-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, o6BgxdjLAVcmt3GR6WA+kTzmU7MMiyxp+ulSuPi4SmIjKVvNOwjYJeol9svXnQh4 I40wkNDf7M5jAs6I0Wqfiw== 0000950123-94-000333.txt : 19940210 0000950123-94-000333.hdr.sgml : 19940210 ACCESSION NUMBER: 0000950123-94-000333 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER ALUMINUM & CHEMICAL CORP CENTRAL INDEX KEY: 0000054291 STANDARD INDUSTRIAL CLASSIFICATION: 3334 IRS NUMBER: 940928288 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 33 SEC FILE NUMBER: 033-50097 FILM NUMBER: 94505192 BUSINESS ADDRESS: STREET 1: 6177 SUNOL BOULEVARD STREET 2: KAISER CTR CITY: PLEASANTON STATE: CA ZIP: 94566 BUSINESS PHONE: 510-462-1122 FORMER COMPANY: FORMER CONFORMED NAME: PERMANENTE METALS CORP DATE OF NAME CHANGE: 19660905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER JAMAICA CORP CENTRAL INDEX KEY: 0000856650 STANDARD INDUSTRIAL CLASSIFICATION: 3334 IRS NUMBER: 941631721 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 33 SEC FILE NUMBER: 033-50097-02 FILM NUMBER: 94505193 BUSINESS ADDRESS: STREET 1: 330 LAKESIDE DR CITY: OAKLAND STATE: CA ZIP: 94643 BUSINESS PHONE: 4152713300 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALPART JAMAICA INC CENTRAL INDEX KEY: 0000856651 STANDARD INDUSTRIAL CLASSIFICATION: 3334 IRS NUMBER: 132569683 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 33 SEC FILE NUMBER: 033-50097-03 FILM NUMBER: 94505194 BUSINESS ADDRESS: STREET 1: 330 LAKESIDE DR CITY: OAKLAND STATE: CA ZIP: 94643 BUSINESS PHONE: 4152713300 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER ALUMINA AUSTRALIA CORP CENTRAL INDEX KEY: 0000856654 STANDARD INDUSTRIAL CLASSIFICATION: 3334 IRS NUMBER: 946102690 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 33 SEC FILE NUMBER: 033-50097-04 FILM NUMBER: 94505195 BUSINESS ADDRESS: STREET 1: 330 LAKESIDE DR CITY: OAKLAND STATE: CA ZIP: 94643 BUSINESS PHONE: 4152713300 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER FINANCE CORP CENTRAL INDEX KEY: 0000890616 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 33 SEC FILE NUMBER: 033-50097-05 FILM NUMBER: 94505196 BUSINESS ADDRESS: STREET 1: 300 LAKESIDE DRIVE CITY: OAKLAND STATE: CA ZIP: 94643 S-2/A 1 AMENDMENT NO. 4 TO FORM S-3 ON FORM S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1994 REGISTRATION NO. 33-50097 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 4 TO FORM S-3 ON FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ KAISER ALUMINUM & CHEMICAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3334 94-0928288 (State of Incorporation) Primary Standard Industrial (I.R.S. Employer Classification Code Number) Identification Number)
6177 SUNOL BOULEVARD ANTHONY R. PIERNO PLEASANTON, CALIFORNIA 94566-7769 VICE PRESIDENT AND GENERAL COUNSEL (510) 462-1122 KAISER ALUMINUM & CHEMICAL CORPORATION (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, 5847 SAN FELIPE, SUITE 2600 INCLUDING HOUSTON, TEXAS 77057-3010 AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (713) 267-3777 (NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------ Copies of all communications to: HOWARD A. SOBEL, ESQ. BETH R. NECKMAN, ESQ. KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL LATHAM & WATKINS 919 THIRD AVENUE 885 THIRD AVENUE NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022 (212) 715-9100 (212) 906-1200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. { } If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. { } ------------------------ CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE - --------------------------------------------------------------------------------------------------------------- % Senior Notes due 2002....................... $225,000,000 100% $225,000,000 $77,587 - --------------------------------------------------------------------------------------------------------------- Senior Guarantees of Kaiser Alumina Australia Corporation, Kaiser Finance Corporation, Alpart Jamaica Inc. and Kaiser Jamaica Corporation................................... -- -- -- -- (2) - --------------------------------------------------------------------------------------------------------------- Total........................................... $225,000,000 100% $225,000,000 $77,587(3) - --------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee. (2) Pursuant to Rule 457, no separate filing fee is required for such guarantees. (3) An amount of $60,345 was previously paid. An additional fee of $17,242 is being paid herewith in connection with the filing of Amendment No. 4 to the Registration Statement. ------------------------ 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 THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ADDITIONAL REGISTRANTS
PRIMARY ADDRESS, INCLUDING ZIP CODE, EXACT NAME STANDARD AND TELEPHONE NUMBER, OF REGISTRANT INDUSTRIAL IRS EMPLOYER INCLUDING AREA CODE, AS SPECIFIED IN STATE OR OTHER JURISDICTION OF CLASSIFICATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL ITS CHARTER CORPORATION OR ORGANIZATION CODE NUMBER NUMBER EXECUTIVE OFFICES - --------------- ------------------------------ ----------- ------------ ---------------------------- Kaiser Delaware 3334 94-61022690 6177 Sunol Boulevard Alumina Pleasanton, CA 94566-7769 Australia (510) 462-1122 Corporation Kaiser Delaware 3334 94-3115934 6177 Sunol Boulevard Finance Pleasanton, CA 94566-7769 Corporation (510) 462-1122 Alpart Delaware 3334 13-2569683 6177 Sunol Boulevard Jamaica Pleasanton, CA 94566-7769 Inc. (510) 462-1122 Kaiser Delaware 3334 94-1631721 6177 Sunol Boulevard Jamaica Pleasanton, CA 94566-7769 Corporation (510) 462-1122
3 KAISER ALUMINUM & CHEMICAL CORPORATION KAISER ALUMINA AUSTRALIA CORPORATION KAISER FINANCE CORPORATION ALPART JAMAICA INC. KAISER JAMAICA CORPORATION ------------------------------ CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-2 PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEMS OF FORM S-2 CAPTION OR LOCATION --------------------------------------------------- ----------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Inside Front and Outside Back Cover Pages; Available Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges........................ Summary; Risk Factors; Selected Historical and Pro Forma Consolidated Financial Data 4. Use of Proceeds.................................... Summary; Use of Proceeds 5. Determination of Offering Price.................... Outside Front Cover Page; Underwriting 6. Dilution........................................... Not Applicable 7. Selling Security Holders........................... Not Applicable 8. Plan of Distribution............................... Outside Front Cover Page; Underwriting 9. Description of Securities to be Registered......... Outside Front Cover Page; Summary; Description of Notes; Certain Federal Income Tax Consequences 10. Interests of Named Experts and Counsel............. Legal Matters; Experts 11. Information with Respect to the Registrant......... Incorporation of Certain Documents by Reference; Summary; The Company; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business 12. Incorporation of Certain Information by Reference........................................ Incorporation of Certain Documents by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities... Not Applicable
4 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1994 PROSPECTUS $225,000,000 KAISER ALUMINUM & CHEMICAL CORPORATION % SENIOR NOTES DUE 2002 ----------------------- Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), is hereby offering $225.0 million of its % Senior Notes due 2002 (the "Notes"). Interest on the Notes is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 1994, at the rate of % per annum. The Notes are redeemable at any time on or after February 15, 1998, at the option of the Company, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the redemption date. The indenture governing the Notes (the "Indenture") limits the amount of additional Indebtedness (as defined) that the Company and its subsidiaries may incur. In the event of a Change of Control (as defined) of the Company, the Company is required to make an offer to purchase all or any part of a holders' Notes at 101% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase. See "Description of Notes." The Notes will represent senior, unsecured obligations of the Company, ranking senior in right and priority of payment to all Indebtedness of the Company that by its terms is expressly subordinated to the Notes. The Notes will also be guaranteed on a senior, unsecured basis by certain subsidiaries of the Company. The Notes, however, will be effectively subordinated to secured Indebtedness of the Company and its subsidiaries that are guarantors of the Notes with respect to the assets securing such Indebtedness. The Notes will also be effectively subordinated to claims of creditors of the Company's subsidiaries, except to the extent that the holders of Notes may be creditors of such subsidiaries pursuant to a subsidiary guarantee. See "Risk Factors." On a pro forma basis, after giving effect to the Refinancing Transactions (as defined), as of December 31, 1993, the Company's aggregate consolidated indebtedness would have been approximately $827.8 million (of which $461.9 million would have been expressly subordinated by its terms in right and priority of payment to the Notes). The foregoing does not give effect to $73.6 million of guaranteed unconsolidated joint venture indebtedness of the Company and $37.6 million of other guarantees and letters of credit outstanding as of December 31, 1993. In connection with the offering of Notes hereby, Kaiser Aluminum Corporation, the Company's parent, is concurrently offering, pursuant to a separate prospectus, 8,000,000 shares (subject to increase if the underwriters' 15% overallotment option is exercised) of its Preferred Redeemable Increased Dividend Equity SecuritiesSM, % PRIDES(SM), Convertible Preferred Stock (the "PRIDES"). For a detailed description of the PRIDES, see "Description of the PRIDES." The Company is also replacing its existing Credit Agreement (as defined) with a new five-year, secured revolving line of credit in the amount of $250.0 million (the "New Credit Agreement"). The offering of the Notes, the offering of the PRIDES and the effectiveness of the New Credit Agreement will be conditioned upon the simultaneous closing of all such transactions. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT(2) COMPANY(1)(3) - ---------------------------------------------------------------------------------------------------------------- Per Note...................................... % % % - ---------------------------------------------------------------------------------------------------------------- Total......................................... $ $ $ - ---------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from February , 1994. (2) The Company has agreed to indemnify the several Underwriters against certain liabilities under the Securities Act of 1933. See "Underwriting." (3) Before deducting expenses payable by the Company estimated at $750,000. ------------------------ The Notes are being offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Notes will be made in New York, New York, on or about February , 1994. (SM) Service mark of Merrill Lynch & Co., Inc. ------------------------ MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INCORPORATED SALOMON BROTHERS INC ------------------------ The date of this Prospectus is February , 1994. 5 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements, information statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements, information statements and other information filed by the Company can be inspected and copied at the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at 7 World Trade Center, New York, New York, 10048 and at Northwestern Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511. This Prospectus constitutes a part of a Registration Statement on Form S-2 filed by the Company and certain of the Company's subsidiaries with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further information with respect to the Company and certain of the Company's subsidiaries and this offering. Statements contained herein concerning the provisions of any document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. The Company will distribute to holders of the Notes annual reports containing audited financial statements and an opinion thereon by the Company's independent public accountants, and quarterly reports containing unaudited summary financial information for each of the first three fiscal quarters of each fiscal year. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE This Prospectus incorporates documents by reference which are not presented herein or delivered herewith. Copies of any such documents are available upon request and without charge from Mr. Byron Wade, Vice President, Secretary and Deputy General Counsel, Kaiser Aluminum & Chemical Corporation, 5847 San Felipe, Suite 2600, Houston, Texas 77057-3010, telephone (713) 975-7600. The following documents filed by the Company with the Commission are hereby incorporated by reference into this Prospectus: (1) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, (2) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1993, June 30, 1993, and September 30, 1993, and (3) the Company's Proxy Statement, dated May 13, 1993. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or replaced for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or replaces such statement. Any such statement so modified or replaced shall not be deemed, except as so modified or replaced, to constitute a part of this Prospectus. --------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AND THE 12 3/4% NOTES (AS DEFINED) AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 6 SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements (including the Notes thereto) appearing elsewhere in this Prospectus. All references to tons in this Prospectus refer to metric tons of 2,204.6 pounds. THE COMPANY Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), is one of the world's leading producers of alumina, primary aluminum and fabricated (including semi-fabricated) aluminum products. The Company is a wholly owned subsidiary of Kaiser Aluminum Corporation, a Delaware corporation ("KAC"), and operates in all principal aspects of the aluminum industry -- the mining of bauxite, the refining of bauxite into alumina, the production of primary aluminum and the manufacture of fabricated aluminum products. In 1993, the Company produced 2,826,600 tons of alumina, of which approximately 71% was sold to third parties, produced 436,200 tons of primary aluminum, of which approximately 56% was sold to third parties, and shipped approximately 373,200 tons of fabricated aluminum products to third parties, which accounted for approximately 6% of the total tonnage of United States domestic fabricated aluminum products shipments in 1993. The Company's share of total Western world alumina capacity and total Western world primary aluminum capacity was 8% and 3%, respectively, in 1993. The Company's strategy is to enhance its position as a leading producer of alumina, primary aluminum and fabricated aluminum products by: Increasing alumina production capacity. The Company has increased the capacity of its 65%-owned Alumina Partners of Jamaica ("Alpart") alumina refinery from 1,000,000 tons per year as of December 31, 1990, to 1,450,000 tons per year as of December 31, 1992. In addition, during the past several years the Company has increased production at its Gramercy, Louisiana alumina refinery and its 28.3%-owned Queensland Alumina Limited ("QAL") alumina refinery located in Australia. The percentage of the Company's alumina production sold to third parties increased to approximately 71% in 1993 from approximately 35% in 1987. Among alumina producers, the Company believes it is now the world's second largest seller of alumina to third parties. In light of the previously announced, and possible future, curtailments or permanent shutdowns of world-wide primary aluminum production, the Company anticipates that its alumina production and alumina sales to third parties will decline in 1994 from 1993 levels. See "-- Recent Trends and Developments." Improving the efficiency of its operations. From 1980 to 1993, on a per employee basis, alumina production increased by approximately 54% at the Company's Gramercy, Louisiana alumina refinery; fabricated products shipments increased by approximately 128% at the Company's Trentwood, Washington fabricating facility; and sales volume for aluminum operations as a whole increased by over 250%. Primary aluminum production at the Company's Mead and Tacoma smelters was curtailed in 1993 because of a power reduction imposed by the Bonneville Power Administration ("BPA") which reduced the operating rates for such smelters. From 1980 to 1992, prior to the BPA power reductions, on a per employee basis, primary aluminum production increased by approximately 72% and 39%, respectively, at the Mead and Tacoma smelters, and from 1980 to 1993, subsequent to the BPA power reductions, such primary aluminum production increased by approximately 36% and 15%, respectively, at such smelters. See "Risk Factors -- Recent Developments in Power Supply for Pacific Northwest Operations and Resultant Production Curtailments." The Company has also streamlined and decentralized its management structure to reduce corporate overhead and shift decision-making and accountability to its business units. The Company announced in October 1993 that it is restructuring its flat-rolled products operation at its Trentwood plant in the state of Washington, which is expected to result in annual cost savings of approximately $50.0 million after the restructuring has been fully implemented. See "-- Recent Trends and Developments." The Company has developed and installed proprietary retrofit technology in all of its smelters, which has contributed to increased and more efficient production of primary aluminum. The Company is actively engaged in efforts to license this technology and sell technical and managerial assistance to other producers 3 7 worldwide, and may participate in joint ventures or similar business partnerships which employ the Company's technical and managerial knowledge. Through continuing technological improvements, the Company's smelters have achieved improved energy efficiency and longer average life of reduction cells. From 1980 to 1993, the Company's average kilowatt hours of electricity utilized per ton of primary aluminum production was reduced by approximately 13% and the average life of reduction cells was increased by approximately 102%. Concentrating its fabricated aluminum products operations on the beverage container market and on high value-added transportation products. The Company operates a high-speed, wide-coil coating line which has reduced costs, improved quality and increased sales of aluminum to the beverage container industry. The Company believes that it is one of the highest quality producers of aluminum beverage can stock in the world. Over the past several years, the Company has also constructed four new fabrication facilities and modernized and expanded others to produce high value-added automotive (including air bag cannisters), truck (including truck wheels and hubs), trailer and aerospace products. Implementing a refinancing plan. The offering of the Notes, the concurrent offering by KAC of 8,000,000 shares of PRIDES and the replacement of the Company's existing Credit Agreement (the "Credit Agreement") are the final steps of a comprehensive refinancing plan which KAC began in January 1993. The plan is intended to extend the maturities of KAC's outstanding indebtedness, to enhance its liquidity and to raise new equity capital. As of December 31, 1992, the Company's long-term indebtedness consisted principally of $321.7 million aggregate amount of its 14 1/4% Senior Subordinated Notes due 1995 (the "14 1/4% Notes") and the Credit Agreement, which matures in November 1994. The Company refinanced the 14 1/4% Notes through the issuance in February 1993 of $400.0 million aggregate principal amount of its 12 3/4% Senior Subordinated Notes due 2003 (the "12 3/4% Notes"). In addition, the Company has received a commitment (the "Commitment Letter") to replace the Credit Agreement ($262.2 million outstanding as of February 7, 1994, including $37.2 million in outstanding letters of credit) with a $250.0 million secured, revolving line of credit, scheduled to mature in 1999 (the "New Credit Agreement"). Bank of America National Trust and Savings Association ("Bank of America") and BankAmerica Business Credit, Inc. ("BA") have committed, subject to certain terms and conditions, to provide the full $250.0 million of the New Credit Agreement. As of December 31, 1993, the Company's total consolidated indebtedness was $760.9 million, and $113.6 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement. On a pro forma basis, after giving effect to the sale of the Notes, the sale of the shares of PRIDES and the effectiveness of the New Credit Agreement (collectively, the "Refinancing Transactions"), as of December 31, 1993, the Company's total consolidated indebtedness would have been $827.8 million, $182.5 million of borrowing capacity would have been available for use under the New Credit Agreement and the Company would have had additional cash available of $106.1 million. See "Capitalization." The foregoing does not give effect to $73.6 million of guaranteed unconsolidated joint venture indebtedness of the Company and $37.6 million of other guarantees and letters of credit outstanding as of December 31, 1993. To increase its equity capital, KAC consummated a public offering of its $.65 Depositary Shares in June 1993 pursuant to which KAC realized net proceeds of approximately $119.3 million (a portion of which was used to make a capital contribution to the Company and a portion of which was loaned to the Company, see "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Financial Condition and Capital Spending"). KAC will realize additional net proceeds of approximately $88.6 million as a result of the sale of the PRIDES, a portion of which will be used to make a capital contribution to the Company and a portion of which will be used to make a loan or loans to the Company. See "Use of Proceeds." After giving effect to the Refinancing Transactions, the scheduled amortization of the Company's long-term indebtedness through 1998 will be substantially reduced, and the Company expects that it will be able to satisfy its debt service and capital expenditure requirements through at least December 31, 1995, from cash flows generated by operations and, to the extent necessary, from borrowings under the New Credit Agreement. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition and Capital Spending." 4 8 RECENT TRENDS AND DEVELOPMENTS Exports from the Commonwealth of Independent States, additions to smelter capacities during the past several years, continued high operating rates and other factors have contributed to a significant increase in primary aluminum inventories in the Western world. If Western world production and exports from the Commonwealth of Independent States continue at current levels, primary aluminum inventory levels will increase further in 1994. The foregoing factors, among others, have contributed to a significant reduction in the market price of primary aluminum, and may continue to adversely affect the market price of primary aluminum in the future. Government officials from the European Union, the United States of America, Canada, Norway, Australia and the Russian Federation met in a multilateral conference in January 1994, to discuss the current excess global supply of primary aluminum. All six participating governments have ratified as a trade agreement the resulting Memorandum of Understanding (the "Memorandum") which provides, in part, for (i) a reduction in Russian Federation primary aluminum production by 300,000 tons per year within three months of the date of ratification of the Memorandum and an additional 200,000 tons within the following three months, (ii) improved availability of comprehensive data on Russian aluminum production and (iii) certain assistance to the Russian aluminum industry. A Russian Federation Trade Ministry official has publicly stated that the output reduction would remain in effect for 18 months to two years, provided that other worldwide production cutbacks occur, existing trade restrictions on aluminum are eliminated and no new trade restrictions on aluminum are imposed. The Memorandum does not require specific levels of production cutbacks by other producing nations. A further meeting of the participants is scheduled for the end of February 1994. There can be no assurance that the implementation of the Memorandum will adequately address the current oversupply of primary aluminum. See "-- Sensitivity to Prices and Hedging Programs -- Alumina and Primary Aluminum." The Company will continue to assess its production levels in light of market prices, industry inventory levels, production costs and user demand and, based on these and other factors, could determine to curtail production at certain of its facilities in the future. If the Company's average realized sales prices in 1994 for substantial quantities of its primary aluminum and alumina were based on the current market price of primary aluminum (the average Midwest U.S. transaction price (the "AMT Price") was 61.14c per pound for the week ended February 4, 1994, see "Business -- Sensitivity to Prices"), the Company would continue to sustain net losses in 1994, which would be expected to approximate the loss in 1993 ($76.0 million) before (a) extraordinary loss and cumulative effect of changes in accounting principles,(b) the charges related to the restructuring of the Trentwood plant and certain other facilities (the "1993 Facilities Charges") and (c) certain other charges principally related to a reduction in the carrying value of the Company's inventories ($19.4 million, which is included in cost of goods sold) and the establishment of additional litigation and environmental reserves (the "Other 1993 Charges"). See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business -- Industry Overview -- Recent Industry Trends" and "Business -- Sensitivity to Prices and Hedging Programs -- Alumina and Primary Aluminum." The Company announced in October 1993 that it is restructuring its flat-rolled products operation at its Trentwood plant in the state of Washington, to reduce that facility's annual operating costs. This effort is in response to over-capacity in the aluminum rolling industry, flat demand in can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have resulted in declining prices in Trentwood's key markets. The Trentwood restructuring is expected to result in annual cost savings of approximately $50.0 million after it has been fully implemented (which is expected to occur during the next two years). See "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business -- Production Operations -- Fabricated Products." FOURTH QUARTER AND YEAR END RESULTS The Company's net sales totaled $415.9 million in the fourth quarter of 1993, compared with $496.0 million in the fourth quarter of 1992, and $1,719.1 million for the full year of 1993, compared with $1,909.1 million for the full year of 1992. Revenues decreased in the fourth quarter of 1993 as compared to the 5 9 fourth quarter of 1992 due principally to lower average realized prices and shipments of primary aluminum and alumina and lower average realized prices of most fabricated products, partially offset by increased shipments of fabricated products during the 1993 period compared with the 1992 period. Revenues decreased for the full year of 1993 as compared to the full year of 1992 due principally to lower shipments of primary aluminum and lower average realized prices of primary aluminum and alumina and, to a lesser extent, of fabricated products, partially offset by increased shipments of most fabricated products during 1993 as compared to 1992. The Company will report a net loss before extraordinary loss and cumulative effect of changes in accounting principles of $117.6 million (including the 1993 Facilities Charges and the Other 1993 Charges) for the full year of 1993, compared with net income of $29.6 million for the full year of 1992. The Company will report a net loss of $64.5 million (including the 1993 Facilities Charges and the Other 1993 Charges) for the fourth quarter of 1993, compared with net income of $3.1 million for the fourth quarter of 1992. The Company recognized an after-tax loss relating to the cumulative effect of changes in accounting principles of $507.9 million and an after-tax extraordinary loss on early extinguishment of debt of $21.8 million in the first quarter of 1993. See Note (1) of "Summary Historical and Pro Forma Consolidated Financial Data." The fourth quarter results include a pre-tax charge of $35.8 million ($22.6 million after-tax) related to the 1993 Facilities Charges and pre-tax charges of $30.2 million ($19.0 million after-tax) principally related to the Other 1993 Charges. The Company will also recognize an after-tax reduction of stockholders' equity of $14.9 million in the fourth quarter of 1993 to reflect the lowering of the discount rate used to calculate the Company's minimum pension liability. The Company recognized a pre-tax charge of $29.0 million ($24.2 million after-tax) related to a reduction in the carrying value of the Company's inventory, pre-tax income of $14.0 million ($11.7 million after-tax) for non-recurring adjustments to previously recorded liabilities and reserves and an after-tax reduction of stockholders' equity of $6.7 million in the fourth quarter of 1992. THE OFFERING Securities Offered....... $225,000,000 aggregate principal amount of % Senior Notes due 2002 (the "Notes"). See "Description of Notes." Maturity Date............ February , 2002. Interest Payment Dates... February 15 and August 15, commencing August 15, 1994. Optional Redemption...... The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after February 15, 1998, at the redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. Change of Control........ Upon a Change of Control (as defined), the Company is required to make an offer to purchase all or any part of a holder's Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. Any Change of Control would constitute an event of default under the New Credit Agreement. Guarantee................ The obligations of the Company with respect to the Notes will be guaranteed, jointly and severally, on a senior, unsecured basis by certain subsidiaries of the Company. Any indebtedness that is incurred by the Company's subsidiaries will be effectively senior to the claims of the holders of the Notes with respect to the assets of such subsidiaries, except to the extent that the holders of the Notes may be creditors of a subsidiary pursuant to a subsidiary guarantee. Any such claim by the holders of the Notes with respect to the assets of any subsidiary that is a guarantor of the Notes will be effectively subordinated to secured indebtedness of such subsidiary guarantor with respect to the assets securing such indebtedness. Ranking.................. The Notes will represent senior, unsecured obligations of the Company, ranking senior in right and priority of payment to all Indebtedness of the
6 10 Company that by its terms is expressly subordinated to the Notes. On a pro forma basis, after giving effect to the Refinancing Transactions, as of December 31, 1993, the Company's total consolidated indebtedness would have been $827.8 million (of which $461.9 million would have been expressly subordinated in right and priority of payment to the Notes) and $182.5 million of borrowing capacity would have been available for use under the New Credit Agreement. See "Capitalization." The Notes, however, will be effectively subordinated to secured Indebtedness of the Company with respect to the assets securing such Indebtedness. Certain Covenants........ The Indenture governing the Notes (the "Indenture") will contain certain covenants, including, but not limited to, covenants imposing limitations on: (i) Asset Sales, (ii) transactions with Affiliates, (iii) Restricted Payments and Restricted Investments, (iv) the Incurrence of Indebtedness and preferred stock, (v) the granting of Liens on U.S. Fixed Assets to secure Indebtedness, (vi) the transfer of assets to entities that are not Subsidiary Guarantors, (vii) mergers and consolidations and (viii) dividend and other payment restrictions affecting Subsidiaries. Each of the foregoing capitalized terms has the meaning assigned to it in the Indenture. See "Description of Notes." Use of Proceeds.......... The net proceeds of this offering will be used to reduce outstanding borrowings under the revolving credit facility of the Credit Agreement immediately prior to the effectiveness of the New Credit Agreement and for working capital and general corporate purposes. As of February 7, 1994, there was $262.2 million of outstanding borrowings under the Credit Agreement, including $37.2 million in outstanding letters of credit. In connection with this offering, KAC is concurrently offering 8,000,000 shares of its PRIDES (subject to increase if the underwriters' 15% overallotment option is exercised). Borrowings and reborrowings under the New Credit Agreement will be used for working capital and general corporate purposes, including capital projects. See "Use of Proceeds." Risk Factors............. Prospective purchasers of the Notes should consider carefully the factors set forth under the section entitled "Risk Factors," including the factors discussed under "Ranking of the Notes; Subordination," "Ability to Service Debt; Failure of Earnings to Cover Fixed Charges; Anticipated 1994 Net Loss," "Sensitivity to Prices; Current Primary Aluminum Prices Adversely Affect Net Sales and Operating Income," "Recent Developments in Power Supply for Pacific Northwest Operations and Resultant Production Curtailments," "Increasing Worldwide Aluminum Inventories and Adverse Effects on Market Prices," "Highly Leveraged Transactions," "Environmental Litigation," "Controlling Stockholder and Possible Effects; Change of Control" and "Absence of Public Market."
7 11 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA The following summary historical and pro forma consolidated financial data are derived from the Selected Consolidated Financial Data appearing elsewhere in this Prospectus, and should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------------- --------------------------------------- 1993 1992 1992 1991 1990 ----------- ----------- ----------- ----------- ----------- (IN MILLIONS OF DOLLARS, EXCEPT RATIOS) Operating Data Net sales................... $ 1,303.2 $ 1,413.1 $ 1,909.1 $ 2,000.8 $ 2,095.0 Cost of products sold....... 1,181.0 1,178.1 1,619.3 1,594.2 1,525.2 Gross profit................ 122.2 235.0 289.8 406.6 569.8 Depreciation................ 72.9 60.4 80.3 73.2 70.5 Selling, administrative, research and development, and general............... 90.5 88.7 119.3 117.6 122.9 Operating income (loss)..... (41.2) 85.9 90.2 215.8 376.4 Interest expense............ 63.8 58.4 78.7 82.7 96.6 Income (loss) before income taxes, minority interests, extraordinary loss and cumulative effect of changes in accounting principles................ (95.8) 29.5 28.4 149.5 290.8 Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles................ (53.1) 26.5 29.6 124.7 220.7 Net income (loss)........... (582.8)(1) 26.5 29.6 124.7 220.7 Ratio of earnings to fixed charges(2)................ -- (3) 1.4x 1.3x 2.7x 3.6x Pro Forma(4): Interest expense............ $ 65.8 $ 82.4 Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles................ (54.4) 27.2 Net income (loss)(5)........ (599.3) 7.1 Ratio of EBITDA to interest expense................... .6x 2.3x Other Data: Capital expenditures........ $ 36.4 $ 79.8 $ 114.4 $ 118.1 $ 115.1 EBITDA(6)................... 40.9 148.3 187.4 305.4 457.9 Ratio of EBITDA to interest expense................... .6x 2.5x 2.4x 3.7x 4.7x
SEPTEMBER 30, 1993 ------------------- DECEMBER 31, PRO -------------------------------- FORMA(4) ACTUAL 1992 1991 1990 -------- -------- -------- -------- -------- (IN MILLIONS OF DOLLARS) Balance Sheet Data: Working capital................................................. $ 439.5 $ 313.1 $ 320.8 $ 242.4 $ 280.9 Total assets.................................................... 2,601.0 2,483.1 2,100.0 2,138.7 2,127.0 Long-term liabilities........................................... 1,141.4 1,141.4 217.9 212.9 314.6 Long-term debt, less current portion............................ 752.8 692.8 765.1 681.5 631.5 Notes payable to parent, less current portion................... 44.8 22.0 -- -- -- Minority interests.............................................. 69.5 69.5 70.1 71.9 73.0 Redeemable preference stock..................................... 32.3 32.3 32.8 34.8 47.8 Total stockholders' equity...................................... 128.0 77.5 568.4 562.9 517.1
- --------------- (1) Includes extraordinary loss on early extinguishment of debt of $21.8, net of tax benefit of $11.2, and cumulative effect of changes in accounting principles of $507.9, net of tax benefit of $237.7. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." (2) For the purpose of calculating the ratio of earnings to fixed charges, "earnings" consist of the sum of (i) income (loss) before extraordinary loss and cumulative effect of changes in accounting principles of the Company and its consolidated subsidiaries, (ii) undistributed (earnings) losses of less-than-fifty-percent-owned companies, (iii) minority interest share of income (losses) of majority-owned subsidiaries that have fixed charges, (iv) consolidated provision for income taxes, (v) minority interest share of tax provision (credit) of majority-owned subsidiaries that have fixed charges, (vi) fixed charges, (vii) equity in losses of less-than-fifty-percent-owned companies where the Company has guaranteed the debt of such companies, and (viii) previously capitalized interest amortized during the period. Fixed charges consist of the sum of interest expense, amortization of deferred financing costs, the portion of rents representative of the interest factor, and interest expense related to the guaranteed debt of less-than-fifty-percent-owned companies incurring a loss. (3) For the nine months ended September 30, 1993, earnings were inadequate to cover fixed charges by $94.5. (4) The pro forma information assumes (a) the sale of $225.0 aggregate principal amount of the Notes, (b) the issuance and sale of 8,000,000 shares of PRIDES, (c) a capital contribution by KAC to the Company in the amount of $58.2, (d) a non-interest bearing loan from KAC to the Company in the principal amount of $30.4 evidenced by the Intercompany Note (as defined) and (e) the effectiveness of the New Credit Agreement (collectively, the "Pro Forma Adjustments"), as if such Pro Forma Adjustments had occurred at the beginning of the respective periods for operating data and on September 30, 1993, for the balance sheet data. (5) Includes a pro forma extraordinary loss of $15.2 and $20.1 for the nine months ended September 30, 1993, and the year ended December 31, 1992, respectively, representing the deferred financing costs written off upon the refinancing of the Credit Agreement. (6) "EBITDA" represents income from continuing operations before extraordinary loss and cumulative effect of changes in accounting principles, before giving effect to income tax expense, minority interests, interest expense (including amortization of deferred financing costs and original issue discount) and depreciation. EBITDA is not intended to represent cash flow, an alternative to net income, or any other measure of performance in accordance with generally accepted accounting principles. It is included because management believes that certain investors find such information useful for measuring the Company's ability to service debt. 8 12 THE COMPANY The Company is one of the world's leading producers of alumina, primary aluminum and fabricated (including semi-fabricated) aluminum products, and is a major supplier of alumina and primary aluminum in the domestic and international markets. The Company operates in all principal aspects of the aluminum industry -- the mining of bauxite (the major aluminum-bearing ore), the refining of bauxite into alumina (the intermediate material), the production of primary aluminum, the manufacture of fabricated aluminum products, and the sale of bauxite, alumina, primary aluminum and fabricated aluminum products. In 1993, the Company produced 2,826,600 tons of alumina, of which approximately 71% was sold to third parties, produced 436,200 tons of primary aluminum, of which approximately 56% was sold to third parties, and shipped approximately 373,200 tons of fabricated aluminum products to third parties. The Company was organized in 1940 and maintains its principal executive offices at 6177 Sunol Boulevard, Pleasanton, California 94566-7769. Its telephone number is (510) 462-1122. RISK FACTORS Prospective investors should carefully consider the factors set forth below as well as the other information contained in this Prospectus. RANKING OF THE NOTES; SUBORDINATION Ranking of the Notes. The Notes will represent senior, unsecured obligations of the Company, ranking senior in right and priority of payment to all Indebtedness of the Company that by its terms is expressly subordinated to the Notes. The Notes will, however, be effectively subordinated to secured Indebtedness of the Company with respect to the assets pledged as collateral therefor. The New Credit Agreement will be secured by, among other things, a pledge of the Company's stock by KAC and the stock of the Company's material subsidiaries and the grant of a lien on substantially all of the domestic assets of the Company and its subsidiaries (other than the Company's Gramercy alumina refinery). As of December 31, 1993, the Company's total consolidated indebtedness was $760.9 million (of which $431.5 million was expressly subordinated in right and priority of payment to the Notes). As of such date, $113.6 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement, and the Company had available to it, subject to certain restrictions, up to $15.0 million of uncommitted credit lines (of which $0.5 million was used). On a pro forma basis, after giving effect to the Refinancing Transactions, as of December 31, 1993, the Company's total consolidated indebtedness would have been $827.8 million (of which $461.9 million would have been expressly subordinated in right and priority of payment to the Notes), $182.5 million of borrowing capacity would have been available for use under the New Credit Agreement and the Company would have had additional cash available of $106.1 million. See "Capitalization." The foregoing does not give effect to $73.6 million of guaranteed unconsolidated joint venture indebtedness of the Company and $37.6 million of other guarantees and letters of credit outstanding as of December 31, 1993. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition and Capital Spending." For a description of the Company's long term debt, see "Description of Principal Indebtedness" and Note 4 of the Notes to the Consolidated Financial Statements. Although the Notes will not be secured by any assets of the Company, in the event the Company or any of its subsidiaries incurs Indebtedness that is secured by the Company's Gramercy alumina refinery or certain other domestic real property, plant or equipment that is acquired subsequent to the issuance of the Notes, the Company may be required by the Indenture, subject to certain exceptions (including for the New Credit Agreement, which will be secured by, among other things, substantially all of the domestic real property, plant and equipment of the Company and its subsidiaries other than the Gramercy alumina refinery), to equally and ratably secure the Notes. See "Description of Notes -- Limitations on Liens." Subordination. The obligations of the Company with respect to the Notes will be guaranteed, jointly and severally, on a senior, unsecured basis by certain Subsidiaries (as defined) of the Company. Any obligations of the Company's Subsidiaries will be effectively senior to the claims of the holders of the Notes with respect to the assets of such Subsidiaries, except to the extent that the holders of the Notes may be creditors of a Subsidiary pursuant to a subsidiary guarantee. Any such claim by the holders of the Notes with respect to the 9 13 assets of any Subsidiary that is a guarantor of the Notes will be effectively subordinated to secured Indebtedness (including indebtedness under the New Credit Agreement) of such Subsidiary with respect to the assets securing such Indebtedness. The rights of the Company and its creditors, including holders of the Notes, to realize upon the assets of any Subsidiary upon such Subsidiary's liquidation or reorganization (and the consequent rights of holders of the Notes to participate in those assets) will be subject to the prior claims of such Subsidiary's creditors, except to the extent that the Company may itself be a creditor with recognized claims against such Subsidiary or to the extent that the holders of the Notes may be creditors with recognized claims against such Subsidiary pursuant to the terms of a subsidiary guarantee (subject, however, to the prior claims of creditors holding secured Indebtedness of any such Subsidiary with respect to the assets securing such indebtedness). The New Credit Agreement will be secured by, among other things, the grant of a lien on all now existing and hereafter acquired receivables, inventory, intangibles and the existing principal domestic plants of the Company and its subsidiaries (other than the Company's Gramercy alumina refinery). See "Description of Principal Indebtedness -- The New Credit Agreement." In addition, the Indenture will restrict the amount of Indebtedness (as defined) that Subsidiaries are permitted to Incur (as defined). See "Description of Notes -- Covenants -- Limitation on Indebtedness and Preferred Stock." ABILITY TO SERVICE DEBT; FAILURE OF EARNINGS TO COVER FIXED CHARGES; ANTICIPATED 1994 NET LOSS Debt Service. On January 24, 1994, the Company entered into the Commitment Letter with Bank of America and BA which contains the principal terms and conditions with respect to the New Credit Agreement. After giving effect to the Refinancing Transactions, the Company expects that it will be able to satisfy its debt service and capital expenditure requirements through at least December 31, 1995, from cash flows generated by operations and, to the extent necessary, from borrowings under the New Credit Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition and Capital Spending -- Capital Structure" and "Description of Principal Indebtedness -- The New Credit Agreement." Failure of Earnings to Cover Fixed Charges; Anticipated Net Losses in 1994. The Company suffered a loss before extraordinary loss and cumulative effect of changes in accounting principles of $53.1 million in the first nine months of 1993, compared with income of $26.5 million in the first nine months of 1992. For the first nine months of 1993, the Company's earnings were inadequate to cover combined fixed charges and preferred stock dividends by $94.5 million. See Notes 4 and 5 of "Summary Historical and Pro Forma Consolidated Financial Data." If the Company's average realized sales prices in 1994 for substantial quantities of its primary aluminum and alumina were based on the current market price of primary aluminum (AMT Price of 61.14c per pound for the week ended February 4, 1994), the Company would continue to sustain net losses in 1994, which would be expected to approximate the loss in 1993 ($76.0 million) before (a) extraordinary loss and cumulative effect of changes in accounting principles, (b) the 1993 Facilities Charges and (c) the Other 1993 Charges. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Trends." The Company has attempted to lessen the adverse effect of declines in the price of primary aluminum. See "Sensitivity to Prices; Current Primary Aluminum Prices Adversely Affect Net Sales and Operating Income" below. SENSITIVITY TO PRICES; CURRENT PRIMARY ALUMINUM PRICES ADVERSELY AFFECT NET SALES AND OPERATING INCOME The Company's earnings are sensitive to changes in the prices of alumina, primary aluminum and fabricated aluminum products and also depend to a significant degree upon the volume and mix of all products sold. The Company's average realized prices from sales of alumina and primary aluminum declined substantially in 1993, 1992, 1991 and 1990 from their high levels of 1989 and 1988. Although the Company has attempted to lessen the effect of the decline of primary aluminum and alumina prices through a variety of forward sales transactions and hedging programs, earnings have been, and are expected to remain, highly sensitive to changes in primary aluminum prices and revenues derived from the 10 14 sale of alumina to third parties. Revenues from alumina sales to third parties declined in 1993 as a result of lower average realized prices for alumina. Revenues from primary aluminum sales declined as a result of reduced shipments and lower average realized prices for primary aluminum in 1993 than in 1992. In 1993, the Company's average realized price from sales of primary aluminum was approximately $0.56 per pound compared to the average Midwest U.S. transaction price of approximately $0.54 per pound for such year. Increased revenues from sales of fabricated aluminum products (as a result of higher shipments, partially offset by lower unit prices for some fabricated products) partially offset these decreases in 1993. See -- "Management's Discussion and Analysis of Results of Operation -- Fourth Quarter and Preliminary Year End Results." The Company has sold forward substantially all of the alumina available to it in excess of its projected internal smelting requirements for 1994, and a substantial portion of such excess alumina for 1995. Approximately 95% of 1994 sales and virtually all of 1995 sales were made at prices indexed to future prices of primary aluminum. Approximately 75% of 1994 sales were made at prices indexed to future prices of primary aluminum, but with minimum prices that exceed the Company's estimated cash production costs. The remainder of 1994 sales were made either at fixed prices that exceed the Company's estimated cash production costs, or are subject to prices indexed to future prices of primary aluminum but without minimum prices. Approximately 85% of 1995 sales were made at prices indexed to future prices of primary aluminum, but with minimum prices that exceed the Company's estimated cash production costs. As of the date of this Prospectus, the Company has sold forward approximately 75% of its primary aluminum in excess of its projected internal fabrication requirements in 1994 and approximately 55% of such surplus in 1995 at fixed prices that approximate the current market price of primary aluminum. Hedging programs already in place would allow the Company to participate in certain higher market prices, should they materialize, for approximately 40% of the Company's excess primary aluminum sold forward in 1994, and 100% of the Company's excess primary aluminum sold forward in 1995. Fabricated aluminum prices, which vary considerably among products, are heavily influenced by changes in the price of primary aluminum and generally lag behind primary aluminum prices for periods of up to six months. A significant portion of the Company's fabricated product shipments consist of body, lid, and tab stock for the beverage container market. The Company may not be able to receive increases in primary aluminum prices from its can stock customers as promptly as in the recent past because of competition from other aluminum producers and because of excess supply in the industry. Changes in the market price of primary aluminum also affect the Company's production costs of fabricated products because they influence the price of aluminum scrap purchased by the Company and the Company's labor costs, to the extent such costs are indexed to primary aluminum prices. While the Company continues to attempt to lessen the adverse effect of declines in the price of primary aluminum through its variable cost structures, forward sales and hedging programs, possible future declines in the market price of primary aluminum would have an adverse effect on the Company's financial performance. If the Company's average realized sales prices in 1994 for substantial quantities of its primary aluminum and alumina were based on the current market price of primary aluminum (AMT Price of 61.14c per pound for the week ended February 4, 1994), the Company would continue to sustain net losses in 1994, which would be expected to approximate the expected loss in 1993 ($76.0 million) before (a) extraordinary loss and cumulative effect of changes in accounting principles, (b) the 1993 Facilities Charges and (c) the Other 1993 Charges. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business -- Industry Overview" and "Business -- Sensitivity to Prices and Hedging Programs." RECENT DEVELOPMENTS IN POWER SUPPLY FOR PACIFIC NORTHWEST OPERATIONS AND RESULTANT PRODUCTION CURTAILMENTS Electrical power represents an important production cost for the Company at its domestic smelters in Mead and Tacoma, Washington, and a much smaller portion of the Company's production costs at its fabricating plant in Trentwood, Washington (collectively, the "Facilities"). The electricity supply contracts between the BPA and its direct service industry customers (which consist of 15 energy intensive companies, 11 15 principally aluminum producers, including the Company) permit the BPA to interrupt up to 25% of the amount of power which it normally supplies to such customers. As a result of drought conditions, in January 1993 the BPA reduced the amount of power it normally supplies to its direct service industry customers, including the Company, with respect to the Facilities. In response to such reduction, the Company removed three reduction potlines from production (two at the Mead smelter and one at the Tacoma smelter), and purchased substitute power in the first quarter of 1993 at increased costs. The BPA has notified its direct service industry customers that it intends to maintain the interruption of 25% of the amount of power it normally provides to such customers through February 28, 1994. As a result of the BPA power reductions, the Company has operated its Mead and Tacoma smelters at the reduced operating rates introduced in January 1993, and has operated its Trentwood fabrication facility without any curtailment of its production. The Company currently anticipates that in 1994 it will operate the Mead and Tacoma smelters at rates which do not exceed the current operating rates of 75% of full capacity for such smelters. The Company cannot predict whether full power will be available from the BPA after February 28, 1994, or whether power will otherwise become available at a price acceptable to the Company. The Company will continue to assess its production levels at the Mead and Tacoma smelters in light of the availability and cost of such power and other production costs, the market price of primary aluminum, industry inventory levels and other industry-related and Company-related factors. Effective October 1, 1993, an increase in the base rate BPA charges to its direct service industry customers for electricity was adopted, which will increase the Company's production costs at the Mead and Tacoma smelters by approximately $15.0 million per year (approximately $11.3 million per year based on the Company's current operating rate of approximately 75% of full capacity). The rate increase generally is expected to remain in effect for two years. In the event that the BPA's revenues fall below certain levels prior to April 1994, the BPA may impose up to a 10% surcharge on the base rate it charges to its direct service industry customers, effective during the period from October 1994 through October 1995 (which would increase the Company's production costs at the Mead and Tacoma smelters by approximately $9.1 million per year based on the Company's current operating rate of approximately 75% of full capacity). In addition, in order to comply with certain federal laws and regulations applicable to endangered fish species, the BPA may be required in the future to reduce its power generation and to purchase substitute power (at greater expense) from other sources. The foregoing factors would increase the Company's operating expenses. INCREASING WORLDWIDE ALUMINUM INVENTORIES AND ADVERSE EFFECTS ON MARKET PRICES Exports from the Commonwealth of Independent States, additions to smelter capacities during the past several years, continued high operating rates and other factors have contributed to a significant increase in primary aluminum inventories in the Western world. If Western world production and exports from the Commonwealth of Independent States continue at current levels, primary aluminum inventory levels will increase further in 1994. The foregoing factors, among others, have contributed to a significant reduction in the market price of primary aluminum, and may continue to adversely affect the market price of primary aluminum in the future. The average price of primary aluminum was at historic lows in real terms for the year ended 1993, which significantly and adversely affected the Company's net sales and operating income for such period. See "Sensitivity to Prices; Current Primary Aluminum Prices Adversely Affect Net Sales and Operating Income" and "Business -- Industry Overview -- Recent Industry Trends". HIGHLY LEVERAGED TRANSACTIONS The Indenture does not contain any provisions specifically intended to protect the holders of the Notes in the event of a future highly leveraged transaction involving the Company. The Indenture will limit the Company's ability to incur additional Indebtedness and to grant Liens on U.S. Fixed Assets to secure Indebtedness, restrict transactions with Affiliates and require the Company to repurchase Notes upon a Change of Control or in the event of certain Asset Sales. These provisions could limit the ability of the Company to engage in a highly leveraged transaction (including a leveraged buy out initiated or supported by 12 16 the Company, the management of the Company or an affiliate of the Company or its management). These provisions may not be waived or amended without the consent of holders of not less than a majority in aggregate principal amount of the Notes. See "Description of Notes -- Offer to Purchase the Notes" and "-- Covenants." ENVIRONMENTAL LITIGATION The Company is subject to a wide variety of international, state and local environmental laws and regulations (the "Environmental Laws"). From time to time, the Company is subject, with respect to its current and former operations, to fines or penalties assessed for alleged breaches of the Environmental Laws and to claims and litigation based upon such laws. The Company is currently subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"). Under CERCLA and other related laws, past disposal of wastes, whether on-site or at other locations, may result in the imposition of clean-up obligations by federal or state regulatory authorities. The Company, along with certain other entities has been named as a potentially responsible party for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA. In certain instances, the Company may be exposed to joint and several liability for remedial action or damages to natural resources, which could effectively expose the Company to liability for all costs associated with any such remedial actions irrespective of its degree of culpability for the environmental damages related thereto. While the ultimate extent of the Company's liability for pending or potential fines, penalties, remedial costs, claims and litigation with respect to environmental and other related laws cannot be determined at this time, management currently believes that the resolution of the environmental and related litigation to which the Company is a party (even without giving effect to potential insurance recovery) should not have a material adverse effect on the Company's consolidated financial position or results of operations. For a discussion of the Company's environmental litigation, see "Business -- Environmental Matters" and "-- Legal Proceedings." CONTROLLING STOCKHOLDER AND POSSIBLE EFFECTS; CHANGE OF CONTROL The Company is a wholly owned subsidiary of KAC. KAC became an indirect, wholly owned subsidiary of MAXXAM Inc. ("MAXXAM") on October 28, 1988, through the merger of a subsidiary of MAXXAM with and into KAC (the "Merger"). As of the date of this Prospectus, MAXXAM directly owns approximately 67% of KAC's common stock, par value $.01 per share (the "KAC Common Stock"), assuming the conversion of each outstanding $.65 Depositary Share into one share of KAC Common Stock (and after giving effect to the PRIDES Offering, MAXXAM will directly own approximately 61% of the KAC Common Stock, assuming the conversion of each share of PRIDES into one share of KAC Common Stock, and approximately 60% if the underwriters' over-allotment option is exercised in full), with public stockholders owning the balance. In the event that MAXXAM sells all of the 2,132,950 $.65 Depositary Shares which it owns to nonaffiliates, MAXXAM would own approximately 65% of the KAC Common Stock, assuming the conversion of each outstanding $.65 Depositary Share into one share of the KAC Common Stock (and after giving effect to the PRIDES Offering, MAXXAM would directly own approximately 58% of the KAC Common Stock assuming the conversion of each share of PRIDES into one share of KAC Common Stock, and approximately 58% if the Underwriters' over-allotment option is exercised in full), with public stockholders owning the balance. Accordingly, MAXXAM is able to determine the outcome of all matters required to be submitted to KAC's stockholders for approval, including decisions relating to the election of the directors of KAC, the determination of day-to-day corporate and management policies of KAC, the merger or acquisition of KAC, the sale of substantially all of the assets of KAC and other significant corporate transactions. MAXXAM's significant ownership interest in KAC may discourage third parties from seeking to acquire control of KAC which may adversely affect the market price of KAC's equity securities. Mr. Charles E. Hurwitz, Chairman of the Board, President and Chief Executive Officer of MAXXAM, together with Federated Development Company ("Federated"), a New York business trust that is wholly owned by Mr. Hurwitz, members of his immediate family and trusts for the benefit thereof, collectively own approximately 60.0% of the aggregate voting power of MAXXAM. 13 17 The Indenture will provide that, upon the occurrence of any Change of Control (as defined), the Company will be required to make an offer (a "Change of Control Offer") to purchase all or any part of a holder's Notes at 101% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase. Any Change of Control, and any repurchase of the Notes required under the Indenture upon a Change of Control, would constitute an event of default under the New Credit Agreement, with the result that the obligations of the Company thereunder could be declared due and payable. Any acceleration of the Company's obligations under the New Credit Agreement would make it unlikely that the Company would be able to purchase the Notes pursuant to the Change of Control Offer. ABSENCE OF PUBLIC MARKET At the time of issuance, there will be no existing market for the Notes and there can be no assurance as to the liquidity of any markets that may develop for the Notes, the ability of the holders of the Notes to sell their Notes or the price at which any such sales may be effected. Trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. The Notes will not be listed on any securities exchange or authorized for trading on The Nasdaq Stock Market. USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Notes offered hereby are estimated to be approximately $218.6 million. The Company intends to use the net proceeds from the offering to reduce outstanding borrowings under the revolving credit facility of the Credit Agreement and for working capital and general corporate purposes. As of February 7, 1994, there was $262.2 million of outstanding borrowings under the Credit Agreement, including $37.2 million in outstanding letters of credit. The Credit Agreement currently bears interest at the rate of 6.2% per annum. In connection with this offering, KAC is concurrently offering 8,000,000 shares of PRIDES (subject to increase if the underwriters' 15% overallotment option is exercised). KAC intends to use a portion of the net proceeds from the offering of PRIDES to make a capital contribution to the Company and a portion of such net proceeds to make a loan or loans to the Company which will be evidenced by an intercompany note. Borrowings and reborrowings under the New Credit Agreement will be used for working capital and general corporate purposes, including capital projects. From time to time, the Company undertakes discussions with various parties relating to the creation of joint ventures or other business combinations, the acquisition of other businesses and other strategic matters which management believes may enhance the Company's competitive position. As of the date of this Prospectus, the Company has not entered into any material agreements relating to any of the foregoing. For information with respect to the New Credit Agreement and the Credit Agreement (including applicable interest rates and the maturity date thereof), see "Description of Principal Indebtedness." 14 18 CAPITALIZATION The following table summarizes the historical consolidated capitalization of the Company at September 30, 1993, and as adjusted to give effect to the Pro Forma Adjustments (as defined in Note (4) of "Summary -- Summary Historical and Pro Forma Consolidated Financial Data"). This table should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto appearing elsewhere in this Prospectus.
SEPTEMBER 30, 1993 --------------------------- AS ACTUAL ADJUSTED --------- ---------- (IN MILLIONS OF DOLLARS) Short-term debt (1)............................................... $ 39.6 $ 28.7 (2) --------- ---------- Long-term debt (1): Revolving Credit Facility....................................... 165.0 (3) -- New Credit Agreement............................................ -- 0.0 (4) % Senior Notes................................................ -- 225.0 Pollution Control and Solid Waste Disposal Obligations (less current portion of $1.1)..................................... 38.1 38.1 Alpart CARIFA Loan.............................................. 60.0 60.0 Alpart Term Loan (less current portion of $6.2)................. 18.8 18.8 12 3/4% Senior Subordinated Notes............................... 400.0 400.0 Other borrowings (less current portion of $1.2)................. 10.9 10.9 --------- ---------- Total long-term debt......................................... 692.8 752.8 (5) --------- ---------- Note payable to parent (less current portion of $12.6, $20.2 as adjusted)....................................................... 22.0 44.8 --------- ---------- Minority interests................................................ 69.5 69.5 --------- ---------- Redeemable preference stock....................................... 32.3 32.3 --------- ---------- Stockholders' equity.............................................. 77.5 128.0 --------- ---------- Total capitalization....................................... $ 933.7 $1,056.1 --------- ---------- --------- ---------- Total long-term debt as a percentage of total capitalization............................................ 74.2 % 71.3 %
- ------------ (1) Does not give effect to $72.7 million of guaranteed unconsolidated joint venture indebtedness of the Company and $36.5 million of other guarantees and letters of credit. For a description of the Company's long-term debt, see "Description of Principal Indebtedness" and Note 3 of the Notes to the Interim Consolidated Financial Statements. (2) Includes current portion of intercompany notes payable to KAC ($20.2 million). (3) As of September 30, 1993, $148.9 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement. As of February 7, 1994, $262.2 million was outstanding under the Credit Agreement, including $37.2 million in outstanding letters of credit. (4) After giving effect to the Refinancing Transactions, $183.6 million of borrowing capacity would have been available for use under the New Credit Agreement ($66.4 million in letters of credit would have been outstanding) and the Company would have had additional cash available of $111.2 million ($58.9 million of additional cash would have been available as of February 7, 1993). (5) The scheduled maturity of the Company's long-term debt (including notes payable to KAC) through 1998 is as follows: 1994 - $28.7 million; 1995 - $28.3 million; 1996 - $22.7 million; 1997 - $14.5 million; and 1998 - $8.9 million. 15 19 SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA The following selected historical and pro forma consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto, appearing elsewhere in this Prospectus, and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected historical consolidated financial data as of and for the years ended December 31, 1992, 1991, 1990 and 1989, as of and for the two months ended December 31, 1988, and for the ten months ended October 31, 1988 are derived from the Company's Consolidated Financial Statements which have been audited by independent public accountants. The selected historical consolidated financial data as of and for the nine months ended September 30, 1993, and for the nine months ended September 30, 1992, have not been audited, but in the opinion of management contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position and results of operations of the Company as of such date and for such periods. The financial statements of Predecessor and Successor are not directly comparable for the reasons set forth in footnote (1) to the table below.
SUCCESSOR(1) -------------------------------------------------------------------------------- PREDECESSOR(1) NINE MONTHS -------------- ENDED TWO MONTHS TEN MONTHS SEPTEMBER 30, YEAR ENDED DECEMBER 31, ENDED ENDED ------------------- ----------------------------------------- DECEMBER 31, OCTOBER 31, 1993 1992 1992 1991 1990 1989 1988 1988 -------- -------- -------- -------- -------- -------- --------------- -------------- (IN MILLIONS OF DOLLARS, EXCEPT RATIOS) Operating Data: Net sales..................... $1,303.2 $1,413.1 $1,909.1 $2,000.8 $2,095.0 $2,192.7 $ 298.1 $1,921.4 Cost of products sold......... 1,181.0 1,178.1 1,619.3 1,594.2 1,525.2 1,545.6 226.7 1,462.4 Gross profit.................. 122.2 235.0 289.8 406.6 569.8 647.1 71.4 459.0 Depreciation.................. 72.9 60.4 80.3 73.2 70.5 62.3 7.7 69.6 Selling, administrative, research and development, and general................. 90.5 88.7 119.3 117.6 122.9 115.1 18.2 107.9 Operating income (loss)....... (41.2) 85.9 90.2 215.8 376.4 469.7 45.5 281.5 Interest expense.............. 63.8 58.4 78.7 82.7 96.6 32.6 8.3 70.2 Income (loss)before income taxes, minority interests, extraordinary loss and cumulative effect of changes in accounting principles.... (95.8) 29.5 28.4 149.5 290.8 483.7 47.5 252.7 Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles.... (53.1) 26.5 29.6 124.7 220.7 384.6 28.1 144.7 Net income (loss)............. (582.8)(2) 26.5 29.6 124.7 220.7 384.6 28.1 175.7(3) Ratio of earnings to fixed charges(4).................. --(5) 1.4x 1.3x 2.7x 3.6x 11.6x 6.1x 3.6x Pro Forma(6): Interest expense.............. $ 65.8 $ 82.4 Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles.... (54.4) 27.2 Net income (loss)(7).......... (599.3) 7.1 Ratio of EBITDA to interest expense..................... .6x 2.3x Other Data: Capital expenditures.......... $ 36.4 $ 79.8 $ 114.4 $ 118.1 $ 115.1 $ 116.6 $ 13.5 $ 82.1 EBITDA(8)..................... 40.9 148.3 187.4 305.4 457.9 578.6 63.5 392.5 Ratio of EBITDA to interest expense..................... .6x 2.5x 2.4x 3.7x 4.7x 17.7x 7.7x 5.6x
SEPTEMBER 30, 1993 DECEMBER 31, ---------------------- ------------------------------------------------------------- PRO FORMA(6) ACTUAL 1992 1991 1990 1989 1988 --------- --------- --------- --------- --------- --------- --------- (IN MILLIONS OF DOLLARS) Balance Sheet Data: Working capital....................... $ 439.5 $ 313.1 $ 320.8 $ 242.4 $ 280.9 $ 200.2 $ 617.6 Total assets.......................... 2,601.0 2,483.1 2,100.0 2,138.7 2,127.0 2,146.2 2,404.2 Long-term liabilities................. 1,141.4 1,141.4 217.9 212.9 314.6 321.1 188.2 Long-term debt, less current portion............................. 752.8 692.8 765.1 681.5 631.5 655.8 489.2 Notes payable to parent, less current portion............................. 44.8 22.0 -- -- -- -- -- Minority interests.................... 69.5 69.5 70.1 71.9 73.0 71.4 12.0 Redeemable preference stock........... 32.3 32.3 32.8 34.8 47.8 60.8 62.1 Total stockholders' equity............ 128.0 77.5 568.4 562.9 517.1 310.5 947.2
- ------------ (1) The acquisition of the Company in the Merger has been recorded as a purchase, with the Company's financial results reported through October 31, 1988 (Predecessor), and for periods subsequent thereto (Successor). In accounting for the acquisition, Successor recorded the assets and liabilities of Predecessor based upon estimated fair values. At the same time, Successor adopted the last-in, first-out (LIFO) method for financial reporting purposes for valuing substantially all product inventories. Operations of the Company's aluminum smelter and rolling mill at Ravenswood, West Virginia, its aluminum recycling facility at Bedford, Indiana, and its regional data center at Columbus, Ohio, are not included in the reported results of operations of Successor as they were accounted for as assets held for sale beginning November 1, 1988. (2) See Note (1) of "Summary -- Summary Historical Consolidated Financial Data." (3) Includes extraordinary tax benefits of $36.0 million from utilization of net operating loss carryforwards by domestic operations. (4) See Note (2) of "Summary -- Summary Historical and Pro Forma Consolidated Financial Data." (5) See Note (3) of "Summary -- Summary Historical and Pro Forma Consolidated Financial Data." (6) See Note (4) of "Summary -- Summary Historical and Pro Forma Consolidated Financial Data." (7) See Note (5) of "Summary -- Summary Historical and Pro Forma Consolidated Financial Data." (8) See Note (6) of "Summary -- Summary Historical and Pro Forma Consolidated Financial Data." 16 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company operates in two business segments: bauxite and alumina, and aluminum processing. The Company's operating results are sensitive to changes in prices of alumina, primary aluminum, and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. The following table provides selected operational and financial information on a consolidated basis with respect to the Company for the years ended December 31, 1992, 1991, and 1990, and for the nine months ended September 30, 1993 and 1992. As an integrated aluminum producer, the Company uses a portion of its bauxite, alumina, and primary aluminum production for additional processing at certain of its other facilities. Intracompany shipments and sales are excluded from the information set forth below.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------- ------------------------------- 1993 1992 1992 1991 1990 ------- ------- ------- ------- ------- (IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES) Shipments: (000 tons) Alumina.............................. 1,508.5 1,436.2 2,001.3 1,945.9 1,758.2 Aluminum products: Primary aluminum.................. 183.4 261.0 355.4 340.6 344.2 Fabricated products............... 280.0 257.5 343.6 314.2 307.5 -------- -------- -------- -------- -------- Total aluminum products...... 463.4 518.5 699.0 654.8 651.7 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Average realized sales price: Alumina (per ton).................... $ 169 $ 195 $ 195 $ 240 $ 301 Primary aluminum (per pound)......... .57 .66 .66 .72 .72 Net sales: Bauxite and alumina: Alumina........................... $ 255.5 $ 280.7 $ 390.8 $ 466.5 $ 529.2 Other(1)(2)....................... 64.1 56.9 75.7 84.3 80.2 -------- -------- -------- -------- -------- Total bauxite and alumina.... 319.6 337.6 466.5 550.8 609.4 -------- -------- -------- -------- -------- Aluminum processing: Primary aluminum.................. 229.3 381.3 515.0 538.5 549.2 Fabricated products............... 744.6 683.9 913.7 898.9 917.0 Other(2).......................... 9.7 10.3 13.9 12.6 19.4 -------- -------- -------- -------- -------- Total aluminum processing.... 983.6 1,075.5 1,442.6 1,450.0 1,485.6 -------- -------- -------- -------- -------- Total net sales......... $1,303.2 $1,413.1 $1,909.1 $2,000.8 $2,095.0 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Operating income (loss): Bauxite and alumina.................. $ (1.8) $ 46.2 $ 62.6 $ 150.0 $ 241.4 Aluminum processing.................. 12.6 104.2 104.9 150.2 222.6 Corporate............................ (52.0) (64.5) (77.3) (84.4) (87.6) -------- -------- -------- -------- -------- Total operating income (loss)..................... $ (41.2) $ 85.9 $ 90.2 $ 215.8 $ 376.4 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes, minority interests, extraordinary loss and cumulative effect of changes in accounting principles............. $ (95.8) $ 29.5 $ 28.4 $ 149.5 $ 290.8 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles................ $ (53.1) $ 26.5 $ 29.6 $ 124.7 $ 220.7 Extraordinary loss on early extinguishment of debt, net of tax benefit of $11.2..................... (21.8) -- -- -- -- Cumulative effect of changes in accounting principles, net of tax benefit of $237.7.................... (507.9) -- -- -- -- -------- -------- -------- -------- -------- Net income (loss)...................... $ (582.8) $ 26.5 $ 29.6 $ 124.7 $ 220.7 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Capital expenditures................... $ 36.4 $ 79.8 $ 114.4 $ 118.1 $ 115.1 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
- --------------- (1) Includes net sales of bauxite. (2) Includes the portion of net sales attributable to minority interests in consolidated subsidiaries. 17 21 RECENT TRENDS Exports from the Commonwealth of Independent States, additions to smelter capacities during the past several years, continued high operating rates and other factors have contributed to a significant increase in primary aluminum inventories in the Western world. If Western world production and exports from the Commonwealth of Independent States continue at current levels, primary aluminum inventory levels will increase further in 1994. The foregoing factors, among others, have contributed to a significant reduction in the market price of primary aluminum, and may continue to adversely affect the market price of primary aluminum in the future. Government officials from the European Union, the United States of America, Canada, Norway, Australia and the Russian Federation met in a multilateral conference in January 1994, to discuss the current excess global supply of primary aluminum. All six participating governments have ratified as a trade agreement the resulting Memorandum which provides, in part, for (i) a reduction in Russian Federation primary aluminum production by 300,000 tons per year within three months of the date of ratification of the Memorandum and an additional 200,000 tons within the following three months, (ii) improved availability of comprehensive data on Russian aluminum production and (iii) certain assistance to the Russian aluminum industry. A Russian Federation Trade Ministry official has publicly stated that the output reduction would remain in effect for 18 months to two years, provided that other worldwide production cutbacks occur, existing trade restrictions on aluminum are eliminated and no new trade restrictions on aluminum are imposed. The Memorandum does not require specific levels of production cutbacks by other producing nations. A further meeting of the participants is scheduled for the end of February 1994. There can be no assurance that the implementation of the Memorandum will adequately address the current oversupply of primary aluminum. The Company will continue to assess its production levels in light of market prices, industry inventory levels, production costs and user demand and, based on these and other factors, could determine to curtail production at certain of its facilities in the future. If the Company's average realized sales prices in 1994 for substantial quantities of its primary aluminum and alumina were based on the current market price of primary aluminum (AMT Price of 61.14c per pound for the week ended February 4, 1994) the Company would continue to sustain net losses in 1994, which would be expected to approximate the loss in 1993 ($76.0 million) before (a) extraordinary loss and cumulative effect of changes in accounting principles, (b) the 1993 Facilities Charges and (c) the Other 1993 Charges. The Company announced in October 1993 that it is restructuring its flat-rolled products operation at its Trentwood plant in the state of Washington, to reduce that facility's annual operating costs. This effort is in response to over-capacity in the aluminum rolling industry, flat demand in can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have resulted in declining prices in Trentwood's key markets. The Trentwood restructuring is expected to result in annual cost savings of approximately $50.0 million after it has been fully implemented (which is expected to occur during the next two years). Effective October 1, 1993, an increase in the base rate BPA charges to its direct service industry customers for electricity was adopted, which will increase the Company's production costs at the Mead and Tacoma smelters by approximately $15.0 million per year (approximately $11.3 million per year, based on the current operating rate of approximately 75% of full capacity). The rate increase is generally expected to remain in effect for two years. FOURTH QUARTER AND YEAR END RESULTS The Company's net sales totaled $415.9 million in the fourth quarter of 1993, compared with $496.0 million in the fourth quarter of 1992, and $1,719.1 million for the full year of 1993, compared with $1,909.1 million for the full year of 1992. Revenues decreased in the fourth quarter of 1993 as compared to the fourth quarter of 1992 due principally to lower average realized prices and shipments of primary aluminum and alumina and lower average realized prices of most fabricated products, partially offset by increased shipments of fabricated products during the 1993 period compared with the 1992 period. Revenues decreased for the full year of 1993 as compared to the full year of 1992 due principally to lower shipments of primary 18 22 aluminum and lower average realized prices of primary aluminum and alumina and, to a lesser extent, of fabricated products, partially offset by increased shipments of most fabricated products during 1993 as compared to 1992. The Company will report a net loss before extraordinary loss and cumulative effect of changes in accounting principles of $117.6 million (including the 1993 Facilities Charges and the Other 1993 Charges) for the full year of 1993, compared with net income of $29.6 million for the full year of 1992. The Company will report a net loss of $64.5 million (including the 1993 Facilities Charges and the Other 1993 Charges) for the fourth quarter of 1993, compared with net income of $3.1 million for the fourth quarter of 1992. The Company recognized an after-tax loss relating to the cumulative effect of changes in accounting principles of $507.9 million and an after-tax extraordinary loss on early extinguishment of debt of $21.8 million in the first quarter of 1993. See Note (1) of "Summary Historical and Pro Forma Consolidated Financial Data." The fourth quarter results include a pre-tax charge of $35.8 million ($22.6 million after-tax) related to the 1993 Facilities Charges and pre-tax charges of $30.2 million ($19.0 million after-tax) principally related to the Other 1993 Charges. The Company will also recognize an after-tax reduction of stockholders' equity of $14.9 million in the fourth quarter of 1993 to reflect the lowering of the discount rate used to calculate the Company's minimum pension liability. The Company recognized a pre-tax charge of $29.0 million ($24.2 million after-tax) related to a reduction in the carrying value of the Company's inventory, pre-tax income of $14.0 million ($11.7 million after-tax) for non-recurring adjustments to previously recorded liabilities and reserves, and an after-tax reduction of stockholders' equity of $6.7 million in the fourth quarter of 1992. NINE MONTHS ENDED SEPTEMBER 30, 1993 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1992 Net Sales Bauxite and Alumina -- Revenue from net sales of bauxite and alumina to third parties was $319.6 million in the first nine months of 1993, compared with $337.6 million in the first nine months of 1992. Revenue from alumina decreased 9% to $255.5 million in the first nine months of 1993 from $280.7 million in the first nine months of 1992 because lower average realized prices more than offset increased shipments. Aluminum Processing -- Revenue from net sales to third parties for the aluminum processing segment was $983.6 million in the first nine months of 1993, compared with $1,075.5 million in the first nine months of 1992. Revenue from primary aluminum decreased 40% to $229.3 million in the first nine months of 1993 from $381.3 million in the same period of 1992 because of lower shipments and lower average realized prices. Shipments of primary aluminum to third parties constituted approximately 40% of total aluminum products shipments in the first nine months of 1993, compared with approximately 50% in the first nine months of 1992. Revenue from fabricated aluminum products increased 9% to $744.6 million in the first nine months of 1993 from $683.9 million in the same period of 1992, principally due to an increase in shipments. Operating Income (Loss) The Company had an operating loss of $41.2 million in the first nine months of 1993, compared with operating income of $85.9 million in the first nine months of 1992. Bauxite and Alumina -- This segment's operating loss in the first nine months of 1993 was $1.8 million, compared with income of $46.2 million in the first nine months of 1992. The decline in earnings is principally due to a decrease in average realized prices for alumina, partially offset by increased shipments of alumina. In the first nine months of 1992, the Company realized above-market prices for significant quantities of alumina sold forward at fixed prices in prior periods under long-term contracts. Aluminum Processing -- This segment's operating income was $12.6 million in the first nine months of 1993, compared with $104.2 million in the same period of 1992. This decrease was caused principally by reduced shipments and lower average realized prices of primary aluminum. Other contributing factors were lower production at the Company's smelters in the Pacific Northwest in the first nine months of 1993 as a result of the removal of three reduction potlines from production at those smelters in January 1993 in response to the BPA's reduction in January 1993 of the amount of power it normally provides to the Company, and the increased cost of substitute power in the first quarter of 1993. In the first nine months of 1993, the Company's 19 23 average realized price from sales of primary aluminum was approximately $.57 per pound, compared to the average Midwest U.S. transaction price of approximately $.55 per pound during such period. In both the 1993 and 1992 periods, the Company realized above-market prices for significant quantities of primary aluminum sold forward in prior periods under long-term contracts. Corporate -- Corporate operating expenses of $52.0 million and $64.5 million in the first nine months of 1993 and 1992, respectively, represented corporate general and administrative expenses, which are not allocated to the Company's segments. Income (Loss) Before Extraordinary Loss and Cumulative Effect of Changes in Accounting Principles Loss before extraordinary loss and cumulative effect of changes in accounting principles was $53.1 million in the first nine months of 1993, compared with income of $26.5 million in the first nine months of 1992. This decrease resulted from the lower operating income previously described, partially offset by a higher credit for income taxes. See Note 5 of the Notes to Interim Consolidated Financial Statements. Extraordinary Loss on Early Extinguishment of Debt On February 1, 1993, the Company issued $400.0 million aggregate principal amount of its 12 3/4% Notes. The net proceeds from the sale of the 12 3/4% Notes were used to retire $321.7 million aggregate principal amount of, and pay premiums on, the 14 1/4% Notes, to prepay $18.0 million of the term loan under the Credit Agreement, and to reduce outstanding borrowings under the revolving credit facility of the Credit Agreement. These transactions resulted in a pre-tax extraordinary loss of $33.0 million in the first quarter of 1993 ($21.8 million after taxes), consisting primarily of the write-off of unamortized discount and deferred financing costs related to the 14 1/4% Notes and the payment of premiums on the 14 1/4% Notes. Cumulative Effect of Changes in Accounting Principles As of January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106"), Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), and Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits ("SFAS 112"). The cumulative effect of the change in accounting principle for the adoption of SFAS 106 reduced results of operations by $497.7 million, net of a related income tax benefit of $234.2 million. The cumulative effect of the change in accounting principle for the adoption of SFAS 112 reduced results of operations by $7.3 million, net of a related income tax benefit of $3.5 million. The new accounting methods have no effect on the Company's cash outlays for postretirement and postemployment benefits nor will the one-time charges affect the Company's compliance with its existing debt covenants. The Company reserves the right, subject to applicable collective bargaining agreements, to amend or terminate these benefits. The cumulative effect of the change in accounting principle for the adoption of SFAS 109 reduced results of operations by $2.9 million. The implementation of SFAS 109 required the Company to restate certain assets and liabilities to pre-tax amounts from net-of-tax amounts originally recorded in connection with the acquisition of the Company by MAXXAM. Net Income (Loss) The Company recorded a net loss of $582.8 million for the first nine months of 1993, compared with net income of $26.5 million in the same period of 1992. The principal reasons for the earnings decline were the cumulative effect of changes in accounting principles of $507.9 million, the extraordinary loss of $21.8 million, and the operating losses described above. 20 24 THREE YEARS ENDED DECEMBER 31, 1992 Net Sales Bauxite and Alumina -- This segment's revenue from net sales of bauxite and alumina to third parties was $466.5 million in 1992 compared with $550.8 million in 1991 and $609.4 million in 1990. Revenue from alumina decreased 16% to $390.8 million in 1992 from $466.5 million in 1991, as significantly lower average realized prices more than offset a 3% increase in alumina shipments. Revenue from alumina decreased 12% to $466.5 million in 1991 from $529.2 million in 1990 as significantly lower average realized prices more than offset an 11% increase in alumina shipments, which was principally attributable to increased production at all three of the Company's alumina refineries. The remainder of the segment's sales revenues were from sales of bauxite, which remained about the same throughout the three years, and the portion of sales of alumina attributable to the minority interest in Alpart. Aluminum Processing -- Revenue from net sales to third parties for the aluminum processing segment was $1,442.6 million in 1992 compared with $1,450.0 million in 1991 and $1,485.6 million in 1990. The bulk of the segment's sales represents the Company's primary aluminum and fabricated aluminum products, with the remainder attributable to the portion of sales of primary aluminum attributable to the minority interest in Volta Aluminium Company Limited ("Valco"). Revenue from primary aluminum decreased 4% to $515.0 million in 1992 from $538.5 million in 1991, as an 8% decrease in average realized prices more than offset a 4% increase in primary aluminum shipments. Shipments of primary aluminum to third parties were approximately 51% of total aluminum products shipments in 1992 compared with approximately 52% in 1991. Revenue from primary aluminum decreased 2% to $538.5 million in 1991 from $549.2 million in 1990, primarily because of a 1% decline in shipments. Shipments of primary aluminum to third parties were approximately 52% of total aluminum products shipments in 1991 compared with approximately 53% in 1990. Revenue from fabricated aluminum products increased 2% to $913.7 million in 1992 compared with $898.9 million in 1991, primarily because lower average realized prices were more than offset by a 9% increase in shipments of fabricated aluminum products. Revenue from fabricated aluminum products decreased by 2% to $898.9 million in 1991 from $917.0 million in 1990 because of lower average realized prices. Operating Income The Company's operating income in 1992 was $90.2 million, compared with $215.8 million in 1991 and $376.4 million in 1990. The Company recorded a pre-tax charge of approximately $29.0 million in the fourth quarter of 1992 because of a reduction in the carrying value of its inventories caused principally by prevailing lower prices for alumina, primary aluminum, and fabricated products of $18.8 million and a LIFO inventory liquidation of $10.2 million. Bauxite and Alumina -- This segment's operating income in 1992 was $62.6 million, a decrease of 58% from $150.0 million in 1991. Operating income in 1991 was $150.0 million, a decrease of 38% from $241.4 million in 1990. In both 1992 compared to 1991, and 1991 compared to 1990, operating income was adversely affected by a decrease in average realized prices for alumina which more than offset higher alumina shipments and above-market prices for significant quantities of alumina sold forward in prior periods under long-term contracts. Aluminum Processing -- Operating income for the aluminum processing segment was $104.9 million in 1992, a decrease of 30% from $150.2 million in 1991. Operating income in 1992 was adversely affected by a decrease in average realized prices for primary aluminum and most fabricated aluminum products, partially offset by increased shipments. In both 1992 and 1991, the Company realized above-market prices for significant quantities of primary aluminum sold forward in prior periods under long-term contracts. Operating income for the aluminum processing segment was $150.2 million in 1991, a decrease of 33% from $222.6 million in 1990. Operating income in 1991 was adversely affected by a decrease in average realized prices for fabricated aluminum products and, to a lesser extent, by higher unit production costs for labor and 21 25 raw materials. These decreases in operating income more than offset above-market prices for significant quantities of primary aluminum sold forward in prior periods under long-term contracts. Corporate -- Corporate operating expenses of $77.3 million, $84.4 million, and $87.6 million in 1992, 1991, and 1990, respectively, represented corporate general and administrative expenses which were not allocated to segments. Income Before Income Taxes and Minority Interests Income before income taxes and minority interests in 1992 was $28.4 million, a decrease of 81% from $149.5 million in 1991. This decrease resulted from the lower operating income previously described, partially offset by a decrease in interest expense. Other income remained about the same in 1992 and 1991 as approximately $14.0 million of income for non-recurring adjustments to previously recorded liabilities and reserves in the fourth quarter of 1992 approximately equaled the receipt of a $12.0 million fee in the first quarter of 1991 from the Company's minority partner in Alpart in consideration for the execution of an expansion agreement for the Alpart alumina refinery. Income before income taxes and minority interests in 1991 was $149.5 million, a decrease of 49% from $290.8 million in 1990. This decrease resulted from the lower operating income previously described, partially offset by an increase in other income principally due to the receipt of a $12.0 million fee in the first quarter of 1991 from the Company's minority partner in Alpart as explained above. Net Income The Company earned $29.6 million in 1992, compared with $124.7 million in 1991 and $220.7 million in 1990. The principal reason for the earnings decline in 1992 compared with 1991 was the decrease in average realized prices for alumina, primary aluminum, and most fabricated products, partially offset by an increase in shipments of such products. The principal reason for the earnings decline in 1991 compared with 1990 was the decrease in price realizations for alumina, primary aluminum, and fabricated products, partially offset by a significant increase in shipments of alumina and the Company's forward sales strategy for substantial quantities of alumina and primary aluminum which yielded better-than-market prices for these products. FINANCIAL CONDITION AND CAPITAL SPENDING Cash Provided by Operations Cash used for operations was $2.0 million in the first nine months of 1993, compared with cash provided by operations of $22.4 million in the first nine months of 1992. Cash flow from operations was $28.0 million in 1992, compared with $143.7 million in 1991 and $194.1 million in 1990. The decrease in 1992 compared with 1991 was primarily because of the decline in net income and a $66.3 million decrease in previously withdrawn equity resulting from the excess of current market value over the premiums paid in certain option contracts. The decrease in 1991 compared with 1990 was mostly due to a lower level of net income in 1991, partially offset by the withdrawal of equity in certain option contracts. The equity withdrawal from these option contracts during 1991 increased by $52.9 million over 1990. Capital Expenditures The Company's capital expenditures of approximately $300.2 million (of which $42.6 million was funded by the Company's minority partners in certain joint ventures) during the three years ended December 31, 1993, were made primarily to improve production efficiency, reduce operating costs, expand capacity at existing facilities, and construct new facilities. Total consolidated capital expenditures were $67.7 million in 1993 compared with $114.4 million in 1992 and $118.1 million in 1991 (of which $9.4 million, $17.1 million and $16.1 million were funded by the minority partners in certain foreign joint ventures in 1993, 1992 and 1991, respectively). Total consolidated capital expenditures (of which approximately up to 5% is expected to 22 26 be funded by the minority partners in certain foreign joint ventures) are expected to be in the range of $50 million to $75 million per year in the years 1994-1996. Capital Structure The offering of the Notes, the concurrent offering by KAC of 8,000,000 shares of PRIDES and the replacement of the Credit Agreement are the final steps of a comprehensive refinancing plan which KAC began in January 1993. The plan is intended to extend the maturities of KAC's outstanding indebtedness, to enhance its liquidity and to raise new equity capital. As of December 31, 1992, the Company's long-term indebtedness consisted principally of $321.7 million aggregate amount of the 14 1/4% Notes and the Credit Agreement. The Company refinanced the 14 1/4% Notes through the issuance in February 1993 of $400.0 million aggregate principal amount of the 12 3/4% Notes. In addition, on January 24, 1994, the Company entered into the Commitment Letter to replace the Credit Agreement ($262.2 million outstanding as of February 7, 1994, including $37.2 million in outstanding letters of credit) with the New Credit Agreement. Bank of America and BA have committed, subject to certain terms and conditions, to provide the full $250.0 million of the New Credit Agreement. As of December 31, 1993, the Company's total consolidated indebtedness was $760.9 million, and $113.6 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement. On a pro forma basis, after giving effect to the Refinancing Transactions, as of December 31, 1993, the Company's total consolidated indebtedness would have been $827.8 million, $182.5 million of borrowing capacity would have been unused under the New Credit Agreement and the Company would have had additional cash available of $106.1 million. See "Capitalization." To increase its equity capital, KAC consummated a public offering of its $.65 Depositary Shares in June 1993 pursuant to which KAC realized net proceeds of approximately $119.3 million. KAC will realize additional net proceeds of approximately $88.6 million as a result of the sale of the PRIDES. See "-- Debt Service and Capital Expenditure Requirements" below. After giving effect to the Refinancing Transactions, the scheduled maturity of the Company's long-term indebtedness through 1998 will be substantially reduced. Debt Service and Capital Expenditure Requirements. Under the terms of the Company's existing Credit Agreement ($262.2 million outstanding as of February 7, 1994, including $37.2 million in outstanding letters of credit), which is expected to be replaced by the New Credit Agreement, the Company expects to be able to satisfy its debt service and capital expenditures requirements through at least June 30, 1994, from cash flows generated by operations and, to the extent necessary, from borrowings under the revolving credit facility of the Credit Agreement. In the event the Credit Agreement is not replaced by the New Credit Agreement, there can be no assurance that the Company will be able to satisfy the covenants under the existing Credit Agreement on or after June 30, 1994. After giving effect to the Refinancing Transactions, the Company expects that it will be able to satisfy its debt service and capital expenditure requirements through at least December 31, 1995, from cash flows generated by operations and, to the extent necessary, from borrowings under the New Credit Agreement. See "Description of Principal Indebtedness -- The New Credit Agreement." The offering of the Notes, the offering of PRIDES and the effectiveness of the New Credit Agreement will be conditioned upon the simultaneous closing of all such transactions. In connection with the offering of the $.65 Depositary Shares in June 1993, KAC made a non-interest bearing loan to the Company in the principal amount of $37,796,753 (an amount equal to the aggregate dividends scheduled to accrue on the Series A Shares from the issuance date until the date on which the Series A Shares mandatorily convert into shares of KAC Common Stock). The loan is evidenced by an intercompany note which matures on June 29, 1996, and is payable in quarterly installments. As of December 31, 1993, the aggregate principal amount of such intercompany note was $31,497,294. In connection with the PRIDES Offering, KAC intends to use a portion of the net proceeds therefrom to make a capital contribution to the Company and a portion of such net proceeds to make a loan or loans to the Company. The loan or loans will be evidenced by an intercompany note in a principal amount equal to the 23 27 aggregate dividends scheduled to accrue on the shares of PRIDES from the issuance date until the date on which the shares of PRIDES mandatorily convert into shares of KAC Common Stock. Dividends and Distributions. The declaration and payment of dividends by the Company on its shares of common stock will be subject to certain covenants contained in the Indenture and the 12 3/4% Note Indenture. The New Credit Agreement will not permit the Company or KAC to pay any dividends on their common stock. See "Description of Principal Indebtedness." Other Obligations. On February 1, 1993, the Company issued $400.0 million aggregate principal amount of its 12 3/4% Notes. The net proceeds from the sale of the 12 3/4% Notes were used to retire $321.7 million aggregate principal amount of, and pay premiums on, the 14 1/4% Notes, to prepay $18.0 million of the term loan under the Credit Agreement, and to reduce outstanding borrowings under the revolving credit facility of the Credit Agreement. These transactions resulted in a pre-tax extraordinary loss of approximately $33.0 million in the first quarter of 1993 ($21.8 million after taxes), consisting primarily of the write-off of unamortized discount and deferred financing costs related to the 14 1/4% Notes and the payment of premiums on the 14 1/4% Notes. The obligations of the Company with respect to the 12 3/4% Notes are guaranteed, jointly and severally, by certain subsidiaries of the Company. The 12 3/4% Note Indenture contains, among other things, restrictions on the ability of the Company and its subsidiaries to incur debt, undertake transactions with affiliates, and pay dividends. See "Description of Principal Indebtedness." In December 1992, the Company entered into an installment sale agreement (the "Sale Agreement") with the Parish of St. James, Louisiana (the "Louisiana Parish"), in connection with which the Louisiana Parish issued $20.0 million aggregate principal amount of its 7 3/4% Bonds due August 1, 2022 (the "Gramercy Bonds"), to finance the construction of certain solid waste disposal facilities at the Company's Gramercy plant. The proceeds from the sale of the Gramercy Bonds were deposited into a construction fund and may be withdrawn, from time to time, pursuant to the terms of the Sale Agreement and the indenture related thereto. At December 31, 1993, $10.8 million remained in the construction fund. The Sale Agreement requires the Company to make payments to the Louisiana Parish in installments due on the dates and in the amounts required to permit the Louisiana Parish to satisfy all of its payment obligations under the Gramercy Bonds. The Company has historically participated in various raw material joint ventures outside the United States. At December 31, 1993, the Company was unconditionally obligated for $73.6 million of indebtedness of one such joint venture affiliate. ENVIRONMENTAL MATTERS For a discussion of certain environmental matters involving the Company, see "Business -- Environmental Matters" and "-- Legal Proceedings." TAX ATTRIBUTE CARRYFORWARDS AND CARRYBACKS At December 31, 1992, the Company had certain tax attribute carryforwards. See Note 5 of the Notes to the Consolidated Financial Statements. For a discussion of the KACC Tax Allocation Agreement (as defined), the New Tax Allocation Agreement (as defined) and certain effects upon the Company's tax attribute carryforwards and carrybacks resulting from KAC's offering of $.65 Depositary Shares in June 1993, see "Certain Transactions." 24 28 BUSINESS INDUSTRY OVERVIEW Primary aluminum is produced by the refining of bauxite (the major aluminum-bearing ore) into alumina (the intermediate material) and the reduction of alumina into primary aluminum. Approximately two pounds of bauxite are required to produce one pound of alumina, and approximately two pounds of alumina are required to produce one pound of primary aluminum. Aluminum's valuable physical properties include its light weight, corrosion resistance, thermal and electrical conductivity and high tensile strength. Demand The packaging and transportation industries are the principal consumers of aluminum in the United States, Japan and Western Europe. In the packaging industry, which accounted for approximately 22% of consumption in 1992, aluminum's recyclability and weight advantages have enabled it to gain market share from steel and glass, primarily in the beverage container area. The aluminum packaging market in the United States, Japan and Western Europe grew at a rate of approximately 4.0% per year during the period 1982-1992, and total United States aluminum beverage can shipments increased at a rate of approximately 2.5% in 1993, 1.5% in 1992, 3.9% in 1991 and 6.0% in 1990. Nearly all beer cans and approximately 95% of the soft drink cans manufactured for the United States market are made of aluminum. Despite the flat demand currently being experienced in the can stock market, growth in the packaging area is generally expected to continue in the 1990s due to general population increase and to further penetration of the beverage can market in Western Europe and Japan, where aluminum cans are a substantially lower percentage of the total beverage container market than in the United States. In the transportation industry, which accounted for approximately 28% of aluminum consumption in the United States, Japan and Western Europe in 1992, automotive manufacturers use aluminum instead of steel or copper for an increasing number of components, including radiators, wheels and engines, in order to meet more stringent environmental and fuel efficiency requirements through vehicle weight reduction. Management believes that sales of aluminum to the transportation industry have considerable growth potential due to projected increases in the use of aluminum in automobiles. According to industry sources, aluminum content in United States automobiles nearly doubled in the last fifteen years to an average of 191 pounds per vehicle and the amount of aluminum consumed in the manufacture of Japanese automobiles more than doubled from 1983 to 1990. Management believes that the use of aluminum in automobiles in the United States and Japan will approximately double between 1991 and 2006. Supply As of year-end 1993, Western world aluminum capacity from 109 smelting facilities was approximately 16.4 million tons per year. Net exports of aluminum from the Commonwealth of Independent States to the West increased substantially from 1990 levels during the period from 1991 through 1993, and have contributed to a significant increase in London Metal Exchange stocks of primary aluminum. Based upon information currently available, the Company believes that only moderate additions will be made during 1994-1995 to Western world alumina and primary aluminum production capacity; however, due to the decline of primary aluminum prices from January 1, 1991, through the date of this Prospectus, and other factors, curtailments or permanent shutdowns have been announced, to management's knowledge, with respect to approximately 2.6 million tons of primary aluminum production capacity. New alumina and primary aluminum facilities generally require a four to five year design, engineering and construction period. 25 29 Historic Levels Certain data concerning the Western world aluminum industry are set forth in the following table:
PRIMARY PRIMARY AVERAGE ANNUAL ALUMINA ALUMINUM ALUMINUM MIDWEST INGOT PRODUCTION(1) PRODUCTION(1) INVENTORY(2) PRICES(3) -------------- -------------- -------------- -------------- (000 TONS) (000 TONS) (000 TONS) (C/LB) 1980............................... 29,315.6 12,771.7 2,078.0 76.1 1981............................... 27,893.3 12,456.3 3,275.0 59.8 1982............................... 23,515.6 10,759.8 3,655.7 46.8 1983............................... 24,600.7 11,097.5 2,583.7 68.3 1984............................... 27,860.8 12,765.6 3,138.5 61.1 1985............................... 27,240.1 12,308.1 2,827.9 49.0 1986............................... 27,808.9 12,234.5 2,171.5 56.5 1987............................... 29,390.3 12,919.3 1,728.9 73.3 1988............................... 31,342.2 13,909.5 1,858.7 112.3 1989............................... 33,202.5 14,462.8 1,860.1 88.9 1990............................... 34,529.2 14,623.9 2,067.4 75.0 1991............................... 35,417.7 15,180.4 3,091.6 60.0 1992............................... 34,455.1 14,923.5 3,551.3 58.0 1993............................... -- -- -- 53.8
- ------------ (1) Source: American Bureau of Metal Statistics. (2) Source: World Bureau of Metal Statistics, England. (3) Source: Metals Week. From 1980 through 1984, Midwest U.S. Market Price; from 1985 through 1993, Midwest U.S. Transaction Price. Recent Industry Trends The aluminum industry has been cyclical and the market prices of alumina and primary aluminum have been volatile from time to time. During 1989, tight supply conditions for alumina and strong demand for primary aluminum resulted in unusually high spot prices for alumina. During 1990, a moderate surplus of alumina supply developed due to new alumina production from two facilities that had been restarted in prior years (including the Company's Alpart refinery) and increased production at other refineries. Furthermore, recent curtailments of primary aluminum production in response to declining ingot prices have increased the surplus of alumina supply. Since 1990, spot prices of alumina have declined substantially due to these factors and slow economic growth in major aluminum consuming countries. Contract prices for deliveries of alumina in 1993 were in a lower range than the ranges applicable during the past several years. As a result of expansions of alumina refineries during 1992-1993, the current surplus of alumina is expected to continue. During 1989 and 1990, primary aluminum smelters throughout the world operated at near capacity levels. This factor, combined with increased production from smelter capacity additions during 1989 and 1990, resulted in a reduction of the market price of primary aluminum from 1988 peak prices. Additions to smelter capacity in 1991, 1992 and 1993, continued high operating rates in the Western world and slow economic growth in major aluminum consuming countries as well as exports from the Commonwealth of Independent States have contributed to an oversupply of primary aluminum and a significant increase in primary aluminum inventories in the Western world. If Western world production and exports from the Commonwealth of Independent States continue at current levels, primary aluminum inventory levels are expected to increase further in 1994. The foregoing factors have contributed to a significant reduction in the market price of primary aluminum, and may continue to adversely affect the market price of primary aluminum in the future. The average price of primary aluminum was at historic lows in real terms for the year ended 1993. See "-- Sensitivity to Prices and Hedging Programs -- Alumina and Primary Aluminum." 26 30 Government officials from the European Union, the United States of America, Canada, Norway, Australia and the Russian Federation met in a multilateral conference in January 1994, to discuss the current excess global supply of primary aluminum. All six participating governments have ratified as a trade agreement the resulting Memorandum which provides, in part, for (i) a reduction in Russian Federation primary aluminum production by 300,000 tons per year within three months of the date of ratification of the Memorandum and an additional 200,000 tons within the following three months, (ii) improved availability of comprehensive data on Russian aluminum production and (iii) certain assistance to the Russian aluminum industry. A Russian Federation Trade Ministry official has publicly stated that the output reduction would remain in effect for 18 months to two years, provided that other worldwide production cutbacks occur, existing trade restrictions on aluminum are eliminated and no new trade restrictions on aluminum are imposed. The Memorandum does not require specific levels of production cutbacks by other producing nations. A further meeting of the participants is scheduled for the end of February 1994. There can be no assurance that the implementation of the Memorandum will adequately address the current oversupply of primary alumimum. See "-- Sensitivity to Prices and Hedging Programs -- Alumina and Primary Aluminum." The Company will continue to assess its production levels in light of market prices, industry inventory levels, production costs and user demand and, based on these and other factors, could determine to curtail production at certain of its facilities in the future. BUSINESS STRATEGY The Company has made significant changes in the mix of products sold to customers by disposing of selected assets, restarting and increasing its percentage ownership interest in the Alpart alumina refinery, and increasing production of alumina at Gramercy, Louisiana, and QAL in Australia. The percentage of the Company's alumina production sold to third parties increased from approximately 35% in 1987 to approximately 71% in 1993, and the percentage of its primary aluminum production sold to third parties increased from approximately 20% in 1987 to approximately 56% in 1993. The Company has concentrated its fabricated products operations on the beverage container market (which historically has been recession-resistant); high value-added, heat-treated sheet and plate products for the aerospace industry; hubs, wheels and other products for the truck, trailer and shipping container industry; parts for air bag canisters and other automotive components; and distributor markets for a variety of semi-fabricated aluminum products. Since January 1, 1989, the Company has constructed four new fabrication facilities and has modernized and expanded others, with the objective of reducing manufacturing costs and expanding sales in selected product markets in which the Company has production expertise, high quality capability, and geographic and other competitive advantages. The Company has taken steps to control and reduce costs, improved the efficiency and increased the capacity of its alumina and primary aluminum production and fabricating operations, modernized its facilities, and streamlined and decentralized its management structure to reduce corporate overhead and shift decision-making and accountability to its business units. In October 1993, the Company announced that it is restructuring its flat-rolled products operation at its Trentwood plant in Spokane, Washington, to reduce that facility's annual operating costs. This effort is in response to over-capacity in the aluminum rolling industry, flat demand in can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have resulted in declining prices in Trentwood's key markets. The Trentwood restructuring is expected to result in annual cost savings of approximately $50.0 million after it has been fully implemented (which is expected to occur during the next two years). From 1980 to 1993, on a per employee basis, alumina production increased by approximately 54% at the Company's Gramercy alumina refinery; fabricated product shipments increased by approximately 128% at the Trentwood fabricating facility; sales volume for aluminum operations as a whole increased by over 300% and the average life of reduction cells used to produce aluminum at the Company's smelters improved by approximately 102%. Primary aluminum production at the Company's Mead and Tacoma smelters was curtailed in 1993 because of a power reduction imposed by the BPA which reduced the operating rates for such smelters. From 1980 to 1992, prior to the BPA power reductions, on a per employee basis, primary aluminum production increased by approximately 72% and 39%, respectively, at the Mead and Tacoma 27 31 smelters, and from 1980 to 1993, subsequent to the BPA power reductions, such primary aluminum production increased by approximately 36% and 15%, respectively, at such smelters. In addition, from 1985 to 1992, the Trentwood facility's recovery rate (the relative amount of fabricated product manufactured from a quantity of primary aluminum) improved by approximately 30% and its promise performance rate (a measure of ability to meet delivery dates) improved by approximately 23%. The Company's average kilowatt hours of electricity utilized per ton of primary aluminum production was also reduced by approximately 13% from 1980 to 1993 through process improvements. The Company has also attempted to lessen its exposure to possible future declines in the market prices of alumina and primary aluminum by entering into fixed and variable rate power and fuel supply contracts, and a labor contract with the United Steelworkers of America which provides for semi-variable compensation with respect to approximately 73% of the Company's domestic hourly work force. See "-- Production Operations" and "-- Employees." SENSITIVITY TO PRICES AND HEDGING PROGRAMS The Company's earnings are sensitive to changes in the prices of alumina, primary aluminum and fabricated aluminum products, and also depend to a significant degree upon the volume and mix of all products sold. Consequently, the Company has developed strategies to mitigate its exposure to possible further declines in the market prices of alumina and primary aluminum while retaining the ability to participate in favorable pricing environments that may materialize. See "Risk Factors -- Sensitivity to Prices; Current Primary Aluminum Prices Adversely Affect Net Sales and Operating Income." Alumina and Primary Aluminum The Company's production capacity for alumina significantly exceeds the requirements of its aluminum smelters. As a result of the restart of, an increased percentage ownership interest in, and the increased capacity of, the Alpart refinery in Jamaica, increased production at the Company's other alumina refineries and the sale of its Ravenswood aluminum smelter, alumina production and sales to third parties increased further in 1992, 1991 and 1990 following a significant increase in 1989. These sales, combined with favorable contract sales prices during 1992, 1991 and 1990, and strong spot alumina prices during 1989, made a significant contribution to operating results during 1992, 1991, 1990 and 1989. The tight supply conditions and consequent high prices for alumina which existed in 1989 have been alleviated as a result of increased production and other factors, including reduced demand due to the economic recession. Average realized alumina prices for each of 1993, 1992, 1991 and 1990 declined significantly from the previous year and were significantly below their 1989 high levels. Although the Company has attempted to lessen the effect of such declines through forward sales transactions and hedging programs described below, earnings have been, and are expected to remain, significantly more sensitive to changes in primary aluminum prices and revenues derived from the sale of alumina to third parties. Revenues from alumina sales to third parties declined in 1993 as a result of lower average realized prices for alumina. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Trends." The Company has also sold forward substantially all of the alumina available to it in excess of its projected internal smelting requirements for 1994, and a substantial portion of such excess alumina for 1995. Approximately 95% of 1994 sales and virtually all of 1995 sales were made at prices indexed to future prices of primary aluminum. Approximately 75% of 1994 sales were made at prices indexed to future prices of primary aluminum, but with minimum prices that exceed the Company's estimated cash production costs. The remainder of 1994 sales were made either at fixed prices that exceed the Company's estimated cash production costs, or are subject to prices indexed to future prices of primary aluminum but without minimum prices. Approximately 85% of 1995 sales were made at prices indexed to future prices of primary aluminum, but with minimum prices that exceed the Company's estimated cash production costs. As of the date of this Prospectus, the Company has sold forward at fixed prices approximately 75% of its primary aluminum in excess of its projected internal fabrication requirements in 1994 and approximately 55% of such surplus in 1995 at fixed prices that approximate the current market price of primary aluminum. 28 32 Hedging programs already in place would allow the Company to participate in certain higher market prices, should they materialize, for approximately 40% of the Company's excess primary aluminum sold forward in 1994, and 100% of the Company's excess primary aluminum sold forward in 1995. Primary aluminum prices have historically been cyclical and, from time to time, volatile. During 1991, average realized prices from sales of primary aluminum remained about the same as in 1990, even though market prices declined significantly, as a result of the Company's forward sales and hedging programs that enabled the Company to sell significant quantities of primary aluminum at above market prices. In 1992, the Company realized an average price of $0.66 per pound while the average Midwest U.S. transaction price was approximately $0.58 per pound, as a result of the Company's forward sales and hedging programs that enabled the Company to sell significant quantities of primary aluminum at above market prices. In 1993, the Company's average realized price from sales of primary aluminum was approximately $0.56 per pound compared to the average Midwest U.S. transaction price of approximately $0.54 per pound during such period. In 1991 and 1990, the Company sold to third parties approximately two-thirds of the primary aluminum it produced, with the balance of the primary aluminum production used in the Company's fabrication operations. Approximately 70% of the Company's primary aluminum was sold to third parties in 1992, and approximately 56% in 1993 (primarily because of the curtailment of its production of primary aluminum in the Pacific Northwest caused by the BPA power reduction and increased use of the Company's primary aluminum in its fabrication operations). While the Company continues to attempt to lessen the adverse effect of declines in the price of primary aluminum through its variable cost structures, forward sales and hedging programs, possible future declines in the market price of primary aluminum would have an adverse effect on the Company's financial performance. If the Company's average realized sales prices in 1994 for substantial quantities of its primary aluminum and alumina were based on the current market price of primary aluminum (AMT Price of 61.14c per pound for the week ended February 4, 1994), the Company would continue to sustain net losses in 1994, which would be expected to approximate the loss from continuing operations in 1993 ($76.0 million) before (a) extraordinary loss and cumulative effect of changes in accounting principles, (b) the 1993 Facilities Charges and (c) the Other 1993 Charges. The following table indicates the monthly average Midwest U.S. transaction price for primary aluminum (the "AMT Price") for each of the months from January 1989 through January 1994 as reported by Metals Week. The AMT Price for the week ended February 4, 1994, as reported by Metals Week, was 61.14 cents per pound.
AVERAGE TRANSACTION PRICES (CENTS/POUND) --------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------- ------- January................... 57.019 56.479 54.387 69.376 69.862 108.894 February.................. 55.993 58.831 68.886 66.392 100.950 March..................... 53.794 60.041 68.983 72.111 97.534 April..................... 52.345 61.542 64.410 72.707 97.610 May....................... 52.694 60.398 59.562 73.288 99.175 June...................... 54.673 58.875 58.555 73.727 89.297 July...................... 56.829 60.423 59.682 73.709 81.448 August.................... 55.516 60.076 57.825 81.203 82.340 September................. 52.905 58.383 56.020 89.621 79.051 October................... 51.660 54.066 53.230 83.422 80.301 November.................. 50.365 53.414 52.490 73.261 76.253 December.................. 53.902 55.846 50.613 70.654 74.223 ------ ------ ------ ------ ------- ------- Average......... 57.019 53.846 58.024 59.969 74.996 88.923 ------ ------ ------ ------ ------- ------- ------ ------ ------ ------ ------- -------
In response to the low price of primary aluminum caused by the current surplus, a number of companies have closed smelting facilities. In addition, in response to certain power reductions undertaken by the BPA in 29 33 the Pacific Northwest, a number of companies (including the Company) have curtailed or shutdown production capacities at their smelter facilities in the Pacific Northwest. The Company will continue to assess its production levels in light of market prices, industry inventory levels, production costs and user demand and, based on these and other factors, could determine to curtail production at certain of its facilities in the future. See also "Business -- Industry Overview -- Recent Industry Trends." Fabricated Products Fabricated aluminum prices, which vary considerably among products, are heavily influenced by changes in the price of primary aluminum and generally lag behind primary aluminum prices for periods of up to six months. A significant portion of the Company's fabricated product shipments consist of body, lid and tab stock for the beverage container market. The Company may not be able to receive increases in primary aluminum prices to its can stock customers as promptly as in the recent past because of competition from other aluminum producers and because of excess supply in the industry. The Company also ships fabricated products to customers in the aerospace market. Aluminum demand in the aerospace market is decreasing as a result of the structural contraction of the defense industry caused by the end of the cold war. In addition, the commercial aerospace market is experiencing a cyclical downturn in business due to the recent economic recessions in the United States, Canada, Australia and the United Kingdom, and slow economic growth in other countries. Changes in the market price of primary aluminum also affect the Company's production costs of fabricated products because they influence the price of aluminum scrap purchased by the Company and the Company's labor costs, to the extent such costs are indexed to primary aluminum prices. Following significant increases in the price of primary aluminum, the prices realized for fabricated aluminum products were at relatively high levels throughout 1990, 1989 and 1988. The average realized prices for fabricated aluminum products declined during 1991, reflecting the lower primary aluminum prices prevailing during such year, and continued to decline during 1992 and 1993. Revenue from fabricated aluminum products increased 7% to $981.4 million in 1993 compared with $913.7 million in 1992, primarily because of an 8% increase in shipments of fabricated aluminum products. PRODUCTION OPERATIONS The following table sets forth total shipments and intracompany transfers of the Company's alumina, primary aluminum and fabricated aluminum operations:
YEAR ENDED DECEMBER 31, ---------------------------------- 1993 1992 1991 ------ ------- ------- (IN THOUSANDS OF TONS) ALUMINA: Shipments to Third Parties................................ 1,997.5 2,001.3 1,945.9 Intracompany Transfers.................................... 807.5 878.2 884.2 PRIMARY ALUMINUM: Shipments to Third Parties................................ 242.5 355.4 340.6 Intracompany Transfers.................................... 233.6 224.4 199.6 FABRICATED ALUMINUM PRODUCTS: Shipments to Third Parties................................ 373.2 343.6 314.2
The Company's operations are conducted through decentralized business units which compete throughout the aluminum industry: - The Alumina Business Unit, which mines bauxite and obtains additional bauxite tonnage under long-term contracts, produced approximately 9% of Western world alumina in 1992. During 1993, the Company utilized approximately 82% of its bauxite production at its alumina refineries and the remainder was either sold to third parties or tolled into alumina by a third party. In addition, during 1993 the Company utilized approximately 29% of its alumina for internal purposes and sold the 30 34 remainder to third parties. The Company's share of total Western world alumina capacity was 8% in 1993. - The Primary Aluminum Products Business Unit operates two domestic smelters wholly owned by the Company and two foreign smelters in which the Company holds significant ownership interests. In 1993, the Company utilized approximately 44% of its primary aluminum for internal purposes and sold the remainder to third parties. The Company's share of total Western world primary aluminum capacity was 3% in 1993. - Fabricated products are manufactured by three Business Units -- Flat-Rolled Products, Extruded Products (including rod and bar), and Forgings and Castings -- which manufacture a variety of fabricated products (including body, lid and tab stock for beverage containers, sheet and plate products, screw machine stock, redraw rod, forging stock, truck wheels and hubs, air bag canisters and other forgings and castings and extruded products) and which operate plants located in principal marketing areas of the United States and Canada. Substantially all of the primary aluminum utilized in the Company's fabricated products operations is obtained through the Company, with the balance of the metal utilized in its fabricated products operations obtained from scrap metal purchases. In 1993, the Company shipped approximately 373,200 tons of fabricated aluminum products to third parties, which accounted for approximately 6% of the total tonnage of United States domestic fabricated shipments for such year. Alumina The following table lists the Company's bauxite mining and alumina refining facilities as of December 31, 1993:
ANNUAL PRODUCTION TOTAL CAPACITY ANNUAL COMPANY AVAILABLE TO PRODUCTION ACTIVITY FACILITY LOCATION OWNERSHIP THE COMPANY CAPACITY - ------------------------------- ------------- ---------- ---------- ------------ ------------ (TONS) (TONS) Bauxite Mining................. KJBC(1) Jamaica 49% 4,500,000 4,500,000 Alpart(2) Jamaica 65% 2,275,000 3,500,000 ------------ ------------ 6,775,000 8,000,000 ------------ ------------ ------------ ------------ Alumina Refining............... Gramercy Louisiana 100% 1,000,000 1,000,000 Alpart Jamaica 65% 943,000 1,450,000 QAL Australia 28.3% 934,000 3,300,000 ------------ ------------ 2,877,000 5,750,000 ------------ ------------ ------------ ------------
- ------------ (1) Although the Company owns 49% of Kaiser Jamaica Bauxite Company, it has the right to receive all of such entity's output. (2) Alpart bauxite is refined into alumina at the Alpart refinery. Bauxite mined in Jamaica by Kaiser Jamaica Bauxite Company ("KJBC") is refined into alumina at the Company's plant at Gramercy, Louisiana, or is sold to third parties. In 1979, the Government of Jamaica granted the Company a mining lease for the mining of bauxite sufficient to supply the Company's then- existing Louisiana alumina refineries at their annual capacities of 1,656,000 tons per year until January 31, 2020 (KJBC has announced that it intends to curtail production of bauxite by 500,000 tons per year). Alumina from the Gramercy plant is sold to third parties. The Company has entered into a series of medium-term contracts for the supply of natural gas to the Gramercy plant. The price of such gas varies based upon certain spot natural gas prices, with floor and ceiling prices applicable to approximately one-half of the delivered gas. The Company has, however, established a fixed price for a portion of the delivered gas through a hedging program. 31 35 Alpart holds bauxite reserves and owns an alumina plant located in Jamaica. The Company has a 65% interest in Alpart and Hydro Aluminium a.s ("Hydro") owns the remaining 35% interest. The Company has management responsibility for the facility on a fee basis. The Company and Hydro have agreed to be responsible for their proportionate shares of Alpart's costs and expenses. Alpart is engaged in a program of modernization and expansion of its facilities. As a part of that program, the capacity of the Alpart alumina refinery has been increased to 1,450,000 tons per year as of December 31, 1992. In 1981, the Government of Jamaica granted Alpart a mining lease covering bauxite reserves sufficient to operate the Alpart plant until December 31, 2019. In connection with the expansion program, the Alpart partners have entered into an agreement with the Government of Jamaica designed to assure that sufficient reserves of bauxite will be available to Alpart to operate its refinery, as it has been expanded and as it may be expanded through the year 2024 (to a capacity of 2,000,000 tons per year). In mid-1990, Alpart entered into a five-year agreement for the supply of substantially all of its fuel oil, the refinery's primary energy source. In February 1992, this agreement was extended for one year and the quantity of fuel oil to be supplied was increased. The price for 80% of the initial quantity remains fixed at a price which prevailed in the fourth quarter of 1989; the price for 80% of the increased quantity is fixed at a negotiated price; and the price for the balance of the initial and increased quantities was based upon certain spot fuel oil prices plus transportation costs. Alpart has purchased all of the quantities of fuel oil which could be purchased based upon certain spot fuel oil prices under both the initial and extended agreements. The Company holds a 28.3% interest in QAL, which owns the largest and one of the most efficient alumina refineries in the world, located in Queensland, Australia. QAL refines bauxite into alumina, essentially on a cost basis, for the account of its stockholders pursuant to long-term tolling contracts. The stockholders, including the Company, purchase bauxite from another QAL stockholder pursuant to long-term supply contracts. The Company has contracted to take approximately 751,000 tons per year of capacity or pay standby charges. The Company is unconditionally obligated to pay amounts calculated to service its share ($73.6 million at December 31, 1993) of certain debt of QAL, as well as other QAL costs and expenses, including bauxite shipping costs. An expansion project, completed at the end of 1990, increased QAL's annual production capacity to approximately 3,300,000 tons, of which approximately 934,000 tons are available to the Company. The Company's principal customers for bauxite and alumina consist of large and small domestic and international aluminum producers that purchase bauxite and reduction-grade alumina for use in their internal refining and smelting operations and trading intermediaries who resell raw materials to end-users. In 1993, the Company sold all of its bauxite to one customer, and sold alumina to thirteen customers, the largest and top five of which accounted for approximately 22% and 79% of such sales, respectively. Among alumina producers, the Company believes it is now the world's second largest seller of alumina to third parties. The Company's strategy is to sell a substantial portion of the bauxite and alumina available to it in excess of its internal refining and smelting requirements pursuant to forward sales contracts. See " -- Sensitivity to Prices and Hedging Programs." Marketing and sales efforts are conducted by senior executives of the Alumina Business Unit and the Company. 32 36 Primary Aluminum Products The following table lists the Company's primary aluminum smelting facilities as of December 31, 1993:
ANNUAL RATED TOTAL CAPACITY ANNUAL 1993 COMPANY AVAILABLE TO RATED OPERATING LOCATION FACILITY OWNERSHIP THE COMPANY CAPACITY RATE - ------------------------------------- ---------- ---------- ------------ --------- ---------- (TONS) (TONS) Domestic Washington......................... Mead 100% 200,000 200,000 80%(1) Washington......................... Tacoma 100% 73,000 73,000 77%(1) ------------ --------- Subtotal................... 273,000 273,000 ------------ --------- International Ghana.............................. Valco 90% 180,000 200,000 88% Wales, U.K......................... Anglesey 49% 55,000 112,000 112% ------------ --------- Subtotal................... 235,000 312,000 ------------ --------- Total...................... 508,000 585,000 ------------ --------- ------------ ---------
- ------------ (1) See "Risk Factors -- Recent Developments in Power Supply for Pacific Northwest Operations and Resultant Production Curtailments." The Company owns two smelters located at Mead and Tacoma, Washington, where alumina is processed into primary aluminum. The Mead facility uses pre-bake technology; the Tacoma plant uses Soderberg technology. Both smelters have achieved significant production efficiencies in recent years through retrofit technology, cost controls and semi-variable wage and power contracts, leading to increases in production volume and enhancing their ability to compete with newer smelters. At the Mead plant, the Company has converted to welded anode assemblies to increase energy efficiency, has reduced the number of anodes used in the smelting process, has changed from pencil to liquid pitch to produce carbon anodes which achieved environmental and operating savings, and is engaged in efforts to increase production through the use of improved, higher-efficiency reduction cells. In 1992, improved performance was achieved at Mead and Tacoma in the areas of energy efficiency and hot metal production. Both the Mead and Tacoma plants operated at approximately full rated capacity during 1991-1992, but operated at less than rated capacity throughout 1993, as a result of a power reduction imposed by the BPA, which is discussed below. The electricity supply contracts between the BPA and the Company expire in 2001. Through June 1996, the Company pays for power on a basis which varies, within certain limits, with the market price of primary aluminum, and thereafter the Company will pay for power at variable rates to be negotiated. During 1993, the Company paid for power under its power supply contract with the BPA at the floor rate. The Tacoma facility produces high grade, continuous cast, redraw rod, which currently commands a premium price in excess of primary aluminum prices. The Mead facility produces primary aluminum, almost all of which is used at the Company's Trentwood fabricating facility and the balance of which is sold to third parties. The Company manages, and holds a 90% interest in, the Valco aluminum smelter in Ghana. The Valco smelter uses pre-bake technology. The smelter processes alumina supplied by the Company and the other participant into primary aluminum under long-term tolling contracts which provide for proportionate payments by the participants in amounts intended to pay not less than all of Valco's operating and financing costs. The Company's share of the primary aluminum is sold to third parties. Power for the Valco smelter is supplied under an agreement which expires in 1997, subject to Valco's right to extend the agreement for 20 years. The agreement indexes the price of two-thirds of the contract quantity to the market price of primary aluminum and fixes the price for the remainder, and provides for a review and adjustment of the base power rate and the price index every five years. The Valco smelter restarted production early in 1985 after being closed for more than two years due to lack of rainfall and the resultant hydroelectricity shortage. The Company believes that there has been sufficient rainfall and water storage such 33 37 that an adequate supply of electricity for the Valco plant at its current operating rate is probable for at least one year. The Company has a 49% interest in the Anglesey Aluminium Limited ("Anglesey") aluminum smelter and port facility at Holyhead, Wales. The Anglesey smelter uses pre-bake technology. The Company supplies 49% of Anglesey's alumina requirements and purchases 49% of Anglesey's aluminum output. The Company sells its share of Anglesey's output to third parties. Power for the Anglesey alumina smelter is supplied under an agreement which expires in 2001. Electrical power represents an important production cost for the Company at the Facilities. The electricity supply contracts between the BPA and its direct service industry customers (which consist of 15 energy intensive companies, principally aluminum producers, including the Company) permit the BPA to interrupt up to 25% of the amount of power which it normally supplies to such customers. As a result of drought conditions, in January 1993 the BPA reduced the amount of power it normally supplies to its direct service industry customers, including the Company with respect to the Facilities. In response to such reduction, the Company removed three reduction potlines from production (two at the Mead smelter and one at the Tacoma smelter) and purchased substitute power in the first quarter of 1993 at increased costs. The BPA has notified its direct service industry customers that it intends to maintain the interruption of 25% of the amount of power it normally provides to such customers through February 28, 1994. Despite the temporary availability of such power through July 1993, the Company has operated its Mead and Tacoma smelters at the reduced operating rates introduced in January 1993, and has operated its Trentwood fabrication facility without any curtailment of its production. The Company currently anticipates that in 1994 it will operate the Mead and Tacoma smelters at rates which do not exceed the current operating rates of 75% of full capacity for such smelters. The Company cannot predict whether full power will be provided by the BPA after February 28, 1994, or whether power will otherwise become available at a price acceptable to the Company. The Company will continue to assess its production levels at the Mead and Tacoma smelters in light of the availability and cost of such power and other production costs, the market price of primary aluminum, industry inventory levels and other industry-related and Company-related factors. Effective October 1, 1993, an increase in the base rate BPA charges to its direct service industry customers for electricity was adopted, which will increase the Company's production costs at the Mead and Tacoma smelters by approximately $15.0 million per year (approximately $9.1 million per year based on the Company's current operating rate of approximately 75% of full capacity). The rate increase generally is expected to remain in effect for two years. In the event that the BPA's revenues fall below certain levels prior to April 1994, the BPA may impose up to a 10% surcharge on the base rate it charges to its direct service industry customers, effective during the period from October 1994 through October 1995 (which would increase the Company's production costs at the Mead and Tacoma smelters by approximately $9.1 million per year based on the Company's current operating rate of approximately 75% of full capacity). In addition, in order to comply with certain federal laws and regulations applicable to endangered fish species, the BPA may be required in the future to reduce its power generation and to purchase substitute power (at greater expense) from other sources. The foregoing factors would increase the Company's operating expenses. The Company has developed and installed proprietary retrofit technology in all of its smelters. This technology -- which includes the redesign of the cathodes and anodes that conduct electricity through reduction cells, improved "feed" systems that add alumina to the cells, and a computerized system that controls energy flow in the cells -- enhances the Company's ability to compete more effectively with the industry's newer smelters. The Company is actively engaged in efforts to license this technology and sell technical and managerial assistance to other producers worldwide, and may participate in joint ventures or similar business partnerships which employ the Company's technical and managerial knowledge. Pursuant to various arrangements, the Company's technology has been installed in aluminum smelters located in West Virginia, Ohio, Missouri, Kentucky, Sweden, Germany, India, Australia, New Zealand, Ghana, the Commonwealth of Independent States and the United Kingdom. See "-- Research and Development." 34 38 The Company's principal primary aluminum customers consist of large trading intermediaries and metal brokers, who resell primary aluminum to fabricated product manufacturers, and large and small international aluminum fabricators. In 1993, the Company sold approximately 56% of its primary aluminum production not utilized for internal purposes to approximately 50 customers, the largest and top five of which accounted for approximately 44% and 64% of such sales, respectively. Marketing and sales efforts are conducted by a small staff located at the business unit's headquarters in Pleasanton, California, and by senior executives of the Company who often participate in the structuring of major sales transactions. A majority of the business unit's sales are based upon long-term relationships with metal merchants and end-users. Fabricated Products Flat-Rolled Products The Flat-Rolled Products Business Unit, the largest of the Company's fabricated products businesses, operates the Trentwood sheet and plate mill at Trentwood, Washington. The Trentwood facility is the Company's largest fabricating plant and accounted for substantially more than one-half of the Company's 1993 fabricated products shipments. The business unit supplies the beverage container market (producing body, lid and tab stock), the aerospace market, and the tooling plate, heat-treated alloy and common alloy coil markets, both directly and through distributors. The Company announced in October 1993 that it is restructuring its flat-rolled products operation at its Trentwood plant to reduce that facility's annual operating costs. This effort is in response to over-capacity in the aluminum rolling industry, flat demand in can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have resulted in declining prices in Trentwood's key markets. The Trentwood restructuring is expected to result in annual cost savings of approximately $50.0 million after it has been fully implemented (which is expected to occur during the next two years). The Company's flat-rolled products are sold primarily to beverage container manufacturers located in the western United States where the Company has a transportation advantage. Quality of products for the beverage container industry, timeliness of delivery and price are the primary bases on which the Company competes. The Company believes that its capital improvements at Trentwood have enhanced the quality of its products for the beverage container industry and the capacity and efficiency of its manufacturing operations. The Company believes that it is one of the highest quality producers of aluminum beverage can stock in the world. In 1993, the Flat-Rolled Products Business Unit had twenty-two foreign and domestic can stock customers, the majority of which were beverage can manufacturers (including seven of the eight major domestic beverage can manufacturers) and the balance of which were brewers. The largest and top five of such customers accounted for approximately 25% and 56%, respectively, of the business unit's sales revenue. In 1993, the business unit shipped products to over 200 customers in the aerospace, transportation and industrial ("ATI") markets, most of which were distributors who sell to a variety of industrial end-users. The top five customers in the ATI markets for flat-rolled products accounted for approximately 10% of the business unit's sales revenue. The marketing staff for the Flat-Rolled Products Business Unit is headquartered in Pleasanton, California, and is also located at the Trentwood facility, and sales are made directly to customers (including distributors) from ten sales offices located throughout the United States. International customers are served by a sales office in the Netherlands and by independent sales agents in Asia and Latin America. See also "-- Sensitivity to Prices and Hedging Programs -- Fabricated Products" for a discussion of demand for fabricated products in the aerospace market. Extruded Products The Extruded Products Business Unit is headquartered in Dallas, Texas, and operates soft alloy extrusion facilities in Los Angeles, California; Sherman, Texas; and London, Ontario, Canada; a cathodic protection business located in Tulsa, Oklahoma, that also extrudes both aluminum and magnesium; and rod and bar facilities in Newark, Ohio, and Jackson, Tennessee, which produces screw machine stock, redraw rod, forging stock and billet. Each of the soft alloy extrusion facilities has fabricating capabilities and provides finishing 35 39 services. The Company began commercial operation of its London, Ontario, Canada facility in the second quarter of 1992, which is designed to produce more than 50 million pounds of extruded products annually. The Extruded Products Business Unit's major markets are in the transportation industry, to which it provides extruded shapes for automobiles, trucks, trailers, cabs and shipping containers, and distribution, durable goods, defense, building and construction, ordnance, and electrical markets. In 1993, the Extruded Products Business Unit had over 900 customers for its products, the largest and top five of which accounted for approximately 6% and 19%, respectively, of its sales revenue. Sales are made directly from plants as well as marketing locations across the United States. Forgings and Castings The Forgings and Castings Business Unit operates forging facilities at Erie, Pennsylvania; Oxnard, California; and Greenwood, South Carolina; and a machine shop at Greenwood, South Carolina. The Forgings and Castings Business Unit is one of the largest producers of aluminum forgings in the United States, and is a major supplier of high quality forged parts to customers in the automotive, commercial vehicle and ordinance markets. The high strength-to-weight properties of forged aluminum make it particularly well suited for automotive applications. During 1991, the Forgings and Castings Business Unit entered the castings business by purchasing the assets of Winters Industries, which supplies cast aluminum engine manifolds to the automobile, truck and marine markets. The casting production facilities include two foundries and a machining facility in Ohio. In 1993, the Forgings and Castings Business Unit had over 500 customers for its products, the largest and top five of which accounted for approximately 20% and 57%, respectively, of the Forgings and Casting Business Unit's sales revenue. The Forgings and Castings Business Unit's headquarters is located in Erie, Pennsylvania, and additional sales, marketing and engineering groups are located in the midwestern and western United States. COMPETITION Aluminum products compete in many markets with steel, copper, glass, plastic and numerous other materials. Within the aluminum business, the Company competes with both domestic and foreign producers of bauxite, alumina and primary aluminum, and with domestic and foreign fabricators. The Company's principal competitors in the sale of alumina include Alcoa of Australia, Ltd., Billiton International Metals B.V., Clarendon Ltd. and Pechiney S.A. In addition to the foregoing, the Company competes with most aluminum producers in the production of primary aluminum. Many of the Company's competitors have greater financial resources than the Company. In addition, the Commonwealth of Independent States has been supplying large quantities of primary aluminum to the Western world. Primary aluminum and, to some degree, alumina are commodities with generally standard qualities, and competition in the sale of these commodities is based primarily upon price, quality and availability. The Company believes that, assuming the current relationship between worldwide supply and demand for alumina and primary aluminum does not change materially, the loss of any one of its customers, including intermediaries, would not have a material adverse effect on its business or operations. The Company also competes with a wide range of domestic and international fabricators in the sale of fabricated aluminum products. Competition in the sale of fabricated products is based upon quality, availability, price and service, including delivery performance. The Company concentrates its fabricating operations on selected products in which the Company has production expertise, high quality capability, and geographic and other competitive advantages. RESEARCH AND DEVELOPMENT The Company conducts research and development activities principally at three facilities dedicated to that purpose -- the Center for Technology ("CFT") in Pleasanton, California; the Primary Aluminum Products Division Technology Center ("DTC") adjacent to the Mead smelter in Spokane, Washington; and 36 40 the Alumina Development Laboratory ("ADL") at the Gramercy, Louisiana refinery. Net expenditures for Company-sponsored research and development activities were $18.5 million in 1993, $13.5 million in 1992, and $11.4 million in 1991. The Company's research staff totaled 160 at December 31, 1993. The Company estimates that research and development net expenditures will be in the range of approximately $17-$19 million per year in the 1994 period. CFT concentrates its research and development efforts on flat-rolled products while providing specialized services to the Company's other business units. Its activities include development of can stock products and aircraft sheet and plate products, and process improvements directed at efficiency and quality. In can stock, CFT works to optimize the product's metallurgy, surface characteristics, coatings and lubrication. CFT also offers research and development, technical services and selected proprietary technology for license or sale to third parties. CFT is currently providing technology and technical assistance to Samyang Metal Co. Ltd. in building an aluminum rolling mill in Yongju, Korea. CFT also is engaged in cooperative research and development projects with Furukawa Electric Co., Ltd., Pechiney Rhenalu and Kawasaki Steel Corporation of Japan, with respect to the ground transportation market. DTC maintains specialized laboratories and a miniature carbon plant where experiments with new anode and cathode technology are performed. DTC supports the Company's primary aluminum smelters, concentrating on the development of cost-effective technical innovations and equipment and process improvements. Energy savings of approximately 10% have been achieved at smelters utilizing proprietary DTC-developed technologies (which are employed in both retrofit and new construction applications), such as improved cathode and anode design and insulation, modified electrolyte chemistry, distributive microprocessor control and modified cell magnetics. Other proprietary DTC retrofit technologies, such as redesigned reduction cells, have helped the Company's older smelters achieve competitiveness with more recently constructed facilities. The Company is actively engaged in efforts to license this technology and sell technical and managerial assistance to other producers worldwide. Pursuant to various arrangements, the Company's technology has been installed in aluminum smelters located in West Virginia, Ohio, Missouri, Kentucky, Sweden, Germany, India, Australia, New Zealand, Ghana and the United Kingdom. The Company has entered into agreements with respect to the Krasnoyarsk smelter located in the Commonwealth of Independent States pursuant to which the Company has licensed certain of its technology for use in such facility and has agreed to provide purchasing services in obtaining western-sourced technology and equipment to be used in such facility. These agreements were entered into in November 1990, and the services under them are expected to be completed in 1994. In addition, the Company has entered into agreements with respect to the Nadvoitsky smelter located in the Commonwealth of Independent States and the Korba smelter of the Bharat Aluminum Co. Ltd. located in India pursuant to which the Company has licensed certain of its technology for use in such facilities. The agreements relating to the Nadvoitsky and Korba smelters were entered into in 1993, and the services under such agreements are expected to be completed in 1995 and 1994, respectively. ADL has developed technologies which have improved alumina refinery efficiency. These include a high-capacity thickener process used in the separation of alumina from bauxite slurry, plant conversion designs that enable alumina refineries to convert from the production of fine alumina to the preferred coarser "sandy" alumina, technology that enables refineries to process different qualities of bauxite, and computer-aided instrumentation systems to improve process efficiencies and energy use in alumina refineries. The Company is actively pursuing the licensing of alumina refinery technology worldwide. The Company's technology is in use in alumina refineries in the Americas, Australia, India and Europe. The Company's technology sales and revenue from technical assistance to third parties were $12.8 million in 1993, $14.1 million in 1992 and $10.9 million in 1991. EMPLOYEES During 1993, the Company employed an average of 10,223 persons, compared with an average of 10,129 employees in 1992, and 9,967 employees in 1991. At December 31, 1993, the Company's workforce was approximately 10,029, including a domestic workforce of 5,930, of whom 4,146 were paid at an hourly rate. Most hourly paid domestic employees are covered by collective bargaining agreements with various labor 37 41 unions. Approximately 73% of such employees are covered by a master agreement (the "Labor Contract") with the United Steelworkers of America (the "USWA") which expires on October 31, 1994. The Labor Contract covers the Company's plants in Spokane (Trentwood and Mead), Washington; Tacoma, Washington; Gramercy, Louisiana; and Newark, Ohio. The Labor Contract provides for floor level wages at all covered plants. In addition, for workers covered by the Labor Contract at the Mead and Newark plants, for any quarterly period when the average Midwest U.S. transaction price of primary aluminum is $.54 per pound or above, a bonus payment is made. The amount of the quarterly bonus payment changes incrementally with each full cent change in the price of primary aluminum between $.54 per pound and $.61 per pound, remains constant when the price is $.61 or more per pound but is below $.74 per pound, changes incrementally again with each full cent change in the price between $.74 per pound and $.81 per pound, and remains at the ceiling when the price is $.81 per pound or more. Workers covered by the Labor Contract at the Trentwood, Tacoma and Gramercy plants may receive quarterly bonus payments based on various indices of productivity, efficiency and other aspects of specific plant performance, as well as, in certain cases, the price of alumina or primary aluminum. The particular quarterly bonus variable compensation formula currently applicable at each plant will remain applicable for the remainder of the contract term. Pursuant to the Labor Contract, base wage rates were raised $.50 per hour in 1990 and were raised an additional $.50 per hour effective November 1, 1993. Each of the employees covered by the Labor Contract has received $2,000 in lump-sum signing and special bonuses. In addition, the Company acquired in the first quarter of 1991 up to $4,000 of preference stock held for the benefit of approximately 80% of the employees covered by the Labor Contract, and agreed to acquire in 1994 an additional $2,000 of such preference stock held for the benefit of substantially the same employees. The Company also acquired in the first quarter of 1991 up to $4,000 of preference stock which had been held for the benefit of each of certain salaried employees. The Company considers its employee relations to be satisfactory. ENVIRONMENTAL MATTERS The Company is subject to a wide variety of Environmental Laws which continue to be adopted and amended. The Environmental Laws regulate, among other things, air and water emissions and discharges; the generation, storage, treatment, transportation and disposal of solid and hazardous waste; the release of hazardous or toxic substances, pollutants and contaminants into the environment; and, in certain instances, the environmental condition of industrial property prior to transfer or sale. In addition, the Company is subject to various federal, state and local workplace health and safety laws and regulations ("Health Laws"). From time to time, the Company is subject, with respect to its current and former operations, to fines or penalties assessed for alleged breaches of the Environmental and Health Laws and 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 alleged injuries to health or to the environment, including claims with respect to certain waste disposal sites and the remediation of sites presently or formerly operated by the Company. See "-- Legal Proceedings." The Company's Mead, Washington facility has been listed on the National Priorities List under CERCLA. In connection with certain of its asset sales, the Company has indemnified the purchasers of assets with respect to certain liabilities (and associated expenses) resulting from acts or omissions arising prior to such dispositions, including environmental liabilities. In certain instances, the Company may be exposed to joint and several liability for remedial action or damages to natural resources. The Company, along with several other entities, has been named as a Potentially Responsible Party ("PRP") for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA. While the ultimate extent of the Company's liability for pending or potential fines, penalties, remedial costs, claims and litigation relating to environmental and health and safety matters cannot be determined at this time and, in light of evolving case law relating to insurance coverage for environmental claims, management is unable to determine definitively the extent of such coverage, management currently believes 38 42 that the resolution of these matters (even without giving effect to potential insurance recovery) should not have a material adverse effect on the Company's consolidated financial position or results of operations. Environmental capital spending was $12.6 million in 1993, $13.1 million in 1992 and $11.2 million in 1991. Annual operating costs for pollution control, not including corporate overhead or depreciation, were approximately $22.4 million in 1993, $21.6 million in 1992, and $17.8 million in 1991. Legislative, regulatory and economic uncertainties make it difficult to project future spending for these purposes. However, the Company currently anticipates that in the 1994-1995 period, environmental capital spending will be within the range of approximately $7.0-$20.0 million per year, and operating costs for pollution control will be within the range of $20.0-$22.0 million per year. These expenditures will be made to assure compliance with applicable Environmental Laws and are expected to include, among other things, additional "red mud" disposal facilities and improved levees at the Gramercy, Louisiana refinery (which are being financed by the Gramercy Bonds), bath crushing improvements, baking furnace modernization, and improved calcining controls at the Mead, Washington facility; new and continuing environmental projects at the Trentwood, Washington facility; and environmental projects required under the Clean Air Act Amendments of 1990. In addition, $7.2 million in cash expenditures in 1993, $9.6 million in 1992 and $14.0 million in 1991 were charged to previously established reserves relating to environmental cost. Approximately $7.0 million is expected to be charged to such reserves in 1994. LEGAL PROCEEDINGS Aberdeen Pesticide Dumps Site Matter The Aberdeen Pesticide Dumps Site, listed on the Superfund National Priorities List, is composed of five separate sites around the town of Aberdeen, North Carolina. These sites (in the aggregate, the "Sites") include the Farm Chemicals Site, Twin Sites, Fairway Six Site, McIver Dump Site and the Route 211 Site. The Sites are of concern to the United States Environmental Protection Agency (the "EPA") because of their past use as either pesticide formulation facilities or pesticide disposal areas from approximately the mid-1930's through the late 1980's. The United States originally filed a cost recovery complaint (as amended, the "Complaint") in the United States District Court for the Middle District of North Carolina, Rockingham Division, No. C-89-231-R, against five defendants on March 31, 1989, and subsequently amended its complaint to add another ten defendants on February 6, 1991, and another four defendants on August 1, 1991. The Company and KAC were not defendants named in the Complaint. The Complaint seeks reimbursement for past and future response costs and a determination of liability of the defendants under Section 107 of CERCLA. On or about October 2, 1991, the Company, along with approximately seventeen other parties, was served with third party complaints from four of the defendants named in the Complaint (the "Third Party Plaintiffs") alleging claims arising under various theories of contribution and indemnity. On October 22, 1992, the United States filed a motion for leave to file an amended complaint naming the Company as a first party defendant in its cost recovery action. On February 16, 1993, the court granted that motion. The EPA has performed a Remedial Investigation/Feasibility Study and issued a Record of Decision ("ROD") dated September 30, 1991, for the Sites. The major remedy selected for the five Sites in the ROD consisted of excavation of contaminated soil, treatment of the contaminated soil at a single location utilizing thermal treatment, and placement of the treated material back into the areas of excavation. The estimated cost of such remedy for the five Sites is approximately $32 million. Other possible remedies described in the ROD included on-site incineration and on-site ash disposal at an estimated cost of approximately $53 million, and off-site incineration and disposal at an estimated cost of approximately $222 million. The Company understands that the EPA is also investigating contamination of groundwater at the Sites. The EPA has stated that it has incurred past costs at the Sites in the range of $7.5-$8 million as of February 9, 1993, and alleges that response costs will continue to be incurred in the future. On May 20, 1993, the EPA issued three unilateral Administrative Orders under Section 106(a) of CERCLA ordering the Respondents, including the Company, to perform the remedial design and remedial action described in the ROD for the Farm Chemicals Site (EPA Docket No. 93-13-C), Twin Sites (EPA 39 43 Docket No. 93-14-C) and Fairway Six Site (EPA Docket No. 93-15-C). The estimated cost as set forth in the ROD for the remedial action at the three sites is approximately $27 million. In addition to the Company, Respondents named in the Administrative Orders for all three sites include J. M. Taylor, Grower Service Corporation, E. I. DuPont de Nemours & Co., Olin Corporation, UCI Holdings, Inc., PPG Industries, Inc., and Union Carbide Corporation. Ciba-Geigy Corporation, Hercules, Inc., Mobil Oil Corporation, Shell Oil Company, The Boots Company (USA), Inc., Nor-Am Chemical Co., George D. Anderson, Farm Chemicals, Inc., Partners In The Pits, Ltd., Dan F. Maples, Pits Management Corp., Maples Golf Construction, Inc., Yadco of Pinehurst, Inc. and Robert Trent Jones are named as Respondents for one or two of the Sites. KAC has entered into an Agreement in Principle with certain of the respondents to participate jointly in responding to the Administrative Orders, to share costs incurred on an interim basis, and to seek to reach a final allocation of costs through agreement or to allow such final allocation and determination of liability to be made by the United States District Court. A definitive PRP Participation Agreement is currently awaiting execution by the group. By letter dated July 6, 1993, KAC has notified the EPA of its ongoing participation with such group of respondents which, as a group, are intending to comply with the Administrative Orders to the extent consistent with applicable law. By letters dated December 30, 1993, the EPA notified the Company of its potential liability for, and requested that the Company, along with certain other companies, undertake or agree to finance, groundwater remediation at certain of the sites. With respect to the Farm Chemicals and Twin Sites, in addition to the Company, the EPA issued such letters to J.M. Taylor, Grower Services Corporation, Farm Chemicals, Inc., E.I. DuPont de Nemours and Company, Olin Corporation, UCI Holdings, Inc., Union Carbide Corporation, Miles, Inc., Mobil Oil Corporation, Shell Oil Company, Hercules, Inc., The Boots Company (USA), Inc., Nor-Am Chemical Company, and Ciba-Geigy Corporation. With respect to the Fairway Six Site, in addition to the Company, the EPA issued such letters to J.M. Taylor, G.D. Anderson, Grower Service Corporation, Partners in Pits, Dan Maples, Pits Management Corporation, Maples Golf Construction, Inc., Yadco of Pinehurst, Inc., Robert Trent Jones, E.I. DuPont de Nemours and Company, Olin Corporation, UCI Holdings, Inc., Union Carbide Corporation, Miles, Inc., Ciba-Geigy Corporation and Hercules, Inc. The ROD-selected remedy for the groundwater remediation selected by EPA includes extraction, on-site treatment by coagulation/flocculation/precipitation, air stripping, GAC absorption, and discharge on site for the Farm Chemicals/Twin Sites and extraction, on-site treatment by GAC absorption and discharge on-site for the Fairway Six Site. The EPA has estimated the total present worth cost, including thirty years of operation and maintenance, at $11,849,757. The Company, along with other notified parties, plans to meet with representatives of the EPA to discuss whether an agreement to perform this remediation is possible. Based upon the information presently available to it, the Company is unable to determine whether it has any liability with respect to any of the Sites or, if there is any liability, the amount thereof. Two Government witnesses have testified that the Company acquired pesticide products from the operator of the formulation site over a two to three year period. The Company has been unable to confirm the accuracy of this testimony. United States of America v. Kaiser Aluminum & Chemical Corporation On February 8, 1989, a civil action was filed by the United States Department of Justice at the request of the EPA against the Company in the United States District Court for the Eastern District of Washington, Case Number C-89-106-CLQ. The complaint alleged that emissions from certain stacks at the Company's Trentwood facility in Spokane, Washington intermittently violated the opacity standard contained in the Washington State Implementation Plan ("SIP"), approved by the EPA under the federal Clean Air Act. The complaint sought injunctive relief, including an order that the Company take all necessary action to achieve compliance with the Washington SIP opacity limit and the assessment of civil penalties of not more than $25,000 per day. In the course of the litigation, questions arose as to whether the observers who recorded the alleged exceedances were qualified under the Washington SIP to read opacity. In July 1990, the Company and the Department of Justice agreed to a voluntary dismissal of the action. At that time, however, the EPA had 40 44 arranged for increased surveillance of the Trentwood facility by consultants and the EPA's personnel. From May 1990 through May 1991, these observers recorded approximately 130 alleged exceedances of the SIP opacity rule. Justice Department representatives have stated their intent to file a second lawsuit against the Company based on the opacity observations recorded during that period. The second lawsuit has not yet been filed. Instead, the Company has entered into negotiations with the EPA to resolve the claims against the Company through a consent decree. Although the EPA and the Company have made substantial progress in negotiating the terms of the consent decree, key issues remain to be resolved. Anticipated elements of any settlement would include a commitment by the Company to improve the emission control equipment at the Trentwood facility and a civil penalty assessment against the Company, in an amount to be determined. As of the date of this Prospectus, the Company cannot predict the likelihood that the EPA and the Company will reach agreement upon the terms of a consent decree. In the event that the negotiations are not successful, the matter likely would be resolved in federal court. Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation and James L. Ferry & Son, Inc. On January 7, 1991, the City of Richmond, et al. (the "Plaintiffs") filed a Second Amended Complaint for Damages and Declaratory Relief against the United States of America, the United States Maritime Administration and Santa Fe Land Corporation (now known as Catellus Development Corporation ("Catellus")) (collectively, the "Defendants") alleging, among other things, that the Defendants caused or allowed hazardous substances, pollutants, contaminants, debris and other solid wastes to be discharged, deposited, disposed of or released on certain property located in Richmond, California (the "Property") formerly owned by Catellus and leased to (i) the Company for the purpose of shipbuilding activities conducted by the Company on behalf of the United States during World War II, and (ii) subsequent tenants thereafter. Plaintiffs allege, among other things, that (i) the Defendants are jointly and severally liable for response costs and natural resources damages under CERCLA, (ii) Defendant United States of America is liable on grounds of negligence for damages under the Federal Tort Claims Act, and (iii) Defendant Catellus is strictly liable and on grounds of negligence for such discharge, deposit, disposal or release. Certain of the Plaintiffs have alleged that they had incurred or expect to incur costs and damages in the amount of approximately $49 million, in the aggregate. On or about September 23, 1992, the Plaintiffs filed a Third Amended Complaint, alleging, among other things, that (i) the Defendants are jointly and severally liable for response costs, declaratory relief and natural resources damages under CERCLA; (ii) Defendant United States of America is liable on grounds of negligence, continuing trespass and continuing nuisance for damages under the Federal Tort Claims Act; (iii) Defendant Catellus is strictly liable on grounds of continuing nuisance, continuing trespass and negligence for such discharge, deposit, disposal or release; (iv) Catellus is liable to indemnify Plaintiffs; and (v) Catellus is liable for fraudulent concealment of the alleged contamination. On February 20, 1991, Catellus filed a third party complaint (the "Third Party Complaint") against the Company and James L. Ferry & Son, Inc. ("Ferry") in the United States District Court for the Northern District of California, Case No. C-89-2935 DLJ. The Third Party Complaint was served on the Company as of April 12, 1991. The Third Party Complaint alleges that, if the allegations of the Plaintiffs are true, then the Company and Ferry (which is alleged to have performed certain excavation activities on the Property and, as a result thereof, to have released contaminants on the Property and to have arranged for the transportation, treatment and disposal of such contaminants) are liable for Catellus' response costs and damages under CERCLA and damages under other theories of negligence and nuisance and, in the case of the Company, waste. Catellus seeks (i) contribution from the Company and Ferry, jointly and severally, for its costs and damages pursuant to CERCLA, (ii) indemnity from the Company and Ferry for any liability or judgment imposed upon it, (iii) indemnity from the Company and Ferry for reasonable attorneys' fees and costs incurred by it, (iv) damages for the injury to its interest in the Property, and (v) treble damages from the Company pursuant to California Code of Civil Procedure Section 732. On June 4, 1991, Catellus served on 41 45 the Company a first amended third party complaint which alleges, in addition to the allegations of the Third Party Complaint, that the Company and/or a predecessor in interest to the Company is also liable for Catellus' damages, if any, on the basis of alleged contractual indemnities contained in certain former leases of the Property. The Third Party Complaint was amended on or about October 26, 1992. The amended Third Party Complaint alleges that, if the allegations of the Plaintiffs are true, then the Company and Ferry (which is alleged to have performed certain excavation activities on the Property and, as a result thereof, to have released contaminants on the Property and to have arranged for the transportation, treatment and disposal of such contaminants) are liable for (i) Catellus' response costs and natural resources damage under CERCLA; (ii) damages under theories of negligence, trespass and nuisance; (iii) indemnity (equitable and contractual); and (iv) attorneys fees under California Code of Civil Procedure Section 1021.6. By letter dated October 26, 1992, counsel for certain underwriters at Lloyd's London and certain London Market insurance companies ("London Insurers") advised that the London Insurers agreed to reimburse the Company for defense expenses in the third party action filed by Catellus, subject to a full reservation of rights. The Plaintiffs filed a motion for leave to file a Third Amended Complaint which would have added the Company as a first party defendant. This motion was denied. On October 26, 1992, the Plaintiffs served a separate Complaint against the Company for damages and declaratory relief. The claims asserted by the Plaintiffs are for (i) recovery of costs, natural resources damages and declaratory relief under CERCLA; (ii) damages for injury to the Property arising from negligence; (iii) damages under a theory of strict liability; (iv) continuing nuisance and continuing trespass; (v) equitable indemnity; (vi) response costs incurred by the Richmond Redevelopment Agency under California Health & Safety Code Section 33459.4; and (vii) declaratory relief on the state claims. This matter has been tendered to the London Insurers. Picketville Road Landfill Matter On July 1, 1991, the EPA served on the Company and thirteen other PRPs a Unilateral Administrative Order For Remedial Design and Remedial Action (the "Order") at the Picketville Road Landfill site in Jacksonville, Florida. The EPA seeks remedial design and remedial action pursuant to CERCLA from some, but apparently not all, PRPs based upon a Record of Decision outlining remedial cleanup measures to be undertaken at the site adopted by the EPA on September 28, 1990. The site was operated as a municipal and industrial waste landfill from 1968 to 1977 by the City of Jacksonville. The Company was first notified by the EPA on January 17, 1991, that wastes from one of the Company's plants may have been transported to and deposited in the site. In its Record of Decision, the EPA estimated that the total capital, operations and maintenance costs of its elected remedy for the site would be approximately $9.9 million. There can be no assurance that such costs will not exceed such estimated amount. In addition, the EPA has reserved the right to seek recovery of its costs incurred relating to the Order, including, but not limited to, reimbursement of the EPA's cost of response. Through negotiations with the EPA and other PRPs, the Company has reached an agreement with such PRPs under which the Company will fund $146,700 of the cost of the remedial action (unless remedial costs exceed $19 million in which event the settlement agreement will be re-opened). The implementation of the foregoing agreement is subject to continuing discussions among the EPA, the other PRPs and the Company. Asbestos-related Litigation The Company is a defendant in a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by exposure to asbestos during, and as a result of, their employment with the Company or to products containing asbestos produced or sold by the Company. The number of such lawsuits instituted against the Company increased substantially in 1993 and management believes the number of such lawsuits will continue to increase at a greater annualized rate than in prior years. In connection with such litigation, the Company made cash payments (for settlement and other related costs) during 1993, 1992 and 1991, in the amounts of $7.0 million, $7.1 million and $6.1 million, respectively. Based upon prior experience, the Company estimates future cash payments in connection with such litigation of approximately $8.0 million to 42 46 $12.0 million per year for the years 1994 through 1998, and an aggregate of approximately $85.0 million thereafter (through 2007). While the ultimate extent of the Company's liability for asbestos-related claims cannot be determined at this time, management currently believes that potential insurance recoveries should be adequate to pay substantially all of such claims, and that, as a result thereof, the resolution of these matters should not have a material adverse effect on the Company's consolidated financial position or results of operations. Various other lawsuits and claims are pending against the Company. Management believes that resolution of the lawsuits and claims made against the Company, including the matters discussed above, will not have a material adverse effect on the Company's consolidated financial position. PROPERTIES The Company owns in fee or leases all the real estate and facilities used in connection with its business. Plants and equipment and other facilities are generally in good condition and suitable for their intended uses, subject to changing environmental requirements. Although the Company's domestic aluminum smelters and alumina facility were initially designed early in the Company's history, they have been modified frequently over the years to incorporate technological advances in order to improve efficiency, increase capacity and achieve energy savings. The Company believes that its domestic plants are cost competitive on an international basis. Due to the Company's variable cost structure, the plants' operating costs are relatively lower in periods of low primary aluminum prices and relatively higher in periods of high primary aluminum prices. Obligations under the Credit Agreement are secured by, among other things, mortgages on the Company's plants located in Spokane (the Trentwood and Mead plants) and Tacoma, Washington; Gramercy, Louisiana; Erie, Pennsylvania; Newark, Ohio; and Sherman, Texas. The New Credit Agreement will not be secured by the Company's Gramercy, Louisiana Plant. OTHER MATTERS On February 7, 1989, the Company sold aluminum production facilities at Ravenswood, West Virginia (the "Ravenswood Works") and Bedford, Indiana and a data center at Columbus, Ohio. The sales price for the three facilities was approximately $256 million, including approximately $168 million in cash and the assumption by the buyer of certain liabilities. Among the liabilities the buyer and its pension plan assumed were pension liabilities relating to former employees of the Company represented by the USWA who were employed by the buyer at the Ravenswood Works and the Bedford facility at the sale date (the "Former Employees"). The projected benefit obligation relating to such assumed pension liabilities was calculated at such time to be approximately $77.6 million. The buyer agreed to certain restrictions on its activities designed to help assure that it would meet its assumed obligations. The Company retained liability for pension, retiree health and life insurance coverage with respect to Ravenswood Works employees who retired from the Company prior to the sale date. The Company agreed with the USWA that in the event of a permanent shutdown of the Ravenswood Works prior to February 7, 1994, the Former Employees would receive from the owner of the Ravenswood Works, the Pension Benefit Guaranty Corporation, the Company and/or a pension plan maintained by the Company, the pension benefits accrued as of the sale date subject to certain limited exceptions. The Company also agreed with the USWA that in the event of such a shutdown, such Former Employees, if otherwise eligible, would receive retiree health coverage, subject to a monthly premium, and a portion of their life insurance coverage. The Company has not calculated the costs which would be necessary to provide the retiree health and life insurance coverage, but such costs are believed to be smaller than the amount of the pension liabilities assumed by the buyer. The Department of Labor ("DOL"), which has enforcement powers under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), in October 1991, initiated a review of the transfer of the pension liabilities and the related assets from the Company plan to the buyer and its pension plan. The Company has assisted the DOL with its review and believes that its agreements and actions in connection with the sale and the actions of the Company plan fiduciaries were in full compliance with ERISA. 43 47 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The table below sets forth certain information, as of February 4, 1994, with respect to the executive officers and directors of the Company, and certain officers of KAC who perform services for the Company. All officers and directors hold office until their respective successors are elected and qualified or until their earlier resignation or removal.
NAMES POSITIONS AND OFFICES WITH THE COMPANY --------------------------------- ------------------------------------------------ George T. Haymaker, Jr........... Chairman of the Board, Chief Executive Officer and Director Joseph A. Bonn................... Vice President -- Planning and Administration John T. La Duc................... Vice President and Chief Financial Officer Anthony R. Pierno................ Vice President and General Counsel Byron L. Wade.................... Vice President, Secretary and Deputy General Counsel Charlie Alongi................... Controller Kris S. Vasan.................... Treasurer Robert E. Cole................... Vice President, Government Affairs John E. Daniel................... Vice President, Primary Aluminum Richard B. Evans................. Vice President, Flat-Rolled Products Robert W. Irelan................. Vice President, Public Relations Geoffrey W. Smith................ Vice President, Alumina Lawrence L. Watts................ Vice President, Alumina Robert J. Cruikshank............. Director Charles E. Hurwitz............... Director Ezra G. Levin.................... Director Robert Marcus.................... Director Paul D. Rusen.................... Director
George T. Haymaker, Jr. Mr. Haymaker, age 56, assumed the positions of Chairman of the Board and Chief Executive Officer of the Company and KAC effective January 1, 1994. From May 1993 to December 1993 Mr. Haymaker served as President and Chief Operating Officer of the Company and KAC. Mr. Haymaker was elected as a director of KAC at KAC's Annual Meeting of Stockholders on May 19, 1993, and was also elected as a director of the Company at the Company's Annual Meeting of Stockholders held on June 15, 1993. From 1987 to April 1993, Mr. Haymaker had been a partner in a partnership which acquires, redirects and operates small to medium sized companies in the metals industry. He served as President from February 1992 to March 30, 1993, and has been a director since July 1987 of Metalmark Corporation, which is in the business of semi-fabrication of aluminum specialty foils and extrusions. From May 1986 until February 1993, he also served as President of West Coast Sales Corp., which provides management and acquisition services. Mr. Haymaker also served as Chief Executive Officer and a director of Amarlite Architectural Products, Inc. ("Amarlite"), a producer of architectural curtain wall and entrance products, from August 1990 to April 1992 and from April 1989 to February 1993, respectively. He was a director of American Powdered Metals Company, engaged in the manufacture of powdered metal components, from August 1988 to March 1993, and Hayken Metals Asia Limited, which represents manufacturers of aluminum and metal products, from January 1988 to April 10, 1993. During 1984 to 1986, Mr. Haymaker served as Executive Vice President -- Aluminum Operations of Alumax Incorporated, responsible for all primary aluminum and semi-fabricating activities. Mr. Haymaker has extensive experience in the management of businesses engaged in the 44 48 production and sale of aluminum and aluminum products, including 25 years of experience in a variety of executive and managerial positions with Aluminum Company of America and its subsidiaries. Joseph A. Bonn. Mr. Bonn, age 50, has been Vice President -- Planning and Administration of the Company and KAC since July 1989 and February 1992, respectively. Mr. Bonn has served as a Vice President of the Company since April 1987, and served as Senior Vice President -- Administration of MAXXAM from September 1991 through December 31, 1992. He was also the Company's Director of Strategic Planning from April 1987 until July 1989. John T. La Duc. Mr. La Duc, age 50, has been Chief Financial Officer of the Company since January 1990 and a Vice President of the Company since June 1989. He has been Vice President and Chief Financial Officer of KAC since June 1989 and May 1990, respectively. From January 1, 1993 until April 5, 1993, Mr. La Duc served as Treasurer of the Company and KAC, having previously served as Treasurer of KAC from September 1987 to May 1990 and Assistant Treasurer of KAC from February 1987 to September 1987. Mr. La Duc also previously served as Treasurer of the Company from September 1987 until January 1990. He was an Assistant Treasurer and Treasurer, International Operations of the Company from 1981 until 1987. In September 1990, Mr. La Duc was elected Senior Vice President and Chief Financial Officer of MAXXAM. Mr. La Duc also serves as a Vice President and Chief Financial Officer of MAXXAM Group Inc. ("MGI"), a wholly owned subsidiary of MAXXAM engaged through its subsidiaries in forest products operations, The Pacific Lumber Company ("Pacific Lumber"), an indirect subsidiary of MAXXAM engaged in forest products operations, and Pacific Lumber's subsidiary, Scotia Pacific Holding Company ("Scotia Pacific"). He also serves as a director of Pacific Lumber and Scotia Pacific. Anthony R. Pierno. Mr. Pierno, age 61, has served as Vice President and General Counsel of the Company and KAC since January 1992. He also serves as Senior Vice President and General Counsel of MAXXAM, positions he has held since February 1989. Mr. Pierno also serves as Vice President and General Counsel of MAXXAM Group, Pacific Lumber and Scotia Pacific. Immediately prior to joining MAXXAM, Mr. Pierno served as partner in charge of the business practice group in the Los Angeles office of the law firm of Pillsbury, Madison & Sutro. He has served as the Commissioner of Corporations of the State of California and as Chair of several committees of the State Bar of California. Mr. Pierno is Vice Chairman of the Board of Trustees of Whittier College, and a member and past Chairman of the Board of Trustees of Marymount College. Byron L. Wade. Mr. Wade, age 46, has served as Vice President and Secretary of the Company and KAC since January 1992, and Deputy General Counsel of the Company and KAC since June 1992 and May 1992, respectively. Mr. Wade has also served as Vice President and Deputy General Counsel of MAXXAM since May 1990, and Secretary of MAXXAM since October 1988. He previously served as Assistant Secretary and Assistant General Counsel of MAXXAM from November 1987 to October 1988 and May 1990, respectively. Mr. Wade has served as Vice President, Secretary and Deputy General Counsel of Pacific Lumber and Scotia Pacific since June 1990 and November 1992, respectively, and as a Vice President of MAXXAM Group since July 1990. He had previously served since 1983 as Vice President, Secretary and General Counsel of MCO Resources, Inc., a publicly-traded oil and gas company, which was majority owned by MAXXAM. Since July 1993, Mr. Wade has served as a director, Vice President and Secretary of SHRP, Inc. ("SHRP"), the sole general partner of Sam Houston Race Park, Ltd., a Texas limited partnership, which has been granted a license to operate a horse racing facility in Houston, Texas. Charlie Alongi. Mr. Alongi, age 63, has been the Controller of the Company and KAC since July 1989, and was the Assistant Controller of the Company from February 1982 until July 1989. Kris S. Vasan. Mr. Vasan, age 44, became Treasurer of the Company and KAC on April 6, 1993. Mr. Vasan previously served the Company and KAC as Corporate Director of Financial Planning and Analysis from June 1990 until April 1993. From October 1987 until June 1990, he served as Associate Director of Financial Planning and Analysis. He was Associate Director of Energy Planning of the Company from 1980 until 1987, and prior thereto, Manager of Energy Planning from 1978. Mr. Vasan joined the Company in 1974 as Senior Operations Research Analyst, a position he held until 1978. 45 49 Robert E. Cole. Mr. Cole, age 47, has been a Vice President of the Company since March 1981. Mr. Cole also has served as Vice President -- Federal Government Affairs of MAXXAM, MGI and Pacific Lumber since September 1990. John E. Daniel. Mr. Daniel, age 58, has been a Vice President of the Company since January 1992, and has been the General Manager of the Company's primary aluminum products business unit since November 1990. From November 1990 to January 1992, he was Divisional Vice President of the Company's primary aluminum products business unit. From December 1989 to November 1990, Mr. Daniel was Reduction Plant Manager of the Tacoma smelter plant. From July 1986 to December 1989, he was Reduction Plant Manager of the Company's formerly owned Ravenswood, West Virginia plant. Richard B. Evans. Mr. Evans, age 46, has been a Vice President of the Company since January 1992, and has been the General Manager of the Company's flat-rolled products business unit since January 1989. From July 1986 to January 1992, he was Divisional Vice President of the Company's flat-rolled products business unit. From March 1985 to June 1986, Mr. Evans was Divisional Vice President and manager of the Company's formerly-owned Ravenswood, West Virginia plant. From July 1982 to February 1985, he was General Manager for Die Formed Products. Robert W. Irelan. Mr. Irelan, age 56, has been Vice President -- Public Relations of the Company since February 1988. From June 1985 to February 1988, Mr. Irelan served as Divisional Vice President -- Corporate Public Relations of the Company, and from 1968 to June 1985, he served the Company and certain affiliated companies in a variety of positions. Mr. Irelan also has served as Vice President -- Public Relations of MAXXAM, MGI and Pacific Lumber since September 1990. Geoffrey W. Smith. Mr. Smith, age 47, has been a Vice President of the Company since January 1992, and has been Co-General Manager of the Company's alumina business unit since September 1991. From September 1990 to January 1992, Mr. Smith was Divisional Vice President of the Company's alumina business unit. From August 1988 to August 1990, Mr. Smith was Director of Business Development for the alumina business unit, and from 1982 to August 1988 was Operations/Technical Manager for the Gramercy refinery. Lawrence L. Watts. Mr. Watts, age 47, has been a Vice President of the Company since January 1992, and has been Co-General Manager of the Company's alumina business unit since September 1991. From June 1989 to January 1992, Mr. Watts was Divisional Vice President, Governmental Affairs and Human Resources for the alumina business unit, and from July 1988 to June 1989, he was Divisional Vice President, Public Relations and Governmental Relations for the same business unit. From September 1984 to July 1988, Mr. Watts was Manager, Human Resources for the alumina business unit. Robert J. Cruikshank. Mr. Cruikshank, age 63, was appointed as a director of the Company and KAC on January 26, 1994. In addition, he has been a director of MAXXAM since May 1993. Mr. Cruikshank was a Senior Partner in the international public accounting firm of Deloitte & Touche from December 1989 until his retirement in March 1993. Prior to its merger with Touche Ross & Co. in December 1989, Mr. Cruikshank served as Managing Partner of Deloitte Haskins & Sells from June 1974 until the merger, and served on such firm's board of directors from 1981 to 1985. Mr. Cruikshank also serves as a director of Houston Industries Incorporated, a public utility holding company with interests in electric utilities, cable television, coal and transportation businesses. Charles E. Hurwitz. Mr. Hurwitz, age 53, has served as a director of the Company since November 1988 and of KAC since October 1988. Mr. Hurwitz has also served as a member of the Board of Directors and the Executive Committee of MAXXAM since August 1978 and was elected as Chairman of the Board and Chief Executive Officer of MAXXAM in March 1980. Since May 1982, Mr. Hurwitz has been Chairman of the Board and Chief Executive Officer of MAXXAM Group. Since January 1, 1993, Mr. Hurwitz has also served MAXXAM and MGI as President. Mr. Hurwitz has also served as a director and Chairman of the Board of SHRP since July 1993. From May 1986 until February 1993, Mr. Hurwitz served as a director of Pacific Lumber, and from December 31, 1992 until February 1993, he served as Chairman of the Board of Pacific Lumber. Mr. Hurwitz has been, since January 1974, Chairman of the Board and Chief Executive 46 50 Officer of Federated Development Company ("Federated"), a New York business trust primarily engaged in the management of real estate investments. Ezra G. Levin. Mr. Levin, age 59, has been a director of the Company since November 1988. He has been a director of KAC since July 1991, and a director of MAXXAM since May 1978. Mr. Levin also served as a director of the Company from April 1988 to May 1990. Mr. Levin is a partner in the law firm of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel. He serves as a trustee of Federated and as a director of MGI, Pacific Lumber, Scotia Pacific and UMB Bank and Trust Company. Robert Marcus. Mr. Marcus, age 68, has been a director of the Company and KAC since September 1991. From 1987 to January 1992, Mr. Marcus was a partner in American Industrial Partners, a San Francisco and New York based firm specializing in private equity investments in industrial companies. From 1983 to 1991, Mr. Marcus was a director of Domtar Inc., a Canadian resource-based multi-business corporation. From 1982 to 1987, Mr. Marcus served as President and Chief Executive Officer of Alumax Inc., an integrated aluminum company. Paul D. Rusen. Mr. Rusen, age 58, has been a director of the Company since April 1986. Mr. Rusen has served as a director of KAC since July 1991. Mr. Rusen previously served as a director of KAC from May 1987 to May 1990. He is President of Employee Ownership, Inc., an investment banking firm, Chairman of Bliss/Salem Corporation, a rolling mill manufacturing company, former Chairman and Chief Executive Officer of Pittsburgh Forgings Company, a former director of Wheeling-Pittsburgh Steel Corporation and a former principal of Working Equity, Inc., an investment banking firm. In February 1992, Pittsburgh Forgings Company filed a voluntary corporate petition under Chapter 11, Title 11, of the United States Code in the United States Bankruptcy Court for the Western District of Pennsylvania. Mr. Rusen was the Chairman, President and Chief Executive Officer of Pittsburgh Forgings Company at such time. In October 1990, Amarlite filed a voluntary corporate petition under Chapter 11, Title 11, of the United States Code in the United States Bankruptcy Court for the Northern District of Georgia. In December 1991, Amarlite obtained approval of its reorganization plan, which was funded and substantially consummated on January 14, 1992. Mr. Haymaker was Chief Executive Officer and a director of Amarlite during such period. THE BOARD OF DIRECTORS AND ITS COMMITTEES The Board of Directors of the Company has several standing committees, including Executive, Audit and Compensation Committees. The Executive Committee, which currently consists of two members, meets on call and has authority to act on most matters during the intervals between meetings of the entire Board of Directors. Its current members are Messrs. Hurwitz (Chairman) and Haymaker. The Audit Committee presently consists of Messrs. Levin, Marcus (Chairman) and Rusen. The Audit Committee meets with appropriate Company financial and legal personnel, internal auditors and independent public accountants and reviews the internal controls of the Company and the objectivity of its financial reporting. This Committee recommends to the Board the appointment of the independent public accountants to serve as auditors in examining the corporate accounts of the Company. The independent public accountants periodically meet privately with the Audit Committee and have access to the Committee at any time. The Compensation Committee reviews and advises management, makes recommendations to the Board, and reviews and approves proposals regarding the establishment or change of benefit plans, salaries or compensation afforded the executive officers and other employees of the Company. Messrs. Levin (Chairman) and Marcus currently serve as members of this Committee. The Board of Directors of the Company does not have a standing nominating committee nor does it have any committee performing a similar function. 47 51 DIRECTOR COMPENSATION Directors who were not employees of the Company received a retainer of $30,000 for the 1992 calendar year. During 1992, directors of the Company who were also directors of MAXXAM did not receive any additional director or committee fees for serving as a director of the Company. Directors could also be paid additional ad hoc fees for extraordinary services. Mr. Marcus was paid an additional fee of $10,000 for extraordinary services performed in 1992. Directors were reimbursed for travel and other disbursements relating to Board and Committee meetings. Fees to directors who were also employees of the Company were deemed to be included in their salary. Directors of the Company were also directors of KAC and received the foregoing compensation for acting in both capacities. In addition to the compensation payable as a director for 1992, the Chairman of each of the Executive, Audit and Compensation Committees was paid a fee of $1,500 per committee meeting held on a date other than a Board of Directors meeting date. Other members of such Committees received no additional compensation for attending such Committee meetings. In November 1988, MGI entered into a one-year consulting agreement with one of the Company's former directors, John B. Connally, under which Mr. Connally received $250,000. The agreement was subsequently renewed each year on the same terms and was effective until June 1993. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables contain information with respect to persons known to the Company to be the beneficial owners of more than 5% of the Common Stock, the 1985 Series A Stock and the 1985 Series B Stock as of December 31, 1993. For the purposes of these disclosures and the disclosure of ownership of shares by officers and directors below, shares are considered to be "beneficially" owned if the person has or shares the power to vote or direct the voting for the securities, the power to dispose of or direct the disposition of the securities, or the right to acquire beneficial ownership within 60 days. Ownership of Certain Beneficial Owners Common Stock
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1) ------------------------------------------------------- -------------------- ---------- Kaiser Aluminum Corporation 46,171,365 shares 100% 5847 San Felipe, Suite 2600 Houston, Texas 77057
Ownership of Certain Beneficial Owners Cumulative (1985 Series A) Preference Stock
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1) ------------------------------------------------------- -------------------- ---------- Kaiser Aluminum USWA 869,693 shares 93.9% Employee Stock Ownership Plan(2) c/o Mellon Bank, N.A. Pittsburgh, Pennsylvania
Ownership of Certain Beneficial Owners Cumulative (1985 Series B) Preference Stock
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1) ------------------------------------------------------- -------------------- ---------- Kaiser Aluminum Salaried 87,006 shares 56.0% Employee Stock Ownership Plan(2) c/o Mellon Bank, N.A. Pittsburgh, Pennsylvania
- --------------- (1) The "Percent of Class" is computed using the shares outstanding on December 31, 1993. (2) Individual participants in the Plan may direct the Plan's Trustee how to vote their shares; undirected shares are voted by the Trustee in the same proportion as shares voted upon participant direction. 48 52 Ownership of Management Cumulative (1985 Series B) Preference Stock
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1) ------------------------------------------------------- -------------------- ---------- All directors and officers of the Company 157.1135 shares *
- --------------- * Less than 1% (1) The "Percent of Class" is computed using the shares outstanding on April 21, 1993. Ownership of KAC Parent MAXXAM owns approximately 67% of the Common Stock of KAC. The following table sets forth, as of December 31, 1993, the beneficial ownership of the Common Stock and Class A $.05 Non-Cumulative Participating Convertible Preferred Stock ("Class A Preferred Stock") of MAXXAM by the directors and nominees for director of the Company, and by the Company's directors and officers as a group:
PERCENT OF PERCENT COMBINED AMOUNT AND NATURE OF OF VOTING BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS POWER(2) - ---------------------------------- ---------------------------------- ----- ----- Charles E. Hurwitz................ Common Stock -- 2,746,642(3)(4) 31.2% Class A Preferred Stock -- 59.9% (3)(4) 97.0% Ezra G. Levin..................... Common Stock -- 1,000(3)(5) * * All directors and officers of KAC as a group (18)................. Common Stock -- 2,771,792 31.6% Class A Preferred Stock -- 657,917 96.6% 60.0%
- --------------- * Less than 1%. (1) Except as may otherwise be indicated, beneficial owners have sole voting and investment power with respect to the shares listed in the table. (2) MAXXAM's Class A Preferred Stock is generally entitled to ten votes per share on matters presented to a vote of that company's stockholders. (3) Messrs. Hurwitz and Levin serve as trustees of Federated, and Mr. Hurwitz, together with members of his immediate family and trusts for the benefit thereof, owns all of the shares of beneficial interest in Federated. In addition, Federated, Messrs. Hurwitz and Levin, and Mr. James H. Paulin, Jr., Secretary and Treasurer of Federated, are a "group" (the "Stockholder Group") within the meaning of Section 13(d) of the Exchange Act. As of December 31, 1993, in the aggregate, the Stockholder Group beneficially owned 2,762,994 shares of MAXXAM's Common Stock and 658,050 shares of MAXXAM's Class A Preferred Stock, aggregating approximately 59.9% of the total voting power of MAXXAM. By reason of the foregoing and their relationship with the members of the Stockholder Group, Messrs. Hurwitz and Levin may be deemed to possess shared voting and investment power with respect to the shares held by the Stockholder Group. (4) Includes as of December 31, 1993 (a) 1,669,451 shares of MAXXAM's Common Stock and 656,853 shares of MAXXAM's Class A Preferred Stock, respectively, owned by Federated as to which Mr. Hurwitz possesses voting and investment power, (b) 1,526 shares of MAXXAM's Common Stock is owned by Mr. Hurwitz's spouse as separate property, (c) 46,500 shares of MAXXAM's Common Stock owned by a limited partnership controlled by Mr. Hurwitz and his spouse, 23,250 of which shares were separately owned by Mr. Hurwitz's spouse prior to their transfer to such limited partnership and as to which Mr. Hurwitz disclaims beneficial ownership, (d) 158,564 shares of MAXXAM's Common Stock owned by 1992 Hurwitz Investment Partnership, L.P., of which 79,282 shares are owned by Mr. Hurwitz's spouse as separate property, and (e) 71,175 shares of MAXXAM's Common Stock which 49 53 could be acquired upon exchange of 7% Cumulative Exchangeable Preferred Stock of MCOP owned by Federated. Does not include shares owned by other members of the Stockholder Group. (5) Does not include shares owned by other members of the Stockholder Group. At December 31, 1993, 28,000,000 shares of KAC's Common Stock owned by MAXXAM were pledged as security for two MGI debt issues consisting of $100.0 million aggregate principal amount of 11 1/4% Senior Secured Notes due 2003 and $126.7 million aggregate principal amount of 12 1/4% Senior Discount Notes due 2003. EXECUTIVE COMPENSATION The Kaiser 1993 Omnibus Stock Incentive Plan On April 2, 1993, the Compensation Committee recommended to the Board of Directors the adoption of the Kaiser 1993 Omnibus Stock Incentive Plan (the "Plan"). On April 6, 1993, the Board of Directors adopted the Plan, subject to approval by the stockholders of the Company and KAC. The stockholders of both the Company and KAC approved the Plan at their 1993 Annual Meetings. The Company and KAC currently have identical Boards of Directors and identical Compensation Committee memberships. Accordingly, their respective Compensation Committees are referred to jointly in this section as the "Committee." The Plan is the Company's first stock-based incentive plan since the Company's 1979 Stock Option Plan, which expired on December 31, 1988. The Plan is jointly sponsored by the Company and KAC. The description of the Plan herein is qualified in its entirety by the provisions of the Plan, a copy of which has been filed with the Commission. Long-Term Incentive Compensation Background Effective as of January 1, 1989, the Company and KAC adopted an unfunded long-term incentive plan (as amended, the "LTIP"). Effective as of January 1, 1990, the Company adopted an unfunded middle management long-term incentive plan (the "Mid-Management Plan"). No employee participates in both plans. Both plans are linked to certain measurements of corporate net income. During 1992, the senior managements of the Company and KAC and the Committee determined that the continued utilization of the LTIP and Mid-Management Plan might not be in the best interest of the corporations. They observed that virtually all benefits under the LTIP had been earned and that the Mid-Management Plan was being viewed as an annual, rather than longer term, incentive. Moreover, they observed that KAC's stock had become publicly traded since those plans were adopted. For these and other reasons the Committee determined that it would be appropriate to design a new stock-based long-term incentive plan. Compensation Committee Initiation of the Plan and Initial Grants At its meeting held on December 2, 1992, the Committee directed the preparation of a flexible but stock-based incentive plan for joint sponsorship by the Company and KAC. The Committee determined not to make year-end 1992 grants to participants under either the LTIP or the Mid-Management Plan and indicated that, although such plans were not being terminated, they expected to make future long-term incentive grants to certain employees under a stock-based plan. In addition, the Committee determined to provide a one-time opportunity for participants in the LTIP to elect to receive payment of their LTIP account balances, as of December 31, 1992, as follows: (i) Amounts earned and vested would be paid half in cash and half in restricted shares of common stock of KAC. Ninety-five percent of the earned and vested amounts would be paid on or prior to December 31, 1992, with the remainder to be paid on or about April 10, 1993. The portion payable in restricted shares of common stock of KAC would be divided by the average closing price for the stock for December 1992 through the latest practical date to determine the number of shares granted. As 50 54 implemented, the average December price of $8.539 per share (through December 28, 1992) was utilized. The portion payable in cash would be reduced by 1992 bonuses paid to recipients and by appropriate tax withholdings. (ii) Amounts earned and unvested as of December 31, 1992 under the LTIP would be paid in options or shares of restricted stock under the Plan following its implementation. Restrictions would be removed or options would vest at the rate of 25% each December for four (4) years. (iii) Amounts unearned and unvested as of December 31, 1992 under the LTIP would be paid in options or shares of restricted stock under the Plan following its implementation. Restrictions would be removed or options would vest as to 50% thereof in each of December 1995 and December 1996. The payments made in accordance with item (i) above were separate and apart from the Plan and are reflected in column (h) of the Summary Compensation Table. The grants made in accordance with items (ii) and (iii) above are referred to in the Plan as the Initial Grants and are reflected in column (f) of the Summary Compensation Table. Six participants in the LTIP, constituting all of the participants in the LTIP then employed by the Company other than Messrs. John M. Seidl (former Chairman of the Board of Directors and Chief Executive Officer of the Company until December 31, 1992) and Hutchcraft (former Chairman of the Board of Directors and Chief Executive Officers of the Company until December 31, 1993), timely made elections to receive the December 1992 restricted stock and cash distribution and the Initial Grants under the Plan in lieu of the LTIP benefits attributable to their accounts at year end 1992. As a result of their elections, Messrs. La Duc and Bonn each received as to their 95% payment described in item (i) above, 13,145 shares of restricted common stock of KAC. Mr. La Duc received cash in the amount of $13,159, and Mr. Bonn's cash account was a negative $1,489 which he paid to KAC. The remaining in lieu distributions were made to these individuals on or about April 10, 1993 and amounted to $1,384 and 772 shares to Mr. La Duc and $690 and 772 shares to Mr. Bonn. The Initial Grants relating to items (ii) and (iii) above are an integral part of the Plan. The information shown below in the New Plan Benefits Table, except with respect to Mr. Haymaker, represents the Initial Grants. An aggregate of 764,096 shares of KAC restricted common stock were awarded as the Initial Grants, including 167,346 shares each to Messrs. La Duc and Bonn. 51 55 New Plan Benefits Table The following table sets out the determinable number of shares of KAC Common Stock that were issued or allocated during 1993 to each of the named executive officers and the following groups under the Plan:
1993 KAISER OMNIBUS STOCK INCENTIVE PLAN -------------------------- DOLLAR VALUE NUMBER NAME AND POSITION ($)(1) OF SHARES -------------------------------------------------------------- ------------ --------- John M. Seidl, former Chairman of the Board and Chief Executive Officer.... $ -0- -0- A. Stephens Hutchcraft, Jr., former Chairman of the Board, Chief Executive Officer and President................................................... -0- -0- George T. Haymaker, Jr., Chairman of the Board and Chief Executive Officer........... 712,500 100,000 Anthony R. Pierno, Vice President and General Counsel.......................... -0- -0- John T. La Duc, Vice President and Chief Financial Officer.................. 1,428,967 167,346 Joseph A. Bonn, Vice President, Planning and Administration................. 1,428,967 167,346 Executive Group............................................... 6,127,333 749,195 Non-Executive Director Group.................................. -0- -0- Non-Executive Officer Employee Group.......................... 5,345,957 699,201
- --------------- (1) Valuation based on the average price per share during the month such awards were granted. General Provisions The Plan is administered by the Committee. It is the intention of the Board of Directors that the Plan be formulated, adopted and administered in a manner which allows for transactions under it to be exempt employee benefit transactions under Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, no person shall serve on the Committee who has received any grant or award under the Plan within one year prior to his or her appointment nor shall any person receive a grant or award under the Plan while a member of the Committee. The Committee may select participants for awards, in addition to the Initial Grants under the Plan, from among those employees of the Company recommended by the Chief Executive Officer of the Company who are, in the opinion of the Committee, key employees in a position to contribute materially to the Company's continued growth and development and to its long-term success. It is expected that approximately 80 employees will participate in the Plan within the first two (2) years of its duration, but such participation has not been determined and is subject to the discretion of the Committee. The Committee will have discretion to make awards under the Plan. In making awards, the Committee has flexibility in choosing from a variety of stock-based incentive alternatives. The Plan allows for the grant of incentive stock options ("ISOs"), nonstatutory stock options, stock appreciation rights ("SARs"), performance units, performance shares, restricted stock and unrestricted stock; however, it is not contemplated that any participant will receive awards from all categories available under the Plan. Up to 2,500,000 shares of Common Stock of KAC (hereafter "KAC Common Stock") are reserved for awards or for payment of rights granted under the Plan (subject to adjustment in the event of certain changes in the capitalization of KAC). Of that amount, the Initial Grants comprise 764,096 shares. Payments under the Plan for other than direct awards of stock may be made in cash, in stock or partly in each, at the discretion of the Committee. If any award terminates or lapses prior to the expiration or earlier termination of the Plan, the shares of KAC Common Stock subject to the award will be available again for award under the Plan (except in the case of a stock option as to which a related SAR has been exercised). 52 56 The Plan became effective as of December 1992 upon stockholder approval and will expire on December 31, 2002. Awards made under the Plan prior to its termination shall remain in effect until they shall have been exercised, satisfied or terminated as set forth in the Plan. The Board of Directors may suspend or terminate the Plan at any time prior to its expiration. Any amendment increasing the aggregate number of shares of stock which may be issued pursuant to ISOs or making certain other material changes shall require stockholder approval. However, no plan amendment may adversely impact a previously granted award made under the Plan without consent of the grantee. Awards under the Plan (other than direct grants of stock or stock obtained as payment through exercise of a Plan award) may not be transferred except by will or the laws of descent and distribution. Stock obtained under the Plan may be subject to restrictions and recipients will be subject to reporting and disposition restrictions under Section 16 of the Exchange Act and related insider trading laws. Stock Options The Committee may grant options to purchase shares of KAC Common Stock. Such options may be nonstatutory or nonqualified stock options and ISOs pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The option price for any option may not be less than the par value of KAC Common Stock and ISOs granted under the Plan may not utilize an exercise price which is less than the fair market value of KAC Common Stock on the date of the grant. The option price may be paid in cash, in previously acquired KAC Common Stock held for at least six (6) months and with a fair market value on the date of exercise equal to the option price, or by a combination of cash and KAC Common Stock. The Committee may also approve other forms of payment. Options may not be exercised sooner than one year or more than ten years from the date of grant. Stock Appreciation Rights The Committee may grant stock appreciation rights in conjunction with, or apart from, stock options. An SAR entitles the grantee to receive a payment from KAC equal to the excess of the fair market value of a share of KAC Common Stock at the date of exercise over a specified price fixed by the Committee. The Committee may establish a maximum appreciation value when granting SARs. Payment for SARs may be made in cash, KAC Common Stock, or a combination of both, at the discretion of the Committee. SARs may not be exercised sooner than one year or more than ten years from the date of grant. Restricted Stock The Committee may grant shares of restricted KAC Common Stock under the Plan. The Committee may make the grant of restricted stock subject to various conditions including the participant remaining employed by the Company for a number of years. Participants holding shares of restricted stock may exercise full voting rights with respect to those shares but shall not be entitled to receive dividends and other distributions paid, if any, with respect to those shares during the period of restriction. A holder of restricted stock may not sell or otherwise transfer the KAC Common Stock until the restrictions have lapsed or have been removed. Performance Units and Performance Shares The Committee may grant performance units and performance shares under the Plan. In such event, the Committee will establish a performance period over which corporate, business unit, or individual performance goals set by the Committee will be measured. At the end of the performance period, the performance units or performance shares will be paid out at their initial established values, increased or decreased, as the case may be, based upon performance above or below target levels. Payment may be made in cash, KAC Common Stock or a combination thereof as determined by the Committee. Payment may be made in a lump sum or in installments at the Committee's discretion. In the event payment is deferred, interest or dividend equivalents may be paid to participants. 53 57 Unrestricted Stock Unrestricted shares of KAC Common Stock also may be awarded under the Plan as well as upon the exercise of stock options, in connection with distributions due on the exercise of stock appreciation rights or as payment on performance units or performance shares. Rights to Grants Upon Termination of Employment In the event a participant's employment is terminated by reason of death, disability, or retirement, vested options or other vested rights under the Plan may be exercised within twelve months of termination (three years in the event of retirement), or the remaining term of the option or right, whichever is shorter. If employment is terminated for any other reason, options or rights may be exercised for three months, or the remaining term of the option or right, whichever is shorter, except that participants who are terminated for cause immediately forfeit all exercise rights. In the event a participant dies, becomes disabled or retires after having reached normal retirement age for pension purposes, a portion of such person's granted shares of restricted stock will become free of restrictions, and a portion of such person's granted stock options, SARs, performance units or performance shares shall vest. Such portion shall be equal to the number of shares subject to such grants multiplied by the number of full months elapsed between the date of grant and the date of death, disability or retirement, divided by the number of full months of the period for which such grants were to have been restricted or to have remained unvested. The remaining portion of such grants shall be forfeited. In the event of retirement before normal retirement age, all such grants shall continue to be subject to their respective conditions, vesting schedules and restrictions, including any requiring continued employment. In the event a participant's employment is terminated involuntarily, other than for cause, the Committee may, in its discretion, waive any applicable forfeiture, vesting requirements or restrictions as it deems appropriate. 54 58 Summary Compensation Table The following table sets forth compensation information, cash and non-cash, for each of the Company's last three completed fiscal years with respect to the Chief Executive Officer and the four most highly compensated executive officers of the Company (collectively referred to as the "named executive officers") for the fiscal year ended December 31, 1992:
LONG-TERM COMPENSATION ------------------------------------------ ANNUAL COMPENSATION AWARDS PAYOUTS -------------------------------------- --------------------------- ---------- (A) (B) (C) (D) (E) (F) (G) (H) (I) OTHER RESTRICTED ANNUAL STOCK OPTIONS/ LTIP ALL OTHER NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION PRINCIPAL POSITION YEAR ($) ($) ($)(1)(2) ($) (#) ($) ($)(1) - -------------------- ----- --------- -------- ------------ ---------- -------- ---------- ------------ John M. Seidl, 1992 $533,077(3) $ 99,000 $ -0- $ -0- -0- $1,653,385 $ 35,822(4)(5) former Chairman and 1991 450,000 90,000 Chief -- -0- -0- 4,877,648(6) -- Executive Officer 1990 450,000 90,000 -- -0- -0- -0- -- A. Stephens 1992 400,000 -0- Hutchcraft, Jr., -0- -0- -0- 1,376,874 11,423(5) former President 1991 365,000 73,000 and Chief -- -0- -0- 3,832,437(6) -- Operating Officer 1990 365,000 133,000 -- -0- -0- -0- -- Anthony R. Pierno, 1992 302,275 265,000(8) -0- -0- -0- -0- 50,123(9) Vice President and 1991 -- -- -- -- -- -- -- General Counsel(7) 1990 -- -- -- -- -- -- -- John T. La Duc, 1992 225,000 45,000 -0- 1,428,967 (10)(11) 10,000(12) 192,698(13) 8,469(4)(5) Vice President and 1991 195,000 53,500 -- -0- -0- 1,000,000(6) -- Chief Financial 1990 186,250 38,000 Officer -- -0- -0- -0- -- Joseph A. Bonn, 1992 210,000 42,000 -0- 1,428,967 (10)(11) -0- 195,697(13) 96,248(4)(5) Vice President, 1991 197,500 47,000 Planning -- -0- -0- 1,000,000(6) -- and Administration 1990 185,000 37,000 -- -0- -0- -0- --
- --------------- (1) Pursuant to the transition rules effective October 21, 1992, these amounts are excluded for the Company's 1991 and 1990 fiscal years. (2) Excludes perquisites and other personal benefits because the aggregate amount of such compensation is the lesser of either $50,000 or 10% of the total of annual salary and bonus reported for the named executive officer. (3) Includes payment of $38,077 representing accrued vacation not taken upon his resignation on December 31, 1992 in addition to his base salary of $495,000. (4) Includes moving related items of $30,111, $3,969 and $76,684 for Messrs. Seidl, La Duc and Bonn, respectively. (5) Includes $5,711, $8,000, $4,500 and $4,200 under the Kaiser Savings Plan (as defined below) to Messrs. Seidl, Hutchcraft, La Duc and Bonn, respectively. Also includes $3,423 credited to Mr. Hutchcraft under the Kaiser Supplemental Benefits Plan described below. Includes $15,364 loan forgiveness granted to Mr. Bonn in March 1992. (6) Pursuant to 1991 amendments, LTIP participants were permitted to elect an accelerated payment option pursuant to which they could receive in December 1991 and April 1992 amounts approximating 95% and 5%, respectively, of the vested portion of their LTIP account balances (excluding bonuses previously paid), subject to certain maximum dollar limitations. Without such accelerated payment option and subject to certain reductions and limitations, participants were generally entitled to receive the vested portion of their LTIP account balances on the earlier to occur of (a) termination of their employment, (b) termination of the LTIP if prior to December 31, 1993, or (c) April 10, 1994. (7) Mr. Pierno receives his compensation from MAXXAM; however the Company reimburses MAXXAM for certain allocable costs associated with the performance of services for the Company by such executive officer. The table reflects such officer's total compensation rather than an allocated part of such compensation. Mr. Pierno's compensation for 1991 and 1990 is not included since he was not an executive officer of the Company at any time during such years. 55 59 (8) Pursuant to Mr. Pierno's employment agreement, his personal loans from MAXXAM outstanding on the date of such agreement are forgiven at the rate of $15,000 per year. This amount is included as part of his bonus compensation. See "Certain Transactions" for a discussion of such personal loans. (9) Represent matching contributions by MAXXAM under the MAXXAM 401-K savings plan of $4,782, and $45,341 accrued in respect of MAXXAM's revised capital accumulation plan pursuant to which, in general, benefits vesting 10% annually are payable upon termination of employment with MAXXAM. (10) Represents restricted stock granted under the Plan effective December 1992. The Plan was approved by the stockholders of the Company and KACC in May and June 1993, respectively. See "-- New Plan Benefits Table." (11) At the end of fiscal year 1992, Messrs. Bonn and La Duc each owned 13,145 shares of restricted common stock of the Company valued at approximately $112,245. (12) Represents SARs Mr. La Duc received from MAXXAM with respect to MAXXAM's common stock. (13) See, "-- The Kaiser 1993 Omnibus Stock Incentive Plan" regarding the election by LTIP participants to receive payment of their LTIP account balances. Without such election opportunity and subject to certain reductions and limitations, participants were generally entitled to receive the vested portion of their LTIP account balances on the earlier to occur of (a) termination of their employment, (b) termination of the LTIP if prior to December 31, 1996, or (c) April 10, 1997. Pursuant to such election, these amounts were paid half in cash and half in restricted shares of Common Stock of the Company. Option/SAR Grants Table The following table sets forth certain information concerning options to purchase Common Stock granted in fiscal year 1992 to any of the named executive officers:
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM - --------------------------------------------------------------------------------- --------------------- (A) (B) (C) (D) (E) (F) (G) % OF TOTAL OPTIONS/ OPTIONS/ SARS SARS GRANTED TO EXERCISE OR GRANTS EMPLOYEES BASE PRICE EXPIRATION 5% 10% NAME (#) IN 1992 ($/SHARE) DATE ($) ($) - -------------------------- -------- ------------ ----------- ---------- --------- --------- John T. La Duc............ 10,000 12.5% $ 28.00 12/02/02 $ 176,090 $ 446,248
The SARs set forth in the above table were granted on December 2, 1992 to Mr. La Duc under MAXXAM's 1984 Phantom Share Plan. The SARs are exercisable for cash only and vest with respect to 20% on the anniversary date of the grant and an additional 20% on each anniversary date thereafter until fully vested. 56 60 Option/SAR Exercises and Fiscal Year End Value Table The table below provides information on an aggregated basis concerning each exercise of stock options (or tandem SARs) and freestanding SARs during the fiscal year ended December 31, 1992 by each of the named executive officers, of which there was only one, and the 1992 fiscal year-end value of unexercised options and SARs.
(A) (B) (C) (D) (E) VALUE OF UNEXERCISED IN- NUMBER OF UNEXERCISED THE-MONEY OPTIONS/SARS AT SHARES OPTIONS/SARS AT YEAR END FISCAL YEAR-END ACQUIRED ON VALUE (#) ($) EXERCISE REALIZED --------------------------- --------------------------- NAME (#)(1) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------ ----------- -------- ----------- ------------- ----------- ------------- John T. La Duc................ -- -- -- 10,000 -0- -0- Anthony R. Pierno............. -- -- 14,000 19,000 -0- -0-
- --------------- (1) If no shares received, the number of securities with respect to which options/SARs were exercised is reflected. Pension Plan Table The Company maintains a qualified, defined-benefit Retirement Plan (the "Kaiser Retirement Plan") for salaried employees of the Company and co-sponsoring subsidiaries who meet certain eligibility requirements.
YEARS OF SERVICE ANNUAL ------------------------------------------------------------- REMUNERATION 15 20 25 30 35 --------------- --------- --------- --------- --------- --------- $125,000.................. $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625 150,000.................. 33,750 45,000 56,250 67,500 78,750 175,000.................. 39,375 52,500 65,625 78,750 91,875 200,000.................. 45,000 60,000 75,000 90,000 105,000 225,000.................. 50,625 67,500 84,375 101,250 118,125 250,000.................. 56,250 75,000 93,750 112,500 131,250 300,000.................. 67,500 90,000 112,500 135,000 157,500 400,000.................. 90,000 120,000 150,000 180,000 210,000 450,000.................. 101,250 135,000 168,750 202,500 236,250 500,000.................. 112,500 150,000 187,500 225,000 262,500 600,000.................. 135,000 180,000 225,000 270,000 315,000 720,000.................. 162,000 216,000 270,000 324,000 378,000
The foregoing table shows estimated annual retirement benefits payable under the terms of the Kaiser Retirement Plan to participants with the indicated years of credited service without reduction for the limitations imposed by the Internal Revenue Code on qualified plans and before adjustment for the Social Security offset. The Company has adopted a Supplemental Benefits Plan under which certain participants in the Kaiser Retirement Plan will receive the benefits described in the summary of the Supplemental Benefits Plan set forth below. The estimated annual retirement benefits shown are based upon the assumptions that current Kaiser Retirement Plan provisions remain in effect, that the participant retires at age 65, and that the retiree receives payments based on a straight life annuity for his lifetime. Messrs. Seidl, Hutchcraft, La Duc and Bonn had 3.9, 36.8, 23.3 and 25.5 years of credited service, respectively, on December 31, 1992. Monthly retirement benefits, except for certain minimum benefits, are determined by multiplying years of credited service (not in excess of 40) by the difference between 1.50% of average monthly compensation for the highest base period (of 36, 48 or 60 consecutive months, depending upon compensation level) in the last 10 years of employment and 1.25% of monthly primary Social Security benefits. 57 61 The compensation covered by the Kaiser Retirement Plan includes base salary and bonus payments. No named executive officer had compensation covered by the Kaiser Retirement Plan which differed by more than 10% from that set forth in the Summary Compensation Table (column (c) plus column (d) thereof). Participants are entitled to retire and receive pension benefits, unreduced for age, upon reaching age 62 or after 30 years of credited service. Full early pension benefits (without adjustment for Social Security offset prior to age 62) are payable to participants who are at least 55 years of age and have completed 10 or more years of pension service (or whose age and years of pension service total 70) and who have been terminated by the Company or an affiliate for reasons of job elimination or partial disability. Participants electing to retire prior to age 62 who are at least 55 years of age and have completed 10 or more years of pension service (or whose age and years of pension service total at least 70) may receive pension benefits, unreduced for age, payable at age 62 or reduced benefits payable earlier. Participants who terminate their employment after five years or more of pension service, or after age 55 but prior to age 62, are entitled to pension benefits, unreduced for age, commencing at age 62 or actuarially reduced benefits payable earlier. For participants with five or more years of pension service or who have reached age 55 and who die, the Kaiser Retirement Plan provides a pension to their eligible surviving spouses. Upon retirement, participants may elect among several payment alternatives including, for most types of retirement, a lump-sum payment. Kaiser Supplemental Benefits Plan The Company maintains an unfunded, non-qualified Supplemental Benefits Plan (the "Kaiser Supplemental Benefits Plan"), the purpose of which is to restore benefits which would otherwise be paid from the Kaiser Retirement Plan or the Supplemental Savings and Retirement Plan, a qualified Section 401(k) plan (the "Kaiser Savings Plan"), were it not for the limitations imposed by the Internal Revenue Code. Participation in the Kaiser Supplemental Benefits Plan includes all employees of the Company and its subsidiaries whose benefits under the Kaiser Retirement Plan and Kaiser Savings Plan are likely to exceed the maximum dollar limitations imposed by the Internal Revenue Code. Eligible participants are entitled to receive the equivalent of the Kaiser Retirement Plan and Kaiser Savings Plan benefits which they may be prevented from receiving under those plans because of Internal Revenue Code limitations. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Until his resignation on December 31, 1992, Mr. Seidl held the positions of Chairman and Chief Executive Officer of the Company and KAC. He was employed pursuant to an employment agreement which commenced February 1, 1989 and provided for an annual salary of $450,000, or such higher rate as might be mutually agreed to by Mr. Seidl, the Company and KAC. Mr. Seidl was eligible to participate in the employee benefit plans and fringe benefit programs maintained by the Company and KAC as from time to time in effect applicable to senior executives of the Company and KAC; provided that Mr. Seidl was eligible to participate in any bonus program maintained by the Company or KAC only to the extent participants in the LTIP were also eligible for such bonus program participation. In general, Mr. Seidl was entitled to participate in the LTIP in accordance with the terms of the LTIP. In light of his resignation, Mr. Seidl and the Company entered into an agreement on December 23, 1992, pursuant to which, Mr. Seidl received $1,000,000 on or before December 31, 1992 (the "December Payment") in payment of benefits otherwise due him on or before April 10, 1993. In consideration thereof, Mr. Seidl agreed that the payment of benefits otherwise due him on or before April 10, 1993 would be reduced by $1,000,000 plus an amount equal to interest on $1,000,000 from the date of the December Payment to April 10, 1993 at the greater of (i) 6.125% or (ii) the rate of interest applicable on April 1, 1992 to borrowings under the Credit Agreement (as defined below under "Certain Transactions"). In June 1990, Mr. Seidl also entered into an agreement with MAXXAM related to his move to Houston, Texas, which was amended as of February 1991 and May 1991, and subsequently assigned to the Company. The agreement provided for reimbursement to Mr. Seidl for certain expenses incurred in connection with such move. This reimbursement amount for 1992 is reflected in the Summary Compensation Table. 58 62 Mr. Hutchcraft retired from the Company effective December 31, 1993. Mr. Hutchcraft's prior employment agreement provided for a 1993 base salary of $450,000 and for termination of his participation in the LTIP as of December 31, 1992, with payment of his estimated account balance thereunder as of December 31, 1992, with any adjustment from estimated to actual balance determined after preparation of audited financial statements for 1992, to be made on or about April 10, 1993. Pursuant to this agreement, Mr. Hutchcraft was paid $1,358,000 on December 31, 1992 and $18,874 on April 8, 1993, on account of his LTIP account balance. In light of other compensation provisions in his agreement, Mr. Hutchcraft received no bonus in 1992. Prior to the time of his election as Chairman of the Board and Chief Executive Officer of the Company, Mr. Hutchcraft served as Chief Operating Officer in addition to President of the Company and his compensation was established pursuant to the base salary program and bonus plan for executives and managers of the Company generally and based on those same performance factors. The compensation set forth in Mr. Hutchcraft's agreement was also established in recognition of his previous compensation history, in anticipation of his additional responsibilities as Chairman of the Board, and his personal leadership qualities and industry expertise widely recognized in the Company and in the aluminum industry and also as an incentive to Mr. Hutchcraft to continue in the employ of the Company. On April 1, 1993 the Company and KAC entered into an employment agreement with Mr. George T. Haymaker, Jr. pursuant to which Mr. Haymaker joined the Company and KAC in May 1993 as President and Chief Operating Officer. Mr. Haymaker's agreement has a term of five (5) years. Pursuant to the agreement, Mr. Haymaker was named Chairman of the Board of Directors and Chief Executive Officer of the Company and KAC upon Mr. Hutchcraft's retirement on December 31, 1993. Mr. Haymaker's employment agreement provides for a base salary of $450,000 per annum commencing upon his joining the Company and KAC, and a bonus target of 50% of his salary beginning fiscal year 1994. The agreement further provides that Mr. Haymaker will not be paid a bonus for calendar year 1993. Any bonus actually awarded for 1994 or thereafter could be less or greater than the target level, depending upon corporate performance as compared to corporate plan objectives usually established in January of each year, as well as individual performance. Under the agreement, Mr. Haymaker received an initial award under the Plan of options to purchase up to 100,000 shares of KAC Common Stock at its fair market value on the date of the award. Such options are to vest 20% per year for a period of five (5) years. See "-- New Plan Benefits Table" above. In the event of a change of control of the Company or KAC which within one year thereafter adversely affects Mr. Haymaker's title, position, duties, responsibilities or compensation, Mr. Haymaker's employment agreement provides that he may elect to be deemed terminated without cause, and therefore, entitled to a severance payment equal to two times his base annual salary. Additionally, in the event of such termination, Mr. Haymaker's options for 100,000 shares of KAC Common Stock shall fully vest. Mr. Pierno and MAXXAM entered into a five-year employment agreement effective as of March 8, 1990. Pursuant to the terms of the agreement, Mr. Pierno was entitled during the first six months of 1993 to a base salary of $321,232 per year, which amount is increased each July by an amount not less than the increase in the Consumer Price Index for that year. The agreement provided for a bonus for the year 1992 in an amount not less than 75% and not more than 125% of Mr. Pierno's then base salary. Although the agreement specifies no bonus percentage for the years 1993 and 1994, in the agreement MAXXAM expresses an intent to pay a bonus in the same percentage range. The agreement also entitles Mr. Pierno to participate in employee benefit plans and programs applicable to senior executives of MAXXAM. Mr. La Duc held the positions of Vice President and Chief Financial Officer of KAC and the Company and Senior Vice President and Chief Financial Officer of MAXXAM pursuant to an employment agreement among MAXXAM, the Company and Mr. La Duc, which commenced September 26, 1990, and expired December 31, 1993. The employment agreement provides for a base salary of $225,000 with any increases at the discretion of the Company and MAXXAM. Currently, Mr. La Duc continues in his employment in such positions with MAXXAM, KAC and the Company. Subject to limitations pursuant to the LTIP, an annual bonus may be paid under the terms of KACC's bonus plan. Mr. La Duc is eligible to participate in the employee benefit plans and programs maintained by the Company, as from time to time in effect, applicable to senior executives of the Company, including, but not limited to, the LTIP and, if approved by the stockholders, the Plan. 59 63 Mr. La Duc is entitled to reimbursement by the Company of certain moving expenses incurred in connection with his relocation to Houston, Texas, and to other benefits under the Company's executive relocation policy. The amount reimbursed during 1992 pursuant to this arrangement is related in the Summary Compensation Table. The Company and MAXXAM entered into an employment agreement with Mr. Joseph A. Bonn, Vice President, Planning and Administration of KAC and a Vice President of the Company. The employment agreement has a term of three years ending June 30, 1994, and provides for a base salary of $210,000, which may increase at the discretion of the Company and MAXXAM. Subject to limitations pursuant to the LTIP, an annual bonus may be paid under the terms of the KACC bonus plan. Any annual bonus amounts payable under the employment agreement will be reduced by the amount of any directorship fees (during the year for which the annual bonus is paid) received by Mr. Bonn in respect of board memberships held at the request of the Company or MAXXAM. Mr. Bonn is eligible to participate in the employee benefit plans and programs maintained by the Company, as from time to time in effect, applicable to senior executives of the Company, including, but not limited to, the LTIP and, if approved by stockholders, the Plan. Mr. Bonn subsequently relocated to Oakland, California. Pursuant to an agreement dated December 20, 1991, KAC agreed to reimburse Mr. Bonn for reasonable and necessary moving expenses from Texas to California (including the expense of moving property, travel costs, and temporary living expenses) in accordance with KAC's relocation policy; to reimburse Mr. Bonn for the reasonable amount of net out-of-pocket loss, if any, incurred in the termination of construction work in process in connection with Mr. Bonn's Texas residence and incurred in the resale of the land upon which the residence was being constructed (including reasonable transaction costs and expenses in connection with the purchase and sale of the land and improvements, construction termination fees, architectural, engineering and drafting fees and expenses, lot clearing costs, and the like); and to reimburse Mr. Bonn for the reasonable amount of the net out-of-pocket loss, if any, incurred on the sale, cancellation or forfeiture of a country club membership acquired in Texas. This reimbursement amount for 1992 is reflected in the Summary Compensation Table. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee of the Board of Directors of the Company was, during the 1992 fiscal year, an officer or employee of the Company or any of its subsidiaries, or was formerly an officer of the Company or any of its subsidiaries or, other than Mr. Levin, had any relationships requiring disclosure by the Company under Item 404 of Regulation S-K. Mr. Levin served on the Compensation Committee and Board of both the Company and KAC during 1992. Mr. Levin is also a partner in the law firm of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, which provided legal services for the Company and its subsidiaries during 1992. During the Company's 1992 fiscal year, no executive officer of the Company served as (i) a member of the Committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served on the Company's Compensation Committee, (ii) a director of another entity, one of whose executive officers served on the Company's Compensation Committee, or (iii) a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served as a director of the Company. 60 64 CERTAIN TRANSACTIONS For periods through June 30, 1993, KAC, the Company and its subsidiaries were members of an affiliated group of corporations (an "Affiliated Group") within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"), of which MAXXAM is the common parent corporation (the "MAXXAM Tax Group"). As a result, KAC, the Company and its subsidiaries were included in the consolidated Federal income tax return filed for the MAXXAM Tax Group. Effective July 1, 1993, KAC and its subsidiaries, including the Company and its subsidiaries, are no longer members of the MAXXAM Tax Group (the "Deconsolidation") but are members of a new Affiliated Group of which KAC is the common parent corporation (the "New Kaiser Tax Group"). The taxable income and loss and tax credits for KAC, the Company and its subsidiaries for the period January 1, 1993 through June 30, 1993, will be included in the 1993 MAXXAM Tax Group consolidated Federal income tax return (the "MAXXAM 1993 Tax Return"). For periods beginning on and after July 1, 1993 (the "Post Deconsolidation Periods"), the taxable income and loss and tax credits for KAC, the Company and its subsidiaries will be included in the consolidated Federal income tax returns to be filed for the New Kaiser Tax Group. KAC obtained the approval of the Secretary of the Treasury in order to file a consolidated Federal income tax return for the New Kaiser Tax Group for the period ended December 31, 1993. As a consequence of the Deconsolidation, the KACC Tax Allocation Agreement (as defined) terminated pursuant to its terms, effective with respect to Post Deconsolidation Periods. The provisions of the KACC Tax Allocation Agreement will continue to govern periods ending before the date of the Deconsolidation (the "Pre Deconsolidation Periods"). Therefore, payments or refunds may still be required by or payable to the Company under the KACC Tax Allocation Agreement for Pre Deconsolidation Periods due to the final resolution of audits, amended returns and related matters with respect to such Pre Deconsolidation Periods. To the extent the Company and its subsidiaries generate unused tax losses or tax credits in Post Deconsolidation Periods, such amounts will not be available to obtain refunds of amounts paid by the Company to MAXXAM for Pre Deconsolidation Periods pursuant to the KACC Tax Allocation Agreement. It is anticipated that such losses and credits will be carried forward to offset future Federal income taxes payable by the Company under the New Tax Allocation Agreement (as defined). Any unused tax attribute carryforwards existing as of the date of the Deconsolidation under the terms of the KACC Tax Allocation Agreement will be eliminated and will not be available to offset Federal income tax liabilities of the Company and its subsidiaries for Post Deconsolidation Periods. Upon the filing of the MAXXAM 1993 Tax Return, the tax attribute carryforwards of the MAXXAM Tax Group as of December 31, 1993 will be apportioned in part to the Company and its subsidiaries, based upon the provisions of the relevant consolidated return regulations. It is anticipated that the amounts of such tax attribute carryforwards apportioned to the Company and its subsidiaries will approximate or exceed the amounts of tax attribute carryforwards eliminated under the KACC Tax Allocation Agreement. Although the amounts of tax attribute carryforwards apportioned to the Company and its subsidiaries will be determined as of December 31, 1993, they will be available as of the date of the Deconsolidation, subject to certain limitations, to reduce Federal income taxes payable by the Company and its subsidiaries for Post Deconsolidation Periods under the terms of the New Tax Allocation Agreement. In 1989, the Company and MAXXAM entered into a tax allocation agreement (the "KACC Tax Allocation Agreement"). Pursuant to the terms of the KACC Tax Allocation Agreement, MAXXAM pays any consolidated Federal income tax liability for the MAXXAM Tax Group. The Company is liable to MAXXAM for the Federal income tax liability of the Company and its subsidiaries (collectively, the "KACC Subgroup") computed as if the KACC Subgroup were a separate Affiliated Group which was never affiliated with the MAXXAM Tax Group (taking into account all limitations under the Code and regulations applicable to the KACC Subgroup), except that the KACC Subgroup excludes interest income received or accrued on an intercompany note issued by KAC in connection with a financing consummated in December 1989 (the "KACC Subgroup's Separate Income Tax Liability"). To the extent such calculation resulted in a net operating loss or a net capital loss or credit which the KACC Subgroup could have carried back to a prior taxable period under the principles of Sections 172 and 1502 of the Code, MAXXAM pays to the Company an amount equal to the tax refund to which the Company would have been entitled (but not in excess of the 61 65 aggregate net amount previously paid by the Company to MAXXAM for the current year and the three prior years). If such separately calculated net operating loss or net capital loss or credit of the KACC Subgroup can not be carried back to a prior taxable year of the KACC Subgroup for which the KACC Subgroup paid its separate tax liability to MAXXAM, the net operating loss or net capital loss or credit becomes a loss or credit carryover of the KACC Subgroup to be used in computing the KACC Subgroup's Separate Income Tax Liability for future taxable years. The same principles were applied to any consolidated or combined state or local income tax returns filed by the MAXXAM Tax Group with respect to the Company and its subsidiaries. Although, under Treasury regulations, all members of the MAXXAM Tax Group, including the members of the KACC Subgroup, are severally liable for the MAXXAM Tax Group's Federal income tax liability for all of 1993 and applicable prior periods, under the KACC Tax Allocation Agreement, MAXXAM indemnifies each KACC Subgroup member for all Federal income tax liabilities relating to taxable years during which such KACC Subgroup member was a member of the MAXXAM Tax Group, except for payments required under the KACC Tax Allocation Agreement. During 1992, under the KACC Tax Allocation Agreement, the Company made a payment to MAXXAM of $28.0 million in respect of the year ended December 31, 1991. The eighth amendment to the Credit Agreement, dated as of January 7, 1993 (the "Eighth Amendment") prohibits the payment by the Company to MAXXAM of any additional amounts due under the KACC Tax Allocation Agreement until December 15, 1994. The Company estimates that it owes MAXXAM approximately $8.7 million in respect of the year ended December 31, 1992. Inasmuch as it is anticipated that the Company will record tax losses in the period January 1, 1993 through June 30, 1993, and that such losses will be carried back to prior taxable periods under the terms of the KACC Tax Allocation Agreement, it is estimated that MAXXAM owes the Company approximately $20.0 million with respect to such losses. Under the current consolidated return regulations, the Deconsolidation caused certain tax basis adjustments and the recognition of certain types of taxable income (including amounts that were previously deferred), none of which the Company believes to be material. On June 30, 1993, the Company and KAC entered into a tax allocation agreement (the "New Tax Allocation Agreement") effective for Post Deconsolidation Periods. The terms of the New Tax Allocation Agreement are similar, in all material respects, to those of the KACC Tax Allocation Agreement except that the Company is liable to KAC. The Company and MAXXAM have an arrangement pursuant to which they reimburse each other for certain allocable costs associated with the performance of services by their respective employees, and the Company also pays to MAXXAM amounts in respect of directors' fees for directors of the Company who are not employees of the Company and who are directors of MAXXAM. During 1992 and during the first nine months of 1993, the Company paid a total of approximately $2.0 million and $1.5 million, respectively, to MAXXAM pursuant to such arrangements, and MAXXAM paid approximately $1.4 million and $0.6 million, respectively, to the Company pursuant to such arrangements. As a condition to the effectiveness of the Eighth Amendment, the Company issued the MAXXAM Note in the principal amount of $15.0 million, which evidenced a cash loan in the amount of $15.0 million made to the Company. On June 30, 1993, the MAXXAM Note was exchanged for 2,132,950 $.65 Depositary Shares. KAC made a capital contribution of the MAXXAM Note to the Company, which resulted in the extinguishment of the MAXXAM Note. KAC paid cash dividends on its common stock in the amount of $2.9 million in each quarter of 1992. In the event KAC pays any distributions to holders of its common stock (including the payment of regular quarterly cash dividends), the Eighth Amendment to the Credit Agreement requires MAXXAM and any subsidiary of MAXXAM to use the entire proceeds of any such distributions received by MAXXAM or any subsidiary of MAXXAM to purchase a PIK Note from the Company. On December 15, 1992, the Company issued a PIK Note to a subsidiary of MAXXAM in the principal amount of $2.5 million, representing the entire amount of the dividend received by such subsidiary in respect of the shares of KAC's common stock which it owned. The PIK Note bears interest, compounded semiannually, at a rate equal to 12% per annum, and is due and payable, together with accrued interest thereon, on June 30, 1995. The Company is not 62 66 required to make any payment of principal of or interest on the PIK Note prior to June 30, 1995. However, to the extent not prohibited by the Credit Agreement, the Company may be required to prepay the PIK Note upon demand. The Credit Agreement currently prohibits the payment of principal and interest on the PIK Note. Additional PIK Notes issued by the Company, if any, will have terms substantially similar to the terms of the PIK Note described herein. In February 1993, MAXXAM entered into a commercial guaranty of payment (the "Guaranty") of a promissory note dated January 28, 1993 in the original principal amount of $150,000 issued by Mr. Anthony R. Pierno, Vice President and General Counsel of the Company, to Charter National Bank -- Houston. The Guaranty is subject to an agreement between MAXXAM and Mr. Pierno that any payment by MAXXAM under the Guaranty shall be offset in like amount plus interest at 12% per annum from the date of payment on the Guaranty to the date of payment to MAXXAM by Mr. Pierno. Such offset may be made from any payments due Mr. Pierno from MAXXAM which lawfully may be the subject of such offset, including any payment under any compensation arrangement or employee benefit plan. The Guaranty was entered into by MAXXAM for the convenience of Mr. Pierno. Pursuant to the terms of Mr. Pierno's employment agreement, Mr. Pierno's personal loans, which were outstanding on the date of the employment agreement are forgiven at the rate of $15,000 per year beginning March 8, 1991, with any remaining balance being due and payable upon Mr. Pierno's termination of employment. At the time of the agreement, MAXXAM had loaned an aggregate of $150,000 at 6% interest to Mr. Pierno. The principal balance on such loans as of November 30, 1993 was $105,000. Such loans are payable on demand, require monthly interest payments and are secured by real estate owned by Mr. Pierno. The employment agreement also provided for up to an additional $200,000 in loans to Mr. Pierno bearing interest at 6% per annum, with interest being payable monthly and principal being due December 15, 1994 (with prepayments due upon the exercise by Mr. Pierno of any stock appreciation rights granted pursuant to the employment agreement). All of such amount has been borrowed by Mr. Pierno. Mr. Levin, a director of the Company and KAC, is a partner of the law firm of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, which provides legal services for KAC, the Company and their subsidiaries. See "Legal Matters." DESCRIPTION OF PRINCIPAL INDEBTEDNESS The New Credit Agreement. On January 24, 1994, the Company entered into the Commitment Letter with Bank of America and BA which contains the principal terms and conditions with respect to the New Credit Agreement. The expected terms and conditions of the New Credit Agreement are summarized below. A form of the New Credit Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Bank of America and BA have committed, subject to the terms and conditions of the Commitment Letter, to provide the full $250.0 million of the New Credit Agreement. - Facility. The New Credit Agreement will consist of a $250.0 million five-year secured, revolving line of credit. The Company will be able to borrow under the facility by means of revolving credit advances, swingline advances (up to $25.0 million) and letters of credit in an aggregate amount equal to the lesser of $250.0 million or a borrowing base consisting of 85% of eligible accounts receivable (as defined) plus 65% of eligible inventory (as defined) (with availability against such eligible inventory not to exceed $175.0 million at any one time). - Interest Rates. Loans under the New Credit Agreement will bear interest at a rate per annum, at the Company's election, equal to (i) a Reference Rate (as defined) plus 1.50% or (ii) LIBOR (as defined) plus 3.25%. After June 30, 1995, the interest rate margins applicable to borrowings under the New Credit Agreement may be reduced (non-cumulatively), based upon the Company's Interest Coverage Ratio (as defined) ("ICR"), as follows: ICR 1.25, reduction of 0%, 1.25 ICR 1.50, reduction of 0.50%; 1.50 ICR 2.00, reduction of 1.00%; and ICR 2.00, reduction of 1.50%. ICR will be defined as the ratio of (i) EBITDA (as defined), less Adjusted Capital Expenditures (as defined), to (ii) adjusted interest expense. - Guaranties. The New Credit Agreement will be unconditionally guaranteed by KAC and by all significant subsidiaries of the Company which are subsidiary guarantors under the Credit Agreement. 63 67 - Security. The New Credit Agreement will be secured by substantially the same assets securing the Credit Agreement, and will include a pledge of the stock of the Company and its material subsidiaries and the grant of a lien on all now existing and hereafter acquired receivables, inventory, intangibles and certain other assets of KAC, the Company and its subsidiaries. However, the New Credit Agreement will not be secured by the Company's Gramercy alumina refinery. - Payments and Fees. The New Credit Agreement will permit repayments of base rate advances in minimum amounts of $1.0 million and prepayment of LIBOR advances in minimum amounts of $5.0 million. Lenders will be entitled to receive a risk participation fee equal to 3% per annum on their respective share of the total amount of letters of credit outstanding, subject to reduction under certain circumstances. A commitment fee equal to 0.50% per annum will be payable, quarterly in arrears, on the unutilized portion of the New Credit Agreement. - Covenants. The New Credit Agreement will contain certain affirmative and negative covenants, including, but not limited to, covenants relating to (i) the incurrence of liens and additional indebtedness, (ii) the making of restricted payments and the payment of fees to MAXXAM, (iii) Asset Dispositions (as defined), (iv) the sale of accounts receivable, (v) the maximum permitted amount of capital expenditures each year, (vi) mergers, acquisitions and investments, (vii) leases and sale-leasebacks, (viii) transactions with affiliates and (ix) the maintenance of a minimum net worth and ICR. The covenant relating to the maintenance of the ICR will not become applicable under the New Credit Agreement until March 31, 1996. In addition, the New Credit Agreement will not permit the Company or KAC to pay any dividends on their common stock. The New Credit Agreement will (i) prohibit redemptions or repurchases of the Notes, including, without limitation, purchases of Notes that might otherwise be required pursuant to the provisions of the Indenture, (ii) prohibit, without the written consent of the Required Lenders (as defined in the New Credit Agreement), amendments or supplements to the Indenture and (iii) prohibit, with certain exceptions, the taking of action or permitting to exist any condition, which would require (a) any subsidiary of the Company (other than the initial Subsidiary Guarantors under the Indenture) to guarantee the Notes or (b) the Company or any of its Subsidiaries to provide collateral in respect of the Notes. - Events of Default. The New Credit Agreement will contain certain events of default substantially similar to the events of default contained in the Credit Agreement, including, but not limited to, payment defaults, cross defaults to other indebtedness, covenant defaults, breach of representation, bankruptcy and similar events, ERISA violations, any requirement to repurchase the Notes and breaches of collateral documents. - Conditions to Initial Funding. The obligations of Bank of America and BA under the New Credit Agreement will be subject to certain conditions, including, but not limited to, the requirement that the Company and KAC shall have raised not less than $250.0 million aggregate gross proceeds of new capital pursuant to the offering of the Notes and the shares of PRIDES. Existing Indebtedness. In December 1989, the Company and KAC entered into the Credit Agreement, and the Company issued $350.0 million of its 14 1/4% Notes (collectively, the "Financing"). The net proceeds of the Financing, together with the $180.0 million initial payment received by the Company in respect of a forward alumina sales transaction ("FAST") and other available funds, were used to retire $925.0 million principal amount of Increasing Rate Notes of KAC, to prepay certain indebtedness of the Company, to pay related fees and expenses, and to pay a $50.0 million dividend to a subsidiary of MAXXAM. The Credit Agreement consisted of a $350.0 million five-year revolving credit facility, a $125 million five-year term loan, a $75.0 million two-year bridge loan, and a $172.0 million three and one-half year standby letter of credit which secured the advance payment on the FAST. As of September 30, 1993, the bridge loan and the term loan under the Credit Agreement were fully repaid, the letter of credit issued in connection with the FAST had been fully amortized, $165.0 million of borrowings and $36.1 million of letters of credit were outstanding under the revolving credit facility and $148.9 million of borrowing capacity was unused under the revolving credit facility. 64 68 The Credit Agreement contains a number of affirmative and negative covenants, which among other things (a) prohibit the Company from engaging in business significantly different from that currently conducted by it, (b) limit the incurrence of additional indebtedness and liens, (c) limit Investments (as defined), (d) limit capital expenditures, (e) limit mergers and consolidations, (f) restrict Asset Dispositions (as defined), (g) limit transactions with Affiliates (as defined), (h) restrict the Company's ability to pay dividends and make other distributions to its stockholders and (i) require the maintenance of a (1) minimum Current Ratio (as defined), (2) minimum Net Worth (as defined), (3) maximum Leverage Ratio (as defined) and (4) a minimum Interest Coverage Ratio (as defined). The Company's obligations under the Credit Agreement are guaranteed by KAC and certain of the Company's subsidiaries. In addition, the Credit Agreement is secured by, among other things, (i) mortgages on the Company's facilities in Trentwood, Mead and Tacoma, Washington; Gramercy, Louisiana (which will not constitute part of the security under the New Credit Agreement); Erie, Pennsylvania; Newark, Ohio; and Sherman, Texas, (ii) subject to certain exceptions, liens on accounts receivable, inventory, equipment, domestic patents and trademarks and substantially all other personal property of the Company and certain of its subsidiaries, (iii) a pledge of all of the stock of the Company owned by KAC and (iv) pledges of all of the stock of certain of the Company's wholly owned domestic subsidiaries, pledges of a portion of the stock of certain foreign subsidiaries and pledges of a portion of the stock of certain partially owned foreign affiliates. Loans under the Credit Agreement bear an annual interest rate, at the Company's election from time to time, equal to (i) the Reference Rate plus a margin of 1 1/2%, (ii) the CD Rate (Reserve Adjusted) plus a margin of 2 5/8%, or (iii) the LIBO Rate (Reserve Adjusted) plus a margin of 2 1/2%. The Company is currently required to pay fees equal to 2 1/2% per annum on the average aggregate amount outstanding of letters of credit under the Credit Agreement. The Credit Agreement contains provisions for the reduction or increase of the base interest rates and letter of credit fees, based upon the Interest Coverage Ratio, determined quarterly, under which the base interest rates could be reduced or increased by 1/2 of 1% per annum, on a non-cumulative basis (based upon the Interest Coverage Ratio, the Company's base interest rates and letter of credit fees have been increased by 1/2 of 1% per annum). In addition to the above fees, there is a commitment fee equal to 1/2% per annum on any unused portion of the revolving credit facility. On February 1, 1993, the Company extended a portion of its debt maturities by refinancing the 14 1/4% Notes with $400.0 million aggregate principal amount of the 12 3/4% Notes. Subject to certain exceptions, the 12 3/4% Note Indenture requires the Company to satisfy certain financial tests and other conditions (including the satisfaction of a consolidated fixed charge coverage ratio) in order to pay dividends and limits the amount of cash dividends payable by the Company to (i) the sum of (A) 50% of the Consolidated Net Income (as defined; such definition, among other things, excludes the one time charge of $497.7 million incurred as a result of the cumulative effect of the adoption of SFAS 106) of the Company accrued (or, if the aggregate Consolidated Net Income of the Company for any such period shall be a deficit, minus 100% of such deficit) for the period (taken as one accounting period) from January 1, 1993 to the end of the Company's most recently ended fiscal quarter for which financial statements are available at the time such dividends are declared or paid, plus (B) the aggregate net proceeds received by the Company after December 31, 1992, as capital contributions or from the issuance or sale (other than to a Non-Affiliate Joint Venture (as defined) or to a Subsidiary (as defined) of the Company) of Capital Stock (as defined) other than Redeemable Stock (as defined) or from the issuance or sale of any debt or other security of the Company convertible or exercisable into such Capital Stock that has been so converted or exercised minus (ii) the aggregate amount of Restricted Investments (as defined) then outstanding, subject to certain adjustments. The declaration and payment of dividends by the Company and KAC on their shares of common stock are currently subject to certain covenants contained in the Credit Agreement and, in the case of the Company, the 12 3/4% Note Indenture. Under the most restrictive of these covenants, neither the Company nor KAC is currently permitted to pay dividends on its common stock. The 12 3/4% Note Indenture contains a number of affirmative and negative covenants applicable to the Company which, among other things, (a) limit the incurrence of additional indebtedness and liens, (b) limit Restricted Payments (as defined), (c) limit Restricted Investments (as defined), (d) limit mergers, 65 69 consolidations and sales of all or substantially all of the Company's assets, (e) impose certain requirements with respect to Asset Sales (as defined), (f) limit transactions with Affiliates (as defined), (g) prohibit, with certain exceptions, restrictions on the ability of any Subsidiary to pay dividends, make certain other distributions, pay indebtedness owed to the Company or another Subsidiary, make loans or advances to the Company or another Subsidiary or transfer any of its assets to the Company, (h) require the Company to repurchase 12 3/4% Notes at a premium upon the occurrence of a Change of Control (as defined) if so requested by the holder thereof, and (i) prohibit, with certain exceptions, the incurrence of indebtedness that is both subordinated to Senior Indebtedness (as defined) and senior to the 12 3/4% Notes. In December 1991, Alpart entered into a $60 million loan agreement with CARIFA under which CARIFA loaned Alpart the proceeds from the issuance of CARIFA's Industrial Revenue bonds. Proceeds from the sale of the bonds were used by Alpart to refinance the interim loans from the partners in Alpart, to pay eligible project costs for expansion and modernization of its refinery and to pay certain costs of issuance. Alpart's obligations under the loan agreement are secured by a $64.2 million letter of credit severally guaranteed by the partners in Alpart (of which $22.5 million is guaranteed by the minority partner in Alpart). See Note 7 of the Notes to the Consolidated Financial Statements and Note 3 of the Notes to the Interim Financial Statements. In December 1992, the Company entered into the Sale Agreement with the Louisiana Parish. To fund the acquisition of the facilities, the Louisiana Parish issued $20.0 million aggregate principal amount of the Gramercy Bonds, the proceeds of which were deposited into a construction fund established under the related indenture and which may be withdrawn from the construction fund, from time to time, pursuant to the terms of such indenture and the related Sale Agreement. The Sale Agreement requires the Company to pay the purchase price of the facilities in installments due on the dates and in the amounts required to permit the Louisiana Parish to satisfy all of its payment obligations under the related indenture. In connection with the offering of the $.65 Depositary Shares in June 1993, KAC made a non-interest bearing loan to the Company in the principal amount of $37,796,753 (an amount equal to the aggregate dividends scheduled to accrue on the Series A Shares issued in June 1993 from the issuance date until the date on which the Series A Shares mandatorily convert into shares of KAC Common Stock). The loan is evidenced by an intercompany note which matures on June 29, 1996, and is payable in quarterly installments. As of December 31, 1993, the aggregate principal amount of such intercompany note was $31,497,294. In connection with the PRIDES Offering, KAC intends to use a portion of the net proceeds therefrom to make a capital contribution to the Company and a portion of such net proceeds to make a loan or loans to the Company. The loan or loans will be evidenced by an intercompany note in a principal amount equal to the aggregate dividends scheduled to accrue on the shares of PRIDES from the issuance date until the date on which the shares of PRIDES mandatorily convert into shares of KAC Common Stock. 66 70 DESCRIPTION OF NOTES GENERAL The Notes will be issued under an Indenture, among the Company, as Issuer, Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance Corp. ("KFC"), Alpart Jamaica Inc. ("AJI") and Kaiser Jamaica Corporation ("KJC"), as Subsidiary Guarantors, and First Trust National Association, as Trustee (the "Trustee"). A copy of the form of such Indenture is filed as an exhibit to the registration statement of which this Prospectus is a part. The Trustee will also act as the initial transfer agent and registrar for the Notes. The following statements relating to the Notes and the Indenture are summaries of certain provisions thereof and are subject to the detailed provisions of the Indenture, to which reference is hereby made for a complete statement of such provisions. Wherever particular provisions of the Indenture or terms defined therein are referred to herein, such provisions or definitions are incorporated by reference and the summaries are qualified in their entirety by such reference. Capitalized terms used without definition have the respective meanings ascribed to them in the Indenture, certain of which are described below under "Certain Definitions." All parenthetical section references are to sections of the Indenture. The maximum aggregate principal amount of the Notes which may be issued under the Indenture is limited to $225,000,000. The Notes will mature on February , 2002, and will bear interest at the rate set forth on the cover page hereof from February , 1994, payable semi-annually on February 15 and August 15 of each year to the persons in whose names the Notes are registered at the close of business on the February 1 immediately preceding each February 15, or the August 1 immediately preceding each August 15. Principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on the Notes will be 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 on the Notes 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, and the Notes may be presented for registration of transfer or exchange, redemption or purchase at any such office or agency, as provided in the Indenture. The Notes will be issued only in fully registered form in denominations of $1,000 and integral multiples thereof. The Notes will rank senior in right and priority of payment to all Indebtedness of the Company that by its terms is expressly subordinated to the Notes, including the 12 3/4% Notes. The Notes will rank pari passu in right of payment with all senior Indebtedness, including Indebtedness under the New Credit Agreement. The Company and the Subsidiary Guarantors may incur additional senior Indebtedness to the extent permitted by the Indenture. Holders of secured indebtedness of the Company and the Subsidiary Guarantors, including the financial institutions party to the New Credit Agreement, will, however, have claims which are prior to the claims of the holders of the Notes with respect to the assets, if any, securing such other indebtedness. The Company will treat the Notes as debt for Federal income tax purposes. The obligations of the Company under the Notes will be guaranteed, jointly and severally, by each Subsidiary Guarantor. See "-- The Guarantee." 67 71 OPTIONAL REDEMPTION The Company may not redeem the Notes before February 15, 1998. On or after February 15, 1998, 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 but excluding the date fixed for redemption, if redeemed during the 12-month period beginning February 15, of the years indicated below:
REDEMPTION YEAR PRICE ------------------------------------------------------------------- ------- 1998............................................................... % 1999............................................................... % 2000............................................................... % 2001 and thereafter................................................ 100.000%
(Sections 3.01 and 3.02). OFFER TO PURCHASE THE NOTES If any Change of Control of the Company occurs on or prior to maturity, the Company shall make an offer to purchase from each holder, subject to the terms and conditions of the Indenture, all or any part (equal to $1,000 or an integral multiple thereof) of the holder's Notes on the date that is 30 Business Days after the occurrence of such Change of Control (the "Change of Control Purchase Date") at a purchase price in cash equal to 101% of the principal amount thereof plus accrued interest to (but not including) the Change of Control Purchase Date (the "Change of Control Purchase Price"). (Section 3.05). The Change of Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and, thus, the removal of incumbent management. In addition, the Indenture requires the Company to make an offer to purchase specified portions of the Notes, under certain circumstances, if the Company has available Net Cash Proceeds as a result of Asset Sales. See "-- Covenants -- Limitation on Asset Sales." Neither the Board of Directors of the Company nor the Trustee may waive the covenants providing each holder of Notes the right to require the Company to purchase such holder's Notes upon a Change of Control or in the event of certain Asset Sales, without, in each case, the consent of such holder. The Company will comply with all applicable federal securities laws (including Rule 14e-1 promulgated under the Exchange Act) in connection with any repurchase of Notes upon a Change of Control or in the event of certain Asset Sales. The New Credit Agreement will (i) prohibit redemptions or repurchases of the Notes, including, without limitation, purchases of Notes that might otherwise be required pursuant to the provisions of the Indenture, (ii) prohibit, without the written consent of the Required Lenders (as defined in the New Credit Agreement), amendments or supplements to the Indenture and (iii) prohibit, with certain exceptions, the taking of action, or permitting to exist any condition, which would require (a) any subsidiary of the Company (other than the initial Subsidiary Guarantors under the Indenture) to guarantee the Notes or (b) the Company or any of its Subsidiaries to provide collateral in respect of the Notes. Any repurchase of the Notes required under the Indenture upon a Change of Control or Asset Sale would constitute an event of default under the New Credit Agreement, with the result that the obligations of the Company thereunder could be declared due and payable. See "Risk Factors -- Ranking of the Notes; Subordination." Finally, 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 GUARANTEE The obligations of the Company under the Notes are guaranteed, jointly and severally, by each of the Subsidiary Guarantors, who will be KAAC, KFC, AJI and KJC and such other persons that become 68 72 Subsidiary Guarantors as described under "-- Covenants -- Subsidiary Guarantees, Etc." and each of their respective successors (Section 15.01). Each of the initial Subsidiary Guarantors is a guarantor under the Subordinated Note Indenture and, together with certain other Subsidiaries of the Company and KAC, a guarantor of the Company's obligations under the New Credit Agreement. See "Risk Factors -- Ranking of the Notes; Subordination." The Guarantee issued by each Subsidiary Guarantor will rank senior in right and priority of payment to all Indebtedness of such Subsidiary Guarantor that by its terms is expressly subordinated to the Notes, including the guarantee of the 12 3/4% Notes issued by such Subsidiary Guarantor, and will rank pari passu in right and priority of payment with all senior Indebtedness of such Subsidiary Guarantor, including the guarantee of the New Credit Agreement by such Subsidiary Guarantor. If, at any time, any Subsidiary Guarantor ceases to be a guarantor of the Indebtedness with respect to the New Credit Agreement and the 12 3/4% Notes and no Event of Default (or event or condition which with the giving of notice or the passage of time would be an Event of Default) then exists and is continuing, and either (x) such Subsidiary Guarantor has not Incurred any Indebtedness or preferred stock (including preference stock) after the date of the Indenture that is then outstanding, other than Indebtedness Incurred pursuant to the first full paragraph under "-- Covenants -- Limitation on Indebtedness and Preferred Stock" (but only to the extent such Indebtedness is also Indebtedness of Alpart), clauses (iii) and (iv) of the second full paragraph under "-- Covenants -- Limitation on Indebtedness and Preferred Stock" and, in each case, permitted refinancings thereof or (y) the Notes are then rated Baa3 (or the equivalent) or better by Moody's Investor Services, Inc. (or a successor corporation) or BBB-(or the equivalent) or better by Standard & Poor's Corporation (or a successor corporation), then such Person shall cease to be a Subsidiary Guarantor under the Indenture upon the delivery of an Officers' Certificate and Opinion of Counsel to such effect. Thereafter, the Guarantee given by such Subsidiary Guarantor shall no longer have any force or effect and such Person shall be relieved of all of its obligations and duties under the Indenture and the Notes. Upon the sale or disposition (by merger or otherwise) of a Subsidiary Guarantor (or the Company's or a Subsidiary's interest therein) by the Company or a Subsidiary of the Company to a Person that is not a Subsidiary of the Company and which sale or disposition is otherwise in compliance with the terms of the Indenture, the obligations of such Subsidiary Guarantor under its Guarantee shall be deemed released without any further action required on the part of the Trustee, such Subsidiary Guarantor, the Company or any holder of the Notes, provided that any guarantee of such Guarantor with respect to the New Credit Agreement and the 12 3/4% Notes, and any renewals, extensions, refundings, replacements, restructurings or refinancings, amendments and modifications thereof, if any, has been or is simultaneously released. At the request of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. Upon the release of any Subsidiary Guarantor from its Guarantee pursuant to the provisions of the Indenture, each other Subsidiary Guarantor not so released shall remain liable for the full amount of principal of, and interest on, the Notes as and to the extent provided in the Indenture. COVENANTS Limitation on Indebtedness and Preferred Stock The Indenture provides that 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 preferred stock (including preference stock) or Indebtedness, except that, without duplication, the Company, the Subsidiary Guarantors and Alpart may Incur preferred stock (including preference stock) or Indebtedness (including, without duplication, guarantees of Indebtedness of the Company and its Subsidiaries otherwise permitted by the Indenture) if after giving effect thereto and the receipt and application of the proceeds therefrom, and assuming that the full amount of Indebtedness permitted to be Incurred under clause (ii) of the next succeeding paragraph (after taking into account any reduction in such amount as set forth in such clause (ii)) has been Incurred (assuming, for purposes of this calculation, an interest rate on such additional Indebtedness equal to the weighted average interest rate on the Indebtedness then outstanding under such 69 73 clause (ii)), the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1; provided, however, that Indebtedness of Alpart Incurred pursuant to this paragraph shall not exceed an aggregate of $150,000,000 at any one time outstanding, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness. (Section 4.10(a)). Notwithstanding the foregoing, the following shall be permitted: (i) the Company and the Subsidiary Guarantors may Incur Indebtedness in respect of the Notes; (ii) the Company and the Subsidiary Guarantors may Incur Indebtedness (without duplication), and the Bank Guarantors may guarantee such indebtednesses, under the New Credit Agreement, in connection with Refinancing Sale and Leaseback Transactions or otherwise, in an aggregate amount at any one time outstanding not to exceed $325,000,000, as reduced from time to time by any permanent reduction in such amount as set forth in a Board Resolution; (iii)(A) Alpart may Incur Indebtedness in an aggregate amount not to exceed $150,000,000 at any one time outstanding and (B) the Company, KJC and AJI (without duplication) may Incur Indebtedness in an aggregate amount not to exceed at any one time outstanding the product of (I) $150,000,000 multiplied by (II) the Company's then percentage ownership interest in Alpart; provided, however, that the aggregate Indebtedness (without duplication) Incurred pursuant to clauses (A) and (B) of this clause (iii) may not exceed $150,000,000 at any one time outstanding; and provided, further, that in each case the proceeds of such Indebtedness are used solely for capital improvements and expenditures, expansion and working capital with respect to Alpart and/or to reimburse the partners of Alpart for advances to Alpart used solely for capital improvements and expenditures, expansion and working capital with respect to Alpart, plus in each case an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (iv) the Company and/or KAAC may Incur Indebtedness in an amount not to exceed $75,000,000 at any one time outstanding, the proceeds of which are used solely for capital improvements and expenditures, expansion and working capital with respect to QAL and/or to reimburse the stockholders of QAL for advances to QAL used solely for capital improvements and expenditures, expansion and working capital with respect to QAL, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (v) VALCO may Incur Indebtedness, and the Company may guarantee such Indebtedness, in an aggregate amount (without duplication) not to exceed $25,000,000 at any one time outstanding, the proceeds of which are used solely for capital improvements and expenditures, expansion and working capital with respect to VALCO and/or to reimburse the shareholders of VALCO for advances to VALCO used solely for capital improvements and expenditures, expansion and working capital, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (vi) the Company and its Subsidiaries may Incur Indebtedness ("Refinancing Indebtedness") that serves to Refinance, in whole or in part, the Indebtedness permitted by this paragraph and the immediately preceding full paragraph (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 undrawn amounts under credit arrangements otherwise permitted to be Incurred pursuant to the Indenture), 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; 70 74 (B) neither the Company nor any of its Subsidiaries is an obligor of such Refinancing Indebtedness, except to the extent that such Person (I) was an obligor of such Refinanced Indebtedness or (II) 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 Subsidiary Guarantor's obligation under its Guarantee, as the case may be, such Refinancing Indebtedness (I) has a final maturity and weighted average maturity at least as long as such Refinanced Indebtedness and (II) is subordinated (pursuant to its terms) in right and priority of payment to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be, at least to the same extent as such Refinanced Indebtedness; (vii) the Company may Incur Capitalized Lease Obligations not exceeding $50,000,000 at any one time outstanding in connection with the sale and leaseback of all or a portion of the Company's interest in the Center for Technology, provided that the Net Cash Proceeds therefrom are applied as described under "-- Limitation on Asset Sales"; (viii) the Company and its Subsidiaries may Incur Indebtedness, the proceeds of which are used solely to finance the construction, acquisition or the acquisition and retrofitting of an aluminum smelter or smelters or related facilities (or interests therein) and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, in an amount not to exceed $150,000,000 in any fiscal year (without cumulation of unused amounts to successive years); (ix) the Company and its Subsidiaries may Incur Indebtedness, the proceeds of which are used solely to finance the construction or acquisition of a fabrication plant or plants or related facilities and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, in an aggregate amount not to exceed $25,000,000 in any fiscal year (without cumulation of unused amounts to successive years); (x) the Company and its Subsidiaries may Incur preferred stock (including preference stock) that is not Redeemable Stock; provided, however, that in the case of preferred stock (including preference stock) Incurred by any Subsidiary of the Company that is not a Subsidiary Guarantor, such preferred stock shall be issued pro rata to the holders of Capital Stock of such Subsidiary; (xi) the Company and its Subsidiaries may Incur preferred stock and preference stock (including preferred stock and preference stock that is Redeemable Stock), provided that such preferred stock or preference stock is issued to the Company, any of its Subsidiaries or pro rata to the holders of Capital Stock of any such Subsidiary; (xii) the Company and its Subsidiaries may Incur Permitted Indebtedness; and (xiii) the Company and its Subsidiaries may Incur Indebtedness in an amount at any one time outstanding not to exceed $75,000,000, provided that the amount of such Indebtedness that may be Incurred by Subsidiaries of the Company (other than Subsidiary Guarantors that are not Permitted Entities) shall not exceed $25,000,000 at any one time outstanding, and provided, further, that, to the extent any such Indebtedness is Incurred from a Bank or an affiliate thereof, the Bank Guarantors may guarantee such Indebtedness. (Section 4.10(b)). Notwithstanding the foregoing, no Subsidiary of the Company shall assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company or a Subsidiary Guarantor (other than such Subsidiary) ("Other Indebtedness") which is subordinated (pursuant to its terms) in right and priority of payment to any other Indebtedness of the Company or such Subsidiary Guarantor, unless such Subsidiary also assumes, guarantees or otherwise becomes liable with respect to the Notes on a substantially similar basis for so long as such Subsidiary is liable with respect to such Other Indebtedness; provided, however, that if such Other Indebtedness is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, any 71 75 such assumption, guarantee or other liability of such Subsidiary with respect to such Other Indebtedness shall be subordinated to such Subsidiary's assumption, guarantee or other liability with respect to the Notes to the same extent as such subordinated Indebtedness is subordinated to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be; and provided, further, that this paragraph shall not be applicable to any assumption, guarantee or other liability of any Subsidiary of the Company which existed at the time such Person became a Subsidiary of the Company and was not Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company, or any Refinancing Indebtedness in connection therewith complying with clause (vi) of the immediately preceding full paragraph (provided, that the guarantee of such Refinancing Indebtedness is on substantially the same terms as the guarantee of the Refinanced Indebtedness). (Section 4.10(c)). Limitations on Restricted Payments and Restricted Investments The Indenture provides that the Company shall not, directly or indirectly, (i) 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 Redeemable Stock), (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 other than through the issuance solely of Capital Stock of the Company (other than Redeemable Stock) or rights thereto, provided that any Subsidiary of the Company may purchase Capital Stock of the Company from the Company or from any other Subsidiary of the Company (which purchase shall not be a Restricted Payment or a Restricted Investment), (iii) make or permit any of its Subsidiaries to make any voluntary purchase, redemption or other acquisition or retirement for value of any Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligations under its Guarantee, as the case may be, other than purchases, redemptions or other acquisitions or retirements of Permitted Indebtedness described in clause (b) of the definition thereof or purchases, redemptions or other acquisitions otherwise permitted by the terms of the Indenture (each of the foregoing in clauses (i), (ii) and (iii), a "Restricted Payment"), (iv) to the extent the Company or its Subsidiaries exercise actual control over a Non-Affiliate Joint Venture existing on the date of the Indenture or formed or acquired after the date of the Indenture (each a "Controlled Non-Affiliate Joint Venture"), permit such Controlled Non-Affiliate Joint Venture to make any Restricted Investment or (v) make or permit any of its Subsidiaries to make any Restricted Investment, unless at the time of, and after giving effect to, each such Restricted Payment or Restricted Investment: (A) no Event of Default (and no event that, after notice or lapse of time or both, would become an Event of Default) shall have occurred and be continuing (or would occur and be continuing after giving effect thereto); and (B) the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1; and (C) the sum of: (x) the aggregate amount expended for all Restricted Payments after December 31, 1992, and (y) the aggregate amount of Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) (in each case, the amount expended for such Restricted Payments and Restricted Investments or the amount of any Restricted Investments returned, if paid or returned 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 72 76 cumulative basis for the period (taken as one accounting period) from January 1, 1993 to the end of the Company's most recently ended fiscal quarter for which financial statements are available at the time such Restricted Payment or Restricted 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 after December 31, 1992, or from the issue or sale (other than to a Non-Affiliate Joint Venture or to a Subsidiary of the Company), after December 31, 1992, of Capital Stock other than Redeemable Stock (including Capital Stock, other than Redeemable Stock, issued upon the conversion of, or in exchange for, indebtedness or Redeemable Stock, and including upon exercise of warrants or options or other rights to purchase such Capital Stock, issued after December 31, 1992), or from the issue or sale, after December 31, 1992 of any debt or other security of the Company convertible or exercisable into such Capital Stock that has been so converted or exercised; provided, however, that in no event shall the Company make, or permit any of its Subsidiaries to make, a Restricted Payment or Restricted Investment pursuant to this paragraph to or in MAXXAM or any Affiliate of MAXXAM if, after giving effect thereto, (A) the aggregate amount of all Restricted Payments and Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) made pursuant to this paragraph in any calendar year to or in MAXXAM or any Affiliate of MAXXAM, less (B) the aggregate amount of such Restricted Payments and Restricted Investments made to or in KAC in such calendar year which are distributed or paid within thirty days thereafter by KAC to its holders of common stock other than MAXXAM and any Affiliate of MAXXAM, would exceed (C) $75,000,000; and provided, further, that notwithstanding the foregoing, the Company may make any such Restricted Payment or Restricted Investment to or in MAXXAM or any Affiliate of MAXXAM if, after giving pro forma effect thereto, the Company's senior debt rating would be Baa3 (or the equivalent) or better by Moody's Investor Services, Inc. (or a successor rating agency) or BBB- (or the equivalent) or better by Standard & Poor's Corporation (or a successor rating agency). (Section 4.09(a)). The foregoing provisions shall not be violated by reason of the following Restricted Payments: (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 the preceding full paragraph; (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 Non-Affiliate Joint Venture or to a Subsidiary of the Company) of other shares of its Capital Stock other than Redeemable Stock or out of the proceeds of a substantially concurrent capital contribution to the Company, provided, however, that, to the extent the proceeds are so used, a sale of Capital Stock or capital contribution permitted by this clause (II) shall be excluded in determining the aggregate net proceeds received by the Company referred to under clause (II) of the preceding full paragraph; (III) the payments provided for by clauses (ii), (iii), (iv) and (v) and the transactions described in clauses (vi), (vii), (viii) and (ix) (so long as, in the case of clause (ix), immediately following such transaction, the Consolidated Net Worth of the entity that survives such transaction is not materially lower than the Consolidated Net Worth of the Company immediately prior to such transaction) of the second paragraph under " -- Restrictions on Transactions with Affiliates"; 73 77 (IV) the voluntary purchase, redemption or other acquisition or retirement for value of Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, to the extent that the aggregate amount expended (exclusive of amounts expended pursuant to clauses (V) and (VIII) of this paragraph) for all such voluntary purchases, redemptions or other acquisitions or retirements after the date of the Indenture (the amount expended for such purchases, redemptions or other acquisitions or retirements, if paid in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property) does not exceed the aggregate net proceeds, including the Fair Market Value of property other than cash received by the Company or any Subsidiary Guarantor from the issue or sale (other than an issuance or sale to the Company or a Non-Affiliate Joint Venture or Subsidiary of the Company), after the date of the Indenture, of Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be, and that is otherwise permitted to be incurred pursuant to the Indenture, provided, that, to the extent the proceeds of Indebtedness so subordinated to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, are so used, the net proceeds of issuance of any such Indebtedness upon conversion into Capital Stock shall not be included in determining the aggregate net proceeds received by the Company referred to under clause (II) of the preceding full paragraph; (V) the voluntary purchase, redemption or other acquisition or retirement for value of any Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Non-Affiliate Joint Venture or to a Subsidiary of the Company) of Capital Stock (other than Redeemable Stock) of the Company, provided, however, that, to the extent the proceeds are so used, the issuance of Capital Stock as permitted by this clause (V) shall not be included in determining the aggregate net proceeds received by the Company referred to under clause (II) of the preceding full paragraph; (VI) the payment of dividends on, and the purchase, redemption, retirement or other acquisition of, USWA Preferred Stock or Preferred Stock ($100), provided that no such payment is made, directly or indirectly, to an Affiliate of the Company; (VII) the payment to KAC of an amount not to exceed $300,000 in any fiscal year for the payment of KAC's reasonable out-of-pocket expenses, provided that no part of such amount is paid directly or indirectly to any other Affiliate of the Company and that, at the time of each such payment, the Company is in compliance with clause (A) of the preceding full paragraph; (VIII) Restricted Payments and Restricted Investments after February 1, 1993, other than Restricted Payments and Restricted Investments permitted by the preceding full paragraph or clauses (I) through (VII) of this paragraph, in an aggregate amount such that the sum of: (x) the aggregate amount expended for all such Restricted Payments after February 1, 1993 made pursuant to this clause (VIII); and (y) the aggregate amount of all Restricted Investments made after February 1, 1993 pursuant to this clause (VIII) (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) (in each case, the amount expended for such Restricted Payments and Restricted Investments or the amount of any Restricted Investments returned, if paid or returned in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property) would not exceed $50,000,000, 74 78 provided that at the time of each such Restricted Payment or Restricted Investment made pursuant to this clause (VIII), no Event of Default (and no event that, after notice or lapse of time or both, would become an Event of Default) shall have occurred and be continuing (or would occur and be continuing after giving effect thereto); and provided, further, that in no event shall the Company make, or permit any of its Subsidiaries to make, a Restricted Payment or Restricted Investment pursuant to this clause (VIII) to or in MAXXAM or any Affiliate of MAXXAM if, after giving effect thereto, (A) the aggregate amount of all Restricted Payments and Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) made pursuant to this clause (VIII) to or in MAXXAM or any Affiliate of MAXXAM, less (B) the aggregate amount of such Restricted Payments and Restricted Investments made to or in KAC which are distributed or paid within thirty days thereafter by KAC to its holders of common stock other than MAXXAM and Affiliates of MAXXAM, would exceed (C) $20,000,000; and (IX) in the event that the Company merges with or into KAC and the Preferred Dividend Intercompany Notes are extinguished, the payment of dividends on shares of PRIDES, the Series A Shares and any other preferred stock of KAC the proceeds of which gave rise to a Preferred Dividend Intercompany Note, in an aggregate amount not to exceed the outstanding principal amount of such Preferred Dividend Intercompany Notes at the time of such merger. No payments and other transfers made under clauses (II) through (VII) and (IX) of this paragraph shall reduce the amount available for Restricted Payments and Restricted Investments under the first full paragraph of this Section entitled "Limitations on Restricted Payments and Restricted Investments"; payments and other transfers made under clauses (I) and (VIII) of this paragraph shall reduce the amount available for Restricted Payments and Restricted Investments under the first full paragraph of this Section entitled "Limitations on Restricted Payments and Restricted Investments." (Section 4.09(b)). Restrictions on Transactions with Affiliates The Indenture provides that the Company shall not, and shall not permit any of its Subsidiaries or its Non-Affiliate Joint Ventures to, enter into any transaction or series of related transactions with any Affiliate of the Company, unless (i) the terms thereof are no less favorable to the Company, such Subsidiary or such Non-Affiliate Joint Venture, as the case may be, than those that could reasonably be expected to be obtained in a comparable transaction with an unrelated Person, (ii) such transaction or series of related transactions shall have been approved as meeting such standard, in good faith, by a majority of the independent 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 $10,000,000, the Company, such Subsidiary and/or such Non-Affiliate Joint Venture, as the case may be, shall have received an opinion that such transaction or series of related transactions is fair to the Company, such Subsidiary and/or such Non-Affiliate Joint Venture, as the case may be, from a financial point of view, from an independent investment banking firm of national standing selected by the Company. (Section 4.08(a)). The provisions contained in the preceding paragraph shall not apply to (i) the making of any Restricted Payments and Restricted Investments otherwise permitted under the caption "Limitations on Restricted Payments and Restricted Investments" (other than clause (IV) of the second paragraph thereunder), (ii) the making of payments permitted by the Tax Sharing Agreements, (iii) the making of payments to MAXXAM for reimbursement for actual services provided thereby to the Company or its Subsidiaries or Non-Affiliate Joint Ventures based on actual costs and an allocable share of overhead expenses, (iv) 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 or Non-Affiliate Joint Ventures for services rendered in 75 79 such person's capacity as a director and indemnification and directors' and officers' liability insurance in connection therewith, (v) compensation, indemnification and other benefits paid or made available to officers and employees of the Company or its Subsidiaries or Non-Affiliate Joint Ventures for services actually rendered, comparable to those generally paid or made available by entities engaged in the same or similar businesses (including reimbursement or advancement of reasonable out-of-pocket expenses and directors' and officers' liability insurance), (vi) loans to officers, directors and employees of the Company or its Subsidiaries for business or personal purposes and other loans and advances to such officers, directors and employees for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries, (vii) any amendment to the Existing Intercompany Note that extends the maturity thereof or reduces the interest rate thereon, or any other amendment thereto that does not materially adversely affect the holders of the Notes, (viii) the dividend by the Company of all or any portion of the Existing Intercompany Note and accrued interest thereon, (ix) certain mergers, consolidations, transfers or sales permitted by the provisions of the Indenture described under "-- Merger or Consolidation" and (x) any amendment to the Tax Sharing Agreements, provided that a majority of the independent members of the Board of Directors of the Company evidenced by a Board Resolution determines that such amendment would not materially adversely affect the holders of the Notes. (Section 4.08(b)). Limitation on Liens The Indenture provides that 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 their respective U.S. Fixed Assets to secure, directly or indirectly, any Indebtedness, unless the Notes are equally and ratably secured on a senior basis for so long as such secured Indebtedness is so secured. The Indenture provides that the foregoing provision shall not prohibit: (i) Liens on the Permitted Collateral securing outstanding Indebtedness permitted by the Indenture in an aggregate principal amount not to exceed the Maximum Secured Amount at the time such Indebtedness is Incurred; (ii) Liens in existence on the date of the issuance of the Notes after giving effect thereto which Liens, if such Liens secure a single or related items Indebtedness in a principal amount in excess of $5,000,000, are set forth in a schedule to the Indenture; (iii) Liens in favor of the Company or any Subsidiary Guarantor; (iv) Liens on U.S. Fixed 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 in existence prior to the contemplation of such merger or consolidation and do not extend to any other U.S. Fixed Assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company; (v) Liens on U.S. Fixed Assets existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided, that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other U.S. Fixed Assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company; (vi) Liens securing Indebtedness permitted by clauses (vii), (viii) and (ix) of the second paragraph under "-- Limitation on Indebtedness and Preferred Stock", provided, that such Liens do not extend to any U.S. Fixed Assets other than the Center for Technology in the case of clause (vii), the applicable aluminum smelter or smelters and related facilities in the case of clause (viii) and the applicable fabrication plant or plants and related facilities in the case of clause (ix), and, in each case, together with any Improvements thereto or thereon and any proceeds thereof; (vii) Liens securing Indebtedness permitted by clause (e) of the definition of Permitted Indebtedness; 76 80 (viii) Liens securing the Indebtedness permitted by clauses (iii), (iv) or (v) of the second paragraph under "-- Limitation on Indebtedness and Preferred Stock", provided that such Liens do not extend to any U.S. Fixed Assets other than (a) Permitted Collateral (in which case the principal amount of such Indebtedness shall be included in the calculation of the Maximum Secured Amount for purposes of clause (i) of this paragraph and such Liens shall only be permitted if the requirements of clause (i) are satisfied) and (b) the Capital Stock and assets of Alpart, KJC and AJI in the case of clause (iii), the Capital Stock and assets of KAAC in the case of clause (iv), and the Capital Stock and assets of VALCO in the case of clause (v), plus, in each case, the proceeds thereof; (ix) Liens securing Indebtedness consisting of Capitalized Lease Obligations, mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or installation of U.S. Fixed Assets used in the business of the Company and its Subsidiaries, or repairs, additions or Improvements to such U.S. Fixed Assets, provided, that such Liens (a) secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such U.S. Fixed Assets or repair, addition or Improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness), (b) do not extend to any other U.S. Fixed Assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company (and, in the case of a repair, addition or Improvement, such Lien extends only to the U.S. Fixed Assets (and Improvements thereto or thereon) repaired, added to or improved), and (c) secure Indebtedness incurred no later than 180 days after the acquisition or final completion of such construction, repair, addition or Improvement; (x) Liens securing Refinancings (in whole or in part) of any Indebtedness secured by the Liens described in clauses (ii), (iv), (v), (vi), (viii) or (ix) of this paragraph, and any successive Refinancings of any thereof (together with any increased amount of such Indebtedness specifically permitted pursuant to the second paragraph under "-- Limitation on Indebtedness and Preferred Stock" (to cover the reasonable fees and expenses incurred in connection with a Refinancing)), provided that each such Lien (unless otherwise permitted by this paragraph) does not extend to any additional U.S. Fixed Assets (other than Improvements thereto or thereon and any proceeds thereof); (xi) Liens on U.S. Fixed Assets securing Indebtedness in an aggregate principal amount not to exceed $10,000,000; and (xii) Liens on any U.S. Fixed Assets consisting of easements, covenants, restrictions, exceptions, reservations and similar matters which do not materially impair the use of such U.S. Fixed Assets for the uses for which it is held and which Liens are granted to secure Indebtedness secured by Liens permitted by the foregoing clauses (i) through (xi). 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 U.S. Fixed Assets property or assets as such other Lien, provided, that if the Indebtedness secured by such other Lien is expressly subordinated in right and priority of payment by its terms to the Notes, the Lien securing the Notes shall be senior to such other Lien. Subsidiary Guarantees, Etc. The Indenture provides that if the Company or any Subsidiary Guarantor shall transfer or cause to be transferred, in one or a series of related transactions, any property or assets (including, without limitation, businesses, divisions, real property, assets or equipment) to any Subsidiary of the Company or to any Non-Affiliate Joint Venture of the Company, the Company shall cause such transferee Subsidiary or Non-Affiliate Joint Venture to (i) execute and deliver to the Trustee a supplemental indenture in form and substance reasonably satisfactory to the Trustee pursuant to which such transferee Subsidiary or Non-Affiliate Joint Venture shall be named as an additional Subsidiary Guarantor and (ii) deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee that such supplemental indenture has been duly executed and delivered by such Person. (Section 4.12(a)). 77 81 The provisions set forth in the immediately preceding paragraph shall not apply to the following transfers of property or assets by the Company or any Subsidiary Guarantor: (A) transfers of property or assets (other than cash) to Subsidiaries of the Company and Non-Affiliate Joint Ventures, provided that such transfer is made in exchange for cash in an amount equal to the Fair Market Value of such property or assets; (B) transfers of property or assets to Subsidiary Guarantors; (C) the use of the proceeds of Indebtedness described in clauses (iii), (iv), (v), (viii) and (ix) of the second paragraph under "-- Limitation on Indebtedness and Preferred Stock"; (D) transfers to Alpart of the proceeds of Indebtedness described in the first paragraph under "-- Limitation on Indebtedness and Preferred Stock" to the extent that Alpart is an obligor or guarantor of such Indebtedness; (E) the provision of, and the payment for, goods and services, working capital and technology to Subsidiaries of the Company and Non-Affiliate Joint Ventures, in each case in the ordinary course of the businesses in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of the Indenture or reasonably related extensions thereof; (F) transfers of assets to a Subsidiary of the Company immediately prior to the sale of such Subsidiary; (G) transfers of cash or Cash Equivalents to Non-Affiliate Joint Ventures engaged or to be engaged in the business of bauxite mining and/or alumina refining and/or aluminum smelting and/or fabrication and/or reasonably related extensions thereof; (H) transfers of cash, Cash Equivalents, property or other assets to a Permitted Entity in exchange for Permitted Entity Securities of such Permitted Entity if, immediately after giving effect to such transfer, such Permitted Entity remains a Permitted Entity; (I) transfers of Capital Stock or other equity interests to the issuer of such Capital Stock or other equity interests such that immediately after giving effect to such transfer and related transfers, the proportional beneficial ownership by the transferor of the class of Capital Stock or equity interests so transferred is not reduced; and (J) other transfers of assets, provided that the aggregate amount thereof (if other than cash, such amount shall be the Fair Market Value of such asset at the time of such transfer), less the aggregate amount of such assets returned to the Company or any Subsidiary Guarantor (if returned other than in cash, the amount of such assets shall be the Fair Market Value of such assets at the time so returned), does not exceed, in the aggregate, the greater of (i) $25,000,000 or (ii) 5% of the Company's Consolidated Net Worth, calculated after giving effect to such transfers and returns. (Section 4.12(b)). The Indenture provides that the two preceding full paragraphs of this section shall not apply to any Restricted Investment or Restricted Payment otherwise permitted by the provisions described under " -- Limitations on Restricted Payments and Restricted Investments." (Section 4.12(d)). In addition, the Indenture provides that the Company shall not permit any Permitted Entity to cease to be a Permitted Entity except: (i) pursuant to a liquidation or dissolution of such Permitted Entity or a transfer of all or substantially all of the properties and assets of such Permitted Entity to its Equity Owners in proportion to their interests, including by way of merger or consolidation of such Permitted Entity with or into its sole Equity Owner; (ii) pursuant to a sale in compliance with the provisions described under " -- Limitation on Asset Sales" of all of the Permitted Entity Securities of such Permitted Entity held directly or indirectly by the Company or any Subsidiary Guarantor; or (iii) if such Permitted Entity becomes a Subsidiary Guarantor. (Section 4.12(e)). 78 82 Notwithstanding anything in the Indenture to the contrary, VALCO shall be permitted to merge with or into, or distribute substantially all of its assets and liabilities to, a Permitted Entity, provided that, at the time of such merger or distribution, such Permitted Entity has no more than $50,000 of assets other than Capital Stock or other similar interests in VALCO. Upon the consummation of any transaction contemplated by this paragraph, the entity surviving such merger or distribution shall not be required (i) to become a Subsidiary Guarantor pursuant to the provisions described in this section or (ii) if such entity has no assets except as contemplated in this paragraph or meets the conditions of the preceding paragraph, to remain a Permitted Entity pursuant to the terms described in this Section. (Section 4.12(f)). Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries The Indenture provides that 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 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 Subsidiary of the Company; provided, however that such restrictions shall not prohibit Permitted Dividend Encumbrances. (Section 4.13). Limitation on Asset Sales The Indenture provides that the Company shall not, and shall not permit any of its Subsidiaries to, consummate any Asset Sale unless 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 (a) any liabilities of the Company or any Subsidiary of the Company that are actually assumed by the transferee in such Asset Sale, or for which the Company and its Subsidiaries are fully released, shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries and (b) any notes or other obligations received by the Company or any Subsidiary of the Company from such transferee that are immediately converted (or are converted within thirty days of the related Asset Sale) by the Company or such Subsidiary into cash shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries. (Section 4.14(a)). The Indenture further provides that the Company shall apply any Net Cash Proceeds received after the date of the Indenture to (A) the prepayment of Indebtedness in respect of or under the New Credit Agreement and any other Indebtedness of the Company (other than the Notes) entitled to receive payment pursuant to the terms thereof (excluding Indebtedness that is subordinated by its terms to the Notes or the Guarantee thereof) (the "Specified Pari Passu Indebtedness"), unless the holders thereof elect not to receive such prepayment and (B) an offer to purchase (an "Asset Sale Offer") the then outstanding Notes, on any Business Day occurring no later than 175 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 interest, if any, to but not including 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 Indebtedness under the New Credit Agreement and the 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 Indebtedness is outstanding in respect of or under the New Credit Agreement or the Specified Pari Passu Indebtedness or (y) the holders of such Indebtedness entitled to receive payment elect not to receive the payments provided for in the previous 79 83 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. (Section 4.14(b)). Notice of an Asset Sale Offer shall be mailed by the Company to all holders at their last registered address within 145 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 twenty-four days or less than 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 prior to 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 such holder is withdrawing his, her or its election to have such Notes purchased and (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 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). (Section 4.14(c)). 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 covenant exceeds $25,000,000 (the "Twenty-Five Million Threshold") and then the total amount of such Net Cash Proceeds shall be required to be so applied in accordance with this covenant. The Company may credit against its obligation to offer to repurchase Notes pursuant to this covenant the principal amount of Notes acquired or held by the Company subsequent to the date of the Asset Sale giving rise to such Asset Sale Offer and surrendered for cancellation or redeemed or called for redemption subsequent to such date and not previously used to satisfy any obligation of the Company to redeem or offer to purchase Notes. 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. (Section 4.14(c)). The Indenture further provides that, notwithstanding the foregoing, the Company shall have no obligation to make an Asset Sale Offer, if, and to the extent, the Company or any of its Subsidiaries commits within 140 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 or its Non-Affiliate Joint Ventures were engaged on the date of the Indenture or reasonably related extensions of such lines of business, provided that such Net Cash Proceeds are substantially so utilized no later than the last day of the twelfth consecutive month (or, in the event the amount of such Net Cash Proceeds from a single Asset Sale or series of related Asset Sales exceeds $200,000,000, the twenty-fourth consecutive month) following the month in which such Net Cash Proceeds are received (Section 4.16(d)). The Indenture further provides that notwithstanding the foregoing, if an Asset Sale consists of a sale of (i) all or a portion of the property, plant or equipment of the Company's Gramercy alumina refinery whether now owned or hereafter acquired, or any proceeds thereof or (ii) any U.S. Fixed Assets acquired after the date of the Indenture which do not constitute Permitted Collateral, the Company shall make an Asset Sale Offer with the Net Cash Proceeds received from such Asset Sale (without regard to the Twenty-Five Million Threshold) to the extent the Company has not committed within 140 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 U.S. Fixed Assets (other than Permitted Collateral), provided that such Net Cash Proceeds are substantially so utilized no later than the last day of the twelfth consecutive month (or, in the event the amount of such Net Cash Proceeds from a single Asset Sale or series of related Asset Sales exceeds $200,000,000, the twenty-fourth consecutive month) following the month in which such Net Cash Proceeds are received. SEC REPORTS The Company shall file with the Trustee, within 15 days after it is required to file them with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of 80 84 such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall nonetheless file with the Commission and the Trustee copies of such annual reports and such information, documents and other reports as it would file if it were subject to the requirements of Section 13 or 15(d) of the Exchange Act. MODIFICATION OF INDENTURE 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 shall (i) extend the stated maturity of any Note, reduce the interest rate, extend the time or alter the manner of payment of interest thereon, reduce the principal amount thereof or alter the timing of or reduce any premium payable upon the redemption thereof or reduce the amount payable thereon in the event of acceleration or the amount 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 (Section 10.02). 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 the cure of any ambiguity or the correction of any defect or inconsistency in the Indenture. (Section 10.01). DEFAULTS AND CERTAIN RIGHTS ON DEFAULT An Event of Default is defined in the Indenture as (i) 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, (ii) default in payment of any installment of interest on any of the Notes as and when the same shall become due and payable and such default continues for 30 days, (iii) failure on the part of the Company, duly 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 sixty 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 by registered mail, which notice the Trustee 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, (iv) a default under any mortgage, indenture or instrument under which there may be issued, secured or evidenced any indebtedness for money borrowed by the Company or any Subsidiary, whether such Indebtedness now exists or shall hereafter be created, in an aggregate principal amount exceeding $25,000,000, which default (a), in the case of a failure to make payment on any such indebtedness, shall not have been waived, cured or otherwise ceased to exist within 30 days thereafter, or (b) in the case of any default other than a payment default referred to in clause (a), 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, or with respect to which the principal amount remains unpaid upon its stated maturity; (v) a final judgment which, together with other outstanding final judgments against the Company and its Significant Subsidiaries, exceeds an aggregate of $25,000,000 (to the extent such judgments are not covered by valid and collectible insurance from solvent unaffiliated insurers) shall be entered against the Company and/or its Significant Subsidiaries and (a) within 30 days after entry thereof, judgments exceeding such amount shall not have been discharged, settled or bonded or execution thereof stayed pending appeal or, within 30 days after the expiration of any such stay, such judgments exceeding such amount shall not have been discharged, settled or bonded or execution thereof stayed or (b) an enforcement proceeding shall have been commenced (and not discharged, settled or bonded or execution thereof stayed) by any creditor upon judgments exceeding such amount; (vi) certain events of bankruptcy, insolvency, receivership or reorganization and (vii) the Guarantee having been held unenforceable or invalid with respect to any Subsidiary Guarantor 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 81 85 force and effect with respect to any Subsidiary Guarantor, or any Subsidiary Guarantor or any person acting by or on behalf of any Subsidiary Guarantor having denied or disaffirmed its obligations under the Guarantee. (Section 6.01). The Indenture provides that, if an Event of Default shall have occurred and be continuing, either the Trustee or the holders of 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. Prior to the declaration of the maturity of the Notes as provided in the preceding sentences, 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, 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 or a default under Article Four of the Indenture or any other covenant or provision of the 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. MERGER OR CONSOLIDATION The Indenture provides that the Company may consolidate or merge with or into any other corporation or corporations or sell or convey all or substantially all of its property to any other corporation whether in a single transaction or in a series of transactions; provided, however, that any such consolidation, merger, sale or conveyance shall be upon the condition that (a) immediately after giving effect to such consolidation, merger, sale or conveyance, the corporation 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 corporation (the "surviving corporation"), shall not be in default in the performance or observance of any of the terms, covenants and conditions of the Indenture to be kept or performed by the Company, (b) the surviving corporation (if other than the Company) shall be a corporation organized under the laws of the United States or any State thereof, (c) immediately after giving effect to such consolidation, merger, sale or conveyance, the surviving corporation (whether the Company or such other corporation) could Incur $1.00 of Indebtedness pursuant to provisions described in the first paragraph under "-- Limitation on Indebtedness and Preferred Stock," (d) the surviving corporation (if other than the Company) shall expressly assume the obligations of the Company by supplemental indenture complying with the requirements of the Indenture satisfactory in form to the Trustee and (e) immediately after giving effect to such consolidation, merger, sale or conveyance, the surviving corporation (whether the Company or such other corporation) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction. (Section 11.01(a)). The Indenture further provides that, notwithstanding the foregoing, (i) the Company may consolidate or merge with or into, or sell or convey all or substantially all of its property to, KAC; provided, however, that the surviving corporation (if other than the Company) shall expressly assume by supplemental indenture complying with the requirements of the Indenture, the due and punctual payment of the principal 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 the Indenture to be performed or observed by the Company and (ii) the Company may consolidate or merge with or into, or sell or convey all or substantially all of its property to, a Subsidiary Guarantor; provided, that the surviving corporation (if other than the Company) shall expressly assume by supplemental indenture complying with the requirements of the Indenture, the due and punctual payment of the principal of, 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 the Indenture to be performed or observed by the Company. (Section 11.01(b)). The Indenture provides that, notwithstanding any other provision of the Indenture (i) a Subsidiary Guarantor may consolidate or merge with or into, or sell or convey all or substantially all of its property to, the 82 86 Company, provided, that the surviving corporation (if other than the Company) shall expressly assume by supplemental indenture complying with the requirements of the Indenture, the due and punctual payment of the principal of, 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 the Indenture to be performed or observed by the Company and (ii) a Subsidiary Guarantor may consolidate or merge with or into, or sell or convey all or substantially all of its property to, any other Subsidiary Guarantor. (Section 15.03(a)). The Indenture further provides that a Subsidiary Guarantor may merge or consolidate with or into any other corporation or corporations (whether or not affiliated with such Subsidiary Guarantor), or sell or convey its property as an entirety or substantially as an entirety to any other corporation or corporations (whether or not affiliated with such Subsidiary Guarantor); provided, that (i) in the event that the surviving corporation is a Subsidiary of the Company, then (a) such surviving corporation (if other than such Subsidiary Guarantor) shall be a corporation organized under the laws of the United States of America or any State thereof, (b) such surviving corporation (if other than such Subsidiary Guarantor) shall assume the due and punctual performance and observance of all of the covenants and conditions of the Indenture to be performed by such Subsidiary Guarantor by supplemental indenture complying with the requirements of the Indenture, (c) immediately after giving effect to such consolidation, merger, sale or conveyance, the Company could Incur $1.00 of Indebtedness pursuant to Section 4.10(a) of the Indenture and (d) immediately after giving effect to such consolidation, merger, sale or conveyance, the surviving corporation (whether such Subsidiary Guarantor or such other corporation) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately prior to such transaction; and (ii) in the event that the surviving corporation is not a Subsidiary of the Company, then such consolidation, merger, sale or conveyance shall otherwise have been made in compliance with the terms of the Indenture. (Section 15.03(b)). SATISFACTION AND DISCHARGE If at any time (a) the Company delivers all the outstanding Notes to the Trustee for cancellation, other than destroyed, lost or stolen Notes, or (b) all Notes have become due and payable, or will be or may be redeemed or will mature within one year, and the Company has deposited with the Trustee money or certain direct, non-callable obligations of, or guaranteed by, the United States sufficient to pay all such Notes, upon redemption or at maturity, together with all other sums due under the Indenture, the Company may terminate all of its obligations under the Indenture, other than its obligations to pay the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on the Notes and certain other obligations (Section 12.01). CERTAIN DEFINITIONS The term "14 1/4% Senior Subordinated Notes" means the Company's 14 1/4% Senior Subordinated Notes Due 1995, as amended, which were retired in 1993 and are no longer outstanding as of the date of the Indenture. The term "14 1/4% Senior Subordinated Note Indenture" means the 14 1/4% Senior Subordinated Note Indenture, dated as of December 21, 1989, among the Company, as issuer, the parties named therein as and, if applicable, thereafter becoming, subsidiary guarantors, and The Bank of New York, a New York banking corporation, as trustee, as amended or supplemented from time to time in accordance with the terms thereof. The term "Affiliate" means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with a specified Person; provided, however, that the term Affiliate shall not include the Company, any Subsidiary of the Company or any Non-Affiliate Joint Venture of the Company so long as no Affiliate of the Company has any direct or indirect interest therein, except through the Company and/or its Subsidiaries and/or its Non-Affiliate Joint Ventures. 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. The 83 87 fact that an Affiliate of a Person is a partner of a law firm that renders services to such Person or its Affiliates does not mean that the law firm is an Affiliate of such Person. The term "Asset Sale" means 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 initial issuance of the Notes by the Company or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries or any Non-Affiliate Joint Venture; 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 term Asset Sale shall not include a Refinancing Sale and Leaseback Transaction) of any assets (other than cash or Cash Equivalents); and provided further, that the following sales, transfers or other dispositions of assets shall not be an "Asset Sale" hereunder: (A) in the ordinary course of business of the Company and its Subsidiaries; (B) in a single transaction or group of related transactions, the gross proceeds of which (exclusive of indemnities) do not exceed $10,000,000 (such proceeds, to the extent non-cash, to be determined in good faith by the Board of Directors of the Company); (C) resulting from the creation, incurrence or assumption of (but not any foreclosure with respect to) any Lien not prohibited by the provisions described under "-- Limitation on Liens"; (D) in connection with any consolidation or merger of the Company or any Subsidiary Guarantor or sale of all or substantially all of the property of the Company or any Subsidiary Guarantor in compliance with applicable provisions of the Indenture; (E) by a Subsidiary to its stockholders not prohibited by the Indenture; (F) which are Restricted Investments or Restricted Payments permitted by the provisions described under "-- Limitations on Restricted Payments and Restricted Investments"; or (G) which consist of extensions, modifications, renewals or exchanges of Restricted Investments pursuant to clause (b) of the definition thereof, so long as neither the Company nor any of its Subsidiaries receives any cash proceeds as a result of such transaction. The term "Attributable Debt" means, with respect to a Refinancing 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 Refinancing 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 Refinancing Sale and Leaseback Transaction (including any period for which such lease has been extended). The term "Bank" means any of the financial institutions that are, or from time to time become, lenders under the New Credit Agreement. The term "Bank Agent" means BankAmerica Business Credit, Inc., as agent under the New Credit Agreement, and any successor agent appointed under the New Credit Agreement or any agent under any agreement or agreements pursuant to which Indebtedness under the New Credit Agreement has been renewed, extended, refunded, replaced, restructured or refinanced (or successively renewed, extended, refunded, replaced, restructured or refinanced) and as to whom the Company has notified the Trustee and the noteholders pursuant to the terms of the Indenture. The term "Bank Guarantors" means each of the following Persons, as long as such Person guarantees any Indebtedness under the New Credit Agreement: Akron Holding Company, an Ohio corporation, Kaiser Aluminum & Chemical Investment, Inc., a Delaware corporation, Kaiser Aluminum Properties, Inc., a Delaware corporation, Kaiser Aluminum Technical Services, Inc., a California corporation, Oxnard Forge Die Company, Inc., a California corporation, Kaiser Aluminum International, Inc., a Delaware corporation, KAC, 84 88 KFC, each of their respective successors, each Subsidiary Guarantor and each Non-Recourse Guarantor so long as such Non-Recourse Guarantor does not constitute a Subsidiary Guarantor and would not be required to become a Subsidiary Guarantor hereunder. The term "CARIFA Financing" means the $60,000,000 CBI Industrial Revenue Bonds, Caribbean Basin Projects Financing Authority CBI Industrial Revenue Bonds 1991 Series A and Series B (Alumina Partners of Jamaica Project) issued pursuant to that certain Bond Purchase Agreement dated as of December 1, 1991, among the Caribbean Basin Projects Financing Authority, Alumina Partners of Jamaica and PaineWebber Incorporated of Puerto Rico, and any letters of credit supporting such bonds. A "Change of Control" shall be deemed to have occurred at such time as MAXXAM, directly or indirectly, shall cease to have (other than by reason of the existence of a Lien but including by reason of the foreclosure of or other realization upon a Lien) direct or indirect sole beneficial ownership (as defined under Regulation 13d-3 of the Exchange Act as in effect on the date of the Indenture) of at least 40% of the total Voting Stock, on a fully diluted basis, of the Company; provided, however, that such ownership by MAXXAM, directly or indirectly, of 30% or greater, but less than 40%, of the total Voting Stock, on a fully diluted basis, of the Company shall not be a Change of Control if MAXXAM, through direct representation or through Persons nominated by it, controls a majority of the Board of Directors of the Company necessary to effectuate any actions by the Board of Directors of the Company; and provided, further, that the foregoing minimum percentages shall be deemed not satisfied if any Person or group (as defined in Section 13(d)(3) of the Exchange Act as in effect on the date of the Indenture) shall, directly or indirectly, own more of the total Voting Stock entitled to vote generally in the election of directors of the Company than MAXXAM. The term "Consolidated Amortization Expense" means, with respect to any Person for any period, the amortization expense (including without limitation 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. The term "Consolidated Cash Flow Available for Fixed Charges" means, with respect to any Person for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Fixed Charges, (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, 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, 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, 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. The term "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 such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. The term "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 (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 to (ii) the aggregate Consolidated Fixed Charges of such Person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately 85 89 subsequent to such fiscal quarter to be accrued during such period (based upon the pro forma amount of Indebtedness to be outstanding on the Transaction Date), assuming for the purposes of this measurement that the interest rates on which floating interest rate obligations of such Person are based equal such rates in effect on the Transaction Date; provided, however, that if the Company or any of its Subsidiaries has incurred Interest Hedging Obligations (as defined in the Indenture) which would have the effect of changing the interest rate on any Indebtedness for such four quarter period (or any portion thereof), the resulting rate shall be used for such four quarter period or portion thereof; and provided, further, that any Consolidated Fixed Charges with respect to Indebtedness incurred or for which such Person otherwise becomes liable during the fiscal quarter in which the Transaction Date occurs shall be calculated as if such Indebtedness was so incurred on the first day of the fiscal quarter in which the Transaction Date occurs. The term "Consolidated Fixed Charges" means (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 (less, to the extent included therein, (a) the portion of the interest expense required to be funded or economically borne by the Company's minority partners in the Company's joint venture and (b) interest expense related to the PIK Note); (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; (iii) the aggregate amount of dividends paid or other similar distributions made by such Person and its Subsidiaries during such period with respect to preferred stock (including preference 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 in connection with any Indebtedness of such Person and its Subsidiaries, determined on a consolidated basis in accordance with GAAP (excluding, to the extent otherwise included, (A) the amortization or write-off of any deferred financing costs in connection with the amendment or refinancing of the New Credit Agreement and the Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (B) the amortization or write-off of any debt discount and the premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes). The term "Consolidated Income Tax Expense" means (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. The term "Consolidated Net Income" means, 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) extraordinary gains but not extraordinary losses and excluding gains from extinguishment of debt; (ii) the Net Income 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) actually paid to such Person or any of its Subsidiaries by such other Person during such period; (iii) except to the extent included by clause (ii), 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; (iv) 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 86 90 at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary 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; (v) net after tax gains from Asset Sales (but not excluding the net after tax losses from Asset Sales); and (vi) interest income arising from the Existing Intercompany Note, except to the extent such interest income is actually received by the Company in cash; provided, however, that (1) in determining Consolidated Net Income with respect to the Company there shall be disregarded (a) any charge with respect to premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (b) the amortization or write-off of any unamortized deferred financing costs and debt discount (other than original issue discount with respect to Indebtedness Incurred after the date hereof) in connection with the amendment or refinancing of the New Credit Agreement and the Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (2) the Net Income of each of the Specified Parties otherwise included in the Consolidated Net Income of the Company shall not be subject to any of the limitations contained in clauses (ii) and (iv)(B) of this definition so long as the Company's cash management and intercompany practices with respect to such entity, as the case may be, for such period are consistent with past practice. The term "Consolidated Net Worth" means, with respect to any Person as of any date, the total stockholders' equity of such Person as of such date plus the amount of Indebtedness outstanding under the PIK Note as of such date, less, to the extent otherwise included, amounts attributable to Redeemable Stock and, in the case of the Company, the amount attributable to the Existing Intercompany Note, in each case determined on a consolidated basis in accordance with GAAP; provided, however, that in determining Consolidated Net Worth with respect to the Company there shall be disregarded (i) any charge with respect to premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (ii) the amortization or write-off of any unamortized deferred financing costs or debt discount (other than original issue discount with respect to Indebtedness Incurred after the date hereof) in connection with the amendment or refinancing of the New Credit Agreement and the Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes. The term "Defaulting Equity Owner" means, with respect to any Permitted Entity, any Equity Owner who causes an Equity Owner Default. The term "Equity Owner" means, with respect to any Permitted Entity, any holder of an Ownership Interest in such Permitted Entity. The term "Equity Owner Default" means, with respect to any issuance of Permitted Entity Securities to the Equity Owners of a Permitted Entity, the failure by one or more of such Equity Owners to acquire such Permitted Entity Securities in an amount corresponding to at least its Ownership Interest of such Permitted Entity and, as a result thereof, such Equity Owner becomes subject to, directly or indirectly, a dilution of its interest in the future net income of such Permitted Entity and/or a penalty pursuant to the terms of the governing documents of such Permitted Entity. The term "Existing Intercompany Note" means the Non-Negotiable Intercompany Note, dated December 21, 1989, issued by KAC to the Company in an initial principal amount of $818,585,280, as such Non-Negotiable Intercompany Note may be amended. The term "Fair Market Value" means, 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 87 91 shall be evidenced by a Board Resolution; provided, however, that, in the event 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 in an amount in excess of $10,000,000, the Company, in addition, shall have received an opinion from an independent investment banking firm of national standing selected by the Company to the effect that the Board of Directors' determination of fair market value is fair. The term "GAAP" means generally accepted accounting principles as in effect on December 31, 1992, and used in the preparation of the Company's consolidated balance sheet at such date and the Company's statements of consolidated income and cash flows for the year then ended, but in any event (i) giving effect to, but excluding the effect of any one-time charge related to the implementation of, Statement of Financial Accounting Standards No. 106 (Employers' Accounting for Postretirement Benefits Other Than Pensions) and (ii) giving effect to Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes). The term "Improvements" means any accessories, accessions, additions, attachments, substitutions, replacements, improvements, parts and other property now or hereafter affixed to any U.S. Fixed Assets or used in connection therewith. The term "Indebtedness" means, with respect to any Person at any date, any of the following (without duplication): (a) the principal amount of 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 the principal amount of 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); (b) all obligations of such Person to pay the deferred purchase price of property or services, except (x) accounts payable and other current liabilities arising in the ordinary course of business and (y) compensation, pension obligations and other obligations arising from employee benefits and employee arrangements; (c) Capitalized Lease Obligations of such Person; (d) 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; (e) preferred stock (including preference stock) that is Redeemable Stock (the amount of the Indebtedness in respect of such preferred stock to be equal to the aggregate liquidation value thereof); (f) all Indebtedness of others guaranteed by such Person; (g) pension obligations and other similar obligations arising from employee benefits, to the extent unfunded and assumed by such Person after the date of the initial issuance of the Notes in the acquisition, by such Person, of the assets or Capital Stock of another Person ("Assumed Pension Obligations"); and (h) all obligations under Refinancing Sale and Leaseback Transactions; and the amounts thereof shall be the outstanding balance of any such unconditional obligations as described in clauses (a) through (f) (other than clause (d)), and the maximum liability of any such contingent obligations at such date (other than with respect to clause (d)) and, in the case of clause (d), 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 (g), the amount of Assumed Pension Obligations shall be the amount 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 (h), the Attributable Debt with respect to such Refinancing Sale and Leaseback Transactions; provided, however, that Indebtedness shall not include: (A) the obligations of such Person and/or any of its Subsidiaries to purchase or sell goods, services or technology utilized in their bauxite, aluminum and alumina business and related extensions thereof, including on a take-or-pay basis, pursuant to agreements entered into in the ordinary course of business 88 92 consistent with past practice or to fund or guarantee the obligations of National Refractories & Minerals Corporation or any of its Affiliates in an aggregate principal amount at any time outstanding not exceeding $7,500,000; (B) obligations of such Person arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided that such obligations are extinguished within two Business Days of their incurrence (or, in the case of foreign overdrafts, within five Business Days of their incurrence) unless covered by an overdraft credit line; (C) obligations of such Person resulting from the endorsement of negotiable instruments for collection in the ordinary course of business; (D) Indebtedness consisting of stand-by letters of credit to the extent collateralized by cash or Cash Equivalents; and (E) Liens on assets of KAAC granted to secure Indebtedness of QAL, provided that such Liens are (i) in existence on the date of the Indenture, (ii) similar in all material respects to Liens in existence on the date of the Indenture or (iii) not on assets consisting of cash, Cash Equivalents or fixed assets and such assets are used or to be used in connection with the business of QAL. The term "Maximum Secured Amount" means, at any time (i) $300,000,000, plus (ii) Net Betterments at such time, plus (iii) the outstanding amount of Indebtedness relating to the CARIFA Financing, secured by a Lien on Permitted Collateral, but in no event more than $43,000,000, minus (iv) in the event of a sale of Permitted Collateral which is subject to a Lien permitted by clause (i) under "-- Limitation on Liens," the amount, if any, of the net proceeds thereof required to be applied to a permanent repayment or commitment reduction in respect of the Indebtedness secured by such Lien, minus (v), in the event of the Refinancing of any Indebtedness secured by a Lien permitted by clause (i) under "-- Limitation on Liens," the lesser of (A) the amount of Indebtedness, if any, not secured by Permitted Collateral which Refinances, in whole or in part, such Indebtedness secured by a Lien permitted by clause (i) under "-- Limitation on Liens" and (B) the amount, if any, by which the Maximum Secured Amount immediately prior to such Refinancing, in whole or in part, of such Indebtedness secured by a Lien permitted by clause (i) under "-- Limitation on Liens" exceeds the aggregate amount of Indebtedness which is secured by a Lien on Permitted Collateral permitted by clause (i) or clause (viii)(a) under "-- Limitation on Liens" after giving effect to such Refinancing. The term "Net Betterments" means the amount, if any, by which capital expenditures (determined in accordance with GAAP) by the Company or any of its Subsidiaries in respect of the Permitted Collateral on a cumulative basis for the period from the date of the Indenture, through the date of determination in excess of depreciation (determined in accordance with GAAP) in respect of the Permitted Collateral on a cumulative basis for such period (provided, however, that with respect to any Permitted Collateral existing at the time of the Merger, the depreciation shall be the historical depreciation before adjustments to reflect the acquisition of the Company in the Merger), but in no event less than zero, provided, that in the event any Permitted Collateral ceases to constitute Permitted Collateral in accordance with the definition thereof, only the amount of Net Betterments in respect of such Permitted Collateral at such time shall be included in any subsequent calculation of Net Betterments and provided, further, that (a) Improvements which are subject to a Lien permitted by clause (iv), (v) or (vi) under "-- Limitation on Liens" and (b) U.S. Fixed Assets to the extent subject to a Lien permitted by clause (ix) under "-- Limitation on Liens" shall not be included in the determination of Net Betterments. The term "Net Cash Proceeds" means 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 89 93 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: (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 (A) any repayments of debt secured, directly or indirectly, by Liens on the assets which are the subject of such Asset Sale or (B) any repayments of debt associated with such assets which is due by reason of such Asset Sale (i.e., such disposition is permitted by the terms of the instruments evidencing or applicable to such debt, or by the terms of a consent granted thereunder, on the condition that the proceeds (or portion thereof) of such disposition be applied to such debt), provided, that this clause (B) shall not apply with respect to any U.S. Fixed Assets that do not constitute Permitted Collateral and, in the case of clauses (A) and (B), other fees, expenses and other expenditures, in each case, reasonably incurred as a consequence of such repayment of debt (whether or not such fees, expenses or expenditures are then due and payable or made, as the case may be); (iii) all amounts deemed appropriate by the Company (as evidenced by a signed certificate of the Chief Financial Officer of the Company delivered to the Trustee) to be provided as a reserve, in accordance with GAAP ("GAAP Reserves"), against any liabilities associated with such assets which are the subject of such Asset Sale; (iv) 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; and (v) with respect to Asset Sales by Subsidiaries of the Company, the portion of such cash payments attributable to Persons holding a minority interest in such Subsidiary; provided, in each such case, that such fees and expenses and other amounts are not payable to an Affiliate of the Company (except for payments made pursuant to the Tax Sharing Agreements), and provided, further, that required redemptions of existing preferred stock (including preference stock) of the Company outstanding on the date of the Indenture or issued pursuant to collective bargaining arrangements and related employee benefit arrangements in effect on the date of the Indenture, in each case, from Persons other than Affiliates of the Company, shall be deemed to be a fee, expense or other expenditure of such Asset Sale. 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 (i) such proceeds cannot under applicable law be transferred to the United States or (ii) 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 (i)) or are (in the case of clause (ii)) 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 (i) cash distributions actually received by or on behalf of the Company or any of its Subsidiaries from any Non-Affiliate Joint Venture of the Company representing the proceeds of a transaction by such Non-Affiliate Joint Venture that would constitute an Asset Sale if such Non-Affiliate Joint Venture were a Subsidiary of the Company and (ii) the amount of any reversal of GAAP Reserves (but only as and when, and to the extent, reversed) which amount is otherwise a deduction from Net Cash Proceeds. The term "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person for such period determined in accordance with GAAP. The term "Non-Affiliate Joint Venture" means any joint venture, partnership or other Person (other than the Company or a Subsidiary of the Company) in which the Company and/or its Subsidiaries have an ownership interest equal to or greater than 5% and in which no Affiliate of the Company has a direct or an indirect ownership interest other than by virtue of the direct or indirect ownership interest in such Non-Affiliate Joint Venture held (in the aggregate) by the Company and/or one or more of its Subsidiaries, 90 94 provided that such Non-Affiliate Joint Venture is engaged in one or more of the lines of business in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures are engaged in as of the date of the Indenture or reasonably related extensions of such lines. The term "Non-Defaulting Equity Owner" means, with respect to any Permitted Entity, any Equity Owner that is not a Defaulting Equity Owner. The term "Non-Recourse Guarantor" means a Subsidiary of the Company that guarantees any Indebtedness under the New Credit Agreement, provided that such guarantee is non-recourse to the assets of such Subsidiary other than to intercompany Indebtedness owed, or from time to time owing, by the Company to such Subsidiary, and all monetary proceeds therefrom. The term "Ownership Interest" means, with respect to any Equity Owner of a Permitted Entity at the time of the determination thereof, the proportion held at such time by such Equity Owner of the outstanding Permitted Entity Securities of such Permitted Entity that are last entitled to payment upon liquidation or dissolution as provided in the governing instruments of such Permitted Entity or pursuant to an agreement among the Equity Owners of such Permitted Entity. The term "Permitted Collateral" means real property (listed on a schedule to the Indenture), plant and equipment of the Company or any of its Subsidiaries located in the United States of America which, as of the date of issuance of the Notes, secures Indebtedness under the New Credit Agreement (whether or not the Liens on such real property, plant or equipment are perfected at such time), together with any Improvements thereto or thereon, any real property that is contiguous to or structurally related to such real property (the "Contiguous Property"), and any real property, plant or equipment, whether owned on the date of the issuance of the Notes or thereafter acquired, located or used at any time after the date of issuance of the Notes at a facility (other than the Company's Gramercy alumina refinery) owned, leased, occupied or used by the Company or any of its Subsidiaries as of the date of issuance of the Notes or on any Contiguous Property), and any proceeds thereof; provided, that notwithstanding anything to the contrary contained in the Indenture, any Permitted Collateral which is released from all Liens thereon securing Indebtedness and which does not become subject to a new Lien within 60 days of such release securing Indebtedness which Refinances any of the Indebtedness (in whole or in part) previously secured by such Permitted Collateral shall not thereafter constitute "Permitted Collateral" under the Indenture. As of the date of the Indenture, Permitted Collateral will include real property listed on a schedule to the Indenture and will not include the Company's Gramercy alumina refinery. The term "Permitted Dividend Encumbrance" means, with respect to any Person, any consensual encumbrances or restrictions 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, in the case of a Permitted Entity, to its Equity Owners) or to make loans or advances or transfer any of its assets to the Company or any Subsidiary of the Company (or, in the case of a Permitted Entity, to its Equity Owners) existing under or by reason of: (i) the Indenture; (ii) Indebtedness permitted by the provisions described in clause (ii) of the second paragraph under "-- Limitation on Indebtedness and Preferred Stock"; (iii) Indebtedness or other obligations in existence on the date of the Indenture and customary rights of first refusal with respect to the Company's and its Subsidiaries' interests in their respective Subsidiaries, Non-Affiliate Joint Ventures and Permitted Entities; (iv) applicable law and agreements with foreign governments with respect to assets located in their jurisdictions; (v)(A) customary provisions restricting (i) the subletting or assignment of any lease or (ii) the transfer of copyrighted or patented materials, (B) provisions in agreements that restrict the assignment of such agreements or rights thereunder or (C) provisions of a customary nature contained in the terms of Capital Stock restricting the payment of dividends and the making of distributions on Capital Stock; 91 95 (vi) Indebtedness or other obligations of any other Person acquired (whether pursuant to a purchase of stock or assets) (including any Non-Affiliate Joint Venture of the Company or Permitted Entity that becomes a Subsidiary of the Company) or applicable to any assets at the time such Person or assets were acquired by the Company, its Subsidiaries or a Permitted Entity, in each case which Indebtedness and obligations (A) were not created in anticipation of such acquired Person becoming a Subsidiary of the Company or a Permitted Entity, as the case may be, or such assets being acquired by the Company, its Subsidiaries or such Permitted Entity, as the case may be, and (B) which encumbrances and restrictions are not applicable to any Person or the property or assets of any Person other than the Person or the property or assets of the Person so acquired (including the Capital Stock of such Person) or any newly organized entity formed to effect such acquisition and, in each case, the monetary proceeds thereof; (vii) encumbrances and restrictions with respect to such Person imposed in connection with an agreement for the sale or disposition of such Person or its assets; (viii) encumbrances and restrictions applicable only to (A) Alpart and its assets and Capital Stock with respect to Indebtedness permitted to be Incurred by Alpart pursuant to the first paragraph under "-- Limitation on Indebtedness and Preferred Stock," (B) Alpart, KJC and AJI and their respective assets and Capital Stock with respect to Indebtedness permitted by clause (iii) of the second paragraph under "-- Limitation on Indebtedness and Preferred Stock," (C) KAAC and its assets and Capital Stock with respect to Indebtedness permitted to be Incurred pursuant to clause (iv) of the second paragraph under "-- Limitation on Indebtedness and Preferred Stock," and (D) the Person that Incurred such Indebtedness and such Person's assets and Capital Stock with respect to Indebtedness permitted to be Incurred by clause (viii) or (ix) of the second paragraph under "-- Limitation on Indebtedness and Preferred Stock"; in each case provided, that the Board of Directors of the Company has determined in good faith that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (ix) Indebtedness of a Person that was a Subsidiary at the time of Incurrence and the Incurrence of which Indebtedness is permitted by the provisions described under "-- Limitation on Indebtedness and Preferred Stock," provided that such encumbrances and restrictions apply only to such Subsidiary and its assets, and provided, further, that the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (x) the subordination of (A) any Indebtedness owed by the Company or any of its Subsidiaries to the Company or any other Subsidiary to (B) any other Indebtedness of the Company or any of its Subsidiaries, provided (A) such other Indebtedness is permitted under the Indenture and (B) the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (xi) the subordination of (A) any Indebtedness owed by a Permitted Entity to its Equity Owners or any other Person to (B) any other Indebtedness of such Permitted Entity, provided (I) such other Indebtedness, at the time of the Incurrence thereof, is permitted by the definition of Permitted Entity and (II) the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (xii) Refinancing Indebtedness that is otherwise permitted in connection with any Refinanced Indebtedness, provided that, in the case of all Refinancing Indebtedness other than Refinancing Indebtedness Incurred with respect to Indebtedness permitted under the provisions described under clause (ii) under "-- Limitation on Indebtedness and Preferred Stock," any such encumbrances or restrictions shall not be materially less favorable to the holders of the Notes; and 92 96 (xiii) the sale or other disposition of property subject to a Lien securing Indebtedness, provided that such Lien and such Indebtedness are otherwise permitted by the Indenture. The term "Permitted Entity" means any Person (other than a Subsidiary Guarantor) designated as such by a Board Resolution and as to which (i) the Company, any Subsidiary Guarantor or any Permitted Entity owns all or a portion of the Permitted Entity Securities of such Person; (ii) no more than 10 unaffiliated Equity Owners own of record any Permitted Entity Securities of such Person; (iii) at all times, each Equity Owner owns a proportion of each class of Permitted Entity Securities of such Person outstanding equal to such Equity Owner's Ownership Interest at such time, other than as a result of an Equity Owner Default; (iv) no Indebtedness or preferred stock (including preference stock) is or has been Incurred by such Person that is outstanding other than (x) Permitted Entity Securities held by Equity Owners and/or (y) if such Person is a Subsidiary of the Company, Indebtedness permitted to be Incurred by such Subsidiary at the time of the Incurrence thereof under the provisions described in clauses (v) and (xiii) of the second full paragraph under "-- Limitation on Indebtedness and Preferred Stock"; (v) there exist no consensual encumbrances or restrictions on the ability of such Person to (x) pay dividends or make any other distributions to its Non-Defaulting Equity Owners or (y) make loans or advances or transfer any of its assets to its Non-Defaulting Equity Owners, in each case other than Permitted Dividend Encumbrances of such Permitted Entity; (vi) the Company, any Subsidiary Guarantor or any Permitted Entity has the right at any time (whether by agreement, operation of law or otherwise) to (A) require the Permitted Entity that it owns an Ownership Interest in to dissolve, liquidate or wind up its affairs (subject to any right of the other Equity Owners and/or such Permitted Entity to acquire all of the Permitted Securities owned by such Equity Owner) and, subject to applicable law, to distribute its remaining assets to its Equity Owners after payment to creditors or (B) have all of the Permitted Entity Securities that it owns purchased by such Permitted Entity and/or other Equity Owners; and (vii) the business engaged in by such Person is one in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of the Indenture or reasonably related thereto or is the business of holding or disposing of Permitted Entity Securities. The term "Permitted Entity Securities" means, with respect to any Permitted Entity, any Capital Stock or Indebtedness (whether or not a security) of such Permitted Entity, other than Indebtedness permitted to be Incurred by such Permitted Entity pursuant to clause (iv)(y) of the definition of Permitted Entity, but in any event including Permitted Indebtedness described in clause (b) of the definition thereof. The term "Permitted Indebtedness" means: (a) Indebtedness and preferred stock (including preference stock) of the Company and its Subsidiaries existing on the date of the Indenture, including, but not limited to, the 12 3/4% Notes; (b) Indebtedness (including Redeemable Stock) owed or issued by the Company to a Subsidiary or owed or issued by a Subsidiary to the Company, any other Subsidiary of the Company or to any other holder of Capital Stock of such Subsidiary in proportion to such holder's ownership interest in such Subsidiary; (c) Indebtedness and preferred stock (including preference stock) of a Permitted Entity to the extent not prohibited by clause (iii) or clause (iv)(x) of the definition thereof; (d) Indebtedness of the Company and its Subsidiaries by reason of entering into indemnification agreements and guarantees in connection with the disposition of assets, provided that the Indebtedness with respect to such indemnification agreements and guarantees shall be limited to the amount of the net proceeds of such disposition; (e) guarantees, letters of credit and indemnity agreements relating to performance and surety bonds incurred in the ordinary course of business; (f) Indebtedness of a Subsidiary of the Company (including undrawn amounts under lines of credit that are subsequently drawn upon) issued, assumed or guaranteed by such Subsidiary prior to the date upon which such Subsidiary becomes a Subsidiary of the Company (excluding Indebtedness incurred by such entity in connection with, or in contemplation of, its becoming a Subsidiary of the Company), 93 97 provided that such Indebtedness and the holders thereof do not, at any time, have direct or indirect recourse to any property or assets of the Company and its Subsidiaries other than the property and assets of such acquired entity and its Subsidiaries, including the Capital Stock thereof, or any newly organized entity formed to effect such acquisition, and, in each case, the monetary proceeds thereof; (g) Indebtedness incurred by the Company in connection with the purchase, redemption, retirement or other acquisition by the Company of the USWA Preferred Stock outstanding on the date of the Indenture (plus additional shares of such USWA Preferred Stock issued as dividends thereon or on such shares issued as dividends); (h) Indebtedness of the Company and its captive wholly owned insurance Subsidiaries in respect of letters of credit in an aggregate amount not to exceed at any one time outstanding $20,000,000 issued for the account of the Company or such Subsidiaries in support of certain self-insurance and reinsurance obligations entered into from time to time by the Company or such captive wholly owned insurance Subsidiaries of the Company; (i) Indebtedness consisting of industrial revenue bonds and related indemnity agreements; and (j) Prior to a merger of the Company and KAC, Indebtedness in respect of the Preferred Dividend Intercompany Notes. The term "PIK Note" means that certain PIK Note issued by the Company to a subsidiary of MAXXAM on December 15, 1992, in the principal amount of $2.5 million, which bears interest at a rate equal to 12% per annum and is due on June 30, 1995. The term "Preferred Dividend Intercompany Notes" means (i) the intercompany note in respect of the Series A Shares, (ii) the intercompany note in respect of the PRIDES and (iii) any other intercompany note representing a loan by KAC to the Company from the proceeds of an offering of preferred stock by KAC which loan shall have a term not in excess of five years from the date of issuance and shall be in an amount equal to the aggregate dividends scheduled to accrue on such preferred stock during the term thereof and payable at approximately the same times and in approximately the same amounts as such dividends are payable, provided that, (a) the aggregate amount of all such intercompany notes referred to in this clause (iii) shall not exceed $50,000,000 at any one time outstanding and (b) the remaining net proceeds from such preferred stock offering shall have been used by KAC to make a capital contribution to (or to purchase common stock of) the Company. The term "Redeemable Stock" means, with respect to any Person, any preferred 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 exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, in whole or in part, pursuant to a sinking fund obligation or otherwise, or, at the option of the holder thereof, is redeemable in whole or in part, or is exchangeable into a security of a Person other than the issuer of such Capital Stock that is owned by such Person or its Subsidiaries or into Indebtedness of, or that is owned by, such Person or its Subsidiaries, in each case on or prior to the scheduled maturity date of the Notes. The term "Refinance" means to renew, extend, refund, replace, restructure, refinance, amend or modify any Indebtedness. The term "Refinancing" shall have a correlative meaning. The term "Refinancing Sale and Leaseback Transaction" means any sale and leaseback transaction with respect to which the Attributable Debt is at least $100,000,000, and which is designated by the Company as a Refinancing Sale and Leaseback Transaction in a notice to the Trustee pursuant to the terms of the Indenture, which notice shall indicate the Attributable Debt with respect to such Refinancing Sale and Leaseback Transaction. The term "Restricted Investment" means, with respect to any Person, (i) any amount paid, or any property transferred, in each case, directly or indirectly by such Person for Capital Stock or other securities of, or as a contribution to, any Affiliate of the Company; (ii) any direct or indirect loan or advance by such Person 94 98 to any Affiliate of the Company 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 direct or indirect guarantee by such Person of any obligations, contingent or otherwise, of any Affiliate of the Company; and (iv) the acquisition by such Person of, or any investment by such Person in, any Capital Stock or similar interest of any other Person (other than the Company); provided, however, that the following shall not be Restricted Investments: (a) investments in or acquisitions of Capital Stock or similar interests in any Person (other than a Person in which Affiliates of the Company have an interest other than through the Company, its Subsidiaries and its Non-Affiliate Joint Ventures) that (I) is or becomes, at the time of the acquisition thereof, a Subsidiary of the Company and is or is to be primarily engaged in an operating business or (II) is, at the time of the acquisition thereof, engaged or to be engaged primarily in businesses in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of the Indenture or reasonably related extensions thereof, provided that such securities are not, at the time of the acquisition thereof (without regard to any exchanges, modifications or other changes thereto subsequent to such acquisition), registered under the Exchange Act; (b) 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), or any Restricted Investment made in connection with an exchange of such Restricted Investment with the issuer thereof; (c) investments in or acquisitions of Permitted Entity Securities of any Permitted Entity; (d) transactions with officers or directors of the Company or any Subsidiary of the Company entered into in the ordinary course of business (including compensation or employee benefit arrangements with any officer or director of the Company or any Subsidiary of the Company); (e) investments in or acquisitions of Capital Stock or similar interests in Persons (other than Affiliates of the Company) received in the bankruptcy or reorganization of or by such Person or any exchange of such investment with the issuer thereof or taken in settlement of or other resolution of claims or disputes, and, in each case, extensions, modifications and renewals thereof; and (f) investments in Persons (other than Affiliates of the Company) received by such person as consideration from Asset Sales to the extent not prohibited by the provisions described under "-- Limitation on Asset Sales" (including, for the purposes of this definition, those sales, transfers and other dispositions described in clause (B) and the transactions described in clause (D) of such definition) or any exchange of such investment with the issuer thereof, and extensions, modifications and renewals thereof. The term "Significant Subsidiary" shall have the meaning assigned to that term under Regulation S-X of the Securities Act as in effect on the date of the Indenture; provided, however, that (i) each Subsidiary Guarantor on the date of the Indenture shall be deemed to be a Significant Subsidiary of the Company for so long as such Subsidiary is a Subsidiary Guarantor and (ii) each of VALCO, KAAC and Alpart, and each Subsidiary of the Company that, directly or indirectly, holds an interest in VALCO, Alpart or QAL, and each Subsidiary Guarantor that becomes a Subsidiary Guarantor after the date of the Indenture (so long as such Subsidiary Guarantor is a Subsidiary Guarantor) shall be deemed to be a Significant Subsidiary if it (singly, or, in the case of VALCO, Alpart or QAL, together with the other Subsidiaries of the Company that hold an interest in such entity) meets the total assets test of the term "Significant Subsidiary" under Regulation S-X as in effect on the date of the Indenture, but substituting 5% in such test for 10%. The term "Specified Parties" means each of AJI, Alpart, KAAC, KJC, VALCO, Kaiser Aluminium International, Inc., a Delaware corporation, and its successors, Kaiser Bauxite Company, a Nevada corporation, and its successors, Kaiser Jamaica Bauxite Company, a Jamaican partnership, and its successors, and Queensland Alumina Security Corporation, a Delaware corporation, and its successors. 95 99 The term "Subordinated Note Indenture" means the indenture, dated as of February 1, 1993, among the Company, as issuer, the parties named therein as and, if applicable, thereafter becoming guarantors, and The First National Bank of Boston, a national banking association, as trustee, as amended or supplemented from time to time in accordance with the terms thereof. The term "Subsidiary Guarantors" means the Persons from time to time named as Subsidiary Guarantors in the Indenture or that become Subsidiary Guarantors thereunder, and each of their respective successors, provided, however, that in the event that a Subsidiary Guarantor is released from its Guarantee in accordance with the terms of the Indenture, such Subsidiary Guarantor shall without any further action no longer be a Subsidiary Guarantor for any purpose of the Indenture or the Notes. On the date of the Indenture, the Subsidiary Guarantors are AJI, KAAC, KFC and KJC. The term "Tax Sharing Agreements" shall mean, collectively, the tax-sharing agreement between the Company and KAC, dated as of June 30, 1993, and the tax-sharing agreement between the Company and MAXXAM, dated as of December 21, 1989, and as each may be amended in accordance with Section 4.08(b)(x) of the Indenture. The term "U.S. Fixed Assets" means, at any time, any real property, plant or equipment of the Company or any of its Subsidiaries located at such time in the United States of America, now owned or hereafter acquired, together with any fixed assets that are Improvements thereto or thereon and any fixed assets that are proceeds thereof. The term "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). CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a summary of certain U.S. federal income tax consequences associated with the acquisition, ownership and disposition of the Notes. The summary is based upon current laws, regulations, rulings and judicial decisions all of which are subject to change. The discussion below does not address all aspects of 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 federal income tax laws (for example, financial institutions, tax-exempt organizations, foreign corporations, and individuals who are not citizens or residents of the United States). In addition, the discussion does not address any aspect of state, local or foreign taxation and assumes that purchasers of the Notes will hold such securities as "capital assets" (generally, property held for investment within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF THE NOTES AS WELL AS THE APPLICATION OF STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX LAWS. ORIGINAL ISSUE DISCOUNT The discussion in this paragraph is based on final Treasury regulations dealing with original issue discount ("OID") that were issued by the Internal Revenue Service on January 27, 1994 (the "Regulations"). The Regulations generally apply to debt instruments issued on or after April 4, 1994 but may be relied upon for debt instruments issued after December 21, 1992, and before April 4, 1994. Generally, a holder of a debt instrument issued at an OID must include OID in income for United States federal income tax purposes as it accrues, in accordance with a constant yield method based on a compounding of interest, before the receipt of cash payments attributable to such income, unless the amount of OID is de minimis (generally, 1/4 of 1 percent of such instrument's stated redemption price at maturity 96 100 multiplied by the number of complete years to its maturity). It is anticipated that the amount of OID, if any, on the Notes will qualify for the de minimis exception. Therefore, such OID will be includible in a Holder's income only as stated principal payments are made on the Notes and will be treated as gain recognized on retirement of the Notes. Any gain recognized by a Holder on a sale or exchange of a Note and attributable to de minimis OID will be capital gain if the Note was held as a capital asset, and will be long-term capital gain if the holding period for the Note exceeds one year. If a subsequent holder purchases a Note at a premium, such holder will not include the de minimis OID in income. BACKUP WITHHOLDING Certain noncorporate holders may be subject to backup withholding at a rate of 31% on certain payments of interest and original issue discount on the Notes, and to proceeds of the sale of the Notes before maturity. Generally, backup withholding applies only when the taxpayer fails to furnish or certify a proper Taxpayer Identification Number or when the taxpayer is notified by the Internal Revenue Service that the taxpayer has failed to report payments of interest and dividends properly. Holders should consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining any applicable exemption. DESCRIPTION OF THE PRIDES In connection with the offering of Notes hereby, KAC is concurrently offering, pursuant to a separate prospectus, 8,000,000 shares of PRIDES (subject to increase if the underwriters' 15% overallotment option is exercised). The following is a summary of certain material terms of the shares of PRIDES. General. The PRIDES are shares of convertible preferred stock and rank (i) senior in right and priority of payment to the KAC Common Stock as to dividends or upon liquidation and (ii) on a parity with KAC's outstanding Series A Shares as to dividends and upon liquidation. The PRIDES mandatorily convert into shares of KAC Common Stock on December 31, 1997 (the "Mandatory Conversion Date"), and KAC has the option to redeem the shares of PRIDES, in whole or in part, at any time and from time to time on or after December 31, 1996 and prior to the Mandatory Conversion Date at the Call Price (as defined), payable in shares of KAC Common Stock. In addition, the PRIDES are convertible into shares of KAC Common Stock at the option of the holder at any time prior to the Mandatory Conversion Date as set forth below. Dividends. Holders of shares of PRIDES will be entitled to receive annual cumulative dividends at a rate of $. per annum for each share of PRIDES. Dividends cease to accrue in respect of the shares of PRIDES on the earlier of (i) the day immediately prior to the Mandatory Conversion Date or (ii) the day immediately prior to their earlier redemption. Mandatory Conversion. On the Mandatory Conversion Date, unless previously redeemed or converted, each outstanding share of PRIDES will mandatorily convert into (i) one share of KAC Common Stock, subject to adjustment in certain events, and (ii) the right to receive cash in an amount equal to all accrued and unpaid dividends thereon (other than previously declared dividends payable to a holder of record on a prior date). Optional Redemption. Shares of PRIDES are not redeemable prior to December 31, 1996. At any time and from time to time on or after December 31, 1996 until immediately prior to the Mandatory Conversion Date, KAC may redeem any or all of the outstanding shares of PRIDES. Upon any such redemption, each holder will receive, in exchange for each share of PRIDES, a number of shares of KAC Common Stock equal to the sum of (i) $ , declining after December 31, 1996, to $ until the Mandatory Conversion Date, and (ii) all accrued and unpaid dividends thereon (other than previously declared dividends payable to a holder of record as of a prior date) (the "Call Price") divided by the Current Market Price (as defined) on the applicable date of determination, but in no event less than of a share of KAC Common Stock, subject to adjustment. 97 101 Conversion at the Option of the Holder. At any time prior to the Mandatory Conversion Date, unless previously redeemed, each share of PRIDES is convertible at the option of the holder thereof into of a share of KAC Common Stock, equivalent to a conversion price of $ per share of Common Stock (the "Conversion Price"), subject to adjustment. UNDERWRITING The Underwriters named below (the "Underwriters"), acting through Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), have severally agreed, subject to the terms and conditions of a purchase agreement (the "Purchase Agreement"), to purchase from the Company the respective principal amounts of the Notes set forth below opposite their names. The Purchase Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the Notes if any are purchased.
PRINCIPAL UNDERWRITERS AMOUNT -------------------------------------------------------------- ----------- Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................... $ Bear, Stearns & Co. Inc....................................... Donaldson, Lufkin & Jenrette Securities Corporation........... PaineWebber Incorporated...................................... Salomon Brothers Inc.......................................... ------------ Total............................................ $225,000,000 ------------ ------------
The Underwriters propose initially to offer the Notes to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of % of the principal amount. The Underwriters may allow, and such dealers may reallow, a discount not in excess of % of the principal amount of the Notes to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed by the Underwriters. The Underwriters for this offering of Notes are also acting as underwriters for the PRIDES Offering and will receive underwriting discounts and commissions in connection therewith. The Underwriters for this offering of Notes also acted as underwriters in connection with the public offering of the $.65 Depositary Shares and received underwriting discounts and commissions in connection therewith. Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns & Co. Inc. acted as underwriters in connection with the public offering by MGI, a subsidiary of MAXXAM, of $100,000,000 aggregate principal amount of MGI's 11 1/4% Senior Secured Notes due 2003 and $126,720,000 aggregate principal amount of MGI's 12 1/4% Senior Secured Discount Notes due 2003 for which they received underwriting discounts and commissions. Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc acted as underwriters in connection with the public offering by (i) The Pacific Lumber Company ("Pacific Lumber"), an indirect subsidiary of MAXXAM, of $235.0 million aggregate principal amount of Pacific Lumber's 10 1/2% Senior Notes due 2003 for which they received underwriting discounts and commissions and (ii) Scotia Pacific Holding Company ("Scotia Pacific"), a wholly owned subsidiary of Pacific Lumber, of $385.0 million aggregate principal amount of Scotia Pacific's 7.95% Timber Collateralized Notes due 2015 for which they also received underwriting discounts and commissions. There is no existing market for the Notes. The Underwriters have advised the Company that each Underwriter currently intends to make a market in the Notes, although the Underwriters are not obligated to do so and any market making may be discontinued at any time without notice. No assurance can be given, however, as to the liquidity of the trading market for the Notes, or that an active trading market for the Notes will develop. If an active public market for the Notes does not develop, the market price and liquidity of the 98 102 Notes may be adversely affected. The Notes will not be listed on any national securities exchange or authorized for trading on The Nasdaq Stock Market. The Company has agreed to indemnify the Underwriters against certain civil liabilities, including liabilities under the Securities Act. LEGAL MATTERS The legality of the Notes will be passed upon for the Company by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, New York, New York. Certain legal matters will be passed upon for the Underwriters by Latham & Watkins, New York, New York. Kramer, Levin, Naftalis, Nessen, Kamin & Frankel performs legal services for MAXXAM and its subsidiaries. Ezra G. Levin is a partner of that firm and is a director of the Company, MAXXAM, KAC and certain of MAXXAM's other subsidiaries as well as a trustee of Federated. EXPERTS The consolidated financial statements and schedules for the years ended December 31, 1992, 1991 and 1990 included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen & Co., independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 99 103 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- AUDITED FINANCIAL STATEMENTS KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES Report of Independent Public Accountants............................................ F-2 Consolidated Balance Sheets at December 31, 1992 and 1991........................... F-3 Statements of Consolidated Income for the Years Ended December 31, 1992, 1991 and 1990............................................................................. F-4 Statements of Consolidated Cash Flows for the Years Ended December 31, 1992, 1991 and 1990......................................................................... F-5 Notes to Consolidated Financial Statements.......................................... F-6 UNAUDITED FINANCIAL STATEMENTS KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES Consolidated Balance Sheets at September 30, 1993 and December 31, 1992............. F-24 Statements of Consolidated Income (Loss) for the Nine Months Ended September 30, 1993 and 1992.................................................................... F-25 Statements of Consolidated Cash Flows for the Nine Months Ended September 30, 1993 and 1992......................................................................... F-26 Notes to Interim Consolidated Financial Statements.................................. F-27
F-1 104 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors of Kaiser Aluminum & Chemical Corporation: We have audited the accompanying consolidated balance sheets of Kaiser Aluminum & Chemical Corporation (a Delaware corporation) and subsidiaries as of December 31, 1992 and 1991, and the related statements of consolidated income and cash flows for each of the three years in the period ended December 31, 1992. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kaiser Aluminum & Chemical Corporation and subsidiaries as of December 31, 1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1992 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Oakland, California February 8, 1993 F-2 105 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, ----------------------- 1992 1991 --------- --------- ASSETS Current assets: Cash and cash equivalents........................................... $ 18.5 $ 15.5 Receivables: Trade, less allowance for doubtful receivables of $3.0 in 1992 and $4.8 in 1991................................................ 174.0 163.9 Other............................................................ 97.1 55.1 Inventories......................................................... 439.9 498.6 Prepaid expenses and other current assets........................... 37.0 84.0 --------- --------- Total current assets........................................ 766.5 817.1 Investments in and advances to unconsolidated affiliates.............. 150.1 161.9 Property, plant, and equipment -- net................................. 1,066.8 1,014.5 Other assets.......................................................... 116.6 145.2 --------- --------- Total....................................................... $ 2,100.0 $ 2,138.7 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................... $ 136.6 $ 141.8 Accrued interest.................................................... 4.6 4.9 Accrued salaries, wages, and related expenses....................... 84.4 76.2 Other accrued liabilities........................................... 110.9 232.1 Payable to affiliates............................................... 78.5 87.1 Short-term borrowings............................................... 4.8 6.3 Long-term debt -- current portion................................... 25.9 26.3 --------- --------- Total current liabilities................................... 445.7 574.7 Long-term liabilities................................................. 217.9 212.9 Long-term debt........................................................ 765.1 681.5 Minority interests.................................................... 70.1 71.9 Redeemable preference stock -- aggregate liquidation value of $58.2 in 1992 and $65.3 in 1991.............................................. 32.8 34.8 Stockholders' equity: Preference stock -- cumulative and convertible, par value $100, authorized 1,000,000 shares; issued 26,006 shares in 1992 and 28,411 shares in 1991............................................ 2.0 2.2 Common stock, par value 33 1/3 cents, authorized 100,000,000 shares; issued 46,171,365 shares in 1992 and 1991........................ 15.4 15.4 Additional capital.................................................. 1,255.6 1,118.4 Retained earnings................................................... 481.2 476.2 Less: Note receivable from Kaiser Aluminum Corporation.............. (1,185.8) (1,049.3) --------- --------- Total stockholders' equity.................................. 568.4 562.9 --------- --------- Total....................................................... $ 2,100.0 $ 2,138.7 --------- --------- --------- ---------
The accompanying notes to consolidated financial statements are an integral part of these statements. F-3 106 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME (IN MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1992 1991 1990 -------- -------- -------- Net sales.................................................... $1,909.1 $2,000.8 $2,095.0 -------- -------- -------- Costs and expenses: Cost of products sold...................................... 1,619.3 1,594.2 1,525.2 Depreciation............................................... 80.3 73.2 70.5 Selling, administrative, research and development, and general................................................. 119.3 117.6 122.9 -------- -------- -------- Total costs and expenses.............................. 1,818.9 1,785.0 1,718.6 -------- -------- -------- Operating income............................................. 90.2 215.8 376.4 Other income (expense): Interest and other income.................................. 16.9 16.4 11.0 Interest expense........................................... (78.7) (82.7) (96.6) -------- -------- -------- Income before income taxes and minority interests............ 28.4 149.5 290.8 Provision for income taxes................................... (5.3) (32.4) (75.6) Minority interests........................................... 6.5 7.6 5.5 -------- -------- -------- Net income................................................... $ 29.6 $ 124.7 $ 220.7 -------- -------- -------- -------- -------- --------
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 107 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS (IN MILLIONS OF DOLLARS)
YEAR ENDED DECEMBER 31, ------------------------------- 1992 1991 1990 ------- ------- ------- Cash flows from operating activities: Net income.................................................. $ 29.6 $ 124.7 $ 220.7 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................. 80.3 73.2 70.5 Amortization of deferred financing costs and discount on long-term debt......................................... 11.5 10.7 10.4 Minority interests....................................... (6.5) (7.6) (5.5) Increase in accrued income taxes......................... 3.5 10.1 32.9 Equity in losses of unconsolidated affiliates............ 1.9 19.5 14.6 Recognition of previously deferred income from a forward alumina sale........................................... (25.7) (42.0) (95.1) (Increase) decrease in receivables....................... (58.6) (2.7) 43.1 Decrease (increase) in inventories, prepaid expenses, and other current assets................................... 66.3 (13.0) (48.0) Decrease in accounts payable, payable to affiliates, and accrued liabilities................................ (92.8) (33.8) (30.5) Other.................................................... 18.5 4.6 (19.0) ------- ------- ------- Net cash provided by operating activities........... 28.0 143.7 194.1 Cash flows from investing activities: Net proceeds from disposition of property and investments... 26.1 8.8 16.2 Capital expenditures........................................ (114.4) (118.1) (115.1) ------- ------- ------- Net cash used for investing activities.............. (88.3) (109.3) (98.9) Cash flows from financing activities: Repayments of long-term debt, including revolving credit.... (221.4) (533.3) (516.3) Borrowings of long-term debt, including revolving credit.... 303.8 575.9 386.8 Net short-term (payments) borrowings........................ (1.5) 6.7 Borrowings from MAXXAM Inc.................................. 2.5 Dividends paid.............................................. (12.8) (94.9) (1.6) Capital stock issued........................................ 23.3 Redemption of preference stock.............................. (7.3) (20.4) (35.4) ------- ------- ------- Net cash provided by (used for) financing activities........................................ 63.3 (42.7) (166.5) Net increase (decrease) in cash and cash equivalents during the year.................................................... 3.0 (8.3) (71.3) Cash and cash equivalents at beginning of year................ 15.5 23.8 95.1 ------- ------- ------- Cash and cash equivalents at end of year...................... $ 18.5 $ 15.5 $ 23.8 ------- ------- ------- ------- ------- ------- Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest.................. $ 68.1 $ 74.5 $ 86.0 Income taxes paid........................................... 1.8 20.9 39.2 Tax allocation payments to MAXXAM Inc....................... 28.1 39.1 5.7
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 108 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the statements of Kaiser Aluminum & Chemical Corporation ("KACC" or the "Company") and its majority owned subsidiaries. Investments in 50%-or-less-owned entities are accounted for primarily by the equity method. Intercompany balances and transactions are eliminated. The Company is a wholly owned subsidiary of Kaiser Aluminum Corporation ("Kaiser"), which is an indirect subsidiary of MAXXAM Inc. ("MAXXAM"). Certain reclassifications of prior year information were made to conform to the current presentation. Cash and Cash Equivalents The Company considers only those short-term, highly liquid investments with original maturities of 90 days or less to be cash equivalents. Inventories Substantially all product inventories are stated at last-in, first-out ("LIFO") cost, not in excess of market. Replacement cost is not in excess of LIFO cost. Other inventories, principally operating supplies and repair and maintenance parts, are stated at the lower of average cost or market. Inventory costs consist of material, labor, and manufacturing overhead, including depreciation. Inventories consist of the following:
DECEMBER 31, --------------- 1992 1991 ------ ------ Finished fabricated products......................................... $ 91.2 $ 95.6 Primary aluminum and work in process................................. 128.7 184.4 Bauxite and alumina.................................................. 107.4 111.5 Operating supplies and repair and maintenance parts.................. 112.6 107.1 ------ ------ $439.9 $498.6 ------ ------ ------ ------
The Company recorded a pre-tax charge of approximately $29.0 in the fourth quarter of 1992 because of a reduction in the carrying value of its inventories caused principally by prevailing lower prices for alumina, primary aluminum, and fabricated products of $18.8, and a LIFO inventory liquidation of $10.2. Depreciation Depreciation is computed principally by the straight-line method at rates based upon the estimated useful lives of the various classes of assets. The principal estimated useful lives by class of assets are: Land improvements............................................. 8 to 25 years Buildings..................................................... 15 to 45 years Machinery and equipment....................................... 10 to 22 years
Recognition of Certain Sales In 1989, KACC entered into a forward alumina sales transaction to sell forward alumina at fixed prices through 1992. A portion of the selling price was received in the form of an initial payment of approximately $179.9, which approximately equaled the expected cash profit margin for the sale, discounted to present value. The initial payment has been recognized as revenue as the alumina was delivered. At December 31, 1992, substantially all of the initial payment has been recognized as revenue. F-6 109 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) Other Income Included in other income in 1992 are approximately $14.0 of pre-tax income for non-recurring adjustments to previously recorded liabilities and reserves in the fourth quarter. Included in interest and other income in 1991 is the receipt of a $12.0 fee in the first quarter from the Company's minority partner in consideration for the execution of an expansion agreement for the Alumina Partners of Jamaica ("Alpart") alumina refinery. The agreement provides for a program of expansion and modernization of Alpart at the existing ownership interest of 65% for KACC and 35% for KACC's minority partner. The prior expansion agreement provided for expansion rights of 75% for KACC and 25% for KACC's minority partner. Futures Contracts and Options The Company periodically enters into forward foreign exchange, commodity futures, and commodity option contracts, which are primarily accounted for as hedges of its revenues and costs. The gains and losses on these contracts are reflected in earnings concurrently with the hedged revenues or costs. The cash flows from these contracts are classified in a manner consistent with the underlying nature of the transactions. At December 31, 1992, the Company has contracts to purchase $18.3 of pounds sterling and $8.4 of Australian dollars at various fixed rates expiring on various dates through December 31, 1993. The Company is entitled to withdraw the excess of current market value over the premiums paid on certain commodity option contracts. These withdrawals were $3.7 and $70.0 at December 31, 1992 and 1991, respectively, and are included in other accrued liabilities. Deferred Financing Costs Costs incurred to obtain financing are deferred and amortized over the estimated term of the related borrowing. Foreign Currency The Company uses the United States dollar as the functional currency for its foreign operations. Fair Value of Financial Instruments Unless otherwise disclosed, the carrying amount of all financial instruments is a reasonable estimate of fair value. 2. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES Summary combined financial information is provided below for unconsolidated aluminum investments, most of which supply and process raw materials. The investees are Queensland Alumina Limited ("QAL") (28.3% owned), Anglesey Aluminium Limited ("Anglesey") (49.0% owned), and Kaiser Jamaica Bauxite Company (49.0% owned). The equity in earnings (losses) before income taxes of such operations are treated as a reduction (increase) in cost of products sold. At December 31, 1992 and 1991, KACC's net receivables from these affiliates were not material. F-7 110 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) SUMMARY OF COMBINED FINANCIAL POSITION
DECEMBER 31, ------------------ 1992 1991 ------- ------- Current assets............................................................. $ 295.0 $ 286.9 Property, plant, and equipment -- net...................................... 389.4 411.0 Other assets............................................................... 49.9 53.4 ------- ------- Total assets............................................................. $ 734.3 $ 751.3 ------- ------- ------- ------- Current liabilities........................................................ $ 132.8 $ 156.7 Long-term debt............................................................. 275.0 264.2 Other liabilities.......................................................... 20.0 30.7 Stockholders' equity....................................................... 306.5 299.7 ------- ------- Total liabilities and stockholders' equity............................... $ 734.3 $ 751.3 ------- ------- ------- -------
SUMMARY OF COMBINED OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------- 1992 1991 1990 ------- ------- ------- Net sales..................................................... $ 586.6 $ 589.0 $ 569.0 Costs and expenses............................................ (586.7) (630.7) (565.4) Provision for income taxes.................................... 6.9 9.5 4.0 ------- ------- ------- Net income (loss)............................................. $ 6.8 $ (32.2) $ 7.6 ------- ------- ------- ------- ------- ------- Company equity in losses...................................... $ (1.9) $ (19.5) $ (12.8) ------- ------- ------- ------- ------- -------
The Company's equity in losses differs from the summary net income (loss) due to various percentage ownerships in the entities and equity method accounting adjustments. At December 31, 1992, KACC's investment in its unconsolidated affiliates exceeded its equity in their net assets by approximately $49.8. The Company is amortizing this amount over a 12-year period, which results in an annual amortization charge of approximately $7.6. The Company and its affiliates have interrelated operations. The Company provides some of its affiliates with services such as financing, management, and engineering. Significant activities with affiliates include the acquisition and processing of bauxite, alumina, and primary aluminum. Purchases from these affiliates were $219.4, $238.7, and $228.2 in the years ended December 31, 1992, 1991, and 1990, respectively. No dividends were received from investees in the three years ended December 31, 1992. 3. PROPERTY, PLANT, AND EQUIPMENT The major classes of property, plant, and equipment are as follows:
DECEMBER 31, --------------------- 1992 1991 -------- -------- Land and improvements......................................... $ 123.8 $ 83.2 Buildings..................................................... 164.1 141.1 Machinery and equipment....................................... 1,010.7 925.7 Construction in progress...................................... 70.3 87.5 -------- -------- 1,368.9 1,237.5 Accumulated depreciation...................................... 302.1 223.0 -------- -------- Property, plant, and equipment -- net....................... $1,066.8 $1,014.5 -------- -------- -------- --------
F-8 111 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 4. LONG-TERM DEBT Long-term debt and its maturity schedule are as follows:
DECEMBER 31, 1998 ----------------- AND 1992 1991 1993 1994 1995 1996 1997 AFTER TOTAL TOTAL ----- ------ ---- ---- ---- ------ ------ ------ 1989 Credit Agreement (6.07% at December 31, 1992) Revolving Credit Facility...... $290.0 $290.0 $205.0 Term Loan...................... $18.3 18.3 36.6 55.0 Pollution Control and Economic Development Facilities Obligations (fixed and variable rates)........................... .9 1.1 $1.2 $1.2 $1.2 $ 34.4 40.0 20.8 14 1/4% Senior Subordinated Notes............................ 320.5 320.5 319.8 Alpart CARIFA Loan................. 60.0 60.0 60.0 Alpart Term Loan (8.95%)........... 6.2 6.3 6.2 6.3 6.3 31.3 37.5 Other Borrowings (fixed and variable rates).................. .5 .7 .7 1.3 1.4 8.0 12.6 9.7 ----- ------ ---- ---- ---- ------ ------ ------ Total..................... $25.9 $316.4 $8.1 $8.8 $8.9 $422.9 791.0 707.8 ----- ------ ---- ---- ---- ------ Less current portion............... 25.9 26.3 ------ ------ Long-term debt..................... $765.1 $681.5 ------ ------ ------ ------
The 1989 Credit Agreement KACC entered into a credit agreement with a syndicate of commercial banks and other financial institutions (the "Banks") pursuant to the terms of which the Banks agreed to extend to KACC credit facilities in an aggregate principal amount of approximately $722.0 (as amended, "the 1989 Credit Agreement"). The obligations of KACC in respect of the credit facilities are guaranteed by Kaiser, and by a number of wholly owned subsidiaries of KACC, which, among other things, together directly own the Company's interest in Alpart and QAL. Loans under the 1989 Credit Agreement bear an annual interest rate, at KACC's election from time to time, equal to (i) the Reference Rate (prime) plus 1 1/2%, (ii) the CD Rate plus 2 5/8%, or (iii) the LIBO Rate plus 2 1/2%. All interest rates and fees are subject to a reduction or increase of 1/2% per annum, on a non-cumulative basis, depending upon KACC's interest coverage ratio, determined quarterly. As of December 31, 1992, the interest coverage ratio permitted no reduction or increase in interest rates and fees. The 1989 Credit Agreement requires KACC to maintain certain financial covenants and places restrictions on KACC's ability to, among other things, incur debt and liens, make investments, pay dividends, undertake transactions with affiliates, make capital expenditures, and enter into unrelated lines of business. Payment of dividends by KACC to Kaiser is subject to meeting certain conditions. As of December 31, 1992, $20.6 was available for payment of dividends, although under the terms of the 1989 Credit Agreement, no more than $3.0 may be paid in any quarter. The 1989 Credit Agreement requires KACC to prepay certain outstanding amounts from proceeds from Asset Dispositions, as defined, and to prepay certain amounts outstanding in an amount equal to 50% of Excess Cash Flow, as defined, for each fiscal year ending on or after December 31, 1990. The 1989 Credit Agreement is secured by, among other things, (i) mortgages on KACC's major domestic plants; (ii) subject to certain exceptions, liens on the accounts receivable, inventory, equipment, domestic patents and trademarks, and substantially all other personal property of KACC and certain of its subsidiaries; (iii) a pledge of all the stock of KACC owned by Kaiser; and (iv) pledges of all of the stock of a number of KACC's wholly owned subsidiaries, pledges of a portion of the stock of certain foreign subsidiaries, and pledges of a portion of the stock of certain partially owned foreign affiliates. F-9 112 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) The 1989 Credit Agreement comprises the following: Revolving Credit Facility -- The five-year Revolving Credit Facility provides for loans not to exceed the lesser of $350.0 or a borrowing base relating to the amount of eligible accounts receivable and eligible inventory of KACC and certain of its subsidiaries. Up to $50.0 of availability under the Revolving Credit Facility may be used for letters of credit. During each year the Revolving Credit Facility is outstanding, KACC is required to maintain $50.0 in unutilized capacity for a minimum of thirty consecutive days. As of December 31, 1992, $24.0 (of which $14.0 may be used for letters of credit) was available to KACC under the Revolving Credit Facility. Term Loan -- The five-year Term Loan was originally to be repaid in ten equal semiannual installments, commencing May 31, 1990. Following an amendment, the 1989 Credit Agreement requires, among other things, the mandatory prepayment, no later than July 29, 1993, of all amounts outstanding under the Term Loan. The Company expects that it will be able to satisfy its debt service and capital expenditures requirements through at least March 31, 1994, from cash flows generated by operations and, to the extent necessary, from borrowings under the revolving credit facility of the 1989 Credit Agreement. The Company believes that it will be able to renegotiate and/or refinance the 1989 Credit Agreement as necessary prior to its expiration. Gramercy Revenue Bonds In December 1992, KACC entered into an installment sale agreement (the "Sale Agreement") with the Parish of St. James, Louisiana (the "Louisiana Parish"), pursuant to which the Louisiana Parish issued $20.0 aggregate principal amount of its 7 3/4% Bonds due August 1, 2022 (the "Bonds") to finance the construction of certain solid waste disposal facilities at KACC's Gramercy plant. The proceeds from the sale of the Bonds were deposited into a construction fund and may be withdrawn, from time to time, pursuant to the terms of the Sale Agreement and the Bond indenture. At December 31, 1992, $17.4 remained in the construction fund. The Sale Agreement requires KACC to make payments to the Louisiana Parish in installments due on the dates and in the amounts required to permit the Louisiana Parish to satisfy all of its payment obligations under the Bonds. Senior Subordinated Notes On February 1, 1993, KACC issued $400.0 of 12 3/4% Senior Subordinated Notes due 2003 (the "12 3/4% Notes"). The net proceeds from the sale of the 12 3/4% Notes were used to retire the 14 1/4% Senior Subordinated Notes due 1995 (the "14 1/4% Notes"), to prepay $18.0 of the Term Loan, and to reduce outstanding borrowings under the Revolving Credit Facility. These transactions will result in a pre-tax extraordinary loss of approximately $33.0 in the first quarter of 1993, consisting primarily of the write-off of unamortized discount and deferred financing costs related to the 14 1/4% Notes and the tender premium on the 14 1/4% Notes. The obligations of KACC with respect to the 12 3/4% Notes are guaranteed, jointly and severally, by certain subsidiaries of KACC. The indenture governing the 12 3/4% Notes contains, among other things, restrictions on the ability of KACC and its subsidiaries to incur debt, undertake transactions with affiliates, and pay dividends. Alpart CARIFA Loan In December 1991, Alpart entered into a loan agreement with the Caribbean Basin Projects Financing Authority ("CARIFA") under which CARIFA loaned Alpart the proceeds from the issuance of CARIFA's industrial revenue bonds. The terms of the loan parallel the bonds' repayment terms. The $38.0 aggregate F-10 113 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) principal amount of Series A bonds matures on June 1, 2008. The Series A bonds bear interest at a floating rate of 87% of the applicable LIBID rate (LIBOR less 1/8 of 1%) on $37.5 of the principal amount (3.4% at December 31, 1992) with the remaining $.5 bearing interest at a fixed rate of 6.35%. The $22.0 aggregate principal amount of Series B bonds matures on June 1, 2007, and bears interest at a fixed rate of 8.25%. Proceeds from the sale of the bonds were used by Alpart to refinance interim loans from the partners in Alpart, to pay eligible project costs for the expansion and modernization of its alumina refinery and related port and bauxite mining facilities, and to pay certain costs of issuance. Under the terms of the loan agreement, Alpart must remain a qualified recipient for Caribbean Basin Initiative funds as defined in applicable laws. Alpart has agreed to indemnify bondholders of CARIFA for certain tax payments that could result from events, as defined, that adversely affect the tax treatment of the interest income on the bonds. Alpart's obligations under the loan agreement are secured by a $64.2 letter of credit guaranteed by the partners in Alpart (of which $22.5 is guaranteed by the Company's minority partner in Alpart). Capitalized Interest Interest capitalized in 1992, 1991, and 1990 was $4.4, $4.2, and $8.9, respectively. Fair Value Disclosure The fair value of the Company's long-term debt at December 31, 1992, is as follows: -- The estimated fair value of the 14 1/4% Notes is the amount used to retire the 14 1/4% Notes in February 1993, or $347.8. -- The fair value of all other long-term debt is estimated to be $459.0 based upon discounting the future cash flows using the current rate for debt of similar maturities and terms. 5. INCOME TAXES Income (loss) before income taxes and minority interests is as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1992 1991 1990 ------ ------ ------ Domestic......................................... $(81.3) $ 23.3 $ 47.9 Foreign.......................................... 109.7 126.2 242.9 ------ ------ ------ Total.......................................... $ 28.4 $149.5 $290.8 ------ ------ ------ ------ ------ ------
F-11 114 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) The provision (credit) for income taxes consists of:
FEDERAL FOREIGN STATE TOTAL ------- ------- ----- ------ 1992 Current.................................. $ 9.7 $11.4 $ .1 $ 21.2 Deferred................................. (13.1) (3.3) .5 (15.9) ------- ------- ----- ------ Total.................................... $ (3.4) $ 8.1 $ .6 $ 5.3 ------- ------- ----- ------ ------- ------- ----- ------ 1991 Current.................................. $ 25.3 $ 8.9 $ 1.1 $ 35.3 Deferred................................. (1.9) 1.4 (2.4) (2.9) ------- ------- ----- ------ Total.................................... $ 23.4 $10.3 $(1.3) $ 32.4 ------- ------- ----- ------ ------- ------- ----- ------ 1990 Current.................................. $ 18.7 $39.4 $ 3.0 $ 61.1 Deferred................................. (4.6) 17.1 2.0 14.5 ------- ------- ----- ------ Total.................................... $ 14.1 $56.5 $ 5.0 $ 75.6 ------- ------- ----- ------ ------- ------- ----- ------
The deferred (credit) provision for income taxes results from the following timing differences:
YEAR ENDED DECEMBER 31, ---------------------------- 1992 1991 1990 ------ ------ ------ Depreciation............................................. $ 5.4 $ 7.8 $ 8.4 Undistributed earnings or losses of foreign and unconsolidated affiliates.................. (12.3) (12.4) (3.3) Inventory costing differences............................ (5.5) 5.9 .6 Revision of prior years' tax estimates................... (2.9) (8.7) Net federal and foreign tax loss and credit carryforwards utilized and other foreign tax items................... .9 9.4 Other.................................................... (.6) 3.6 (.6) ------ ------ ------ Total............................................... $(15.9) $ (2.9) $ 14.5 ------ ------ ------ ------ ------ ------
A reconciliation between the provision for income taxes and the amount computed by applying the federal statutory income tax rate to income before income taxes and minority interests is as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1992 1991 1990 ----- ----- ----- Amount of federal income tax based upon the statutory rate................................... $ 9.7 $50.9 $98.9 Financial reporting/tax basis differences................... 4.2 (5.1) (8.7) Foreign taxes, net of federal tax benefit................... .4 (.2) (3.2) Percentage depletion........................................ (6.3) (6.0) (5.6) Revision of prior years' tax estimates...................... (2.9) (8.7) Other....................................................... .2 1.5 (5.8) ----- ----- ----- Provision for income taxes.................................. $ 5.3 $32.4 $75.6 ----- ----- ----- ----- ----- -----
In the years ended December 31, 1992 and 1991, the Company has reversed $2.9 and $8.7 of previously established income tax reserves. The Company and its subsidiaries are included in the consolidated federal income tax return of MAXXAM. The Company and MAXXAM entered into a tax allocation agreement (the "KACC Tax Allocation Agreement") which became effective as of October 28, 1988. Under the terms of the KACC Tax Allocation Agreement, MAXXAM will compute the federal income tax liability for the Company and its subsidiaries (collectively, the "Subgroup") as if the Subgroup were a separate affiliated group of corporations F-12 115 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) which was never connected with MAXXAM. The 1989 Credit Agreement prohibits the payment by KACC to MAXXAM of any amount due under the KACC Tax Allocation Agreement until December 15, 1994. Income taxes are classified as either domestic or foreign, based on whether payment is made or due to the United States or a foreign country. Certain income classified as foreign is also subject to domestic income taxes. At December 31, 1992, the Company has approximately $1.8 of regular tax foreign tax credit carryforwards and approximately $31.5 of alternative minimum tax foreign tax credit carryforwards which expire through 1994. These tax attributes are available to reduce future federal tax provisions for financial reporting purposes. The following table presents the Company's tax attributes for federal income tax purposes under the terms of the tax allocation agreement at December 31, 1992:
EXPIRING THROUGH ---------- Regular tax attribute carryforwards: Pre-acquisition net operating losses................... $58.1 2003 Pre-acquisition general business tax credits........... 55.9 2002 Foreign tax credits.................................... 4.5 1994 Alternative minimum tax credits........................ 3.1 Indefinite Alternative minimum tax attribute carryforwards: Pre-acquisition net operating losses................... 25.9 2003 Foreign tax credits.................................... 5.5 1994
The above tax attributes are subject to various limitations. In February 1992, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). The Company elected to adopt SFAS 109 as of January 1, 1993. The cumulative effect of the change in accounting principle for the adoption of SFAS 109 will be recorded as a charge to operations and will reduce results of operations by approximately $3.0. The implementation of SFAS 109 will require the Company to restate certain assets and liabilities to their pre-tax amounts from their net-of-tax amounts originally recorded. The adoption of SFAS 109, including the restatement of certain assets and liabilities, will primarily result in an increase in the net carrying value of property, plant, and equipment, an increase in long-term liabilities, and an increase in deferred income tax liabilities. Concurrent with the adoption of SFAS 109, the Company will implement the change in accounting method for postretirement benefits as discussed in Note 6. This accounting method change will result in the recognition of a deferred tax asset of approximately $234.0. The Company believes that its ability to generate future taxable income will allow for the realization of this deferred tax asset. F-13 116 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 6. EMPLOYEE BENEFIT AND INCENTIVE PLANS Retirement Plans Retirement plans are non-contributory for salaried and hourly employees. Employee pension benefit plans status was:
DECEMBER 31, --------------------------------------------------------------------------- 1992 1991 ------------------------------------ ------------------------------------ PLANS WITH ASSETS PLANS WITH PLANS WITH ASSETS PLANS WITH EXCEEDING ACCUMULATED EXCEEDING ACCUMULATED ACCUMULATED BENEFITS ACCUMULATED BENEFITS BENEFITS EXCEEDING ASSETS BENEFITS EXCEEDING ASSETS ----------------- ---------------- ----------------- ---------------- Accumulated benefit obligation: Vested employees................... $(1.8) $ (661.7) $(200.8) $ (457.4) Nonvested employees................ (.5) (49.1) (14.0) (31.4) ------ ---------------- ----------------- ---------------- Accumulated benefit obligation..... (2.3) (710.8) (214.8) (488.8) Additional amounts related to projected salary increases......... (.1) (33.6) (27.5) (9.4) ------ ---------------- ----------------- ---------------- Projected benefit obligation......... (2.4) (744.4) (242.3) (498.2) Plan assets (principally fixed income obligations and common stocks) at fair value......................... 2.5 570.0 217.9 386.9 ------ ---------------- ----------------- ---------------- Plan assets in excess of (less than) projected benefit obligation....... .1 (174.4) (24.4) (111.3) ------ ---------------- ----------------- ---------------- Unrecognized gains and obligations and prior-service cost: Net losses (gains)................. .1 34.6 .1 (2.2) Net obligations.................... 2.6 3.8 Prior-service cost................. .2 15.7 .2 16.5 ------ ---------------- ----------------- ---------------- Net unrecognized losses and obligations........................ .3 52.9 .3 18.1 ---------------- ---------------- Adjustment required to recognize minimum liability.................. (25.3) (9.1) ------ ---------------- ----------------- ---------------- Net pension assets (liabilities) included in the Consolidated Balance Sheet (principally in long-term liabilities)............. $ .4 $ (146.8) $ (24.1) $ (102.3) ------ ---------------- ----------------- ---------------- ------ ---------------- ----------------- ----------------
Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions, requires recognition of a minimum pension liability for unfunded plans. At December 31, 1992, the Company recorded an after-tax charge to equity of $6.7 because the additional liability required to be recognized exceeded unrecognized prior service cost (see Note 8). F-14 117 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) The components of net periodic pension cost are:
YEAR ENDED DECEMBER 31, ----------------------------- 1992 1991 1990 ------ ------- ------ Service cost -- benefits earned during the period....... $ 11.0 $ 9.8 $ 10.3 Interest cost on projected benefit obligation........... 58.8 59.3 56.3 Return on assets: Actual (gain) loss.................................... (26.3) (100.1) 4.9 Deferred (loss) gain.................................. (31.2) 49.9 (59.2) Net amortization and deferral......................... 2.1 .3 .8 ------ ------- ------ Net periodic pension cost............................... $ 14.4 $ 19.2 $ 13.1 ------ ------- ------ ------ ------- ------
Assumptions used to value obligations at year-end, and to determine the net periodic pension cost in the subsequent year, are:
YEAR ENDED DECEMBER 31, ----------------------------- 1992 1991 1990 ----- ----- ----- Discount rate........................................... 8.25% 8.25% 9.00% Expected long-term rate of return on assets............. 10.00% 10.00% 10.00% Rate of increase in compensation levels................. 5.00% 5.00% 6.00%
Incentive Plans Effective January 1, 1989, the Company adopted an unfunded Long-Term Incentive Plan (the "LTIP") for certain key employees of the Company and its consolidated subsidiaries. Substantially all compensation vested under the LTIP, as amended in 1991 and 1992, has been paid to the participants in cash or common stock of Kaiser as of December 31, 1992. Under the LTIP, as amended, amounts earned and unvested of approximately $6.1 will vest at the rate of 25% per year for the four-year period ending December 31, 1996. All future payments from the LTIP are expected to be in common stock of Kaiser. Effective January 1, 1990, the Company adopted an unfunded Middle Management Long-Term Incentive Plan. The Company also has a supplemental savings and retirement plan for salaried employees under which the participants contribute a percentage of their base salaries. The Company's expense for the above plans was $6.6, $6.5, and $15.0 for the years ended December 31, 1992, 1991, and 1990, respectively. Postretirement Benefits The Company and its subsidiaries provide postretirement health care and life insurance benefits to retired employees. Substantially all employees may become eligible for those benefits if they reach retirement age while still working for the Company or its subsidiaries. Those benefits are provided through administrative service contracts with various insurance carriers. The Company or its subsidiaries pay and expense the cost of providing these benefits as incurred. The cost of these benefits was $47.2, $40.2, and $40.0 for the years ended December 31, 1992, 1991, and 1990, respectively. In December 1990, the FASB issued Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106"), which requires that the expected cost of providing postretirement health care and life insurance benefits be charged to expense during the years that the employees render service. This is a significant change from the Company's current policy of recognizing these costs on a cash basis. The Company has elected to adopt SFAS 106 as of January 1, 1993. F-15 118 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) The cumulative effect of the change in accounting principle for the adoption of SFAS 106 will be recorded as a charge to results of operations and will reduce pre-tax results of operations by $732.0. The tax benefit for the adoption of SFAS 106 which will be recorded under SFAS 109, based upon the current statutory rate, is approximately $234.0. In addition, the Company estimates that annual 1993 postretirement benefit pre-tax expense will be approximately $18.4 higher than would have been reported under the current policy. The new accounting method has no effect on the Company's cash outlays for retiree benefits nor will the one-time charge affect the Company's compliance with its existing debt covenants. The Company reserves the right, subject to applicable collective bargaining agreements, to amend or terminate these benefits. Postemployment Benefits In November 1992, the FASB issued Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits ("SFAS 112"). SFAS 112 requires employers to recognize the obligation to provide postemployment benefits to former or inactive employees. The Company provides certain benefits to former or inactive employees after employment but before retirement. The Company has elected to adopt SFAS 112 as of January 1, 1993. The cumulative effect of the change in accounting principle for the adoption of SFAS 112 will reduce pre-tax results of operations by approximately $10.0 to $15.0. In addition, the Company believes that annual 1993 postemployment benefit expenses will not be materially different than would have been reported under the current policy. The new accounting method has no effect on the Company's cash outlays for postemployment benefits nor will it affect the Company's compliance with its existing debt covenants. The Company reserves the right, subject to applicable collective bargaining agreements and applicable legal requirements, to amend or terminate these benefits. 7. REDEEMABLE PREFERENCE STOCK In March 1985, KACC entered into a three-year agreement with the United Steelworkers of America (USWA) whereby shares of a new series of "Cumulative (1985 Series A) Preference Stock" would be issued to an employee stock ownership plan in exchange for certain elements of wages and benefits. Concurrently, a similar plan was established for certain nonbargaining employees which provided for the issuance of "Cumulative (1985 Series B) Preference Stock". Series A Stock and Series B Stock ("Series A and B Stock") each have a par value of $1 per share and a liquidation and redemption value of $50 per share plus accrued dividends, if any. For financial reporting purposes, Series A and B Stock were recorded at fair market value when issued, based on independent appraisals, with a corresponding charge to compensation cost. Carrying values have been increased each year to recognize accretion of redemption values and, in certain years, there have been other increases for reasons described below. Issuances and redemptions of Series A and B Stock are shown below.
1992 1991 1990 --------- --------- --------- Shares: Beginning of year............................... 1,305,550 1,718,051 2,407,086 Issued.......................................... 1,868 129 Redeemed........................................ (142,329) (414,369) (689,164) --------- --------- --------- End of year..................................... 1,163,221 1,305,550 1,718,051 --------- --------- --------- --------- --------- ---------
No additional Series A or B Stock will be issued based on compensation earned in 1992 or subsequent years. While held by the plan trustee, Series B Stock is entitled to cumulative annual dividends, when and as declared by the Board of Directors, payable in stock or in cash at the option of KACC on or after March 1, F-16 119 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 1991, in respect to years commencing January 1, 1990, based on a formula tied to KACC's income before tax from aluminum operations. When distributed to plan participants (generally upon separation from KACC), the Series A and B stocks are entitled to an annual cash dividend of $5 per share, payable quarterly, when and as declared by the Board of Directors. Redemption fund agreements require KACC to make annual payments by March 31 each year based on a formula tied to consolidated net income until the redemption funds are sufficient to redeem all Series A and B Stock. On an annual basis, the minimum payment is $4.3 and the maximum payment is $7.3. In April 1988, KACC entered into a two-and-one-half-year agreement with the USWA whereby KACC was obligated to make additional contributions to the Series A redemption fund of (i) $2.0 each in March 1989 and 1990; and (ii) an additional amount equal to 8.5% of the redemption value of all shares of Series A Stock distributed from the trust occasioned by the sale of any plant covered by the agreement to the extent there was not enough money in the redemption fund to redeem the shares presented for payment. As a result of this agreement, KACC also agreed with the USWA to contribute $22.5 to the Series A redemption fund in conjunction with the sale of Ravenswood. In March 1991 and 1992, KACC contributed $7.1 and $7.0 for the years 1990 and 1991, respectively, and will contribute $4.3 in March 1993 for 1992. Under the USWA labor contract effective November 1, 1990, KACC was obligated to offer to purchase up to 80 shares of Series A Stock from each active participant in 1991 at a price equal to its redemption value of $50 per share. KACC also agreed to offer to purchase up to an additional 40 shares from each participant in 1994. The employees may elect to receive their shares, accept cash, or place the proceeds into KACC's 401(k) savings plan. Under separate action, KACC also offered to purchase 80 shares of Series B stock from active participants in 1991. In 1991, KACC purchased $11.1 of Series A stock and $2.1 of Series B stock. If the remaining shares of Series A stock are purchased by the Company, the purchases will total $4.1 in 1994. The Series A and B Stock is distributed in the event of death, retirement, or in other specified circumstances. KACC may also redeem such stock at $50 per share plus accrued dividends, if any. At the option of the plan participant, the trustee shall redeem stock distributed from the plans at redemption value to the extent funds are available in the redemption fund. Under the Tax Reform Act of 1986, at the option of the plan participant, KACC must purchase distributed shares earned after December 31, 1985, at redemption value on a five-year installment basis, with interest at market rates. The obligation of KACC to make such installment payments must be secured. The Series A and B Stock is entitled to the same voting rights as KACC common stock and to certain additional voting rights under certain circumstances, including the right to elect, along with other KACC preference stockholders, two directors whenever accrued dividends have not been paid on two annual dividend payment dates, or when accrued dividends in an amount equivalent to six full quarterly dividends are in arrears. The Series A and B Stock restricts the ability of KACC to redeem or pay dividends on common stock if KACC is in default on any dividends payable on the Series A and B Stock. F-17 120 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 8. STOCKHOLDERS' EQUITY Changes in stockholders' equity were:
PREFERENCE INTER- STOCK COMMON ADDITIONAL RETAINED COMPANY ($100 PAR) STOCK CAPITAL EARNINGS NOTE ---------- ------ -------- ---------- --------- BALANCE, JANUARY 1, 1990.............. $ 2.9 $15.0 $ 868.1 $ 246.3 $ (821.8) Net income.......................... 220.7 Interest on intercompany note....... 107.2 (107.2) Conversions of 6,844 preference shares into cash................. (.5) Dividends: Preference stock................. (1.7) Kaiser/KACC transfer............. (.1) Redeemable preference stock accretion........................ (11.8) ---------- ------ -------- ---------- --------- BALANCE, DECEMBER 31, 1990............ 2.4 15.0 975.2 453.5 (929.0) Net income.......................... 124.7 Interest on intercompany note....... 120.3 (120.3) Sale of common stock to Kaiser...... .4 22.9 Conversions of 3,262 preference shares into cash................. (.2) Dividends: Preference stock................. (1.9) Common stock..................... (93.0) Redeemable preference stock accretion........................... (7.1) ---------- ------ -------- ---------- --------- BALANCE, DECEMBER 31, 1991............ 2.2 15.4 1,118.4 476.2 (1,049.3) Net income.......................... 29.6 Interest on intercompany note....... 136.5 (136.5) Conversions of 2,405 preference shares into cash................. (.2) Additional pension liability (see Note 6)..................... (6.7) Dividends: Preference stock................. (1.4) Common stock..................... (11.4) Redeemable preference stock accretion........................ (5.1) LTIP common stock issued............ .7 ---------- ------ -------- ---------- --------- BALANCE, DECEMBER 31, 1992............ $ 2.0 $15.4 $1,255.6 $ 481.2 $(1,185.8) ---------- ------ -------- ---------- --------- ---------- ------ -------- ---------- ---------
Preference Stock The outstanding shares of KACC preference stocks, in descending order of seniority, were:
DECEMBER 31, ----------------- 1992 1991 ------ ------ Preference, Cumulative Convertible, $100 par: 4 1/8%........................................................... 4,110 4,440 4 3/4% (1957 Series)............................................. 3,054 3,721 4 3/4% (1959 Series)............................................. 14,607 15,180 4 3/4% (1966 Series)............................................. 4,235 5,070
F-18 121 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) KACC Cumulative Convertible Preference Stocks, $100 par value ("100 Preference Stocks"), restrict acquisition of junior stock and payment of dividends. At December 31, 1992, such provisions were less restrictive as to the payment of cash dividends than the 1989 Credit Agreement provisions. KACC has the option to redeem the $100 Preference Stocks at par value plus accrued dividends. KACC does not intend to issue any additional shares of the $100 Preference Stocks. The 4 1/8% and 4 3/4% (1957 Series, 1959 Series, and 1966 Series) $100 Preference Stocks can be exchanged for per share cash amounts of $69.30, $77.84, $78.38, and $76.46, respectively. KACC records the $100 Preference Stocks at their exchange amounts for financial statement presentation. Intercompany Note The Intercompany Note bears interest at a fixed rate of 13% per annum. No interest or principal payments are due until December 21, 2000, after which interest and principal will be payable over a 15-year term pursuant to a predetermined schedule. Accrued interest is accounted for as additional contributed capital. Dividends The Company paid quarterly cash dividends on common stock of $50.0, $37.3, $2.9, and $2.8 in 1991. The Company paid cash dividends on common stock of $2.9 in each quarter of 1992. In the event that Kaiser pays any distributions to its shareholders, the 1989 Credit Agreement requires MAXXAM and any subsidiary of MAXXAM to use the entire proceeds of any such distributions received by MAXXAM or any subsidiary of MAXXAM to purchase a Pay-in-Kind Note (the "PIK Note") from the Company. On December 15, 1992, the Company issued a PIK Note to a subsidiary of MAXXAM in the principal amount of $2.5, representing the entire amount of the dividend received by such subsidiary in respect of the shares of Kaiser's common stock which it owns. The PIK Note bears interest, compounded semiannually, at a rate equal to 12% per annum, and is due and payable, together with accrued interest thereon, on June 30, 1995. 9. COMMITMENTS AND CONTINGENCIES The Company has financial commitments, including purchase agreements, tolling arrangements, forward foreign exchange contracts, forward sales contracts, letters of credit, and guarantees. Purchase agreements and tolling arrangements include agreements to supply alumina to Anglesey and to purchase aluminum from that company. Similarly, KACC has long-term agreements for the purchase and tolling of bauxite into alumina in Australia by QAL. These obligations expire in 2008. Under the agreements, KACC is unconditionally obligated to pay its proportional share of debt, operating costs, and certain other costs of QAL. The aggregate minimum amount of required future principal payments at December 31, 1992, is $70.7, due in 1997. The KACC share of payments, including operating costs and certain other expenses under the agreement, was $99.2, $107.6, and $88.9 for the years ended December 31, 1992, 1991, and 1990, respectively. Minimum rental commitments under operating leases at December 31, 1992, are as follows: years ending December 31, 1993 -- $20.4; 1994 -- $19.3; 1995 -- $18.4; 1996 -- $18.0; 1997 -- $17.4; thereafter -- $261.7. The future minimum rentals receivable under noncancelable subleases were $94.5 at December 31, 1992. Rental expenses were $26.2, $23.3, and $23.1 for the years ended December 31, 1992, 1991, and 1990, respectively. F-19 122 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) Primarily included in other long-term liabilities are environmental accruals related to potential solid waste disposal and soil and groundwater remediation matters. The following table presents the changes in such accruals for the years ended December 31, 1992, 1991, and 1990:
1992 1991 1990 ------ ------ ------ Balance at beginning of period........................... $ 51.5 $ 57.7 $ 72.9 Additional amounts....................................... 4.5 7.8 3.6 Less expenditures........................................ (9.6) (14.0) (18.8) ------ ------ ------ Balance at end of period................................. $ 46.4 $ 51.5 $ 57.7 ------ ------ ------ ------ ------ ------
The Company is involved in various claims, lawsuits, and other proceedings relating to product liability, environmental protection, and a wide variety of other matters. While uncertainties are inherent in the ultimate outcome of such matters and it is impossible to determine the costs that ultimately may be incurred, management believes that the resolution of such uncertainties and the incurrence of such costs, some of which may be substantial, should not have a material adverse effect upon the Company's consolidated financial position or results of operations. 10. SEGMENT AND GEOGRAPHICAL AREA INFORMATION Sales and transfers among geographic areas are made on a basis intended to reflect the market value of products. The aggregate foreign currency gain included in determining net income was $12.0, $1.2, and $7.2 for the years ended December 31, 1992, 1991, and 1990, respectively. Sales to a single customer were $135.3, $155.9, and $204.3 of bauxite and alumina and $144.9, $160.9, and $205.9 of aluminum processing for the years ended December 31, 1992, 1991, and 1990, respectively. Export sales were less than 10% of total revenue during the years ended December 31, 1992, 1991, and 1990. F-20 123 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) Financial information by industry segment at December 31, 1992 and 1991, and for the years ended December 31, 1992, 1991, and 1990, is as follows:
YEAR ENDED BAUXITE & ALUMINUM DECEMBER 31, ALUMINA PROCESSING CORPORATE TOTAL ------------ --------- ---------- --------- -------- Net sales to unaffiliated customers.................. 1992 $ 466.5 $1,442.6 $1,909.1 1991 550.8 1,450.0 2,000.8 1990 609.4 1,485.6 2,095.0 Intersegment sales........... 1992 $ 179.9 $ 179.9 1991 194.6 194.6 1990 254.7 254.7 Equity in earnings (losses) of unconsolidated affiliates................. 1992 $ 1.8 $ (3.7) $ (1.9) 1991 (4.4) (15.1) (19.5) 1990 (5.0) (7.8) (12.8) Operating income (loss)...... 1992 $ 62.6 $ 104.9 $ (77.3) $ 90.2 1991 150.0 150.2 (84.4) 215.8 1990 241.4 222.6 (87.6) 376.4 Depreciation................. 1992 $ 29.8 $ 49.0 $ 1.5 $ 80.3 1991 26.4 46.0 .8 73.2 1990 25.8 43.5 1.2 70.5 Capital expenditures......... 1992 $ 50.8 $ 39.4 $ 24.2 $ 114.4 1991 51.1 64.8 2.2 118.1 1990 46.9 67.4 .8 115.1 Investment in and advances to unconsolidated affiliates................. 1992 $ 136.2 $ 12.5 $ 1.4 $ 150.1 1991 140.9 16.1 4.9 161.9 Identifiable assets.......... 1992 $ 715.7 $1,165.9 $ 218.4 $2,100.0 1991 693.3 1,256.2 189.2 2,138.7
F-21 124 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) Geographical area information relative to operations is summarized as follows:
YEAR ENDED OTHER DECEMBER 31, DOMESTIC CARIBBEAN AFRICA FOREIGN ELIMINATIONS TOTAL ------------ -------- --------- ------ ------- ------------ -------- Net sales to unaffiliated customers......... 1992 $1,359.6 $ 92.9 $263.5 $193.1 $1,909.1 1991 1,383.8 149.6 269.2 198.2 2,000.8 1990 1,384.9 186.0 286.8 237.3 2,095.0 Sales and transfers among geographic areas............. 1992 $ 111.8 $ 93.5 $ (205.3) 1991 116.4 112.3 (228.7) 1990 137.6 155.7 (293.3) Equity in losses of unconsolidated affiliates........ 1992 $ (1.9) $ (1.9) 1991 (19.5) (19.5) 1990 (12.8) (12.8) Operating income (loss)............ 1992 $ (25.0) $ 18.4 $ 78.8 $ 18.0 $ 90.2 1991 59.5 47.8 72.1 36.4 215.8 1990 163.9 95.1 60.2 57.2 376.4 Investment in and advances to unconsolidated affiliates........ 1992 $ 1.4 $ 29.5 $119.2 $ 150.1 1991 4.9 30.7 126.3 161.9 Identifiable assets............ 1992 $1,302.3 $ 358.3 $227.5 $211.9 $2,100.0 1991 1,400.8 332.1 211.6 194.2 2,138.7
11. SUBSIDIARY GUARANTORS Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance Corporation ("KFC"), Kaiser Jamaica Corporation ("KJC"), and Alpart Jamaica Inc. ("AJI") (collectively referred to as the "Subsidiary Guarantors") are domestic wholly owned (directly or indirectly) subsidiaries of the Company that have provided joint and several guarantees of the 1989 Credit Agreement and subordinated guarantees of the 14 1/4% Notes (see Note 4). KAAC, KJC, and AJI are wholly owned subsidiaries, which serve as holding companies for the Company's investments in Alpart, KFC, and QAL. KFC is a wholly owned subsidiary of KAAC, whose principal business is making loans to the Company and its subsidiaries. Summary combined financial information for the Subsidiary Guarantors as of December 31, 1992 and 1991, is shown below. Prior years' balances have been reclassified to conform with the current-year presentation. F-22 125 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) SUMMARY OF COMBINED FINANCIAL POSITION
DECEMBER 31, --------------------- 1992 1991 -------- -------- ASSETS Current assets.......................................................... $ 94.3 $ 93.8 Due from KACC........................................................... 620.2 585.0 Investments in and advances to unconsolidated affiliates................ 106.7 110.3 Property, plant, and equipment -- net................................... 238.9 198.8 Other assets............................................................ 3.2 34.4 -------- -------- Total.............................................................. $1,063.3 $1,022.3 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities..................................................... $ 118.0 $ 102.0 Payable to KACC......................................................... 468.6 464.3 Long-term debt, net of current maturity................................. 85.0 91.3 Minority interest....................................................... 58.5 60.3 Stockholders' equity.................................................... 333.2 304.4 -------- -------- Total.............................................................. $1,063.3 $1,022.3 -------- -------- -------- --------
SUMMARY OF COMBINED OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------- 1992 1991 1990 ------ ------ ------ Net sales........................................................ $316.0 $385.1 $436.3 Costs and expenses............................................... 303.0 377.5 354.8 ------ ------ ------ Operating income................................................. 13.0 7.6 81.5 Other income (expense): Interest and other income...................................... 24.5 45.2 38.2 Interest expense............................................... (24.1) (25.3) (15.0) ------ ------ ------ Income before income taxes and minority interests................ 13.4 27.5 104.7 Provision for income taxes....................................... (2.3) (9.2) (26.8) Minority interest................................................ 6.7 6.4 6.4 ------ ------ ------ Net income....................................................... $ 17.8 $ 24.7 $ 84.3 ------ ------ ------ ------ ------ ------
Summary of Significant Accounting Policies Receivables and Payables -- At December 31, 1992, receivables from and payables to KACC and affiliates include $592.2 and $242.2 of interest bearing loans, respectively. The similar amounts at December 31, 1991 were $543.9 and $266.7. Inventory Valuation -- Inventories are stated at first-in, first-out (FIFO) cost, not in excess of market. Income Taxes -- The Subsidiary Guarantors are included in the consolidated federal income tax return of MAXXAM, and provisions for income taxes are computed as if each Subsidiary Guarantor were a separate company. Investments -- At December 31, 1992, KAAC held a 28.3% interest in QAL. This investment is accounted for by the equity method. The equity in QAL's income (loss) before income taxes of $1.8 and $(4.4) in 1992 and 1991, respectively, is included in the Company's cost of products sold. Other Assets -- Included in other assets at December 31, 1991, is $31.9 cash related to the Alpart CARIFA loan, deposited with a trustee (see Note 4). F-23 126 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (IN MILLIONS OF DOLLARS)
SEPTEMBER 30, DECEMBER 31, 1993 1992 --------- -------- (UNAUDITED) Current assets: Cash and cash equivalents............................................ $ 12.9 $ 18.5 Receivables.......................................................... 242.6 271.1 Inventories.......................................................... 431.1 439.9 Prepaid expenses and other current assets............................ 74.1 37.0 -------- -------- Total current assets......................................... 760.7 766.5 Investments in and advances to unconsolidated affiliates............... 177.6 150.1 Property, plant, and equipment net..................................... 1,167.6 1,066.8 Deferred income taxes.................................................. 209.1 Other assets........................................................... 168.1 116.6 -------- -------- Total........................................................ $2,483.1 $2,100.0 -------- -------- -------- -------- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable..................................................... $ 105.3 $ 136.6 Accrued interest..................................................... 10.2 4.6 Accrued salaries, wages, and related expenses........................ 101.8 84.4 Other accrued liabilities............................................ 118.1 110.9 Payable to affiliates................................................ 72.6 78.5 Short-term borrowings................................................ 18.5 4.8 Long-term debt -- current portion.................................... 8.5 25.9 Note payable to parent -- current portion............................ 12.6 -------- -------- Total current liabilities.................................... 447.6 445.7 Long-term liabilities.................................................. 1,141.4 217.9 Long-term debt......................................................... 692.8 765.1 Note payable to parent................................................. 22.0 Minority interests..................................................... 69.5 70.1 Redeemable preference stock............................................ 32.3 32.8 Stockholders' equity: Preference stock..................................................... 1.8 2.0 Common stock......................................................... 15.4 15.4 Additional capital................................................... 1,448.0 1,255.6 Retained earnings (accumulated deficit).............................. (106.1) 481.2 Less: Note receivable from Kaiser Aluminum Corporation............... (1,281.6) (1,185.8) -------- -------- Total stockholders' equity................................... 77.5 568.4 -------- -------- Total........................................................ $2,483.1 $2,100.0 -------- -------- -------- --------
The accompanying notes to interim consolidated financial statements are an integral part of these statements. F-24 127 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME (LOSS) (UNAUDITED) (IN MILLIONS OF DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1993 1992 -------- -------- Net sales............................................................. $1,303.2 $1,413.1 -------- -------- Costs and expenses: Cost of products sold............................................... 1,181.0 1,178.1 Depreciation........................................................ 72.9 60.4 Selling, administrative, research and development, and general...... 90.5 88.7 -------- -------- Total costs and expenses.................................... 1,344.4 1,327.2 Operating income (loss)............................................... (41.2) 85.9 Other income (expense): Interest and other income........................................... 9.2 2.0 Interest expense.................................................... (63.8) (58.4) -------- -------- Income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles..... (95.8) 29.5 Credit (provision) for income taxes................................... 39.5 (7.9) Minority interests.................................................... 3.2 4.9 -------- -------- Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles.................................... (53.1) 26.5 Extraordinary loss on early extinguishment of debt, net of tax benefit of $11.2............................................................ (21.8) Cumulative effect of changes in accounting principles, net of tax benefit of $237.7........................................ (507.9) -------- -------- Net income (loss)..................................................... $ (582.8) $ 26.5 -------- -------- -------- --------
The accompanying notes to interim consolidated financial statements are an integral part of these statements. F-25 128 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (IN MILLIONS OF DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1993 1992 --------- ------ Cash flows from operating activities: Net income (loss).......................................................... $ (582.8) $ 26.5 Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities: Depreciation............................................................ 72.9 60.4 Non-cash postretirement benefit expenses other than pensions............ 14.6 Amortization of deferred financing costs and discount on long-term debt................................................................... 8.5 8.7 Extraordinary loss on early extinguishment of debt...................... 33.0 Cumulative effect of changes in accounting principles................... 507.9 Minority interests...................................................... (3.2) (4.9) Equity in losses of unconsolidated affiliates........................... 11.8 9.1 Recognition of previously deferred income from a forward alumina sale... (.6) (18.7) Increase in accrued interest............................................ 5.7 10.6 Incurrence of financing costs........................................... (12.0) (1.8) Decrease (increase) in receivables...................................... 25.0 (11.5) Decrease in inventories, prepaid expenses, and other current assets..... 21.6 14.7 Decrease in accounts payable, payable to affiliates, and accrued liabilities............................................................ (90.8) (83.4) Other................................................................... (13.6) 12.7 --------- ------ Net cash (used for) provided by operating activities.................... (2.0) 22.4 --------- ------ Cash flows from investing activities: Net proceeds from disposition of property and investments.................. 11.4 43.4 Capital expenditures....................................................... (36.4) (79.8) --------- ------ Net cash used for investing activities.................................. (25.0) (36.4) --------- ------ Cash flows from financing activities: Repayments of long-term debt, including revolving credit................... (1,011.3) (97.1) Borrowings of long-term debt, including revolving credit................... 920.0 123.5 Borrowings from MAXXAM Group Inc. (see supplemental disclosure below)...... 15.0 Borrowings from parent..................................................... 34.6 Tender premiums and other costs of early extinguishment of debt............ (27.1) Net short-term borrowings.................................................. 13.7 4.6 Dividends paid............................................................. (.8) (9.5) Redemption of preference stock............................................. (4.2) (7.2) Capital contribution....................................................... 81.5 --------- ------ Net cash provided by financing activities............................... 21.4 14.3 --------- ------ Net (decrease) increase in cash and cash equivalents during the period....... (5.6) .3 Cash and cash equivalents at beginning of period............................. 18.5 15.5 --------- ------ Cash and cash equivalents at end of period................................... $ 12.9 $ 15.8 --------- ------ --------- ------ Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest................................. $ 49.6 $ 39.6 Income taxes paid.......................................................... 9.3 2.0 Tax allocation payments to MAXXAM Inc...................................... 28.0 Supplemental disclosure of non-cash financing activities: Contribution to capital of the borrowings from MAXXAM Group Inc............ $ 15.0
The accompanying notes to interim consolidated financial statements are an integral part of these statements. F-26 129 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS OF DOLLARS) 1. GENERAL The foregoing unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, said financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair statement of the results for the interim periods presented have been included. Operating results for the first nine months of 1993 are not necessarily indicative of the results that may be expected for the year ending December 31, 1993. Certain reclassifications of prior period information were made to conform to the current presentation. Kaiser Aluminum & Chemical Corporation ("KACC or the Company") is the principal operating subsidiary of Kaiser Aluminum Corporation ("Kaiser"). Kaiser is a 68%-owned subsidiary of MAXXAM Inc. ("MAXXAM"). The remaining 32% of Kaiser's equity interest is publicly held. On February 1, 1993, the Company issued $400.0 of 12 3/4% Senior Subordinated Notes due 2003 (the "12 3/4% Notes"). The net proceeds from the sale of the 12 3/4% Notes were used to refinance KACC's 14 1/4% Senior Subordinated Notes due 1995 (the "14 1/4% Notes"), to prepay $18.0 of the term loan under KACC's 1989 Credit Agreement (the "Credit Agreement"), and to reduce outstanding borrowings under the revolving credit facility of the Credit Agreement. These transactions resulted in a pre-tax extraordinary loss of $33.0 in the first quarter of 1993 ($21.8 after taxes), consisting primarily of the write-off of unamortized discount and deferred financing costs related to the 14 1/4% Notes and the payment of premiums on the 14 1/4% Notes. The obligations of the Company with respect to the 12 3/4% Notes are guaranteed, jointly and severally, by certain subsidiaries of the Company. The Credit Agreement and the indenture in respect of the 12 3/4% Notes (see Note 3 below) restrict, among other things, the Company's ability to pay dividends. Under the most restrictive of these covenants, the Company is not currently permitted to pay dividends on its common stock. On June 30, 1993, Kaiser consummated the public offering (the "Public Offering") of 17,250,000 of its $.65 Depositary Shares (the "Depositary Shares"), each representing one-tenth of a share of Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Shares"). In connection with the Public Offering, MAXXAM Group Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, exchanged a promissory note of the Company (the "MAXXAM Note") in the principal amount of $15.0 (which evidenced a cash loan in the amount of $15.0 made by MGI to the Company) for 2,132,950 Depositary Shares. The net cash proceeds from the Public Offering were approximately $119.3. Kaiser used approximately $37.8 of such net proceeds to make a non-interest bearing loan to the Company evidenced by a note, which note is designed to provide sufficient funds to Kaiser to enable it to make dividend payments on the Series A Shares until the Mandatory Conversion Date with respect to the Series A Shares; and Kaiser used approximately $81.5 of such net proceeds and the MAXXAM Note to make a capital contribution to the Company. The Company used approximately $13.7 of the funds it received from Kaiser to prepay the remaining balance of the term loan under the Credit Agreement and $105.6 of such funds to reduce outstanding borrowings under the revolving credit facility of the Credit Agreement. The Company announced in October that it is restructuring its flat-rolled products operation at its Trentwood plant in Spokane, Washington, to reduce that facility's annual operating costs. This effort is in response to over-capacity in the aluminum rolling industry, flat demand in can stock markets, and declining demand for aluminum products sold to customers in the commercial aerospace industry, all of which have F-27 130 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS) resulted in declining prices in Trentwood's key markets. The Company expects that the Trentwood restructuring, and the restructuring of operations at some other facilities which is under consideration, are likely to result in a fourth quarter pre-tax charge of approximately $30.0 to $40.0. 2. INVENTORIES The classification of inventories is as follows:
SEPTEMBER 30, DECEMBER 31, 1993 1992 ------------- ------------ Finished fabricated products...................................... $ 89.1 $ 91.2 Primary aluminum and work in process.............................. 141.8 128.7 Bauxite and alumina............................................... 98.0 107.4 Operating supplies and repair and maintenance parts............... 102.2 112.6 ------------- ------------ Total................................................... $ 431.1 $439.9 ------------- ------------ ------------- ------------
Substantially all product inventories are stated at last-in, first-out (LIFO) cost, not in excess of market. Replacement cost is not in excess of LIFO cost. 3. LONG-TERM DEBT Long-term debt is as follows:
SEPTEMBER 30, DECEMBER 31, 1993 1992 ------------- ------------ 1989 Credit Agreement: Revolving Credit Facility....................................... $ 165.0 $290.0 Term Loan....................................................... 36.6 Pollution Control and Solid Waste Disposal Obligations (6%-7.75%)...................................................... 39.2 40.0 Alpart CARIFA Loan (fixed and variable rates)..................... 60.0 60.0 Alpart Term Loan (8.95%).......................................... 25.0 31.3 12 3/4% Senior Subordinated Notes due 2003........................ 400.0 14 1/4% Senior Subordinated Notes due 1995, net of discount of $1.2............................................................ 320.5 Other borrowings (fixed and variable rates)....................... 12.1 12.6 ------------- ------------ Total................................................... 701.3 791.0 Less current portion.............................................. 8.5 25.9 ------------- ------------ Long-term debt.................................................... $ 692.8 $765.1 ------------- ------------ ------------- ------------
Loans under the Credit Agreement bear an annual interest rate, at KACC's election from time to time, equal to (i) the Reference Rate plus a margin of 1 1/2%, (ii) the CD Rate (Reserve Adjusted) plus a margin of 2 5/8%, or (iii) the LIBO Rate (Reserve Adjusted) plus a margin of 2 1/2%. All margins and fees are subject to a reduction or increase of 1/2% per annum on a non-cumulative basis, depending upon a financial test, determined quarterly. This financial test required an increase in margins and fees commencing with the second quarter of 1993, and the increase will continue at least through the fourth quarter of 1993. As of September 30, 1993, $148.9 of borrowing capacity was unused under the revolving credit facility of the Credit Agreement (of which $13.9 could also have been used for letters of credit). F-28 131 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS) 4. INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). The adoption of SFAS 109 changes the Company's method of accounting for income taxes to an asset and liability approach from the deferral method prescribed by Accounting Principles Board Opinion No. 11, Accounting for Income Taxes. The asset and liability approach requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Under this method, deferred income tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. The cumulative effect of the change in accounting principle, as of January 1, 1993, reduced the Company's results of operations by $2.9. The implementation of SFAS 109 required the Company to restate certain assets and liabilities to their pre-tax amounts from their net-of-tax amounts originally recorded in connection with the acquisition by MAXXAM in October 1988. The restatement of the assigned values with respect to certain assets and liabilities recorded as a result of the acquisition and the recomputation of deferred income tax liabilities under SFAS 109 resulted in: (i) an increase of $144.6 in the net carrying value of property, plant, and equipment, (ii) an increase of $47.8 in investments in and advances to unconsolidated affiliates, (iii) an increase of $56.0 in long-term liabilities, (iv) a decrease of $2.5 in other assets and an increase of $10.1 in other liabilities, and (v) an increase of $126.7 in deferred income tax liabilities. Concurrent with the adoption of SFAS 109, the Company implemented changes in its accounting method for postretirement benefits pursuant to Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions (SFAS 106) (see Note 5) and Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits (SFAS 112) (see Note 6). The cumulative effect of changes in accounting principles relating to SFAS 106 and SFAS 112 totaled approximately $742.7 and resulted in the recognition of deferred income tax assets of $237.7, net of valuation allowances. The Company believes that its ability to generate future taxable income will allow for the realization of these deferred income tax assets. F-29 132 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS) As of January 1, 1993, after giving effect to the adoption of SFAS 109, SFAS 106, and SFAS 112, the components of the Company's net deferred income tax assets (liabilities) were as follows:
JANUARY 1, 1993 ------- Deferred income tax assets: Postretirement benefits other than pensions.............................. $ 270.8 Other liabilities........................................................ 98.8 Loss and credit carryforwards............................................ 83.3 Pensions................................................................. 45.8 Foreign and state deferred income tax liabilities........................ 44.4 Property, plant, and equipment........................................... 22.6 Other.................................................................... 18.0 Valuation allowances..................................................... (103.7) ------- Total deferred income tax assets, net............................ 480.0 ------- Deferred income tax liabilities: Property, plant, and equipment........................................... (218.3) Investments in and advances to unconsolidated affiliates................. (60.9) Inventories.............................................................. (18.6) Other.................................................................... (28.7) ------- Total deferred income tax liabilities............................ (326.5) ------- Net deferred income tax assets............................................. $ 153.5 ------- -------
Certain of the deferred income tax assets and liabilities listed above are included on the Consolidated Balance Sheet in the captions entitled Receivables, Prepaid expenses and other current assets, Other accrued liabilities, and Long-term liabilities. The Omnibus Budget Reconciliation Act of 1993 ("the Act"), enacted on August 10, 1993, retroactively increased the federal statutory income tax rate from 34% to 35% for periods beginning on or after January 1, 1993. As a result of the Act, the Company increased its net deferred income tax assets by $3.4 and recorded a deferred tax benefit of $3.4 as of the date of the enactment. The Company has recorded the cumulative effect of the change in the federal statutory income tax rate as an adjustment to its credit for income taxes in the third quarter of 1993. Current tax benefits comprise approximately $17.0 of the credit for income taxes for the nine months ended September 30, 1993. The reconciliation of the Company's credit (provision) for income taxes on income (loss) before income taxes, minority interests, extraordinary loss and cumulative effect of changes in accounting principles to the statutory rate does not differ materially from the reconciliation as disclosed in Note 5 to the audited Consolidated Financial Statements contained in the Company's 1992 Annual Report to Stockholders. As shown in the unaudited Statement of Consolidated Income (Loss) for the nine months ended September 30, 1993, the Company reported an extraordinary loss related to the early extinguishment of debt. The Company reported the loss net of related income taxes of $11.2 which approximated the statutory rate in effect on the date the transaction occurred. The related income tax benefits recorded by the Company in respect of SFAS 106 and SFAS 112 differed from the statutory rate in effect when adopted due to valuation allowances. As a consequence of the consummation of the Public Offering on June 30, 1993, as discussed in Note 1, the Company and its subsidiaries are no longer included in the consolidated federal income tax return of MAXXAM. The Company and its subsidiaries will be included in the consolidated federal income tax return F-30 133 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS) of Kaiser for taxable periods beginning on or after July 1, 1993. Kaiser has obtained the approval of the Secretary of the Treasury to file a consolidated federal income tax return for the period ending on December 31, 1993. The tax allocation agreement between the Company and MAXXAM (the "KACC Tax Allocation Agreement") terminated pursuant to its terms, effective for taxable periods beginning after June 30, 1993. The Company and Kaiser entered into a tax allocation agreement (the "New KACC Tax Allocation Agreement") which became effective July 1, 1993. Under the terms of the New KACC Tax Allocation Agreement, Kaiser will compute the federal income tax liability for the Company and its subsidiaries (collectively, the "Subgroup") as if the Subgroup were a separate affiliated group of corporations which was never connected with Kaiser. Any unused federal income tax attribute carryforwards under the terms of the KACC Tax Allocation Agreement were eliminated and are not available for taxable periods beginning on or after July 1, 1993. Upon the filing of MAXXAM's 1993 consolidated federal income tax return, the tax attribute carryforwards of the MAXXAM consolidated return group as of December 31, 1993, will be apportioned in part to Kaiser and the Subgroup, based upon the provisions of the relevant consolidated return regulations. It is anticipated that the amounts of such tax attribute carryforwards apportioned to the Subgroup (and available under the New KACC Tax Allocation Agreement) will approximate or exceed the amounts of tax attribute carryforwards eliminated under the KACC Tax Allocation Agreement. 5. Postretirement Benefits Other Than Pensions The Company adopted SFAS 106 as of January 1, 1993. The costs of postretirement benefits other than pensions are now accrued over the period employees provide services to the date of their full eligibility for such benefits. Previously, such costs were expensed as actual claims were incurred. The cumulative effect of the change in accounting principle for the adoption of SFAS 106 was recorded as a charge to results of operations of $497.7, net of related income taxes of $234.2. The Company's accumulated postretirement benefits obligation at the date of adoption was: Retirees................................................... $ 581.5 Actives eligible for benefits.............................. 32.7 Actives not eligible for benefits.......................... 117.7 ------- $ 731.9 ------- -------
The annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is 9.5% for 1993 and is assumed to decrease gradually to 6% for 2005 and remain at that level thereafter. Each one percentage point change in the assumed health care cost trend rate would change the accumulated postretirement benefit obligation as of January 1, 1993, by approximately $85.0 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1993 by approximately $10.0. 6. POSTEMPLOYMENT BENEFITS The Company adopted SFAS 112 as of January 1, 1993. The costs of postemployment benefits are now accrued over the period the employee provides services to the date of their full eligibility for such benefits. Previously, such costs were expensed as actual claims were incurred. The cumulative effect of the change in accounting principle for the adoption of SFAS 112 was recorded as a charge to results of operations of $7.3, net of related income taxes of $3.5. F-31 134 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES TO WHICH IT RELATES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ---- Available Information.................. 2 Incorporation of Certain Documents by Reference............................ 2 Summary................................ 3 The Company............................ 9 Risk Factors........................... 9 Use of Proceeds........................ 14 Capitalization......................... 15 Selected Historical and Pro Forma Consolidated Financial Data.......... 16 Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 17 Business............................... 25 Management............................. 44 Certain Transactions................... 61 Description of Principal Indebtedness......................... 63 Description of Notes................... 67 Certain Federal Income Tax Consequences......................... 96 Description of the PRIDES.............. 97 Underwriting........................... 98 Legal Matters.......................... 99 Experts................................ 99 Consolidated Financial Statements...... F-1
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $225,000,000 KAISER ALUMINUM & CHEMICAL CORPORATION % SENIOR NOTES DUE 2002 ------------------------ PROSPECTUS ------------------------ MERRILL LYNCH & CO. BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INCORPORATED SALOMON BROTHERS INC FEBRUARY , 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 135 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses of this offering will be paid by Kaiser Aluminum & Chemical Corporation and, exclusive of underwriting discounts and commissions, are as follows: SEC registration fee............................................. $ 77,587 NASD fee......................................................... 18,000 Printing and engraving........................................... 300,000* Legal............................................................ 175,000* Rating Agency fees............................................... 18,000* Accounting....................................................... 125,000* Blue Sky filing fees and expenses (including counsel fees)....... 10,000* Trustee and Registrar fees....................................... 15,000* Miscellaneous.................................................... 11,413* ---------- Total.................................................. $ 750,000 ---------- ----------
- --------------- * Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Reference is made to Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions), or (iv) for any transaction from which the director derived an improper personal benefit. The Registrants Restated Certificates of Incorporation contains provisions permitted by Section 102(b)(7) of the DGCL. Reference also is made to Section 145 of the DGCL which provides that a corporation may indemnify any person, including officers and directors, who is, or is threatened to be made, a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful. A Delaware corporation may indemnify its officers, directors, employees and agents in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer, director, employee or agent is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer, director, employee or agent actually and reasonably incurred in connection therewith. The restated certificates of incorporation and by-laws of the Registrants provide for indemnification of directors, officers and employees of the Registrants to the fullest extent authorized by law. The Registrants have entered into, or will enter into, indemnification agreements with each of its directors and officers which provide that the Registrants will indemnify such individuals if and whenever they were or II-1 136 are a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that they are or were a director, officer or employee of the Registrants or any of its subsidiaries, or are or were serving at the request of the Registrants or any of its subsidiaries as a director, officer, employee, agent or other official of another corporation, partnership, joint venture, trust, or other enterprise, against judgments, fines and amounts paid in settlement and reasonable expenses (including attorneys' fees) actually incurred by them in connection with such action, suit or proceeding except to the extent that (a) any judgments, fines, amounts paid in settlement and expenses are finally determined by a court of competent jurisdiction to have resulted from their gross negligence or bad faith in the performance of their duties (or, alternatively in the case of certain of the indemnification agreements, result from conduct which is finally determined by a court of competent jurisdiction to be knowingly fraudulent or deliberately dishonest, or to constitute willful misconduct), (b) any amount is paid without the prior approval of the Registrants in settlement of a proceeding brought in the name and on behalf of the Registrants or another corporation, partnership, joint venture, trust or other enterprise for which they are or were serving at the request of the Registrants as a director, officer, employee, agent or other official, (c) such indemnification is otherwise prohibited by law, whether by statute, court decision or otherwise, or (d) reimbursement of such expenses has actually been made pursuant to insurance policies maintained by the Registrants for their benefit. For these purposes, service at the request of the Registrants with respect to an "other enterprise" includes service with respect to any employee benefit plan. The agreements further provide for the advancement of expenses incurred in defending any such action, suit or proceeding upon receipt of a repayment undertaking if it is ultimately determined that such individuals are not entitled to be indemnified or to the extent they recover such expenses from others pursuant to insurance or otherwise. The Registrants may terminate the agreements on 90 days' prior written notice to such individuals, but the indemnification provided by the agreements continues to apply to all actions taken or failed to be taken by such individuals prior to the expiration of the 90-day notice period notwithstanding such termination. The Registrants provides liability insurance for each of its directors and officers for certain losses arising from claims or charges made against them while acting in their capacities as directors or officers of the Registrants. The Purchase Agreement pursuant to which the securities are being purchased by the Underwriters provides that the Underwriters will indemnify the Company, its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company against certain losses related to written information furnished by the Underwriters to the Company for inclusion in the Registration Statement or Prospectus. The foregoing discussion is qualified in its entirety by reference to the DGCL, the Registrants restated certificates of incorporation and by-laws, and the referenced indemnification agreements. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
EXHIBIT NO. EXHIBIT - ---------------- ------------------------------------------------------------------------ 1.1 Form of Purchase Agreement *4.1 Form of Indenture (the "Note Indenture"), among the Company, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation and Kaiser Finance Corporation, as Subsidiary Guarantors, and First Trust National Association as Trustee, regarding the Notes 4.2 Indenture, dated as of February 1, 1993, among the Company, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc. and Kaiser Jamaica Corporation, as Subsidiary Guarantors, and The First National Bank of Boston, as Trustee, regarding the Company's 12 3/4% Senior Subordinated Notes due 2003 (incorporated by reference to Exhibit 4.2 to Amendment No. 5 to the Registration Statement on Form S-1 on Form S-2, dated January 22, 1993, filed by the Company, Registration No. 33-48260; the "Company's 1993 Registration Statement")
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EXHIBIT NO. EXHIBIT - ---------------- ------------------------------------------------------------------------ 4.3 First Supplemental Indenture, dated as of May 1, 1993 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, of the Company's, filed August 10, 1993, File No. 1-3605; the "Company's June 1993 Form 10-Q) 4.4 Credit Agreement, dated December 13, 1989 (the "Credit Agreement"), among the Company, financial institutions a party thereto, Bank of America National Trust and Savings Association, as Agent, and Mellon Bank, N.A., as Collateral Agent (incorporated by reference to Exhibit 4.3 to Amendment No. 5 to the Registration Statement on Form S-1, dated December 13, 1989, filed by the Company, Registration No. 33-48260; the "Company's 1989 Registration Statement") 4.5 First Amendment to Credit Agreement, dated April 17, 1990 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended September 30, 1990, of MAXXAM, filed November 6, 1990, File No. 1-3924; the "September 1990 MAXXAM Form 10-Q") 4.6 Second Amendment to Credit Agreement, dated September 17, 1990 (incorporated by reference to Exhibit 4.3 to the September 1990 MAXXAM Form 10-Q) 4.7 Third Amendment to Credit Agreement, dated December 7, 1990 (incorporated by reference to Exhibit 4.6 to Amendment No. 1 to KAC's 1991 Registration Statement) 4.8 Fourth Amendment to Credit Agreement, dated April 19, 1991 (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended March 31, 1991, filed by the Company, File No. 1-3605; the "Company's March 1991 Form 10-Q") 4.9 Fifth Amendment to Credit Agreement, dated March 13, 1992 (incorporated by reference to Exhibit 4.8 to Form 10-K for the period ended December 31, 1991, filed by KAC, File No. 1-9447; the "KAC 1991 Form 10-K") 4.10 Seventh Amendment to Credit Agreement, dated November 6, 1992 (incorporated by reference to Exhibit 4.10 to Amendment No. 5 to the Company's 1993 Registration Statement) 4.11 Eighth Amendment to Credit Agreement, dated January 7, 1993 (incorporated by reference to Exhibit 4.12 to Amendment No. 5 to Company's 1993 Registration Statement) 4.12 Ninth Amendment to Credit Agreement (including the form of Intercompany Note annexed as an Exhibit thereto)(incorporated by reference to Exhibit 4.10 to Amendment No. 2 to the Registration Statement on Form S-1 dated June 22, 1993, filed by KAC, Registration No. 33-49555; the "KAC 1993 Registration Statement") 4.13 Tenth Amendment to Credit Agreement, dated July 23, 1993 (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-3, dated August 26, 1993, filed by the Company, Registration No. 33-50097) 4.14 Eleventh Amendment to Credit Agreement, dated January 7, 1993 (incorporated by reference to Exhibit 4.12 to Amendment No. 5 to Registrant's 1993 Registration Statement) 4.15 Twelfth Amendment to Credit Agreement 4.16 Form of Intercompany Note between the Company and KAC (incorporated by reference to Exhibit 4.2 to Amendment No. 5 to the Company's 1989 Registration Statement) 4.17 Senior Subordinated Intercompany Note between the Company and MAXXAM, dated January 14, 1993 (incorporated by reference to Exhibit 4.13 to Company's 1993 Registration Statement)
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EXHIBIT NO. EXHIBIT - ---------------- ------------------------------------------------------------------------ 4.18 Certificate of Designations of Series A Mandatory Conversion Premium Dividend Preferred Stock of KAC, dated June 28, 1993 (incorporated by reference to Exhibit 4.3 of the Company's June 1993 Form 10-Q) 4.19 Deposit Agreement between KAC and The First National Bank of Boston, dated as of June 30, 1993 (incorporated by reference to Exhibit 4.4 of the Company's June 1993 Form 10-Q) 4.20 Form of Certificate of Designations of PRIDES *4.21 Form of Intercompany Note between the Company and KAC *4.22 Form of Credit Agreement to be entered into by the Company, KAC, BankAmerica Business Credit, Inc., as Agent and certain financial institutions. Note: The Company has not filed certain long-term debt instruments not being registered with the Securities and Exchange Commission where the total amount of indebtedness authorized under any such instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees and undertakes to furnish a copy of any such instrument to the Securities and Exchange Commission upon its request. 5.1 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as to the validity of the securities being registered hereunder 10.1 Form of indemnification agreement with officers and directors (incorporated by reference to Exhibit (10)(b) to the Registration Statement of KAC on Form S-4, File No. 33-12836) 10.2 Tax Allocation Agreement between MAXXAM and the Company (incorporated by reference to Exhibit 10.21 to Amendment No. 6 to the Company's 1989 Registration Statement) 10.3 Amended and Restated Alumina Supply Agreement, dated October 11, 1989 (incorporated by reference to Exhibit 10.19 to Amendment No. 3 to the Company's 1989 Registration Statement) 10.4 Transfer Agreement between the Company and KAC (incorporated by reference to Exhibit 10.20 to Amendment No. 6 to the Company's 1989 Registration Statement) 10.5 The Company's Bonus Plan (incorporated by reference to Exhibit 10.25 to Amendment No. 6 to the Company's 1989 Registration Statement) 10.6 KaiserTech Limited Long Term Incentive Plan, dated June 2, 1989, as amended (incorporated by reference to Exhibit 10.14 to Form 10-K for the period ended December 31, 1989, filed by the Company, File No. 1-3605) 10.7 Amendment No. 2 to the KaiserTech Limited Long Term Incentive Plan, dated December 18, 1991 (incorporated by reference to Exhibit 10.7 to KAC's 1991 Form 10-K) 10.8 Amendment No. 3 to the Kaiser Aluminum Corporation Long Term Incentive Plan, dated December 31, 1991 (incorporated by reference to Exhibit 10.8 to KAC's 1991 Form 10-K) 10.9 Kaiser Aluminum Middle Management Long Term Incentive Plan, dated June 25, 1990, as amended (incorporated by reference to Exhibit 10.22 to Amendment No. 1 to KAC's 1991 Registration Statement) 10.10 Tax Allocation Agreement between KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to Amendment No. 2 to KAC's 1991 Registration Statement)
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EXHIBIT NO. EXHIBIT - ---------------- ------------------------------------------------------------------------ 10.11 Assumption Agreement, dated as of October 28, 1988 (incorporated by reference to Exhibit HHH to the Final Amendment to the Schedule 13D of MAXXAM Group Inc. and others in respect of the Common Stock of the Company, par value $.33 1/3 per share) 10.12 Employment Agreement, dated February 1, 1989, among the Company, KAC and John M. Seidl (incorporated by reference to Exhibit 10.18 to Amendment No. 3 to the Company's 1989 Registration Statement) 10.13 Employment Agreement (the "Seidl-MAXXAM Employment Agreement"), dated June 13, 1990, between MAXXAM and John M. Seidl (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to KAC's 1991 Registration Statement) 10.14 Amendment dated February 11, 1991, to the Seidl-MAXXAM Employment Agree- ment (incorporated by reference to Exhibit 10.21 to Form 10-K for the period ended December 31, 1990, filed by the Company's, File No. 1-3605) 10.15 Amendment dated May 29, 1991, to the Seidl-MAXXAM Employment Agreement (incorporated by reference to Exhibit 10.30 to Amendment No. 2 to KAC's 1991 Registration Statement) 10.16 Payment Agreement, dated December 23, 1992, between the Company and John M. Seidl (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended March 31, 1993, of KAC, filed April 28, 1993, File No. 1-3605; the "KAC's March 1993 Form 10-Q") 10.17 Employment Agreement, dated as of October 1, 1992, among the Company, KAC and A. Stephens Hutchcraft, Jr. (incorporated by reference to Exhibit 10.15 to Amendment No. 5 to the Company's 1993 Registration Statement) 10.18 Severance Agreement, dated July 1, 1985, between the Company and A. S. Hutchcraft, Jr., as amended (incorporated by reference to Exhibit (10)(f) to the Company's 1988 Form 10-K) 10.19 Amendment, dated October 31, 1989, to the Severance Agreement of A. S. Hutchcraft, Jr. referenced in Exhibit 10.18 above (incorporated by reference to Exhibit 10.24 to Amendment No. 5 to the Company's 1989 Registration Statement) 10.20 Employment Agreement dated July 1, 1991, by and among MAXXAM, the Company and Joseph A. Bonn (incorporated by reference to Exhibit 10.24 to Form 10-K for the period ended December 31, 1991, filed by the Company, File No. 1-3605; the "Company's 1991 Form 10-K") 10.21 Employment Agreement, dated September 26, 1990, between the Company, MAXXAM and John T. La Duc (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to KAC's 1991 Registration Statement) 10.22 Employment Agreement, dated August 22, 1990, among the Company, MAXXAM and Robert W. Irelan (incorporated by reference to Exhibit 10.2 to the Company's March 1991 Form 10-Q) 10.23 Promissory Note, dated October 4, 1990, by Robert W. Irelan and Barbara M. Irelan to the Company (incorporated by reference to Exhibit 10.54 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924, the "MAXXAM 1990 Form 10-K") 10.24 Employment Agreement dated as of March 8, 1990, between MAXXAM and Anthony R. Pierno (incorporated by reference to Exhibit 10.28 to MAXXAM's 1990 Form 10-K) 10.25 Promissory Note dated February 1, 1989, by Anthony R. Pierno and Beverly J. Pierno to MAXXAM (incorporated by reference to Exhibit 10.30 to Form 10-K for the period ended December 31, 1988, filed by MAXXAM, File No. 1-3924)
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EXHIBIT NO. EXHIBIT - ------------------- ------------------------------------------------------------------------ 10.26 Promissory Note dated July 19, 1990, by Anthony R. Pierno to MAXXAM (incorporated by reference to Exhibit 10.31 to MAXXAM's 1990 Form 10-K) 10.27 Commercial Guaranty, dated February 22, 1993, between MAXXAM and Charter National Bank - Houston, in respect of a loan from Charter National Bank - Houston to Anthony R. Pierno (incorporated by reference to Exhibit 10.26 to the Company's Form 10-K for the period ended December 31, 1992, filed by KAC, File No. 1-3605) 10.28 Employment Agreement dated as of March 8, 1990, between MAXXAM and Byron L. Wade (incorporated by reference to Exhibit 10.50 to MAXXAM's 1990 Form 10-K) 10.29 Agreement, dated December 20, 1991, between KAC and Joseph A. Bonn (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended March 31, 1992, filed by KAC, File No. 1-3605) 10.30 Employment Agreement, dated April 1, 1993, among the Company, KAC and George T. Haymaker, Jr. (incorporated by reference to Exhibit 10.2 to KAC's March 1993 Form 10-Q) 10.31 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of KAC's June 1993 Form 10-Q) 10.32 Agreement, dated as of June 30, 1993, between KAC and MAXXAM Inc. (incorporated by reference to Exhibit 10.2 of KAC's June 1993 Form 10-Q) 10.33 Tax Allocation Agreement, dated as of June 30, 1993, between the Company and KAC (incorporated by reference to Exhibit 10.3 of KAC's June 1993 Form 10-Q) 12 Computation of consolidated ratio of earnings to fixed charges 21 Subsidiaries of the Company (incorporated by reference to Exhibit 22 to Form 10-K for the period ended December 31, 1992, filed by KAC File No. 1-9447) *23.1 Consent of Arthur Andersen & Co. 23.2 Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (included in Exhibit 5) 24 Power of Attorney (included on signature page of this Registration Statement) 25 Statement of Eligibility of Trustee
- --------------- * Filed herewith. (b) Financial Statement Schedules. The following appear after the signature page of this Registration Statement: Report of Independent Public Accountants on Financial Statement Schedules Schedule II -- Kaiser Aluminum & Chemical Corporation and Subsidiary Companies -- Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other Than Related Parties Schedule V -- Kaiser Aluminum & Chemical Corporation and Subsidiary Companies -- Consolidated Property, Plant, and Equipment Schedule VI -- Kaiser Aluminum & Chemical Corporation and Subsidiary Companies -- Accumulated Depreciation, Depletion and Amortization of Consolidated Property, Plant and Equipment Schedule IX -- Kaiser Aluminum & Chemical Corporation and Subsidiary Companies -- Consolidated Short-Term Borrowings Schedule X -- Kaiser Aluminum & Chemical Corporation and Subsidiary Companies -- Supplementary Consolidated Income Statement Information
II-6 141 All other schedules are omitted because the required information is included in the Consolidated Financial Statements or the Notes thereto or is otherwise inapplicable. ITEM 17. UNDERTAKINGS 1. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 15 above, 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 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 of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 2. 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 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 the time shall be deemed to be the initial bona fide offering thereof. 3. The registrant hereby undertakes: (1) That for purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) That for the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus 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-7 142 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, KAISER ALUMINUM & CHEMICAL CORPORATION, CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF PLEASANTON, STATE OF CALIFORNIA, ON THE 9TH DAY OF FEBRUARY, 1994. KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/ GEORGE T. HAYMAKER, JR. George T. Haymaker, Jr., Chairman of the Board and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ----------------- /s/ GEORGE T. HAYMAKER, JR. Chief Executive Officer and February 9, 1994 George T. Haymaker, Jr. Director /s/ JOHN T. LA DUC Vice President and Chief February 9, 1994 John T. La Duc Financial Officer (Principal Financial Officer) /s/ CHARLIE ALONGI Controller (Principal February 9, 1994 Charlie Alongi Accounting Officer) /s/ CHARLES E. HURWITZ Director February 9, 1994 Charles E. Hurwitz /s/ EZRA G. LEVIN Director February 9, 1994 Ezra G. Levin /s/ ROBERT MARCUS Director February 9, 1994 Robert Marcus /s/ PAUL D. RUSEN Director February 9, 1994 Paul D. Rusen
II-8 143 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, REGISTRANT, KAISER ALUMINA AUSTRALIA CORPORATION, CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF PLEASANTON, STATE OF CALIFORNIA, ON THE 9TH DAY OF FEBRUARY, 1994. KAISER ALUMINA AUSTRALIA CORPORATION By: /s/ GEORGE T. HAYMAKER, JR. George T. Haymaker, Jr., President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ----------------- /s/ GEORGE T. HAYMAKER, JR. President and Director February 9, 1994 George T. Haymaker, Jr. (Principal Executive Officer) /s/ JOHN T. LA DUC Vice President, Chief February 9, 1994 John T. La Duc Financial Officer, Treasurer and Director (Principal Financial Officer) /s/ JOSEPH A. BONN Vice President and Director February 9, 1994 Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General February 9, 1994 Anthony R. Pierno Counsel and Director /s/ CHARLIE ALONGI Controller (Principal February 9, 1994 Charlie Alongi Accounting Officer)
II-9 144 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, REGISTRANT, ALPART JAMAICA INC., CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF PLEASANTON, STATE OF CALIFORNIA, ON THE 9TH DAY OF FEBRUARY, 1994. ALPART JAMAICA INC. By: /s/ GEOFFREY W. SMITH Geoffrey W. Smith, President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ----------------- /s/ GEOFFREY W. SMITH President (Principal February 9, 1994 Geoffrey W. Smith Executive Officer) /s/ GEORGE T. HAYMAKER, JR. Director February 9, 1994 George T. Haymaker, Jr. /s/ JOSEPH A. BONN Vice President and Director February 9, 1994 Joseph A. Bonn /s/ JOHN T. LA DUC Vice President, Chief February 9, 1994 John T. La Duc Financial Officer, Treasurer and Director (Principal Financial Officer) /s/ ANTHONY R. PIERNO Vice President, General February 9, 1994 Anthony R. Pierno Counsel and Director /s/ CHARLIE ALONGI Controller (Principal February 9, 1994 Charlie Alongi Accounting Officer)
II-10 145 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, REGISTRANT, KAISER JAMAICA CORPORATION, CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF PLEASANTON, STATE OF CALIFORNIA, ON THE 9TH DAY OF FEBRUARY, 1994. KAISER JAMAICA CORPORATION By: /s/ GEOFFREY W. SMITH Geoffrey W. Smith, President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ----------------- /s/ GEOFFREY W. SMITH President (Principal February 9, 1994 Geoffrey W. Smith Executive Officer) /s/ JOHN T. LA DUC Vice President, Chief February 9, 1994 John T. La Duc Financial Officer, Treasurer and Director (Principal Financial Officer) /s/ GEORGE T. HAYMAKER, JR. Director February 9, 1994 George T. Haymaker, Jr. /s/ JOSEPH A. BONN Vice President and Director February 9, 1994 Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General February 9, 1994 Anthony R. Pierno Counsel and Director /s/ CHARLIE ALONGI Controller (Principal February 9, 1994 Charlie Alongi Accounting Officer)
II-11 146 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, REGISTRANT, KAISER FINANCE CORPORATION, CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF PLEASANTON, STATE OF CALIFORNIA, ON THE 9TH DAY OF FEBRUARY, 1994. KAISER FINANCE CORPORATION By: /s/ GEORGE T. HAYMAKER, JR. George T. Haymaker, Jr., President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ----------------- /s/ GEORGE T. HAYMAKER, JR. President and Director February 9, 1994 George T. Haymaker, Jr. (Principal Executive Officer) /s/ JOHN T. LA DUC Vice President, Chief February 9, 1994 John T. La Duc Financial Officer, Treasurer and Director (Principal Financial Officer) /s/ JOSEPH A. BONN Vice President and Director February 9, 1994 Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General February 9, 1994 Anthony R. Pierno Counsel and Director /s/ CHARLIE ALONGI Controller (Principal February 9, 1994 Charlie Alongi Accounting Officer)
II-12 147 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited, in accordance with generally accepted auditing standards, the financial statements included in the registration statement and have issued our report thereon dated February 8, 1993. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index above are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Oakland, California February 8, 1993 II-13 148 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES (IN MILLIONS OF DOLLARS)
BALANCE AT DEDUCTIONS END OF YEAR BALANCE AT ------------------------- ------------------- BEGINNING AMOUNTS AMOUNTS NOT NAME OF DEBTOR OF YEAR ADDITIONS COLLECTED WRITTEN OFF CURRENT CURRENT - --------------------------- ---------- --------- --------- ----------- ------- ------- 1992 J. A. Bonn(1).............. $ .1 $ .1 1991 J. M. Seidl(2)............. $ 1.3 1.3 J. A. Bonn(1).............. .1 $.1 1990 None
- --------------- (1) This note bears interest at 7.09% per annum and is due on the earlier of demand, the termination of Mr. Bonn's employment, or on June 30, 1994. The interest is payable quarterly. The note is secured by real estate owned by Mr. Bonn. The full amount of the note was paid in March 1992. (2) The note of $1.0, together with its accrued interest (at 8.9% per annum), was transferred to the Company by MAXXAM in September 1991 and was subsequently paid off in cash. S-1 149 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE V CONSOLIDATED PROPERTY, PLANT, AND EQUIPMENT (IN MILLIONS OF DOLLARS)
BALANCE AT OTHER BALANCE AT BEGINNING CHANGE END OF DESCRIPTION OF YEAR ADDITIONS RETIREMENTS ADD (DEDUCT) YEAR - --------------------------------- ---------- --------- ----------- ------------ ---------- Year ended December 31, 1992: Land........................... $ 49.5 $ 11.0 $ 24.3 $ 84.8 Land improvements.............. 33.7 5.5 (0.2) 39.0 Buildings...................... 135.3 16.6 $ (.2) 3.3 155.0 Machinery and equipment........ 925.7 94.6 (4.8) (4.8) 1,010.7 Leasehold improvements......... 5.8 3.3 9.1 Construction in progress....... 87.5 (16.6) (.1) (.5) 70.3 ---------- --------- ----------- ------------ ---------- Total....................... $1,237.5 $ 114.4 $(5.1) $ 22.1 (1) $1,368.9 ---------- --------- ----------- ------------ ---------- ---------- --------- ----------- ------------ ---------- Year ended December 31, 1991: Land........................... $ 43.3 $ 1.4 $ (.2) $ 5.0 $ 49.5 Land improvements.............. 27.7 1.8 4.2 33.7 Buildings...................... 123.5 5.9 (.7) 6.6 135.3 Machinery and equipment........ 866.7 71.6 (6.0) (6.6) 925.7 Leasehold improvements......... 5.0 .7 .1 5.8 Construction in progress....... 52.4 36.7 (.1) (1.5) 87.5 ---------- --------- ----------- ------------ ---------- Total....................... $1,118.6 $ 118.1 $(7.0) $ 7.8 $1,237.5 ---------- --------- ----------- ------------ ---------- ---------- --------- ----------- ------------ ---------- Year ended December 31, 1990: Land........................... $ 21.1 $ .3 $ 21.9 (3) $ 43.3 Land improvements.............. 37.3 2.5 (12.1)(3) 27.7 Buildings...................... 109.5 9.6 $ (.6) 5.0 (3) 123.5 Machinery and equipment........ 771.8 115.5 (2.4) (18.2)(3) 866.7 Leasehold improvements......... 2.7 .2 2.1 (3) 5.0 Construction in progress....... 71.6 (17.8)(2) (1.4)(3) 52.4 ---------- --------- ----------- ------------ ---------- Total....................... $1,014.0 $ 110.3 $(3.0) $ (2.7) $1,118.6 ---------- --------- ----------- ------------ ---------- ---------- --------- ----------- ------------ ----------
- --------------- (1) Consists principally of reclassifications from other current and long-term assets to property, plant, and equipment. (2) Represents $128.1 transfer to other fixed assets categories net of $110.3 additions to construction in progress in 1990. (3) Consists principally of reclassifications between asset categories of the 1989 consolidation of Alpart and purchase accounting valuation adjustments of domestic assets. S-2 150 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE VI ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF CONSOLIDATED PROPERTY, PLANT, AND EQUIPMENT (IN MILLIONS OF DOLLARS)
BALANCE AT OTHER BALANCE AT BEGINNING CHANGE END OF DESCRIPTION OF YEAR ADDITIONS RETIREMENTS ADD (DEDUCT) YEAR - ------------------------------------ ---------- --------- ----------- ------------ ---------- Year ended December 31, 1992: Depletable land................... $ 1.2 $ .3 $ 1.5 Land improvements................. 4.8 1.6 $ (.1) 6.3 Buildings......................... 21.9 7.3 $ (.1) 1.6 30.7 Machinery and equipment........... 193.2 70.5 (1.1) (1.4) 261.2 Leasehold improvements............ 1.9 .6 (.1) 2.4 ---------- --------- ----------- ------ ---------- Total.......................... $223.0 $80.3 $(1.2) nil $302.1 ---------- --------- ----------- ------ ---------- ---------- --------- ----------- ------ ---------- Year ended December 31, 1991: Depletable land................... $ .7 $ .5 $ 1.2 Land improvements................. 3.5 1.1 $ .2 4.8 Buildings......................... 14.6 6.5 $ (.1) .9 21.9 Machinery and equipment........... 128.3 64.5 (1.6) 2.0 193.2 Leasehold improvements............ 1.2 .6 .1 1.9 ---------- --------- ----------- ------ ---------- Total.......................... $148.3 $73.2 $(1.7) $ 3.2 $223.0 ---------- --------- ----------- ------ ---------- ---------- --------- ----------- ------ ---------- Year ended December 31, 1990: Depletable land................... $ .5 $ .3 $ (.1) $ .7 Land improvements................. 2.4 1.3 (.2) 3.5 Buildings......................... 10.6 6.6 (2.6) 14.6 Machinery and equipment........... 63.9 61.7 $ (.7) 3.4 128.3 Leasehold improvements............ .6 .6 1.2 ---------- --------- ----------- ------ ---------- Total.......................... $ 78.0 $70.5 $ (.7) $ .5 $148.3 ---------- --------- ----------- ------ ---------- ---------- --------- ----------- ------ ----------
S-3 151 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE IX CONSOLIDATED SHORT-TERM BORROWINGS (IN MILLIONS OF DOLLARS)
MAXIMUM AVERAGE WEIGHTED WEIGHTED AMOUNTS AMOUNT AVERAGE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE CATEGORY OF AGGREGATE SHORT-TERM AT END OF INTEREST DURING DURING THE DURING THE BORROWINGS YEAR RATE THE YEAR YEAR(1) YEAR(2) - ----------------------------------- --------- -------- ----------- ----------- ------------- Bank borrowings(3) 1992............................... $ 4.8 4.8% $52.8 $29.6 4.7% 1991............................... 6.3 4.9 50.6 29.2 7.0 1990............................... 8.7 35.9 8.8 9.3
- --------------- (1) Based on outstanding borrowings at the end of each month. (2) Based on outstanding borrowings and weighted average interest rates at the end of each month. (3) Short-term bank borrowings are made available on an uncommitted basis and no fee is charged. Maturities generally range from one to ten days with no formal provisions for the extension of maturities. Interest rates are based upon short-term prevailing rates. S-4 152 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE X SUPPLEMENTARY CONSOLIDATED INCOME STATEMENT INFORMATION(1) (IN MILLIONS OF DOLLARS)
CHARGED TO COSTS AND EXPENSES YEAR ENDED DECEMBER 31, ---------------------------- 1992 1991 1990 ------ ------ ------ Maintenance and repairs.......................................... $147.0 $161.4 $157.7 ------ ------ ------ ------ ------ ------ Taxes, other than payroll and income taxes -- production levy on bauxite........................................................ $ 31.5 $ 34.0 $ 33.8 ------ ------ ------ ------ ------ ------
- --------------- (1) The amounts for amortization of intangible assets and preoperating costs and similar deferrals, royalties, and advertising costs are not reported as these items did not exceed 1% of sales and revenues. NOTE: ALL OTHER SCHEDULES ARE INAPPLICABLE OR THE REQUIRED INFORMATION IS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS OR THE NOTES THERETO. S-5 153 EXHIBIT INDEX
EXHIBIT NO. EXHIBIT - ----------- ----------- 1.1 Form of Purchase Agreement *4.1 Form of Indenture (the "Note Indenture"), among the Company, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation and Kaiser Finance Corporation, as Subsidiary Guarantors, and First Trust National Association as Trustee, regarding the Notes 4.2 Indenture, dated as of February 1, 1993, among the Company, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc. and Kaiser Jamaica Corporation, as Subsidiary Guarantors, and The First National Bank of Boston, as Trustee, regarding the Company's 12 3/4% Senior Subordinated Notes due 2003 (incorporated by reference to Exhibit 4.2 to Amendment No. 5 to the Registration Statement on Form S-1 on Form S-2, dated January 22, 1993, filed by the Company, Registration No. 33-48260; the "Company's 1993 Registration Statement") 4.3 First Supplemental Indenture, dated as of May 1, 1993 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, of the Company's, filed August 10, 1993, File No. 1-3605; the "Company's June 1993 Form 10-Q) 4.4 Credit Agreement, dated December 13, 1989 (the "Credit Agreement"), among the Company, financial institutions a party thereto, Bank of America National Trust and Savings Association, as Agent, and Mellon Bank, N.A., as Collateral Agent (incorporated by reference to Exhibit 4.3 to Amendment No. 5 to the Registration Statement on Form S-1, dated December 13, 1989, filed by the Company, Registration No. 33-48260; the "Company's 1989 Registration Statement") 4.5 First Amendment to Credit Agreement, dated April 17, 1990 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended September 30, 1990, of MAXXAM, filed November 6, 1990, File No. 1-3924; the "September 1990 MAXXAM Form 10-Q") 4.6 Second Amendment to Credit Agreement, dated September 17, 1990 (incorporated by reference to Exhibit 4.3 to the September 1990 MAXXAM Form 10-Q) 4.7 Third Amendment to Credit Agreement, dated December 7, 1990 (incorporated by reference to Exhibit 4.6 to Amendment No. 1 to KAC's 1991 Registration Statement) 4.8 Fourth Amendment to Credit Agreement, dated April 19, 1991 (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended March 31, 1991, filed by the Company, File No. 1-3605; the "Company's March 1991 Form 10-Q") 4.9 Fifth Amendment to Credit Agreement, dated March 13, 1992 (incorporated by reference to Exhibit 4.8 to Form 10-K for the period ended December 31, 1991, filed by KAC, File No. 1-9447; the "KAC 1991 Form 10-K") 4.10 Seventh Amendment to Credit Agreement, dated November 6, 1992 (incorporated by reference to Exhibit 4.10 to Amendment No. 5 to the Company's 1993 Registration Statement) 4.11 Eighth Amendment to Credit Agreement, dated January 7, 1993 (incorporated by reference to Exhibit 4.12 to Amendment No. 5 to Company's 1993 Registration Statement) 4.12 Ninth Amendment to Credit Agreement (including the form of Intercompany Note annexed as an Exhibit thereto)(incorporated by reference to Exhibit 4.10 to Amendment No. 2 to the Registration Statement on Form S-1 dated June 22, 1993, filed by KAC, Registration No. 33-49555; the "KAC 1993 Registration Statement")
154
EXHIBIT NO. EXHIBIT - ----------- ----------- 4.13 Tenth Amendment to Credit Agreement, dated July 23, 1993 (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-3, dated August 26, 1993, filed by the Company, Registration No. 33-50097) 4.14 Eleventh Amendment to Credit Agreement, dated January 7, 1993 (incorporated by reference to Exhibit 4.12 to Amendment No. 5 to Registrant's 1993 Registration Statement) 4.15 Twelfth Amendment to Credit Agreement 4.16 Form of Intercompany Note between the Company and KAC (incorporated by reference to Exhibit 4.2 to Amendment No. 5 to the Company's 1989 Registration Statement) 4.17 Senior Subordinated Intercompany Note between the Company and MAXXAM, dated January 14, 1993 (incorporated by reference to Exhibit 4.13 to Company's 1993 Registration Statement) 4.18 Certificate of Designations of Series A Mandatory Conversion Premium Dividend Preferred Stock of KAC, dated June 28, 1993 (incorporated by reference to Exhibit 4.3 of the Company's June 1993 Form 10-Q) 4.19 Deposit Agreement between KAC and The First National Bank of Boston, dated as of June 30, 1993 (incorporated by reference to Exhibit 4.4 of the Company's June 1993 Form 10-Q) 4.20 Form of Certificate of Designations of PRIDES *4.21 Form of Intercompany Note between the Company and KAC *4.22 Form of Credit Agreement to be entered into by the Company, KAC, BankAmerica Business Credit, Inc., as Agent and certain financial institutions Note: The Company has not filed certain long-term debt instruments not being registered with the Securities and Exchange Commission where the total amount of indebtedness authorized under any such instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees and undertakes to furnish a copy of any such instrument to the Securities and Exchange Commission upon its request. 5.1 Opinion of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as to the validity of the securities being registered hereunder 10.1 Form of indemnification agreement with officers and directors (incorporated by reference to Exhibit (10)(b) to the Registration Statement of KAC on Form S-4, File No. 33-12836) 10.2 Tax Allocation Agreement between MAXXAM and the Company (incorporated by reference to Exhibit 10.21 to Amendment No. 6 to the Company's 1989 Registration Statement) 10.3 Amended and Restated Alumina Supply Agreement, dated October 11, 1989 (incorporated by reference to Exhibit 10.19 to Amendment No. 3 to the Company's 1989 Registration Statement) 10.4 Transfer Agreement between the Company and KAC (incorporated by reference to Exhibit 10.20 to Amendment No. 6 to the Company's 1989 Registration Statement) 10.5 The Company's Bonus Plan (incorporated by reference to Exhibit 10.25 to Amendment No. 6 to the Company's 1989 Registration Statement)
155
EXHIBIT NO. EXHIBIT - ----------- ----------- 10.6 KaiserTech Limited Long Term Incentive Plan, dated June 2, 1989, as amended (incorporated by reference to Exhibit 10.14 to Form 10-K for the period ended December 31, 1989, filed by the Company, File No. 1-3605) 10.7 Amendment No. 2 to the KaiserTech Limited Long Term Incentive Plan, dated December 18, 1991 (incorporated by reference to Exhibit 10.7 to KAC's 1991 Form 10-K) 10.8 Amendment No. 3 to the Kaiser Aluminum Corporation Long Term Incentive Plan, dated December 31, 1991 (incorporated by reference to Exhibit 10.8 to KAC's 1991 Form 10-K) 10.9 Kaiser Aluminum Middle Management Long Term Incentive Plan, dated June 25, 1990, as amended (incorporated by reference to Exhibit 10.22 to Amendment No. 1 to KAC's 1991 Registration Statement) 10.10 Tax Allocation Agreement between KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to Amendment No. 2 to KAC's 1991 Registration Statement) 10.11 Assumption Agreement, dated as of October 28, 1988 (incorporated by reference to Exhibit HHH to the Final Amendment to the Schedule 13D of MAXXAM Group Inc. and others in respect of the Common Stock of the Company, par value $.33 1/3 per share) 10.12 Employment Agreement, dated February 1, 1989, among the Company, KAC and John M. Seidl (incorporated by reference to Exhibit 10.18 to Amendment No. 3 to the Company's 1989 Registration Statement) 10.13 Employment Agreement (the "Seidl-MAXXAM Employment Agreement"), dated June 13, 1990, between MAXXAM and John M. Seidl (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to KAC's 1991 Registration Statement) 10.14 Amendment dated February 11, 1991, to the Seidl-MAXXAM Employment Agreement (incorporated by reference to Exhibit 10.21 to Form 10-K for the period ended December 31, 1990, filed by the Company's, File No. 1-3605) 10.15 Amendment dated May 29, 1991, to the Seidl-MAXXAM Employment Agreement (incorporated by reference to Exhibit 10.30 to Amendment No. 2 to KAC's 1991 Registration Statement) 10.16 Payment Agreement, dated December 23, 1992, between the Company and John M. Seidl (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended March 31, 1993, of KAC, filed April 28, 1993, File No. 1-3605; the "KAC's March 1993 Form 10-Q") 10.17 Employment Agreement, dated as of October 1, 1992, among the Company, KAC and A. Stephens Hutchcraft, Jr. (incorporated by reference to Exhibit 10.15 to Amendment No. 5 to the Company's 1993 Registration Statement) 10.18 Severance Agreement, dated July 1, 1985, between the Company and A. S. Hutchcraft, Jr., as amended (incorporated by reference to Exhibit (10)(f) to the Company's 1988 Form 10-K) 10.19 Amendment, dated October 31, 1989, to the Severance Agreement of A. S. Hutchcraft, Jr. referenced in Exhibit 10.18 above (incorporated by reference to Exhibit 10.24 to Amendment No. 5 to the Company's 1989 Registration Statement) 10.20 Employment Agreement dated July 1, 1991, by and among MAXXAM, the Company and Joseph A. Bonn (incorporated by reference to Exhibit 10.24 to Form 10-K for the period ended December 31, 1991, filed by the Company, File No. 1-3605; the "Company's 1991 Form 10-K")
156
EXHIBIT NO. EXHIBIT - ----------- ----------- 10.21 Employment Agreement, dated September 26, 1990, between the Company, MAXXAM and John T. La Duc (incorporated by reference to Exhibit 10.20 to Amendment No. 1 to KAC's 1991 Registration Statement) 10.22 Employment Agreement, dated August 22, 1990, among the Company, MAXXAM and Robert W. Irelan (incorporated by reference to Exhibit 10.2 to the Company's March 1991 Form 10-Q) 10.23 Promissory Note, dated October 4, 1990, by Robert W. Irelan and Barbara M. Irelan to the Company (incorporated by reference to Exhibit 10.54 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924, the "MAXXAM 1990 Form 10-K") 10.24 Employment Agreement dated as of March 8, 1990, between MAXXAM and Anthony R. Pierno (incorporated by reference to Exhibit 10.28 to MAXXAM's 1990 Form 10-K) 10.25 Promissory Note dated February 1, 1989, by Anthony R. Pierno and Beverly J. Pierno to MAXXAM (incorporated by reference to Exhibit 10.30 to Form 10-K for the period ended December 31, 1988, filed by MAXXAM, File No. 1-3924) 10.26 Promissory Note dated July 19, 1990, by Anthony R. Pierno to MAXXAM (incorporated by reference to Exhibit 10.31 to MAXXAM's 1990 Form 10-K) 10.27 Commercial Guaranty, dated February 22, 1993, between MAXXAM and Charter National Bank - Houston, in respect of a loan from Charter National Bank - Houston to Anthony R. Pierno (incorporated by reference to Exhibit 10.26 to the Company's Form 10-K for the period ended December 31, 1992, filed by KAC, File No. 1-3605) 10.28 Employment Agreement dated as of March 8, 1990, between MAXXAM and Byron L. Wade (incorporated by reference to Exhibit 10.50 to MAXXAM's 1990 Form 10-K) 10.29 Agreement, dated December 20, 1991, between KAC and Joseph A. Bonn (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended March 31, 1992, filed by KAC, File No. 1-3605) 10.30 Employment Agreement, dated April 1, 1993, among the Company, KAC and George T. Haymaker, Jr. (incorporated by reference to Exhibit 10.2 to KAC's March 1993 Form 10-Q) 10.31 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of KAC's June 1993 Form 10-Q) 10.32 Agreement, dated as of June 30, 1993, between KAC and MAXXAM Inc. (incorporated by reference to Exhibit 10.2 of KAC's June 1993 Form 10-Q) 10.33 Tax Allocation Agreement, dated as of June 30, 1993, between the Company and KAC (incorporated by reference to Exhibit 10.3 of KAC's June 1993 Form 10-Q) 12 Computation of consolidated ratio of earnings to fixed charges 21 Subsidiaries of the Company (incorporated by reference to Exhibit 22 to Form 10-K for the period ended December 31, 1992, filed by KAC File No. 1-9447) *23.1 Consent of Arthur Andersen & Co. 23.2 Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (included in Exhibit 5) 24 Power of Attorney (included on signature page of this Registration Statement) 25 Statement of Eligibility of Trustee
- --------------- * Filed herewith. EX-4.1 2 FORM OF INDENTURE 1 L&W Draft Dated 2/7/94 KAISER ALUMINUM & CHEMICAL CORPORATION, as Issuer, KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION and KAISER JAMAICA CORPORATION, as Subsidiary Guarantors, AND FIRST TRUST NATIONAL ASSOCIATION as Trustee INDENTURE Dated as of February --, 1994 $225,000,000 ----% Senior Notes due 2002 2 RECONCILIATION AND TIE SHEET* between PROVISIONS OF THE TRUST INDENTURE ACT OF 1939 and INDENTURE DATED AS OF FEBRUARY --, 1994 between KAISER ALUMINUM & CHEMICAL CORPORATION KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION and KAISER JAMAICA CORPORATION and FIRST TRUST NATIONAL ASSOCIATION, TRUSTEE
Sections Sections of of Act 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 314(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.05
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Sections Sections of of Act Indenture - ------ --------- 314(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.05 314(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 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. ii 4 TABLE OF CONTENTS
Page ARTICLE ONE DEFINITIONS SECTION 1.01. Certain terms defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 1.02. References are to Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 1.03. Other definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES SECTION 2.01. Designation, amount, authentication and delivery of Notes . . . . . . . . . . . . . . . . . . . . 31 SECTION 2.02. Form of Notes and Trustee's certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 2.07. Mutilated, destroyed, lost or stolen Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 2.08. Cancellation of surrendered Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE THREE REDEMPTION AND PURCHASES OF NOTES SECTION 3.01. Redemption prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 3.02. Notice of redemption; selection of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 3.03. When Notes called for redemption become due and payable . . . . . . . . . . . . . . . . . . . . . 35 SECTION 3.04. Cancellation of redeemed Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 3.05. Purchase of Notes at option of the holder upon Change of Control . . . . . . . . . . . . . . . . 36 SECTION 3.06. Effect of Change of Control Purchase Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 3.07. Deposit of Change of Control Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 3.08. Covenant to comply with securities laws upon purchase of Notes . . . . . . . . . . . . . . . . . 39 SECTION 3.09. Repayment to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE FOUR PARTICULAR COVENANTS OF THE COMPANY SECTION 4.01. Payments on the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 4.02. Maintenance of office or agency for registration of transfer, exchange and payment of Notes . . . 39 SECTION 4.03. Appointment to fill a vacancy in the office of Trustee . . . . . . . . . . . . . . . . . . . . . 40 SECTION 4.04. Provision as to paying agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 4.05. Maintenance of corporate existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.06. Officers' Certificate as to default and statement as to compliance . . . . . . . . . . . . . . . 41 SECTION 4.07. Usury laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 4.08. Restrictions on transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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Page SECTION 4.09. Limitations on Restricted Payments and Restricted Investments . . . . . . . . . . . . . . . . . 43 SECTION 4.10. Limitation on Indebtedness and Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 4.11. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 4.12. Subsidiary guarantees, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 4.13. Limitation on dividends and other payment restrictions affecting Subsidiaries . . . . . . . . . 54 SECTION 4.14. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 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 . . . . . . . . 57 SECTION 5.02. Preservation and disclosure of lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 5.03. Reports by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 5.04. Reports by the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 ARTICLE SIX REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON EVENT OF DEFAULT SECTION 6.01. Events of Default defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 SECTION 6.02. Payment of Notes on default; suit therefor . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 6.03. Application of moneys collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 6.04. Limitation on suits by holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 6.05. Proceedings by Trustee; remedies cumulative and continuing; delay or omission not waiver of default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 6.06. Rights of holders of majority in principal amount of Notes to direct Trustee and to waive defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 6.07. Trustee to give notice of defaults known to it, but may withhold in certain circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 6.08. Requirement of an undertaking to pay costs in certain suits under the Indenture or against the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 6.09. Waiver of stay or extension laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 ARTICLE SEVEN CONCERNING THE TRUSTEE SECTION 7.01. Duties and responsibilities of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 7.02. Reliance on documents, opinions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 7.03. No responsibility for recitals, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 SECTION 7.04. Trustee, paying agent or Note registrar may own Notes . . . . . . . . . . . . . . . . . . . . . 68 SECTION 7.05. Moneys received by Trustee to be held in trust without interest . . . . . . . . . . . . . . . . 68 SECTION 7.06. Compensation and expenses of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 7.07. Right of Trustee to rely on Officers' Certificate where no other evidence specifically prescribed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
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Page SECTION 7.08. Conflicting interest of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 7.09. Requirements for eligibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 7.10. Resignation or removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 7.11. Acceptance by successor to Trustee; notice of succession of a Trustee . . . . . . . . . . . . . . 74 SECTION 7.12. Successor to Trustee by merger, consolidation or succession to business; notice by Trustee of change in its location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 7.13. Limitations on rights of Trustee as a creditor . . . . . . . . . . . . . . . . . . . . . . . . . 75 ARTICLE EIGHT CONCERNING THE NOTEHOLDERS SECTION 8.01. Evidence of action by noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 SECTION 8.02. Proof of execution of instruments and of holding of Notes . . . . . . . . . . . . . . . . . . . . 78 SECTION 8.03. Who may be deemed owners of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 8.04. Notes owned by Company or controlled by controlling persons disregarded for certain purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 8.05. Record date for action by noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 8.06. Instruments executed by noteholders bind future holders . . . . . . . . . . . . . . . . . . . . . 80 ARTICLE NINE NOTEHOLDERS' MEETINGS SECTION 9.01. Purposes for which meetings may be called . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 9.02. Manner of calling meetings; record date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 9.03. Call of meeting by Company or noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 9.04. Who may attend and vote at meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 9.05. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 9.06. Manner of voting at meetings and record to be kept . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 9.07. Exercise of rights of Trustee and noteholders not to be hindered or delayed . . . . . . . . . . . 82 ARTICLE TEN SUPPLEMENTAL INDENTURES SECTION 10.01. Purposes for which supplemental indentures may be entered into without consent of noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 10.02. Modification of Indenture with consent of holders of a majority in principal amount of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 10.03. Effect of supplemental indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 10.04. Notes may bear notation of changes by supplemental indentures . . . . . . . . . . . . . . . . . . 84 SECTION 10.05. Officers' Certificate and Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 84 ARTICLE ELEVEN CONSOLIDATION, MERGER AND SALE SECTION 11.01. Company may consolidate, etc., on certain terms . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 11.02. Successor corporation to be substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 11.03. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
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Page ARTICLE TWELVE SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 12.01. Satisfaction and discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 12.02. Application by Trustee of funds deposited for payment of Notes . . . . . . . . . . . . . . . . . . 87 SECTION 12.03. Repayment of moneys held by paying agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 12.04. Repayment of moneys held by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 12.05. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 ARTICLE THIRTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 13.01. Incorporators, stockholders, officers and directors of Company exempt from individual liability . . 88 ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS SECTION 14.01. Successors and assigns of Company bound by Indenture . . . . . . . . . . . . . . . . . . . . . . . 89 SECTION 14.02. Acts of board, committee or officer of successor corporation valid . . . . . . . . . . . . . . . . 89 SECTION 14.03. Required notices or demands may be served by mail; waiver . . . . . . . . . . . . . . . . . . . . . 89 SECTION 14.04. Indenture and Notes to be construed in accordance with the laws of the State of New York . . . . . 89 SECTION 14.05. Evidence of compliance with conditions precedent . . . . . . . . . . . . . . . . . . . . . . . . . 89 SECTION 14.06. Payments due on Saturdays, Sundays and holidays . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 14.07. Provisions required by Trust Indenture Act of 1939 to control . . . . . . . . . . . . . . . . . . . 90 SECTION 14.08. Provisions of the Indenture and Notes for the sole benefit of the parties and the noteholders . . . 91 SECTION 14.09. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 14.10. Indenture may be executed in counterparts; acceptance by Trustee . . . . . . . . . . . . . . . . . 91 SECTION 14.11. Article and Section headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 14.12. No Adverse Interpretation of Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . 91 ARTICLE FIFTEEN GUARANTEE OF NOTES SECTION 15.01. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 15.02. Guarantee senior in respect of Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . 92 SECTION 15.03. Subsidiary Guarantors may consolidate, etc., on certain terms . . . . . . . . . . . . . . . . . . . 92 SECTION 15.04. Application of certain terms and provisions to the Subsidiary Guarantors. . . . . . . . . . . . . . 93 SECTION 15.05. Release of Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE A - SCHEDULE OF LIENS SECURING INDEBTEDNESS IN EXCESS OF $5,000,000 SCHEDULE B - REAL PROPERTY CONSTITUTING PERMITTED COLLATERAL vi 8 THIS INDENTURE, dated as of the --- day of February, 1994, between KAISER ALUMINUM & CHEMICAL CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (hereinafter referred to as the "Company"), as Issuer, KAISER ALUMINA AUSTRALIA CORPORATION, KAISER FINANCE CORPORATION, ALPART JAMAICA INC. and KAISER JAMAICA CORPORATION, as Subsidiary Guarantors, and FIRST TRUST NATIONAL ASSOCIATION, a national banking association (hereinafter referred to as the "Trustee"), as Trustee. W I T N E S S E T H: WHEREAS, the Company has duly authorized an issue of its ----% Senior Notes due February --, 2002 (hereinafter referred to as the "Notes"), for an aggregate principal amount of up to two hundred twenty five million dollars ($225,000,000), to be issued as registered Notes without coupons, to be authenticated by the certificate of the Trustee, to be payable on February --, 2002, and to be redeemable and purchasable as hereinafter provided; 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; WHEREAS, the payment of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on, the Notes is hereby expressly designated, and the monetary obligations of the Company under the Notes shall hereafter constitute for all purposes, Senior Indebtedness of the Company under the terms of the Subordinated Note Indenture (as hereinafter defined); WHEREAS, the Guarantee (as hereinafter defined) of each Subsidiary Guarantor in respect of the Notes is hereby expressly designated, and the monetary obligations of such Subsidiary Guarantor under the Notes shall hereafter constitute for all purposes Senior Indebtedness of such Subsidiary Guarantor under the terms of the Subordinated Note Indenture, to the extent that such Subsidiary Guarantor is a guarantor under the Subordinated Note Indenture; WHEREAS, the Company has duly delivered written notice to the trustee under the Subordinated Note Indenture designating the Notes and the Guarantee as Senior Indebtedness thereunder; 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 FACE OF NOTE] No. [Principal Amount] Issue Date: CUSIP 483008 AE 8
KAISER ALUMINUM & CHEMICAL CORPORATION ----% SENIOR NOTE DUE 2002 KAISER ALUMINUM & CHEMICAL CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (herein referred to as the "Company"), for value received, hereby promises to pay to --------------------, or registered assigns, the principal sum of -------------------- DOLLARS on February --, 2002, at the office or agency of the Company in the Borough of Manhattan, the City of New York, State of New York, in such coin or currency of The 9 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, semiannually on February 15 and August 15 in each year. 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 February --, 1994. The interest so payable on any February 15 or August 15 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Note is registered at the close of business on the February 1 or August 1, as the case may be, next preceding such February 15 or August 15 whether or not such February 1 or August 1 is Business Day. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Payment of interest shall be made at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, 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. 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. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. 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 referred to on the reverse hereof. IN WITNESS WHEREOF, KAISER ALUMINUM & CHEMICAL CORPORATION has caused this instrument to be duly executed under its corporate seal. Dated KAISER ALUMINUM & CHEMICAL CORPORATION By: --------------------------- Name: Title: [Corporate Seal] Attest: - ----------------------------------- Secretary 2 10 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Notes described in the within-mentioned Indenture. FIRST TRUST NATIONAL ASSOCIATION as Trustee By: ------------------------------ Authorized Signatory [FORM OF REVERSE OF NOTE] KAISER ALUMINUM & CHEMICAL CORPORATION ---% SENIOR NOTE DUE 2002 This Note is one of a duly authorized issue of Notes of the Company known as its ---% Senior Notes due 2002 (herein referred to as the "Notes"), limited to an aggregate principal amount of two hundred twenty five million dollars ($225,000,000), all issued or to be issued under and pursuant to an indenture, dated as of February --, 1994 (herein referred to as the "Indenture"), duly executed and delivered between the Company, the Subsidiary Guarantors (as defined in the Indenture) and First Trust 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 Subsidiary Guarantors 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, as defined in the Indenture, shall have occurred and be continuing, the principal amount of this Note plus any accrued 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 in certain events such declaration and its consequences may be waived by the holders of 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. It is also provided in the Indenture that the holders of a majority of the aggregate principal amount of the Notes at the time or on any such record date outstanding may on behalf of the holders of all of the Notes waive, prior to such declaration, any past default under the Indenture and its consequences, 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 or a default in respect of a 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. Payment of the Notes is guaranteed on a senior basis by Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Finance Corporation and Kaiser Jamaica Corporation and, under certain circumstances set forth in the Indenture, may be guaranteed by certain other Subsidiaries and Non-Affiliate Joint Ventures of the Company. Under certain circumstances set forth in the Indenture, each 3 11 of the Subsidiary Guarantors may be released from their respective obligations under the Indenture and the Notes. 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 interest rate, extend the time or alter the manner of payment of interest thereon, or reduce the principal amount thereof, or alter the timing of or reduce any premium payable upon the redemption thereof, or reduce the amount payable thereon in the event of acceleration or the amount thereof 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. 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, 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 on the face hereof, 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. Principal of, 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 referred to on the face hereof, 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. The Notes are subject to redemption on or after February 15, 1998, at the option of the Company, in whole or in part on any date prior to maturity, upon mailing by first-class mail a notice of such redemption not less than 15 nor more than 60 days prior to the date fixed for redemption to the holders of Notes to be redeemed in whole or in part at their addresses as they shall appear upon the registry books of the Company, all as provided in the Indenture. Any such notice which is mailed in the manner hereinabove provided shall be conclusively presumed to have been duly given, whether or not the holder receives the notice. The table below shows the redemption prices (expressed as a percentage of principal amount) on the dates shown below. If redeemed during the 12-month period beginning February 15, the redemption price shall be: 4 12
Redemption Year Price ---- ----------- 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % 2001 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
in each case together with accrued and unpaid interest to (but not including) the date fixed for redemption. Subject to the terms and conditions of the Indenture, if any Change of Control (as defined in the Indenture) occurs on or prior to maturity, the Company shall offer to purchase from each holder all or any part 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 interest to (but not including) 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 (as defined in the Indenture) of Asset Sales (as defined in the Indenture), under certain circumstances described in the Indenture, to (x) the prepayment of Indebtedness (as defined in the Indenture) in respect of or under the Credit Agreement (as defined in the Indenture) and the Specified Pari Passu Indebtedness (as defined in the Indenture) unless the holders thereof elect not to receive such prepayment and (y) an offer to purchase (an "Asset Sale Offer") the then outstanding Notes, on any Business Day occurring no later than 175 days after the receipt by the Company (or any of its Subsidiaries, if applicable) of such Net Cash Proceeds, at a price equal to 100% of the principal amount thereof together with accrued interest, if any, to but not including the Asset Sale Purchase Date (as defined 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 Sale Offer is mailed) and the denominator of which is the principal amount of the Notes outstanding plus the aggregate principal amount of Indebtedness under the Credit Agreement and the 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 Indebtedness is outstanding in respect of or under the Credit Agreement or the Specified Pari Passu Indebtedness or (y) the holders of such Indebtedness entitled to 5 13 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 on the face hereof, 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, 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, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or the 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, officer or director, as such, past, present or future, of the Company 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. 6 14 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to: (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------- agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: ------------------- Your Signature: ---------------------------- ---------------------------- (Sign exactly as your name(s) appear(s) on the Note) Signature Guarantee: ------------------------------------- (bank, trust company or member firm of the New York Stock Exchange) 7 15 OPTION OF HOLDER TO ELECT PURCHASE Upon an offer by the Company to purchase all or any part of this Note pursuant to Section 3.05 or 4.14 of the Indenture, please check the appropriate box below if you wish to elect to have all or any part of this Note so purchased. Section 3.05--- Section 4.14--- If you wish to have only part of this Note purchased by the Company pursuant to Section 3.05 or Section 4.14 of the Indenture, state the principal amount you elect to have purchased: $------------------- Date: ------------- Signature: ----------------------------- ----------------------------- (Sign exactly as your name(s) appear(s) on the face of this Note) Signature Guarantee: ------------------------------------------ (bank, trust company or member firm of the New York Stock Exchange) 8 16 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, in the exercise of the legal right and power vested in it, executes and delivers this Indenture and 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, each Subsidiary Guarantor 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 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 and in said Securities Act as they were in force at the date of the execution and delivery of this Indenture. 14 1/4% Senior Subordinated Notes: The term "14 1/4% Senior Subordinated Notes" shall mean the Company's 14 1/4% Senior Subordinated Notes Due 1995, as amended, which were retired in 1993 and are no longer outstanding as of the date of this Indenture. 14 1/4% Senior Subordinated Note Indenture: The term "14 1/4% Senior Subordinated Note Indenture" shall mean the 14 1/4% Senior Subordinated Note Indenture, dated as of December 21, 1989, among the Company, as issuer, the parties named therein as and, if applicable, thereafter becoming, subsidiary guarantors, and The Bank of New York, a New York banking corporation, as trustee, as amended or supplemented from time to time in accordance with the terms thereof. 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; provided, however, that the term Affiliate shall not (other than for purposes of Section 3.07) include the Company, any Subsidiary of the Company or any Non-Affiliate Joint Venture of the Company so long as no Affiliate of the Company has any direct or indirect interest therein, except through the Company and/or its Subsidiaries and/or its Non-Affiliate Joint Ventures. 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. The fact that an Affiliate of a Person is a partner of a law firm that renders services to such Person or its Affiliates does not (other than for purposes of Section 3.07) mean that the law firm is an Affiliate of such Person. 9 17 AJI: The term "AJI" shall mean Alpart Jamaica Inc., a Delaware corporation, and its successors. Alpart: The term "Alpart" shall mean Alumina Partners of Jamaica, a Delaware general partnership, and its successors. Asset Sale: The term "Asset Sale" shall mean 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 initial issuance of the Notes by the Company or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries or any Non-Affiliate Joint Venture; 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 term Asset Sale shall not include a Refinancing Sale and Leaseback Transaction; and provided, further, that the following sales, transfers or other dispositions of assets shall not be an "Asset Sale" hereunder: (A) in the ordinary course of business of the Company and its Subsidiaries, (B) in a single transaction or group of related transactions, the gross proceeds of which (exclusive of indemnities) do not exceed $10,000,000 (such proceeds, to the extent non-cash, to be determined in good faith by the Board of Directors of the Company), (C) resulting from the creation, incurrence or assumption of (but not any foreclosure with respect to) any Lien not prohibited by Section 4.11, (D) in connection with any consolidation or merger of the Company or any Subsidiary Guarantor or sale of all or substantially all of the property of the Company or any Subsidiary Guarantor in compliance with the provisions of Article Eleven, Section 15.03(a) or Section 15.03(b)(i) hereof, as the case may be, (E) by a Subsidiary to its stockholders not prohibited by this Indenture, (F) which are Restricted Investments or Restricted Payments permitted by Section 4.09, or (G) which consist of extensions, modifications, renewals or exchanges of Restricted Investments pursuant to clause (b) of the definition thereof, so long as neither the Company nor any of its Subsidiaries receives any cash proceeds as a result of such transaction. Attributable Debt: The term "Attributable Debt" shall mean, with respect to a Refinancing 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 Refinancing 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 Refinancing Sale and Leaseback Transaction (including any period for which such lease has been extended). Bank: The term "Bank" shall mean any of the financial institutions that are, or from time to time become, lenders under the Credit Agreement. 10 18 Bank Agent: The term "Bank Agent" shall mean BankAmerica Business Credit, Inc., as agent under the Credit Agreement, and any successor agent appointed under the Credit Agreement or any agent under any agreement or agreements pursuant to which Indebtedness under the Credit Agreement has been Refinanced (or successively Refinanced) and as to whom the Company has notified the Trustee and the noteholders pursuant to the terms of this Indenture. Bank Guarantors: The term "Bank Guarantors" shall mean each of the following Persons, as long as such Person guarantees any Indebtedness under the Credit Agreement: Akron Holding Company, an Ohio corporation, Kaiser Aluminum & Chemical Investment, Inc., a Delaware corporation, Kaiser Aluminum Properties, Inc., a Delaware corporation, Kaiser Aluminum Technical Services, Inc., a California corporation, Oxnard Forge Die Company, Inc., a California corporation, Kaiser Aluminium International, Inc., a Delaware corporation, KAC, KFC, each of their respective successors, each Subsidiary Guarantor and each Non-Recourse Guarantor so long as such Non-Recourse Guarantor does not constitute a Subsidiary Guarantor and would not be required to become a Subsidiary Guarantor hereunder. 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 City of New York, New York, Houston, Texas 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 interests or other undivided ownership interests in such Person, and warrants, options and similar rights (other than debt securities convertible into capital stock) to acquire such capital stock, partnership interests or other undivided 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. CARIFA Financing: The term "CARIFA Financing" shall mean the $60,000,000 CBI Industrial Revenue Bonds, Caribbean Basin Projects Financing Authority CBI Industrial Revenue Bonds 1991 Series A and Series B (Alumina Partners of Jamaica Project) issued pursuant to that certain Bond Purchase Agreement dated as of December 1, 1991, among the Caribbean Basin Projects Financing Authority, Alumina Partners of Jamaica and PaineWebber Incorporated of Puerto Rico, and any letters of credit supporting such bonds. 11 19 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. Center for Technology: The term "Center for Technology" shall mean the Company's facilities located in Pleasanton, California. 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, par value $.01 per share, as it exists on the date of this Indenture. Company: The term "Company" shall mean Kaiser Aluminum & Chemical Corporation, a Delaware 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 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 (without duplication), with respect to any Person for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Fixed Charges, (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, 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, 12 20 that (X) if, during such period, 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, 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 to (ii) the aggregate Consolidated Fixed Charges of such Person for the fiscal quarter in which the Transaction Date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter to be accrued during such period (based upon the pro forma amount of Indebtedness to be outstanding on the Transaction Date), assuming for the purposes of this measurement that the interest rates on which floating interest rate obligations of such Person are based equal such rates in effect on the Transaction Date; provided, however, that if the Company or any of its Subsidiaries has incurred Interest Hedging Obligations which would have the effect of changing the interest rate on any Indebtedness for such four quarter period (or any portion thereof), the resulting rate shall be used for such four quarter period or portion thereof; and provided, further, that any Consolidated Fixed Charges with respect to Indebtedness incurred or for which such Person otherwise becomes liable during the fiscal quarter in which the Transaction Date occurs shall be calculated as if such Indebtedness was so incurred on the first day of the fiscal quarter in which the Transaction Date occurs. 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 (less, to the extent included therein, (a) the portion of the interest expense required to be funded or economically borne by the Company's minority partners in the Company's joint ventures and (b) interest expense related to the PIK Note), (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, (iii) the aggregate amount of dividends paid or other similar distributions made by such Person and its Subsidiaries during such period with respect to preferred stock (including preference stock) of such Person or its Subsidiaries determined on a consolidated basis in accordance with GAAP, and 13 21 (iv) amortization or write-off of debt discount in connection with any Indebtedness of such Person and its Subsidiaries, determined on a consolidated basis in accordance with GAAP (excluding, to the extent otherwise included, (A) the amortization or write-off of any deferred financing costs in connection with the amendment or refinancing of the Credit Agreement and the Old Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (B) the amortization or write-off of any debt discount and the premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes). 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. 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) extraordinary gains but not extraordinary losses and excluding gains from extinguishment of debt, (ii) the Net Income 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) actually paid to such Person or any of its Subsidiaries by such other Person during such period, (iii) except to the extent included by clause (ii), 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, (iv) 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 by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary 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, (v) net after tax gains from Asset Sales (but not excluding the net after tax losses from Asset Sales) and (vi) interest income arising from the Existing Intercompany Note, except to the extent such interest income is actually received by the Company in cash; provided, however, that: (1) in determining Consolidated Net Income with respect to the Company there shall be disregarded (a) any charge with respect to premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (b) the 14 22 amortization or write-off of any unamortized deferred financing costs and debt discount (other than original issue discount with respect to Indebtedness Incurred after the date hereof) in connection with the amendment or refinancing of the Credit Agreement and the Old Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes, and (2) the Net Income of each of the Specified Parties otherwise included in the Consolidated Net Income of the Company shall not be subject to any of the limitations contained in clauses (ii) and (iv)(B) of this definition so long as the Company's cash management and intercompany practices with respect to such entity, as the case may be, for such period are consistent with past practice. 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 plus the amount of Indebtedness outstanding under the PIK Note as of such date, less, to the extent otherwise included, amounts attributable to Redeemable Stock and, in the case of the Company, the amount attributable to the Existing Intercompany Note, in each case determined on a consolidated basis in accordance with GAAP; provided, however, that in determining Consolidated Net Worth with respect to the Company there shall be disregarded: (i) any charge with respect to premiums paid in excess of the principal amount in connection with the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes and (ii) the amortization or write-off of any unamortized deferred financing costs or debt discount (other than original issue discount with respect to Indebtedness Incurred after the date hereof) in connection with the amendment or refinancing of the Credit Agreement and the Old Credit Agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes. Credit Agreement: The term "Credit Agreement" shall mean that certain Credit Agreement, dated as of February 15, 1994, among the Company, KAC, the financial institutions that are, or from time to time become, parties thereto, BankAmerica Business Credit, Inc., as agent, including all related notes, collateral documents and guarantees, and any agreement (including all related notes, collateral documents and guarantees) pursuant to which Indebtedness thereunder has been Refinanced (or successively Refinanced), in each case as any of the same has been or may be amended, supplemented, restated, restructured or otherwise modified from time to time (in each case, in whole or in part). Currency Hedging Obligation: The term "Currency Hedging Obligation" with respect to any Person shall mean the monetary obligations of such Person pursuant to any foreign exchange contract, currency swap agreement, option or futures contract, forward contract or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in currency values. Defaulting Equity Owner: The term "Defaulting Equity Owner" shall mean, with respect to any Permitted Entity, any Equity Owner who causes an Equity Owner Default. Equity Owner: The term "Equity Owner" shall mean, with respect to any Permitted Entity, any holder of an Ownership Interest in such Permitted Entity. Equity Owner Default: The term "Equity Owner Default" shall mean, with respect to any issuance of Permitted Entity Securities to the Equity Owners of a Permitted Entity, the failure by one or more of such Equity Owners to acquire such Permitted Entity Securities in an amount corresponding to at least its Ownership Interest of such Permitted Entity and, as a result thereof, such Equity Owner 15 23 becomes subject to, directly or indirectly, a dilution of its interest in the future net income of such Permitted Entity and/or a penalty pursuant to the terms of the governing documents of such Permitted Entity. 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. Exchange Act: The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder. Existing Intercompany Note: The term "Existing Intercompany Note" shall mean the Non-Negotiable Intercompany Note, dated December 21, 1989, issued by KAC to the Company in an initial principal amount of $818,585,280, as such Non-Negotiable Intercompany Note may be amended. 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 makes a payment in the form of or otherwise transfers property other than cash to, or receives property other than cash from, an Affiliate in an amount in excess of $10,000,000, the Company, in addition, shall have received an opinion from an independent investment banking firm of national standing selected by the Company to the effect that the Board of Director's determination of fair market value is fair. GAAP: The term "GAAP" shall mean generally accepted accounting principles as in effect on December 31, 1992, and used in the preparation of the Company's consolidated balance sheet at such date and the Company's statements of consolidated income and cash flows for the year then ended, but in any event (i) giving effect to, but excluding the effect of any one-time charge related to the implementation of, Statement of Financial Accounting Standards No. 106 (Employers' Accounting for Postretirement Benefits Other Than Pensions) and (ii) giving effect to Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes). Government Securities: The term "Government Securities" shall mean direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged. Guarantee: The term "Guarantee" shall mean, with respect to any Subsidiary Guarantor, the guarantee of such Subsidiary Guarantor set forth in Article Fifteen. Improvements: The term "Improvements" shall mean any accessories, accessions, additions, attachments, substitutions, replacements, improvements, parts and other property now or hereafter affixed to any U.S. Fixed 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): (a) the principal amount of 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 the principal amount of all obligations (unconditional or contingent) of such Person evidenced 16 24 by debentures, notes or other similar instruments (including, without limitation, reimbursement obligations with respect to letters of credit and bankers' acceptances); (b) all obligations of such Person to pay the deferred purchase price of property or services, except (X) accounts payable and other current liabilities arising in the ordinary course of business and (y) compensation, pension obligations and other obligations arising from employee benefits and employee arrangements; (c) Capitalized Lease Obligations of such Person; (d) 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; (e) preferred stock (including preference stock) that is Redeemable Stock (the amount of the Indebtedness in respect of such preferred stock to be equal to the aggregate liquidation value thereof); (f) all Indebtedness of others guaranteed by such Person; (g) pension obligations and other similar obligations arising from employee benefits, to the extent unfunded and assumed by such Person after the date of the initial issuance of the Notes in the acquisition, by such Person, of the assets or Capital Stock of another Person ("Assumed Pension Obligations"); and (h) all obligations under Refinancing Sale and Leaseback Transactions; and the amounts thereof shall be the outstanding balance of any such unconditional obligations as described in clauses (a) through (f) (other than clause (d)), and the maximum liability of any such contingent obligations at such date (other than with respect to clause (d)) and, in the case of clause (d), 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 (g), the amount of Assumed Pension Obligations shall be the amount 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 (h), the Attributable Debt with respect to such Refinancing Sale and Leaseback Transactions; provided, however, that Indebtedness shall not include: (A) the obligations of such Person and/or any of its Subsidiaries to purchase or sell goods, services or technology utilized in their bauxite, aluminum and alumina business and related extensions thereof, including on a take-or-pay basis, pursuant to agreements entered into in the ordinary course of business consistent with past practice, or to fund or guarantee the obligations of National Refractories & Minerals Corporation or any of its Affiliates in an aggregate principal amount at any time outstanding not exceeding $7,500,000; (B) obligations of such Person arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided that such obligations are extinguished within two Business Days of their incurrence (or, in the case of foreign overdrafts, within five Business Days of their incurrence) unless covered by an overdraft credit line; (C) obligations of such Person resulting from the endorsement of negotiable instruments for collection in the ordinary course of business; 17 25 (D) Indebtedness consisting of letters of credit to the extent collateralized by cash or Cash Equivalents; and (E) Liens on assets of KAAC granted to secure Indebtedness of QAL, provided that such Liens are (i) in existence on the date of this Indenture, (ii) similar in all material respects to Liens in existence on the date of this Indenture or (iii) not on assets consisting of cash, Cash Equivalents or fixed assets and such assets are used or to be used in connection with the business of QAL. Indenture: The term "Indenture" shall mean this instrument as originally executed, or, if amended or supplemented as herein provided, as so amended or supplemented. 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. KAAC: The term "KAAC" shall mean Kaiser Alumina Australia Corporation, a Delaware corporation, and its successors. KAC: The term "KAC" shall mean Kaiser Aluminum Corporation, a Delaware corporation, and its successors. KFC: The term "KFC" shall mean Kaiser Finance Corporation, a Delaware corporation, and its successors. KJC: The term "KJC" shall mean Kaiser Jamaica Corporation, a Delaware corporation, and its successors. Lien: The term "Lien" shall mean, with respect to any asset of any Person, 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 and any agreement to give any security interest). Maximum Secured Amount: The term "Maximum Secured Amount" shall mean, at any time (i) $300,000,000, plus (ii) Net Betterments at such time, plus (iii) the outstanding amount of Indebtedness relating to the CARIFA Financing secured by a Lien on Permitted Collateral, but in no event more than $43,000,000, minus (iv) in the event of a sale of Permitted Collateral which is subject to a Lien permitted by clause (i) of Section 4.11(b) of this Indenture, the amount, if any, of the net proceeds thereof required to be applied to a permanent repayment or commitment reduction in respect of the Indebtedness secured by such Lien, minus (v) in the event of the Refinancing of any Indebtedness secured by a Lien permitted by clause (i) of Section 4.11(b), the lesser of (A) the amount of Indebtedness, if any, not secured by Permitted Collateral which Refinances, in whole or in part, such Indebtedness secured by a Lien permitted by clause (i) of Section 4.11(b) of this Indenture and (B) the amount, if any, by which the Maximum Secured Amount immediately prior to such Refinancing, in whole or in part, of such Indebtedness secured by a Lien permitted by clause (i) of Section 4.11(b) of this Indenture exceeds the aggregate amount of Indebtedness which is secured by a Lien on Permitted Collateral permitted by clause (i) or clause (viii)(a) of Section 4.11(b) of this Indenture after giving effect to such Refinancing. 18 26 MAXXAM: The term "MAXXAM" shall mean MAXXAM Inc., a Delaware corporation, and its successors. Net Betterments: The term "Net Betterments" shall mean the amount, if any, by which capital expenditures (determined in accordance with GAAP) by the Company or any of its Subsidiaries in respect of the Permitted Collateral on a cumulative basis for the period from the date hereof through the date of determination exceeds depreciation (determined in accordance with GAAP) in respect of the Permitted Collateral on a cumulative basis for such period (provided, however, that with respect to any Permitted Collateral existing at the time of the merger of a subsidiary of MAXXAM with and into KAC on October 28, 1988 (the "Merger"), the depreciation shall be the historical depreciation before adjustments to reflect the acquisition of the Company in the Merger), but in no event less than zero, provided, that in the event any Permitted Collateral ceases to constitute Permitted Collateral in accordance with the definition thereof, only the amount of Net Betterments in respect of such Permitted Collateral at such time shall be included in any subsequent calculation of Net Betterments and provided, further, that (a) Improvements which are subject to a Lien permitted by clause (iv), (v) or (vi) of Section 4.11(b) and (b) U.S. Fixed Assets to the extent subject to a Lien permitted by clause (ix) of Section 4.11(b) shall not be included in the determination of Net Betterments. 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 (A) any repayments of debt secured, directly or indirectly, by Liens on the assets which are the subject of such Asset Sale or (B) any repayments of debt associated with such assets which is due by reason of such Asset Sale (i.e., such disposition is permitted by the terms of the instruments evidencing or applicable to such debt, or by the terms of a consent granted thereunder, on the condition that the proceeds (or portion thereof) of such disposition be applied to such debt), provided, that this clause (B) shall not apply with respect to any U.S. Fixed Assets which do not constitute Permitted Collateral, and, in the case of clauses (A) and (B), other fees, expenses and other expenditures, in each case, reasonably incurred as a consequence of such repayment of debt (whether or not such fees, expenses or expenditures are then due and payable or made, as the case may be), (iii) all amounts deemed appropriate by the Company (as evidenced by a signed certificate of the Chief Financial Officer of the Company delivered to the Trustee) to be provided as a reserve, in accordance with GAAP ("GAAP Reserves"), against any liabilities associated with such assets which are the subject of such Asset Sale, (iv) 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, and (v) with respect to Asset Sales by Subsidiaries of the Company, the portion of such cash payments attributable to Persons holding a minority interest in such Subsidiary; 19 27 provided, in each such case, that such fees and expenses and other amounts are not payable to an Affiliate of the Company (except for amounts payable pursuant to the Tax Sharing Agreements), and provided, further, that required redemptions of existing preferred stock (including preference stock) of the Company outstanding on the date hereof or issued pursuant to collective bargaining arrangements and related employee benefit arrangements in effect on the date hereof, in each case, from Persons other than Affiliates of the Company, shall be deemed to be a fee, expense or other expenditure of such Asset Sale. 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: (i) such proceeds cannot under applicable law be transferred to the United States or (ii) 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 (i)) or are (in the case of clause (ii)) 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: (i) cash distributions actually received by or on behalf of the Company or any of its Subsidiaries from any Non-Affiliate Joint Venture of the Company representing the proceeds of a transaction by such Non-Affiliate Joint Venture that would constitute an Asset Sale if such Non-Affiliate Joint Venture were a Subsidiary of the Company and (ii) the amount of any reversal of GAAP Reserves (but only as and when, and to the extent, reversed) which amount is otherwise a deduction from Net Cash Proceeds. 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. Non-Affiliate Joint Venture: The term "Non-Affiliate Joint Venture" shall mean any joint venture, partnership or other Person (other than the Company or a Subsidiary of the Company) in which the Company and/or its Subsidiaries have an ownership interest equal to or greater than 5% and in which no Affiliate of the Company has a direct or an indirect ownership interest other than by virtue of the direct or indirect ownership interest in such Non-Affiliate Joint Venture held (in the aggregate) by the Company and/or one or more of its Subsidiaries, provided that such Non-Affiliate Joint Venture is engaged in one or more of the lines of business in which the Company or its Subsidiaries or its Non- Affiliate Joint Ventures are engaged in as of the date of this Indenture or reasonably related extensions of such lines. Non-Defaulting Equity Owner: The term "Non-Defaulting Equity Owner" shall mean, with respect to any Permitted Entity, any Equity Owner that is not a Defaulting Equity Owner. Non-Recourse Guarantor: The term "Non-Recourse Guarantor" shall mean a Subsidiary of the Company that guarantees any Indebtedness under the Credit Agreement, provided that such guarantee is non-recourse to the assets of such Subsidiary other than to intercompany Indebtedness owed, or from time to time owing, by the Company to such Subsidiary, and all monetary proceeds therefrom. 20 28 Note or Notes; outstanding: The terms "Note" or "Notes" shall mean any Note or Notes, as the case may be, authenticated and delivered under this Indenture. 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. 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 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. Old Credit Agreement: The term "Old Credit Agreement" shall mean that certain Credit Agreement, dated as of December 13, 1989, among the Company, KAC, the financial institutions party thereto, Bank of America National Trust and Savings Association, as agent, and Mellon Bank, N.A., as collateral agent, which was replaced by the Credit Agreement. Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of, or of counsel to, the Company and who 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. Ownership Interest: The term "Ownership Interest" shall mean, with respect to any Equity Owner of a Permitted Entity at the time of the determination thereof, the proportion held at such time by such Equity Owner of the outstanding Permitted Entity Securities of such Permitted Entity that are last entitled to payment upon liquidation or dissolution as provided in the governing instruments of such Permitted Entity or pursuant to an agreement among the Equity Owners of such Permitted Entity. 21 29 Permitted Collateral: The term "Permitted Collateral" shall mean real property (as set forth in Schedule B hereto), plant and equipment of the Company or any of its Subsidiaries located in the United States of America which, as of the date of issuance of the Notes, secures Indebtedness under the Credit Agreement (whether or not the Liens on such real property, plant or equipment are perfected at such time), together with any Improvements thereto or thereon, any real property that is contiguous to or structurally related to such real property (the "Contiguous Property") and any real property, plant or equipment, whether owned on the date of the issuance of the Notes or thereafter acquired, located or used at any time after the date of issuance of the Notes at a facility (other than the Company's Gramercy alumina refinery) owned, leased, occupied or used by the Company or any of its Subsidiaries as of the date of issuance of the Notes or on any Contiguous Property, and any proceeds thereof, provided, that notwithstanding anything to the contrary contained in this Indenture, any Permitted Collateral which is released from all Liens thereon securing Indebtedness and which does not become subject to a new Lien within 60 days of such release securing Indebtedness which Refinances any of the Indebtedness (in whole or in part) previously secured by such Permitted Collateral shall not thereafter constitute "Permitted Collateral" under the Indenture. Permitted Dividend Encumbrance: The term "Permitted Dividend Encumbrance" shall mean, with respect to any Person, any consensual encumbrances or restrictions 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, in the case of a Permitted Entity, to its Equity Owners) or to make loans or advances or transfer any of its assets to the Company or any Subsidiary of the Company (or, in the case of a Permitted Entity, to its Equity Owners) existing under or by reason of any of: (i) this Indenture; (ii) Indebtedness permitted under Section 4.10(b)(ii); (iii) Indebtedness or other obligations in existence on the date of this Indenture and customary rights of first refusal with respect to the Company's and its Subsidiaries' interests in their respective Subsidiaries, Non-Affiliate Joint Ventures and Permitted Entities; (iv) applicable law and agreements with foreign governments with respect to assets located in their jurisdictions; (v) (A) customary provisions restricting (i) the subletting or assignment of any lease or (ii) the transfer of copyrighted or patented materials, (B) provisions in agreements that restrict the assignment of such agreements or rights thereunder or (C) provisions of a customary nature contained in the terms of Capital Stock restricting the payment of dividends and the making of distributions on Capital Stock; (vi) Indebtedness or other obligations of any other Person acquired (whether pursuant to a purchase of stock or assets) (including any Non-Affiliate Joint Venture of the Company or Permitted Entity that becomes a Subsidiary of the Company) or applicable to any assets at the time such Person or assets were acquired by the Company, its Subsidiaries or a Permitted Entity, in each case which Indebtedness and obligations (A) were not created in anticipation of such acquired Person becoming a Subsidiary of the Company or a Permitted Entity, as the case may be, or such assets being acquired by the Company, its Subsidiaries or such Permitted Entity, as the case may be, and (B) which encumbrances and restrictions are not applicable to any Person or the property or assets of any Person other than the Person or the property or assets of the Person so acquired (including the Capital Stock of such Person) 22 30 or any newly organized entity formed to effect such acquisition and, in each case, the monetary proceeds thereof; (vii) encumbrances and restrictions with respect to such Person imposed in connection with an agreement for the sale or disposition of such Person or its assets; (viii) encumbrances and restrictions applicable only to (A) Alpart and its assets and Capital Stock with respect to Indebtedness permitted to be Incurred by Alpart pursuant to Section 4.10(a), (B) Alpart, KJC and AJI and their respective assets and Capital Stock with respect to Indebtedness permitted to be Incurred pursuant to Section 4.10(b)(iii), (C) KAAC and its assets and Capital Stock with respect to Indebtedness permitted to be Incurred pursuant to Section 4.10(b)(iv) and (D) the Person that Incurred such Indebtedness and such Person's assets and Capital Stock with respect to Indebtedness permitted to be Incurred pursuant to Section 4.10(b)(viii) or (ix); in each case provided, that the Board of Directors of the Company has determined in good faith that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (ix) Indebtedness of a Person that was a Subsidiary at the time of Incurrence and the Incurrence of which Indebtedness is permitted by Section 4.10, provided that such encumbrances and restrictions apply only to such Subsidiary and its assets, and provided, further, that the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (x) the subordination of (A) any Indebtedness owed by the Company or any of its Subsidiaries to the Company or any other Subsidiary to (B) any other Indebtedness of the Company or any of its Subsidiaries, provided (A) such other Indebtedness is permitted under this Indenture and (B) the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (xi) the subordination of (A) any Indebtedness owed by a Permitted Entity to its Equity Owners or any other Person to (B) any other Indebtedness of such Permitted Entity, provided (I) such other Indebtedness, at the time of the Incurrence thereof, is permitted by the definition of Permitted Entity and (II) the Board of Directors of the Company has determined in good faith, at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not singly or in the aggregate have a materially adverse effect on the holders of the Notes; (xii) Refinancing Indebtedness that is otherwise permitted in connection with any Refinanced Indebtedness,provided that, in the case of all Refinancing Indebtedness other than Refinancing Indebtedness Incurred with respect to Indebtedness permitted under Section 4.10(b)(ii), any such encumbrances or restrictions shall not be materially less favorable to the holders of the Notes; and (xiii) 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. Permitted Entity: The term "Permitted Entity" shall mean any Person (other than a Subsidiary Guarantor) designated as such by a Board Resolution and as to which: (i) the Company, any Subsidiary Guarantor or any Permitted Entity own all or a portion of the Permitted Entity Securities of such Person; 23 31 (ii) no more than 10 unaffiliated Equity Owners own of record any Permitted Entity Securities of such Person; (iii) at all times, each Equity Owner owns a proportion of each class of Permitted Entity Securities of such Person outstanding equal to such Equity Owner's Ownership Interest at such time, other than as a result of an Equity Owner Default; (iv) no Indebtedness or preferred stock (including preference stock) is or has been Incurred by such Person that is outstanding other than (X) Permitted Entity Securities held by Equity Owners and/or (y) if such Person is a Subsidiary of the Company, Indebtedness permitted to be Incurred by such Subsidiary at the time of the Incurrence thereof under Sections 4.10(b)(v) and 4.10(b)(xiii); (v) there exist no consensual encumbrances or restrictions on the ability of such Person to (X) pay dividends or make any other distributions to its Non-Defaulting Equity Owners or (y) make loans or advances or transfer any of its assets to its Non-Defaulting Equity Owners, in each case other than Permitted Dividend Encumbrances of such Permitted Entity; (vi) the Company, any Subsidiary Guarantor or any Permitted Entity has the right at any time (whether by agreement, operation of law or otherwise) to (A) require the Permitted Entity that it owns an Ownership Interest in to dissolve, liquidate or wind up its affairs (subject to any right of the other Equity Owners and/or such Permitted Entity to acquire all of the Permitted Entity Securities owned by such Equity Owner) and, subject to applicable law, to distribute its remaining assets to its Equity Owners after payment to creditors or (B) have all of the Permitted Entity Securities that it owns purchased by such Permitted Entity and/or other Equity Owners; and (vii) the business engaged by such Person is one in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of this Indenture or reasonably related thereto or is the business of holding or disposing of Permitted Entity Securities. Permitted Entity Securities: The term "Permitted Entity Securities" shall mean, with respect to any Permitted Entity, any Capital Stock or Indebtedness (whether or not a security) of such Permitted Entity, other than Indebtedness permitted to be Incurred by such Permitted Entity pursuant to clause (iv)(y) of the definition of Permitted Entity, but in any event including Permitted Indebtedness described in clause (b) of the definition thereof. Permitted Indebtedness: The term "Permitted Indebtedness" shall mean: (a) Indebtedness and preferred stock (including preference stock) of the Company and its Subsidiaries existing on the date of this Indenture, including, but not limited to, the Subordinated Notes; (b) Indebtedness (including Redeemable Stock) owed or issued by the Company to a Subsidiary or owed or issued by a Subsidiary to the Company, any other Subsidiary of the Company or to any other holder of Capital Stock of such Subsidiary in proportion to such holder's ownership interest in such Subsidiary; (c) Indebtedness and preferred stock (including preference stock) of a Permitted Entity to the extent not prohibited by clause (iii) or clause (iv)(X) of the definition thereof; (d) Indebtedness of the Company and its Subsidiaries by reason of entering into indemnification agreements and guarantees in connection with the disposition of assets, provided that the Indebtedness 24 32 with respect to such indemnification agreements and guarantees shall be limited to the amount of the net proceeds of such disposition; (e) guarantees, letters of credit and indemnity agreements relating to performance and surety bonds incurred in the ordinary course of business; (f) Indebtedness of a Subsidiary of the Company (including undrawn amounts under lines of credit that are subsequently drawn upon) issued, assumed or guaranteed by such Subsidiary prior to the date upon which such Subsidiary becomes a Subsidiary of the Company (excluding Indebtedness incurred by such entity in connection with, or in contemplation of, its becoming a Subsidiary of the Company), provided that such Indebtedness and the holders thereof do not, at any time, have direct or indirect recourse to any property or assets of the Company and its Subsidiaries other than the property and assets of such acquired entity and its Subsidiaries, including the Capital Stock thereof, or any newly organized entity formed to effect such acquisition, and, in each case, the monetary proceeds thereof; (g) Indebtedness incurred by the Company in connection with the purchase, redemption, retirement or other acquisition by the Company of the USWA Preferred Stock outstanding on the date hereof (plus additional shares of such USWA Preferred Stock issued as dividends thereon or on such shares issued as dividends); (h) Indebtedness of the Company and its captive wholly owned insurance Subsidiaries in respect of letters of credit in an aggregate amount not to exceed at any one time outstanding $20,000,000 issued for the account of the Company or such Subsidiaries in support of certain self-insurance and reinsurance obligations entered into from time to time by the Company or such captive wholly owned insurance Subsidiaries of the Company; (i) Indebtedness consisting of industrial revenue bonds and related indemnity agreements; and (j) prior to the merger of the Company and KAC, Indebtedness in respect of the Preferred Dividend Intercompany Notes. Person: The term "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. PIK Note: The term "PIK Note" shall mean that certain PIK Note issued by the Company to a subsidiary of MAXXAM on December 15, 1992, in the principal amount of $2.5 million, bearing interest at a rate equal to 12% per annum and due on June 30, 1995. Preferred Dividend Intercompany Notes: The term "Preferred Dividend Intercompany Notes" shall mean (i) the intercompany note in respect of the Series A Shares, (ii) the intercompany note in respect of the PRIDES and (iii) any other intercompany note representing a loan by KAC to the Company from the proceeds of an offering of preferred stock by KAC which loan shall have a term not in excess of five years from the date of issuance and shall be in an amount equal to the aggregate dividends scheduled to accrue on such preferred stock during the term thereof and payable at approximately the same times and in approximately the same amounts as such dividends are payable, provided, that (a) the aggregate amount of all such intercompany notes referred to in this clause (iii) shall not exceed $50,000,000 at any one time outstanding and (b) the remaining net proceeds from such preferred stock offering shall have been used by KAC to make a capital contribution to (or to purchase common stock of) the Company. 25 33 Preferred Stock ($100): The term "Preferred Stock ($100)" shall mean the Company's 4 1/8% Preference Stock, par value $100 per share, 4 3/4% Preference Stock (1957 Series), par value $100 per share, 4 3/4% Preference Stock (1959 Series), par value $100 per share, and 4 3/4% Preference Stock (1966 Series), par value $100 per share. Principal; principal amount: The terms "principal" or "principal amount" of a Note shall mean the principal amount of such Note as set forth on the face of such Note. Prospectus: The term "Prospectus" shall mean that certain prospectus dated February --, 1994, relating to the offering by the Company of the Notes. QAL: The term "QAL" shall mean Queensland Alumina Limited, a Queensland, Australia corporation, and its successors. Redeemable Stock: The term "Redeemable Stock" shall mean, with respect to any Person, any preferred 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 exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, in whole or in part, pursuant to a sinking fund obligation or otherwise, or, at the option of the holder thereof, is redeemable in whole or in part, or is exchangeable into a security of a Person other than the issuer of such Capital Stock that is owned by such Person or its Subsidiaries or into indebtedness of, or that is owned by, such Person or its Subsidiaries, in each case on or prior to the scheduled maturity date of the Notes. 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. Refinancing Sale and Leaseback Transaction: The term "Refinancing Sale and Leaseback Transaction" shall mean any sale and leaseback transaction with respect to which the Attributable Debt is at least $100,000,000, and which is designated by the Company as a Refinancing Sale and Leaseback Transaction in a notice to the Trustee pursuant to the terms hereof, which notice shall indicate the Attributable Debt with respect to such Refinancing Sale and Leaseback Transaction. Responsible Officer: The term "responsible officer," when used with respect to the Trustee, shall mean any officer in its principal corporate trust office and every other officer and assistant officer to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. Restricted Investment: The term "Restricted Investment" shall mean, with respect to any Person: (i) any amount paid, or any property transferred, in each case, directly or indirectly by such Person for Capital Stock or other securities of, or as a contribution to, any Affiliate of the Company; (ii) any direct or indirect loan or advance by such Person to any Affiliate of the Company 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 direct or indirect guarantee by such Person of any obligations, contingent or otherwise, of any Affiliate of the Company; and 26 34 (iv) the acquisition by such Person of, or any investment by such Person in, any Capital Stock or similar interest of any other Person (other than the Company); provided, however, that the following shall not be Restricted Investments: (a) investments in or acquisitions of Capital Stock or similar interests in any Person (other than a Person in which Affiliates of the Company have an interest other than through the Company, its Subsidiaries and its Non-Affiliate Joint Ventures) that: (I) is or becomes, at the time of the acquisition thereof, a Subsidiary of the Company and is or is to be primarily engaged in an operating business or (II) is, at the time of the acquisition thereof, engaged or to be engaged primarily in businesses in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of this Indenture or reasonably related extensions thereof, provided that such securities are not, at the time of the acquisition thereof (without regard to any exchanges, modifications or other changes thereto subsequent to such acquisition), registered under the Exchange Act; (b) Restricted Investments of such Person existing as of the date of this 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), or any Restricted Investment made in connection with an exchange of such Restricted Investment with the issuer thereof; (c) investments in or acquisitions of Permitted Entity Securities of any Permitted Entity; (d) transactions with officers or directors of the Company or any Subsidiary of the Company entered into in the ordinary course of business (including compensation or employee benefit arrangements with any officer or director of the Company or any Subsidiary of the Company); (e) investments in or acquisitions of Capital Stock or similar interests in Persons (other than Affiliates of the Company) received in the bankruptcy or reorganization of or by such Person or any exchange of such investment with the issuer thereof or taken in settlement of or other resolution of claims or disputes, and, in each case, extensions, modifications and renewals thereof; and (f) investments in Persons (other than Affiliates of the Company) received by such Person as consideration from Asset Sales to the extent not prohibited by Section 4.14 (including, for the purposes of this definition, those sales, transfers and other dispositions described in clause (B) and the transactions described in clause (D) of such definition) or any exchange of such investment with the issuer thereof, and extensions, modifications and renewals thereof. 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 Securities and Exchange Commission thereunder. Significant Subsidiary: The term "Significant Subsidiary" shall have the meaning assigned to that term under Regulation S-X of the Securities Act as in effect on the date of this Indenture; provided, however, that (i) each Subsidiary Guarantor on the date of this Indenture shall be deemed to be a Significant Subsidiary of the Company for so long as such Subsidiary is a Subsidiary Guarantor and (ii) 27 35 each of VALCO, KAAC and Alpart, and each Subsidiary of the Company that, directly or indirectly, holds an interest in VALCO, Alpart or QAL, and each Subsidiary Guarantor that becomes a Subsidiary Guarantor after the date of this Indenture (so long as such Subsidiary Guarantor is a Subsidiary Guarantor) shall be deemed to be a Significant Subsidiary if it (singly, or, in the case of VALCO, Alpart or QAL, together with the other Subsidiaries of the Company that hold an interest in such entity) meets the total assets test of the term "Significant Subsidiary" under Regulation S-X as in effect on the date of this Indenture, but substituting 5% in such test for 10%. Specified Parties: The term "Specified Parties" shall mean each of AJI, Alpart, KAAC, KJC, VALCO, Kaiser Aluminium International, Inc., a Delaware corporation, and its successors, Kaiser Bauxite Company, a Nevada corporation, and its successors, Kaiser Jamaica Bauxite Company, a Jamaican partnership, and its successors, and Queensland Alumina Security Corporation, a Delaware corporation, and its successors. Subordinated Notes: The term "Subordinated Notes" shall mean the Company's 12 3/4% Senior Subordinated Notes due 2003, as amended from time to time, issued pursuant to the Subordinated Note Indenture. Subordinated Note Indenture: The term "Subordinated Note Indenture" shall mean the indenture, dated as of February 1, 1993, among the Company, as issuer, the parties named therein as and, if applicable, thereafter becoming guarantors, and The First National Bank of Boston, a national banking association, as trustee, as amended or supplemented from time to time in accordance with the terms thereof. Subsidiary: The term "Subsidiary" shall mean any corporation or other entity of which more than 50% of the equity interest (which for a corporation shall be the outstanding stock having ordinary voting power to elect a majority of the Board of Directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned (either alone or through Subsidiaries or together with Subsidiaries) by the Company or another Subsidiary; provided, however, that Queensland Alumina Security Corporation, a Delaware corporation, shall be deemed not to be a Subsidiary of the Company or any of its Subsidiaries and shall be deemed to be a Non- Affiliate Joint Venture (for as long as it meets the definition of Non-Affiliate Joint Venture and for as long as its operations remain substantially the same), and provided, further, that, for purposes of the definitions of Asset Sale and Net Cash Proceeds and for purposes of Section 4.14, each of Alpart and VALCO, so long as it is not a wholly owned Subsidiary, shall be deemed not to be a Subsidiary of the Company or any of its Subsidiaries and shall be deemed to be a Non-Affiliate Joint Venture of the Company (for as long as it meets the definition of Non-Affiliate Joint Venture). For purposes of this definition, any directors' qualifying shares shall be disregarded in determining the ownership of a Subsidiary. Subsidiary Guarantors: The term "Subsidiary Guarantors" shall mean the Persons from time to time named as Subsidiary Guarantors in this Indenture or that become Subsidiary Guarantors hereunder, and each of their respective successors, provided, however, that in the event that a Subsidiary Guarantor is released from its Guarantee in accordance with the terms of this Indenture, such Subsidiary Guarantor shall without any further action no longer be a Subsidiary Guarantor for any purpose of this Indenture or the Notes. On the date of this Indenture, the Subsidiary Guarantors are AJI, KFC, KAAC and KJC. Tax Sharing Agreements: The term "Tax Sharing Agreements" shall mean, collectively, the tax-sharing agreement between the Company and KAC, dated as of June 30, 1993, and the tax-sharing 28 36 agreement between the Company and MAXXAM, dated as of December 21, 1989, as each is described in the Prospectus and as each may be amended in accordance with Section 4.08(b)(x) of this Indenture. 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 First Trust 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 First Trust Center, 180 East 5th Street, St. Paul, Minnesota 55101. U.S. Fixed Assets: The term "U.S. Fixed Assets" shall mean, at any time, any real property, plant or equipment of the Company or any of its Subsidiaries located at such time in the United States of America, now owned or hereafter acquired, together with any fixed assets that are Improvements thereto or thereon and any fixed assets that are proceeds thereof. USWA Preferred Stock: The term "USWA Preferred Stock" shall mean the shares of the Company's Cumulative (1985 Series A) Preference Stock and shares of the Company's Cumulative (1985 Series B) Preference Stock that have been or may in the future be issued in connection with the Kaiser Aluminum USWA Employee Stock Ownership Plan and/or the Kaiser Aluminum Salaried Employee Stock Ownership Plan. VALCO: The term "VALCO" shall mean Volta Aluminium Company Limited, a Ghanaian corporation, and its successors. 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): Term Defined in Section - ---- ------------------ "applicants" . . . . . . . . . . . . . . . . . . . . . . 5.02(b) "Asset 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(b) "Asset Sale Purchase Price" . . . . . . . . . . . . . . 4.14(b) "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) 29 37 "Controlled Non-Affiliate Joint Venture" . . . . . . . . 4.09(a) "Incur" . . . . . . . . . . . . . . . . . . . . . . . . 4.10(a) "Notice of Default" . . . . . . . . . . . . . . . . . . 6.01(c) "Other Indebtedness" . . . . . . . . . . . . . . . . . . 4.10(c) "PRIDES" . . . . . . . . . . . . . . . . . . . . . . . . 4.09(b)(IX) "record date" . . . . . . . . . . . . . . . . . . . . . 2.03 "Refinanced Indebtedness" . . . . . . . . . . . . . . . 4.10(b)(vi) "Refinancing Indebtedness" . . . . . . . . . . . . . . . 4.10(b)(vi) "Restricted Payment" . . . . . . . . . . . . . . . . . . 4.09(a) "Series A Shares" . . . . . . . . . . . . . . . . . . . 4.09(b)(IX) "Specified Pari Passu Indebtedness" . . . . . . . . . . 4.14(b) "surviving corporation" . . . . . . . . . . . . . . . . 11.01(a) "Twenty-Five Million Threshold" . . . . . . . . . . . . 4.14(c) "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 the Indenture specifically referenced: Defined in Definition Limited Term Section 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 "defaults" . . . . . . . . . . . 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 "security" . . . . . . . . . . 7.08(c) . . . . . . . . 7 .08(c)(6), (7), (8) and (9) "security" . . . . . . . . . . . 7.08(d) . . . . . . . . 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 "voting security" . . . . . . . 7.08(d) . . . . . . . . 7 .08 30 38 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 ---% Senior Notes due 2002. Notes for an aggregate principal amount of two hundred twenty five million dollars ($225,000,000), 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 or a Vice President, without any further corporate action by the Company. The aggregate principal amount of Notes authorized by this Indenture is limited to two hundred twenty five million dollars ($225,000,000), 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 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 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. SECTION 2.03. Date of Notes and denominations. The Notes shall bear interest at the rate per annum of --%, payable semi-annually on February 15 and August 15, shall mature on February --, 2002 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, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on the Notes shall be payable at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02; provided, however, 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. The term "record date" as used in this Section 2.03 with 31 39 respect to any interest payment date shall mean the close of business on the February 1 or August 1, as the case may be, next preceding such interest payment date, whether or not such February 1 or August 1 is a Business Day, 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. The Notes shall be dated the date of their authentication. Except as provided in the next sentence, interest shall accrue on the Notes 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 February --, 1994. Each Note authenticated between the record date for any interest payment date and such interest payment date shall be dated the date of its authentication but shall bear interest from such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, then any Note so authenticated shall bear interest from the February 15 or August 15, as the case may be, next preceding the date of such Note to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on the Notes, from February --, 1994. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. 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 or its President or a Vice President under its corporate seal (which may be in facsimile) reproduced thereon 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 the corporate seal reproduced thereon may be 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. 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. 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 32 40 Article Two provided. Upon surrender 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. 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 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. 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 or other governmental charge that may be imposed in relation thereto. 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. 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 the 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, in the case of any mutilated Note shall, and in the case of any destroyed, lost or stolen Note may, 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), the Company may pay the same without surrender thereof except in the case of a mutilated 33 41 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 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 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, purchase by the Company at the option of the holder, 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. ARTICLE THREE REDEMPTION AND PURCHASES OF NOTES SECTION 3.01. Redemption prices. The Company may, at its option, redeem at any time all or from time to time any part of the Notes, on any date prior to maturity at the redemption prices specified in the Notes, together with accrued and unpaid interest thereon to but excluding the date fixed for redemption and in the manner set forth in this Article Three. The Company, however, shall not have the right to redeem any of the Notes prior to February 15, 1998. 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 hereinafter in this Section 3.02 provided. 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 not less than fifteen nor more than sixty days 34 42 prior to the date fixed for redemption 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 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 but not including 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 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 but not including 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 twenty-five days (or such shorter period acceptable to the Trustee) in advance of the date fixed for redemption, notice 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 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 provision in Section 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 Section 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 (but not including) 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 redemption price, together with interest accrued to (but not including) 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 35 43 except to receive payment of the redemption price plus accrued interest to but not including 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 (but not including) 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. 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 interest accrued to (but not including) the Change of Control Purchase Date (the "Change of Control Purchase Price"), on the date that is thirty 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" shall be deemed to have occurred at such time as MAXXAM, directly or indirectly, shall cease to have (other than by reason of the existence of a Lien but including by reason of the foreclosure of or other realization upon a Lien) direct or indirect sole beneficial ownership (as defined under Regulation 13d-3 of the Exchange Act as in effect on the date of this Indenture) of at least 40% of the total Voting Stock, on a fully diluted basis, of the Company; provided, however, that such ownership by MAXXAM, directly or indirectly, of 30% or greater, but less than 40%, of the total Voting Stock, on a fully diluted basis, of the Company shall not be a Change of Control if MAXXAM, through direct representation or through persons nominated by it, controls a majority of the Board of Directors of the Company necessary to effectuate any actions by the Board of Directors of the Company; and provided, further, that the foregoing minimum percentages shall be deemed not satisfied if any person or group (as defined in Section 13(d)(3) of the Exchange Act as in effect on the date of this Indenture) shall, directly or indirectly, own more of the total Voting Stock entitled to vote generally in the election of directors of the Company than MAXXAM. "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 36 44 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; (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 (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, the principal amount of Notes, the certificate number or numbers of the Note or Notes which the holder will deliver to be purchased and a statement that the offer to purchase is being accepted; (2) the portion of the principal amount of the Note which the holder will deliver to be purchased, which portion must be $1,000 or an integral multiple thereof; and (3) that such Note shall be purchased on the Change of Control Purchase Date pursuant to the terms and conditions specified in the Notes. 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 37 45 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 purchase of such portion of such Note. 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 principal amount of the Note or Notes with respect to which such notice of withdrawal is being submitted; and (3) the principal amount, if any, of such Note or Notes which 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 38 46 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). 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, if the Company or a Subsidiary or an Affiliate of either of them 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 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 Section 14(e) 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 Section 4.05 to be exercised in the time and in the manner specified in Sections 4.05 and 4.06. 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 12.04 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). 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, 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 in the Notes and this 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, 39 47 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 where the Notes may be presented or surrendered 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 St. Paul, Minnesota, 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, 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, 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 (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. If any obligations under the Credit Agreement are outstanding, the Company will notify the Bank Agent of the name and address of any paying agent other than the Company or the Trustee. (b) If the Company shall not act as its own paying agent, it will, prior to each due date of the principal of, 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, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest 40 48 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 obtaining a satisfaction and discharge of this Indenture, 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 12.03 and 12.04. SECTION 4.05. Maintenance of corporate existence. 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; provided, however, that nothing herein shall require the Company to continue the corporate existence of any Subsidiary other than a Subsidiary Guarantor (so long as any such Subsidiary is a Subsidiary Guarantor) if in the judgment of the Company it shall be necessary, advisable or in the interest of the Company to discontinue the same; and provided, further, that any Subsidiary Guarantor may: (a) merge or consolidate with or into the Company or any other Subsidiary Guarantor or transfer all or substantially all of its property to the Company or any other Subsidiary Guarantor; (b) merge or consolidate with or into any other Person or transfer all or substantially all of its property to any other Person as provided in Section 15.03; and (c) liquidate or dissolve under the laws of its jurisdiction of formation, provided that such Subsidiary Guarantor is wholly owned directly by the Company and/or another Subsidiary Guarantor. 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 which after the passage of time or notice would become an Event of Default, an Officers' Certificate specifying such event or Event of Default; (b) deliver to the Trustee within one hundred and twenty days after the end of each fiscal year of the Company, beginning with the fiscal year ending December 31, 1994, 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: (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 which with notice or the passage of time would become an Event of Default which 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; and 41 49 (c) deliver to the Trustee within five days after becoming aware of the occurrence thereof written notice of any acceleration which, with the giving of notice and the lapse of time, would be an Event of Default within the meaning of Section 6.01(d). 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 holder of the Notes. SECTION 4.08. Restrictions on transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Subsidiaries or its Non-Affiliate Joint Ventures to, enter into any transaction or series of related transactions with any Affiliate of the Company, unless: (i) the terms thereof are no less favorable to the Company, such Subsidiary or such Non-Affiliate Joint Venture, as the case may be, than those that could reasonably be expected to be obtained in a comparable transaction with an unrelated Person, (ii) such transaction or series of related transactions shall have been approved as meeting such standard, in good faith, by a majority of the independent 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 $10,000,000, the Company, such Subsidiary and/or such Non-Affiliate Joint Venture, as the case may be, shall have received an opinion that such transaction or series of related transactions is fair to the Company, such Subsidiary and/or such Non-Affiliate Joint Venture, as the case may be, from a financial point of view, from an independent investment banking firm of national standing selected by the Company. The Company shall deliver to the Trustee, within 60 days after the end of each fiscal quarter of the Company, an Officers' Certificate which (x) shall specify the aggregate dollar amount of transactions (other than transactions referred to in Section 4.08(b)) with Affiliates of the Company occurring during such fiscal quarter, and (y) with respect to any transaction with an Affiliate of the Company, or series of related transactions (other than transactions referred to in Section 4.08(b)) with Affiliates of the Company, occurring during such fiscal quarter, shall briefly describe such transaction or transactions. (b) The provisions contained in the foregoing paragraphs of this Section 4.08 shall not apply to: (i) the making of any Restricted Payments and Restricted Investments otherwise permitted by Section 4.09 (other than 4.09(b)(IV)), (ii) the making of payments permitted by the Tax Sharing Agreements, (iii) the making of payments to MAXXAM for reimbursement for actual services provided thereby to the Company or its Subsidiaries or Non-Affiliate Joint Ventures based on actual costs and an allocable share of overhead expenses, (iv) 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 or Non-Affiliate Joint Ventures for services rendered in such person's capacity as 42 50 a director and indemnification and directors' and officers' liability insurance in connection therewith, (v) compensation, indemnification and other benefits paid or made available to officers and employees of the Company or its Subsidiaries or Non-Affiliate Joint Ventures for services actually rendered, comparable to those generally paid or made available by entities engaged in the same or similar businesses (including reimbursement or advancement of reasonable out-of-pocket expenses and directors' and officers' liability insurance), (vi) loans to officers, directors and employees of the Company or its Subsidiaries for business or personal purposes and other loans and advances to such officers, directors and employees for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business and consistent with past practices of the Company and its Subsidiaries, (vii) any amendment to the Existing Intercompany Note that extends the maturity thereof or reduces the interest rate thereon, or any other amendment thereto that does not materially adversely affect the holders of the Notes, (viii) the dividend by the Company of all or any portion of the Existing Intercompany Note and accrued interest thereon, (ix) any merger, consolidation, transfer or sale permitted by Section 11.01(b), and (x) any amendment to the Tax Sharing Agreements, provided that a majority of the independent members of the Board of Directors of the Company evidenced by a Board Resolution determines that such amendment would not materially adversely affect the holders of the Notes. SECTION 4.09. Limitations on Restricted Payments and Restricted Investments. (a) The Company shall not, directly or indirectly, (i) 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 Redeemable Stock), (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 other than through the issuance solely of Capital Stock of the Company (other than Redeemable Stock) or rights thereto, provided that any Subsidiary of the Company may purchase Capital Stock of the Company from the Company or from any other Subsidiary of the Company (which purchase shall not be a Restricted Payment or a Restricted Investment), (iii) make or permit any of its Subsidiaries to make any voluntary purchase, redemption or other acquisition or retirement for value of any Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligations under its Guarantee, as the case may be, other than purchases, redemptions or other acquisitions or retirements of Permitted Indebtedness described in clause (b) of the definition thereof or purchases, redemptions or other acquisitions otherwise permitted by the terms hereof, (each of the foregoing in clauses (i), (ii) and (iii) a "Restricted Payment"), (iv) to the extent the Company or its Subsidiaries exercise actual control over a Non-Affiliate Joint Venture existing on the date of this Indenture or formed or acquired after the date of this Indenture (each a "Controlled Non-Affiliate Joint Venture"), permit such Controlled Non-Affiliate Joint Venture to make any Restricted Investment or (v) make or permit any of its Subsidiaries to make any Restricted Investment, unless at the time of, and after giving effect to, each such Restricted Payment or Restricted Investment: 43 51 (A) no Event of Default (and no event that, after notice or lapse of time or both, would become an Event of Default) shall have occurred and be continuing (or would occur and be continuing after giving effect thereto); and (B) the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1; and (C) the sum of: (x) the aggregate amount expended for all Restricted Payments after December 31, 1992, and (y) the aggregate amount of Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) (in each case, the amount expended for such Restricted Payments and Restricted Investments or the amount of any Restricted Investments returned, if paid or returned 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, 1993 to the end of the Company's most recently ended fiscal quarter for which financial statements are available at the time such Restricted Payment or Restricted 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 after December 31, 1992, or from the issue or sale (other than to a Non-Affiliate Joint Venture or to a Subsidiary of the Company), after December 31, 1992, of Capital Stock other than Redeemable Stock (including Capital Stock, other than Redeemable Stock, issued upon the conversion of, or in exchange for, indebtedness or Redeemable Stock, and including upon exercise of warrants or options or other rights to purchase such Capital Stock, issued after December 31, 1992), or from the issue or sale, after December 31, 1992 of any debt or other security of the Company convertible or exercisable into such Capital Stock that has been so converted or exercised; provided, however, that in no event shall the Company make, or permit any of its Subsidiaries to make, a Restricted Payment or Restricted Investment pursuant to this Section 4.09(a) to or in MAXXAM or any Affiliate of MAXXAM if, after giving effect thereto, (A) the aggregate amount of all Restricted Payments and Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries 44 52 or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) made pursuant to this Section 4.09(a) in any calendar year to or in MAXXAM or any Affiliate of MAXXAM, less (B) the aggregate amount of such Restricted Payments and Restricted Investments made to or in KAC in such calendar year which are distributed or paid within thirty days thereafter by KAC to its holders of Common Stock other than MAXXAM and any Affiliate of MAXXAM, would exceed (C) $75,000,000; and provided, further, that notwithstanding the foregoing, the Company may make any such Restricted Payment or Restricted Investment to or in MAXXAM or any Affiliate of MAXXAM if, after giving pro forma effect thereto, the Company's senior debt rating would be Baa3 (or the equivalent) or better by Moody's Investor Services, Inc. (or a successor rating agency) or BBB- (or the equivalent) or better by Standard & Poor's Corporation (or a successor rating agency). (b) The foregoing provisions of this Section 4.09 shall not be violated by reason of the following Restricted Payments: (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 Non-Affiliate Joint Venture or to a Subsidiary of the Company) of other shares of its Capital Stock other than Redeemable Stock or out of the proceeds of a substantially concurrent capital contribution to the Company, provided, however, that, to the extent the proceeds are so used, a sale of Capital Stock or capital contribution permitted by this clause (II) 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), (iii), (iv) and (v) and the transactions described in clauses (vi), (vii), (viii) and (ix) (so long as, in the case of clause (ix), immediately following such transaction, the Consolidated Net Worth of the entity that survives such transaction is not materially lower than the Consolidated Net Worth of the Company immediately prior to such transaction) of Section 4.08(b); (IV) the voluntary purchase, redemption or other acquisition or retirement for value of Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, to the extent that the aggregate amount expended (exclusive of amounts expended pursuant to clauses (V) and (VIII) of this Section 4.09(b)) for all such voluntary purchases, redemptions or other acquisitions or retirements after the date hereof (the amount expended for such purchases, redemptions or other acquisitions or retirements, if paid in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property) does not exceed the aggregate net proceeds, including the Fair Market Value of property other than cash, received by the Company or any Subsidiary Guarantor from the issue or sale (other than an issuance or sale to the Company or a Non-Affiliate Joint Venture or Subsidiary of the Company), after the date hereof, of Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be, and that is otherwise permitted to be incurred pursuant to this Indenture,provided that, to the extent the proceeds of Indebtedness so subordinated to the Notes or any Subsidiary 45 53 Guarantor's obligation under its Guarantee, as the case may be, are so used, the net proceeds of issuance of any such Indebtedness upon conversion 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) the voluntary purchase, redemption or other acquisition or retirement for value of any Indebtedness that is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Non-Affiliate Joint Venture or to a Subsidiary of the Company) of Capital Stock (other than Redeemable Stock) of the Company, provided, however, that, to the extent the proceeds are so used, the issuance of Capital Stock as permitted by this clause (V) shall not be included in determining the aggregate net proceeds received by the Company referred to under clause (II) of Section 4.09(a); (VI) the payment of dividends on, and the purchase, redemption, retirement or other acquisition of, the USWA Preferred Stock or the Preferred Stock ($100),provided that no such payment is made, directly or indirectly, to an Affiliate of the Company; (VII) the payment to KAC of an amount not to exceed $300,000 in any fiscal year for the payment of KAC's reasonable out-of- pocket expenses, provided that no part of such amount is paid directly or indirectly to any other Affiliate of the Company and that, at the time of each such payment, the Company is in compliance with clause (A) of Section 4.09(a); (VIII) Restricted Payments and Restricted Investments after February 1, 1993, other than Restricted Payments and Restricted Investments permitted by Section 4.09(a) or clauses (I) through (VII) of Section 4.09(b), in an aggregate amount such that the sum of: (X) the aggregate amount expended for all such Restricted Payments after February 1, 1993 made pursuant to this clause (VIII); and (y) the aggregate amount of all Restricted Investments made after February 1, 1993 pursuant to this clause (VIII) (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) (in each case, the amount expended for such Restricted Payments and Restricted Investments or the amount of any Restricted Investments returned, if paid or returned in property other than in cash or a sum certain guaranteed, to be the Fair Market Value of such property) would not exceed $50,000,000,provided that at the time of each such Restricted Payment or Restricted Investment made pursuant to this clause (VIII), no Event of Default (and no event that, after notice or lapse of time or both, would become an Event of Default) shall have occurred and be continuing (or would occur and be continuing after giving effect thereto); andprovided, further, that in no event shall the Company make, or permit any of its Subsidiaries to make, a 46 54 Restricted Payment or Restricted Investment pursuant to this clause (VIII) to or in MAXXAM or any Affiliate of MAXXAM if, after giving effect thereto, (A) the aggregate amount of all Restricted Payments and Restricted Investments (less the amount of (1) such Restricted Investments returned in cash, or in property if made in property, (2) any guarantee that constitutes a Restricted Investment, to the extent it has been released, and (3) any direct liabilities or obligations to be assumed or discharged in connection with such Restricted Investments (in either case without recourse to the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) if such liability or obligation had been a liability or obligation of the Company, any of its Subsidiaries or any Controlled Non-Affiliate Joint Venture) made pursuant to this clause (VIII) to or in MAXXAM or any Affiliate of MAXXAM, less (B) the aggregate amount of such Restricted Payments and Restricted Investments made to or in KAC which are distributed or paid within thirty days thereafter by KAC to its holders of Common Stock other than MAXXAM and Affiliates of MAXXAM, would exceed (C) $20,000,000; and (IX) in the event that the Company merges with or into KAC and the Preferred Dividend Intercompany Notes are extinguished, the payment of dividends on shares of KAC's Preferred Redeemable Increased Dividend Equity Securities, ---% PRIDES, Convertible Preferred Stock (the "PRIDES") or shares of KAC's Series A Mandatory Conversion Premium Dividend Preferred Stock (the "Series A Shares") and any other preferred stock of KAC the proceeds of which gave rise to a Preferred Dividend Intercompany Note, in an aggregate amount not to exceed the outstanding principal amount of such Preferred Dividend Intercompany Notes at the time of such merger. No payments and other transfers made under clauses (II) through (VII) and (IX) of this Section 4.09(b) shall reduce the amount available for Restricted Payments and Restricted Investments under Section 4.09(a); payments and other transfers made under clauses (I) and (VIII) of this Section 4.09(b) shall reduce the amount available for Restricted Payments and Restricted Investments under Section 4.09(a). SECTION 4.10. Limitation on Indebtedness and Preferred Stock. (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 preferred stock (including preference stock) or Indebtedness, except that, without duplication, the Company, the Subsidiary Guarantors and Alpart may Incur preferred stock (including preference stock) or Indebtedness (including, without duplication, guarantees of Indebtedness of the Company and its Subsidiaries otherwise permitted by this Indenture) if after giving effect thereto and the receipt and application of the proceeds therefrom, and assuming that the full amount of Indebtedness permitted to be Incurred under Section 4.10(b)(ii) (after taking into account any reduction in such amount as set forth in such Section 4.10(b)(ii)) has been Incurred (assuming, for purposes of this calculation, an interest rate on such additional Indebtedness equal to the weighted average interest rate on the Indebtedness then outstanding under Section 4.10(b)(ii)), the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1; provided, however, that Indebtedness of Alpart Incurred pursuant to this clause (a) shall not exceed an aggregate of $150,000,000 at any one time outstanding, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness. (b) Notwithstanding the foregoing paragraph (a) of this Section 4.10, the following shall be permitted: 47 55 (i) the Company and the Subsidiary Guarantors may Incur Indebtedness in respect of the Notes; (ii) the Company and the Subsidiary Guarantors may Incur Indebtedness (without duplication), and the Bank Guarantors may guarantee such Indebtedness, under the Credit Agreement, in connection with Refinancing Sale and Leaseback Transactions or otherwise in an aggregate amount at any one time outstanding not to exceed $375,000,000, as reduced from time to time by any permanent reduction in such amount as set forth in a Board Resolution; (iii) (A) Alpart may Incur Indebtedness in an aggregate amount not to exceed $150,000,000 at any one time outstanding and (B) the Company, KJC and AJI (without duplication) may Incur Indebtedness in an aggregate amount not to exceed at any one time outstanding the product of (I) $150,000,000 multiplied by (II) the Company's then percentage ownership interest in Alpart;provided, howeve, that the aggregate Indebtedness (without duplication) Incurred pursuant to clauses (A) and (B) of this clause (b)(iii) may not exceed $150,000,000 at any one time outstanding; andprovided, further, that in each case the proceeds of such Indebtedness are used solely for capital improvements and expenditures, expansion and working capital with respect to Alpart and/or to reimburse the partners of Alpart for advances to Alpart used solely for capital improvements and expenditures, expansion and working capital with respect to Alpart, plus in each case an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (iv) the Company and/or KAAC (without duplication) may Incur Indebtedness in an amount not to exceed $75,000,000 at any one time outstanding, the proceeds of which are used solely for capital improvements and expenditures, expansion and working capital with respect to QAL and/or to reimburse the stockholders of QAL for advances to QAL used solely for capital improvements and expenditures, expansion and working capital with respect to QAL, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (v) VALCO may Incur Indebtedness, and the Company may guarantee such Indebtedness, in an aggregate amount (without duplication) not to exceed $25,000,000 at any one time outstanding, the proceeds of which are used solely for capital improvements and expenditures, expansion and working capital with respect to VALCO and/or to reimburse the shareholders of VALCO for advances to VALCO used solely for capital improvements and expenditures, expansion and working capital, plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness; (vi) the Company and its Subsidiaries may Incur Indebtedness ("Refinancing Indebtedness") that serves to Refinance, in whole or in part, the Indebtedness permitted by clauses (a) and (b) of this Section 4.10 (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 undrawn amounts under credit arrangements otherwise permitted to be Incurred pursuant to this Indenture), 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, 48 56 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 (I) was an obligor of such Refinanced Indebtedness or (II) 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 Subsidiary Guarantor's obligation under its Guarantee, as the case may be, such Refinancing Indebtedness (I) has a final maturity and weighted average maturity at least as long as such Refinanced Indebtedness and (II) is subordinated (pursuant to its terms) in right and priority of payment to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be, at least to the same extent as such Refinanced Indebtedness; (vii) the Company may Incur Capitalized Lease Obligations not exceeding $50,000,000 at any one time outstanding in connection with the sale and leaseback of all or a portion of the Company's interest in the Center for Technology, provided that the Net Cash Proceeds therefrom are applied as provided by Section 4.14; (viii) the Company and its Subsidiaries may Incur Indebtedness, without duplication, the proceeds of which are used solely to finance the construction, acquisition or the acquisition and retrofitting of an aluminum smelter or smelters or related facilities (or interests therein) and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, in an amount not to exceed $150,000,000 in any fiscal year (without cumulation of unused amounts to successive years); (ix) the Company and its Subsidiaries may Incur Indebtedness, the proceeds of which are used solely to finance the construction or acquisition of a fabrication plant or plants or related facilities and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, in an aggregate amount not to exceed $25,000,000 in any fiscal year (without cumulation of unused amounts to successive years); (x) the Company and its Subsidiaries may Incur preferred stock (including preference stock) that is not Redeemable Stock; provided, however, that in the case of preferred stock (including preference stock) Incurred by any Subsidiary of the Company that is not a Subsidiary Guarantor, such preferred stock shall be issuedpro rata to the holders of Capital Stock of such Subsidiary; (xi) the Company and its Subsidiaries may Incur preferred stock (including preferred stock and preference stock that is Redeemable Stock),provided that such preferred stock or preference stock is issued to the Company, any of its Subsidiaries or pro rata to the holders of Capital Stock of any such Subsidiary; (xii) the Company and its Subsidiaries may Incur Permitted Indebtedness; and (xiii) the Company and its Subsidiaries may Incur Indebtedness in an amount at any one time outstanding not to exceed $75,000,000, provided that the amount of such Indebtedness that 49 57 may be Incurred by Subsidiaries of the Company (other than Subsidiary Guarantors that are not Permitted Entities) shall not exceed $25,000,000 at any one time outstanding, andprovided, further, that, to the extent any such Indebtedness is Incurred from a Bank or an affiliate thereof, the Bank Guarantors may guarantee such Indebtedness. (c) Notwithstanding the foregoing, no Subsidiary of the Company shall assume, guarantee or in any other manner become liable with respect to any Indebtedness of the Company or a Subsidiary Guarantor (other than such Subsidiary) ("Other Indebtedness") which is subordinated (pursuant to its terms) in right and priority of payment to any other Indebtedness of the Company or such Subsidiary Guarantor unless such Subsidiary also assumes, guarantees or otherwise becomes liable with respect to the Notes on a substantially similar basis for so long as such Subsidiary is liable with respect to such Other Indebtedness; provided, however, that if such Other Indebtedness is subordinated (pursuant to its terms) in right and priority of payment to the Notes or any Subsidiary Guarantor's obligation under its Guarantee, as the case may be, any such assumption, guarantee or other liability of such Subsidiary with respect to such Other Indebtedness shall be subordinated to such Subsidiary's assumption, guarantee or other liability with respect to the Notes to the same extent as such subordinated Indebtedness is subordinated to the Notes or such Subsidiary Guarantor's obligation under its Guarantee, as the case may be; and provided, further, that this paragraph shall not be applicable to any assumption, guarantee or other liability of any Subsidiary of the Company which existed at the time such Person became a Subsidiary of the Company and was not Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company, or any Refinancing Indebtedness in connection therewith complying with Section 4.10(b)(vi) (provided, that the guarantee of such Refinancing Indebtedness is on substantially the same terms as the guarantee of the Refinanced Indebtedness). In the event that any Subsidiary of the Company (other than a Subsidiary Guarantor) is required to guarantee the Notes pursuant to the next preceding sentence, the Company shall cause such Subsidiary to (a) execute and deliver to the Trustee a supplemental indenture in form and substance reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall be named as an additional Subsidiary Guarantor for so long as such Subsidiary Guarantor is so obligated with respect to such Other Indebtedness and (b) deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee that such supplemental indenture has been duly executed and delivered by such Person. (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 their respective U.S. Fixed Assets to secure, directly or indirectly, any Indebtedness, unless the Notes are equally and ratably secured on a senior basis for so long as such secured Indebtedness is so secured. (b) Notwithstanding anything to the contrary, this Section 4.11 shall not prohibit: (i) Liens on the Permitted Collateral securing outstanding Indebtedness permitted by this Indenture in an aggregate principal amount not to exceed the Maximum Secured Amount at the time such Indebtedness is Incurred; 50 58 (ii) Liens in existence on the date of the issuance of the Notes after giving effect thereto which Liens, if such Liens secure a single or related items of Indebtedness in a principal amount in excess of $5,000,000, are referred to in Schedule A hereto; (iii) Liens in favor of the Company or any Subsidiary Guarantor; (iv) Liens on U.S. Fixed 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 in existence prior to the contemplation of such merger or consolidation and do not extend to any other U.S. Fixed Assets of the Company or any Subsidiary of the Company; (v) Liens on U.S. Fixed Assets existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided, that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other U.S. Fixed Assets of the Company or any Subsidiary of the Company; (vi) Liens securing Indebtedness permitted by clauses (vii), (viii) and (ix) of Section 4.10(b), provided, that such Liens do not extend to any U.S. Fixed Assets other than the Center for Technology in the case of clause (vii), the applicable aluminum smelter or smelters and related facilities in the case of clause (viii) and the applicable fabrication plant or plants and related facilities in the case of clause (ix), and, in each case, together with any Improvements thereto or thereon and any proceeds thereof; (vii) Liens securing Indebtedness permitted by clause (e) of the definition of Permitted Indebtedness; (viii) Liens securing the Indebtedness permitted by clauses (iii), (iv) or (v) of Section 4.10(b) provided that such Liens do not extend to any U.S. Fixed Assets other than (a) Permitted Collateral (in which case the principal amount of such Indebtedness shall be included in the calculation of the Maximum Secured Amount for purposes of clause (i) of this paragraph and such Liens shall only be permitted if the requirements of clause (i) are satisfied) and (b) the Capital Stock and assets of Alpart, KJC and AJI in the case of clause (iii), the Capital Stock and assets of KAAC in the case of clause (iv), and the Capital Stock and assets of VALCO in the case of clause (v), plus, in each case, the proceeds thereof; (ix) Liens securing Indebtedness consisting of Capitalized Lease Obligations, mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or installation of U.S. Fixed Assets used in the business of the Company and its Subsidiaries, or repairs, additions or Improvements to such U.S. Fixed Assets, provided, that such Liens (a) secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such U.S. Fixed Assets or repair, addition or Improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the Incurrence of such Indebtedness), (b) do not extend to any other U.S. Fixed Assets (other than Improvements thereto or thereon and any proceeds thereof) of the Company or any Subsidiary of the Company (and, in the case of a repair, addition or Improvement, such Lien extends only to the U.S. Fixed Assets (and Improvements thereto or thereon) repaired, added to or improved), and (c) secure Indebtedness incurred no later than 180 days after the acquisition or final completion of such construction, repair, addition or Improvement; 51 59 (x) Liens securing any Refinancings (in whole or in part) of any Indebtedness secured by the Liens described in clauses (ii), (iv), (v), (vi), (viii) or (ix) of this paragraph, and any successive Refinancings of any thereof (together with any increased amount of such Indebtedness specifically permitted pursuant to Section 4.10(b) to cover the reasonable fees and expenses incurred in connection with a Refinancing)),provided that each such Lien (unless otherwise permitted by this paragraph) does not extend to any additional U.S. Fixed Assets (other than Improvements thereto or thereon and any proceeds thereof); (xi) Liens on U.S. Fixed Assets securing Indebtedness in an aggregate principal amount not to exceed $10,000,000; and (xii) Liens on any U.S. Fixed Assets consisting of easements, covenants, restrictions, exceptions, reservations and similar matters which do not materially impair the use of such U.S. Fixed Assets for the uses for which it is held and which Liens are granted to secure Indebtedness secured by Liens permitted by the foregoing clauses (i) through (xi). (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 U.S. Fixed Assets as such other Lien, provided, that if the Indebtedness secured by such other Lien is expressly subordinated in right and priority of payment by its terms to the Notes, 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. SECTION 4.12. Subsidiary guarantees, etc. (a) If the Company or any Subsidiary Guarantor shall transfer or cause to be transferred, in one or a series of related transactions, any property or assets (including, without limitation, businesses, divisions, real property, assets or equipment) to any Subsidiary of the Company or to any Non-Affiliate Joint Venture of the Company, the Company shall cause such transferee Subsidiary or Non-Affiliate Joint Venture to (i) execute and deliver to the Trustee a supplemental indenture in form and substance reasonably satisfactory to the Trustee pursuant to which such transferee Subsidiary or Non-Affiliate Joint Venture shall be named as an additional Subsidiary Guarantor and (ii) deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee that such supplemental indenture has been duly executed and delivered by such Person. (b) The provisions set forth in the immediately preceding paragraph shall not apply to the following transfers of property or assets by the Company or any Subsidiary Guarantor: (A) transfers of property or assets (other than cash) to Subsidiaries of the Company and Non-Affiliate Joint Ventures, provided that such transfer is made in exchange for cash in an amount equal to the Fair Market Value of such property or assets; (B) transfers of property or assets to Subsidiary Guarantors; (C) the use of the proceeds of Indebtedness described in Sections 4.10(b)(iii), (iv), (v), (viii) and (ix); 52 60 (D) transfers to Alpart of the proceeds of Indebtedness described in Section 4.10(a) to the extent that Alpart is an obligor or guarantor of such Indebtedness; (E) the provision of, and the payment for, goods and services, working capital and technology to Subsidiaries of the Company and Non-Affiliate Joint Ventures in each case in the ordinary course of the businesses in which the Company or its Subsidiaries or its Non-Affiliate Joint Ventures were engaged on the date of this Indenture or reasonably related extensions thereof; (F) transfers of assets to a Subsidiary of the Company immediately prior to the sale of such Subsidiary; (G) transfers of cash or Cash Equivalents to Non-Affiliate Joint Ventures engaged or to be engaged in the business of bauxite mining and/or alumina refining and/or aluminum smelting and/or fabrication and/or reasonably related extensions thereof; (H) transfers of cash, Cash Equivalents, property or other assets to a Permitted Entity in exchange for Permitted Entity Securities of such Permitted Entity if, immediately after giving effect to such transfer, such Permitted Entity remains a Permitted Entity; (I) transfers of Capital Stock or other equity interests to the issuer of such Capital Stock or other equity interests such that immediately after giving effect to such transfer and related transfers, the proportional beneficial ownership by the transferor of the class of Capital Stock or equity interests so transferred is not reduced; and (J) other transfers of assets, provided that the aggregate amount thereof (if other than cash, such amount shall be the Fair Market Value of such asset at the time of such transfer), less the aggregate amount of such assets returned to the Company or any Subsidiary Guarantor (if returned other than in cash, the amount of such assets shall be the Fair Market Value of such assets at the time so returned), does not exceed, in the aggregate, the greater of (i) $25,000,000 or (ii) 5% of the Company's Consolidated Net Worth, calculated after giving effect to such transfers and returns. (c) If any of the Company's existing or future Subsidiaries (other than a Bank Guarantor) or existing or future Non-Affiliate Joint Ventures shall guarantee, directly or indirectly, or become a direct obligor with respect to, Indebtedness under the Credit Agreement or any Refinancings thereof, the Company shall cause each such Subsidiary or Non-Affiliate Joint Venture to (A) execute and deliver to the Trustee a supplemental indenture in form and substance reasonably satisfactory to the Trustee pursuant to which such Subsidiary or Non- Affiliate Joint Venture shall be named as an additional Subsidiary Guarantor for as long as such Subsidiary or Non-Affiliate Joint Venture is so obligated with respect to such Indebtedness and (B) deliver to the Trustee an Opinion of Counsel reasonably satisfactory to the Trustee that such supplemental indenture has been duly executed and delivered by such Person. (d) Sections 4.12(a) and (b) shall not apply to any Restricted Investment or Restricted Payment otherwise permitted by Section 4.09. (e) The Company shall not permit any Permitted Entity to cease to be a Permitted Entity except: (i) pursuant to a liquidation or dissolution of such Permitted Entity or a transfer of all or substantially all of the properties and assets of such Permitted Entity to its Equity Owners in 53 61 proportion to their interests, including by way of merger or consolidation of such Permitted Entity with or into its sole Equity Owner; (ii) pursuant to a sale in compliance with Section 4.14 of all of the Permitted Entity Securities of such Permitted Entity held directly or indirectly by the Company or any Subsidiary Guarantor; or (iii) if such Permitted Entity becomes a Subsidiary Guarantor. (f) Notwithstanding anything in this Section 4.12 to the contrary, VALCO shall be permitted to merge with or into, or distribute substantially all of its assets and liabilities to, a Permitted Entity, provided that, at the time of such merger or distribution, such Permitted Entity has no more than $50,000 of assets other than Capital Stock or other similar interests in VALCO. Upon the consummation of any transaction contemplated by this clause (f), the entity surviving such merger or distribution shall not be required (i) to become a Subsidiary Guarantor pursuant to this Section 4.12 or (ii) if such entity has no assets except as contemplated in this clause (f) or meets the conditions of clause (e) of this Section 4.12, to remain a Permitted Entity pursuant to the this Section 4.12. 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 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 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 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 (i) any liabilities of the Company or any Subsidiary of the Company that are actually assumed by the transferee in such Asset Sale, or for which the Company and its Subsidiaries are fully released, shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries and (ii) any notes or other obligations received by the Company or any Subsidiary of the Company from such transferee that are immediately converted (or are converted within thirty days of the related Asset Sale) by the Company or such Subsidiary into cash 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 (A) the prepayment of Indebtedness in respect of or under the Credit Agreement and any other Indebtedness of the Company (other than the Notes) entitled to receive payment pursuant to the terms thereof (excluding Indebtedness that is subordinated by its terms to the Notes or the Guarantee thereof) (the "Specified Pari Passu Indebtedness"), unless the holders thereof elect not to receive such prepayment and (B) an offer to purchase (an "Asset Sale Offer") the then outstanding Notes, on any Business Day occurring no later than 175 days after the receipt by the Company (or any of its Subsidiaries, if 54 62 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 interest, if any, to but not including 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 Indebtedness under the Credit Agreement and the 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 Indebtedness is outstanding in respect of or under the Credit Agreement or the Specified Pari Passu Indebtedness 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 145 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 twenty-four days or less than 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 purchase price and the Asset Sale Purchase Date; (3) the name and address of the Trustee and that Notes must be surrendered to the Trustee to collect the 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 reverse of 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; (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 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; 55 63 (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 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 $25,000,000 (the "Twenty-Five Million Threshold") and then the total amount of such Net Cash Proceeds shall be required to be so applied in accordance with this Section 4.14. The Company may credit against its obligation to offer to repurchase Notes pursuant to this Section 4.14 the principal amount of Notes acquired or held by the Company subsequent to the date of the Asset Sale giving rise to such Asset Sale Offer and surrendered for cancellation or redeemed or called for redemption subsequent to such date and not previously used to satisfy any obligation of the Company to redeem or offer to purchase Notes. 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 140 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 or its Non-Affiliate Joint Ventures were engaged on the date of this Indenture or reasonably related extensions of such lines of business, provided that such Net Cash Proceeds are substantially so utilized no later than the last day of the twelfth consecutive month (or, in the event the amount of such Net Cash Proceeds from a single Asset Sale or series of related Asset Sales exceeds $200,000,000, the twenty- fourth consecutive month) following the month in which such Net Cash Proceeds are received. (e) Notwithstanding the foregoing, if an Asset Sale consists of a sale of (i) all or a portion of the property, plant or equipment of the Company's Gramercy alumina refinery, whether now owned or hereafter acquired, or any proceeds thereof or (ii) any U.S. Fixed Assets acquired after the date of this Indenture which do not constitute Permitted Collateral, the Company shall make an Asset Sale Offer with the Net Cash Proceeds received from such Asset Sale (without regard to the Twenty-Five Million 56 64 Threshold) to the extent the Company has not committed within 140 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 U.S. Fixed Assets (other than Permitted Collateral), provided that such Net Cash Proceeds are substantially so utilized no later than the last day of the twelfth consecutive month (or, in the event the amount of such Net Cash Proceeds from a single Asset Sale or series of related Asset Sales exceeds $200,000,000, the twenty-fourth consecutive month) following the month in which such Net Cash Proceeds are received. 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 fifteen 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 as the case may be, and (b) at such other times as the Trustee may request in writing, within thirty 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 fifteen 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. Any such list may be dated as of a date not more than fifteen days prior to the time such information is furnished or caused to be furnished, and need not include information received after such date. 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 57 65 (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. 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 subsection (a) of this Section 5.02, 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 the Notes, 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 subsection (b) of this Section 5.02, 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) The Company covenants and agrees to file with the Trustee within fifteen days after the Company is required to file the same with the 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 Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall nonetheless file with the Commission and the Trustee copies of such annual reports and such information, documents and other reports as it would file if it were subject to the requirements of Section 13 or 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 58 66 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. (c) The Company covenants and agrees to transmit to the holders of Notes within thirty 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 said 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, 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. SECTION 5.04. Reports by the Trustee. (a) On or before May 15, 1994, 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 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 59 67 (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 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) since the date of the last report transmitted pursuant to the provisions of subsection (a) of this Section 5.04 (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 ninety 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 upon any of the Notes as and when the same shall become due and payable, and continuance of such default for a period of thirty days; or (b) default in the payment of the principal of, Change of Control Purchase Price, 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 pursuant to Article Three, by declaration or otherwise; or (c) failure on the part of the Company, duly 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 sixty 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 by registered mail, which notice the Trustee shall give upon receipt of 60 68 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 (d) 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 for money borrowed by the Company or any Subsidiary, whether such indebtedness now exists or shall hereafter be created, in an aggregate principal amount exceeding $25,000,000, which default (a) in the case of a failure to make payment on any such indebtedness, shall not have been waived, cured or otherwise ceased to exist within 30 days thereafter, or (b) in the case of any default other than a payment default referred to in clause (a), 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, or with respect to which the principal amount remains unpaid upon its stated maturity; or (e) a final judgment which, together with other outstanding final judgments against the Company and its Significant Subsidiaries, exceeds an aggregate of $25,000,000 (to the extent such judgments are not covered by valid and collectible insurance from solvent unaffiliated insurers) shall be entered against the Company and/or its Significant Subsidiaries and (i) within 30 days after entry thereof, judgments exceeding such amount shall not have been discharged, settled or bonded or execution thereof stayed pending appeal or, within 30 days after the expiration of any such stay, such judgments exceeding such amount shall not have been discharged, settled or bonded or execution thereof stayed or (ii) an enforcement proceeding shall have been commenced (and not discharged, settled or bonded or execution thereof stayed) by any creditor upon judgments exceeding such amount; or (f) a court having jurisdiction in the premises shall have entered a decree or order for relief against the Company 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, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall have remained unstayed and in effect for a period of ninety consecutive days; or (g) the Company 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, custodian, sequestrator (or similar official) of the Company 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 (h) the Guarantee of any Subsidiary Guarantor shall be held to be unenforceable or invalid 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 such Subsidiary Guarantor, or any Subsidiary Guarantor or any Person acting by or on behalf of any Subsidiary Guarantor 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) or (h), 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 hereunder, 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 61 69 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 (f) or (g) 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. 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 thirty days, or (2) in case default shall be made in the payment of the principal of, and 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 pursuant to Article Three 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 bad faith. 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 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 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 62 70 it up to the date of such distribution. 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 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 Section 6.02 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, 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, 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 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 or the Notes or for the appointment of a receiver or trustee, or for any other remedy, unless such holder previously 63 71 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 sixty 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 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, 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 of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest, as the case may be, 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, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, 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 aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. All powers and remedies given by this Article Six 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, 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 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. 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, 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 64 72 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, 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 or a default under Article Four or any other covenant or provision hereof 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 ninety days after the occurrence of a default hereunder, give to the noteholders, in the manner and to the extent provided in subsection (c) of Section 6.04 with respect to reports pursuant to subsection (a) of Section 6.04, 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) and (h) of Section 6.01, not including any periods of grace provided for in clauses (a), (c), (d) and (e), respectively, and irrespective of the giving of notice specified in clauses (c) and (d)); provided that, except in the case of 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, 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. 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 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 outstanding, or to any suit instituted by any noteholder for the enforcement of the payment of the principal of, 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, which 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 65 73 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 prudent man would exercise or use under the circumstances in the conduct of his 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 (2) in the absence of bad faith 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 which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to 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. 66 74 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 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 which 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 by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his 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 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 67 75 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 12.04, 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. 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 bad faith. The Company also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith 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 bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such Certificate, in the absence of negligence or bad faith 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. 68 76 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 ninety 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 ninety-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 subsection (a) of this Section 7.08, the Trustee shall, within ten days after the expiration of such ninety-day period, transmit notice of such failure to the noteholders 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. (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 69 77 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 10 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 10 percent or more 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) 10 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, five percent or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10 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 which is in default, 10 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 orinter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25 per cent 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, 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 70 78 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 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 thirty 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 which 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 which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (iii) any security which 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, or in the payment of any sinking or purchase fund installment, 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 71 79 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. (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: 72 80 (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. (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 $25,000,000, 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 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 thirty 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 73 81 the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within thirty 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 subsection (a) of Section 7.08 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 (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. 74 82 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 thirty 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. 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 subsection (b) of this Section 7.13, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company or of any other obligor on the Notes within three months prior to a default, as defined in subsection (c) of this Section 7.13, 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 subsection (c) of this Section 7.13) (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 75 83 (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 (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 subsection (c) of this Section 7.13, 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 76 84 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 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 subsection (a) of this Section 8.13 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 with respect to reports pursuant to subsections (a) and (b) thereof, respectively; (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 subsection (c) of this Section 7.13; 77 85 (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, which 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 subsection (c) of this Section 7.13. (c) As used in this Section 7.13: (1) the term "default" shall mean any failure to make payment in full of the principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price or interest upon 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 provisions substantially similar to the provisions of subsection (a) of this Section 7.13, and (C) under which a default exists at the time of the apportionment of the funds and property held in said special account. (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 which 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 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 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 78 86 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 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, 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 which 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 which the Trustee knows are so owned shall be so disregarded. Notes so owned which 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 10% 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 79 87 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 which shall be a Business Day not less than fifteen nor more than twenty 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 fifteen nor more than twenty 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 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 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 one hundred eighty 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 80 88 (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 twenty nor more than sixty days prior to the date fixed for the meeting to 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 in Section 9.03 provided, 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 10% 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 twenty 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 fifteen nor more than twenty 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, 81 89 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 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 who 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. 82 90 ARTICLE TEN SUPPLEMENTAL INDENTURES SECTION 10.01. Purposes for which supplemental indentures may be entered into without consent of noteholders. The Company, when authorized by a Board Resolution, 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 one or more of the following purposes: (a) to comply with Article Eleven and Sections 4.10(c), 4.12(a), 4.12(c) 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 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 New York Stock Exchange or any other national securities exchange on which the Notes may be issued 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 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 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 83 91 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 such record date, the Company, when authorized by a Board Resolution, 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 interest rate, extend the time or alter the manner of payment of interest thereon, reduce the principal amount thereof or alter the timing of or reduce any premium payable upon the redemption thereof or the amount payable thereon in the event of acceleration or the amount thereof 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 a Board Resolution 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 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 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 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 84 92 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. SECTION 10.05. Officers' Certificate and Opinion of Counsel. The Trustee may receive upon its request and, subject to the provisions of Sections 7.01 and 7.02, may rely upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such indenture complies with the provisions of this Article Ten. ARTICLE ELEVEN CONSOLIDATION, MERGER AND SALE SECTION 11.01. Company may consolidate, etc., on certain terms. (a) Nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company) or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of all or substantially all the property of the Company to any other corporation (whether or not affiliated with the Company) whether in a single transaction or series of related transactions; provided, however, and the Company hereby covenants and agrees, that any such consolidation, merger, sale or conveyance shall be upon the condition that (i) immediately after giving effect to such consolidation, merger, sale or conveyance, the corporation (whether the Company or such other corporation) 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 corporation (the "surviving corporation"), shall not be in default in the performance or observance of any of the terms, covenants and conditions of this Indenture to be kept or performed by the Company, (ii) the surviving corporation (if other than the Company) 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 (whether the Company or such other 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, 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, executed and delivered to the Trustee by such corporation and (v) immediately after giving effect to such consolidation, merger, sale or conveyance, the surviving corporation (whether the Company or such other corporation) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction. If at any time there be any consolidation or merger or sale or conveyance of property to which the covenant of this Section 11.01 is applicable, then, in any such event, the surviving corporation will promptly deliver to the Trustee: (1) an Officers' Certificate stating that as of the time immediately after the effective date of any such transaction the covenants contained in this Section 11.01 have been complied with; and 85 93 (2) an Opinion of Counsel stating that such covenants have been complied with and that any instrument or instruments executed in the performance of such covenants comply with the requirements thereof. (b) Notwithstanding the foregoing Section 11.01(a), (i) the Company may consolidate or merge with or into, or sell or convey all or substantially all of its property to, KAC; provided, however, that the surviving corporation (if other than the Company) shall expressly assume by supplemental indenture complying with the requirements of Article Ten, satisfactory in form to the Trustee, the due and punctual payment of the principal of, 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 and (ii) the Company may consolidate or merge with or into, or sell or convey all or substantially all of its property to, a Subsidiary Guarantor; provided, that the surviving corporation (if other than the Company) shall expressly assume by supplemental indenture complying with the requirements of Article Ten, satisfactory in form to the Trustee, the due and punctual payment of the principal of, 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. SECTION 11.02. Successor corporation to be substituted. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, in the manner hereinabove provided, of the due and punctual payment of the principal of, 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 successor 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 successor 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 successor 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 which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes which such successor 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. SECTION 11.03. Opinion of Counsel. The Trustee, subject to the provisions of Sections 7.01 and 7.02, may receive upon its request and rely on an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of this Article Eleven. 86 94 ARTICLE TWELVE SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 12.01. Satisfaction and discharge of Indenture. If at any time (a) the Company shall deliver to the Trustee for cancellation all Notes theretofore authenticated and delivered, other than (1) any Notes which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.07 or (2) any Note for the payment of the principal of which money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 12.04, and not theretofore cancelled, or (b) (1) all the Notes not theretofore cancelled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be or may be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption and (2) the Company has deposited with the Trustee, in trust, money or non- callable Government Securities maturing as to principal and interest in such amounts and at such times as are sufficient (in the opinion of a nationally recognized firm of independent certified accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment of such interest, to pay at maturity or upon redemption all of such Notes (other than any Notes which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.07) not theretofore cancelled or delivered to the Trustee for cancellation, including principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel complying with Section 14.05 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture, except for those provisions which expressly survive as provided below; the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses theretofore and thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Notes. Notwithstanding the foregoing, the Company's obligations in Sections 2.05, 2.07, 4.01, 4.02, 4.04, 5.01, 5.02, 7.06, 12.03 and 12.04 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.06, 12.03 and 12.04 shall survive. After a deposit made pursuant to this Section 12.01, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Notes and this Indenture, except for those surviving obligations specified above. SECTION 12.02. Application by Trustee of funds deposited for payment of Notes. All amounts deposited with the Trustee pursuant to Section 12.01 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, Change of Control Purchase Price, Asset Sale Purchase Price and interest. 87 95 SECTION 12.03. Repayment of moneys held by paying agent. In connection with the satisfaction and discharge of this Indenture, all moneys then held by any paying agent under the provisions of this Indenture shall, upon demand of the Company, be paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. SECTION 12.04. 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. Any moneys deposited with the Trustee or any paying agent for the payment of the principal of, 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 thirty days from the date of such mailing or publication, any unclaimed balance of such money then remaining will be paid to the Company. SECTION 12.05. Reinstatement. If the Trustee is unable to apply any money or securities deposited by the Company with the Trustee in accordance with Section 12.01 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 Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.01 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 12.01; provided that if the Company has made any payment of principal of, 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 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, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company 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, officers or directors, as such, of the Company or of any successor corporation, or any of them, because of the 88 96 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 bound by Indenture. All the covenants, stipulations, promises and agreements in this Indenture contained by or in behalf of the Company shall bind its 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 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. 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 (except as provided in Section 6.01(c)) by first class mail in a post office letter box addressed (until another address is filed by the Company with the Trustee for such purpose), as follows: Kaiser Aluminum & Chemical Corporation, 5847 San Felipe, Suite 2600, Houston, Texas 77057, Attention: Secretary. 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. 89 97 SECTION 14.04. Indenture and Notes to be construed in accordance with the laws of the State of New York. THIS INDENTURE AND EACH 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 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; (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 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 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 of 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, 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 90 98 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, firm or corporation, 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 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. First Trust 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 or Affiliate of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. ARTICLE FIFTEEN GUARANTEE OF NOTES SECTION 15.01. Guarantee. Subject to the provisions of this Article Fifteen, each Subsidiary Guarantor, 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, 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 of, premium, Change of Control Purchase Price, Asset Sale Purchase Price and interest, if any, on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the holders of the Notes or the Trustee all in accordance with the terms of such Note and of this Indenture and (ii) in the case of any extension 91 99 of time of payment or renewal of any Notes 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 Guarantor 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 Guarantor 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, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Asset and interest thereon or as provided in Sections 12.01, 15.03 and 15.05. Each Subsidiary Guarantor further agrees that, as between such Subsidiary Guarantor, 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 Guarantor for the purpose of this Guarantee. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article Six, the Trustee shall promptly make a demand for payment on the Notes under the Guarantee provided for in this Article Fifteen. Each Subsidiary Guarantor shall be subrogated to all rights of the holder of any Notes against the Company in respect of any amounts paid to the holder of Notes by such Subsidiary Guarantor pursuant to the provisions of this Guarantee; provided, that such Subsidiary Guarantor shall not be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation until the principal of, 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. Guarantee senior in respect of Subordinated Notes. Each Subsidiary Guarantor, for itself, its successors and assigns, hereby acknowledges that the Guarantee issued hereunder in respect of the Notes shall hereafter constitute for all purposes Senior Indebtedness of such Subsidiary Guarantor under the terms of the Subordinated Note Indenture to the extent that such Subsidiary Guarantor is a guarantor under the Subordinated Note Indenture. SECTION 15.03. Subsidiary Guarantors may consolidate, etc., on certain terms. (a) Notwithstanding any other provision of this Indenture (i) a Subsidiary Guarantor may consolidate or merge with or into, or sell or convey all or substantially all of its property to, the Company, provided, that the surviving corporation (if other than the Company) shall expressly assume by supplemental indenture complying with the requirements of Article Ten, satisfactory in form to the Trustee, the due and punctual payment of the principal of, 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 and (ii) a Subsidiary Guarantor may consolidate or merge with or into, or sell or convey all or substantially all of its property to, any other Subsidiary Guarantor. 92 100 (b) Nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of any Subsidiary Guarantor with or into any other corporation or corporations (whether or not affiliated with such Subsidiary Guarantor), or successive consolidations or mergers in which such Subsidiary Guarantor or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the property of any Subsidiary Guarantor as an entirety or substantially as an entirety to any other corporation (whether or not affiliated with such Subsidiary Guarantor) authorized to acquire and operate the same, whether in a single transaction or a series of related transactions; provided, however, that each Subsidiary Guarantor hereby covenants and agrees that any such consolidation, merger, sale or conveyance shall be upon the condition that: (i) in the event that the surviving corporation is a Subsidiary of the Company, then (A) such surviving corporation (if other than such Subsidiary Guarantor) shall be a corporation organized under the laws of the United States of America or any State thereof, (B) such surviving corporation (if other than such Subsidiary Guarantor) shall assume the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by such Subsidiary Guarantor by supplemental indenture complying with the requirements of Article Ten, satisfactory in form to the Trustee, executed and delivered to the Trustee, (C) immediately after giving effect to such consolidation, merger, sale or conveyance, the Company could incur $1.00 of Indebtedness pursuant to Section 4.10(a) and (D) immediately after giving effect to such consolidation, merger, sale or conveyance, the surviving corporation (whether such Subsidiary Guarantor or such other corporation) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately prior to such transaction; and (ii) in the event that the surviving corporation is not a Subsidiary of the Company, then such consolidation, merger, sale or conveyance shall otherwise have been made in compliance with the terms of this Indenture (including, without limitation, Section 4.14). In the event that the surviving corporation is a Subsidiary of the Company, (I) such Subsidiary Guarantor shall deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such merger, consolidation or transfer and such supplemental indenture comply with this Section 15.03(b) and that all conditions precedent herein provided relating to such transaction have been complied with and (II) in case of any such consolidation, merger, sale or conveyance and upon the assumption by the surviving corporation (if other than such Subsidiary Guarantor), by supplemental indenture executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual performance of all the covenants and conditions of this Indenture to be performed by such Subsidiary Guarantor, such surviving corporation shall succeed to and be substituted for such Subsidiary Guarantor, with the same effect as if it had been named herein as such Subsidiary Guarantor and in the case of any such sale or conveyance, such Subsidiary Guarantor (if not the surviving corporation) shall be relieved of all of its obligations and duties under this Indenture and the Notes. SECTION 15.04. Application of certain terms and provisions to the Subsidiary Guarantors. (a) For purposes of any provision of this Indenture which provides for the delivery by any Subsidiary Guarantor of an Officer's Certificate and/or an Opinion of Counsel, the definitions of such terms in Section 1.01 shall apply to such Subsidiary Guarantor as if references therein to the Company were references to such Subsidiary Guarantor. (b) The Subsidiary Guarantors shall comply with all reporting requirements of Section 5.03 as if references therein to the Company were references to the Subsidiary Guarantors. (c) Any request, direction, order or demand which by any provision of this Indenture is to be made by any Subsidiary Guarantor, shall be sufficient if evidenced as described in Section 7.02 as if references therein to the Company were references to such Subsidiary Guarantor. 93 101 (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 Guarantor may be given or served as described in Section 14.03 as if references therein to the Company were references to such Subsidiary Guarantor. (e) Upon any demand, request or application by any Subsidiary Guarantor to the Trustee to take any action under this Indenture, such Subsidiary Guarantor 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 Guarantor. SECTION 15.05. Release of Guarantee. (a) If at any time any Subsidiary Guarantor ceases to be a Bank Guarantor, is not a Subsidiary Guarantor under the Subordinated Note Indenture and no Event of Default (or event or condition which with the giving of notice or the passage of time would be an Event of Default) then exists and is continuing, and either (X) such Subsidiary Guarantor has not Incurred any Indebtedness or preferred stock (including preference stock) after the date hereof that is then outstanding other than Indebtedness Incurred pursuant to Section 4.10(a) (but only to the extent such Indebtedness is also Indebtedness of Alpart), Section 4.10(b)(iii) or Section 4.10(b)(iv) and, in each case, permitted refinancings thereof, or (y) the Notes are then rated Baa3 (or the equivalent) or better by Moody's Investor Services, Inc. (or a successor rating agency) or BBB- (or the equivalent) or better by Standard & Poor's Corporation (or a successor rating agency), then such Person shall cease to be a Subsidiary Guarantor hereunder upon the delivery of the Officers' Certificate and Opinion of Counsel set forth in paragraph (b) of this Section 15.05. Thereafter, the Guarantee given by such Subsidiary Guarantor shall no longer have any force or effect and such Person shall be relieved of all of its obligations and duties under this Indenture and the Notes. (b) Upon any Subsidiary Guarantor ceasing to be a Bank Guarantor, the Company may, at its option, deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such Subsidiary Guarantor is no longer a Bank Guarantor, is not a Subsidiary Guarantor under the Subordinated Note Indenture and that no Event of Default (or event or condition which with the giving of notice or the passage of time would become an Event of Default) exists and is continuing and that all conditions precedent herein provided relating to Section 15.05(a) have been complied with. (c) Upon the sale or disposition (by merger or otherwise, including, without limitation, pursuant to Section 15.03(b)(ii)) of a Subsidiary Guarantor (or the Company's or a Subsidiary's interest therein) by the Company or a Subsidiary of the Company to a Person that is not the Company or a Subsidiary of the Company and 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 Guarantor under its Guarantee shall be deemed released without any further action required on the part of the Trustee, such Subsidiary Guarantor, the Company or any holder of the Notes, provided that any guarantee of such Subsidiary Guarantor with respect to the Credit Agreement and the Subordinated Notes, and any renewals, extensions, refundings, replacements, restructurings or refinancings, amendments and modifications thereof, if any, has been or is simultaneously released. At the request of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. (d) Upon the release of any Subsidiary Guarantor from its Guarantee pursuant to any provision of this Indenture, each other Subsidiary Guarantor not so released shall remain liable for the full amount of principal of, and interest on, the Notes as and to the extent provided in this Indenture. 94 102 IN WITNESS WHEREOF, each of KAISER ALUMINUM & CHEMICAL CORPORATION, KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION and KAISER JAMAICA CORPORATION has caused this Indenture to be signed and acknowledged by its Chairman of the Board, its President or one of its Vice Presidents, and its corporate seal to be affixed hereunto, and the same to be attested by one of its Vice Presidents; and FIRST TRUST NATIONAL ASSOCIATION has caused this Indenture to be signed and acknowledged by one of its Vice Presidents, has caused its corporate seal to be affixed hereunto, and the same to be attested by one of its Trust Officers, all as of the day and year first written above. KAISER ALUMINUM & CHEMICAL CORPORATION By: ------------------------------------------ Name: Title: [SEAL] Attest: KAISER ALUMINA AUSTRALIA CORPORATION By: ------------------------------------------ Name: Title: [SEAL] Attest: ALPART JAMAICA INC. By: ------------------------------------------ Name: Title: [SEAL] Attest: 95 103 KAISER FINANCE CORPORATION By: ------------------------------------------ Name: Title: [SEAL] Attest: KAISER JAMAICA CORPORATION By: ------------------------------------------ Name: Title: [SEAL] Attest: FIRST TRUST NATIONAL ASSOCIATION as Trustee By: ------------------------------------------ Name: Title: [SEAL] Attest: - ------------------------------------------- Trust Officer 96 104 SCHEDULE A SCHEDULE OF LIENS SECURING INDEBTEDNESS IN EXCESS OF $5,000,000 [To Be Provided By The Company] 97 105 SCHEDULE B REAL PROPERTY CONSTITUTING PERMITTED COLLATERAL [To Be Provided By The Company] 98 EX-4.21 3 FORM OF INTERCOMPANY NOTE 1 SENIOR SUBORDINATED INTERCOMPANY NOTE February , 1994 FOR VALUE RECEIVED, the undersigned, Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to the order of Kaiser Aluminum Corporation, a Delaware corporation (the "Payee"), the principal sum of DOLLARS ($ ), which shall be due and payable as hereinafter provided. 1. This Note shall not bear interest. This Note shall be payable in quarterly installments on March 30, June 29, September 29 and December 30 of each year, commencing March 30, 1994, and ending December 30, 1997, the first such quarterly installment to be in the amount of $ and each remaining quarterly installment to be in the amount of $ . 2. The entire unpaid principal amount of this Note shall be due and payable on December 30, 1997. Notwithstanding the foregoing provisions of this Note, in the event that all shares of % PRIDES, Convertible Preferred Stock (the "PRIDES") of the Payee are redeemed or are converted into shares of the 2 common stock of the Payee pursuant to the Certificate of Designations governing such shares of PRIDES, the Company may, after all amounts payable by the Payee in respect of accrued and unpaid dividends in connection with such redemption or conversion have been paid, defer further principal and interest payments on this Note until such time as no Specified Senior Debt (as defined in Section 7(c) of this Note) is then outstanding. 3. The Company shall make each payment hereunder not later than 5:00 p.m. (New York City time) on the day when due in lawful money of the United States of America to the holder of this Note by delivery of a certified or bank cashier's check in the amount of such payment or, at such holder's option, by wire transfer of immediately available funds. 4. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or a public or bank holiday or the equivalent for banks generally under the laws of the State of New York (any other day being a "Business Day"), such payment may be made on the next succeeding Business Day. 5. The Company shall have the right to prepay the principal amount of this Note, in whole or in part, at any time or from time to time, without premium or penalty, but with interest on the portion of the principal amount so prepaid accrued to the date of prepayment. This Note is an Equity Proceeds Note (as such term is defined in the Credit Agreement dated as of February -2- 3 15, 1994 between Kaiser Aluminum Corporation, the Company, certain financial institutions, and BankAmerica Business Credit, Inc., as agent (in such capacity the "Agent"), as the same has been, or may hereafter be, amended, supplemented, restated, or otherwise modified from time to time (the "Credit Agreement")). 6. In case one or more of the following events of default shall have occurred and be continuing: (a) the Company fails to pay any installment of principal of, or interest on, this Note when due, whether or not payment is prohibited by the provisions of Section 7 of this Note; or (b) a court having jurisdiction in the premises shall have entered a decree or order for relief against the Company 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, sequestrator (or similar official) of the Company or for all or any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall have remained unstayed and in effect for a period of ninety consecutive days; or (c) the Company 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 -3- 4 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, custodian, sequestrator (or similar official) of the Company 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; then, in the case of an event specified in clause (a), unless the principal of this Note shall have already become due and payable, the holder of this Note by notice to the Company in writing may at its option declare the principal amount and accrued interest to the date of declaration of this Note to be due and payable immediately. Upon any such declaration, the same shall become and shall be immediately due and payable, provided that any payment pursuant to such acceleration shall be subject to Section 7(g) of this Note. If an event specified in clause (b) or (c) 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 holder, but subject to Section 7(g) of this Note. 7. (a) The Company, for itself, its successors and assigns, covenants and agrees, and the Payee (and each other holder of this Note), by its acceptance hereof, likewise covenants and agrees, for the benefit of all present and future holders of Senior Indebtedness of the Company (as defined in Section 7(h) of this Note), that all direct or indirect payments -4- 5 or distributions on or with respect to this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including, without limitation, by way of or on account of a "Claim" (as defined hereinbelow) or the payment of the principal of and interest on this Note, is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full in cash or cash equivalents of all Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any proceeding of the kind referred to in the introductory clause of Section 7(b) of this Note, whether or not such interest is an allowable claim in such proceeding). (b) Upon any direct or indirect payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, upon any dissolution, winding up, liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, reorganization, receivership or other proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Company or otherwise, (i) the holders of all Senior Indebtedness of the Company shall be entitled to receive payment in full in cash or cash equivalents of such Senior Indebtedness of the Company (including, without limitation, interest that would accrue but for the occurrence of any such proceeding whether or not such inter- -5- 6 est is an allowable claim in such proceeding) before the holder of this Note shall be entitled to receive any direct or indirect payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, with respect to this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of any claim against the Company for rescission of the issuance of this Note or for monetary damages from, or in connection with, the issuance of this Note, or for reimbursement or contribution on account of such a claim (a "Claim"), or the payment of principal of or interest on this Note; and (ii) any direct or indirect payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the holder of this Note would be entitled except for the provisions of this Section 7 shall be paid by the Company or by any liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness of the Company or their representative or representatives, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness of the Company held or represented by each, to the extent necessary to make payment in full in cash or cash equivalents of all Senior Indebtedness of the Company (including, without limitation, -6- 7 interest that would accrue but for the occurrence of any such proceeding whether or not such interest is an allowable claim in such proceeding) remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company; and (iii) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the holder of this Note, whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note, before all Senior Indebtedness of the Company is paid in full in cash or cash equivalents, such payment or distribution shall be received and held in trust for and paid over to the holders of such Senior Indebtedness of the Company or their representative or representatives, ratably as aforesaid, for application to the payment of all Senior Indebtedness of the Company remaining unpaid until all such Senior Indebtedness of the Company shall have been paid in full in cash or cash equivalents, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company. The consolidation of the Company with, or the merger of the Company into, another corporation or other entity or the liquidation or dissolution of the Company following the sale or -7- 8 conveyance of its property or assets as an entirety, or substantially as an entirety, to another corporation or other entity shall not be deemed a dissolution, winding up, liquidation or reorganization of the Company for the purposes of this Section 7. Subject to the payment in full in cash or cash equivalents of all Senior Indebtedness of the Company, the holder of this Note shall be subrogated (without any duty on the part of the holders of Senior Indebtedness of the Company to warrant, create, effectuate, preserve or protect such subrogation) to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property or securities of the Company applicable to Senior Indebtedness of the Company until the principal of and interest on this Note shall be paid in full and, for the purpose of such subrogation, no payments or distributions to the holders of Senior Indebtedness of the Company of cash, property or securities otherwise distributable to the holder of this Note shall, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holder of this Note, be deemed to be a payment by the Company to the holders of or on account of the Senior Indebtedness of the Company. It is understood that the provisions of this Section 7 are and are intended solely for the purpose of defining the relative rights of the holder of this Note, on the one hand, and the holders of Senior Indebtedness of the Company, on the other hand. Nothing contained in this -8- 9 Section 7 or elsewhere in this Note is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or to affect the relative rights of the holder of this Note and creditors of the Company other than the holders of Senior Indebtedness of the Company, nor shall anything herein prevent the holder of this Note from exercising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, under this Section 7 of the holders of Senior Indebtedness of the Company in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Section 7, the holder of this Note shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature described in this Section are pending or upon a certificate of the liquidating trustee or agent or other person making any distribution to the holder of this Note for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness of the Company and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or -9- 10 distributed thereon and all other facts pertinent thereto or to this Section 7. (c) No direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) shall be made if, at the time of such payment or distribution, there exists a default in the payment of all or any portion of any Senior Indebtedness of the Company (other than a payment default to the extent it relates to those items described in clause (i)(B) of the definition of "Senior Indebtedness" contained in the Subordinated Indenture (as the term Subordinated Indenture is defined in the Credit Agreement) or a payment default to the extent it relates to those items of Senior Indebtedness of the Company referred to in clause (ii)(B) of Section 7(h)), and such payment default (other than to the extent it relates to those items described in clause (i)(B) of the definition of "Senior Indebtedness" contained in the Subordinated Indenture) shall not have been cured or waived or the benefits of this sentence waived in writing by or on behalf of the holders of such Senior Indebtedness of the Company. In addition, during the continuance of any other default with respect to the obligations of the Company referred to in clause (i) of Section 7(h) (the "Specified Senior Debt") that would permit (or would so permit with the -10- 11 passage of time or giving of notice or both) the acceleration of the maturity of such Specified Senior Debt, no direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note may be made (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note) for a period (the "Payment Blockage Period") commencing on the date of receipt by the holder of this Note of notice of such default specifying that such notice is a Payment Blockage Notice from the Agent under the Credit Agreement, or, if such default results from the acceleration of this Note, commencing on the earlier of the date of receipt of such notice by the holder of this Note or the date of such acceleration, and ending on the earliest of (a) 179 days thereafter, (b) the date on or as of which (i) such default has been cured or waived, (ii) the Company has delivered to the holder of this Note an Officers' Certificate (as hereinafter defined) to such effect and (iii) the Agent under the Credit Agreement shall have endorsed on such Officers' Certificate that it does not object to the form or substance of such Officers' Certificate, provided, that if such default has been cured or waived, the Company shall promptly notify the holder of this Note of such cure or waiver and the Agent under the Credit Agreement shall promptly endorse such notice, and (c) the date on or as of which the Agent under the Credit Agreement shall have consented in writing to the termination of such Payment Blockage Period. Notwithstanding the -11- 12 foregoing, in no event (a) may the total number of days during which any Payment Blockage Period or Payment Blockage Periods may be in effect during any 360 consecutive day period exceed 179 days in the aggregate or (b) will payments or distributions be prohibited by this Section 7(c) if (i) any of the Company's 12-3/4% Senior Subordinated Notes due 2003 shall then be outstanding and (ii) payments and distributions are not then prohibited under Sections 3.03 and (if, at the time, there are any "Subsidiary Guarantors" (as such term is defined in the Subordinated Indenture)) 16.04 of the Subordinated Indenture. No default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to Specified Senior Debt and was known at the time of commencement thereof to the Agent under the Credit Agreement shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the Agent under the Credit Agreement whether or not within a period of 360 consecutive days, unless such default shall have been cured or waived for a period of not less than 90 consecutive days. As used herein, 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 Secretary or an Assistant Secretary of the Company. -12- 13 In the event that, notwithstanding the foregoing, the Company shall make any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to the holder of this Note prohibited by the foregoing provisions of this Section 7(c) (whether pursuant to the terms of this Note or upon acceleration or otherwise, including by way of or on account of a Claim, or the payment of principal of or interest on this Note), then and in any such event such payment or distribution shall, to the extent permitted by law, be received and held in trust for the benefit of and be paid over and delivered forthwith to the holders of the Senior Indebtedness of the Company or their representative or representatives. The provisions of this Section 7(c) shall not apply to any payment with respect to which Section 7(b) would be applicable. (d) Except as provided in clause (b) or (c) above, nothing contained in this Note shall affect the obligation of the Company to make, or prevent the Company from making, at any time, payments of principal or interest on this Note. (e) The holder of this Note shall take such action as may be necessary or appropriate to effectuate the subordination as provided in this Section 7, including, without limitation, in the event of any dissolution, winding up, liquidation or bankruptcy reorganization of the Company (whether in bankruptcy, -13- 14 insolvency or receivership proceedings or upon a general assignment for the benefit of creditors or any other similar remedy or otherwise) tending towards liquidation of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of this Note in the form required in such proceedings and using its best efforts to cause such claim to be approved. If the holder of this Note does not file a proper claim or proof of debt in the form required in such proceedings prior to 30 days before the expiration of the time to file such claim or claims, the holders of Senior Indebtedness of the Company (or their representative or representatives) are hereby authorized to file an appropriate claim for and on behalf of the holder of this Note. Nothing herein shall be deemed to authorize the holders of Senior Indebtedness of the Company to authorize or consent to or accept or adopt on behalf of the holder of this Note any plan of reorganization, arrangement, adjustment or composition affecting this Note or the rights of the holder of this Note, or to authorize the holders of Senior Indebtedness of the Company to vote in respect of the claim of the holder of this Note in any such proceeding. In the event that the provisions of this Section 7 shall at the time prohibit payments to the holder of this Note, no holder of this Note shall waive, forgive or cancel any monetary obligation, or any claim before a bankruptcy court, under or with respect to this Note or any Claim. -14- 15 (f) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Note, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The holders of Senior Indebtedness of the Company may at any time and from time to time, without the consent of or notice to the holder of this Note, without incurring responsibility to the holder of this Note and without impairing or releasing or otherwise affecting the rights of any holder of Senior Indebtedness of the Company or the respective liabilities or obligations of the Company or the holder this Note or in any way altering or affecting any of the provisions of this Section 7: (1) change the amount, manner, place or terms of payment or change or extend the time of payment of or renew, refinance, modify, alter or restructure the terms of the Senior Indebtedness of the Company or any document or instrument evidencing or governing such Senior Indebtedness of the Company in any manner or enter into or amend in any manner any other agreement relating to Senior Indebtedness of the Company or any security therefor; -15- 16 (2) sell, exchange, release or otherwise deal with any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, Senior Indebtedness of the Company and otherwise deal freely with the Company; (3) release anyone (including any guarantor) liable in any manner for the payment or collection of Senior Indebtedness of the Company; (4) exercise or refrain from exercising any rights against the Company and others (including any guarantor), including releasing, selling or exchanging any security; (5) apply any sums by whomsoever paid or however realized to the Senior Indebtedness of the Company; or (6) take any other action which otherwise might be deemed to impair the rights of the holder of this Note. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liabilities or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Indebtedness of the Company is outstanding or of such Senior Indebtedness of the Company, whether or not in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Section 7. As long as -16- 17 any Senior Indebtedness of the Company is outstanding, no amendment to, or any waiver of the provisions of, this Section 7 which adversely affects the rights of the holders of Senior Indebtedness of the Company under this Section 7 shall be effective against the holders of Senior Indebtedness of the Company who have not consented thereto. (g) If payment of the Note is accelerated because of an event of default as provided in Section 6 of this Note, the Company shall promptly notify the Agent under the Credit Agreement, and the trustee under the indenture (the "Senior Indenture") governing the Company's % Senior Notes due 2002 (the "Senior Notes"), of the acceleration. The Company may not pay the Note until five Business Days after the Agent under the Credit Agreement and the trustee under the Senior Indenture receive such notice (if any Senior Indebtedness of the Company remains outstanding) and thereafter may pay this Note only if this Note otherwise permits the payment at that time. (h) The term "Senior Indebtedness of the Company" shall mean (i) all monetary obligations of the Company under the Credit Agreement, including all related notes, collateral documents, and guarantees, in each case, as any of the same has been or may be amended, supplemented, restated or otherwise modified from time to time (in each case in whole or in part) and any refundings, refinancings, replacements or restructurings of such monetary obligations that individually or in the aggregate -17- 18 provide, at one time, the source of repayment for at least fifty percent of the then outstanding aggregate amount of all monetary obligations of the Company under the Credit Agreement, and (ii) (A) all principal of, premium, if any, and interest on the Senior Notes, and (B) all other monetary obligations of the Company under the Senior Notes or the Senior Indenture, in each case, as the same may be amended, supplemented, restated or otherwise modified from time to time. 8. All powers and remedies given to the holder of this Note 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 holder of this Note, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Note, and no delay or omission of the holder of this Note to exercise any right or power accruing upon any default hereunder shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein. 9. This Note shall be binding upon the Company and its successors and assigns, and the terms and provisions of this Note shall inure to the benefit of Payee, the holders of Senior Indebtedness of the Company and their respective successors and assigns, including subsequent holders hereof. -18- 19 10. The terms and provisions of this Note are severable, and if any term or provision shall be determined to be superseded, illegal, invalid or otherwise unenforceable in whole or in part pursuant to applicable law by a governmental authority having jurisdiction, such determination shall not in any manner impair or otherwise affect the validity, legality or enforceability of that term or provision in any other jurisdiction or any of the remaining terms and provisions of this Note in any jurisdiction. 11. Presentment for payment, notice of dishonor, protest, notice of protest and any other notice are hereby waived. This Note shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to principles of conflict of laws. 12. No amendment, modification or waiver of any term or provision of this Note, nor consent to any departure by the Company herefrom, shall be effective unless the same shall be in writing and signed by the holder of this Note, and then such waiver, modification or consent shall be effective only in the specific instance and for the specific purpose for which given. 13. Nothing in this Note, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto and the holders of Senior Indebtedness of the Company, any legal or equitable right, remedy or -19- 20 claim under or in respect of this Note, or under any covenant, condition or provision herein contained; all its covenants, conditions and provisions being for the sole benefit of the Company, the holder of this Note and the holders of Senior Indebtedness of the Company. IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered to the Payee on the date and year first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By: __________________________ Name: Title: -20- EX-4.22 4 FORM OF CREDIT AGREEMENT 1 O'M&M DRAFT 2/7/94 $250,000,000 CREDIT AGREEMENT dated as of February 15, 1994 between KAISER ALUMINUM & CHEMICAL CORPORATION, KAISER ALUMINUM CORPORATION, CERTAIN FINANCIAL INSTITUTIONS, and BANKAMERICA BUSINESS CREDIT, INC., as Agent 2 TABLE OF CONTENTS
PAGE ---- I DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.2. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 1.3. Cross-References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 1.4. Accounting and Financial Determinations and Other Terms . . . . . . . . . . . . . . . . 40 II COMMITMENTS AND BORROWING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.1. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.1.1. Revolving Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.1.2. Swingline Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.1.4. Borrowing Base Determinations . . . . . . . . . . . . . . . . . . . . 43 2.2. Reduction of Revolving Commitment Amount . . . . . . . . . . . . . . . . . . . . . . . . 44 2.3. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 2.4. Agent's Books and Records; Monthly Statements . . . . . . . . . . . . . . . . . . . . . 46 III REPAYMENTS, PREPAYMENTS, INTEREST, AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.1. Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.2. Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.3. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.3.1. Prepayment Under, or Cash Collateralization of, Revolving Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.3.3. Cash Dominion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 3.3.4. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.4. Interest Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.4.1. Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 3.4.2. Continuation and Conversion Elections . . . . . . . . . . . . . . . . 51 3.4.3. Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 3.4.4. Default Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 3.4.5. Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . 53 3.4.6. Maximum Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 3.5. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 3.5.1. Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.5.2. Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.5.3. Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 IV CERTAIN LIBO RATE AND OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 4.1. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 4.2. Deposits Unavailable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 4.3. Increased Costs, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 4.4. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 4.5. Increased Capital Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 4.6. Taxes, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 4.7. Payments, Computations, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 4.8. Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 4.9. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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PAGE ---- 4.10. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 4.11. Change of Lending Office, Replacement of Lender, etc . . . . . . . . . . . . . . . . . . 64 4.12. Computation of Additional Amounts Due . . . . . . . . . . . . . . . . . . . . . . . . . 65 V LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 5.1. Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 5.2. Issuance and Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 5.3. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 5.4. Other Lenders' Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 5.5. Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 5.6. Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 5.7. Mandatory Payment to Agent of Letter of Credit Outstandings . . . . . . . . . . . . . . 70 5.8. L/C Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 5.8.1. Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 5.8.2. Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 5.8.3. Application of Funds . . . . . . . . . . . . . . . . . . . . . . . . . 71 5.8.4. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 5.9. Nature of Reimbursement Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 72 5.10. Indemnification by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 VI PARENT GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 6.1. Parent Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 6.2. Renewal, etc. of Obligations; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 73 6.3. No Impairment, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 6.4. Reinstatement; Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 VII CONDITIONS TO EXTENSIONS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 7.1. Initial Credit Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 7.1.1. Resolutions, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 7.1.2. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 7.1.3. Payment of Outstanding Indebtedness . . . . . . . . . . . . . . . . . 76 7.1.4. Parent Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . 76 7.1.5. Company Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . 77 7.1.6. Security Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 77 7.1.7. Company Trademark Security Agreement; Company Patent Security Agreement . . . . . . . . . . . . . . . . . . 78 7.1.8. Company Mortgages; Company Deeds of Trust . . . . . . . . . . . . . . 78 7.1.9. Subsidiary Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . 79 7.1.10. Subsidiary Pledge Agreement . . . . . . . . . . . . . . . . . . . . . 79 7.1.11. Intercompany Note Pledge Agreement . . . . . . . . . . . . . . . . . . 80 7.1.12. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 80 7.1.13. Closing Fees, Expenses, etc . . . . . . . . . . . . . . . . . . . . . 80 7.1.14. Environmental Reports . . . . . . . . . . . . . . . . . . . . . . . . 80 7.1.15. Investment Account Letter . . . . . . . . . . . . . . . . . . . . . . 81 7.1.16. Sufficient Quantities, etc . . . . . . . . . . . . . . . . . . . . . . 81 7.1.17. Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 7.1.18. Issuance of Senior Debt and Equity . . . . . . . . . . . . . . . . . . 81
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PAGE ---- 7.2. All Credit Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 7.2.1. Compliance with Warranties, No Default, etc . . . . . . . . . . . . . 82 7.2.2. Credit Request; Borrowing Base Certificate . . . . . . . . . . . . . . 84 7.2.3. Satisfactory Legal Form . . . . . . . . . . . . . . . . . . . . . . . 84 VIII REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 8.1. Organization, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 8.2. Due Authorization, Non-Contravention, etc . . . . . . . . . . . . . . . . . . . . . . . 85 8.3. Government Approval, Regulation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 85 8.4. Validity, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 8.5. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 8.6. No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 8.7. Absence of Default or Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . 88 8.8. Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 8.9. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 8.10. Ownership of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 8.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 8.12. Pension and Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 8.13. Environmental Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 8.14. Regulations G, U, and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 8.15. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 8.16. Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 8.17. Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8.18. Joint Venture Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 93 8.19. Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 IX COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 9.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 9.1.1. Financial Information, Reports, Notices, etc . . . . . . . . . . . . 94 9.1.2. Compliance with Laws, etc . . . . . . . . . . . . . . . . . . . . . . 97 9.1.3. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . 97 9.1.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 9.1.5. Books and Records; Audits; Confidentiality . . . . . . . . . . . . . . 99 9.1.6. Environmental Covenant . . . . . . . . . . . . . . . . . . . . . . . . 101 9.1.7. Performance of Instruments . . . . . . . . . . . . . . . . . . . . . . 102 9.1.8. Maintenance of Collateral . . . . . . . . . . . . . . . . . . . . . . 102 9.1.9. Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . . . . 103 9.1.10. Delivery; Further Assurances . . . . . . . . . . . . . . . . . . . . . 103 9.1.11. Real Property; Title Policies; Surveys . . . . . . . . . . . . . . . . 106 9.1.12. Intercompany Demand Notes . . . . . . . . . . . . . . . . . . . . . . 107 9.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 9.2.1. Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . 107 9.2.2. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 9.2.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 9.2.4. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . 114 9.2.5. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
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PAGE ---- 9.2.6. Restricted Payments, etc . . . . . . . . . . . . . . . . . . . . . . . 117 9.2.7. Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . 120 9.2.8. Rental Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 121 9.2.9. Take or Pay Contracts . . . . . . . . . . . . . . . . . . . . . . . . 121 9.2.10. Consolidation, Merger, etc . . . . . . . . . . . . . . . . . . . . . . 121 9.2.11. Asset Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . 122 9.2.12. Sale or Discount of Receivables . . . . . . . . . . . . . . . . . . . 123 9.2.13. Restrictions on Actions under Certain Agreements . . . . . . . . . . . 124 9.2.14. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . 125 9.2.15. Negative Pledges, etc . . . . . . . . . . . . . . . . . . . . . . . . 126 9.2.16. Sale-Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . 126 9.2.17. Change of Location or Name . . . . . . . . . . . . . . . . . . . . . . 127 9.2.18. Intercompany Transfers of Property . . . . . . . . . . . . . . . . . . 127 9.2.19. Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . 128 X EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 10.1. Listing of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 10.1.1. Non-Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . 129 10.1.2. Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . 129 10.1.3. Non-Performance of Certain Covenants and Obligations . . . . . . . . . 129 10.1.4. Non-Performance of Certain Covenants and Obligations . . . . . . . . . 129 10.1.5. Non-Performance of Other Covenants and Obligations . . . . . . . . . . 130 10.1.6. Default on Other Indebtedness . . . . . . . . . . . . . . . . . . . . 130 10.1.7. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 10.1.8. Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 10.1.9. Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . 131 10.1.10. Bankruptcy, Insolvency, etc . . . . . . . . . . . . . . . . . . . . . 131 10.1.11. Subordinated Debt and Senior Debt . . . . . . . . . . . . . . . . . . 132 10.1.12. Impairment of Certain Documents . . . . . . . . . . . . . . . . . . . 132 10.2. Action if Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 10.3. Action if Other Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 XI THE ADMINISTRATIVE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 11.1. Appointment; Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 11.2. Funding Reliance, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 11.3. Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 11.4. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 11.5. Credit Extensions by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 11.6. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 11.7. Copies, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 11.8. Designation of Additional Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 11.9. Certain Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 11.10. Approval of Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 XII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 12.1. Waivers, Amendments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
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PAGE ---- 12.3. Payment of Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 12.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 12.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 12.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 12.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 12.8. Execution in Counterparts, Effectiveness, etc . . . . . . . . . . . . . . . . . . . . . 145 12.9. GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . 145 12.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 12.11. Sale and Transfer of Credit Extensions and Commitments; Participations in Credit Extensions and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 12.11.1. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 12.11.2. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 12.12. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 12.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 12.14. Arbitration; Reference Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 12.15. Final Agreement, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
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EXHIBITS Exhibit A-1(a) Borrowing Request - Revolving Loan Borrowing Exhibit A-1(b) Borrowing Request - Swingline Borrowings Exhibit A-2 Continuation/Conversion Notice Exhibit B Revolving L/C Request Exhibit C-1 Certificate as to Senior Debt Exhibit C-2 Certificate as to Parent Guarantor Preferred Stock Exhibit D-1 Borrowing Base Certificate Exhibit D-2 Compliance Certificate Exhibit E-1 Parent Pledge Agreement Exhibit E-2 Parent Security Agreement Exhibit F-1 Company Pledge Agreement Exhibit F-2 Company Security Agreement Exhibit F-3 Company Patent Security Agreement Exhibit F-4 Company Trademark Security Agreement Exhibit G Collection Bank Agreement Exhibit H Concentration Bank Agreement Exhibit I-1 Company Deed of Trust Exhibit I-2 Company Mortgage Exhibit J Subsidiary Guaranty Exhibit K-1 Subsidiary Pledge Agreement Exhibit K-2 Subsidiary Security Agreement Exhibit K-3 Intercompany Note Pledge Agreement Exhibit L-1 Opinion of Outside Counsel to Company Exhibit L-2 Opinion of Inside Counsel to Company Exhibit L-3 Opinion of Special Patent Counsel to Company Exhibit L-4 Opinions of Local Counsel Exhibit L-5 Opinion of Counsel to Agent Exhibit M Assignee Agreement to be bound Exhibit N Investment Account Letter Exhibit O-1 Intercompany Demand Note Exhibit O-2 Intercompany Demand Note Exhibit O-3 Intercompany Demand Note Exhibit P Equity Proceeds Note Exhibit Q Form of Confidentiality Agreement Exhibit R Form of RTZ Aluminum Holdings Limited Letter Exhibit S Form of Flood Plain Status Letter
SCHEDULES Schedule I Pledged Subsidiaries and Joint Venture Affiliates (Company Pledge Agreement) Schedule II Mortgaged Real Property (Company Mortgage and Deed of Trust) Schedule III Subsidiaries executing the Subsidiary Guaranty Schedule IV Subsidiaries executing the Subsidiary Pledge Agreement and the Subsidiary Security Agreement Schedule V Pledged Subsidiaries (Subsidiary Pledge Agreement) Schedule VI Intercompany Demand Notes (Subsidiary Pledge Agreement)
vi 8 Schedule VII Subsidiaries executing Intercompany Note Pledge Agreement Schedule VIII Intercompany Demand Notes (Intercompany Note Pledge Agreement) Schedule IX Existing Letters of Credit Schedule X Local Counsel Schedule XI Other Material Subsidiaries Schedule XII Existing Investments Schedule XIII Certain Intercompany Debt
vii 9 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of February 15, 1994, is between KAISER ALUMINUM & CHEMICAL CORPORATION, a Delaware corporation (the "Company"), KAISER ALUMINUM CORPORATION, a Delaware corporation (the "Parent Guarantor"), the various financial institutions that are or may from time to time become parties hereto pursuant to the terms hereof (collectively, the "Lenders" and, individually, a "Lender"), and BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, as agent (in such capacity, together with its successors and assigns in such capacity, the "Agent") for the Lenders. W I T N E S S E T H: WHEREAS, the Company, a direct Subsidiary of the Parent Guarantor, is engaged, directly and through its various Subsidiaries and Joint Venture Affiliates, in the business of the mining of bauxite, the refining of bauxite into alumina, the production of primary aluminum and semi-fabricated and fabricated aluminum products, and the sale of bauxite, alumina, primary aluminum, and semi-fabricated and fabricated aluminum products to direct customers and distributors; and WHEREAS, the Company desires to obtain Commitments from the Lenders pursuant to which Loans and other Credit Extensions, in a maximum aggregate principal amount at any one time outstanding not to exceed $250,000,000, will be made to or for the account of the Company from time to time prior to the Revolving Commitment Termination Date; and WHEREAS, each Lender, severally and for itself alone, is willing, on the terms and subject to the conditions hereinafter set forth (including Article VII), to extend its Commitments and make its Loans and other Credit Extensions to or for the account of the Company; and WHEREAS, the proceeds of any Loans made on the Initial Borrowing Date will be applied by the Company, together with other funds, to make payment in full of all Indebtedness of the Company identified in Item 1 ("Indebtedness to be Paid") of the Disclosure Schedule; and WHEREAS, in order to induce the Lenders to enter into this Agreement and to extend their respective Commitments and make the Loans and other Credit Extensions, the Parent Guarantor has agreed to unconditionally guarantee all obligations of the Company hereunder and under the other Loan Documents; and WHEREAS, on the terms and subject to the conditions hereof, on or prior to the Initial Borrowing Date, the following transactions shall occur as provided below: 10 (a) as security for the Company's Obligations, the Company shall execute and deliver to the Agent, on behalf of the Secured Lenders: (i) the Company Security Agreement, granting to the Agent, on behalf of the Secured Lenders, a security interest in the Company's personal property described therein; (ii) the Company Pledge Agreement, pledging to the Agent, on behalf of the Secured Lenders; (A) all of the issued and outstanding shares of capital stock of each first-tier, Domestic Subsidiary of the Company listed on Schedule I hereto; (B) the percentage of the issued and outstanding shares of capital stock of each first-tier, non-Domestic Subsidiary or Joint Venture Affiliate of the Company listed on such Schedule I set forth opposite the name of such Subsidiary or Joint Venture Affiliate; (C) the KT Note; and (D) all other promissory notes or other debt instruments held by the Company; and (iii) the Company Mortgages and Company Deeds of Trust, mortgaging to the Agent (or one or more trustees therefor) and granting to the Agent (or one or more trustees therefor), on behalf of the Secured Lenders, a security interest in all real property of the Company listed on Schedule II hereto. (b) as security for the Parent Guarantor's Obligations under the Parent Guaranty, the Parent Guarantor shall execute and deliver to the Agent, on behalf of the Secured Lenders: (i) the Parent Security Agreement, granting to the Agent, on behalf of the Secured Lenders, a security interest in the Parent Guarantor's personal property described therein; and (ii) the Parent Pledge Agreement, pledging to the Agent, on behalf of the Secured Lenders: (A) all of the issued and outstanding shares of capital stock of the Company held by the Parent Guarantor; and 2 11 (B) all promissory notes or other debt instruments (other than the Equity Proceeds Notes) held by the Parent Guarantor; (c) each Subsidiary of the Company listed on Schedule III hereto shall execute and deliver to the Agent, the Subsidiary Guaranty, guaranteeing the Company's Obligations and each other such Subsidiary's Obligations under the Subsidiary Guaranty; (d) as security for such Subsidiary's Obligations under the Subsidiary Guaranty, each Subsidiary of the Company listed on Schedule IV hereto shall execute and deliver to the Agent, on behalf of the Secured Lenders, the Subsidiary Pledge Agreement, pledging to the Agent, on behalf of the Secured Lenders: (i) all of the issued and outstanding shares of capital stock of each first-tier, Domestic Subsidiary of such Subsidiary listed on Schedule V hereto; (ii) the percentage of the issued and outstanding shares of capital stock of each first-tier, non-Domestic Subsidiary of such Subsidiary listed on such Schedule V set forth opposite the name of such Subsidiary; (iii) any Intercompany Demand Note held by such Subsidiary listed on Schedule VI hereto; and (iv) all other promissory notes or other debt instruments held by such Subsidiary; (e) as security for such Subsidiary's Obligations under the Subsidiary Guaranty, each Subsidiary of the Company listed on Schedule IV hereto shall execute and deliver to the Agent the Subsidiary Security Agreement, granting to the Agent, on behalf of the Secured Lenders, a security interest in such Subsidiary's personal property described therein; and (f) each Subsidiary of the Company listed on Schedule VII hereto which is not otherwise a party to the Subsidiary Pledge Agreement shall execute and deliver to the Agent, on behalf of the Secured Lenders, the Intercompany Note Pledge Agreement, pledging to the Agent, on behalf of the Secured Lenders, any Intercompany Demand Note held by such Subsidiary listed on Schedule VIII hereto; NOW, THEREFORE, the parties hereto agree as follows: 3 12 ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Account" means any present or future right to payment for goods sold or leased or for services rendered, whether due or to become due, whether now existing or hereafter arising and whether or not it has been earned by performance. "Account Debtor" means each Person obligated in any way on an Account. "Adjusted Capital Expenditures" means, for any period, (a) Capital Expenditures for such period (exclusive of capitalized interest) minus (b) that portion of Capital Expenditures for such period (exclusive of capitalized interest) attributable to any Subsidiary of the Company which is equal to (i) the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, such Subsidiary or (ii) if the economic burden of such Capital Expenditures is borne or to be borne by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such Capital Expenditures borne or to be borne by such minority owners. "Affected Lender" is defined in Section 4.11(b). "Affiliate" means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by, or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power to (a) vote 20% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of a majority of directors or managing general partners; 4 13 (b) vote sufficient securities of any class to control the election of one or more directors or managing general partners; or (c) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agent" is defined in the preamble. "Agreement" means, on any date, this Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "AJI" means Alpart Jamaica Inc., a Delaware corporation. "ALPART" means Alumina Partners of Jamaica, a Delaware general partnership. "Anglesey" means Anglesey Aluminum Limited, a United Kingdom corporation. "Asset Disposition" means any sale, transfer, lease which is accounted for as a sale under GAAP, contribution, conveyance, or other disposition (other than the grant of a Lien), in any case made after the Initial Borrowing Date, of any assets of the Company or any of its Subsidiaries to any Person. "Assignee Agreement to be Bound" means an Assignee Agreement to be Bound in substantially the form of Exhibit M attached hereto. "Assignee Lender" is defined in Section 12.11.1. "Authorized Officer" means, with respect to any Obligor, those of its officers whose signatures and incumbency shall have been certified to the Agent and the Lenders pursuant to Section 7.1.1(a). "Bank of America" means Bank of America National Trust and Savings Association, a national banking association, in its individual capacity. "Bank of America Rate" is defined in "Reference Rate". "Borrowing" means the Revolving Loans made by all Lenders on the same Business Day pursuant to the same Borrowing Request in accordance with Section 2.1.1 or the Swingline Loan made by Business Credit pursuant to a Borrowing Request in accordance with Section 2.1.3. 5 14 "Borrowing Base" means, at any time, (a) an amount equal to 85% of the Net Amount of Eligible Accounts as at such time plus (b) the lesser of (i) $175,000,000 and (ii) 65% of all Eligible Inventory as at such time minus (c) all reserves, including any reserves for sales, excise or similar taxes in respect of Eligible Accounts and any reserves for rental expenses, processing fees or other expenses relating to Eligible Inventory located at premises not owned by the Company or KAII, which the Agent, after consultation with the Company, in its commercially reasonable discretion deems necessary or desirable to maintain with respect to the Company's account, including any amounts which the Agent may be obligated to pay in the future for the account of the Company; provided, however, that (i) the Net Amount of Eligible Accounts of KAII included in the Borrowing Base shall at no time exceed 20% of the Net Amount of Eligible Accounts included in the Borrowing Base, (ii) the Net Amount of Eligible Accounts of the Company owed by Foreign Account Debtors included in the Borrowing Base shall at no time exceed 5% of the Net Amount of Eligible Accounts of the Company included in the Borrowing Base and (iii) Convertor Inventory that is located on the premises of a third party included in the Borrowing Base shall at no time exceed 5% of Eligible Inventory included in the Borrowing Base; and provided further that the limitation set forth in clause (i) may, to the extent approved by the Agent in its sole discretion, be increased by the amount, expressed in dollars, of any unused amount of the Net Amount of Eligible Accounts of the Company owed by Foreign Account Debtors permitted to be included in the Borrowing Base under clause (ii). "Borrowing Base Calculation Date" means, with respect to the delivery date of any Borrowing Base Certificate, the last day of the preceding month or the last day of the next preceding month, as the case may be. "Borrowing Base Certificate" means a certificate duly executed by a Financial Authorized Officer of the Company in substantially the form of Exhibit D-1 attached hereto. "Borrowing Request" means a loan request and certificate duly executed by an Authorized Officer of the Company, (a) in respect of any Borrowing of Revolving Loans, in substantially the form of Exhibit A-1(a) attached hereto, or (b) in respect of any 6 15 Borrowing of Swingline Loans, in substantially the form of Exhibit A-1(b) attached hereto. "Business Credit" means BankAmerica Business Credit, Inc., a Delaware corporation. "Business Day" means any day which is (a) neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York or in San Francisco, California; and (b) relative to the making, continuing, converting, prepaying, or repaying of any LIBO Rate Loans, also a day on which dealings in Dollars are carried on in the London interbank market. "Canadian Subsidiaries" means Kaiser Aluminum & Chemical Canada Investment Limited, an Ontario corporation, and Kaiser Canada. "Capital Expenditures" means, for any period, the aggregate expenditures of the Company and its Subsidiaries on a consolidated basis for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures (including the aggregate amount of all Capitalized Lease Liabilities incurred during such period); provided, however, that any repurchase or leaseback by the Company of a facility sold by the Company in connection with the issuance of industrial revenue bonds by a state, municipality or other subdivision of the United States of America or any department, agency, public corporation or other instrumentality thereof shall not in any event be deemed to be a Capital Expenditure. "Capitalized Lease Liabilities" means all monetary obligations of the Company or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as a capitalized lease, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalent Investment" means, at any time: (a) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by the United States Government; 7 16 (b) any certificate of deposit or bankers' acceptance, maturing not more than one year after such time, which is issued or accepted by either (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000; (ii) any Lender; or (iii) with respect to certificates of deposit that do not exceed $10,000,000 in the aggregate outstanding at any time, any other commercial banking institution; (c) commercial paper rated A-1 or better by Standard & Poor's Corporation or Prime-1 or better by Moody's Investors Service, Inc.; (d) repurchase agreements with respect to any of the foregoing, with any bank or trust company referred to above in clause (b) or with any nationally recognized securities dealer having total capital and surplus and undivided profits of not less than $500,000,000; or (e) investments in the Goldman, Sachs & Co. Institutional Liquid Assets fund and other money market funds which have substantially similar investment policies. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended or otherwise modified from time to time. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change in Control" means the occurrence of any of the following events: (a) MAXXAM not owning (other than by reason of the existence of a Lien or other encumbrance but including by reason of the foreclosure of or other realization upon a Lien or other encumbrance) direct or indirect sole beneficial ownership (as defined under Regulation 13d-3 of the Securities Exchange Act of 1934 as in effect on the date of this Agreement) of at least 51% of the total common equity, on a fully diluted basis, of the Parent Guarantor or the Company; or (b) MAXXAM, through direct representation or through persons nominated by it, not controlling a majority of the Board of Directors of the Parent Guarantor or the Company necessary to effectuate any actions by the Board of Directors of the Parent Guarantor or the Company; or (c) any person or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 as in effect on the date of this Agreement), directly or indirectly, owning more of the total voting power entitled to vote generally in the election of 8 17 directors of the Parent Guarantor or the Company than MAXXAM; or (d) Charles Hurwitz, members of his immediate family and trusts for the benefit thereof (each such person, including Mr. Hurwitz and any trustee of such trusts, being herein called a "Beneficiary") not having (other than by reason of death, incapacity, bankruptcy, reorganization, insolvency or similar proceeding or in connection with the resolution of any litigation outstanding as of the date of the Subordinated Indenture or any similar litigation or the existence of a Lien but including by reason of the foreclosure of or other realization upon a Lien or other encumbrance) direct or indirect sole beneficial ownership (as defined under Regulation 13d-3 of the Securities Exchange Act of 1934 as in effect on the date of this Agreement) of at least the Minimum Percentage (defined below) of the total equity of MAXXAM, other than as a result of new issuances of equity securities by MAXXAM to third parties (other than to a third party who is not a Beneficiary and who controls MAXXAM). "Minimum Percentage" means that percentage obtained by multiplying (i) the percentage of the total equity of MAXXAM, directly or indirectly, beneficially owned by the Beneficiaries as of the date of the Subordinated Indenture and (ii) 80%. "Code" means the Internal Revenue Code of 1986, as amended, reformed, or otherwise modified from time to time. "Collateral" means all Property and rights on or in which a Lien is granted to the Agent (or to any agent, trustee, or other Person acting on the Agent's behalf) pursuant to this Agreement, any of the Collateral Documents, or any other Instruments provided for herein or therein or delivered or to be delivered hereunder or thereunder or in connection herewith or therewith, as any of the foregoing may be amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Collateral Documents" means, collectively, the Parent Collateral Documents, the Company Collateral Documents, the Subsidiary Collateral Documents, the Collection Bank Agreements, the Concentration Bank Agreement, and each other Instrument or document pursuant to which a Lien is granted to the Agent (or perfected in favor of the Agent) (or to or in favor of any agent, trustee, or other Person acting on the Agent's behalf) as security for any of the Obligations, as any of the foregoing may be amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Collection Bank" means any bank at which the Company maintains a collection or lockbox account or other similar collection arrangement. "Collection Bank Agreement" means any agreement between the Company, the Agent, and any Collection Bank and delivered pursuant to Section 7.1.19, in substantially the form of Exhibit G attached hereto, as any such agreement may be amended, 9 18 supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Commitment" means, as the context may require, a Lender's Revolving Commitment, or Business Credit's Swingline Commitment. "Commitment Termination Event" means (a) any Event of Default described in clauses (a) through (e) of Section 10.1.10 with respect to the Company shall have occurred; or (b) any other Event of Default shall have occurred and be continuing and the Agent, acting at the direction of the Required Lenders, gives written notice to the Company pursuant to clause (a) of Section 10.3 that the Commitments have been terminated. "Company" is defined in the preamble. "Company Collateral Documents" means the Company Pledge Agreement, the Company Security Agreement, the Company Patent Security Agreement, the Company Trademark Security Agreement, each Company Deed of Trust, each Company Mortgage, and the Louisiana Security Documents. "Company Deed of Trust" means any deed of trust executed and delivered by the Company pursuant to Section 7.1.8, each in substantially the form of Exhibit I-1 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Mortgage" means any mortgage executed and delivered by the Company pursuant to Section 7.1.8, each in substantially the form of Exhibit I-2 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Patent Security Agreement" means the patent security agreement executed and delivered by the Company pursuant to Section 7.1.7, in substantially the form of Exhibit F-3 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Pledge Agreement" means the pledge agreement executed and delivered by the Company pursuant to Section 7.1.5, in substantially the form of Exhibit F-1 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Security Agreement" means the security agreement executed and delivered by the Company pursuant to Section 7.1.6, in substantially the form of Exhibit F-2 attached hereto, as 10 19 amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Company Trademark Security Agreement" means the trademark security agreement executed and delivered by the Company pursuant to Section 7.1.7, in substantially the form of Exhibit F-4 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Compliance Certificate" means a certificate of the Company duly executed by a Financial Authorized Officer of the Company, in substantially the form of Exhibit D-2 attached hereto, with such changes as the Agent and the Company may from time to time agree upon for purposes of monitoring the Company's compliance herewith. "Concentration Account" is defined in the Concentration Bank Agreement. "Concentration Bank Agreement" means an agreement between the Company, the Agent, and Bank of America, as concentration bank, and delivered pursuant to Section 7.1.19, in substantially the form of Exhibit H attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Confidential Information" is defined in clause (c) of Section 9.1.5. "Contingent Liability" means any agreement, undertaking, or arrangement by which any Person guarantees, endorses, agrees to purchase, or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the debt, obligation, or other liability of any other Person (other than by endorsements of Instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum outstanding principal amount, if larger) of the debt, obligation, or other liability guaranteed thereby. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the Company, in substantially the form of Exhibit A-2 attached hereto. "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control 11 20 which, together with the Company, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Credit Extension" means (a) any disbursement of Revolving Loans by the Lenders; (b) any disbursement of Swingline Loans by Business Credit; or (c) any issuance or extension by an Issuer Bank of a Letter of Credit. "Convertor Inventory" means raw materials, work-in-process or other goods delivered to a third party pursuant to a bailment arrangement with such third party under which such Inventory is to be processed, improved or otherwise altered by such third party. "Credit Request" means any Borrowing Request or Revolving L/C Request. "Deconsolidation Tax Allocation Agreement" means the Tax Allocation Agreement dated June 30, 1993 between the Company and the Parent Guarantor a copy of which has been delivered to the Agent and the Lenders prior to the date hereof, as amended from time to time with the written consent of the Agent. "Default" means any Event of Default or any condition, occurrence, or event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" means any payment or disbursement made under a Letter of Credit by the Issuer Bank thereof to the beneficiary thereunder. "Disbursement Date" is defined in clause (a) of Section 5.5. "Disclosure Schedule" means the Disclosure Schedule dated as of February 15, 1994 delivered by the Company to the Agent and each Lender prior to the execution and delivery of this Agreement, as it may be amended, supplemented, or otherwise modified from time to time by the Company with the prior written consent of the Agent. "Distributions" is defined in clause (a) of Section 9.2.6. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Office" means, with respect to any Lender, the office of such Lender designated as such below its signature 12 21 hereto, or designated in the Assignee Agreement to be Bound pursuant to which such Lender became a party hereto, or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by written notice from such Lender, as the case may be, to each other Person party hereto. "Domestic Subsidiary" means a Subsidiary that is created or organized in or under the laws of the United States, any state thereof, or the District of Columbia. "EBITDA" means, for any Fiscal Quarter, an amount equal to: (a) Net Income for such Fiscal Quarter (including extraordinary gains and extraordinary losses, in each case as determined in accordance with GAAP); plus (b) the aggregate amount deducted, in determining Net Income for such Fiscal Quarter, in respect of all foreign, federal, state, and local income taxes of the Company and its Subsidiaries, calculated on a consolidated basis in accordance with GAAP; plus (c) the aggregate amount of interest expense (excluding amortization of deferred financing costs and, to the extent not paid in cash, interest on the PIK Note and the Equity Proceeds Notes) of the Company and its Subsidiaries for such Fiscal Quarter, calculated on a consolidated basis in accordance with GAAP,minus the amount of interest income of the Company and its Subsidiaries which was included in the calculation of Net Income for such Fiscal Quarter in accordance with GAAP; plus (d) the aggregate amount of depreciation expense of the Company and its Subsidiaries for such Fiscal Quarter, calculated on a consolidated basis in accordance with GAAP; plus (e) the aggregate amount of amortization expense of the Company and its Subsidiaries for such Fiscal Quarter, calculated on a consolidated basis in accordance with GAAP; plus (f) the aggregate amount of the noncash portion of the FAS 106 charge of the Company and its Subsidiaries calculated on a consolidated basis in accordance with GAAP; 13 22 minus (g) that portion of the amounts set forth in clauses (b), (c), (d), (e), and (f) above attributable to (i) the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, any Subsidiary or (ii) if the economic burden of the amounts set forth inclauses (b), (c), (d), (e) and (f) above is borne or to be borne by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such amounts borne or to be borne by such minority owners. "Effective Date" is defined in Section 12.8. "Eligible Account" means, at any time, all Accounts of the Company and KAII that are not ineligible as the basis for Credit Extensions, based on the following criteria and on such other criteria as the Agent may, after consultation with the Company, from time to time establish in its commercially reasonable discretion. Without intending to limit the Agent's discretion to establish other criteria of eligibility pursuant to the preceding sentence, Eligible Accounts shall not include any Account: (a) with respect to which any of the representations, warranties, covenants, and agreements contained in Section ___ of the Company Security Agreement or Section ____ of the Subsidiary Security Agreement are not or have ceased to be complete and correct or have been breached; (b) which represents a Progress Billing other than Progress Billings in an amount not to exceed $5,000,000 in the aggregate; (c) which represents a sale on a bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment, repurchase or return basis, other than, in each case, a Product Swap or an Account that represents the balance of an Account Debtor's minimum annual purchase commitment to the Company provided that the documents relating to such Account provide that title to the Inventory purchased by the Account Debtor and held by the Company has passed to the Account Debtor; (d) which is evidenced by a promissory note or other instrument or by chattel paper; (e) with respect to which more than 90 days, in the case of an Account as to which National Southwire is the Account Debtor, have elapsed since the date of the original 14 23 invoice therefor or with respect to which more than 65 days, in the case of all other Accounts, have elapsed since the date of the original invoice therefor; (f) which is not evidenced by an invoice rendered to the Account Debtor or which is evidenced by an invoice dated later than the date of shipment to the Account Debtor or more than 60 days after the date of performance of the relevant service for the Account Debtor; (g) owed by an Account Debtor which is a director, officer, shareholder, employee or Affiliate of the Company or KAII; (h) if the aggregate dollar amount of all Accounts owed by the Account Debtor thereon exceeds 5% (15% in respect of Accounts owed by the Account Debtors identified in Item 12 ("Major Account Debtors") of the Disclosure Schedule) of the aggregate amount of all Accounts at such time, but only to the extent of such excess; (i) which is owed by an Account Debtor which, at the time of any determination of Eligible Accounts, owes any amount with respect to any Account that has been outstanding more than 60 days past the due date with respect thereto, other than amounts which in total do not exceed 20% of the aggregate of all Accounts owing by such Account Debtor and which are the subject of bona fide disputes between such Account Debtor and the Company or KAII; (j) which are owed by the government of the United States of America, or any department, agency, public corporation, or other instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as amended, and any other steps necessary to perfect the Agent's Security Interest therein, have been complied with to the Agent's reasonable satisfaction with respect to such Account; (k) which is owed by any state, municipality, or other political subdivision of the United States of America, or any department, agency, public corporation, or other instrumentality thereof and as to which the Agent determines that the Agent's Security Interest therein is not or cannot be perfected; (l) except as provided in clause (j) above, as to which either the perfection, enforceability, or validity of the Security Interest in such Account, or the Agent's right or ability to obtain direct payment to the Agent of the Proceeds of such Account, is governed by any federal, state, or local statutory requirements other than those of the Uniform Commercial Code; 15 24 (m) with respect to which, in whole or in part, a check, promissory note, draft, trade acceptance or other instrument for the payment of money has been received, presented for payment and returned uncollected for any reason; (n) which is owed by an Account Debtor to which the Company or KAII is indebted in any way unless the Account Debtor has entered into an agreement acceptable to the Agent in its commercially reasonable judgment to waive setoff rights; or if the Account Debtor thereon has disputed liability, asserted a right of setoff or made any claim with respect to any other Account due from such Account Debtor; but in each such case only to the extent of such indebtedness, setoff, dispute, or claim; (o) as to which any one or more of the following events has occurred with respect to the Account Debtor on such Account: death or judicial declaration of incompetency of an Account Debtor who is an individual; the filing by or against the Account Debtor of a request or petition in a proceeding that is then pending for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect; the making of any general assignment by the Account Debtor for the benefit of creditors in a proceeding that is then pending; the appointment of a receiver or trustee for the Account Debtor or for any of the assets of the Account Debtor, including the appointment of or taking possession by a "custodian," as defined in the Federal Bankruptcy Code in a proceeding that is then pending; the institution by or against the Account Debtor of any other type of insolvency proceeding (under the bankruptcy laws of the United States or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of, the Account Debtor in a proceeding that is then pending; the nonpayment generally by the Account Debtor of its debts as they become due; or the cessation of the business of the Account Debtor as a going concern; (p) if the Agent believes in its commercially reasonable judgment that the prospect of collection of such Account is impaired or that the Account may not be paid by reason of the Account Debtor's financial inability to pay; (q) which is owed by an Account Debtor which the Agent, in its commercially reasonable judgment, otherwise deems to be uncreditworthy; 16 25 (r) which is owed by a Foreign Account Debtor; except to the extent that such Account (i) is secured or payable by a letter of credit or acceptance, (ii) insured under foreign credit insurance, on terms and conditions satisfactory to the Agent in its commercially reasonable discretion, or (iii) is owed by an Account Debtor identified in Item 13 of the Disclosure Schedule ("Major Foreign Account Debtor") unless the Agent, in its commercially reasonable judgment, otherwise deems such Account Debtor to be creditworthy; (s) which is not payable in the United States other than Accounts in an aggregate amount not to exceed $2,000,000 payable in the United Kingdom; (t) which is not payable in Dollars, other than Accounts in an aggregate amount not to exceed $2,000,000 payable in Pounds Sterling, unless the Company or KAII, as the case may be, has executed an appropriate Hedging Agreement acceptable to the Agent with respect thereto; and (u) which has arisen from Inventory which, at the time of the determination of Eligible Accounts, constituted Eligible Inventory. "Eligible Assignee" is defined in Section 4.11(b). "Eligible Inventory" means, at any time, any Inventory of the Company arising in the ordinary course of the Company's business that: (a) is not, in the reasonable opinion of the Agent, obsolete or unmerchantable; (b) is located in the United States or in route to the United States; provided that such Inventory is insured in accordance with the Company's normal practice and to the reasonable satisfaction of the Agent and title to such Inventory has passed to the Company; (c) upon which the Agent has a first priority perfected Security Interest; (d) is not stores Inventory, Tolling Inventory, repair and maintenance Inventory, or Inventory delivered to the Company on consignment; (e) is not evidenced by any warehouse receipts, bills of lading, or other documents of title, unless such receipts, bills of lading, or documents have been delivered to the Agent; (f) is not ineligible as the basis for Credit Extensions based on such other criteria as the Agent may, 17 26 after consultation with the Company, from time to time establish in its commercially reasonable discretion; and (g) has not given rise to any Account which, at the time of the determination of Eligible Inventory, constituted an Eligible Account. "Environmental Laws" means all applicable federal, state, or local statutes, laws, ordinances, codes, rules, regulations, requirements, and guidelines (including consent decrees and administrative orders to which the Company, any of its Subsidiaries, or any Obligor is subject) relating to protection of the environment or human health or imposing liability or standards of conduct concerning any Hazardous Material, as any of the foregoing may be from time to time amended or supplemented. "Environmental Reports" means the "Environmental Assessments" report, dated ______________, 1993, prepared by Kennedy/Jenks/Chilton, copies of which have been delivered to the Agent and each Lender prior to the date hereof. "Equity Proceeds Notes" means the Amended and Restated Senior Subordinated Intercompany Note dated June 30, 1993, substantially in the form of Exhibit P-1 attached hereto, the Senior Subordinated Intercompany Note, substantially in the form of Exhibit P-2 attached hereto, or one or more Senior Subordinated Intercompany Notes issued by the Company on or after the Initial Borrowing Date, in substantially the form of Exhibit P-3 attached hereto, in any case in an aggregate principal amount not to exceed 50% of the net proceeds of all offerings of securities of the Parent Guarantor consummated on or after the Initial Borrowing Date if the net proceeds of such offerings are loaned to, contributed to, or used to purchase the stock of, the Company, as each such promissory note may be amended or otherwise modified from time to time in accordance with the provisions hereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Event of Cash Dominion" means (a) the occurrence of any of the following events and the delivery by the Agent of written notice thereof to the Company (i) the Revolving Commitment Availability is less than $40,000,000 at any time or (ii) the Revolving Commitment Availability is less than $50,000,000 for three consecutive Business Days or (b) the occurrence of a Default and the continuance of such Event of Default for five consecutive days after delivery by the Agent of written notice thereof to the Company. An Event of Cash Dominion shall terminate, provided no Default shall have occurred and be continuing, if the Revolving Commitment Availability is greater 18 27 than $50,000,000 for each day during a period of three consecutive months and the Agent delivers written notice of such termination to the Company. "Event of Default" is defined in Section 10.1. "Executive Officers" means, with respect to any corporation, such corporation's chairman, president, chief financial officer, treasurer, any vice president, any attorney in the office of the Company's general counsel, and any officer who performs a similar policy- making function for such corporation. "Existing Letters of Credit" means the letters of credit listed on Schedule IX hereto. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal (for each day during such period) to (a) 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 (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Bank of America from three federal funds brokers of recognized standing selected by it. "Fee Letter" is defined in Section 3.5.3. "Financial Authorized Officer" means, with respect to any Obligor, those of its Authorized Officers who occupy the offices of chief financial officer, chief accounting officer, controller, assistant controller, treasurer, or assistant treasurer. "Fiscal Quarter" means any quarter of a Fiscal Year. "Fiscal Year" means any period of twelve consecutive calendar months ending on the last day of December; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the "1994 Fiscal Year") refer to the Fiscal Year ending on the last day of December of such calendar year. The current fiscal year of the Company will end on December 31, 1994. "Fixed Charge Coverage Ratio" means, as of any date of determination, the ratio of (a) the aggregate amount of EBITDA for the four Fiscal Quarters immediately prior to such date to (b) the aggregate Fixed Charges for the Fiscal Quarter in which such date occurs and the three Fiscal Quarters immediately subsequent to such Fiscal Quarter (based upon the pro forma amount of Indebtedness to be outstanding on such date), assuming 19 28 for the purposes of this measurement that the interest rates on which floating interest rate obligations are based equal such rates in effect on the date of determination; provided, however, that if the Company or any of its Subsidiaries has incurred Hedging Obligations which would have the effect of changing the interest rate on any Indebtedness for such four Fiscal Quarter period (or any portion thereof), the resulting rate shall be used for such four Fiscal Quarter period or portion thereof; and provided, further, that any Fixed Charges with respect to Indebtedness incurred during the Fiscal Quarter in which the date of determination occurs shall be calculated as if such Indebtedness was so incurred on the first day of the Fiscal Quarter in which the date of determination occurs. "Fixed Charges" means (without duplication), for any period, the sum of: (a) the interest expense of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (less, to the extent included therein, (i) the portion of the interest expense required to be funded or economically borne by the Company's minority partners in the Company's joint ventures, (b) all fees, commissions, discounts and other charges of the Company 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 Hedging Obligations, (c) the aggregate amount of dividends paid or other similar distributions made by the Company and its Subsidiaries during such period with respect to preferred stock (including preference stock) of the Company or its Subsidiaries determined on a consolidated basis in accordance with GAAP, and (d) amortization or write-off of debt discount in connection with any Indebtedness of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Foreign Account Debtor" means an Account Debtor which (i) does not maintain its chief executive office and principal place of business in the United States; or (ii) is not organized under the laws of the United States or any state thereof; or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. 20 29 "Fundamental Loan Documents" means this Agreement, the Company Collateral Documents, the Subsidiary Guaranty, the Subsidiary Collateral Documents, the Parent Guaranty and the Parent Collateral Documents. "Furukawa" means Furukawa Kaiser Forged Products Company, a corporation organized under the laws of Japan. "GAAP" means generally accepted accounting principles as set forth in the opinions and pronouncements of the Securities and Exchange Commission and the Accounting Principles Board of the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board and in such other statements and pronouncements by such other Person as may be approved by a significant segment of the accounting profession and concurred in by the independent certified public accountants certifying the relevant audited financial statement. "Gross Proceeds" means, with respect to any sale, transfer, lease which is accounted for as a sale under GAAP, contribution, conveyance, or other disposition (other than the grant of a Lien) (collectively, for purposes of this definition, a "disposition"), in any case made after the Initial Borrowing Date, of any assets of the Company or any of its Subsidiaries to any Person (in a single transaction or related series of transactions), the sum of (a) the gross cash proceeds received or to be received by the Company and its Subsidiaries from such disposition, (b) the face amount of any promissory note or deferred payment obligations or other security to be taken by the Company and its Subsidiaries in connection with such disposition, (c) the aggregate amount of Indebtedness of the Company and its Subsidiaries which is to be assumed by the purchaser or transferee of any assets which are the subject of such disposition, and (d) the fair market value (as determined in good faith by the Board of Directors of the Company) of all other Property (except indemnities and the assumption of unmatured contractual obligations) of any kind and nature received or receivable by the Company and its Subsidiaries in exchange for such assets. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous, or toxic chemical, material, or substance regulated under or within the meaning of any other Environmental Law. 21 30 "Hedging Agreement" means (a) any interest rate swap, cap, or collar agreement or similar arrangement entered into by the Company and any financial institution to protect the Company against interest rate risk and (b) any agreement or arrangement entered into by the Company and any financial institution to protect the Company against fluctuations in currency exchange rates. "Hedging Obligations" means, with respect to any Person, all liabilities of such Person under any Hedging Agreement or other interest rate or currency swap agreements, interest rate or currency cap agreements, and interest rate or currency collar agreements, and all other agreements or arrangements designed to protect such Person against interest rate risk or fluctuations in currency exchange rates. "herein", "hereof", "hereto", "hereunder", and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph, or provision of this Agreement or such other Loan Document. "Highest Lawful Rate" is defined in clause (b) of Section 3.4.6. "Impermissible Qualification" means, with respect to the opinion or certification of any independent public accountant as to any financial statement of any Obligor, any qualification, emphasis point, or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) which relates to the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause such Obligor to be in default of any of its obligations underSection 9.2.4. "including" means including without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement which is followed by or referable to an enumeration of specific matters to matters similar to the matters specifically mentioned. 22 31 "Indebtedness" means, with respect to any Person, without duplication: (a) all obligations of such Person in respect of principal for borrowed money, all obligations of such Person in respect of principal (including the principal amount of any obligation incurred in lieu of the cash payment of interest) evidenced by bonds, debentures, notes, or other similar instruments and all obligations of such Person in respect of interest on borrowed money or obligations evidenced by bonds, debentures, notes, or other similar instruments to the extent accrued and unpaid for a period exceeding seven months; (b) all obligations, contingent or otherwise, relative to the face or stated amount (as reduced from time to time) of all letters of credit (including the Letters of Credit), whether or not drawn, and bankers' acceptances issued and outstanding for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (d) net liabilities of such Person in respect of Hedging Obligations which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) all obligations of such Person to pay the deferred purchase price of Property (except trade accounts payable and other current liabilities arising in the ordinary course of business); (f) all obligations listed in clauses (a) through (e) secured by a Lien (other than a Lien on any assets of KAAC or any of its Subsidiaries securing the obligations of QAL) on Property owned or being purchased by such Person (including Indebtedness arising under conditional sales or other title retention agreements), whether or not such Indebtedness shall have been assumed by such Person or is limited in recourse; (g) any Redeemable Stock issued by such Person; (h) all Contingent Liabilities of such Person in respect of any Indebtedness of any other Person; and (i) all advance payments to such Person of more than $5,000,000 in the aggregate from any single customer of such Person relating to the delivery of goods or the performance of services by such Person (other than advance payments to the extent held in segregated accounts), but only to the 23 32 extent that such payments originally were received more than six months before the date on which such Person was required to deliver such goods or perform such services, and which have not yet been earned by such delivery or performance; provided, however, the obligations of any Person arising from the honoring by a bank or other financial institution of a check, draft, or similar Instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business shall not constitute Indebtedness; provided that such obligations are extinguished within two Business Days of their incurrence (or, in the case of foreign overdrafts, within five Business Days of their incurrence) unless covered by an overdraft credit line. "Indemnified Liability" and "Indemnified Liabilities" are defined in Section 12.4. "Indemnified Parties" is defined in Section 12.4. "Indemnified Persons" is defined in clause (b) of Section 11.1. "Initial Borrowing Date" means the date on which the initial Credit Extensions are made. "Instrument" means any contract, agreement, indenture, mortgage, document, or writing (whether by formal agreement, letter or otherwise) under which any obligation is evidenced, assumed, or undertaken, or any Lien (or right or interest therein) is granted or perfected. "Intercompany Demand Note" means an intercompany demand revolving note, in substantially the form of Exhibit O-1 attached hereto (or, with respect to any such note in favor of KFC, in substantially the form of Exhibit 0-2 attached hereto, or, with respect to any such note in favor of KAAC, in substantially the form of Exhibit 0-3 attached hereto), with appropriate insertions, issued by the Company to any Person listed on Schedules IV and VII hereto (or to any other Person as required by Section 9.1.12), or issued by any Subsidiary of the Company to KFC or by KFC to KAAC, and endorsed, pledged, and delivered by such Person, KFC, or KAAC, as the case may be, to the Agent, on behalf of the Secured Lenders, pursuant to the Subsidiary Pledge Agreement or the Intercompany Note Pledge Agreement, as each such promissory note may be amended, endorsed, or otherwise modified from time to time in accordance with the provisions hereof, and also means any other promissory note accepted from time to time in substitution therefor or renewal thereof, in accordance with the provisions hereof. "Intercompany Note Pledge Agreement" means the intercompany note pledge agreement executed and delivered by certain Subsidiaries of the Company pursuant to Section 7.1.11 or 9.1.12, 24 33 as the case may be, in substantially the form of Exhibit K-3 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Interest Coverage Ratio" means, for any period, the ratio of (a) (i) the sum of EBITDA for all of the Fiscal Quarters comprising such period minus (ii) the aggregate Adjusted Capital Expenditures for all of the Fiscal Quarters comprising such period to (b) (i) the aggregate amount of interest expense (excluding amortization of deferred financing costs and, to the extent not paid in cash, interest on the PIK Note and the Equity Proceeds Notes) of the Company and its Subsidiaries for all of the Fiscal Quarters comprising such period, calculated on a consolidated basis in accordance with GAAP, minus (ii) the amount of interest income of the Company and its Subsidiaries which was included in the calculation of Net Income, in accordance with GAAP, for all of the Fiscal Quarters comprising such period,minus (iii) that portion of the amount set forth in clause (i) above attributable to (A) the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, any Subsidiary or (B) if the economic burden of the amount set forth inclause (i) above is borne or to be borne by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such amount borne or to be borne by such minority owners. "Interest Period" means, with respect to any LIBO Rate Loan, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 3.4.2 and ending on (but excluding, for purposes of determining accrued interest) the day which numerically corresponds to such date one, two, three, or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Company may select in its relevant notice pursuant to Section 2.3 or 3.4.2; provided, however, that (a) no more than seven different Interest Periods may be in effect at one time with respect to all Revolving Loans; 25 34 (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period may end later than the date set forth in clause (a) of the definition of "Stated Maturity Date". "Inventory" means goods (whether consisting of whole goods, spare parts or components), merchandise, and other personal property, wherever located, to be furnished under any contract of service or held for sale or lease, all raw materials, work-in-process, finished goods, returned goods, and materials and supplies of any kind, nature or description which are or might be used or consumed in the Company's business or used in connection with the manufacture, packing, shipping, advertising, selling, or finishing of such goods, merchandise, and such other personal property, and all documents of title or other documents representing them. "Investment" means, with respect to any Person, (a) any loan or advance made by such Person to any other Person (excluding commission, travel, relocation, and similar advances) and any purchase or other acquisition made by such Person of any bond, debenture, note, or similar instrument of any other Person; and (b) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of Property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such Property. "Issuer Bank" means any Affiliate, office, branch, or agency of Bank of America, or any other Lender, which has agreed to issue and has issued one or more Letters of Credit at the request (such request to be made with the consent of the Company, which consent shall not be unreasonably delayed or withheld) of the Agent. "Issuer Party" and "Issuer Parties" are defined in Section 5.10. 26 35 "Joint Venture Affiliate" means QAL, KJBC, Anglesey, Furukawa, and any other Person (a) which is not a Subsidiary of the Company, (b) in which the Company or its Subsidiaries own an equity interest of more than 5% (and in which no Restricted Affiliate has an equity interest, other than through a direct or indirect ownership interest in the Company), and (c) which supplies or processes bauxite, alumina, or aluminum to or for the Company or any of its Subsidiaries or sells to third parties bauxite, alumina, aluminum or aluminum products purchased from the Company or any of its Subsidiaries. "KAII" means Kaiser Aluminium International, Inc., a Delaware corporation. "KATSI" means Kaiser Aluminum Technical Services, Inc., a California corporation. "KBC" means Kaiser Bauxite Company, a Nevada corporation. "KFC" means Kaiser Finance Corporation, a Delaware corporation. "Kaiser Canada" means Kaiser Aluminum & Chemical of Canada Limited, an Ontario corporation. "KJBC" means Kaiser Jamaica Bauxite Company, a Jamaica partnership. "KACC" means Kaiser Alumina Australia Corporation, a Delaware corporation. "KJC" means Kaiser Jamaica Corporation, a Delaware corporation. "KT Note" means the promissory note dated December 21, 1989, as amended by Amendment dated as of July 1, 1993, executed by the Parent Guarantor and delivered to the Company, a copy of which has been delivered to the Agent and each Lender prior to the date hereof, and endorsed, delivered, and pledged to the Agent, on behalf of the Secured Lenders, pursuant to the Company Pledge Agreement or the Subsidiary Pledge Agreement, as such promissory note may be amended, endorsed, or otherwise modified from time to time in accordance with the provisions hereof, and also means any other promissory note accepted from time to time in substitution therefor or renewal thereof, in accordance with the provisions hereof. "L/C Collateral Account" is defined in Section 5.8.1. "Lenders" is defined in the preamble. "Letter of Credit" is defined in Section 5.1 and includes the Existing Letters of Credit. 27 36 "Letter of Credit Outstandings" means, at any time, an amount equal to the sum of (a) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit plus (b) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations with respect to issued and outstanding Letters of Credit. "LIBO Rate" means, relative to any Interest Period, the rate of interest determined by the Agent to be the rate per annum at which Dollar deposits in immediately available funds are offered to Bank of America in the London interbank market as at or about 11:00 a.m., London time, two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of each LIBO Rate Loan to which such Interest Period applies and for a period equal to such Interest Period. "LIBO Rate Loan" means all or any portion of a Loan bearing interest, at all times during an Interest Period applicable to such Loan or portion thereof, at a fixed rate determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" means, relative to any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ------------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for each LIBO Rate Loan to which such Interest Period applies will be determined by the Agent. "LIBOR Office" means, with respect to any Lender, the office, if any, of such Lender designated as such below its signature hereto, or designated in the Assignee Agreement to be Bound pursuant to which such Lender became a party hereto, or such other office of a Lender as designated from time to time by written notice from such Lender to the Company and the Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans of such Lender hereunder. "LIBOR Reserve Percentage" means, relative to any Interest Period, a percentage (expressed as a decimal) equal to the daily average during such Interest Period of the percentages in effect on each day of such Interest Period, as prescribed by the F.R.S. Board, for determining the maximum aggregate reserve requirements (including any emergency, supplemental, or other marginal reserve 28 37 requirement) applicable to "Eurocurrency Liabilities" pursuant to Regulation D or any other applicable regulation issued from time to time by the F.R.S. Board which prescribes reserve requirements applicable to "Eurocurrency Liabilities" as currently defined in Regulation D having a term approximately equal or comparable to such Interest Period. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment for security purposes, deposit arrangement for security purposes, encumbrance, lien (statutory or other), or other similar arrangement of any kind or nature. "Loan" means, as the context may require, a Revolving Loan of any type, or a Swingline Loan. "Loan Document" means this Agreement, all Letters of Credit, each Credit Request, the Subsidiary Guaranty, the Collateral Documents, and each other agreement, document, or Instrument executed and delivered or to be executed and delivered by the Parent Guarantor, the Company, or any Subsidiary of the Parent Guarantor or the Company in connection with this Agreement, as any and all of the foregoing may be amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof, but excluding, however, the Intercompany Demand Notes, the KT Note and the Equity Proceeds Notes. "Materially Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), a materially adverse effect on: (a) the assets of or the then-existing or projected business, revenues, financial condition, or operations, of the Parent Guarantor, the Company, any other Obligor which is a Significant Subsidiary, any Joint Venture Affiliate (other than KJBC), ALPART, or VALCO; or (b) the ability of the Parent Guarantor, the Company, or any other Obligor which is a Significant Subsidiary to perform any of its payment or other material obligations under this Agreement or any other Loan Document to which it is a party. "MAXXAM" means MAXXAM Inc., a Delaware corporation (formerly known as MCO Holdings, Inc.). "Minimum Net Worth" means $410,000,000 plus 50% of Net Income (but not loss) for each Fiscal Quarter of the Company commencing with the Fiscal Quarter ending March 31, 1997. "Net Amount of Eligible Accounts" means the gross amount of Eligible Accounts less the sum of (a) all returns, discounts, claims, credits, and allowances of any nature at any time issued 29 38 in respect thereof and (b) all unapplied advance payments or deposits in respect thereof. "Net Disposition Proceeds" means, with respect to any Asset Disposition by the Company or any Subsidiary of the Company, the excess of (a) the sum of (i) the gross cash proceeds received by the Company of such Subsidiary from such disposition plus (ii) immediately upon receipt thereof by the Company or such Subsidiary, the gross cash proceeds in respect of principal from or in respect of any promissory note or deferred payment obligations or other security taken in connection with such disposition (including as a result of any sale or other disposition of any such note, obligations, or security, or as a result of any financing with respect thereto) minus (b) the sum of (i) all legal, consulting, brokerage, investment banking, and accounting fees and disbursements and all governmental fees incurred (or reasonably expected to be incurred) in connection with such sale that, in any case, except for payments for legal fees and expenses to a law firm of which an Affiliate of the Company is a member, are not payable to Affiliates of the Company plus (ii) all taxes actually paid or to be paid in connection with such sale plus (iii) to the extent the proceeds described in clause (a) are applied (or to be applied with reasonable promptness) in payment thereof, all Indebtedness secured, directly or indirectly (i.e., such disposition is permitted by the terms of the Instruments evidencing or applicable to such Indebtedness, or by the terms of a consent granted thereunder, only on the condition that the proceeds or such disposition be applied to such Indebtedness), by such assets. 30 39 "Net Income" means, for any period, all amounts which, in conformity with GAAP, would be included under net income on a consolidated income statement of the Company and its Subsidiaries for such period; provided that there shall be excluded (a) the income (or loss) of any Person (other than a Subsidiary of the Company) in which any other Person (other than the Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with the Company or any of its Subsidiaries or that Person's assets are acquired by the Company or any of its Subsidiaries, (c) the income of any Subsidiary of the Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, and (d) any after-tax gains or losses attributable to Asset Dispositions or returned surplus assets of any Pension Plan. "Net Worth" means the consolidated net worth of the Company and its Subsidiaries, calculated in accordance with GAAP; provided, however, that (a) the cumulative effect, in an amount not to exceed $508,000,000, of the changes in accounting principles attributable to the adoption of FAS 106, 109 and 112 recorded in the first Fiscal Quarter of the 1993 Fiscal Year, shall be excluded, and (b) the effect of any issuance after the Initial Borrowing Date of any class of the capital stock of the Company or any of its Subsidiaries shall be excluded. "Nonrecourse Indebtedness" means, with respect to any Person, Indebtedness that is nonrecourse to the credit of such Person. "Non-United States Person" means a Person who is not (a) a citizen or resident of the United States, (b) a corporation, partnership, or other entity created or organized under the laws of the United States, or (c) an estate or trust the income of which is subject to United States federal income taxation regardless of its source. "Obligations" means all obligations (monetary or otherwise) of the Company and each other Obligor arising under or in connection with this Agreement, the Letters of Credit, and each other Loan Document. "Obligor" means the Parent Guarantor, the Company and each of their Subsidiaries obligated under any Loan Document. "Organic Document" means, with respect to any Obligor, its articles or certificate of incorporation, its by-laws, and all 31 40 shareholder agreements, voting trusts, and similar arrangements applicable to any of its authorized shares of capital stock. "Parent Collateral Documents" means the Parent Pledge Agreement and the Parent Security Agreement. "Parent Guarantor Preferred Stock" means preferred stock of any class or series issued by the Parent Guarantor. "Parent Guarantor" is defined in the preamble. "Parent Guaranty" is defined in Section 6.1. "Parent Pledge Agreement" means the pledge agreement executed and delivered by the Parent Guarantor pursuant to Section 7.1.4, in substantially the form of Exhibit E-1 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Parent Security Agreement" means the security agreement executed and delivered by the Parent Guarantor pursuant to Section 7.1.6, in substantially the form of Exhibit E-2 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Participant" is defined in Section 12.11.2. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), of which the Company or any corporation, trade, or business that is, along with the Company, a member of a Controlled Group, is a contributing sponsor, as such term is defined in section 4001(a)(13) of ERISA, or to which any Controlled Group member has a reasonable possibility of any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, with respect to any Lender, the percentage set forth opposite its name on the signature pages of this Agreement, or set forth in the Assignee Agreement to be Bound pursuant to which such Lender became a party hereto, as such percentage may be adjusted from time to time pursuant to Assignee Agreement(s) to be Bound executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 12.11.1. 32 41 "Person" means any natural person, corporation, firm, association, government, governmental agency, or any other entity, whether acting in an individual, fiduciary, or other capacity. "PIK Note" means the Senior Subordinated Intercompany Note of the Company dated December 15, 1992 executed by the Company in the original principal amount of $2,500,000, a copy of which has been delivered to the Agent and each Lender prior to the date hereof, as such promissory note may be amended or otherwise modified from time to time in accordance with the provisions hereof . "Plan" means any Pension Plan or Welfare Plan. "Pledge Agreement(s)" means, individually, the Parent Pledge Agreement, the Company Pledge Agreement, the Intercompany Note Pledge Agreement, or the Subsidiary Pledge Agreement, as the context may require, and, collectively, the Parent Pledge Agreement, the Company Pledge Agreement, the Intercompany Note Pledge Agreement, and the Subsidiary Pledge Agreement. "Preferred Stock (USWA)" means shares of the Company's Cumulative (1985 Series A) Preference Stock and shares of the Company's Cumulative (1985 Series B) Preference Stock which have been or may in the future be issued in connection with the Kaiser Aluminum USWA Employee Stock Ownership Plan or the Kaiser Aluminum Salaried Employee Stock Ownership Plan. "Proceeds" means all products and proceeds (as defined in the Uniform Commercial Code) of any Collateral, and all proceeds of such proceeds and products, including all cash and credit balances, all payments under any indemnity, warranty, or guaranty payable with respect to any Collateral, all awards for taking by eminent domain, all proceeds of fire or other insurance, and all money and other Property obtained as a result of any claims against third parties or any legal action or proceeding with respect to Collateral. "Product Swap" means an agreement by the Company or KAII to deliver bauxite, alumina or aluminum products to or on behalf of an Account Debtor in exchange for (i) an agreement by such Account Debtor to deliver like or related products to or on behalf of the Company or KAII, as the case may be, and (ii) the payment of cash in the ordinary course of business on ordinary trade terms. "Progress Billing" means any invoice for goods sold or leased or services rendered under a contract or agreement pursuant to which the Account Debtor's obligation to pay such invoice is conditioned upon the completion of any further performance by the Company or KAII under the contract or agreement. 33 42 "Property" means any interest in any kind of property or asset, whether real, personal or mixed or tangible or intangible. "QAL" means Queensland Alumina Limited, a Queensland, Australia corporation. "Quarterly Payment Date" means the last day of each March, June, September, and December or, if any such day is not a Business Day, the next succeeding Business Day. "Redeemable Stock" means any equity security or option or warrant related thereto that by its terms or otherwise is required to be purchased or redeemed, or is redeemable at the option of the holder thereof, in either case at any time prior to March 31, 1999. "Reference Rate" means the higher of (a) the Federal Funds Rate plus one-half of one percent (1/2%) and (b) the rate of interest (the "Bank of America Rate") publicly announced from time to time by Bank of America in San Francisco, California, as its reference rate. The Bank of America Rate is a rate set by Bank of America based upon various factors including Bank of America's cost and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans, which loans may be priced at, above, or below the Bank of America Rate. Any change in the Bank of America Rate shall take effect at the opening of business on the day specified in the public announcement of such change. "Reference Rate Loan" means all or any portion of a Loan bearing interest at a fluctuating rate determined by reference to the Reference Rate. "Reimbursement Obligation" is defined in Section 5.6. "Release" means a "release", as such term is defined in CERCLA. "Required Lenders" means, at any time, Lenders holding at least 67% of the then aggregate outstanding principal amount of the Revolving Credit Outstandings, or, if no such principal amount is then outstanding, Lenders having at least 67% of the Revolving Commitments. "Restated Certificate of Incorporation" means the restated certificate of incorporation of the Company dated July 25, 1989. "Restricted Affiliate" means the Parent Guarantor, MAXXAM, and any Affiliate of either thereof (in each case other than the Company, its Subsidiaries which are not Restricted Subsidiaries, any Joint Venture Affiliate, and any Subsidiary of a Joint Venture Affiliate in which neither the Parent Guarantor, MAXXAM, nor any Affiliate of either thereof (other than the Company, its Subsidiaries which are not Restricted Subsidiaries, or any Joint 34 43 Venture Affiliate) has any equity interest other than through a direct or indirect ownership interest in the Company). "Restricted Subsidiary" means any Subsidiary of the Company in which a Restricted Affiliate has an interest, other than through such Restricted Affiliate's direct or indirect ownership interest in the Company. "Revolving Commitment" is defined in clause (b) of Section 2.1.1. "Revolving Commitment Amount" is defined in clause (b) of Section 2.1.1. "Revolving Commitment Availability" means, at any time, the excess of (a) the lesser of (i) the Revolving Commitment Amount at such time and (ii) the Borrowing Base as in effect at such time over (b) the Revolving Credit Outstandings at such time. "Revolving Commitment Termination Date" means the earliest of (a) March 31, 1994 (unless the Initial Borrowing Date shall have occurred before the close of business, San Francisco time, on such date); (b) February 15, 1999; (c) the date on which the Revolving Commitment Amount is reduced to zero pursuant to Section 2.2; and (d) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (a), (b), (c), or (d), the Revolving Commitment of each Lender and the Swingline Commitment of Business Credit shall terminate automatically and without any further action. "Revolving Credit Outstandings" means, at any time, the sum of (a) the aggregate outstanding principal amount of all Revolving Loans at such time, (b) the aggregate outstanding principal amount of all Swingline Loans at such time, and (c) the Letter of Credit Outstandings at such time. "Revolving L/C Request" means a request and certificate, duly executed by an Authorized Officer of the Company, in substantially the form of Exhibit B attached hereto, which 35 44 request shall include a duly completed application for the issuance or extension of a standby or commercial letter of credit in the form specified from time to time by the proposed Issuer Bank of a Letter of Credit, as such application may be amended, supplemented, restated, or otherwise modified from time to time. Each Revolving L/C Request shall specify, among other things, the date on which the proposed Letter of Credit is to be issued and whether such Letter of Credit shall be transferable in whole or in part. All Revolving L/C Requests and all documents submitted by the Company in support of Revolving L/C Requests shall be in form and substance satisfactory to the relevant Issuer Bank. "Revolving Loans" is defined in clause (a)(i) of Section 2.1.1. "Secured Lenders" means the Agent, each Lender and each Issuer Bank, together with any successors and assigns thereto. "Security Agreement(s)" means, individually, the Parent Security Agreement, the Company Security Agreement, or the Subsidiary Security Agreement, as the context may require, and, collectively, the Parent Security Agreement, the Company Security Agreement, and the Subsidiary Security Agreement. "Security Interest" means, collectively, the Liens granted to the Agent, on behalf of the Secured Lenders, in the Collateral pursuant to the Collateral Documents. "Senior Debt" means Indebtedness of the Company or any of its Subsidiaries under the Senior Notes, the Senior Indenture, or any guaranty of such Indebtedness. "Senior Debt Instruments" means the Senior Notes, the Senior Indenture, and all other Instruments and agreements executed and delivered by the Company or any of its Subsidiaries in connection therewith. "Senior Indenture" means the indenture dated as of , 1994 between the Company, and KFC, KAAC, AJI and KJC, as Subsidiary Guarantors, and First Trust National Association, as trustee, pursuant to which the Senior Notes were issued, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms of such indenture and this Agreement. "Senior Notes" means the % Senior Notes due 2002 in a principal amount not exceeding $ issued by the Company pursuant to the Senior Indenture, as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms of the Senior Indenture and this Agreement and all other promissory notes accepted from time to time in substitution therefor or renewal thereof in accordance with the terms of the Senior Indenture and this Agreement. 36 45 "Significant Subsidiary" means each Subsidiary of the Company that (a) is designated with an asterisk in Item 2 ("Existing Subsidiaries") of the Disclosure Schedule; (b) accounted for at least 5% of consolidated revenues of the Company and its Subsidiaries from sales to third parties for the four Fiscal Quarters of the Company ending on the last day of the last Fiscal Quarter of the Company immediately preceding the date as of which any such determination is made; or (c) has assets (other than assets which are eliminated in consolidation) which represent at least 5% of the consolidated assets of the Company and its Subsidiaries as of the last day of the last Fiscal Quarter of the Company immediately preceding the date as of which any such determination is made, all of which, with respect to clauses (b) and (c), shall be as included in the consolidated financial statements of the Company for the period, or as of the date, in question. "Solvent" means, with respect to any Person at any time, a condition under which (a) the fair saleable value of such Person's assets is, at such time, greater than the total amount of such Person's liabilities (including contingent and unliquidated liabilities) at such time; (b) such Person is able to pay all of its liabilities as such liabilities mature; and (c) such Person does not have unreasonably small capital with which to conduct its business. For purposes of this definition (i) the amount of a Person's contingent or unliquidated liabilities at any time shall be that amount which, in light of all the facts and circumstances then existing, represents the amount which can reasonably be expected to become an actual or matured liability; (ii) the "fair saleable value" of an asset shall be the amount which may be realized within a reasonable time either through collection or sale of such asset at its regular market value; and (iii) the "regular market value" of an asset shall be the amount which a capable and diligent 37 46 business person could obtain for such asset from an interested buyer who is willing to purchase such asset under ordinary selling conditions. "Stated Amount" of each Letter of Credit means the "stated amount" or "face amount" (or other similar term) of such Letter of Credit, as defined therein. "Stated Expiry Date" is defined in clause (b)(ii) of Section 5.1. "Stated Maturity Date" means (a) in the case of any Revolving Loan, February 15, 1999, and (b) in the case of any Swingline Loan, the seventh calendar day following the date such Swingline Loan is made. "Subordinated Debt" means Indebtedness of the Company or any of its Subsidiaries under the Subordinated Notes, the Subordinated Indenture, or any guaranty of such Indebtedness. "Subordinated Debt Instruments" means the Subordinated Notes, the Subordinated Indenture, and all other Instruments and agreements executed and delivered by the Company or any of its Subsidiaries in connection therewith. "Subordinated Indenture" means the indenture dated as of February 1, 1993 between the Company, and KAAC, AJI and KJC, as Subsidiary Guarantors, and The First National Bank of Boston, as trustee, pursuant to which the Subordinated Notes were issued, as supplemented to make KFC an additional Subsidiary Guarantor (as such term is defined therein), and as the same may be further amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms of such indenture and this Agreement. "Subordinated Notes" means the 12 3/4% Senior Subordinated Notes due 2003 in a principal amount not exceeding $400 million issued by the Company pursuant to the Subordinated Indenture, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms of the Subordinated Indenture and this Agreement and all other promissory notes accepted from time to time in substitution therefor or renewal thereof in accordance with the terms of the Subordinated Indenture and this Agreement. "Subsidiary" means, with respect to any Person, any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), or any other entity of which more than 50% of the equity securities or other ownership interest, is or are at the time directly or indirectly owned by such Person, by such 38 47 Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. Any determination of whether a Subsidiary is directly or indirectly "wholly-owned" by any Person shall be made after disregarding (a) any shares of such Subsidiary held by the officers, employees, or directors of such Subsidiary and (b) any shares of such Subsidiary held by Restricted Affiliates. "Subsidiary Collateral Documents" means the Subsidiary Pledge Agreement, the Subsidiary Security Agreement, and the Intercompany Note Pledge Agreement. "Subsidiary Guaranty" means the guaranty executed and delivered by any Subsidiary of the Company pursuant to Section 7.1.9, in substantially the form of Exhibit J attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Subsidiary Pledge Agreement" means the pledge agreement executed and delivered by any Subsidiary of the Company pursuant to Section 7.1.10, in substantially the form of Exhibit K-1 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Subsidiary Security Agreement" means the security agreement executed and delivered by any Subsidiary of the Company pursuant to Section 7.1.6, in substantially the form of Exhibit K-2 attached hereto, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the provisions hereof or thereof. "Swingline Commitment" is defined in Section 2.1.2. "Swingline Loans" is defined in Section 2.1.2. "Tax Allocation Agreement" means the Tax Allocation Agreement dated December 21, 1989, between the Company and MAXXAM, a copy of which has been delivered to the Agent and the Lenders prior to the date hereof, as amended from time to time with the prior written consent of the Agent. "Taxes" is defined in clause (a) of Section 4.6. "Tolling Inventory" means raw materials, work-in-process or other goods delivered to the Company by a third person pursuant to a bailment arrangement with the Company under which such Inventory is to be processed, improved, or otherwise altered by the Company. "Transfer Agreement" means the Transfer Agreement dated as of December 21, 1989, between the Parent Guarantor and the Company, a copy of which has been delivered to the Agent and the Lenders prior to the date hereof, as amended, supplemented, 39 48 restated, or otherwise modified from time to time with the prior written consent of the Agent. "type" means, relative to any Revolving Loan, the portion thereof, if any, being maintained as a Reference Rate Loan or a LIBO Rate Loan. "Uniform Commercial Code" means the Uniform Commercial Code (or any successor statute) of the State of New York or the Uniform Commercial Code (or any successor statute) of any other state the laws of which are required by Section 9-103 thereof to be applied in connection with the issue of perfection of security interests. "United States" or "U.S." means the United States of America, its fifty States, and the District of Columbia. "VALCO" means Volta Aluminium Company Limited, a Ghanaian corporation. "Welfare Plan" means a "welfare plan", as such term is defined in section 3(1) of ERISA. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each Credit Request, Continuation/Conversion Notice, Borrowing Base Certificate, Compliance Certificate, Loan Document, notice, and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section, or definition to any clause are references to such clause of such Article, Section, or definition. SECTION 1.4. Accounting and Financial Determinations and Other Terms. Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with GAAP applied on a basis consistent with those used in the preparation of the financial statements dated December 31, 1993 furnished to the Lenders under this Agreement; provided, however, that if there is any change in GAAP subsequent to the date of such financial statements, the Agent and the Company shall each have the right to notify the other party that the Required Lenders or the Company, as the case may be, wish to incorporate the effect of any such change in GAAP on the 40 49 operation of any covenant contained in Article IX or on the Borrowing Base, the Interest Coverage Ratio for purposes of Section 3.4.1 or any other provision hereof. In the event that the party receiving such notice agrees with such request to incorporate the effect of any such change, thereafter the Company's compliance with such covenant, the Borrowing Base, the Interest Coverage Ratio and all other calculations in respect of any other provision hereof will be determined on the basis of GAAP including such change. ARTICLE II COMMITMENTS AND BORROWING PROCEDURES SECTION 2.1. Commitments. On the terms and subject to the conditions of this Agreement (including Article VII), each Lender, severally and for itself alone, agrees to make Revolving Loans and other Credit Extensions, and Business Credit agrees to make Swingline Loans, pursuant to the Commitments described in this Section 2.1. SECTION 2.1.1. Revolving Commitment. (a) From time to time on any Business Day occurring during the period commencing on the Initial Borrowing Date, and continuing to (but not including) the Revolving Commitment Termination Date, each Lender will (i) make Loans (relative to such Lender, its "Revolving Loans") to the Company equal to such Lender's Percentage of the aggregate amount of Revolving Loans requested by the Company pursuant to Section 2.3(a) to be made on such Business Day, and (ii) (A) in the case of any Issuer Bank, issue Letters of Credit for the account of the Company, for the benefit of the Company or any Subsidiary of the Company, or (B) in the case of each other Lender, participate in such Letters of Credit, in each case in accordance with Article V. (b) The Revolving Credit Outstandings at any time shall not exceed the lesser of (x) $250,000,000 (such amount, as it may be reduced from time to time pursuant to Section 2.2, being herein called the "Revolving Commitment Amount") and (y) the Borrowing Base as then in effect. The Commitment of each Lender to make Revolving Loans and to issue or participate in Letters of Credit is herein referred to as its "Revolving Commitment". (c) On the terms and subject to the conditions hereof, the Company may from time to time (i) borrow, prepay, and reborrow Revolving Loans and (ii) request the issuance of Letters of Credit, allow Letters of Credit to expire undrawn or, if drawn 41 50 upon, repay Reimbursement Obligations relative thereto and request the issuance of new Letters of Credit. SECTION 2.1.2. Swingline Commitment. (a) From time to time on any Business Day occurring during the period commencing on the Initial Borrowing Date, and continuing to (but not including) the Revolving Commitment Termination Date, Business Credit will make a portion of the Revolving Commitment available to the Company by making Loans ("Swingline Loans") to the Company in an aggregate amount not to exceed $25,000,000 outstanding at any one time, notwithstanding the fact that such Borrowings may exceed Business Credit's Revolving Commitment. The Commitment of Business Credit to make Swingline Loans from time to time is herein referred to as its "Swingline Commitment." (b) Business Credit at any time in its sole and absolute discretion may require each other Lender on one Business Day's notice to make a Revolving Loan in an amount equal to such Lender's Percentage of the aggregate amount of Swingline Loans outstanding on the date notice is given. In the event that Revolving Loans are made by Lenders other than Business Credit under the immediately preceding sentence, each such Lender shall deposit with the Agent same day funds in an amount equal to such Lender's Percentage of such Revolving Loans. Such deposit will be made to an account which the Agent shall specify from time to time by written notice to the Lenders. The proceeds of such Revolving Loans shall be immediately applied to repay the outstanding Swingline Loans and the Company authorizes the Agent to charge its account with Bank of America (up to the amount available in such account) in order to immediately pay Business Credit the amount of such Swingline Loans to the extent amounts received from other Lenders are not sufficient to repay in full the outstanding Swingline Loans. If any portion of any such amount paid to Business Credit should be recovered by or on behalf of the Company from Business Credit in bankruptcy, by assignment for the benefit of creditors, or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by Section 4.8. (c) Each Lender's obligation to make the Revolving Loans referred to in clause (b) shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Business Credit, the Company, or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default; (iii) any adverse change in the condition (financial or otherwise) of the Company; (iv) any breach of this Agreement by the Company or any other Lender; or (v) any other circumstance, happening, or event whatsoever, whether or not similar to any of the foregoing. 42 51 (d) Interest on each Swingline Loan shall accrue to Business Credit from the date of making such Swingline Loan to and including the earlier of (i) the date prior to the day on which payment of such Swingline Loan is made by the Company or (ii) the date prior to the day of receipt by the Agent from any Lender of its Percentage of any Revolving Loans made to repay such Swingline Loan; provided that, from and after the date of the making of any such Revolving Loans, interest shall accrue on such Lender's Percentage of any such Revolving Loans for the account of such Lender. SECTION 2.1.3 Lenders Not Required To Make Loans or Issue Letters of Credit. (a) No Lender shall be required to make any Revolving Loan or issue (in the case of the relevant Issuer Bank) any Letter of Credit and Business Credit shall not be required to make any Swingline Loan, if, after giving effect thereto, the Revolving Credit Outstandings would exceed the lesser of (x) the Borrowing Base as then in effect and (y) the Revolving Commitment Amount as then in effect; and (b) the Issuer Bank shall not be required to issue any Letter of Credit if, after giving effect thereto, the Letter of Credit Outstandings would exceed $125,000,000. SECTION 2.1.4. Borrowing Base Determinations. (a) Except during the continuance of an Event of Cash Dominion, the Company will furnish to the Agent, on or before the 12th Business Day of each month and on the date of the delivery of (i) any Borrowing Request requesting the making of Revolving Loans, or (ii) any Revolving L/C Request, a Borrowing Base Certificate setting forth the Company's calculation of the Borrowing Base (with supporting calculations in reasonable detail) as of the last day of the preceding calendar month (or, if the Credit Request described in clause (i) or (ii) is delivered on or after the first day of any month but before the 12th Business Day of such month (or, if earlier, the date the Borrowing Base Certificate required to be delivered during such month is actually delivered), as of the last day of the next preceding calendar month) and certifying (A) that the information contained in such Borrowing Base Certificate is true and complete in all material respects, (B) that, except as is disclosed in such Borrowing Base Certificate, the Company has no reason to believe that there has been a material reduction in the Borrowing Base from the Borrowing Base Calculation Date for such Borrowing Base Certificate to the date on which such Borrowing Base Certificate is delivered, 43 52 (C) if a Credit Request is being delivered in connection with the delivery of such Borrowing Base Certificate, that as of the date of such Borrowing Base Certificate, the Revolving Credit Outstandings do not (and, after giving effect to the making of all Loans, or the issuance of all Letters of Credit, if any, being requested in conjunction with the delivery of such Borrowing Base Certificate, will not) exceed the Borrowing Base which was in effect on the Borrowing Base Calculation Date for such Borrowing Base Certificate, and (D) as to such other matters as the Agent may reasonably request, (b) During the continuance of an Event of Cash Dominion, the Company will furnish to the Agent at least weekly, on or before the third day of each week, a collateral summary report duly executed by a Financial Authorized Officer of the Company setting forth sales, credit memos, collections, discounts and outstanding Loans as of the most recent practicable date. During the continuance of an Event of Cash Dominion, the Borrowing Base will be determined by the Agent, after consultation with the Company, each day on the basis of such relevant information as the Agent deems appropriate to consider in calculating the actual Borrowing Base, including the collateral summary reports and such other information regarding the Accounts of the Company and KAII and the Inventory of the Company as the Agent shall obtain from the Company and KAII pursuant to Section 9.1.9 or otherwise. SECTION 2.2. Reduction of Revolving Commitment Amount. The Company may, from time to time on any Business Day occurring after the Initial Borrowing Date, voluntarily reduce the unutilized portion of the Revolving Commitment Amount; provided, however, that (a) all such reductions that involve prepayments of LIBO Rate Loans shall require at least three Business Days prior notice to the Agent, (b) all other reductions, including any such reductions that involve prepayments of Reference Rate Loans, shall require at least one Business Days prior notice to the Agent, (c) each such reduction shall be permanent, and (d) any such partial reduction of the Revolving Commitment Amount that involves prepayments of LIBO Rate Loans shall be in an amount of not less than $5,000,000. All notices referred to in the foregoing sentence shall be given prior to 10:00 a.m., San Francisco time, on the day of such notice. SECTION 2.3. Borrowing Procedure. (a) By delivering a Borrowing Request to the Agent on or before 10:00 a.m., San Francisco time, on a Business Day, the Company, on advance notice of at least (i) three Business Days, in the case of any disbursement of LIBO Rate Loans, or (ii) one Business Day, in the case of any disbursement of Reference Rate 44 53 Loans, but in no case more than five Business Days, may from time to time request that the Lenders make a disbursement of Revolving Loans. Each request for a disbursement of Reference Rate Loans shall specify an aggregate principal amount of at least $1,000,000 and integral multiples of $1,000,000 in excess thereof, and each request for a disbursement of LIBO Rate Loans shall specify an aggregate principal amount of at least $5,000,000 and integral multiples of $1,000,000 in excess thereof. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the Loans of the type(s) and Interest Period(s) specified in such Borrowing Request and shall be made on the Business Day specified in such Borrowing Request. The Agent shall promptly notify each Lender by telephone (promptly confirmed in writing) of any such Borrowing Request on the day such Borrowing Request is received by the Agent. Prior to 9:30 a.m., San Francisco time, on the Business Day specified in such Borrowing Request, each Lender shall deposit with the Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Agent shall specify from time to time by written notice to the Lenders. To the extent funds are received from the Lenders by 9:30 a.m., San Francisco time, on any Business Day, the Agent shall deposit such funds into the Company's account number 12339-11101 at Bank of America not later than 10:30 a.m., San Francisco time, on such Business Day. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. (b) By delivering a Borrowing Request to the Agent on or before 1:00 p.m., San Francisco time, on a Business Day, the Company may from time to time request that Business Credit make a disbursement of a Swingline Loan. Each request for a disbursement of a Swingline Loan shall specify an aggregate principal amount of at least $500,000 and integral multiples of $10,000 in excess thereof. All Swingline Loans shall be Reference Rate Loans and no Swingline Loan may be outstanding for more than seven calendar days. Business Credit shall deposit same day funds in an amount equal to the requested Swingline Loan into the Company's account number 12339-11101 at Bank of America not later than 3:00 p.m., San Francisco time, on such Business Day. (c) In lieu of delivering the above-described Borrowing Requests, the Company may give the Agent telephone notice by the required time of any proposed Borrowing; provided that such notice shall be promptly confirmed in writing by delivery of a Borrowing Request on or prior to the proposed borrowing date. Each telephone request for a Revolving Loan or a Swingline Loan shall be conclusively presumed to be made by a Person authorized by the Company to do so and crediting a Revolving Loan or a Swingline Loan to the Company's deposit account shall conclusively establish the obligation of the Company to repay such Revolving Loan or Swingline Loan as provided herein. 45 54 SECTION 2.4. Agent's Books and Records; Monthly Statements. The Agent will charge all Revolving Loans, Swingline Loans and, as and when they become due and payable, other monetary Obligations to a loan account of the Company maintained by the Agent. All fees, commissions, costs, expenses, and other charges under or pursuant to the Loan Documents not paid when due may, at the Agent's option, be charged as Revolving Loans to the Company's loan account as of the date due from the Company or the date paid or incurred by the Agent, as the case may be. The Company agrees that the Agent's books and records showing the monetary Obligations and the transactions pursuant to this Agreement and the other Loan Documents shall be admissible in any action or proceeding arising therefrom, and shall constitute prima facie proof thereof, irrespective of whether any Obligation is also evidenced by a promissory note or other instrument. The Agent will provide to the Company a monthly statement of Loans, payments, and other transactions pursuant to this Agreement. Such statement shall be deemed correct, accurate, and binding on the Company and as an account stated (except for reversals and reapplications of payments made as provided in Section 4.7 and corrections of errors discovered by the Agent), unless the Company notifies the Agent in writing to the contrary within 60 days after such statement is rendered. In the event a timely written notice of objection is given by the Company, only the items to which exception is expressly made will be considered to be disputed by the Company. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST, AND FEES SECTION 3.1. Repayments. The Company shall repay in full the unpaid principal amount of each Loan upon the Stated Maturity Date therefor. SECTION 3.2. Voluntary Prepayments. Prior to repayment in full of each Loan pursuant to Section 3.1, and except during the continuance of an Event of Cash Dominion, the Company may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, without premium or penalty (except as may be required by Section 4.4), of the outstanding principal amount of the Loans; provided, however, that (a) if any such prepayment of any LIBO Rate Loan is made on any day other than the last day of the Interest Period for such Loan the Company shall comply with the provisions ofSection 4.4; (b) all such voluntary partial prepayments of LIBO Rate Loans (i) shall be in an aggregate amount of not less than $5,000,000 and integral multiples of $1,000,000 in excess thereof, unless such prepayment is a prepayment of 46 55 the entire outstanding principal amount of LIBO Loans of all Lenders, and (ii) shall be appliedpro rata to such LIBO Rate Loans of all Lenders; (c) all such voluntary partial prepayments of Reference Rate Loans shall be, in the case of Revolving Loans, in an aggregate amount of not less than $1,000,000 and integral multiples of $1,000,000 in excess thereof, unless such prepayment is a prepayment of the entire outstanding principal amount of Reference Rate Loans of all Lenders, and, in the case of Swingline Loans, in an aggregate amount of not less than $250,000 and integral multiples of $10,000 in excess thereof, unless such prepayment is a prepayment of the entire outstanding principal amount of Swingline Loans; (d) all such voluntary partial prepayments of Reference Rate Loans shall be applied first to Swingline Loans and then pro ratato the Reference Rate Loans of all Lenders; (e) all such voluntary prepayments of LIBO Rate Loans shall require at least five Business Days prior written notice to the Agent; (f) all such voluntary prepayments of Reference Rate Loans that are Revolving Loans shall require at least one but no more than five Business Days prior written notice to the Agent; and (g) all such voluntary prepayments of Reference Rate Loans that are Swingline Loans may be made without any prior written notice. SECTION 3.3. Mandatory Prepayments. Prior to repayment in full of each Loan pursuant to Section 3.1, the Company shall make mandatory prepayments, without premium or penalty (except as may be required by Section 4.4), in accordance with this Section 3.3. SECTION 3.3.1. Prepayment Under, or Cash Collateralization of, Revolving Commitment. Except during the continuance of an Event of Cash Dominion, the Company shall, on the second Business Day after the date of delivery of any Borrowing Base Certificate indicating that the Revolving Credit Outstandings on the date of such Borrowing Base Certificate exceed the Borrowing Base as shown on such Certificate, make a mandatory prepayment of the then aggregate outstanding principal amount of all Swingline Loans and, if all Swingline Loans have been prepaid, shall make a mandatory prepayment of the then aggregate outstanding principal amount of all Revolving Loans (or a repayment of outstanding Reimbursement Obligations with respect to Letters of Credit), and, if all Revolving Loans have been prepaid, shall furnish cash collateral with respect to Letters of Credit, in an aggregate amount equal to such excess. If the Company shall fail to 47 56 deliver a Borrowing Base Certificate when due hereunder and the Agent determines that the Revolving Credit Outstandings on the date such Borrowing Base Certificate was due exceeded the Borrowing Base, as of the last day of the preceding month, the Company shall on the second Business Day after receipt of notice from the Agent, make a mandatory prepayment of the then aggregate outstanding principal amount of all Swingline Loans and, if all Swingline Loans have been prepaid, shall make a mandatory prepayment of the then aggregate outstanding principal amount of all Revolving Loans (or a repayment of outstanding Reimbursement Obligations with respect to Letters of Credit), and, if all Revolving Loans have been prepaid, shall furnish cash collateral with respect to Letters of Credit, in an aggregate amount equal to such excess. On the terms and subject to the conditions hereof, the Company may reborrow amounts applied to the prepayment of Swingline Loans and Revolving Loans pursuant to this Agreement. SECTION 3.3.2. Payments from Asset Distributions. During the continuance of an Event of Cash Dominion, the Company will deposit, or cause to be deposited, all Net Disposition Proceeds received from any Asset Disposition pursuant to Section 9.2.11(i) in the Concentration Account, which Net Disposition Proceeds shall be applied to the prepayment of the then aggregate outstanding principal amount of all Swingline Loans and, if all Swingline Loans have been prepaid, to the prepayment of the then aggregate outstanding principal amount of all Revolving Loans. On the terms and subject to the conditions hereof, the Company may reborrow amounts applied to the prepayments of Swingline Loans and Revolving Loans pursuant to this Agreement. SECTION 3.3.3. Cash Dominion. During the continuance of an Event of Cash Dominion (a) all collected funds on deposit in the Concentration Account pursuant to the Concentration Bank Agreement shall be applied on a daily basis to the prepayment of the then aggregate outstanding principal amount of all Swingline Loans and, if all Swingline Loans have been prepaid, to the prepayment of the then aggregate outstanding principal amount of all Revolving Loans, (b) on any day on which Revolving Credit Outstandings exceed the Borrowing Base, as calculated as of such date, the Company shall make a mandatory prepayment of the then aggregate outstanding principal amount of all Swingline Loans, and, if all Swingline Loans have been prepaid, shall make a mandatory prepayment of the then aggregate outstanding principal amount of all Revolving Loans (or a repayment of outstanding Reimbursement Obligations with respect to Letters of Credit), and, if all Revolving Loans have been prepaid, shall furnish cash collateral with respect to Letters of Credit, in an aggregate amount equal to such excess, and (c) the Company shall deposit, or cause to be deposited, all remittances and payments received by the Company in respect of Accounts (except Accounts of Subsidiaries and Joint Venture Affiliates paid by accounting entries), Instruments (other than Intercompany Demand Notes), or sales of Inventory for cash and all prepayments, deposits, and 48 57 other advance payments in respect of sales of Inventory, tax refunds, insurance proceeds and other amounts received from third parties other than in the ordinary course of business shall be deposited in the Concentration Account. On the terms and subject to the conditions hereof, the Company may reborrow amounts applied to the prepayment of Swingline Loans and Revolving Loans pursuant to this Agreement. SECTION 3.3.4. Acceleration. The Company shall, immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to Section 10.2 or Section 10.3, repay all Loans which are so accelerated. SECTION 3.4. Interest Provisions. Interest on the outstanding principal amount of Loans shall accrue and be payable in accordance with this Section 3.4, in each case computed on the basis of the actual number of days elapsed in a 360-day year. SECTION 3.4.1. Rates. The Company shall pay interest on the unpaid principal amount of each Revolving Loan and Swingline Loan made to the Company from time to time outstanding as follows: (a) if any portion of the unpaid principal amount of such Loan is a Reference Rate Loan, the Company shall pay interest on such portion at a rate per annum equal to the sum of (i) the Reference Rate from time to time in effect and (ii) a margin of 1-1/2%; and (b) if any portion of the unpaid principal amount of such Loan is a LIBO Rate Loan, during each Interest Period applicable thereto, the Company shall pay interest on such portion at a rate per annum equal to the sum of (i) the LIBO Rate (Reserve Adjusted) for such Interest Period and (ii) a margin of 3-1/4%; provided, however, that, (i) so long as no Default shall have occurred and be continuing, if as of the last day of any Fiscal Quarter, commencing with the second Fiscal Quarter of the 1995 Fiscal Year, the Interest Coverage Ratio for the four Fiscal Quarter period ended on such last day is greater than or equal to 1.25 to 1.00 but less than 1.50 to 1.00, and the Agent receives a Compliance Certificate pursuant to clause (c) of Section 9.1.1 to such effect, then, for each day during the Fiscal Quarter in which such Compliance Certificate is required to be delivered, the margins set forth in clauses (a) and (b) above and any fees payable pursuant to clause (a)(ii) of Section 5.3 (in each case without giving effect to any previous increase or reduction pursuant to this proviso) shall each be reduced by 1/2 of 1% per annum; and 49 58 (ii) so long as no Default shall have occurred and be continuing, if as of the last day of any Fiscal Quarter, commencing with the second Fiscal Quarter of the 1995 Fiscal Year, the Interest Coverage Ratio for the four Fiscal Quarter period ended on such last day is greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00, and the Agent receives a Compliance Certificate pursuant to clause (c) of Section 9.1.1 to such effect, then, for each day during the Fiscal Quarter in which such Compliance Certificate is required to be delivered, the margins set forth in clauses (a) and (b) above and any fees payable pursuant to clause (a)(ii) of Section 5.3 (in each case without giving effect to any previous increase or reduction pursuant to this proviso) shall each be reduced by 1% per annum; and (iii) so long as no Default shall have occurred and be continuing, if as of the last day of any Fiscal Quarter, commencing with the second Fiscal Quarter of the 1995 Fiscal Year, the Interest Coverage Ratio for the four Fiscal Quarter period ended on such last day is greater than or equal to 2.00 to 1.00, and the Agent receives a Compliance Certificate pursuant to clause (c) of Section 9.1.1 to such effect, then, for each day during the Fiscal Quarter in which such Compliance Certificate is required to be delivered, the margins set forth in clauses (a) and (b) above and any fees payable pursuant to clause (a)(ii) of Section 5.3 (in each case without giving effect to any previous increase or reduction pursuant to this proviso) shall each be reduced by 1-1/2% per annum. Prior to the date in any Fiscal Quarter on which the Agent receives the Compliance Certificate which is required to be delivered during such Fiscal Quarter, the interest margin and letter of credit fees shall be the same as were applicable to the immediately preceding Fiscal Quarter. If such Compliance Certificate shall indicate that such interest margin or letter of credit fees should be increased pursuant to this proviso, the Company shall, on the date of delivery of such Compliance Certificate, pay to the Agent for the account of those Lenders which received underpayment thereof an amount equal to the difference between (A) the aggregate amount of interest and letter of credit fees which would theretofore have been payable during such Fiscal Quarter had such increase been made on the first day of such Fiscal Quarter and (B) the amounts of interest and letter of credit fees which were actually paid during such Fiscal Quarter. If such Compliance Certificate shall indicate that the Company paid more interest or letter of credit fees than would have been required if any reduction therein required by this proviso had commenced on the first day of such Fiscal Quarter, any such excess payment shall be credited to future payments of interest or letter of credit fees, as the case may be, payable to those Lenders which received over-payments thereof and, if the Company shall not have received full credit for any 50 59 such excess payment from any Lender at the time when such Lender's Commitments hereunder terminate and all monetary Obligations owing to such Lender are paid in full, then such Lender shall pay to the Company any such excess payment, without interest, at such time. In the event that any accountant's report delivered pursuant to clause (b)(iii) of Section 9.1.1 shall indicate any miscomputation of the Interest Coverage Ratio in any Compliance Certificate, if such accountant's report shall indicate that the interest margin or letter of credit fees should have been increased pursuant to this proviso for any Fiscal Quarter during the relevant Fiscal Year, the Company shall, within ten Business Days after such accountant's report is delivered, pay the Agent, for the account of the Lenders, additional interest on the Loans and letter of credit fees for the Letters of Credit in an aggregate amount equal to the excess of (A) the aggregate amount of interest which would have been payable on the Loans and letter of credit fees which would have been payable on the Letters of Credit for any period of time if the Compliance Certificate in respect of the Fiscal Quarter in question had shown the same Interest Coverage Ratio for the four Fiscal Quarter period ended on the last day of such Fiscal Quarter as did such accountant's report, over (B) the aggregate of the interest which was actually paid on the Loans and the letter of credit fees which were actually paid on the Letters of Credit in respect of such period of time. If such accountant's report shall indicate that the Company paid more interest or letter of credit fees than would have been required if any reduction therein had commenced on the first day of any Fiscal Quarter during the relevant Fiscal Year, any such excess payment shall be credited to future payments of interest or letter of credit fees, as the case may be, payable to those Lenders which received over-payments thereof and, if the Company shall not have received full credit for any such excess payment from any Lender at the time when such Lender's Commitments hereunder terminate and all monetary Obligations owing to such Lender are paid in full, then such Lender shall pay to the Company any such excess payment, without interest, at such time. Upon termination of the Lenders' Commitments hereunder, no further retroactive adjustments shall be made to the interest or letter of credit fees paid during the term of this Agreement. All LIBO Rate Loans shall bear interest from (and including) the first day of the applicable Interest Period to (but excluding) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan; provided, however, that any margin reduction or increase resulting from the Interest Coverage Ratio test set forth in this Section 3.4.1 shall become effective at any time during any Interest Period. SECTION 3.4.2. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Agent on or 51 60 before 10:00 a.m., San Francisco time, on a Business Day, the Company may from time to time irrevocably elect, on (a) not less than three nor more than five Business Days notice (in the case of continuations of or conversions into LIBO Rate Loans), or (b) not less than one nor more than five Business Days notice (in the case of conversions into Reference Rate Loans) that all or any portion of any outstanding Revolving Loan be (i) converted into a LIBO Rate Loan, (ii) converted into a Reference Rate Loan, or (iii) continued as a LIBO Rate Loan. All conversions of Revolving Loans that are Reference Rate Loans shall be made pro rata among all such Reference Rate Loans of all Lenders. All conversions or continuations of Revolving Loans that are LIBO Rate Loans shall be made pro rata among all such LIBO Rate Loans of all Lenders. In the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan within the time periods specified above before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Reference Rate Loan. No portion of the outstanding principal amount of any Revolving Loan may be continued as, or be converted into, a LIBO Rate Loan during the continuation of any Event of Default. No Swingline Loans may be converted into a LIBO Rate Loan. SECTION 3.4.3. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue, or convert any LIBO Rate Loan hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Company to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate, or international banking facility. In addition, the Company hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 4.2, 4.3, or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in the London interbank eurodollar market. SECTION 3.4.4. Default Rates. During the continuation of any Event of Default, (a) the Company shall pay interest (after as well as before judgment) on the principal amount of all Loans outstanding to it at a rate per annum which is determined by increasing each of the interest rates set forth inclauses (a) and (b) of Section 3.4.1 by 2% per annum; 52 61 (b) the letter of credit fees payable pursuant to clause (a)(ii) of Section 5.3 shall be increased by 2% per annum for all Letters of Credit; and (c) the Company shall pay interest on any other Obligations which are then due and payable (other than Reimbursement Obligations which are accruing interest pursuant toSection 5.5) to the extent permitted by applicable law, at a rate per annum equal to the Reference Rate plus 3-1/2%. SECTION 3.4.5. Interest Payment Dates. Interest accrued on each Loan shall be payable (a) with respect to Reference Rate Loans, in arrears on the first day of each month; (b) with respect to LIBO Rate Loans, (i) except during the continuance of any Event of Default, on the last day of each applicable Interest Period and, if such Interest Period shall exceed three months, on the day which numerically corresponds to the first day of such Interest Period and falls in the third month thereafter (or, if there is no such numerically corresponding date, on the last Business Day of such third month) and (ii) during the continuance of an Event of Default, in arrears on the first day of each month; and (c) on that portion of any Loan the Stated Maturity Date of which is accelerated pursuant to Section 10.2 or Section 10.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.4.6. Maximum Interest. It is the intention of the parties hereto to conform strictly to applicable usury laws and, anything herein or in any other Loan Document to the contrary notwithstanding, the obligations of the Obligors to each Lender under this Agreement and the other Loan Documents shall be subject to the limitation that payments of interest to such Lender shall not be required to the extent that receipt thereof would be contrary to provisions of law applicable to such Lender limiting rates of interest which may be charged or collected by such Lender. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the federal and state laws of the United States, or of any other jurisdiction whose laws may be mandatorily applicable) with respect to any Lender then, in that event, notwithstanding 53 62 anything to the contrary in this Agreement or any other Loan Document, it is agreed as follows: (a) the provisions of this Section 3.4.6 shall govern and control with respect to payments to such Lender; (b) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged, or received under this Agreement, under any of the other Loan Documents, or otherwise in connection with this Agreement or any other Loan Document by such Lender in respect of any Obligor, shall under no circumstances exceed the maximum amount of interest allowed by applicable law (such maximum lawful interest rate, if any, with respect to such Lender being herein called the "Highest Lawful Rate"), and any excess shall be credited to such Obligor by such Lender (or, if such consideration shall have been paid in full, such excess refunded to such Obligor); (c) all sums paid, or agreed to be paid, to such Lender for the use, forbearance, and detention of the Indebtedness of any Obligor to such Lender hereunder or under the other Loan Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such Indebtedness until payment in full so that the actual rate of interest is uniform throughout the full term thereof; (d) if at any time the interest provided to be payable to such Lender pursuant to Section 3.4.1, Section 3.4.4, and Section 5.5, together with any other fees and additional amounts payable to such Lender pursuant to this Agreement and the other Loan Documents, and deemed interest under applicable law, exceeds that amount which would have accrued at the Highest Lawful Rate, the amount of interest and any such fees and additional amounts payable to such Lender pursuant to this Agreement and the other Loan Documents shall be limited, notwithstanding anything to the contrary in this Agreement or any other Loan Document, to that amount which would have accrued at the Highest Lawful Rate, but any subsequent reductions in the interest rate which would otherwise apply to the Obligations payable to such Lender, as applicable, shall not reduce the interest to accrue to such Lender pursuant to this Agreement and the other Loan Documents below the Highest Lawful Rate until the total amount of interest accrued to such Lender pursuant to this Agreement and the other Loan Documents, and such fees and additional amounts deemed to be interest, equals the sum of (i) the amount of interest which would have accrued to such Lender if a varying rate per annum equal to the interest provided pursuant toSection 3.4.1, Section 3.4.4, or Section 5.5, as applicable, had at all times been in effect, plus (ii) the amount of fees and additional amounts which 54 63 would have been received but for the effect of this Section 3.4.6; and (e) if the total amount of interest paid or accrued, together with any other fees and additional amounts payable pursuant to this Agreement and the other Loan Documents, and deemed interest under applicable law, by any Obligor with respect to such Lender pursuant to this Agreement and the other Loan Documents under the foregoing provisions of this Section 3.4.6 is less than the total amount of interest which would have accrued if a varying rate per annum equal to the interest provided pursuant to Section 3.4.1, Section 3.4.4, or Section 5.5, as applicable, had at all times been in effect and all fees and additional amounts provided to be paid to such Lender in this Agreement and the other Loan Documents had been paid, any subsequent reductions in the rates per annum provided pursuant toSection 3.4.1, Section 3.4.4, and Section 5.5, shall not reduce the interest to accrue pursuant to such Sections below the Highest Lawful Rate until the total amount of interest accrued thereunder equals the amount of interest that would have accrued to such Lender thereunder if the rate provided in Section 3.4.1, Section 3.4.4, or Section 5.5, as the case may be, had at all times been in effect. If at the date of termination of this Agreement the total amount of interest and fees accrued under this Agreement is less than the total amount of interest that would have accrued if the rates per annum provided in Section 3.4.1, Section 3.4.4, and Section 5.5, as the case may be, had at all times been in effect then such Obligor agrees to pay to such Lender an amount equal to the difference between (i) the lesser of (A) the amount of interest and fees which would have accrued to such Lender if the Highest Lawful Rate had at all times been in effect, and (B) the amount of interest and fees which would have accrued if a varying rate per annum equal to the interest provided pursuant toSection 3.4.1, Section 3.4.4, or Section 5.5, as applicable, had at all times been in effect and all fees provided for in this Agreement and the other Loan Documents to be payable to such Lender had been paid, and (ii) the amount of interest, fees and additional amounts accrued to such Lender in accordance with the other provisions of this Agreement and the other Loan Documents. For purposes of Article 5069-1.04, Vernon's Texas Civil statutes, as amended, to the extent, if any, applicable to any Lender, each Obligor agrees that the Highest Lawful Rate shall be the "indicated (weekly) rate ceiling" as defined in said Article, provided that each Lender may also rely, to the extent permitted by applicable laws, on alternative maximum rates of interest under other laws applicable to such Lender if greater. SECTION 3.5. Fees. The Company and the Parent Guarantor, jointly and severally, agree to pay the fees set forth in this Section 3.5. 55 64 SECTION 3.5.1. Commitment Fee. The Company and the Parent Guarantor, jointly and severally, agree to pay to the Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Company's inability to satisfy any condition of Article VII) commencing on the Effective Date and continuing through the Revolving Commitment Termination Date, a commitment fee at the rate of 1/2 of 1% per annum on such Lender's Percentage of the sum of the average daily unused portion of the Revolving Commitment Amount. Such commitment fees shall be payable by the Company in arrears on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on the Revolving Commitment Termination Date. SECTION 3.5.2. Audit Fees. The Company and the Parent Guarantor, jointly and severally, agree to pay to the Agent an audit fee equal to $500 per day per auditor for each audit of the Collateral undertaken pursuant to Section 9.1.5 and to pay all out-of-pocket expenses of each auditor incurred in connection with such Collateral audits; provided, however, that, except during the continuance of an Event of Cash Dominion, the Company and the Parent Guarantor shall not be required to pay for more than one collateral audit during any 180-day period and, during the continuance of an Event of Cash Dominion, shall not be required to pay for more than one collateral audit during any 90-day period. SECTION 3.5.3. Other Fees. The Company and the Parent Guarantor, jointly and severally, agree to pay to the Agent certain other fees set forth in clause (iii) of the confidential letter dated January 24, 1994 from Bank of America to the Company (the "Fee Letter") for retention by the Agent as set forth in the Fee Letter. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. Illegality. (a) If any Lender shall determine (which determination shall, upon written notice thereof to the Company and the other Lenders, be conclusive and binding on the Company) that the introduction of or any change in (or in the interpretation of) any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue, or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of all Lenders to make, continue, maintain, or convert any such Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans shall automatically convert into Reference Rate Loans at the end of the then 56 65 current Interest Periods with respect thereto or sooner, if required by such law or assertion. (b) If any Lender shall determine (which determination shall, upon written notice thereof to the Company and the other Lenders, be conclusive and binding on the Company) that the introduction of or any change in (or in the interpretation of) any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to issue or amend (in the case of an Issuer Bank) or to participate in (in the case of each other Lender) any additional Letters of Credit, the obligations of all Lenders so to issue, amend, or participate in additional Letters of Credit shall, upon such determination, forthwith terminate, and the Agent shall, by written notice to the Company and each Lender, declare that such obligations have so terminated. If circumstances subsequently change so that such affected Lender shall determine that it is no longer so affected, such obligations shall, upon such determination (and telephonic notice thereof immediately confirmed in writing to the Agent, each other Lender, and the Company), forthwith be reinstated, and the Agent shall, by written notice to the Company and each Lender, declare that such obligations have been so reinstated. SECTION 4.2. Deposits Unavailable. If the Agent shall have reasonably determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to Bank of America in the relevant market; or (b) by reason of circumstances affecting Bank of America's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then, upon written notice from the Agent to the Company and the Lenders, the obligations of all Lenders under Section 2.3 and Section 3.4.2 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased Costs, etc. The Company agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, issuing, maintaining, or participating in the Letters of Credit, or making, continuing, or maintaining (or of its obligation to make, continue, or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans. Such Lender shall promptly notify the Agent and the Company in writing of the occurrence of any such 57 66 event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount as well as the calculation of such additional amount. Such additional amounts shall be payable by the Company directly to such Lender within 15 days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Company. SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue, or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant toSection 3.1, 3.2, 3.3, or 3.4.2 or otherwise, (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor (other than as a result of a determination pursuant toSection 4.1 or 4.2), or (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/ Conversion Notice therefor (other than as a result of a determination pursuant to Section 4.1 or 4.2), then, upon the written notice of such Lender to the Company (with a copy to the Agent), the Company shall, within 15 days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Company. SECTION 4.5. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation, or phase-in of, any law or regulation, directive, guideline, decision, or request (whether or not having the force of law) of any court, central bank, regulator, or other governmental authority affects or would affect the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitments or the Credit Extensions (including the disbursement of Loans and the issuance of or participation in Letters of 58 67 Credit) made by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon written notice from time to time by such Lender to the Company, with a copy to the Agent, the Company shall, within 15 days of its receipt of such notice, pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Company. In determining such amount, such Lender may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable, subject in each case to Section 4.12. SECTION 4.6. Taxes, etc. (a) All payments by the Company and each other Obligor to the Agent or any Lender in respect of any Obligation shall be made without any setoff or counterclaim, and free and clear of and without deduction or withholding for or on account of, any present or future Taxes now or hereafter imposed on the Agent or any Lender with respect to such payments by any governmental or other authority, except to the extent that such deduction or withholding is compelled by law. As used herein, the term "Taxes" shall include all excise and other taxes of whatever nature imposed on the Agent or any Lender with respect to, or arising out of, such payments or the transactions contemplated hereby (other than taxes generally assessed on the net income of the Agent or any Lender, as the case may be, by the government of the country, or any political subdivision or taxing authority thereof or therein, in which the Agent or such Lender is incorporated or in which such Lender's Domestic Office or such Lender's LIBOR Office is located) as well as all levies, imposts, duties, charges, or fees of whatever nature. If any Obligor is compelled by law to make any such deduction or withholding it will: (i) pay to the relevant authorities the full amount required to be so withheld or deducted; (ii) (except to the extent that such deduction or withholding results from the breach, by the recipient of a payment, of its agreement contained in clause (b) below, or would not be required if such recipient's representation and warranty contained in clause (b) below were true) pay such additional amounts as may be necessary in order that the net amount received by the Agent and each Lender, after such deduction or withholding (including any required deduction or withholding on such additional amounts) shall equal the 59 68 amount such payee would have received had no such deduction or withholding been made; and (iii) promptly forward to the Agent (for delivery to such payee) an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authorities. Moreover, if any Taxes are directly asserted against the Agent or any Lender with respect to any payment made in respect of, or arising out of, any Obligation, such payee may pay such Taxes, and each Obligor which is obligated to pay such Obligation agrees promptly to pay such additional amount (including any penalties, interest or expenses) as may be necessary in order that the net amount received by such payee after the payment of such taxes (including any Taxes on such additional amount) shall equal the amount such payee would have received had no such Taxes been asserted (except to the extent that such Taxes result from the breach, by such payee, of its agreement contained inclause (b) below or would not be asserted if such payee's representation and warranty contained in clause (b) below were true). For purposes of this Section 4.6, a distribution hereunder by the Agent or any Lender to or for the account of any Lender shall be deemed to be a payment by the applicable Obligor. (b) Each Lender which is a Non-United States Person agrees (to the extent it is permitted to do so under the laws and any applicable double taxation treaties of the United States, the jurisdiction of such Lender's incorporation, and the jurisdictions in which such Lender's Domestic Office and such Lender's LIBOR Office are located) to execute and deliver to the Agent for delivery to the Company, before the first scheduled payment date in each year, either (i) three United States Internal Revenue Service Forms 1001 or (ii) three United States Internal Revenue Service Forms 4224 together with three United States Internal Revenue Service Forms W-9, or any successor forms, as appropriate, properly completed and claiming complete or partial, as the case may be, exemption from withholding and deduction of United States federal Taxes. Each Lender which is a Non-United States Person represents and warrants to each Obligor and to the Agent that, at the date of this Agreement, (i) its Domestic Office and its LIBOR Office are entitled to receive payments of principal, interest, Reimbursement Obligations, and fees hereunder and under the other Loan Documents without deduction or withholding for or on account of any Taxes imposed by the United States or any political subdivision thereof and (ii) it is permitted to take the actions described in the preceding sentence under the laws and any applicable double taxation treaties of the jurisdictions specified in the preceding sentence. Each Lender which is a Non-United States Person further agrees 60 69 that, to the extent any form claiming complete or partial exemption from withholding and deduction of United States federal Taxes delivered under this clause (b) is found to be incomplete or incorrect in any material respect, such Lender shall (to the extent it is permitted to do so under the laws and any double taxation treaties of the United States, the jurisdiction of its incorporation, and the jurisdictions in which its Domestic Office and its LIBOR Office are located) execute and deliver to the Agent a complete and correct replacement form. (c) Each Lender agrees to use reasonable efforts to change its Domestic Office or LIBOR Office to avoid or to minimize any amounts otherwise payable underclause (a) of this Section 4.6, in each case solely if such change can be made in a manner so that such Lender, in its sole determination, suffers no legal, economic, or regulatory disadvantage. SECTION 4.7. Payments, Computations, etc. (a) Unless otherwise expressly provided, all payments by the Company pursuant to this Agreement or any other Loan Document shall be made by the Company to the Agent for thepro rata account of the Lenders entitled to receive such payment. Except for Proceeds received directly by the Agent, all such payments required to be made to the Agent shall be made, without setoff, deduction or counterclaim, not later than 9:30 a.m., San Francisco time, or, with respect to payments which are to be funded by other Credit Extensions, 10:30 a.m., San Francisco time, in either case on the date due, in same day or immediately available funds, to such account as the Agent shall specify from time to time by written notice to the Company. Funds received after that time shall be deemed to have been received by the Agent on the next succeeding Business Day. The Agent shall promptly remit to each Lender such Lender's share, if any, of such payments received by the Agent not later than 9:30 a.m., San Francisco time, or 10:30 a.m., San Francisco time, as applicable, for the account of such Lender in same day funds on the day received. If the Agent fails so to remit such funds to such Lender, the Agent shall pay to such Lender interest on the amount of such Lender's share of such payments at the daily average Federal Funds Rate for each day on which such failure continues excluding the day on which such remittance is made. All interest and commitment fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required byclause (b) of the definition of the term Interest Period" with respect to LIBO Rate Loans) be made 61 70 on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment. (b) If after receipt of any payment of, or Proceeds applied to the payment of, all or any part of the Obligations, the Lenders, the Issuer Bank, or the Agent is for any reason compelled to surrender such payment or Proceeds to any Person, because such payment or Proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible set off, or a diversion of trust funds, or for any other reason, the Obligations or part thereof intended to be satisfied shall be revived and continue and this Agreement shall continue in full force as if such payment or Proceeds had not been received by the Lenders, the Issuer Bank, or the Agent; and the Company shall be liable to the Lenders, the Issuer Bank, and the Agent, and hereby does indemnify the Lenders, the Issuer Bank, and the Agent and hold the Lenders, the Issuer Bank, and the Agent harmless for, the amount of such payment or Proceeds surrendered. The provisions of this Section 4.7 shall be and remain effective notwithstanding any contrary action which may have been taken by the Lenders, the Issuer Bank, and the Agent in reliance upon such payment or Proceeds, and any such contrary action so taken shall be without prejudice to the rights of the Lenders, the Issuer Bank, and the Agent under this Agreement and shall be deemed to have been conditioned upon such payment or Proceeds having become final and irrevocable. SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff, or otherwise) on account of any Letter of Credit it has issued or in which it is a participant, or on account of any Loan (other than pursuant to the terms of Sections 4.3, 4.4, 4.5, and 4.6) in each case in excess of its pro rata share of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in the Letters of Credit in which they have participated or they have issued, or in Loans made by them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender 62 71 to (b) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Company agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 4.8 may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Lender were the direct creditor of the Company in the amount of such participation. If under any applicable bankruptcy, insolvency, or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 4.8 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.8 to share in the benefits of any recovery on such secured claim. SECTION 4.9. Setoff. Each Lender shall, with the prior written consent of the Required Lenders, during the continuance of any Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Company hereby grants to each Lender a continuing security interest in, any and all balances, credits, deposits, accounts, or moneys of the Company then or thereafter maintained with such Lender, excluding any specifically designated trust account; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Lender agrees promptly to notify the Company and the Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section 4.9 are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. SECTION 4.10. Use of Proceeds. The Company shall apply the proceeds of each Loan and shall use each Letter of Credit in accordance with the fourth recital and for general corporate and working capital purposes of the Company and its Subsidiaries. No proceeds of any Loan and no Letter of Credit will be used to purchase or carry (a) any equity security not issued by the Company of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934, or (b) any "margin stock", as defined in F.R.S. Board Regulation U. 63 72 SECTION 4.11. Change of Lending Office, Replacement of Lender, etc. (a) Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 4.1, 4.3, or 4.5 with respect to such Lender, it will, if requested by the Company and to the extent permitted by law or by the relevant governmental authority, in consultation with the Agent, for a period of thirty days use reasonable efforts in good faith to avoid the illegality or to avoid or minimize the increase in costs or reduction in payments resulting from such event (including using reasonable efforts to change its Domestic Office or LIBOR Office);provided that such avoidance or minimization can be made in such a manner so that such Lender, in its sole determination, suffers no legal, economic, or regulatory disadvantage. (b) If any Lender (an "Affected Lender") shall make a determination under Section 4.1 or shall make a demand for payment under Section 4.3, 4.5, or 4.6, and the Company shall find a Lender or other entity capable of being an Assignee Lender under Section 12.11.1(an "Eligible Assignee") which offers in writing to (i) purchase all, but not less than all, Loans of and Reimbursement Obligations owed (directly or by way of participation) to such Affected Lender, (ii) purchase a 100% participation in all obligations of such Affected Lender in respect of all Letters of Credit issued or participated in by such Affected Lender, and (iii) assume all the Commitments of such Affected Lender, in each case without recourse for the full amount thereof on a specified date, together with accrued and unpaid interest and commitment fees thereon to the date of purchase, and all other amounts owing to such Affected Lender hereunder and under the other Loan Documents, and such Eligible Assignee tenders the purchase price of such amounts on such specified date, and if, in the sole determination of such Affected Lender, its acceptance of such offer would be permitted by law and all relevant governmental authorities and would not result in any legal, economic, or regulatory disadvantage to such Affected Lender, then the Company shall be excused from the payment of any increased costs claimed by such Affected Lender under any of such Sections accruing after the first interest payment date pursuant to Section 3.4.5 for each Loan of such Affected Lender on or following such specified date, if the Affected Lender demanding payment under any such Section declines such purchase offer. If such Affected Lender shall accept such purchase offer, upon consummation 64 73 of such purchase in accordance with Section 12.11.1, such Affected Lender shall cease to be a Lender hereunder. Any reasonable expenses actually incurred by such Affected Lender or the Agent under thisSection 4.11 shall be paid by the Company upon delivery to the Company of a certificate as to the amount of such expenses, which certificate shall in the absence of manifest error be conclusive and binding. SECTION 4.12. Computation of Additional Amounts Due. In determining any additional amounts due from the Company under Section 4.3, 4.4, or 4.5 hereof, each Lender shall act reasonably and in good faith and will, to the extent that the increased costs or reductions in amounts received or receivable relate to such Lender's loans generally and are not specifically attributable to the Loans hereunder, use averaging and attribution methods which are reasonable and equitable and which cover all loans similar to the Loans made by such Lender whether or not the loan documentation for such other loans permits such Lender to receive increased costs of the type described in such Sections of this Agreement. ARTICLE V LETTERS OF CREDIT SECTION 5.1. Requests. (a) By delivering to the Agent and the relevant Issuer Bank one or more Revolving L/C Requests on or before 10:00 a.m., San Francisco time, at least three (or such shorter period as may be agreed among the Company, the Agent, and such Issuer Bank), but not more than eight, Business Days before the proposed date of issuance, the Company may request that such Issuer Bank issue, on any Business Day on or after the Initial Borrowing Date and prior to the Revolving Commitment Termination Date, irrevocable standby or commercial letters of credit for its account (each such letter of credit, as it may be amended, supplemented, extended, restated, or modified from time to time, a "Letter of Credit"). Each Letter of Credit and Revolving L/C Request shall be acceptable as to form, substance, beneficiary, and purpose to the Agent and such Issuer Bank in their sole and absolute discretion, and each Letter of Credit shall be used by the Company in each case solely for the purposes described in Section 4.10. (b) Upon receipt of a Revolving L/C Request under clause (a), the Agent shall promptly notify the Lenders in writing thereof. Each Letter of Credit shall, by its terms: (i) be issued in a Stated Amount which, (A) when added to the Letter of Credit Outstandings immediately 65 74 prior to the issuance of such Letter of Credit, would not exceed $125,000,000; (ii) be stated to expire on a date (its "Stated Expiry Date") no later than the tenth Business Day immediately preceding February 15, 1999; (iii) on or prior to its Stated Expiry Date, except as the Issuer Bank thereof and the Agent may otherwise agree in their sole and absolute discretion, (A) terminate immediately upon irrevocable notice to the Issuer Bank thereof from the beneficiary thereunder that all obligations supported thereby have been terminated, paid, or otherwise satisfied in full, and (B) terminate 30 Business Days after notice to the beneficiary thereunder from the Issuer Bank thereof that an Event of Default has occurred and is continuing; (iv) not require the Issuer Bank thereof to make payment to any beneficiary thereof prior to the third Business Day after a conforming demand for payment is made thereunder; and (v) not provide for the presentation of drafts other than drafts payable at sight; and (c) The Issuer Bank will make available to the beneficiary thereunder (with a copy to the Agent) the original of each Letter of Credit which it issues in accordance with the Revolving L/C Request therefor and will notify the beneficiary thereof (with a copy to the Agent) of any extension of the Stated Expiry Date thereof pursuant toSection 5.2. (d) On the Initial Borrowing Date, the Existing Letters of Credit shall automatically be deemed to be Letters of Credit and shall be subject to all the terms and conditions of this Agreement and the Company's reimbursement obligations in respect of the Existing Letters of Credit shall automatically be deemed to have been satisfied by the incurrence of its Reimbursement Obligations, pursuant to this Article V, in respect of the Letters of Credit;provided that the Agent shall have received satisfactory evidence that each issuer of the Existing Letters of Credit shall have consented to the termination of such reimbursement obligations in respect of the Existing Letters of Credit. 66 75 SECTION 5.2. Issuance and Extensions. (a) Subject to the terms and conditions of this Agreement (including Article VII), each Issuer Bank shall issue Letters of Credit in accordance with the Revolving L/C Requests made therefor. By delivery to an Issuer Bank and the Agent of a Revolving L/C Request at least three Business Days but not more than 45 days prior to the Stated Expiry Date of any Letter of Credit, the Company may request such Issuer Bank to extend the Stated Expiry Date of such Letter of Credit for an additional period. Unless otherwise directed by the Agent in accordance with Section 7.2, no Issuer Bank shall issue, or extend the Stated Expiry Date of, any Letter of Credit if it shall have received from any Obligor, the Agent, or any Lender actual notice of a then-continuing Default or of any other failure to satisfy any of the conditions precedent to Credit Extensions set forth inArticle VII. (b) Notwithstanding any provision of any Revolving L/C Request to the contrary, it is understood that in the event of any conflict between the terms of any such Revolving L/C Request and the terms of this Agreement, the terms of this Agreement shall control with respect to events of default, representations and warranties, and covenants, except that such Revolving L/C Request may provide for further warranties relating specifically to the transaction or affairs underlying the relevant Letter of Credit. To the extent that a Revolving L/C Request is submitted on Bank of America Form FX-149(7-85), or another form containing language similar to that used in such form, (i) the term "loan" and the term "advance" shall each be deemed to refer to the principal amount paid to the beneficiary of any Letter of Credit pursuant to a demand for payment under such Letter of Credit, (ii) the "maturity" of each "loan" or "advance" shall be deemed to be the date on which the Company's Reimbursement Obligation in respect of the relevant payment under a Letter of Credit becomes due and payable pursuant toSection 5.6, and (iii) all references to payments of "loans" or "advances" shall be deemed to be references to payment of outstanding Reimbursement Obligations. The terms and conditions of this Agreement shall be deemed to be incorporated by reference into each Revolving L/C Request regardless of whether expressly so stated in such Revolving L/C Request. SECTION 5.3. Fees and Expenses. (a) The Company agrees to pay to the Agent with respect to each Letter of Credit, (i) for the account of the Issuer Bank, a fronting fee equal to three-eighths of 1% per annum on the average daily aggregate Letter of Credit Outstandings 67 76 (excluding, however, in the case of fees payable under thisclause(a)(i), that portion of Letter of Credit Outstandings constituting Reimbursement Obligations accruing interest pursuant to Section 5.5), and (ii) for the account of the Lenders, pro rata according to their respective Percentages, a letter of credit fee of 3% per annum (subject to adjustment as provided in Section 3.4.1 and 3.4.4) on the average daily aggregate Letter of Credit Outstandings (excluding, however, in the case of fees payable under this clause (a)(ii), that portion of Letter of Credit Outstandings constituting Reimbursement Obligations accruing interest pursuant to Section 5.5) under or with respect to all Letters of Credit accruing, as to each Letter of Credit (other than the Existing Letters of Credit), from and including the date of issuance thereof to and excluding the earlier of the date such Letter of Credit is drawn in full, expires, or is terminated and the Revolving Commitment Termination Date and, as to each Existing Letter of Credit, from and including the Initial Borrowing Date to and excluding the earlier of the date such Existing Letter of Credit is drawn in full, expires, or is terminated and the Revolving Commitment Termination Date. (b) Such fronting and letter of credit fees shall be computed for the actual number of days elapsed on the basis of a 360- day year and shall be payable in arrears on each Quarterly Payment Date for the period ending on (but excluding) such Quarterly Payment Date. The Company further agrees to pay to the Agent for the account of each Issuer Bank all customary administrative fees and expenses of such Issuer Bank in connection with the issuance and maintenance of each Letter of Credit issued by it. SECTION 5.4. Other Lenders' Participation. Concurrently with the issuance of each Letter of Credit in accordance with the terms and conditions of this Agreement, and on the Initial Borrowing Date with respect to the Existing Letters of Credit, the Issuer Bank thereof shall be deemed to have sold and transferred to each other Lender, and each other Lender shall be deemed irrevocably and unconditionally to have purchased and received from such Issuer Bank, without recourse, representation, or warranty, an undivided interest and participation, to the extent of such other Lender's Percentage, in such Letter of Credit and the Company's Reimbursement Obligations with respect thereto, and each Lender shall, to the extent of its Percentage, be entitled to receive from such Issuer Bank a ratable portion of the letter of credit fees received by such Issuer Bank pursuant to clause (a)(ii) of Section 5.3 with respect to each Letter of Credit. Each Lender shall, to the extent of its Percentage, be responsible to reimburse promptly such Issuer Bank for Reimbursement Obligations which have not been reimbursed by the 68 77 Company in accordance with Section 5.5 (other than any Reimbursement Obligations arising out of any wrongful Disbursement made by such Issuer Bank as a result of acts or omissions constituting gross negligence or willful misconduct on the part of such Issuer Bank). SECTION 5.5. Disbursements. (a) Each Issuer Bank will notify the Company and the Agent in writing promptly of the presentment of any demand for payment under any Letter of Credit issued by such Issuer Bank, together with notice of the date (the "Disbursement Date") such payment shall be made. On the terms and subject to the conditions of such Letter of Credit and this Agreement, the Issuer Bank shall make such payment to the beneficiary (or its designee) of such Letter of Credit. Prior to 10:30 a.m., San Francisco time, on the Disbursement Date, the Company will reimburse such Issuer Bank for all amounts which it has disbursed or is required to disburse under such Letter of Credit on such Disbursement Date. To the extent such Issuer Bank is not reimbursed in full in accordance with the foregoing sentence of this clause (a), the Company's Reimbursement Obligation shall accrue interest at a rate per annum equal to the Reference Rate from time to time in effect plus a margin of 3-1/2% per annum, payable on demand. (b) Upon notice by the Issuer Bank to the Company of any Disbursement pursuant to clause (a) of this Section 5.5, the Lenders (including such Issuer Bank) shall, upon satisfaction by the Company of the conditions in Section 7.2 or the waiver of the conditions ofSection 7.2 by the Agent as permitted therein, and to the extent that the Revolving Commitment is then available, fund the Reimbursement Obligation therefor by making Revolving Loans as provided inSection 2.1.1 (without giving effect to such Reimbursement Obligation for purposes of determining the Revolving Commitment Availability). SECTION 5.6. Reimbursement. The Company's obligation (a "Reimbursement Obligation") under Section 5.5 to reimburse an Issuer Bank with respect to each Disbursement (including interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim, or defense to payment which the Company may have or have had against a beneficiary or transferee of any Letter of Credit (or any Person or Persons for whom any such transferee may be acting) or against the Agent or any Lender, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (if, in the Issuer Bank's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such Disbursement or the legality, validity, form, regularity, or enforceability of such Letter of Credit; provided, 69 78 however, that nothing herein shall adversely affect the right of the Company to commence any proceeding against an Issuer Bank for any wrongful Disbursement made by such Issuer Bank under a Letter of Credit as a result of acts or omissions constituting gross negligence or willful misconduct on the part of such Issuer Bank. SECTION 5.7. Mandatory Payment to Agent of Letter of Credit Outstandings. The Company agrees that, upon the occurrence of any event described in Section 10.2 or any termination of the Commitments pursuant to Section 10.3, it will immediately, upon written notice from the Agent, acting at the direction of the Required Lenders, pay to the Agent in Dollars and in immediately available funds an amount equal to the then aggregate Letter of Credit Outstandings. Any amounts so received by the Agent pursuant to the provisions of the foregoing sentence, after application against outstanding Reimbursement Obligations, shall be deposited by the Agent into the L/C Collateral Account pursuant to Section 5.8.1. SECTION 5.8. L/C Collateral Account. SECTION 5.8.1. Deposit. The Agent shall deposit all funds paid by the Company to the Agent pursuant to Section 3.3.1 as cash collateral and Section 5.7 (to the extent required to be deposited in the L/C Collateral Account) to the credit of a deposit account owned by the Agent (the "L/C Collateral Account"). As security for the payment of all Obligations, the Company hereby grants, conveys, assigns, pledges, sets over, and transfers to the Agent, and creates in the Agent's favor a lien on and security interest in, all money, instruments, and securities at any time held in or acquired in connection with the L/C Collateral Account, together with all proceeds thereof, for the benefit of the Secured Lenders. The Company shall not have any right to withdraw or to cause the Agent to withdraw any funds deposited in the L/C Collateral Account. At any time and from time to time, upon the Agent's request, the Company promptly shall execute and deliver any and all such further instruments and documents (including financing statements and bond powers executed in blank) as may be necessary, appropriate, or desirable in the Agent's judgment to obtain the full benefits (including perfection and priority) of the security interest created or intended to be created by this Section 5.8.1 and of the rights and powers herein granted. The Company shall not create or suffer to exist any Lien on any amounts or investments held in the L/C Collateral Account other than the Lien granted under this Section 5.8.1. SECTION 5.8.2. Investment. The Company, no more than three times in any calendar month, may direct the Agent to invest the funds held in the L/C Collateral Account (so long as the aggregate amount of such funds exceeds any relevant minimum investment requirement) in one or more certificates of deposit issued by the Person which is then acting as Agent or by Bank of 70 79 America, with such maturities as the Company may specify, pending application of such funds on account of Reimbursement Obligations or on account of other Obligations, as the case may be. In the absence of any such direction from the Company, the Agent shall invest the funds held in the L/C Collateral Account in one or more certificates of deposit issued by the Person which is then acting as Agent or by Bank of America with maturities not to exceed 30 days, unless the aggregate amount of such funds which are not then otherwise invested is less than the smallest certificate of deposit offered by such Person, in which case the Agent shall have no obligation to invest such funds. All such investments shall be made in the Agent's name. The Company recognizes that any losses or taxes with respect to such investments shall be borne solely by the Company, and the Company agrees to hold the Agent and the Lenders harmless from any such losses or taxes. Unless the Company otherwise makes direct payment, the Agent shall liquidate any investment held in the L/C Collateral Account in order to apply the proceeds of such investment on account of Reimbursement Obligations (or on account of other Obligations, as the case may be) without regard to whether such investment has matured and without liability for any penalties or other fees incurred (with respect to which the Company hereby fully indemnifies the Agent) as a result of such application. SECTION 5.8.3. Application of Funds. The Agent shall apply funds in the L/C Collateral Account (a) on account of Reimbursement Obligations when the same become due and payable if and to the extent that the Company fails directly to pay such Reimbursement Obligations, (b) if there are Letter of Credit Outstandings, and the balance of the L/C Collateral Account exceeds the aggregate Letter of Credit Outstandings for five consecutive Business Days, on account of the Obligations (other than Reimbursement Obligations) in such order as the Agent may elect to the extent of such excess on the day of application, and (c) after the date on which all Letters of Credit shall have expired and the Company finally shall have paid in full all outstanding Reimbursement Obligations, on account of the other Obligations in such order as the Agent may elect if the Agent shall have received actual notice of the occurrence of an Event of Default on or before such date which is continuing on such date. Except in the case described in clause (c) above, the Agent shall release all funds and transfer all investments remaining in the L/C Collateral Account to the Company within five Business Days after the date on which all Letters of Credit shall have expired and the Company finally shall have paid in full all outstanding Reimbursement Obligations. If the Agent resigns, the outgoing Agent and the new Agent shall effect a transfer to the new Agent of all of the outgoing Agent's right, title, and interest in and to the L/C Collateral Account concurrently with the effectiveness of such resignation. 71 80 SECTION 5.8.4. Fees. The Company shall pay to the Agent fees customarily charged by the Agent with respect to the maintenance of accounts similar to the L/C Collateral Account. SECTION 5.9. Nature of Reimbursement Obligations. The Company shall assume all risks of the acts, omissions, or misuse of any Letter of Credit by the beneficiary thereof. Neither any Issuer Bank nor the Agent or any Lender (except to the extent of its own gross negligence or wilful misconduct) shall be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (b) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any Instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omissions, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit or of the proceeds thereof. None of the foregoing shall affect, impair, or prevent the vesting of any of the rights or powers granted any Issuer Bank, the Agent, or any Lender hereunder. In furtherance and extension and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by such Issuer Bank in good faith shall be binding upon the Company and each Lender and shall not put such Issuer Bank under any resulting liability to the Company or any Lender, except to the extent incurred by such Issuer Bank's gross negligence or willful misconduct. SECTION 5.10. Indemnification by Lenders. The Lenders severally agree to indemnify each Issuer Bank (acting in its capacity as such) and each officer, director, employee, agent, and Affiliate of each Issuer Bank (collectively, the "Issuer Parties" and individually, an "Issuer Party"), ratably according to their respective Percentages, to the extent not reimbursed by 72 81 the Company, from and against any and all actions, causes of action, suits, losses, liabilities, damages, and expenses which may at any time (including at any time following the payment of any of the Reimbursement Obligations) be imposed on, incurred by, or asserted against such Issuer Party in any way relating to or arising out of the issuance of, transfer of, or payment or failure to pay under any Letter of Credit issued in accordance with the terms of this Agreement or the use of proceeds of any payment made under any Letter of Credit issued in accordance with the terms of this Agreement; provided, that no Lender shall be liable for the payment to such Issuer Party of any portion of such actions, causes of action, suits, losses, liabilities, damages, and expenses which have arisen by reason of such Issuer Party's gross negligence or willful misconduct. ARTICLE VI PARENT GUARANTOR SECTION 6.1. Parent Guaranty. In consideration for the Lenders extending the Commitments, the Parent Guarantor hereby unconditionally guarantees, as primary obligor and not merely as surety, the due and punctual payment and performance of all Obligations of the Company when due according to their terms (whether by required prepayment, declaration, demand, or otherwise). The foregoing guaranty is herein referred to as the "Parent Guaranty". SECTION 6.2. Renewal, etc. of Obligations; Waiver. The Parent Guarantor agrees that the Obligations of the Company may be extended or renewed, in whole or in part, without notice to or further assent from the Parent Guarantor and that it will remain bound upon the Parent Guaranty notwithstanding any extension, renewal, or other alteration of any Obligation. The Parent Guarantor waives presentation to, demand of, payment from, and protest of any Obligation to the Company and also waives notice of protest for nonpayment. The obligations of the Parent Guarantor under the Parent Guaranty shall not be affected by (a) the failure of the Agent, any Lender, any Issuer Bank, or any other holder of any Obligation of the Company: (i) to assert any claim or demand, or to enforce any right or remedy against the Company under the provisions of this Agreement or any other Loan Document or otherwise; or (ii) to exercise any right or remedy against any other guarantor of any Obligations; (b) any extension or renewal of any thereof; 73 82 (c) any rescission, waiver, amendment, or modification of any of the terms or provisions of this Agreement or any other Transaction Document; or (d) the release of any of the security held by any Lender for any Obligations. The Parent Guarantor further agrees that the Parent Guaranty constitutes a guaranty of payment when due and not of collection and waives any right to require that any resort be had by the Agent, any Lender, any Issuer Bank, or any other holder of any Obligation of the Company to any of the security held for payment of any Obligation or to any balance of any deposit account or credit on its books in favor of the Company or any other Person. SECTION 6.3. No Impairment, etc. The obligations of the Parent Guarantor under the Parent Guaranty shall not be subject to any reduction, limitation, impairment, or termination for any reason, including any claim of waiver, release, surrender, alteration, or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of the Obligations of the Company or otherwise. Without limiting the generality of the foregoing, the obligations of the Parent Guarantor under the Parent Guaranty shall not be discharged or impaired or otherwise affected by the failure of the Agent, any Lender, or any other holder of any Obligation of the Company to assert any claim or demand or to enforce any remedy under this Agreement or any other Transaction Document, by any waiver or modification of any thereof, by any default, failure, or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Parent Guarantor, or would otherwise operate as a discharge of the Parent Guarantor as a matter of law or equity. SECTION 6.4. Reinstatement; Subrogation. The Parent Guarantor agrees that the Parent Guaranty shall continue to be effective or be reinstated, as the case may be, if, at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by the Agent, any Lender, or any other holder of any Obligation of the Company upon the bankruptcy or reorganization of any Obligor or otherwise. The Parent Guarantor hereby expressly waives, to the fullest extent permitted by law, all rights of the Parent Guarantor against the Company, arising out of any payment by the Parent Guarantor under the Parent Guaranty, or any exercise of remedies under the Parent Pledge Agreement or the Parent Security Agreement, whether arising by way of any right of subrogation, contribution, reimbursement, indemnity, or otherwise and agrees that, if, and to the extent that, any such rights may not be waived under applicable law, it will contribute such rights to 74 83 the Company as a capital contribution concurrently with the arising of such rights. ARTICLE VII CONDITIONS TO EXTENSIONS OF CREDIT SECTION 7.1. Initial Credit Extension. The obligations of the Lenders and the Issuer Bank to make Credit Extensions on the Initial Borrowing Date shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 7.1. SECTION 7.1.1. Resolutions, etc. The Agent shall have received from each Obligor: (a) a certificate, in form and substance satisfactory to the Agent and the Lenders, dated the Initial Borrowing Date, of its Secretary or Assistant Secretary as to (i) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement and each other Loan Document to be executed by it; (ii) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement, and each other Loan Document to be executed by it; and (iii) each of its Organic Documents, certified in a manner satisfactory to the Agent, upon which certificate the Agent and each Lender may conclusively rely until it shall have received a further certificate of the Secretary or Assistant Secretary of such Obligor canceling or amending such prior certificate; (b) a good standing certificate (or other equivalent document or certificate satisfactory to the Agent and the Lenders) certified by the secretary of state (or other appropriate government official) in the jurisdiction of such Obligor's incorporation; and (c) such other documents (certified, if requested) as the Agent or any Lender (acting through the Agent) may reasonably request with respect to any Organic Document. SECTION 7.1.2. Insurance. The Agent shall have received a certificate dated as of a recent date from Alexander & Alexander describing the insurance policies maintained by the Parent Guarantor, the Company and each Subsidiary of the Company executing a Subsidiary Security Agreement and certifying that the 75 84 insurance coverage maintained by the Parent Guarantor, the Company and such Subsidiaries do not differ in any material respect from that described in the "Insurance Program Review" dated October 1989, prepared by Tillinghast, a copy of which has been delivered to the Agent and each Lender prior to the date hereof and the insurance coverage described in such certificate shall be satisfactory to the Agent and the Lenders. The Agent shall have received evidence in the form of a certificate of the Company, executed by an Authorized Officer, that all insurance policies and coverages required pursuant to Section 9.1.4, Section 6(h) of each Security Agreement and Section 1.7 of each Company Mortgage and Company Deed of Trust are in effect, together with certificates of insurance in form and substance satisfactory to the Agent, including evidence satisfactory to the Agent that the Agent has been named as loss payee under such policies as and to the extent required by each Security Agreement and each Company Mortgage and Company Deed of Trust. SECTION 7.1.3. Payment of Outstanding Indebtedness. Each item of Indebtedness of the Company identified in Item 1 ("Indebtedness to be Paid") of the Disclosure Schedule, together with all interest accrued thereon and all prepayment premiums and other amounts payable in connection therewith, shall have been paid in full or fully defeased. Each other item of Indebtedness of the Company or of the Parent Guarantor shall have been disclosed in Item 4 ("Ongoing Indebtedness") of the Disclosure Schedule or shall otherwise be permitted by Section 9.2.2, and each holder whose Indebtedness is secured (a) shall be designated in such Item 4 with an asterisk; and (b) unless the Agent and the Required Lenders shall have otherwise agreed in writing, shall have released all of its Liens (other than Liens permitted bySection 9.2.3) securing such Indebtedness, and the Agent shall have received all UCC-3 termination statements or other Instruments as shall be suitable or appropriate in connection with such release. In addition, the Agent shall have received evidence, satisfactory to the Agent, that each issuer of the Existing Letters of Credit shall have consented to the termination of the Company's reimbursement obligations in respect of the Existing Letters of Credit. SECTION 7.1.4. Parent Pledge Agreement. The Agent shall have received the Parent Pledge Agreement, dated the Initial Borrowing Date, duly executed by the Parent Guarantor and the Agent, and the Agent shall have received (a) the certificates evidencing all of the issued and outstanding shares of capital stock of the Company owned by 76 85 the Parent Guarantor (accompanied by undated stock powers duly executed in blank) and (b) any promissory notes or other debt instruments required to be delivered pursuant to the Parent Guarantor Pledge Agreement, endorsed (which endorsement may be on an allonge) to the order of the Agent. SECTION 7.1.5. Company Pledge Agreement. The Agent shall have received the Company Pledge Agreement, dated the Initial Borrowing Date, duly executed by the Company and the Agent, and the Agent shall have received (a) the certificates evidencing (i) all of the issued and outstanding shares of capital stock of each Domestic Subsidiary of the Company which is listed on Schedule I attached hereto, and (ii) the percentage of the issued and outstanding shares of capital stock of each corporation listed on suchSchedule I which is not a Domestic Subsidiary set forth opposite the name of such corporation, which certificates shall in each case be accompanied by undated stock powers duly executed in blank; (b) the KT Note, duly executed by the Parent Guarantor and endorsed to the order of the Agent; and (c) all promissory notes or other debt instruments held by the Company which have a face amount in excess of $100,000, in each case endorsed (which endorsement may be on an allonge) to the order of the Agent. SECTION 7.1.6. Security Agreements. The Agent shall have received the Parent Security Agreement, duly executed by the Parent Guarantor and the Agent, the Company Security Agreement, duly executed by the Company and the Agent, and the Subsidiary Security Agreement, duly executed by each Subsidiary of the Company which is listed on Schedule IV hereto and the Agent, in each case dated the Initial Borrowing Date, and the Agent shall have received (a) duly executed financing statements (Form UCC-1), naming the Parent Guarantor, the Company, or such Subsidiary, as the case may be, as the debtor and the Agent as the secured party, or other similar instruments or documents, suitable for filing under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the reasonable opinion of the Agent, desirable to perfect the security interests of the Agent in the Collateral granted pursuant to the Security Agreements (other than fixtures which are not attached to the real property covered by a Company Mortgage or Company Deed of Trust) to the extent that perfection may be accomplished by filing under the Uniform Commercial Code in any state in the United States or the District of Columbia; and 77 86 (b) with such exceptions as may have been approved by the Agent, certified copies of Requests for Information or Copies (Form UCC-11) (or similar search reports certified by a party reasonably acceptable to the Agent), dated a date reasonably near the Initial Borrowing Date, listing all effective financing statements which name the Parent Guarantor, the Company, or any such Subsidiary (under any present name and any previous names) as debtor and which are filed in the jurisdictions in which filings were or are to be made pursuant to clause (a), together with copies of such financing statements (none of which, other than those relating to Liens described inItem 9 ("Continuing Mortgages and Security Interests") of the Disclosure Schedule, those for which executed copies of proper termination statements (Form UCC-2 or Form UCC-3) have been delivered to the Agent and those as to which the Agent shall have approved an exception to this provision, shall cover any Collateral described in the Security Agreements). SECTION 7.1.7. Company Trademark Security Agreement; Company Patent Security Agreement. The Agent shall have received the Company Trademark Security Agreement and the Company Patent Security Agreement, in each case duly executed by the Company and the Agent and dated the Initial Borrowing Date. SECTION 7.1.8. Company Mortgages; Company Deeds of Trust. The Agent shall have received Company Mortgages or Company Deeds of Trust, as required by the Agent, duly executed by the Company, with respect to the real property listed on Schedule II hereto, together with (a) evidence of the completion of all recordings and filings of the Company Mortgages and the Company Deeds of Trust as may be necessary or, in the reasonable opinion of the Agent, desirable to effectively create a valid, perfected, first-priority mortgage or deed of trust Lien on, and security interest in, the properties purported to be covered thereby (or evidence that provision entirely satisfactory to the Agent and its counsel for the recording and filing thereof and for the payment of all fees, taxes, and other expenses in connection therewith has been made); (b) with respect to each piece of real property covered by a Company Mortgage or a Company Deed of Trust, one ALTA (except with respect to real property in Texas which shall be governed by a TLTA policy) lender's form title insurance policy in form reasonably satisfactory to the Agent, insuring that on the Effective Date, the Company owns a fee interest in the real property and that the Company Mortgage or Company Deed of Trust, as the case may be, is a valid, perfected, first-priority Lien on the real property, which policies shall be issued to the Agent in amounts reasonably satisfactory to the Agent by a title insurance company reasonably satisfactory to the Agent in an 78 87 aggregate amount of $125,000,000 for all such policies covering all such properties, which amount shall be allocated to such properties as set forth onSchedule II hereto, and each reinsured in amounts and with insurance companies as reasonably required by the Agent, subject to no exceptions other than such exceptions as are acceptable to the Agent, and containing endorsements in form and substance satisfactory to the Agent and the Lenders;provided, however, during the term of the Loan, the Agent and the Lenders may require other endorsements to the title insurance policies as may reasonably be required by any amendments to this Agreement, in connection with any release of any real property from the Lien of any Company Mortgage or Company Deed of Trust or any surrender of any Company Mortgage or Company Deed of Trust; (c) legible copies of all recorded documents noted as exceptions in such title insurance policies; (d) certified copies of all leases (including ground leases) and, as to certain properties identified by the Agent, other contracts materially affecting such real property, as requested by the Agent or any Lender (acting through the Agent); (e) certified rent rolls as to each property in a form and scope satisfactory to the Agent; (f) certified copies of all licenses, approvals, and permits (including certificates indicating that certificates of occupancy were issued) from federal, state, local, and other governmental authorities materially affecting such real property that are reasonably requested by the Agent or any Lender (acting through the Agent); (g) affidavits from the Company satisfactory to title insurers; and (h) such other approvals, consents, waivers, opinions (including opinions of local counsel to the Company as to the compliance of the mortgaged properties with zoning restrictions or documents as the Agent or any Lender (acting through the Agent) may reasonably request. SECTION 7.1.9. Subsidiary Guaranty. The Agent shall have received the Subsidiary Guaranty, dated the Initial Borrowing Date, duly executed by each Subsidiary of the Company which is listed on Schedule III hereto. SECTION 7.1.10. Subsidiary Pledge Agreement. The Agent shall have received the Subsidiary Pledge Agreement, dated the Initial Borrowing Date, duly executed by each Subsidiary of the 79 88 Company listed on Schedule IV hereto and by the Agent, and the Agent shall have received (a) the certificates evidencing all of the shares of capital stock required to be pledged pursuant to the Subsidiary Pledge Agreement, which certificates shall in each case be accompanied by undated stock powers duly executed in blank; (b) each Intercompany Demand Note held by each such Subsidiary, endorsed to the order of the Agent by such Subsidiary; and (c) all promissory notes or other debt instruments held by each such Subsidiary which have a face amount in excess of $100,000, in each case endorsed (which endorsement may be on anallonge) to the order of the Agent. SECTION 7.1.11. Intercompany Note Pledge Agreement. The Agent shall have received the Intercompany Note Pledge Agreement, dated the Initial Borrowing Date, duly executed by each Subsidiary of the Company listed on Schedule VII hereto which is not otherwise a party to the Subsidiary Pledge Agreement and by the Agent, and the Agent shall have received each Intercompany Demand Note held by each such Subsidiary, endorsed to the order of the Agent. SECTION 7.1.12. Opinions of Counsel. The Agent shall have received opinions, dated the Initial Borrowing Date and addressed to the Agent and all Lenders, from (a) Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, special outside counsel to the Obligors, in substantially the form of Exhibit L-1 attached hereto; (b) Anthony R. Pierno Esq., general counsel of the Company, in substantially the form of Exhibit L-2 attached hereto; (c) Andrew Barley, Esq., special patent and trademark counsel to the Obligors, in substantially the form of Exhibit L-3 attached hereto; (d) the local counsel listed in Schedule X hereto, in substantially the forms set forth in Exhibit L-4 attached hereto; and (e) O'Melveny & Myers, counsel to the Agent, in substantially the form of Exhibit L-5 attached hereto. SECTION 7.1.13. Closing Fees, Expenses, etc. The Agent shall have received for its own account all fees, costs, and expenses due and payable pursuant to Sections 3.5.3 and 12.3, if then invoiced. 80 89 SECTION 7.1.14. Environmental Reports. The Agent shall have received the Environmental Reports, in form, scope and substance satisfactory to all Lenders, with respect to substantially all of the domestic real property owned by the Company or any of its Subsidiaries. SECTION 7.1.15. Investment Account Letter. The Agent shall have received a letter, in substantially the form of Exhibit N attached hereto, with such changes as may be approved by the Agent, duly executed by each Person with which the Company maintains any account for investment in Cash Equivalent Investments permitted hereunder. SECTION 7.1.16. Sufficient Quantities, etc. The Agent shall have received duly executed multiple original counterparts of each Loan Document required to be executed and delivered pursuant to this Section 7.1 (other than financing or termination statements, stock certificates or stock powers, and such other documents where the Agent has not required delivery of counterparts) for the Agent and each Lender together with such additional executed counterparts as the Agent may reasonably request for filing or recordation purposes. SECTION 7.1.17. Availability. Following the making of the initial Loans on the Initial Borrowing Date, the Revolving Commitment Availability (calculated as though the Existing Letters of Credit were issued on the Initial Borrowing Date) shall be at least $180,000,000. SECTION 7.1.18. Issuance of Senior Debt and Equity. The Company shall have issued the Senior Debt and the Parent Guarantor shall have issued Parent Guarantor Preferred Stock, the aggregate gross proceeds of which shall be at least $250,000,000. In addition, the Parent Guarantor shall have made a capital contribution to the Company, purchased shares of capital stock of the Company or made an intercompany loan to the Company, or any combination thereof, in an aggregate amount equal to the cash proceeds received by the Parent Guarantor from the issuance of such Parent Guarantor Preferred Stock, net of all underwriting discounts and commissions and all legal, accounting and other fees and expenses incurred in connection with the public offering of such Parent Guarantor Preferred Stock. The Agent shall have received certificates in substantially the form of Exhibit C-1 and C-2 attached hereto, dated the Initial Borrowing Date, of an Authorized Officer of the Company as to the satisfaction of the conditions set forth in this Section 7.1.18. SECTION 7.1.19. Cash Management Arrangements. The Agent shall have received each Collection Bank Agreement and the Concentration Bank Agreement, duly executed by the Company, and, respectively, each Collection Bank, and Bank of America, as concentration bank, together with such other documents, releases, and agreements as reasonably required by the Agent or any Lender 81 90 (acting through the Agent) in connection with perfecting its Lien in the accounts established thereby. SECTION 7.2. All Credit Extensions. The obligation of each Lender to fund any Loan on the occasion of any Borrowing (including the initial Borrowing), the obligation of Business Credit to fund any Swingline Loan, and the obligation of any Issuer Bank to issue any Letter of Credit, as the case may be, shall, except as provided in Section 2.1.3(b), be subject to the prior or concurrent satisfaction (or waiver) of each of the conditions precedent set forth in this Section 7.2. Notwithstanding the foregoing, the Lenders acknowledge and agree that during the continuance of an Event of Cash Dominion, in the event that the Agent, acting in its sole and absolute discretion, has given notice of its election under the Concentration Bank Agreement to have funds in the Concentration Account applied to repay Revolving Credit Outstandings, (a) the Agent, acting in its sole and absolute discretion, pursuant to Section 12.1, may waive the conditions of this Section 7.2 and continue to make Revolving Loans and Swingline Loans, provided that the Revolving Credit Outstandings after giving effect to such Loans do not exceed the Borrowing Base, and instruct the applicable Issuer Bank to issue Letters of Credit notwithstanding the existence of a Default and (b) if the Agent, acting in its sole and absolute discretion, has determined that it is in the best interests of the Lenders to continue to fund, the Lenders shall be obligated to continue to make Revolving Loans and to reimburse the Agent for Swingline Loans and shall be deemed to have purchased and received an undivided interest in Letters of Credit made or issued after the giving of such notice by the Agent of its election under the Concentration Bank Agreement unless and until the Agent receives written instructions from the Required Lenders to cease making Swingline Loans and Revolving Loans and instructing Issuer Banks to issue Letters of Credit. SECTION 7.2.1. Compliance with Warranties, No Default, etc. Both immediately before and immediately after giving effect to any Credit Extension (but, if any default of the nature referred to in Section 10.1.5 shall have occurred with respect to any other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds of such Credit Extension) the following statements shall be true and correct: (a) the representations and warranties set forth in Article VIII (excluding, however, in the case of Borrowings other than the Borrowing made on the Initial Borrowing Date, those contained inSections 8.8 and 8.13 and the last sentence of Section 8.12) and in each of the other Loan Documents shall be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date), except that 82 91 after the Initial Borrowing Date, for purposes of thisclause (a), the words "has a reasonable possibility of having a Materially Adverse Effect" which appear in Sections 8.7 and 8.10 shall be deemed to read "could reasonably be expected to have a Materially Adverse Effect" and the words "has no reasonable possibility of having a Materially Adverse Effect" which appear in Section 8.1 shall be deemed to read "could not reasonably be expected to have a Materially Adverse Effect"; (b) except as disclosed by the Company to the Agent and the Lenders in Item 3 ("Litigation") or Item 8 ("Environmental Matter") of the Disclosure Schedule or in the Environmental Reports (i) no labor controversy, litigation, arbitration, or governmental proceeding, or governmental investigation known to the Company's Executive Officers (including any litigation or governmental proceeding or such governmental investigation with respect to any environmental matter) shall be pending or, to the knowledge of the Company's Executive Officers, after due inquiry, threatened against the Parent Guarantor, the Company, or any of their Subsidiaries which has a reasonable possibility of having a Materially Adverse Effect or which purports to affect the legality, validity, or enforceability of this Agreement, or any other Transaction Document; and (ii) no development shall have occurred in any labor controversy, litigation, arbitration, or governmental proceeding, or governmental investigation known to the Company's Executive Officers (including any litigation or governmental proceeding or such governmental investigation with respect to any environmental matter) disclosed in Item 3 ("Litigation") or Item 8 ("Environmental Matters") of the Disclosure Schedule or in the Environmental Reports which has a reasonable possibility of having a Materially Adverse Effect; provided, however, that after the Initial Borrowing Date, the words "has a reasonable possibility of having a Materially Adverse Effect" which appear inclauses (i) and (ii) of this clause (b) shall be deemed to read "could reasonably be expected to have a Materially Adverse Effect"; and (c) no Default shall have then occurred and be continuing; and neither the Parent Guarantor, the Company, any of their Subsidiaries, nor any other Obligor shall be in violation of any law, governmental regulation, or court order or decree where such violation has a reasonable possibility of having a Materially Adverse Effect;provided, 83 92 howeve, that after the Initial Borrowing Date, the words "has a reasonable possibility of having a Materially Adverse Effect" which appear in this clause (c) shall be deemed to read "could reasonably be expected to have a Materially Adverse Effect". SECTION 7.2.2. Credit Request; Borrowing Base Certificate. The Agent shall have received a Credit Request, and, in connection with any request for any Revolving Loan or the issuance of any Letter of Credit other than during the continuance of an Event of Cash Dominion, a Borrowing Base Certificate delivered pursuant to Section 2.4.1 for such Credit Extension. The delivery of a Credit Request and the acceptance by the Company of the proceeds of such Credit Extension shall constitute a representation and warranty by the Company that, on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof), except as contemplated by the last sentence of Section 7.2, the statements made in Section 7.2.1 are true and correct. SECTION 7.2.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Parent Guarantor, the Company, any of the Company's Subsidiaries, or any other Obligor shall be reasonably satisfactory in form and substance to the Agent and its counsel and the Agent and its counsel shall have received all information, approvals, opinions, documents, or instruments as the Agent or its counsel may reasonably request. SECTION 7.3. Conditions Subsequent. Within 60 days of the Effective Date, the Collection Bank Agreements and the Concentration Bank Agreement shall be amended to provide for such procedures and protections as the Agent reasonably requests related to the occurrence of an Event of Cash Dominion and the Company, each Collection Bank and Bank of America shall have executed such other documents, releases, and agreements as reasonably required by the Agent. ARTICLE VIII REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agent to enter into this Agreement, and to induce the Lenders to extend their Commitments and to make Credit Extensions hereunder, the Parent Guarantor represents and warrants (and the Company, to the extent that any such representation and warranty shall be applicable to the Company, its Subsidiaries, or any of its or their Properties, also represents and warrants) unto the Agent and each Lender as set forth in this Article VIII. 84 93 SECTION 8.1. Organization, etc. Each of the Obligors, the Canadian Subsidiaries, VALCO, QAL, Anglesey, ALPART, KJBC, and each other Significant Subsidiary of the Company is a corporation, partnership, or other entity validly organized and existing and (in the case of non-Domestic Subsidiaries and Joint Venture Affiliates, to the extent that "good standing" is recognized under applicable law) in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be; is duly qualified to do business and (in the case of non-Domestic Subsidiaries and Joint Venture Affiliates, to the extent that "good standing" is recognized under applicable law) in good standing as a foreign corporation, partnership, or other entity in each jurisdiction where the nature of its business or activities requires such qualification; and has full corporate, partnership, or other organizational power and authority and holds all requisite governmental licenses, permits, and other approvals to own, lease, and operate its Properties and to conduct its business substantially as now being operated and conducted, except where the failure to be so qualified and in good standing or to have such power, authority, licenses, permits, and other approvals has no reasonable possibility of having a Materially Adverse Effect. The Parent Guarantor, the Company, each Subsidiary of the Company, and each Obligor (a) has full corporate power and authority to enter into and perform its respective obligations under this Agreement, and the other Loan Documents and (b) holds all requisite governmental licenses, permits, and other approvals to enter into and perform its respective obligations under this Agreement, and the other Loan Documents. SECTION 8.2. Due Authorization, Non-Contravention, etc. The execution, delivery, and performance by each Obligor of the Loan Documents to which such Obligor is a party are within such Obligor's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene such Obligor's Organic Documents; (b) contravene any contractual restriction where such a contravention has a reasonable possibility of having a Materially Adverse Effect, or contravene any law or governmental regulation or court decree or order binding on or affecting such Obligor; or (c) result in, or require the creation or imposition of, any Lien on any of such Obligor's properties, other than pursuant to the Loan Documents. SECTION 8.3. Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery, or performance by any Obligor of any Loan Document to which it is a party, except for the filing or recording of financing 85 94 statements, the Company Mortgages, Company Deeds of Trust, Company Patent Security Agreement, Company Trademark Security Agreement, any actions required outside of the United States (with respect to Collateral located outside of the United States or Collateral consisting of stock of foreign issuers), notations on documents of title, and actions required under the Federal Assignment of Claims Act of 1940 in order to perfect the security interests of the Agent in the Collateral. None of the Parent Guarantor, the Company, or any of their Subsidiaries is subject to regulation as an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 8.4. Validity, etc. This Agreement, and all other Loan Documents executed by the Company will, on the due execution and delivery hereof and thereof by all parties hereto and thereto, constitute the legal, valid, and binding obligations of the Company enforceable against the Company in accordance with their respective terms; this Agreement and each other Loan Document executed by the Parent Guarantor will, on the due execution hereof and thereof by all parties hereto and thereto, constitute the legal, valid, and binding obligations of the Parent Guarantor enforceable against the Parent Guarantor in accordance with their respective terms; and each Loan Document executed pursuant hereto by each other Obligor will, on the due execution and delivery thereof by such Obligor and by all other parties thereto, constitute the legal, valid, and binding obligation of such Obligor enforceable against such Obligor in accordance with its terms; in each case, however, except as enforceability may be limited by bankruptcy, insolvency, or other similar laws of general application relating to or affecting the enforcement of creditors' rights generally, and by general principles of equity. SECTION 8.5. Financial Information. (a) The consolidated balance sheet of the Company and its Subsidiaries as of December 31, 1992 and the related statements of consolidated income and consolidated cash flows for the year then ended present fairly the financial position of the Company and its Subsidiaries at December 31, 1992 and the results of their operations and their cash flows for the year then ended in conformity with GAAP. The consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1993 and the related statements of consolidated income and consolidated statement of cash flows for the nine months then ended present fairly (subject to normal year-end adjustments) the financial position of the Company and its Subsidiaries at September 30, 1993 and the results of their operations and their cash 86 95 flows for the nine months then ended in conformity with GAAP for interim financial information. (b) The consolidated balance sheet of the Parent Guarantor and its Subsidiaries as of December 31, 1992 and the related statements of consolidated income and consolidated cash flows for the year then ended present fairly the financial position of the Parent Guarantor and its Subsidiaries at December 31, 1992 and the results of their operations and their cash flows for the year then ended in conformity with GAAP. The consolidated balance sheet of the Parent Guarantor and its Subsidiaries as of September 30, 1993 and the related statements of consolidated income and consolidated statement of cash flows for the nine months then ended present fairly (subject to normal year-end adjustments) the financial position of the Parent Guarantor and its Subsidiaries at September 30, 1993 and the results of their operations and their cash flows for the nine months then ended in conformity with GAAP for interim financial information. (c) The financial statements and projections of the Company dated December 28, 1993 and January 26, 1994 were prepared on the basis of the estimates and assumptions stated therein and represented, at each such date, the Company's good faith forecasts and projections of its future financial performance prepared after duly diligent investigations; such estimates, assumptions, projections, and forecasts were fair and reasonable, and reflected the Company's estimates of the most likely future financial results and condition of the Company, in the light of business conditions existing at the date thereof; and any such estimates, assumptions, projections, and forecasts, if prepared as of the date of this Agreement, would contain estimates of the future financial performance of the Company which would not materially and adversely differ from the respective estimates contained in the financial projections and forecasts. As of the date hereof and, in connection with the initial Credit Extension, as of the Initial Borrowing Date, no material developments have occurred since January 26, 1994 which would lead the Company to believe that such projections and forecasts, taken as a whole, are not reasonably attainable, subject to the uncertainties and approximations inherent in any projections. It is understood by the Agent and the Lenders that all of the estimates and assumptions on which such projections and forecasts are based may not prove to be correct, that actual future financial performance may vary from that projected, and that nothing contained in this clause (c) shall be construed as a warranty, or guarantee, of future financial performance. 87 96 SECTION 8.6. No Material Adverse Effect. (a) For purposes of Credit Extensions to be made on the Initial Borrowing Date, no event or events have occurred since September 30, 1993 which, individually or in the aggregate, have had or have a reasonable possibility of having a Materially Adverse Effect. (b) For purposes of Credit Extensions requested to be made after the Initial Borrowing Date, no event or events have occurred since the Initial Borrowing Date which, individually or in the aggregate, have had or could reasonably be expected to have a Materially Adverse Effect. SECTION 8.7. Absence of Default or Violation of Law. No Obligor nor any Subsidiary thereof is (a) in default in the payment of (or in the performance of any material obligation applicable to) any Indebtedness outstanding in a principal amount exceeding $10,000,000 or (b) in violation of any law, governmental regulation, or court decree or order where such violation has a reasonable possibility of having a Materially Adverse Effect. SECTION 8.8. Litigation, etc. There is no pending or, to the knowledge, after due inquiry, of the Executive Officers of the Parent Guarantor or the Company, threatened labor controversy, litigation, action, or proceeding affecting the Parent Guarantor, the Company, or any of their Subsidiaries or Joint Venture Affiliates, or any of their respective Properties, or revenues, which has a reasonable possibility of having a Materially Adverse Effect or which purports to affect the legality, validity, or enforceability of this Agreement, or any other Loan Document, except as disclosed in Item 3 ("Litigation") or Item 8 ("Environmental Matters") of the Disclosure Schedule or in the Environmental Reports. SECTION 8.9. Subsidiaries. (a) The Parent Guarantor has no Subsidiaries except the Company and its Subsidiaries. The Company has no Subsidiaries, except those Subsidiaries (i) which are identified in Item 2 ("Existing Subsidiaries") of the Disclosure Schedule; or (ii) which have been formed or acquired in accordance with Section 9.2.5 or 9.2.10. (b) Other than as set forth in Schedule XI hereto, as of the Initial Borrowing Date neither the Parent Guarantor nor the Company has any Subsidiaries having total assets greater than $1,000,000 (exclusive of assets eliminated in consolidation) other than those Subsidiaries set forth in Schedules III, IV and VII hereto. 88 97 SECTION 8.10. Ownership of Properties. (a) The Parent Guarantor, the Company, and each of their Subsidiaries owns good title to all of its Properties, of any nature whatsoever, which are material to the Parent Guarantor, the Company, and their Subsidiaries as a whole or which, in the case of Properties owned by the Company or any of its Significant Subsidiaries, are material to the Company or such Significant Subsidiary, in each case free and clear of all Liens or material claims except for "Permitted Exceptions" (as defined in the Company Mortgages and Company Deeds of Trust) or as permitted pursuant toSection 9.2.3. (b) The Parent Guarantor, the Company, and each of their Subsidiaries owns (or is licensed to use) and possesses all such patents, trademarks, trade names, service marks, and copyrights as the Parent Guarantor and the Company consider necessary for the conduct of its business and the business of its Subsidiaries as now conducted without, individually or in the aggregate, any infringement or alleged infringement upon rights of other Persons which has a reasonable possibility of having a Materially Adverse Effect. SECTION 8.11. Taxes. The Parent Guarantor, the Company, and each of their Domestic Subsidiaries and their other Significant Subsidiaries have filed all federal, state, and all other material tax returns and reports required by law to have been filed by it and have paid or caused to be paid all material taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books. SECTION 8.12. Pension and Welfare Plans. During the twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of each Credit Extension hereunder, no actions have been taken by the Parent Guarantor, the Company, any member of their Controlled Groups, or any other Person (with the requisite authority to act) to terminate any Pension Plan that has insufficient assets to satisfy all benefit liabilities thereunder (within the meaning of Section 4001(a)(16) of ERISA), and no contribution failure has occurred with respect to any Pension Plan sponsored or maintained by any Controlled Group member sufficient to give rise to a Lien on assets of any Controlled Group member under section 302(f) of ERISA, which failure has not been cured within 30 days of the applicable due date. With respect to any Pension Plan, neither the Parent Guarantor, the Company, nor any of their Subsidiaries has failed in any material respect to comply with applicable provisions of ERISA and the Code and any regulations, rulings, or notices issued thereunder. Item 7 ("Employee Benefit Plans") of 89 98 the Disclosure Schedule lists all Welfare Plans of the Parent Guarantor, the Company, or any of their Domestic Subsidiaries and sets forth the Company's estimate of the expected aggregate contributions of the Parent Guarantor, the Company, and their Domestic Subsidiaries to Pension Plans for the 1992 and 1993 Fiscal Years and the aggregate expected costs of the Parent Guarantor, the Company and their Domestic Subsidiaries for medical benefits for the 1992 and 1993 Fiscal Years under Welfare Plans. SECTION 8.13. Environmental Warranties. Except as set forth in Item 8 ("Environmental Matters") of the Disclosure Schedule or in the Environmental Reports: (a) all facilities and Property (including underlying groundwater) owned, operated, or leased by the Parent Guarantor, the Company, or any of their Subsidiaries have been, and continue to be, owned, operated, or leased by the Parent Guarantor, the Company, and their Subsidiaries in material compliance with all Environmental Laws; (b) there are no pending or, to the knowledge of the Parent Guarantor's or the Company's Executive Officers, after due inquiry, threatened (i) claims, complaints, notices, or requests for information received by the Parent Guarantor, the Company, or any of their Subsidiaries, from any federal, state, or local governmental agency or authority, or from any Person which has commenced a legal proceeding against the Parent Guarantor, the Company, or any of their respective Subsidiaries, with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices, or inquiries to the Parent Guarantor, the Company, or any of their Subsidiaries, from any federal, state, or local governmental agency or authority, or from any Person which has commenced a legal proceeding against the Parent Guarantor, the Company, or any of their respective Subsidiaries, regarding potential liability under any Environmental Law; (c) there have been no Releases of Hazardous Materials at, on, into or under any Property now or previously owned, operated, or leased by the Parent Guarantor, the Company, or any of their Subsidiaries that, singly or in the aggregate, have a reasonable possibility of having a Materially Adverse Effect; (d) the Parent Guarantor, the Company, and their Subsidiaries have been issued and are in material compliance with all permits, certificates, approvals, licenses, and 90 99 other authorizations relating to environmental matters and necessary for their businesses; (e) no Property now or previously owned, operated, or leased by the Parent Guarantor, the Company, or any of their Subsidiaries is listed or, to the knowledge of the Parent Guarantor's or the Company's Executive Officers, after due inquiry, proposed for listing (with respect to owned Property only) on the National Priorities List pursuant to CERCLA or on the CERCLIS or, to the best knowledge and belief of the Parent Guarantor's and the Company's Executive Officers, on any similar state list of sites requiring investigation or clean-up; (f) there are no underground storage tanks (as defined in 40 C.F.R. Section 280.1, as the same may be amended, modified, supplemented, or replaced from time to time), active or abandoned, including petroleum storage tanks, on or under any Property now or previously owned or leased by the Parent Guarantor, the Company, or any of their Subsidiaries that, singly or in the aggregate, have a reasonable possibility of having a Materially Adverse Effect; (g) none of the Parent Guarantor, the Company, or any of their Subsidiaries has, to the best knowledge and belief of each Executive Officer of the Company, transported or arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state, or local enforcement actions or other investigations which has a reasonable possibility of leading to material claims against the Parent Guarantor, the Company or such Subsidiary thereof for any remedial work, damage to natural resources, or personal injury, including claims under CERCLA; and (h) there are no polychlorinated biphenyls or friable asbestos present at any real property now or previously owned or leased by the Parent Guarantor, the Company, or any of their Subsidiaries that, singly or in the aggregate, have a reasonable possibility of having a Materially Adverse Effect. SECTION 8.14. Regulations G, U, and X. No Obligor is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Credit Extension will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation G, U, or X. Terms for which meanings are provided in F.R.S. Board Regulation G, U, or X or any regulations substituted therefor, as from time to time in effect, are used in this Section 8.14 with such meanings. 91 100 SECTION 8.15. Solvency. On and as of the date of each Credit Extension, both before and after giving effect to (a) all Indebtedness (including the Loans and the Letters of Credit) being incurred, assumed, or guaranteed, and (b) Liens created by the Company in connection therewith, but in no case regarding the KT Note as an asset of the Company, the Company and the Parent Guarantor will be Solvent. SECTION 8.16. Senior Indebtedness. (a) The monetary Obligations of the Company hereunder and under the other Loan Documents constitute "Senior Indebtedness" of the Company underclause (i) of the definition of the term "Senior Indebtedness" and, to the extent that such monetary Obligations constitute "Obligations" (as defined in the Subordinated Indenture), "Specified Senior Debt" described in clause (i)(A) of the definition of such term under the terms of the Subordinated Indenture; the monetary Obligations of KFC, KAAC, AJI and KJC under the Loan Documents constitute "Senior Indebtedness" of such corporations underclause (i) of the definition of the term "Senior Indebtedness" and, to the extent that such monetary Obligations constitute "Obligations" (as defined in the Subordinated Indenture), "Guarantor Specified Senior Debt" described in clause (i)(A) of the definition of such term of such corporations under the terms of the Subordinated Indenture; the subordination provisions of the Subordinated Indenture are enforceable against the holders of the Subordinated Debt; and the Agent and the Lenders will be entitled to the benefits of such subordination provisions. (b) The monetary Obligations of the Company hereunder and under the other Loan Documents constitute "Senior Indebtedness of the Company" (as defined in the PIK Note) under the terms of the PIK Note; the subordination provisions of the PIK Note are enforceable against the holder of the PIK Note; and the Agent and the Lenders will be entitled to the benefits of such subordination provisions of the PIK Note. (c) The monetary Obligations of the Company hereunder and under the other Loan Documents constitute (or, in the case of any Equity Proceeds Note issued after the date hereof, will constitute) "Senior Indebtedness of the Company" (as defined in each Equity Proceeds Note) under the terms of each Equity Proceeds Note; the subordination provisions of each Equity Proceeds Note are enforceable (or, in the case of any Equity Proceeds Notes issued after the 92 101 date hereof, will be enforceable) against the holder of such note; and the Agent and the Lenders will be entitled to the benefits of such subordination provisions of each Equity Proceeds Note. SECTION 8.17. Accuracy of Information. All factual information heretofore or contemporaneously furnished by or on behalf of any Obligor in writing to the Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished in writing by or on behalf of any Obligor to the Agent or any Lender pursuant to or in connection with any Loan Document will be, true and accurate in every material respect on the date as of which such information is dated or certified, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances then prevailing. SECTION 8.18. Joint Venture Contingent Liabilities. Item 11 ("Joint Venture Contingent Liabilities") of the Disclosure Schedule contains a fair summary of the types of the material Contingent Liabilities of the Company and its Subsidiaries in respect of the businesses, operations, and financial obligations of VALCO, ALPART, Anglesey, KJBC, and QAL. SECTION 8.19. Mortgaged Property. The real property and improvements which are mortgaged by the Company Mortgages and Company Deeds of Trust, as the case may be, constitute, as of the date of this Agreement, all of the real property and improvements owned or leased by the Company or any of its Subsidiaries which comprise, or are part of, or are used in the operations of, or are located contiguous to, the respective plants of the Company which are located at the locations listed on Schedule II hereto, except for certain unimproved property which is located contiguous to the Company's facilities at Newark, Ohio, Mead, Washington and Greenwood County, South Carolina, but will not be so mortgaged. Such unimproved property (a) is not a part of or used in the operations of the Company's plants in Newark, Ohio, Mead, Washington or Greenwood County, South Carolina which are to be mortgaged to the Agent, and (b) does not have any material structures or improvements located on it. ARTICLE IX COVENANTS SECTION 9.1. Affirmative Covenants. The Parent Guarantor agrees (and the Company, to the extent that any such agreement of the Parent Guarantor shall be applicable to the Company, any of its Subsidiaries, or any of its or their properties, also agrees) with the Agent and each Lender that, until all Commitments have 93 102 terminated, no Letters of Credit are outstanding, and all outstanding monetary Obligations have been paid in full: SECTION 9.1.1. Financial Information, Reports, Notices, etc. The Company will furnish, or will cause to be furnished, to the Agent, for itself and for delivery to the Lenders, copies of the following financial statements, reports, notices, and information: (a) within 50 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Company, consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such Fiscal Quarter and consolidated and consolidating statements of income of the Company and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter and a consolidated statement of cash flows of the Company and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified (subject to normal year-end adjustments) on behalf of the Company by a Financial Authorized Officer of the Company; (b) within 95 days after the end of each Fiscal Year of the Company, (i) a copy of the annual audit report for such Fiscal Year for the Company and its Subsidiaries, including therein a consolidated balance sheet as at the close of such Fiscal Year, and related consolidated statements of income and cash flows for such Fiscal Year, of the Company and its Subsidiaries, in each case audited (without any Impermissible Qualification) by Arthur Andersen & Co. or other independent public accountants acceptable to the Agent and the Required Lenders, (ii) a consolidating balance sheet at the close of such Fiscal Year, and a related consolidating statement of income for such Fiscal Year, of the Company and its Subsidiaries, certified on behalf of the Company by a Financial Authorized Officer of the Company, and (iii) a report from the accountants referred to in clause (i), containing a computation prepared by the Company of each of the financial covenants contained inSection 9.2.4 as at the end of such Fiscal Year, and, commencing with the 1995 Fiscal Year, of the Interest Coverage Ratio as of the end of each Fiscal Quarter of such Fiscal Year (except the first Fiscal Quarter of the 1995 Fiscal Year), which report shall specify that it has been prepared using the procedures specified in the letter dated February __, 1994 from Arthur Andersen & Co. to the Agent, a copy of which has been delivered to each Lender, and reporting that, in making the audit necessary for the signing of such annual report by such accountants, they have not become aware of any material miscomputation by the Company of such financial covenants, or of the Interest Coverage Ratio as of the end of each of such Fiscal 94 103 Quarters, or of any Default or Event of Default that has occurred and is continuing, or, if they have become aware of such miscomputation, Default, or Event of Default, describing such miscomputation, Default, or Event of Default; (c) as soon as available and in any event within 50 days (or, in the case of the fourth Fiscal Quarter of any Fiscal Year, 95 days) after the end of each Fiscal Quarter, (i) a Compliance Certificate, executed on behalf of the Company by a Financial Authorized Officer of the Company, showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Agent) compliance with the financial covenants set forth inSection 9.2.4 and, commencing with the second Fiscal Quarter of the 1995 Fiscal Year, the calculation of the Interest Coverage Ratio for the four Fiscal Quarter Period ended on the last day of such Fiscal Quarter and (ii) a detail schedule of Inventory by site (in substantially the form currently produced by the Company, with such changes as to which the Agent may consent, such consent not to be unreasonably withheld); (d) as soon as possible and in any event within three Business Days after an Executive Officer of the Parent Guarantor or the Company shall have become aware of the occurrence of (i) any Default, a statement on behalf of the Company by the chief financial Authorized Officer of the Company setting forth details of such Default and the action which the Company and/or the relevant other Obligor has taken and proposes to take with respect thereto, or (ii) any (A) default or event of default (however denominated) under any Subordinated Debt Instrument (B) default or event of default (however denominated) under any Senior Debt Instrument or (C) default or event of default (however denominated) under any agreement relating to any Joint Venture Affiliate, ALPART, or VALCO or any other material document or agreement to which the Company or any of its Significant Subsidiaries is a party, in each case where such a default or event of default has a reasonable possibility of having a Materially Adverse Effect, notice and a description in reasonable detail thereof; 95 104 (e) as soon as possible and in any event within three Business Days after (i) the occurrence of any material adverse development with respect to any labor controversy, litigation, action, or proceeding described in Section 8.8 or (ii) the commencement of any labor controversy, litigation, action, or proceeding of the type described in Section 8.8, written notice thereof and copies of all material documentation relating thereto; (f) promptly after the sending or filing thereof, copies of all publicly available reports which the Parent Guarantor or the Company sends to any of its security holders, and all publicly available reports and registration statements which the Parent Guarantor or the Company or any of their Subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (g) as soon as possible and in any event within three Business Days after an Executive Officer of the Parent Guarantor or the Company shall have become aware of the taking of any action by the Company or any other Person to terminate any Pension Plan that has insufficient assets to satisfy all benefit liabilities thereunder (within the meaning of Section 4001(a)(16) of ERISA), or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien against assets of any Controlled Group member under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could reasonably be expected to result in the requirement that the Company or any Controlled Group member furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event relating to any Pension Plan with respect to which there is a reasonable possibility of the incurrence by the Company, the Parent Guarantor or any of their Subsidiaries of any liability, fine, or penalty which would have a Materially Adverse Effect, or any material increase in the contingent liability of the Company with respect to any post-retirement Welfare Plan benefit excluding liabilities occurring solely by operation of any generally applicable law enacted after the date of this Agreement, written notice thereof and copies of all material documentation relating thereto; (h) (i) promptly upon receipt thereof, a copy of all notices, documents, or other Instruments received by the Company pursuant to any Subordinated Debt Instrument or any Senior Debt Instrument and not otherwise required to be delivered hereunder and (ii) concurrently with the delivery thereof, a copy of all notices, documents, or other Instruments delivered by the Company pursuant to any Subordinated Debt Instrument or any Senior Debt Instrument and not otherwise required to be delivered hereunder; 96 105 (i) no later than five Business Days after the approval thereof by the Company's Board of Directors, a copy of the annual business plan, budget, and updated business projections of the Company and its Subsidiaries, and upon the delivery to the Agent of any financial statements relating to a Fiscal Quarter included in such plan, budget, or projections, a summary comparing the Company's actual financial performance during such Fiscal Quarter to that provided in such plan, budget, or projections; and (j) such other information respecting the condition or operations, financial or otherwise, of the Parent Guarantor, the Company, or any of their Subsidiaries as any Lender (acting through the Agent) may from time to time reasonably request. SECTION 9.1.2. Compliance with Laws, etc. The Parent Guarantor and the Company will, and will cause each of their Subsidiaries to, comply in all respects with all applicable laws, rules, regulations, and orders (except for such noncompliance which could not reasonably be expected to have a Materially Adverse Effect), including (and subject to the foregoing exception): (a) subject to Section 9.2.10, the maintenance and preservation of its corporate existence under the laws of its jurisdiction of incorporation or organization, as the case may be, and its qualification as a foreign corporation, partnership, or other entity in each jurisdiction where the nature of its business requires such qualification; and (b) the payment, before the same become delinquent, of all taxes, assessments, and governmental charges imposed upon it or upon its Property, except to the extent being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books. SECTION 9.1.3. Maintenance of Properties. The Parent Guarantor and the Company will, and will cause each of their Significant Subsidiaries to, maintain, preserve, protect, and keep their material properties in good repair, working order, and condition (ordinary wear and tear excepted), and make necessary and proper repairs, renewals, and replacements so that their business carried on in connection therewith may be properly conducted at all times unless the Parent Guarantor or the Company determines in the exercise of its good faith business judgment that the continued maintenance of any such properties is no longer economically desirable. SECTION 9.1.4. Insurance. (a) The Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained with 97 106 financially sound and reputable insurance companies (including, consistent with past practice, insurance companies affiliated with the Company, insurance with respect to their Properties and business (including business interruption insurance, fire insurance, public liability insurance and flood insurance) in such amounts, of such character and against such risks as are usually maintained by companies engaged in the same or similar business or having comparable properties, and in any case having a coverage which is not materially less than the insurance of such type maintained by the Company and its Subsidiaries on the date of this Agreement,provided, that to the extent that any of the insurance required by thisclause (a) ceases to be available at commercially reasonable rates, the Company may effect substitute insurance coverage therefor in accordance with prudent standards then being followed by other companies engaged in the same or similar business or having comparable properties. In the event that the Company wishes to effect substitute coverage pursuant to the foregoing proviso, it will (i) notify the Agent of such intent as soon as reasonably practicable, and (ii) in any event not less than three Business Days prior to the termination of the coverage for which substitution is to be made, furnish the Agent with a report of the Company describing in reasonable detail the nature of such substitute coverage and the reasons why the Company believes that such substitute coverage is appropriate. (b) The Company will cause: (i) the Agent and the Lenders to be named as an additional insured, for a total coverage of $10,000,000 for all such Persons, under the public liability policies of the Company and its Subsidiaries; and (ii) the Agent to be named as loss payee under all insurance policies of the Company and its Subsidiaries that have executed the Subsidiary Security Agreement covering loss of or damage to Property (pursuant to loss payable clauses satisfactory to the Agent), and will, (A) as soon as practicable after effecting any insurance policies of the Company or any of its Subsidiaries (other than ALPART or VALCO) (and, with respect to any such policies which are replacements for other insurance policies which are required hereby, and which are terminating, in any event within three Business Days after such termination), furnish the Agent with an insurance broker's certificate or binder in respect of such policies or replacement policies; 98 107 (B) if a replacement insurance policy for an insurance policy which is required hereby and which is terminating has not been effected prior to the third Business Day before such termination, furnish the Agent on such third Business Day a report of the Company describing in reasonable detail the status of such replacement policies; and (C) upon request of the Agent, furnish to the Agent copies of all insurance policies at any time maintained by the Parent Guarantor, the Company and each Subsidiary of the Company executing a Security Agreement and furnish to the Agent with copies for each Lender, on the ______ day of each year, a certificate of an Authorized Officer of the Company (and, if requested by the Agent, any insurance broker of the Company) setting forth the nature and extent of all insurance maintained by the Company, and its Significant Subsidiaries in accordance with this Section 9.1.4 (and which, in the case of a certificate of a broker, were placed through such broker). SECTION 9.1.5. Books and Records; Audits; Confidentiality. (a) Each of the Parent Guarantor and the Company will, and will cause each of its Significant Subsidiaries to, maintain at all times proper and complete (in all material respects) books, records and accounts, in which complete and timely (in all material respects) entries are made, which reflect all of its business affairs and transactions in accordance with GAAP. The Company will and will cause KAII to maintain at all times books and records pertaining to the Collateral in such detail, form and scope as the Agent shall reasonably require, including records , to the extent normally maintained in accordance with accepted accounting principles, of (i) all payments received and all credits and extensions granted with respect to the Accounts, (ii) the return, rejection, repossession, stoppage in transit, loss, damage or destruction of any Inventory, and (iii) all other dealings affecting the Collateral. (b) Each of the Parent Guarantor and the Company will permit the Agent, and any Lender who wishes to accompany the Agent, or any representatives thereof, at all reasonable times and intervals (and at any time during the continuance of an Event of Default or an Event of Cash Dominion), on reasonable notice during ordinary business hours, to have access to examine, audit, make extracts from and inspect the Company's and KAII's records, files, and books of account and the Collateral and to discuss the Company's and KAII's affairs with the Company's and KAII's officers and management and the independent public accountant for the Company, KAII, and the Parent Guarantor (and each of the Parent Guarantor and the Company hereby authorizes such 99 108 independent public accountant to discuss the Parent Guarantor's, the Company's, or KAII's financial matters with the Agent and with each Lender or its representatives). The Company will, and will cause KAII to, deliver to the Agent, to the extent reasonably requested, any instrument necessary for the Agent to obtain records from any service bureau maintaining records for the Company or KAII. The Agent may, at the Company's expense, make copies of all of the Company's and KAII's books and records, or require the Company or KAII to deliver such copies to the Agent. The Agent may, without expense to the Agent, use such of the Company's and KAII's personnel, supplies, and premises as may be reasonably necessary for maintaining or enforcing the Security Interest. In addition, subject to the provisions ofSection 3.5.2, the Parent Guarantor and the Company shall pay the reasonable fees of any independent public accountant incurred in connection with the Agent's exercise of its rights pursuant to this Section 9.1.5. (c) Subject to the provisions of the next paragraph, the Agent, each Lender, and each prospective purchaser of or participant in any part of any Loan, Commitment, or any other interest under this Agreement, each severally and for itself alone, agrees to maintain all Confidential Information (as defined below) obtained by it in connection with its rights under this Agreement or the other Loan Documents, including its rights of access contained in thisSection 9.1.5 and information supplied pursuant to Section 9.1.1, confidential and not disclose the same to any Person who is not an officer, director, employee, legal counsel, or authorized agent or advisor of the Agent, or any such Lender or any purchaser or prospective purchaser of or participant in all or any part of any Loan, Commitment, or any other interest under this Agreement pursuant to the provisions of Section 12.11.2 who shall agree, by executing a letter agreement substantially in the form attached hereto asExhibit Q, to be bound by the provisions of this clause (c). The Agent, each Lender, and each other Person bound hereby shall not use any Confidential Information except for purposes relating to this Agreement, the other Loan Documents, or otherwise in connection with its status as a creditor or potential creditor of the Company pursuant to the transactions contemplated hereby or thereby. The term "Confidential Information" shall mean information specifically labelled or identified as "Confidential" furnished by or on behalf of the Company to the Agent, any Lender, or other Person exercising rights hereunder and any information or documents (whether or not specifically labeled or identified as "Confidential") obtained pursuant to Section 9.1.5(b) by the Agent, any Lender or other Person exercising rights hereunder, but shall not include any such information which (a) has become or hereafter becomes available to the public other than as a result of a disclosure by the Agent, any Lender, or other Person 100 109 exercising rights hereunder or required to be bound hereby, or (b) was or became available to the Agent, any Lender, or other Person exercising rights hereunder or required to be bound hereby on a non-confidential basis prior to its disclosure by the Company, its representatives, or its agents, or (c) becomes available to the Agent, any Lender, or other Person exercising rights hereunder or required to be bound hereby on a non-confidential basis from a source other than the Company, its representatives, or its agents or another Lender or other Person exercising rights hereunder or required to be bound hereby. The restrictions set forth in the preceding paragraph shall not prevent the disclosure by the Agent, any Lender, or any other Person required to be bound hereby of any such information (i) with the prior written consent of the Company or as expressly contemplated by this Agreement or any other Loan Document; (ii) upon order of any court or administrative agency of competent jurisdiction, to the extent required by such order and not effectively stayed on appeal or otherwise, or as otherwise required by law; (iii) in connection with any litigation or other legal proceeding at law, in equity, or in bankruptcy to which the Parent Guarantor or the Company or any Subsidiary of either thereof and the Agent, such Lender, or other Person are parties; or (iv) to any Affiliate of any Lender who shall agree, by executing a letter agreement substantially in the form attached hereto as Exhibit Q, to be bound by the provisions of this clause (c); provided, however, that, in the case of any intended disclosure under clause (ii), the Agent, the relevant Lender, or other Person shall (unless otherwise required by applicable law) give the Company not less than five Business Days prior notice (or such shorter period as may be reasonable or required by any court or agency under the circumstances), specifying the Confidential Information involved and stating such Person's intention to disclose such Confidential Information (including the manner and extent of such disclosure) in order to allow the Company an opportunity to seek an appropriate protective order. SECTION 9.1.6. Environmental Covenant. The Parent Guarantor and the Company will, and will cause each of their Subsidiaries to, 101 110 (a) use and operate all of their respective facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses, and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; (b) (i) as soon as possible and in any event no later than 15 Business Days after an Executive Officer of the Company shall have become aware of the receipt thereof, notify the Agent and provide copies of all written claims, complaints, notices, or inquiries by a governmental or regulatory authority, or any Person which has commenced a legal proceeding against the Parent Guarantor, the Company, or any of their Subsidiaries, relating to compliance by the Company or its Subsidiaries with, or potential liability of the Company or its Subsidiaries under, Environmental Laws; and (ii) with reasonable diligence cure all environmental defects and conditions which are the subject of any actions and proceedings against the Parent Guarantor, the Company, or any of their Subsidiaries relating to compliance with Environmental Laws, except to the extent that such actions and proceedings (or the obligation of the Parent Guarantor, the Company, or any such Subsidiary to cure such defects and conditions) are being contested by the Parent Guarantor, the Company or any of their Subsidiaries in good faith by appropriate proceedings; and (c) provide such information, access, and certifications which the Agent may reasonably request from time to time to evidence compliance with this Section 9.1.6. SECTION 9.1.7. Performance of Instruments. Each of the Parent Guarantor and the Company will, and will cause each of their Subsidiaries to, perform promptly and faithfully all of their Obligations under each Loan Document to which it is or is to be a party, subject to any applicable grace periods. SECTION 9.1.8. Maintenance of Collateral. The Parent Guarantor and the Company will, and will cause their Subsidiaries having an interest in any Property which is, or is intended to be, Collateral to, (a) acquire and maintain such Property in a manner that will enable the Parent Guarantor, the Company, or such Subsidiary, as the case may be, to cause such Property to be subject to the Liens of the Collateral Documents; and 102 111 (b) obtain the consent or approval of any Person whose consent or approval is required for the grant of Liens by the Parent Guarantor, the Company, or any such Subsidiary in any such Property. SECTION 9.1.9. Collateral Reporting. Except during the continuance of an Event of Cash Dominion, the Company will, and will cause KAII to, provide the Agent with the following documents, in form and scope satisfactory to the Agent, on a monthly basis: (a) an accounts receivable summary aging report together with a reconciliation to the previous month's accounts receivable summary aging report; (b) a reconciliation of the account receivable summary aging report to the accounts receivable general ledger; (c) a monthly listing of delinquent accounts in excess of $100,000 that are thirty days past the due date or sixty-five days past the invoice date, (d) monthly inventory summary reports by category, (e) monthly inventory summary reports by location; and (f) certificates of an officer of the Company certifying on behalf of the Company as to the foregoing. During the continuance of an Event of Cash Dominion, the Company will, and will cause KAII to, continue to provide the Agent with the documents described in clauses (a) through (f) above. In addition, the Company will, and will cause KAII to, provide the Agent with the following documents immediately upon any written request therefor by the Agent: (a) copies of shipping and delivery documents; (b) copies of invoices, customer statements, credit memos, remittance advises and reports, and deposit slips; (c) copies of purchase orders, invoices, and delivery documents for Inventory of the Company acquired by the Company; and (d) such other reports as to the Collateral as the Agent shall request from time to time. If any of the Company's or KAII's records or reports of the Collateral are prepared by an accounting service or other agent, the Company hereby authorizes such service or agent to deliver such records, reports, and related documents to the Agent. SECTION 9.1.10. Delivery; Further Assurances. The Parent Guarantor and the Company will, and will cause each of their wholly owned Subsidiaries to, at the expense of the Company, (a) without any request by the Agent, within 10 Business Days after the receipt thereof, deliver or cause to be delivered to the Agent, in due form for transfer (i.e., endorsed in blank or, if appropriate, accompanied by duly executed blank stock or bond powers), all equity securities having a value, and all debt instruments (other than the Equity Proceeds Notes, which shall not constitute Collateral) having face amounts, in excess of $100,000, at any time representing all or any of the Collateral, in due form for transfer i.e., endorsed in blank or, if appropriate, accompanied by duly executed blank bond powers); 103 112 (b) upon forming or acquiring any Subsidiary, immediately notify the Agent of such formation or acquisition, and if requested by the Agent at the request of the Required Lenders, unless such Subsidiary is acquired or formed by a Subsidiary of the Company which is not a Domestic Subsidiary, (i) pledge and deliver to the Agent pursuant to the Company Pledge Agreement or the Subsidiary Pledge Agreement, as the case may be, certificates evidencing all of the issued and outstanding capital stock of such Subsidiary owned directly or indirectly by the Company (or, if such Subsidiary is not a Domestic Subsidiary, 65% of such capital stock) accompanied by undated stock powers duly executed in blank or pledge to the Agent pursuant to the Company Pledge Agreement, the Subsidiary Pledge Agreement, the Company Security Agreement, or the Subsidiary Security Agreement, as the case may be, all of the Company's or such Subsidiary's general or limited partnership interest in such Subsidiary; (ii) if such pledgor is a Subsidiary of the Company, cause such pledgor to execute and deliver to the Agent a counterpart of the Subsidiary Guaranty and such other items of documentation as shall be necessary in order for such pledgor to assume the obligations under the Subsidiary Guaranty (and such pledgor, if a Subsidiary of the Company, may thereupon become a "Subsidiary Guarantor" (under and as defined in the Subordinated Indenture or the Senior Indenture) if and to the extent required to become a "Subsidiary Guarantor" by Section 5.12(c) of the Subordinated Indenture or Section of the Senior Indenture); and (iii) cause such Subsidiary to deliver to the Agent such evidence of due execution, and such other information with respect to its Organic Documents and contractual obligations, and as to the Collateral in which it has an interest, as the Agent may request, and to take all action necessary or as the Agent may request to create, preserve, perfect, confirm, and validate the Liens created or purported to be created by such Collateral Documents; (c) if any Subsidiary of the Company is required to grant a Lien to the Agent over any interest in real property pursuant to clause (b) of Section 9.1.11, and if requested by the Agent at the request of the Required Lenders, (i) cause such Subsidiary to execute and deliver to the Agent a counterpart of the Subsidiary Guaranty and such other items of documentation as shall 104 113 be necessary in order for such Subsidiary to assume the obligations under the Subsidiary Guaranty (and such Subsidiary may thereupon become a "Subsidiary Guarantor" (under and as defined in the Subordinated Indenture or the Senior Indenture) if and to the extent required to become a "Subsidiary Guarantor" by Section 5.12(c) of the Subordinated Indenture or Section of the Senior Indenture), (ii) cause such Subsidiary to execute and deliver to the Agent counterparts of the Subsidiary Security Agreement, the Subsidiary Pledge Agreement, and such other items of documentation as shall be necessary in order for such Subsidiary to assume the obligations under the Subsidiary Security Agreement and the Subsidiary Pledge Agreement, and (iii) cause such Subsidiary to deliver to the Agent such evidence of due execution, and such other information with respect to its Organic Documents and contractual obligations, and as to the Collateral in which it has an interest, as the Agent may request, and to take all action necessary or as the Agent may request to create, preserve, perfect, confirm, and validate the Liens created or purported to be created by such Collateral Documents; (d) upon the opening of any account for investment in Cash Equivalent Investments permitted hereunder by the Company or any Obligor which has executed the Subsidiary Security Agreement, promptly notify the Agent thereof and promptly deliver a letter, in substantially the form of one of the letters contained inExhibit N attached hereto, with such changes as the Agent may approve, duly executed by the Person with which the Company or such Subsidiary maintains such account; (e) upon request of the Agent, furnish or cause to be furnished to the Agent such opinions of counsel, and other documents with respect to the Collateral as the Agent may reasonably specify; and (f) upon request of the Agent, forthwith execute and deliver or cause to be executed and delivered to the Agent, in due form for filing or recording (and pay the cost of filing or recording the same in all public offices deemed necessary by the Agent), such assignments, security agreements, pledge agreements, consents, waivers, financing statements, stock or bond powers, and other documents, and do such other acts and things, all as the Agent may from time to time request, to establish and maintain to the satisfaction of the Agent valid perfected Liens in all Collateral (free of all other Liens, claims, and rights of third parties whatsoever, except for Liens, claims, and 105 114 rights permitted by Section 9.2.3), provided, that the Company shall not be required to register itself in Ghana or the United Kingdom for this purpose. SECTION 9.1.11. Real Property; Title Policies; Surveys. As further security for the payment of the Obligations, the Parent Guarantor and the Company will, and will cause their Subsidiaries to: (a) obtain and maintain the consent or approval of any Person whose consent or approval is required to the granting of a Lien on any interest in real property which is, or is required by the terms of this Agreement to be, subject to a mortgage or deed of trust in favor of the Agent; and (b) concurrently with or promptly after the purchase or acquisition by the Company or any such Subsidiary of, or the formation or acquisition by the Company or any such Subsidiary of any Subsidiary with an interest in, any real property (including all improvements) which is located in the United States and which is structurally related to, or which is located contiguous to, real property upon which there is an existing Lien in favor of the Agent pursuant to a Company Mortgage or Company Deed of Trust, (i) execute, acknowledge, and deliver to the Agent a mortgage or deed of trust (or, if appropriate, an amendment or supplement to an existing mortgage or deed of trust), in such form and substance, and in such number of counterparts, as the Agent may reasonably require, mortgaging and granting a security interest in such interest in real property; (ii) obtain, with respect to each such interest in real property, a title insurance policy (in amounts reasonably satisfactory to the Agent) with respect to, a survey of, and such other documents relating to, such real property, in each case conforming to the requirements of Section 7.1.9; (iii) cause such mortgage or deed of trust to be duly recorded or filed to create a valid, perfected, first-priority mortgage or deed of trust lien on, and security interest in the property purported to be covered thereby, and pay all fees, taxes, and other expenses in connection therewith; and (iv) deliver to the Agent such other items of documentation with respect to any of the foregoing as the Agent shall reasonably request (including certificates as to incumbency, resolutions, and opinions of counsel in all relevant jurisdictions). 106 115 At the request of the Agent, the Company will cause (and, in any event, the Company shall be permitted to cause) any real property which is required to be mortgaged pursuant to clause (b) of this Section 9.1.11 and which is owned by a Subsidiary of the Company, to be transferred to the Company prior to the execution and delivery of such mortgage or deed of trust, as applicable. The Agent and the Required Lenders shall have the right, in their sole and absolute discretion, to accept or reject any such real property interest offered pursuant to this Section 9.1.11. SECTION 9.1.12. Intercompany Demand Notes. Within 60 days after the last day of any Fiscal Quarter as of which the aggregate outstanding Indebtedness of the Company to any wholly owned Domestic Subsidiary of the Company exceeds $10,000,000, the Company will, if the same has not previously been done, (a) execute and deliver to such Subsidiary an Intercompany Demand Note payable to such Subsidiary, and (b) cause such Subsidiary to execute and deliver the Intercompany Note Pledge Agreement and to pledge such note to the Agent pursuant to the Intercompany Note Pledge Agreement. SECTION 9.2. Negative Covenants. The Parent Guarantor agrees (and the Company, to the extent that any such agreement of the Parent Guarantor shall be applicable to the Company, any of its Subsidiaries, or any of its or their properties, also agrees) with the Agent and each Lender that, until all Commitments have terminated, no Letters of Credit are outstanding, and all outstanding monetary Obligations have been paid in full: SECTION 9.2.1. Business Activities. The Parent Guarantor will not engage in any other business activity other than ownership of the Company and such activities as may be incidental or related thereto including the offering and sale of securities of the Parent Guarantor. The Company will not, and will not permit any of its Subsidiaries to, engage in any business activity, except those described in the first recital, those in which the Company and its Subsidiaries are engaged on the Effective Date, and such activities as may be incidental or related thereto or reasonably related extensions thereof. SECTION 9.2.2. Indebtedness. The Parent Guarantor and the Company will not, and will not permit any of their Subsidiaries to, create, incur, assume, or suffer to exist or otherwise become or be liable in respect of any Indebtedness, other than the following: (a) In the case of the Parent Guarantor, the Company, and their Subsidiaries, (i) Indebtedness in respect of this Agreement and the other Loan Documents; (ii) Indebtedness identified inItem 1 ("Indebtedness to be Paid") of the Disclosure Schedule, 107 116 provided that the conditions set forth in Section 7.1.4 in respect of payment of such Indebtedness shall be satisfied on the Initial Borrowing Date; and (iii) Indebtedness existing as of the Effective Date which is identified in Item 4 ("Ongoing Indebtedness") of the Disclosure Schedule; (b) In the case of the Company and its Subsidiaries, (i) Indebtedness of the Company in respect of the Senior Debt, and Contingent Obligations of AJI, KJC, KFC and KAAC as a "Subsidiary Guarantor" (under and as defined in the Senior Indenture) in respect of the Senior Debt; (ii) subject to Section 9.2.18, Indebtedness owing from (A) the Company to any wholly-owned Subsidiary of the Company (other than KAAC) which (if required by Section 9.1.12) is evidenced by an Intercompany Demand Note which has been pledged to the Agent pursuant to the Intercompany Note Pledge Agreement or the Subsidiary Pledge Agreement, (B) any wholly-owned Subsidiary of the Company to the Company, provided that such Indebtedness is not evidenced by any instrument, (C) any wholly- owned Subsidiary of the Company to any other wholly-owned Subsidiary of the Company, provided that with respect to any such Indebtedness to KFC or any such Indebtedness of KFC to KAAC, such Indebtedness is evidenced by an Intercompany Demand Note which has been pledged to the Agent pursuant to the Subsidiary Pledge Agreement or the Intercompany Note Pledge Agreement, and provided, further, that with respect to any such Indebtedness other than to KFC (or of KFC to KAAC), such Indebtedness is not evidenced by any instrument, (D) VALCO or ALPART to the Company, its Subsidiaries, or Persons (other than the Company, its Subsidiaries or any Restricted Affiliate) having an equity interest in VALCO or ALPART, as the case may be, (E) the Company or its Subsidiaries to VALCO or ALPART, or (F) the Company to KAAC, provided that any such Indebtedness (other than Indebtedness in respect of accounts payable and other current liabilities, in each case arising in the ordinary course of business out of the purchase by the Company of alumina from KAAC) shall be evidenced by an Intercompany Demand Note which has been pledged to the Agent pursuant to the Subsidiary Pledge Agreement and Indebtedness in respect of such accounts payable and other current liabilities shall not be evidenced by any instrument; (iii) Indebtedness of the Company, KJC, AJI and KAAC (including, without duplication, Contingent 108 117 Liabilities in respect of Indebtedness) in an aggregate amount not to exceed $150,000,000 in respect of ALPART, $75,000,000 in respect of QAL and $25,000,000 in respect of VALCO; provided, however, that for purposes of calculating the aggregate amount of Indebtedness of the Company and its Subsidiaries outstanding pursuant to this clause (b)(iii), there shall be subtracted from the total amount of Indebtedness of non-wholly-owned Subsidiaries an amount equal to (A) that portion of such Indebtedness attributable to the proportionate direct or indirect ownership of Persons other than the Company and its Subsidiaries of the voting stock of, or partnership interest in, such Subsidiary or (B) if the economic burden of such Indebtedness is borne or to be borne by minority owners of such Subsidiary (other than the Company and its Subsidiaries) in a proportion other than the proportion of their direct or indirect ownership of the voting stock of, or partnership interest in, such Subsidiary, the proportionate share of the economic burden of such Indebtedness borne or to be borne by such minority owners; (iv) Indebtedness incurred by the Company in connection with the purchase, redemption, retirement, or other acquisition by the Company of the Preferred Stock (USWA) outstanding on the date hereof (plus additional shares of such Preferred Stock (USWA) issued as dividends thereon or on such shares issued as dividends) to the extent the purchase, redemption, retirement, or acquisition thereof is required by the Code and such Indebtedness is issued to the then holders of or beneficial owners of such shares of Preferred Stock (USWA); (v) Indebtedness of the Company in an amount not exceeding $5,000,000 at any time outstanding in respect of the guaranty by the Company of the obligations of National Refractories & Minerals Corporation under the Revolving Credit and Term Loan Agreement dated as of April 30, 1985 (as the same has been and may hereafter be amended, modified, supplemented, restated, confirmed or replaced from time to time) among Congress Financial Corporation (Western), National Refractories & Minerals Corporation, National Refractories & Minerals, Inc. and National Refractories Holding Co.; (vi) the obligation of the Company to make advances not exceeding $2,500,000 to National Refractories & Minerals Corporation under the Standby Revolving Credit and Security Agreement and Guaranty dated as of April 30, 1985 (as the same has been and may hereafter be amended, modified, supplemented, restated, confirmed or replaced from time to time) among the Company, National Refractories & Minerals 109 118 Corporation, National Refractories & Minerals, Inc. and National Refractories Holding Co.; (vii) the guaranty by the Company of the payment of certain shutdown, supplemental unemployment, pension, and retiree health and life insurance benefits as provided under the Agreement dated February 2, 1989 (as the same has been or may be amended, supplemented, restated, modified, confirmed, or replaced from time to time) between the Company and the United Steelworkers of America relating to the sale by the Company of its smelter and rolling mill in Ravenswood, West Virginia, to Ravenswood Acquisition Corporation; (viii) the obligations of the Company and any of its Subsidiaries to purchase or sell goods, services, or technology utilized in their bauxite, alumina, and aluminum business and related extensions thereof, including on a take-or-pay basis, pursuant to agreements entered into the ordinary course of business consistent with past practice; (ix) the obligations of QAL in respect of charters of vessels; (x) Indebtedness of the Company in respect of unsecured Hedging Obligations; (xi) Indebtedness of the Company and its Subsidiaries (other than KAAC, AJI, KJC and KAII) in respect of letters of credit (including any such letters of credit identified in Item 4 ("Ongoing Indebtedness") of the Disclosure Schedule) in an aggregate amount not to exceed $15,000,000 at any one time outstanding issued for the account of the Company or any of its Subsidiaries in support of certain self-insurance and reinsurance obligations; (xii) Indebtedness of the Company in respect of the Redeemable Stock referred to in clause (i) or (ii) of Section 9.2.6(a); (xiii) Indebtedness of the Company under the Equity Proceeds Notes; (xiv) Nonrecourse Indebtedness of Subsidiaries of the Company that are not Obligors, the proceeds of which are used to finance the construction, acquisition or retrofitting of aluminum smelters, alumina refineries, or fabrication plants, including, in either case, related facilities or interests therein; (xv) Indebtedness of the Company in an aggregate principal amount not to exceed $25,000,000 outstanding 110 119 at any one time (excluding any such Indebtedness identified in Item 4 ("Ongoing Indebtedness") of the Disclosure Schedule) incurred in connection with one or more industrial revenue bond financings; and (xvi) other Indebtedness of the Company and its Subsidiaries (other than KAAC, AJI, KJC and KAII) in an aggregate principal amount not to exceed $30,000,000 outstanding at any one time; and (c) in the case of the Parent Guarantor, Indebtedness arising under the KT Note and Contingent Liabilities of the Parent Guarantor in respect of any Indebtedness of the Company incurred pursuant to clause (b) (other than subclause (xv) thereof) above. SECTION 9.2.3. Liens. The Parent Guarantor will not create, incur, assume, or suffer to exist any Lien over any of its Properties, revenues, or assets, whether now owned or hereafter acquired, except for Liens of the type described in clauses (a), (b), (e), and (h) of this Section 9.2.3. 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 Properties, revenues, or assets, whether now owned or hereafter acquired, other than the following: (a) Liens securing payment of the Obligations granted pursuant to any Loan Document; (b) Until the Initial Borrowing Date, Liens securing payment of Indebtedness of the type permitted and described in clause (a)(ii)of Section 9.2.2; (c) Liens granted prior to the Effective Date and identified in Item 5 ("Ongoing Liens") of the Disclosure Schedule; (d) Liens granted to secure payment of Indebtedness permitted by clause (b)(xvi) of Section 9.2.2 on any Property (other than Accounts and Inventory) created at the time of the acquisition of such Property in order to secure payment of the purchase price thereof or in order to secure any loan incurred for the purpose of financing such acquisition, and any Lien to which any Property is subject at the time of its acquisition (including Property of a Subsidiary at the time it becomes a Subsidiary), provided that the principal amount of the Indebtedness secured by any such Lien does not exceed 80% of the cost of such Property (except in the case of Liens on the Property of a Subsidiary at the time it becomes a Subsidiary) and that no such Lien may extend to other property, together with refundings or extensions of the foregoing for amounts not exceeding the principal amount of the Indebtedness so refunded or extended 111 120 and secured only by the Property theretofore securing the same; (e) Liens for taxes, assessments, or other governmental charges or levies to the extent that payment thereof shall not at the time be required in accordance with the provisions of Section 9.1.2; (f) Liens of carriers, warehousemen, mechanics, workmen, repairmen, vendors, materialmen, and landlords and other similar Liens incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings, and deposits or Liens to obtain the release of any such Lien; (g) Liens and deposits incurred or made in the ordinary course of business in connection with worker's compensation, unemployment insurance, or other forms of governmental insurance or benefits, or in connection with, or to secure performance of, bids, tenders, statutory obligations, and leases (other than, in each of such cases, for borrowed money or the obtaining of advances or credit) entered into in the ordinary course of business, or to secure obligations on surety or appeal bonds, and other Liens and deposits for purposes of like nature in the ordinary course of business; (h) judgment Liens or similar awards in existence less than 15 days after the entry thereof or with respect to which execution has been stayed, or the payment of which is covered (subject to a customary deductible) by insurance; (i) mineral leases, easements, covenants, restrictions, exceptions, or reservations in any Property of the Company or any Subsidiary of the Company which do not materially impair the use of such Property for the purposes for which it is held; (j) zoning laws and ordinances, and rights reserved to or vested in any municipality or government or proper authority to control or regulate any Property of the Company or its Subsidiaries, or to use such Property in any manner which does not materially impair the use of such Property for the purposes for which it is held by the Company or such Subsidiary; (k) undetermined or inchoate Liens incident to construction, maintenance, or current operations and Liens and charges incident to such construction, maintenance, or operations which have been filed of record but which are being contested in good faith by appropriate proceedings; (l) Liens reserved in leases for rent and to assure compliance with the lease terms covering solely Property 112 121 kept at the leased premises and rights of lessees to Property being leased from the Company or any of its Subsidiaries; (m) Liens on any Property in which the Company or any of its Subsidiaries has a leasehold estate, easement, right of way, or similar interest and to which such interest is or may become subject, and the rights reserved to the lessors or grantors thereof, and to their successors and assigns, under applicable law or the instrument creating such interest; (n) Liens on Property (other than Accounts and Inventory) created to secure the Company's or any Subsidiary's obligations under agreements with respect to spot, forward, future and option transactions, entered into in the ordinary course of business, involving (or, in the case of futures and options, for or relating to) the purchase and sale of aluminum, alumina, or bauxite and covering only the Company's or such Subsidiary's rights under such agreements and in the accounts in which such transactions are effected; (o) minor defects and irregularities in the title to any Property which do not in the aggregate materially impair the use of such Property for the purposes for which it is held; (p) Liens on Property of ALPART securing Indebtedness in respect of ALPART permitted by clause (b)(iii) of Section 9.2.2 and Liens on Property of VALCO securing Indebtedness in respect of VALCO permitted byclause (b)(iii) of Section 9.2.2; (q) Liens on Property of KAAC or its Subsidiaries securing Indebtedness of KAAC in respect of QAL permitted by clause (b)(iii) of Section 9.2.2; (r) Liens on Property of Subsidiaries of the Company that are not Obligors securing Nonrecourse Indebtedness; provided, howeve, that no such Lien may extend to Property other than the Property constructed, acquired or retrofitted with the proceeds of such Nonrecourse Indebtedness or the capital stock of entities formed to hold such interests; (s) Liens on cash securing letters of credit in an amount not to exceed $$15,000,000 at any one time outstanding; (t) Liens on Property (other than Accounts and Inventory) of the Company securing Indebtedness permitted by Section 9.2.2(b)(xv; 113 122 (u) Liens covering portions of the proceeds of Asset Dispositions, which are held in escrow in connection with such Asset Dispositions; (v) Liens on Property (other than Accounts or Inventory) of the Company securing Indebtedness permitted by clause (b)(iv) of Section 9.2.2; and (w) other Liens on Property (other than Accounts and Inventory) of the Company and its Subsidiaries incidental to the conduct of the business of the Company and its Subsidiaries or the ownership of their Property which were not incurred in connection with borrowed money or the obtaining of advances or credit and which 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 and which, in any event, do not secure obligations aggregating in excess of $5,000,000. SECTION 9.2.4. Financial Condition. The Company will not permit: (a) Net Worth. The Company shall not permit Net Worth as of the end of any Fiscal Quarter set forth below to be less than the correlative amount indicated:
Fiscal Quarter Net Worth -------------- --------- First Fiscal Quarter of 1994 $450,000,000 Second Fiscal Quarter of 1994 $433,000,000 Third Fiscal Quarter of 1994 $416,000,000 Fourth Fiscal Quarter of 1994 $400,000,000 First Fiscal Quarter of 1995 $396,000,000 Second Fiscal Quarter of 1995 $392,000,000 Third Fiscal Quarter of 1995 $388,000,000 Fourth Fiscal Quarter of 1995 $385,000,000 First Fiscal Quarter of 1996 $391,000,000 Second Fiscal Quarter of 1996 $397,000,000 Third Fiscal Quarter of 1996 $404,000,000 Fourth Fiscal Quarter of 1996 $410,000,000 First Fiscal Quarter of 1997 Minimum Net Worth and each Fiscal Quarter thereafter
(b) Interest Coverage Ratio. The Company shall not permit the Interest Coverage Ratio (i) for the one Fiscal Quarter period ending March 31, 1996 to be less than 1.1 to 1.0, (ii) for the two Fiscal Quarter period ending June 30, 1996 to be less than 1.2 to 1.0, (iii) for the three Fiscal Quarter period ending September 30, 1996 to be less than 1.3 to 1.0, and (iv) for the four Fiscal Quarter period ending on the last day of each of the Fiscal Quarters set forth below to be less than the correlative ratio indicated: 114 123
Date Ratio ---- ----- Fourth Fiscal Quarter of 1996 1.4 to 1.0 First Fiscal Quarter of 1997 1.5 to 1.0 Second Fiscal Quarter of 1997 1.7 TO 1.0 Third Fiscal Quarter of 1997 1.8 to 1.0 Fourth Fiscal Quarter of 1997 2.0 to 1.0 and each Fiscal Quarter thereafter
SECTION 9.2.5. Investments. The Parent Guarantor will not make, incur, assume, or suffer to exist any Investment except for its ownership or purchase of the shares of capital stock of the Company, Cash Equivalent Investments, and Equity Proceeds Notes. The Company will not, and will not permit any of its Subsidiaries to, make, incur, assume, or suffer to exist any Investment in any other Person, other than the following: (a) Investments existing on the Effective Date and identified in Item 6 ("Ongoing Investments") of the Disclosure Schedule; (b) Cash Equivalent Investments; (c) subject to Section 9.2.18, without duplication, Indebtedness which is an Investment permitted by clause (b)(ii) of Section 9.2.2; (d) Investments made pursuant to the arrangements described in clauses (b)(v) and (b)(vi) of Section 9.2.2, and deposits permitted byclause (g) of Section 9.2.3; (e) subject to Section 9.2.18, Investments made after December 31, 1993 in the ordinary course of business in the Company and its Subsidiaries; (f) provided no Default or Event of Default under Section 10.1.1 shall have occurred and be continuing, Investments made after December 31, 1993 in the ordinary course of business in QAL, Anglesey, KJBC and Furukawa; (g) Investments which are Capital Expenditures permitted by Section 9.2.7; (h) Investments of cash held in escrow accounts required pursuant to the terms of any contract or agreement between the Parent Guarantor, the Company, or any of its Subsidiaries and any Person as in effect on the Effective Date (including escrows in existence on the Effective Date) which are listed onSchedule XII hereto; (i) Investments received in connection with Asset Dispositions, and Investments in escrows established in connection with Asset Dispositions which are permitted hereby; 115 124 (j) trade credit extended in the ordinary course of business (including such credit represented by any bond, note, debenture, or similar instrument) and advance payments, made in the ordinary course of business, under contracts for the purchase of goods or the receipt of services, and loans and advances made to any Person in connection with the purchase of assets by such Person for lease by such Person to the Company or any of its Subsidiaries to the extent that such leases are otherwise permitted hereunder; (k) Investments in the form of advance payments in connection with spot, forward, future and option transactions, entered into in the ordinary course of business, involving (or, in the case of futures and options, for or relating to) the purchase and sale of aluminum, alumina, or bauxite; (l) Investments acquired in the settlement or other resolution of disputes with any Person or of debts; (m) Investments of any Person which are in existence at the time such Person becomes a Subsidiary of the Company and which, in the case of any such Investments which would breach any provision of this Agreement if made directly by the Company, (i) were not entered into in contemplation of such Person becoming a Subsidiary of the Company, and (ii) do not constitute more than 20% of the assets of such Person at the time such Person becomes a Subsidiary of the Company; (n) any Investments (other than Investments in MAXXAM or any Affiliate of MAXXAM) (other than the Company, its Subsidiaries which are not Restricted Subsidiaries, or any Joint Venture Affiliate) not otherwise permissible hereunder in an aggregate amount not to exceed $20,000,000 at any time outstanding; (o) provided (i) no Default or Event of Default shall have occurred and be continuing (or would occur after giving effect to such Investment) and (ii) that the Consolidated Fixed Charge Coverage Ratio is greater than 2.0 to 1, Investments in Subsidiaries and Joint Venture Affiliates not otherwise permissible hereunder in an aggregate amount not to exceed (A) the sum of: (1) 50% of Net Income (or, if Net Income 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, 1994 to 116 125 the end of the Company's most recently ended Fiscal Quarter, and (2) the aggregate net proceeds, including the fair market value of Property other than cash, received by the Company as capital contributions (other than from a Joint Venture Affiliate or a Subsidiary of the Company) to the Company after December 31, 1993, or from the issue or sale (other than to a Joint Venture Affiliate or to a Subsidiary of the Company), after December 31, 1993, of capital stock other than Redeemable Stock (including capital stock, other than Redeemable Stock, issued upon the conversion of, or in exchange for, Indebtedness or Redeemable Stock, and including upon exercise of warrants or options or other rights to purchase such capital stock, issued after December 31, 1993), or from the issue or sale, after December 31, 1993 of any debt or other security of the Company convertible or exercisable into such capital stock that has been so converted or exercised; minus (B) the aggregate amount of Investments than outstanding pursuant to clause (n); and (p) extensions and renewals of Investments permitted by clauses (a), (h), (i), (j), (l) and (m) of this Section 9.2.5, provided that the principal amount thereof is not increased. SECTION 9.2.6. Restricted Payments, etc. (a) The Company and the Parent Guarantor will not declare, pay, or make any dividend or distribution (in cash, Property, or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of the Company or the Parent Guarantor or on any warrants, options, or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Company or the Parent Guarantor (excluding dividends or distributions payable in its common stock (other than Redeemable Stock) or warrants to purchase its common stock or splitups or reclassifications of its common stock into additional or other shares of its common stock) or apply, or permit any of their respective Subsidiaries to apply, any of its funds, or Property to the purchase, redemption, sinking fund, or other retirement, or agree, or permit any of their respective Subsidiaries to agree, to purchase or redeem, any shares of any class of capital stock (now or hereafter outstanding) of the Company or the Parent Guarantor, or warrants, options, or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Company or the Parent Guarantor (all of the foregoing non-excluded dividends, 117 126 distributions, application of funds or Property, purchases, redemption and similar payments collectively being herein called "Distributions") except that (i) the Company shall be permitted to purchase, redeem, retire, or otherwise acquire and to declare, pay, or make dividends or other distributions on its 4-1/8% Preference Stock, par value $100 per share, 4-3/4% Preference Stock (1957 Series), par value $100 per share, 4-3/4% Preference Stock (1959 Series), par value $100 per share, and 4-3/4% Preference Stock (1966 Series), par value $100 per share, in each case only in accordance with the terms of the Restated Certificate of Incorporation, and in each case unless (A) an Event of Default shall have occurred and be continuing and (B) the Company shall have been instructed by the Agent in writing not to make any such Distribution; (ii) the Company shall be permitted to purchase, redeem, retire, or otherwise acquire and to declare, pay, or make dividends or other distributions on any shares of the Preferred Stock (USWA), in each case unless (A) an Event of Default shall have occurred and be continuing and (B) the Company shall have been instructed by the Agent in writing not to make any such Distribution; (iii) the Company shall be permitted to pay for the benefit of, or to reimburse, the Parent Guarantor for the reasonable out-of-pocket expenses actually incurred (and documented as such) by the Parent Guarantor for services rendered to the Parent Guarantor by Persons who are not Affiliates or employees of the Parent Guarantor, MAXXAM, the Company or any of their respective Subsidiaries (provided that payments of legal fees and expenses to a law firm of which an Affiliate of the Company is a member shall be permitted) in connection with the registration, issuance or sale of securities of the Parent Guarantor to the extent that the net proceeds of such issuance or sale are used by the Parent Guarantor to make a loan or capital contribution to, or purchase securities of, the Company; (iv) the Company shall be permitted to make Distributions to the Parent Guarantor of all or a portion of the KT Note and accrued interest thereon; (v) provided no Default shall have occurred and be continuing (or will have occurred and be continuing immediately following such Distribution), the Company shall be permitted to make Distributions to the Parent Guarantor in each Fiscal Quarter in an aggregate amount not exceeding the dividends payable by the Parent Guarantor during such Fiscal Quarter in respect of all then outstanding shares of the Parent Guarantor Preferred 118 127 Stock minus the amount of any payments made during such Fiscal Quarter on the Equity Proceeds Notes; (vi) the Parent Guarantor shall be permitted to make Distributions to the holders of any outstanding shares of the Parent Guarantor Preferred Stock (or depositary shares in respect thereof) in an amount not to exceed the payments received or receivable from time to time by the Parent Guarantor from the Company under clause (v) of this Section 9.2.6(a) and in respect of the Equity Proceeds Notes; and (vii) the Parent Guarantor shall be permitted to convert shares of the Parent Guarantor Preferred Stock (or depositary shares in respect thereof) into the common stock of the Parent Guarantor or redeem shares of the Parent Guarantor Preferred Stock (or depositary shares in respect thereof) in exchange for the common stock of the Parent Guarantor plus an amount in cash equal to all amounts payable by the Parent Guarantor in respect of accrued and unpaid dividends in connection with such conversion or redemption, in each case in accordance with the Certificate of Designations governing such shares of Parent Guarantor Preferred Stock (or the Depositary Agreement in respect of such depositary shares). (b) The Company will not, and will not permit any of its Subsidiaries to, (i) make any payment or prepayment of principal of, or any prepayment of interest on, any Subordinated Debt (including pursuant to Section 4.05, 4.06, or 4.07 of the Subordinated Indenture) or make any payment of interest on, or any payment in respect of, any Subordinated Debt which would violate the subordination provisions of such Subordinated Debt; (ii) make any prepayment of principal of, or any prepayment of interest on, any other Indebtedness (including the Senior Debt); provided, however, that the Company may prepay the principal of or interest on Indebtedness in respect of this Agreement, the Company may repay Indebtedness in connection with the refinancing of all or substantially all of such Indebtedness and the Company may prepay Indebtedness (other than Indebtedness owing to any Subsidiary of the Company or any Joint Venture Affiliate) in an amount not to exceed $10,000,000 in the aggregate; (iii) make any payment or prepayment of principal of, or interest on, the PIK Note; provided, however, that if no Event of Cash Dominion shall have occurred and be continuing (or will have occurred immediately following 119 128 such payment) and provided no Default shall have occurred and be continuing (or would occur as a result of such payment) the Company may repay the PIK Note at or after the maturity thereof; (iv) redeem, purchase, or defease any Subordinated Debt, any Senior Debt, the PIK Note or any Equity Proceeds Note; (v) make any payment or prepayment of principal of, or interest on, the Equity Proceeds Notes except that the Company may pay principal and interest from time to time on the Equity Proceeds Notes in accordance with the provisions of the Equity Proceeds Notes, subject to the subordination provisions thereof; provided, however, that if any Equity Proceeds Note is issued in connection with the issuance of Parent Guarantor Preferred Stock that is convertible into shares of the common stock of the Parent Guarantor, immediately upon the conversion of all of such shares of the Parent Guarantor Preferred Stock (or depositary shares in respect thereof) into shares of the common stock of the Parent Guarantor pursuant to the Certificate of Designations governing such shares of the Parent Guarantor Preferred Stock (or the Depositary Agreement in respect of such depositary shares), (A) the Company shall, after the payment of all amounts payable by the Parent Guarantor in respect of accrued and unpaid dividends in connection with such conversion and in accordance with the terms of such Equity Proceeds Note, defer further principal and interest payments on such Equity Proceeds Note until such time as no Senior Indebtedness of the Company (as defined in such Equity Proceeds Note) under or in connection with this Agreement or the other Loan Documents or any refinancing of such Senior Indebtedness of the Company is then outstanding and (B) the Parent Guarantor shall, after all amounts payable by the Parent Guarantor in respect of accrued and unpaid dividends in connection with such conversion have been paid, if requested by the Agent, with the written consent of the Required Lenders, deliver such Equity Proceeds Note to the Company as a capital contribution and the Company shall immediately cancel such Equity Proceeds Note; or (vi) make any payment of principal of or interest on the Indebtedness listed on Schedule XIII hereto. (c) The Company and the Parent Guarantor will not, and will not permit any of their respective Subsidiaries to, make any deposit for any of the foregoing purposes. SECTION 9.2.7. Capital Expenditures. The Company will not, and will not permit any of its Subsidiaries to, make Adjusted Capital Expenditures in any Fiscal Year set forth below in an 120 129 aggregate amount in excess of the sum of (a) the Base Amount set forth below opposite such Fiscal Year plus (b) in the case of each Fiscal Year commencing with the 1995 Fiscal Year the Carryover Amount applicable to such Fiscal Year:
Fiscal Year Base Amount ----------- ----------- 1994 $60,000,000 1995 $70,000,000 1996 $75,000,000 1997 $80,000,000 1998 $90,000,000
The "Carryover Amount" applicable to any Fiscal Year is equal to (i) the sum of the Base Amounts applicable to all periods set forth which end prior to the Fiscal Year for which the Carryover Amount is being calculated minus (ii) the aggregate amount of Adjusted Capital Expenditures which were actually made by the Company and its Subsidiaries during the 1994 Fiscal Year and during each Fiscal Year thereafter prior to the Fiscal Year for which such Carryover Amount is being calculated; provided, however, that the Carryover Amount shall not exceed $10,000,000 for the 1995 Fiscal Year, $20,000,000 for the 1996 Fiscal Year and $30,000,000 for any Fiscal Year thereafter. SECTION 9.2.8. Rental Obligations. The Company will not, and will not permit any of its Subsidiaries to, enter into at any time any arrangement which does not create a Capitalized Lease Liability and which involves the leasing by the Company or any of its Subsidiaries for terms which exceed, or when added to the term of any extension which may be made at the sole option of the Company or any such Subsidiary might exceed, one year from any lessor of any Property (or any interest therein), except such arrangements which, together with all other such arrangements which shall then be in effect, will not require the payment of an aggregate amount of rentals by the Company and its Subsidiaries on a consolidated basis (excluding escalations resulting from a rise in the consumer price or similar index) in excess, for any Fiscal Year of $35,000,000; provided, however, that any calculation made for purposes of this Section 9.2.8 shall exclude any amounts required to be expended for maintenance and repairs, insurance, taxes, assessments, and other similar charges. SECTION 9.2.9. Take or Pay Contracts. The Company will not, and will not permit any of its Subsidiaries to, enter into or be a party to any arrangement for the purchase of materials, supplies, other Property, or services if such arrangement by its express terms requires that payment be made by the Company or such Subsidiary regardless of whether such materials, supplies, other Property, or services are delivered or furnished to it, except those set forth in Item 10 ("Take or Pay and Similar Contracts") of the Disclosure Schedule. 121 130 SECTION 9.2.10. Consolidation, Merger, etc. The Parent Guarantor and the Company will not, and will not permit any of their Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other corporation, except that if no Default or Event of Default shall occur and be continuing or shall exist at the time of any such merger or consolidation or immediately thereafter and after giving effect thereto, (a) any Subsidiary of the Company may liquidate or dissolve into or may merge or consolidate with or into the Company if the Company is the surviving corporation; (b) any Subsidiary of the Company may liquidate or dissolve into or may merge or consolidate with or into any other wholly-owned Subsidiary of the Company that is an Obligor if the Obligor is the surviving corporation; (c) any Subsidiary of the Company that is not an Obligor may liquidate or dissolve or merge or consolidate with or into any other Subsidiary of the Company that is not an Obligor; (d) the Parent Guarantor may, with the prior written consent of the Required Lenders, merge with and into the Company and, provided that the Parent Guarantor shall assume all of the Obligations of the Company under this Agreement and the other Loan Documents, the Company may, with the prior written consent of the Required Lenders, merge with and into the Parent Guarantor; and (e) the Company and its Subsidiaries may engage in Asset Dispositions permitted by Section 9.2.11. Notwithstanding the foregoing, neither the Company nor any Subsidiary may engage in any such transaction unless at least five (or, in the case of any such transaction involving the Company or any other Obligor, 30) Business Days prior thereto, or such shorter period as shall be acceptable to the Agent, the Company shall have delivered to the Agent a description of the proposed transaction, in reasonable detail, and a certificate signed by an Authorized Officer certifying that such transaction will not result in a Default or an Event of Default. SECTION 9.2.11. Asset Dispositions. The Company will not, and will not permit any of its Subsidiaries to, make any Asset Disposition, other than the following: (a) the Company and its Subsidiaries may dispose of cash or Cash Equivalent Investments; (b) the Company or any wholly-owned Subsidiary of the Company may dispose of its assets to the Company or any wholly-owned Subsidiary of the Company; 122 131 (c) the Company and its Subsidiaries may dispose of Inventory in the ordinary course of business on ordinary trade terms; (d) the Company and its Subsidiaries may license technology or know-how on a nonexclusive basis in the ordinary course of business and on ordinary trade terms; (e) ALPART or VALCO may dispose of any of their respective assets in the ordinary course of business; (f) the Company may dispose of a facility that is subsequently repurchased or leased by the Company in connection with the issuance of industrial revenue bonds by a state, municipality or other subdivision of the United States of America or any department, agency, public corporation or other instrumentality thereof; (g) the Company and its Subsidiaries may dispose of assets (other than Accounts) with a fair market value of less than $__________ (in a single transaction or related series of transactions); (h) the Company may dispose of any of its assets in connection with the leaseback of such assets by the Company or any of its Subsidiaries, provided that such leaseback is otherwise permitted hereunder and such Asset Disposition occurs not later than twelve months after such assets are placed in service; (i) if no Default or Event of Default shall have occurred and be continuing or shall occur after giving effect thereto, the Company and its Subsidiaries may dispose of assets, in addition to those dispositions permitted in clauses (a) through (h) above; provided the fair market value of the assets disposed of pursuant to this Section 9.2.11(g) does not exceed $25,000,000 in any Fiscal Year; and (j) transfers of Property permitted by Section 9.2.18. Notwithstanding the foregoing, the Company will not, and will not permit any of its Subsidiaries to, take any action which would require an "Asset Sale Offer" (under and as defined in the Subordinated Indenture) to be made pursuant to Section 5.12(b) of the Subordinated Indenture or to violate the provisions of Section 5.12 of the Subordinated Indenture. SECTION 9.2.12. Sale or Discount of Receivables. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell, sell with recourse, discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable; provided, however, that the Company and its Subsidiaries may sell, sell with recourse, discount or otherwise sell for less than the face value thereof, to any Lender or 123 132 Lenders, any notes or accounts receivable arising in connection with any sale of product for delivery in the Commonwealth of Independent States in an aggregate amount not to exceed $10,000,000 in any calendar month. SECTION 9.2.13. Restrictions on Actions under Certain Agreements. Neither the Parent Guarantor nor the Company will (a) consent to any amendment, supplement, or other modification of any of the terms or provisions contained in, or applicable to, any document or instrument evidencing or governing any Subordinated Debt or any Senior Debt, the PIK Note or any Equity Proceeds Note other than any amendment, supplement, or other modification which extends the date or reduces the amount of any required repayment or any amendment, supplement or modification of the PIK Note or any Equity Proceeds Note that is consented to in writing by the Agent; (b) designate any other Indebtedness as "Specified Senior Debt" under the Subordinated Indenture or designate or permit any Subsidiary of the Company to designate any other Indebtedness of such Subsidiary as "Guarantor Specified Senior Debt" under the Subordinated Indenture; (c) take, or permit any of its Subsidiaries to take any action, or permit, or allow any of its Subsidiaries to permit, to exist any condition, which in any such case would require (i) the Company to cause any of its present or future Subsidiaries (other than KAAC, AJI, KFC and KJC, and except as otherwise provided inclauses (b) and (c) of Section 9.1.10 and clause (b)(i) of Section 9.2.2), or which would directly require any such Subsidiary, to guarantee or otherwise become liable in respect of any Subordinated Debt or Senior Debt, or (ii) the Company or any Subsidiary of the Company to provide collateral security in respect of any Subordinated Debt or Senior Debt; (d) make any offer to prepay, redeem, defease or repurchase any Subordinated Debt or Senior Debt; (e) fail to deliver any certificate and opinion permitted to be given to the trustee under clauses (a) and (b) of Section 16.14 of the Subordinated Indenture with respect to any "Subsidiary Guarantor" (under and as defined in the Subordinated Indenture) or to deliver any certificate and opinion permitted to be given to the trustee under clauses (a) and (b) of Section 15.05 of the Senior Indenture with respect to any "Subsidiary Guarantor" (under and as defined in the Senior Indenture); and (f) consent to any amendment, supplement or other modification of any of the terms or provisions contained in, or applicable to, any document or instrument evidencing or governing the Parent Guarantor Preferred Stock (or depositary 124 133 shares in respect thereof) if such amendment, supplement or other modification would have a Materially Adverse Effect. SECTION 9.2.14. Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer, or permit to exist any transaction, arrangement, or contract with any Affiliate of the Company (other than the Company, its Subsidiaries which are not Restricted Subsidiaries, Joint Venture Affiliates, and any Subsidiary of a Joint Venture Affiliate in which neither the Parent Guarantor, MAXXAM nor any Affiliate of either thereof (other than the Company, its Subsidiaries which are not Restricted Subsidiaries, or any Joint Venture Affiliate) has any equity interest other than through a direct or indirect ownership interest in the Company) requiring, constituting or involving any payments or other transfers of Property to be made by the Company or any Subsidiary to or for the benefit of, or pursuant to which the Company or any of its Subsidiaries incurs a Contingent Liability in respect of any obligation of, or incurs a contractual obligation for the benefit of, any Affiliate of the Company (other than Persons described in the previous parenthetical of this sentence). Notwithstanding the foregoing provisions of this Section 9.2.14, (a) directors, officers, and employees of the Company and its Subsidiaries may render services to the Company and its Subsidiaries which are not Restricted Subsidiaries for compensation and other benefits comparable to those generally paid by corporations engaged in the same or similar businesses for the same or similar services; (b) the transactions provided for in, and the loan evidenced by, the KT Note shall be permitted; (c) the performance of the Tax Allocation Agreement, the Deconsolidation Tax Allocation Agreement and the Transfer Agreement shall be permitted, except that the Company shall not be permitted to make any cash payments to MAXXAM or any other Affiliate pursuant to the Tax Allocation Agreement but MAXXAM may offset amounts owing to it under the Tax Allocation Agreement against amounts owed by MAXXAM under the Tax Allocation Agreement; (d) the Company may make payments to MAXXAM for any Fiscal year in respect of (i) services actually rendered to the Company during such Fiscal Year by employees of MAXXAM, and (ii) the Company's allocable share of MAXXAM's overhead expenses during such Fiscal Year which are attributable to employees of the Company who are located at MAXXAM's corporate headquarters, provided that the charges for such services are fully documented and that the aggregate amount of such payments made by the Company to MAXXAM for any Fiscal Year does not exceed the aggregate amount of payments made to the Company by MAXXAM for similar purposes for any Fiscal Year by more than $1,500,000; (e) subject to Section 9.2.10, a merger or other combination between the Company and the Parent Guarantor shall be permitted; (f) Distributions permitted by Section 9.2.6 shall be permitted; (g) transactions between ALPART or VALCO and Persons who own an equity interest in ALPART or VALCO shall be permitted; (h) continuation of performance under agreements entered into with Persons who were not then Affiliates shall be permitted (but 125 134 excluding, however, any renegotiation, extension, or modification of such agreements after such Person has become, or is anticipated to become, an Affiliate), provided that such agreement was not entered into in connection with or in anticipation of such Person becoming an Affiliate of the Company; (i) payments of legal fees and expenses to a law firm of which an Affiliate of the Company is a member shall be permitted; (j) the Company may provide services and facilities to the Parent Guarantor in connection with activities of the Parent Guarantor that are permitted by the first sentence of Section 9.2.1 in exchange for payment of its actual costs (allocated in good faith where appropriate) of providing such services and facilities; (k) any amendment to the KT Note that extends the maturity thereof or reduces the interest rate thereon shall be permitted; (l) performance of the PIK Note and any Equity Proceeds Note in accordance with the provisions of Section 9.2.6; and (m) the issuance of any Equity Proceeds Note shall be permitted. For purposes of thisSection 9.2.14, the term "Affiliate" shall not be deemed to include employee benefit plans, and trusts in connection therewith, for the benefit of employees of the Company and its Subsidiaries. SECTION 9.2.15. Negative Pledges, etc. The Parent Guarantor and the Company will not, and will not permit any of their Subsidiaries (other than ALPART and VALCO) to, enter into any agreement (excluding this Agreement, any other Loan Document, and any agreement governing any Indebtedness permitted either by clause (a)(iii) of Section 9.2.2 as in effect on the Effective Date, or by clause (b)(xv) of Section 9.2.2 as to the assets financed with the proceeds of such Indebtedness) (a) prohibiting the creation or assumption of any Lien securing the Obligations of the Company and its Subsidiaries upon its Properties, revenues, or assets which constitute Collateral, or over any properties, revenues, or assets which, if acquired after the Effective Date would be required to be subjected to a Lien in favor of the Agent pursuant to Section 9.1.10 or 9.1.11 or over any other real property owned in fee by the Company or any such Subsidiary on the Effective Date, or (b) specifically prohibiting the Parent Guarantor, the Company, or any other Obligor from amending or otherwise modifying this Agreement or any other Loan Document to which it is a party; provided, however, that the execution and delivery of the Senior Indenture shall not be deemed to breach clause (a) of this Section 9.2.15. SECTION 9.2.16. Sale-Leaseback Transactions. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, become liable as lessee or guarantor or other surety with respect to any lease (whether an operating or capital lease) of any Property, whether now owned or hereafter acquired, (a) which the Company or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person or (b) which the Company or any of its Subsidiaries intends to use for substantially the same purpose as any other Property which has been or is to be sold or transferred by the Company or such Subsidiary to any Person in 126 135 connection with such lease, except (i) any Capitalized Lease Liabilities permitted under Section 9.2.2 or (ii) any consolidated lease expense resulting therefrom that would be permitted under Section 9.2.8. SECTION 9.2.17. Change of Location or Name. Each of the Parent Guarantor and the Company will not, nor will either permit any of its Subsidiaries listed on Schedule IV hereto to, change (a) the location of its principal place of business, chief executive office, major executive office, chief place of business, or its records concerning its business and financial affairs; or (b) its name or the name under or by which it conducts its business, in each case without first giving the Agent at least 30 days, or such shorter period as shall be acceptable to the Agent, prior written notice thereof and taking any and all actions which the Agent may request to maintain and preserve all Liens in favor of the Agent granted pursuant to the Collateral Documents; provided, however, that notwithstanding the foregoing, each of the Parent Guarantor and the Company will not, and will not permit any such Subsidiary to, change the location of its principal place of business, chief executive office, chief place of business, or its records concerning its business and financial affairs (i) to Louisiana or Tennessee, or (ii) from the contiguous continental United States to any place outside the contiguous continental United States. SECTION 9.2.18. Intercompany Transfers of Property. The Parent Guarantor and the Company will not, and will not permit any Obligor to, transfer or cause to be transferred, in one or a series of related transactions any Property of the Parent Guarantor, the Company or any such Subsidiary to any Subsidiary of the Company or to any Joint Venture Affiliate, except: (i) any Obligor may transfer goods, services, working capital and technology (other than Accounts) to Subsidiaries of the Company and Joint Venture Affiliates in the ordinary course of business and may license technology or know-how to Subsidiaries of the Company and Joint Venture Affiliates in the ordinary course of business;provided, in each case, that after giving effect to such transfer the Revolving Credit Outstandings immediately following such transfer will not exceed the Borrowing Base; (ii) any Obligor may transfer Property (other than cash and Accounts) to Subsidiaries and Joint Venture Affiliates, provided that such transfer is made in exchange for cash in an amount equal to the fair market value of such Property; 127 136 (iii) any Obligor may transfer Property (other than Accounts) to any other Obligor; (iv) other transfers of Property (other than Accounts); provided that the aggregate amount thereof (if other than cash, such amount shall be the fair market value of such asset at the time of such transfer), less the aggregate amount of such Property returned to the Company or any Obligor (if returned other than in cash, the amount of such Property shall be the fair market value thereof at the time so returned), does not exceed, in the aggregate, the greater of (A) $25,000,000 or (B) 5% of the Company's Net Worth, calculated after giving effect to such transfers and returns; (v) the use of the proceeds of Indebtedness incurred by the Company, KJC, AJI and KAAC by ALPART, QAL and VALCO pursuant to Section 9.2.2(b)(iii); (vi) transfers of capital stock or other equity interests to the issuer of such capital stock or other equity interests such that immediately after giving effect to such transfer and related transfers, the proportional beneficial ownership by the transferor of the class of capital stock or equity interests so transferred is not reduced; (vii) Investments permitted by Sections 9.2.5(f) and 9.2.5(o); (viii) the Company may contribute to any wholly-owned Subsidiary of the Company intercompany receivables owing by such wholly- owned Subsidiary to the Company; and (ix) the Company or any wholly-owned Subsidiary of the Company may assume intercompany payables owing by any wholly-owned Subsidiary of the Company to the Company or any wholly-owned Subsidiary of the Company. SECTION 9.2.19. Inconsistent Agreements. The Parent Guarantor and the Company will not, and will not permit any of its Subsidiaries to, enter into any material agreement (other than the Senior Debt Instruments) containing any provision which would be violated or breached by any Credit Extension or by the performance by the Parent Guarantor or the Company or any other Obligor of its obligations hereunder or under any Loan Document. ARTICLE X EVENTS OF DEFAULT SECTION 10.1. Listing of Events of Default. Each of the following events or occurrences described in this Section 10.1 shall constitute an "Event of Default". 128 137 SECTION 10.1.1. Non-Payment of Obligations. The Company shall default in the payment or prepayment when due of any principal of or interest on any Loan or Reimbursement Obligation; or the Company shall default (and such default shall continue unremedied for a period of five days) in the payment when due of any commitment or letter of credit fee payable hereunder. SECTION 10.1.2. Breach of Warranty. Any representation, warranty, or certification of the Parent Guarantor, the Company, or any other Obligor made or deemed to be made hereunder or in any other Loan Document to which it is or is to become a party or any other writing or certificate furnished by or on behalf of the Parent Guarantor, the Company, or any other Obligor to the Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article VII) is or shall be incorrect when made in any material respect. SECTION 10.1.3. Non-Performance of Certain Covenants and Obligations. The Parent Guarantor, the Company, or any Obligor shall default in the due performance and observance of any of its respective obligations under Sections 3.3.2, 3.3.3, 9.2.4, 9.2.6 or 9.2.7 of this Agreement or Section _____ of the Concentration Bank Agreement. SECTION 10.1.4. Non-Performance of Certain Covenants and Obligations. The Parent Guarantor, the Company, or any other Obligor shall default in the due performance and observance of any of its respective obligations under (a) Sections of this Agreement, (b) Section 1.2, 1.4, 1.5, 1.7, 1.10, 1.11, 1.15, 1.17, 1.19, 1.20.1, or 1.21 of any Company Mortgage or Company Deed of Trust, (c) Section 5(d), 6(g), 6(h), 6(j), 6(o), or 9 of the Company Security Agreement, (d) Section 6(g), 6(h), 6(i), or 9 of the Parent Security Agreement, (e) Section 6(h), 6(i), 6(j), or 9 of the Subsidiary Security Agreement, (f) Section 4.1 or 4.2 of the Company Pledge Agreement, the Parent Pledge Agreement, or the Subsidiary Pledge Agreement, or (g) Section 4.1 of the Intercompany Note Pledge Agreement, 129 138 and such default shall continue unremedied for a period of five days after written notice thereof shall have been given by the Company to the Agent or by the Agent to the Company. SECTION 10.1.5. Non-Performance of Other Covenants and Obligations. Any Obligor shall default in the due performance and observance of any other agreement contained herein, or in any other Loan Document to which it is or is to become a party, and such default shall continue unremedied for a period of 30 days after written notice thereof shall have been given by the Company to the Agent or to the Company by the Agent. SECTION 10.1.6. Default on Other Indebtedness. A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 10.1.1) of the Parent Guarantor, the Company, any of their Subsidiaries, or any Joint Venture Affiliate having an aggregate principal amount in excess of $20,000,000 or, in the case of Indebtedness of Joint Venture Affiliates, having an aggregate principal amount for which the Parent Guarantor, the Company, or any of their Subsidiaries is contingently liable in excess of $20,000,000; or a default shall occur in the performance or observance of any obligation or condition with respect to any such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 10.1.7. Judgments. A final judgment which, together with other outstanding final judgments against the Company and its Significant Subsidiaries, exceeds an aggregate of $20,000,000 (to the extent such judgments are not covered by valid and collectible insurance from solvent unaffiliated insurers) shall be entered against the Company and/or any of its Significant Subsidiaries and (a) within 30 days after entry thereof, judgments exceeding such amount shall not have been discharged, settled, bonded or execution thereof stayed pending appeal or, within 30 days after the expiration of any such stay, such judgments exceeding such amount shall not have been discharged, settled, bonded or execution thereof stayed or (b) an enforcement proceeding shall have been commenced (and not discharged, settled, bonded or execution thereof stayed) by any creditor upon judgments exceeding such amount. SECTION 10.1.8. Pension Plans. Any of the following events shall occur with respect to any Pension Plan (a) the taking of any action by the Parent Guarantor, the Company, any member of their Controlled Groups, or any other Person (with the requisite authority to act) to terminate a Pension Plan if, as a result of such termination, the Parent Guarantor, the Company, or any such member could reasonably expect to, or in the case of liability arising 130 139 under section 4063 or section 4069 of ERISA, there is a reasonable likelihood that it could be required to, make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $10,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien against assets of any Controlled Group member under Section 302(f) of ERISA in an amount in excess of $1,000,000, which failure has not been completely cured within 30 days of the applicable due date. SECTION 10.1.9. Change in Control. Any Change in Control shall occur. SECTION 10.1.10. Bankruptcy, Insolvency, etc. The Parent Guarantor, the Company, any Significant Subsidiary, any other Obligor, or any Joint Venture Affiliate (other than KJBC) shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator, or other custodian for the Parent Guarantor, the Company, any Significant Subsidiary, any other Obligor, or any such Joint Venture Affiliate or any Property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent, or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator, or other custodian for the Parent Guarantor, the Company, any Significant Subsidiary, any other Obligor, or any such Joint Venture Affiliate or for a substantial part of the Property of any thereof, and, in the case of any such Person other than the Company, such trustee, receiver, sequestrator, or other custodian shall not be discharged within 60 days; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up, or liquidation proceeding, in respect of the Parent Guarantor or of the Company; (e) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up, or liquidation proceeding, in respect of any Significant Subsidiary, any other Obligor (other than the Parent Guarantor or the Company), or any such Joint 131 140 Venture Affiliate, and, if such case or proceeding is not commenced by such Person, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or (f) take any corporate action authorizing, or in furtherance of, any of the foregoing. SECTION 10.1.11. Subordinated Debt and Senior Debt. The Company shall be required, pursuant to the terms of any Subordinated Debt Instrument or any Senior Debt Instrument, or shall offer, to redeem, repurchase, prepay, or defease any Subordinated Debt or any Senior Debt. SECTION 10.1.12. Impairment of Certain Documents. Except as otherwise expressly permitted in any Loan Document, any of the Fundamental Loan Documents shall terminate or cease in whole or in part to be the legally valid, binding, and enforceable obligation of the relevant Obligor, or such Obligor or any Person acting for or on behalf of such Obligor contests such validity, binding effect, or enforceability, or purports to revoke any Fundamental Loan Document, or any asset or item of Property purported to be secured by any Collateral Document ceases to be so secured and continues not to be secured for ten Business Days after written notice thereof has been given to such Obligor by the Agent. SECTION 10.2. Action if Bankruptcy. If any Event of Default described in clauses (a) through (e) of Section 10.1.10 shall occur with respect to the Company, the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice, demand or presentment and the Company shall pay to the Agent in Dollars and immediately available funds an amount equal to the then aggregate Letter of Credit Outstandings in accordance with Section 5.7. SECTION 10.3. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (a) through (e) of Section 10.1.10 with respect to the Company) shall occur for any reason, whether voluntary or involuntary, and be continuing, (a) the Agent shall, upon the direction of the Required Lenders, (i) by written notice to the Company declare the Commitments terminated, whereupon the Commitments of each Lender will thereupon terminate immediately and any fees payable hereunder shall become due and payable without notice of any kind; (ii) by written notice to the Company declare all or any portion of the outstanding principal amount of the Loans and 132 141 other Obligations to be due and payable, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand, or presentment and the Company shall pay to the Agent in Dollars and immediately available funds an amount equal to the then aggregate Letter of Credit Outstandings in accordance with Section 5.7; or (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; and (b) the Agent shall, upon the direction of the Required Lenders, and may, in its sole and absolute discretion, (i) reduce the Revolving Commitment Availability or one or more of the elements thereof; or (ii) decline to permit the issuance of additional Letters of Credit or the extension of the Stated Expiry Date of any outstanding Letter of Credit. Each and every right, power, and remedy provided herein or in any other Loan Document shall be cumulative and shall be in addition to every other right, power, and remedy provided herein or in any other Loan Document or provided under applicable law. ARTICLE XI THE ADMINISTRATIVE AGENT SECTION 11.1. Appointment; Actions. (a) Each Lender hereby appoints Business Credit as its Agent under and for purposes of this Agreement, each of the other Loan Documents and the Collateral Documents. Each Lender irrevocably authorizes, and each assignee of any Lender shall be deemed to authorize, the Agent to act on behalf of such Lender under this Agreement, each of the other Loan Documents and the Collateral Documents and, in the absence of other written instructions from the Required Lenders received from time to time by the Agent (with respect to which the Agent agrees that it will comply, except as otherwise provided in thisSection 11.1 or as otherwise advised by counsel), each Lender irrevocably authorizes the Agent to take such actions on its behalf and to exercise such powers hereunder and thereunder as are in each case specifically delegated to or required of the Agent by the terms hereof or thereof, together with such powers as may be reasonably incidental thereto. In addition, each Lender irrevocably authorizes, and each assignee of a Lender shall be deemed to authorize, the Agent to delegate from time to time all or any of its duties hereunder to Bank of America. In the event of any such 133 142 delegation, Bank of America shall be entitled to all of the rights of the Agent hereunder. Each Lender agrees that no Lender shall have any right individually to seek to realize upon the security granted by or any guaranty provided by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised solely by the Agent for the benefit of the Lenders in accordance with the terms of this Agreement and the Collateral Documents. (b) The Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any other Loan Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein. Notwithstanding the foregoing, the Lenders acknowledge that the Agent is authorized to exercise its discretion in taking certain actions and exercising certain powers under this Agreement, including determining which Accounts and Inventory constitute Eligible Accounts and Eligible Inventory, determining the Revolving Commitment Availability pursuant toSection 10.3, and following the occurrence of an Event of Cash Dominion, continuing to make Credit Extensions pursuant to Section 7.2 . Each Lender hereby irrevocably indemnifies and agrees to indemnify (which indemnity shall survive any termination of this Agreement) the Agent, and each of its officers, directors, employees and agents (collectively, the Indemnified Persons"), pro rata according to such Lender's Percentage, from and against any and all liabilities, demands, judgments, obligations, losses, damages, claims, costs, or expenses of any kind or nature whatsoever (including those relating to the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings, or otherwise) of this Agreement, and the other Loan Documents) which may at any time be imposed on, incurred by, or asserted against, any of the Indemnified Persons in any way relating to or arising out of this Agreement, or any other Loan Document, including reasonable attorneys' fees and allocated costs of in-house counsel, and as to which the Agent is not reimbursed by the Company;provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs, or expenses of any Indemnified Person which have resulted from such Indemnified Person's bad faith or willful misconduct. The Agent shall not be required to take any action, make any inquiry, or request any document hereunder, or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, or any other Loan Document, unless (i) if it has requested instructions from the Lenders as to such action, it shall have received such instructions from the Required Lenders (or, if required by this Agreement, all the Lenders) and (ii) it is indemnified hereunder to its 134 143 satisfaction. If any indemnity in favor of the Agent shall be or become inadequate, in the determination of the Agent, the Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. The agreements in this clause (c) shall survive the termination of the Commitments and the Letters of Credit and the repayment of the Loans and other Obligations. (c) The Company hereby requests the Agent to, and each Lender hereby instructs the Agent to, and the Agent agrees to, deliver to the Company on the Initial Borrowing Date, for delivery by the Company to R.T.Z. Aluminum Holdings Limited, a letter in the form of Exhibit R attached hereto. (d) The Company hereby requests the Agent to, and each Lender hereby instructs the Agent to, and the Agent agrees to, deliver to the Company on the Initial Borrowing Date, a letter regarding the flood plain status of the properties covered by the Company Mortgages and the Company Deeds of Trust, in the form ofExhibit S attached hereto. SECTION 11.2. Funding Reliance, etc. (a) Unless the Agent shall have been notified by telephone and such notice shall have been confirmed in writing by any Lender by 5:00 p.m., San Francisco time, on the Business Day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Agent may assume that such Lender has made such amount available to the Agent and, in reliance upon such assumption, make available to the Company a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Agent, such Lender and the Company severally agree to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Agent made such amount available to the Company to the date such amount is repaid to the Agent, at the interest rate(s) applicable at the time to Loans comprising such Borrowing. (b) Unless the Agent shall have been notified by telephone and such notice shall have been confirmed in writing by the Company by 5:00 p.m., San Francisco time, on the day prior to the due date of any Obligation, that any Obligor will not make the full amount of all payments scheduled to be made by it on such due date, the Agent may assume that such Obligor has made such amount available to the Agent and, in reliance upon such assumption, make available to the Lenders their respectivepro rata shares of such amount. If the Agent makes any such amount available to any Lender, but such amount was not in fact made available by or on behalf of such Obligor to the Agent on such due date, such Lender shall pay to the Agent 135 144 on demand the amount previously made available to such Lender, together with interest on such amount at the daily average Federal Funds Rate for the number of days from and including the date on which such Lender received such amount to the date on which such amount becomes immediately available to the Agent, and together with such other compensatory amounts as may be required to be paid by such Lender to the Agent pursuant to the Rules for Interbank Compensation of the Council on International Banking or the Clearinghouse Compensation Committee, as the case may be, as in effect from time to time. A statement of the Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive, in the absence of manifest error. If such amount is not in fact made available to the Agent by such Lender within two Business Days after the date on which such Lender is (i) informed by the Agent that such amount was not made available to the Agent by or on behalf of such Obligor, and (ii) requested by the Agent to refund such amount to the Agent, then the Agent shall be entitled to recover on demand an amount calculated in the manner specified in the second preceding sentence of this clause (b) after substituting the term "Reference Rate" for the term "Federal Funds Rate". SECTION 11.3. Exculpation. (a) No Indemnified Person shall be liable to any Lender for any action taken or omitted to be taken by such Indemnified Person under this Agreement or any other Loan Document or in connection herewith or therewith (except for such Indemnified Person's own willful misconduct or bad faith), nor responsible for any recitals, statements, representations or warranties herein or therein, nor for the effectiveness, genuineness, enforceability, validity, or due execution of this Agreement or any other Loan Document, nor for the creation, perfection, or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, condition, value, or sufficiency of any collateral security, nor to make any inquiry respecting the performance by any Obligor of its obligations hereunder or under any other Loan Document. Each Indemnified Person shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement, or writing which such Indemnified Person believes to be genuine and to have been presented by a proper Person, and shall not be liable to any Lender or any Obligor for the consequences of such reliance. (b) The Agent shall be deemed not to have knowledge of the occurrence of a Default or an Event of Default (other than, in the case of the Agent, an Event of Default arising underSection 10.1.1), or any breach of any of the Loan Documents unless, in each case, it shall have received written notice thereof from a Lender or from the Company. No Indemnified Person shall be responsible or liable for any 136 145 shortage, discrepancy, damage, loss, or destruction of any part of the Collateral, wherever the same may be located and regardless of the cause thereof, unless the same shall happen through its own bad faith or willful misconduct. No Indemnified Person shall, under any circumstances or any event whatsoever, have any liability for any error or omission or delivery of any kind made in the settlement, collection, or payment of any of the Collateral or of any instrument received in payment therefor or for any damage resulting therefrom other than as a result of its own bad faith or willful misconduct. SECTION 11.4. Successors. The Agent may resign as such at any time upon at least 30 days' prior written notice to the Company and all Lenders. If the Agent at any time shall resign, the Required Lenders may appoint another Lender or a commercial banking institution organized under the laws of the United States (or any state thereof) or a United States branch or agency of a foreign commercial banking institution, and having a combined capital and surplus of at least $500,000,000 as a successor Agent which shall thereupon become the Agent hereunder. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be one of the Lenders or one of such commercial banking institutions. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges, and duties of the retiring Agent and the retiring Agent shall be discharged from any further duties and obligations under or in connection with this Agreement and any Loan Document. In addition, in the event that Business Credit resigns as the Agent, Bank of America shall be discharged from any duties and obligations under or in connection with this Agreement and any Loan Documents that were delegated to Bank of America by Business Credit in its capacity as Agent. After the resignation hereunder of a retiring Agent, the provisions of (a) this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement; and (b) Sections 12.3 and 12.4 shall continue to inure to its benefit. SECTION 11.5. Credit Extensions by the Agent. Business Credit and its successor as Agent shall have the same rights and powers with respect to (a) the Loans made by it or any of its Affiliates and (b) Letters of Credit issued (or participated in) by it or any of its Affiliates as any other Lender and may exercise 137 146 the same as if it were not the Agent. The terms "Lender" and "Lenders" as used herein shall include the Agent in its individual capacity. SECTION 11.6. Credit Decisions. Each Lender acknowledges that it has, independently of the Agent, and each other Lender, and based on such Lender's review of the financial information of the Company and such other documents, information, and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Agent, and each other Lender, and based on such other documents, information, and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 11.7. Copies, etc. The Agent shall give prompt written notice to each Lender of each notice or request required or permitted to be given to the Agent by any Obligor pursuant to the terms of this Agreement or any other Loan Document (unless concurrently delivered to the Lenders by or on behalf of such Obligor pursuant to the terms hereof). The Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Agent from the Company for distribution to the Lenders by the Agent in accordance with the terms of this Agreement and the other Loan Documents. SECTION 11.8. Designation of Additional Agents. Whenever the Agent shall deem it necessary or prudent in order either to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any claim or bring any suit with respect to the Collateral or the Collateral Documents, or in the event that the Agent shall have been requested to do so by the Required Lenders, the Agent and to the extent necessary, the Parent Guarantor and the Company, shall (and the Company shall cause each other Obligor to) execute and deliver a supplemental agreement and all other instruments and agreements necessary or proper to constitute another bank or trust company, or one or more Persons approved by the Agent, either to act as Agent or agents with respect to all or any part of the Collateral, in any such case with such powers of the Agent as may be provided in such supplemental agreement, and to vest in such bank, trust company or Person as such Agent or separate trustee, as the case may be, any Property, title, right, or power of the Agent deemed necessary or advisable by the Agent. SECTION 11.9. Certain Releases. (a) To the extent that the Agent becomes concerned that the exercise of any remedies or any action taken or omitted to be taken by it in connection with any Collateral shall subject it to the possibility of any liability, cost, or expense which 138 147 it deems to be significant, arising under any law, rules, or regulations relating to hazardous or toxic wastes or materials, the Agent may, without liability to any Lender or other party to this Agreement or any other Loan Document, or any other Person, decline to accept, abandon, forfeit, or release such Collateral regardless of any effect such declination, abandonment, forfeiture, or release may have upon the Lenders, or otherwise, if either (i) the Agent is requested to decline to accept, abandon, forfeit, or release such Collateral by the Required Lenders or (ii) the Agent is not, within 30 days after making a specific proposal therefor, specifically indemnified to its satisfaction by the Required Lenders or insured to its satisfaction by a third party or parties for any liability, costs, and expenses which might result therefrom. (b) In addition, if the Agent becomes concerned that the inclusion of certain Property in the Collateral is not in the best interests of the Agent or the Lenders, either because of potential adverse legal implications (including the potential effects of California's "one form of action", "anti-deficiency" and related rules of law which may apply in connection with real property located in California) or potential liabilities, costs, or expenses which the Agent deems to be significant that may be imposed upon a Person secured by such Collateral, the Agent may, without liability to any Lender or other party to this Agreement or any other Loan Document, or any other Person, decline to accept, abandon, forfeit, or release such Collateral regardless of any effect such declination, abandonment, forfeiture, or release may have upon the Lenders or otherwise unless (i) the Agent is requested to do otherwise by the Required Lenders and (ii) the Agent is, within 30 days after making a specific proposal therefor, specifically indemnified to its satisfaction by the Required Lenders or insured to its satisfaction by a third party or parties for any liability, costs, and expenses which might result therefrom. SECTION 11.10. Approval of Loan Documents. Each of the Lenders hereby approves the forms of the Loan Documents attached as Exhibits to this Agreement and hereby authorizes the Agent on its behalf to accept from the Company and the other Obligors, as the case may be, and, authorizes the Agent to execute and deliver as Agent, the Collateral Documents in substantially the form of such Exhibits, with such changes, additions, or deletions as the Agent, in its sole and absolute discretion, may approve as necessary or appropriate to accomplish the purposes of such Loan Documents. Each of the Lenders also authorizes the Agent to accept, or execute and deliver, such additional documents, in form and substance satisfactory to the Agent in its sole and absolute discretion, in connection with the initial Borrowing or any subsequent Borrowing as the Agent, in its sole and absolute discretion, may approve as necessary or appropriate to accomplish the purposes of the Loan Documents. Each of the Lenders further authorizes the Agent, in 139 148 its sole and absolute discretion, to approve the form and content of all certificates, opinions, collateral, financing statements, and other documents delivered to it at or in connection with the initial Borrowing or any subsequent Borrowing as the Agent, in its sole and absolute discretion, may deem necessary or appropriate. Whenever the Agent is permitted to consent to any matter hereunder, the Agent shall have the right, in its sole discretion, to consult with any or all of the other Lenders prior to providing or refraining from providing any such consent. ARTICLE XII MISCELLANEOUS PROVISIONS SECTION 12.1. Waivers, Amendments, etc. (a) The provisions of this Agreement and of each other Loan Document may from time to time be amended or modified, if such amendment or modification is in writing and consented to by the Company or the Obligor(s) party thereto (as the case may be) and the Required Lenders; and the provisions of this Agreement may be waived by the Required Lenders or by the Agent acting with the consent of the Required Lenders; provided, however, that no such amendment, modification, or waiver which would: (i) modify this Section 12.1, change the definition of "Required Lenders", or modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender; (ii) increase any Revolving Commitment Amount or the Percentage of any Lender, reduce any fees described in Article III payable to any Lender, or extend any Lender's Commitment Termination Date shall be made without the consent of such Lender; (iii) extend the due date for, or reduce the amount of, any scheduled repayment of principal of or interest on any Loan or any Reimbursement Obligation, or reduce the principal amount of or rate of interest on any Loan or reduce the amount of any Reimbursement Obligation, shall be made without the consent of the Lender which made such Loan or participated in such Letter of Credit, or each Lender which issued or is participating in the Letter of Credit with respect to which such Reimbursement Obligation is owed, as the case may be; 140 149 (iv) release all, substantially all, or any material portion of the Collateral (except for releases in connection with dispositions of assets which are permitted hereunder or under any Loan Document, and releases which are required by the Collateral Documents) without the consent of Lenders holding at least 100% of the then aggregate outstanding principal amount of the Revolving Credit Outstandings or, if no such principal amount is then outstanding, Lenders having at least 100% of the Revolving Commitments; (v) affect adversely the interests, rights, or obligations of the Agent qua Agent, shall be made without the consent of the Agent; or (vi) modify any Letter of Credit or any Revolving L/C Request without the consent of the relevant Issuer Bank. (b) Notwithstanding the foregoing, in the event that the Revolving Commitment Availability shall at any time be less than $40,000,000 or shall be less than $50,000,000 for three consecutive Business Days and the Agent shall have given notice of its election under the Concentration Bank Agreement to have funds in the Concentration Account applied to Revolving Credit Outstandings, the Agent may at any time thereafter, in its sole and absolute discretion, waive any of the conditions precedent set forth in Section 7.2. (c) No failure or delay on the part of the Agent, any Lender, any Issuer Bank, or the holder of any of the Obligations in exercising any power, right, or remedy under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right, or remedy preclude any other or further exercise thereof or the exercise of any other power, right, or remedy. No notice to or demand on the Company or any Obligor in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Agent, any Lender, any Issuer Bank, or the holder of any of the Obligations under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. (d) Each of the Parent Guarantor and the Company hereby waives demand, presentment for payment, protest, notice of protest, notice of acceleration (except as otherwise provided herein), or of intention to accelerate the maturity of any of the Loans, diligence in collecting, the bringing of any suit against any party and any notice of or defense on account of 141 150 any extensions, renewals, partial payments, or any changes in any of the terms, provisions, and covenants of this Agreement, or any other Loan Document, or any releases or substitutions of any security, or any delay, indulgence, or other act of any trustee or any other Person under or in connection with this Agreement, or any other Loan Document whether before or after maturity. SECTION 12.2. Notices. Except as otherwise provided herein or in any other Loan Document, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile (followed promptly thereby by mailing of such notice or communication) and addressed, delivered, or transmitted to such party at its address, telex, or facsimile number set forth below its signature hereto, or set forth in the Assignee Agreement to be Bound pursuant to which such party became a party hereto, or at such other address, telex, or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if delivered by hand or if sent by mail or by overnight courier properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes). SECTION 12.3. Payment of Costs and Expenses. The Parent Guarantor and the Company, jointly and severally, agree to pay on demand all expenses of the Agent (including the reasonable fees and out-of-pocket expenses of counsel to the Agent and of local counsel, if any, who may be retained by counsel to the Agent and the allocated costs of in-house counsel) in connection with (a) the negotiation, preparation, execution, and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements, or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, (b) the filing, recording, refiling, and rerecording of the Collateral Documents (including financing statements or similar documentation) and all amendments, supplements, and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed, recorded, refiled, or rerecorded by the terms hereof or of the Collateral Documents, and (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. The Parent Guarantor and the Company, jointly and severally, further agree to pay, and to save the Agent and the Lenders 142 151 harmless from all liability for, any stamp, recording, or similar taxes which may be payable in connection with the execution or delivery of this Agreement, the Credit Extensions hereunder, the issuance of the Letters of Credit, or the execution and delivery of any other Loan Documents. The Parent Guarantor and the Company, jointly and severally, also agree to reimburse the Agent and each Lender upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent or such Lender in connection with the enforcement of any Obligations and to reimburse the Agent upon demand for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses) incurred by the Agent in connection with the negotiation of any restructuring or "work-out," whether or not consummated, of any Obligations. SECTION 12.4. Indemnification. In consideration of the execution and delivery of this Agreement by the Agent and each Lender, and the extension of the Commitments, the Company hereby indemnifies, exonerates, and holds the Agent and each Lender and each of their respective officers, directors, employees, and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities, and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities" and, individually, an "Indemnified Liability"), incurred by the Indemnified Parties or any of them as result of, arising out of, or relating to (a) any transaction or goods financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension; (b) the entering into, issuance, acceptance, or performance of or participation in this Agreement and any other Loan Document by any of the Indemnified Parties (including any unsuccessful action brought by or on behalf of the Company or any other Obligor as the result of any determination by the Required Lenders pursuant to Article VII not to make any Credit Extension); (c) any investigation, litigation, or proceeding related to any acquisition or proposed acquisition by the Parent Guarantor, the Company, or any of their Subsidiaries or Joint Venture Affiliates of all or any portion of the stock or assets of any Person, whether or not such Indemnified Party is party thereto; (d) any investigation, litigation, or proceeding related to any environmental cleanup, audit, compliance, or other matter relating to the protection of the environment or the Release by the Parent Guarantor, the Company or any of their 143 152 Subsidiaries or Joint Venture Affiliates of any Hazardous Material; or (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging, or releases from, any real property owned or operated by the Parent Guarantor, the Company, or any of their Subsidiaries or Joint Venture Affiliates of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses, or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Company or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or willful misconduct, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Company hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Each Indemnified Party, as soon as reasonably practicable, shall notify the Agent of the commencement of any legal proceeding by any third Person under which any Indemnified Liability might arise. The Agent shall notify the Company of any such commencement promptly after the Agent receives its notice. The Company shall have the option to participate in the defense of all claims under which any Indemnified Liability might arise, but the Company shall not have the option to compel any Indemnified Party to employ counsel of the Company's choosing. SECTION 12.5. Survival. The obligations of the Company under Sections 4.3, 4.4, 4.5, 4.6, 4.7, 12.3, and 12.4, and the obligations of the Lenders under Sections 4.8, 11.1 and 11.2, shall in each case survive any termination of this Agreement. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document notwithstanding any investigation. SECTION 12.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 12.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. 144 153 SECTION 12.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts and by the different parties on separate counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective on the date (the "Effective Date") when counterparts hereof executed on behalf of the Parent Guarantor, the Company, the Agent, and each Lender (or notice thereof satisfactory to the Agent) shall have been received by the Agent and notice thereof shall have been given by the Agent to the Parent Guarantor, the Company, and each Lender. SECTION 12.9. GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT (EXCEPT TO THE EXTENT THAT SUCH OTHER LOAN DOCUMENT CONTAINS A CONTRARY EXPRESS CHOICE OF LAWS PROVISION) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO SUCH LAWS RELATING TO CONFLICTS OF LAWS. (b) THE PARENT GUARANTOR AND THE COMPANY HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL AND STATE OF NEW YORK COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW YORK FOR ALL PURPOSES OF OR IN CONNECTION WITH THIS AGREEMENT, AND ALL OTHER LOAN DOCUMENTS, PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION 12.9 SHALL AFFECT EITHER THE AGENT'S OR ANY LENDER'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE PARENT GUARANTOR, THE COMPANY, OR THEIR RESPECTIVE PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS. (c) UNTIL SUCH TIME AS THE AGENT AND THE LENDERS SHALL HAVE RECEIVED FINAL PAYMENT OF THE FULL AMOUNT OF ALL OBLIGATIONS AND PERFORMANCE OF ALL OBLIGATIONS, AND ALL LETTERS OF CREDIT SHALL HAVE EXPIRED, THE PARENT GUARANTOR AND THE COMPANY HEREBY IRREVOCABLY DESIGNATE AND APPOINT KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL, CURRENTLY LOCATED AT 919 THIRD AVENUE, NEW YORK, NEW YORK 10022 (ATTENTION: EZRA LEVIN), AS THEIR AGENT TO ACCEPT AND ACKNOWLEDGE ON THEIR BEHALF ANY AND ALL PROCESS WHICH MAY BE SERVED IN CONNECTION WITH ANY SUIT, ACTION, OR PROCEEDING OF THE NATURE REFERRED TO IN THE PRECEDING PARAGRAPH. THE PARENT GUARANTOR AND THE COMPANY EACH HEREBY ACKNOWLEDGE THAT, TO THE FULLEST EXTENT PERMITTED BY LAW, SUCH SERVICE SHALL BE EFFECTIVE AND BINDING SERVICE ON IT IN EVERY RESPECT REGARDLESS OF WHETHER IT SHALL BE DOING OR SHALL HAVE AT ANY TIME DONE BUSINESS IN THE STATE OF NEW YORK. (d) THE PARENT GUARANTOR AND THE COMPANY HEREBY AGREE TO TAKE ANY AND ALL ACTION THAT MAY BE NECESSARY TO ENSURE THAT AT ALL TIMES DURING THE TERM OF THIS AGREEMENT THERE SHALL BE AN AGENT IN NEW YORK DESIGNATED AND APPOINTED BY THEM FOR THE PURPOSE DESCRIBED ABOVE, TO MAINTAIN SUCH DESIGNATION AND 145 154 APPOINTMENT OF SUCH AGENT IN FULL FORCE AND EFFECT FOR THE TERM OF THIS AGREEMENT, AND TO DELIVER PROMPTLY TO THE AGENT AT SUCH TIMES AS THE AGENT MAY REQUEST EVIDENCE IN WRITING OF SUCH AGENT'S ACCEPTANCE OF SUCH APPOINTMENT. (e) THE PARENT GUARANTOR AND THE COMPANY HEREBY CONSENT TO PROCESS BEING SERVED IN ANY SUIT, ACTION, OR PROCEEDING OF THE NATURE REFERRED TO ABOVE EITHER (I) BY THE MAILING OF A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO ITS RESPECTIVE ADDRESS SHOWN BELOW ITS SIGNATURE HERETO OR (II) BY SERVING A COPY THEREOF UPON THE PERSON SPECIFIED ABOVE AS THE AUTHORIZED AGENT FOR SERVICE OF PROCESS FOR THE PARENT GUARANTOR AND THE COMPANY (TO THE EXTENT PERMITTED BY APPLICABLE LAW, REGARDLESS OF WHETHER THE APPOINTMENT OF SUCH AGENT FOR SERVICE OF PROCESS FOR ANY REASON SHALL PROVE TO BE INEFFECTIVE OR SUCH AGENT FOR SERVICE OF PROCESS SHALL ACCEPT OR ACKNOWLEDGE SUCH SERVICE); PROVIDED, HOWEVER, THAT, TO THE EXTENT LAWFUL AND PRACTICABLE, WRITTEN NOTICE OF SAID SERVICE UPON SAID AGENT SHALL BE MAILED BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE PARENT GUARANTOR OR THE COMPANY, AS APPLICABLE, AT ITS RESPECTIVE ADDRESS SHOWN BELOW ITS SIGNATURE HERETO. THE PARENT GUARANTOR AND THE COMPANY AGREE THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW, (I) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT, ACTION, OR PROCEEDING AND (II) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO IT. NOTHING HEREIN SHALL AFFECT EITHER THE AGENT'S OR ANY BANK'S RIGHT TO SERVE PROCESS IN OR TO BRING PROCEEDINGS AGAINST THE PARENT GUARANTOR OR THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 12.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) neither the Parent Guarantor nor the Company may assign or transfer their rights or obligations hereunder without the prior written consent of the Agent and all Lenders; and (b) the rights of sale, assignment, and transfer of the Lenders are subject to Section 12.11. SECTION 12.11. Sale and Transfer of Credit Extensions and Commitments; Participations in Credit Extensions and Commitments. Each Lender may assign, or sell participations in, its Credit Extensions and Commitments to one or more other Persons in accordance with this Section 12.11. SECTION 12.11.1. Assignments. Any Lender, 146 155 (a) with the written consents of the Company and the Agent (which consents shall not be unreasonably delayed or withheld and which consent, in the case of the Company, shall be deemed to have been given in the absence of a written notice delivered by the Company to the Agent on or before the fifth Business Day after receipt by the Company of such Lender's request for consent, stating, in reasonable detail, the reasons why the Company proposes to withhold such consent) may at any time assign and delegate to one or more Affiliates of such Lender (if such Lender is not to remain liable for the performance of its Affiliate's obligations hereunder or under any other applicable Loan Document), (b) with the written consents of the Company (which consent shall not be unreasonably delayed or withheld) and the Agent (which consent may be withheld for any reason) may at any time assign and delegate to one or more other banks, savings and loan associations, commercial finance companies and other similar financial institutions, and (c) with written notice to the Company and the Agent, but without the consent of the Company or the Agent, may assign and delegate to any other Lender or to one or more Affiliates of such Lender (if such Lender remains liable for the performance of its Affiliate's obligations hereunder and under any other applicable Loan Document) (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction of such Lender's total Credit Extensions and Revolving Commitment (which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Lender's Credit Extensions and Commitments); provided, however, that the aggregate principal amount of the portion of the Revolving Commitment so assigned to any Assignee Lender shall be not less than $20,000,000, unless such assignment covers all of such Lender's interests and obligations hereunder and under the Loan Documents; and provided, further, that any such Assignee Lender will comply, if applicable, with the provisions contained in clause (b) of Section 4.6; and provided, further, that the Parent Guarantor, the Company, each other Obligor and the Agent shall be entitled to continue to deal solely and directly with such assigning Lender in connection with the interests so assigned and delegated to an Assignee Lender until (i) written notice of such assignment and delegation, together with payment instructions, addresses, and related information with respect to such Assignee Lender, shall have been given to the Company and the Agent by such Lender and such Assignee Lender, (ii) such Assignee Lender shall have executed and delivered to the Company and the Agent an Assignee Agreement to be Bound, accepted by the Agent, and 147 156 (iii) the processing fees described below shall have been paid. From and after the date that the Agent accepts such Assignee Agreement to be Bound (subject to clauses (a) and (b) above), (A) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender pursuant to such Assignee Agreement to be Bound, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (B) the assigning Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it pursuant to such Assignee Agreement to be Bound, shall be released from its obligations which are not then due and payable hereunder and under the other Loan Documents. Accrued interest, and accrued fees, in respect of the rights and obligations that have been assigned, shall be paid as provided in the Assignee Agreement to be Bound. Accrued interest and accrued fees shall be paid at the same time or times provided in this Agreement. Such assigning Lender or such Assignee Lender must also pay a processing fee to the Agent upon delivery of any Assignee Agreement to be Bound in the amount of $3500. Any attempted assignment and delegation not made in accordance with this Section 12.11.1 shall be null and void. SECTION 12.11.2. Participations. Any Lender may at any time sell to one or more financial institutions (each of such financial institutions being herein called a "Participant") participating interests in any of the Credit Extensions, Commitments, or other interests or obligations of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section 12.11.2 shall relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document, (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations, (c) the Parent Guarantor, the Company, each other Obligor, and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents, and (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document. SECTION 12.12. Other Transactions. Nothing contained herein shall preclude the Agent or any Lender from engaging in any debt or equity transaction, in addition to those contemplated by this 148 157 Agreement or any other Loan Document, with the Company or any of its Affiliates in which the Company or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 12.13. WAIVER OF JURY TRIAL. TO THE EXTENT ANY SUCH LITIGATION IS NOT DETERMINED BY ARBITRATION OR BY A REFERENCE, THE AGENT, THE LENDERS, THE PARENT GUARANTOR, AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR OTHER ACTIONS OF THE AGENT, THE LENDERS, THE PARENT GUARANTOR, OR THE COMPANY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. THE PARENT GUARANTOR AND THE COMPANY EACH ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTATION, OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. SECTION 12.14. Arbitration; Reference Proceeding. (a) Any controversy or claim between or among the parties, including but not limited to those arising out of or relating to this Agreement or any agreements or instruments relating hereto or delivered in connection herewith and any claim based on or arising from an alleged tort, shall at the request of any party be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Agreement, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitration shall be conducted within the City of New York. The arbitrator(s) shall give effect to statutes of limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. (b) Notwithstanding the provisions of clause (a), no controversy or claim shall be submitted to arbitration without the 149 158 consent of all parties if, at the time of the proposed submission, such controversy or claim arises from or relates to an obligation to the Lenders which is secured by real property collateral located in California. If all parties do not consent to submission of such a controversy or claim to arbitration, the controversy or claim shall be determined as provided in clause (c). (c) A controversy or claim which is not submitted to arbitration as provided and limited in clauses (a) and (b) shall, at the request of any party, be determined by a reference in accordance with INSERT APPROPRIATE CODE SECTIONS. If such an election is made, the parties shall designate to the court a referee or referees selected under the auspices of the AAA in the same manner as arbitrators are selected in AAA-sponsored proceedings. The presiding referee of the panel, or the referee if there is a single referee, shall be an active attorney or retired judge. Judgment upon the award rendered by such referee or referees shall be entered in the court in which such proceeding was commenced in accordance with INSERT APPROPRIATE CODE SECTIONS, (d) No provision of this paragraph shall limit the right of any party to this Agreement to exercise self-help remedies such as setoff, to foreclose against or sell any real or personal property collateral or security, or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The exercise of a remedy does not waive the right of either party to resort to arbitration or reference. At the Required Lenders' option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage or by judicial foreclosure. SECTION 12.15. Final Agreement, etc. This written loan agreement, together with the other Loan Documents, represents the final agreement between the parties with respect to the subject matter hereof and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties with respect to the subject matter hereof. The inclusion in this Agreement or any Loan Document of provisions not included in, or the deletion of provisions previously included in, prior drafts of this Agreement or such other Loan Document shall not be considered in interpreting the final executed version of this Agreement or such other Loan Document. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. KAISER ALUMINUM & CHEMICAL CORPORATION By________________________________ 150 159 Name Printed: Title: Address: Telephone No.: Facsimile No.: Telex No.: Attention: 151 160 KAISER ALUMINUM CORPORATION By_______________________________ Name Printed: Title: Address: Telephone No.: Facsimile No.: Telex No.: Attention: 152 161 PERCENTAGE LENDERS - ---------- ------- BANKAMERICA BUSINESS CREDIT, INC. By ________________________________ Name Printed: Title: Domestic Office: Telephone No.: Facsimile No.: Telex No.: Attention: LIBOR Office: Address for payments: Attention: Ref: 153 162 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By___________________________________ Name Printed: Title: Vice President Domestic Office: 555 California Street 41st Floor San Francisco Corporate Office #5133 San Francisco, California 94104 Telephone No.: (415) 622-5896 Facsimile No.: (415) 622-4585 Telex No.: 67652 (Answerback BANKAMER SFO) Attention: LIBOR Office: (Same as Domestic) Address for payments: Bank of America N.T. & S.A. (ABA 121-000-358-S.F.) 1850 Gateway Boulevard Concord, California 94520 Attention: Global Agency (#5596) For Credit to account No.: Bancontrol-1233-5-15200 Ref: Kaiser Aluminum 154 163 AGENT ----- BANKAMERICA BUSINESS CREDIT, INC. By ________________________________ Name Printed: Title: Office: Telephone No.: Facsimile No.: Telex No.: Attention: 155 EX-23.1 5 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN & CO. Oakland, California February 8, 1994 -----END PRIVACY-ENHANCED MESSAGE-----