the purchase of load regulation from BPA by notifying BPA of its intent to either: (1) establish its own Control Area consistent with the then-applicable requirements of the North American Electric Reliability Council (NERC), the Western Systems Coordinating Council (WSCC), and the Northwest Power Pool (NWPP); or (2) locate in another Control Area operating in accordance with NERC, WSCC and NWPP standards. Contract No. 95MS-94862 42 (c) Schedule for Changing Control Areas (1) Upon notice by the Company that the Company intends to move out of BPA's Control Area, BPA shall use best efforts to effectuate the change of Control Area within a reasonable period of time from the date of request, provided, however, that the Company obtains the full cooperation of any third party to take all steps required for BPA to accomplish the change consistent with applicable NERC, WSCC, and NWPP standards. (2) Within a reasonable time, which may be less and shall not exceed 60 days following receipt of the Company's notice of intent to change Control Areas, BPA shall provide the Company with: (A) an estimate of the schedule for making the necessary changes, and (B) an estimate of the costs that BPA will incur in making the required changes. (3) BPA shall continue to charge the Company for load regulation until the date that another Control Area assumes full Control Area responsibility. (4) If the Company moves out of BPA's Control Area, the Parties shall schedule Firm Power in accordance with then-existing WSCC scheduling practices. The Parties shall amend the appropriate provisions of this Agreement to reflect such practices. (d) Unbundled Products and Other Transmission Services BPA shall offer to the Company the ancillary services, the network integration transmission product, the point-to-point transmission product, Contract No. 95MS-94862 43 and the intertie transmission products that BPA offers to its utility customers. BPA may offer to the Company other unbundled services. If the Company elects to purchase such products, the Parties agree to amend the appropriate provisions of this Agreement. (e) Eccentric Loads None of the Company's facilities operating as of the Effective Date shall be billed as Eccentric Loads. (f) Unbundling of Assignability in the Point-to-Point Transmission Rate If BPA offers a point-to-point transmission rate schedule that offers the right to purchase point-to-point transmission that is not assignable, the Company shall be eligible to take service under such schedule if the Company chooses to purchase such product. The Parties agree to amend the appropriate provisions of this Agreement to provide for transmission charges for Excess Firm Energy remarketed over BPA's network facilities at BPA's standard tariffs for point-to-point service. 20. PROVISIONS RELATING TO DELIVERY OF FIRM POWER (a) Delivery to Company's Firm Load BPA shall deliver Firm Power to the Company's firm load at the Point(s) of Delivery specified in Exhibit E. (b) Other Provisions Relating to Delivery Other provisions relating to delivery shall be as specified in Exhibit A. 21. ASSIGNMENT OF AGREEMENT This Agreement shall inure to the benefit of, and shall be binding upon the respective successors and assigns of the Parties. This Agreement or any interest therein may be transferred or assigned by either Party to another only upon the written consent of the other Party, which shall not be unreasonably withheld, except Contract No. 95MS-94862 44 as specifically provided in this section. The consent of BPA is hereby given to: (a) any assignment to a successor in interest of the Company that agrees to perform the obligations of the Company under this Agreement; and (b) any security assignment or other like financing instrument which may be required under terms of any mortgage, trust, security agreement or holder of such instrument of indebtedness made by and between the Company and any mortgagee, trustee, secured party, subsidiary of the Company or holder of such instrument of indebtedness, as security for bonds or other indebtedness of such Company, present or future. Such mortgagee, trustee, secured party, subsidiary, or holder may realize upon such security in foreclosure or other suitable proceedings, and succeed to all right, title, and interests of such Company. 22. DISPUTE RESOLUTION (a) The Parties intend by this Agreement to create contract rights and obligations to be interpreted to carry out the mutual intent of the Parties expressed herein and that such rights and obligations shall be enforceable, to the maximum extent consistent with existing statutes, like any other commercial contract. (b) If a dispute arises between the Parties regarding the terms, conditions, or performance of obligations under this Agreement, then the Parties shall continue performance under this Agreement pending resolution of such dispute. Parties shall first seek to resolve any dispute by settlement prior to giving notice of initiation of an arbitration under this Agreement. (c) Upon the written notice from either Party to the other Party, any and all disputes arising under the terms of this Agreement or out of performance under this Agreement are subject to arbitration on any issue, including without limitation, issues of fact, any law relating to performance under this Agreement, and contract interpretation. Contract No. 95MS-94862 45 (d) The Company and BPA shall agree to a set of procedures for the conduct of any arbitration under this section 22 by February 1, 1996, and shall attach such procedures as Exhibit H to this Agreement. In the event the Company and BPA have not agreed to a set of procedures prior to a notice of a dispute under this section 22, then the arbitration procedures for commercial arbitration of the CPR Institute for Dispute Resolution (Non-Administered Arbitration Rules) shall be used for that dispute. (e) The Parties agree that all material related to plant technology, plant operations or to proving damages which is submitted by the Company to BPA, the arbitrator or any other party in any dispute under this Agreement is confidential. The Parties shall jointly request a protective order from the arbitrator: (1) preserving the confidentiality of such material; (2) limiting its use to such proceeding; and (3) requiring its return to Company at the conclusion of the proceeding. BPA agrees not to voluntarily disclose any such information outside of the agency and agrees to restrict access to and use of such information to employees necessary to and for purposes associated only with the conduct of such proceeding. If requested to provide such information to any Federal agency or Congress, BPA shall inform the agency or Congress of the confidential nature of the information and request that the agency or Congress retain the information as confidential. BPA shall also inform the Company of the request prior to complying with the request. Responding to any such request shall not be a breach of this Agreement. (f) As part of a decision to resolve the dispute, an arbitrator may direct that one or both of the Parties take actions to meet its obligations under the Contract No. 95MS-94862 46 Agreement and may also direct that one Party pay the other Party an amount of damages caused to a Party as may be determined to result from a breach of the Agreement by the other Party. (g) The decision and award of the arbitrator shall be binding on both Parties to the maximum extent permissible under the law existing at the time that the notice of arbitration is given by one Party to the other Party. (h) Within 30 days after BPA's receipt of the arbitrator's decision and award, the Administrator shall decide to accept or reject the arbitrator's decision and award, and provide notice of the decision to the Company and the arbitrator. If BPA rejects the arbitrator's decision and award, then the notice shall state whether the Administrator contends that such decision and award is not binding on BPA as a matter of law. (i) If BPA provides such a notice to the Company and the arbitrator of nonacceptance of an award directing actions to be taken other than the payment of money, then the arbitrator shall review the decision and issue an alternative award which shall provide for an amount of money damages only. The Administrator shall have 30 days after the receipt of such alternative award to provide notice to the Company and the arbitrator accepting or rejecting the alternative award. If the Administrator rejects an award for the payment of money, then such rejection shall not affect either Party's right to seek to enforce or to challenge the award. (j) If BPA fails to provide notice of acceptance, nonacceptance, or rejection of an award as required in section 22(f), 22(g), or 22(i), then the Company may notify BPA that it will terminate this Agreement if BPA fails to provide such notice of acceptance, nonacceptance, or rejection of the award within 21 days. If BPA fails to provide such notice within 21 days of such request, the Company may terminate this Agreement. Contract No. 95MS-94862 47 (k) If BPA notifies the Company that it will not accept any award and decision of the arbitrator directing money to be paid, or upon acceptance does not comply with the award and decision, or seeks to set aside any award on the grounds that the award is not binding on it, then the Company may, by giving notice to BPA within 90 days, terminate this Agreement. Such notice of termination shall be effective 30 days after the date it is received by BPA. (l) If the Company fails to comply with an award issued by an arbitrator and has not filed a legal action to modify, vacate, or set aside the award in a court having jurisdiction within 90 days, then BPA may demand performance of the award from the Company. If the Company does not then comply with the award within 90 days after such demand, BPA may terminate this Agreement. This provision shall not limit any other right to seek enforcement or other relief available to BPA. (m) Any monetary award entered by an arbitrator shall bear interest at a rate of one-twentieth percent (0.05 percent) per day, from the 31st day following receipt of the award by the Parties until the day the award is satisfied. (n) Irrespective of whether a notice of termination of this Agreement is given, the Party in whose favor the award and decision was made shall retain all rights to seek enforcement of the award, or other appropriate relief in a court of competent jurisdiction. Nothing in the foregoing shall limit the right of the other Party to seek any remedies it may have under law. 23. FORCE MAJEURE (a) Definition of Force Majeure "Force Majeure" means an event beyond the reasonable control and without the fault or negligence of the Party claiming Force Majeure. Force Majeure includes but is not limited to: Contract No. 95MS-94862 48 (1) strikes or work stoppages, including threats of strikes or imminent strikes, the settlement of which shall be at the sole discretion of the Party subject to the strike; (2) events reasonably beyond the control of the Parties (including those events creating actual or imminent safety problems) and which the Party could not, by exercise of reasonable diligence and foresight, have been expected to avoid; (3) floods or other natural disasters; or (4) order or injunction entered by any court having competent subject matter jurisdiction or any order of an administrative officer, other than an officer of BPA or the Department of Energy, which cannot be stayed, suspended, or set aside pending review of such order. Neither the unavailability of funds or financing, nor conditions of national or local economies or markets shall be considered a Force Majeure. The economic hardship of either Party shall not constitute a Force Majeure. (b) Obligations of the Parties Each Party shall notify the other as soon as possible of any Force Majeure which may, in any way, affect the delivery of Firm Power under this Agreement. To the extent either Party is prevented, for the duration of the Force Majeure, from meeting its obligations under this Agreement by a Force Majeure, both Parties shall be excused from their respective obligations without liability to the other for the period reasonably required to restore the affected Party's operations to conditions existing prior to the occurrence of the Force Majeure. Contract No. 95MS-94862 49 24. NOTICES Unless the Agreement requires otherwise, any notice, demand, or request provided for in this Agreement, or served, given, or made in connection with it, shall be in writing and shall be deemed properly served, given, or made if delivered in person or sent by telegraph, or by acknowledged delivery, or sent by registered or certified mail, postage prepaid, to the persons specified below: To the Company: Mr. Brett Wilcox Northwest Aluminum Company 3313 West 2nd Street The Dalles, OR 97058 To BPA: Mr. Sydney D. Berwager - SH Senior Customer Account Executive U.S. Department of Energy Bonneville Power Administration P.O. Box 3621 Portland, OR 97208-3621 Any Party may, by written notice to the other Party, change the designation or address of the person so specified as the one to receive notices pursuant to this Agreement. 25. HOLD HARMLESS Each Party hereto hereby assumes all liability for injury or damage to persons or property arising from the act or neglect of its own employees, agents or contractors and shall indemnify and hold the other Party harmless from any liability arising therefrom. Each Party releases the other Party from, and shall indemnify the other Party for, any such liability. As used in this section: (a) the term "Party" means, in addition to such Party itself, its directors, officers, and employees; (b) the term "damage" means all damage, including consequential damage; and (c) the term "person" means any person, including those not connected with either Party to this Agreement. Contract No. 95MS-94862 50 26. DAMAGES FOR FAILURE BY BPA TO DELIVER In the event BPA fails to deliver the hourly amounts of Firm Energy scheduled by the Company to the plant's Point of Delivery, and such delivery is not restricted by BPA pursuant to its Reserve rights under this Agreement, or such delivery is not excused by section 4(f) of Exhibit A, BPA shall pay the Company (on the date payment by the Company for the Firm Energy would otherwise have been due under this Agreement): (a) an amount for each megawatthour of such nondelivery equal to the price at which the Company is, or would be, able to obtain comparable supplies of power at a commercially-reasonable price (adjusted to reflect differences in transmission costs, if any) minus the applicable payment under this Agreement; provided, if such sum as determined above is negative then it shall be deemed to equal zero; or (b) liquidated damages as provided for an Event which exceeds an Event Magnitude Limit, if the Company or its agent is unable, notwithstanding its diligent effort to do so, to obtain replacement power. 27. OBLIGATIONS DURING PERFORMANCE OF THIS AGREEMENT During the course of performance of this Agreement by the Company, BPA shall not charge the Company or a third party doing business with the Company any amount, charge or fee of any nature whatever based on the historical purchases made by the Company under any prior power purchase agreements between the Company and BPA. This provision is a material term essential to the Company having entered into this Agreement. 28. THIRD PARTIES The rights, obligations, and benefits of this Agreement shall inure solely to the signatories and the terms, covenants and conditions herein shall not be interpreted Contract No. 95MS-94862 51 to create, nor are they intended to create any right, benefit, or obligation to any third party whatsoever. 29. SEVERABILITY If any term, covenant, or condition of this Agreement or the application of any such term, covenant, or condition shall be held invalid as to any person, entity, or circumstance by any court of competent jurisdiction, then such term, covenant, or condition shall remain in force and effect to the maximum extent permitted by law, and all other terms, covenants, and conditions of this Agreement and their application shall not be affected thereby but shall remain in force and effect unless the court finds that such provision is not severable from all other provisions of this Agreement. The Company's right to terminate this Agreement under section 5(a)(2)(B) shall not be limited by any finding that any term, covenant, or condition of this Agreement is severable. 30. ENTIRE AGREEMENT The terms and provisions contained in this Agreement, including the exhibits and all referenced documents, constitute the entire agreement between the Parties and supersede all previous communications, representations, or agreements, either oral or written, between the Parties with respect to the subject matter of this Agreement. Except as expressly provided in this Agreement, this Agreement shall not supersede agreements with respect to the Prior Contract. Contract No. 95MS-94862 52 31. SIGNATURE CLAUSE The signatories hereto represent that they have been duly authorized to enter into this Agreement on behalf of the Party for whom they sign. IN WITNESS WHEREOF, the Parties have executed this Agreement. UNITED STATES OF AMERICA Department of Energy Bonneville Power Administration By /s/ SYDNEY D. BERWAGER --------------------------------- Senior Customer Account Executive Name Sydney D. Berwager ------------------------------- (Print/Type) Date 9/28/95 ------------------------------- NORTHWEST ALUMINUM COMPANY By /s/ BRETT WILCOX ------------------------------------- Name Brett Wilcox ----------------------------------- (Print/Type) Title President ---------------------------------- Date 9/28/95 ----------------------------------- Contract No. 95MS-94862 53 Exhibit A, Page 1 of 8 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date GENERAL CONTRACT PROVISIONS Index to Sections - ------------------------------------------------------------------------------- Section Page 1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Metering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (a) Metering Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 2 (b) Metering Requirements at Company Facilities . . . . . . . . . . . 2 (c) Metering Standards. . . . . . . . . . . . . . . . . . . . . . . . 3 (d) Data Reporting Requirements . . . . . . . . . . . . . . . . . . . 4 (e) Metering Tests. . . . . . . . . . . . . . . . . . . . . . . . . . 5 3. Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (a) Ownership of Facilities . . . . . . . . . . . . . . . . . . . . . 5 (b) Access to Facilities. . . . . . . . . . . . . . . . . . . . . . . 5 (c) General Environmental Provisions. . . . . . . . . . . . . . . . . 6 4. Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (a) Character of Service. . . . . . . . . . . . . . . . . . . . . . . 6 (b) Voltage Levels. . . . . . . . . . . . . . . . . . . . . . . . . . 6 (c) Balancing Phase Demands . . . . . . . . . . . . . . . . . . . . . 7 (d) Harmonic Control. . . . . . . . . . . . . . . . . . . . . . . . . 7 (e) Voltage Flicker . . . . . . . . . . . . . . . . . . . . . . . . . 8 (f) Maintenance Outages . . . . . . . . . . . . . . . . . . . . . . . 8 5. Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 8 1. DEFINITIONS (a) "Federal System" or "Federal System Facilities" means the facilities of the Federal Columbia River Power System (FCRPS). For purposes of this Agreement, the FCRPS includes: (1) the Federal Government's generating facilities in the Pacific Northwest for which BPA is the designated marketing agent; (2) the Federal Government's facilities under BPA's jurisdiction; (3) any other facilities which BPA has a right to use by contract, license, or treaty; and Contract No. 95MS-94862 Exhibit A, Page 2 of 8 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date (4) any other facilities from which BPA receives generating capability. (b) "Prudent Electric Utility Practice" or "Prudent Utility Practice" means, at any particular time, the generally accepted practices, methods, and acts in the electric utility industry that would achieve the desired result. If there are no such practices, methods, and acts, Prudent Electric Utility Practice means the practices, methods, and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result consistent with reliability and safety considerations. 2. METERING (a) Metering Costs The Parties shall bear the costs of metering as provided in sections 2(a)(1) and 2(a)(2), except as otherwise specifically provided in section 2(b). (1) Metering of Existing Facilities BPA shall bear the costs of any meter replacement or new meter installation at any Company facility that is used for delivery of Federal power and which is an existing facility on the Effective Date of this Agreement. (2) Metering of New Company Facilities The Company shall pay all costs associated with installing BPA-approved metering at the following types of locations established by the Company after the Effective Date of this Agreement: (A) all points of generation integration; (B) all automatic generation control (AGC) interchange points; and (C) all other points of electrical interconnection, including convenience points of delivery. (b) Metering Requirements at Company Facilities (1) Points of Automatic Generation Control Interchange The following metering is required for each AGC interchange point (a point on a Control Area boundary); (A) telemetering of the kilowatts (kW) at such point; and Contract No. 95MS-94862 Exhibit A, Page 3 of 8 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date (B) hourly metering capable of providing summaries, at the end of each clock hour, of the kilowatthours (kWh) and kilovoltampere reactive hours (kVArh) (lagging and leading) exchanged during the previous hour. (2) Other Electrical Connections All electrical interconnections other than AGC interchange points and points of generation integration shall be metered on an hourly basis for both kW/kWh and kilovoltamperes reactive (kVAr)/kVArh (lagging and leading) quantities. BPA shall pay for any upgrades or replacement of required meters on facilities existing on the Effective Date; the Company shall pay to meet BPA's metering requirements for all new facilities. (3) Eccentric Loads At its own expense, the Company shall separately meter each of its eccentric loads, which are large loads that have an extremely steep ramp rate (more specifically defined in BPA's Billing Policy or product catalog). Eccentric loads shall be metered using telemetering equipment or the equivalent. (c) Metering Standards (1) All meters at new installations where the interconnections are "normally closed" shall be capable of providing data electronically unless BPA otherwise agrees. (2) BPA will determine whether hourly data or meter slips are required for those interconnections that are normally operated in the "open" position. (3) All meters providing data electronically shall be compatible with BPA's electronic metering systems. (4) As of the Effective Date, BPA principally uses a telemetering system, a kWh system, and BPA's Revenue Metering System (RMS) for metering. There are acceptable alternatives to each of these specific systems. The Company shall consult with BPA to ensure compatibility of any Company meter with BPA's then-current metering system. (5) The Company's meters shall meet BPA's accuracy standards as described in the BPA's Billing Policy. Contract No. 95MS-94862 Exhibit A, Page 4 of 8 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date (6) The Company shall coordinate with BPA to determine BPA's information and communication needs when designing future meter installations. (7) BPA-installed metering shall be used exclusively for BPA purposes unless otherwise agreed. (8) If the required metering capability is not installed by the Effective Date and until its installation, the Parties shall calculate the hourly quantities using a default methodology specified in the Billing Policy, unless a different methodology is specified in the Points of Delivery Exhibit. (d) Data Reporting Requirements (1) Telemetered data shall be furnished to BPA continuously on a real-time basis via 10-30 hertz telemetry, BPA's Supervisory Control and Data Acquisition system, the Interutility Data Exchange system, or other data collection method as determined by BPA. (2) Hourly metered data for all points of generation integration and points of AGC interchange shall be furnished to BPA at the end of each clock hour. Data shall be reported through the kWh metering system or an approved alternative. (3) Hourly metered data for: (A) points of delivery (excluding points of AGC interchange); and (B) eccentric loads shall be furnished to BPA at least once a month, at the end of the Company's billing cycle. (4) The Company shall submit a meter slip to BPA for all metering points which do not currently have: (A) metering capable of providing hourly kWh and kVArh quantities; or (B) electronic communications for such metered amounts (through the RMS or equivalent). Contract No. 95MS-94862 Exhibit A, Page 5 of 8 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date (e) Metering Tests Each Party shall inspect and test each of its meters used to measure power flowing between the Parties: (1) at least once every 2 years; and (2) upon the request of the other Party. Each Party shall give reasonable notice to the other stating when a test or inspection will occur. The other Party has the right to have one or more representatives present at such test or inspection. 3. FACILITIES (a) Ownership of Facilities (1) Except as otherwise expressly provided, equipment or salvable facilities owned by one Party and installed on the property of the other shall remain the property of the owner. (2) Each Party shall identify all movable equipment and other salvable facilities which it installed on the other's property by permanently affixing suitable markers plainly identifying the owner. Within a reasonable time after such installation, and again after any subsequent modification of such installation, representatives of the Parties shall jointly prepare an itemized list of said movable equipment and salvable facilities. (b) Access to Facilities Whenever one Party has facilities or equipment located on, or planned to be located on, the other's property, the property owner shall give the facility or equipment owner permission to access such property for any reasonable purpose related to such facilities or equipment, including removal. The property owner shall also provide accurate and up-to-date information on those facilities and equipment owned by the property owner, to the extent needed by the other Party to accomplish its purpose. Each Party shall have the right, at any reasonable time, to enter the other's property to read meters and inspect the other Party's electric installation. The inspecting Party shall observe written instructions and posted rules and such other necessary instructions or inspection standards to which the Contract No. 95MS-94862 Exhibit A, Page 6 of 8 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date Parties have agreed. Only those electric installations used to deliver power that BPA sells or wheels to the Company shall be subject to inspection. The inspecting Party shall be liable for any injury, loss, damage, or accident resulting from their inspection. (c) General Environmental Provisions Each Party shall be responsible for the cost of compliance with the requirements of all applicable Federal State, and local environmental laws for its own facilities, even when those facilities are located on the property of the other Party. 4. DELIVERIES (a) Character of Service Unless otherwise provided in this Agreement, BPA shall make electric power available to the Company in the form of 3-phase alternating current, at a nominal frequency of 60 hertz. (b) Voltage Levels (1) Voltage Levels on the Transmission System BPA has the right to operate its transmission system as provided below and cannot accept any restriction of that right. (A) 500 Kilovolt System BPA shall normally operate its 500 kV transmission system in a range from the nominal voltage to 10 percent above the nominal voltage (500 kV to 550 kV). (B) 115-345 Kilovolts BPA shall normally operate its 115-345 kV transmission system within 5 percent of the nominal voltage. BPA normally operates in the range from nominal voltage to 5 percent above, but reserves the right to operate in the lower half of the range. Sometimes BPA will allow some of its transmission lines or facilities to operate above or below the normal voltage limits where no substantive damage will occur from this operation. (2) Voltage Levels at Points of Delivery When the nominal voltage at the Company's point of delivery is 115 kV or more, BPA shall deliver power to the Company at the operating voltage of the transmission system. If the nominal voltage Contract No. 95MS-94862 Exhibit A, Page 7 of 8 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date at the Company's point of delivery is below 115 kV, the delivery voltage may differ from the operating voltage of the transmission system as a result of the "turns ratio" and impedance of the transformer providing the delivery service. (3) Voltage Schedules Voltage schedules are necessary for the efficient and reliable transmission of electrical power. BPA will establish a voltage schedule for each critical (or key) substation, as determined by BPA. Depending on the hourly operating requirements at each substation and at each point of generation integration, BPA will issue a target voltage (set-point) for the voltage schedule. At any time, BPA may reset the voltage schedule. The Company shall take all appropriate actions to help BPA maintain the established voltage schedule. (4) Voltage Levels During Abnormal System Conditions During outages or emergencies, BPA will maintain delivery voltage within 10 percent of the nominal voltage for all facilities having a nominal voltage less than 500 kV. BPA will normally match other transmission providers' voltage levels for abnormal system conditions when they share transmission responsibilities. At times during abnormal system conditions, BPA may need the Company to supply additional reactive power from its generating facilities (relative to normal requirements) to maintain reasonable voltage levels. The Company shall use its best efforts to comply with BPA's request. (c) Balancing Phase Demands The current on any one phase shall not deviate by more than 5 percent from the current on any other phase, unless otherwise agreed by the Parties. (d) Harmonic Control Each Party shall design, construct, operate, maintain, and use its electric facilities in accordance with Prudent Utility Practice to reduce, to acceptable levels, the harmonic currents and voltages which pass into the other Party's facilities. To that end, the Parties shall be guided by the recommended practices and requirements for harmonic control specified in The Institute of Electrical and Electronics Engineers, Inc. (IEEE) Electrical Power System Standard 519-1992, or its successor. The Parties shall accomplish harmonic reductions using equipment which is specifically designed, and permanently operated and maintained, as an integral part of the facilities of the Party which owns the system on which the harmonics are generated. Contract No. 95MS-94862 Exhibit A, Page 8 of 8 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date (e) Voltage Flicker Voltage flicker is normally detectable through visible variations in light intensity. However, flicker may be present even when no light variations are detectable. Since flicker is disruptive to lighting and can damage computer equipment, it must be controlled. IEEE Recommended Practices and Requirements for Harmonic Control in Electric Power Systems (IEEE Standard 519) provides definitions and limits on acceptable levels of voltage flicker, as set by IEEE Standard 519. Both Parties shall control voltage flicker on their respective systems as required by IEEE Standard 519. (f) Maintenance Outages The Company, BPA, or a transferor may temporarily interrupt or reduce deliveries of electric power if any such party determines that such interruption or reduction is necessary or desirable to install equipment in, make repairs to, make replacements within, conduct investigations and inspections of, or perform other maintenance work on, the Company's facilities, the Federal System, or the transferor's system. Except in an emergency where such notice is not possible, the interrupting party shall notify the other affected entities in advance of an interruption or reduction in service. The interrupting party shall identify the reason for such interruption or reduction, and the probable duration. To the extent reasonable or appropriate, the Company or BPA shall schedule such interruption or use temporary facilities or equipment to minimize the effect of any such interruption or outage. 5. STATUTORY PROVISIONS (a) The provisions of sections 9(c) and (d) of Public Law 96-501 and the provisions of Public Law 88-552 (the Provisions) as may be amended prior to the execution of this Agreement are hereby incorporated by this reference. (b) BPA agrees that the Company, together with other companies in the Pacific Northwest, shall have priority to power that BPA has available for sale, in conformity with the Provisions. Contract No. 95MS-94862 Exhibit B, Page 1 of 1 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date FEES FOR REMARKETING Excess Firm Energy remarketed pursuant to section 18(b) of this Agreement shall be subject to the following charges: 1. One-Tenth (0.1) mill per kilowatthour multiplied by the total amount of energy remarketed under section 18(b)(2)(C), plus the scheduling and dispatching fee under BPA's ancillary services rate schedule. 2. Two thousand dollars ($2,000) per contract under section 18(b)(2)(A) and section 18(b)(2)(B), plus the scheduling and dispatching fee under BPA's ancillary services rate schedule. The Parties may agree to different charges for specific transactions. The prices above are all inclusive, including scheduling and dispatch, sales, billing, invoicing, and other administrative services. Contract No. 95MS-94862 Exhibit C, Page 1 of 1 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date RATE SCHEDULE Contract No. 95MS-94862 Exhibit D, Page 1 of 1 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date MONTHLY AMOUNTS OF FIRM POWER CONTRACT YEAR 10/01/96 THROUGH 09/30/97 - ----------------------------------- ----------------------------------- HLH LLH Demand HLH LLH Demand Month (MWh) (MWh) (MW) Month (MWh) (MWh) (MW) - ----------------------------------- ----------------------------------- October April November May December June January July February August March September - ----------------------------------- ----------------------------------- Contract No. 95MS-94862 Exhibit E, Page 1 of 1 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date POINTS OF DELIVERY THE DALLES PLANT POINT OF DELIVERY Location: the point in the Government's Harvey Substation where the 13.8 kilovolt (kV) facilities of the Government and the Company are connected; Voltage: 13.8 kV; Metering: in the Government's Harvey Substation, in the 13.8 kV circuits over which such electric power and energy flows. Contract No. 95MS-94862 Exhibit F, Page 1 of 1 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date UNRECOVERABLE COSTS AND TRANSFER COSTS 1. UNRECOVERABLE COSTS (a) The unrecoverable costs in BPA substation or transmission facilities used to serve the Company's load, shall include the following unamortized investment in the facilities: --------------------------------------------------------------------- Unamortized Investment --------------------------------------------------------------------- Prior to October 1, 1996 $193,480 Contract Year 1997 $364,824 Contract Year 1998 $324,506 Contract Year 1999 $283,109 Contract Year 2000 $279,008 Contract Year 2001 $274,717 --------------------------------------------------------------------- (b) If the facilities must be removed from the site, the unrecoverable costs shall include, in addition to the unamortized investment for such facilities, all reasonable costs involved in the disposition of such facilities, such as, but not limited to, labor in dismantling equipment, transportation, site restoration and cleanup (except for the cost covered under section 3(c) of Exhibit A), less any mitigation, such as the salvage value of such equipment. 2. TRANSFER COSTS The Company is not served by transfer over third-party facilities. Contract No. 95MS-94862 Exhibit G, Page 1 of 1 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date STABILITY RESERVE SCHEME(S) 1. Import Contingency Load Tripping Schemes: Remedial Action Scheme for the loss of the AC Intertie and Remedial Action Scheme for the loss of the DC Intertie. Contract No. 95MS-94862 Exhibit H, Page 1 of 1 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date ARBITRATION PROCEDURES Contract No. 95MS-94862 Exhibit I, Page 1 of 2 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date USE-OF-FACILITIES CHARGE
I&A(1) I&A O&M(2) Annual Annual Annual Facility Investment Cost Ratio Cost Cost Demand $/kW/yr - -------- ---------- ---------- -------- -------- ------ ------- (3) (4) (kW) Harvey $1,392,220 8.00% $111,378 $284,100 167,500 $2.36 Substation Total Use-of-Facilities Charge (Harvey) = 0.197 $/kW/mo - --------------- 1 Investment and amortization. 2 Operations and maintenance. 3 Based on ACR table dated 6/2/95, column 8 minus column 5 for U substation category. 4 Based on O&M table dated 6/2/95.
1. CHANGES TO THE USE-OF-FACILITIES CHARGE (a) Changes in Costs and Demands This Exhibit I may be revised annually to reflect changes in: (1) the yearly noncoincidental demands on the facility under this Agreement and other agreements; (2) changes in I&A annual cost ratio; (3) changes in O&M annual cost; and (4) changes in the general transfer agreement costs, if applicable. Any changes in the costs or demands used in calculating the use-of-facilities change in this Exhibit I are subject to the dispute resolution provisions of section 22. (b) Limits on Changes in Use-of-Facilities Charge The sum of the annual costs for I&A annual cost, O&M annual cost, and the cost of general transfer agreements, if applicable, used in calculating the use-of-facilities charge shall not exceed a limit equal to 150 percent of such total annual cost specified in the initial Exhibit I as adjusted for changes in investments. The formula used for determining the use-of-facilities charge shall not change from the formula used in developing the initial Exhibit I. Contract No. 95MS-94862 Exhibit I, Page 2 of 2 Contract No. 95MS-94862 Northwest Aluminum Co. Effective on the Commencement Date 2. NEW INVESTMENTS IN FACILITIES SERVING THE COMPANY (a) Use-of-Facilities Charge If new investments are proposed by BPA and agreed to by the Company in accordance with the provisions of section 5(b)(1)(C), such investments shall be used in the use-of-facilities charge under this Agreement. (b) Change in Rate Test Limit If BPA makes such new investments, the limit on the use-of-facilities charge specified in section 1(b) of this Exhibit I shall be proportionately increased to reflect such new investments. Contract No. 95MS-94862 EX-12.1 19 STATEMENTS RE COMPUTATION OF RATIOS Statement regarding computation of ratios Ratio of Earnings to Fixed Charges
Nine Months December 31, Ended Sept 30, ---------------------------------------------------------------------- 1993 1994 1995 1996 1997 1997 1998 ---------------------------------------------------------------------- (in thousands, except ratios) Earnings for fixed charge ratio purposes: Pretax income from operations 68 2,349 23,696 25,541 31,769 29,616 8,340 Fixed charges 406 832 948 12,600 22,991 16,442 17,500 Adjustment to fixed charges: Exclude interest capitalized - - - (147) - - - Exclude preferred stock dividends - - - (2,999) (6,268) (4,592) (6,249) ---------------------------------------------------------------------- 474 3,181 24,644 34,995 48,492 41,466 19,591 ---------------------------------------------------------------------- Fixed charges: Interest, including capitalized interest 406 832 948 9,601 16,723 11,850 11,251 Preferred stock divident requirements increased for tax coverage - - - 2,999 6,268 4,592 6,249 ---------------------------------------------------------------------- 406 832 948 12,600 22,991 16,442 17,500 ---------------------------------------------------------------------- Ratio of earnings to fixed charges 1.2 3.8 26.0 2.8 2.1 2.5 1.1 ----------------------------------------------------------------------
EX-23.1 20 CONSENT OF BDO SEIDMAN, LLP Consent of Independent Certified Public Accountants Golden Northwest Aluminum, Inc. The Dalles, Oregon We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated July 10, 1998 except for Note 3 which is as of February 8, 1999, relating to the combined financial statements of Golden Northwest Aluminum, Inc. for the years ended December 31, 1996 and 1997 and of our report dated July 31, 1998 relating to the statements of income and cash flows of Goldendale Smelter Division of Columbia Aluminum Company for the year ended December 31, 1995 and the period from January 1, 1996 through May 21, 1996 which are contained in this Registration Statement. We also consent to the reference to us under the caption "Experts" in the Prospectus. BDO SEIDMAN, LLP Spokane, Washington February 10, 1999 EX-23.2 21 CONSENT OF PERKINS AND COMPANY, P.C. CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Golden Northwest Aluminum, Inc. The Dalles, Oregon We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated October 11, 1995 except for Note 3 as to which the date is February 8, 1999, relating to the combined financial statements of Golden Northwest Aluminum, Inc. and affiliates for the year ended September 3, 1995 which are contained in this Registration Statement. We also consent to the reference to us under the caption "Experts" in the Prospectus. PERKINS & COMPANY, P.C. - ----------------------- Portland, Oregon February 10, 1999 EX-27.1 22 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GOLDEN NORTHWEST ALUMINUM, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. Golden Northwest Aluminum, Inc. 0001079177 1000 YEAR YEAR YEAR 9-MOS 9-MOS SEP-30-1995 DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1998 OCT-01-1994 JAN-01-1996 JAN-01-1997 JAN-01-1997 JAN-01-1998 SEP-30-1995 DEC-31-1996 DEC-31-1997 SEP-30-1997 SEP-30-1998 0 6,345 1,251 0 1,122 0 0 0 0 0 0 60,490 61,862 0 48,119 0 1,296 1,000 0 (1,000) 0 51,389 60,892 0 62,314 0 120,146 125,871 0 114,223 0 113,105 113,812 0 116,167 0 30,894 40,749 0 45,892 0 350,815 347,011 0 332,895 0 58,238 89,473 0 73,115 0 185,441 134,941 0 104,275 0 0 0 0 0 0 29,663 29,663 0 29,663 0 40 40 0 40 0 65,314 65,464 0 65,584 0 350,815 347,011 0 332,895 289,693 373,038 497,872 363,282 360,035 289,693 373,038 497,872 363,282 360,035 256,211 329,739 438,299 314,575 329,897 256,211 329,739 438,299 314,575 329,897 8,293 9,746 15,327 10,574 12,087 0 0 0 0 0 948 9,454 16,723 11,850 11,251 23,696 25,541 31,789 29,616 8,340 0 6,636 13,274 11,962 4,685 23,696 18,905 18,495 17,654 3,655 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 23,696 18,905 18,495 17,654 3,655 23,696 18,905 18,495 17,654 3,655 0 0 0 0 0
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