-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UUr4JLm29TyWcOPEVsXtBqLVpHeg6XlTnE39dM5WmGAWHnyFMAaJqACwyzyeiFPL hq6bA1Q7uVUhVrOTV2zXCg== 0000950129-96-003633.txt : 19970103 0000950129-96-003633.hdr.sgml : 19970103 ACCESSION NUMBER: 0000950129-96-003633 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19970102 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER ALUMINUM & CHEMICAL CORP CENTRAL INDEX KEY: 0000054291 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 940928288 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143 FILM NUMBER: 96689252 BUSINESS ADDRESS: STREET 1: 6177 SUNOL BOULEVARD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 BUSINESS PHONE: 5104621122 MAIL ADDRESS: STREET 1: 6177 SUNOL BLVD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 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: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 941631721 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143-01 FILM NUMBER: 96689253 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: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 132569683 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143-02 FILM NUMBER: 96689254 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: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 946102690 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143-03 FILM NUMBER: 96689255 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: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143-04 FILM NUMBER: 96689256 BUSINESS ADDRESS: STREET 1: 6177 SUNOL BOULEVARD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 BUSINESS PHONE: 5104621122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER MICROMILL HODINGS LLC CENTRAL INDEX KEY: 0001026783 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 760487036 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143-05 FILM NUMBER: 96689257 BUSINESS ADDRESS: STREET 1: 6177 SUNOL BOULEVARD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 BUSINESS PHONE: 7132673777 MAIL ADDRESS: STREET 1: 6177 SUNOL BOULEVARD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER SIERRA MICROMILLS LLC CENTRAL INDEX KEY: 0001026784 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 760487035 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143-06 FILM NUMBER: 96689258 BUSINESS ADDRESS: STREET 1: 6177 SUNOL BOULEVARD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 BUSINESS PHONE: 7132673777 MAIL ADDRESS: STREET 1: 6177 SUNOL BOULEVARD CITY: PLEASANTON STATE: CA ZIP: 94566-7769 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER TEXAS MICROMILL HOLDINGS LLC CENTRAL INDEX KEY: 0001026786 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943030279 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143-07 FILM NUMBER: 96689259 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE SUITE 2600 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7132673777 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE SUITE 2600 CITY: HOUSTON STATE: TX ZIP: 77057 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAISER TEXAS SIERRA MICROMILLS LLC CENTRAL INDEX KEY: 0001026787 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 760487033 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19143-08 FILM NUMBER: 96689260 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE SUITE 2600 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7132673777 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE SUITE 2600 CITY: HOUSTON STATE: TX ZIP: 77057 S-4 1 KAISER ALUMINUM & CHEMICAL CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-4 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 (Primary Standard Industrial (I.R.S. Employer Incorporation) Classification Code Number) Identification No.) 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 5847 SAN FELIPE, SUITE 2600 number, HOUSTON, TEXAS 77057-3010 including area code, of registrant's (713) 267-3777 principal executive offices) (Name, address including zip code, and telephone number, including area code, of agent for service)
SEE TABLE OF ADDITIONAL REGISTRANTS --------------------- Copies of all communications to: JOHN WM. NIEMAND II HOWARD A. SOBEL, ESQ. ASSISTANT GENERAL COUNSEL KRAMER, LEVIN, NAFTALIS & FRANKEL KAISER ALUMINUM & CHEMICAL CORPORATION 919 THIRD AVENUE 5847 SAN FELIPE, SUITE 2600 NEW YORK, NEW YORK 10022 HOUSTON, TEXAS 77057-3010 (212) 715-9100 (713) 267-3690
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the registration statement becomes effective and all other conditions to the exchange offer described in the enclosed Prospectus have been satisfied or waived. If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF REGISTERED REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE - ------------------------------------------------------------------------------------------------ 10 7/8% Series D Senior Notes due 2006........ $50,000,000 100%(1) $50,000,000(1) $15,152 - ------------------------------------------------------------------------------------------------ Guarantees of the 10 7/8% Series D Senior Notes due 2006.................. $50,000,000 -- (2) -- -- - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
(1) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(f)(2) under the Securities Act of 1933. (2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate consideration is payable for the Guarantees. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL 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 EXACT NAME STATE OR OTHER STANDARD ADDRESS, INCLUDING ZIP CODE, AND OF REGISTRANT JURISDICTION OF INDUSTRIAL IRS EMPLOYER TELEPHONE NUMBER, INCLUDING AREA AS SPECIFIED IN INCORPORATION OR CLASSIFICATION IDENTIFICATION CODE, OF REGISTRANT'S PRINCIPAL ITS CHARTER ORGANIZATION CODE NUMBER NUMBER EXECUTIVE OFFICES - ------------------------- ---------------- ----------- ------------ -------------------------------- Kaiser Alumina Delaware 3334 94-6102690 6177 Sunol Boulevard Australia Corporation Pleasanton, CA 94566-7769 (510) 462-1122 Kaiser Finance Delaware 3334 94-3115934 6177 Sunol Boulevard Corporation Pleasanton, CA 94566-7769 (510) 462-1122 Alpart Jamaica Inc. Delaware 3334 13-2569683 6177 Sunol Boulevard Pleasanton, CA 94566-7769 (510) 462-1122 Kaiser Jamaica Delaware 3334 94-1631721 6177 Sunol Boulevard Corporation Pleasanton, CA 94566-7769 (510) 462-1122 Kaiser Micromill Delaware 3334 76-0487036 6177 Sunol Boulevard Holdings, LLC Pleasanton, CA 94566-7769 (510) 462-1122 Kaiser Sierra Delaware 3334 76-0487035 6177 Sunol Boulevard Micromills, LLC Pleasanton, CA 94566-7769 (510) 462-1122 Kaiser Texas Micromill Texas 3334 76-0487034 5847 San Felipe, Suite 2600 Holdings, LLC Houston, Texas 77057 (713) 267-3777 Kaiser Texas Sierra Texas 3334 76-0487033 5847 San Felipe, Suite 2600 Micromills, LLC Houston, Texas 77057 (713) 267-3777
3 ******************************************************************************** * 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 JANUARY 2, 1997 PROSPECTUS KAISER ALUMINUM & CHEMICAL CORPORATION OFFER TO EXCHANGE ANY AND ALL OUTSTANDING 10 7/8% SERIES C SENIOR NOTES DUE 2006 ($50,000,000 PRINCIPAL AMOUNT OUTSTANDING) FOR 10 7/8% SERIES D SENIOR NOTES DUE 2006 GUARANTEED BY KAISER ALUMINA AUSTRALIA CORPORATION, KAISER FINANCE CORPORATION, ALPART JAMAICA INC., KAISER JAMAICA CORPORATION, KAISER MICROMILL HOLDINGS, LLC, KAISER SIERRA MICROMILLS, LLC, KAISER TEXAS MICROMILL HOLDINGS, LLC, AND KAISER TEXAS SIERRA MICROMILLS, LLC (COLLECTIVELY, THE "SUBSIDIARY GUARANTORS") The Exchange Offer (as defined below) and withdrawal rights will expire at 5:00 p.m., New York City time, on , , 1997 (as such date may be extended, the "Expiration Date"). Kaiser Aluminum & Chemical Corporation (the "Company") hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the "Letter of Transmittal"), to exchange $1,000 in principal amount of its 10 7/8% Series D Senior Notes due 2006 (the "New Notes") for each $1,000 in principal amount of its outstanding 10 7/8% Series C Senior Notes due 2006 (the "Old Notes") (the Old Notes and the New Notes are sometimes collectively referred to herein as the "Notes") held by Eligible Holders (as defined below). An aggregate principal amount of $50.0 million of Old Notes is outstanding. See "The Exchange Offer." For purposes of the Exchange Offer, "Eligible Holder" shall mean the registered owner of any Old Notes that remain Registrable Securities (as defined below) as reflected on the records of First Trust National Association, as registrar for the Old Notes (in such capacity, the "Registrar"), or any person whose Old Notes are held of record by the depository of the Old Notes. For purposes of the Exchange Offer, "Registrable Securities" means each Old Note until the earliest to occur of (i) the date on which such Old Note has been exchanged for a New Note in the Exchange Offer and is thereafter freely tradeable by the holder thereof not an affiliate of the Company or any Subsidiary Guarantor, (ii) the date on which such Old Note is registered under the Securities Act of 1933, as amended (the "Securities Act"), and disposed of in accordance with a registration statement, (iii) the date on which such Old Note is distributed to the public pursuant to Rule 144 under the Securities Act, or (iv) the date on which such Old Note shall have ceased to be outstanding. The Company will accept for exchange any and all Old Notes that are validly tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of the Old Notes being tendered for exchange. However, the Exchange Offer is subject to certain customary conditions, which may be waived by the Company, and to the terms and provisions of the Registration Rights Agreement, dated as of December 23, 1996 (the "Registration Rights Agreement") among the Company, the Subsidiary Guarantors (each of which has guaranteed the Old Notes and has agreed to guarantee the New Notes), and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Initial Purchaser"). The Old Notes may be tendered only in multiples of $1,000. See "The Exchange Offer." (continued on next page) --------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 17 HEREIN FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFER. --------------------- 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. --------------------- The date of this Prospectus is [ ], 1997. 4 The Old Notes were issued in a transaction (the "Offering") pursuant to which the Company issued an aggregate of $50.0 million principal amount of the Old Notes to the Initial Purchaser on December 23, 1996 (the "Closing Date") pursuant to a Purchase Agreement, dated December 18, 1996 (the "Purchase Agreement") among the Company, the Subsidiary Guarantors, and the Initial Purchaser. The Initial Purchaser subsequently resold the Old Notes in reliance on Rule 144A under the Securities Act. The Company, the Subsidiary Guarantors, and the Initial Purchaser also entered into the Registration Rights Agreement, pursuant to which the Company granted certain registration rights for the benefit of the holders of the Old Notes. The Exchange Offer is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement with respect to the Old Notes. See "The Exchange Offer -- Purpose and Effect." The Old Notes were issued under an indenture, dated as of December 23, 1996 (the "Indenture"), among the Company, the Subsidiary Guarantors, and First Trust National Association, as trustee (in such capacity, the "Trustee"). The New Notes will be issued under the Indenture as it relates to the New Notes. The form and terms of the New Notes will be identical in all material respects to the form and terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, (ii) subject to certain limited exceptions, holders of New Notes will not be entitled to Additional Interest (as defined in the Registration Rights Agreement) otherwise payable under the terms of the Registration Rights Agreement in respect of Old Notes held by such holders during any period in which a Registration Default (as defined in the Registration Rights Agreement) is continuing, and (iii) holders of New Notes will not be, and upon the consummation of the Exchange Offer Eligible Holders of Old Notes will no longer be, entitled to certain rights under the Registration Rights Agreement intended for the holders of unregistered securities. The Exchange Offer shall be deemed consummated upon the delivery by the Company to the Registrar under the Indenture of New Notes in the same aggregate principal amount as the aggregate principal amount of Old Notes that are validly tendered by holders thereof pursuant to the Exchange Offer. See "The Exchange Offer -- Termination of Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description of New Notes." The New Notes will bear interest at a rate equal to 10 7/8% per annum from and including their date of issuance. Interest on the New Notes is payable semi-annually on April 15 and October 15 of each year (each, an "Interest Payment Date"). Eligible Holders whose Old Notes are accepted for exchange will have the right to receive interest accrued thereon from the date of their original issuance or the last Interest Payment Date, as applicable, to, but not including, the date of issuance of the New Notes, such interest to be payable with the first interest payment on the New Notes. Interest on the Old Notes accepted for exchange will cease to accrue on the day prior to the issuance of the New Notes. The New Notes will mature on October 15, 2006. See "Description of New Notes." The New Notes will not be redeemable, in whole or in part, prior to October 15, 2001. Thereafter, the New Notes will be redeemable at the redemption prices set forth herein, plus interest accrued thereon to, but not including, the redemption date. Upon the occurrence of a Change of Control (as defined herein), the Company will be required to make an offer to purchase from each holder all or any part of the holder's Notes for which a Change of Control Purchase Notice (as defined) shall have been delivered as provided in the Indenture and not withdrawn at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. See "Description of New Notes -- Offer to Purchase the Notes." The New Notes will represent senior, unsecured obligations of the Company, ranking senior in right and priority of payment to all Indebtedness (as defined) of the Company that by its terms is expressly subordinated to the New Notes. Without limiting the generality of the foregoing, the New Notes will rank senior in right and priority of payment to the Indebtedness represented by the Company's 12 3/4% Senior Subordinated Notes due 2003 (the "12 3/4% Notes"), and the New Notes will rank pari passu in right and priority of payment with the Indebtedness under the Credit Agreement (as defined), and the Indebtedness represented by the Company's 9 7/8% Senior Notes due 2002 (the "9 7/8% Notes") and 10 7/8% Senior Notes due 2006 (the "10 7/8% Notes"). The New Notes will also be guaranteed fully and unconditionally on a senior, unsecured basis by the Subsidiary Guarantors. The New Notes, however, will be effectively subordinated to secured Indebtedness of the Company and the Subsidiary Guarantors, including the Indebtedness under the 2 5 Credit Agreement, with respect to the assets securing such Indebtedness. The New Notes will also be effectively subordinated to claims of creditors of the Company's subsidiaries, except to the extent that holders of the New Notes may be creditors of such subsidiaries pursuant to a subsidiary guarantee. See "Risk Factors" and "Description of New Notes." See also "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The Indenture permits the Company and its subsidiaries to incur additional Indebtedness, including additional secured Indebtedness, subject to certain limitations. See "Description of New Notes." Based on positions of the staff of the Securities and Exchange Commission (the "Commission") enunciated in Morgan Stanley & Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), and interpreted in the Commission's letters to Shearman & Sterling (available July 2, 1993) and K-III Communications Corporation (available May 14, 1993), and similar no-action or interpretive letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange for Old Notes may be offered for resale, resold and otherwise transferred by such Eligible Holder, other than as set forth below, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the Eligible Holder is not an affiliate of the Company or any Subsidiary Guarantor within the meaning of Rule 405 under the Securities Act, is acquiring the New Notes in the ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the New Notes. Eligible Holders wishing to accept the Exchange Offer must represent to the Company, as required by the Registration Rights Agreement, that such conditions have been met. If any Eligible Holder acquires New Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the New Notes, such Eligible Holder cannot rely on the position of the staff of the Commission set forth in the above no-action and interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction, unless an exemption from registration is otherwise available. Each broker-dealer that acquired Old Notes directly from the Company and that receives New Notes for its own account pursuant to the Exchange Offer must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction (unless an exemption from registration is otherwise available). See "The Exchange Offer -- Resales of the New Notes." Each broker-dealer that receives New Notes in exchange for Old Notes that were acquired by such broker-dealer as a result of market-making or other trading activities must, in connection with any resale of such New Notes, comply with the prospectus delivery requirements of the Securities Act and must acknowledge that it will deliver a prospectus in connection with any such resale. The Company has agreed that, for a period of 180 days after the effective date of this Prospectus, it will make this Prospectus, as it may be amended or supplemented from time to time, available for use by any broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities. As of [ ], 1997, Cede & Co. ("Cede"), as nominee for The Depository Trust Company, New York, New York ("DTC"), was the registered holder of approximately $ million aggregate principal amount of the Old Notes and held such Old Notes for of its participants. The Company believes that no such participant is an affiliate (as such term is defined in Rule 405 of the Securities Act) of the Company or any Subsidiary Guarantor. There has previously been only a limited secondary market, and no public market, for the Old Notes. The Old Notes are eligible for trading in the Private Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. There can be no assurance as to the liquidity of the trading market for either the New Notes or the Old Notes. The New Notes constitute securities for which there is no established trading market, and the Company does not currently intend to list the Notes on any securities exchange. If such a trading market develops for the New Notes, future trading prices will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. Depending on such factors, the New Notes may trade at a discount from their face value. See "Risk Factors -- Absence of Public Market for the New Notes." 3 6 The Company will not receive any proceeds from this Exchange Offer. Pursuant to the Registration Rights Agreement, the Company will bear all expenses incident to the Company's consummation of the Exchange Offer and compliance with the Registration Rights Agreement. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. Old Notes in the aggregate principal amount of $50.0 million were issued originally in global form (the "Global Old Note"). The Global Old Note was deposited with, or on behalf of, DTC, as the initial depository with respect to the Old Notes (in such capacity, the "Depository"). The Global Old Note is registered in the name of Cede, as nominee of DTC, and beneficial interests in the Global Old Note are shown on, and transfers thereof are effected only through, records maintained by the Depository and its participants. The use of the Global Old Note to represent certain of the Old Notes permits the Depository's participants, and anyone holding a beneficial interest in an Old Note registered in the name of such a participant, to transfer interests in the Old Notes electronically in accordance with the Depository's established procedures without the need to transfer a physical certificate. Except as provided below, the New Notes will also be issued initially as a note in global form (the "Global New Note", and together with the Global Old Note, the "Global Notes") and deposited with, or on behalf of, the Depository. Notwithstanding the foregoing, holders of Old Notes that are held, at any time, by a person that is not a qualified institutional buyer under Rule 144A under the Securities Act (a "Qualified Institutional Buyer"), and any Eligible Holder that is not a Qualified Institutional Buyer that exchanges Old Notes in the Exchange Offer, will receive the New Notes in certificated form and is not, and will not be, able to trade such securities through the Depository unless the New Notes are resold to a Qualified Institutional Buyer. After the initial issuance of the Global New Note, New Notes in certificated form will be issued in exchange for a holder's proportionate interest in the Global New Note only as set forth in the Indenture. TABLE OF CONTENTS
PAGE ---- Available Information................................................................. 5 Prospectus Summary.................................................................... 7 Risk Factors.......................................................................... 17 The Exchange Offer.................................................................... 22 Capitalization........................................................................ 30 Selected Historical and Pro Forma Consolidated Financial Data......................... 31 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................... 32 Business.............................................................................. 42 Management............................................................................ 61 Certain Transactions.................................................................. 75 Description of Principal Indebtedness................................................. 77 Description of New Notes.............................................................. 79 Certain Federal Income Tax Consequences............................................... 115 Plan of Distribution.................................................................. 117 Incorporation of Certain Documents By Reference....................................... 118 Legal Matters......................................................................... 118 Experts............................................................................... 118 Index to Consolidated Financial Statements............................................ F-1
4 7 AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement (which term shall include any amendments thereto) on Form S-4 under the Securities Act (the "Registration Statement") with respect to the securities offered by this Prospectus. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference is hereby made. Each statement made in this Prospectus referring to a document filed as an exhibit or schedule to the Registration Statement is not necessarily complete and is qualified in its entirety by reference to the exhibit or schedule for a complete statement of its terms and conditions. In addition, the Company and the Subsidiary Guarantors are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, the Company will file periodic reports and other information with the Commission relating to its business, financial statements and other matters, including therein, where applicable, summary combined financial information of the Subsidiary Guarantors. Any interested parties may inspect and/or copy the Registration Statement, its schedules and exhibits, and the periodic reports and other information filed in connection therewith, at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices located at Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such materials can be obtained at prescribed rates by addressing written requests for such copies to the Public Reference Section of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission also maintains a site on the World Wide Web, the address of which is http://www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers, such as the Company, that file electronically with the Commission. The obligations of the Company and the Subsidiary Guarantors under the Exchange Act to file periodic reports and other information with the Commission may, to the extent that such obligations arise from the registration of the New Notes, be suspended, under certain circumstances, if the New Notes are held of record by fewer than 300 holders at the beginning of any fiscal year and are not listed on a national securities exchange. The Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, it will furnish to the holders of the Notes and file with the Commission (unless the Commission will not accept such a filing) all annual, quarterly and current reports that the Company is or would be required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act. In addition, for so long as the Company or any Subsidiary Guarantor is subject to the reporting requirements of Section 13 or 15 of the Exchange Act and any Registrable Securities remain outstanding, each of the Company and the Subsidiary Guarantors has agreed that it will comply with its reporting obligations under the Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the Commission thereunder, and that if it ceases to be required to file periodic reports thereunder, it will upon the request of any holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the Securities Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the Securities Act, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such holder to sell its Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, (ii) Rule 144A under the Securities Act, as such rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the Commission. THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENT HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS FILED BY THE COMPANY, INCLUDING EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE TO ANY REGISTERED HOLDER OR BENEFICIAL OWNER OF THE OLD NOTES UPON WRITTEN OR ORAL REQUEST AND WITHOUT CHARGE FROM KAISER ALUMINUM & CHEMICAL CORPORATION, 5847 SAN FELIPE, SUITE 2600, HOUSTON, TEXAS 77057, ATTENTION: GENERAL COUNSEL. TELEPHONE REQUESTS MAY BE DIRECTED TO THE COMPANY AT (713) 267-3777. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY [ ], 1997. 5 8 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION WITH RESPECT TO ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. 6 9 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements (including the Notes to Consolidated Financial Statements) 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 (the "Company") is one of the world's leading producers and marketers of alumina, primary aluminum and fabricated aluminum products. The Company is a wholly-owned subsidiary of Kaiser Aluminum 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 (including semi-fabricated) aluminum products. The Company is one of the largest domestic aluminum producers in terms of primary smelting capacity and is the Western world's second largest producer/seller of alumina, accounting for approximately 7% of the Western world's alumina capacity in 1995. The Company's production levels of alumina and primary aluminum exceed its internal processing needs, which allows it to be a major seller of alumina (approximately 2.0 million tons in 1995 or 72% of production) and primary aluminum (approximately 271,700 tons in 1995 or 66% of production) to third parties. The Company is also a major domestic supplier of fabricated aluminum products, shipping approximately 6% of total domestic tonnage of such products (approximately 368,200 tons in 1995). The Company's objectives are to maintain leading market positions in its core businesses, while developing new opportunities both domestically and internationally which will enhance, and reduce the cyclicality of, the Company's earnings. The primary elements of the Company's strategies to achieve these objectives are: Increasing the competitiveness of its existing facilities. The Company is continuing to increase the competitiveness of its existing facilities. In 1995, the Company successfully restructured electric power purchase agreements for its smelting facilities in the Pacific Northwest, which has resulted in significantly lower electric power costs in 1996 for the Mead and Tacoma, Washington, smelters compared with 1995 electric power costs. The Company expects to continue to benefit from these savings in electric power costs at these facilities in 1997 and beyond. See "Risk Factors -- Power Supply." The Company has also commenced the modernization and expansion of the carbon baking furnace at its Mead smelter at an estimated cost of approximately $52.0 million. This project will lower costs, enhance safety and improve the environmental performance of the facility. This modernization is expected to be completed in late 1998. The Company continues to implement changes to the process and product mix of its Trentwood, Washington, rolling mill in an effort to maximize its profitability and maintain full utilization of the facility. Recently, the Company has approved an expansion of its heat treat capacity by approximately one-third, which will enable the Company to increase the range of its heat treat products and improve Trentwood's operating efficiency. Sales of the Company's heat treat products have increased significantly over the last several years and are made primarily to the aerospace and general engineering markets, which are experiencing growth in demand. The project is estimated to cost approximately $45.0 million and to take approximately two years to complete. See "Business -- Production Operations." Developing proprietary technologies. The Company has developed proprietary technologies which present growth opportunities in the future and have enabled it to substantially improve its operating efficiencies. The Company has developed a unique micromill for the production of can sheet from molten metal using a continuous cast process. The capital and conversion costs of these micromills are expected to be significantly lower than conventional rolling mills. Micromills are also expected to result in lower transportation costs due to the ability to strategically locate a micromill in close proximity to a manufacturing facility. Micromills are expected to be particularly well suited to take advantage of the rapid growth in demand for can sheet expected in emerging markets in Asia and Latin America where there is limited indigenous supply. The Company 7 10 believes that micromills should also be capable of manufacturing other sheet products at relatively low capital and operating costs. The micromill technology is based on a proprietary thin-strip, high-speed, continuous-belt casting technique linked directly to hot and cold rolling mills. The major advantage of the process is that the sheet is continuously manufactured from molten metal, unlike the conventional process in which the metal is first cast into large, solid ingots and subsequently rolled into sheet through a series of highly capital-intensive steps. The first micromill is nearing completion in Nevada as a full-scale demonstration and production facility. The Company expects operational start-up of the facility by the end of 1996. If the Company is successful in proving and commercializing its micromill technology, micromills could represent an important source of future growth. There can be no assurance that the Company will be able to successfully develop and commercialize the technology for use at full-scale facilities. See "Business -- Research and Development." The Company has developed and installed proprietary retrofit technology in all of its smelters over the last decade, which has significantly contributed to increased and more efficient production of primary aluminum. Through continuing technological improvements, the Company's smelters have achieved improved energy efficiency and longer average life of reduction cells. The Company is actively engaged in licensing its smelting and other process and product technology and selling technical and managerial assistance to other producers worldwide. See "Business -- Production Operations -- Primary Aluminum Products." Increasing participation in emerging markets. The Company is actively pursuing opportunities to increase its participation in emerging markets by using its technical expertise and capital to form joint ventures or acquire equity in aluminum-related facilities in foreign countries where it can apply its proprietary technology. The Company has created Kaiser Aluminum International to identify growth opportunities in targeted emerging markets and develop the needed country competence to complement the Company's product and process competence in capitalizing on such opportunities. The Company has focused its efforts on countries that are expected to be important suppliers of aluminum and/or large customers for aluminum and alumina, including the People's Republic of China (the "PRC"), Russia and other members of the Commonwealth of Independent States (the "CIS"), India, and Venezuela. The Company's proprietary retrofit technology has been installed by the Company at various third party locations throughout the world and is an integral part of the Company's initiatives for participating in new and existing smelting facilities. See "Risk Factors -- Foreign Activities" and "Business -- International Business Development." The Company's principal executive offices are located at 6177 Sunol Boulevard, Pleasanton, California 94566-7769, and its telephone number is (510) 462-1122. RECENT TRENDS AND DEVELOPMENTS During 1995, the average Midwest U.S. transaction price (the "AMT Price") for primary aluminum was approximately $.86 per pound compared to $.72 and $.54 per pound in 1994 and 1993, respectively. The significant improvement in prices during 1994 and 1995 resulted from strong growth in Western world consumption of aluminum and the curtailment of production in response to lower prices in prior periods by many producers worldwide. In 1995, production of primary aluminum increased and consumption of aluminum continued to grow, but at a much lower rate than in 1994. In general, the overall aluminum market was strongest in the first half of 1995. By the second half of 1995, orders and shipments for certain products had softened and the rate of decline in London Metal Exchange ("LME") inventories had leveled off. By the end of 1995, some small increases in LME inventories occurred, and prices of aluminum weakened from first-half levels. This trend has continued throughout the first eleven months of 1996 as the supply of primary aluminum exceeded demand during this period. Net reported primary aluminum inventories have increased by approximately 55,000 tons in 1996 based upon recent reports of the LME (through December 20, 1996) and the International Primary Aluminium Institute (the "IPAI") (through October 31, 1996), following substantial declines of 764,000 and 1,153,000 tons in 1994 and 1995, respectively. The AMT Price for primary aluminum for the week ended December 20, 1996, was approximately $.73 per pound. Increased production of primary aluminum due to restarts of certain previously idled capacity, the commissioning of a major new smelter in South Africa, and the continued high level of exports from the CIS have contributed to increased supplies of primary aluminum to the Western world in 1996. While the 8 11 economies of the major aluminum consuming regions -- the United States, Japan, Western Europe, and Asia -- are performing relatively well, the Company believes that the reduction of aluminum inventories by consumers, as prices have continued to decline, has suppressed the growth in primary aluminum demand that normally accompanies growth in economic and industrial activity. In addition to these supply/demand dynamics, the Company believes that the recent decline in primary aluminum prices may have been influenced by a recent major decline in copper prices on the LME. See "Business -- Industry Overview." FOURTH QUARTER RESULTS The Company incurred net losses of $4.8 million in the third quarter of 1996 and expects to continue to sustain net losses in the fourth quarter of 1996, due principally to lower average realized prices for alumina and primary aluminum, as compared to prices realized in the comparable periods of 1995, and due to increased raw material, energy, and operational costs associated with the production of alumina at the Company's Gramercy alumina refinery in Louisiana and 65%-owned Alpart alumina refinery in Jamaica, as compared to amounts incurred in the comparable periods of 1995. Such fourth quarter losses could substantially exceed the loss for the third quarter of 1996. PROFIT ENHANCEMENT AND COST CUTTING INITIATIVE The Company has set a goal of achieving significant cost reductions and other profit improvements during 1997, with the full effect planned to be realized in 1998. The initiative is based on the Company's conclusion that the current level of performance of its existing facilities and businesses will not achieve the level of profits the Company considers satisfactory based upon historic long-term average prices for primary aluminum and alumina. To achieve this goal, the Company plans reductions in production costs, improvements in operating efficiencies, decreases in corporate selling, general and administrative expenses, and enhancements to product mix. There can be no assurance that the initiative will result in the desired cost reductions and other profit improvements. ISSUANCE OF THE 10 7/8% NOTES On October 23, 1996, the Company completed the issuance of $175.0 million principal amount of the 10 7/8% Notes at 99.5% of their principal amount (the "10 7/8% Notes Offering"). The 10 7/8% Notes were not registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The 10 7/8% Notes rank pari passu in right and priority of payment with outstanding Indebtedness under the Credit Agreement and the Indebtedness represented by the 9 7/8% Notes and the Notes, and are fully and unconditionally guaranteed on a senior, unsecured basis by the Subsidiary Guarantors. Net proceeds from the 10 7/8% Notes Offering were approximately $168.9 million, of which $91.7 million was utilized to reduce the outstanding borrowings under the revolving credit facility of the Credit Agreement to zero. The remaining net proceeds (approximately $77.2 million) were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. Pursuant to an agreement with the initial purchasers of the 10 7/8% Notes, the Company and the Subsidiary Guarantors filed a registration statement with the Commission in November 1996 with respect to a registered offer (the "10 7/8% Notes Exchange Offer") to exchange the 10 7/8% Notes for the Company's 10 7/8% Series B Senior Notes due 2006 (the "Series B Notes") with substantially identical terms. The registration statement with respect to the 10 7/8% Notes Exchange Offer was declared effective by the Commission on December 11, 1996 and it is presently anticipated that the 10 7/8% Notes Exchange Offer will be consummated on or about February 5, 1997. As applicable, the term "10 7/8% Notes" as used herein shall include, when and to the extent issued, the Series B Notes issued pursuant to the 10 7/8% Notes Exchange Offer. 9 12 ISSUANCE OF THE OLD NOTES On December 23, 1996 (the "Closing Date"), the Company completed the issuance of $50.0 million principal amount of 10 7/8% Series C Senior Notes due 2006 (the "Old Notes") to the Initial Purchaser at 103.5% of their principal amount pursuant to a Purchase Agreement, dated December 18, 1996 (the "Purchase Agreement"), among the Company, the Subsidiary Guarantors and the Initial Purchaser. The Initial Purchaser subsequently resold the Old Notes in reliance on Rule 144A under the Securities Act. The Company also entered into the Registration Rights Agreement, dated as of the Closing Date (the "Registration Rights Agreement"), among the Company, the Subsidiary Guarantors and the Initial Purchaser, pursuant to which the Company granted certain registration rights for the benefit of the holders of the Old Notes. Under the Registration Rights Agreement, the Company agreed, for the benefit of the holders of the Old Notes that it would, at its own cost, (i) within 30 days after the Closing Date file a registration statement (the "Registration Statement") with the Commission with respect to a registered offer to exchange the Old Notes for New Notes, which will have terms substantially identical to the Old Notes and (ii) use its reasonable best efforts to cause such Registration Statement to be declared effective under the Securities Act within 135 days after the Closing Date. If the Company is unable to effect such an Exchange Offer or if for any other reason the Exchange Offer is not consummated within 195 days after the Closing Date, the Company is obligated under the Registration Rights Agreement to file a shelf registration statement with the Commission covering resales of the Old Notes. If the Company defaults with respect to its obligations under the Registration Rights Agreement (as defined herein, a "Registration Default"), the Company will be obligated to pay Additional Interest of 0.25% per annum for the first 90-day period and an additional 0.25% per annum for each subsequent 90-day period (up to a maximum aggregate of 1.00% per annum) until all Registration Defaults have been cured. The Exchange Offer is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement with respect to the Old Notes. See "-- The Exchange Offer" and "The Exchange Offer -- Purpose and Effect." 10 13 THE EXCHANGE OFFER The Exchange Offer......... The Company is offering, upon the terms and subject to the conditions set forth herein and in the accompanying letter of transmittal (the "Letter of Transmittal"), to exchange $1,000 in principal amount of its 10 7/8% Series D Senior Notes due 2006 (the "New Notes," and together with the Old Notes, sometimes collectively referred to herein as the "Notes") for each $1,000 in principal amount of the outstanding Old Notes (the "Exchange Offer"). As of the date of this Prospectus, $50.0 million in aggregate principal amount of the Old Notes is outstanding, the maximum amount authorized by the Indenture for all Notes. As of , 1997, there were registered holders of the Old Notes, including Cede & Co. ("Cede") which held approximately $ million of aggregate principal amount of the Old Notes for of its participants. See "The Exchange Offer -- Terms of the Exchange Offer." Expiration Date............ 5:00 p.m., New York City time, on , , 1997, as the same may be extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." Conditions of the Exchange Offer.................... The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. However, the Exchange Offer is subject to the condition that it does not violate any applicable law or interpretation of the staff of the Commission. See "The Exchange Offer -- Conditions of the Exchange Offer." Termination of Certain Rights..................... Pursuant to the Registration Rights Agreement and the Old Notes, Eligible Holders of Old Notes (i) have rights to receive the Additional Interest and (ii) have certain rights intended for the holders of unregistered securities. "Additional Interest" means the increase in the interest rate borne by Registrable Securities during the period in which a Registration Default is continuing pursuant to the terms of the Registration Rights Agreement (in general, one-quarter of one percent (0.25%) per annum for the first 90-day period immediately after the first such Registration Default and an additional one-quarter of one percent (0.25%) per annum for each subsequent 90-day period until all Registration Defaults have been cured, provided that the aggregate increase in such interest rate shall not exceed one percent (1.00%) per annum). Holders of New Notes generally will not be and, upon consummation of the Exchange Offer, Eligible Holders of Old Notes will generally no longer be, entitled to (i) the right to receive the Additional Interest, except in certain limited circumstances, and (ii) certain other rights under the Registration Rights Agreement intended for holders of unregistered securities. See "The Exchange Offer -- Termination of Certain Rights" and "-- Procedures for Tendering Old Notes." Accrued Interest on the Old Notes.................... The New Notes will bear interest at a rate equal to 10 7/8% per annum from and including their date of issuance. Eligible Holders whose Old Notes are accepted for exchange will have the right to receive interest accrued thereon from the date of original issuance of the Old Notes or the last Interest Payment Date, as applicable, to, but not including, the date of issuance of the New Notes, such interest to be payable with the 11 14 first interest payment on the New Notes. Interest on the Old Notes accepted for exchange, which accrues at the rate of 10 7/8% per annum, will cease to accrue on the day prior to the issuance of the New Notes. Procedures for Tendering Old Notes.................. Unless a tender of Old Notes is effected pursuant to the procedures for book-entry transfer as provided herein, each Eligible Holder desiring to accept the Exchange Offer must complete and sign the Letter of Transmittal, have the signature thereon guaranteed if required by the Letter of Transmittal, and mail or deliver the Letter of Transmittal, together with the Old Notes or a Notice of Guaranteed Delivery and any other required documents (such as evidence of authority to act, if the Letter of Transmittal is signed by someone acting in a fiduciary or representative capacity), to the Exchange Agent (as defined) at the address set forth on the back cover page of this Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. Any Beneficial Owner (as defined) of the Old Notes whose Old Notes are registered in the name of a nominee, such as a broker, dealer, commercial bank or trust company and who wishes to tender Old Notes in the Exchange Offer, should instruct such entity or person to promptly tender on such Beneficial Owner's behalf. See "The Exchange Offer -- Procedures for Tendering Old Notes." By tendering Old Notes for exchange, each registered holder will represent to the Company that, among other things, (i) neither the Eligible Holder nor any Beneficial Owner is an affiliate of the Company or any Subsidiary Guarantor within the meaning of Rule 405 under the Securities Act, (ii) any New Notes to be received by the Eligible Holder or any Beneficial Owner are being acquired in the ordinary course of business, (iii) neither the Eligible Holder nor any Beneficial Owner has an arrangement or understanding with any person to participate in the distribution of the New Notes, and (iv) if the Eligible Holder or Beneficial Owner, as applicable, is a broker-dealer that acquired Old Notes for its own account as a result of market making or other trading activities, such Eligible Holder or Beneficial Owner must comply with the prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the New Notes acquired by such person and must agree that it will deliver a prospectus in connection with any such resale. Guaranteed Delivery Procedures............... Eligible Holders of Old Notes who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date (or complete the procedure for book-entry transfer on a timely basis), may tender their Old Notes according to the guaranteed delivery procedures set forth in the Letter of Transmittal. See "The Exchange Offer -- Procedures for Tendering Old Notes -- Guaranteed Delivery Procedures." Acceptance of Old Notes and Delivery of New Notes.... Upon satisfaction or waiver of all conditions of the Exchange Offer, the Company will accept any and all Old Notes that are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New Notes issued pursuant to the Exchange Offer 12 15 will be delivered as soon as practicable after acceptance of the Old Notes. See "The Exchange Offer -- Acceptance of Old Notes for Exchange; Delivery of New Notes." Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer -- Withdrawal Rights." Certain Federal Income Tax Considerations........... Generally, the exchange pursuant to the Exchange Offer will not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Consequences -- The Exchange Offer." The Exchange Agent......... First Trust National Association is the exchange agent (in such capacity, the "Exchange Agent"). The address and telephone number of the Exchange Agent are set forth in "The Exchange Offer -- The Exchange Agent; Assistance." Fees and Expenses.......... All expenses incident to the Company's consummation of the Exchange Offer and compliance with the Registration Rights Agreement will be borne by the Company. See "The Exchange Offer -- Solicitation of Tenders; Fees and Expenses." Resales of the New Notes... Based on positions of the staff of the Commission enunciated in Morgan Stanley & Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), and interpreted in the Commission's letters to Shearman & Sterling (available July 2, 1993) and K-III Communications Corporation (available May 14, 1993), and similar no-action or interpretive letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange for Old Notes may be offered for resale, resold and otherwise transferred by such Eligible Holder (other than (i) a broker-dealer who purchased the Old Notes directly from the Company for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company or any Subsidiary Guarantor within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the Eligible Holder is acquiring the New Notes in the ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in a distribution of the New Notes. If any Eligible Holder acquires New Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the New Notes, such Eligible Holder cannot rely on the position of the staff of the Commission set forth in the above no-action and interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction, unless an exemption from registration is otherwise available. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker as a result of market making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "The Exchange Offer -- Resales of the New Notes" and "Plan of Distribution." 13 16 DESCRIPTION OF NEW NOTES The form and terms of the New Notes will be identical in all material respects to the form and terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, (ii) holders of the New Notes, except in limited circumstances, will not be entitled to Additional Interest, and (iii) holders of the New Notes will not be, and upon consummation of the Exchange Offer, Eligible Holders of the Old Notes will no longer be, entitled to certain rights under the Registration Rights Agreement intended for the holders of unregistered securities. See "Exchange Offer -- Termination of Certain Rights." The Exchange Offer shall be deemed consummated upon the occurrence of the delivery by the Company to the Registrar under the Indenture of New Notes in the same aggregate principal amount as the aggregate principal amount of Old Notes that are validly tendered by holders thereof pursuant to the Exchange Offer. See "The Exchange Offer -- Termination of Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description of New Notes." Maturity................... October 15, 2006. Interest................... 10 7/8% payable in cash semi-annually in arrears, from December 23, 1996, calculated on the basis of a 360-day year consisting of twelve 30-day months. Interest Payment Dates..... April 15 and October 15, commencing on April 15, 1997. Optional Redemption........ The New Notes will be redeemable at the option of the Company, in whole or in part, on or after October 15, 2001, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. Guarantees................. The obligations of the Company with respect to the New Notes will be fully and unconditionally guaranteed, jointly and severally, on a senior, unsecured basis by certain subsidiaries of the Company (the "Subsidiary Guarantors"). Any Indebtedness that is incurred by the Company's subsidiaries will be effectively senior to the claims of the holders of the New Notes with respect to the assets of such subsidiaries, except to the extent that the holders of the New Notes may be creditors of a subsidiary pursuant to a subsidiary guarantee. Any such claim by the holders of the New Notes with respect to the assets of any Subsidiary Guarantor will be effectively subordinated to secured Indebtedness of such Subsidiary Guarantor (including the Indebtedness under the Company's Credit Agreement, dated as of February 15, 1994, as amended (the "Credit Agreement")) with respect to the assets securing such Indebtedness. See "Description of New Notes -- General." Ranking.................... The New 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. Without limiting the generality of the foregoing, the New Notes will rank senior in right and priority of payment to the Indebtedness represented by the 12 3/4% Notes, and the New Notes will rank pari passu in right and priority of payment with the Indebtedness under the Credit Agreement and the Indebtedness represented by the 9 7/8% Notes and the 10 7/8% Notes. As of September 30, 1996, the Company's total consolidated indebtedness was $878.0 million, and $141.9 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 Offering and the 10 7/8% Notes Offering, and the application of proceeds therefrom, as of September 30, 1996, the Company's total consolidated indebtedness 14 17 would have been $972.7 million (of which $400.0 million would have been expressly subordinated in right and priority of payment to the New Notes), $273.1 million of borrowing capacity would have been available for use under the Credit Agreement, and the Company would have had additional available cash proceeds from the Offering and the 10 7/8% Notes Offering of $88.1 million. As of November 30, 1996, the Company's total consolidated indebtedness was $921.0 million, $273.0 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement, and the Company had cash and cash equivalents of $44.1 million. The New Notes, however, will be effectively subordinated to secured Indebtedness of the Company and the Subsidiary Guarantors (including the Indebtedness under the Credit Agreement) with respect to the assets securing such Indebtedness. Change of Control Offer.... Upon a Change of Control (as defined), the Company will be required to make an offer to purchase all or any part of a holder's New Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. The Company will comply with Rules 13e-4 and 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in the event that a Change of Control occurs and the Company is required under the Indenture to make a Change of Control Offer (as defined herein). Any Change of Control would constitute an event of default under the Credit Agreement. See "Description of New Notes -- Offer to Purchase the Notes" and "Risk Factors -- Controlling Stockholder and Possible Effects; Change of Control." Certain Covenants.......... The Indenture contains covenants substantially identical to those contained in the indenture governing the 10 7/8% Notes, including, but not limited to, covenants imposing limitations on: (i) Asset Sales, (ii) transactions with Affiliates and Unrestricted Subsidiaries, (iii) Restricted Payments, Restricted Investments, and Unrestricted Subsidiary 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 New Notes -- Covenants." Absence of a Public Market for the New Notes.......... The New Notes are a new issue of securities with no established market. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Notes. The Initial Purchaser has advised the Company that they currently intend to make a market in the New Notes. However, the Initial Purchaser is not obligated to do so, and any market making with respect to the New Notes may be discontinued at any time without notice. The Company does not intend to apply for listing of the New Notes on a securities exchange. FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES, SEE "RISK FACTORS." 15 18 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA The following summary historical and pro forma consolidated financial data have been derived from the Selected Historical and Pro Forma 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 to Consolidated Financial Statements and the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. Interim results are not necessarily indicative of those for the full year.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------------- --------------------------------------- 1996 1995 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- (IN MILLIONS OF DOLLARS, EXCEPT RATIOS) Operating Data: Net sales................... $ 1,652.1 $ 1,646.7 $ 2,237.8 $ 1,781.5 $ 1,719.1 Cost of products sold....... 1,394.8 1,329.8 1,798.4 1,625.5 1,587.7 Gross profit................ 257.3 316.9 439.4 156.0 131.4 Depreciation................ 72.5 71.1 94.3 95.4 97.1 Selling, administrative, research and development, and general............... 96.0 96.0 134.0 116.5 121.6 Operating income (loss)..... 88.8 149.8 211.1 (55.9) (123.1) Interest expense............ 68.3 71.3 93.9 88.6 84.2 Income (loss) before income taxes, minority interests, extraordinary loss and cumulative effect of changes in accounting principles................ 23.6 68.7 103.1 (151.8) (208.8) Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles................ 15.7 43.1 65.3 (96.2) (117.6) Net income (loss)........... 15.7 43.1 65.3 (101.6)(1) (647.3)(1) Ratio of earnings to fixed charges(2)................ 1.2x 1.7x 1.9x --(3) --(3) Other Data: Capital expenditures........ $ 91.1 $ 53.2 $ 88.4 $ 70.0 $ 67.7 EBITDA(4)................... 164.4 211.1 291.3 32.2 (27.5) Ratio of EBITDA to interest expense................... 2.4x 3.0x 3.1x .4x --(5) Pro Forma(6): Interest expense............ 82.4 113.8 Net income.................. 7.0 53.0 Ratio of EBITDA to interest expense................... 2.0x 2.6x
SEPTEMBER 30, 1996 DECEMBER 31, ----------------------------- --------------------------------------- PRO FORMA(6) HISTORICAL 1995 1994 1993 ------------ ------------- ----------- ----------- ----------- (IN MILLIONS OF DOLLARS) Balance Sheet Data: Working capital............. $ 480.5 $ 392.4 $ 324.5 $ 239.5 $ 266.9 Total assets................ 2,966.2 2,871.5 2,814.3 2,693.6 2,528.2 Long-term liabilities....... 558.3 558.3 548.5 495.5 501.7 Accrued postretirement medical benefit obligation, less current portion................... 727.7 727.7 734.0 734.9 713.1 Long-term debt, less current portion................... 953.1 858.4 749.2 751.1 720.2 Notes payable to parent, less current portion...... 2.1 2.1 8.6 23.5 18.9 Minority interests.......... 91.0 91.0 91.4 85.4 69.7 Redeemable preference stock..................... 26.7 26.7 29.6 29.0 33.6 Total stockholders' equity (deficit)................. 56.7 56.7 43.3 (24.8) .1
- --------------- (1) Includes extraordinary loss on early extinguishment of debt of $5.4 and $21.8, net of tax benefits of $2.9 and $11.2 for 1994 and 1993, respectively, and cumulative effect of changes in accounting principles of $507.9, net of tax benefit of $237.7 in 1993. 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 (credit) 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 years ended December 31, 1994 and 1993, earnings were insufficient to cover fixed charges by $155.5 and $210.2, respectively. (4) "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. (5) For the year ended December 31, 1993, EBITDA was insufficient to cover interest expense by $111.7. (6) The pro forma information assumes the Offering, the 10 7/8% Notes Offering, the application of the net proceeds therefrom to reduce the outstanding borrowings under the Credit Agreement to zero and to invest the remainder in short-term investments pending its application for working capital and general corporate purposes as if such events had occurred as of the end of the period with respect to the balance sheet data and as if such events had occurred at the beginning of the period with respect to the operating data. 16 19 RISK FACTORS Holders of the Notes should carefully consider the following risk factors, as well as the other information contained in, and incorporated by reference in, this Prospectus, before making an investment in the New Notes. Information contained or incorporated by reference in this Prospectus contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. See, e.g., "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business -- Industry Overview," "Business -- Recent Industry Trends," "Business -- Strategy," and "Legal Proceedings." No assurance can be given that the future results covered by the forward-looking statements will be achieved. The following matters constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results covered in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements. RANKING OF THE NOTES; SUBORDINATION Ranking of the Notes. The Notes 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. Without limiting the generality of the foregoing, the Notes rank senior in right and priority of payment to the Indebtedness represented by the 12 3/4% Notes ($400.0 million aggregate principal amount outstanding as of September 30, 1996), and the Notes rank pari passu in right and priority of payment with the Indebtedness under the Credit Agreement and the Indebtedness represented by the 9 7/8% Notes ($225.0 million aggregate principal amount outstanding as of September 30, 1996) and the 10 7/8% Notes ($175.0 million aggregate principal amount issued and outstanding as of October 23, 1996). The Notes are, however, effectively subordinated to secured Indebtedness of the Company (including the Indebtedness under the Credit Agreement) with respect to the assets pledged as collateral therefor. The Credit Agreement is 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 and Nevada micromill). As of September 30, 1996, the Company's total consolidated indebtedness was $878.0 million and $141.9 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 Offering and the 10 7/8% Notes Offering, and the application of the proceeds therefrom, as of September 30, 1996, the Company's total consolidated indebtedness would have been $972.7 million (of which $400.0 million would have been expressly subordinated in right and priority of payment to the Notes), $273.1 million of borrowing capacity would have been available for use under the Credit Agreement, and the Company would have had additional available cash proceeds from the Offering and the 10 7/8% Notes Offering of $88.1 million. The foregoing does not give effect to $93.3 million of guaranteed unconsolidated joint venture indebtedness of the Company and $20.6 million of other guarantees and letters of credit outstanding as of September 30, 1996. As of November 30, 1996, the Company's total consolidated indebtedness was $921.0 million, $273.0 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement, and the Company had cash and cash equivalents of $44.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." For a description of the Company's long term debt, see "Description of Principal Indebtedness" and Note 4 of the Notes to 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, Nevada micromill, 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 Credit Agreement), to equally and ratably secure the Notes. See "Description of New Notes -- Covenants -- Limitation on Liens." 17 20 Subordination. The obligations of the Company with respect to the Notes are fully and unconditionally guaranteed, jointly and severally, on a senior, unsecured basis by the Subsidiary Guarantors. Any obligations of the Company's Subsidiaries (as defined) 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 Guarantor will be effectively subordinated to secured Indebtedness (including Indebtedness under the Credit Agreement) of such Subsidiary Guarantor 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 Credit Agreement is 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 and Nevada micromill). See "Description of Principal Indebtedness." In addition, the Indenture restricts the amount of Indebtedness that Subsidiaries are permitted to Incur (as defined). See "Description of New Notes -- Covenants -- Limitation on Indebtedness and Preferred Stock." 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. Primary aluminum prices have historically been subject to significant cyclical price fluctuations. During the period January 1, 1993 through November 1, 1996, the AMT Price for primary aluminum has ranged from approximately $.50 to $1.00 per pound. For the week ended December 20, 1996, the AMT Price for primary aluminum was approximately $.73 per pound. Alumina prices as well as fabricated aluminum product prices (which vary considerably among products) are significantly influenced by changes in the price of primary aluminum but generally lag behind primary aluminum price changes by up to three months. See "Prospectus Summary -- Recent Trends and Developments" and "-- Fourth Quarter Results." The Company's production levels of alumina and primary aluminum exceed its internal processing needs, which allows it to be a major seller of alumina (approximately 2.0 million tons in 1995 or 72% of production) and primary aluminum (approximately 271,700 tons in 1995 or 66% of production) to third parties. As of November 30, 1996, the Company had sold forward substantially all of the alumina available to it in excess of its projected internal smelting requirements for the balance of 1996, and 89% and 90% of such excess alumina for 1997 and 1998, respectively. Virtually all of such 1997 and 1998 sales were made at prices indexed to future prices of primary aluminum. As of November 30, 1996, the Company had sold forward at fixed prices approximately 70,000 tons of primary aluminum in excess of its projected internal fabrication requirements in 1997 and approximately 93,600 tons of such surplus in 1998. As of November 30, 1996, the Company had also purchased put options to establish a minimum price in respect of approximately 196,000 tons and 45,000 tons of such 1997 and 1998 surplus, respectively, and had entered into option contracts that established a price range for an additional 160,000 tons of the Company's 1998 surplus. The weighted average price of the Company's 1997 and 1998 fixed price contracts, and the weighted average price for the Company's 1998 put options exceed the AMT Price for primary aluminum for the week ended December 20, 1996. The weighted average price for the Company's purchased put options with respect to 1997 are below the AMT Price for the week ended December 20, 1996. The weighted average price of the minimum of the range established with respect to the Company's other 1998 option contracts approximates the AMT Price for the week ended December 20, 1996. 18 21 LEVERAGE The Company is highly leveraged, with total consolidated indebtedness of $878.0 million (including $10.7 million of indebtedness to KAC) at September 30, 1996. On a pro forma basis, as of September 30, 1996, after giving effect to the Offering and the 10 7/8% Notes Offering, and application of proceeds therefrom, the Company's total consolidated indebtedness would increase to $972.7 million. As of November 30, 1996, the Company's total consolidated indebtedness was $921.0 million. The Company's ability to generate sufficient cash to meet its debt service obligations is subject to many factors, certain of which are beyond its control, including economic conditions, aluminum prices, and competition. While the Company believes that, based on current levels of operations, its cash generated from operations, together with other sources of liquidity, will be adequate to meet such obligations, there can be no assurance that such sources of funds will in fact be sufficient to service such obligations. See "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," and "Description of Principal Indebtedness." The Company's leverage is substantially greater than the leverage of most of its North American competitors, which generally have greater financial resources than the Company. Due to its highly leveraged condition, the Company is more sensitive than less leveraged companies to factors affecting its operations, including changes in the prices for its products, the rates charged for power at its various facilities, and general economic conditions. ENVIRONMENTAL MATTERS AND LITIGATION The Company is subject to a wide variety of international, federal, 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's Mead, Washington, facility has been listed on the National Priorities List under CERCLA. In addition, the Company, along with numerous 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. 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. Further, future environmental regulations are expected to impose stricter compliance requirements on the aluminum industry. While uncertainties are inherent in the final outcome of these environmental matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. For a discussion of the Company's environmental litigation and other environmental matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Environmental Contingencies," "Business -- Environmental Matters," and "-- Legal Proceedings," Note 9 of the Notes to Consolidated Financial Statements, and Note 3 of the Notes to Interim Consolidated Financial Statements. In addition, the Company is subject to a number of lawsuits in which the plaintiffs allege that certain of their injuries were caused by, among other things, exposure to asbestos during, and as a result of, their employment or association with the Company or exposure to products containing asbestos produced or sold by the Company (which products have generally not been manufactured by the Company for at least 15 years). While uncertainties are inherent in the final outcome of these asbestos matters and it is presently impossible to determine the actual costs that ultimately may be incurred and insurance recoveries that will be received, management currently believes that, based on the factors discussed below under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Asbestos Contingencies," the resolution of asbestos-related uncertainties and the incurrence of 19 22 asbestos-related costs net of related insurance recoveries should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. For a discussion of the Company's asbestos related litigation, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Asbestos Contingencies," Note 9 of the Notes to Consolidated Financial Statements, and Note 3 of the Notes to Interim Consolidated Financial Statements. CONTROLLING STOCKHOLDER AND POSSIBLE EFFECTS; CHANGE OF CONTROL Controlling Stockholder and Possible Effects. The Company is a wholly-owned subsidiary of KAC. KAC is a subsidiary of MAXXAM Inc. ("MAXXAM"). As of the date of this Prospectus, MAXXAM owns approximately 62% of KAC's Common Stock, par value $.01 per share (the "KAC Common Stock"), assuming the conversion of each outstanding share of KAC's 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES") into one share of KAC Common Stock, with the remaining approximately 38% publicly held. Accordingly, MAXXAM is able to determine the outcome of all matters required to be submitted to the holders of the KAC Common Stock 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 Inc. ("FDI"), collectively own approximately 61.2% of the aggregate voting power of MAXXAM. FDI is a wholly-owned subsidiary of 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. Change of Control. The Indenture provides 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 purchase of the Notes required under the Indenture upon a Change of Control, would constitute an event of default under the 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 Credit Agreement would make it unlikely that the Company would be able to purchase the Notes pursuant to the Change of Control Offer. See "Description of New Notes -- Offer to Purchase the Notes." POWER SUPPLY Electric power supply represents an important production cost for the Company at its aluminum smelters. In 1995, the Company successfully restructured electric power purchase agreements for its smelting facilities in the Pacific Northwest, which has resulted in significantly lower electric power costs in 1996 for the Mead and Tacoma, Washington, smelters compared with 1995 electric power costs. The Company expects to continue to benefit from these savings in electric power costs at these facilities in 1997 and beyond. However, a number of lawsuits challenging the restructuring have been filed and the effect, if any, of such lawsuits on the Company's power purchase and transmission arrangements is not known at the current time. In addition, while the Company has entered into long term arrangements with respect to the power supply for its 90%-owned Volta Aluminium Company Limited ("Valco") smelter in Ghana, there can be no assurance that the requisite power supply will be available. For a discussion of the Company's power supply arrangements, see "Business -- Production Operations -- Primary Aluminum Products." FOREIGN ACTIVITIES The Company's operations are located in many foreign countries, including Australia, Canada, the PRC, Ghana, Jamaica, and the United Kingdom. Foreign operations in general may be more vulnerable than domestic operations due to a variety of political and other risks. See "Business -- Strategy," "-- Production Operations," and "-- International Business Development." 20 23 CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register the Old Notes under the Securities Act. New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company or any Subsidiary Guarantor within the meaning of Rule 405 under the Securities Act and other than any broker- dealer who purchased Old Notes directly from the Company for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Notes. Each broker-dealer that acquired Old Notes for its own account as a result of market making or other trading activities and that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that, by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the effective date of this Prospectus, it will make this Prospectus, as it may be amended or supplemented from time to time, available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." However, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and is complied with. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes will be adversely affected. ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES The New Notes are a new issue of securities, have no established trading market, and may not be widely distributed. The Company does not intend to list the New Notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation system. No assurance can be given that an active public or other market will develop for the New Notes or as to the liquidity of or the trading market for the New Notes. If a trading market does not develop or is not maintained, holders of the New Notes may experience difficulty in reselling the New Notes or may be unable to sell them at all. If a market for the New Notes develops, any such market may be discontinued at any time. If a public trading market develops for the New Notes, future trading prices of the New Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities, and the price at which the holders of New Notes will be able to sell such New Notes is not assured and the New Notes could trade at a premium or discount to their purchase price or face value. Depending on prevailing interest rates, the market for similar securities and other facts, including the financial condition of the Company, the New Notes may trade at a discount from their principal amount. 21 24 THE EXCHANGE OFFER PURPOSE AND EFFECT The Old Notes were sold by the Company to the Initial Purchaser on December 23, 1996, pursuant to the Purchase Agreement. The Initial Purchaser subsequently resold the Old Notes in reliance on Rule 144A under the Securities Act. The Company and the Initial Purchaser also entered into the Registration Rights Agreement, pursuant to which the Company agreed, with respect to the Old Notes and subject to the Company's determination that the Exchange Offer is permitted under applicable law, to (i) cause to be filed, on or prior to January 22, 1997, a registration statement with the Commission under the Securities Act concerning the Exchange Offer, (ii) use its reasonable best efforts to cause such registration statement to be declared effective by the Commission on or prior to May 7, 1997, and (iii) to cause the Exchange Offer to remain open for a period of not less than 30 days. This Exchange Offer is intended to satisfy the Company's exchange offer obligations under the Registration Rights Agreement. TERMS OF THE EXCHANGE OFFER The Company hereby offers, upon the terms and subject to the conditions set forth herein and in the accompanying Letter of Transmittal, to exchange $1,000 in principal amount of the New Notes for each $1,000 in principal amount of the outstanding Old Notes. The Company will accept for exchange any and all Old Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. However, the Exchange Offer is subject to the conditions, terms and provisions of the Registration Rights Agreement. The form and terms of the New Notes will be identical in all material respects to the form and terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, (ii) subject to certain limited exceptions, holders of New Notes will not be entitled to Additional Interest, and (iii) holders of New Notes will not be, and upon consummation of the Exchange Offer, Eligible Holders of Old Notes will no longer be, entitled to certain rights under the Registration Rights Agreement intended for holders of unregistered securities. See "-- Conditions of the Exchange Offer." Old Notes may be tendered only in multiples of $1,000. Subject to the foregoing, Holders may tender less than the aggregate principal amount represented by the Old Notes held by them, provided that they appropriately indicate this fact on the Letter of Transmittal accompanying the tendered Old Notes (or so indicate pursuant to the procedures for book-entry transfer). As of the date of this Prospectus, $50.0 million in aggregate principal amount of the Old Notes is outstanding, the maximum amount authorized by the Indenture for all Notes. As of , 1997, there were registered holders of the Old Notes, including Cede, which held approximately $ million of aggregate principal amount of the Old Notes for of its participants. Solely for reasons of administration (and for no other purpose), the Company has fixed the close of business on , 1997, as the record date (the "Record Date") for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Only an Eligible Holder of the Old Notes (or such Eligible Holder's legal representative or attorney-in-fact) may participate in the Exchange Offer. There will be no fixed record date for determining Eligible Holders of the Old Notes entitled to participate in the Exchange Offer. The Company believes that, as of the date of this Prospectus, no such Eligible Holder is an affiliate (as defined in Rule 405 under the Securities Act) of the Company or any of the Subsidiary Guarantors. The Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Eligible Holders of Old Notes and for the purposes of receiving the New Notes from the Company. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Old Notes will be 22 25 returned, without expense, to the tendering Eligible Holder thereof as promptly as practicable after the Expiration Date. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The Expiration Date shall be , , 1997 at 5:00 p.m., New York City time, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the Expiration Date shall be the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will make a public announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Such notice and public announcement shall set forth the new Expiration Date of the Exchange Offer. The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the conditions set forth below under "Conditions of the Exchange Offer" shall not have been satisfied, to terminate the Exchange Offer by giving oral or written notice of such delay, extension, or termination to the Exchange Agent, and (iv) to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will, in accordance with applicable law, file a post-effective amendment to the registration statement (a "Post-effective Amendment") and resolicit the registered holders of the Old Notes. If the Company files a Post-effective Amendment, it will notify the Exchange Agent of an extension of the Exchange Offer by oral or written notice, and will make a public announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the effectiveness of such Post-effective Amendment. Such notice and public announcement shall set forth the new Expiration Date, which new Expiration Date shall be no less than five days after the then applicable Expiration Date. CONDITIONS OF THE EXCHANGE OFFER The Exchange Offer is not conditioned upon any minimum principal amount of the Old Notes being tendered for exchange. However, notwithstanding any other provisions of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue the New Notes in exchange for, any Old Notes, if the Exchange Offer violates any applicable law or interpretation of the staff of the Commission. The Company expects that the foregoing conditions will be satisfied. TERMINATION OF CERTAIN RIGHTS The Registration Rights Agreement provides that, subject to certain exceptions, in the event of a Registration Default (as defined below), Eligible Holders of Old Notes are entitled to receive Additional Interest. Additional Interest means the increase in the interest rate borne by Registrable Securities during the period in which a Registration Default is continuing pursuant to the terms of the Registration Rights Agreement (in general, one-quarter of one percent (0.25%) per annum for the first 90-day period immediately after the first such Registration Default and an additional one-quarter of one percent (0.25%) per annum for each subsequent 90-day period until all Registration Defaults have been cured, provided that the aggregate increase in such interest rate shall not exceed one percent (1.00%) per annum). A "Registration Default" with respect to the Exchange Offer shall generally occur if: (i) the registration statement concerning the exchange offer (the "Registration Statement") has not been filed with the Commission on or prior to January 22, 1997; (ii) the Registration Statement is not declared effective on or prior to May 7, 1997, or (iii) the Exchange Offer is not consummated on or prior to June 6, 1997. Holders of New Notes will not be and, upon consummation of the Exchange Offer, Holders of Old Notes will no longer be, entitled to (i) the right to receive Additional Interest, except in certain limited circumstances, and (ii) certain other rights under the Registration Rights Agreement intended for holders of Registrable Securities. The Exchange Offer shall be deemed consummated upon the occurrence of the delivery by the Company to the Registrar under the Indenture of New Notes in the same aggregate principal amount as the aggregate principal amount of Old Notes that are validly tendered by holders thereof pursuant to the Exchange Offer. 23 26 ACCRUED INTEREST ON THE OLD NOTES The New Notes will bear interest at a rate equal to 10 7/8% per annum from and including their date of issuance. Eligible Holders whose Old Notes are accepted for exchange will have the right to receive interest accrued thereon from the date of their original issuance or the last Interest Payment Date, as applicable, to, but not including, the date of issuance of the New Notes, such interest to be payable with the first interest payment on the New Notes. Interest on the Old Notes accepted for exchange, which interest accrued at the rate of 10 7/8% per annum, will cease to accrue on the day prior to the issuance of the New Notes. See "Description of New Notes -- General." PROCEDURES FOR TENDERING OLD NOTES The tender of an Eligible Holder's Old Notes as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering Eligible Holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, an Eligible Holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit such Old Notes, together with a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to the Exchange Agent at the address set forth on the back cover page of this Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Each signature on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant hereto are tendered (i) by a registered holder of the Old Notes who has not completed either the box entitled "Special Exchange Instructions" or the box entitled "Special Delivery Instructions" in the Letter of Transmittal or (ii) by an Eligible Institution (as defined). In the event that a signature on a Letter of Transmittal or a notice of withdrawal, as the case may be, is required to be guaranteed, such guarantee must be by a firm which is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or otherwise be an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If the Letter of Transmittal is signed by a person other than the registered holder of the Old Notes, the Old Notes surrendered for exchange must either (i) be endorsed by the registered holder, with the signature thereon guaranteed by an Eligible Institution or (ii) be accompanied by a bond power, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder, with the signature thereon guaranteed by an Eligible Institution. The term "registered holder" as used herein with respect to the Old Notes means any person in whose name the Old Notes are registered on the books of the Registrar. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Old Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered and to reject any Old Notes the Company's acceptance of which might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such period of time as the Company shall determine. The Company will use 24 27 reasonable efforts to give notification of defects or irregularities with respect to tenders of Old Notes for exchange but shall not incur any liability for failure to give such notification. Tenders of the Old Notes will not be deemed to have been made until such irregularities have been cured or waived. If any Letter of Transmittal, endorsement, bond power, power of attorney or any other document required by the Letter of Transmittal is signed by a trustee, executor, corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company, in its sole discretion, of such person's authority to so act must be submitted. Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender Old Notes in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on such Beneficial Owner's behalf. If such Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to completing and executing the Letter of Transmittal and tendering Old Notes, make appropriate arrangements to register ownership of the Old Notes in such Beneficial Owner's name. Beneficial Owners should be aware that the transfer of registered ownership may take considerable time. By tendering, each registered holder will represent to the Company that, among other things (i) the New Notes to be acquired in connection with the Exchange Offer by the Eligible Holder and each Beneficial Owner of the Old Notes are being acquired by the Eligible Holder and each Beneficial Owner in the ordinary course of business of the Eligible Holder and each Beneficial Owner, (ii) the Eligible Holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the New Notes, (iii) the Eligible Holder and each Beneficial Owner acknowledge and agree that any person participating in the Exchange Offer for the purpose of distributing the New Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the New Notes acquired by such person and cannot rely on the position of the staff of the Commission enunciated in Morgan Stanley & Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), and interpreted in the Commission's letters to Shearman & Sterling (available July 2, 1993) and K-III Communications Corporation (available May 14, 1993), and similar no-action or interpretive letters issued to third parties, (iv) that if the Eligible Holder is a broker-dealer that acquired Old Notes as a result of market making or other trading activities, it will deliver a prospectus in connection with any resale of New Notes acquired in the Exchange Offer, (v) the Eligible Holder and each Beneficial Owner understand that a secondary resale transaction described in clause (iii) above should be covered by an effective registration statement containing the selling security holder information required by Item 507 of Regulation S-K of the Commission, and (vi) neither the Eligible Holder nor any Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company or any Subsidiary Guarantor except as otherwise disclosed to the Company in writing. In connection with a book-entry transfer, each participant will confirm that it makes the representations and warranties contained in the Letter of Transmittal. Guaranteed Delivery Procedures. Eligible Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date (or complete the procedure for book-entry transfer on a timely basis), may tender their Old Notes according to the guaranteed delivery procedures set forth in the Letter of Transmittal. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution and a Notice of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed by such Eligible Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must have received from the Eligible Holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Eligible Holder, the certificate number or numbers of the tendered Old Notes, and the principal amount of tendered Old Notes, stating that the tender is being made thereby and guaranteeing that, within three (3) business days after the date of delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a duly executed Letter of Transmittal and any other required documents will be deposited by the Eligible Institution with the Exchange Agent, and (iii) such properly completed and executed 25 28 documents required by the Letter of Transmittal and the tendered Old Notes in proper form for transfer (or confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at DTC) must be received by the Exchange Agent within three (3) business days after the Expiration Date. Any Eligible Holder who wishes to tender Old Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old Notes prior to 5:00 p.m., New York City time, on the Expiration Date. Book-Entry Delivery. The Exchange Agent will establish an account with respect to the Old Notes at the DTC ("Book-Entry Transfer Facility") for purposes of the Exchange Offer promptly after the date of this Prospectus. Any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of the Old Notes by causing such facility to transfer Old Notes into the Exchange Agent's account in accordance with such facility's procedure for such transfer. Even though delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry transfer, and other documents required by the Letter of Transmittal, must, in any case, be transmitted to and received by the Exchange Agent at one of its addresses set forth on the back cover of this Prospectus before the Expiration Date, or the guaranteed delivery procedure set forth above must be followed. Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Exchange Agent and forming a part of a book-entry confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Old Notes that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against such participant. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES Upon satisfaction or waiver of all the conditions to the Exchange Offer, the Company will accept any and all Old Notes that are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New Notes issued pursuant to the Exchange Offer will be delivered as soon as practicable after acceptance of the Old Notes. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Old Notes, when, as, and if the Company has given oral or written notice thereof to the Exchange Agent. In all cases, issuances of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of such Old Notes, a properly completed and duly executed Letter of Transmittal and all other required documents (or of confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at DTC); provided, however, that the Company reserves the absolute right to waive any defects or irregularities in the tender or conditions of the Exchange Offer. If any tendered Old Notes are not accepted for any reason, such unaccepted Old Notes will be returned without expense to the tendering Eligible Holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. WITHDRAWAL RIGHTS Tenders of the Old Notes may be withdrawn by delivery of a written notice to the Exchange Agent, at its address set forth on the back cover page of this Prospectus, at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes, as applicable), (iii) be signed by the Eligible Holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by a bond power in the name of the person withdrawing the tender, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder, with the signature thereon guaranteed 26 29 by an Eligible Institution together with the other documents required upon transfer by the Indenture, and (iv) specify the name in which such Old Notes are to be re-registered, if different from the Depositor, pursuant to such documents of transfer. Any questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, in its sole discretion. The Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are withdrawn will be returned to the Eligible Holder thereof without cost to such Eligible Holder as soon as practicable after withdrawal. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "The Exchange Offer -- Procedures for Tendering Old Notes" at any time on or prior to the Expiration Date. THE EXCHANGE AGENT; ASSISTANCE First Trust National Association is the Exchange Agent. All tendered Old Notes, executed Letters of Transmittal and other related documents should be directed to the Exchange Agent. Questions and requests for assistance and requests for additional copies of the Prospectus, the Letter of Transmittal and other related documents should be addressed to the Exchange Agent as follows: By Mail: By Hand/Overnight Express: Facsimile First Trust National Association First Trust National Association Transmission: 180 E. 5th Street 180 E. 5th Street (612) 244-1537 St. Paul, Minnesota 55101 St. Paul, Minnesota 55101 Attention: Phyllis Meath, Attention: Phyllis Meath, To confirm receipt: Specialized Finance Specialized Finance (612) 244-1197
SOLICITATION OF TENDERS; FEES AND EXPENSES No person has been authorized to give any information or to make any representation in connection with the Exchange Offer other than those contained in this Prospectus. If given or made, such information or representations should not be relied upon as having been authorized by the Company. Neither the delivery of this Prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the respective dates as of which information is given herein. The Exchange Offer is not being made to (nor will offers be accepted from or on behalf of) holders of Notes in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, the Company may, at its discretion, take such action as it may deem necessary to make the Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders of Notes in such jurisdiction. All expenses incident to the Company's consummation of the Exchange Offer and compliance with the Registration Rights Agreement will be borne by the Company, including, without limitation: (i) all registration and filing fees (including, without limitation, fees and expenses of compliance with state securities or Blue Sky laws), (ii) printing expenses (including, without limitation, expenses of printing certificates for the New Notes in a form eligible for deposit with DTC and of printing Prospectuses), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and the Subsidiary Guarantors, (v) fees and disbursements of independent certified public accountants, (vi) rating agency fees, (vii) internal expenses of the Company and the Subsidiary Guarantors (including, without limitation, all salaries and expenses of officers and employees of the Company and the Subsidiary Guarantors performing legal or accounting duties), and (ix) fees and expenses incurred in connection with the listing, if any, of the New Notes on a securities exchange. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptance of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. 27 30 ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Old Notes, as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss will be recognized by the Company for accounting purposes. The expenses of the Exchange Offer will be amortized over the term of the New Notes. RESALES OF THE NEW NOTES Based on interpretations by the staff of the Commission enunciated in Morgan Stanley & Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), and interpreted in the Commission's letters to Shearman & Sterling (available July 2, 1993) and K-III Communications Corporation (available May 14, 1993), and similar no-action or interpretive letters issued to third parties, the Company believes that the New Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange for Old Notes may be offered for resale, resold and otherwise transferred by such Eligible Holder (other than (i) a broker-dealer who purchased Old Notes directly from the Company for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act, or (ii) a person that is an affiliate of the Company or any of the Subsidiary Guarantors within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the Eligible Holder is acquiring the New Notes in the ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the New Notes. The Company has not requested or obtained an interpretive letter from the Commission staff with respect to this Exchange Offer, and the Company and the Eligible Holders are not entitled to rely on interpretive advice provided by the staff to other persons, which advice was based on the facts and conditions represented in such letters. However, the Exchange Offer is being conducted in a manner intended to be consistent with the facts and conditions represented in such letters. If any Eligible Holder acquires New Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the New Notes, such Eligible Holder cannot rely on the position of the staff of the Commission set forth in the above no-action and interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction, unless an exemption from registration is otherwise available. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Company has agreed that for a period of 180 days after the effective date of this Prospectus, it will make this Prospectus, as amended and supplemented, available to any broker-dealer who receives New Notes in the Exchange Offer for use in connection with any such resale. See "Plan of Distribution." CONSEQUENCE OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the offer or sale of the Old Notes pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exception from, or in a transaction not subject to, the Securities Act and applicable states securities laws. The Company does not currently anticipate that it will register the Old Notes under the Securities Act. See "Risk Factors -- Consequences of Failure to Exchange." OTHER Participation in the Exchange Offer is voluntary, and holders of Old Notes should carefully consider whether to participate. Holders of the Old Notes are urged to consult their financial and tax advisers in making their own decisions on what action to take. 28 31 As a result of the making of, and upon acceptance for exchange of all validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the Company will have fulfilled a covenant contained in the Registration Rights Agreement. Holders of Old Notes who do not tender their Old Notes in the Exchange Offer will continue to hold such Notes and will be entitled to all the rights, and limitations applicable thereto, under the Indenture, except for any such rights under the Registration Rights Agreement that by their terms terminate or cease to have further effectiveness as a result of the making of this Exchange Offer. See "Description of New Notes." All untendered Old Notes will continue to be subject to the restrictions on transfer set forth in the Indenture. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered Old Notes could be adversely affected. The Company may in the future seek to acquire untendered Old Notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. The Company has no present plan to acquire any Old Notes which are not tendered in the Exchange Offer. 29 32 CAPITALIZATION The following table summarizes the historical consolidated capitalization of the Company at September 30, 1996, and as adjusted to give effect to the Offering and the 10 7/8% Notes Offering, and the application of the proceeds therefrom. This table should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes to Consolidated Financial Statements appearing elsewhere in this Prospectus.
SEPTEMBER 30, 1996 -------------------------- ACTUAL AS ADJUSTED -------- ----------- (IN MILLIONS OF DOLLARS) Cash and cash equivalents......................................... $ 21.5 $ 109.6(1) ======== ======== Short-term debt (2)(3)............................................ 17.5 17.5 -------- -------- Long-term debt (2): Credit Agreement................................................ 131.2(4) --(1) 10 7/8% Series C Senior Notes due 2006 (including premium of $1.8)........................................................ -- 51.8 10 7/8% Senior Notes due 2006 (net of discount of $.9).......... -- 174.1 9 7/8% Senior Notes due 2003 (net of discount of $1.0).......... 224.0 224.0 Pollution Control and Solid Waste Disposal Obligations (less current portion of $1.3)..................................... 34.4 34.4 Alpart CARIFA Loan.............................................. 60.0 60.0 12 3/4% Senior Subordinated Notes due 2003...................... 400.0 400.0 Other borrowings (less current portion of $1.4)................. 8.8 8.8 -------- -------- Total long-term debt(5)...................................... 858.4 953.1(5) -------- -------- Note payable to KAC (less current portion of $8.6)................ 2.1 2.1(5) -------- -------- Minority interests................................................ 91.0 91.0 -------- -------- Redeemable preference stock....................................... 26.7 26.7 -------- -------- Stockholders' equity.............................................. 56.7 56.7 -------- -------- Total capitalization....................................... $1,052.4 $ 1,147.1 ======== ======== Total long-term debt as a percentage of total capitalization............................................ 81.6% 83.1%
- ------------ (1) On a pro forma basis, after giving effect to the Offering and the 10 7/8% Notes Offering, and the application of the proceeds therefrom, as of September 30, 1996, $273.1 million of borrowing capacity would have been available for use under the revolving credit facility of the Credit Agreement ($51.9 million of letters of credit would have been outstanding) and the Company would have had additional available cash proceeds from the Offering and the 10 7/8% Notes Offering of $88.1 million. (2) Does not give effect to $93.3 million of guaranteed unconsolidated joint venture indebtedness of the Company and $20.6 million of other guarantees and letters of credit as of September 30, 1996. (3) Short-term debt includes current portion of intercompany notes payable to KAC ($8.6 million). (4) As of September 30, 1996, $141.9 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement and $131.2 million was outstanding under the Credit Agreement, excluding $51.9 million in outstanding letters of credit. (5) The scheduled maturity of the Company's long-term debt (including notes payable to KAC) through 2001, as adjusted to reflect the Offering and the 10 7/8% Notes Offering, and the application of proceeds therefrom, is as follows: 1997 - $17.5 million; 1998 - $9.1 million; 1999 - $.5 million; 2000 - $.4 million; and 2001 - $.4 million. 30 33 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 to Consolidated Financial Statements and the Interim Consolidated Financial Statements and Notes to Interim Consolidated Financial Statements 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, 1995, 1994, 1993, 1992, and 1991 have been 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, 1996, and for the nine months ended September 30, 1995, 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. However, the results of operations for the nine months ended September 30, 1996, are not necessarily indicative of the results for the year ending December 31, 1996.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------- ----------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- -------- -------- (IN MILLIONS OF DOLLARS, EXCEPT RATIOS) Operating Data: Net sales.......................................... $1,652.1 $1,646.7 $2,237.8 $1,781.5 $1,719.1 $1,909.1 $2,000.8 Cost of products sold.............................. 1,394.8 1,329.8 1,798.4 1,625.5 1,587.7 1,619.3 1,594.2 Gross profit....................................... 257.3 316.9 439.4 156.0 131.4 289.8 406.6 Depreciation....................................... 72.5 71.1 94.3 95.4 97.1 80.3 73.2 Selling, administrative, research and development, and general...................................... 96.0 96.0 134.0 116.5 121.6 119.3 117.6 Operating income (loss)............................ 88.8 149.8 211.1 (55.9) (123.1) 90.2 215.8 Interest expense................................... 68.3 71.3 93.9 88.6 84.2 78.7 82.7 Income (loss)before income taxes, minority interests, extraordinary loss and cumulative effect of changes in accounting principles....... 23.6 68.7 103.1 (151.8) (208.8) 28.4 149.5 Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles....................................... 15.7 43.1 65.3 (96.2) (117.6) 29.6 124.7 Net income (loss).................................. 15.7 43.1 65.3 (101.6)(1) (647.3)(1) 29.6 124.7 Ratio of earnings to fixed charges(2).............. 1.2x 1.7x 1.9x --(3) --(3) 1.3x 2.7x Other Data: Capital expenditures............................... $ 91.1 $ 53.2 $ 88.4 $ 70.0 $ 67.7 $ 114.4 $ 118.1 EBITDA(4).......................................... 164.4 211.1 291.3 32.2 (27.5) 187.4 305.4 Ratio of EBITDA to interest expense................ 2.4x 3.0x 3.1x .4x --(5) 2.4x 3.7x Pro forma(6): Interest expense................................... 82.4 113.8 Net income......................................... 7.0 53.0 Ratio of EBITDA to interest expense................ 2.0x 2.6x
SEPTEMBER 30, 1996 DECEMBER 31, ------------------------- ----------------------------------------------------- PRO FORMA(6) HISTORICAL 1995 1994 1993 1992 1991 ------------ ---------- -------- -------- -------- -------- -------- (IN MILLIONS OF DOLLARS) Balance Sheet Data: Working capital.............................. $ 480.5 $ 392.4 $ 324.5 $ 239.5 $ 266.9 $ 310.8 $ 242.4 Total assets................................. 2,966.2 2,871.5 2,814.3 2,693.6 2,528.2 2,173.8 2,138.7 Long-term liabilities........................ 558.3 558.3 548.5 495.5 501.7 281.7 212.9 Accrued postretirement medical benefit obligation, less current portion........... 727.7 727.7 734.0 734.9 713.1 -- -- Long-term debt, less current portion......... 953.1 858.4 749.2 751.1 720.2 765.1 681.5 Notes payable to parent, less current portion.................................... 2.1 2.1 8.6 23.5 18.9 -- -- Minority interests........................... 91.0 91.0 91.4 85.4 69.7 70.1 71.9 Redeemable preference stock.................. 26.7 26.7 29.6 29.0 33.6 32.8 34.8 Total stockholders' equity (deficit)......... 56.7 56.7 43.3 (24.8) .1 568.4 562.9
- ------------ (1) Includes extraordinary loss on early extinguishment of debt of $5.4 and $21.8, net of tax benefits of $2.9 and $11.2 for 1994 and 1993, respectively, and cumulative effect of changes in accounting principles of $507.9, net of tax benefit of $237.7 in 1993. 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 years ended December 31, 1994 and 1993, earnings were insufficient to cover fixed charges by $155.5 and $210.2, respectively. (4) "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. (5) For the year ended December 31, 1993, EBITDA was insufficient to cover interest expense by $111.7. (6) The pro forma information assumes the Offering, the 10 7/8% Notes Offering, the application of the net proceeds therefrom to reduce the outstanding borrowings under the Credit Agreement to zero and the investment of the remainder in short-term investments pending application for working capital and general corporate purposes as if such events had occurred as of the end of the period with respect to the balance sheet data and as if such events had occurred at the beginning of the period with respect to the operating data. 31 34 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 on the volume and mix of all products sold and on the Company's hedging strategies. See Note 4 of the Notes to Interim Consolidated Financial Statements appearing elsewhere in this Prospectus for an explanation of the Company's hedging strategies. The following table provides selected operational and financial information on a consolidated basis with respect to the Company for the years ended December 31, 1995, 1994, and 1993, and for the nine months ended September 30, 1996 and 1995. 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 on the following table. Interim financial and operating data are not necessarily indicative of those for a full year. SELECTED OPERATIONAL AND FINANCIAL INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------- ------------------------------ 1996 1995 1995 1994 1993 -------- -------- -------- -------- -------- (IN MILLIONS OF DOLLARS, EXCEPT SHIPMENTS AND PRICES) Shipments: (000 tons) Alumina................................................ 1,506.7 1,494.6 2,040.1 2,086.7 1,997.5 Aluminum products: Primary aluminum..................................... 262.9 184.5 271.7 224.0 242.5 Fabricated aluminum products......................... 245.4 284.3 368.2 399.0 373.2 -------- -------- -------- -------- -------- Total aluminum products......................... 508.3 468.8 639.9 623.0 615.7 ======== ======== ======== ======== ======== Average realized sales price: Alumina (per ton)...................................... $ 199 $ 203 $ 208 $ 169 $ 169 Primary aluminum (per pound)........................... .69 .82 .81 .59 .56 Net sales: Bauxite and alumina: Alumina.............................................. $ 300.2 $ 303.8 $ 424.8 $ 352.8 $ 338.2 Other(1)(2).......................................... 77.2 65.3 89.4 79.7 85.2 -------- -------- -------- -------- -------- Total bauxite and alumina....................... 377.4 369.1 514.2 432.5 423.4 -------- -------- -------- -------- -------- Aluminum processing: Primary aluminum..................................... 402.8 335.0 488.0 292.0 301.7 Fabricated aluminum products......................... 861.4 929.0 1,218.6 1,043.0 981.4 Other(2)............................................. 10.5 13.6 17.0 14.0 12.6 -------- -------- -------- -------- -------- Total aluminum processing....................... 1,274.7 1,277.6 1,723.6 1,349.0 1,295.7 -------- -------- -------- -------- -------- Total net sales................................. $1,652.1 $1,646.7 $2,237.8 $1,781.5 $1,719.1 ======== ======== ======== ======== ======== Operating income (loss): Bauxite and alumina.................................... $ 8.8 $ 36.4 $ 54.0 $ 19.8 $ (4.5) Aluminum processing.................................... 127.8 170.9 238.9 (8.4) (46.3) Corporate.............................................. (47.8) (57.5) (81.8) (67.3) (72.3) -------- -------- -------- -------- -------- Total operating income (loss)................... $ 88.8 $ 149.8 $ 211.1 $ (55.9) $ (123.1) ======== ======== ======== ======== ======== Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles............. $ 15.7 $ 43.1 $ 65.3 $ (96.2) $ (117.6) Extraordinary loss on early extinguishment of debt, net of tax benefit of $2.9 and $11.2 for 1994 and 1993, respectively........................................... (5.4) (21.8) Cumulative effect of changes in accounting principles, net of tax benefit of $237.7........................... (507.9) -------- -------- -------- -------- -------- Net income (loss)........................................ $ 15.7 $ 43.1 $ 65.3 $ (101.6) $ (647.3) ======== ======== ======== ======== ======== Capital expenditures: Property, plant and equipment.......................... $ 90.8 $ 44.2 $ 79.4 $ 70.0 $ 67.5 Investments in unconsolidated affiliates............... .3 9.0 9.0 .2 -------- -------- -------- -------- -------- Total capital expenditures...................... $ 91.1 $ 53.2 $ 88.4 $ 70.0 $ 67.7 ======== ======== ======== ======== ========
- --------------- (1) Includes net sales of bauxite. (2) Includes the portion of net sales attributable to minority interests in consolidated subsidiaries. 32 35 RECENT TRENDS AND DEVELOPMENTS During 1995, the AMT Price for primary aluminum was approximately $.86 per pound compared to $.72 and $.54 per pound in 1994 and 1993, respectively. The significant improvement in prices during 1994 and 1995 resulted from strong growth in Western world consumption of aluminum and the curtailment of production in response to lower prices in prior periods by many producers worldwide. In 1995, production of primary aluminum increased and consumption of aluminum continued to grow, but at a much lower rate than in 1994. In general, the overall aluminum market was strongest in the first half of 1995. By the second half of 1995, orders and shipments for certain products had softened and the rate of decline in LME inventories had leveled off. By the end of 1995, some small increases in LME inventories occurred, and prices of aluminum weakened from first-half levels. This trend has continued throughout the first eleven months of 1996 as the supply of primary aluminum exceeded demand during this period. Net reported primary aluminum inventories have increased by approximately 55,000 tons in 1996 based upon recent reports of the LME (through December 20, 1996) and the IPAI (through October 31, 1996), following substantial declines of 764,000 and 1,153,000 tons in 1994 and 1995, respectively. The AMT Price for primary aluminum for the week ended December 20, 1996, was approximately $.73 per pound. Increased production of primary aluminum due to restarts of certain previously idled capacity, the commissioning of a major new smelter in South Africa, and the continued high level of exports from the CIS have contributed to increased supplies of primary aluminum to the Western world in 1996. While the economies of the major aluminum consuming regions -- the United States, Japan, Western Europe, and Asia -- are performing relatively well, the Company believes that the reduction of aluminum inventories by consumers, as prices have continued to decline, has suppressed the growth in primary aluminum demand that normally accompanies growth in economic and industrial activity. In addition to these supply/demand dynamics, the Company believes that the recent decline in primary aluminum prices may have been influenced by a recent major decline in copper prices on the LME. See "Business -- Industry Overview." FOURTH QUARTER RESULTS The Company incurred net losses of $4.8 million in the third quarter of 1996 and expects to continue to sustain net losses in the fourth quarter of 1996, due principally to lower average realized prices for alumina and primary aluminum, as compared to prices realized in the comparable periods of 1995, and due to increased raw material, energy, and operational costs associated with the production of alumina at the Company's Gramercy alumina refinery in Louisiana and 65%-owned Alpart alumina refinery in Jamaica as compared to amounts incurred in the comparable periods of 1995. Such fourth quarter losses could substantially exceed the loss for the third quarter of 1996. PROFIT ENHANCEMENT AND COST CUTTING INITIATIVE The Company has set a goal of achieving significant cost reductions and other profit improvements during 1997, with the full effect planned to be realized in 1998. The initiative is based on the Company's conclusion that the current level of performance of its existing facilities and businesses will not achieve the level of profits the Company considers satisfactory based upon historic long-term average prices for primary aluminum and alumina. To achieve this goal, the Company plans reductions in production costs, improvements in operating efficiencies, decreases in corporate selling, general and administrative expenses, and enhancements to product mix. There can be no assurance that the initiative will result in the desired cost reductions and other profit improvements. 33 36 NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 Summary -- For the first nine months of 1996, the Company's net income was $15.7 million, compared to net income of $43.1 million in the first nine months of 1995. Net sales for the first nine months of 1996 were $1,652.1 million, compared to $1,646.7 million for the same period in 1995. Results for the nine months ended September 30, 1996, reflect the substantial reduction in market prices for primary aluminum more fully discussed above. Alumina prices, which are significantly influenced by changes in primary aluminum prices, also declined from period to period. The decrease in product prices more than offset the positive impact of increases in shipments in several segments of the Company's business, as more fully discussed below. Results for the first nine months of 1995 include approximately $17.0 million of first-quarter 1995 pre-tax expenses associated with an eight-day strike at five major U.S. locations, a six-day strike at the Company's Alpart alumina refinery, and a four-day disruption of alumina production at Alpart caused by a boiler failure. Bauxite and Alumina -- Net segment sales for the nine months ended September 30, 1996, were basically unchanged from the same period in 1995 as, on a year to date basis, nominal alumina price declines were offset by a modest increase in alumina shipments. The reduction in prices realized reflects the decline in primary aluminum prices experienced in 1996 discussed above, as well as the impact of certain short term sales of previously uncommitted alumina production. Operating income (loss) for this segment of the Company's business declined significantly from the prior year period as a result of: (1) reduced gross margins from alumina sales resulting from the previously discussed price declines; (2) high operating costs associated with disruptions in the power supply at the Company's Alpart alumina refinery; and (3) increased natural gas costs at the Company's Gramercy, Louisiana alumina refinery. Operating income for the nine months ended September 30, 1996, was also unfavorably impacted by a temporary raw material quality problem experienced at the Company's Gramercy facility during the second quarter of 1996. Aluminum Processing -- For the first nine months of 1996 increases in shipments of 42.5% more than offset a 16% decline in product prices from period to period. The increase in shipments during the nine months ended September 30, 1996, is the result of increased shipments of primary aluminum to third parties as a result of a decline in intracompany transfers. Net sales of fabricated aluminum products were down 7% for the nine months ended September 30, 1996, as compared to the prior year period as a result of a decrease in shipments (primarily related to can sheet activities) resulting from reduced growth in demand and the reduction of consumer inventories. The impact of reduced product shipments was to a limited degree offset by 7% increase in prices realized from the sale of fabricated aluminum products for the nine months ended September 30, 1996, resulting from a shift in product mix (to higher-end value added products), due to reduced can sheet shipments. Corporate -- Corporate operating expenses represent normal and recurring corporate general and administrative expenses which are not allocated to the Company's business segments. THREE YEARS ENDED DECEMBER 31, 1995 Net Sales Bauxite and Alumina -- Revenue from net sales to third parties for the bauxite and alumina segment was 19% higher in 1995 than in 1994 and 2% higher in 1994 than in 1993. Revenue from alumina increased 20% in 1995 from 1994, due to higher average realized prices partially offset by lower shipments. The remainder of the segment's sales revenues were from sales of bauxite 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 28% higher in 1995 than in 1994 and 4% higher in 1994 than in 1993. The bulk of the segment's sales represents the Company's primary aluminum and fabricated aluminum products, with the remainder 34 37 representing the portion of sales of primary aluminum attributable to the minority interest in the Company's 90%-owned Valco aluminum smelter in Ghana. Revenue from primary aluminum increased 67% in 1995 from 1994, due primarily to higher average realized prices and higher shipments. In 1995, the Company's average realized price from sales of primary aluminum was approximately $.81 per pound, compared to the AMT Price of approximately $.86 per pound during the year. The higher shipments of primary aluminum were due to increased production at the Company's smelters in the Pacific Northwest and Valco, and reduced intracompany consumption of primary metal at the Company's fabricated products units. The increase in revenue for 1995 was partially offset by decreased shipments caused by the strike by the USWA discussed below. Revenue from primary aluminum decreased 3% in 1994 from 1993 as higher average realized prices were more than offset by lower shipments. Average realized prices in 1994 reflected the defensive hedging of primary aluminum prices in respect of 1994 shipments, which was initiated prior to then-recent improvements in metal prices. Shipments in 1994 reflected production curtailments at the Company's smelters in the Pacific Northwest and Valco. Shipments of primary aluminum to third parties were approximately 42% of total aluminum products shipments in 1995, compared with approximately 36% in 1994 and 39% in 1993. Revenue from fabricated aluminum products increased 17% in 1995 from 1994, due to higher average realized prices partially offset by lower shipments for most of these products. Revenue from fabricated aluminum products increased 6% in 1994 from 1993, principally due to increased shipments of most of these products. Operating Income (Loss) Improved operating results in 1995 were partially offset by expenses related to the Company's smelting joint venture in the PRC, increased expenses related to the Company's micromill technology, maintenance expenses as a result of an electrical lightning strike at the Company's Trentwood, Washington, facility, and a work slowdown at the Company's 49%-owned Kaiser Jamaica Bauxite Company ("KJBC") prior to the signing of a new labor contract. The combined impact of these expenditures on the results for 1995 was approximately $6.0 million in the aggregate (on a pre-tax basis). Operating results in 1995 were further impacted by (i) an eight-day strike at five major domestic locations by the USWA, (ii) a six-day strike by the National Workers Union at Alpart, and (iii) a four-day disruption of alumina production at Alpart caused by a boiler failure. The combined impact of these events on the results for 1995 was approximately $17.0 million in the aggregate (on a pre-tax basis) principally from lower production volume and other related costs. In 1993, the Company recorded a pre-tax charge of $35.8 million related to restructuring charges and a pre-tax charge of $19.4 million because of a reduction in the carrying value of its inventories caused principally by prevailing lower prices for alumina, primary aluminum, and fabricated aluminum products. Bauxite and Alumina -- This segment's operating income was $54.0 million in 1995, compared with $19.8 million in 1994 and a loss of $4.5 million in 1993. The increase in operating income in 1995 compared with 1994 was principally due to higher revenue, partially offset by the effect of the strike and boiler failure. In 1994, compared with 1993, operating income was favorably affected by increased shipments and lower manufacturing costs. Aluminum Processing -- This segment's operating income was $238.9 million in 1995, compared with losses of $8.4 million in 1994 and $46.3 million in 1993. Improvement in operating results in 1995 compared with 1994 was principally due to higher revenue, partially offset by the effect of the strike by the USWA. The decrease in operating loss in 1994 compared with 1993 was caused principally by the $35.8 million restructuring charges in 1993, increased shipments of fabricated aluminum products, and higher average realized prices of primary aluminum, partially offset by lower shipments of primary aluminum. Corporate -- Corporate operating expenses of $81.8 million, $67.3 million, and $72.3 million in 1995, 1994, and 1993, respectively, represented corporate general and administrative expenses that were not allocated to segments. Net Income (Loss) The Company reported net income of $65.3 million in 1995, compared with a net loss of $101.6 million in 1994 and a net loss of $647.3 million in 1993. The principal reason for the improvement in 1995 compared to 35 38 1994 was the improvement in operating results previously described, partially offset by other charges, principally related to the establishment of additional litigation reserves. The principal reasons for the reduced net loss in 1994 compared with 1993 were the reduction in the operating loss previously described and the cumulative effect of changes in accounting principles of $507.9 million related to adoption of Statement of Financial Accounting Standards No. 106, 109, and 112 as of January 1, 1993. See Note 1 of the Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES Capital Structure On February 17, 1994, the Company and KAC entered into the Credit Agreement. The Credit Agreement provides for a $325.0 million five-year secured, revolving line of credit, scheduled to mature in 1999. The Company is able to borrow under the facility by means of revolving credit advances and letters of credit (up to $125.0 million) in an aggregate amount equal to the lesser of $325.0 million or a borrowing base relating to eligible accounts receivable plus eligible inventory. As of September 30, 1996, $141.9 million (of which $73.1 million could have been used for letters of credit) was available to the Company under the Credit Agreement. As of November 30, 1996, $273.0 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement. The Credit Agreement is unconditionally guaranteed by KAC and by certain significant subsidiaries of the Company. The Credit Agreement requires the Company to maintain certain financial covenants and places restrictions on the Company's and KAC'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. The Credit Agreement is secured by, among other things, (i) mortgages on the Company's major domestic plants (excluding the Company's Gramercy alumina refinery and the Nevada micromill); (ii) subject to certain exceptions, liens on the 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 a number 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. In the first quarter of 1994, KAC consummated the public offering of 8,855,550 shares of its PRIDES. The net proceeds from the sale of the shares of the PRIDES were approximately $100.1 million. On February 17, 1994, the Company issued $225.0 million of its 9 7/8% Notes. The obligations of the Company with respect to the 9 7/8% Notes and the 12 3/4% Notes (see Note 4 of the Notes to Consolidated Financial Statements) are guaranteed, jointly and severally, by certain subsidiaries of the Company. On October 23, 1996, the Company completed the 10 7/8% Notes Offering of $175.0 million principal amount of 10 7/8% Notes at 99.5% of their principal amount. The 10 7/8% Notes were not registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The 10 7/8% Notes rank pari passu in right and priority of payment with outstanding Indebtedness under the Credit Agreement, with outstanding indebtedness represented by the 9 7/8% Notes and the Notes, and are fully and unconditionally guaranteed on a senior, unsecured basis by the Subsidiary Guarantors. Net proceeds from the 10 7/8% Notes Offering, after estimated expenses, were approximately $168.9 million, of which $91.7 million was utilized to reduce the outstanding borrowings under the revolving credit facility of the Credit Agreement to zero. The remaining net proceeds (approximately $77.2 million) were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. Pursuant to an agreement with the initial purchasers of the 10 7/8% Notes, the Company and the Subsidiary Guarantors filed a registration statement with the Commission in November 1996 with respect to the 10 7/8% Notes Exchange Offer. The registration statement with respect to the 10 7/8% Notes Exchange Offer was declared effective by the Commission on December 11, 1996 and it is presently anticipated that the 10 7/8% Notes Exchange Offer will be consummated on or about February 5, 1997. 36 39 On December 23, 1996, the Company completed the issuance of $50.0 million principal amount of the Old Notes at 103.5% of their principal amount. The Old Notes were not registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Old Notes rank pari pasu in right and priority of payment with outstanding Indebtedness under the Credit Agreement, the 9 7/8% Notes, and the 10 7/8% Notes, and are fully and unconditionally guaranteed on a senior, unsecured basis by the Subsidiary Guarantors. Net proceeds from the Offering, after estimated expenses, were approximately $50.4 million, all of which were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. Pursuant to an agreement with the Initial Purchaser, the Company and the Subsidiary Guarantors agreed to file a registration statement with the Commission within 30 days of the Closing Date with respect to a registered offer to exchange the Old Notes for new notes with substantially identical terms, and to use their reasonable best efforts to have the registration statement declared effective within 135 days of the Closing Date and to consummate such exchange offer within 165 days of the Closing Date. The indentures governing the 9 7/8% Notes, the 12 3/4% Notes, the 10 7/8% Notes, and the Notes (the "9 7/8% Note Indenture," "12 3/4% Note Indenture," "10 7/8% Note Indenture," and the "Indenture," respectively), restrict, among other things, the Company's ability to incur debt, undertake transactions with affiliates, and pay dividends. During October 1996, the Credit Agreement was amended to, among other things, provide for the issuance of the 10 7/8% Notes and to modify certain of the financial covenants contained in the Credit Agreement. During December 1996, the Credit Agreement was again amended to provide for the Old Notes. See "Risk Factors -- Leverage," "Description of Principal Indebtedness," and Note 4 of the Notes to Consolidated Financial Statements. Operating Activities Cash used for operations was $4.4 million in the first nine months of 1996, compared with cash provided by operations of $20.8 million in the first nine months of 1995, primarily due to reduced earnings. Cash provided by operations was $119.5 million in 1995, compared with cash used for operations of $21.3 million in 1994 and cash provided by operations of $38.0 million in 1993. The improvement in cash flows from operations in 1995 compared with 1994 was primarily due to higher earnings and a refund of margin deposits of $50.5 million under certain hedging contracts. At December 31, 1995, the Company had working capital of $324.5 million, compared with working capital of $239.5 million at December 31, 1994. The increase in working capital was due primarily to an increase in Receivables and Inventories and a decrease in Other accrued liabilities, partially offset by a decrease in Prepaid expenses and other current assets (principally due to a refund of margin deposits related to hedging activities) and an increase in Accounts payable and Accrued salaries, wages, and related expenses. At September 30, 1996, the Company had working capital of $392.4 million, compared with working capital of $324.5 million at December 31, 1995. The increase in working capital was due primarily to an increase in Inventories and Prepaid expenses and other current assets and a decrease in Accounts payable and Accrued salaries, wages, and related expenses, partially offset by a decrease in Receivables and an increase in Other accrued liabilities. Postretirement benefits other than pensions are provided through contracts with various insurance carriers. The Company has not funded the liability for these benefits, which are expected to be paid out of cash generated by operations. Investing Activities The Company's capital expenditures of $217.1 million (of which $25.2 million was funded by the Company's minority partners in certain foreign joint ventures) during the three years ended December 31, 1995, were made primarily to improve production efficiency, reduce operating costs, expand capacity at existing facilities, and construct new facilities. Total consolidated capital expenditures were $88.4 million in 37 40 1995, compared with $70.0 million in 1994 and $67.7 million in 1993 (of which $8.3, $7.5, and $9.4 million were funded by the minority partners in certain foreign joint ventures in 1995, 1994, and 1993, respectively). Capital expenditures during the first nine months of 1996 were $91.1 million, which were used primarily to improve production efficiency, reduce operating costs, expand capacity at existing facilities, and construct new facilities, including the Nevada micromill. Total consolidated capital expenditures (of which approximately 6% is expected to be funded by the Company's minority partners in certain foreign joint ventures) are expected to be between $130.0 and $160.0 million per annum in each of 1996 through 1998. Management continues to evaluate numerous projects all of which require substantial capital, including the Company's micromill project and other potential opportunities both in the United States and overseas. In response to lower aluminum and alumina prices, management may consider deferring certain non-essential capital expenditures and/or raising investment capital (including through joint ventures), in order to conserve a portion of the Company's available cash resources to meet incremental capital and operating requirements and to take advantage of new investment opportunities. See "Business -- Strategy" and "-- Research and Development." In 1995, Kaiser Yellow River Investment Limited ("KYRIL"), a subsidiary of the Company, entered into a Joint Venture Agreement and related agreements (the "Joint Venture Agreements") with the Lanzhou Aluminum Smelters ("LAS") of the China National Nonferrous Metals Industry Corporation relating to the formation and operation of Yellow River Aluminum Industry Company Limited, a Sino-foreign joint equity enterprise (the "Joint Venture") organized under the laws of the PRC. KYRIL contributed $9.0 million to the capital of the Joint Venture in July 1995. The parties to the Joint Venture are currently engaged in discussions concerning the amount, timing, and other conditions relating to KYRIL's additional contributions to the Joint Venture. At a recent meeting of the directors of the Joint Venture, KYRIL, LAS and the Joint Venture reached an agreement (i) that extended until early 1997 the time for KYRIL to make a second capital contribution to the Joint Venture, and (ii) that KYRIL would continue to explore various methods of financing any future capital contributions to the Joint Venture, including financing that could be obtained from third-party investors. Governmental approval in the PRC will be necessary in order to implement certain arrangements agreed to by the parties, and there can be no assurance such approvals will be obtained. See "Business -- International Business Development." Financing Activities and Liquidity As of September 30, 1996, the Company's total consolidated indebtedness was $878.0 million. As of such date, $141.9 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 Offering and the 10 7/8% Notes Offering, and the application of the proceeds therefrom, as of September 30, 1996, the Company's total consolidated indebtedness would have been $972.7 million (of which $400.0 million would have been expressly subordinated in right and priority of payment to the Notes), $273.1 million of borrowing capacity would have been available for use under the Credit Agreement, and the Company would have had additional available cash proceeds from the Offering and the 10 7/8% Notes Offering, of $88.1 million. As of November 30, 1996, the Company's total consolidated indebtedness was $921.0 million, $273.0 million of borrowing capacity was unused under the revolving credit facility of the Credit Agreement, and the Company had cash and cash equivalents of $44.1 million. See "Risk Factors -- Leverage." During the nine months ended September 30, 1996, total borrowings and repayments under the revolving credit facility of the Credit Agreement were $468.7 million and $350.6 million, respectively. During the nine months ended September 30, 1995, total borrowings and repayments under the revolving credit facility of the Credit Agreement were $481.9 million and $426.3 million, respectively. Loans under the Credit Agreement bear interest at a rate per annum, at the Company's election, equal to a Reference Rate (as defined) plus a margin of 0% to 1.50% or LIBO Rate (Reserve Adjusted) (as defined) plus a margin of 1.75% to 3.25%. The interest rate margins applicable to borrowings under the Credit Agreement are based on a financial test, determined quarterly. During the first two quarters of 1996, the Company paid interest at a rate per annum of the Reference Rate plus 0% or LIBO Rate plus 1.75%. During 38 41 the third quarter of 1996, the per annum interest rates increased by .5% to the Reference Rate plus .5% or LIBO Rate plus 2.25%. Effective October 1, 1996, the margin applicable to loans under the Credit Agreement increased by an additional .5% per annum based on the financial test. The declaration and payment of dividends by the Company and KAC on shares of their common stock are subject to certain covenants contained in the Credit Agreement and, in the case of the Company, the Indenture, the 10 7/8% Note Indenture, the 9 7/8% Note Indenture and the 12 3/4% Note Indenture. The Credit Agreement does not permit the Company or KAC to pay any dividends on their common stock. The declaration and payment of dividends by KAC on the PRIDES is expressly permitted by the terms of the Credit Agreement to the extent KAC receives payments on certain intercompany notes or certain other permitted distributions from the Company. See "Description of Principal Indebtedness." Management believes that the Company's existing cash resources, together with cash flows from operations and borrowings under the Credit Agreement, will be sufficient to meet its working capital and capital expenditure requirements for the next year. Additionally, with respect to long-term liquidity, management believes that operating cash flows, together with the ability to obtain both short and long-term financing, should provide sufficient funds to meet the Company's working capital and capital expenditure requirements. Environmental Contingencies The Company is subject to the Environmental Laws, to fines or penalties assessed for alleged breaches of the Environmental Laws, and to claims and litigation based upon such laws. The Company currently is subject to a number of lawsuits under CERCLA, and, 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. Based on the Company's evaluation of these and other environmental matters, the Company has established environmental accruals, primarily related to potential solid waste disposal and soil and groundwater remediation matters. At September 30, 1996, the balance of such accruals, which are primarily included in Long-term liabilities, was $32.9 million. These environmental accruals represent the Company's estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing technology, and the Company's assessment of the likely remediation to be performed. The Company expects remediation to occur over the next several years and estimates that annual expenditures to be charged to these environmental accruals will be approximately $2.0 to $10.0 million for the years 1996 through 2000 and an aggregate of approximately $7.0 million thereafter. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. The Company believes that it is reasonably possible that costs associated with these environmental matters may exceed current accruals by amounts that could range, in the aggregate, up to an estimated $26.5 million and that the factors upon which a substantial portion of this estimate is based are expected to be resolved in early 1997. While uncertainties are inherent in the final outcome of these environmental matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. See "Risk Factors -- Environmental Matters and Litigation," "Business -- Environmental Matters" and "-- Legal Proceedings," and Note 9 of the Notes to Consolidated Financial Statements and Note 3 of the Notes to Interim Consolidated Financial Statements for further descriptions of these contingencies. Asbestos Contingencies The Company is a defendant in a number of lawsuits, some of which involve claims of multiple persons, in which the plaintiffs allege that certain of their injuries were caused by, among other things, exposure to 39 42 asbestos during, and as a result of, their employment or association with the Company or exposure to products containing asbestos produced or sold by the Company. The lawsuits generally relate to products the Company has not manufactured for at least 15 years. At September 30, 1996, the number of such claims pending was approximately 75,900, as compared with 59,700 at December 31, 1995. During the year 1995, approximately 41,700 of such claims were received and 7,200 settled or dismissed. During the first nine months of 1996 approximately 20,000 of such claims were received and 3,800 were settled or dismissed. Based on past experience and reasonably anticipated future activity, the Company has established an accrual for estimated asbestos-related costs for claims filed and estimated to be filed and settled through 2008. There are inherent uncertainties involved in estimating asbestos-related costs, and the Company's actual costs could exceed these estimates. The Company's accrual was calculated based on the current and anticipated number of asbestos-related claims, the prior timing and amounts of asbestos-related payments, and the advice of Wharton Levin Ehrmantraut Klein & Nash, P.A. with respect to the current state of the law related to asbestos claims. Accordingly, an estimated asbestos-related cost accrual of $160.0 million, before consideration of insurance recoveries, is included primarily in Long-term liabilities at September 30, 1996. The Company estimates that annual future cash payments in connection with such litigation will be approximately $13.0 to $20.0 million for each of the years 1996 through 2000, and an aggregate of approximately $78.0 million thereafter through 2008. While the Company does not believe there is a reasonable basis for estimating such costs beyond 2008 and, accordingly, no accrual has been recorded for such costs which may be incurred beyond 2008, there is a reasonable possibility that such costs may continue beyond 2008, and such costs may be substantial. A substantial portion of the asbestos-related claims that were filed and served on the Company during 1995 and 1996, were filed in Texas. The Company has been advised by its counsel that, although there can be no assurance, the increase in pending claims may have been attributable in part to tort reform legislation in Texas. Although asbestos related claims are currently exempt from certain aspects of the Texas tort reform legislation, management has been advised that efforts to remove an asbestos-related exemption in the tort reform legislation relating to the doctrine of forum non conveniens, as well as other developments in the legislative and legal environment in Texas, may be responsible for the accelerated pace of new claims experienced in late 1995 and its continuance in 1996, albeit at a somewhat reduced rate. The Company believes that it has insurance coverage available to recover a substantial portion of its asbestos-related costs. Claims for recovery from some of the Company's insurance carriers are currently subject to pending litigation and other carriers have raised certain defenses, which have resulted in delays in recovering costs from the insurance carriers. The timing and amount of ultimate recoveries from these insurance carriers are dependent upon the resolution of these disputes. The Company believes, based on prior insurance-related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of Thelen, Marrin, Johnson & Bridges LLP with respect to applicable insurance coverage law relating to the terms and conditions of those policies, that substantial recoveries from the insurance carriers are probable. Accordingly, an estimated aggregate insurance recovery of $142.3 million, determined on the same basis as the asbestos-related cost accrual, is recorded primarily in Other assets at September 30, 1996. Management continues to monitor claims activity, the status of the lawsuits (including settlement initiatives), legislative progress, and costs incurred in order to ascertain whether an adjustment to the existing accruals should be made to the extent that historical experience may differ significantly from the Company's underlying assumptions. While uncertainties are inherent in the final outcome of these asbestos matters and it is presently impossible to determine the actual costs that ultimately may be incurred and insurance recoveries that will be received, management currently believes that, based on the factors discussed in the preceding paragraphs, the resolution of asbestos-related uncertainties and the incurrence of asbestos-related costs net of related insurance recoveries should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. See "Risk Factors -- Environmental Matters and Litigation," Note 9 of the Notes to Consolidated Financial Statements, and Note 3 of the Notes to Interim Consolidated Financial Statements, for further description of this contingency. 40 43 INCOME TAX MATTERS The Company's net deferred income tax assets as of December 31, 1995, were $291.5 million, net of valuation allowances of $128.5 million. Approximately $97.4 million of these net deferred income tax assets relate to the benefit of loss and credit carryforwards, net of valuation allowances. The Company believes a long-term view of profitability is appropriate and has concluded that this net deferred income tax asset will more likely than not be realized despite the operating losses incurred in recent years. See Note 5 of the Notes to Consolidated Financial Statements for a discussion of these and other income tax matters. RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans, and provides for alternative methods for an employer to recognize stock-based compensation costs. Under the first method, an employer may continue to account for compensation costs for stock, stock options, and other equity instruments issued to employees, as it has historically, using the "intrinsic value based method" (as described in SFAS 123), and such compensation costs would be the excess, if any, of the quoted market price of the stock subject to an option at the grant date or other measurement date over the amount an employee must pay to acquire the stock. The intrinsic value based method generally would not result in the recognition of compensation costs upon the grant of stock options. Under the second method, an employer may adopt the "fair value based method" (as described in SFAS 123). Under the fair value based method, such compensation costs would be valued using an option-pricing model, and such amount would be charged to expense over the option's vesting period. Employers which elect to continue to account for stock-based compensation under the intrinsic value based method will be required by SFAS 123 to disclose in the notes to their financial statements the amount of net income and the earnings per share which would have been reported had the employer elected to use the fair value based method. The Company has elected to continue to account for stock-based compensation under the intrinsic value based method, and will comply with the disclosure requirements of SFAS 123 beginning in 1996. 41 44 BUSINESS The Company is a fully integrated aluminum producer operating 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 and the manufacture of fabricated (including semi-fabricated) aluminum products. The Company is one of the largest domestic aluminum producers in terms of primary aluminum smelting capacity and is the Western world's second largest producer/seller of alumina, accounting for approximately 7% of the Western world's alumina capacity in 1995. The Company's production levels of alumina and primary aluminum exceed its internal processing needs which allows it to be a major seller of alumina (approximately 2.0 million tons in 1995 or 72% of 1995 production) and primary aluminum (approximately 271,700 tons in 1995 or 66% of 1995 production) to third parties. The Company is also a major domestic supplier of fabricated aluminum products. In 1995, the Company shipped approximately 368,200 tons of fabricated aluminum products to third parties, which accounted for approximately 6% of the total tonnage of United States domestic shipments. A majority of the Company's fabricated products are sold to distributors or used by customers as components in the manufacture and assembly of finished end-use products. The Company is a Delaware corporation organized in 1940 and maintains its principal executive offices at 6177 Sunol Boulevard, Pleasanton, California 94566-7769. Its telephone number is (510) 462-1122. INDUSTRY OVERVIEW Primary aluminum is produced by the refining of bauxite into alumina 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, transportation and construction 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 1995 in the United States, Japan and Western Europe, aluminum's recyclability and weight advantages have enabled it to gain market share from steel and glass, primarily in the beverage container area. Nearly all beer cans and soft drink cans manufactured for the United States market are made of aluminum. The Company believes that growth in the packaging area is likely to continue through the 1990s due to general population increase and to further penetration of the beverage container market in emerging markets. The Company believes that growth in demand for can sheet in the United States will follow the growth in population, offset, in part, by the effects of the use of lighter gauge aluminum for can sheet and of plastic container production from newly installed capacity. In the transportation industry, which accounted for approximately 28% of aluminum consumption in the United States, Japan and Western Europe in 1995, automotive manufacturers use aluminum instead of steel, ductile iron, or copper for an increasing number of components, including radiators, wheels, suspension components, and engines, in order to meet more stringent environmental, safety, and fuel efficiency standards. The Company believes that sales of aluminum to the transportation industry have considerable growth potential due to projected increases in the use of aluminum in automobiles. In addition, the Company believes that consumption of aluminum in the construction industry will follow the cyclical growth pattern of that industry, and will benefit from higher growth in Asian and Latin American economies. Supply As of year-end 1995, Western world aluminum capacity from 107 smelting facilities was approximately 16.6 million tons per year. Western world production of primary aluminum for 1995 increased approximately 1.8% compared to 1994. Net exports of aluminum from the former Sino Soviet bloc increased approximately 240% from 1990 levels during the period from 1991 through 1995 to approximately 2.1 million tons per year. These exports contributed to a significant increase in LME stocks of primary aluminum which peaked in 42 45 June 1994 at 2.7 million tons. By the end of 1995, LME stocks of primary aluminum had declined 2.1 million tons from this peak level and 1.1 million tons from the beginning of 1995. As of December 20, 1996, LME stocks of primary aluminum were approximately 949,475 tons. See "-- Recent Industry Trends." Based upon information currently available, the Company believes that moderate additions will be made during 1996-1998 to Western world alumina and primary aluminum production capacity. The increases in alumina capacity during 1996-1998 are expected to come from one new refinery which began operations in 1995 and incremental expansions of existing refineries. In addition, the Company believes that there is currently approximately 1.1 million tons of unutilized smelting capacity that is available for production. The increases in primary aluminum capacity during 1996-1998 are expected to come from a major new smelter in South Africa which began operations in 1995, two new smelters which may begin operations in 1996 or 1997, and the remainder principally from incremental expansions of existing smelters. RECENT INDUSTRY TRENDS Primary Aluminum During 1995, the AMT Price for primary aluminum was approximately $.86 per pound compared to $.72 and $.54 per pound in 1994 and 1993, respectively. The significant improvement in prices during 1994 and 1995 resulted from strong growth in Western world consumption of aluminum and the curtailment of production in response to lower prices in prior periods by many producers worldwide. In 1995, production of primary aluminum increased and consumption of aluminum continued to grow, but at a much lower rate than in 1994. In general, the overall aluminum market was strongest in the first half of 1995. By the second half of 1995, orders and shipments for certain products had softened and the rate of decline in LME inventories had leveled off. By the end of 1995, some small increases in LME inventories occurred, and prices of aluminum weakened from first-half levels. This trend has continued throughout the first eleven months of 1996 as the supply of primary aluminum exceeded demand during this period. Net reported primary aluminum inventories have increased by approximately 55,000 tons in 1996 based upon recent reports of the LME (through December 20, 1996) and the IPAI (through October 31, 1996), following substantial declines of 764,000 and 1,153,000 tons in 1994 and 1995, respectively. The AMT Price for primary aluminum for the week ended December 20, 1996, was approximately $.73 per pound. Increased production of primary aluminum due to restarts of certain previously idled capacity, the commissioning of a major new smelter in South Africa, and the continued high level of exports from the CIS have contributed to increased supplies of primary aluminum to the Western world in 1996. While the economies of the major aluminum consuming regions -- the United States, Japan, Western Europe, and Asia -- are performing relatively well, the Company believes that the reduction of aluminum inventories by consumers, as prices have continued to decline, has suppressed the growth in primary aluminum demand that normally accompanies growth in economic and industrial activity. In addition to these supply/demand dynamics, the Company believes that the recent decline in primary aluminum prices may have been influenced by a recent major decline in copper prices on the LME. 43 46 The following table indicates the monthly average AMT Price for each of the months from January 1993 through November 1996 as reported by Metals Week. The AMT Price for the week ended December 20, 1996, as reported by Metals Week, was approximately 72.666 cents per pound.
AVERAGE TRANSACTION PRICES (CENTS/POUND) -------------------------------------------- 1996 1995 1994 1993 ------- ------- ------ ------ January........................... 75.514 100.377 57.019 56.479 February.......................... 75.100 93.847 61.641 55.993 March............................. 76.414 88.745 62.343 53.794 April............................. 75.517 90.388 61.890 52.345 May............................... 75.314 85.338 64.007 52.694 June.............................. 70.450 85.305 67.807 54.673 July.............................. 69.767 87.788 72.656 56.829 August............................ 70.023 87.828 71.249 55.516 September......................... 67.567 82.010 77.764 52.095 October........................... 65.112 78.384 83.839 51.660 November.......................... 70.019 78.000 91.926 50.365 December.......................... 78.823 91.484 53.902 ------- ------- ------ ------ Average................. 71.891 86.403 71.969 53.862 ======= ======= ====== ======
Alumina Western world demand for alumina, and the price of alumina, declined in 1994 in response to the curtailment of Western world smelter production of primary aluminum, partially offset by increased usage of Western world alumina by smelters in the CIS and in the PRC. Increased Western world production of primary aluminum, as well as continued imports of Western world alumina by the CIS and the PRC, during 1995 resulted in higher demand for Western world alumina and significantly stronger alumina pricing. In the first nine months of 1996, however, the alumina market softened, primarily as a result of increased alumina production and decreased alumina exports to the CIS and the PRC, resulting in lower alumina prices. Fabricated Products United States shipments of domestic fabricated aluminum products in 1995 were approximately at 1994 levels, although in 1995 demand for can sheet in the United States softened relative to 1994. Shipments of domestic mill products during the first nine months of 1996 declined approximately 4% compared to the first nine months of 1995, principally due to an approximate 10% decline in the shipment of can sheet and a reduction of consumer inventories of other fabricated aluminum products. This trend has continued through the fourth quarter of 1996. See "Risk Factors" for a discussion of certain factors that could cause actual results to differ from those that could otherwise result from the industry trends discussed above. STRATEGY The Company's objectives are to maintain leading market positions in its core businesses, while developing new opportunities both domestically and internationally which will enhance, and reduce the cyclicality of, the Company's earnings. The primary elements of the Company's strategies to achieve these objectives are: Increasing the competitiveness of its existing facilities. The Company is continuing to increase the competitiveness of its existing facilities. In 1995, the Company successfully restructured electric power purchase agreements for its smelting facilities in the Pacific Northwest, which has resulted in significantly lower electric power costs in 1996 for the Mead and Tacoma, Washington, smelters compared with 1995 electric power costs. The Company expects to continue to benefit from these savings in electric power costs at these facilities in 1997 and beyond. See "Risk Factors -- Power Supply." 44 47 The Company has also commenced the modernization and expansion of the carbon baking furnace at its Mead smelter at an estimated cost of approximately $52.0 million. This project will lower costs, enhance safety and improve the environmental performance of the facility. This modernization is expected to be completed in late 1998. The Company continues to implement changes to the process and product mix of its Trentwood rolling mill in an effort to maximize its profitability and maintain full utilization of the facility. Recently, the Company has approved an expansion of its heat treat capacity by approximately one-third. Sales of the Company's heat treat products have increased significantly over the last several years and are made primarily to the aerospace and general engineering markets, which are experiencing growth in demand. The project is estimated to cost approximately $45.0 million and to take approximately two years to complete. See "-- Production Operations." Developing proprietary technologies. The Company has developed proprietary technologies which present growth opportunities in the future and have enabled it to substantially improve its operating efficiencies. The Company has developed a unique micromill for the production of can sheet from molten metal using a continuous cast process. The capital and conversion costs of these micromills are expected to be significantly lower than conventional rolling mills. Micromills are also expected to result in lower transportation costs due to the ability to strategically locate a micromill in close proximity to a manufacturing facility. Micromills are expected to be particularly well suited to take advantage of the rapid growth in demand for can sheet expected in emerging markets in Asia and Latin America where there is limited indigenous supply. The Company believes that micromills should also be capable of manufacturing other sheet products at relatively low capital and operating costs. The micromill technology is based on a proprietary thin-strip, high-speed, continuous-belt casting technique linked directly to hot and cold rolling mills. The major advantage of the process is that the sheet is continuously manufactured from molten metal, unlike the conventional process in which the metal is first cast into large, solid ingots and subsequently rolled into sheet through a series of highly capital-intensive steps. The first micromill is nearing completion in Nevada as a full-scale demonstration and production facility. The Company expects operational start-up of the facility by the end of 1996. If the Company is successful in proving and commercializing its micromill technology, micromills could represent an important source of future growth. There can be no assurance that the Company will be able to successfully develop and commercialize the technology for use at full-scale facilities. See "-- Research and Development." The Company has developed and installed proprietary retrofit technology in all of its smelters over the last decade, which has significantly contributed to increased and more efficient production of primary aluminum. Through continuing technological improvements, the Company's smelters have achieved improved energy efficiency and longer average life of reduction cells. The Company is actively engaged in licensing its smelting and other process and product technology and selling technical and managerial assistance to other producers worldwide. See "-- Production Operations -- Primary Aluminum Products." Increasing participation in emerging markets. The Company is actively pursuing opportunities to increase its participation in emerging markets by using its technical expertise and capital to form joint ventures or acquire equity in aluminum-related facilities in foreign countries where it can apply its proprietary technology. The Company has created Kaiser Aluminum International to identify growth opportunities in targeted emerging markets and develop the needed country competence to complement the Company's product and process competence in capitalizing on such opportunities. The Company has focused its efforts on countries that are expected to be important suppliers of aluminum and/or large customers for aluminum and alumina, including the PRC, Russia and other members of the CIS, India, and Venezuela. The Company's proprietary retrofit technology has been installed by the Company at various third party locations throughout the world and is an integral part of the Company's initiatives for participating in new and existing smelting facilities. See "Risk Factors -- Foreign Activities" and "-- International Business Development." 45 48 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. Primary aluminum prices have historically been subject to significant cyclical price fluctuations. During the period January 1, 1993 through November 30, 1996, the AMT Price for primary aluminum has ranged from approximately $.50 to $1.00 per pound. For the week ended December 20, 1996, the AMT Price of primary aluminum was approximately $.73 per pound. Alumina prices as well as fabricated aluminum product prices (which vary considerably among products) are significantly influenced by changes in the price of primary aluminum but generally lag behind primary aluminum price changes by up to three months. See "Offering Memorandum Summary -- Recent Trends and Developments" and "-- Fourth Quarter," and "-- Industry Overview." The Company's production levels of alumina and primary aluminum exceed its internal processing needs, which allows it to be a major seller of alumina (approximately 2.0 million tons in 1995 or 72% of production) and primary aluminum (approximately 271,700 tons in 1995 or 66% of production) to third parties. As of November 30, 1996, the Company had sold forward substantially all of the alumina available to it in excess of its projected internal smelting requirements for the balance of 1996, and 89% and 90% of such excess alumina for 1997 and 1998, respectively. Virtually all of such 1997 and 1998 sales were made at prices indexed to future prices of primary aluminum. As of November 30, 1996, the Company had sold forward, at fixed prices, approximately 70,000 tons of primary aluminum in excess of its projected internal fabrication requirements in 1997 and approximately 93,600 tons of such surplus in 1998. As of November 30, 1996, the Company had also purchased put options to establish a minimum price in respect of approximately 196,000 tons and 45,000 tons of such 1997 and 1998 surplus, respectively, and had entered into option contracts and established a price range for an additional 160,000 tons of the Company's 1998 surplus. The weighted average of the Company's 1997 and 1998 fixed price contracts, and the weighted average price for the Company's 1998 purchased put options, exceed the AMT Price for primary aluminum for the week ended December 20, 1996. The weighted average price for the Company's purchased put options with respect to 1997 are below the AMT Price for the week ended December 20, 1996. The weighted average price for the minimum of the range established with respect to the Company's other 1998 option contracts approximates the AMT Price for the week ended December 20, 1996. PRODUCTION OPERATIONS The following table sets forth total shipments and intracompany transfers of the Company's alumina, primary aluminum, and fabricated aluminum operations:
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------ ----------------------------- 1996 1995 1995 1994 1993 ------- ------- ------- ------- ------- (IN THOUSANDS OF TONS) ALUMINA: Shipments to Third Parties............ 1,506.7 1,494.6 2,040.1 2,086.7 1,997.5 Intracompany Transfers................ 662.2 546.3 800.6 820.9 807.5 PRIMARY ALUMINUM: Shipments to Third Parties............ 262.9 184.5 271.7 224.0 242.5 Intracompany Transfers................ 97.0 171.3 217.4 225.1 233.6 FABRICATED ALUMINUM PRODUCTS: Shipments to Third Parties............ 245.4 284.3 368.2 399.0 373.2
46 49 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 8% of Western world alumina in 1995. During 1995, the Company's shipments of bauxite to third parties represented approximately 21% of bauxite mined. In addition, the Company's third party shipments of alumina represented approximately 72% of alumina produced. The Company's share of total Western world alumina capacity was approximately 7% in 1995. - 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. During 1995, the Company's shipments of primary aluminum to third parties represented approximately 66% of primary aluminum production. The Company's share of total Western world primary aluminum capacity was approximately 3% in 1995. - Fabricated aluminum products are manufactured by three business units -- flat-rolled products, extruded products and engineered components. The products include body, lid, and tab stock for beverage containers, sheet and plate products, heat-treated products, screw machine stock, redraw rod, forging stock, truck wheels and hubs, air bag canisters, engine manifolds, and other castings, forgings and extruded products, which are manufactured at plants located in principal marketing areas of the United States and Canada. The aluminum utilized in the Company's fabricated products operations is comprised of primary aluminum, obtained both internally and from third parties, and scrap metal purchased from third parties. Alumina The following table lists the Company's bauxite mining and alumina refining facilities as of December 31, 1995:
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 KJBC, 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 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. Alumina from the Gramercy plant is sold to third parties. Alpart holds bauxite reserves and owns a 1,450,000 tons per year alumina plant located in Jamaica. The Company owns a 65% interest in Alpart, and Hydro Aluminium a.s ("Hydro") owns the remaining 35% 47 50 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. The Government of Jamaica has granted Alpart a mining lease and has entered into other agreements with Alpart designed to assure that sufficient reserves of bauxite will be available to Alpart to operate its refinery as it may be expanded to a capacity of 2,000,000 tons per year through the year 2024. The Company owns a 28.3% interest in Queensland Alumina Limited ("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 under long-term supply contracts. The Company has contracted with QAL to take approximately 792,000 tons per year of capacity or pay standby charges. The Company is unconditionally obligated to pay amounts calculated to service its share ($93.3 million in principal amount at September 30, 1996) of certain debt of QAL, as well as other QAL costs and expenses, including bauxite shipping costs. QAL's annual production capacity is 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, trading intermediaries who resell raw materials to end-users, and users of chemical-grade alumina. In 1995, the Company sold all of its bauxite to two customers, the largest of which accounted for approximately 74% of such sales. The Company also sold alumina to nine customers, the largest and top five of which accounted for approximately 23% and 90% of such sales, respectively. See "-- Competition." The Company believes that among alumina producers it is now the Western 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 under multi-year sales contracts. See " -- Sensitivity to Prices and Hedging Programs." Primary Aluminum Products The following table lists the Company's primary aluminum smelting facilities as of December 31, 1995:
ANNUAL RATED TOTAL 1995 CAPACITY ANNUAL AVERAGE COMPANY AVAILABLE TO RATED OPERATING LOCATION FACILITY OWNERSHIP THE COMPANY CAPACITY RATE - ------------------------------------- ---------- ---------- ------------ --------- ---------- (TONS) (TONS) Domestic Washington......................... Mead 100% 200,000 200,000 82% Washington......................... Tacoma 100% 73,000 73,000 82% ------- ------- Subtotal................... 273,000 273,000 ------- ------- International Ghana.............................. Valco 90% 180,000 200,000 68% Wales, U.K......................... Anglesey 49% 55,000 112,000 119% ------- ------- Subtotal................... 235,000 312,000 ------- ------- Total...................... 508,000 585,000 ======= =======
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 and produces primary aluminum. Approximately 71% of Mead's 1995 production was used at the Company's Trentwood fabricating facility and the balance was sold to third parties. The Tacoma plant uses Soderberg technology and produces primary aluminum and high-grade, continuous-cast, redraw rod, which currently commands a premium price in excess of the price of primary aluminum. 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 48 51 plant, the Company has converted to welded anode assemblies to increase energy efficiency, extended the anode life-cycle in the smelting process, changed from pencil to liquid pitch to produce carbon anodes which achieve environmental and operating savings, and engaged in efforts to increase production through the use of improved, higher-efficiency reduction cells. The Company has also commenced the modernization and expansion of the carbon baking furnace at its Mead smelter at an estimated cost of approximately $52.0 million. This project will lower costs, enhance safety and improve the environmental performance of the facility. This modernization is expected to be completed in late 1998. See "-- Strategy." Electric power supply represents an important production cost for the Company at its aluminum smelters. In 1995, the Company successfully restructured electric power purchase agreements for its smelting facilities in the Pacific Northwest, which has resulted in significantly lower electric power costs for the Mead and Tacoma, Washington, smelters compared with 1995 electric power costs. The Company expects to continue to benefit from these savings in electric power costs at these facilities in 1997 and beyond. From 1981 until 1995, electric power for the Company's Mead and Tacoma smelters was purchased exclusively from the Bonneville Power Administration ("BPA") by the Company under a contract which expires in 2001. In April 1995, the BPA agreed to allow each of the direct service industrial customers (the "DSIs"), which include the Company, to purchase a portion of its electric power requirement from sources other than the BPA beginning October 1, 1995. In June 1995, the Company entered into an agreement with The Washington Water Power Company ("WWP") to purchase up to 50 megawatts of electric power for its Northwest facilities for a five-year term beginning October 1, 1995. The Company is receiving power under that contract, which power displaces a portion of the Company's interruptible power from the BPA. In addition, in 1995 the Company entered into a new power purchase contract with the BPA, which amends the existing BPA power contract and which contemplates reductions during 1996 in the amount of power which the Company is obligated to purchase from the BPA and which the BPA is obligated to sell to the Company, and the replacement of such power with power to be purchased from other suppliers. The Company is negotiating power purchase agreements for such power with suppliers other than the BPA. Contracts for the purchase of all power required by the Company's Mead and Tacoma smelters and Trentwood rolling mill for 1996, and for approximately 75% of such power for the period 1997-2001, have been finalized. Two parties filed lawsuits in December 1995 against the BPA petitioning the court to review and set aside the BPA's offers of the new power purchase contracts to the DSIs, including the offer that the Company accepted. These lawsuits have been consolidated. In addition, the BPA's Business Plan Environmental Impact Statement that is under review in connection with the lawsuits challenging the BPA's transmission agreements with the DSIs, including the Company, as described in the following paragraph, is part of the record supporting the BPA's new power purchase contracts with the DSIs, and an adverse decision in those lawsuits may affect the Company's new power purchase contract with the BPA. The effect of such lawsuits, if any, on the Company's new power purchase contract with the BPA is not known. Certain of the DSIs, including the Company, have intervened in the lawsuits. In 1995, the Company also entered into agreements with the BPA and with the WWP, with terms ending in 2001, under which the BPA and the WWP would provide to the Company transmission services for power purchased from sources other than the BPA. The term of the transmission services agreement with the BPA was subsequently extended for an additional fifteen years, which extension has been challenged. Four lawsuits have been filed against the BPA by various parties, which lawsuits either challenge the BPA's record of decision offering such an extension agreement to the DSIs or challenge the BPA's Business Plan Environmental Impact Statement record of decision in connection therewith. Certain of the DSIs, including the Company, have intervened in the four lawsuits. See "-- Strategy." The Company reduced operations at its Mead and Tacoma smelters in Washington to approximately 75% of their full capacity in January 1993, when three reduction potlines were removed from production (two at Mead and one at Tacoma) in response to a power reduction imposed by the BPA. In March 1995, the BPA offered to its industrial customers, including the Company, surplus firm power at a discounted rate for the period April 1, 1995, through July 31, 1995, to enable such customers to restart idle industrial loads. In April 1995, the Company and the BPA entered into a contract for an amount of such power, and thereafter the Company restarted one-half of an idle potline (approximately 9,000 tons of annual capacity) at its Tacoma, Washington, smelter. The Tacoma smelter was returned to full production in October 1995. In 1995, the 49 52 Company entered into a one-year power supply contract with the BPA, for a term ended September 30, 1996, in connection with the restart of idled capacity at its Mead smelter. The Mead smelter returned to full production in December 1995. The Company manages, and owns a 90% interest in, the Valco aluminum smelter in Ghana. The Valco smelter uses pre-bake technology and 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 2017. The agreement indexes two-thirds of the price of the contract quantity of power to the market price of primary aluminum. The agreement also provides for a review and adjustment of the base power rate and the price index every five years. The most recent review was completed in April 1994 for the 1994-1998 period. Valco has entered into an agreement with the government of Ghana under which Valco has been assured (except in cases of force majeure) that it will receive sufficient electric power to operate at its current level of three and one-half potlines through December 31, 1996. The Company believes that Valco should have available sufficient electric power to operate at least at its current level through 1997. See "Risk Factors -- Power Supply." The Company owns 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. The Company has developed and installed proprietary retrofit technology in all of its smelters, as well as at third party locations. 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 -- has significantly contributed to increased and more efficient production of primary aluminum and 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. See "-- Strategy" and "-- Research and Development." 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 1995, the Company sold its primary aluminum production not utilized for internal purposes to approximately 35 customers, the largest and top five of which accounted for approximately 25% and 62% of such sales, respectively. See "-- Competition." 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 Aluminum Products The Company manufactures and markets fabricated aluminum products for the packaging, transportation, construction, and consumer durables markets in the United States and abroad. Sales in these markets are made directly and through distributors to a large number of customers. In 1995, four domestic beverage container manufacturers were among the leading customers for the Company's fabricated products and accounted for approximately 12% of the Company's sales revenue. The Company's fabricated products compete with those of numerous domestic and foreign producers and with products made of steel, copper, glass, plastic, and other materials. Product quality, price, and availability are the principal competitive factors in the market for fabricated aluminum products. The Company has 50 53 focused its fabricated products operations on selected products in which the Company has production expertise, high-quality capability, and geographic and other competitive advantages. Flat-Rolled Products. The flat-rolled product business unit, the largest of the Company's fabricated products businesses, operates the Trentwood sheet and plate mill at Spokane, Washington. The Trentwood facility is the Company's largest fabricating plant and accounted for approximately 64% of the Company's 1995 fabricated aluminum products shipments. The business unit supplies the beverage container market (producing body, lid, and tab stock), the aerospace and general engineering markets (producing heat treat products), and the specialty coil markets (producing automotive brazing sheet, wheel, and tread products), both directly and through distributors. During 1995, the Company successfully completed a two year restructuring of its flat-rolled products operation at its Trentwood plant to reduce that facility's annual operating costs by at least $50.0 million. The Company's flat-rolled products are sold primarily to beverage container manufacturers located in the western United States and in the Asian Pacific Rim countries where the Trentwood plant's location provides the Company with a transportation advantage. Quality of products for the beverage container industry and timeliness of delivery are the primary bases on which the Company competes. The Company has made significant capital expenditures at Trentwood during the past several years in rolling technology and process control to improve the metal integrity, shape and gauge control of its products. The Company believes that such improvements 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 sheet in the world. The Company continues to implement changes to the process and product mix of its Trentwood rolling mill in an effort to maximize its profitability and maintain full utilization of the facility. Recently, the Company has approved an expansion of its heat treat capacity by approximately one-third, which will enable the Company to increase the range of its heat treat products and improve Trentwood's operating efficiency. Sales of the Company's heat treat products have increased significantly over the last several years and are made primarily to the aerospace and general engineering markets, which are experiencing growth in demand. The project is estimated to cost approximately $45.0 million and to take approximately two years to complete. In 1995, the flat-rolled products business unit had 31 domestic and foreign can sheet customers. The largest and top five of such customers accounted for approximately 14% and 41%, respectively, of the business unit's revenue. See "-- Competition." In 1995, the business unit shipped products to approximately 150 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 13% of the business unit's revenue. The marketing staff for the flat-rolled products business unit is located at the Trentwood facility and in Pleasanton, California. Sales are made directly to customers (including distributors) from eight sales offices located throughout the United States. International customers are served by sales offices in the Netherlands and Japan and by independent sales agents in Asia and Latin America. Extruded Products. The extruded products business unit is headquartered in Dallas, Texas, and operates soft-alloy extrusion facilities in Los Angeles, California; Santa Fe Springs, California; Sherman, Texas; and London, Ontario, Canada; a cathodic protection business located in Tulsa, Oklahoma, that also extrudes both aluminum and magnesium; rod and bar facilities in Newark, Ohio, and Jackson, Tennessee, which produce screw machine stock, redraw rod, forging stock, and billet; and a facility in Richland, Washington, which produces seamless tubing in both hard and soft alloys for the automotive, other transportation, export, recreation, agriculture, and other industrial markets. Each of the soft-alloy extrusion facilities has fabricating capabilities and provides finishing services. 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 in the distribution, durable goods, defense, building and construction, ordnance and electrical markets. In 1995, the extruded products business unit had approximately 825 customers for its products, the largest and top five of 51 54 which accounted for approximately 6% and 20%, respectively, of its revenue. See "-- Competition." Sales are made directly from plants as well as marketing locations across the United States. Engineered Components. The engineered components business unit operates forging facilities at Erie, Pennsylvania; Oxnard, California; and Greenwood, South Carolina; a machine shop at Greenwood, South Carolina; and a casting facility in Canton, Ohio. The engineered components 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 ordnance markets. The high strength-to-weight properties of forged and cast aluminum make it particularly well-suited for automotive applications. The business unit's casting facility manufactures aluminum engine manifolds for the automobile, truck and marine markets. In 1995, the engineered components business unit had approximately 250 customers, the largest and top five of which accounted for approximately 34% and 77%, respectively, of the business unit's revenue. See "-- Competition." The engineered components business unit's headquarters and a sales and engineering office are located in Detroit, Michigan. The sales and engineering office works with car makers and other customers, the Center for Technology (see "-- Research and Development"), and plant personnel to create new automotive component designs and improve existing products. The Company entered into a letter of intent with Accuride Corporation ("Accuride") in September 1996 to form a global joint-venture company to design, manufacture and market aluminum wheels for the commercial transportation industry. The Company and Accuride will each own 50% of the new company. The Company will receive a cash payment in exchange for certain wheel manufacturing assets located primarily at its Erie, Pennsylvania facility, which currently forges wheels and other fabricated aluminum products. The transaction is expected to be consummated during the first quarter of 1997 and is subject to various conditions, including the negotiation of definitive agreements, third party consents, and board approvals. Negotiations are continuing. COMPETITION Aluminum competes in many markets with steel, copper, glass, plastic and numerous other materials. In recent years, plastic containers have increased and glass containers have decreased their respective shares of the soft drink sector of the beverage container market. In the United States, beverage container materials, including aluminum, face increased competition from plastics as increased polyethylene terephthalate ("PET") container capacity is brought on line by plastics manufacturers. 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. Many of the Company's competitors have greater financial resources than the Company. The Company's principal competitors in the sale of alumina include Alcoa Alumina and Chemicals LLC, Billiton Marketing and Trading BV, and Alcan Aluminium Limited. The Company competes with most aluminum producers in the sale of primary aluminum. See "Risk Factors -- Leverage." 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 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 it has production expertise, high-quality capability, and geographic and other competitive advantages. 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 financial condition or results of operations. RESEARCH AND DEVELOPMENT The Company conducts research and development activities principally at three facilities -- the Center for Technology ("CFT") in Pleasanton, California; the Primary Aluminum Products Division Technology 52 55 Center ("ATC") adjacent to the Mead smelter in Spokane, Washington; and the Alumina Development Laboratory ("ADL") at the Gramercy, Louisiana, refinery, which supports Kaiser Alumina Technical Services ("KATS") and the facilities of the alumina business unit. Net expenditures for Company-sponsored research and development activities were $18.5 million in 1995, $16.7 million in 1994, and $18.5 million in 1993. The Company's research staff totaled 157 at December 31, 1995. The Company estimates that research and development net expenditures will be approximately $22.5 million in 1996. CFT performs research and development across a range of aluminum process and product technologies to support the Company's business units and new business opportunities. It also selectively offers technical services to third parties. Significant efforts are directed at product and process technology for the can sheet, aircraft and automotive markets, and aluminum reduction cell models which are applied to improving cell designs and operating conditions. The largest and most notable single project being developed at CFT is a unique micromill for the production of can sheet from molten metal using a continuous cast process. The capital and conversion costs of these micromills are expected to be significantly lower than conventional rolling mills. Micromills are also expected to result in lower transportation costs due to the ability to strategically locate a micromill in close proximity to a manufacturing facility. Micromills are expected to be particularly well suited to take advantage of the rapid growth in demand for can sheet expected in emerging markets in Asia and Latin America where there is limited indigenous supply. The Company believes that micromills should also be capable of manufacturing other sheet products at relatively low capital and operating costs. The micromill technology is based on a proprietary thin-strip, high-speed, continuous-belt casting technique linked directly to hot and cold rolling mills. The major advantage of the process is that the sheet is continuously manufactured from molten metal, unlike the conventional process in which the metal is first cast into large, solid ingots and subsequently rolled into sheet through a series of highly capital-intensive steps. The first micromill is nearing completion in Nevada as a full-scale demonstration and production facility. The Company expects operational start-up of the facility by the end of 1996. If the Company is successful in proving and commercializing its micromill technology, micromills could represent an important source of future growth. There can be no assurance that the Company will be able to successfully develop and commercialize the technology for use at full-scale facilities. The Company is currently financing the cost of the construction of the Nevada micromill, estimated to be approximately $70 million, from available general corporate resources. ATC maintains specialized laboratories and a miniature carbon plant where experiments with new anode and cathode technology are performed. ATC supports the Company's primary aluminum smelters, and concentrates on the development of cost-effective technical innovations such as equipment and process improvements. KATS provides improved alumina process technology to the Company's facilities and technical support to new business ventures in cooperation with the Company's international business development group. See "-- Strategy." The Company is actively engaged in efforts to license its technology and sell technical and managerial assistance to other producers worldwide. The Company's technology has been installed in alumina refineries, aluminum smelters and rolling mills located in the United States, Jamaica, Sweden, Germany, Russia, India, Australia, Korea, New Zealand, Ghana, the United Arab Emirates, and the United Kingdom. The Company's revenue from technology sales and technical assistance to third parties was $5.7 million in 1995, $10.0 million in 1994, and $12.8 million in 1993. See "-- Strategy." The Company has entered into agreements with respect to the Krasnoyarsk smelter in Russia under which the Company has licensed certain of its technology for use in such facility and 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 1996. In addition, in 1993, the Company entered into agreements with respect to the Nadvoitsy smelter in Russia and the Korba smelter of the Bharat Aluminium Co. Ltd., in India, under which the Company has licensed certain of its technology for use in such facilities. Services under the Nadvoitsy agreements were completed in 1995, and services under the Korba agreements are essentially completed although final contract closure will not occur until mid-1997. 53 56 INTERNATIONAL BUSINESS DEVELOPMENT The Company is actively pursuing opportunities to increase its participation in emerging markets by using its technical expertise and capital to form joint ventures or acquire equity in aluminum-related facilities in foreign countries where it can apply its proprietary technology. The Company has created Kaiser Aluminum International to identify growth opportunities in targeted emerging markets and develop the needed country competence to complement the Company's product and process competence in capitalizing on such opportunities. The Company has focused its efforts on countries that are expected to be important suppliers of aluminum and/or large customers for aluminum and alumina, including the PRC, Russia and other members of the CIS, India, and Venezuela. The Company's proprietary retrofit technology has been installed by the Company at various third party locations throughout the world and is an integral part of the Company's initiatives for participating in new and existing smelting facilities. In 1995, KYRIL entered into the Joint Venture Agreements with LAS relating to the formation and operation of the Joint Venture. The Joint Venture's assets and operations are located primarily in the industrial city of Lanzhou, the capital of Gansu Province in northwestern China, and in nearby Lianhai, a special economic zone also in Gansu Province. The smelter at Lanzhou is the fifth largest aluminum smelter in the PRC and has a capacity of approximately 55,000 tons of primary aluminum per year. The smelter at Lianhai has a capacity of approximately 30,000 tons of primary aluminum per year. In 1995, the two smelters produced an aggregate of approximately 71,000 tons of primary aluminum, which amount was less than the aggregate capacity of the plants principally because of a shortage of electric power available to the plants in 1995 due to a drought which impacted the hydroelectric system. The shortage of electric power available to the plants continued during the first part of 1996; however, normal power supply has been restored since July. KYRIL contributed $9.0 million to the capital of the Joint Venture in July 1995. The parties to the Joint Venture are currently engaged in discussions concerning the amount, timing and other conditions relating to KYRIL's additional contributions to the Joint Venture and the use thereof by the Joint Venture. Governmental approval in the PRC will be necessary in order to implement any arrangements agreed to by the parties, and there can be no assurance such approvals will be obtained. At a recent meeting of the directors of the Joint Venture, KYRIL, LAS, and the Joint Venture reached an agreement (i) that extended until early 1997 the deadline for KYRIL to make a second capital contribution to the Joint Venture, and (ii) that KYRIL would continue to explore various methods of financing any future capital contributions to the Joint Venture, including possible financing from third-party investors. The Company, through its extruded products business unit, has entered into contracts to form two small joint venture companies in the PRC. The Company indirectly acquired equity interests of approximately 45% and 49%, respectively, in these two companies which will manufacture aluminum extrusions, in exchange for the contribution to those companies of certain used equipment, technology, services and cash. The majority equity interests in the two companies are owned by affiliates of Guizhou Guang Da Construction Company. See "Risk Factors -- Foreign Activities." EMPLOYEES During 1995, the Company employed an average of 9,546 persons, compared with an average of 9,744 employees in 1994, and 10,220 employees in 1993. At December 31, 1995, the Company's work force was 9,624, including a domestic work force of 5,946, of whom 4,010 were paid at an hourly rate. Most hourly paid domestic employees are covered by collective bargaining agreements with various labor unions. Approximately 74% of such employees are covered by a master agreement (the "Labor Contract") with the USWA which expires September 30, 1998. The Labor Contract covers the Company's plants in Spokane (Trentwood and Mead) and Tacoma, Washington; Gramercy, Louisiana; and Newark, Ohio. The Labor Contract replaced a contract that expired October 31, 1994, and was reached after an eight-day work stoppage by the USWA at these plants in February 1995. The Labor Contract provides for base wages at all covered plants. In addition, workers covered by the Labor Contract may receive quarterly bonus payments based on various indices of profitability, productivity, 54 57 efficiency, and other aspects of specific plant performance, as well as, in certain cases, the price of alumina or primary aluminum. Pursuant to the Labor Contract, base wage rates were raised effective January 2, 1995, were raised again effective November 6, 1995, and will be raised an additional amount effective November 3, 1997, and an amount in respect of the cost of living adjustment under the previous master agreement will be phased into base wages during the term of the Labor Contract. In the second quarter of 1995, the Company acquired up to $2,000 of preference stock held in a stock plan for the benefit of each of approximately 82% of the employees covered by the Labor Contract and in the first half of 1998 will acquire up to an additional $4,000 of such preference stock held in such plan for the benefit of substantially the same employees. In addition, a profitability test was satisfied and, therefore, the Company acquired during 1996 up to an additional $1,000 of such preference stock held in such plan for the benefit of substantially the same employees. The Company made comparable acquisitions of preference stock held for the benefit of each of certain salaried employees. In February 1995, Alpart's employees engaged in a six-day work stoppage by its National Workers Union, which was settled by a new contract which expired in April 1996. Contract negotiations are ongoing. Management considers the Company's employee relations to be satisfactory. ENVIRONMENTAL MATTERS The Company is subject to the Environmental Laws. From time to time the Environmental Laws are amended and new ones are adopted. 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 currently is subject to a number of lawsuits under CERCLA. The Company, along with several other entities, has also been named as a PRP for remedial costs at certain third-party sites listed on the National Priorities List under CERCLA and, in certain instances, may be exposed to joint and several liability for those costs or damages to natural resources. The Company's Mead, Washington, facility has been listed on the National Priorities List under CERCLA. By letter dated June 18, 1996, the Washington State Department of Ecology advised the Company that there are several options for remediation at the Mead facility that would be acceptable to the Department. The Company expects that one of these remedial options will be agreed upon and incorporated into a Consent Decree in early 1997. In addition, 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. Based on the Company's evaluation of these and other environmental matters, the Company has established environmental accruals, primarily related to potential solid waste disposal and soil and ground-water remediation matters. At September 30, 1996, the balance of such accruals, which are primarily included in Long-term liabilities, was $32.9 million. These environmental accruals represent the Company's estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing technology, and the Company's assessment of the likely remediation to be performed. The Company expects remediation to occur over the next several years and estimates that annual expenditures to be charged to these environmental accruals will be approximately $2.0 to $10.0 million for the years 1996 through 2000 and an aggregate of approximately $7.0 million thereafter. Cash expenditures of $4.5 million in 55 58 1995, $3.6 million in 1994, and $7.2 million in 1993 were charged to previously established accruals relating to environmental costs. Approximately $8.4 million is expected to be charged to such accruals in 1996. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. The Company believes that it is reasonably possible that costs associated with these environmental matters may exceed current accruals by amounts that could range, in the aggregate, up to an estimated $26.5 million and that the factors upon which a substantial portion of this estimate is based are expected to be resolved in early 1997. While uncertainties are inherent in the final outcome of these environmental matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, the Company currently believes that the resolution of such uncertainties should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. In addition to cash expenditures charged to environmental accruals, environmental capital spending was $9.2 million in 1995, $11.9 million in 1994, and $12.6 million in 1993. Annual operating costs for pollution control, not including corporate overhead or depreciation, were approximately $26.0 million in 1995, $23.1 million in 1994, and $22.4 million in 1993. Legislative, regulatory and economic uncertainties make it difficult to project future spending for these purposes. However, the Company currently anticipates that in the 1996-1997 period, environmental capital spending will be within the range of approximately $27.0 - $33.0 million per year, and operating costs for pollution control will be within the range of $28.0 - $29.0 million per year. See "Management's Discission and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Environmental Contingencies," Note 9 of the Notes to Consolidated Financial Statements under the heading "Environmental Contingencies," Note 3 of the Notes to Interim Consolidated Financial Statements, and "Risk Factors -- Environmental Matters and Litigation." PROPERTIES The locations and general character of the principal plants, mines, and other materially important physical properties relating to the Company's operations are described in "Business -- Production Operations" and those descriptions are incorporated herein by reference. 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. The Company's obligations under the Credit Agreement are secured by, among other things, mortgages on its major domestic plants (other than the Gramercy alumina refinery and Nevada micromill). See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Capital Structure." LEGAL PROCEEDINGS Environmental 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 (collectively, the "Sites"). 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, 56 59 No. C-89-231-R, which, as amended, includes the Company and a number of other defendants. The Complaint seeks reimbursement for past and future response costs and a determination of liability of the defendants under Section 107 of CERCLA. The EPA has performed a Remedial Investigation/Feasibility Study and issued a Record of Decision ("ROD") for the Sites in September 1991. The estimated cost of the major soil remediation selected for the 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 $222 million, respectively. 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 three of the Sites. 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, a number of other companies are also named as respondents. The Company has entered into a PRP Participation Agreement with certain of the respondents (the "Aberdeen Site PRP Group" or the "Group") to participate jointly in responding to the Administrative Orders dated May 20, 1993, regarding soil remediation, 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. By letter dated July 6, 1993, the Company has notified the EPA of its ongoing participation with the Group 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 a number of other companies, undertake or agree to finance, groundwater remediation at certain of the Sites. The ROD-selected remedy for the groundwater remediation selected by EPA includes a variety of techniques. The EPA has estimated the total present worth cost, including thirty years of operation and maintenance, at approximately $11.8 million. On June 22, 1994, the EPA issued two unilateral Administrative Orders under Section 106(a) of CERCLA ordering the respondents, including the Company, to undertake the groundwater remediation at three of the Sites. A PRP Participation Agreement with respect to groundwater remediation has been entered into by certain of the respondents, including the Company. By letter dated March 6, 1996, the Company gave notice of withdrawal from the Aberdeen Site PRP Group pursuant to the provisions of the PRP Participation Agreement. The Company advised the Group and the EPA that even if it were liable for cleanup at the Sites, which it expressly denies, it had already contributed far more than its allocable potential share of response costs. The Company has advised the Group and the EPA that it has fully complied with the unilateral Administrative Orders. In May 1996, the EPA urged the Company to rejoin the Group and indicated that it would consider seeking penalties against the Company if it did not. On October 10, 1996, the EPA notified the Company that it deems the Company to be in violation of the Administrative Orders. The Company and certain members of the Group have entered into an agreement with the United States Department of Justice (the "DOJ") to enter into a mediation process regarding an appropriate allocation of responsibility for response costs at the Sites. The Company has also agreed to fund a portion of the costs associated with certain work at the Sites during the mediation process. United States of America v. Kaiser Aluminum & Chemical Corporation In February 1989, a civil action was filed by the DOJ 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. 57 60 The Company and the EPA, without adjudication of any issue of fact or law, and without any admission of the violations alleged in the underlying complaint, have entered into a Consent Decree, which was approved by a Consent Order entered by the United States District Court for the Eastern District of Washington in January 1996. As approved, the Consent Decree settles the underlying disputes and requires the Company to (i) pay a $.5 million civil penalty (which penalty has been paid), (ii) complete a program of plant improvements and operational changes that began in 1990 at its Trentwood facility, including the installation of an emission control system to capture particulate emissions from certain furnaces, and (iii) achieve and maintain furnace compliance with the opacity standard in the SIP by no later than February 28, 1997. The Company anticipates that capital expenditures for the environmental upgrade of the furnace operation at its Trentwood facility, including the improvements and changes required by the Consent Decree, will be approximately $20.0 million. Catellus Development Corporation v. Kaiser Aluminum & Chemical Corporation and James L. Ferry & Son, Inc. In January 1991, the City of Richmond, et al. (the "Plaintiffs") filed a Second Amended Complaint for Damages and Declaratory Relief against the United States, Catellus Development Corporation ("Catellus") and other defendants (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 the Company for the purpose of shipbuilding activities conducted by the Company on behalf of the United States during World War II. The Plaintiffs sought recovery of response costs and natural resource damages under CERCLA. Certain of the Plaintiffs alleged that they had incurred or expect to incur costs and damages of approximately $49.0 million. Catellus subsequently filed a third party complaint (the "Third Party Complaint") against the Company in the United States District Court for the Northern District of California, Case No. C-89-2935 DLJ. Thereafter, the Plaintiffs filed a separate complaint against the Company, Case No. C-92-4176. The Plaintiffs settled their CERCLA and tort claims against the United States for $3.5 million plus thirty-five percent (35%) of future response costs. The trial involving this case commenced in March 1995. During the trial, Plaintiffs settled their claims against Catellus in exchange for payment of approximately $3.3 million. Subsequently, on June 2, 1995, the United States District Court for the Northern District of California issued an order on the remaining claims in that action. On December 7, 1995, the District Court issued a final judgment on those claims concluding that the Company is liable for various costs and interest, aggregating approximately $2.2 million, fifty percent (50%) of future costs of cleaning up certain parts of the Property and certain fees and costs associated specifically with the claim by Catellus against the Company. The Company paid the City of Richmond $1.8 million in partial satisfaction of this judgment. In January 1996, Catellus filed a notice of appeal with respect to its indemnity judgment against the Company. The Company has since filed a notice of cross appeal as to the Court's decision adjudicating that the Company is obligated to indemnify Catellus. In February 1996, the Plaintiffs filed motions seeking reimbursement of fees and costs from the Company in the aggregate amount of $2.8 million. On July 8, 1996 the Court issued an order awarding Plaintiffs nominal costs, which amount has been paid. The order also awarded Catellus de minimis costs. Catellus has filed a notice of appeal. On August 12, 1996, the Court issued an order granting the Catellus motion for attorneys' fees in the amount of approximately $.9 million. The Company and Catellus have filed notices of appeal with respect to the attorneys' fees award. Based on the Company's estimate of future costs of cleanup, resolution of the Catellus matter is not expected to have a material adverse effect on the Company's consolidated financial condition, results of operations, or liquidity. Waste Inc. Superfund Site On December 8, 1995, the EPA issued a unilateral Administrative Order for Remedial Design and Remedial Action under CERCLA to the Company and thirty-one other respondents for remedial design and action at the Waste Inc. Superfund Site at Michigan City, Indiana. This site was operated as a landfill from 58 61 1965 to 1982. The Company is alleged to have arranged for the disposal of waste from its formerly-owned plant at Wanatah, Indiana, during the period from 1964 to 1972. In its Record of Decision, the EPA estimated the cost of the work to be performed to have a present value of $15.7 million. The Company's share of the total waste sent to the site is unknown. A consultant retained by a group of PRPs estimated that the Company contributed 2.0% of the waste sent to the site by the forty-one largest contributors. The Company's ultimate exposure will depend on the number of PRPs that participate and the volume of waste properly allocable to the Company. Based on the EPA's cost estimate, the Company believes that its financial exposure for remedial design and remedial action at this site is less than $500,000. The Company has entered into a Participation Agreement with thirteen of the respondents to perform the work required under the Administrative Order. Asbestos-related Litigation The Company is a defendant in a number of lawsuits, some of which involve claims of multiple persons, in which the plaintiffs allege that certain of their injuries were caused by, among other things, exposure to asbestos during, and as a result of, their employment or association with the Company or exposure to products containing asbestos produced or sold by the Company. The lawsuits generally relate to products the Company has not manufactured for at least 15 years. For a discussion of asbestos-related litigation, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Asbestos Contingencies." DOJ Proceedings On August 24, 1994, the DOJ issued Civil Investigative Demand No. 11356 ("CID No. 11356") requesting information from KAC regarding (i) its production, capacity to produce, and sales of primary aluminum from January 1, 1991, to the date of the response; (ii) any actual or contemplated reduction in its production of primary aluminum during that period; and (iii) any communications with others regarding any actual, contemplated, possible or desired reductions in primary aluminum production by KAC or any of its competitors during that period. KAC's management believes that KAC's actions have at all times been appropriate, and KAC has submitted documents and interrogatory answers to the DOJ responding to CID No. 11356. On March 27, 1995, the DOJ issued Civil Investigative Demand No. 12503 ("CID No. 12503"), as part of an industry-wide investigation, requesting information from the Company regarding (i) any actual or contemplated changes in its method of pricing can sheet from January 1, 1994, through March 31, 1995, (ii) the percentage of aluminum scrap and primary aluminum ingot used by the Company to produce can sheet and the manner in which the Company's cost of acquiring aluminum scrap is factored into its can sheet prices, and (iii) any communications with others regarding any actual or contemplated changes in its method of pricing can sheet from January 1, 1994, through March 31, 1995. Management believes that the Company's actions have at all times been appropriate, and the Company has submitted documents and interrogatory answers to the DOJ responding to CID No. 12503. The Company was recently informed that the DOJ has officially closed its investigation and is returning the documents submitted by the Company. Other Proceedings Matheson et al v. Kaiser Aluminum Corporation et al. On March 19, 1996, a lawsuit was filed against MAXXAM, KAC and KAC's directors challenging and seeking to enjoin a proposed recapitalization of KAC (the "Proposed Recapitalization") and the April 10, 1996, special stockholders meeting at which the Proposed Recapitalization was to be considered. The suit, which is entitled Matheson et al. v. Kaiser Aluminum Corporation et al. (No. 14900) and was filed in the Delaware Court of Chancery, alleges, among other things, breaches of fiduciary duties by certain defendants and that the Proposed Recapitalization violates Delaware law and the certificate of designations for the PRIDES. On April 8, 1996, the Delaware Court of Chancery issued a ruling which preliminarily enjoined KAC from implementing the Proposed Recapitalization. On April 19, 1996, the Delaware Supreme Court granted KAC's motion to consider, on an expedited basis, KAC's appeal of the preliminary injunction and on May 1, 1996, KAC's stockholders approved the Proposed Recapitalization which was not implemented at that 59 62 time due to the pending appeal. On August 29, 1996, the Delaware Supreme Court upheld the preliminary injunction and remanded the case to the Court of Chancery. On September 24, 1996, the plaintiffs filed a motion to make permanent the temporary injunction issued on April 8, 1996. On September 27, 1996, KAC's Board of Directors adopted a resolution abandoning the Proposed Recapitalization. On October 2, 1996, KAC filed a motion in the Delaware Court of Chancery to dismiss the shareholder litigation relating to the Proposed Recapitalization on the ground of mootness and filed a response to plaintiffs' motion for entry of a permanent injunction. The Court has not ruled on either motion. The decision to abandon the Proposed Recapitalization does not preclude a recapitalization from being proposed to the stockholders of KAC in the future, including a substantially identical recapitalization structure after the redemption or conversion of the PRIDES. See also "Risk Factors -- Controlling Stockholder and Possible Effects; Change of Control" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- Capital Structure." Hammons v. Alcan Aluminum Corp., et al On March 5, 1996, a class action complaint was filed against the Company, Alcan Aluminum Corp., Aluminum Company of America, Alumax, Inc., Reynolds Metals Company and the Aluminum Association in the Superior Court of California for the County of Los Angeles, Case No. BC145612. The complaint claims that the defendants conspired, in violation of the California Cartwright Act (Bus. & Prof. Code sec. 16720 & 16750), in conjunction with a Memorandum of Understanding ("MOU") entered into by representatives of Australia, Canada, the European Union, Norway, the Russian Federation and the United States in 1994, to restrict the production of primary aluminum resulting in rises in prices for primary aluminum and aluminum products. The complaint seeks certification of a class consisting of persons who at any time between January 1, 1994, and the date of the complaint purchased aluminum or aluminum products manufactured by one or more of the defendants and estimates damages sustained by the class to be $4.4 billion during the year 1994, before trebling. Plaintiff's counsel has estimated damages to be $4.4 billion per year for each of the two years the MOU was active, which when trebled equals $26.4 billion. On April 2, 1996 the case was removed to the United States District Court for the Central District of California. On July 11, 1996, the Court granted summary judgement in favor of the Company and other defendants and dismissed the complaint as to all defendants. On July 18, 1996, the plaintiff filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit. Other Matters Various other lawsuits and claims are pending against the Company. While uncertainties are inherent in the final outcome of such matters and it is presently impossible to determine the actual costs that ultimately may be incurred, management believes that the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. There can be no assurance that adverse determinations and/or unfavorable settlements with respect to the Company's legal proceedings will not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. See "Risk Factors -- Environmental Matters and Litigation." 60 63 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The table below sets forth certain information, as of October 31, 1996, with respect to the executive officers and directors of the Company 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.
NAME POSITIONS AND OFFICES WITH THE COMPANY --------------------------------- ------------------------------------------------ George T. Haymaker, Jr........... Chairman of the Board, Chief Executive Officer, President and Director Joseph A. Bonn................... Vice President, Planning and Administration Robert E. Cole................... Vice President, Government Affairs John E. Daniel................... Vice President, and President of Kaiser Primary Products Jack A. Hockema.................. Vice President, and President of Kaiser Extruded Products and Kaiser Engineered Components Robert W. Irelan................. Vice President, Public Relations John T. La Duc................... Vice President and Chief Financial Officer Alan G. Longmuir................. Vice President, Research and Development Raymond J. Milchovich............ Vice President, and President of Kaiser Flat-Rolled Products Anthony R. Pierno................ Vice President and General Counsel Geoffrey W. Smith................ Vice President, and President of Kaiser Alumina and Kaiser Aluminum Commodities Kris S. Vasan.................... Vice President, Financial Risk Management Byron L. Wade.................... Vice President, Secretary and Deputy General Counsel Lawrence L. Watts................ Vice President, and President of Kaiser Aluminum International Arthur S. Donaldson.............. Controller Karen A. Twitchell............... Treasurer Robert J. Cruikshank............. Director Charles E. Hurwitz............... Director and Vice Chairman of the Board Ezra G. Levin.................... Director Robert Marcus.................... Director Robert J. Petris................. Director
George T. Haymaker, Jr. Mr. Haymaker, age 59, was elected to the positions of Chairman of the Board and Chief Executive Officer of the Company and KAC effective January 1, 1994, and has served as President of the Company and as President of KAC since June 1996 and May 1996, respectively. From May 1993 to December 1993, Mr. Haymaker served as President and Chief Operating Officer of the Company and KAC. Mr. Haymaker became a director of KAC in May 1993, and a director of the Company in June 1993. From 1987 to April 1993, Mr. Haymaker was a partner in a partnership which acquired, redirected and operated small to medium sized companies in the metals industry. Since July 1987, Mr. Haymaker has been a director, and from February 1992 through March 1993 was President of Metalmark Corporation, which is in the business of semi-fabrication of aluminum specialty foils and extrusions. From May 1986 until February 1993, 61 64 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, which is 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 1993. From 1984 to 1986, Mr. Haymaker served as Executive Vice President -- Aluminum Operations of Alumax Inc., responsible for all primary aluminum and semifabricating activities. Joseph A. Bonn. Mr. Bonn, age 53, 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 1992. He was also the Company's Director of Strategic Planning from April 1987 until July 1989. From September 1982 to April 1987, Mr. Bonn served as General Manager of various aluminum fabricating divisions. Robert E. Cole. Mr. Cole, age 50, has been a Vice President of the Company since March 1981. Since September 1990, Mr. Cole also has served as Vice President -- Federal Government Affairs of MAXXAM, MAXXAM Group Inc. ("MGI"), a wholly owned subsidiary of MAXXAM, and The Pacific Lumber Company ("Pacific Lumber"), an indirect subsidiary of MAXXAM engaged in forest products operations. Mr. Cole is currently Chairman of the United States Auto Parts Advisory Committee established by the United States Congress. John E. Daniel. Mr. Daniel, age 61, has been a Vice President of the Company since January 1992, President of Kaiser Primary Products since June 1995, 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 Company's Tacoma, Washington plant and from July 1986 to December 1989, he was Reduction Plant Manager of the Company's formerly owned Ravenswood, West Virginia plant. Jack A. Hockema. Mr. Hockema, age 50, has been a Vice President of the Company, President of Kaiser Extruded Products and President of Kaiser Engineered Components since September 1996. Mr. Hockema had been a consultant to the Company since September 1995, serving as acting President of Kaiser Engineered Components. Mr. Hockema was an employee of the Company from 1977 to 1982, working at the Company's Trentwood facility, and serving as plant manager of its former Union City, California, can plant and as operations manager for Kaiser Extruded Products. Mr. Hockema left the Company to become Vice President and General Manager of Bohn Extruded Products, a division of Gulf+ Western, and later served as Group Vice President of American Brass Specialty Products until June 1992. From June 1992 until September 1996, Mr. Hockema provided consulting and investment advisory services to individuals and companies in the metals industry. Robert W. Irelan. Mr. Irelan, age 59, has served the Company as Vice President, Public Relations since February 1988. He has also been Vice President -- Public Relations of MAXXAM, MGI and Pacific Lumber since September 1990. 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. John T. La Duc. Mr. La Duc, age 53, has been Chief Financial Officer of the Company since January 1990 and a Vice President of the Company since June 1989. He was also Treasurer of the Company from June 1995 until February 1996. Mr. La Duc has been Vice President and Chief Financial Officer of KAC since June 1989 and May 1990, respectively, and was Treasurer of KAC from August 1995 until February 1996 and from January 1993 until April 1993. Since September 1990, Mr. La Duc has served as Senior Vice President of MAXXAM. Mr. La Duc also serves as a Vice President and a director of MAXXAM Group Holdings Inc. ("MGHI"), a wholly owned subsidiary of MAXXAM, MGI, Pacific Lumber, and Pacific Lumber's subsidiary, Scotia Pacific Holding Company ("Scotia Pacific"). He previously served as Chief Financial 62 65 Officer of MAXXAM and MGI from September 1990 until December 1994 and February 1995, respectively, and of Pacific Lumber from October 1990 and Scotia Pacific from November 1992 until February 1995. Alan G. Longmuir. Mr. Longmuir, age 55, has been Vice President -- Research and Development of the Company since June 1995, and previously was Divisional Vice President -- Research and Development of the Company since October 1988. Mr. Longmuir served as the Company's Director of Manufacturing Systems from January 1985 to October 1988. From September 1982 to January 1985 he acted as the Company's Manager -- Automated Systems and Electrical Engineering; and from January 1978 to September 1982 was the Company's Manager -- Metals Automation. Raymond J. Milchovich. Mr. Milchovich, age 47, has been a Vice President of the Company and President of Kaiser Flat-Rolled Products since June 1995. From July 1986 to June 1995, Mr. Milchovich served as Divisional Vice President of the Company's flat-rolled products business unit and Works Manager of the Company's Trentwood facility. Anthony R. Pierno. Mr. Pierno, age 64, 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 has also served as Vice President and General Counsel of MGI and Pacific Lumber since May 1989, Scotia Pacific since November 1992 and MGHI since November 1996, and as a director of MGHI, MGI and Pacific Lumber since November 1996, January 1994 and November 1993, respectively. 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 Chairman of the Board of Trustees of Whittier College, and a former member and past Chairman of the Board of Trustees of Marymount College. Geoffrey W. Smith. Mr. Smith, age 50, has been a Vice President of the Company since January 1992, President of Kaiser Alumina since June 1995, and President of Kaiser Aluminum Commodities since June 1996. From December 1994 until June 1995, Mr. Smith was General Manager of the Company's alumina business unit. Mr. Smith previously served as Co-General Manager of the Company's alumina business unit from September 1991 through December 1994. 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, he was Operations/Technical Manager for the Company's Gramercy, Louisiana facility. Kris S. Vasan. Mr. Vasan, age 47, has been Vice President, Financial Risk Management, of the Company since June 1995. Mr. Vasan previously served as Treasurer of the Company from April 1993 until June 1995 and as Treasurer of KAC from April 1993 until August 1995. Prior to that, Mr. Vasan 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. Byron L. Wade. Mr. Wade, age 49, 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 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. In addition, Mr. Wade has served since May 1993 as a Vice President and Secretary of SHRP General Partner, Inc. ("SHRP"), the current managing general partner of Sam Houston Race Park, Ltd., a Texas limited partnership and subsidiary of MAXXAM which operates a horse racing facility in Texas ("SHRP, Ltd."). 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 Vice President, Secretary and Deputy General Counsel of MGI and MGHI since July 1990 and November 1996, respectively. 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. 63 66 Lawrence L. Watts. Mr. Watts, age 50, has been a Vice President of the Company since January 1992 and President of Kaiser Aluminum International since June 1995. From April 1994 until June 1995, Mr. Watts was General Manager -- International Development. Mr. Watts previously served as Co-General Manager of the Company's alumina business unit from September 1991 until December 1994. 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 alumina business unit. From September 1984 to July 1988, Mr. Watts was Manager, Human Resources for the alumina business unit. Arthur S. Donaldson. Mr. Donaldson, age 54, became Controller of the Company and KAC effective February 1, 1996. Mr. Donaldson previously served as Assistant Controller of the Company and KAC since September 1992. From January 1985 to September 1992, Mr. Donaldson was Manager of External Reporting for the Company. Karen A. Twitchell. Ms. Twitchell, age 41, was elected to the position of Treasurer of the Company and KAC effective February 1, 1996. Prior to joining the Company, Ms. Twitchell was Vice President and Treasurer of Southdown, Inc., a Houston-based company specializing in portland and masonry cement, since April 1994 and Treasurer since 1989. Robert J. Cruikshank. Mr. Cruikshank, age 66, has served as a director of the Company and KAC since January 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 the firm's board of directors from 1981 to 1985. Mr. Cruikshank also serves as a director and on the Compensation Committee of Houston Industries Incorporated, a public utility holding company with interests in electric utilities, coal and transportation businesses; a director of Texas Biotechnology Incorporated; a director of American Residential Services; and as Advisory Director of Compass Bank -- Houston. Charles E. Hurwitz. Mr. Hurwitz, age 56, was appointed Vice Chairman of the Company in December 1994 and has served as a director of the Company and KAC since November and October 1988, respectively. 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 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 MGI. Since January 1993, Mr. Hurwitz has also served MAXXAM and MGI as President. From May 1986 until February 1993, Mr. Hurwitz served as a director of Pacific Lumber. Mr. Hurwitz has also been, since its formation in November 1996, Chairman of the Board, President and Chief Executive Officer of MGHI. Mr. Hurwitz has been, since January 1974, Chairman of the Board and Chief Executive Officer of Federated, a New York business trust primarily engaged in the management of real estate investments. Mr. Hurwitz has also served SHRP as a director since May 1993, Chairman of the Board since October 1995, and President from May 1993 until April 1996. Ezra G. Levin. Mr. Levin, age 62, has been a director of the Company since November 1988, a director of KAC since July 1991, and a director of MAXXAM since May 1978. Mr. Levin also served as a director of KAC from April 1988 to May 1990, and as a director of MGI from May 1982 through December 1993. Mr. Levin is a partner in the law firm of Kramer, Levin, Naftalis & Frankel. He also serves as a director of Pacific Lumber, Scotia Pacific and United Mizrahi Bank and Trust Company. Robert Marcus. Mr. Marcus, age 71, 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. 64 67 Robert J. Petris. Mr. Petris, age 71, has been a director of the Company since June 1995 and of KAC since May 1995. He became Special Assistant to the International President of the USWA in June 1995. Since 1977, Mr. Petris has been a member of the International Union Executive Board and Director of District 38, where he has been exposed to a wide range of issues and problems in the aluminum, steel, container and non-ferrous metals industries. Mr. Petris plans to retire from the USWA this year. THE BOARD OF DIRECTORS AND ITS COMMITTEES The Board of Directors of the Company has four standing committees, consisting of Executive, Audit, Compensation Policy, and Section 162(m) 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 Petris. 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 Audit Committee at any time. The Compensation Policy Committee administers and establishes overall compensation policies (except those related to Section 162(m) plans), 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. Cruikshank, Levin (Chairman) and Marcus currently serve as members of this Committee. The Section 162(m) Compensation Committee administers the Company's Section 162(m) plans, makes recommendations to the Board, and reviews and approves proposals regarding those plans. Messrs. Cruikshank and Marcus (Chairman) 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. DIRECTOR COMPENSATION Directors who were not employees of the Company or KAC, received a base fee of $30,000 for the 1995 calendar year. Non-employee directors of the Company who were also non-employee directors of MAXXAM, received director or committee fees for serving as a director of the Company and/or KAC in addition to the fees received from MAXXAM. In addition to the compensation payable as a director for 1995, the Chairman of each of the Executive, Audit and Compensation Committees was paid a fee of $3,000 per year for services as Chairman of such committee. All members of such committees received a fee of $1,500 per day per committee meeting held in person on a date other than a Board meeting date and $500 per formal telephone committee meeting. In respect of 1995, Messrs. Cruikshank, Levin, Marcus and Petris received an aggregate $32,500, $35,500, $40,856 and $22,209, respectively, in such director and committee fees from the Company and KAC. Subject to the approval of the Chairman of the Board, directors may also be paid additional ad hoc fees for extraordinary services in the amount of $750 per half day or $1,500 per day for such services. No such extraordinary services were performed during 1995. Directors are reimbursed for travel and other disbursements relating to Board and committee meetings. Fees to directors who are also employees of the Company, KAC or MAXXAM are 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. 65 68 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables contain information as of October 31, 1996 with respect to persons known to the Company to be the beneficial owners of more than 5% of the Company's common stock, Cumulative (1985 Series A) Preference Stock and Cumulative (1985 Series B) Preference Stock. 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 500,132 shares 89.8% 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 37,530 shares 48.0% Employee Stock Ownership Plan(2) c/o Mellon Bank, N.A. Pittsburgh, Pennsylvania
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 47.6208 shares *
- --------------- * Less than 1% (1) The "Percent of Class" is computed using the shares outstanding on October 31, 1996. (2) Individual participants in the Kaiser Aluminum Salaried Employee Stock Ownership 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. 66 69 Ownership of KAC and MAXXAM As of October 31, 1996, MAXXAM owned approximately 62% of the issued and outstanding capital stock of KAC on a fully diluted basis. The following table sets forth, as of December 20, 1996, 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 of the Company, and by the Company's directors and executive officers as a group:
PERCENT OF COMBINED NAME OF NUMBER OF PERCENT VOTING BENEFICIAL OWNER TITLE OF CLASS SHARES(1) OF CLASS POWER(2) - -------------------------- -------------------------- -------------- -------- -------- Charles E. Hurwitz........ Common Stock 2,733,542(3)(4)(5) 31.3% 61.2 Class A Preferred Stock 684,941(4)(5)(6)(7) 99.1 Ezra G. Levin............. Common Stock 1,325(4)(5)(8) * * Robert J. Cruikshank...... Common Stock 1,325(8) * * All directors and executive officers of the Company as a group (21 persons)............ Common Stock 2,746,951(9) 31.4 61.3 Class A Preferred Stock 684,941(7) 99.1
- --------------- * Less than 1%. (1) Unless otherwise indicated, beneficial owners have sole voting and investment power with respect to the shares listed. Includes the number of shares (i) such persons would have received on, or within 60 days of, December 20, 1996, if any, for their exercisable stock appreciation rights ("SARs") (excluding SARs payable in cash only) if such rights had been paid solely in shares of MAXXAM common stock, and (ii) of MAXXAM common stock credited to such person's stock fund account under MAXXAM's 401(k) savings plan as of September 30, 1996. (2) MAXXAM Class A Preferred Stock is generally entitled to ten votes per share. (3) Includes 1,669,451 shares of MAXXAM common stock owned by Federated Development Inc. ("FDI"), a wholly owned subsidiary of Federated Development Company, as to which Mr. Hurwitz possesses voting and investment power. Federated Development Company ("Federated") is a New York business trust primarily engaged in the management of real estate investments and which is wholly owned by Mr. Hurwitz, members of his immediate family, and trusts for the benefit thereof. Mr. Hurwitz serves as a trustee of Federated. Also includes (a) 20,892 shares of MAXXAM common stock separately owned by Mr. Hurwitz's spouse and as to which Mr. Hurwitz disclaims beneficial ownership, (b) 46,500 shares of MAXXAM 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, (c) 119,832 shares of MAXXAM common stock owned by the 1992 Hurwitz Investment Partnership, L.P., of which 59,916 shares are owned by Mr. Hurwitz's spouse as separate property and as to which Mr. Hurwitz disclaims beneficial ownership, (d) 805,692 shares of MAXXAM common stock held directly, and (e) 71,175 shares of MAXXAM common stock that FDI may acquire in exchange for 7% Cumulative Exchangeable Preferred Stock of MCO Properties Inc., a wholly owned subsidiary of MAXXAM. (4) In addition, Federated, Messrs. Hurwitz and Levin, and Mr. James H. Paulin, Jr., Secretary and Treasurer of Federated, may be deemed a "group" (the "Stockholder Group") within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended. As of December 20, 1996, in the aggregate, the Stockholder Group beneficially owned 2,735,219 shares of MAXXAM common stock and 685,074 shares of Class A Preferred Stock, aggregating approximately 61.3% of the total voting power of MAXXAM. By reason of the foregoing and their relationship with the members of the Stockholder 67 70 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. (5) Does not include shares owned by other members of the Stockholder Group. (6) Includes (a) 661,377 shares owned by FDI, (b) options exercisable on, or within 60 days of, December 20, 1996, to acquire 22,500 shares, and (c) 1,064 shares owned directly. (7) Includes options exercisable on, or within 60 days of, December 20, 1996, to acquire 22,500 shares of Class A Preferred Stock. (8) Includes options exercisable on, or within 60 days of, December 20, 1996, to acquire 325 shares of MAXXAM common stock. (9) Includes (a) 9,717 shares of MAXXAM common stock, which is the number of shares certain officers would have received on December 20, 1996 for SARs pertaining to 39,000 shares of MAXXAM common stock, if the exercise of such SARs had been paid solely in shares of MAXXAM common stock, and (b) options to purchase 650 shares of MAXXAM common stock, both of which are exercisable on, or within 60 days of, December 20, 1996. At December 20, 1996, 27,938,250 shares of KAC Common Stock owned by MAXXAM were pledged as security for two debt issues of MGI consisting of $100.0 million aggregate principal amount of 11 1/4% Senior Secured Notes due 2003 and $125.7 million aggregate principal amount of 12 1/4% Senior Discount Notes due 2003 (the "MGI Debt"). On December 18, 1996, MAXXAM announced that its newly-formed wholly-owned subsidiary, MAXXAM Group Holdings Inc. ("MGHI"), priced its Rule 144A offering of $130.0 million principal amount of 12% Senior Secured Notes due 2003 (the "Senior Secured Notes"). MGHI closed this offering on December 23, 1996. Concurrently with the consummation of the offering, MAXXAM transfered to MGHI 27,938,250 shares of KAC Common Stock (the "KAC Shares"), which KAC Shares are pledged to secure the MGI Debt. If any KAC Shares are released as security for such MGI Debt by reason of early retirement of such indebtedness (other than by reason of a refinancing of such indebtedness), MGHI will pledge up to 16,055,000 of the KAC Shares as security for the Senior Secured Notes. The Senior Secured Notes are guaranteed on a senior unsecured basis by MAXXAM. The Senior Secured Notes will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. 68 71 EXECUTIVE COMPENSATION Incentive Compensation Programs Compensation components -- Total Compensation for Company executives is made up of a combination of base salary, short and long-term incentive targets, employee benefits and executive perquisites. Incentive Compensation -- In 1995, the Company adopted the Kaiser 1995 Executive Incentive Compensation Program (the "Executive Program") and the Kaiser 1995 Employee Incentive Compensation Program (the "Employee Program"). The Executive and Employee Programs (collectively, the "Incentive Programs") (i) provide annual incentives based on yearly performance, and long-term incentives based on three-year performance; (ii) structure a major portion of each participant's total compensation to be at-risk and performance-based; (iii) provide incentive toward the achievement of excellent safety practices; and (iv) promote individual and group contributions that add value to the Company. The Incentive Programs also reward aggressive and accurate planning. Methodology of Incentive Programs -- Target incentives under the Incentive Programs are set at the beginning of each annual or long-term performance period. The target incentives are established based on a combination of market survey data, internal force-ranking and assessment of position responsibilities. The annual and long-term components of the target incentives are based on achievement of goals or financial accomplishments. The performance goals are set so that at the end of each performance period the target incentives can be valued at zero to three times their value, depending on financial performance, for purposes of determining actual awards to be paid to each participant. Each year a new three-year performance period is established. Annual incentive payments are made in cash after the announcement of the financial results of the Company for the prior fiscal year for which the performance goals were set. Payments for the long-term incentive component of the Incentive Programs will be made 43% in cash and 57% in shares of KAC Common Stock and are expected to be paid in two installments, one-half during the year following the end of the three-year period and one-half during the second year following the end of the three-year period. In each case, however, such payments are conditioned on the continued employment of the participant. As a result, if a participant voluntarily terminates his or her employment for any reason other than death, disability or retirement, any unmade payments are forfeited. Any stock-related awards granted pursuant to the Incentive Programs are intended to be issued under the 1993 Omnibus Plan. Executive Program -- The participants in the Executive Program are currently limited to the Chief Executive Officer ("CEO"), the Chief Financial Officer ("CFO") and the Chief Administrative Officer ("CAO"). The Executive Program is currently administered by the Compensation Committee. When incentive awards are determined at the end of each performance period, an additional amount equal to 30% of incentive targets based on achievement of goals or other accomplishments not reflected in the return on assets, is added to the incentive payment amount. While the Compensation Committee cannot increase the incentive payment, it may decrease the incentive payment by an amount in the range of 1% to 60% of the target incentive. Employee Program -- Participants in the Employee Program include the Company's executive officers named in the Summary Compensation Table (other than the CEO, CFO and CAO), certain other executive officers, managers and other key employees of the Company. Twenty percent of the target incentive for both the annual and long-term component for all participants for each business unit or participant group is deducted from the tentative award, pooled and then allocated to participants in such group by the business unit or participant group manager based on the individual accomplishments and contributions of each individual, subject to the limitation that no participant may receive more than 40% of the participant's target incentive. A participant's award may be increased or decreased by 1% to 10% of the participant's target incentive based on safety or group achievements during the performance period. The Employee Program is administered by the Company's corporate human resources department. 69 72 The 1993 Omnibus Plan In 1993, the Board of Directors adopted and the stockholders of both the Company and KAC approved the 1993 Omnibus Plan. The 1993 Omnibus Plan is the Company's first stock-based incentive plan since the Company's 1979 Stock Option Plan, which expired on December 31, 1988, and is jointly sponsored by the Company and KAC. The 1993 Omnibus Plan is utilized to provide those persons who have substantial responsibility for management and growth of the Company with an opportunity to increase their ownership of KAC Common Stock, stock options or related types of benefits. In addition, the 1993 Omnibus Plan is intended to be used to issue KAC Common Stock in connection with awards under the long-term incentive component of the Incentive Programs. 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. General Provisions -- The 1993 Omnibus Plan is administered by the Compensation Committee. It is the intention of the Board of Directors that the 1993 Omnibus 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 Compensation Committee who has received any grant or award under the 1993 Omnibus Plan within one year prior to his or her appointment nor shall any person receive a grant or award under the 1993 Omnibus Plan while a member of the Compensation Committee. The Compensation Committee may select participants for awards under the 1993 Omnibus Plan, from among those employees of the Company recommended by the CEO who are, in the opinion of the Compensation Committee, key employees in a position to contribute materially to the Company's continued growth and development and to its long-term success. The Compensation Committee has discretion to make awards under the 1993 Omnibus Plan. In making awards, the Compensation Committee has flexibility in choosing from a variety of stock-based incentive alternatives. The 1993 Omnibus Plan allows for the grant of incentive stock options ("ISOs"), nonstatutory stock options, 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 1993 Omnibus Plan. Up to 2,500,000 shares of 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). Payments under the 1993 Omnibus Plan for other than direct awards of stock may be made in cash, in stock or partly in each, at the discretion of the Compensation Committee. If any award terminates or lapses prior to the expiration or earlier termination of the 1993 Omnibus Plan, the shares of KAC Common Stock subject to the award will be available again for award under the 1993 Omnibus Plan (except in the case of a stock option as to which a related SAR has been exercised). The 1993 Omnibus Plan became effective as of December 1992 and will expire on December 31, 2002. Awards made under the 1993 Omnibus Plan prior to its termination shall remain in effect until they shall have been exercised, satisfied or terminated as set forth in the 1993 Omnibus Plan. The Board of Directors may suspend or terminate the 1993 Omnibus 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 1993 Omnibus Plan without consent of the grantee. Awards under the 1993 Omnibus 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 1993 Omnibus 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 Compensation 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"). 70 73 The option price for any option may not be less than the par value of KAC Common Stock and ISOs granted under the 1993 Omnibus 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 Compensation 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 Compensation 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 Compensation Committee. The Compensation 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 Compensation Committee may grant shares of restricted KAC Common Stock under the 1993 Omnibus 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 Compensation Committee may grant performance units and performance shares under the 1993 Omnibus Plan. In such event, the Compensation Committee will establish a performance period over which corporate, business unit, or individual performance goals set by the Compensation 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 Compensation Committee. Payment may be made in a lump sum or in installments at the Compensation Committee's discretion. In the event payment is deferred, interest or dividend equivalents may be paid to participants. Unrestricted Stock -- Unrestricted shares of KAC Common Stock also may be awarded under the 1993 Omnibus 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 1993 Omnibus 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 Compensation Committee may, in its discretion, waive any applicable forfeiture, vesting requirements or restrictions as it deems appropriate. 71 74 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 CEO 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, 1995:
LONG-TERM COMPENSATION -------------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS -------------------------------------- ----------------------- ---------- (E) (F) OTHER RESTRICTED (G) (H) (I) (A) (C) (D) ANNUAL STOCK OPTIONS/ LTIP ALL OTHER NAME AND (B) SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($) ($) - ---------------------- ----- --------- -------- ------------ ---------- -------- ---------- ------------ George T. Haymaker, 1995 $465,000 $225,000 -- -0- -0- -0- 23,250(2) Jr., 1994 450,000 100,000 -- -0- 26,700 -0- 2,079(3) Chairman, CEO and 1993 291,072 -0- -- -0- 100,000 -0- 40,443(3) President John T. La Duc, 1995 248,333 130,000(4) -- -0- (5) -0- -0- 12,417(2) Vice President and 1994 240,000 103,000(4) -- -0- 9,200 -0- 4,800(2) CFO 1993 240,000 100,000(4) -- -0- -0- -0- 4,872(2) Joseph A. Bonn, 1995 224,633 75,000 -- -0- (5) -0- -0- 11,232(2) Vice President, 1994 216,300 27,000 -- -0- 8,500 -0- 4,326(2) Planning 1993 216,300 -0- -- -0- -0- -0- 4,326(2) and Administration John E. Daniel, 1995 191,669 152,000 -- -0- -0- -0- 9,583(2) Vice President and 1994 170,004 24,000 -- -0- 7,300 -0- 3,590(2) President 1993 159,000 -0- -- -0- 21,800 -0- 3,180(2) Kaiser Primary Products Lawrence L. Watts, 1995 211,171 105,000 -- -0- (5) -0- -0- 10,559(2) Vice President and 1994 172,004 26,000 -- -0- 7,100 -0- 3,440(2) President 1993 154,000 -0- -- -0- 21,100 -0- 3,080(2) Kaiser Aluminum International
- --------------- (1) 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. (2) Includes contributions by the Company of $12,417, $4,800 and $4,872 for Mr. La Duc; $11,232, $4,326 and $4,326 for Mr. Bonn; $9,583, $3,590 and $3,180 for Mr. Daniel; and $10,559, $3,440, and $3,080 for Mr. Watts, under the Kaiser Savings Plan (as defined below) for 1995, 1994 and 1993, respectively, and $23,250, for 1995 to Mr. Haymaker. (3) Includes moving related items of $2,079 and $40,443 for Mr. Haymaker in 1994 and 1993, respectively. (4) Includes $50,000 (to be paid over a two-year period), $75,000 (to be paid over a three-year period) and $100,000 (to be paid over a four-year period), awarded for 1995, 1994 and 1993, respectively, for which the Company will be reimbursed by MAXXAM. (5) As of December 31, 1995, Messrs. Bonn, La Duc and Watts owned 47,437, 47,437 and 38,462 shares, respectively, of restricted Common Stock of KAC valued at approximately $622,611, $622,611 and $504,814, respectively, based on the closing price of $13.125 per share. Restrictions on such shares will be lifted on December 2, 1996 for each of Messrs. Bonn and La Duc and on May 24, 1996, May 24, 1997 and May 24, 1998 for 12,820, 12,821 and 12,821 shares, respectively, for Mr. Watts. No dividends will be paid on these shares to Messrs. Bonn, La Duc or Watts during the period of restriction. No other named executive officer held restricted stock of KAC or the Company at fiscal year end 1995. Option/SAR Grants No options to purchase Common Stock or SARs were granted by the Company or by KAC with respect to KAC Common Stock or SARs in fiscal year 1995. 72 75 Option/SAR Exercises and Fiscal Year End Value Table The table below provides information on an aggregated basis concerning each exercise of stock options (or tandem SARs) and freestanding SARs during the fiscal year ended December 31, 1995 by each of the named executive officers, and the 1995 fiscal year-end value of unexercised options and SARs.
(D) (E) NUMBER OF UNEXERCISED VALUE OF UNEXERCISED (B) OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS SHARES (C) AT YEAR END(#) AT FISCAL YEAR-END($) (A) ACQUIRED ON VALUE --------------------------- ---------------------------- NAME EXERCISE(#)(1) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------- -------------- ----------- ----------- ------------- ----------- ------------- George T. Haymaker, Jr. . 40,000 500,000(2) 6,675 80,025 2,503(2) 360,009(3) Joseph A. Bonn........... -- -- 2,125 6,375 797(2) 2,391(4) John T. La Duc........... -- -- 2,300 6,900 863(3) 2,588(3) -- -- 6,000 4,000 43,500(4) 29,000(4) John E. Daniel........... 8,720 78,480(3) 1,825 18,555 684(3) 78,898(3) Lawrence L. Watts........ 8,440 75,433(2) 1,775 17,985 666(3) 76,374(3)
- --------------- (1) If no shares received, the number reflected, if any, represents the number of securities with respect to which options/SARs were exercised. (2) Valued at the closing price of KAC's Common Stock on the date of exercise, less exercise price. (3) Valued at $13.125, the closing price of KAC's Common Stock on December 29, 1995, less exercise price. (4) Valued at $35.25, the closing price of MAXXAM's common stock on December 29, 1995, less exercise price. Except as set forth below, the SARs relating to MAXXAM common stock set forth in the above table for Mr. La Duc were granted under MAXXAM's 1984 Phantom Share Plan (the "MAXXAM Phantom Plan"). Certain of such SARs under the MAXXAM Phantom Plan are exercisable for cash only and certain are exercisable for cash, MAXXAM common stock or a combination thereof at the discretion of MAXXAM's Board of Directors. All such SARs under the MAXXAM Phantom Plan vest with respect to 20% on the first anniversary date of the grant and an additional 20% on each anniversary date thereafter until fully vested. Kaiser Retirement Plan 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. The table below shows estimated annual retirement benefits payable under the terms of the Kaiser Retirement Plan to participants with the indicated years of credited service. These benefits are reflected without reduction for the limitations imposed by the Code, on qualified plans and before adjustment for the Social Security offset, thereby reflecting aggregate benefits to be received, subject to Social Security offsets, under the Kaiser Retirement Plan and the Kaiser Supplemental Benefits Plan (as defined below).
YEARS OF SERVICE ANNUAL ------------------------------------------------------------- REMUNERATION 15 20 25 30 35 --------------- --------- --------- --------- --------- --------- $150,000.................. $ 33,750 $ 45,000 $ 56,250 $ 67,500 $ 78,750 200,000.................. 45,000 60,000 75,000 90,000 105,000 250,000.................. 56,250 75,000 93,750 112,500 131,250 350,000.................. 78,750 105,000 131,250 157,500 183,500 450,000.................. 101,250 135,000 168,750 202,500 236,250 550,000.................. 123,750 165,000 206,250 247,500 288,750 650,000.................. 146,250 195,000 243,750 292,500 341,250 750,000.................. 168,750 225,000 281,750 337,500 393,750 850,000.................. 191,250 255,000 318,750 382,500 446,250
73 76 The estimated annual retirement benefits shown are based upon the assumptions that current Kaiser Retirement Plan and Kaiser Supplemental Benefits 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. Haymaker, La Duc, Bonn, Daniel and Watts had 2.7, 26.3, 28.5, 38.5 and 20 years of credited service, respectively, on December 31, 1995. 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. Pension compensation covered by the Kaiser Retirement Plan and the Kaiser Supplemental Benefits Plan consists of salary and bonus amounts 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 (of 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, commending at age 62 or, if they have completed 10 or more years of pension service, 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. Kaiser Termination Payment Policy Most full-time salaried employees of the Company are eligible for benefits under an unfunded termination policy if their employment is involuntarily terminated, subject to a number of exclusions. The policy provides for lump sum payments after termination ranging from one-half month's salary for less than one year of service graduating to eight months' salary for 30 or more years of service. The amounts payable to Messrs. La Duc, Bonn, Daniel and Watts under the policy if they had been involuntarily terminated on December 31, 1995 would have been $145,833, $132,008, $133,333 and $122,500, respectively. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS On April 1, 1993, the Company and KAC entered into a five-year employment agreement with Mr. George T. Haymaker, Jr., pursuant to which Mr. Haymaker currently serves as Chairman and Chief Executive Officer of the Company and KAC. Mr. Haymaker's agreement provided for a base salary of $450,000 per annum and a bonus target of 50% of his salary which began fiscal year 1994. Mr. Haymaker's base salary is subject to review and possible change on an annual basis but cannot be reduced below $450,000 74 77 without his consent. In 1995, Mr. Haymaker's agreement was amended to increase his base salary to $465,000 and increase his bonus targets in a manner consistent with the executive incentive program described above. Pursuant to Mr. Haymaker's agreement, he received an initial award under the 1993 Omnibus 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 vest 20% per year for a period of five years and are reflected in the Summary Compensation Table for 1993. 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 in an amount equal to two times his base annual salary reduced by any payment made as discussed under "Kaiser Retirement Plan and Defined Benefit Plans -- Kaiser Termination Payment Policy" above. Additionally, in the event of such termination, Mr. Haymaker's options for 100,000 shares of KAC Common Stock shall fully vest. Mr. Haymaker's employment agreement further provides that he vests 20% per year in an unfunded non-qualified supplemental benefit, payable at retirement after age 62, equal to a benefit determined as if his Kaiser Retirement Plan pension were based on his aggregate service with the Company and a prior employer (25 years), less his pension from that prior employer and any retirement benefits from the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee of the Board of Directors of the Company was, during the 1995 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 Company's Compensation Committee and Board of Directors during 1995. Mr. Levin is also a partner in the law firm of Kramer, Levin, Naftalis & Frankel, which provided legal services for the Company and its subsidiaries during 1995. During the Company's 1995 fiscal year, no executive officer of the Company served as (i) a member of the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served on the Compensation Committee, (ii) a director of another entity, one of whose executive officers served on the 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. CERTAIN TRANSACTIONS For certain periods through June 30, 1993, KAC and its subsidiaries (including the Company) were included in the consolidated Federal income tax return filed by MAXXAM. Payments to MAXXAM or refunds from MAXXAM may still be required by or payable to the Company or KAC under the tax allocation agreements that governed those periods due to the final resolution of audits, amended returns and related matters with respect to such periods. The Credit Agreement prohibits any cash payments by the Company to MAXXAM pursuant to the relevant tax allocation agreement after February 15, 1994; however, MAXXAM may offset amounts owing to it against amounts owed by it under the relevant tax allocation agreement, and the Company may make certain cash payments to MAXXAM that are required as a result of audits of MAXXAM's tax returns and only to the extent of any amounts paid after February 15, 1994 by MAXXAM to the Company under the relevant tax allocation agreement. While the Company and KAC are severally liable for the MAXXAM tax group's Federal income tax liability for all of 1993 and applicable prior periods, pursuant to the relevant tax allocation agreements, MAXXAM indemnifies the Company and KAC to the extent the tax liability exceeds amounts payable by them under such agreements. On June 30, 1993, the Company and KAC entered into a tax allocation agreement (the "KACC Tax Allocation Agreement") effective for periods beginning on or after July 1, 1993. Pursuant to the terms of the KACC Tax Allocation Agreement, KAC pays any consolidated Federal income tax liability for KAC and its 75 78 subsidiaries which are 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 KAC is the common parent corporation (the "KAC Tax Group"). The Company is liable to KAC 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 KAC 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 results in a net operating loss or a net capital loss or credit which the KACC Subgroup could have carried back to a prior applicable taxable period under the principles of Sections 172 and 1502 of the Code, KAC 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 aggregate amount previously paid by the Company to KAC for the current year and the three prior taxable years). If such separately calculated net operating loss or net capital loss or credit of the KACC Subgroup cannot be carried back to a prior taxable year of the KACC Subgroup for which the KACC Subgroup paid its separate tax liability to KAC, 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 are applied to any consolidated or combined state or local income tax returns filed by the KAC Tax Group with respect to the Company and its subsidiaries. Although, under Treasury regulations, all members of the KAC Tax Group, including the members of the KACC Subgroup, are severally liable for the KAC Tax Group's Federal income tax liability, under the KACC Tax Allocation Agreement, KAC 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 KAC Tax Group, except for payments required under the KACC Tax Allocation Agreement. 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. The Company paid a total of approximately $2.4 million to MAXXAM pursuant to such arrangements and MAXXAM paid approximately $2.5 million to the Company pursuant to such arrangements in respect of 1995. Generally, the Company and MAXXAM endeavor to minimize the need for reimbursement by ensuring that employees are employed by the entity to which the majority of their services are rendered. On December 15, 1992, the Company issued a note (the "PIK Note") to a subsidiary of MAXXAM in the principal amount of $2.5 million, representing the entire amount of a dividend received by such subsidiary in respect of the shares of KAC Common Stock which it owned. The PIK Note which accrued interest, compounded semiannually, at a rate equal to 12% per annum, was paid, together with accrued interest thereon, on June 30, 1995. Mr. Levin, a director of the Company and KAC, is a partner in the law firm of Kramer, Levin, Naftalis & Frankel, which provides legal services for KAC and its subsidiaries. On April 17, 1995, SHRP, Ltd. and two affiliated entities, SHRP Acquisition, Inc. and SHRP Capital Corp., filed voluntary corporate petitions under Chapter 11 of the United States Bankruptcy Code. Their bankruptcy plan has since been confirmed and the transactions contemplated by the bankruptcy reorganization plan were consummated on October 6, 1995. Since July 1993, Mr. Wade has served as a director, Vice President and Secretary of SHRP, Inc., SHRP, Ltd.'s sole general partner prior to SHRP, Ltd.'s bankruptcy reorganization, and of SHRP Capital Corp., a subsidiary of SHRP, Ltd. Also, Mr. Hurwitz has served as a director of SHRP, Inc. and SHRP Capital Corp. since July 1993, Chairman of the Board of SHRP, Inc. from July 1993 until October 6, 1995, and Chairman of the Board and President of SHRP Capital Corp. from July 1993 until October 6, 1995. In October 1990, Amarlite filed a voluntary corporate petition under Chapter 11 of the United States Bankruptcy Code. 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. 76 79 DESCRIPTION OF PRINCIPAL INDEBTEDNESS On February 17, 1994, the Company entered into the Credit Agreement. The terms and conditions of the Credit Agreement are summarized below. The Credit Agreement consist of a $325.0 million five-year secured, revolving line of credit scheduled to mature in 1999. The Company is able to borrow under the facility by means of revolving credit advances, and letters of credit (up to $125.0 million) in an aggregate amount equal to the lesser of $325.0 million or a borrowing base relating to eligible accounts receivable plus eligible inventory. Loans under the Credit Agreement 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%. The interest rate margins applicable to borrowings under the 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 2.00, reduction of 1.50%. ICR is defined as the ratio of (i) EBITDA (as defined), less Adjusted Capital Expenditures (as defined), to (ii) adjusted interest expense. In addition, the Credit Agreement is unconditionally guaranteed by KAC and by all significant subsidiaries of the Company. The Credit Agreement is also secured by, among other things, (i) mortgages on the Company's major domestic plants (excluding the Company's Gramercy alumina refinery and Nevada micromill); (ii) subject to certain exceptions, liens on the 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 stock of a number 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. The Credit Agreement contains 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. In addition, the Credit Agreement does not permit the Company or KAC to pay any dividends on their common stock. The Credit Agreement (i) prohibits 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) prohibits, without the written consent of the Required Lenders (as defined in the Credit Agreement), amendments or supplements to the Indenture and (iii) prohibits, 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. 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. On February 17, 1994, the Company sold $225.0 million of its 9 7/8% Notes due 2002 and used the net proceeds to reduce outstanding borrowings under the Company's previously existing revolving credit facility immediately prior to the effectiveness of the Credit Agreement and for working capital and general corporate purposes. On October 23, 1996, the Company sold $175.0 million of the 10 7/8% Notes at 99.5% of their principal amount. Net proceeds to the Company from the sale of the 10 7/8% Notes, after estimated expenses, were approximately $168.9 million, of which $91.7 million were utilized to reduce outstanding borrowings under the revolving credit facility of the Credit Agreement to zero. The remaining net proceeds of approximately 77 80 $77.2 million were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. On December 23, 1996, the Company sold $50.0 million of the Old Notes at 103.5% of their principal amount. Net proceeds to the Company from the Old Notes Offering were approximately $50.4 million, all of which were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. See "Description of New Notes." The 9 7/8% Note Indenture, the 10 7/8% Note Indenture, the 12 3/4% Note Indenture and the Indenture each contain 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, 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 (as defined) 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 the 9 7/8% Notes, the 10 7/8% Notes, the 12 3/4% Notes and the Notes at a premium upon the occurrence of a Change of Control (as defined) if so requested by the holder thereof, (i) in the case of the 12 3/4% Note Indenture 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, and (j) in the case of the 10 7/8% Note Indenture and the Indenture, impose certain requirements with respect to Unrestricted Subsidiaries (as defined). 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 Indenture, the 10 7/8% Note Indenture, the 9 7/8% Note Indenture, and the 12 3/4% Note Indenture. Under the Credit Agreement, neither the Company nor KAC is currently permitted to pay dividends on its common stock. In December 1991, Alpart entered into a $60 million 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. 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 4 of the Notes to Consolidated Financial Statements of the Company. 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 PRIDES in February 1994, KAC made a non-interest bearing loan to the Company in the principal amount of $33.2 million (an amount equal to the aggregate dividends scheduled to accrue on the PRIDES issued in February 1994 from the issuance date until the date on which the PRIDES mandatorily convert into shares of KAC Common Stock). The loan is evidenced by an intercompany note which matures on December 31, 1997, and is payable in quarterly installments. As of September 30, 1996, the aggregate principal amount of such intercompany note was $10.7 million. See "Risk Factors -- Leverage." 78 81 DESCRIPTION OF NEW NOTES GENERAL The New Notes will be issued under an Indenture, among the Company, as issuer, Kaiser Alumina Australia Corporation ("KAAC"), Kaiser Finance Corporation ("KFC"), Alpart Jamaica Inc. ("AJI"), Kaiser Jamaica Corporation ("KJC"), Kaiser Micromill Holdings, LLC ("KMH"), Kaiser Sierra Micromills, LLC ("KSM"), Kaiser Texas Micromill Holdings, LLC ("KTMH") and Kaiser Texas Sierra Micromills, LLC ("KTSM"), as Subsidiary Guarantors, and First Trust National Association, as Trustee (the "Trustee"). Except as otherwise indicated below, the following summary applies to both the Old Notes and the New Notes. As used herein, the term "Notes" shall mean the Old Notes and the New Notes unless otherwise indicated. The form and terms of the New Notes are substantially identical to the form and terms of the Old Notes, except that the New Notes (i) will be registered under the Securities Act, (ii) will not provide for payment of Additional Interest, which, except in certain limited circumstances, terminates upon consummation of the Exchange Offer, and (iii) will not bear any legends restricting transfer thereof. The New Notes will be issued solely in exchange for an equal principal amount of Old Notes. As of the date hereof, $50.0 million aggregate principal amount of Old Notes is outstanding. See "The Exchange Offer." The following statements relating to the Notes, the Indenture and the Registration Rights Agreement are summaries of certain provisions thereof and are subject to the detailed provisions of the Indenture and the Registration Rights Agreement, which documents have been filed as exhibits to this Registration Statement, 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 New Notes which may be issued under the Indenture is limited to $50,000,000. The Notes will mature on October 15, 2006, and will bear interest at the rate of 10 7/8% per annum from December 23, 1996, payable semi-annually on April 15 and October 15 of each year to the persons in whose names the Notes are registered at the close of business on the April 1 immediately preceding each April 15, or the October 1 immediately preceding each October 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; provided that all payments with respect to Global Notes and Certificated Notes the holders of which have given wire transfer instructions (which instructions must be received by the Company at least 5 business days prior to the relevant date of payment) to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the holders thereof; provided, further, that, in the case of all payments other than interest, the holder of a Note must first surrender such Note as a condition to the holder's right to receive payment. The 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 Credit Agreement, the 9 7/8% Notes, and the 10 7/8% Notes. The Company and the Subsidiary Guarantors may incur additional Indebtedness to the extent permitted by the Indenture. Holders of secured obligations of the Company and the Subsidiary Guarantors, including the financial institutions party to the Credit Agreement, will, however, have claims which are prior to the claims of the holders of the Notes with respect to the assets securing such other obligations. 79 82 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 Guarantees." Under certain circumstances, the Company will be able to designate current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be deemed to be "Subsidiaries" for purposes of the Indenture and will not be subject to many of the restrictive covenants set forth in the Indenture. As of the date of the Indenture, the Company will have no Unrestricted Subsidiaries. OPTIONAL REDEMPTION The Company may not redeem the Notes before October 15, 2001. On or after October 15, 2001, 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 October 15, of the years indicated below:
REDEMPTION YEAR PRICE ------------------------------------------------------------------- ---------- 2001............................................................... 105.437% 2002............................................................... 103.625% 2003............................................................... 101.813% 2004 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 and unpaid 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." 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 Credit Agreement (i) prohibits 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) prohibits, without the written consent of the Required Lenders (as defined in the Credit Agreement), amendments or supplements to the Indenture and (iii) prohibits, 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. The existence of circumstances requiring the making of an offer to repurchase the Notes under the Indenture upon a Change of Control or Asset Sale would constitute an event of default under the 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. 80 83 THE GUARANTEES The obligations of the Company under the Notes are fully and unconditionally guaranteed, jointly and severally, by each of the Subsidiary Guarantors, who will be KAAC, KFC, AJI, KJC, KMH, KSM, KTMH and KTSM and such other persons that become 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 9 7/8% Note Indenture, the 10 7/8% Note Indenture, and the 12 3/4% Note Indenture and, together with certain other Subsidiaries of the Company and KAC, a guarantor of the Company's obligations under the 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 guarantees of the Credit Agreement, the 9 7/8% Notes, and the 10 7/8% Notes by such Subsidiary Guarantor. If, at any time, any Subsidiary Guarantor ceases to be a guarantor of the Indebtedness with respect to the Credit Agreement, the 9 7/8% Notes, the 10 7/8% Notes, 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 Investors Service, 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 Subsidiary Guarantor with respect to the Credit Agreement, the 9 7/8% Notes, the 10 7/8% Notes, 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. Upon the designation by the Board of Directors of the Company of a Subsidiary Guarantor as an Unrestricted Subsidiary 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, however, that any guarantee of such Subsidiary Guarantor with respect to the Credit Agreement, the 9 7/8% Notes, the 10 7/8% Notes, 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 any 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. 81 84 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 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 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 $400,000,000, 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; 82 85 (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; (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, without duplication, the proceeds of which are used, directly or indirectly, (A) to finance the construction, acquisition and/or retrofitting of (I) a bauxite mine or mines and/or related facilities, (II) an alumina refinery or refineries, and/or related facilities, (III) an aluminum smelter or smelters and/or related facilities, and/or (IV) a fabrication plant or plants and/or related facilities (and, in each case, any direct or indirect interests therein; collectively, the "Facilities") and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, in an aggregate amount not to exceed $150,000,000 in any fiscal year (without cumulation of unused amounts to successive years); provided, however, that the aggregate amount of Indebtedness Incurred pursuant to subclause (A)(IV) of this clause (viii) shall not exceed $75,000,000 in any fiscal year (without cumulation of unused amounts to successive years), (B) to Refinance, in whole or in part, any Indebtedness permitted by this clause (viii) (including Indebtedness owed to the Company or a Subsidiary of the Company), or any one or more successive Refinancings of any thereof, provided, however, that such Refinancing Indebtedness is in an aggregate amount not to exceed the aggregate amount of such Refinanced Indebtedness, 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 and/or (C) to provide working capital in connection with or in respect of any of the Facilities and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, provided that (x) the amount of such Indebtedness that may be Incurred pursuant to this subclause (C) shall not exceed $40,000,000 in any fiscal year 83 86 (without cumulation of unused amounts to successive years), and provided, further, that the aggregate amount of any Indebtedness Incurred pursuant to subclauses (A) and (C) of this clause (viii) shall not exceed $150,000,000 in any fiscal year (without cumulation of unused amounts to successive years), and (y) for purposes of computing the amount of Indebtedness Incurred pursuant to this clause (viii) at any time in any fiscal year, the amount of Indebtedness Incurred by any Subsidiary of the Company pursuant to this clause (viii) under lines of credit and/or revolving credit agreements in such fiscal year to such time shall not be deemed to exceed the amount of the net borrowings (i.e., aggregate borrowings during such fiscal year less aggregate repayments during such fiscal year) by such Subsidiary under lines of credit and/or revolving credit agreements to such time; (ix) [intentionally omitted]; (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 $50,000,000 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 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). The Board of Directors may designate an Unrestricted Subsidiary to be a Subsidiary, provided that certain conditions specified in the definition of "Unrestricted Subsidiary" are met. Any such redesignation shall be deemed to be an Incurrence by the Company or its Subsidiaries of the Indebtedness (if any) of such redesignated Subsidiary, to the extent that such Indebtedness does not already constitute Indebtedness of the Company or one of its Subsidiaries, for purposes of this covenant as of the date of such redesignation. 84 87 Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary 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, (v) make or permit any of its Subsidiaries to make any Restricted Investment or (vi) make or permit any of its Subsidiaries to make any Unrestricted Subsidiary Investment, unless at the time of, and after giving effect to, each such Restricted Payment, Restricted Investment or Unrestricted Subsidiary 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, (y) the aggregate amount expended for all Restricted Investments after the date of the 9 7/8% Note Indenture (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), and (z) the aggregate amount of Unrestricted Subsidiary Investments Outstanding (in each case, the amount expended for such Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments 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, Restricted Investment or Unrestricted Subsidiary Investment is being made, and (II) the aggregate net proceeds, including the Fair Market Value of property other than cash, received by the Company as capital contributions to the Company after December 31, 1992, or from the 85 88 issue or sale (other than to a Non-Affiliate Joint Venture or to a Subsidiary or an Unrestricted 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, and (III) 50% of any dividends or other distributions consisting of cash or Cash Equivalents received, directly or indirectly, by the Company or a Subsidiary of the Company that is a Subsidiary Guarantor after the date of the Indenture from any Unrestricted Subsidiary to the extent that such dividends or other distributions are not required to reduce the amount of the Unrestricted Subsidiary Investments Outstanding in respect of such Unrestricted Subsidiary to zero; provided, however, that in no event shall the Company make, or permit any of its Subsidiaries to make, a Restricted Payment, Restricted Investment or Unrestricted Subsidiary 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, 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) and Unrestricted Subsidiary Investments Outstanding 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, Restricted Investment or Unrestricted Subsidiary 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 Investors Service, 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: (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 or an Unrestricted 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 and Unrestricted Subsidiaries"; 86 89 (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 9 7/8% Note 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, a Non-Affiliate Joint Venture or a Subsidiary or Unrestricted Subsidiary of the Company), after the date of the 9 7/8% Note 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 or an Unrestricted 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, Restricted Investments and Unrestricted Subsidiary Investments after February 1, 1993, other than Restricted Payments, Restricted Investments and Unrestricted Subsidiary 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); (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); and (z) the aggregate amount of Unrestricted Subsidiary Investments Outstanding made pursuant to this clause (VIII) 87 90 (in each case, the amount expended for such Restricted Payments, Restricted Investments and Unrestricted Subsidiary 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, Restricted Investment or Unrestricted Subsidiary 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, Restricted Investment or Unrestricted Subsidiary 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, 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) and Unrestricted Subsidiary Investments Outstanding 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 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, Restricted Investments and Unrestricted Subsidiary Investments under the first full paragraph of this Section entitled "Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments"; payments and other transfers made under clauses (I) and (VIII) of this paragraph shall reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under the first full paragraph of this Section entitled "Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments." (Section 4.09(b)). The Board of Directors of the Company may designate any Subsidiary to be an Unrestricted Subsidiary if such designation would not cause an Event of Default (or event that, after notice or lapse of time or both, would become an Event of Default). For purposes of making such determination, all outstanding Unrestricted Subsidiary Investments by the Company and its Subsidiaries in the Unrestricted Subsidiary so designated will be deemed to be Unrestricted Subsidiary Investments Outstanding at the time of such designation and will reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under the first full paragraph of this covenant. All such Unrestricted Subsidiary Investments Outstanding will be deemed to have been made at the time of such designation and to be in an amount equal to the greater of (A) the net book value of such Unrestricted Subsidiary Investments at the time of such designation and (B) the Fair Market Value of such Unrestricted Subsidiary Investments at the time of such designation. Such designation will only be permitted if such Unrestricted Subsidiary Investment would be permitted at such time and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Restrictions on Transactions with Affiliates and Unrestricted Subsidiaries 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 or 88 91 Unrestricted Subsidiary 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 (which amount shall be calculated excluding the amount of Principal Products transferred to or from an Unrestricted Subsidiary in accordance with the proviso at the end of this paragraph), 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, provided that, in the case of this clause (iii), the Company, such Subsidiary and/or such Non-Affiliate Joint Venture shall not be required to procure any such opinion to the extent that such transaction involves the purchase or sale for cash of Principal Products from or to an Unrestricted Subsidiary (which Principal Products are used by the purchaser thereof in its operations in the ordinary course of business). (Section 4.08(a)). The provisions contained in the preceding paragraph shall not apply to (i) the making of any Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments otherwise permitted under the caption "Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary 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 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. 89 92 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 Indenture 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 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) and (viii) 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) and the applicable Facility or Facilities in the case of clause (viii) 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 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 90 93 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)). 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) and (viii) 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; 91 94 (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, Restricted Investments and Unrestricted Subsidiary 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)). 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 92 95 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 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 and unpaid 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. (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 93 96 "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 or Nevada micromill, 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. Limitations on Unrestricted Subsidiaries The Indenture provides that (i) the Company shall not permit any of its Unrestricted Subsidiaries to guarantee or otherwise directly or indirectly provide credit support for any Indebtedness of the Company or any of its Subsidiaries, (ii) in the event that an Unrestricted Subsidiary of the Company incurs Indebtedness that does not involve an Unrestricted Subsidiary Investment by the Company or any of its Subsidiaries in such Unrestricted Subsidiary pursuant to the definition of "Unrestricted Subsidiary Investment," the Company will cause such Unrestricted Subsidiary to notify the lenders thereof in writing that such lenders will not have any recourse to the stock or assets of the Company or any of its Subsidiaries and (iii) the Company shall cause each of its Unrestricted Subsidiaries to have at all times at least one director on its board of directors that is not a director or executive officer of the Company or any of its Subsidiaries and to have at all times at least one executive officer that is not a director or executive officer of the Company or any of its Subsidiaries (except for any period not exceeding 30 days following the death or resignation of any such director or executive officer). 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 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 94 97 Exchange Act. In addition, the Company and the Subsidiary Guarantors have agreed that, for so long as any Restricted Securities (as defined) remain outstanding, they will furnish to the holders and to securities analysts and prospective investors, upon request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. 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, 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 to cure any ambiguity or to correct any defect or inconsistency in the Indenture or to comply with any requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. (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 95 98 order or judgment issued by a court of competent jurisdiction or having ceased for any reason to be in full force and effect with respect to any 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)). 96 99 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 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 "9 7/8% Notes" means the Company's 9 7/8% Senior Notes due 2002, as amended from time to time, issued pursuant to the 9 7/8% Note Indenture. The term "9 7/8% Note Indenture" means the indenture, dated as of February 17, 1994, among the Company, as issuer, the parties named therein (including in any amendment or supplement thereto) as subsidiary guarantors, and First Trust National Association, a national banking association, as trustee, as heretofore or hereafter amended or supplemented from time to time in accordance with the terms thereof. The term "10 7/8% Notes" means the Company's 10 7/8% Senior Notes due 2006 and the Company's 10 7/8% Series B Senior Notes due 2006, as amended from time to time, issued pursuant to the 10 7/8% Note Indenture. The term "10 7/8% Note Indenture" means the Indenture, dated as of October 23, 1996, among the Company, as issuer, the parties named therein (including in any amendment or supplement thereto) as 97 100 subsidiary guarantors, and First Trust National Association, a national banking association, as trustee, as heretofore or hereafter amended or supplemented from time to time in accordance with the terms thereof. The term "12 3/4% Notes" means the Company's 12 3/4% Senior Subordinated Notes due 2003, as amended from time to time, issued pursuant to the 12 3/4% Note Indenture. The term "12 3/4% Note Indenture" means the Indenture, dated as of February 1, 1993, among the Company, as issuer, the parties named therein (including in any amendment or supplement thereto) as subsidiary guarantors, and State Street Bank and Trust Company, a Massachusetts trust company, as successor to The First National Bank of Boston, as trustee, as heretofore or hereafter amended or supplemented from time to time in accordance with the terms thereof. 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, any Unrestricted 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, its Subsidiaries, its Unrestricted 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 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, 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, which may include sales, transfers or other dispositions to Unrestricted 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; 98 101 (E) by a Subsidiary to its stockholders not prohibited by the Indenture; (F) which are Restricted Investments, Restricted Payments or Unrestricted Subsidiary Investments permitted by the provisions described under "-- Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary 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 Credit Agreement. The term "Bank Agent" means 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 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 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. 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, or any Refinancings thereof and any letters of credit supporting such bonds or any Refinancings thereof. 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. 99 102 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 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, 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); (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; 100 103 (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, the amortization or write-off of any deferred financing costs in connection with the amendment or refinancing of the Credit Agreement and the predecessor credit agreement). 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 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); (vi) interest income arising from the Existing Intercompany Note, except to the extent such interest income is actually received by the Company in cash; and (vii) the Net Income of any Unrestricted Subsidiary, whether or not paid or distributed to the Company or one of its Subsidiaries; 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 Credit Agreement and the predecessor 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 101 104 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 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 predecessor credit agreement and/or the repurchase, defeasance or redemption of the 14 1/4% Senior Subordinated Notes. The term "Credit Agreement" means 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, and 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). 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 has been or 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 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, or in the event that the Company makes a payment in the form of or otherwise transfers property other than cash or Cash Equivalents to, or receives property other than cash or Cash Equivalents from, an Unrestricted Subsidiary in an amount in excess of $10,000,000, (which amount shall be calculated excluding the fair market value of any Principal Products within the scope of the proviso at the end of this definition) 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; provided that, with respect to any determination of Fair Market Value of property in connection with an Unrestricted Subsidiary Investment or the designation of an Unrestricted Subsidiary, such opinion shall not be required, to the extent that such property consists of Principal Products (which Principal Products are used by such Unrestricted Subsidiary in its operations in the ordinary course of business). 102 105 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 "Guarantee" means any guarantee of the Notes by any Subsidiary Guarantor. 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 consistent with past practice or to fund or guarantee the obligations of National Refractories & Minerals 103 106 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 "interest" means, with respect to the Notes, interest payable on the Notes at the rate set forth therein, plus any additional interest payable by the Company and the Subsidiary Guarantors in respect of the Notes pursuant to the Registration Rights Agreement. The term "Maximum Secured Amount" means, at any time (i) $400,000,000, 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 "Merger" means the merger of a subsidiary of MAXXAM with and into KAC on October 28, 1988. 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 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, 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. 104 107 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 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 or an Unrestricted Subsidiary 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 or Unrestricted Subsidiaries 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 or Unrestricted Subsidiary of the Company representing the proceeds of a transaction by such Non-Affiliate Joint Venture or Unrestricted Subsidiary of the Company that would constitute an Asset Sale if such Non-Affiliate Joint Venture or Unrestricted Subsidiary 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. 105 108 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, a Subsidiary of the Company or an Unrestricted 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 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 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 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 and Nevada micromill) 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 or Nevada micromill. 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 any 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"; 106 109 (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, Unrestricted 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) 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 or Persons that Incurred such Indebtedness and the Person or Persons that Incurred such Refinancing Indebtedness and, in each case, such Persons' assets and Capital Stock with respect to Indebtedness and Refinancing Indebtedness permitted to be Incurred by clause (viii) 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 107 110 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 (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 9 7/8% Notes, the 10 7/8% Notes, and 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; 108 111 (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), 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 "Preferred Dividend Intercompany Notes" means (i) the intercompany note in respect of the PRIDES and (ii) 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 (ii) 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 "Principal Products" means bauxite, alumina, aluminum, fabricated aluminum products, and other assets related to the production of the foregoing, used or sold by the Company, its Subsidiaries and its Unrestricted Subsidiaries in the ordinary course of business. 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. 109 112 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 "Registration Rights Agreement" means that certain registration rights agreement among the Company, the Subsidiary Guarantors and the Initial Purchaser, to be entered into on the date of the Indenture. 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 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 or an Unrestricted Subsidiary); 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, its Unrestricted 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 9 7/8% Note 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. 110 113 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, (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% and (iii) no Unrestricted Subsidiary shall be deemed to be a Significant Subsidiary. 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. The term "Subsidiary" means 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 the covenant described under "Covenants -- Limitation on Asset Sales," 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 so 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. Notwithstanding anything to the contrary contained herein, no Unrestricted Subsidiary shall be deemed to be a Subsidiary of the Company or of any Subsidiary or Subsidiaries of the Company. 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. 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 "Unrestricted Subsidiary Investment" means with respect to the Company or any Subsidiary of the Company (such Person being referred to in this definition as the "Investor") (without duplication), (i) any amount paid, or any property transferred, in each case, directly or indirectly, by the Investor for Capital Stock or other securities of, or as a contribution to, an Unrestricted Subsidiary, (ii) any direct or indirect loan or advance by the Investor to an Unrestricted Subsidiary other than accounts receivable of the Investor relating to the purchase and sale of inventory, goods or services arising in the ordinary course of business, (iii) any direct or indirect guarantee by the Investor of, or liability (other than liabilities arising by operation of law) of the Investor for, any obligations, contingent or otherwise, of an Unrestricted Subsidiary, (iv) any provision of credit support (including any undertaking, agreement or instrument that would 111 114 constitute Indebtedness) by the Investor to or on behalf of an Unrestricted Subsidiary, (v) any Incurrence of Indebtedness by an Unrestricted Subsidiary, a default with respect to which (including any rights that the holders thereof may have to take enforcement action against such Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any Indebtedness of the Investor (other than the Notes being offered hereby, Indebtedness set forth in a schedule to the Indenture and Indebtedness in a principal amount of no more than $10,000,000 in any single case) to declare a default on such Indebtedness of the Investor or cause the payment thereof to be accelerated or payable prior to its stated maturity, (vi) any direct or indirect obligation or liability of the Investor (A) to subscribe for additional Equity Interests of an Unrestricted Subsidiary or (B) to maintain or preserve such Unrestricted Subsidiary's financial condition or to cause such Unrestricted Subsidiary to achieve any specified levels of operating results, and (vii) the acquisition by the Investor of, or any investment by the Investor in, any Capital Stock or similar interests of an Unrestricted Subsidiary. The amount of any Unrestricted Subsidiary Investment, if other than in cash or a sum certain guaranteed, shall be the Fair Market Value thereof. The term "Unrestricted Subsidiary Investments Outstanding" means, at any time of determination, in respect of any Unrestricted Subsidiary, the amount, if any, by which (i) the sum of all Unrestricted Subsidiary Investments theretofore made by the Company or any Subsidiary of the Company in such Unrestricted Subsidiary after the date of the Indenture, exceeds (ii) the amount of all dividends and distributions received, directly or indirectly, by the Company or a Subsidiary of the Company that is a Subsidiary Guarantor from such Unrestricted Subsidiary in cash or Cash Equivalents during the period that such Person was an Unrestricted Subsidiary, and all repayments in cash or Cash Equivalents from such Unrestricted Subsidiary, directly or indirectly, to the Company or one of its Subsidiaries that is a Subsidiary Guarantor of loans or advances from the Company or any of its Subsidiaries to such Unrestricted Subsidiary, during the period that such Person was an Unrestricted Subsidiary, any other reduction (including as a result of the sale by the Company or a Subsidiary of the Company of Capital Stock of an Unrestricted Subsidiary) received, directly or indirectly, by the Company or a Subsidiary of the Company that is a Subsidiary Guarantor in cash or Cash Equivalents of Unrestricted Subsidiary Investments in such Unrestricted Subsidiary during the period that such Person was an Unrestricted Subsidiary, and any reductions of Unrestricted Subsidiary Investments in such Unrestricted Subsidiary of the kind referred to in clauses (iii) through (vi) of the definition of Unrestricted Subsidiary Investment; provided that the amount of Unrestricted Subsidiary Investments Outstanding in respect of any Unrestricted Subsidiary shall at no time be a negative amount. Notwithstanding the foregoing, in the event that the Company redesignates an Unrestricted Subsidiary as a Subsidiary, the amount of Unrestricted Subsidiary Investments Outstanding in respect of such Unrestricted Subsidiary at the time of such redesignation shall continue to constitute Unrestricted Subsidiary Investments Outstanding and such redesignated Subsidiary shall not be required to become a Subsidiary Guarantor in connection with such redesignation. The term "Unrestricted Subsidiary" means each of the Subsidiaries of the Company or any entity which is to become a Subsidiary of the Company, designated as an "Unrestricted Subsidiary" by a Board Resolution of the Company; but only to the extent that such Subsidiary (i) is not, at the time of such designation, party to any transaction or series of related transactions with the Company or any Subsidiary of the Company, unless such transaction or series of related transactions would be permitted by the provisions of the covenant described above under the caption "Covenants--Restrictions on Transactions with Affiliates and Unrestricted Subsidiaries," and (ii) has, at the time of such designation, at least one director on its board of directors that is not a director or executive officer of the Company or any of its Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Subsidiaries. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate, certifying that such designation complied with the foregoing conditions and was permitted by the covenant described above under the caption "Covenants--Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments" and "--Limitations on Unrestricted Subsidiaries." The Board of Directors of the Company may designate an Unrestricted Subsidiary to be a Subsidiary, provided that any such redesignation shall be deemed to be an Incurrence by the Company or its Subsidiaries of the Indebtedness (if any) of such redesignated Subsidiary, to the extent such Indebtedness does not already 112 115 constitute Indebtedness of the Company or one or more of its Subsidiaries, for purposes of the covenant described above under the caption "Covenants--Limitation on Indebtedness and Preferred Stock" as of the date of such redesignation, and such redesignation shall only be permitted if (i) such Indebtedness is permitted under the covenant described under the caption "Covenants--Limitation on Indebtedness and Preferred Stock," and (ii) no Event of Default (or event that, after notice or lapse of time or both, would become an Event of Default) would be in existence as a result of such designation. 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). BOOK-ENTRY; DELIVERY AND FORM Except as set forth below, the New Notes will initially be issued in the form of one registered New Note in global form (the "Global New Note"). The Global New Note will be deposited on the date of the closing of the Exchange Offer with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in the name of Cede & Co., as nominee of the Depositary. Interests in the Global New Note will be available for purchase only by "qualified institutional buyers," as defined in Rule 144A under the Securities Act ("QIBs"). New Notes that are (i) originally issued to or transferred to institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not QIBs or to any other persons who are not QIBs or (ii) issued as described below under "Certificated Securities," will be issued in registered form without coupons (the "Certificated Securities"). Upon the transfer to a QIB of Certificated Securities, such Certificated Securities may, unless the Global New Note has previously been exchanged for Certificated Securities, be exchanged for an interest in the Global New Note representing the principal amount of New Notes being transferred. The Depositary has advised the Company that it is (i) a limited-purpose trust company organized under the laws of the State of New York, (ii) a member of the Federal Reserve System, (iii) a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to Section 17A of the Exchange Act. The Depositary was created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. The Depositary's Participants include securities brokers and dealers (including the Initial Purchaser), banks and trust companies, clearing corporations and certain other organizations. Access to the Depositary's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. QIBs may elect to hold New Notes acquired by them through the Depositary. QIBs who are not Participants may beneficially own securities held by or on behalf of the Depositary only through Participants or Indirect Participants. Persons that are not QIBs may not hold New Notes through the Depositary. The Company expects that pursuant to procedures established by the Depositary (i) upon deposit of the Global New Note, the Depositary will credit the accounts of Participants designated by the Exchange Agent with an interest in the Global New Note and (ii) ownership of the New Notes will be shown, on, and the transfer of ownership thereof will be effected only through, records maintained by the Depositary (with respect to the interests of Participants), the Participants and the Indirect Participants. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own and that security interests in negotiable instruments can only be perfected by delivery of certificates representing the 113 116 instruments. Consequently, the ability to transfer New Notes or to pledge the New Notes as collateral will be limited to such extent. The New Notes will be subject to certain other restrictions on transferability. So long as the Depositary or its nominee is the registered owner of a Global New Note, the Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the New Notes represented by the Global New Note for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a Global New Note will not be entitled to have New Notes represented by such Global New Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Securities, and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. As a result, the ability of a person having a beneficial interest in New Notes represented by a Global New Note to pledge such interest to persons or entities that do not participate in the Depositary's system, or to otherwise take actions with respect to such interest, may be affected by the lack of a physical certificate evidencing such interest. Accordingly, each QIB owning a beneficial interest in a Global New Note must rely on the procedures of the Depositary and, if such QIB is not a Participant or an Indirect Participant, on the procedures of the Participant through which such QIB owns its interest, to exercise any rights of a holder under the Indenture or such Global New Note. The Company understands that under existing industry practice, in the event the Company requests any action of holders of New Notes or a QIB that is an owner of a beneficial interest in a Global New Note desires to take any action that the Depositary, as the holder of such Global New Note, is entitled to take, the Depositary would authorize the Participants to take such action and the Participants would authorize QIBs owning through such Participants to take such action or would otherwise act upon the instructions of such QIBs. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of New Notes by the Depositary, or for maintaining, supervising or reviewing any records of the Depositary relating to such New Notes. Payments with respect to the principal of, premium, if any, and interest on any New Notes represented by a Global New Note registered in the name of the Depositary or its nominee on the applicable record date will be payable by the Trustee to or at the direction of the Depositary or its nominee in its capacity as the registered holder of the Global New Note representing such New Notes under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names the New Notes, including the Global New Note, are registered as the owners thereof for the purposes of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of New Notes (including principal, premium, if any, and interest), or to immediately credit the accounts of the relevant Participants with such payment, in amounts proportionate to their respective holdings in principal amount of beneficial interest in the Global New Note as shown on the records of the Depositary. Payments by the Participants and the Indirect Participants to the beneficial owners of New Notes will be governed by standing instructions and customary practice and will be the responsibility of the Participants or the Indirect Participants. Certificated Securities If the Depositary is at any time unwilling or unable to continue as a depository and a successor depositary is not appointed by the Company within 90 days then, upon surrender by the Depositary of its Global New Note, Certificated Securities will be issued to each person that the Depositary identifies as the beneficial owner of the New Notes represented by the Global New Note. In addition, subject to certain conditions, any person having a beneficial interest in a Global New Note may, upon request to the Trustee, exchange such beneficial interest for Certificated Securities. Upon any such issuance, the Trustee is required to register such Certificated Securities in the name of such person or persons (or the nominee of any thereof), and cause the same to be delivered thereto. Neither the Company nor the Trustee shall be liable for any delay by the Depositary or any Participant or Indirect Participant in identifying the beneficial owners of the related New Notes and each such person may conclusively rely on, and shall be protected in relying on instructions from the Depositary for all purposes 114 117 (including with respect to the registration and delivery, and the respective principal amounts, of the New Notes to be issued). The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Company believes to be reliable. The Company will have no responsibility for the performance by DTC or its Participants of their respective obligations as described hereunder or under the rules and procedures governing their respective operations. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion sets forth the material anticipated federal income tax consequences expected to result to holders from the acquisition, ownership and disposition of the New Notes. This discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial authority and administrative pronouncements, all of which are subject to change, possibly with retroactive effect. No ruling has been or will be requested by the Company from the Internal Revenue Service (the "Service") on any matters relating to the New Notes, and there can be no assurance that the Service will have a similar view with respect to the tax consequences described below. The following discussion is for general information only. The tax treatment of a holder of the New Notes may vary depending upon such holder's particular situation. The discussion only addresses the tax consequences to holders who acquire the New Notes pursuant to the Exchange Offer and who hold the New Notes as capital assets and does not deal with special classes of holders, such as insurance companies, tax-exempt organizations, financial institutions, dealers in securities, foreign corporations and persons who are not citizens or residents of the United States, that may be subject to special rules not discussed below. EACH HOLDER OF OLD NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. THE EXCHANGE OFFER The exchange of the New Notes for the Old Notes pursuant to the Exchange Offer should not be taxable to a holder thereof for federal income tax purposes. An exchanging holder's tax basis in the New Notes should be equal to his adjusted tax basis in the Old Notes, and the holding period of the New Notes should include the holding period of the Old Notes. ORIGINAL ISSUE DISCOUNT AND STATED INTEREST The Old Notes were issued and the New Notes will be issued without original issue discount. Stated interest on the Old and New Notes will be taxable to a holder as ordinary interest income at the time it is accrued or paid in accordance with such holder's method of accounting for tax purposes. BOND PREMIUM ON THE NEW NOTES If a holder of a New Note purchased the Old Notes for an amount in excess of the amount payable at the maturity date (or a call date, if appropriate) of the Old Notes, the holder may deduct such excess as amortizable bond premium over the aggregate terms of the Old Notes and the New Notes (taking into account earlier call dates, as appropriate), under a yield-to-maturity formula. The deduction is available only if an election is made by the purchaser or is in effect. This election is revocable only with the consent of the Service. The election applies to all obligations owned or subsequently acquired by the holder. The holder's adjusted tax basis in the Old Notes and the New Notes will be reduced to the extent of the deduction of amortizable bond premium. Except as may otherwise be provided in future regulations, under the Code the amortizable bond premium is treated as an offset to interest income on the Old Notes and the New Notes rather than as a separate deduction item. 115 118 MARKET DISCOUNT ON THE NEW NOTES Tax consequences of a disposition of the New Notes may be affected by the market discount provisions of the Code. These rules generally provide that if a holder acquired the Old Notes (other than in an original issue) at a market discount which equals or exceeds 1/4 of 1% of the stated redemption price of the Old Notes at maturity multiplied by the number of remaining complete years to maturity and thereafter recognizes gain upon a disposition (or makes a gift) of the New Notes, the lesser of (i) such gain (or appreciation, in the case of a gift) or (ii) the portion of the market discount which accrued while the Old or New Notes were held by such holder will be treated as ordinary income at the time of the disposition (or gift). For these purposes, market discount means the excess (if any) of the stated redemption price at maturity over the basis of such Old Notes immediately after their acquisition by the holder. A holder of the New Notes may elect to include any market discount (whether accrued under the Old Notes or the New Notes) in income currently rather than upon disposition of the New Notes. This election once made applies to all market discount obligations acquired on or after the first taxable year to which the election applies, and may not be revoked without the consent of the Service. A holder of any New Note who acquired the Old Note at a market discount generally will be required to defer the deduction of a portion of the interest on any indebtedness incurred or maintained to purchase or carry such Old or New Note until the market discount is recognized upon a subsequent disposition of such New Note. Such a deferral is not required, however, if the holder elects to include accrued market discount in income currently. REDEMPTION OR SALE OF THE NEW NOTES Generally, any redemption or sale of the New Notes by a holder should result in taxable gain or loss equal to the difference between the amount of cash and the fair market value of property received (except to the extent that such cash or property received is attributable to accrued, but previously untaxed, interest) and the holder's tax basis in the New Notes. The tax basis of a holder of the New Notes should generally be equal to the price paid for the Old Notes exchanged therefor, plus any accrued market discount on the New Notes (and the Old Notes exchanged therefor) included in the holder's income prior to sale or redemption of the New Notes, or reduced by any amortizable bond premium applied against the holder's income prior to sale or redemption of the New Notes. Such gain or loss generally would be long-term capital gain or loss if the holding period exceeded one year, except to the extent it constitutes accrued market discount. BACKUP WITHHOLDING AND INFORMATION REPORTING A 31% "backup" withholding tax and information reporting requirements apply to certain payments of interest and original issue discount on an obligation, and to proceeds of the sale of an obligation before maturity, to certain non-corporate holders. The Company, and/or any paying and/or collection agent, including a broker, as the case may be, will be required to withhold from any payment that is subject to backup withholding a tax equal to 31% of such payment unless the holder furnishes its taxpayer identification number (i.e., social security number in the case of an individual) in the manner prescribed in applicable Treasury regulations, certifies that such number is correct, certifies (with respect to payments of interest) as to no loss of exemption from backup withholding and meets certain other conditions. Backup withholding, however, in any event, generally does not apply to payments to certain "exempt recipients" such as corporations. THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF THE OLD NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. 116 119 PLAN OF DISTRIBUTION Each broker-dealer that holds Old Notes that were acquired for its own account as a result of market making or other trading activities (other than Old Notes acquired directly from the Company), may exchange Old Notes for New Notes in the Exchange Offer. However, any such broker-dealer may be deemed to be an "underwriter" within the meaning of such term under the Securities Act and must, therefore, acknowledge that it will deliver a prospectus in connection with any resale of New Notes received in the Exchange Offer. This prospectus delivery requirement may be satisfied by the delivery by such broker-dealer of this Prospectus, as it may be amended or supplemented from time to time. The Company has agreed that, for a period of 180 days after the effective date of this Prospectus, it will make this Prospectus, as amended or supplemented, available to any broker-dealer who receives New Notes in the Exchange Offer for use in connection with any such sale. The Company will not receive any proceeds from any sales of New Notes by broker-dealers. New Notes received by broker-dealers for their own accounts pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale of New Notes by broker-dealers may be made directly to a purchaser or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. In addition, if any Eligible Holder acquires New Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the New Notes, such Eligible Holder cannot rely on the position of the staff of the Commission enunciated in Morgan Stanley & Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), and interpreted in the Commission's letters to Shearman & Sterling (available July 2, 1993) and K-III Communications Corporation (available May 14, 1993), and similar no-action or interpretive letters issued to third parties, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction, unless an exemption from registration is otherwise available. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Company has agreed to pay all expenses incident to the Exchange Offer other than commissions or concessions of any brokers or dealers and will indemnify Eligible Holders (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. By acceptance of the Exchange Offer, each broker-dealer that receives New Notes pursuant to the Exchange Offer hereby agrees to notify the Company prior to using the Prospectus in connection with the sale or transfer of New Notes, and acknowledges and agrees that, upon receipt of notice from the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements herein not misleading (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented prospectus to such broker-dealer. 117 120 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company incorporates herein by reference the following documents filed with the Commission under the Exchange Act: All documents and reports subsequently filed by the Company or the Subsidiary Guarantors pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to termination of the transactions to which this Prospectus relates shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents or reports. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded 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 supersedes such statement. Any such statement so modified or superseded, except as so modified or superseded, shall not be deemed to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus has been delivered, on the written or oral request of such person, a copy of any or all of the documents incorporated herein by reference, other than exhibits to such documents unless they are specifically incorporated by reference into such documents. Requests for such copies should be directed to: Kaiser Aluminum & Chemical Corporation, 5847 San Felipe, Suite 2600, Houston, Texas 77057, Attention: General Counsel. LEGAL MATTERS The validity of the New Notes and the Guarantees will be passed upon for the Company by Kramer, Levin, Naftalis & Frankel, New York, New York. EXPERTS The audited consolidated financial statements of the Company as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. 118 121 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, 1995 and 1994........................... F-3 Statements of Consolidated Income (Loss) for the Years Ended December 31, 1995, 1994 and 1993......................................................................... F-4 Statements of Consolidated Cash Flows for the Years Ended December 31, 1995, 1994 and 1993......................................................................... F-5 Notes to Consolidated Financial Statements.......................................... F-6 UNAUDITED FINANCIAL STATEMENTS KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES Quarterly Financial Data............................................................ F-30 Consolidated Balance Sheets at September 30, 1996 and December 31, 1995............. F-31 Statements of Consolidated Income for the Nine Months Ended September 30, 1996 and 1995............................................................................. F-32 Statements of Consolidated Cash Flows for the Nine Months Ended September 30, 1996 and 1995......................................................................... F-33 Notes to Interim Consolidated Financial Statements.................................. F-34
F-1 122 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES 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, 1995 and 1994, and the related statements of consolidated income and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kaiser Aluminum & Chemical Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP San Francisco, California February 16, 1996 (except with respect to the matters discussed in Note 13 as to which the dates are October 23, 1996 and December 23, 1996, respectively) F-2 123 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, ------------------------ 1995 1994 --------- --------- (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) Current assets: Cash and cash equivalents........................................... $ 21.7 $ 12.0 Receivables: Trade, less allowance for doubtful receivables of $5.0 in 1995 and $4.2 in 1994..................................................... 222.9 150.7 Other............................................................ 87.3 49.8 Inventories......................................................... 525.7 468.0 Prepaid expenses and other current assets........................... 76.6 158.0 --------- --------- Total current assets........................................ 934.2 838.5 Investments in and advances to unconsolidated affiliates.............. 178.2 169.7 Property, plant, and equipment -- net................................. 1,109.6 1,133.2 Deferred income taxes................................................. 268.8 271.0 Other assets.......................................................... 323.5 281.2 --------- --------- Total....................................................... $ 2,814.3 $ 2,693.6 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................... $ 184.5 $ 152.1 Accrued interest.................................................... 32.0 32.6 Accrued salaries, wages, and related expenses....................... 105.3 77.7 Accrued postretirement medical benefit obligation -- current portion.......................................................... 46.8 47.0 Other accrued liabilities........................................... 126.2 171.7 Payable to affiliates............................................... 95.3 85.2 Long-term debt -- current portion................................... 8.9 11.5 Note payable to parent -- current portion........................... 10.7 21.2 --------- --------- Total current liabilities................................... 609.7 599.0 Long-term liabilities................................................. 548.5 495.5 Accrued postretirement medical benefit obligation..................... 734.0 734.9 Long-term debt........................................................ 749.2 751.1 Note payable to parent................................................ 8.6 23.5 Minority interests.................................................... 91.4 85.4 Redeemable preference stock -- aggregate liquidation value of $36.9 in 1995 and $45.6 in 1994.............................................. 29.6 29.0 Stockholders' equity (deficit): Redeemable preference stock -- cumulative and convertible, par value $100, authorized 1,000,000 shares; issued and outstanding, 22,214 and 23,436 in 1995 and 1994...................................... 1.7 1.8 Common stock, par value 33 1/3 cents, authorized 100,000,000 shares; issued and outstanding, 46,171,365 in 1995 and 1994.............. 15.4 15.4 Additional capital.................................................. 1,730.7 1,626.3 Accumulated deficit................................................. (210.9) (271.5) Additional minimum pension liability................................ (13.8) (9.1) Note payable to parent.............................................. (1,479.8) (1,387.7) --------- --------- Total stockholders' equity (deficit)........................ 43.3 (24.8) --------- --------- Total....................................................... $ 2,814.3 $ 2,693.6 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-3 124 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME (LOSS)
YEAR ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (IN MILLIONS OF DOLLARS) Net sales..................................................... $2,237.8 $1,781.5 $1,719.1 -------- -------- -------- Costs and expenses: Cost of products sold....................................... 1,798.4 1,625.5 1,587.7 Depreciation................................................ 94.3 95.4 97.1 Selling, administrative, research and development, and general.................................................. 134.0 116.5 121.6 Restructuring of operations................................. 35.8 -------- -------- -------- Total costs and expenses............................ 2,026.7 1,837.4 1,842.2 -------- -------- -------- Operating income (loss)....................................... 211.1 (55.9) (123.1) Other expense: Interest expense............................................ (93.9) (88.6) (84.2) Other -- net................................................ (14.1) (7.3) (1.5) -------- -------- -------- Income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles....................................... 103.1 (151.8) (208.8) (Provision) credit for income taxes........................... (37.4) 54.0 86.9 Minority interests............................................ (.4) 1.6 4.3 -------- -------- -------- Income (loss) before extraordinary loss and cumulative effect of changes in accounting principles......................... 65.3 (96.2) (117.6) Extraordinary loss on early extinguishment of debt, net of tax benefit of $2.9 and $11.2 for 1994 and 1993, respectively... (5.4) (21.8) Cumulative effect of changes in accounting principles, net of tax benefit of $237.7........................................... (507.9) -------- -------- -------- Net income (loss)............................................. $ 65.3 $ (101.6) $ (647.3) ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 125 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ------- ------- --------- (IN MILLIONS OF DOLLARS) Cash flows from operating activities: Net income (loss)........................................... $ 65.3 $(101.6) $ (647.3) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation............................................. 94.3 95.4 97.1 Amortization of excess investment over equity in unconsolidated affiliates.............................. 11.4 11.6 11.9 Amortization of deferred financing costs and discount on long-term debt......................................... 5.4 6.2 11.2 Equity in (income) losses of unconsolidated affiliates... (19.2) 1.9 3.3 Restructuring of operations.............................. 35.8 Minority interests....................................... .4 (1.6) (4.3) Extraordinary loss on early extinguishment of debt -- net............................................ 5.4 21.8 Cumulative effect of changes in accounting principles -- net...................................... 507.9 (Increase) decrease in receivables....................... (110.0) 36.2 (6.2) (Increase) decrease in inventories....................... (57.7) (41.1) 13.0 Decrease (increase) in prepaid expenses and other assets................................................. 82.9 (60.6) (5.2) Increase (decrease) in accounts payable.................. 32.4 25.8 (10.3) (Decrease) increase in accrued interest.................. (.6) 9.3 19.2 Increase in payable to affiliates and accrued liabilities............................................ 10.6 51.6 76.4 Decrease in accrued and deferred income taxes............ (7.2) (69.2) (96.4) Other.................................................... 11.5 9.4 10.1 ------- ------- --------- Net cash provided by (used for) operating activities........................................ 119.5 (21.3) 38.0 ------- ------- --------- Cash flows from investing activities: Net proceeds from disposition of property and investments... 8.6 4.1 13.1 Capital expenditures........................................ (79.4) (70.0) (67.7) Investments in joint ventures............................... (9.0) ------- ------- --------- Net cash used for investing activities.............. (79.8) (65.9) (54.6) ------- ------- --------- Cash flows from financing activities: Repayments of long-term debt, including revolving credit.... (537.7) (345.1) (1,134.5) Borrowings of long-term debt, including revolving credit.... 532.3 378.9 1,068.1 Borrowings from MAXXAM Group Inc. (see supplemental disclosure below)........................................ 15.0 Tender premiums and other costs of early extinguishment of debt..................................................... (27.1) Net short-term debt repayments.............................. (.5) (4.3) Net (payments to) borrowings from parent.................... (15.5) 13.2 31.5 Incurrence of financing costs............................... (.8) (19.2) (12.7) Dividends paid.............................................. (.7) (.7) (1.0) Capital contribution........................................ 1.2 66.9 81.5 Redemption of preference stock.............................. (8.8) (8.5) (4.2) ------- ------- --------- Net cash (used for) provided by financing activities........................................ (30.0) 85.0 12.3 ------- ------- --------- Net increase (decrease) in cash and cash equivalents during the year.................................................... 9.7 (2.2) (4.3) Cash and cash equivalents at beginning of year................ 12.0 14.2 18.5 ------- ------- --------- Cash and cash equivalents at end of year...................... $ 21.7 $ 12.0 $ 14.2 ======= ======= ========= Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest.................. $ 88.8 $ 73.1 $ 53.7 Income taxes paid........................................... 35.7 16.0 13.5 Tax allocation payments to Kaiser Aluminum Corporation...... 3.2 Tax allocation payments from MAXXAM Inc..................... (3.8) Supplemental disclosure of non-cash financing activities: Contribution to capital of the borrowings from MAXXAM Group Inc......................................... $ 15.0
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 126 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 (the "Company" or "KACC") and its majority-owned subsidiaries. The Company is a wholly owned subsidiary of Kaiser Aluminum Corporation ("Kaiser") which is a subsidiary of MAXXAM Inc. ("MAXXAM"). 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, and the manufacture of fabricated and semi-fabricated aluminum products. The Company's production levels of alumina and primary aluminum exceed its internal processing needs, which allows it to be a major seller of alumina and primary aluminum to domestic and international third parties (see Note 11). The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amount of revenues and expenses during the reporting period. Uncertainties, with respect to such estimates and assumptions, are inherent in the preparation of the Company's consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company's consolidated financial position and results of operation. Investments in 50%-or-less-owned entities are accounted for primarily by the equity method. Intercompany balances and transactions are eliminated. Certain reclassifications of prior-year information were made to conform to the current presentation. CHANGES IN ACCOUNTING PRINCIPLES The Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106"), and Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits ("SFAS 112"), as of January 1, 1993. The costs of postretirement benefits other than pensions and postemployment benefits 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 changes in accounting principles for the adoption of SFAS 106 and SFAS 112 were recorded as charges to results of operations of $497.7 and $7.3, net of related income taxes of $234.2 and $3.5, respectively. These deferred income tax benefits were recorded at the federal statutory rate in effect on the date the accounting standards were adopted, before giving effect to certain valuation allowances. The new accounting standards had no effect on the Company's cash outlays for postretirement or postemployment benefits, nor did these one-time charges 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. The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), as of January 1, 1993. The adoption of SFAS 109 changed 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 F-6 127 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) financial statement and tax bases of assets and liabilities using enacted tax rates. The cumulative effect of the change in accounting principle reduced the Company's results of operations by $2.9. The adoption 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. As a result of restating these assets and liabilities, the loss before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles for the year ended December 31, 1993, was increased by $9.3. 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 value. 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, --------------- 1995 1994 ------ ------ Finished fabricated products......................................... $ 91.5 $ 49.4 Primary aluminum and work in process................................. 195.9 203.1 Bauxite and alumina.................................................. 119.6 102.3 Operating supplies and repair and maintenance parts.................. 118.7 113.2 ------ ------ $525.7 $468.0 ====== ======
DEPRECIATION Depreciation is computed principally by the straight-line method at rates based on 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
STOCK-BASED COMPENSATION The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for a stock-based compensation plan. Accordingly, no compensation cost has been recognized for this plan (see Note 6). OTHER EXPENSE Other expense in 1995, 1994 and 1993 includes $17.8, $16.5 and $17.9 of pre-tax charges related principally to establishing additional: (i) litigation reserves for asbestos claims, and (ii) environmental reserves for potential soil and ground water remediation matters each pertaining to operations which were discontinued prior to the acquisition of the Company by MAXXAM in 1988. F-7 128 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) DEFERRED FINANCING COSTS Costs incurred to obtain debt financing are deferred and amortized over the estimated term of the related borrowing. Amortization of deferred financing costs of $5.3, $6.0, and $11.2 for the years ended December 31, 1995, 1994, and 1993, respectively, are included in interest expense. FOREIGN CURRENCY The Company uses the United States dollar as the functional currency for its foreign operations. DERIVATIVE FINANCIAL INSTRUMENTS Gains and losses arising from the use of derivative financial instruments are reflected in the Company's operating results concurrently with the consummation of the underlying hedged transactions. Deferred gains or losses as of December 31, 1995, are included in Prepaid expenses and other current assets and Other accrued liabilities. The Company does not hold or issue derivative financial instruments for trading purposes (see Note 10). FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the estimated fair value of the Company's financial instruments, together with the carrying amounts of the related assets or liabilities. Unless otherwise noted, the carrying amount of all financial instruments is a reasonable estimate of fair value.
DECEMBER 31, 1995 DECEMBER 31, 1994 --------------------- --------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- Debt................................................... $758.1 $806.3 $762.6 $747.6 Foreign currency contracts............................. 1.9 3.5
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Debt -- The quoted market prices were used for the Senior Notes and 12 3/4% Notes (see Note 4). The fair value of all other debt is based on discounting the future cash flows using the current rate for debt of similar maturities and terms. Foreign Currency Contracts -- The fair value generally reflects the estimated amounts that the Company would receive to enter into similar contracts at the reporting date, thereby taking into account unrealized gains or losses on open contracts (see Note 10). 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 Aluminum Limited ("Anglesey") (49.0% owned), and Kaiser Jamaica Bauxite Company (49.0% owned). The equity in earnings (losses) before income taxes of such operations is treated as a reduction (increase) in cost of products sold. At December 31, 1995 and 1994, the Company's net receivables from these affiliates were not material. F-8 129 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, --------------- 1995 1994 ------ ------ Current assets............................................................... $429.0 $342.3 Property, plant, and equipment -- net........................................ 330.8 349.4 Other assets................................................................. 39.3 42.4 ------ ------ Total assets....................................................... $799.1 $734.1 ====== ====== Current liabilities.......................................................... $125.4 $122.4 Long-term debt............................................................... 331.8 307.6 Other liabilities............................................................ 35.6 31.0 Stockholders' equity......................................................... 306.3 273.1 ------ ------ Total liabilities and stockholders' equity......................... $799.1 $734.1 ====== ======
SUMMARY OF COMBINED OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 1993 ------ ------ ------ Net sales............................................................ $685.9 $489.8 $510.3 Costs and expenses................................................... (618.7) (494.8) (527.2) (Provision) credit for income taxes.................................. (18.7) (6.3) 1.9 ------ ------ ------ Net income (loss).................................................... $ 48.5 $(11.3) $(15.0) ====== ====== ====== Company's equity in income (loss).................................... $ 19.2 $ (1.9) $ (3.3) ====== ====== ======
The Company's equity in income (loss) differs from the summary net income (loss) due to various percentage ownerships in the entities and equity method accounting adjustments. At December 31, 1995, the Company's investment in its unconsolidated affiliates exceeded its equity in their net assets by approximately $54.9. The Company is amortizing this amount over a 12-year period, which results in an annual amortization charge of approximately $11.4. 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 $284.4, $219.7, and $206.6 in the years ended December 31, 1995, 1994, and 1993, respectively. Dividends of $8.1, nil, and nil were received from investees in the years ended December 31, 1995, 1994, and 1993, respectively. In 1995, a subsidiary of the Company invested $9.0 in a foreign joint venture. This amount is included in Investments in and advances to unconsolidated affiliates. F-9 130 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 3. PROPERTY, PLANT, AND EQUIPMENT The major classes of property, plant, and equipment are as follows:
DECEMBER 31, ------------------- 1995 1994 -------- -------- Land and improvements............................................. $ 151.8 $ 153.5 Buildings......................................................... 198.5 196.8 Machinery and equipment........................................... 1,337.6 1,285.0 Construction in progress.......................................... 59.6 45.0 -------- -------- 1,747.5 1,680.3 Accumulated depreciation.......................................... 637.9 547.1 -------- -------- Property, plant, and equipment -- net........................... $1,109.6 $1,133.2 ======== ========
4. LONG-TERM DEBT Long-term debt and its maturity schedule are as follows:
DECEMBER 31, 2001 --------------- AND 1995 1994 1996 1997 1998 1999 2000 AFTER TOTAL TOTAL ---- ---- ---- ----- ---- ------ ------ ------ 1994 Credit Agreement (9.00% at December 31, 1995)................................ $13.1 $ 13.1 $ 6.7 9 7/8% Senior Notes, net................... $223.8 223.8 223.6 Pollution Control and Solid Waste Disposal Facilities Obligations (6.00% -- 7.75%)......................... $1.2 $1.3 $1.4 .2 $.2 32.6 36.9 38.1 Alpart CARIFA Loan (fixed and variable rates)................................... 60.0 60.0 60.0 Alpart Term Loan (8.95%)................... 6.3 6.2 12.5 18.7 12 3/4% Senior Subordinated Notes.......... 400.0 400.0 400.0 Other borrowings (fixed and variable rates)................................... 1.4 1.4 7.7 .3 .2 .8 11.8 15.5 ---- ---- ---- ----- --- ------ ------ ------ Total............................. $8.9 $8.9 $9.1 $13.6 $.4 $717.2 $758.1 $762.6 ==== ==== ==== ===== === ====== Less current portion....................... 8.9 11.5 ------ ------ Long-term debt............................. $749.2 $751.1 ====== ======
1994 CREDIT AGREEMENT On February 17, 1994, the Company and Kaiser entered into a credit agreement with BankAmerica Business Credit, Inc. and certain other lenders (as amended, the "1994 Credit Agreement"). The 1994 Credit Agreement consists of a $325.0 five-year secured, revolving line of credit, scheduled to mature in 1999. The Company is able to borrow under the facility by means of revolving credit advances and letters of credit (up to $125.0) in an aggregate amount equal to the lesser of $325.0 or a borrowing base relating to eligible accounts receivable plus eligible inventory. The Company recorded a pre-tax extraordinary loss of $8.3 ($5.4 after taxes) in the first quarter of 1994, consisting primarily of the write-off of unamortized deferred financing costs related to the previous credit agreement. As of December 31, 1995, $259.3 (of which $72.4 could have been used for letters of credit) was available to the Company under the 1994 Credit Agreement. The 1994 Credit Agreement is unconditionally guaranteed by the Company and by certain significant subsidiaries of the Company. Loans under the 1994 Credit Agreement bear interest at a rate per annum, at the Company's election, equal to a Reference Rate (as defined) plus 1 1/2% or LIBO Rate (Reserve Adjusted) (as defined) plus 3 1/4%. After June 30, 1995, the interest rate margins applicable to borrowings under the 1994 Credit F-10 131 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) Agreement may be reduced by up to 1 1/2% (non-cumulatively), based on a financial test, determined quarterly. As of December 31, 1995, the financial test permitted a reduction of 1 1/2% per annum in margins effective January 1, 1996. The 1994 Credit Agreement requires the Company to maintain certain financial covenants and places restrictions on the Company's and Kaiser'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. Neither the Company nor Kaiser currently is permitted to pay dividends on its common stock. The 1994 Credit Agreement is secured by, among other things, (i) mortgages on the Company's major domestic plants (excluding the Gramercy plant); (ii) subject to certain exceptions, liens on the 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 the stock of the Company owned by Kaiser; and (iv) pledges of all of the stock of a number 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. SENIOR NOTES Concurrent with the offering by Kaiser of its 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES") (see Note 8), the Company issued $225.0 of its 9 7/8% Senior Notes due 2002 (the "Senior Notes"). The net proceeds of the offering of the Senior Notes were used to reduce outstanding borrowings under the revolving credit facility of the 1989 Credit Agreement immediately prior to the effectiveness of the 1994 Credit Agreement and for working capital and general corporate purposes. GRAMERCY SOLID WASTE DISPOSAL REVENUE BONDS In December 1992, the Company 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 the Company'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, 1995, $3.8 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 Bonds. 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 principal amount of Series A bonds matures on June 1, 2008. Substantially all of the Series A bonds bear interest at a floating rate of 87% of the applicable LIBID Rate (LIBOR less 1/8 of 1%). 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 F-11 132 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 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). SENIOR SUBORDINATED NOTES On February 1, 1993, the Company issued $400.0 of its 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 of the 1989 Credit Agreement. These transactions resulted in a pre-tax extraordinary loss of $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. The obligations of the Company with respect to the Senior Notes and the 12 3/4% Notes are guaranteed, jointly and severally, by certain subsidiaries of the Company. The indentures governing the Senior Notes and the 12 3/4% Notes (the "Indentures") restrict, among other things, the Company's ability to incur debt, undertake transactions with affiliates, and pay dividends. Further, the Indentures provide that the Company must offer to purchase the Senior Notes and the 12 3/4% Notes, respectively, upon the occurrence of a Change of Control (as defined therein), and the 1994 Credit Agreement provides that the occurrence of a Change in Control (as defined therein) shall constitute an Event of Default thereunder. CAPITALIZED INTEREST Interest capitalized in 1995, 1994 and 1993 was $2.8, $2.7, and $3.4, respectively. 5. INCOME TAXES Income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles by geographic area is as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 1995 1994 1993 ------ ------- ------- Domestic............................................... $(55.4) $(168.1) $(232.3) Foreign................................................ 158.5 16.3 23.5 ------ ------- ------- Total........................................ $103.1 $(151.8) $(208.8) ====== ======= =======
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. F-12 133 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 on income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles consists of:
FEDERAL FOREIGN STATE TOTAL ------- ------- ----- ------ 1995 Current........................................ $(4.3) $(40.2) $ (.1) $(44.6) Deferred....................................... 15.0 (4.9) (2.9) 7.2 ----- ------ ----- ------ Total.................................. $10.7 $(45.1) $(3.0) $(37.4) ===== ====== ===== ====== 1994 Current........................................ $(18.0) $ (.1) $(18.1) Deferred....................................... $71.4 .6 .1 72.1 ----- ------ ----- ------ Total.................................. $71.4 $(17.4) $ 54.0 ===== ====== ===== ====== 1993 Current........................................ $12.5 $ (7.9) $ (.1) $ 4.5 Deferred....................................... 68.6 12.0 1.8 82.4 ----- ------ ----- ------ Total.................................. $81.1 $ 4.1 $ 1.7 $ 86.9 ===== ====== ===== ======
The 1994 federal deferred credit for income taxes of $71.4 includes $29.2 for the benefit of operating loss carryforwards generated in 1994. The 1993 federal deferred credit for income taxes of $68.6 includes $29.1 for the benefit of operating loss carryforwards generated in 1993 and a $3.4 benefit for increasing net deferred income tax assets (liabilities) as of the date of enactment (August 10, 1993) of the Omnibus Budget Reconciliation Act of 1993, which retroactively increased the federal statutory income tax rate from 34% to 35% for periods beginning on or after January 1, 1993. A reconciliation between the (provision) credit for income taxes and the amount computed by applying the federal statutory income tax rate to income (loss) before income taxes, minority interests, extraordinary loss, and cumulative effect of changes in accounting principles is as follows:
YEAR ENDED DECEMBER 31, ---------------------- 1995 1994 1993 ------ ----- ----- Amount of federal income tax (provision) credit based on the statutory rate............................................... $(36.1) $53.1 $73.1 Percentage depletion........................................... 4.2 5.6 6.4 Revision of prior years' tax estimates and other changes in valuation allowances......................................... 1.5 .5 3.9 Foreign taxes, net of federal tax benefit...................... (5.4) (5.3) (2.6) Increase in net deferred income tax assets due to tax rate change....................................................... 1.8 3.4 Other.......................................................... (1.6) (1.7) 2.7 ------ ----- ----- (Provision) credit for income taxes............................ $(37.4) $54.0 $86.9 ====== ===== =====
As shown in the Statements of Consolidated Income (Loss) for the years ended December 31, 1994 and 1993, the Company reported extraordinary losses related to the early extinguishment of debt. The Company reported the 1994 extraordinary loss net of related deferred federal income taxes of $2.9 and reported the 1993 extraordinary loss net of related current federal income taxes of $11.2, which approximated the federal statutory rate in effect on the dates the transactions occurred. F-13 134 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) The Company adopted SFAS 109 as of January 1, 1993, as discussed in Note 1. The components of the Company's net deferred income tax assets are as follows:
DECEMBER 31, ------------------- 1995 1994 ------- ------- Deferred income tax assets: Postretirement benefits other than pensions.................... $ 289.9 $ 293.7 Loss and credit carryforwards.................................. 155.8 187.4 Other liabilities.............................................. 107.8 109.6 Pensions....................................................... 56.0 51.0 Foreign and state deferred income tax liabilities.............. 30.8 28.1 Property, plant, and equipment................................. 22.9 23.1 Inventories.................................................... 1.8 Other.......................................................... 10.7 3.5 Valuation allowances........................................... (128.5) (133.9) ------- ------- Total deferred income tax assets -- net................ 547.2 562.5 ------- ------- Deferred income tax liabilities: Property, plant, and equipment................................. (179.8) (203.2) Investments in and advances to unconsolidated affiliates....... (66.4) (63.8) Inventories.................................................... (8.3) Other.......................................................... (9.5) (6.4) ------- ------- Total deferred income tax liabilities.................. (255.7) (281.7) ------- ------- Net deferred income tax assets................................... $ 291.5 $ 280.8 ======= =======
The valuation allowances listed above relate primarily to loss and credit carryforwards and postretirement benefits other than pensions. As of December 31, 1995, approximately $97.4 of the net deferred income tax assets listed above relate to the benefit of loss and credit carryforwards, net of valuation allowances. The Company evaluated all appropriate factors to determine the proper valuation allowances for these carryforwards, including any limitations concerning their use and the year the carryforwards expire, as well as the levels of taxable income necessary for utilization. For example, full valuation allowances were provided for certain credit carryforwards that expire in the near term. With regard to future levels of income, the Company believes, based on the cyclical nature of its business, its history of prior operating earnings, and its expectations for future years, that it will more likely than not generate sufficient taxable income to realize the benefit attributable to the loss and credit carryforwards for which valuation allowances were not provided. The remaining portion of the Company's net deferred income tax assets at December 31, 1995, is approximately $194.1. A principal component of this amount is the tax benefit associated with the accrual for postretirement benefits other than pensions. The future tax deductions with respect to the turnaround of this accrual will occur over a 30- to 40-year period. If such deductions create or increase a net operating loss in any one year, the Company has the ability to carry forward such loss for 15 taxable years. For these reasons, the Company believes a long-term view of profitability is appropriate and has concluded that this net deferred income tax asset will more likely than not be realized, despite the operating losses incurred in recent years. As of December 31, 1995 and 1994, $53.5 and $37.9, respectively, of the net deferred income tax assets listed above are included on the Consolidated Balance Sheets in the caption entitled Prepaid expenses and other current assets. Certain other portions of the deferred income tax assets and liabilities listed above are included on the Consolidated Balance Sheets in the captions entitled Other accrued liabilities and Long-term liabilities. F-14 135 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) The Company and its subsidiaries (collectively, the "KACC Subgroup") were included in the consolidated federal income tax returns of MAXXAM for the period from October 28, 1988, through June 30, 1993. As a consequence of the issuance of the Depositary Shares on June 30, 1993, as discussed in Note 8, the KACC Subgroup is no longer included in the consolidated federal income tax returns of MAXXAM. The KACC Subgroup has become a member of a new consolidated return group of which Kaiser is the common parent corporation (the "New Kaiser Tax Group"). The New Kaiser Tax Group files consolidated federal income tax returns for taxable periods beginning on or after July 1, 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. Any unused federal income tax attribute carryforwards under the terms of the KACC Tax Allocation Agreement were eliminated and are not available to offset federal income tax liabilities 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, were apportioned in part to Kaiser and the KACC Subgroup, based on the provisions of the relevant consolidated return regulations. The benefit of such tax attribute carryforwards apportioned to the KACC Subgroup approximated the benefit of tax attribute carryforwards eliminated under the KACC Tax Allocation Agreement. To the extent the KACC Subgroup generates unused tax losses or tax credits for periods beginning on or after July 1, 1993, such amounts will not be available to obtain refunds of amounts paid by the Company to MAXXAM for periods ending on or before June 30, 1993, pursuant to the KACC Tax Allocation Agreement. The Company and MAXXAM entered into the KACC Tax Allocation Agreement, which became effective as of October 28, 1988. Under the terms of the KACC Tax Allocation Agreement, MAXXAM computed the federal income tax liability for the KACC Subgroup as if the KACC Subgroup were a separate affiliated group of corporations which was never connected with MAXXAM. The provisions of the KACC Tax Allocation Agreement will continue to govern for periods ended prior to July 1, 1993. Therefore, payments or refunds may still be required by or payable to the Company under the terms of the KACC Tax Allocation Agreement for these periods due to the final resolution of audits, amended returns, and related matters. However, the 1994 Credit Agreement prohibits the payment by the Company to MAXXAM of any amounts due under the KACC Tax Allocation Agreement, except for certain payments that are required as a result of audits and only to the extent of any amounts paid after February 17, 1994, by MAXXAM to the Company under the KACC Tax Allocation Agreement. On June 30, 1993, the Company and Kaiser entered into a tax allocation agreement (the "New KACC Tax Allocation Agreement"), effective for taxable periods beginning on or after July 1, 1993. The terms of the New KACC Tax Allocation Agreement are similar, in all material respects, to those of the KACC Tax Allocation Agreement except that the Company is liable to Kaiser. F-15 136 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) The following table presents the Company's tax attributes for federal income tax purposes as of December 31, 1995, under the terms of the New KACC Tax Allocation Agreement. The utilization of certain of these tax attributes is subject to limitations:
EXPIRING THROUGH ----------- Regular tax attribute carryforwards: Net operating losses........................................... $32.9 2007 General business tax credits................................... 28.4 2008 Foreign tax credits............................................ 89.4 2000 Alternative minimum tax credits................................ 19.4 Indefinite Alternative minimum tax attribute carryforwards: Net operating losses........................................... $17.1 2002 Foreign tax credits............................................ 83.3 2000
6. EMPLOYEE BENEFIT AND INCENTIVE PLANS RETIREMENT PLANS Retirement plans are non-contributory for salaried and hourly employees and generally provide for benefits based on a formula which considers length of service and earnings during years of service. The Company's funding policies meet or exceed all regulatory requirements. The funded status of the employee pension benefit plans and the corresponding amounts that are included in the Company's Consolidated Balance Sheets are as follows:
PLANS WITH ACCUMULATED BENEFITS EXCEEDING ASSETS(1) DECEMBER 31, --------------------- 1995 1994 ------- ------- Accumulated benefit obligation: Vested employees............................................. $ 753.0 $ 663.9 Nonvested employees.......................................... 28.7 41.1 ------- ------- Accumulated benefit obligation............................... 781.7 705.0 Additional amounts related to projected salary increases....... 34.2 30.0 ------- ------- Projected benefit obligation................................... 815.9 735.0 Plan assets (principally common stocks and fixed income obligations) at fair value................................... (592.3) (524.6) ------- ------- Plan assets less than projected benefit obligation............. 223.6 210.4 Unrecognized net losses........................................ (54.7) (42.5) Unrecognized net obligations................................... (.5) (.8) Unrecognized prior-service cost................................ (28.2) (30.9) Adjustment required to recognize minimum liability............. 49.8 42.9 ------- ------- Accrued pension obligation included in the Consolidated Balance Sheets (principally in Long-term liabilities)................ $ 190.0 $ 179.1 ======= =======
- --------------- (1) Includes plans with assets exceeding accumulated benefits by approximately $.1 and $.3 in 1995 and 1994, respectively. F-16 137 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) As required by Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions, the Company recorded an after-tax credit (charge) to equity of $(4.7) and $12.5 at December 31, 1995 and 1994, respectively, for the reduction (excess) of the minimum liability over the unrecognized net obligation and prior-service cost. These amounts were recorded net of the related income tax (provision) credit of $2.8 and $(7.3) as of December 31, 1995 and 1994, respectively, which approximated the federal and state statutory rates. The components of net periodic pension cost are:
YEAR ENDED DECEMBER 31, ------------------------- 1995 1994 1993 ------- ------ ------ Service cost -- benefits earned during the period........... $ 10.0 $ 11.2 $ 10.8 Interest cost on projected benefit obligation............... 59.8 57.3 59.2 Return on assets: Actual gain............................................... (112.2) (.8) (70.3) Deferred gain (loss)...................................... 64.6 (53.0) 15.9 Net amortization and deferral............................... 4.2 4.1 2.3 ------ ----- ----- Net periodic pension cost................................... $ 26.4 $ 18.8 $ 17.9 ====== ===== =====
Assumptions used to value obligations at year-end, and to determine the net periodic pension cost in the subsequent year are:
1995 1994 1993 ---- ---- ---- Discount rate................................................... 7.5% 8.5 % 7.5% Expected long-term rate of return on assets..................... 9.5% 9.5 % 10.0% Rate of increase in compensation levels......................... 5.0% 5.0 % 5.0%
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company and its subsidiaries provide postretirement health care and life insurance benefits to eligible retired employees and their dependents. Substantially all employees may become eligible for those benefits if they reach retirement age while still working for the Company or its subsidiaries. These benefits are provided through contracts with various insurance carriers. The Company has not funded the liability for these benefits, which are expected to be paid out of cash generated by operations. The Company adopted SFAS 106 to account for postretirement benefits other than pensions as of January 1, 1993, as discussed in Note 1. In 1995, the Company adopted the Kaiser Aluminum Medicare Program ("KAMP"). KAMP is mandatory for all salaried retirees over 65 and for USWA retirees who retire after December 31, 1995, when they become 65, and voluntary for other hourly retirees of the Company's operations in the states of California, Louisiana, and Washington. The USWA contract, ratified on February 28, 1995, also contained changes to the retiree health benefits. These changes included increased retirees' copayments, deductibles, and coinsurance, and restricted Medicare Part B premium reimbursement to the 1995 level for employees retiring after November 1, 1994. These changes will lower the Company's expenses for retiree medical care. F-17 138 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) The Company's accrued postretirement benefit obligation is composed of the following:
DECEMBER 31, ----------------- 1995 1994 ------ ------ Accumulated postretirement benefit obligation: Retirees......................................................... $557.6 $566.2 Active employees eligible for postretirement benefits............ 30.7 30.2 Active employees not eligible for postretirement benefits........ 61.1 98.7 ------ ------ Accumulated postretirement benefit obligation.................... 649.4 695.1 Unrecognized net gains............................................. 20.5 55.0 Unrecognized gains related to prior-service costs.................. 110.9 31.8 ------ ------ Accrued postretirement benefit obligation.......................... $780.8 $781.9 ====== ======
The components of net periodic postretirement benefit cost are:
YEAR ENDED DECEMBER 31, ----------------------- 1995 1994 1993 ----- ----- ----- Service cost.................................................... $ 4.5 $ 8.2 $ 7.1 Interest cost................................................... 52.3 56.9 58.5 Amortization of prior service cost.............................. (8.9) (3.2) ----- ----- ----- Net periodic postretirement benefit cost........................ $47.9 $61.9 $65.6 ===== ===== =====
The 1996 annual assumed rates of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) are 8.0% and 7.5% for retirees under 65 and over 65, respectively, and are assumed to decrease gradually to 5.0% in 2007 and remain at that level thereafter. The health care cost trend rate has a significant effect on the amounts reported. A one percentage point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1995, by approximately $68.7 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 by approximately $7.8. The weighted average discount rate used to determine the accumulated postretirement benefit obligation at December 31, 1995 and 1994, was 7.5% and 8.5%, respectively. POSTEMPLOYMENT BENEFITS The Company provides certain benefits to former or inactive employees after employment but before retirement. The Company adopted SFAS 112 to account for postemployment benefits as of January 1, 1993, as discussed in Note 1. INCENTIVE PLANS Effective January 1, 1989, the Company and Kaiser adopted an unfunded Long-Term Incentive Plan (the "LTIP") for certain key employees of the Company, Kaiser, and their consolidated subsidiaries. All compensation vested as of December 31, 1992, 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, 1993. Under the LTIP, as amended, 764,092 restricted shares were distributed to six Company executives during 1993 for benefits generally earned but not vested as of December 31, 1992. These shares generally will vest at the rate of 25% per year. The Company will record the related expense of $6.5 over the four-year period ending December 31, 1996. In 1993, the Company adopted the Kaiser 1993 Omnibus Stock Incentive Plan. A total of 2,500,000 shares of Kaiser common stock were reserved for awards or for payment of rights granted under the Plan, of which F-18 139 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) 544,839 shares were available to be awarded at December 31, 1995. Under the Kaiser 1993 Omnibus Stock Incentive Plan, 102,564 restricted shares were distributed to two Company executives during 1994, which will vest at the rate of 25% per year. The Company will record the related expense of $1.0 over the four-year period ending December 31, 1998. In 1993 and 1994, the Compensation Committee of the Board of Directors approved the award of "nonqualified stock options" to members of management other than those participating in the LTIP. These options to acquire Kaiser's common stock generally will vest at the rate of 20-25% per year. Information relating to nonqualified stock options is shown below:
1995 1994 1993 --------- ---------- ------- Outstanding at beginning of year................... 1,119,680 664,400 Granted............................................ 494,800 664,400 Exercised (at $7.25 and $9.75 per share)........... (155,500) (6,920) Expired or forfeited............................... (38,095) (32,600) --------- --------- ------- Outstanding at end of year (prices ranging from $7.25 to $12.75 per share)....................... 926,085 1,119,680 664,400 ========= ========= ======= Exercisable at end of year......................... 211,755 120,180 ========= =========
In 1995, the Company adopted the Kaiser Aluminum Total Compensation System, an unfunded incentive compensation program. The program provides incentive pay based on performance against plan over a three-year period. 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 $11.9, $6.1, and $5.3 for the years ended December 31, 1995, 1994 and 1993, respectively. 7. REDEEMABLE PREFERENCE STOCK In March 1985, the Company entered into a three-year agreement with the 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. Changes in Series A and B Stock are shown below.
1995 1994 1993 -------- --------- --------- Shares: Beginning of year........................................... 912,167 1,081,548 1,163,221 Redeemed.................................................... (174,804) (169,381) (81,673) ------- ------- --------- End of year................................................. 737,363 912,167 1,081,548 ======= ======= =========
No additional Series A or B Stock will be issued. 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 F-19 140 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) cash at the option of the Company on or after March 1, 1991, in respect to years commencing January 1, 1990, based on a formula tied to the Company's income before tax from aluminum operations. When distributed to plan participants (generally upon separation from the Company), 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 the Company 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 March 1994 and 1995, the Company contributed $4.3 for each of the years 1993 and 1994, and will contribute $4.3 in March 1996 for 1995. Under the USWA labor contract effective November 1, 1994, the Company is obligated to offer to purchase up to 40 shares of Series A Stock from each active participant in 1995 at a price equal to its redemption value of $50 per share. The Company also agreed to offer to purchase up to an additional 80 shares from each participant in 1998. In addition, a profitability test was satisfied for 1995; therefore, the Company will offer to purchase from each active participant an additional 20 shares of such preference stock held in the stock ownership plan for the benefit of substantially the same employees in 1996. The employees could elect to receive their shares, accept cash, or place the proceeds into the Company's 401(k) savings plan. The Company will provide comparable purchases of Series B Stock from active participants. The Series A and B Stock is distributed in the event of death, retirement, or in other specified circumstances. The Company also may 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, the Company 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 the Company to make such installment payments must be secured. The Series A and B Stock is entitled to the same voting rights as the Company's common stock and to certain additional voting rights under certain circumstances, including the right to elect, along with other Company 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 the Company to redeem or pay dividends on common stock if the Company is in default on any dividends payable on the Series A and B Stock. F-20 141 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:
RETAINED ADDITIONAL NOTE EARNINGS MINIMUM RECEIVABLE PREFERENCE COMMON ADDITIONAL (ACCUMULATED PENSION FROM STOCK STOCK CAPITAL DEFICIT) LIABILITY PARENT ---------- ------ ---------- ------------ ---------- ---------- BALANCE, DECEMBER 31, 1992.............. $2.0 $15.4 $1,255.6 $ 487.9 $ (6.7) $(1,185.8) Net loss.............................. (647.3) Interest on note receivable from parent.............................. 115.7 (115.7) Contribution for LTIP shares.......... 3.4 Conversions (1,967 preference shares into cash).......................... (.2) Capital contribution.................. 96.5 Preference stock dividends............ (1.0) Redeemable preference stock accretion........................... (4.8) Additional minimum pension liability........................... (14.9) ---- ----- -------- ------- ------ --------- BALANCE, DECEMBER 31, 1993.............. $1.8 $15.4 $1,471.2 $(165.2) $(21.6) $(1,301.5) Net loss.............................. (101.6) Interest on note receivable from parent.............................. 86.2 (86.2) Contribution for LTIP shares.......... 2.0 Capital contribution.................. 66.9 Preference stock dividends............ (.7) Redeemable preference stock accretion........................... (4.0) Reduction of minimum pension liability........................... 12.5 ---- ----- -------- ------- ------ --------- BALANCE, DECEMBER 31, 1994.............. 1.8 15.4 1,626.3 (271.5) (9.1) (1,387.7) Net income............................ 65.3 Interest on note receivable from parent.............................. 92.1 (92.1) Contribution for LTIP shares.......... 1.4 Capital contribution.................. 10.9 Conversions (1,222 preference shares into cash).......................... (.1) Dividends............................. (.8) Redeemable preference stock accretion........................... (3.9) Additional minimum pension liability........................... (4.7) ---- ----- -------- ------- ------ --------- BALANCE, DECEMBER 31, 1995.............. $1.7 $15.4 $1,730.7 $(210.9) $(13.8) $(1,479.8) ==== ===== ======== ======= ====== =========
PREFERENCE STOCK The Company's Cumulative Convertible Preference Stock, $100 par value ("$100 Preference Stock"), restricts acquisition of junior stock and payment of dividends. At December 31, 1995, such provisions were less restrictive as to the payment of cash dividends than the 1994 Credit Agreement provisions. The Company has the option to redeem the $100 Preference Stocks at par value plus accrued dividends. The Company 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 Stock can be exchanged for per share cash amounts of $69.30, $77.84, $78.38, and $76.46, respectively. The Company records the $100 F-21 142 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) Preference Stock at their exchange amounts for financial statement presentation and the Company includes such amounts in minority interests. The outstanding shares of preference stock were:
DECEMBER 31, ------------------- 1995 1994 ------ ------ 4 1/8%........................................................... 3,237 3,657 4 3/4% (1957 Series)............................................. 2,342 2,605 4 3/4% (1959 Series)............................................. 13,162 13,534 4 3/4% (1966 Series)............................................. 3,473 3,640
PREFERRED STOCK Series A Convertible -- In 1993, Kaiser issued 19,382,950 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"). On September 19, 1995, Kaiser redeemed all 1,938,295 Series A Shares, which resulted in the simultaneous redemption of all Depositary Shares in exchange for (i) 13,126,521 shares of Kaiser's common stock and (ii) $2.8 in cash comprised of (a) an amount equal to all accrued and unpaid dividends up to and including the day immediately prior to redemption date and (b) cash in lieu of any fractional shares of common stock that would have otherwise been issuable. PRIDES Convertible -- In the first quarter of 1994, Kaiser consummated the public offering of 8,855,550 shares of the PRIDES. The net proceeds from the sale of the shares of PRIDES were approximately $100.1. Kaiser used such net proceeds to make non-interest-bearing loans to the Company in the aggregate principal amount of $33.2 (the aggregate dividends scheduled to accrue on the shares of PRIDES from the issuance date until December 31, 1997, the date on which the outstanding PRIDES will be mandatorily converted into shares of Kaiser's common stock), evidenced by intercompany notes, and used the balance of such net proceeds to make capital contributions to the Company in the aggregate amount of $66.9. NOTE RECEIVABLE FROM PARENT The Note Receivable from Parent bears interest at a fixed rate of 6 5/8% 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 ON COMMON STOCK The indentures governing the Senior Notes, the 12 3/4% Notes, and the 1994 Credit Agreement restrict, among other things, the Company's ability to incur debt, undertake transactions with affiliates, and pay dividends. Under the most restrictive of these covenants, the Company currently is not permitted to pay dividends on its common stock. 9. COMMITMENTS AND CONTINGENCIES COMMITMENTS The Company has financial commitments, including purchase agreements, tolling arrangements, forward foreign exchange and forward sales contracts (see Note 10), letters of credit, and guarantees. Such purchase agreements and tolling arrangements include long-term agreements for the purchase and tolling of bauxite into alumina in Australia by QAL. These obligations expire in 2008. Under the agreements, the Company 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, 1995, is $88.9, of F-22 143 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) which $26.7 is due in 1997 and the rest is due in 2002. The Company's share of payments, including operating costs and certain other expenses under the agreement, was $77.5, $85.6, and $86.7 for the years ended December 31, 1995, 1994, and 1993, respectively. The Company also has agreements to supply alumina to and to purchase aluminum from Anglesey. Minimum rental commitments under operating leases at December 31, 1995, are as follows: years ending December 31, 1996 -- $22.7; 1997 -- $21.6; 1998 -- $24.6; 1999 -- $29.7; 2000 -- $27.3; thereafter -- $187.0. The future minimum rentals receivable under noncancelable subleases was $67.0 at December 31, 1995. Rental expenses were $29.0, $26.8, and $29.0 for the years ended December 31, 1995, 1994, and 1993, respectively. ENVIRONMENTAL CONTINGENCIES The Company is subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims and litigation based upon such laws. The Company currently is subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, 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. Based on the Company's evaluation of these and other environmental matters, the Company has established environmental accruals, primarily related to potential solid waste disposal and soil and groundwater remediation matters. The following table presents the changes in such accruals, which are primarily included in Long-term liabilities, for the years ended December 31, 1995, 1994, and 1993:
1995 1994 1993 ----- ----- ----- Balance at beginning of period.................................. $40.1 $40.9 $46.4 Additional amounts.............................................. 3.3 2.8 1.7 Less expenditures............................................... (4.5) (3.6) (7.2) ----- ----- ----- Balance at end of period........................................ $38.9 $40.1 $40.9 ===== ===== =====
These environmental accruals represent the Company's estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, existing technology, and the Company's assessment of the likely remediation action to be taken. The Company expects that these remediation actions will be taken over the next several years and estimates that annual expenditures to be charged to these environmental accruals will be approximately $3.0 to $9.0 for the years 1996 through 2000 and an aggregate of approximately $10.0 thereafter. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. The Company believes that it is reasonably possible that costs associated with these environmental matters may exceed current accruals by amounts that could range, in the aggregate, up to an estimated $23.0 and that the factors upon which a substantial portion of this estimate is based are expected to be resolved over the next twelve months. While uncertainties are inherent in the final outcome of these environmental matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. F-23 144 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) ASBESTOS CONTINGENCIES The Company is a defendant in a number of lawsuits, some of which involve claims of multiple persons, in which the plaintiffs allege that certain of their injuries were caused by, among other things, exposure to asbestos during, and as a result of, their employment or association with the Company or exposure to products containing asbestos produced or sold by the Company. The lawsuits generally relate to products the Company has not manufactured for at least 15 years. The following table presents the changes in number of such claims pending for the years ended December 31, 1995, 1994 and 1993.
1995 1994 1993 ------ ------- ------ Number of claims at beginning of period............................. 25,200 23,400 13,500 Claims received..................................................... 41,700 14,300 11,400 Claims settled or dismissed......................................... (7,200) (12,500) (1,500) ------ ------ ------ Number of claims at end of period................................... 59,700 25,200 23,400 ====== ====== ======
The Company has been advised by its regional counsel that, although there can be no assurance, the recent increase in pending claims may be attributable in part to tort reform legislation in Texas which was passed by the legislature in March 1995 and which became effective on September 1, 1995. The legislation, among other things, is designed to restrict, beginning September 1, 1995, the filing of cases in Texas that do not have a sufficient nexus to that jurisdiction, and to impose, generally as of September 1, 1996, limitations relating to joint and several liability in tort cases. A substantial portion of the asbestos-related claims that were filed and served on the Company between June 30, 1995 and November 30, 1995, were filed in Texas prior to September 1, 1995. Based on past experience and reasonably anticipated future activity, the Company has established an accrual for estimated asbestos-related costs for claims filed and estimated to be filed and settled through 2008. There are inherent uncertainties involved in estimating asbestos-related costs, and the Company's actual costs could exceed these estimates. The Company's accrual was calculated based on the current and anticipated number of asbestos-related claims, the prior timing and amounts of asbestos-related payments, and the advice of Wharton, Levin, Ehrmantraut, Klein & Nash, P.A. with respect to the current state of the law related to asbestos claims. Accordingly, an asbestos-related cost accrual of $160.1, before consideration of insurance recoveries, is included primarily in Long-term liabilities at December 31, 1995. The Company estimates that annual future cash payments in connection with such litigation will be approximately $13.0 to $20.0 for each of the years 1996 through 2000, and an aggregate of approximately $78.0 thereafter through 2008. While the Company does not presently believe there is a reasonable basis for estimating such costs beyond 2008 and, accordingly, no accrual has been recorded for such costs which may be incurred beyond 2008, there is a reasonable possibility that such costs may continue beyond 2008, and such costs may be substantial. The Company believes that it has insurance coverage available to recover a substantial portion of its asbestos-related costs. Claims for recovery from some of the Company's insurance carriers are currently subject to pending litigation and other carriers have raised certain defenses, which have resulted in delays in recovering costs from the insurance carriers. The timing and amount of ultimate recoveries from these insurance carriers are dependent upon the resolution of these disputes. The Company believes, based on prior insurance-related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of Thelen, Marrin, Johnson & Bridges with respect to applicable insurance coverage law relating to the terms and conditions of those policies, that substantial recoveries from the insurance carriers are probable. Accordingly, an estimated aggregate insurance recovery of $137.9, determined on the same basis as the asbestos-related cost accrual, is recorded primarily in Other assets at December 31, 1995. F-24 145 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) While uncertainties are inherent in the final outcome of these asbestos matters and it is presently impossible to determine the actual costs that ultimately may be incurred and insurance recoveries that will be received, management currently believes that, based on the factors discussed in the preceding paragraphs, the resolution of asbestos-related uncertainties and the incurrence of asbestos-related costs net of related insurance recoveries should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. OTHER CONTINGENCIES The Company is involved in various other claims, lawsuits, and other proceedings relating to a wide variety of matters. While uncertainties are inherent in the final outcome of such matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. 10. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED HEDGING PROGRAMS The Company enters into a number of financial instruments in the normal course of business that are designed to reduce its exposure to fluctuations in foreign exchange rates, alumina, primary aluminum, and fabricated aluminum products prices, and the cost of purchased commodities. The Company has significant expenditures which are denominated in foreign currencies related to long-term purchase commitments with its affiliates in Australia and the United Kingdom, which expose the Company to certain exchange rate risks. In order to mitigate its exposure, the Company periodically enters into forward foreign exchange and currency option contracts in Australian dollars and Pounds Sterling to hedge these commitments. The forward foreign currency exchange contracts are agreements to purchase or sell a foreign currency, for a price specified at the contract date, with delivery and settlement in the future. At December 31, 1995, the Company had net forward foreign exchange contracts totaling approximately $102.8 for the purchase of 142.4 Australian dollars through April 30, 1997. To mitigate its exposure to declines in the market prices of alumina, primary aluminum, and fabricated aluminum products, while retaining the ability to participate in favorable pricing environments that may materialize, the Company has developed strategies which include forward sales of primary aluminum at fixed prices and the purchase or sale of options for primary aluminum. Under the principal components of the Company's price risk management strategy, which can be modified at any time, (i) varying quantities of the Company's anticipated production are sold forward at fixed prices; (ii) call options are purchased to allow the Company to participate in certain higher market prices, should they materialize, for a portion of the Company's primary aluminum and alumina sold forward; (iii) option contracts are entered into to establish a price range the Company will receive for a portion of its primary aluminum and alumina; and (iv) put options are purchased to establish minimum prices the Company will receive for a portion of its primary aluminum and alumina. In this regard, in respect of its 1996 anticipated production, as of December 31, 1995, the Company had sold forward 15,750 metric tons of primary aluminum at fixed prices. In addition, the Company enters into forward fixed price arrangements with certain customers which provide for the delivery of a specific quantity of fabricated aluminum products over a specified future period of time. In order to establish the cost of primary aluminum for a portion of such sales, the Company may enter into forward and option contracts. In this regard, at December 31, 1995 the Company had purchased 53,300 metric tons of primary aluminum under forward purchase contracts at fixed prices that expire at various times through December 1996. F-25 146 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) At December 31, 1995, the net unrealized gain on the Company's position in aluminum forward sales and option contracts, based on an average price of $1,721 per metric ton ($.78 per pound) of aluminum, and forward foreign exchange contracts was $4.1. The Company is exposed to credit risk in the event of non-performance by other parties to these currency and commodity contracts, but the Company does not anticipate non-performance by any of these counterparties, given their creditworthiness. When appropriate, the Company arranges master netting agreements. 11. 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 $5.3, $.8, and $4.9 for the years ended December 31, 1995, 1994, and 1993, respectively. Sales of more than 10% of total revenue to a single customer were nil in 1995 and were $58.2 and $40.7 of bauxite and alumina and $147.7 and $145.7 of aluminum processing for the years ended December 31, 1994, and 1993, respectively. Export sales were less than 10% of total revenue during the years ended December 31, 1995, 1994, and 1993, respectively. 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................ 1995 $1,589.5 $ 191.7 $239.4 $217.2 $2,237.8 1994 1,263.2 169.9 180.0 168.4 1,781.5 1993 1,177.8 155.4 207.5 178.4 1,719.1 Sales and transfers among geographic areas......... 1995 $ 79.6 $191.5 $ (271.1) 1994 98.7 139.4 (238.1) 1993 88.2 79.6 (167.8) Equity in income (losses) of unconsolidated affiliates............... 1995 $ (.2) $ 19.4 $ 19.2 1994 .2 (2.1) (1.9) 1993 (3.3) (3.3) Operating income (loss).... 1995 $ 32.5 $ 9.8 $ 83.5 $ 85.3 $ 211.1 1994 (128.5) 9.9 18.3 44.4 (55.9) 1993 (145.6) (11.8) 21.9 12.4 (123.1) Investment in and advances to unconsolidated affiliates............... 1995 $ 1.2 $ 27.1 $149.9 $ 178.2 1994 1.2 28.8 139.7 169.7 Identifiable assets........ 1995 $2,019.0 $ 381.9 $196.5 $216.9 $2,814.3 1994 1,929.3 364.8 200.0 199.5 2,693.6
F-26 147 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, 1995 and 1994, and for the years ended December 31, 1995, 1994, and 1993, is as follows:
YEAR ENDED BAUXITE & ALUMINUM DECEMBER 31, ALUMINA PROCESSING CORPORATE TOTAL ------------ --------- -------- --------- -------- Net sales to unaffiliated customers......................... 1995 $ 514.2 $1,723.6 $2,237.8 1994 432.5 1,349.0 1,781.5 1993 423.4 1,295.7 1,719.1 Intersegment sales.................. 1995 $ 159.7 $ 159.7 1994 146.8 146.8 1993 129.4 129.4 Equity in income (losses) of unconsolidated affiliates......... 1995 $ 3.6 $ 15.8 $ (.2) $ 19.2 1994 (4.7) 2.6 .2 (1.9) 1993 (2.5) (.8) (3.3) Operating income (loss)............. 1995 $ 54.0 $ 238.9 $ (81.8) $ 211.1 1994 19.8 (8.4) (67.3) (55.9) 1993 (4.5) (46.3) (72.3) (123.1) Effect of changes in accounting principles on operating income (loss) SFAS 106.......................... 1993 $ (2.0) $ (16.1) $ (1.1) $ (19.2) SFAS 109.......................... 1993 (7.7) (7.8) .3 (15.2) Depreciation........................ 1995 $ 31.1 $ 60.4 $ 2.8 $ 94.3 1994 33.5 59.1 2.8 95.4 1993 35.3 59.9 1.9 97.1 Capital expenditures................ 1995 $ 27.3 $ 44.0 $ 8.1 $ 79.4 1994 28.9 39.9 1.2 70.0 1993 35.3 31.2 1.2 67.7 Investment in and advances to unconsolidated affiliates......... 1995 $ 129.9 $ 47.1 $ 1.2 $ 178.2 1994 136.6 31.9 1.2 169.7 Identifiable assets................. 1995 $ 746.0 $1,341.2 $ 727.1 $2,814.3 1994 749.6 1,242.3 701.7 2,693.6
12. 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 guarantees of the Senior Notes and the 12 3/4% Notes (see Note 4). KAAC, KJC, and AJI are wholly owned subsidiaries, which serve as holding companies for the Company's investments in QAL and Alpart. KFC is a wholly owned subsidiary of KAAC, whose principal F-27 148 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) business is making loans to the Company and its subsidiaries. Summary of combined financial information for the Subsidiary Guarantors as of December 31, 1995 and 1994, is as follows: SUMMARY OF COMBINED FINANCIAL POSITION
DECEMBER 31, --------------------- 1995 1994 -------- -------- ASSETS Current assets.................................................. $ 108.0 $ 84.2 Due from the Company............................................ 705.4 683.4 Investments in and advances to unconsolidated affiliates........ 102.8 107.8 Property, plant, and equipment -- net........................... 262.4 258.0 Other assets.................................................... 23.4 28.0 -------- -------- Total................................................. $1,202.0 $1,161.4 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities............................................. $ 180.9 $ 163.2 Due to the Company.............................................. 272.5 281.8 Other long-term liabilities..................................... 51.8 49.6 Long-term debt, net of current maturity......................... 66.3 72.5 Minority interest............................................... 73.6 70.1 Stockholders' equity............................................ 556.9 524.2 -------- -------- Total................................................. $1,202.0 $1,161.4 ======= =======
SUMMARY OF COMBINED OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 1993 ------ ------ ------ Net sales.................................................... $401.4 $354.7 $326.3 Costs and expenses........................................... 366.7 321.4 348.0 ------ ------ ------ Operating income (loss)...................................... 34.7 33.3 (21.7) Other income (expense): Interest and other income (expense)........................ 37.2 (28.0) 26.0 Interest expense........................................... (29.9) (22.3) (20.4) ------ ------ ------ Income (loss) before income taxes, minority interests, and cumulative effect of change in accounting principle........ 42.0 (17.0) (16.1) (Provision) credit for income taxes.......................... (14.8) (6.9) 3.8 Minority interest............................................ 5.5 6.7 7.6 ------ ------ ------ Income (loss) before cumulative effect of change in accounting principle....................................... 32.7 (17.2) (4.7) Cumulative effect of change in accounting principle.......... (11.3) ------ ------ ------ Net income (loss)............................................ $ 32.7 $(17.2) $(16.0) ====== ====== ======
NOTES TO SUMMARY OF COMBINED FINANCIAL INFORMATION FOR THE SUBSIDIARY GUARANTORS Income Taxes. The Subsidiary Guarantors were included in the consolidated federal income tax returns of MAXXAM through June 30, 1993. Effective July 1, 1993, the Subsidiary Guarantors became members of the consolidated federal income tax return group of which Kaiser is the common parent corporation. The F-28 149 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS) taxable income (loss) of the Subsidiary Guarantors for periods beginning on or after July 1, 1993, is included in the consolidated federal income tax returns of Kaiser. The (provision) credit for income taxes is computed as if each Subsidiary Guarantor filed returns on a separate company basis. Effective January 1, 1993, the Subsidiary Guarantors adopted SFAS 109, which required the restatement of 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 cumulative effect of the change in the account principle, as of January 1, 1993, reduced the Subsidiary Guarantors' results of operations by $11.3. Included in Other assets and Other long-term liabilities at December 31, 1995, are $20.9 and $51.8 of deferred income tax assets and liabilities, respectively. Receivables and Payables. At December 31, 1995, receivables from and payables to the Company include $690.6 and $260.9 of interest bearing loans, respectively. The similar amounts at December 31, 1994 were $663.8 and $272.9. Inventory Valuation. Inventories are stated at first-in, first-out (FIFO) cost, not in excess of market. Investments. At December 31, 1995 KAAC held a 28.3% interest in QAL. This investment is accounted for by the equity method. The equity in QAL's loss before income taxes of $3.6 and $4.7 in 1995 and 1994, respectively, is included in the Company's cost of products sold. Foreign Currency. The functional currency of the Subsidiary Guarantors is the United States dollar, and accordingly, translation gains (losses) included in net income (loss) were $14.1, $(42.4), and $5.6 for the years ended December 31, 1995, 1994, and 1993, respectively. 13. SUBSEQUENT EVENTS On October 23, 1996, the Company completed an offering (the "Offering") of $175.0 of 10 7/8% Senior Notes Due 2006 (the "10 7/8% Senior Notes") at 99.5% of their principal amount to yield 10.96% to maturity. Net proceeds from the Offering, after estimated expenses, were approximately $168.9, of which $91.7 was utilized to reduce the outstanding borrowings under the revolving credit facility of the Credit Agreement to zero. The remaining net proceeds (approximately $77.2) were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. On December 23, 1996, the Company completed an offering (the "Series C Offering") of $50.0 of 10 7/8% Series C Senior Notes Due 2006 (the "Series C Notes") at 103.5% of their principal amount to yield 10.30% to maturity. Net proceeds from the Series C Offering, after estimated expenses, were approximately $50.4 which amounts were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. The 10 7/8% Senior Notes and the Series C Notes are both guaranteed on a senior, unsecured basis by the Subsidiary Guarantors as well as by Kaiser Micromill Holdings, LLC ("KMH"), Kaiser Sierra Micromills, LLC ("KSM"), Kaiser Texas Micromill Holdings, LLC ("KTMH") and Kaiser Texas Sierra Micromills, LLC ("KTSM") (KMH, KSM, KTMH and KTSM being collectively referred to as the "New Subsidiary Guarantors") all of which are domestic wholly owned (direct or indirect) subsidiaries of the Company. Following their formation in December 1995, pursuant to provisions of the Indentures to the Senior Notes and the 12 3/4% Notes, on February 1, 1996, the New Subsidiary Guarantors also became guarantors of the Senior Notes and 12 3/4% Notes. The New Subsidiary Guarantors had only nominal amounts of assets, liabilities and equity at December 31, 1995, and had no 1995 revenues or operations, other than limited amounts of general and administrative expense. Based on the above, the Summary of Combined Financial Position and the Summary of Combined Operations of the Subsidiary Guarantors included in Note 12 have not been restated to include the financial position or results of operations of the New Subsidiary Guarantors as the impact of such restatement would be immaterial. F-29 150 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES QUARTERLY FINANCIAL DATA (UNAUDITED) (IN MILLIONS OF DOLLARS)
QUARTER ENDED --------------------------------------------- MARCH JUNE SEPTEMBER DECEMBER 31 30 30 31 ------ ------ ------ ------ 1995 Net sales.................................... $513.0 $583.4 $550.3 $591.1 Operating income............................. 32.7 63.7 53.4 61.3 Net income................................... 4.8 24.5 13.8 22.2 1994 Net sales.................................... $415.1 $459.5 $461.1 $445.8 Operating income............................. 25.6 14.1 6.8 9.4 Net income................................... 33.5 22.1 19.5 26.5(1)
- --------------- (1) Includes pre-tax charges of approximately $10.3 principally related to establishing additional litigation and environmental reserves in the fourth quarter of 1994. F-30 151 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (IN MILLIONS OF DOLLARS)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------- (UNAUDITED) Assets Current assets: Cash and cash equivalents........................................ $ 21.5 $ 21.7 Receivables...................................................... 264.3 310.2 Inventories...................................................... 545.5 525.7 Prepaid expenses and other current assets........................ 111.7 76.6 --------- --------- Total current assets..................................... 943.0 934.2 Investments in and advances to unconsolidated affiliates........... 174.6 178.2 Property, plant, and equipment -- net.............................. 1,126.4 1,109.6 Deferred income taxes.............................................. 284.4 268.8 Other assets....................................................... 343.1 323.5 --------- --------- Total.................................................... $ 2,871.5 $ 2,814.3 ========= ========= Liabilities & Stockholders' Equity Current liabilities: Accounts payable................................................. $ 160.5 $ 184.5 Accrued interest................................................. 13.6 32.0 Accrued salaries, wages, and related expenses.................... 64.9 105.3 Accrued postretirement medical benefit obligation -- current portion....................................................... 46.8 46.8 Other accrued liabilities........................................ 150.9 126.2 Payable to affiliates............................................ 96.4 95.3 Long-term debt -- current portion................................ 8.9 8.9 Notes payable to parent -- current portion....................... 8.6 10.7 --------- --------- Total current liabilities................................ 550.6 609.7 Long-term liabilities.............................................. 558.3 548.5 Accrued postretirement medical benefit obligation.................. 727.7 734.0 Long-term debt..................................................... 858.4 749.2 Note payable to parent............................................. 2.1 8.6 Minority interests................................................. 91.0 91.4 Redeemable preference stock........................................ 26.7 29.6 Stockholders' equity: Preference stock................................................. 1.7 1.7 Common stock..................................................... 15.4 15.4 Additional capital............................................... 1,804.7 1,730.7 Accumulated deficit.............................................. (198.1) (210.9) Additional minimum pension liability............................. (13.8) (13.8) Less: Note receivable from parent................................ (1,553.2) (1,479.8) --------- --------- Total stockholders' equity............................... 56.7 43.3 --------- --------- Total.................................................... $ 2,871.5 $ 2,814.3 ========= =========
The accompanying notes to interim consolidated financial statements are an integral part of these statements. F-31 152 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1995 -------- -------- Net sales............................................................. $1,652.1 $1,646.7 -------- -------- Costs and expenses: Cost of products sold............................................... 1,394.8 1,329.8 Depreciation........................................................ 72.5 71.1 Selling, administrative, research and development, and general...................................................... 96.0 96.0 -------- -------- Total costs and expenses.................................... 1,563.3 1,496.9 -------- -------- Operating income...................................................... 88.8 149.8 Other income (expense): Interest expense.................................................... (68.3) (71.3) Other -- net........................................................ 3.1 (9.8) -------- -------- Income before income taxes and minority interests..................... 23.6 68.7 Provision for income taxes............................................ (8.4) (24.6) Minority interests.................................................... .5 (1.0) -------- -------- Net income............................................................ $ 15.7 $ 43.1 ======== ========
The accompanying notes to interim consolidated financial statements are an integral part of these statements. F-32 153 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (IN MILLIONS OF DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1996 1995 ------ ------ Cash flows from operating activities: Net income............................................................... $ 15.7 $ 43.1 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation.......................................................... 72.5 71.1 Amortization of excess investment over equity in net assets of unconsolidated affiliates............................................ 8.7 8.7 Amortization of deferred financing costs and discount on long-term debt................................................................. 4.1 4.1 Equity in income of unconsolidated affiliates......................... (7.5) (17.2) Minority interests.................................................... (.4) 1.0 Decrease (increase) in receivables.................................... 36.6 (86.7) Increase in inventories............................................... (19.8) (62.6) (Increase) decrease in prepaid expenses and other assets.............. (38.1) 70.5 Decrease in accounts payable.......................................... (24.1) (5.2) Decrease in accrued interest.......................................... (18.4) (18.0) (Decrease) increase in payable to affiliates and accrued liabilities.......................................................... (18.8) 12.3 Decrease in accrued and deferred income taxes......................... (18.6) (8.5) Other................................................................. 3.7 8.2 ------ ------ Net cash (used for) provided by operating activities............. (4.4) 20.8 ------ ------ Cash flows from investing activities: Net proceeds from disposition of property and investments................ 1.6 6.9 Expenditures for property, plant, and equipment.......................... (90.8) (44.2) Investments in unconsolidated affiliates................................. (.3) (9.0) Redemption fund for preference stock..................................... (1.3) (.2) ------ ------ Net cash used for investing activities........................... (90.8) (46.5) ------ ------ Cash flows from financing activities: Borrowings (repayments) under revolving credit facility, net............. 118.1 55.6 Repayments of long-term debt............................................. (9.0) (8.5) Payments to parent....................................................... (8.6) (13.4) Incurrence of financing costs............................................ (.8) Dividends paid........................................................... (.6) (.5) Redemption of preference stock........................................... (5.2) (8.8) Capital contribution..................................................... .3 1.2 ------ ------ Net cash provided by financing activities........................ 95.0 24.8 ------ ------ Net decrease in cash and cash equivalents during the period................ (.2) (.9) Cash and cash equivalents at beginning of period........................... 21.7 12.0 ------ ------ Cash and cash equivalents at end of period................................. $ 21.5 $ 11.1 ------ ------ Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest............................... $ 82.7 $ 85.2 Income taxes paid........................................................ 22.4 23.6 Tax allocation payments to Kaiser Aluminum Corporation................... 2.7 3.0 Tax allocation payments to MAXXAM Inc.................................... 1.1
The accompanying notes to interim consolidated financial statements are an integral part of these statements. F-33 154 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS OF DOLLARS, EXCEPT PRICES AND PER SHARE AMOUNTS) 1. GENERAL Kaiser Aluminum & Chemical Corporation (the "Company") is the principal operating subsidiary of Kaiser Aluminum Corporation ("Kaiser"). Kaiser is a subsidiary of MAXXAM Inc. ("MAXXAM"). MAXXAM owns approximately 62% of the Kaiser's common stock, assuming the conversion of each outstanding share of 8.255% PRIDES, Convertible Preferred Stock into one share of Kaiser's common stock, with the remaining approximately 38% publicly held. The foregoing unaudited interim 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, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1995. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented. Operating results for the quarter and the nine month period ended September 30, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 2. INVENTORIES The classification of inventories is as follows:
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ Finished fabricated aluminum products....................... $ 108.4 $ 91.5 Primary aluminum and work in process........................ 190.0 195.9 Bauxite and alumina......................................... 122.5 119.6 Operating supplies and repair and maintenance parts......... 124.6 118.7 ------- ------ Total............................................. $ 545.5 $525.7 ======= ======
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. CONTINGENCIES Environmental Contingencies -- The Company is subject to a number of environmental laws, to fines or penalties assessed for alleged breaches of the environmental laws, and to claims and litigation based upon such laws. The Company currently is subject to a number of lawsuits under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments Reauthorization Act of 1986 ("CERCLA"), and, 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. Based upon the Company's evaluation of these and other environmental matters, the Company has established environmental accruals primarily related to potential solid waste disposal and soil and groundwater remediation matters. At September 30, 1996, the balance of such accruals, which is primarily included in Long-term liabilities, was $32.9. These environmental accruals represent the Company's estimate of costs reasonably expected to be incurred based on presently enacted laws and regulations, currently available facts, F-34 155 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) existing technology, and the Company's assessment of the likely remediation action to be taken. The Company expects that these remediation actions will be taken over the next several years and estimates that annual expenditures to be charged to these environmental accruals will be approximately $2.0 to $10.0 for the years 1996 through 2000 and an aggregate of approximately $7.0 thereafter. As additional facts are developed and definitive remediation plans and necessary regulatory approvals for implementation of remediation are established or alternative technologies are developed, changes in these and other factors may result in actual costs exceeding the current environmental accruals. The Company believes that it is reasonably possible that costs associated with these environmental matters may exceed current accruals by amounts that could range, in the aggregate, up to an estimated $26.5 and that the factors upon which a substantial portion of this estimate is based are expected to be resolved in early 1997. While uncertainties are inherent in the final outcome of these environmental matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. Asbestos Contingencies -- The Company is a defendant in a number of lawsuits, some of which involve claims of multiple persons, in which the plaintiffs allege that certain of their injuries were caused by, among other things, exposure to asbestos during, and as a result of, their employment or association with the Company or exposure to products containing asbestos produced or sold by the Company. The lawsuits generally relate to products the Company has not manufactured for at least 15 years. At September 30, 1996, the number of such lawsuits pending was approximately 75,900, as compared to 59,700 at December 31, 1995. During the year 1995, approximately 41,700 of such claims were received and 7,200 were settled or dismissed. During the nine months ended September 30, 1996, approximately 20,000 of such claims were received and 3,800 were settled or dismissed. Based on past experience and reasonably anticipated future activity, the Company has established an accrual for estimated asbestos-related costs for claims filed and estimated to be filed and settled through 2008. There are inherent uncertainties involved in estimating asbestos-related costs, and the Company's actual costs could exceed these estimates. The Company's accrual was calculated based on the current and anticipated number of asbestos-related claims, the prior timing and amounts of asbestos-related payments, and the advice of Wharton Levin Ehrmantraut Klein & Nash, P.A. with respect to the current state of the law related to asbestos claims. Accordingly, an estimated asbestos-related cost accrual of $160.0, before consideration of insurance recoveries, is included primarily in Long-term liabilities at September 30, 1996. The Company estimates that annual future cash payments in connection with such litigation will be approximately $13.0 to $20.0 for each of the years 1996 through 2000, and an aggregate of approximately $78.0 thereafter through 2008. While the Company does not presently believe there is a reasonable basis for estimating such costs beyond 2008 and, accordingly, no accrual has been recorded for such costs which may be incurred beyond 2008, there is a reasonable possibility that such costs may continue beyond 2008, and such costs may be substantial. A substantial portion of the asbestos-related claims that were filed and served on the Company during 1995 and 1996 were filed in Texas. The Company has been advised by its counsel that, although there can be no assurance, the increase in pending claims may have been attributable in part to tort reform legislation in Texas. Although asbestos-related claims are currently exempt from certain aspects of the Texas tort reform legislation, management has been advised that efforts to remove the asbestos-related exemption in the tort reform legislation, relating to the doctrine of forum non conveniens, as well as other developments in the legislative and legal environment in Texas, may be responsible for the accelerated pace of new claims experienced in late 1995 and its continuance in 1996, albeit at a somewhat reduced rate. The Company believes that it has insurance coverage available to recover a substantial portion of its asbestos-related costs. Claims for recovery from some of the Company's insurance carriers are currently F-35 156 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) subject to pending litigation and other carriers have raised certain defenses, which have resulted in delays in recovering costs from insurance carriers. The timing and amount of ultimate recoveries from these insurance carriers are dependent upon the resolution of these disputes. The Company believes, based on prior insurance-related recoveries in respect of asbestos-related claims, existing insurance policies, and the advice of Thelen, Marrin, Johnson & Bridges with respect to applicable insurance coverage law relating to the terms and conditions of those policies, that substantial recoveries from the insurance carriers are probable. Accordingly, an estimated aggregate insurance recovery of $142.3, determined on the same basis as the asbestos-related cost accrual, is recorded primarily in Other assets at September 30, 1996. Management continues to monitor claims activity, the status of the lawsuits (including settlement initiatives), legislative progress, and costs incurred in order to ascertain whether an adjustment to the existing accruals should be made to the extent that historical experience may differ significantly from the Company's underlying assumptions. While uncertainties are inherent in the final outcome of these asbestos matters and it is presently impossible to determine the actual costs that ultimately may be incurred and insurance recoveries that will be received, management currently believes that, based on the factors discussed in the preceding paragraphs, the resolution of the asbestos-related uncertainties and the incurrence of asbestos-related costs net of related insurance recoveries should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. Other Contingencies -- The Company is involved in various other claims, lawsuits, and other proceedings relating to a wide variety of matters. While uncertainties are inherent in the final outcome of such matters, and it is presently impossible to determine the actual costs that ultimately may be incurred, management currently believes that the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. 4. DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED 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. The Company enters into primary aluminum hedging transactions from time to time in the normal course of business. Primary aluminum hedging transactions are designed to mitigate the Company's exposure to declines in the market price of primary aluminum, while retaining the ability to participate in favorable environments that may materialize. The Company has employed strategies which include forward sales and purchases of primary aluminum at fixed prices and the purchase or sale of options for primary aluminum. At September 30, 1996, the Company had sold forward, at fixed prices, approximately 69,000 and 93,600 tons* of primary aluminum in excess of its projected 1997 and 1998 internal fabrication requirements respectively, and had purchased put options to establish a minimum price for 66,000 and 45,000 tons of such 1997 and 1998 surplus, respectively. During October 1996, the Company purchased put options to establish a minimum price for an additional 126,000 tons of primary aluminum in excess of its projected 1997 internal fabrication requirements and entered into option contracts that established a price range for an additional 48,000 tons of the Company's 1998 surplus. In addition, at September 30, 1996, the Company had sold forward approximately 73% and 85% of the alumina available to it in excess of its projected internal smelting requirements for 1997 and 1998, respectively. Virtually all of such 1997 and 1998 sales were made at prices indexed to future prices of primary aluminum. From time to time, the Company also enters into forward purchase and option transactions to limit its exposure to increases in natural gas and fuel oil costs. As of September 30, 1996, the Company had option - --------------- * All references to tons in this report refer to metric tons of 2,204.6 pounds. F-36 157 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) contracts for the purchase of approximately 40,000 MMBtu of natural gas per day during the first quarter of 1997, and a combination of fixed price purchase and option contracts for 20,000 MMBtu of natural gas per day for the period April 1997 to December 1998. At September 30, 1996, the Company also held option contracts for 54,000 barrels of fuel oil per month for the period January 1997 through December 1998. The Company also enters into hedging transactions in the normal course of business that are designed to reduce its exposure to fluctuations in foreign exchange rates. At September 30, 1996, the Company had net forward foreign exchange contracts totaling approximately $81.6 for the purchase of 110.0 Australian dollars from January 1997 through June 1998, in respect of its commitments for 1997 and 1998 expenditures denominated in Australian dollars. At September 30, 1996, the net unrealized gain on the Company's position in aluminum forward sales and option contracts, based on an average price of $1,481 per ton ($.67 per pound) of primary aluminum, natural gas and fuel oil forward purchase and option contracts, and forward foreign exchange contracts, was approximately $46.4. See Note 10 of the Notes to Consolidated Financial Statements for the year ended December 31, 1995. 5. SUBSEQUENT EVENTS On October 23, 1996, the Company completed an offering (the "Offering") of $175.0 principal amount of 10 7/8% Senior Notes due 2006 (the "10 7/8% Senior Notes") at 99.5% of their principal amount to yield 10.96% at maturity. Net proceeds from the Offering, after estimated expenses, were approximately $168.9, of which $91.7 were utilized to reduce the outstanding borrowings under the revolving credit facility of the Credit Agreement to zero. The remaining net proceeds (approximately $77.2) were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. The 10 7/8% Senior Notes were not registered under the Securities Act of 1933, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The 10 7/8% Senior Notes rank pari passu with outstanding indebtedness under the Company's Credit Agreement dated as of February 15, 1994, as amended (the "Credit Agreement") and the Company's 9 7/8% Senior Notes due 2002 (the 9 7/8% Senior Notes) in right and priority of payment and are guaranteed on a senior, unsecured basis by certain of the Company's subsidiaries (the "Subsidiary Guarantors"). Pursuant to an agreement with the initial purchasers of the 10 7/8% Senior Notes, the Company and the Subsidiary Guarantors filed a registration statement (the "Registration Statement") with the Securities & Exchange Commission (the "Commission") in November 1996 with respect to a registered offer to exchange the 10 7/8% Senior Notes for new notes with substantially identical terms (the "Exchange Offer"). The Registration Statement was declared effective by the Commission on December 11, 1996 and it is presently anticipated that the Exchange Offer will be consummated on or about February 5, 1997. The Exchange Offer will be made only by means of a prospectus. On December 23, 1996, the Company completed an offering (the "Series C Offering") of $50.0 of 10 7/8% Series C Senior Notes due 2006 (the "Series C Notes") at 103.5% of their principal amount to yield 10.30% to maturity. Net proceeds from the Series C Offering, after estimated expenses, were $50.4 which amounts were invested in short-term investments pending their application for working capital and general corporate purposes, including capital projects. The Series C Notes rank pari passu with the outstanding indebtedness under the Credit Agreement, the 9 7/8% Senior Notes and the 10 7/8% Senior Notes. On a pro forma basis, at September 30, 1996, after giving effect to the Offering and the Series C Offering and the application of proceeds therefrom, the Company's total consolidated indebtedness would have increased from $878.0 to $972.7, borrowing capacity of $273.1 would have been available for use under the Credit Agreement and the Company would have had available additional cash proceeds from the Offering and the Series C Offering of $88.1. F-37 158 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During October 1996, the Credit Agreement was amended to, among other things, provide for the Offering of the 10 7/8% Senior Notes discussed above and to modify certain of the financial covenants contained in the Credit Agreement. During December 1996, the Credit Agreement was again amended to provide for the Series C Offering. F-38 159 =============================================================================== ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE AGENT AS FOLLOWS: By Mail: FIRST TRUST NATIONAL ASSOCIATION 180 E. 5TH STREET ST. PAUL, MINNESOTA 55101 ATTENTION: PHYLLIS MEATH, SPECIALIZED FINANCE By Hand/Overnight Express: FIRST TRUST NATIONAL ASSOCIATION 180 E. 5TH STREET ST. PAUL, MINNESOTA 55101 ATTENTION: PHYLLIS MEATH, SPECIALIZED FINANCE Facsimile Transmission: (612) 244-1537 To confirm receipt: (612) 244-1197 (ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY BY HAND, OVERNIGHT COURIER OR REGISTERED OR CERTIFIED MAIL) NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. =============================================================================== =============================================================================== OFFER TO EXCHANGE ALL OUTSTANDING 10 7/8% SERIES C SENIOR NOTES DUE 2006 ($50,000,000 PRINCIPAL AMOUNT) FOR 10 7/8% SERIES D SENIOR NOTES DUE 2006. KAISER ALUMINUM & CHEMICAL CORPORATION ------------------------ PROSPECTUS ------------------------ , 1997 =============================================================================== 160 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Kaiser Aluminum & Chemical Corporation (the "Company"), Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation and Kaiser Finance Corporation (collectively, with the Company, the "Delaware Corporate Registrants") are Delaware corporations. 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 certificates of incorporation of each of the Delaware Registrants contain 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 was or 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, 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. 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. 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 certificates of incorporation and by-laws of each of the Delaware Registrants provide for indemnification of their respective directors, officers and employees to the fullest extent authorized by law. Section 18-107 of the Delaware Limited Liability Company Act (the "DLLCA") provides that, subject to such standards and restrictions, if any, as are set forth in its limited liability company agreement, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any claims and demands whatsoever. The restated limited liability company agreements of Kaiser Sierra Micromills, LLC and Kaiser Micromill Holdings, LLC (collectively, the "Delaware LLC Registrants"), each of the which are limited liability companies formed under the DLLCA, contain provisions which generally require each of them, respectively, to indemnify any person who was or is a party or is threatened to be made a party to any pending or completed action or proceeding by reason of the fact that he or she was a manager, officer, employee or agent of such company in substantially the same manner as contemplated by Section 145 of the DGCL. Article 2.20 of the Texas Limited Liability Company Act (the "TLLCA") provides that a limited liability company shall have the power to indemnify managers, officers, employees, agents and others to the extent that a corporation may indemnify directors, employees, agents and others under the Texas Business Corporation Act (the "TBCA") and shall, to the extent indemnification is required under the TBCA for directors, employees, agents and others, indemnify managers, officers, employees, agents and others to the II-1 161 same extent. Article 2.02-1 of the TBCA contains indemnification provisions similar to those found in Section 145 of the DGCL, and the restated regulations of Kaiser Texas Sierra Micromills, LLC and Kaiser Texas Micromill Holdings, LLC (collectively, the "Texas LLC Registrants"), each of which are limited liability companies formed under the TLLCA, contain provisions which generally require each of them, respectively, to indemnify any person who was or is a party or is threatened to be made a party to any pending or completed action or proceeding by reason of the fact that he or she was a manager, officer, employee or agent of such company to the fullest extent permitted by the TLLCA and the TBCA. In addition, the Company has entered into indemnification agreements with all of its directors and officers who are also officers, directors or managers of the other Delaware Corporate Registrants, the Delaware LLC Registrants and the Texas LLC Registrants which provide that the Company will indemnify such individuals if and whenever they were or 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 Company or any of its subsidiaries, or are or were serving at the request of the Company 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 Company in settlement of a proceeding brought in the name and on behalf of the Company or another corporation, partnership, joint venture, trust or other enterprise for which they are or were serving at the request of the Company 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 Company for their benefit. For these purposes, service at the request of the Registrant 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 Company 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. Subject to certain limitations and exceptions, the Company has insurance coverage for losses by any person who is or hereafter may be a director or officer of the Company arising from claims against that person for any wrongful act in his capacity as a director or officer of the Company or any of its subsidiaries. The policy also provides for reimbursement to the Company for indemnification given by the Company pursuant to common or statutory law or its Certificate of Incorporation or By-laws to any such person arising from any such claims. The foregoing discussion is qualified in its entirety by reference to the DGCL, the DLLCA, the TBCA, the TLLCA and the referenced certificates of incorporation, by-laws, restated limited liability company agreements, restated regulations and indemnification agreements. II-2 162 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of Kaiser Aluminum & Chemical Corporation (the "Company" or "KACC"), dated July 25, 1989 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1, dated August 25, 1989, filed by KACC, Registration No. 33-30645). 3.2 Certificate of Retirement of KACC, dated February 7, 1990 (incorporated by reference to Exhibit 3.2 to the Report on Form 10-K for the period ended December 31, 1989, filed by KACC, File No. 1-3605). 3.3 By-laws of KACC, amended and restated as of December 15, 1994 (incorporated by reference to Exhibit 3.3 to the Report on Form 10-K for the period ended December 31, 1994, filed by KACC, File No. 1-3605). 3.4 Certificate of Incorporation of Kaiser Alumina Australia Corporation, dated April 27, 1964 (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.5 Certificate of Amendment of Certificate of Incorporation of Kaiser Alumina Australia Corporation, dated September 12, 1968 (incorporated by reference to Exhibit 3.5 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.6 By-Laws of Kaiser Alumina Australia Corporation, amended as of October 3, 1989 (incorporated by reference to Exhibit 3.6 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.7 Certificate of Incorporation of Kaiser Finance Corporation, dated April 26, 1990 (incorporated by reference to Exhibit 3.7 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.8 By-Laws of Kaiser Finance Corporation, dated May 4, 1990 (incorporated by reference to Exhibit 3.8 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.9 Certificate of Incorporation of Alpart Jamaica Inc., dated May 10, 1966 (incorporated by reference to Exhibit 3.9 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.10 Certificate of Amendment of Certificate of Incorporation, dated October 4, 1985, amending the Certificate of Incorporation of Anaconda Jamaica Inc. (incorporated by reference to Exhibit 3.10 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.11 By-Laws of Alpart Jamaica Inc., amended as of October 3, 1989 (incorporated by reference to Exhibit 3.11 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.12 Certificate of Incorporation of Kaiser Jamaica Corporation, dated June 16, 1966 (incorporated by reference to Exhibit 3.12 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.13 By-Laws of Kaiser Jamaica Corporation, amended as of October 3, 1989 (incorporated by reference to Exhibit 3.13 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.14 Certificate of Formation of Kaiser Micromill Holdings, LLC, dated December 11, 1995 (incorporated by reference to Exhibit 3.14 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931).
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EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 3.15 Restated Limited Liability Company Agreement of Kaiser Micromill Holdings, LLC, dated January 23, 1996 (incorporated by reference to Exhibit 3.15 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.16 Certificate of Formation of Kaiser Sierra Micromills, LLC, dated December 11, 1995 (incorporated by reference to Exhibit 3.16 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.17 Restated Limited Liability Company Agreement of Kaiser Sierra Micromills, LLC, dated January 23, 1996 (incorporated by reference to Exhibit 3.17 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.18 Articles of Organization of Kaiser Texas Micromill Holdings, LLC, dated December 11, 1995 (incorporated by reference to Exhibit 3.18 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.19 Restated Regulations of Kaiser Texas Micromill Holdings, LLC, dated January 23, 1996 (incorporated by reference to Exhibit 3.19 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.20 Articles of Organization of Kaiser Texas Sierra Micromills, LLC, dated December 11, 1995 (incorporated by reference to Exhibit 3.20 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.21 Restated Regulations of Kaiser Texas Sierra Micromills, LLC, dated January 23, 1996 (incorporated by reference to Exhibit 3.21 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.22 Restated Certificate of Incorporation of Kaiser Alumina Australia Corporation, dated December 6, 1996 (incorporated by reference to Exhibit 3.22 to Amendment No. 1 to the Registration Statement on Form S-4, dated December 10, 1996, filed by KACC, Registration No. 333-15931). 3.23 Restated Certificate of Incorporation of Alpart Jamaica Inc., dated December 6, 1996 (incorporated by reference to Exhibit 3.23 to Amendment No. 1 to the Registration Statement on Form S-4, dated December 10, 1996, filed by KACC, Registration No. 333-15931). 4.1 Indenture, dated as of October 23, 1996 (the "Indenture"), among the Company, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and First Trust National Association, as Trustee, regarding the Company's 10 7/8% Senior Notes due 2006 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by the Company, File No. 1-3605). 4.2 Purchase Agreement, dated October 17, 1996, among the Company, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and the initial purchasers of the Company's 10 7/8% Senior Notes due 2006 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931).
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EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 4.3 Registration Rights Agreement, dated as of October 23, 1996, among the Company, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and the initial purchasers of the Company's 10 7/8% Senior Notes due 2006 (incorporated by reference to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by the Company, File No. 1-3605). *4.4 Indenture, dated as of December 23, 1996 (the "Indenture"), among the Company, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and First Trust National Association, as Trustee, regarding the Company's 10 7/8% Series C Senior Notes due 2006. *4.5 Registration Rights Agreement, dated as of October 23, 1996, among the Company, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and the initial purchaser of the Company's 10 7/8% Series C Senior Notes due 2006. 4.6 Indenture, dated as of February 1, 1993, among KACC, 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 KACC's 12 3/4% Senior Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.1 to the Report on Form 10-K for the period ended December 31, 1992, filed by KACC, File No. 1-3605). 4.7 First Supplemental Indenture, dated as of May 1, 1993, to the Indenture, dated as of February 1, 1993 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 4.8 Second Supplemental Indenture, dated as of February 1, 1996, to the Indenture, dated as of February 1, 1993 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-K for the period ended December 31, 1995, filed by the Company, File No. 1-3605). 4.9 Indenture, dated as of February 17, 1994, among KACC, 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 KACC's 9 7/8% Senior Notes Due 2002 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 4.10 First Supplemental Indenture, dated as of February 1, 1996, to the Indenture, dated as of February 17, 1994 (incorporated by reference to Exhibit 4.5 to the Report on Form 10-K for the period ended December 31, 1995, filed by the Company, File No. 1-3605). 4.11 Credit Agreement, dated as of February 15, 1994, among Kaiser Aluminum Corporation ("KAC"), KACC, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.4 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447).
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EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 4.12 First Amendment to Credit Agreement, dated as of July 21, 1994, amending the Credit Agreement, dated as of February 15, 1994, among KAC, KACC, the financial institutions party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1994, filed by KAC, File No. 1-9447). 4.13 Second Amendment to Credit Agreement, dated as of March 10, 1995, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, KACC, the financial institutions party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.6 to the Report on Form 10-K for the period ended December 31, 1994, filed by KAC, File No. 1-9447). 4.14 Third Amendment to Credit Agreement, dated as of July 20, 1995, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, KACC, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1995, filed by KAC, File No. 1-9447). 4.15 Fourth Amendment to Credit Agreement, dated as of October 17, 1995, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, KACC, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended September 30, 1995, filed by KAC, File No. 1-9447). 4.16 Fifth Amendment to Credit Agreement, dated as of December 11, 1995, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, KACC, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.11 to the Report on Form 10-K for the period ended December 31, 1995, filed by the Company, File No. 1-3605). 4.17 Sixth Amendment to Credit Agreement, dated as of October 1, 1996, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, the Company, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by the Company, File No. 1-3605). *4.18 Seventh Amendment to Credit Agreement, dated as of December 17, 1996, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, the Company, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent. 4.19 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 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KAC , File No. 1-9447). 4.20 Deposit Agreement between KAC and The First National Bank of Boston, dated as of June 30, 1993 (incorporated by reference to Exhibit 4.4 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KAC, File No. 1-9447). 4.21 Intercompany Note between KAC and KACC (incorporated by reference to Ex- hibit 4.2 to Amendment No. 5 to the Registration Statement on Form S-1, dated December 13, 1989, filed by KACC, Registration No. 33-30645). 4.22 Senior Subordinated Intercompany Note between KACC and a subsidiary of MAXXAM, dated December 15, 1992 (incorporated by reference to Exhibit 4.10 to the Report on Form 10-K for the period ended December 31, 1994, filed by KAC, File No. 1-9447).
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EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 4.23 Certificate of Designations of 8.255% PRIDES, Convertible Preferred Stock of KAC, dated February 17, 1994 (incorporated by reference to Exhibit 4.21 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 4.24 Senior Subordinated Intercompany Note between KAC and KACC dated Febru- ary 15, 1994 (incorporated by reference to Exhibit 4.22 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 4.25 Senior Subordinated Intercompany Note between KAC and KACC dated March 17, 1994 (incorporated by reference to Exhibit 4.23 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). KACC 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 KACC and its subsidiaries on a consolidated basis. KACC agrees and undertakes to furnish a copy of any such instrument to the Securities and Exchange Commission upon its request. *5. Opinion of Kramer, Levin, Naftalis & Frankel with respect to the Notes and the Guarantees. 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 KACC (incorporated by refer- ence to Exhibit 10.21 to Amendment No. 6 to the Registration Statement on Form S-1, dated December 14, 1989, filed by KACC, Registration No. 33-30645). 10.3 Tax Allocation Agreement between KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to Amendment No. 2 to the Registration Statement on Form S-1, dated June 11, 1991, filed by KAC, Registration No. 33-37895). 10.4 Tax Allocation Agreement, dated as of June 30, 1993, between KACC and KAC (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 10.5 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 KAC, par value $.33 1/3 per share). 10.6 Agreement, dated as of June 30, 1993, between KAC and MAXXAM (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). Executive Compensation Plans and Arrangements [Exhibits 10.7-10.22, inclusive] 10.7 KACC's Bonus Plan (incorporated by reference to Exhibit 10.25 to Amendment No. 6 to the Registration Statement on Form S-1, dated December 14, 1989, filed by KACC, Registration No. 33-30645). 10.8 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 10.9 Kaiser 1995 Employee Incentive Compensation Program (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended March 31, 1995, filed by KAC, File No. 1-9447).
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EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 10.10 Kaiser 1995 Executive Incentive Compensation Program (incorporated by reference to Exhibit 99 to the Proxy Statement, dated April 26, 1995, filed by KAC, File No. 1-9447). 10.11 Employment Agreement, dated April 1, 1993, among KAC, KACC, and George T. Haymaker, Jr. (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended March 31, 1993, filed by KAC, File No. 1-9447). 10.12 First Amendment to Employment Agreement by and between the Company, KAC and George T. Haymaker, Jr. (incorporated by reference to Exhibit 10 to the Report on Form 10-Q for the quarterly period ended June 30, 1996, filed by the Company, File No. 1-3605). 10.13 Promissory Note, dated October 4, 1990, by Robert W. Irelan and Barbara M. Irelan to KACC (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). 10.14 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). 10.15 Promissory Note, dated July 19, 1990, by Anthony R. Pierno to MAXXAM (incorporated by reference to Exhibit 10.31 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.16 Promissory Note, dated July 20, 1993, between MAXXAM and Byron L. Wade (incorporated by reference to Exhibit 10.59 to Form 10-K for the period ended December 31, 1993, filed MAXXAM, File No. 1-3924). 10.17 Employment Agreement, dated August 20, 1993, between KACC and Robert E. Cole (incorporated by reference to Exhibit 10.63 to Form 10-K for the period ended December 31, 1993, filed by MAXXAM, File No. 1-3924). 10.18 Compensation Agreement, dated July 18, 1994, between KACC and Larry L. Watts (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1994, filed by KAC, File No. 1-9447). 10.19 Compensation Agreement, dated July 18, 1994, between KACC and Geoff S. Smith (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1994, filed by KAC, File 1-9447). 10.20 Letter Agreement, dated January 1995, between KAC and Charles E. Hurwitz, granting Mr. Hurwitz stock options under the Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.17 to the Report on Form 10-K for the period ended December 31, 1994, filed by KAC, File No. 1-9447). 10.21 Form of letter agreement with persons granted stock options under the Kaiser 1993 Omnibus Stock Incentive Plan to acquire shares of KAC common stock (incorporated by reference to Exhibit 10.18 to the Report on Form 10-K for the period ended December 31, 1994, filed by KAC, File No. 1-9447). 10.22 Employment Agreement, dated as of September 1, 1996, by and between the Company and Jack A. Hockema (incorporated by reference to Exhibit 10 to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by the Company, File No. 1-3605). *12 Computation of consolidated ratio of earnings to fixed charges. 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Report on Form 10-K for the period ended December 31, 1995, filed by the Company, File No. 1-3605). *23.1 Consent of Arthur Andersen LLP.
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EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 23.2 Consent of Kramer, Levin, Naftalis & Frankel (contained in Exhibit 5). *23.3 Consent of Wharton Levin Ehrmantraut Klein & Nash, P.A. *23.4 Consent of Thelen, Marrin, Johnson & Bridges. *25 Form T-1 Statement of Eligibility of First Trust National Association, as trustee. *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery.
- --------------- * Filed herewith. 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 22. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-9 169 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, KAISER ALUMINUM & CHEMICAL CORPORATION, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/ GEORGE T. HAYMAKER, JR. ----------------------------------------------- George T. Haymaker, Jr., Chairman of the Board, President, and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS 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. Chairman of the Board, Chief December 31, 1996 - --------------------------------------------- Executive Officer, George T. Haymaker, Jr. President, and Director /s/ JOHN T. LA DUC Vice President and Chief December 31, 1996 - --------------------------------------------- Financial Officer John T. La Duc (Principal Financial Officer) /s/ ARTHUR S. DONALDSON Controller (Principal December 31, 1996 - --------------------------------------------- Accounting Officer) Arthur S. Donaldson /s/ CHARLES E. HURWITZ Director December 31, 1996 - --------------------------------------------- Charles E. Hurwitz /s/ EZRA G. LEVIN Director December 31, 1996 - --------------------------------------------- Ezra G. Levin /s/ ROBERT MARCUS Director December 31, 1996 - --------------------------------------------- Robert Marcus - --------------------------------------------- Director Robert J. Petris /s/ ROBERT J. CRUIKSHANK Director December 31, 1996 - --------------------------------------------- Robert J. Cruikshank
II-10 170 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, KAISER ALUMINA AUSTRALIA CORPORATION, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. 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 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 December 31, 1996 - --------------------------------------------- (Principal Executive George T. Haymaker, Jr. Officer) /s/ JOHN T. LA DUC Vice President, Chief December 31, 1996 - --------------------------------------------- Financial Officer and John T. La Duc Director (Principal Financial Officer) /s/ JOSEPH A. BONN Vice President and Director December 31, 1996 - --------------------------------------------- Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General December 31, 1996 - --------------------------------------------- Anthony R. Pierno Counsel and Director /s/ ARTHUR S. DONALDSON Controller (Principal December 31, 1996 - --------------------------------------------- Arthur S. Donaldson Accounting Officer)
II-11 171 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, REGISTRANT, ALPART JAMAICA INC., HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. ALPART JAMAICA INC. By: /s/ GEOFFREY W. SMITH ---------------------------------- Geoffrey W. Smith, President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS 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 December 31, 1996 - --------------------------------------------- Executive Officer) Geoffrey W. Smith /s/ GEORGE T. HAYMAKER, JR. Director December 31, 1996 - --------------------------------------------- George T. Haymaker, Jr. /s/ JOSEPH A. BONN Vice President and Director December 31, 1996 - --------------------------------------------- Joseph A. Bonn /s/ JOHN T. LA DUC Vice President, Chief December 31, 1996 - --------------------------------------------- Financial Officer, and John T. La Duc Director (Principal Financial Officer) /s/ ANTHONY R. PIERNO Vice President, General December 31, 1996 - --------------------------------------------- Counsel and Director Anthony R. Pierno /s/ ARTHUR S. DONALDSON Controller (Principal December 31, 1996 - --------------------------------------------- Accounting Officer) Arthur S. Donaldson
II-12 172 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, REGISTRANT, KAISER JAMAICA CORPORATION, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. KAISER JAMAICA CORPORATION By: /s/ GEOFFREY W. SMITH ---------------------------------- Geoffrey W. Smith, President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS 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 December 31, 1996 - --------------------------------------------- Executive Officer) Geoffrey W. Smith /s/ JOHN T. LA DUC Vice President, Chief December 31, 1996 - --------------------------------------------- Financial Officer and John T. La Duc Director (Principal Financial Officer) /s/ GEORGE T. HAYMAKER, JR. Director December 31, 1996 - --------------------------------------------- George T. Haymaker, Jr. /s/ JOSEPH A. BONN Vice President and Director December 31, 1996 - --------------------------------------------- Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General December 31, 1996 - --------------------------------------------- Counsel and Director Anthony R. Pierno /s/ ARTHUR S. DONALDSON Controller (Principal December 31, 1996 - --------------------------------------------- Accounting Officer) Arthur S. Donaldson
II-13 173 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, KAISER FINANCE CORPORATION, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. KAISER FINANCE CORPORATION By: /s/ GEORGE T. HAYMAKER -------------------------------- George T. Haymaker, President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS 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 December 31, 1996 - --------------------------------------------- (Principal Executive George T. Haymaker, Jr. Officer) /s/ JOHN T. LA DUC Vice President, Chief December 31, 1996 - --------------------------------------------- Financial Officer and John T. La Duc Director (Principal Financial Officer) /s/ JOSEPH A. BONN Vice President and Director December 31, 1996 - --------------------------------------------- Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General December 31, 1996 - --------------------------------------------- Counsel and Director Anthony R. Pierno /s/ ARTHUR S. DONALDSON Controller (Principal December 31, 1996 - --------------------------------------------- Accounting Officer) Arthur S. Donaldson
II-14 174 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, KAISER MICROMILL HOLDINGS, LLC, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. KAISER MICROMILL HOLDINGS, LLC By: /s/ RAYMOND J. MILCHOVICH -------------------------------- Raymond J. Milchovich, Manager PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ------------------ /s/ RAYMOND J. MILCHOVICH Manager December 31, 1996 - --------------------------------------------- Raymond J. Milchovich /s/ GEORGE T. HAYMAKER, JR. Manager December 31, 1996 - --------------------------------------------- George T. Haymaker, Jr. /s/ JOHN T. LA DUC Manager December 31, 1996 - --------------------------------------------- John T. La Duc /s/ JOSEPH A. BONN Manager December 31, 1996 - --------------------------------------------- Joseph A. Bonn /s/ ANTHONY R. PIERNO Manager December 31, 1996 - --------------------------------------------- Anthony R. Pierno
II-15 175 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, KAISER SIERRA MICROMILLS, LLC, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. KAISER SIERRA MICROMILLS, LLC By: /s/ RAYMOND J. MILCHOVICH --------------------------------- Raymond J. Milchovich, President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ------------------ /s/ RAYMOND J. MILCHOVICH President and Manager December 31, 1996 - --------------------------------------------- (Principal Executive Raymond J. Milchovich Officer) /s/ JOHN T. LA DUC Vice President, Chief December 31, 1996 - --------------------------------------------- Financial Officer and John T. La Duc Manager (Principal Financial Officer) /s/ JOSEPH A. BONN Vice President and Manager December 31, 1996 - --------------------------------------------- Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General December 31, 1996 - --------------------------------------------- Counsel and Manager Anthony R. Pierno /s/ ARTHUR S. DONALDSON Controller (Principal December 31, 1996 - --------------------------------------------- Accounting Officer) Arthur S. Donaldson /s/ GEORGE T. HAYMAKER, JR. Manager December 31, 1996 - --------------------------------------------- George T. Haymaker, Jr.
II-16 176 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, KAISER TEXAS MICROMILL HOLDINGS, LLC, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. KAISER TEXAS MICROMILL HOLDINGS, LLC By: /s/ RAYMOND J. MILCHOVICH --------------------------------- Raymond J. Milchovich, President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ------------------ /s/ RAYMOND J. MILCHOVICH President and Manager December 31, 1996 - --------------------------------------------- (Principal Executive Raymond J. Milchovich Officer) /s/ JOHN T. LA DUC Vice President, Chief December 31, 1996 - --------------------------------------------- Financial Officer and John T. La Duc Manager (Principal Financial Officer) /s/ JOSEPH A. BONN Vice President and Manager December 31, 1996 - --------------------------------------------- Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General December 31, 1996 - --------------------------------------------- Counsel and Manager Anthony R. Pierno /s/ ARTHUR S. DONALDSON Controller (Principal December 31, 1996 - --------------------------------------------- Accounting Officer) Arthur S. Donaldson /s/ GEORGE T. HAYMAKER, JR. Manager December 31, 1996 - --------------------------------------------- George T. Haymaker, Jr.
II-17 177 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT, KAISER TEXAS SIERRA MICROMILLS, LLC, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 31ST DAY OF DECEMBER, 1996. KAISER TEXAS SIERRA MICROMILLS, LLC By: /s/ RAYMOND J. MILCHOVICH ----------------------------------- Raymond J. Milchovich, President PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE - --------------------------------------------- ---------------------------- ------------------ /s/ RAYMOND J. MILCHOVICH President and Manager December 31, 1996 - --------------------------------------------- (Principal Executive Raymond J. Milchovich Officer) /s/ JOHN T. LA DUC Vice President, Chief - --------------------------------------------- Financial Officer and John T. La Duc Manager (Principal Financial Officer) /s/ JOSEPH A. BONN Vice President and Manager December 31, 1996 - --------------------------------------------- Joseph A. Bonn /s/ ANTHONY R. PIERNO Vice President, General December 31, 1996 - --------------------------------------------- Counsel and Manager Anthony R. Pierno /s/ ARTHUR S. DONALDSON Controller (Principal December 31, 1996 - --------------------------------------------- Accounting Officer) Arthur S. Donaldson /s/ GEORGE T. HAYMAKER, JR. Manager December 31, 1996 - --------------------------------------------- George T. Haymaker, Jr.
II-18 178 INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of Kaiser Aluminum & Chemical Corporation (the "Company" or "KACC"), dated July 25, 1989 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1, dated August 25, 1989, filed by KACC, Registration No. 33-30645). 3.2 Certificate of Retirement of KACC, dated February 7, 1990 (incorporated by reference to Exhibit 3.2 to the Report on Form 10-K for the period ended December 31, 1989, filed by KACC, File No. 1-3605). 3.3 By-laws of KACC, amended and restated as of December 15, 1994 (incorporated by reference to Exhibit 3.3 to the Report on Form 10-K for the period ended December 31, 1994, filed by KACC, File No. 1-3605). 3.4 Certificate of Incorporation of Kaiser Alumina Australia Corporation, dated April 27, 1964 (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.5 Certificate of Amendment of Certificate of Incorporation of Kaiser Alumina Australia Corporation, dated September 12, 1968 (incorporated by reference to Exhibit 3.5 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.6 By-Laws of Kaiser Alumina Australia Corporation, amended as of October 3, 1989 (incorporated by reference to Exhibit 3.6 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.7 Certificate of Incorporation of Kaiser Finance Corporation, dated April 26, 1990 (incorporated by reference to Exhibit 3.7 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.8 By-Laws of Kaiser Finance Corporation, dated May 4, 1990 (incorporated by reference to Exhibit 3.8 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.9 Certificate of Incorporation of Alpart Jamaica Inc., dated May 10, 1966 (incorporated by reference to Exhibit 3.9 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.10 Certificate of Amendment of Certificate of Incorporation, dated October 4, 1985, amending the Certificate of Incorporation of Anaconda Jamaica Inc. (incorporated by reference to Exhibit 3.10 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.11 By-Laws of Alpart Jamaica Inc., amended as of October 3, 1989 (incorporated by reference to Exhibit 3.11 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.12 Certificate of Incorporation of Kaiser Jamaica Corporation, dated June 16, 1966 (incorporated by reference to Exhibit 3.12 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.13 By-Laws of Kaiser Jamaica Corporation, amended as of October 3, 1989 (incorporated by reference to Exhibit 3.13 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.14 Certificate of Formation of Kaiser Micromill Holdings, LLC, dated December 11, 1995 (incorporated by reference to Exhibit 3.14 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931).
179
EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 3.15 Restated Limited Liability Company Agreement of Kaiser Micromill Holdings, LLC, dated January 23, 1996 (incorporated by reference to Exhibit 3.15 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.16 Certificate of Formation of Kaiser Sierra Micromills, LLC, dated December 11, 1995 (incorporated by reference to Exhibit 3.16 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.17 Restated Limited Liability Company Agreement of Kaiser Sierra Micromills, LLC, dated January 23, 1996 (incorporated by reference to Exhibit 3.17 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.18 Articles of Organization of Kaiser Texas Micromill Holdings, LLC, dated December 11, 1995 (incorporated by reference to Exhibit 3.18 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.19 Restated Regulations of Kaiser Texas Micromill Holdings, LLC, dated January 23, 1996 (incorporated by reference to Exhibit 3.19 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.20 Articles of Organization of Kaiser Texas Sierra Micromills, LLC, dated December 11, 1995 (incorporated by reference to Exhibit 3.20 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.21 Restated Regulations of Kaiser Texas Sierra Micromills, LLC, dated January 23, 1996 (incorporated by reference to Exhibit 3.21 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931). 3.22 Restated Certificate of Incorporation of Kaiser Alumina Australia Corporation, dated December 6, 1996 (incorporated by reference to Exhibit 3.22 to Amendment No. 1 to the Registration Statement on Form S-4, dated December 10, 1996, filed by KACC, Registration No. 333-15931). 3.23 Restated Certificate of Incorporation of Alpart Jamaica Inc., dated December 6, 1996 (incorporated by reference to Exhibit 3.23 to Amendment No. 1 to the Registration Statement on Form S-4, dated December 10, 1996, filed by KACC, Registration No. 333-15931). 4.1 Indenture, dated as of October 23, 1996 (the "Indenture"), among the Company, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and First Trust National Association, as Trustee, regarding the Company's 10 7/8% Senior Notes due 2006 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by the Company, File No. 1-3605). 4.2 Purchase Agreement, dated October 17, 1996, among the Company, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and the initial purchasers of the Company's 10 7/8% Senior Notes due 2006 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-4, dated November 12, 1996, filed by KACC, Registration No. 333-15931).
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EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 4.3 Registration Rights Agreement, dated as of October 23, 1996, among the Company, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and the initial purchasers of the Company's 10 7/8% Senior Notes due 2006 (incorporated by reference to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by the Company, File No. 1-3605). *4.4 Indenture, dated as of December 23, 1996 (the "Indenture"), among the Company, as Issuer, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and First Trust National Association, as Trustee, regarding the Company's 10 7/8% Series C Senior Notes due 2006. *4.5 Registration Rights Agreement, dated as of October 23, 1996, among the Company, Kaiser Alumina Australia Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Finance Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC, as Subsidiary Guarantors, and the initial purchaser of the Company's 10 7/8% Series C Senior Notes due 2006. 4.6 Indenture, dated as of February 1, 1993, among KACC, 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 KACC's 12 3/4% Senior Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.1 to the Report on Form 10-K for the period ended December 31, 1992, filed by KACC, File No. 1-3605). 4.7 First Supplemental Indenture, dated as of May 1, 1993, to the Indenture, dated as of February 1, 1993 (incorporated by reference to Exhibit 4.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 4.8 Second Supplemental Indenture, dated as of February 1, 1996, to the Indenture, dated as of February 1, 1993 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-K for the period ended December 31, 1995, filed by the Company, File No. 1-3605). 4.9 Indenture, dated as of February 17, 1994, among KACC, 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 KACC's 9 7/8% Senior Notes Due 2002 (incorporated by reference to Exhibit 4.3 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 4.10 First Supplemental Indenture, dated as of February 1, 1996, to the Indenture, dated as of February 17, 1994 (incorporated by reference to Exhibit 4.5 to the Report on Form 10-K for the period ended December 31, 1995, filed by the Company, File No. 1-3605). 4.11 Credit Agreement, dated as of February 15, 1994, among Kaiser Aluminum Corporation ("KAC"), KACC, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.4 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447).
181
EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 4.12 First Amendment to Credit Agreement, dated as of July 21, 1994, amending the Credit Agreement, dated as of February 15, 1994, among KAC, KACC, the financial institutions party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1994, filed by KAC, File No. 1-9447). 4.13 Second Amendment to Credit Agreement, dated as of March 10, 1995, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, KACC, the financial institutions party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.6 to the Report on Form 10-K for the period ended December 31, 1994, filed by KAC, File No. 1-9447). 4.14 Third Amendment to Credit Agreement, dated as of July 20, 1995, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, KACC, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1995, filed by KAC, File No. 1-9447). 4.15 Fourth Amendment to Credit Agreement, dated as of October 17, 1995, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, KACC, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended September 30, 1995, filed by KAC, File No. 1-9447). 4.16 Fifth Amendment to Credit Agreement, dated as of December 11, 1995, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, KACC, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.11 to the Report on Form 10-K for the period ended December 31, 1995, filed by the Company, File No. 1-3605). 4.17 Sixth Amendment to Credit Agreement, dated as of October 1, 1996, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, the Company, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent (incorporated by reference to Exhibit 4.1 to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by the Company, File No. 1-3605). *4.18 Seventh Amendment to Credit Agreement, dated as of December 17, 1996, amending the Credit Agreement, dated as of February 15, 1994, as amended, among KAC, the Company, the financial institutions a party thereto, and BankAmerica Business Credit, Inc., as Agent. 4.19 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 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KAC , File No. 1-9447). 4.20 Deposit Agreement between KAC and The First National Bank of Boston, dated as of June 30, 1993 (incorporated by reference to Exhibit 4.4 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KAC, File No. 1-9447). 4.21 Intercompany Note between KAC and KACC (incorporated by reference to Ex- hibit 4.2 to Amendment No. 5 to the Registration Statement on Form S-1, dated December 13, 1989, filed by KACC, Registration No. 33-30645). 4.22 Senior Subordinated Intercompany Note between KACC and a subsidiary of MAXXAM, dated December 15, 1992 (incorporated by reference to Exhibit 4.10 to the Report on Form 10-K for the period ended December 31, 1994, filed by KAC, File No. 1-9447).
182
EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 4.23 Certificate of Designations of 8.255% PRIDES, Convertible Preferred Stock of KAC, dated February 17, 1994 (incorporated by reference to Exhibit 4.21 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 4.24 Senior Subordinated Intercompany Note between KAC and KACC dated Febru- ary 15, 1994 (incorporated by reference to Exhibit 4.22 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). 4.25 Senior Subordinated Intercompany Note between KAC and KACC dated March 17, 1994 (incorporated by reference to Exhibit 4.23 to the Report on Form 10-K for the period ended December 31, 1993, filed by KAC, File No. 1-9447). KACC 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 KACC and its subsidiaries on a consolidated basis. KACC agrees and undertakes to furnish a copy of any such instrument to the Securities and Exchange Commission upon its request. *5. Opinion of Kramer, Levin, Naftalis & Frankel with respect to the Notes and the Guarantees. 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 KACC (incorporated by refer- ence to Exhibit 10.21 to Amendment No. 6 to the Registration Statement on Form S-1, dated December 14, 1989, filed by KACC, Registration No. 33-30645). 10.3 Tax Allocation Agreement between KAC and MAXXAM (incorporated by reference to Exhibit 10.23 to Amendment No. 2 to the Registration Statement on Form S-1, dated June 11, 1991, filed by KAC, Registration No. 33-37895). 10.4 Tax Allocation Agreement, dated as of June 30, 1993, between KACC and KAC (incorporated by reference to Exhibit 10.3 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 10.5 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 KAC, par value $.33 1/3 per share). 10.6 Agreement, dated as of June 30, 1993, between KAC and MAXXAM (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). Executive Compensation Plans and Arrangements [Exhibits 10.7-10.22, inclusive] 10.7 KACC's Bonus Plan (incorporated by reference to Exhibit 10.25 to Amendment No. 6 to the Registration Statement on Form S-1, dated December 14, 1989, filed by KACC, Registration No. 33-30645). 10.8 Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1993, filed by KACC, File No. 1-3605). 10.9 Kaiser 1995 Employee Incentive Compensation Program (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended March 31, 1995, filed by KAC, File No. 1-9447).
183
EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 10.10 Kaiser 1995 Executive Incentive Compensation Program (incorporated by reference to Exhibit 99 to the Proxy Statement, dated April 26, 1995, filed by KAC, File No. 1-9447). 10.11 Employment Agreement, dated April 1, 1993, among KAC, KACC, and George T. Haymaker, Jr. (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended March 31, 1993, filed by KAC, File No. 1-9447). 10.12 First Amendment to Employment Agreement by and between the Company, KAC and George T. Haymaker, Jr. (incorporated by reference to Exhibit 10 to the Report on Form 10-Q for the quarterly period ended June 30, 1996, filed by the Company, File No. 1-3605). 10.13 Promissory Note, dated October 4, 1990, by Robert W. Irelan and Barbara M. Irelan to KACC (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). 10.14 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). 10.15 Promissory Note, dated July 19, 1990, by Anthony R. Pierno to MAXXAM (incorporated by reference to Exhibit 10.31 to Form 10-K for the period ended December 31, 1990, filed by MAXXAM, File No. 1-3924). 10.16 Promissory Note, dated July 20, 1993, between MAXXAM and Byron L. Wade (incorporated by reference to Exhibit 10.59 to Form 10-K for the period ended December 31, 1993, filed MAXXAM, File No. 1-3924). 10.17 Employment Agreement, dated August 20, 1993, between KACC and Robert E. Cole (incorporated by reference to Exhibit 10.63 to Form 10-K for the period ended December 31, 1993, filed by MAXXAM, File No. 1-3924). 10.18 Compensation Agreement, dated July 18, 1994, between KACC and Larry L. Watts (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarterly period ended June 30, 1994, filed by KAC, File No. 1-9447). 10.19 Compensation Agreement, dated July 18, 1994, between KACC and Geoff S. Smith (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarterly period ended June 30, 1994, filed by KAC, File 1-9447). 10.20 Letter Agreement, dated January 1995, between KAC and Charles E. Hurwitz, granting Mr. Hurwitz stock options under the Kaiser 1993 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.17 to the Report on Form 10-K for the period ended December 31, 1994, filed by KAC, File No. 1-9447). 10.21 Form of letter agreement with persons granted stock options under the Kaiser 1993 Omnibus Stock Incentive Plan to acquire shares of KAC common stock (incorporated by reference to Exhibit 10.18 to the Report on Form 10-K for the period ended December 31, 1994, filed by KAC, File No. 1-9447). 10.22 Employment Agreement, dated as of September 1, 1996, by and between the Company and Jack A. Hockema (incorporated by reference to Exhibit 10 to the Report on Form 10-Q for the quarterly period ended September 30, 1996, filed by the Company, File No. 1-3605). *12 Computation of consolidated ratio of earnings to fixed charges. 21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Report on Form 10-K for the period ended December 31, 1995, filed by the Company, File No. 1-3605). *23.1 Consent of Arthur Andersen LLP.
184
EXHIBIT NO. EXHIBIT - --------------------------------------------------------------------------------------------- 23.2 Consent of Kramer, Levin, Naftalis & Frankel (contained in Exhibit 5). *23.3 Consent of Wharton Levin Ehrmantraut Klein & Nash, P.A. *23.4 Consent of Thelen, Marrin, Johnson & Bridges. *25 Form T-1 Statement of Eligibility of First Trust National Association, as trustee. *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery.
- --------------- * Filed herewith. EX-4.4 2 FORM OF INDENTURE 1 EXHIBIT 4.4 ================================================================================ KAISER ALUMINUM & CHEMICAL CORPORATION, as Issuer, KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION, KAISER JAMAICA CORPORATION, KAISER MICROMILL HOLDINGS, LLC, KAISER SIERRA MICROMILLS, LLC, KAISER TEXAS MICROMILL HOLDINGS, LLC and KAISER TEXAS SIERRA MICROMILLS, LLC, as Subsidiary Guarantors, AND FIRST TRUST NATIONAL ASSOCIATION as Trustee ---------------------------------------- INDENTURE Dated as of December 23, 1996 ---------------------------------------- $50,000,000 10 7/8% [Series C] and/or [Series D] Senior Notes due 2006 ================================================================================ 2 RECONCILIATION AND TIE SHEET* between PROVISIONS OF THE TRUST INDENTURE ACT OF 1939 and INDENTURE DATED AS OF DECEMBER 23, 1996 between KAISER ALUMINUM & CHEMICAL CORPORATION KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION, KAISER JAMAICA CORPORATION, KAISER MICROMILL HOLDINGS, LLC, KAISER SIERRA MICROMILLS, LLC, KAISER TEXAS MICROMILL HOLDINGS, LLC and KAISER TEXAS SIERRA MICROMILLS, LLC 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.05 314(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.05
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Sections Sections of of Act Indenture - ------ --------- 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 1.02. References are to Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 1.03. Other definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES SECTION 2.01. Designation, amount, authentication and delivery of Notes . . . . . . . . . . . . . . . . . . 37 SECTION 2.02. Form of Notes and Trustee's certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 2.03. Date of Notes and denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 2.04. Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 2.05. Exchange and transfer of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 2.06. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 2.07. Mutilated, destroyed, lost or stolen Notes . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 2.08. Cancellation of surrendered Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 2.09. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 2.10. Book-Entry Provisions for Global Note and Regulation S Temporary Global Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE THREE REDEMPTION AND PURCHASES OF NOTES SECTION 3.01. Redemption prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 3.02. Notice of redemption; selection of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 3.03. When Notes called for redemption become due and payable . . . . . . . . . . . . . . . . . . . 49 SECTION 3.04. Cancellation of redeemed Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 3.05. Purchase of Notes at option of the holder upon Change of Control . . . . . . . . . . . . . . 50 SECTION 3.06. Effect of Change of Control Purchase Notice . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 3.07. Deposit of Change of Control Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 3.08. Covenant to comply with securities laws upon purchase of Notes . . . . . . . . . . . . . . . 53 SECTION 3.09. Repayment to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE FOUR PARTICULAR COVENANTS OF THE COMPANY SECTION 4.01. Payments on the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 4.02. Maintenance of office or agency for registration of transfer, exchange and payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 4.03. Appointment to fill a vacancy in the office of Trustee . . . . . . . . . . . . . . . . . . . 54 SECTION 4.04. Provision as to paying agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 4.05. Maintenance of corporate existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 4.06. Officers' Certificate as to default and statement as to compliance . . . . . . . . . . . . . 56
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Page SECTION 4.07. Usury laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 4.08. Restrictions on transactions with Affiliates and Unrestricted Subsidiaries. . . . . . . . . . 56 SECTION 4.09. Limitations on Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 4.10. Limitation on Indebtedness and Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 4.11. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 4.12. Subsidiary guarantees, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 4.13. Limitation on dividends and other payment restrictions affecting Subsidiaries . . . . . . . . 70 SECTION 4.14. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 4.15. Limitations on Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 73 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 5.02. Preservation and disclosure of lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 5.03. Reports by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 5.04. Reports by the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 ARTICLE SIX REMEDIES OF THE TRUSTEE AND NOTEHOLDERS ON EVENT OF DEFAULT SECTION 6.01. Events of Default defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 6.02. Payment of Notes on default; suit therefor . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 6.03. Application of moneys collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 6.04. Limitation on suits by holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 6.05. Proceedings by Trustee; remedies cumulative and continuing; delay or omission not waiver of default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 6.06. Rights of holders of majority in principal amount of Notes to direct Trustee and to waive defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 6.07. Trustee to give notice of defaults known to it, but may withhold in certain circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 6.08. Requirement of an undertaking to pay costs in certain suits under the Indenture or against the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 6.09. Waiver of stay or extension laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 ARTICLE SEVEN CONCERNING THE TRUSTEE SECTION 7.01. Duties and responsibilities of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 7.02. Reliance on documents, opinions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 7.03. No responsibility for recitals, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 7.04. Trustee, paying agent or Note registrar may own Notes . . . . . . . . . . . . . . . . . . . . 85 SECTION 7.05. Moneys received by Trustee to be held in trust without interest . . . . . . . . . . . . . . . 85 SECTION 7.06. Compensation and expenses of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
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Page SECTION 7.07. Right of Trustee to rely on Officers' Certificate where no other evidence specifically prescribed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 7.08. Conflicting interest of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 7.09. Requirements for eligibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 7.10. Resignation or removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 SECTION 7.11. Acceptance by successor to Trustee; notice of succession of a Trustee . . . . . . . . . . . . 92 SECTION 7.12. Successor to Trustee by merger, consolidation or succession to business; notice by Trustee of change in its location . . . . . . . . . . . . . . . . . . . . . . 92 SECTION 7.13. Limitations on rights of Trustee as a creditor . . . . . . . . . . . . . . . . . . . . . . . 93 ARTICLE EIGHT CONCERNING THE NOTEHOLDERS SECTION 8.01. Evidence of action by noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 SECTION 8.02. Proof of execution of instruments and of holding of Notes . . . . . . . . . . . . . . . . . . 96 SECTION 8.03. Who may be deemed owners of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 8.04. Notes owned by Company or controlled by controlling persons disregarded for certain purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 8.05. Record date for action by noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 8.06. Instruments executed by noteholders bind future holders . . . . . . . . . . . . . . . . . . . 98 ARTICLE NINE NOTEHOLDERS' MEETINGS SECTION 9.01. Purposes for which meetings may be called . . . . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 9.02. Manner of calling meetings; record date . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 SECTION 9.03. Call of meeting by Company or noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . 99 SECTION 9.04. Who may attend and vote at meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 SECTION 9.05. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 SECTION 9.06. Manner of voting at meetings and record to be kept . . . . . . . . . . . . . . . . . . . . . 100 SECTION 9.07. Exercise of rights of Trustee and noteholders not to be hindered or delayed . . . . . . . . . 100 ARTICLE TEN SUPPLEMENTAL INDENTURES SECTION 10.01. Purposes for which supplemental indentures may be entered into without consent of noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 SECTION 10.02. Modification of Indenture with consent of holders of a majority in principal amount of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 SECTION 10.03. Effect of supplemental indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 SECTION 10.04. Notes may bear notation of changes by supplemental indentures . . . . . . . . . . . . . . . 103 SECTION 10.05. Officers' Certificate and Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . 103
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Page ARTICLE ELEVEN CONSOLIDATION, MERGER AND SALE SECTION 11.01. Company may consolidate, etc., on certain terms . . . . . . . . . . . . . . . . . . . . . . 103 SECTION 11.02. Successor corporation to be substituted . . . . . . . . . . . . . . . . . . . . . . . . . . 104 SECTION 11.03. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 ARTICLE TWELVE SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 12.01. Satisfaction and discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 105 SECTION 12.02. Application by Trustee of funds deposited for payment of Notes . . . . . . . . . . . . . . . 106 SECTION 12.03. Repayment of moneys held by paying agent . . . . . . . . . . . . . . . . . . . . . . . . . . 106 SECTION 12.04. Repayment of moneys held by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 SECTION 12.05. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 ARTICLE THIRTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 13.01. Incorporators, stockholders, officers and directors of Company exempt from individual liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS SECTION 14.01. Successors and assigns of Company bound by Indenture . . . . . . . . . . . . . . . . . . . . 108 SECTION 14.02. Acts of board, committee or officer of successor corporation valid . . . . . . . . . . . . . 108 SECTION 14.03. Required notices or demands may be served by mail; waiver . . . . . . . . . . . . . . . . . 108 SECTION 14.04. Indenture and Notes to be construed in accordance with the laws of the State of New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 SECTION 14.05. Evidence of compliance with conditions precedent . . . . . . . . . . . . . . . . . . . . . . 109 SECTION 14.06. Payments due on Saturdays, Sundays and holidays . . . . . . . . . . . . . . . . . . . . . . 109 SECTION 14.07. Provisions required by Trust Indenture Act of 1939 to control . . . . . . . . . . . . . . . 109 SECTION 14.08. Provisions of the Indenture and Notes for the sole benefit of the parties and the noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 SECTION 14.09. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 SECTION 14.10. Indenture may be executed in counterparts; acceptance by Trustee . . . . . . . . . . . . . . 109 SECTION 14.11. Article and Section headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 SECTION 14.12. No Adverse Interpretation of Other Instruments . . . . . . . . . . . . . . . . . . . . . . . 110
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Page ARTICLE FIFTEEN GUARANTEE OF NOTES SECTION 15.01. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 SECTION 15.02. Guarantee senior in respect of Subordinated Notes . . . . . . . . . . . . . . . . . . . . . 111 SECTION 15.03. Subsidiary Guarantors may consolidate, etc., on certain terms . . . . . . . . . . . . . . . 111 SECTION 15.04. Application of certain terms and provisions to the Subsidiary Guarantors. . . . . . . . . . 112 SECTION 15.05. Release of Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXHIBIT A-1 REGULATION S NOTE PROVISIONS EXHIBIT A-2 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER FROM REGULATION S GLOBAL NOTE SCHEDULE A - SCHEDULE OF LIENS SECURING INDEBTEDNESS IN EXCESS OF $5,000,000 SCHEDULE B - REAL PROPERTY CONSTITUTING PERMITTED COLLATERAL SCHEDULE C - CERTAIN INDEBTEDNESS IN EXCESS OF $10,000,000 vii 9 THIS INDENTURE, dated as of the 23 day of December, 1996, among 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., KAISER JAMAICA CORPORATION, KAISER MICROMILL HOLDINGS, LLC, KAISER SIERRA MICROMILLS, LLC, KAISER TEXAS MICROMILL HOLDINGS, LLC and KAISER TEXAS SIERRA MICROMILLS, LLC, 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 10 7/8% Series C Senior Notes due 2006 (hereinafter referred to as the "Initial Notes"), for an aggregate principal amount of up to fifty million dollars ($50,000,000), to be issued as registered Initial Notes without coupons, to be authenticated by the certificate of the Trustee, to be payable on October 15, 2006, and to be redeemable and purchasable as hereinafter provided; and the Company has duly authorized an issue of its 10 7/8% Series D Senior Notes due 2006 to be issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement (hereinafter referred to as the "Exchange Notes" and together with the Initial Notes, the "Notes"); and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; 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 12 3/4% 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 12 3/4% Note Indenture, to the extent that such Subsidiary Guarantor is a guarantor under the 12 3/4% Note Indenture; WHEREAS, the Company has duly delivered written notice to the trustee under the 12 3/4% Note Indenture designating the Notes and each 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: 10 [FORM OF FACE OF NOTE] No. [Principal Amount] Issue Date: CUSIP KAISER ALUMINUM & CHEMICAL CORPORATION 10 7/8% [SERIES C] AND/OR [SERIES D] SENIOR NOTE DUE 2006 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 October 15, 2006, 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 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 April 15 and October 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 December 23, 1996; provided, that, in the case of authentication between the record date for any interest payment date and such interest payment date, this Note shall be dated the date of its authentication but shall bear interest from such interest payment date, subject to certain exceptions. The interest so payable on any April 15 or October 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 April 1 or October 1, as the case may be, next preceding such April 15 or October 15 whether or not such April 1 or October 1 is a 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; provided that all payments with respect to this Note, if the holder of this Note has given wire transfer instructions (which instructions must be received by the Company at least 5 Business Days prior to the relevant date of payment) to the Company, will be required to be made by wire transfer of immediately available funds to the account specified by the holder of this Note; provided, that such payments (other than interest payments) may be conditioned upon surrender of this Note. 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. 2 11 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 3 12 [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 10 7/8% [SERIES C] AND/OR [SERIES D] SENIOR NOTE DUE 2006 This Note is one of a duly authorized issue of Notes of the Company known as its 10 7/8% [Series C] and/or [Series D] Senior Notes due 2006 (herein referred to as the "Notes"), limited to an aggregate principal amount of fifty million dollars ($50,000,000), all issued or to be issued under and pursuant to an indenture, dated as of December 23, 1996 (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 and unpaid interest to the date of acceleration may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture provides that 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, Kaiser Jamaica Corporation, Kaiser Micromill 4 13 Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC and Kaiser Texas Sierra Micromills, LLC 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 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; provided that all payments with respect to this Note, if the holder of this Note has given wire transfer instructions (which instructions must be received by the Company at least 5 Business Days prior to the relevant date of payment) to the Company, will be required to be made by wire transfer of immediately available funds to the accounts specified by the holder of this Note; provided, that such payments (other than interest payments) may be conditioned upon surrender of this Note. The Notes are subject to redemption on or after October 15, 2001, 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 5 14 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 October 15, the redemption price shall be:
Redemption Year Price ---- ----------- 2001 . . . . . . . . . . . . . . . . . . 105.437% 2002 . . . . . . . . . . . . . . . . . . 103.625% 2003 . . . . . . . . . . . . . . . . . . 101.813% 2004 and thereafter . . . . . . . . . . 100.00%
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 and unpaid 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 6 15 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 and unpaid 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 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. 7 16 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) 8 17 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) 9 18 [In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act of 1933"), covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the third anniversary of the Issue Date (or such shorter period permitted under Rule 144(k) under the Securities Act of 1933) (or a successor clause)), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer: [Check One] (1) ___ to the Company; or (2) ___ pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) ___ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933); or (4) ___ outside the United States to a "Non-U.S. person" in compliance with Rule 904 of Regulation S under the Securities Act of 1933; or (5) ___ pursuant to an effective registration statement under the Securities Act of 1933; or (6) ___ pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof, provided, that if box (3), (4) or (6) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in its sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3) or (4)), and other information as the Trustee, Note registrar or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. If none of the foregoing boxes are checked, the Trustee or Note registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.05 of the Indenture shall have been satisfied. Dated:__________________________ Signed: ______________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee:______________________________________________________________________ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED 10 19 The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date:________________________ ______________________________ NOTICE: To be executed by an executive officer](1) - ------------------------- (1) Only to be included on Notes constituting Restricted Securities. 11 20 AND WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid indenture and agreement according to its terms, have been done and performed, and the execution and delivery of this Indenture and the issuance hereunder of the Notes have in all respects been duly authorized, and the Company and the Subsidiary Guarantors, in the exercise of the legal right and power vested in them, execute and deliver this Indenture and the Company proposes to make, execute, issue and deliver the Notes; THEREFORE, in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company, 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 of 1933 as they were in force at the date of the execution and delivery of this Indenture. 9 7/8% Notes: The term "9 7/8% Notes" shall mean the Company's 9 7/8% Senior Notes due 2002, as amended from time to time, issued pursuant to the 9 7/8% Note Indenture. 9 7/8% Note Indenture: The term "9 7/8% Note Indenture" shall mean the indenture, dated as of February 17, 1994, among the Company, as issuer, the parties named therein (including in any amendment or supplement thereto) as subsidiary guarantors, and First Trust National Association, a national banking association, as trustee, as heretofore or hereafter amended or supplemented from time to time in accordance with the terms thereof. 10 7/8% Notes: The term "10 7/8% Notes" shall mean the Company's 10 7/8% Senior Notes due 2006 and the Company's 10 7/8% Series B Senior Notes due 2006, as amended from time to time, issued pursuant to the 10 7/8% Note Indenture. 10 7/8% Note Indenture: The term "10 7/8% Note Indenture" shall mean the indenture, dated as of October 23, 1996, among the Company, as issuer, the parties named therein (including in any amendment or supplement thereto) as subsidiary guarantors, and First Trust National Association, a national banking association, as trustee, as heretofore or hereafter amended or supplemented from time to time in accordance with the terms thereof. 12 3/4% Notes: The term "12 3/4% Notes" shall mean the Company's 12 3/4% Senior Subordinated Notes due 2003, as amended from time to time, issued pursuant to the 12 3/4% Note Indenture. 12 21 12 3/4% Note Indenture: The term "12 3/4% Note Indenture" shall mean the Indenture, dated as of February 1, 1993, among the Company, as issuer, the parties named therein (including in any amendment or supplement thereto) as subsidiary guarantors, and State Street Bank and Trust Company, a Massachusetts trust company, as successor to The First National Bank of Boston, as trustee, as heretofore or hereafter amended or supplemented from time to time in accordance with the terms thereof. 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, any Unrestricted 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, its Subsidiaries, its Unrestricted 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. Agent Member: The term "Agent Member" shall have the meaning set forth in Section 2.10 hereof. 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, 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: 13 22 (A) in the ordinary course of business of the Company and its Subsidiaries, which may include sales, transfers or other dispositions to Unrestricted 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, Restricted Payments or Unrestricted Subsidiary Investments 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. 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 14 23 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, any Refinancings thereof, and any letters of credit supporting such bonds or any Refinancings thereof. 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, 15 24 (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. Certificated Notes: The term "Certificated Notes" shall have the meaning set forth in Section 2.02 hereof. Commission: The term "Commission" shall mean the United States Securities and Exchange Commission. Common Stock: The term "Common Stock" shall mean the Company's common stock, 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, 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 16 25 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, 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); (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, the amortization or write-off of any deferred 17 26 financing costs in connection with the amendment or refinancing of the Credit Agreement and the predecessor credit agreement). 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); (vi) interest income arising from the Existing Intercompany Note, except to the extent such interest income is actually received by the Company in cash; and (vii) the Net Income of any Unrestricted Subsidiary, whether or not paid or distributed to the Company or one of its Subsidiaries; 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 18 27 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 predecessor 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, 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 predecessor 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, and 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. Depository: The term "Depository" shall mean The Depository Trust Company, New York, New York. 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 19 28 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. Exchange Notes: The term "Exchange Notes" shall have the meaning provided in the first paragraph of the recitals hereof. 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 has been or 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, or in the event that the Company makes a payment in the form of or otherwise transfers property other than cash or Cash Equivalents to, or receives property other than cash or Cash Equivalents from, an Unrestricted Subsidiary in an amount in excess of $10,000,000, (which amount shall be calculated excluding the fair market value of any Principal Products within the scope of the proviso at the end of this definition) 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; provided that, with respect to any determination of Fair Market Value of property in connection with an Unrestricted Subsidiary Investment or the designation of an Unrestricted Subsidiary, such opinion shall not be required, to the extent that such property consists of Principal Products (which Principal Products are used by such Unrestricted Subsidiary in its operations in the ordinary course of business). 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). Global Note: The term "Global Note" shall have the meaning provided in Section 2.02. 20 29 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 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 21 30 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; (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. Initial Notes: The term "Initial Notes" shall have the meaning provided in the first paragraph of the recitals hereof. Institutional Accredited Investor: The term "Institutional Accredited Investor" shall mean an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933. Interest: The term "interest" shall mean, with respect to the Notes, interest payable on the Notes at the rate set forth therein, plus any additional interest payable by the Company and the Subsidiary Guarantors in respect of the Notes pursuant to the Registration Rights Agreement. Interest Hedging Obligation: The term "Interest Hedging Obligation" with respect to any Person shall mean the monetary obligations of such Person pursuant to any interest rate swap agreement, interest rate collar agreement, interest rate cap agreement, options or futures contract, forward contract or other 22 31 agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates. Issue Date: The term "Issue Date" shall mean the date of first issuance of the Notes under this Indenture, December 23, 1996. 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) $400,000,000, 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) hereof, 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. MAXXAM: The term "MAXXAM" shall mean MAXXAM Inc., a Delaware corporation, and its successors. Merger: The term "Merger" shall mean the merger of a subsidiary of MAXXAM with and into KAC on October 28, 1988. 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 23 32 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) of Section 4.11(b) hereof and (b) U.S. Fixed Assets to the extent subject to a Lien permitted by clause (ix) of Section 4.11(b) hereof 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; provided, in each such case, that such fees and expenses and other amounts are not payable to an Affiliate or an Unrestricted Subsidiary of the Company (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 24 33 bargaining arrangements and related employee benefit arrangements in effect on the date hereof, in each case, from Persons other than Affiliates or Unrestricted Subsidiaries 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 or Unrestricted Subsidiary of the Company representing the proceeds of a transaction by such Non-Affiliate Joint Venture or Unrestricted Subsidiary of the Company that would constitute an Asset Sale if such Non-Affiliate Joint Venture or Unrestricted Subsidiary 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, a Subsidiary of the Company or an Unrestricted 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. Non-U.S. Person: The term "Non-U.S. Person" shall mean a person who is not a "U.S. person", as defined in Regulation S. Note or Notes: The terms "Note" or "Notes" shall mean the Initial Notes and the Exchange Notes. Noteholder; registered holder: The terms "noteholder," "holder of Notes," "registered holder" or other similar term shall mean any person who shall at the time be the registered holder of any Note 25 34 or Notes on the registry books of the Company kept for that purpose in accordance with the provisions of this Indenture. Offering Memorandum: The term "Offering Memorandum" shall mean that certain offering memorandum dated December 18, 1996, relating to the offering by the Company of the Notes. 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. 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. Outstanding: The term "outstanding," when used with reference to Notes, shall, subject to the provisions of Section 8.04, mean, as of any particular time, all Notes authenticated and delivered by the Trustee under this Indenture, except (a) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Notes, or portions thereof, for which the payment of principal, interest, any redemption price, any Change of Control Purchase Price or any Asset Sale Purchase Price in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent), provided that such Notes shall have reached their stated maturity or, if such Notes are to be or may be redeemed or purchased prior to the maturity thereof, notice of such redemption or purchase shall have been given as in Article Three provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Notes in lieu of or in substitution for which other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.07, unless proof satisfactory to the Trustee is presented that any such Notes are held by bona fide holders in due course. 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. 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 26 35 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 and Nevada micromill) 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 this 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, Unrestricted 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) or any newly organized entity formed to effect such acquisition and, in each case, the monetary proceeds thereof; 27 36 (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 or Persons that Incurred such Indebtedness and the Person or Persons that Incurred such Refinancing Indebtedness and, in each case, such Persons' assets and Capital Stock with respect to Indebtedness and Refinancing Indebtedness permitted to be Incurred pursuant to Section 4.10(b)(viii); 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 28 37 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 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 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 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 9 7/8% Notes, the 10 7/8% Notes and 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; 29 38 (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. Preferred Dividend Intercompany Notes: The term "Preferred Dividend Intercompany Notes" shall mean (i) the intercompany note in respect of the PRIDES and (ii) 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 (ii) 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. 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 30 39 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. Principal Products: The term "Principal Products" shall mean bauxite, alumina, aluminum, fabricated aluminum products, and other assets related to the production of the foregoing, used or sold by the Company, its Subsidiaries and its Unrestricted Subsidiaries in the ordinary course of business. Private Placement Legend: The term "Private Placement Legend" shall have the meaning set forth in Section 2.09 hereof. QAL: The term "QAL" shall mean Queensland Alumina Limited, a Queensland, Australia corporation, and its successors. Qualified Institutional Buyer or QIB: The terms "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act of 1933. 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 of this Indenture, which notice shall indicate the Attributable Debt with respect to such Refinancing Sale and Leaseback Transaction. Registration Rights Agreement: The term "Registration Rights Agreement" shall mean that certain registration rights agreement among the Company, the Subsidiary Guarantors and the Initial Purchaser, to be entered into on the date hereof. Regulation S: The term "Regulation S" shall mean Regulation S under the Securities Act of 1933. Regulation S Temporary Global Note: The term "Regulation S Temporary Global Note" shall mean a single temporary global Note in the form of the Global Note with the additional provisions set forth in Exhibit A-1 hereto that is deposited with the Trustee and registered in the name of the Depository or its nominee , representing a series of Notes sold in offshore transactions in reliance on Regulation S. 31 40 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 (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 or an Unrestricted Subsidiary); 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, its Unrestricted 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 the 9 7/8% Note 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 32 41 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. Restricted Security: The term "Restricted Security" shall have the meaning assigned to such term in Rule 144(a)(3) under the Securities Act of 1933; provided, however, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. Rule 144A: The term "Rule 144A" shall mean Rule 144A under the Securities Act of 1933. 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 of 1933 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, (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 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% and (iii) no Unrestricted Subsidiary shall be deemed to be a Significant Subsidiary. 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. 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 so long as it meets the definition of Non-Affiliate Joint Venture). For purposes of this definition, any directors' 33 42 qualifying shares shall be disregarded in determining the ownership of a Subsidiary. Notwithstanding anything to the contrary contained herein, no Unrestricted Subsidiary shall be deemed to be a Subsidiary of the Company or of any Subsidiary or Subsidiaries of the Company. 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 Kaiser Alumina Australia Corporation, Kaiser Finance Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC and Kaiser Texas Sierra Micromills, LLC. 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 agreement between the Company and MAXXAM, dated as of December 21, 1989, as each is described in the prospectus dated February 10, 1994, relating to the Offering by the Company of the 9 7/8% Notes 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. Unrestricted Subsidiary: The term "Unrestricted Subsidiary" shall mean each of the Subsidiaries of the Company or any entity which is to become a Subsidiary of the Company, designated as an "Unrestricted Subsidiary" by a Board Resolution; but only to the extent that such Subsidiary (i) is not, at the time of such designation, party to any transaction or series of related transactions with the Company or any Subsidiary of the Company, unless such transaction or series of related transactions would be permitted by the provisions of Section 4.08 of this Indenture and (ii) has, at the time of such designation, at least one director on its board of directors that is not a director or executive officer of the Company or any of its Subsidiaries and has at least one executive officer that is not a director or 34 43 executive officer of the Company or any of its Subsidiaries. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate, certifying that such designation complied with the foregoing conditions and was permitted by Sections 4.09 and 4.15 of this Indenture. The Board of Directors of the Company may designate an Unrestricted Subsidiary to be a Subsidiary, provided that any such redesignation shall be deemed to be an Incurrence by the Company or its Subsidiaries of the Indebtedness (if any) of such redesignated Subsidiary, to the extent such Indebtedness does not already constitute Indebtedness of the Company or one or more of its Subsidiaries, for purposes of Section 4.10 of this Indenture as of the date of such redesignation, and such redesignation shall only be permitted if (i) such Indebtedness is permitted under Section 4.10 and (ii) no Event of Default (or event that, after notice or lapse of time or both, would become an Event of Default) would be in existence as a result of such designation. Unrestricted Subsidiary Investment: The term "Unrestricted Subsidiary Investment" shall mean with respect to the Company or any Subsidiary of the Company (such Person being referred to in this definition as the "Investor") (without duplication), (i) any amount paid, or any property transferred, in each case, directly or indirectly, by the Investor for Capital Stock or other securities of, or as a contribution to, an Unrestricted Subsidiary, (ii) any direct or indirect loan or advance by the Investor to an Unrestricted Subsidiary other than accounts receivable of the Investor relating to the purchase and sale of inventory, goods or services arising in the ordinary course of business, (iii) any direct or indirect guarantee by the Investor of, or liability (other than liabilities arising by operation of law) of the Investor for, any obligations, contingent or otherwise, of an Unrestricted Subsidiary, (iv) any provision of credit support (including any undertaking, agreement or instrument that would constitute Indebtedness) by the Investor to or on behalf of an Unrestricted Subsidiary, (v) any Incurrence of Indebtedness by an Unrestricted Subsidiary, a default with respect to which (including any rights that the holders thereof may have to take enforcement action against such Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any Indebtedness of the Investor (other than the Notes, Indebtedness set forth in Schedule C to this Indenture and Indebtedness in a principal amount of no more than $10,000,000 in any single case) to declare a default on such Indebtedness of the Investor or cause the payment thereof to be accelerated or payable prior to its stated maturity, (vi) any direct or indirect obligation or liability of the Investor (A) to subscribe for additional Equity Interests of an Unrestricted Subsidiary or (B) to maintain or preserve such Unrestricted Subsidiary's financial condition or to cause such Unrestricted Subsidiary to achieve any specified levels of operating results, and (vii) the acquisition by the Investor of, or any investment by the Investor in, any Capital Stock or similar interests of an Unrestricted Subsidiary. The amount of any Unrestricted Subsidiary Investment, if other than in cash or a sum certain guaranteed, shall be the Fair Market Value thereof. Unrestricted Subsidiary Investments Outstanding: The term "Unrestricted Subsidiary Investments Outstanding" shall mean, at any time of determination, in respect of any Unrestricted Subsidiary, the amount, if any, by which (i) the sum of all Unrestricted Subsidiary Investments theretofore made by the Company or any Subsidiary of the Company in such Unrestricted Subsidiary after the date hereof, exceeds (ii) the amount of all dividends and distributions received, directly or indirectly, by the Company or a Subsidiary of the Company that is a Subsidiary Guarantor from such Unrestricted Subsidiary in cash or Cash Equivalents during the period that such Person was an Unrestricted Subsidiary, and all repayments in cash or Cash Equivalents from such Unrestricted Subsidiary, directly or indirectly, to the Company or one of its Subsidiaries that is a Subsidiary Guarantor of loans or advances from the Company or any of its Subsidiaries to such Unrestricted Subsidiary, during the period that such Person was an Unrestricted Subsidiary, any other reduction (including as a result of the sale by the Company 35 44 or a Subsidiary of the Company of Capital Stock of an Unrestricted Subsidiary) received, directly or indirectly, by the Company or a Subsidiary of the Company that is a Subsidiary Guarantor in cash or Cash Equivalents of Unrestricted Subsidiary Investments in such Unrestricted Subsidiary during the period that such Person was an Unrestricted Subsidiary, and any reductions of Unrestricted Subsidiary Investments in such Unrestricted Subsidiary of the kind referred to in clauses (iii) through (vi) of the definition of Unrestricted Subsidiary Investment; provided that the amount of Unrestricted Subsidiary Investments Outstanding in respect of any Unrestricted Subsidiary shall at no time be a negative amount. Notwithstanding the foregoing, in the event that the Company redesignates an Unrestricted Subsidiary as a Subsidiary, the amount of Unrestricted Subsidiary Investments Outstanding in respect of such Unrestricted Subsidiary at the time of such redesignation shall continue to constitute Unrestricted Subsidiary Investments Outstanding and such redesignated Subsidiary shall not be required to become a Subsidiary Guarantor in connection with such redesignation. 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) "Approved Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01 "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(c) "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) "Controlled Non-Affiliate Joint Venture" . . . . . . . . . . . . . . . . . . . 4.09(a) "Global Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.02 "Incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10(a) "Notice of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(c) "Other Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10(c) "PRIDES" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09(b)(IX) "Private Placement Legend . . . . . . . . . . . . . . . . . . . . . . . . . . 2.09
36 45 "record date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Refinanced Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10(b)(vi) "Refinancing Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10(b)(vi) "Restricted Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09(a) "Specified Pari Passu Indebtedness" . . . . . . . . . . . . . . . . . . . . . 4.14(b) "surviving corporation" . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01(a) "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 this 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
ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES SECTION 2.01. Designation, amount, authentication and delivery of Notes. The Initial Notes shall be designated as the Company's 10 7/8% Series C Senior Notes due 2006. The Exchange Notes shall be designated as the Company's 10 7/8% Series D Senior Notes due 2006. Notes for an aggregate principal 37 46 amount of fifty million dollars ($50,000,000), 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 fifty million dollars ($50,000,000) 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. The Trustee shall authenticate Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes, in each case upon a written order of the Company. The written order of the Company shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to be Initial Notes or Exchange Notes and whether the Notes are to be issued as Certificated Notes or a Global Note and such other information as the Trustee may reasonably request. 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. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of a single, permanent global Note in fully registered form, without interest coupons, substantially in the form set forth in the recitals to this Indenture (the "Global Note"), deposited with the Trustee, as custodian for the Depository, and registered in the name of Cede & Co., or such other nominee as the Depository may designate, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legends set forth in Section 2.09 hereof. The aggregate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note in fully registered form, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, as custodian for the Depository, and registered in the name of the Depository or the nominee of the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The 40-day restricted period (as defined in Regulation S) shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depository as to the non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein pursuant to another exemption from registration under the Securities Act of 1933, all as contemplated by Section 2.05(e) hereof), and (ii) an Officers' Certificate from the 38 47 Company. Following the termination of the 40-day restricted period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for Certificated Notes or beneficial interests in the Global Note pursuant to the applicable procedures of the Depository. The aggregate principal amount of the Regulation S Temporary Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Notes offered and sold in reliance on any other exemption from registration under the Securities Act of 1933 other than as described in the preceding paragraph shall be issued, and Notes offered and sold in reliance on Rule 144A may be issued, in the form of certificated Notes in fully registered form, without interest coupons, in substantially the form set forth in the recitals to this Indenture (the "Certificated Notes"). Certificated Notes shall initially be registered in the name of the Depository or a nominee of the Depository and be delivered to the Trustee as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Beneficial owners of Certificated Notes, however, may request registration of such Certificated Notes in their names or the names of their nominees. SECTION 2.03. Date of Notes and denominations. The Notes shall bear interest at the rate per annum of 10 7/8%, payable semi-annually on April 15 and October 15, shall mature on October 15, 2006 and shall be issuable as registered Notes without coupons in denominations of $1,000 and any integral multiple thereof. The person in whose name any Note is registered at the close of business on any record date (as hereinbelow defined) with respect to any interest payment date shall be entitled to receive the interest payable thereon on such interest payment date notwithstanding the cancellation of such Note upon any registration of transfer or exchange thereof subsequent to such record date and prior to such interest payment date, unless such Note shall have been redeemed on a date fixed for redemption subsequent to such record date and prior to such interest payment date, or unless an Event of Default shall have occurred and be continuing as the result of a default in the payment of interest due on such interest payment date on any Note, in which case such defaulted interest shall be paid to the person in whose name such Note (or any Note or Notes issued upon registration of transfer or exchange thereof) is registered on the record date for the payment of such defaulted interest. The principal of, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest on the Notes shall be payable to the registered holder thereof at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02; 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; provided that all payments with respect to any Note, if the holder of such Note has given wire transfer instructions (which instructions must be received by the Company at least 5 Business Days prior to the relevant date of payment) to the Company, will be required to be made by wire transfer of immediately available funds to the account specified by the holder of such Note; provided, that such payments (other than interest payments) may be conditioned upon surrender of the Notes. The term "record date" as used in this Section 2.03 with respect to any interest payment date shall mean the close of business on the April 1 or October 1, as the case may be, next preceding such interest payment date, whether or not such April 1 or October 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. 39 48 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 December 23, 1996. 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 April 15 or October 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 December 23, 1996. 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. (a) Subject to the other provisions of this Section 2.05: (1) Notes may be exchanged for a like aggregate principal amount of Notes in other authorized denominations. Notes to be exchanged shall be surrendered at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, and the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor the Note or Notes which the noteholder making the exchange shall be entitled to receive. (2) The Company shall keep, at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, a register or registers in which, subject to such reasonable regulations as it may prescribe, the Company shall register Notes and shall register the transfer of Notes as in this Article Two provided. Upon surrender by any noteholder for registration of transfer of any Note at such office or agency, the Company shall 40 49 execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Note or Notes for a like aggregate principal amount. (3) All Notes presented or surrendered for exchange, registration of transfer, redemption, purchase or payment shall, if so required by the Company or the Trustee or any Note registrar (if other than the Trustee), be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company and the Trustee or the Note registrar (if other than the Trustee), duly executed by the registered holder or by his attorney duly authorized in writing and, in every case, each Note presented or surrendered for registration of transfer shall be accompanied by the assignment form attached to the Notes, duly executed by the registered holder or by his attorney duly authorized in writing. (4) No service charge shall be made for any exchange or registration of transfer of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in relation thereto. (5) The Company shall not be required to issue, register the transfer of or exchange any Notes for a period of fifteen days next preceding any date for the selection of Notes to be redeemed. The Company shall not be required to register the transfer of or exchange any Note called or being called for redemption except, in the case of any Note to be redeemed in part, the portion thereof not to be so redeemed. The Company shall not be required to register the transfer of or exchange any Note in respect of which a Change of Control Purchase Notice or an Asset Sale Purchase Notice has been given (unless such notice has been withdrawn in accordance with Section 3.06 or 4.14) except, in the case of any Note to be purchased in part, the portion thereof not to be so purchased. (b) Transfers to Non-QIB Institutional Accredited Investors, Non-U.S. Persons and Certain QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Note to any Institutional Accredited Investor which is not a QIB, to any Non-U.S. Person or to any QIB electing to take delivery of Certificated Notes: (1) the Note registrar shall register on its books and records the transfer of any Note constituting a Restricted Security if such transfer is (i) pursuant to a registration statement which has been declared effective under the Securities Act of 1933, (ii) for as long as the Notes are eligible for resale pursuant to Rule 144A, to a person who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Note registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Note registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A, (iii) pursuant to offers and sales to non-U.S. Persons that occur outside the United States within the meaning of Regulation S under the Securities Act of 1933, (iv) to an Institutional Accredited Investor that is acquiring the security for its own account, or for the account of such an Institutional Accredited 41 50 Investor, for investment purposes and not with a view to or for offer or sale in connection with, any distribution in violation of the Securities Act of 1933, or (v) pursuant to another available exemption from the registration requirements of the Securities Act of 1933, subject to the Company's and the Trustee's right prior to any such offer, sale or transfer (A) pursuant to clauses (iii), (iv) or (v) to require the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them and (B) in each of the foregoing cases, to require that an assignment form in the form appearing on the reverse side of the form of Note is completed and delivered by the transferor to the Trustee; and (2) the Note registrar shall register on its books and records the transfer of any Note other than as described in the preceding paragraph, upon the completion and delivery of an assignment form in the form appearing on the reverse side of the form of Note by the transferor to the Trustee; (3) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, upon receipt by the Note registrar of written instructions given in accordance with the Depository's and the Note registrar's procedures, the Note registrar shall reflect on its books and records the date and (if the transfer involves a transfer of a beneficial interest in the Global Note) a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred; (4) if the Notes to be transferred consist of Certificated Notes, the transferor shall present or surrender such Certificated Notes to the Note registrar for registration of transfer; and (5) subject to this Section 2.05, the Company shall execute and the Trustee shall authenticate and deliver one or more Certificated Notes of like tenor and amount to the Notes proposed to be transferred hereunder. (c) Transfers to Certain QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Certificated Note to a QIB electing to take an interest in the Global Note: (1) the Note registrar shall register on its books and records the transfer of any Certificated Note constituting a Restricted Security if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Note registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Note registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (2) the Note registrar shall register on its books and records the transfer of any Note other than as described in the preceding paragraph, upon the completion and delivery of an 42 51 assignment form in the form appearing on the reverse side of the form of Note by the transferor to the Trustee; and (3) upon receipt by the Note registrar of written instructions given in accordance with the Depository's and the Note registrar's procedures, the Note registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note in an amount equal to the principal amount of the Certificated Notes to be transferred, and the Trustee shall cancel the Certificated Notes so transferred. (d) Transfers and Exchange of Global Securities. The transfer and exchange of an interest in the Global Note or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture (including applicable restrictions on transfer set forth therein, if any) and the procedures of the Depository therefor which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act of 1933. (e) Transfers from the Regulation S Temporary Global Note. If, at any time, an owner of a beneficial interest in the Regulation S Temporary Global Note wishes to transfer its beneficial interest in such Regulation S Temporary Global Note to a Person who is permitted to take delivery thereof in the form of an interest in the Global Note or to a Person who is taking delivery of such beneficial interest in the form of Certificated Notes or, upon expiration of the 40-day restricted period and upon certification of beneficial ownership of the Notes represented by the Regulation S Temporary Global Note by non-U.S. Persons or U.S. Persons who purchased such Notes in transactions that did not require registration under the Securities Act of 1933, to exchange such beneficial interest for Certificated Notes, such owner shall, subject to the applicable procedures of the Depository, exchange or cause the exchange of such interest for an equivalent beneficial interest in the Global Note or for Certificated Notes as provided in this Section 2.05(e). Upon receipt by the Trustee of (1) instructions from the Depository, directing the Trustee, as a Note registrar, to credit or cause to be credited a beneficial interest in the Global Note or to issue and authenticate Certificated Notes in an amount equal to the beneficial interest in the Regulation S Temporary Global Note to be transferred or exchanged, such instructions to contain information regarding the participant account with the Depository to be credited with such increase or the name and address of the transferee thereof, as applicable, and (2) a certificate in the form of Exhibit A-2 attached hereto given by the owner of such beneficial interest in the Regulation S Temporary Global Note stating (A) if the transfer is pursuant to Rule 144A, that the Person transferring such interest in the Regulation S Temporary Global Note reasonably believes that the Person acquiring such interest in the Global Note is a QIB and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A and any applicable blue sky or securities laws of any state of the United States or (B) if the transfer is pursuant to any other exemption from the registration requirements of the Securities Act of 1933, that the transfer of such interest has been made in compliance with the transfer restrictions applicable to the Regulation S Temporary Global Note and pursuant to and in accordance with the requirements of the exemption claimed, such statement, in the case of clause (B), to be supported by an Opinion of Counsel from the transferee or the transferor in form reasonably acceptable to the Company and to the Note registrar, then the Trustee, as Note registrar, shall instruct the Depository to reduce or cause to be reduced the aggregate principal amount of such Regulation S Temporary Global Note and (x) shall instruct the Depository to increase or cause to be increased the aggregate principal amount of the Global Note and instruct the Depository to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Note or (y) shall issue and authenticate Certificated Notes in an amount equal to the principal amount of the beneficial interest in the Regulation S Temporary Global Note to be exchanged or transferred, and the Trustee, as Note registrar, shall instruct 43 52 the Depository to debit or cause to be debited from the account of the Person making such transfer the beneficial interest in the Regulation S Temporary Global Note that is being exchanged or transferred. (f) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Note registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Note registrar shall deliver only Notes that bear the Private Placement Legend unless (i) the requested transfer is after the third anniversary of the Issue Date (or such shorter period permitted under Rule 144(k) under the Securities Act of 1933 (or any successor provision)), (ii) such Notes have been sold pursuant to a registration statement which has been declared effective under the Securities Act of 1933 or (iii) there is delivered to the Note registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act of 1933. (g) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Note registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.09 of this Indenture or this Section 2.05. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time during the Note registrar's normal business hours upon the giving of reasonable written notice to the Note registrar. SECTION 2.06. Temporary Notes. Pending the preparation of definitive Notes, the Company may execute and the Trustee shall authenticate and deliver temporary Notes (printed, lithographed or typewritten) of any authorized denomination and substantially in the form of the definitive Notes, but with or without a recital of specific redemption prices and with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Temporary Notes may contain such reference to any provisions of this Indenture as may be appropriate. Every temporary Note shall be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Notes. Without unnecessary delay the Company will execute and deliver to the Trustee definitive Notes and thereupon any or all temporary Notes may be surrendered in exchange therefor, at the office or agency to be maintained by the Company in accordance with the provisions of Section 4.02, and the Trustee shall authenticate and deliver in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture, and shall be subject to the same provisions hereof, as definitive Notes authenticated and delivered hereunder. SECTION 2.07. Mutilated, destroyed, lost or stolen Notes. In case any temporary or definitive Note shall become mutilated or be destroyed, lost or stolen, the Company, 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 44 53 Notice in respect of any such Note (unless such notice has been withdrawn in accordance with Section 3.06 or 4.14, respectively), the Company may pay the same without surrender thereof except in the case of a mutilated Note. In every case the applicant for a substituted Note or for such payment shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. The Trustee may authenticate any such substituted Note and deliver the same, or the Trustee or any paying agent of the Company may make any such payment, upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Every substituted Note issued pursuant to the provisions of this Section 2.07 shall constitute an additional contractual obligation of the Company whether or not the destroyed, lost or stolen Note shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued 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. SECTION 2.09. Restrictive Legends. Each Global Note and Certificated Note that constitutes a Restricted Security shall bear the following legend (the "Private Placement Legend") on the face thereof until the third anniversary of the Issue Date (or such shorter period permitted by Rule 144(k) under the Securities Act of 1933 (or any successor provision)), unless otherwise agreed by the Company and the Holder thereof: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT OF 1933") OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO 45 54 OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD PERMITTED UNDER RULE 144(K) UNDER THE SECURITIES ACT OF 1933 (OR A SUCCESSOR CLAUSE)) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OF 1933, (C) FOR AS LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT OF 1933 THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS WHO MAKE CERTAIN REPRESENTATIONS TO THE TRUSTEE WHICH OFFERS AND SALES OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OF 1933, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),(2),(3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT OF 1933 THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR" FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OF 1933, AND WHO MAKES CERTAIN REPRESENTATIONS TO THE TRUSTEE OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY AND THE TRUSTEE AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. Each Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR INTERESTS IN THE GLOBAL NOTE OR NOTES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH 46 55 SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.05 OF THE INDENTURE. SECTION 2.10. Book-Entry Provisions for Global Note and Regulation S Temporary Global Note. (a) Each of the Global Note and the Regulation S Temporary Global Note initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Section 2.09 and Exhibit A-1, as applicable, of this Indenture. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to the Global Note or the Regulation S Temporary Global Note, as applicable, held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Note or the Regulation S Temporary Global Note, as applicable, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note and the Regulation S Temporary Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) Transfers of the Global Note or the Regulation S Temporary Global Note shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Note or Regulation S Temporary Global Note may be transferred or exchanged for Certificated Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.05 of this Indenture. In addition, Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests (1) in the Global Note, if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for the Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Note registrar has received a written 47 56 request from the Depository to issue Certificated Notes and (2) the Regulation S Temporary Global Note, upon (i) the expiration of the 40-day restricted period and (ii) certification of beneficial ownership of the Notes represented by the Regulation S Temporary Global Note by non-U.S. Persons or U.S. Persons who purchased such Notes in transactions that did not require registration under the Securities Act of 1933. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note or Regulation S Temporary Global Note to beneficial owners pursuant to paragraph (b) above, the Note registrar shall (if one or more Certificated Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note or Regulation S Temporary Global Note, as applicable, in an amount equal to the principal amount of the beneficial interest in the Global Note or Regulation S Temporary Global Note, as applicable, to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount. (d) In connection with the transfer of the entire Global Note or Regulation S Temporary Global Note to beneficial owners pursuant to paragraph (b) above, the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of Certificated Notes of authorized denominations. (e) Any Certificated Note constituting a Restricted Security delivered in exchange for an interest in the Global Note or Regulation S Temporary Global Note, as applicable, pursuant to paragraph (b), (c) or (d) above shall, except as otherwise provided by paragraph (e) of Section 2.05 of this Indenture, bear the Private Placement Legend. (f) The Holder of the Global Note or the Regulation S Temporary Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. 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 October 15, 2001. 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. 48 57 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 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 49 58 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 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 accrued and unpaid interest 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 50 59 or trustees of such person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). (b) Within ten Business Days after the occurrence of a Change of Control, the Company shall mail a written notice of Change of Control by first-class mail to the Trustee and to each holder (and to beneficial owners as required by applicable law, including without limitation, Rule 13e-4 of the Exchange Act, if applicable) and shall cause a copy of such notice to be published in a daily newspaper of national circulation. The notice shall include a form of Change of Control Purchase Notice (as described below) to be completed by the holder and shall state: (1) the events causing a Change of Control and the date of such Change of Control; (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 51 60 (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 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: 52 61 (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 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). 53 62 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, 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 54 63 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 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. Subject to Article 11, 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 55 64 (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, 1996, 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 (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 and Unrestricted Subsidiaries. (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 or Unrestricted Subsidiary 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 (which amount shall be calculated excluding the amount 56 65 of Principal Products transferred to or from an Unrestricted Subsidiary in accordance with the proviso at the end of this clause (iii)), 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, provided that, in the case of this clause (iii), the Company, such Subsidiary and/or such Non-Affiliate Joint Venture shall not be required to procure any such opinion to the extent that such transaction involves the purchase or sale for cash of Principal Products from or to an Unrestricted Subsidiary (which Principal Products are used by the purchaser thereof in its operations in the ordinary course of business). 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) or in the proviso at the end of clause (iii) of this Section 4.08(a)) with Affiliates or Unrestricted Subsidiaries of the Company occurring during such fiscal quarter, and (y) with respect to any transaction with an Affiliate or Unrestricted Subsidiary of the Company, or series of related transactions (other than transactions referred to in Section 4.08(b) or in the proviso at the end of clause (iii) of this Section 4.08(a)) with Affiliates or Unrestricted Subsidiaries 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, Restricted Investments and Unrestricted Subsidiary 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 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 57 66 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, Restricted Investments and Unrestricted Subsidiary Investments. (a) The Company shall not, directly or indirectly, (i) declare or pay any dividend or make any distribution in respect of 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 this 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 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, (v) make or permit any of its Subsidiaries to make any Restricted Investment or (vi) make or permit any of its Subsidiaries to make any Unrestricted Subsidiary Investment, unless at the time of, and after giving effect to, each such Restricted Payment, Restricted Investment or Unrestricted Subsidiary 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: 58 67 (x) the aggregate amount expended for all Restricted Payments after December 31, 1992, (y) the aggregate amount expended for all Restricted Investments after the date of the 9 7/8% Note Indenture (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), and (z) the aggregate amount of Unrestricted Subsidiary Investments Outstanding (in each case, the amount expended for such Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments 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, Restricted Investment or Unrestricted Subsidiary Investment is being made, (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 or an Unrestricted 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, and (III) 50% of any dividends or other distributions consisting of cash or Cash Equivalents received, directly or indirectly, by the Company or a Subsidiary of the Company that is a Subsidiary Guarantor after the date of this Indenture from any Unrestricted Subsidiary to the extent that such dividends or other distributions are not required to reduce the amount of the Unrestricted Subsidiary Investments Outstanding in respect of such Unrestricted Subsidiary to zero; provided, however, that in no event shall the Company make, or permit any of its Subsidiaries to make, a Restricted Payment, Restricted Investment or Unrestricted Subsidiary 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, Restricted Investments (less 59 68 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) and Unrestricted Subsidiary Investments Outstanding 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, Restricted Investment or Unrestricted Subsidiary 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 Investors Service, 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: (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 or an Unrestricted 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 of the 9 7/8% Note Indenture (the amount expended for such purchases, redemptions or other acquisitions or retirements, if paid in property other than 60 69 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, a Non-Affiliate Joint Venture or a Subsidiary or Unrestricted Subsidiary of the Company), after the date of the 9 7/8% Note 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 this 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 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 or an Unrestricted 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, Restricted Investments and Unrestricted Subsidiary Investments after February 1, 1993, other than Restricted Payments, Restricted Investments and Unrestricted Subsidiary 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); (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); and 61 70 (z) the aggregate amount of Unrestricted Subsidiary Investments Outstanding made pursuant to this clause (VIII) (in each case, the amount expended for such Restricted Payments, Restricted Investments and Unrestricted Subsidiary 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, Restricted Investment or Unrestricted Subsidiary 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, Restricted Investment or Unrestricted Subsidiary 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, 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) and Unrestricted Subsidiary Investments Outstanding 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, 8.255% PRIDES, Convertible Preferred Stock (the "PRIDES") 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, Restricted Investments and Unrestricted Subsidiary 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, Restricted Investments and Unrestricted Subsidiary Investments under Section 4.09(a). The Board of Directors of the Company may designate any Subsidiary to be an Unrestricted Subsidiary if such designation would not cause an Event of Default (or event that, after notice or lapse of time or both, would become an Event of Default). For purposes of making such determination, all outstanding Unrestricted Subsidiary Investments by the Company and its Subsidiaries in the Unrestricted Subsidiary so designated will be deemed to be Unrestricted Subsidiary Investments Outstanding at the time of such designation and will reduce the amount available for Restricted Payments, Restricted Investments and Unrestricted Subsidiary Investments under Section 4.09(a). All such Unrestricted Subsidiary Investments Outstanding will be deemed to have been made at the time of such designation 62 71 and to be in an amount equal to the greater of (A) the net book value of such Unrestricted Subsidiary Investments at the time of such designation and (B) the Fair Market Value of such Unrestricted Subsidiary Investments at the time of such designation. Such designation will only be permitted if such Unrestricted Subsidiary Investments would be permitted at such time and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. 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: (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 $400,000,000, 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 (b)(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; 63 72 (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, 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 64 73 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, directly or indirectly, (A) to finance the construction, acquisition and/or retrofitting of (I) a bauxite mine or mines and/or related facilities, (II) an alumina refinery or refineries, and/or related facilities, (III) an aluminum smelter or smelters and/or related facilities, and/or (IV) a fabrication plant or plants and/or related facilities (and, in each case, any direct or indirect interests therein; collectively, the "Facilities") and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, in an aggregate amount not to exceed $150,000,000 in any fiscal year (without cumulation of unused amounts to successive years); provided, however, that the aggregate amount of Indebtedness Incurred pursuant to subclause (A)(IV) of this clause (viii) shall not exceed $75,000,000 in any fiscal year (without cumulation of unused amounts to successive years), (B) to Refinance, in whole or in part, any Indebtedness permitted by this clause (viii) (including Indebtedness owed to the Company or a Subsidiary of the Company), or any one or more successive Refinancings of any thereof, provided, however, that such Refinancing Indebtedness is in an aggregate amount not to exceed the aggregate amount of such Refinanced Indebtedness, 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 and/or (C) to provide working capital in connection with or in respect of any of the Facilities and the reasonable fees and expenses in connection with the Incurrence of such Indebtedness, provided that (x) the amount of such Indebtedness that may be Incurred pursuant to this subclause (C) shall not exceed $40,000,000 in any fiscal year (without cumulation of unused amounts to successive years), and provided, further, that the aggregate amount of any Indebtedness Incurred pursuant to subclauses (A) and (C) of this clause (viii) shall not exceed $150,000,000 in any fiscal year (without cumulation of unused amounts to successive years), and (y) for purposes of computing the amount of Indebtedness Incurred pursuant to this clause (viii) at any time in any fiscal year, the amount of Indebtedness Incurred by any Subsidiary of the Company pursuant to this clause (viii) under lines of credit and/or revolving credit agreements in such fiscal year to such time shall not be deemed to exceed the amount of the net borrowings (i.e., aggregate borrowings during such fiscal year less aggregate repayments during such fiscal year) by such Subsidiary under lines of credit and/or revolving credit agreements to such time; (ix) [intentionally omitted]; (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 (including preferred stock and preference stock that is Redeemable Stock), provided that such preferred stock or 65 74 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 $50,000,000 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. (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 66 75 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; (ii) Liens in existence on the date of this Indenture 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) and (viii) 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) and the applicable Facility or Facilities in the case of clause (viii), 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 67 76 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 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. 68 77 (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) and (viii); (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 69 78 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 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 this Section 4.12, to remain a Permitted Entity pursuant to 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 70 79 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 applicable) of such Net Cash Proceeds (the "Asset Sale Purchase Date," which date shall be deferred to the extent necessary to permit the Asset Sale Offer to remain open for the period required by applicable law), at a price (the "Asset Sale Purchase Price") equal to 100% of the principal amount thereof together with accrued and unpaid interest, if any, to 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; 71 80 (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; (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 72 81 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 or Nevada micromill, 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 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. SECTION 4.15. Limitations on Unrestricted Subsidiaries. (i) The Company shall not permit any of its Unrestricted Subsidiaries to guarantee or otherwise directly or indirectly provide credit support for any Indebtedness of the Company or any of its Subsidiaries, (ii) in the event that an Unrestricted Subsidiary of the Company Incurs Indebtedness that does not involve an Unrestricted Subsidiary Investment by the Company or any of its Subsidiaries in such Unrestricted Subsidiary pursuant to the definition of "Unrestricted Subsidiary Investment," the Company will cause such Unrestricted Subsidiary to notify the lenders thereof in writing that such lenders will not have any recourse to the stock or assets of the Company or any of its Subsidiaries and (iii) the Company shall cause each of its Unrestricted Subsidiaries to have at all times at least one director on its board of directors that is not a director or executive officer of the Company or any of its Subsidiaries and to have at all times at least one executive officer that is not a director or executive officer of the Company or any of its Subsidiaries (except for any period not exceeding 30 days following the death or resignation of any such director or executive officer). 73 82 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 (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. 74 83 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 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. 75 84 (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. (e) For so long as any Restricted Securities remain outstanding, the Company and the Subsidiary Guarantors covenant and agree to furnish to the Holders of the Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933. SECTION 5.04. Reports by the Trustee. (a) On or before May 15, 1997, 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; 76 85 (5) any change to the property and funds, if any, physically in the possession of the Trustee (as such) on the date of such report; and (6) any action taken by the Trustee in the performance of its duties under this Indenture which it has not previously reported and which in its opinion materially affects the Notes, except action in respect of a default, notice of which has been or is to be withheld by it in accordance with the provisions of Section 6.07. (b) The Trustee shall transmit to the noteholders, as hereinafter provided, a brief report with respect to the 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 77 86 (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 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 78 87 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 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, 79 88 to file and prove a claim or claims for the whole amount of principal, premium, if any, Change of Control Purchase Price, Asset Sale Purchase Price and interest owing and unpaid in respect of the Notes, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the noteholders allowed in any judicial proceeding relative to the Company or any other obligor upon the Notes, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its reasonable charges and expenses; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the noteholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the noteholders, to pay to the Trustee any amount due it for compensation and expenses, including reasonable counsel fees incurred by it up to the date of such 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 80 89 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 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 81 90 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 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 of this Indenture which under Article Ten cannot be modified or amended without the consent of the holder of each outstanding Note. In the case of any such waiver the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 6.07. Trustee to give notice of defaults known to it, but may withhold in certain circumstances. The Trustee shall, within 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 82 91 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 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; 83 92 (b) the Trustee shall not be liable for any error of judgment made in good faith by a responsible officer or officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Notes at the time outstanding (determined as provided in Section 8.04 or 8.05) relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 7.02. Reliance on documents, opinions, etc. Subject to the provisions of Section 7.01: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an instrument signed in the name of the Company by the Chairman of the Board, the President 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; 84 93 (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 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 85 94 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. 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 86 95 protection of investors to disqualify the Trustee from acting as such under this Indenture and such other indenture or indentures, or (ii) the Company shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that the trusteeship under this Indenture and such other indenture is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under one of such indentures; (2) the Trustee or any of its directors or executive officers is an underwriter for the Company; (3) the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with an underwriter for the Company; (4) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee, or representative of the Company, or of an underwriter (other than the Trustee itself) for the Company who is currently engaged in the business of underwriting, except that (A) one individual may be a director and/or an executive officer of the Trustee and a director and/or an executive officer of the Company, but may not be at the same time an executive officer of both the Trustee and the Company; (B) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director and/or an executive officer of the Trustee and a director of the Company; and (C) the Trustee may be designated by the Company or by any underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent, or depositary, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this subsection (c), to act as trustee whether under an indenture or otherwise; (5) ten percent or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, partner, or executive officer thereof, or 20 percent or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or 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; 87 96 (9) the Trustee owns on the date of default upon the Notes (defined as the occurrence of any event specified in Section 6.01, but exclusive of any period of grace or requirement of notice) or any anniversary of such default while such default upon the Notes remains outstanding, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25 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 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 88 97 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 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. 89 98 (6) The term "executive officer" shall mean the president, every vice-president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors. The percentages of voting securities and other securities specified in this Section 7.08 shall be calculated in accordance with the following provisions: (A) A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section 7.08 (each of whom is referred to as a "person" in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person. (B) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding. (C) The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares, and the number of units if relating to any other kind of security. (D) The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition: (i) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class; (ii) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise; (iii) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and (iv) securities held in escrow if placed in escrow by the issuer thereof; provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof. (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 90 99 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 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 91 100 (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Company, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 6.08, any noteholder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) Any resignation or removal of the Trustee and appointment of any successor trustee pursuant to any of the provisions of this Section 7.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.11. SECTION 7.11. Acceptance by successor to Trustee; notice of succession of a Trustee. Any successor trustee appointed as provided in Section 7.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 7.06, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee of such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such trustee to secure any amounts then due it pursuant to the provisions of Section 7.06. No successor trustee shall accept appointment as provided in this Section 7.11 unless at the time of such acceptance, such successor trustee shall be qualified under the provisions of Section 7.08 and eligible under the provisions of Section 7.09. Upon acceptance of appointment by a successor trustee as provided in this Section 7.11, the Company shall mail to the noteholders by first-class mail notice thereof. If the Company fails to mail such notice within 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 92 101 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 (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; 93 102 (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 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. 94 103 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; (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 95 104 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 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. 96 105 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 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 97 106 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 (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. 98 107 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, 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 99 108 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. 100 109 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 comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act of 1939, or to make such other provisions in regard to matters or questions arising under this Indenture or any supplemental indenture as shall not adversely affect the rights of the holders of the Notes; (d) to provide for the issuance under this Indenture of Notes, whether or not then outstanding, in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose; and (e) to comply with the requirements of the 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. 101 110 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 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. 102 111 SECTION 10.04. Notes may bear notation of changes by supplemental indentures. Notes authenticated and delivered after the execution and delivery of any supplemental indenture pursuant to the provisions of this Article Ten, or after any action taken at a noteholders' meeting pursuant to Article Nine, may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture or as to any action taken at any such meeting. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Notes then outstanding upon surrender of such Notes. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such supplemental indenture or noteholders' meeting. 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. 103 112 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 (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. 104 113 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. 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. 105 114 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. 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. 106 115 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 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 107 116 shall be deemed to have been sufficiently given or made, for all purposes, if given or made at the principal office of the Trustee, to the attention of the Corporate Trust Department. Any notice or communication to a noteholder shall be mailed by first-class mail to his address shown on the Company's registry. Failure to mail a notice or communication to a noteholder or any defect in it shall not affect its sufficiency with respect to other noteholders. If a notice or communication is mailed in the manner so provided within the time prescribed, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event or action relating thereto, and such waiver shall be equivalent of such notice. Waivers of notice by noteholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of regular mail service or as a result of a strike, work stoppage or similar activity, or any act of God or any other cause, it shall be impractical to mail any notice as required by this Indenture, then any manner of giving such notice as shall be made with the approval of the Trustee shall constitute sufficient giving of notice hereunder. SECTION 14.04. Indenture 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 108 117 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 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 109 118 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 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. 110 119 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 12 3/4% Note Indenture to the extent that such Subsidiary Guarantor is a guarantor under the 12 3/4% 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. (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) 111 120 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. (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 12 3/4% Note Indenture, the 10 7/8% Note Indenture and the 9 7/8% 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 Investors Service, 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 112 121 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 9 7/8% Note Indenture, the 10 7/8% Note Indenture or the 12 3/4% 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, the 12 3/4% Notes, the 10 7/8% Notes and the 9 7/8% 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 any such release. (d) Upon the designation by the Board of Directors of the Company of a Subsidiary Guarantor as an Unrestricted Subsidiary in compliance with the terms of this 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, however, that, any guarantee of such Subsidiary Guarantor with respect to the Credit Agreement, the 12 3/4% Notes, the 10 7/8% Notes and the 9 7/8% Notes, and any renewals, extensions, refundings, replacements, restructurings or refinancings, amendments and modifications thereof, if any, has been or is simultaneously released. (e) 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. At the request of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing any such release. 113 122 IN WITNESS WHEREOF, each of KAISER ALUMINUM & CHEMICAL CORPORATION, KAISER ALUMINA AUSTRALIA CORPORATION, ALPART JAMAICA INC., KAISER FINANCE CORPORATION, KAISER JAMAICA CORPORATION, KAISER MICROMILL HOLDINGS, LLC, KAISER SIERRA MICROMILLS, LLC, KAISER TEXAS MICROMILL HOLDINGS, LLC and KAISER TEXAS SIERRA MICROMILLS, LLC, 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 or Assistant Vice Presidents, has caused its corporate seal to be affixed hereunto, and the same to be attested by one of its Assistant Secretaries, all as of the day and year first written above. KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/ KAREN A. TWITCHELL ____________________________________ Name: Karen A. Twitchell Title: Treasurer [SEAL] Attest: Byron L. Wade KAISER ALUMINA AUSTRALIA CORPORATION By: /s/ KAREN A. TWITCHELL ____________________________________ Name: Karen A. Twitchell Title: Treasurer [SEAL] Attest: Byron L. Wade ALPART JAMAICA INC. By: /s/ KAREN A. TWITCHELL ____________________________________ Name: Karen A. Twitchell Title: Treasurer [SEAL] Attest: Byron L. Wade 123 KAISER FINANCE CORPORATION By: /s/ KAREN A. TWITCHELL ____________________________________ Name: Karen A. Twitchell Title: Treasurer [SEAL] Attest: Byron L. Wade KAISER JAMAICA CORPORATION By: /s/ KAREN A. TWITCHELL ____________________________________ Name: Karen A. Twitchell Title: Treasurer [SEAL] Attest: KAISER MICROMILL HOLDINGS, LLC By: /s/ JOSEPH A. BONN ____________________________________ Name: Joseph A. Bonn Title: Manager [SEAL] Attest: Anthony R. Pierno KAISER SIERRA MICROMILLS, LLC By: /s/ KAREN A. TWITCHELL ____________________________________ Name: Karen A. Twitchell Title: Treasurer [SEAL] Attest: Byron L. Wade 124 KAISER TEXAS MICROMILL HOLDINGS, LLC By: /s/ KAREN A. TWITCHELL ____________________________________ Name: Karen A. Twitchell Title: Treasurer [SEAL] Attest: Byron L. Wade KAISER TEXAS SIERRA MICROMILLS, LLC By: /s/ KAREN A. TWITCHELL ____________________________________ Name: Karen A. Twitchell Title: Treasurer [SEAL] Attest: Byron L. Wade FIRST TRUST NATIONAL ASSOCIATION, as Trustee By: /s/ RICHARD H. PROKOSCH ____________________________________ Name: Richard H. Prokosch Title: Trust Officer [SEAL] Attest: 125 Exhibit A-1 (Back of Regulation S Temporary Global Note) 10 7/8% [Series C] and/or [Series D] Senior Note due 2006 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR INTERESTS IN THE GLOBAL NOTE OR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.05 OF THE INDENTURE. THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT OF 1933"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO REGISTRATION. THE HOLDER OF THIS SECURITY OR ANY INTEREST OR PARTICIPATION HEREIN BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, INTEREST OR PARTICIPATION PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD PERMITTED UNDER RULE 144(K) UNDER THE SECURITIES ACT OF 1933 (OR A SUCCESSOR CLAUSE)) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY (1) BY THE INITIAL INVESTOR (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OF 1933, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE 126 PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT OF 1933 THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS WHO MAKE CERTAIN REPRESENTATIONS TO THE TRUSTEE WHICH OFFERS AND SALES OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OF 1933, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AND (2) BY SUBSEQUENT INVESTORS, AS SET FORTH IN (1) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT OF 1933 THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR" FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OF 1933, AND WHO MAKES CERTAIN REPRESENTATIONS TO THE TRUSTEE, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (2) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY AND THE TRUSTEE, AND, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. Until this Regulation S Temporary Global Note is exchanged for interests in the Global Notes or for Certificated Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. This Regulation S Temporary Global Note is exchangeable in whole or in part for interests in the Global Note or for Certificated Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note in full for interests in the Global Note or Certificated Notes, the Trustee shall cancel this Regulation S Temporary Global Note. This Regulation S Temporary Global Note shall not become valid or obligatory until the certificate of authentication hereon shall have been duly manually signed by the Trustee in accordance with the Indenture. This Regulation S Temporary Global Note shall be governed by and construed in accordance with the laws of the State of the New York. All references to "$," "Dollars," "dollars" or "U.S. $" are to such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts therein. 127 Exhibit A-2 FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER FROM REGULATION S GLOBAL NOTE (Pursuant to Section 2.05(e) of the Indenture) First Trust National Association 180 E. Fifth Street St. Paul, MN 55101 Attention: Corporate Trust Division Re: 10 7/8% [Series C] and/or [Series D] Senior Notes due 2006 of Kaiser Aluminum & Chemical Corporation Reference is hereby made to the Indenture, dated as of December 23, 1996 (the "Indenture"), among Kaiser Aluminum & Chemical Corporation, as issuer (the "Company"), the parties listed therein as subsidiary guarantors and First Trust National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to $_______ principal amount of Notes which are evidenced by one or more Regulation S Temporary Global Notes (CUSIP __________) and held with the Depository in the name of ____________________________ (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Notes to a Person who will take delivery thereof in the form of an equal principal amount of Notes evidenced by (i) the Global Notes (CUSIP ____________), to be held with the Depository or (ii) Certificated Notes (CUSIP _________). In connection with such request and in respect of such Notes, the Transferor hereby certifies that: [CHECK ONE] [ ] such transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the Notes are being transferred to a Person that the Transferor reasonably believes is purchasing the Notes for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A; [ ] such transfer is being effected pursuant to an effective registration statement under the Securities Act; or [ ] such transfer is being effected pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, and the Transferor hereby further certifies that the Notes are being transferred in compliance with the transfer restrictions applicable to the Regulation S Temporary Global Note and in accordance with the requirements of the exemption claimed, which certification is supported by an Opinion of Counsel, provided by the Transferor or the transferee (a copy of which the Transferor has attached to this certification) in form reasonably acceptable to the Company and to the Note registrar, to the effect that such transfer is in compliance with the Securities Act; and such Notes are being transferred in compliance with any applicable blue sky securities laws of any state of the United States. 128 Upon giving effect to this request to exchange a beneficial interest in Regulation S Temporary Global Notes for a beneficial interest in Global Notes or for Certificated Notes, as applicable, the resulting beneficial interest shall be subject to the restrictions on transfer applicable to Global Notes or Certificated Notes, as applicable, pursuant to the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Purchasers of such Notes being transferred. __________________________ [Name of Transferor] By:___________________________________________________________________ Name: Title: Dated: _____________, _____ 129 SCHEDULE A SCHEDULE OF LIENS SECURING INDEBTEDNESS IN EXCESS OF $5,000,000 130 SCHEDULE B REAL PROPERTY CONSTITUTING PERMITTED COLLATERAL 131 SCHEDULE C CERTAIN INDEBTEDNESS IN EXCESS OF $10,000,000 EX-4.5 3 FORM OF REGISTRATION RIGHTS AGREEMENT 1 ================================================================================ REGISTRATION RIGHTS AGREEMENT Dated December 23, 1996 among KAISER ALUMINUM & CHEMICAL CORPORATION KAISER ALUMINA AUSTRALIA CORPORATION KAISER FINANCE CORPORATION ALPART JAMAICA INC. KAISER JAMAICA CORPORATION KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC KAISER TEXAS MICROMILL HOLDINGS, LLC KAISER TEXAS SIERRA MICROMILLS, LLC and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ================================================================================ 2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of December 23, 1996 among Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), Kaiser Alumina Australia Corporation, Kaiser Finance Corporation, Alpart Jamaica Inc., Kaiser Jamaica Corporation, Kaiser Micromill Holdings, LLC, Kaiser Sierra Micromills, LLC, Kaiser Texas Micromill Holdings, LLC, and Kaiser Texas Sierra Micromills, LLC (collectively, the "Guarantors"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Purchaser"). This Agreement is made pursuant to the Purchase Agreement dated December 18, 1996 among the Company, the Guarantors and the Purchaser (the "Purchase Agreement"), which provides for, among other things, the sale by the Company to the Purchaser of an aggregate of $50,000,000 principal amount of the Company's 10 7/8% Series C Senior Notes due 2006 (the "Securities"). In order to induce the Purchaser to enter into the Purchase Agreement, the Company and the Guarantors have agreed to provide to the Purchaser and certain of its direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Additional Interest" shall have the meaning set forth in Section 2(e) hereof. "Advice" shall have the meaning set forth in the last paragraph of Section 3 hereof. "Applicable Period" shall have the meaning set forth in Section 3(s) hereof. "Business Day" shall mean a day that is not a Saturday, a Sunday, or a day on which banking institutions in New York, New York are required to be closed. "Closing Time" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the preamble to this Agreement and also includes the Company's successors and permitted assigns. "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company; provided, however, that such depositary must have an address in the Borough of Manhattan, in The City of New York. "Effectiveness Period" shall have the meaning set forth in Section 2(b) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, 1 3 and the rules and regulations of the SEC promulgated thereunder. "Exchange Notes" shall mean the 10 7/8% Series D Senior Notes due 2006, issued by the Company under the Indenture containing terms substantially identical to the Securities (except that (i) interest thereon shall accrue from the last date to which interest was paid on the Securities or, if no such interest has been paid, from December 23, 1996, (ii) the provisions for Additional Interest thereon shall be eliminated (except as contemplated by Section 2(e)(v) hereof with respect to Exchange Notes held by Participating Broker-Dealers) and (iii) the transfer restrictions thereon shall be eliminated) to be offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer. "Exchange Offer" shall mean the exchange offer by the Company of Exchange Notes for Securities pursuant to Section 2(a) hereof. "Exchange Offer Registration" shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2(a) hereof. "Guarantors" shall have the meaning set forth in the Indenture. "Holder" shall mean the Purchaser, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture. "Indenture" shall mean the Indenture relating to the Securities dated as of December 23, 1996 among the Company, as issuer, the Guarantors and First Trust National Association, as trustee, as the same may be amended or supplemented from time to time in accordance with the terms thereof. "Inspectors" shall have the meaning set forth in Section 3(n) hereof. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of outstanding Registrable Securities. "Participating Broker-Dealer" shall have the meaning set forth in Section 3(s) hereof. "Person" shall mean an individual, trustee, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof, or other legal entity. 2 4 "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble to this Agreement. "Purchaser" shall have the meaning set forth in the preamble to this Agreement. "Records" shall have the meaning set forth in Section 3(n) hereof. "Registrable Securities" shall mean the Securities; provided, however, that Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities for the resale thereof, shall have been declared effective under the Securities Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities shall have been sold to the public in compliance with Rule 144 (or any similar provision then in force) under the Securities Act, (iii) such Securities shall have ceased to be outstanding or (iv) with respect to the Securities, such Securities have been exchanged for Exchange Notes upon consummation of the Exchange Offer and are thereafter freely tradeable (and, for the purpose only of Section 2(e) hereof, not subject to a prospectus delivery requirement) by the holder thereof not an affiliate of the Company or any Guarantor. "Registration Default" shall have the meaning set forth in Section 2(e) hereof. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company and the Guarantors with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any Holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Notes or Registrable Securities) and compliance with the rules of the NASD, (iii) all expenses of any Persons retained with the consent of the Company in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, and in preparing or assisting in preparing, printing and distributing any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements of counsel for the Company and the Guarantors and of the independent certified public accountants of the Company and the Guarantors, including the expenses of any "cold comfort" letters required by or incident to such performance and compliance, (vi) the fees and expenses of the Trustee, and any exchange agent or custodian, (vii) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities or Exchange Notes on any securities exchange or exchanges, and (viii) any fees and disbursements of any underwriter customarily required to be paid by issuers or sellers of securities and the reasonable fees and 3 5 expenses of any special experts, in each case, retained by the Company or any Guarantor in connection with any Registration Statement, but excluding fees of counsel to the underwriters and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the Company which covers any of the Exchange Notes or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference, or deemed to be incorporated by reference, therein. "SEC" shall mean the Securities and Exchange Commission. "Securities" shall have the meaning set forth in the preamble to this Agreement. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time and the rules and regulations of the SEC promulgated thereunder. "Shelf Registration" shall mean a registration effected pursuant to Section 2(b) hereof. "Shelf Registration Event" shall have the meaning set forth in Section 2(b) hereof. "Shelf Registration Event Date" shall have the meaning set forth in Section 2(b) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2(b) hereof which covers Registrable Securities in respect of which a Shelf Registration Statement is required to be filed pursuant to this Agreement on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference therein. "TIA" shall have the meaning set forth in Section 3(l) hereof. "Trustee" shall mean the trustee with respect to the Securities under the Indenture. 2. Registration Under the Securities Act. a. Exchange Offer. To the extent not prohibited by any law or applicable interpretations of the staff of the SEC, the Company and the Guarantors shall, for the benefit of the Holders, at the Company's expense, (i) cause to be filed with the SEC within 30 days after the Closing Time an Exchange Offer Registration Statement on an appropriate form under the Securities Act covering the offer by the Company and the Guarantors to the Holders to exchange any and all of the Registrable Securities for a like principal amount of Exchange Notes, (ii) use their reasonable best efforts to have such Exchange Offer Registration Statement declared effective under the Securities Act by the SEC not later than the date which is 135 days after the Closing 4 6 Time, (iii) use their reasonable best efforts to have such Registration Statement remain effective until the closing of the Exchange Offer and (iv) use their reasonable best efforts to cause the Exchange Offer to be consummated not later than 165 days after the Closing Time. The Exchange Notes will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall as soon as practicable commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Notes (assuming that such Holder is not an affiliate of the Company or any Guarantor within the meaning of Rule 405 under the Securities Act and is not a broker-dealer tendering Registrable Securities acquired directly from the Company or any Guarantor or any affiliate of the Company or any Guarantor for its own account, and has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing (within the meaning of the Securities Act) the Exchange Notes) to transfer such Exchange Notes from and after their receipt, subject to the prospectus delivery requirements of Participating Broker-Dealers as contemplated by Section 3(s) hereof, without any limitations or restrictions under the Securities Act or under state securities or blue sky laws. In connection with the Exchange Offer, the Company and the Guarantors shall: (a) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Exchange Offer open for acceptance for a period of not less than 30 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (c) utilize the services of a Depositary for the Exchange Offer; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last Business Day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for exchange, and a statement that such Holder is withdrawing his election to have such Securities exchanged; (e) notify each Holder that any Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except as otherwise provided herein); and (f) otherwise comply in all material respects with all applicable laws relating to the Exchange Offer. As soon as practicable after the close of the Exchange Offer the Company shall (i) accept for exchange all Securities or portions thereof tendered and not validly withdrawn pursuant to the Exchange Offer and (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Securities or portions thereof so accepted for exchange by the Company, and issue, and cause 5 7 the Trustee under the Indenture to promptly authenticate and deliver to each Holder, a new Exchange Security equal in principal amount to the principal amount of the Securities surrendered by such Holder. To the extent not prohibited by any law or applicable interpretations of the staff of the SEC, the Company and the Guarantors shall use their reasonable best efforts to complete the Exchange Offer as provided above, and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate any law or applicable interpretations of the staff of the SEC. Each Holder of Registrable Securities who wishes to exchange such Registrable Securities for Exchange Notes in the Exchange Offer will be required to make certain customary representations in connection therewith, including representations that (i) it is not an affiliate of the Company or any Guarantor, (ii) it is not a broker-dealer tendering Securities acquired directly from the Company or any Guarantor or an affiliate of the Company or any Guarantor, (iii) any Exchange Notes to be received by it will be acquired in the ordinary course of business, (iv) it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes in violation of the Securities Act and (v) it is not acting on behalf of any person who could not truthfully make the foregoing representations. Upon consummation of the Exchange Offer in accordance with this Section 2(a), the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Securities as to which Section 2(b)(iii) or Section 2(b)(iv) hereof is applicable and to Exchange Notes held by Participating Broker-Dealers, and the Company shall have no further obligation to register Registrable Securities (other than Securities as to which Section 2(b)(iii) or Section 2(b)(iv) hereof is applicable) pursuant to Section 2(b) hereof. b. Shelf Registration. In the event that (i) the Company reasonably determines, after conferring with counsel (which may be in-house counsel), that the Exchange Offer Registration provided in Section 2(a) hereof is not available or may not be consummated as soon as practicable after the last day of the Exchange Period because it would violate any law or applicable interpretations of the staff of the SEC, (ii) the Exchange Offer is not for any reason consummated or capable of being consummated within 195 days after the Closing Time, (iii) any Holder of Securities notifies the Company in writing within 15 days after receipt of the prospectus forming part of the Exchange Offer Registration Statement required to be mailed to each Holder as set forth above that (A) in the opinion of nationally-recognized counsel for such Holder (or counsel acting for or by reference to all Holders), due to a change in law or SEC staff interpretation which change occurs subsequent to the date hereof, such Holder is not entitled to participate in the Exchange Offer or (B) in the opinion of nationally-recognized counsel for such Holder (or counsel acting for or by reference to all Holders), due to a change in law or SEC staff interpretation which change occurs subsequent to the date hereof, such Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and (I) the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder and (II) such prospectus is not promptly amended or modified in order to be suitable for use in connection with resales by such Holder or (iv) upon the request of the Purchaser with respect to any Registrable Securities which it 6 8 acquired directly from the Company or any Guarantor or an affiliate of the Company or any Guarantor and, with respect to other Registrable Securities held by it, if the Purchaser is not permitted, in the opinion of nationally-recognized counsel to the Purchaser, pursuant to any law or applicable interpretations of the staff of the SEC, to participate in the Exchange Offer and thereby receive securities that are freely tradeable without restriction (other than a prospectus delivery requirement) under the Securities Act and applicable blue sky or state securities laws (any of the events specified in (i)-(iv) being a "Shelf Registration Event" and the date of occurrence thereof, the "Shelf Registration Event Date"), the Company and the Guarantors shall, at the Company's expense, cause to be filed as promptly as practicable after such Shelf Registration Event Date, as the case may be, and, in any event, in the case of (i), (iii) and (iv) above, within 165 days after the Closing Time, and in the case of (ii) above, as soon as reasonably practicable after the 195 day period set forth therein (notwithstanding in the case of (ii) above, the Company shall remain liable for the increases in interest set forth in Section 2(e) until the effectiveness of the Shelf Registration Statement), a Shelf Registration Statement providing for the sale by the Holders of any and all of the Registrable Securities, and shall use their reasonable best efforts to have such Shelf Registration Statement declared effective by the SEC as soon as reasonably practicable after its filing with the SEC. No Holder of Registrable Securities may include any of its Registrable Securities in any Shelf Registration pursuant to this Agreement unless and until such Holder furnishes to the Company in writing such information as the Company may, after conferring with counsel with regard to information relating to Holders that would be required by the SEC to be included in such Shelf Registration Statement or Prospectus included therein, reasonably request for inclusion in any Shelf Registration Statement or Prospectus included therein. Each Holder as to which any Shelf Registration is being effected agrees to furnish to the Company all information with respect to such Holder necessary to make the information previously furnished to the Company by such Holder not materially misleading. The Company and the Guarantors agree to use their reasonable best efforts to keep the Shelf Registration Statement continuously effective for a period until the earlier of 36 months following the Closing Time (subject to extension pursuant to the last paragraph of Section 3 hereof) or for such shorter period which will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or otherwise cease to be Registrable Securities (the "Effectiveness Period"). The Company and the Guarantors shall not permit any securities other than Registrable Securities to be included in the Shelf Registration. The Company and the Guarantors further agree, if necessary, to supplement or amend the Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registrations, and the Company agrees to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. c. Expenses. The Company and the Guarantors shall pay all Registration Expenses in connection with the registration pursuant to Section 2(a) or 2(b) hereof and will pay the reasonable fees and disbursements of any one counsel designated in writing by the Majority Holders to act as counsel for the Holders of the Registrable Securities in connection with a Shelf 7 9 Registration Statement. Except as provided herein, each Holder shall pay all expenses of its counsel, underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. d. Effective Registration Statement. An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the effectiveness of a Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have been effective during the period of such interference. The Company and the Guarantors will be deemed not to have used their reasonable best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if they voluntarily take any action that would result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period unless (i) such action is required by applicable law or interpretations of the staff of the SEC or (ii) such action is taken by them in good faith and for valid business reasons (not including avoidance of their obligations hereunder). e. Additional Interest. In the event that (i) the Exchange Offer Registration Statement has not been filed with the SEC on or prior to the 30th calendar day after the Closing Time, (ii) the Exchange Offer Registration Statement is not declared effective on or prior to the 135th calendar day after the Closing Time, (iii) the Exchange Offer is not consummated on or prior to the 165th calendar day after the Closing Time, (iv) if a Shelf Registration Event shall have occurred and if the Shelf Registration Statement is not declared effective on or prior to the 165th calendar day after the Closing Time or (v) the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective but thereafter ceases to be effective or usable during the period specified herein (each such event referred to in (i) through (v), a "Registration Default"), the interest rate borne by the Securities or Exchange Notes which are Registrable Securities shall be increased (the "Additional Interest") by one-quarter of one percent (0.25%) per annum for the first 90-day period immediately after the first such Registration Default. The interest rate borne by such Registrable Securities shall increase by an additional one-quarter of one percent (0.25%) per annum for each subsequent 90-day period, in each case, until all Registration Defaults have been cured (provided that in the event the Company has abandoned the Exchange Offer because of the circumstances described in Section 2(b)(i) or Section 2(b)(ii) hereof, then the effectiveness of the Shelf Registration Statement shall be deemed a cure of such Registration Defaults); provided, that the aggregate increase in such interest rate pursuant to this Section 2(e) will in no event exceed one percent (1.00%) per annum. Notwithstanding any of the above, it is understood that additional interest pursuant to a Registration Default under clause (v) above, as such clause (v) relates to an Exchange Offer Registration Statement, shall only be payable to a Participating Broker-Dealer that holds Registrable Securities subject to a prospectus delivery requirement; provided, that such a Registration Default may only be deemed to be occurring during the period following the 135th day after Closing Time until, subject to an extension of the relevant 180 day period pursuant to 8 10 the last sentence of Section 3 hereof, 180 days after the effectiveness of the Exchange Offer Registration Statement. Following the cure of all Registration Defaults, the interest rate borne by such Registrable Securities will be reduced to the original interest rate. The Company shall notify the Trustee within three Business Days after each and every date on which a Registration Default occurs. Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of Securities on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Registration Default. f. Specific Enforcement. Without limiting the remedies available to the Purchaser and the Holders, the Company and the Guarantors acknowledge that any failure by the Company and the Guarantors to comply with their obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Purchaser or the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Purchaser or any Holder may obtain such relief as may be required to specifically enforce the Company's and the Guarantors' obligations under Section 2(a) and Section 2(b) hereof. 3. Registration Procedures. In connection with the obligations of the Company and the Guarantors with respect to the Registration Statements pursuant to Sections 2(a) and 2(b) hereof, the Company and the Guarantors shall: a. prepare and file with the SEC a Registration Statement or Registration Statements as prescribed by Sections 2(a) and 2(b) hereof within the relevant time period specified in Section 2 hereof on the appropriate form under the Securities Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the relevant Registrable Securities by the selling Holders thereof and (iii) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; and use their reasonable best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; provided, however, that if (1) such filing is pursuant to Section 2(b), or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2(a) is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Securities covered by the relevant Shelf Registration Statement and each such Participating Broker-Dealer, as the case may be, covered by such Registration Statement, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (at least 5 Business Days prior to such filing). The Company and the Guarantors shall not file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must be pursuant to this 9 11 Section 3(a) afforded an opportunity to review prior to the filing of such document if the Majority Holders or such Participating Broker-Dealer, as the case may be, their counsel or the managing underwriters, if any, shall reasonably and promptly object in writing; b. prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the Effectiveness Period or the Applicable Period, as the case may be; and cause each Prospectus to be supplemented by any required prospectus supplement and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the Securities Act, and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder applicable to it with respect to the disposition of all securities covered by such Registration Statement during the Effectiveness Period or the Applicable Period, as the case may be, in accordance with the intended method or methods of distribution by the selling Holders thereof described in this Agreement (including sales by any Participating Broker-Dealer); c. in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities covered by such Shelf Registration Statement, at least 10 days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holder that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders; and (ii) furnish to each Holder of Registrable Securities covered by such Shelf Registration Statement and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities (it being understood that the Company and the Guarantors hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in accordance with the terms hereof, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto); d. in the case of a Shelf Registration, use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions by the time the applicable Registration Statement is declared effective by the SEC as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request in advance of such date of effectiveness, and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company and the Guarantors shall not be obligated to qualify as foreign corporations in any jurisdiction in which they are not so qualified or to take any action that would subject them to general consent to service of process in any jurisdiction in which they are not now so subject or to subject them to general taxation in any such jurisdiction in which they are not now so subject; 10 12 e. in the case of (1) a Shelf Registration or (2) Participating Broker-Dealers who have notified the Company that they will be utilizing the Prospectus contained in the Exchange Offer Registration Statement as provided in Section 3(s) hereof, notify each Holder of Registrable Securities covered by such Shelf Registration Statement, or such Participating Broker-Dealers, as the case may be, their counsel and the managing underwriters, if any, promptly and promptly confirm such notice in writing (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement or Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if the Company or the Guarantors receive any notification with respect to the suspension of the qualification of the Registrable Securities or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction or the initiation of any proceeding for such purpose, (v) of the happening of any event or the failure of any event to occur or the discovery of any facts, during the period a Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which causes such Registration Statement or Prospectus to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (vi) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; f. make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; g. in the case of a Shelf Registration, furnish to each Holder of Registrable Securities covered by such Shelf Registration Statement, without charge, at least one conformed copy of each Registration Statement relating to such Shelf Registration and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); h. in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and cause such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders or the underwriters may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities; i. in the case of a Shelf Registration or an Exchange Offer Registration, upon the occurrence of any circumstance contemplated by Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, use their reasonable best efforts to prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the 11 13 circumstances under which they were made, not misleading; and to notify each Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and each Holder hereby agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission; j. in the case of a Shelf Registration, a reasonable time prior to the filing of any document which is to be incorporated by reference into a Registration Statement or a Prospectus after the initial filing of a Registration Statement, provide a reasonable number of copies of such document to the Holders of Registrable Securities covered by such Shelf Registration Statement; and make such of the representatives of the Company and the Guarantors as shall be reasonably requested by such Holders of Registrable Securities or the Purchaser on behalf of such Holders available for discussion of such document; k. obtain a CUSIP number for all Exchange Notes or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates for the Exchange Notes or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; l. cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the registration of the Exchange Notes or Registrable Securities, as the case may be, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and execute, and use their reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; m. in the case of a Shelf Registration, enter into such agreements as are customary in shelf registrations and take all such other appropriate actions as are reasonably requested in order to expedite or facilitate the registration or the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to Holders of such Registrable Securities and the underwriters (if any), with respect to the business of the Company and its subsidiaries as then conducted or proposed to be conducted and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers in shelf registrations to underwriters and selling securityholders, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and the Guarantors and updates thereof in form and substance reasonably satisfactory to the managing underwriters (if any) and the Holders of a majority in principal amount of the Registrable Securities being sold, addressed to each selling Holder and the underwriters (if any) covering the matters customarily covered in opinions requested in shelf registrations and such other matters as may be reasonably requested by such Holders and underwriters; (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the recipients from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which 12 14 financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to the selling Holders of Registrable Securities and to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with shelf registrations and such other matters as reasonably requested by such selling Holders and underwriters (including, without limitation, negative assurance with respect to any interim financial period included in the Registration Statement or the Prospectus and with respect to any period after the date of the latest balance sheet included therein and up to five days prior to the closing date in respect of any such sale); and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 4 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Securities covered by such Registration Statement and the managing underwriters or agents) with respect to all parties to be indemnified pursuant to said Section (including, without limitation, such underwriters and selling Holders). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder; n. if (1) a Shelf Registration is filed pursuant to Section 2(b) or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2(a) is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the applicable period, make available for inspection by any selling Holder of such Registrable Securities being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and its subsidiaries to supply all relevant information in each case reasonably requested by any such Inspector in connection with such Registration Statement. Records which the Company determines, in good faith, to be confidential and any Records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary in the opinion of nationally-recognized counsel to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such Records has been made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in any securities other than for the purposes expressly set forth in this Agreement unless and until such is made generally available to the public. Each selling Holder of such Registrable Securities and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give prompt notice to the Company and allow the Company at its expense to undertake appropriate action to prevent disclosure of the Records deemed confidential (it being understood that the Holders shall at all times be unrestricted in complying with any order of any court or tribunal of competent jurisdiction); 13 15 o. comply with all applicable rules and regulations of the SEC and make generally available to the Company's security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods; p. if an Exchange Offer is to be consummated, upon delivery of the Registrable Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Notes, the Company shall mark, or cause to be marked, on such Registrable Securities delivered by such Holders that such Registrable Securities are being cancelled in exchange for the Exchange Notes; in no event shall such Registrable Securities be marked as paid or otherwise satisfied; q. cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; r. use their reasonable best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby; s. in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," which section shall be reasonably acceptable to the Purchaser or another representative of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer (a "Participating Broker-Dealer") that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of the Purchaser or such other representative, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Notes for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes, (ii) furnish to each Participating Broker-Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request (it being understood that the Company hereby consents to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or 14 16 supplement thereto, by any Person subject to the prospectus delivery requirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Notes covered by the Prospectus or any amendment or supplement thereto), (iii) use their reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such Persons must comply with such requirements in order to resell the Exchange Notes; provided, however, that such period shall not be required to exceed 180 days (or such longer period if extended pursuant to the last sentence of Section 3 hereof) (the "Applicable Period"), and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision or a provision substantially similar thereto: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes received in respect of such Registrable Securities pursuant to the Exchange Offer"; and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker- dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such seller and the proposed distribution of such Registrable Securities, as the Company may from time to time reasonably request in writing. The Company may exclude from such registration the Registrable Securities of any seller who fails to furnish such information within a reasonable time after receiving such request. In the case of (1) a Shelf Registration Statement or (2) Participating Broker-Dealers who have notified the Company that they will be utilizing the Prospectus contained in the Exchange Offer Registration Statement as provided in Section 3(s) hereof, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(i) hereof or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities or Exchange Notes, as the case may be, current at the time of receipt of such notice. If the Company or the Guarantors shall give any such notice to suspend the disposition of Registrable Securities or Exchange Notes, as the case may be, pursuant to a Registration Statement, the Company and the Guarantors shall file and use their reasonable best efforts to have declared effective (if an amendment) as soon as practicable an amendment or supplement to the Registration Statement and 15 17 shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days in the period from and including the date of the giving of such notice to and including the date when the Company shall have made available to the Holders (x) copies of the supplemented or amended Prospectus necessary to resume such dispositions or (y) the Advice. 4. Indemnification and Contribution. a. The Company and the Guarantors shall indemnify and hold harmless the Purchaser, each Holder, each Participating Broker-Dealer, each underwriter who participates in an offering of Registrable Securities, their respective affiliates, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees and agents, as follows: (a) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto), covering Registrable Securities or Exchange Notes, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (b) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 4(d) below) any such settlement is effected with the prior written consent of the Company; and (c) from and against any and all expenses whatsoever, as incurred (including the fees and disbursements of counsel chosen by the Purchaser, such Holder, such Participating Broker-Dealer or any underwriter (except to the extent otherwise provided in Section 4(c) hereof)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 4(a); provided, however, that this agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished in writing to the Company by the Purchaser, any Holder, any Participating Broker-Dealer or any underwriter with respect to the Purchaser, 16 18 Holder, Participating Broker-Dealer or underwriter, as the case may be, expressly for use in the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). b. Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantors, the Purchaser, each underwriter who participates in an offering of Registrable Securities and the other selling Holders and each of their respective directors, officers (including each officer of the Company who signed the Registration Statement), employees and agents and each Person, if any, who controls the Company and the Guarantors, the Purchaser, any underwriter or any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such selling Holder with respect to such Holder expressly for use in the Registration Statement (or any amendment thereto), or any such Prospectus (or any amendment or supplement thereto); provided, however, that, in the case of Shelf Registration Statement, no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement. c. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder except to the extent it is materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (expect with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution is sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. d. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that, unless such indemnifying party is contesting the payment of such fees and expenses in good faith, it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 90 days after receipt by such indemnifying party 17 19 of the aforesaid request, (ii) such indemnifying party shall have received written notice of all of the terms of such settlement at least 60 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. e. If the indemnification provided for in Section 4(a) or (b) hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors on the one hand and the Holder of Registrable Securities, the Participating Broker-Dealer or Purchaser, as the case may be, on the other hand from the offering of the Securities pursuant to the Purchase Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors on the one hand and of the Holder of Registrable Securities, the Participating Broker-Dealer or Purchaser, as the case may be, on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors on the one hand and the Holder of Registrable Securities, the Participating Broker-Dealer or the Purchaser, as the case may be, on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Guarantors, or by the Holder of Registrable Securities, the Participating Broker-Dealer or the Purchaser, as the case may be, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Guarantors and the Holders of the Registrable Securities and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 4(e) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4(e). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4(e), each Person, if any, who controls a Holder of Registrable Securities, the Purchaser or a Participating Broker-Dealer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such other Person, and each director of the Company and the Guarantors, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company and the Guarantors within the meaning of Section 15 of the Securities act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company and the Guarantors. 18 20 5. Participation in Underwritten Registrations. No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents reasonably required under the terms of such underwriting arrangements. 6. Selection of Underwriters. The Holders of Registrable Securities covered by the Shelf Registration Statement who desire to do so may sell the securities covered by such Shelf Registration in an underwritten offering. In any such underwritten offering, the underwriter or underwriters and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Registrable Securities included in such offering; provided, however, that such underwriters and managers must be reasonably satisfactory to the Company. 7. Miscellaneous. a. Rule 144 and Rule 144A. For so long as the Company or any Guarantor is subject to the reporting requirements of Section 13 or 15 of the Exchange Act and any Registrable Securities remain outstanding, the Company and the Guarantors covenant that they will comply with their reporting obligations under the Securities Act and Section 13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the SEC thereunder, that if they cease to be required to file periodic reports thereunder, they will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the Securities Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the Securities Act, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, (ii) Rule 144A under the Securities Act, as such rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. For so long as any of the Company or the Guarantors is subject to the reporting requirements of Section 13 or 15 of the Exchange Act and any Registrable Securities remain outstanding, upon the request of any Holder of Registrable Securities, the Company and the Guarantors will deliver to such Holder a written statement as to whether they have complied with such requirements. b. No Inconsistent Agreements. The Company and the Guarantors have not entered into nor will the Company and the Guarantors on or after the date of this Agreement enter into any agreement which may require any action which would violate the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and do not under any circumstances require any action which would violate the rights granted to the Holders of the Company's other issued and outstanding securities under any such agreements. 19 21 c. Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Securities and (B) in circumstances that would adversely affect the Participating Broker- Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes held by all Participating Broker-Dealers; provided, however, that Section 4 and this Section 7(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any Person who was a Holder or Participating Broker-Dealer of Registrable Securities or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in aggregate principal amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement. d. Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 7(d), which address initially is, with respect to the Purchaser, the address set forth in the Purchase Agreement; and (ii) if to the Company or the Guarantors, initially at the Company's address set forth in the Purchase Agreement to the attention of General Counsel and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 7(d), with a copy to Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022, Attention: Howard A. Sobel, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. e. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of the Purchaser, including, without limitation and without the need for an express assignment, subsequent Holders; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. 20 22 f. Third Party Beneficiary. The Purchaser shall be a third party beneficiary of the agreements made hereunder between the Company and the Guarantors, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. g. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. h. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. i. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. j. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. k. Securities Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or the Guarantors or their affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. l. Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversation and memoranda between the Purchaser on the one hand and the Company and the Guarantors on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. [Signature Page Follows] 21 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/ KAREN A. TWITCHELL ---------------------------------------- Name: Karen A. Twitchell Title: Treasurer KAISER ALUMINA AUSTRALIA CORPORATION By: /s/ KAREN A. TWITCHELL ---------------------------------------- Name: Karen A. Twitchell Title: Treasurer KAISER FINANCE CORPORATION By: /s/ KAREN A. TWITCHELL ---------------------------------------- Name: Karen A. Twitchell Title: Treasurer ALPART JAMAICA INC. By: /s/ KAREN A. TWITCHELL ---------------------------------------- Name: Karen A. Twitchell Title: Treasurer KAISER JAMAICA CORPORATION By: /s/ KAREN A. TWITCHELL ---------------------------------------- Name: Karen A. Twitchell Title: Treasurer 24 KAISER MICROMILL HOLDINGS, LLC By: /s/ ANTHONY R. PIERNO ---------------------------------------- Name: Anthony R. Piernoi Title: Manager KAISER SIERRA MICROMILLS, LLC By: /s/ KAREN A. TWITCHELL ---------------------------------------- Name: Karen A. Twitchell Title: Treasurer KAISER TEXAS MICROMILL HOLDINGS, LLC By: /s/ KAREN A. TWITCHELL ---------------------------------------- Name: Karen A. Twitchell Title: Treasurer KAISER TEXAS SIERRA MICROMILLS, LLC By: /s/ KAREN A. TWITCHELL ---------------------------------------- Name: Karen A. Twitchell Title: Treasurer Confirmed and accepted as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ----------------------------------- Name: Pascal-Andle J. Maeter Title: Vice-President EX-4.18 4 FORM OF AMEND. #7 TO CREDIT AGREEMENT 1 E X E C U T I O N C O P Y SEVENTH AMENDMENT TO CREDIT AGREEMENT THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of December 17, 1996, is by and 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 to the Credit Agreement referred to below (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. Capitalized terms used, but not defined, herein shall have the meanings given to such terms in the Credit Agreement, as amended hereby. W I T N E S S E T H: WHEREAS, the Company, the Parent Guarantor, the Lenders and the Agent are parties to the Credit Agreement, dated as of February 15, 1994, as amended by the First Amendment to Credit Agreement, dated as of July 21, 1994, the Second Amendment to Credit Agreement, dated as of March 10, 1995, the Third Amendment to Credit Agreement and Acknowledgement, dated as of July 20, 1995, the Fourth Amendment to Credit Agreement, dated as of October 17, 1995, the Fifth Amendment to Credit Agreement dated as of December 11, 1995 and the Sixth Amendment to Credit Agreement dated as of October 1, 1996 (the "Credit Agreement"); and WHEREAS, the parties hereto have agreed to amend the Credit Agreement as herein provided; NOW, THEREFORE, the parties hereto agree as follows: Section 1. Amendments to Credit Agreement. 1.1 Amendments to Article I: Definitions. A. Section 1.1 of the Credit Agreement is further hereby amended by adding the following definitions in the appropriate alphabetical order: "'Additional New Senior Debt' means Indebtedness of the Company or any of its Subsidiaries under the Additional New Senior Notes, the Additional New Senior Indentures, or any guaranty of such Indebtedness." 1 2 "'Additional New Senior Debt Instruments' means the Additional New Senior Notes, the Additional New Senior Indentures, and all other Instruments and agreements executed and delivered by the Company or any of its Subsidiaries in connection therewith." "'Additional New Senior Indentures' means one or more indentures between the Company, and AJI, KJC, KFC, KAAC, KMH, KSM, Texas Holdings and Texas Sierra, as Subsidiary Guarantors, and the trustee named therein, pursuant to which the Additional New Senior Notes will be issued, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms of any such indenture and this Agreement." "'Additional New Senior Notes' means the promissory notes in a principal amount not exceeding $50,000,000 issued by the Company in one or more tranches pursuant to the Additional New Senior Indentures, as amended, supplemented, restated, or otherwise modified from time to time in accordance with the terms of the Additional New Senior Indentures 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 Additional New Senior Indentures and this Agreement." 1.2 Amendments to Article IX: Covenants. A. Section 9.1.1 of the Credit Agreement is hereby amended by (i) adding the phrase ", any Additional New Senior Debt Instrument" after the phrase "any Senior Debt Instrument" contained in clause (d)(ii)(B) thereof, and (ii) adding the phrase ", any Additional New Senior Debt Instrument" after the phrase "any New Senior Debt Instrument" each time it appears in clause (h) thereof. B. Section 9.1.10 of the Credit Agreement is hereby amended by (i) adding the phrase ", the Additional New Senior Indentures" after the phrase "the New Senior Indenture" the first time it appears in clause (b)(ii) thereof, and (ii) adding the phrase ", or the Additional New Senior Indentures" after the phrase "the New Senior Indenture" the second time it appears in clause (b)(ii) thereof. C. Section 9.1.10 of the Credit Agreement is hereby further amended by (i) adding the phrase ", the Additional New Senior Indentures" after the phrase "the New Senior Indenture" the first time it appears in clause (c)(i) thereof and (ii) adding the phrase ", or the Additional New Senior Indentures" after the phrase "the New Senior Indenture" the second time it appears in clause (c)(i) thereof. D. Section 9.2.2 of the Credit Agreement is hereby amended by amending clause (b)(i) to read in its entirety as follows: 2 3 "(i) Indebtedness of the Company in respect of (A) the Senior Debt, (B) the New Senior Debt, provided that (1) the aggregate principal amount thereof does not exceed $200,000,000, (2) such Indebtedness is unsecured, (3) such Indebtedness is issued on or prior to February 1, 1997, (4) such Indebtedness does not mature prior to February 15, 2002 and (5) the New Senior Indenture is substantially in the form of the Senior Indenture, (C) the Additional New Senior Debt, provided that (1) the aggregate principal amount thereof does not exceed $50,000,000, (2) such Indebtedness is unsecured, (3) such Indebtedness is issued on or prior to March 1, 1997, (4) such Indebtedness does not mature prior to February 15, 2002 and (5) the Additional New Senior Indentures are substantially in the form of the New Senior Indenture, and (D) Contingent Obligations of AJI, KJC, KFC, KAAC, KMH, KSM, Texas Holdings and Texas Sierra as a 'Subsidiary Guarantor' (under and as defined in the Senior Indenture, the New Senior Indenture, the Additional New Senior Indentures and the Subordinated Indenture) in respect of the Senior Debt, the New Senior Debt, the Additional New Senior Debt and the Subordinated Debt, respectively;" E. Section 9.2.6 of the Credit Agreement is hereby amended by adding the phrase "any Additional New Senior Debt," after the phrase "any New Senior Debt," contained in clause (b)(iv) thereof. F. Section 9.2.11 of the Credit Agreement is hereby amended by adding the phrase "or the Additional New Senior Indentures" after the phrase "the New Senior Indenture" contained in the paragraph following clause (k) thereof. G. Section 9.2.13 of the Credit Agreement is hereby amended by (i) adding the phrase ", any Additional New Senior Debt" after the phrase "any New Senior Debt" contained in clause (a) thereof, (ii) adding the phrase ", Additional New Senior Debt" after the phrase "New Senior Debt" each time it appears in clause (c) thereof, (iii) adding the phrase ", Additional New Senior Debt" after the phrase "New Senior Debt" contained in clause (d) thereof, and (iv) adding the phrase ", to deliver any certificate and opinion permitted to be given to the trustee under any similar provisions of the Additional New Senior Indentures with respect to any 'Subsidiary Guarantor' (under and as defined in the Additional New Senior Indentures)" after the phrase "Subordinated Indenture)" contained in clause (e) thereof. H. Section 9.2.15 of the Credit Agreement is hereby amended by adding the phrase ", the Additional New Senior Indentures" after the phrase "the Senior Indenture" contained therein. I. Section 9.2.19 of the Credit Agreement is hereby amended by adding the phrase ", the Additional New Senior Debt Instruments" after the phrase "the Senior Debt Instruments" contained therein. 3 4 1.3 Amendments to Article X: Events of Default. A. Section 10.1.11 of the Credit Agreement is hereby amended by (i) adding the phrase ", any Additional New Senior Debt Instrument" after the phrase "any New Senior Debt Instrument" contained therein and (ii) adding the phrase ", any Additional New Senior Debt" after the phrase "any New Senior Debt" contained therein. Section 2. Conditions to Effectiveness. This Amendment shall become effective as of the date hereof only when the following conditions shall have been satisfied and notice thereof shall have been given by the Agent to the Parent Guarantor, the Company and each Lender (the date of satisfaction of such conditions and the giving of such notice being referred to herein as the "Seventh Amendment Effective Date"): A. The Agent shall have received for each Lender counterparts hereof duly executed on behalf of the Parent Guarantor, the Company, the Agent and the Required Lenders (or notice of the approval of this Amendment by the Required Lenders satisfactory to the Agent shall have been received by the Agent). B. The Agent shall have received: (1) Resolutions of the Board of Directors or of the Executive Committee of the Company and the Parent Guarantor approving and authorizing the execution, delivery and performance of this Amendment, certified by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment as of the date of execution hereof by the Company or the Parent Guarantor, as the case may be; (2) A signature and incumbency certificate of the officers of the Company and the Parent Guarantor executing this Amendment; (3) For each Lender an opinion, addressed to the Agent and each Lender, from Kramer, Levin, Naftalis & Frankel, in form and substance satisfactory to the Agent; and (4) Such other information, approvals, opinions, documents, or instruments as the Agent may reasonably request. Section 3. Company's Representations and Warranties. In order to induce the Lenders and the Agent to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Parent Guarantor and the Company represent and warrant to each Lender and the Agent that, as of the Seventh 4 5 Amendment Effective Date after giving effect to the effectiveness of this Amendment, the following statements are true and correct in all material respects: A. Authorization of Agreements. The execution and delivery of this Amendment by the Company and the Parent Guarantor and the performance of the Credit Agreement as amended by this Amendment (the "Amended Agreement") by the Company and the Parent Guarantor are within such Obligor's corporate powers and have been duly authorized by all necessary corporate action on the part of the Company and the Parent Guarantor, as the case may be. B. No Conflict. The execution and delivery by the Company and the Parent Guarantor of this Amendment and the performance by the Company and the Parent Guarantor of the Amended Agreement do not: (1) contravene such Obligor's Organic Documents; (2) contravene the Senior Indenture or the Subordinated Indenture or contravene any other 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 any of its Subsidiaries; or (3) result in, or require the creation or imposition of, any Lien on any of such Obligor's properties or any of the properties of any Subsidiary of such Obligor, other than pursuant to the Loan Documents. C. Binding Obligation. This Amendment has been duly executed and delivered by the Company and the Parent Guarantor and this Amendment and the Amended Agreement constitute the legal, valid and binding obligations of the Company and the Parent Guarantor, enforceable against the Company and the Parent Guarantor in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally and by general principles of equity. D. Governmental 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 any other Person is required for the due execution, delivery or performance of this Amendment by the Company or the Parent Guarantor. E. Incorporation of Representations and Warranties from Credit Agreement. Each of the statements set forth in Section 7.2.1 of the Credit Agreement is true and correct. 5 6 Section 4. Acknowledgement and Consent. The Company is a party to the Company Collateral Documents, in each case as amended through the date hereof, pursuant to which the Company has created Liens in favor of the Agent on certain Collateral to secure the Obligations. The Parent Guarantor is a party to the Parent Collateral Documents, in each case as amended through the date hereof, pursuant to which the Parent Guarantor has created Liens in favor of the Agent on certain Collateral and pledged certain Collateral to the Agent to secure the Obligations of the Parent Guarantor. Certain Subsidiaries of the Company are parties to the Subsidiary Guaranty and/or one or more of the Subsidiary Collateral Documents, in each case as amended through the date hereof, pursuant to which such Subsidiaries have (i) guarantied the Obligations and/or (ii) created Liens in favor of the Agent on certain Collateral. The Company, the Parent Guarantor and such Subsidiaries are collectively referred to herein as the "Credit Support Parties", and the Company Collateral Documents, the Parent Collateral Documents, the Subsidiary Guaranty and the Subsidiary Collateral Documents are collectively referred to herein as the "Credit Support Documents". Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement as amended by this Amendment and consents to the amendment of the Credit Agreement effected as of the date hereof pursuant to this Amendment. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, the payment and performance of all obligations guaranteed or secured thereby, as the case may be. Each Credit Support Party (other than the Company and the Parent Guarantor) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. 6 7 Section 5. Miscellaneous. A. Reference to and Effect on the Credit Agreement and the Other Loan Documents. (1) On and after the Seventh Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (2) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. B. Applicable Law. THIS AMENDMENT SHALL 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. C. Headings. The various headings of this Amendment are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provision hereof. D. Counterparts. This Amendment 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 instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. E. Severability. Any provision of this Amendment 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 Amendment or affecting the validity or enforceability of such provisions in any other jurisdiction. 7 8 IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the day and year first above written. KAISER ALUMINUM CORPORATION KAISER ALUMINUM & CHEMICAL CORPORATION By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL ---------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer BANKAMERICA BUSINESS CREDIT, BANKAMERICA BUSINESS CREDIT, INC., as Agent INC. By: /s/ MICHAEL J. JASAITIS By: /s/ MICHAEL J. JASAITIS ---------------------------------------- --------------------------------------- Name: Michael J. Jasaitis Name: Michael J. Jasaitis Its: Vice President Its: Vice President BANK OF AMERICA NATIONAL TRUST THE CIT GROUP/BUSINESS AND SAVINGS ASSOCIATION CREDIT, INC. By: By: ---------------------------------------- --------------------------------------- Name Printed: Name Printed: --------------------- --------------------- Its: Its: --------------------------------------- -------------------------------------- CONGRESS FINANCIAL CORPORATION HELLER FINANCIAL, INC. (WESTERN) By: By: ---------------------------------------- --------------------------------------- Name Printed: Name Printed: --------------------- --------------------- Its: Its: --------------------------------------- -------------------------------------- LA SALLE NATIONAL BANK NATIONAL WESTMINSTER BANK PLC By: By: ---------------------------------------- --------------------------------------- Name Printed: Name Printed: --------------------- --------------------- Its: Its: --------------------------------------- --------------------------------------
8 9 TRANSAMERICA BUSINESS CREDIT ABN AMRO BANK N.V. CORPORATION San Francisco International Branch by: ABN AMRO North America, Inc., as agent By: By: ---------------------------------------- --------------------------------------- Name Printed: Name Printed: ------------------------------ ----------------------------- Its: Its: --------------------------------------- -------------------------------------- By: --------------------------------------- Name Printed: ----------------------------- Its: --------------------------------------
9 10 ACKNOWLEDGED AND AGREED TO: AKRON HOLDING CORPORATION KAISER ALUMINUM & CHEMICAL INVESTMENT, INC. By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL -------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER ALUMINUM PROPERTIES, KAISER ALUMINUM TECHNICAL INC. SERVICES, INC. By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL -------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer OXNARD FORGE DIE COMPANY, INC. KAISER ALUMINIUM INTERNATIONAL, INC. By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL -------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER ALUMINA AUSTRALIA KAISER FINANCE CORPORATION CORPORATION By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL -------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer ALPART JAMAICA INC. KAISER JAMAICA CORPORATION By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL -------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer
10 11 KAISER BAUXITE COMPANY KAISER EXPORT COMPANY By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL -------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer KAISER MICROMILL HOLDINGS, LLC KAISER SIERRA MICROMILLS, LLC By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL -------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Treasurer of Kaiser Aluminum Its: Treasurer & Chemical Corporation KAISER TEXAS SIERRA MICROMILLS, KAISER TEXAS MICROMILL LLC HOLDINGS, LLC By: /s/ KAREN A. TWITCHELL By: /s/ KAREN A. TWITCHELL -------------------------------------- --------------------------------------- Name Printed: Karen A. Twitchell Name Printed: Karen A. Twitchell Its: Treasurer Its: Treasurer
11 EX-5 5 OPINION OF KRAMER, LEVIN, NAFTALIS & FRANKEL 1 EXHIBIT 5 Kramer, Levin, Naftalis & Frankel 919 Third Ave. New York, NY 10022 December 31, 1996 Kaiser Aluminum & Chemical Corporation 6177 Sunol Boulevard Pleasanton, CA 94566 Re: Kaiser Aluminum & Chemical Corporation Registration Statement on Form S-4 -------------------- Ladies and Gentlemen: We have acted as counsel to Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), Kaiser Alumina Australia Corporation, Kaiser Finance Corporation, Alpart Jamaica Inc. and Kaiser Jamaica Corporation, each a Delaware corporation, Kaiser Micromill Holdings, LLC and Kaiser Sierra Micromills, LLC, each a Delaware limited liability company, and Kaiser Texas Micromill Holdings, LLC and Kaiser Texas Sierra Micromills, LLC, each a Texas limited liability company (collectively, the "Guarantors"), in connection with the preparation and filing of the above-captioned Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), relating to the proposed offer by the Company (the "Exchange Offer") to exchange $50,000,000 aggregate principal amount of 10 7/8% Series D Senior Notes due 2006 ("New Notes") for a like amount of its outstanding 10 7/8% Series C Senior Notes due 2006 ("Old Notes"). The New Notes will be guaranteed ("Guarantees") on a full and unconditional senior unsecured basis by the Guarantors and certain other future subsidiaries of the Company. The New Notes will be issued pursuant to an Indenture, dated December 23, 1996, among the Company, the Guarantors, and First Trust National Association as Trustee, Registrar, Paying Agent and Securities Agent (the "Indenture"). As such counsel, we have examined such corporate records, certificates and other documents and such questions of law as we have considered necessary or appropriate for the purposes of this opinion. In rendering this opinion, we have (a) assumed (i) the genuineness of all signatures on all documents examined by us, (ii) the authenticity of all documents submitted to us as originals, and (iii) the conformity to original documents of all documents submitted to us as photostatic or conformed copies and the authenticity of the originals of such copies; and (b) relied on (i) certificates of public officials and (ii) as to matters of fact, statements and certificates of officers of the Company. 2 Kaiser Aluminum & Chemical Corporation December 31, 1996 Page 2 We are attorneys admitted to the Bar of the State of New York, and we express no opinion as to the laws of any other jurisdiction other than the laws of the United States of America, the State of New York and the General Corporation Law and Limited Liability Company Act of the State of Delaware. Based upon the foregoing, we are of the opinion that: 1. The New Notes have been duly authorized by the Company and, when issued and delivered in exchange for the Old Notes in the manner set forth in the Registration Statement and executed and authenticated in accordance with the terms and conditions of the Indenture (and assuming the due authorization, execution and delivery of the Indenture by each of the parties thereto), will constitute legal, valid and binding obligations of the Company. 2. The Guarantees of each Guarantor, when issued and delivered in connection with the exchange of the New Notes for the Old Notes in the manner described in the Registration Statement and when such New Notes are executed and authenticated as specified in the Indenture, will be duly issued and delivered and will constitute legal, valid and binding obligations of the respective Guarantor. The above opinion is subject to and limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance or transfer or other laws and court decisions, now or hereafter in effect, relating to or affecting the rights of creditors generally. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the heading "Legal Matters" in the prospectus forming a part of the Registration Statement. In giving such consent we do not thereby concede that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations promulgated thereunder. Very truly yours, /s/ Kramer, Levin, Naftalis & Frankel --------------------------------------- Kramer, Levin, Naftalis & Frankel EX-12 6 COMPUTATION OF CONSOLIDATED RATIO TO FIXED CHARGES 1 EXHIBIT 12 KAISER ALUMINUM & CHEMICAL CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (IN MILLIONS OF DOLLARS, EXCEPT RATIOS)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, --------------- -------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------ ------ ------ ------- ------- ------ ------ Earnings: Consolidated Income (loss) from continuing operations................................. $ 15.7 $ 43.1 $ 65.3 $ (96.2) $(117.6) $ 29.6 $124.7 Add (deduct) undistributed (earnings) losses of less-than-fifty percent-owned companies.................................. (7.5) (17.2) (19.2) 1.9 3.3 1.9 19.5 Add (deduct) minority interest share of income (losses) of majority-owned subsidiaries that have fixed charges....... (0.5) 1.0 0.4 (1.6) (4.3) (6.5) (7.6) ------ ------ ------ ------- ------- ------ ------ Consolidated earnings (losses)........ 7.7 26.9 46.5 (95.9) (118.6) 25.0 136.6 Add provision (credit) for income taxes: Consolidated provision for income taxes.... 8.4 24.6 37.4 (54.0) (86.9) 5.3 32.4 Add (deduct) minority interest share of tax provision (credit) of majority-owned subsidiaries that have fixed charges..... .9 2.1 2.3 0.6 0.2 0.2 (0.9) ------ ------ ------ ------- ------- ------ ------ Pre-tax income (loss)................. 17.0 53.6 86.2 (149.3) (205.3) 30.5 168.1 Fixed charges included therein (see below)... 70.2 73.3 96.6 95.3 89.5 81.1 90.1 Deduct equity in losses of less-than-fifty percent owned companies where the Company has guaranteed the debt of such companies.................................. (4.7) (2.5) (4.4) Previously capitalized interest amortized during the period.......................... 1.1 0.9 1.2 1.2 1.0 0.7 0.7 ------ ------ ------ ------- ------- ------ ------ Total earnings........................ $ 88.3 $127.8 $184.0 $ (57.5) $(117.3) $112.3 $254.5 ====== ====== ====== ======= ======= ====== ====== Fixed Charges: Interest expense (includes amortization of deferred financing cost)................... $ 68.3 $ 71.3 $ 93.9 $ 88.6 $ 84.2 $ 78.7 $ 82.7 Portion of rental expense representative of the interest factor........................ 1.9 2.0 2.7 2.6 2.3 2.4 2.0 Interest expense related to guaranteed debt of less-than-fifty-percent owned companies incurring losses........................... 4.1 3.0 5.4 ------ ------ ------ ------- ------- ------ ------ Consolidated fixed charges added to pre-tax income...................... 70.2 73.3 96.6 95.3 89.5 81.1 90.1 Capitalized interest......................... 3.2 1.9 2.8 2.7 3.4 4.4 4.2 ------ ------ ------ ------- ------- ------ ------ Total fixed charges................... $ 73.4 $ 75.2 $ 99.4 $ 98.0 $ 92.9 $ 85.5 $ 94.3 ====== ====== ====== ======= ======= ====== ====== Consolidated Ratio of Earnings to Fixed Charges...................................... 1.20x 1.70x 1.85x -- -- 1.31x 2.7x ====== ====== ====== ======= ======= ====== ====== Fixed Charge Coverage Deficiency............... $ 155.5 $ 210.2
EX-23.1 7 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN LLP Houston, Texas December 31, 1996 EX-23.3 8 CONSENT OF WHARTON LEVIN EHRMANTRAUT KLEIN & NASH 1 EXHIBIT 23.3 We hereby consent to (i) any references to our firm, or (ii) any references to advice rendered by our firm and contained in the Form S-4 Registration Statement of Kaiser Aluminum & Chemical Corporation. WHARTON LEVIN EHRMANTRAUT KLEIN & NASH, P.A. December 31, 1996 EX-23.4 9 CONSENT OF THELEN, MARTIN, JOHNSON & BRIDGES 1 EXHIBIT 23.4 With respect to the Registration Statement on Form S-4 relating to an exchange offer of $50 million 10 7/8% Series D Senior Notes due 2006, to be filed on or about December 31, 1996 by Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Registration Statement"), we hereby consent to the use of our name, and to references to advice rendered by our firm, in the prospectus included in the Registration Statement under the headings (i) Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources -- Asbestos Contingencies; (ii) Note 9 of the Notes to Consolidated Financial Statements; and (iii) Note 3 of the Notes to Interim Consolidated Financial Statements. THELEN, MARRIN, JOHNSON & BRIDGES LLP December 31, 1996 EX-25 10 FORM OF T-1 STATEMENT OF ELIGIBILITY 1 EXHIBIT 25 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________ FORM T-1 Statement of Eligibility Under the Trust Indenture Act of 1939 of a Corporation Designated to Act as Trustee FIRST TRUST NATIONAL ASSOCIATION (Exact name of Trustee as specified in its charter) United States 41-0257700 (State of Incorporation) (I.R.S. Employer Identification No.) First Trust Center 180 East Fifth Street St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (Zip Code)
KAISER ALUMINUM & CHEMICAL CORPORATION (Exact name of Registrant as specified in its charter) Delaware 94-0928288 (State of Incorporation) (I.R.S. Employer Identification No.) 6177 Sunol Boulevard Pleasanton California 94566-7769 (Address of Principal Executive Offices) (Zip Code)
10 7/8% SERIES D SENIOR NOTES DUE 2006 & GUARANTEES OF THE 10 7/8% SERIES D SENIOR NOTES DUE 2006 (Title of the Indenture Securities) 2 GENERAL 1. General Information Furnish the following information as to the Trustee. (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any underwriter for the obligor is an affiliate of the Trustee, describe each such affiliation. None See Note following Item 16. Items 3-15 are not applicable because to the best of the Trustee's knowledge the obligor is not in default under any Indenture for which the Trustee acts as Trustee. 16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement of eligibility and qualification. Each of the exhibits listed below is incorporated by reference from registration number 22-27000. 1. Copy of Articles of Association. 2. Copy of Certificate of Authority to Commence Business. 3. Authorization of the Trustee to exercise corporate trust powers (included in Exhibits 1 and 2; no separate instrument). 4. Copy of existing By-Laws. 5. Copy of each Indenture referred to in Item 4. N/A. 6. The consents of the Trustee required by Section 321(b) of the act. 7. Copy of the latest report of condition of the Trustee published pursuant to law or the requirements of its supervising or examining authority. 3 NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, First Trust National Association, an Association organized and existing under the laws of the United States, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Saint Paul and State of Minnesota on the 31st day of December, 1996. FIRST TRUST NATIONAL ASSOCIATION [SEAL] /s/ Kathe Barrett -------------------------------- Kathe Barrett Trust Officer /s/ Richard H. Prokosch - -------------------------------- Richard H. Prokosch Assistant Secretary 4 EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: December 31, 1996 FIRST TRUST NATIONAL ASSOCIATION /s/ Kathe Barrett ------------------------------------- Kathe Barrett Trust Officer 5 FIRST TRUST NATIONAL ASSOCIATION I, Elizabeth Becker, the Secretary of First Trust National Association, a national banking association organized under the laws of the United States, hereby certify that the attached copy of the Articles of Association of First Trust National Association is full, true and complete copy of the original. I further certify that such Articles of Association have not been revoked and remain in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of First Trust National Association to be affixed hereto this 18th day of February, 1992. /s/ ELIZABETH BECKER -------------------------- Elizabeth Becker (Corporate Seal) Secretary Sworn to before me this 18th day of February, 1992. JEANNE M. ERICKSON, Notary Public JEANNE M. ERICKSON Certific/bylaws NOTARY PUBLIC - MINNESOTA DAKOTA COUNTY My Commission Expires Dec. 28, 1997 6 FIRST TRUST NATIONAL ASSOCIATION ARTICLES OF ASSOCIATION FIRST. The title of the Association, which shall carry on the business of banking under the laws of the United States, shall be "First Trust National Association". Notwithstanding the foregoing, however, the Association shall not engage in any banking activities other than those within the scope of 12 U.S.C. Section 92a, and 12 C.F.R. 9, without the prior written approval of the Comptroller of the Currency. SECOND. The main office of the Association shall be in Saint Paul, County of Ramsey, State of Minnesota. The general business of the Association shall be conducted at its main office and branches. THIRD. The board of directors of the Association shall consist of not less than five nor more than 25 members. At any meeting of the shareholders held for the purpose of electing directors, or changing the number thereof, the number of directors may be determined by a majority of the votes cast by the shareholders in person or by proxy. Between meetings of the shareholders held for the purpose of electing directors, the board of directors by a majority vote of the full board may increase the size of the board by not more than four directors in any one year, but not to more than a total of 25 directors, and fill any vacancy created on the board. A majority of the board of directors shall be necessary to constitute a quorum for the transaction of business at any directors' meeting. Each director during the full term of directorship, shall own a minimum of One Thousand Dollars ($1,000.00) par value of stock of the Association, or an equivalent interest in stock of First Bank System, Inc. FOURTH. The regular annual meeting of the shareholders of the Association shall be held at its main office, or other convenient place duly authorized by the board of directors, on such day of each year as is specified therefore in the Bylaws, but if no election is held on that day, it may be held on any subsequent day according to such lawful rules as may be prescribed by the board of directors. FIFTH. The amount of capital stock of the Association shall be divided into 10,000 shares of common stock at the par value of One Hundred Dollar ($100.00) each; but such capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. 7 FIRST TRUST NATIONAL ASSOCIATION ARTICLES OF ASSOCIATION If the capital stock is increased by the sale of additional shares thereof, each shareholder shall be entitled to subscribe for such additional shares in proportion to the number of shares of each capital stock owned by each such shareholder at the time the increase is authorized by the shareholders, unless another time subsequent to the date of the shareholders' meeting is specified in a resolution adopted by the shareholders at the time the increase is authorized. The board of directors shall have the power to prescribe a reasonable period of time within which the pre-emptive rights to subscribe to the new shares of capital stock must be exercised. If the capital stock is increased by a stock dividend, each shareholder shall be entitled to such shareholder's proportionate amount of such increase in accordance with the number of shares of capital stock owned by such shareholder at the time the increase is authorized by the shareholders, unless another time subsequent to the date of the shareholders' meeting is specified in a resolution adopted by the shareholders at the time the increase is authorized. The Association, at any time and from time to time, may authorize and issue debt obligations, whether or not subordinated, without the approval of the shareholders. In the event such debt obligations are convertible to capital stock of the Association, each shareholder shall be entitled to subscribe for such additional shares in proportion to the number of shares of capital stock owned by such shareholder one month prior to the issuance of capital stock in satisfaction of such convertible debt obligations. SIXTH. The board of directors shall appoint one of its members as the Association's chief executive officer (however titled) who shall have and exercise the rights and responsibilities of "president" as established by law. Such chief executive officer shall be chairman of the board, unless the board appoints another director to be chairman. The board shall have the power to appoint (or provide for the appointment of) such officers and employees as may be required to transact the business of the Association; to fix the salaries to be paid to such officers and employees of the Association; and to dismiss any of such officers or employees and appoint others to take their places. The board of directors shall have the power to define the duties of officers and employees of the Association and to require adequate bonds from them for the faithful performance of their duties; to regulate the manner in which any increase of the capital of -2- 8 FIRST TRUST NATIONAL ASSOCIATION ARTICLES OF ASSOCIATION the Association shall be made; to make all Bylaws that may be lawful for the general regulation of the business of the Association and the management of its affairs; and generally to do and perform all acts that may be lawful for a board of directors to do and perform. SEVENTH. The board of directors shall have the power to change the location of the main office of the Association to any other place within the limits of Saint Paul, Minnesota, without the approval of the shareholders of the Association but subject to the approval of the Comptroller of the Currency; and shall have the power to change the location of any branch or branches of the Association to any other location, without the approval of the shareholders of the Association but subject to the approval of the Comptroller of the Currency. EIGHTH. The Association shall have succession from the date of its organization certificate until such time as it be dissolved by the act of its shareholders in accordance with the provisions of the laws of the United States, or until its franchise becomes forfeited by reason of violation of law, or until terminated by either a general or a special act of Congress, or until its affairs be placed in the hands of a receiver and finally wound up by such receiver. NINTH. The board of directors of the Association, or any three or more shareholders owning, in the aggregate, not less than ten percent of the stock of the Association, may call a special meeting of shareholders at any time. Provided, however, that unless otherwise provided by law, not less than ten days prior to the date fixed for any such meeting, a notice of the time, place, and purpose of the meeting shall be given by first-class mail, postage prepaid, to all shareholders of record of the Association at their respective addresses as shown upon the books of the Association. TENTH. Any action required to be taken at a meeting of the shareholders or directors or any action which may be taken at a meeting of the shareholders or directors may be taken without a meeting if consent in writing, setting forth the action as taken shall be signed by all the shareholders or directors entitled to vote with respect to the matter thereof. Such action shall be effective on the date on which the last signature is placed on the writing, or such earlier date as is set forth therein. -3- 9 FIRST TRUST NATIONAL ASSOCIATION ARTICLES OF ASSOCIATION ELEVENTH. Meetings of the board of directors or shareholders, regular or special, may be held by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can simultaneously hear each other, and participation in such meeting by such aforementioned means shall constitute presence in person at such meeting. TWELFTH. Any person, such person's heirs, executors, or administrators, may be indemnified or reimbursed by the Association for reasonable expenses actually incurred in connection with any action, suit or proceeding, civil or criminal to which such person or such person's heirs, executors, or administrators shall be made a party by reason of such person being or having been a director, advisory director, officer, employee, or agent of the Association or of any firm, corporation, or organization which such person served in any such capacity at the request of the Association. Provided, however, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit or proceeding as to which such person shall finally be adjudged to have been guilty of or liable for gross negligence, willful misconduct or criminal acts in the performance of such person's duties to the Association. And, provided further, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit, or proceeding which has been made the subject of a compromise settlement except with the approval of a court of competent jurisdiction, or the holders of record of a majority of the outstanding shares of the Association, or the board of directors acting by vote of directors not parties to the same or substantially the same action, suit or proceeding, constituting a majority of the whole number of directors. The foregoing right of indemnification or reimbursement shall not be exclusive of other rights to which such persons, their heirs, executors, or administrators, may be entitled as a matter of law. The Association may, upon the affirmative vote of a majority of its board of directors, purchase insurance for the purpose of indemnifying its directors, advisory directors, officers, employees and agents to the extent that such indemnification is allowed in the preceding paragraph. Such insurance shall not provide coverage of liability for any formal order issued by a regulatory authority assessing civil money penalties against an officer, director or employee. Further, such insurance may, but need not be, for the benefit of all directors, advisory directors, officers, employees or agents. -4- 10 FIRST TRUST NATIONAL ASSOCIATION ARTICLES OF ASSOCIATION Expenses incurred by an officer, director or employee in defending a civil or criminal action, suit or proceeding may be paid by the Association in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such individual or officer to repay such amount if it shall ultimately be determined that such individual is not entitled to be indemnified by the Association. Prior to the advancement of any such expenses, the board of directors shall determine in writing that all of the following conditions are met: (1) the officer, director or employee has a substantial likelihood of prevailing on the merits; (2) in the event the officer, director or employee does not prevail, he or she will have the financial capability to reimburse the Association; and (3) payment of such expenses by the Association will not adversely affect bank safety and soundness. If at any time the board of directors believes, or should reasonably believe, that any of the above conditions are not met, the Association shall cease paying such expenses. Further, the Association shall enter into a written agreement with the director, officer or employee specifying the conditions under which such individual shall reimburse the Association. THIRTEENTH. These Articles of Association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the stock of the Association, unless the vote of the holders of a greater amount of stock is required by law and in that case by the vote of the holders of such greater amount. The notice of any shareholders' meeting at which an amendment to the Articles of Association of the Association is to be considered, shall be given as hereinabove set forth. ---- ---- ---- -5- 11 FIRST TRUST NATIONAL ASSOCIATION I, Elizabeth Becker, the Secretary of First Trust National Association, a national banking association organized under the laws of the United States, hereby certify that the attached copy of the Articles of Association of First Trust National Association is full, true and complete copy of the original. I further certify that such Articles of Association have not been revoked and remain in full force and effect. IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of First Trust National Association to be affixed hereto this 27th day of July, 1993. /s/ ELIZABETH BECKER -------------------------- Elizabeth Becker (Corporate Seal) Secretary Sworn to before me this 27th day of July, 1993. JEANNE M. ERICKSON, Notary Public JEANNE M. ERICKSON Certific/bylaws NOTARY PUBLIC - MINNESOTA DAKOTA COUNTY My Commission Expires Dec. 29, 1997 12 FIRST TRUST NATIONAL ASSOCIATION BYLAWS ARTICLE I Meeting of Shareholders Section 1.1. Annual Meeting. The annual meeting of the shareholders, for the election of directors and the transaction of other business, shall be held at a time and place as the President or Chairman may designate. Notice of such meeting shall be given at least ten days prior to the date thereof, to each shareholder of the Association. If for any reason, an election of directors is not made on the designated day, the election shall be held on some subsequent day, as soon thereafter as practicable, with prior notice thereof. Section 1.2. Special Meetings. Except as otherwise specifically provided by law, special meetings of shareholders may be called for any purpose, at any time, by a majority of the board of directors, or by any shareholder or group of shareholders owning at least ten percent of the outstanding stock of the Association. Every such special meeting, unless otherwise provided by law, shall be called upon not less than ten days prior notice stating the purpose of the meeting. Section 1.3. Nominations for Directors. Nominations for election to the board of directors may be made by the board of directors or by any stockholder. Section 1.4. Proxies. Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing. Proxies shall be valid only for one meeting and any adjournments of such meeting and shall be filed with the records of the meeting. Section 1.5. Quorum. A majority of the outstanding capital stock, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders of the Association, unless otherwise provided by law. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting, unless otherwise provided by law or by the Articles of Association. 13 FIRST TRUST NATIONAL ASSOCIATION BYLAWS ARTICLE II Section 2.1. Board of Directors. The board of directors (hereinafter referred to as the "board"), shall have power to manage and administer the business and affairs of the Association. All authorized corporate powers of the Association shall be vested in and may be exercised by the board. Section 2.2. Powers. In addition to the foregoing, the board of directors shall have and may exercise all of the powers granted to or conferred upon it by the Articles of Association, the Bylaws and by law. Section 2.3. Number. The board shall consist of a number of members to be fixed and determined from time to time by resolution of the board or the shareholders at any meeting thereof, in accordance with the Articles of Association. Section 2.4. Organization Meeting. The newly elected board shall meet for the purpose of organizing the new board and electing and appointing such officers of the Association as may be appropriate. Such meeting shall be held on the day of the election or as soon thereafter as practicable, and, in any event, within thirty days thereof. If, at the time fixed for such meeting, there shall not be a quorum present, the directors present may adjourn the meeting until a quorum is obtained. Section 2.5. Regular Meetings. The regular Meeting of the board shall be held, without notice, as the Chairman or President may designate or deem suitable. Section 2.6. Special Meetings. Special meetings of the board may be called by the Chairman or the President of the Association, or at the request of two or more directors. Each member of the board shall be given notice stating the time and place, of each such meeting. Section 2.7. Quorum. A majority of the directors shall constitute a quorum at any meeting, except when otherwise provided by law; but fewer may adjourn any meeting. Unless otherwise provided, once a quorum is established, any act by a majority of those constituting the quorum shall be the act of the board. Section 2.8. Vacancies. When any vacancy occurs among the directors, the remaining members of the board may appoint a director to fill such vacancy at any regular meeting of the board, or at a special meeting called for that purpose. 14 FIRST TRUST NATIONAL ASSOCIATION BYLAWS ARTICLE III Section 3.1. Advisory Board of Directors. The board may appoint persons, who need not be directors, to serve as advisory directors on an advisory board of directors established with respect to the affairs of either this Association alone or the business affairs of a group of affiliated organizations of which this Association is one. Advisory directors, shall have such powers and duties as may be determined by the board, provided, that the board's responsibility for the business and affairs of this Association shall in no respect be delegated or diminished. Section 3.2 Audit Committee. The board may appoint, from time to time, committees of one or more persons who need not be directors, for such purposes and with such powers as the board may determine and subject at all times to the direction and control of the Board. The members of the Audit Committee shall be appointed each year and shall continue to act until their successors are named. The Audit Committee shall have power to adopt its own rules and procedures and to do those things which in the judgment of such Committee are necessary or helpful with respect to the exercise of its functions or the satisfaction of responsibilities. Section 3.3 Executive Committee. The board may appoint an Executive Committee, which shall consist of at least three directors and which shall have, and may exercise, all of the powers of the board between meetings of the board or otherwise when the board is not meeting. Section 3.4 Other Committees. The board may appoint, from time to time, committees of one or more persons who need not be directors, for such purposes and with such powers as the board may determine. In addition, either the Chairman or the President may appoint, from time to time, committees of one or more officers, employees, agents or other persons, for such purposes and with such power as either the Chairman or the President deems appropriate and proper. Whether appointed by the board, the Chairman, or the President, any such Committee shall at all times be subject to the direction and control of the board. 15 FIRST TRUST NATIONAL ASSOCIATION BYLAWS Section 3.5 Meetings, Minutes and Rules. An Advisory board of directors and/or committee shall meet as may be appropriate in consideration of the purpose of the advisory board of directors or committee, and shall maintain minutes in sufficient detail to indicate actions taken or recommendations made; unless required by the members, discussions, votes, or other specific details need not be reported. An advisory board of directors or a committee may, in consideration of its purpose, adopt its own rules for the exercise of any of its functions or authority. ARTICLE IV Officers and Employees Section 4.1 Chairman of the Board. The board may appoint one of its members to be Chairman of the board and who shall serve at the pleasure of the Board. The Chairman shall supervise the carrying out of the policies adopted or approved by the board; shall have general executive powers, as well as the specific powers conferred by these Bylaws; and shall also have and may exercise such powers and duties as from time to time may be conferred upon or assigned by the board. Section 4.2 President. The board shall appoint one of its members to be President of the Association. In the absence of the Chairman, the President shall preside at any meeting of the board. The President shall have general executive powers, and shall have and may exercise any and all other powers and duties pertaining by law, regulation, or practice, to the Office of President, or imposed by these Bylaws. The President shall also have an may exercise such powers and duties as from time to time may be conferred or assigned by the Board. Section 4.3 Vice President. The board may appoint one or more Vice Presidents who shall have such powers and duties as may be assigned by the board and to perform the duties of the President on those occasions when the President is absent, including presiding at any meeting of the board in the absence of both the Chairman and President. Section 4.4 Secretary. The board shall appoint a Secretary, or other designated officer who shall be Secretary of the board and of the Association, and shall keep accurate minutes of all meetings. The Secretary shall attend to the giving of all notices required by these Bylaws to be given, shall be custodian of the corporate seal, records, documents, and papers of the Association; shall provide for the keeping of proper records of all transactions of the Association; shall have and may exercise any and all other powers and duties pertaining by law, regulation, or practice to the Secretary, or imposed by these Bylaws; and shall also perform such other duties as may be assigned from time to time by the Board. 16 FIRST TRUST NATIONAL ASSOCIATION BYLAWS Section 4.5 Other Officers. The board may appoint, and may authorize the Chairman or the President to appoint, any officer as from time to time may appear to the board, the Chairman or the President to be required or desirable to transact the business of the Association. Such officers shall execute such powers and perform such duties as pertain to their several offices, or as may be conferred upon or assigned to them by the Bylaws, the board, the Chairman or the President. Section 4.6 Tenure of Office. The Chairman or the President and all other officers shall hold office for the current year for which the board was elected, unless they shall resign, become disqualified, or be removed. Any vacancy occurring in the Office of Chairman or President shall be filled promptly by the board. Any officer elected by the board or appointed by the Chairman or the President may be removed at any time, with or without cause, by the affirmative vote of a majority of the board, or if appointed by the Chairman, or the President, by the Chairman or the President, respectively. ARTICLE V Stock Section 5.1. Shares of stock shall be transferable on the books of the Association, and a transfer book shall be kept in which all transfers of stock shall be recorded. Every person becoming a shareholder by such transfer shall, in proportion to such person's shares, succeed to all rights of the prior holder of such shares. Each certificate of stock shall recite on its face that the stock represented thereby is transferable only upon the books of the Association, properly endorsed. ARTICLE VI Corporate Seal Section 6.1. The Chairman, the President, the Secretary, any Assistant Secretary or other officer designated by the board, the Chairman, or the President, shall have authority to affix the corporate seal to any document requiring such seal, and to attest the same. Such seal shall be substantially in the form: 17 FIRST TRUST NATIONAL ASSOCIATION BYLAWS ARTICLE VII Miscellaneous Provisions Section 7.1 Execution of Instruments. All agreements, checks, drafts, orders, indentures, notes, deeds, conveyances, transfers, endorsements, assignments, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, guarantees, proxies, and other instruments or documents may be signed, countersigned, executed, acknowledged, endorsed, verified, delivered, or accepted on behalf of the Association, whether in a fiduciary capacity or otherwise, by an officer of the Association, or such employee or agent as may be designated from time to time by the board by resolution, or by the Chairman or the President by written instrument, which resolution or instrument shall be certified as in effect by the Secretary or an Assistant Secretary of the Association. The provisions of this section are supplementary to any other provision of the Articles of Association or Bylaws. Section 7.2 Records. The Articles of Association, the Bylaws, and the proceedings of all meetings of the shareholders, the board, and standing committees of the board, shall be recorded in appropriate minute books provided for such purpose. The minutes of each meeting shall be signed by the Secretary, or other officer appointed to act as Secretary of the meeting. Section 7.3. Trust Files. There shall be maintained in the Association files all fiduciary records necessary to assure that its fiduciary responsibilities have been property undertaken and discharged. Section 7.4. Trust Investments. Funds held in a fiduciary capacity shall be invested according to the instrument establishing the fiduciary relationship and according to law. Where such instrument does not specify the character and class of investments to be made and does not vest in the Association a discretion in the matter, funds held pursuant to such instrument shall be invested in investments which corporate fiduciaries may invest under law. Section 7.5. Notice. Whenever notice is required by the Articles of Association, the Bylaws or law, such notice shall be by mail, postage prepaid, telegram, in person, or by any other means by which such notice can reasonably be expected to be received, using the address of the person to receive such notice, or such other personal data, as may appear on the records of the Association. Prior notice shall be proper if given not more than 30 days nor less than 10 days prior to the event for which notice is given. 18 FIRST TRUST NATIONAL ASSOCIATION BYLAWS ARTICLE VIII Indemnification Section 8.1. The association shall indemnify to the full extent permitted by, and in the manner permissible under, the Articles of Association and the laws of the United States of America, as applicable and as amended from time to time, any person made, or threatened to be made, a party to any action, suit or proceeding, whether criminal, civil, administrative or investigate, by reason of the fact that such person is or was a director, advisory director, officer or employee of the Association, or any predecessor of the Association, or served any other enterprise as a director or officer at the request of the Association or any predecessor of the Association. Section 8.2. The board in its direction may, on behalf of the Association, indemnify any person, other than a director, advisory director, officer or employee, made a party to any action, suit or proceeding by reason of the fact that such person is or was an agent of the Association or any predecessor of the Association serving in such capacity at the request of the Association or any predecessor of the Association. ARTICLE IX Bylaws: Interpretation and Amendment Section 9.1. These Bylaws shall be interpreted in accordance with and subject to appropriate provisions of law, and may be amended, altered or repealed, at any regular or special meeting of the board. Section 9.2. A copy of the Bylaws, with all amendments, shall at all times be kept in a convenient place at the main office of the Association, and shall be open for inspection to all shareholders during Association hours. --- --- --- EX-99.1 11 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL KAISER ALUMINUM & CHEMICAL CORPORATION OFFER TO EXCHANGE ALL OF ITS 10 7/8% SERIES C SENIOR NOTES DUE 2006 FOR ITS 10 7/8% SERIES D SENIOR NOTES DUE 2006 PURSUANT TO THE PROSPECTUS DATED , 1997 ---------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , , 1997, UNLESS EXTENDED. ---------------------------------------------------------------- To: EXCHANGE AGENT FIRST TRUST NATIONAL ASSOCIATION By Mail By Hand/Overnight Express: First Trust National Association First Trust National Association 180 E. 5th Street 180 E. 5th Street St. Paul, Minnesota 55101 St. Paul, Minnesota 55101 Attention: Phyllis Meath Specialized Finance Attention: Phyllis Meath Specialized Finance
Facsimile Transmission: (612) 244-1537 To confirm receipt: (612) 244-1197 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The undersigned acknowledges receipt of the Prospectus, dated , 1997 ("Exchange Offer"), of Kaiser Aluminum & Chemical Corporation, a Delaware corporation (the "Company"), relating to the offer of the Company, upon the terms and subject to the conditions set forth in the Exchange Offer and in this Letter of Transmittal and the instructions hereto (which together with the Exchange Offer and the instructions hereto constitute the "Offer"), to exchange its 10 7/8% Series D Senior Notes due 2006 ("New Notes") for any and all of its outstanding 10 7/8% Series C Senior Notes due 2006 ("Old Notes"), at the rate of $1,000 principal amount of the New Notes for each $1,000 principal amount of the Old Notes. Capitalized terms used but not defined herein have the meanings given to them in the Exchange Offer. The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Offer. 2 This Letter of Transmittal is to be used whether the Old Notes are to be physically delivered herewith, or whether guaranteed delivery procedures or book-entry delivery procedures are being used, pursuant to the procedures set forth under "The Exchange Offer" in the Exchange Offer. If delivery of Old Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company ("DTC"), this Letter of Transmittal need not be manually executed, provided, however, that tenders of Old Notes must be effected in accordance with the procedures mandated by DTC and the procedures set forth in the Exchange Offer under the caption "The Exchange Offer--Procedures for Tendering Old Notes--Book Entry Delivery." If a person or entity in whose name Old Notes are registered on the books of the Registrar (a "Registered Holder") desires to tender Old Notes and such Old Notes are not immediately available or time will not permit all documents required by the Offer to reach the Exchange Agent (or such Registered Holder is unable to complete the procedure for book-entry transfer on a timely basis) prior to the Expiration Date, a tender may be effected in accordance with the guaranteed delivery procedures set forth in the Exchange Offer under the caption "The Exchange Offer--Procedures for Exchanging Old Notes--Guaranteed Delivery Procedures." See Instruction 1. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY LADIES AND GENTLEMEN: Upon the terms and subject to the conditions of the Offer, the undersigned hereby tenders to the Company the principal amount of the Old Notes indicated below. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby irrevocably sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to such Old Notes and hereby irrevocably constitutes and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that said exchange agent also acts as the agent of the Company) with respect to such Old Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to take such further action as may be required in connection with the delivery, tender and exchange of the Old Notes. The undersigned acknowledges that this Offer is being made in reliance on an interpretation by the staff of the Securities and Exchange Commission (the "SEC") that the New Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a broker-dealer who purchased Old Notes directly from the Company for resale pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such New Notes. See "Morgan Stanley & Co. Inc.," SEC No-Action Letter (available June 5, 1991); The Exchange Offer under the caption "The Exchange Offer -- Resales of the New Notes." THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF THE COMPANY DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS. The undersigned, if the undersigned is a beneficial holder, represents, or, if the undersigned is a broker, dealer, commercial bank, trust company or other nominee, represents that it has received representations from the beneficial owners of the Old Notes stating, (as defined in the Exchange Offer) that (i) the New Notes to be acquired in connection with the Exchange Offer by the Eligible Holder and each Beneficial Owner of the Old Notes are being acquired by the Eligible Holder (as defined in the Exchange Offer) and each Beneficial Owner in the ordinary course of business of the Eligible Holder and each Beneficial Owner, (ii) the Eligible Holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the New Notes, (iii) the Eligible Holder and each Beneficial Owner acknowledge and agree that any person participating in the Exchange Offer for the purpose of distributing the New Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the New Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in no-action letters that are discussed in the Exchange Offer under the caption "The Exchange Offer -- Resales of the New Notes," (iv) that if the Eligible Holder is a broker-dealer that acquired Old Notes as a result of market making or other trading activities, it will deliver a prospectus in connection with any resale of New Notes acquired in the Exchange Offer, (v) the Eligible Holder and each Beneficial Owner understand that a secondary resale transaction described in clause (iii) above should be covered by an effective registration statement containing the selling security holder information required by item 507 of Regulations S-K of the Securities Act and (vi) neither the Eligible Holder nor any Beneficial Owner is an "affiliate," as 3 defined under Rule 405 of the Securities Act, of the Company or any of the Guarantors except as otherwise disclosed to the Company in writing. In addition, if the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes, it represents that the Old Notes to be exchanged for New Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned understands and acknowledges that the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date or as set forth in the Exchange Offer under the caption "The Exchange Offer -- Conditions of the Exchange Offer," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The term of any such purchases or offers could differ from the terms of the Exchange Offer. The undersigned hereby represents and warrants that the undersigned accepts the terms and conditions of the Offer, has full power and authority to tender, exchange, assign and transfer the Old Notes tendered hereby, and that when the same are accepted for exchange by the Company, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions charges and encumbrances and not subject to any adverse claim or right. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be reasonably necessary or desirable to complete the sale, assignment and transfer the Old Notes tendered hereby. The undersigned agrees that all authority conferred or agreed to be conferred by this Letter of Transmittal and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrations, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. The undersigned understands that tenders of the Old Notes pursuant to any one of the procedures described under "The Exchange Offer -- Procedures for Tendering Old Notes" in the Exchange Offer and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Offer. The undersigned understands that by tendering Old Notes pursuant to one of the procedures describe in the Exchange Offer and the instructions thereto, the tendering holder will be deemed to have waived the right to receive any payment in respect of interest on the Old Notes accrued up to the date of issuance of the New Notes. The undersigned recognizes that, under certain circumstances set forth in the Exchange Offer, the Company may not be required to accept for exchange any of the Old Notes tendered. Old Notes not accepted for exchange or withdrawn will be returned to the undersigned as the address set forth below unless otherwise indicated under "Special Delivery Instructions" below. Unless otherwise indicated herein under the box entitled "Special Exchange Instructions" below, please deliver New Notes in the name of the undersigned. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send New Notes to the undersigned at the address shown below the signature of the undersigned. The undersigned recognizes that the Company has no obligation pursuant to the "Special Exchange Instructions" to transfer any Old Notes from the name of the Registered Holder thereof if the Company does not accept for exchange any of the principal amount of such Old Notes so tendered. 4 THE UNDERSIGNED BY COMPLETING THE BOX "DESCRIPTION OF OLD NOTES" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AND MADE CERTAIN REPRESENTATIONS DESCRIBED HEREIN AND IN THE EXCHANGE OFFER. PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (SEE INSTRUCTIONS 1 AND 3 AND THE FOLLOWING PARAGRAPH) (IMPORTANT: ALSO COMPLETE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE) ................................................................................ ................................................................................ SIGNATURE(S) OF OWNER(S) Dated: ................................................................., 1997 If the holder(s) is/are tendering any Old Notes, this Letter of Transmittal must be signed by the Registered Holder(s) as the name(s) appear(s) on the Old Notes or on a security position listing or by person(s) authorized to become Registered Holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Name(s) ........................................................................ ................................................................................ (PLEASE TYPE OR PRINT) Capacity: ...................................................................... Address: ....................................................................... ................................................................................ (INCLUDE ZIP CODE) Area Code and Telephone Number ................................................. Tax Identification or Social Security No(s).: ........................................................ (SEE INSTRUCTION 12 AND COMPLETE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE) SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed by an Eligible Institution: Authorized Signature: .......................................................... Printed Name: .................................................................. Title: ......................................................................... Name of Firm: .................................................................. Address: ....................................................................... ................................................................................ (INCLUDE ZIP CODE) Area Code and Telephone Number ................................................. Dated: ................................................................., 1997 IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE OLD NOTES OR A NOTICE OF GUARANTEED DELIVERY AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. 5 List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amounts should be listed on a separate signed schedule affixed thereto. See Instruction 7. The minimum permitted tender is $1,000 principal amount of Old Notes; all other tenders must be in integral multiples of $1,000. DESCRIPTION OF OLD NOTES
- -------------------------------------------------------------------------------------------------------------------------------- (I) (II) (III) (IV) AGGREGATE PRINCIPAL PRINCIPAL NAME(S) AND ADDRESS(ES) OF HOLDER(S) CERTIFICATE AMOUNT AMOUNT (PLEASE FILL IN, IF BLANK) NUMBER(S) REPRESENTED TENDERED - -------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- TOTAL .......................................................................................................................... - --------------------------------------------------------------------------------------------------------------------------------
* Unless otherwise indicated in the column labeled "Principal Amount Tendered" and subject to the terms and conditions of the Offer, the undersigned will be deemed to have tendered the entire aggregate principal amount represented by the Old Notes indicated in the column labeled "Aggregate Principal Amount Represented." See Instruction 8. [ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING (See Instructions 1 and 3): Name(s) of Registered Holder(s): .......................................... Date of Execution of Notice of Guaranteed Delivery: ....................... Name of Eligible Institution that Guaranteed Delivery: .................... [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: .................................................................... Address: .................................................................. .................................................................. If delivery of Old Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at DTC, then tenders of Old Notes must be effected in accordance with the procedures mandated by DTC and the procedures set forth in the Exchange Offer under the caption "The Exchange Offer -- Procedures for Tendering Old Notes--Book Entry Delivery." 6 SPECIAL EXCHANGE INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if Old Notes in a principal amount not exchanged and/or New Notes are to be registered in the name of or issued to someone other than the person or persons whose signature(s) appear(s) on this Letter of Transmittal above. Issue and mail: (check appropriate box(es)): [ ] New Notes to: [ ] Old Notes to: Name(s) ........................................................................ (PLEASE TYPE OR PRINT) ................................................................................ (PLEASE TYPE OR PRINT) Address ........................................................................ ................................................................................ (ZIP CODE) ................................................................................ EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NUMBER (COMPLETE THE SUBSTITUTE FORM W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if Old Notes in a principal amount not exchanged and/or New Notes are to be sent to someone other than the person or persons whose signature(s) appear(s) on this Letter of Transmittal above or to such person or persons at an address other than that shown in the box entitled "Description of Old Notes" on this Letter of Transmittal above. Mail and deliver: (check appropriate box(es)): [ ] New Notes to: [ ] Old Notes to: Name(s) ........................................................................ (PLEASE TYPE OR PRINT) ................................................................................ (PLEASE TYPE OR PRINT) Address ........................................................................ ................................................................................ (ZIP CODE) ................................................................................ EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NUMBER 7 TO BE COMPLETED BY ALL EXCHANGING HOLDERS (SEE INSTRUCTION 5) PAYER'S NAME: FIRST TRUST NATIONAL ASSOCIATION - --------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN SOCIAL SECURITY NUMBER THE BOX AT RIGHT AND CERTIFY BY FORM W-9 SIGNING AND DATING BELOW. OR EMPLOYER IDENTIFICATION NUMBER DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) - ---------------------------------------------------------------------------------------------------------
PART 2 -- CERTIFICATION -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS -- You must cross out Item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2).
- --------------------------------------------------------------------------------------------------------- PART 3 -- SIGNATURE __________________________________ DATE ______________, 1997 AWAITING TIN [ ] - ---------------------------------------------------------------------------------------------------------
8 NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and either (1) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number within sixty days, 31% of all reportable payments made to me thereafter will be withheld until I provide a Taxpayer Identification Number. SIGNATURE ________________________________ DATE ___________________ 1997 9 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Delivery of this Letter of Transmittal and Old Notes: Guaranteed Delivery Procedures. To be effectively tendered pursuant to the Offer, the Old Notes, together with a properly completed Letter of Transmittal (or manually signed facsimile hereof) duly executed by the Registered Holder thereof, and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at one of its addresses set forth on the front page of this Letter of Transmittal and tendered Old Notes must be received by the Exchange Agent at one of such addresses on or prior to the Expiration Date; provided, however, that book-entry transfers of Old Notes may be effected in accordance with the procedures set forth in the Exchange Offer under the caption "The Exchange Offer -- Procedures For Tendering Old Notes -- Book Entry Delivery." If the Beneficial Owner of any Old Notes is not the Registered Holder, then such person may validly tender such person's Old Notes only by obtaining and submitting to the Exchange Agent a properly completed Letter of Transmittal from the Registered Holder. LETTERS OF TRANSMITTAL OF OLD NOTES SHOULD BE DELIVERED ONLY BY HAND OR BY COURIER, OR TRANSMITTED BY MAIL, AND ONLY TO THE EXCHANGE AGENT AND NOT TO THE COMPANY OR TO ANY OTHER PERSON. THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IF OLD NOTES ARE SENT BY MAIL, IT IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. If a holder desires to tender Old Notes and such holder's Old Notes are not immediately available or time will not permit such holder to complete the procedures for book-entry transfer on a timely basis or time will not permit such holder's Letter of Transmittal and other required documents to reach the Exchange Agent on or before the Expiration Date, such holder's tender may be effected if: (a) such tender is made by or through an Eligible Institution (as defined below); (b) on or prior to the Expiration Date, the Exchange Agent has received a telegram, facsimile transmission or letter form such Eligible Institution setting forth the name and address of the holder of such Old Notes, the certificate number(s) of such Old Notes (except in the case of book-entry tenders) and the principal amount of Old Notes tendered and stating that the tender is being made thereby and guaranteeing that, within three business days after the Expiration Date, a duly executed Letter of Transmittal, or facsimile thereof, together with the Old Notes, and any other documents required by this Letter of Transmittal and Instructions, will be deposited by such Eligible Institution with the Exchange Agent; and (c) this Letter of Transmittal, or a manually signed facsimile hereof, and Old Notes, in proper form for transfer (or a Book-Entry confirmation with respect to such Old Notes), and all other required documents are received by the Exchange Agent within three business days after the Expiration Date. 2. Withdrawal of Tenders. Tendered Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To be effective, a written, telegraphic or facsimile transmission notice of withdrawal must (i) be timely received by the Exchange Agent at one of its addresses set forth on the first page of this Letter of Transmittal before the Exchange Agent receives notice of acceptance from the Company, (ii) specify the name of the person who tendered the Old Notes, (iii) contain the description of the Old Notes to be withdrawn, the certificate number(s) of such Old Notes (except in the case of book-entry tenders) and the aggregate principal amount represented by such Old Notes or a Book-Entry Confirmation with respect to such Old Notes, and (iv) be signed by the holder of such Old Notes in the same manner as the original signature appears on this Letter of Transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to the Company that the person withdrawing the tender has succeeded to the beneficial ownership of the Old Notes. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution unless such Old Notes have been tendered (i) by a Registered Holder (which term for purposes of this document shall include any participant tendering by book-entry transfer) of Old Notes who has not completed either the box entitled "Special Exchange Instruction" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii) for the account of an Eligible Institution. If the Old Notes have been tendered pursuant to the procedure for book-entry tender set forth in the Exchange Offer under the caption "Exchanging Book Entry Old Notes," a notice of withdrawal is effective immediately upon receipt by the Exchange Agent of a written, telegraphic or facsimile transmission notice of withdrawal even if physical release is not yet effected. In addition, such notice must specify, in the case of Old Notes tendered by delivery of such Old Notes, the name of the Registered Holder (if different from that of the tendering holder) to be credited with the withdrawn Old Notes. Withdrawals may not be rescinded, and any Old Notes withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, properly withdrawn Old Notes may be retendered by following one of the procedures described under "The Exchange Offer -- Procedures for Tendering Old Notes" in the Exchange Offer at any time on or prior to the applicable Expiration Date. 10 3. Signatures on this Letter of Transmittal, Bond Powers and Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed by the Registered Holder of the Old Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the Old Notes without any change whatsoever. If any Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Old Notes tendered hereby are registered in different names, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Old Notes. When this Letter of Transmittal is signed by the Registered Holder or Holders specified herein and tendered hereby, no endorsements of such Old Notes or separate bond powers are required. If, however, New Notes are to be issued, or any untendered principal amount of Old Notes are to be reissued to a person other than the Registered Holder, then endorsements of any Old Notes transmitted hereby or separate bond powers are required. If this Letter of Transmittal is signed by a person other than the Registered Holder or Holders, such Old Notes must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the Registered Holder or Holders appear(s) on the Old Notes. If this Letter of Transmittal or a Notice of Guaranteed Delivery or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted. Except as describe in this paragraph, signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution which is a firm which is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or otherwise be an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution"). Signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, need not be guaranteed if the Old Notes tendered pursuant hereto are tendered (i) by a Registered Holder of Old Notes who has not completed either the box entitled "Special Exchange Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii) for the account of an Eligible Institution. Endorsement on Old Notes or signatures on bond forms required by this Instruction 3 must be guaranteed by an Eligible Institution. 4. Special Issuance and Delivery Instructions. Tendering holders should indicate in the applicable box the name and address to which New Notes and/or substitute Old Notes for the principal amounts not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. If no such instructions are given, such Old Notes not exchanged will be returned to the name and address of the person signing this Letter of Transmittal. 5. Taxpayer Identification Number and Backup Withholding. Federal income tax law of the United States requires that a holder of Old Notes whose Old Notes are accepted for exchange provide the Company with such holder's correct taxpayer identification number, which, in the case of a holder who is an individual, is the holder's social security number, or otherwise establish an exemption from backup withholding. If the Company is not provided with the holder's correct taxpayer identification number, the exchanging holder of Old Notes may be subject to a penalty imposed by the Internal Revenue Service. In addition, interest on the New Notes acquired pursuant to the Offer may be subject to backup withholding in an amount equal to 31 percent of any interest payment. If withholding occurs and results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service by filing a return. To prevent backup withholding, each exchanging holder of Old Notes subject to backup withholding must provide his correct taxpayer identification number by completing the Substitute Form W-9 provided in this Letter of Transmittal, certifying that the taxpayer identification number provided is correct (or that the exchanging holder of Old Notes is awaiting a taxpayer identification number) and that either (a) the exchanging holder has not been notified by the Internal Revenue Service that he is subject to backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the exchanging holder that he is no longer subject to backup withholding. 11 Certain exchanging holders of Old Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding requirements. A foreign individual and other exempt holders (e.g., corporations) should certify, in accordance with the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, to such exempt status on the Substitute Form W-9 provided in this Letter of transmittal. Nonresident aliens should submit Form W-8, available from the Exchange Agent upon request. 6. Transfer Taxes. Holders tendering pursuant to the Offer will not be obligated to pay brokerage commissions or fees or to pay transfer taxes with respect to their exchange under the Offer unless the box entitled "Special Issuance Instructions" in this Letter of Transmittal has been completed, or unless the securities to be received upon exchange are to be issued to any person other than the holder of the Old Notes tendered for exchange. The Company will pay all other charges or expenses in connection with the Offer. If holders tender Old Notes for exchange and the Offer is not consummated, such Old Notes will be returned to the holders at the Company expense. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Old Notes specified in this Letter of Transmittal. 7. Inadequate Space. If the space provided herein is inadequate, the aggregate principal amount of the Old Notes being tendered and the security numbers (if available) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this Letter of Transmittal. 8. Partial Tenders. Tenders of Old Notes will be accepted only in integral multiples of $1,000. If tenders are to be made with respect to less than the entire principal amount of any Old Notes, fill in the principal amount of Old Notes which are tendered in column (iv) of the "Description of Old Notes." In the case of partial tenders, the Old Notes in fully registered form for the remainder of the principal amount of the Old Notes will be sent to the persons(s) signing this Letter of Transmittal, unless otherwise indicated in the appropriate place on this Letter of Transmittal, as promptly as practicable after the expiration or termination of the Offer. Unless otherwise indicated in column (iv) in the box labeled "Description of Old Notes," and subject to the terms and conditions of the Offer, tenders made pursuant to this Letter of Transmittal will be deemed to have been made with respect to the entire aggregate principal amount represented by the Old Notes indicated in column (iii) of such box. 9. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 10. Validity and Acceptance of Tenders. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Old Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered and to reject any Old Notes the Company's acceptance of which might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such period of time as the Company shall determine. The Company will use reasonable efforts to give notification of defects or irregularities with respect to tenders of Old Notes for exchange but shall not incur any liability for failure to give such notification. Tenders of the Old Notes will not be deemed to have been made until such irregularities have been cured or waived. 11. Requests for Assistance or Additional Copies. First Trust National Association is the Exchange Agent. All tendered Old Notes, executed Letters of Transmittal and other related documents should be directed to the Exchange Agent at the addresses or facsimile number set forth on the first page of this Letter of Transmittal. Questions and requests for assistance and requests for additional copies of the Prospectus, the Letter of Transmittal and other related documents should be addressed to the Exchange Agent as follows: First Trust National Association 180 E. 5th Street St. Paul, Minnesota 55101 Attention: Phyllis Meath Specialized Finance Facsimile Transmission: (612) 244-1537 To confirm receipt: Tel. (612) 244-1197 12 KAISER ALUMINUM & CHEMICAL CORPORATION OFFER TO EXCHANGE ALL OF ITS OUTSTANDING 10 7/8% SERIES C SENIOR NOTES DUE 2006 FOR ITS 10 7/8% SERIES D SENIOR SUBORDINATED NOTES DUE 2006 ------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , , 1997, UNLESS THE EXCHANGE OFFER IS EXTENDED. ------------------------------------------------------------------- To Our Clients: Enclosed for your consideration is a Prospectus dated , 1997 ("Prospectus") and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Exchange Offer") relating to an offer by Kaiser Aluminum & Chemical Corporation, a Delaware corporation ("Company"), to exchange all its outstanding 10 7/8% Series C Senior Notes due 2006 ("Old Notes") for its 10 7/8% Series D Senior Notes due 2006 upon the terms and subject to the conditions set forth in the Exchange Offer. WE ARE THE HOLDER OF RECORD OF OLD NOTES HELD BY US FOR YOUR ACCOUNT. A TENDER FOR EXCHANGE OF SUCH OLD NOTES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER FOR EXCHANGE OLD NOTES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender for exchange on your behalf any or all of such Old Notes held by us for your account, pursuant to the terms and subject to the conditions set forth in the Exchange Offer. Your attention is directed to the following: 1. The Exchange Offer and withdrawal rights will expire at 5:00 P.M., New York City time, on , , 1997, unless the Exchange Offer is extended. Your instructions to us should be forwarded to us in ample time to permit us to submit a tender on your behalf. 2. The Exchange Offer is made for all Old Notes outstanding, constituting $50,000,000 aggregate principal amount as of the date of the Prospectus. 3. The minimum permitted tender is $1,000 principal amount of Old Notes, and all tenders must be in integral multiples of $1,000. 4. The Offer is conditioned upon the satisfaction of certain conditions set forth in the Prospectus under the caption "The Exchange Offer--Conditions of the Exchange Offer." The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. 5. Tendering Eligible Holders (as defined in the Prospectus) will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes applicable to the exchange of Old Notes pursuant to the Exchange Offer. 6. In all cases, exchange of Old Notes tendered and accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by First Trust National Association ("Exchange Agent") of (i) certificates representing such Old Notes or timely confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company ("Book-Entry Transfer Facility") pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering Old Notes," (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined in the Prospectus) in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. Accordingly, payment may be made to tendering Eligible Holders at different times if delivery of the Old Notes and other required documents occurs at different times. 13 The Exchange Offer is being made solely by the Prospectus and the related Letter of Transmittal and is being made to all Eligible Holders of Old Notes. The Company is not aware of any state where the making of the Exchange Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Company becomes aware of any valid state statute prohibiting the making of the Exchange Offer or the acceptance of Old Notes tendered for exchange pursuant thereto, the Company will make a good faith effort to comply with any such state statute or seek to have such statute declared inapplicable to the Exchange Offer. If, after such good faith effort, the Company cannot comply with such state statute the Exchange Offer will not be made to, nor will tenders be accepted from or on behalf of, the holders of Old Notes in such state. In any jurisdiction where the securities, blue sky or other laws require the Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer shall be deemed to be made on behalf of the Company by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. If you wish to have us tender any or all of the Old Notes held by us for your account, please instruct us by completing, executing and returning to us the instruction form contained in this letter. If you authorize a tender for exchange of your Old Notes, the entire aggregate principal amount of such Old Notes will be tendered for exchange unless otherwise specified in such instruction form. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER. 14 INSTRUCTIONS WITH RESPECT TO THE KAISER ALUMINUM & CHEMICAL CORPORATION OFFER TO EXCHANGE ALL OF ITS 10 7/8% SERIES C SENIOR NOTES DUE 2006 FOR ITS 10 7/8% SERIES D SENIOR NOTES DUE 2006 The undersigned acknowledge(s) receipt of your letter enclosing the Prospectus dated , 1997, and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Exchange Offer") pursuant to an offer by Kaiser Aluminum & Chemical Corporation, a Delaware corporation, to exchange all of its outstanding 10 7/8% Series C Senior Notes due 2006 ("Old Notes") for its 10 7/8% Series D Senior Notes due 2006. This will instruct you to tender the principal amount of Old Notes indicated below (or, if no number is indicated below, the entire aggregate principal amount) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Exchange Offer. - ------------------------------------------------------------------------------- Aggregate Principal Amount of Old Notes to be Tendered:* $_____________________ Dated: ________________________, 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SIGN HERE Signature(s): _________________________________________________________________ Please print name(s): _________________________________________________________ Address: ______________________________________________________________________ Area Code and Telephone Number: _______________________________________________ Tax Identification or Social Security Number: _________________________________ - ------------------------------------------------------------------------------- - --------------- * Unless otherwise indicated, it will be assumed that the entire principal amount of the Old Notes held by us for your account are to be tendered for exchange. The minimum permitted tender is $1,000 principal amount of Old Notes; all other tenders must be in integral multiples of $1,000. 15 KAISER ALUMINUM & CHEMICAL CORPORATION OFFER TO EXCHANGE ALL OF ITS OUTSTANDING 10 7/8% SERIES C SENIOR NOTES DUE 2006 FOR ITS 10 7/8% SERIES D SENIOR NOTES DUE 2006 ------------------------------------------------------------------ THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , , 1997, UNLESS THE EXCHANGE OFFER IS EXTENDED. ------------------------------------------------------------------ To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Kaiser Aluminum & Chemical Corporation, a Delaware corporation ("Company"), is offering to exchange all of its outstanding 10 7/8% Series C Senior Notes due 2006 ("Old Notes") for its 10 7/8% Series D Senior Notes due 2006 upon the terms and subject to the conditions set forth in the Prospectus dated , 1997 ("Prospectus") and in the related Letter of Transmittal (which, together with any amendment or supplements thereto, collectively constitute the "Exchange Offer") enclosed herewith. The Exchange Offer is conditioned upon satisfaction of certain conditions set forth in the Prospectus under the caption "The Exchange Offer -- Conditions of the Exchange Offer." The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. Enclosed herewith for your information and forwarding to your clients for whose accounts you hold Old Notes registered in your name or in the name of your nominee are copies of the following documents: 1. The Prospectus dated , 1997. 2. The blue Letter of Transmittal to tender Old Notes for exchange (for your use and for the information of your clients). Facsimile copies of the Letter of Transmittal may be used to tender Old Notes for exchange. 3. The gray Notice of Guaranteed Delivery (to be used to tender Old Notes for exchange if certificates for Old Notes are not immediately available or if such certificates for Old Notes and all other required documents cannot be delivered to First Trust National Association ("Exchange Agent") on or prior to the Expiration Date or if the procedures for book-entry transfer cannot be completed on a timely basis). 4. A yellow printed form of letter which may be sent to your clients for whose accounts you hold Old Notes registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer. 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 6. A return envelope addressed to the Exchange Agent. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTRACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , , 1997, UNLESS THE EXCHANGE OFFER IS EXTENDED. 16 In order for Old Notes to be validly tendered pursuant to the Exchange Offer, (i) a duly executed and properly completed Letter of Transmittal (or a facsimile thereof) together with any required signature guarantees, or an Agent's Message (as defined in the Prospectus) in connection with a book-entry delivery of Old Notes, and any other documents required by the Letter of Transmittal, must be received by the Depositary on or prior to the Expiration Date, and (ii) either certificates representing tendered Old Notes must be received by the Exchange Agent or such Old Notes must be tendered by book-entry transfer into the Exchange Agent account maintained at the Book-Entry Transfer Facility (as described in the Prospectus), and Book-Entry Confirmation must be received by the Exchange Agent, all in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus If an Eligible Holder (as defined in the Prospectus) desires to tender Old Notes for exchange pursuant to the Exchange Offer and such Eligible Holder's Old Note certificates are not immediately available or such Eligible Holder cannot deliver the Old Note certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or such Eligible Holder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Old Notes may nevertheless be tendered for exchange by following the guaranteed delivery procedures specified in the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering Old Notes -- Guaranteed Delivery Procedures." The Company will not pay any fees or commissions to any broker or dealer or any other person for soliciting tenders of Old Notes pursuant to the Exchange Offer. The Company will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Company will pay or cause to be paid any transfer taxes applicable to the exchange of Old Notes pursuant to the Exchange Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquires you may have with respect to the Exchange Offer should be addressed to the Exchange Agent, at its address and telephone numbers set forth on the back cover of the Prospectus. Additional copies of the enclosed material may be obtained from the Exchange Agent. Very truly yours, Kaiser Aluminum & Chemical Corporation NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS THEREIN. EX-99.2 12 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY KAISER ALUMINUM & CHEMICAL CORPORATION OFFER TO EXCHANGE ALL OF ITS OUTSTANDING 10 7/8% SERIES C SENIOR NOTES DUE 2006 FOR ITS 10 7/8% SERIES D SENIOR NOTES DUE 2006 As set forth in Prospectus described below, this Notice of Guaranteed Delivery or one substantially equivalent hereto must be used to tender for exchange 10 7/8% Series C Senior Notes due 2006 ("Old Notes"), of Kaiser Aluminum & Chemical Corporation, a Delaware corporation ("Company"), pursuant to the Exchange Offer (as defined below) if certificates for Old Notes are not immediately available or the certificates for Old Notes and all other required documents cannot be delivered to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus), or if the procedures for delivery by book-entry transfer cannot be completed on a timely basis. This instrument may be delivered by hand or transmitted by facsimile transmission or mail to the Exchange Agent. The Exchange Agent for the Exchange Offer is: FIRST TRUST NATIONAL ASSOCIATION By Mail By Hand/Overnight Express: First Trust National Association First Trust National Association 180 E. 5th Street 180 E. 5th Street St. Paul, Minnesota 55101 St. Paul, Minnesota 55101 Attention: Phyllis Meath Attention: Phyllis Meath Specialized Finance Specialized Finance
By Facsimile Transmission: (612) 244-1537 Confirm by telephone: (612) 244-1197 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the Instructions to the Letter of Transmittal, such signature guarantee must appear in the applicable space provided in the signature box in the Letter of Transmittal. ------------------------------------------------------------------ THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , , 1997, UNLESS THE EXCHANGE OFFER IS EXTENDED. ------------------------------------------------------------------ 2 Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus dated , 1997 ("Prospectus") and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Exchange Offer"), receipt of each of which is hereby acknowledged, the principal amount of Old Notes indicated below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering Old Notes -- Guaranteed Delivery Procedures. Signature(s) ------------------------------------------------ Name(s) of Eligible Holders --------------------------------- - ------------------------------------------------------------- - ------------------------------------------------------------- PLEASE TYPE OR PRINT Principal Amount of Old Notes Tendered for Exchange $ --------------------------------------------------- Old Note Certificate No(s). (If available ------------------- - ------------------------------------------------------------- - ------------------------------------------------------------- Dated , 1997 -------------------------------------- Address(es) -------------------------------------------------- - ------------------------------------------------------------- Zip Code Area Code and Tel. No.(s) ------------------------------------ (Check box if shares will be tendered by book-entry transfer) [ ] The Depository Trust Company Account Number ----------------------------------------------- 3 - -------------------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, an Eligible Institution (as defined in the Prospectus), having an office or correspondent in the United States, hereby (a) represents that the above named person(s) "own(s)" the Old Notes tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (b) represents that such tender of Old Notes complies with Rule 14e-4, and (c) guarantees to either deliver to the Exchange Agent the certificates representing all the Old Notes tendered hereby, in proper form for transfer, or to deliver such Old Notes pursuant to the procedure for book-entry transfer into the Exchange Agent's account at The Depository Trust Company, in either case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Prospectus) in the case of a book-entry transfer, and any other required documents, all within three New York Stock Exchange trading days after the date hereof. - -------------------------------------------------------------------------------- - -------------------------------------------- ---------------------------------------------- Name of Firm Authorized Signature - -------------------------------------------- ---------------------------------------------- Address Please Type or Print - -------------------------------------------- ---------------------------------------------- Zip Code
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 4 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: I.e. 00-0000000. The table below will help determine the number to give the payer.
------------------------------------------------------------ GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF -- - ------------------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of the account) account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1) 6. Account in the name of guardian The ward, minor, or or committee for a designated incompetent person(3) ward, minor, or incompetent person 7. a. The usual revocable savings The grantor-trustee(1) trust account (grantor is also trustee) b. So-called trust account that The actual owner(1) is not a legal or valid trust under State law 8. Sole proprietorship account The owner(4) - ------------------------------------------------------------
------------------------------------------------------------ GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF -- - ------------------------------------------------------------ 9. A valid trust, estate, or The legal entity (Do not pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in the The partnership name of the business 13. Association, club or other tax- The organization exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 5 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer identification Number, at the local office of the Social Security Administration or the internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any political subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the investment Company Act of 1940. - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under Section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to non-resident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1984, payers must generally withhold 20% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--if you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE -----END PRIVACY-ENHANCED MESSAGE-----